My journey to state pension self-enlightenment (may be) over!

Posted on April 18, 2024 by henry tapper

A new day has dawned

This is the first thing I thought as I work up at 4.30 am today;

“At last and at least I understand my state pension statement” –

Famous first words.

At 5.15 am this morning I wrote a blog satisfying myself that at last I understood my state pension entitlement which kicks in around 52 months time!

At around 8 am I published to an expectant world -and at around 8.30 am , Steve Webb posted this (and I replied)

 

I can’t believe that I am going to get the full state pension, my GMP from my company pension and a pot of money from contracting out through a personal pension. But it looks like I will! I’m going to get £260 pw when you count back in my COD/COPE! That’s assuming Sir Steve, (who is fast becoming my new best friend), tells me so. Here’s the latest from the DWP

You will notice that I am getting £221.20 and all that stuff about contracting out is irrelevant!

Stancombe

My personal journey to an understanding of my state pension statement has been as tortuous as the Buddha’s to self-enlightenment or Damian Stancombe in counting down to retirement. Maintaining enlightenment will be easier for me but getting to a point where I knew what I was and wasn’t getting paid from the State, my personal pension and my occupational pension has been an odyssey.

I use myself as a case study, so others may follow. I appreciate that wiser folk – such as Steve Webb, Andy Young and David Robbins will not be surprised at the result of my research but I suggest  I may be one of the first to have ever published their personal account .

Mine is relatively simple, I had only one contracted out employment, only used one personal pension to receive one national insurance rebates. I had some SERPS entitlement which has carried over to the single state pension, my contracting out deduction is modest and properly stated, I can check my years qualifying for credits going back to 1977 (when I turned 16). Anyone who doesn’t think the state pension has legs, should contemplate that final statement. If I do live to 89, my state pension journey will 73 years long!

Let’s start by looking at my theoretical entitlement to state pension. This has been recently updated to take into account the hefty improvement from the triple lock last year.

I will not get £221.2o per week from the state as a pension, I will actually get that amount  (not) less £38.87pw.  The Cope is not paid (lucky me) on top of my state pension but from it. 

The amount of additional State Pension you would have been paid if you had not been contracted out is known as the Contracted Out Pension Equivalent (COPE).

Contracted Out Pension Equivalent (COPE)

Your COPE estimate is £38.87 a week

So I will actually get a weekly payment (though paid monthly) of £182.33  £260.07 (£790 pm – + £172pm) £38.87 pw. more than the headline figure (the dashboard figure).

The £38.87 per week will be paid in part by  on top of my my occupational pension scheme in two parts.

I have had this message from my pension administrators (Railpen)

According to our records your GMP due to be paid under the Scheme from age 65 is £410.28 a year.

This is £7.89 pw – and for some arcane reason I get GMP from 65 not 67 (and there is probably some adjustment to my company pension coming my way for GMP equalisation and maybe for the bridging between my 65th and 67th birthday (I have this fun confusion to come).

Previous confusion resolved

This is where I got confused because I divided £410 by twelve and got a figure adjacent to £38.87 but there are of course 52 weeks not 12 in a year. A rooky error but one that I made (easily). Because of this month/week error, I thought that my GMP was my COD – it turned out to be less than a quarter of my contracting out deduction (COPE)

This takes care of about £8 pw of the COPE – (the Contracting out Deduction). What about the other £30?

Well this is supposed to be paid to me from my personal pension (which was with NPI and is now part of my one big pot with L&G). Thankfully I did my combining before the new red and yellow flag regime which would have had me up and down to MaPS faster than a tart’s knickers.

The £30 pw/ £1500 pa (odd) of pension I am not getting because it’s coming from my personal pension. I don’t know I got a good deal on this, but I suspect that I got a very good deal and I suspect that the £8 a week I’m losing gaining – on top of my state pension to get more occupational pension is also a good deal.

I am now amending my blog with the bits in red!

Good deal? It’s an absolute steal – I’ve got £38.87 pw for the rest of my life from 67 absolutely free – my only regret is that I missed a bit of SERPS contracting out – out!

It has to be said, only about 10% of personal pension pots get converted to lifetime pensions (annuities). 90% of people will not get a pension from contracting out of SERPS/S2P via a personal pensions – that’s freedom!

And how much you got from the steal good deal is the luck of the draw. Investing your rebates in Japanese equities since 1988 would make you a relative loser, investing in US equities – quite the opposite. Who could have known that back in the day?

But in general, it looks like people who contracted out and who can earn or buy back additional years to make up their full state pension credits (35 post 2016) are quids in. There are winners and losers from the single state pension launched in 2016, I am a winner, John Greenwood (my age and someone who stayed “in”- a loser). I owe you a drink John.

The amounts of money involved, considering my life expectancy – (89 according to the First Actuarial death calculator – thanks Mark Rowlinson) are impressive. Assuming the 20x multiple that we used for LTA purposes – my COD/COPE is worth £40,425.  I’ll spell that out Forty Thousand , four hundred and twenty five pounds – for not being contracted in!

My journey to enlightenment has been long  but seems happily resolved.

But I wonder how many people are able to take my path to enlightenment.  While I am glad that I could pull together all this shit, will many others?

It is a great pleasure to have Sir Steve Webb (tug forelock) as my benefits adviser, I don’t think many will have that privilege!

How many people will ever know whether the decision they took to contract out via a personal pension worked out? How many will care?

How many people understand what a GMP is , let alone if it is fair and equalised – I still don’t!

We have pension dashboards coming up, and the state pension will be one of the items that will appear on them, alongside our personal pots and private pensions.

A new day has dawned – time for a drink?

Posted in pensions | 10 Comments

Courage – pensioners- help is on its way!

Posted on April 17, 2024 by henry tapper

The two Daves are right. We would no more want to buy into a DB scheme’s secure pension because

  1. We have the opportunity of cashing out, paying lots of tax and wondering what we’re going to live on for the next 40 years
  2. We have the opportunity of setting up a drawdown from a fund we don’t understand , at a rate we’ve made up in the hope it will last as long as we do.
  3. We could buy an annuity and pay 20% of our money for an insurance guarantee

All of these great options already exist

Who in their right mind would buy into a DB pension scheme , even if they had a chance?

  1. A DB pension can invest in real assets, allowing it to pay pensions typically 10-15% higher than an annuity
  2. A DB pension can pay discretionary increases if it works on a shared outcome basis
  3. A DB pension has at least as sound security as an annuity.

Why would anyone want one of those?

  • Who wants economies of scale?
  • Who wants expert asset management?
  • Who wants inflation linked income?

Didn’t we close down the DB schemes to get away from that sort of thing? Aren’t we much better as our own CIO, our own actuary, our own tax adviser? Surely doing it yourself is the best way, look at the FCA’s retirement income survey, more and more of us are running out own drawdown without any help from an adviser

Hit and hope drawdown

Let’s face it, most of us haven’t a clue when setting up a drawdown plan and evidence of that emerged once more as the FCA published disturbing figures on what people are actually doing.

For the vast majority of people with a sub £100k pot, a drawdown of 8% of more is the norm. Hope springs eternal. It is only when pots rise above £250,000 that the 8%+ drawdown isn’t the favored option.

The rule of 4 suggests that dividing your pot by 25 or 4% will give you a sustainable income increasing in line with inflation, so long as you know what you are doing on the investment front.

So we have the majority of people drawing down pots of £250,000 or less , doing so at twice the rule of thumb, taking real risk that their pot will run out before they do.

But forget the £250,000 pot for a moment, what’s your pot most likely to look like, if you are the average retiree, it looks pretty small

The Government may feel sanguine that those with small pots don’t have a tax problem but that assumes they’ve only got one of them. Right now people are retiring with multiple pots with red and orange flags being thrown at them if they try to combine them. Goodness only knows how many small pots are part of much bigger  DC savings – though the FCA data is good, it cannot tell us about those trying to retire with multiple entitlements.

But aw Andy Young points out, this is tomorrow’s crisis.

Today’s is the total failure of Government interventions.

 

Despite all attempts to make Pension Wise relevant to people taking decisions, it isn’t. The only people using it are the annuity buyers (the buyers who know it all already. Drawdowns and UFLS users have no use for Pension Wise, those who cash-out don’t go near it. Pension Wise is falling in its usage and should be dropped , money should be reinvested in what was TPAS which can at least talk numbers.

I take no comfort in these FCA numbers, they tell me that the vase majority of people are taking short-sighted decisions with little regard to their financial futures, they are plugging gaps between now and getting their state pension , they are stacking up their bank accounts, they are doing almost anything but making sound financial planning decisions.

Small wonder we would not want to buy into a DB scheme – even if we had a chance.

Or would we?

Posted in pensions | 3 Comments

Lloyds Bank’s bold step into 21st century pensions

Posted on April 11, 2024 by henry tapper

Lloyds bank are taking on risk, sacking their old team and putting in place a new one, more amenable to progress. In this blog I look at what Lloyds see as innovation and wonder what risk they’re taking  in providing a “ready-made” pension service.

In short, Lloyds Bank has teamed up with Scottish Widows (an insurance company they happen to own) to produce a personal pension that can combine as many as 10 other pots.

It’s Pension Bee done properly, because it’s done by a bank that we all know , not least because we can’t get away with its advertising.

The great thing about this new product is that we know very little about it except that it is a personal pension and has charges of around 0.6%. We know nothing about the potential value for money as we don’t what it invests in and so what it can be expected to return, we don’t know if it will give good or poor service.

Which makes it an interesting product for the consideration of Scottish Widow’s master trust and its vocal chair Andrew Warwick-Thompson.

Warwick-Thompson has been keen to denigrate SIPPS like the one Scottish Widow’s have launched for having higher charges and lower VFM than the master trusts from which many are migrating. Will he include Scottish Widows product on that list? With a 0.6% charge, it is certainly more expensive than the Scottish Widows master trust (also owned by Lloyds).

No doubt Scottish Widows can justify their higher charges by the high class investment service on offer. We wait to see just what is on offer by way of value for saver’s momey.

We learn that there are certain restrictions to entry

Customers can open a ready-made pension with a minimum of £5,000 or set up monthly contributions from £150 a month.

Existing pensions of £10,000 or more can be transferred in.

Jackie Leiper says

‘There is a real opportunity for Ready-Made Pensions to help self-employed people – for many of this group their business is their pension.

‘Those who are self-employed have been overlooked in the discussion of saving for retirement. Traditionally, up until now. self employed people have had to take financial advice to get started with investing in their pension.’

Deep insights here.

I am quoted approvingly. It is good to see Lloyds Bank providing a 21st century pension

Henry Tapper, founder of pension comparison service AgeWage said: ‘It seems big banks are finally arriving into the 21st century when it comes to pensions.

‘It is good to see that banks are waking up to the fact that they have have some muscle, but I’m not overwhelmed.

‘PensionBee has been doing this for some time, and doing it well but that said Lloyds Bank’s offering is good news for savers, especially if they fancy having a Scottish Widows pension with their bank.’

Let’s hope that the revolution in Lloyds Bank risk management , advertised at the top of this blog, will mean that the brakes are truly off and that savers will one day find their pension pot , magically turn into a pension.

Customers taking out this “ready made pension service” can surely expect no less.

Lloyds have recently announced they are selling their annuity book. Whether their bank or their insurer are sharing any of the risks of turning pots to pension, isn’t yet clear.

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The video , the slides and the feedback on Con Keating’s data tour de force.

Posted on April 3, 2024 by henry tapper

Though Dr Iain Clacher never quite made it onto the webcast, attendants of Pension PlayPen’s last webinar of the financial year were treated to the sombre tones of Dr Con Keating who talked us through the anomalies between data supplied by the Office of National Statistics, the PPF and TPR.

You can watch the recording of the event for yourselves here.

Con’s slides are available to download from this link and can be flicked through below (thanks to the wonder of SlideShare)

Key takeaways

This information is getting airplay in parliament but is being ignored by the pension press (witness no press today). This is odd.

Similarly, it is not being picked up by consultancies in general, despite the co-operation of three consultancies in supplying Con and Iain with data.

The Pensions Regulator did not join the call though there was a representative of the Work and Pensions Committee present.

The DWP’s Impact assessment has been based on disputed data . The Pensions Regulator’s impending DB code looks like being based on disputed data. The not unreasonable conclusion from Keating and Clacher is that any further policy from either , based on the TPR/PPF data be put on hold.

The Feedback

There was a very noisy chatroom (which I unfortunately failed to capture). The general tone was of disbelief that TPR appeared in denial it had a problem, consultants in denial about the data anomalies and trustees conspicuous by their absence from the debate.

There were only 33 people on this call but they included many experienced individuals, including senior figures in the Financial Reporting Council and the Work and Pensions Committee.

This issue is unlikely to go away and the scandal is , it is getting so little publicity.

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Pension Funds sidestep Chancellor’s three golden rules

Posted on February 20, 2024 by henry tapper

As we prepare to make the trip to Edinburgh to the PLSA investment conference, I thought it would be opportune to see how pension funds are reacting to the Mansion House statements made by the Chancellor last June. I say “statements” as nothing that the Chancellor said in his Mansion House Speech has become law, what he called for was for consensual change from pension funds while sticking to three golden rules. This blog asks, “has he got change” and “are pension funds sticking to the golden rules”. From what I can see, the answer is “no and no”.

The first of three “golden rules” he  set out in his Mansion House speech aims to respect how London is “the most international of financial centres”. Since the speech a number of high profile UK companies have listed abroad and some, like TUI , have announced that they are de-listing in the UK and re-listing elsewhere. The London Stock Exchange is suffering from a crisis of confidence with the FTSE 100 showing a negative return for the year while its American equivalent is up a quarter. The FTSE 250 , where most private investments sit, is beset by discounts, to a degree created by a dodgy disclosure regime which is driving money away from investment companies, that are the indices’ staple. Smaller companies aren’t listing on AIM , claiming that they can get better valuations elsewhere – making it easier to raise via an initial public offering. So far so bad. There is precious little evidence of pension funds doing anything to turn this chronic problem round.

A second “golden rule” was a statement that the reforms should be in the interests of savers to ensure they get the best returns, a vow intended to allay concerns in the City that the Chancellor  might try to raid the country’s pensions and force them to invest in riskier assets.

The “best returns” from a DB pension scheme must be measured in the pension and cash being distributed from the pension. What UK corporate pensions have done since June is to run for the door, embracing the “endgame” as they embraced “LDI” as a means to de-risk the corporate balance sheet. In doing so , they have abandoned not just the opportunity of future accrual but the possibility of discretionary payments to savers. The only advantage to pensioners of the “rush to buy-out”, is in avoiding the PPF. If that was the intention of the Mansion House speech, it was certainly not the one spelt out by the Chancellor. The Chancellor pointed towards pension scheme paying more, the industry heard “pay less”.

Meanwhile, news of DC pensions investing in productive finance has all but dried up. Beset by issues relating to commercial pricing, most commercial DC schemes have pulled up the drawbridge on productive long term investment and hunkered down into now-traditional strategies investing into public assets through index-hugging. So far so bad for the Chancellor.

The third golden rule set by the Chancellor  is a recognition that he still needs Britain’s  defined benefit pension schemes, to carry on funding government borrowing. In this area, Hunt said there will be “no dramatic change”. Worryingly for the funding of our national debt, our defined benefit schemes are switching to funding corporate rather than Government debt.

The FT reports this morning that

“the UK’s £1.4tn “defined benefit” pensions industry has been switching to corporate debt for its higher yields and to prepare the schemes for potential sales to insurers”

This is not productive long-term finance, these are repayable loans not investments in a company’s equity. These loans are tradeable on bond markets , they are not designed to grow the British economy, debt is an albatross around a company’s neck which drives companies to contract , returning capital to shareholders though buy-backs and manage its operations to meet the demands of those to whom they owe money.

As Ezra Pound pointed out

with usura..
no picture is made to endure nor to live with
but it is made to sell and sell quickly

And what is being sold to buy corporate debt? The answer is Government Gilts. the support of our national debt.

There is dramatic change in our pension industry but it is precisely the change that the Chancellor didn’t want

In June last year, Jeremy Hunt told us

“Those who invest in our gilts are helping to fund vital public services and support for households facing high energy bills, Any changes must recognise the vital role they play.”

Today we read that

During the market chaos that followed former prime minister Liz Truss’s “mini” budget, many schemes using so-called liability-driven investment — a strategy that uses leverage to manage funds’ exposure to swings in interest rates — were forced to dump their gilt holdings to meet cash calls from lenders.

Now, many funds prefer to buy corporate debt, which offers protection from interest rate moves without taking on leverage, as well as higher yields than government bonds. Colm Rainey, co-head of European corporate debt capital markets at Citigroup, said he thought a rise in demand from pension schemes “could be quite significant in terms of the direction of travel” for sterling corporate debt issuance.

We can also read that the “direction of travel” is not only away from Government debt but away from the British economy

The share of European corporate bond sales denominated in sterling has risen to 8.4 per cent from 6.8 per cent at the beginning of 2023, the busiest start to the year in a decade for investment-grade issuance from non-financial companies.

The demand has helped push a number of continental European companies to issue sterling debt for the first time in recent months, including German real estate company Vonovia, German truck manufacturer Traton and French luxury goods group Kering.

What are we doing?

As our investment gurus prepare to take planes , trains and automobiles to Edinburgh , they might ask themselves these questions

  1. Where is the evidence we are meeting the Mansion House Compact and investing £50bn more of DC savings into productive investment?
  2. What is going on to improve the VFM of our workplace pension saving?
  3. How is the “pension endgame” improving member outcomes?
  4. How is disinvesting from gilts and investing in UK and overseas bonds helping?

This reading of the behaviour of the pension community suggests it is putting two fingers up to the Chancellor, the Shadow Chancellor (Rachel Reeves pursues the same agenda) and to the members of occupational DC and DB plans.

The short-term  interests of trustees and employers to “de-risk” their livelihoods and their balance sheets is being put before the long- term interest of the country and of pension savers and pensioners.

Having disgraced ourselves in herding behind LDI, we are doing the same again. The rush to buy-out is against the long-term interests of everyone apart from the shareholders of insurers and the markets they invest into. It is fundamentally opposed to the changes advocated by the Chancellor last June and I fear we will look back at 2023 and 2024 when pension schemes had their chance and blew it.

When I first joined a company pension in 1995, Frank Field was calling  British pensions  “our economic miracle“; 30 years later, they are making us a laughing stock.

 

Posted in pensions | 2 Comments

William and TC play lingo-bingo with “risk transfer”

Posted on February 14, 2024 by henry tapper

Gold Standard Endgames Bring Peace of Mind

Risk Transfer Industry and the Capture of Language

 

There is so much to admire in the sales and marketing skills of the “Risk Transfer” Industry, whatever one thinks of the products.  Slick, articulate sales teams serenade with derisking graphics showing value at risk falling to provide solace to anxious trustees.  Meanwhile hard headed insurance executives take on public policy issues and its financial services regulators with gusto and effectiveness.  But it is in the capture of language that the industry excels.

“Risk Transfer”.  Now that has to be good.  It’s not just a bulk annuity it’s a risk transfer journey.  The industry’s premium product is the “Gold Standard”.  Or perhaps the “Holy Grail”.  First there was some asset / liability matching.  But it needed a “Journey Plan” that had to go somewhere.  “The Endgame” was invented.  No one word has been more costly to UK pension provision or profitable to life insurers as “Endgame”.  Whatever the derisking costs, it must be worth it.

Reach the “Endgame” and have “peace of mind”.  A haven where all professionals involved endlessly issue press releases congratulating one other.

As they showed in selling clothes to emperors, those in LDI sales know what they are doing.  Their vision obviously makes sense if you are smart enough.  And its accelerator version “leveraged LDI” is even better.  And they use the best gaslighting techniques to see off awkward types asking about collateral and the need to sell those pesky “illiquids” right now.

And if you don’t hurry along to derisk it must be because you are “gambling” with people’s pensions, betting on risky assets.  It’s a world where “return seeking” is a synonym for suspect.  “Hedge the measure” and you are an actuary’s match for everyone.

Of course schemes need to be “buyout ready” to attract the attention of the mighty life insurers.  They are usually “exceptional” purveyors of always “competitive” pricing.  But trustees must not ask too many questions and need to drop discretionary powers in case you are sent “to the back of the queue”.  No Golden Ticket that way.  Anyway, once in a lifetime Solvency II reform; the FSCS review; life expectancy downgrades “probably” won’t make much difference.  So carry on regardless.  There is a busy year ahead in Risk Transfer land.  So, “lock in” gains now in case markets move.

Worried about the new TAS300 2.0 calls for a run on comparison – well think “Regret Risk”.  “Fear of missing out” ought to whip in trustees and sponsors questioning the siren calls of the life insurers.

But is it members’ best interests to face the music?  What about the “regret” of knowing the less you fell for “derisk and get rid ASAP” the better off you are now and scheme members and current employees could look forward to discretionary benefit improvements.  All available in a stronger, more ESG aligned economy.  Come on trustees, don’t worry about that.  We are old friends.  Say “fiduciary duty” three times and move with us to the Endgame.

But what, you should ask, if it’s not the End and it was never a Game?  Time to learn the language of “Run On 4 Good”.

 

William McGrath,

Chief Executive, C-Suite Pension Strategies

T: 07768 607204

E: w.mcgrath@c-suiteps.com

 TC Jefferson

Chief Executive The Plenum Group & C-Suite Partner

T: 07581 466620

E: tc.jefferson@c-suiteps.com 

 

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Superfunds laid to rest in the quietest graveyard

Posted on January 31, 2024 by henry tapper

 

Bim Afolami
Stephen Timms -WPC Chair

The DWP has a long list of duds, it has developed a capacity to convert a popular idea into a product that is singularly unloved.

The list includes the DB pension, the CDC  pension , the pension dashboard and now the pension superfund.

All of these have in common populist enthusiasm , regulatory capture and ultimately a failure to deliver anything for the common good . That Royal Mail may open its CDC plan at some stage later this year, that we may get a dashboard at the back end of 2026, that we have DB funding regs that don’t entirely kill off the DB sector does not account for regulatory success. Add to this, the stalled VFM framework ,  a four year consultation on small pot consolidation (yielding nothing) and a consultation on the state pension age which has been left unpublished and we have an unparalleled  litany of policy failure.

There is only a certain amount of credit that the DWP can take for auto-enrolment.

 

This is the context for Stephen Timms’ rather testy letter to Bim Afolami , wondering just what Bim thinks that the Treasury’s new soft line on DB consolidation through pension superfunds has achieved.

Here is the letter

Timms has what can be called an “inquiring mind”. He is interested that after 6 years of consultations and a year of Government posturing on its intent for Pension Superfunds, the sum total is one superfund , one scheme consolidated and its destination “buy-out” by an insurer in a handful of years.

Much as we applaud Clara#, we cannot help siding with Timms when he insinuates that the Government’s flagship policy isn’t quite taking off. He asks

  • Whether primary legislation is needed for a permanent regulatory framework forpension superfunds (Q335);

  • What changes to the gateway test addressed your concerns about the pensionsuperfund regime.

Because the Pension Superfund is stuck in the wet cement of regulatory rigidity and in terms of superfunds, TPR is regulating the quietest graveyard.

What has happened to the Pension Superfund itself? I can tell you, Britain’s most entrepreneurial pensions enthusiast, a man so onside with the Mansion House reforms that he could have written Jeremy Hunt’s speech, is not even considering having another go .

Where are the new contenders? Who apart from Edi Truell has dared to take on the vicious ascent to the point where a superfund can take money?

There may be people in the Pensions Regulator that feel proud that they have seen him off but what have they achieved. They have simply mortified the graveyard. For all the talk about a new mindset, I see little evidence of anything happening other than the deferred annuity called Clara.

But not only have they fought Truell off, they have sent a clear message to any young pretender which is “don’t bother”,

If the Government really wants to encourage Pension Superfunds it will do what Governments do and make them happen.

Stephen Timms is – in his oh so subtle way – calling Bim Afolami’s bluff and he knows full well that Bim is holding in his hand a busted flush.

 

Posted in pensions | Tagged , , , | 3 Comments

The Post Office is not the Royal Mail

Posted on January 8, 2024 by henry tapper

 

A lot of people think that Post Office and Royal Mail are the same. They are not, though they both have a lot of red in their logo.

As the ITV drama (episode 4) makes clear, the only shareholder of the Post Office is the Government (effectively the tax-payer). How could you be confused about that?

A long time ago, the GPO incorporated both the Royal Mail and the Post Office, what we know now as British Telecom, was the telephone exchange out the back. My Grandfather was a solicitor to the GPO, he was a civil servant . What he’d have made of all that’s happened since, especially the business with the sub postmasters – I dread to think. He was called Frank , came from Leeds and liked tennis.

The situation is now not so simple. The old telephone service that sat at the back of most large post offices is now BT with all its spin-offs (Yell and OpenWorld etc). Royal Mail is now a number of businesses including Parcel Force, all under private ownership.  The Post Office is still “ours”, but not a possession we are too happy about.

Things become even more complicated for pensioners

The Post Office and Royal Mail had one pension scheme and along with British Telecom administrated hundreds of thousands of our pensions (in Chesterfield of all places). Now BT is not just a pension scheme but a fiduciary manager (Brightwell), the Royal Mail runs a host of DB plans including one for the Post Office.

The old Royal Mail pensions ( earned before 2012) were taken over by the Government which now guarantees them. The Government also provides a “crown guarantee” to the BT defined benefit pension plan . Most older  post office workers have pension rights in the bought out Royal Mail scheme though there is a Post Office Pension scheme for post 2012 benefit administered by the Royal Mail . The old Royal Mail pensions are administered by Capita though some are now paid by Rothesay Life

If this sounds complicated , then keep up, there’s also a Royal Mail DC pension plan which is a workplace pension plan doesn’t pay pensions and a Cash Balance plan which is a pension plan that only pays lump sums (for the moment). From some time in the future, Royal Mail may have a CDC plan  as well

Of course , because the Government owns the Post Office, if you have a Post Office pension, it ends up being paid by the Government one way or other.

There’s a rather cute Quietroom video where Vincent Franklin explains it all with squirrels

Why it’s important not to be confused

The Post Office, which we rely on for so much will now be considered a governance black-spot. It is important to Royal Mail that it does not get dragged into the Post Office’s private hell.

Unfortunately, I fear that Royal Mail will suffer some collateral damage from the public revulsion with the Post Office. It shouldn’t.

Beating up on Paula Vannells, the hapless Post Office CEO is currently a national pastime

Nearly 900,000 people have signed the petition to strip  her of her CBE.  Politicians now find it fashionable to deplore the Post Office and Fujitsu, though where they’ve been for the past 20 years is another question,

It’s also becoming popular to show your campaigning credentials by supporting the petition on social media. Maybe we are in danger of virtue signalling, most of us have been aware of the scandal for at least a decade.

I am worried that in the crush to get to the front of the queue to throw our custard pies, we might aim at the wrong targets.

Warning ; if you are getting angry with the Post Office you are not to take it out on

  1. Post Office counter staff
  2. Your postman
  3. CDC

Posted in pensions | 2 Comments

Who is protecting the member’s interests when the insurers come a calling?

Posted on December 21, 2023 by henry tapper

L&G announced on November 24th that it had agreed a £4.8 billion full buy-in with the Boots Pension Scheme . Boots also made an announcement that the deal had been done , stating unequivocally that scheme benefits remained unchanged.

In their press release L&G boast of benefits to members

This buy-in secures the benefits of all 53,000 retirees and deferred members of the Scheme, making it the UK’s largest single transaction of its kind by premium size and, for L&G, the largest single transaction by number of members.

Such security comes at a cost. An insurance buy-out is reckoned to cost 20% of member’s funds in fees and in meeting insurance company’s margins. It is not just a risk transfer, it is a transfer of funds that could be invested in gilts and productive finance (two of the three Hunt Mansion House Criteria) to corporate bonds, (aka wet cement).

The buy-out is requiring Walgreen Boots Alliance to pump an extras £670m into the pensions scheme, all of which will be spent on securing the buy-out – but not improving benefits (or even crystalizing discretionary benefits) .

It should not be undertaken lightly. It is deemed to be in the member’s interests but members are rarely if ever consulted on a buy-out.  It would seem from this article in Professional Pensions that the member’s union has only been alerted to the Boot’s buy out once it had been done.

Now we hear that Pharmacists are considering submitting a series of formal complaints to the Boots Pension Scheme raising concerns over the treatment of discretionary benefits as part of the fund’s £4.8bn buy-in with Legal & General (L&G).

The Pharmacists’ Defence Association (PDA) said the trustees’ decision to secure a buy-in of the benefits through an arrangement with L&G included the removal of the option to take a full pension from age 60 – benefits the trustee believe and the scheme rules state were discretionary and not a member right.

PDA Union national officer Paul Moloney explained:

“We have considered, with our advisors, the claim by the trustees of the scheme that the option to take an unreduced pension from 60 was discretionary and not a right and believe there is insufficient evidence to fully support this claim. We are therefore questioning whether this option should have been secured as part of the buy-in and not ended with immediate effect.

“Instead, we believe benefit statements issued to members, at the very least are contradictory, and clearly state that a full pension will be payable from a member’s 60th birthday, with no reference to this benefit being discretionary and therefore subject to a regular review by the trustees. Instead, the benefit statements give the impression that an unreduced pension from 60 is a right with no indication that retirement plans should not be based on the benefit statements.”

“Although we recognise the advantages a buy-in can bring to the overall security of benefits it is important that it is done correctly. We believe there is sufficient doubt over the claim that the unreduced pension was discretionary and can be ended with the buy-in.”

The PDA said members who have benefits in the scheme and who have concerns about the change have the right to use the Boots Pension Scheme disputes procedure to complain about the removal of the option to retire at 60 without a reduced pension.

The PDA said, following an online meeting of over 100 affected members, it would now be sending out template complaint letters setting out concerns regarding the discretionary nature of the benefit and the way it has been communicated to scheme members over the years.

But it stopped short of criticizing the buy-out itself and the £670m it was costing Boots.

Where were the PDA during negotiations?

The union first communicated its misgivings to members on December7th. Over two weeks after the buy-out was announced. This was picked up in Pharmacy News

12 days  later , it issued a second report to members which has been circulated to the press, Pension Age and Professional Pensions both re-printing Moloney’s statement.

This followed a question in Money Mail , placed by an anonymous Boots pensioner and answered by Steve Webb and reported on by Stephanie Hawthorne and this blog.

Three questions persist

  1. Are the trustees and ultimately Walgreen liable for discretionary payments from 60 from deferred pensioners
  2. Why wasn’t this issue raised during the negotiations by member nominated trustees?
  3. Was the estimated  £960m buy-out cost and the £670m pumped into the scheme to get there- the best use of trustee and corporate funds?

The buy-in is effectively a swap of a big insurance policy for the scheme assets. However the trust and its trustees still remain in place. The questions for affected members is to what extent they can influence the terms under which the buy-in operates. Is it a done deal or are the trustees still on the hook for the cost of offering early retirement (if the ombudsman finds against them)?

The second question is over the union representation (or lack of it) on the Boots board. By law 1/3 of trustees must be member nominated, Law Debenture are a corporate trustee leaving 6 remaining , it would be normal for at least one of the trustees to be a union representative – what was the union doing? The trustees are listed here

As for the cost of buy-out, I very much doubt that such sums can be justified in terms of member value. As the FT comments , this is an M&A play

By offloading the pension liabilities, Boots has removed one obstacle to Walgreens selling the business. Last year, the US company abandoned an attempt to sell the chain, pointing to an “unexpected and dramatic change” in market conditions.

These are questions that should have been asked during the negotiations. Once the negotiations had ended and the deal was done, Boots published a statement to members which began

Questions that aren’t going to go away

This has prompted Jnamdoc, the pseudonym of one of this blog’s more prolific commentators to ask

Who is protecting the members’ interest?

the lack of a collective voice for members in the UK is lamentable.

Trustees who should represent members, and should more properly have used the overfunding in the scheme to protect customary discretionary benefits, will instead hide behind the TPR mantra of untempered at any cost de-risking and ‘flight path’ aspirations to insurer as a poor excuse for not representing members’ interest.

The expected insurer profit on the transaction will be circa £1bn, money that should have been invested by Trustees to help provide discretionary benefits. This will be brushed under the carpet, lost in opaque accounting disclosures…

The point of having discretionary powers should be to recognise that in some circumstances, such as in the midst of an inflation and low growth cost of living crisis, Trustees should use discretions to spend surplus on protecting members’ living standards.

Once again it is the ‘industry’’, that should be there to protect and serve members’ interests, that wins. Everyone wins, members lose. It’s a national disgrace.

 

 

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Will trustees rely on fiduciary duty to deliver DC pensions?

Posted on November 23, 2023 by henry tapper

 

We intend to rely on the trustee’s fiduciary duty to act in the members best interests when developing the suite of products and services. However, we will keep this under review and may introduce further requirements separate to the fiduciary duty if what is being offered is not obviously in the members best interest.

With these considerations in mind, DWP will at the earliest opportunity place duties on all trustees of occupational pension schemes to offer a a range of different decumulation products and services to members at the point of access.

So what could these different decumulation products and serrvices be. The response is very lukewarm to CDC

We have carefully considered the role of CDCs in the pensions landscape of the future and see them as a potential future model for pensions. Schemes could consider a CDC option in decumulation for their members consistent with the market developing, which could be a default offer to their members.

We therefore intend to continue to work with the pensions industry to explore how to establish a CDC decumulation model that works in the UK.

DWP believes that trust-based CDCs have the potential to be a promising future model for pensions and could be actively considered by occupational pension schemes, including as part of their decumulation offer. The department is putting in place a regulatory framework for multi-employer schemes to offer CDCs, and we support the market development in this area.

Alongside this consultation response the department has issued a call for evidence on access to CDC arrangements and opportunities to stimulate the market.

Considering we have yet to have one implemented CDC scheme and no schemes available to small employers , let alone individual savers, I think this has dragged on far too long.

Much as I would like to have my CDC benefits overseen by the CDC Code, I would rather have a collectively invested pension scheme with longevity pooling and so long as the fund I use to get a non-guaranteed pension is overseen by the FCA  – that is enough for me.

There are plenty of ways to convert a pot to pension and they aren’t all called “annuities”.

CDC pensions sound great but they sound a lot too much like DB pensions for employers to let their trustees provide them.

Annuities are looking a good “lock-in” for now but most trustees aren’t pushing them for fear of being seen to be “anti-freedom”.

Drawdown is now being touted as a guided product with non-advised support packages being talked about by everyone (and implemented by very few).

Everyone is sitting on their hands waiting for clarification from the FCA on the “advice/guidance” perimeter. Having done my time in the FCA sandbox , I’m pretty clear that guidance includes the provision of information necessary to take a decision.

I’m also clear in my mind that most trustees are terrified of signposting anything in a way that might be considered “.the provision of a definitive course of action” (my definition of advice).

What the DWP is calling for (and what Nausicaa Delfas is also calling for) is for DC trusts to become “full service providers” and that means trustees having to provide a default decumulation option. This is necessarily giving people a definitive course of action and DWP are going to have a tough job convincing trustees that they are not giving advice.

Trustees tend to be “risk averse” and corporate and other professional trustees are risk averse for a living. So I see no appetite from trustees to share risk in a CDC arrangement.  Even if the sharing of risk is supposed to be between members, trustees know that risks tend to revert to sponsors (as KPMG found a few years ago). This is simply because when things go wrong, people look for people with deep pockets to sue.

Proposing drawdown as a default decumulator misses the two big guarantees that people want from pensions ;

  1. A guaranteed income
  2. A guarantee that the income will be paid as long as they do.

Even if trustees “hand-off” to organisations like Guiide, Retirement Hub or whatever Paul Budgen is coming up with, the hand-off may be considered a professional foul and risk an wanted red card from the judicial system , or regulator or both.

There is definitely a need for a default decumulator and as I write, the last man standing is the annuity. If after eight years of trying to find an alternative to “having to buy an annuity”, we require people to buy an annuity, I suspect the public will regard this as the biggest cop-out since the pension dashboard.

The idea of a DC pension is not one that has entered the argument yet. But it is not impossible. In a world of capital backing for DB pensions, might we not extend that thought to the capital backed DC pension, where a reverse transfer swaps pot for pension?

 

 

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Here’s how to save the triple lock

Posted on November 10, 2023 by henry tapper

You can get behind the triple lock by signing this petition

Tom Selby: Time to get serious about state pensions

Commercial workplace pension and SIPP providers do not want to see a strong state pension, they want dependency on private saving. Tom Selby represents AJ Bell and his beef is that the state pension is providing too much to people retiring today

Had the ‘new’ state pension increased in line with inflation or wages since 2011, it would be worth around £180 pw today, rather than £203.85

The Government sets the level of pension credit slightly above the maximum payment from the state pension.

The DWP starts providing means tested support to those in genuine need of support where personal earnings are less than £200 per week. Should we consider the level of destitution lower? Is £180 pw a better measure?

Think about it, 1.4m households are not getting income through the door to meet their basic needs and we want to roll back the triple lock?

Take a step back.

What do you spend a week? How would you feel about a wage in retirement for 35 years of national insurance payments of £203.85 pw.

Tom argues that paying such a high state pension will impoverish younger generations.

Younger generations could ultimately pay the price

Tom is not saying we are paying older people too much pension , he is calling for a debate about whether we can afford to. I am not quite clear where the difference lies.

When I was 30, I didn’t think there’d be a state pension when I got to 65. Tom’s generation are the same. Each generation arrives at retirement thankful that the generation before did not turn off the tap.

But Tom thinks that this government is frivolous in paying the promises made by generations before. He wants change.

A serious government (or would-be government) would commit to undertaking a wider review of the state pension

The review in question (if commercial pension providers had anything to do with it) would undoubtedly question the triple lock. But Tom asks us to take a long-term view. Presumably this is a view  where Britain will be paid by private pots rather than the state.

This would require bravery and a long-term vision but is absolutely essential.

Those who are cowardly and short-termist will undoubtedly want out taxes to pay better pensions.

If you want to side with the wealthy and strengthen the case for more tax-payer’s money being poured into higher rate tax relief for the wealthy, please do not sign the petition.

If , on the other hand, you believe that £200 pw is a poor pension for a lifetime work, please sign the petition and make sure that the triple lock is maintained.

You can get behind the triple lock by signing this petition

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“Not my Government” – discontent over pension policy meltdown

Posted on November 9, 2023 by henry tapper

The consensus from people I have spoken to , following the King’s Speech is that the Government we have today has lost its legitimacy and is increasingly looking like a marketing tool for the Conservative party at the next general election.

Most people aren’t that fussed about elections, they want the party they have to Govern in a legitimate way.

Perhaps the disenchantment from my friends and colleagues is summed up by the phrase “pedicabs before pensions” which references the King’s Speech proffering legislation to temper the behavior of City and Westminster rickshaws . I am a cyclist in those parts and can confidently say that pedicabs are not such a problem as the parlous state of much of the British pension system.

That there is no pensions bill suggests to me that that Government has not so much run out of ideas (there are 21 bills in the speech) as energy. I must admit to being in two minds about the invisibility of pensions minister Laura Trott, I had thought she might be holding herself back for a final year of  parliamentary pressure. But it turns out that having mothballed the pensions dashboard, swerved taking on the thorny issue of the state pension age , that she has abandoned the framework of the Mansion House reforms to another Government.

This sends a bad signal to the private pensions industry who have committed time and resource preparing for the various measures that the Government has legislated for in the Pension Schemes Act 2021 and consulting on the projects that the pensions minister had initiated in advance of a Pension Bill this weeks.

It is also a sorry signal to the Pensions Regulator and the FCA who had the value for money taken from them by big Government in the hope that the DWP could deliver where the regulators have been seen to be failing.

The aims of the Mansion House reforms were and are aligned with the aims of those in private pensions who want pensions with purpose, both social and environmental, we want a better governed pension industry and we had expected assistance from Government.

The Government is distancing itself from its previously held position as champion of sustainability. The Kings Speech provides legitimacy for those who promote fossil fuels. The whole-hearted efforts of the pensions industry to embrace TCFD are being undermined by populist initiatives that put votes before the planet.

The Mansion House reforms put “purpose”  as a fiduciary aim, it called on fiduciaries and providers to invest purposefully and it launched Compacts that could deliver with the assistance of a number of reforms envisaged by the DWP. I don’t see an end to the Compacts between pension providers or between the providers of venture capital, but the absence of proposed legislation to support them , is aligned to the general loss of purpose from Government over the past six months.

I expect there to be some assistance to these Compacts in the Autumn Statement but the key issues for pensions were with the DWP. Big Government has let us down and that is why I feel that this is no longer “My Government”.

Another casualty – the PPF

Yesterday, with bad-timing, the Work and Pensions Committee quizzed the PPF about its intentions for the future. The PPF is a success story both in its conception and its management. It wants to be more than it is, it wants to consolidate small DB plans and it has had the support of the Blair Institute so to do.

But it’s CEO is leaving and he spent his time at WPC ducking questions, It’s CIO made a good attempt to appear incompetent (I’m sure he’s not) and only the COO showed why we hold the PPF in high esteem.

If there is to be better use of the PPF, then the PPF needs to put a better foot forward than it did yesterday. The timing was awful, whatever we might have expected the PPF to do , cannot be done without the primary legislation that went missing at the King’s speech.

WTW’s powerful argument for the abolition of the PPF levy cannot be debated because there is no pensions bill to enable the small change in the levy’s operation to make this practica. LCP’s long letter to Laura Trott, published yesterday is of no import since its plan to extend the duration of its client’s pensions , depended on primary legislation for a super-levy.

As with so much else in pensions, the PPF has been disrupted and consulted upon over proposals that have been dashed. It is hard to think of how Government could have managed its expectations worse

Not my Government

The frustration that I have picked up from those I know and work with is already disseminating through the pension press.The FT has commented on the absence of Pensions from the Kings Speech,

I expect that the low but loud murmerings about the failure to produce a dashboard or a workable DB or General Code, the failure to get Royal Mail’s CDC scheme over the line or deal with the state pension age, will be amplified by the failing of this Government to put pensions before pedecycles – we will hope for better next time.

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Marginal improvements in fund management won’t float pension’s boat.

Posted on August 30, 2023 by henry tapper

Toby Nangle

In this blog, I argue that fund management is one lever but not the key to solving systemic problems in pensions and the wider economy. Consolidation of funds may bring marginal improvements to the economy and fund performance, but the real benefits of bringing funds together are based on “pension”  management.

Nangle speaks like the insider that he is, assuming that

Greater economies of scale would allow them (larger pension funds) to reduce average costs while also being able to afford to attract top talent, run state of the art risk systems and build in-house private market teams.

He finds the theoretical case that “small is beautiful” is thin

arguments against amalgamation can sound like special pleading from fund managers keen not to see their revenues shrink. And the prospective hit to their revenues is not trivial.

But what Toby Nagle is actually finding from his research is that there is little or no correlation between the size of pension fund and its performance.  This suggests that the Chancellor may be barking up the wrong tree with his Mansion House reforms. He cites American Public Sector Plans

He also hints that large UK DC plans (typically master trust defaults) aren’t pulling ahead as we might expect.

Nor can he find much evidence that “size matters” in the  OECD  “Pensions at a Glance” data. Credit Nangle here for his integrity.

When an expert goes out looking for the evidence to support a generally accepted theory, and finds none, then we should sit up and take note.

And we should ask, as Nagle goes on to ask, “why aren’t big funds pulling away?”

Frustrated by the lack of empirical evidence that size brings value, Nangle turns to research from the Resolution Foundation that finds that the underlying malaise in UK stocks (which have underperformed overseas equivalents has come about because there is a lack of concerted activism from asset owners.

diffuse ownership has impeded  performance by weakening UK business owners’ engagement over the past two decades.

British  stocks no longer benefit from the expertise of asset managers

Activist equity managers have seen their powers ebb with successive waves of clients allocating away from them towards liability-matching bonds or passive exposures.

Because asset managers no longer invest in British stocks

Hence, UK firms possess the OECD’s lowest share of “blockholder” shareholders capable of wielding substantial decision-making influence, according to Resolution. Consolidation could boost fund managers’ voices and ability to push for investment.

A fund manager arguing that fund managers should have more sway over the management of British companies, may sound like another case for the special pleading that Nangle elsewhere criticises.

But he gets the support of Border to Border ‘s Ryan Boothroyd

We look forward to seeing these benefits feeding through over time. I have already posted on the excellence of Border to Coast’s asset management but this seems hard for  other pension funds to replicate.

Is better stewardship the answer?

And the problem with this argument is that it is speculative.  We have yet to see what difference a substantial allocation to UK equities would make and it is a leap in the dark for pension schemes to assume that they can revive Britain’s flagging economy with their money and the expertise of in- house or outsourced fund managers.

Nangle is actually saying that consolidation cannot be justified purely on grounds of “value for money”. This is a sad indictment of  dedicated fund managers who can’t seem to make their muscle and expertise count.

If large pension schemes were to become their own fund managers- as happened in yesteryear, then things could be different. This rather ignores the recent trend to outsource the in-house CIO to large fund managers such as Schroders and BlackRock.

The proposition would probably require management of equity positions to move in-house in these new larger pools of capital to overcome well-documented incentives for external fund managers to underinvest in stewardship.

Nangle’s argument is ultimately that consolidation only works when the emphasis is on improving asset performance through asset management. The incentives of the asset manager must be aligned to improving outcomes not just for members, but for those in the invested companies and ultimately the economy in general

Policymakers have hitherto sought to increase value for pension scheme members by reducing costs. Given that only the latter can be controlled, this approach is understandable. Implemented correctly, the move to create larger pools of pension capital could, however, be the catalyst to unlock value for all.

His  argument for consolidation relies on  the long-term improvements it would bring to member outcomes and the more immediate improvements it would make to the productivity of British Companies.

Any benefits would, furthermore, be shared across the whole economy. As such, this seems a reasonable aim for the government.

This would suggest that the Chancellor will need to bark not just at the trees, but at the right trees. This sounds a big ask for a non-interventionist state function.

Consolidation is about improving pensions, not just asset management

After reading Toby Nangle’s article, I am even  less convinced that the Mansion House reforms can be justified  by the improvements that can be made in fund and asset management

I am more convinced that freeing up resource applied to the management of single sponsor schemes, can improve an employer’s ability to allocate the right level of contributions to sorting out the evident deficiencies of our workplace pensions.

Ironically, in this – the recent improvements in pension solvency, which have very little to do with fund management, are the Chancellor’s best ally.

We need to see a sustained period of investment in long-term assets , properly managed by trustees and asset managers with an eye on the same prize. We cannot go back to the mistakes of the past where we manage outcomes by fixating on the present value of the liabilities. We must invest in stewardship, and in the sustainability of the growth our savers need.

These big ticket items can happen , if the focus is on a handful of properly managed pension schemes, they cannot be achieved with the current structure where value is so dissipated through inefficiencies. But the big wins in consolidation come from the business of creating and maintaining pensions, of which the investment solution is just a part

Ultimately, VFM isn’t just a performance problem, it’s about the sustainability of the system . Consolidation is more than a fund management issue, it’s about the proper management of pensions of which the asset management is just a part. Without consolidation , we simply can’t sustain the value for money pensions we promise ourselves.

 

 

 

 

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LEBC – fall out for the fall guys

Posted on August 26, 2023 by henry tapper

LEBC

The demise of LEBC has been slow and painful. It died a death of a thousand cuts and now one of the most innovative advisory firms in Britain is no more than a hole in the balance sheet of its principal backer.

I blog not bo bury LEBC but to praise it, and to ask whether the firm has become the fall guy for those who  it served.

What brought LEBC down was the weight of DB transfers it facilitated through its advice. Its business was “de-risking” occupational pension schemes, its customers were the sponsors of those schemes who wanted to reduce liabilities by buying them out on better terms than they sat on the sponsor’s balance sheet.

Such was the difference between the record on the balance sheet and the amount payable as a “cash equivalent” transfer value to the member, that many transfers were enhanced on a time limited basis (transfer now while prices last). These incentives were known as ETVs (enhanced transfer values) and were sometimes paid as cash in the pocket. This practice was labelled “sexy-cash”, Steve Webb, then pensions minister shamed the Boots pension scheme for incentivising transfers, but no employer has been stopped from doing this by the Pensions Regulator.

Whether incentivised or not, it was generally thought that many members would take the bait and swap their pension for a cash transfer into a personal pension.  Indeed the success of a “de-risking exercise” was measured in the reduction of liabilities and the enhancement of the balance sheet. LEBC were no more than the paid agents who made transfers happen.

While the contract to “de-risk” was with the trustees – who sanctioned the approach to members, the money came from the sponsoring employer and both the corporate and trustee advisers were involved in ensuring that the “exercise” was in the member’s interest. The Pension Regulator paid a blind eye, the FCA regulated LEBC and their job was to protect the PPF and the remaining members. In as much as the transfers improved the sponsor covenant (eg the  employer’s balance-sheet), the trustees were seeing more security from the sponsor and less risk to the scheme’s valuation.

There were other interested parties. Insurers looking to buy-out solvent schemes often drove these exercises. Rothesay life was particularly aggressive, it carried the brand of Goldman Sachs behind it, which lended extra legitimacy. Corporate brands such as PWC were also high-profile advisers. With blue chip advisers and sponsors and with the blessing of trustees, LEBC could feel they were on the side of the angels.

And they had a management team that inspired confidence. Its CEO , Jack McVitie who died quite recently at too young an age, had advised many senior politicians, it included current stalwarts such as Kay Ingram , Nick Flynn. and other  personal friends of mine such as Simon Leyland and Chris Brown.

LEBC – a different culture

Jack McVitie (RIP)

LEBC fostered a culture where reward was based on customer satisfaction and not sales. So employees were salaried and had relatively low levels of reward  “at risk”. They looked after their staff with good benefits and the culture was to attract and retain advisers with integrity who took the long view. While at First Actuarial , I had many meetings with LEBC and can testify to their culture being quite different from other EBCs. LEBC became the last man standing for de-risking as rivals withdrew from the market. Again I can testify to other firm’s culture – I worked for a time for a part of Alexander Forbes, LEBC were different.

And LEBC became trusted. In 2017, under the advice of Willis Towers Watson , they were appointed to provide guidance on the options BSPS members had during its “Time to Choose”, they were the trustees’ safe pair of hands. LEBC were on a very exclusive panel of advisers that the top actuarial practices used. From CEO to the adviser they were seen as the acceptable face of advice.

LEBC’s role protecting BSPS members from poor decisions was overseen by the trustees, the FCA and TPR.  Their appointment was advised by one of the world’s leading actuarial consultancies.

So what happened?

It is quite clear that none of the sponsor, trustees or advisers who appointed or paid LEBC are going to take any blame for LEBC’s shortcomings. They have distanced themselves from LEBC and indeed from the de-risking they encouraged. You do not to de-risk a scheme when it is showing a balance sheet surplus. LEBC has been abandoned.

What was deemed their KPI, their ability to facilitate the transaction of CETVs is now their undoing. The FCA found that too many of the transfers were waived through without sufficient warning and that some should not have gone ahead at all. Where there is blame there is a claim and the claims for wrongful advice have overwhelmed LEBC’s Professional Indemnity Insurance and its balance sheet. Even with private equity standing behind it, LEBC had no way to meet the bills coming its way from the Financial Ombudsman and it has called in the receivers.

What could be salvaged was salvaged through a transfer of assets to a sister company but the bulk of the liabilities have transferred to the Financial Services Compensation Fund and will be met by the industry. If you want to read the details – this post from Aspira LEBC’s  CEO Derek Miles tells you what is happening to clients.

The clients can move but the liabilities stay behind. This isn’t a good look for advisers as this post explains

The FCA have overseen the dismantling of LEBC, removing its permissions  to advise and now overseeing it in administration. The Pensions Regulator, has no part to play and like those it regulates, has politely walked away. LEBC were part of its solution but they play no part now it is a problem

Fall out for the fall guys?

The last people standing at LEBC will get nothing but the stigma of not leaving the sinking ship when they could. They are the fall guys for what went before.

But – while the finger of blame is being pointed at LEBC, those upstream in the advisory chain appear untarnished.

Perhaps .when considering  LEBC’s demise , we should think about those who encouraged and incentivised LEBC to “de-risk” their customers ‘ balance sheets.

 

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Ten reasons why low-earners should not be auto-enrolled

Posted on August 22, 2023 by henry tapper

Matthew 26.11

This blog asks questions about how best to deal with genuine poverty. The financial services answer has been  “financial empowerment” , saving our way out of debt. It is a flawed idea, ask those just getting by. Here are my 10 reasons why we should not enrol those earning less than £10,000 per annum,

  1. If you earn £10,000 and don’t have any other earnings, you spend a lot of time applying for benefits and visiting food banks. You should not find yourself in debt because you auto-enrolled into a pension
  2. It is a lot harder to opt-out of a workplace pension when you are short of financial  confidence and in need of the job.
  3. If you earn below £10,000, you should be entitled to an employer contribution from £1 of your earnings but you are not. This from the DWP

    If your income is low

    Your employer does not have to contribute to your pension if you earn these amounts or less:

    • £520 a month
    • £120 a week
    • £480 over 4 weeks
  4. If you earn less than £10,000 , you only get a taxman’s incentive (worth 25% of your contribution)if you happen to be in a  scheme operating relief at source (most schemes don’t)
  5. If you earn less than £10,000 and you don’t have a complete State Pension contribution record, you are probably in line for pension credit – an AE pot could knock that on the head.
  6. If you learn less than £10,000, you are likely to have lots of small pots, being eaten away by fixed charges
  7. Workplace pensions would rather stick needles in their eyes than take on a load of small pots that will never wash their face. (probably why the PLSA are highlighting the risks of removing the lower earnings limit)
  8. Even if you are unlucky enough to be a lifetime low-earner – auto-enrolment won’t make that much difference. These are the PPI”s numbers – it’s the state pension and benefits that matter to the poor.
  9. Those on low earnings often have incomplete national insurance records and might well be better buying years (especially discounted years) of state pension credits
  10. “Further research on low earners, the needs of under-pensioned workers, and the intersectionality of different characteristics are needed”  (Nigel Peaple -PLSA)

In my opinion , the best thing any Government should do for the genuine poor is support them properly with benefits.

The low earners used to be called “entitled”, which meant they were entitled to opt in to a workplace pension but they weren’t entitled to a contribution. That should change. If auto-enrolment is extended to cover earnings from £1 (taking away the contribution threshold) then low earners should be entitled to an employer’s contribution if they opt in (as those under 22 are).

The PLSA has asked

Can low earners be safely auto-enrolled in workplace pensions?

The answer is no. The 300,000 low earners the PPI reckon can’t afford to be “in” are often too vulnerable to get “out”. We must get out of the mindset that says that everyone should be saving, a great chunk of our population need to just get by.

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Superfunds jeopardized by regulatory torpor and timidity

Posted on August 15, 2023 by henry tapper

 

Laura Trott
Nauicaa Delfaas
Louise Davey

One of the key planks of the Mansion House reforms needs is in urgent need of regulatory attention. There may be legislation and guidance enabling Pension Superfunds to consolidate DB plans, but without revision, the Pension Regulator’s guidance looks likely to leave no superfunds in play. I hope this is brought to Laura Trott’s attention. The DWP intent is being undermined by TPR guidance that looks little more than a cut and paste of what arrived in 2020.

Conversations I have had make it clear that the superfunds cannot participate until three key issues are addressed.

  1. Pension Superfunds must have clarity on how they make a profit. Without clear guidance as to how they can recover expenses and provide their backers with a return on capital invested, those involved will simply walk away.
  2. The Gateway rules must be scrapped or heavily revised. Almost every DB scheme can now claim to be sufficiently solvent to anticipate buy-out in the next 5 years. The Gateway precludes Pension Superfunds from competing for such schemes business. The market has changed but the rules haven’t. Without a market, where is the business case?
  3. Analysts have discovered that the  modelling of the risk-return of infrastructure, private equity and other private market asset classes has been retained. This modelling, carried out by Mercers has been challenged as “fundamentally flawed” The modelling means that too much risk capital would have to be put aside by a superfund to invest into productive assets in any significant scale. Superfunds would be no better placed to invest into the assets the Mansion House reforms promote, than the insurers offering bulk annuities. A “read across” or “cut and paste” from previously flawed guidance , does not make the guidance acceptable three years later. The modelling needs to be revisited, as do the restrictions on investment. The analysts are also shocked to find that ‘Investment Restriction 3’ on having more than 2.5% of an asset has been retained. This  makes direct investment into most private market assets impossible.

Laura Trott should feel deeply let down.

My analysis of the failings of guidance which has focused on the anti-competitive gateway and the feeble failure to prescribe the means of profit extraction is now reinforced by the revelation that the Pensions Regulator has done nothing to address the issues that have meant only one Superfund has got approval and that that Superfund has done no business.

While the DWP’s consultation paper gives a promise that things will change, the Pension Regulator’s Guidance shows no more than lip-service to the radical change promoted by the Minister and the Reforms.

Those behind the superfunds were first approached by a former minister in December 2016. In seven years , there has not been one deal done! Meanwhile, the £2 trillion corporate DB asset base has lost north of £600bn chasing the chimera of full liability hedging. There was an alternative. Schemes could have invested productively in assets that could have driven real growth in the British economy but that opportunity was shelved.

It is not too late to make partial amends for this  policy failure. But as each day passes by, the opportunity to put pension assets back to work , diminishes.

The Pensions Regulator seems intent on keeping the ball in the corner and seeing out the endgame in stalemate. Laura Trott should not let further financial calamity result from such regulatory torpor and timidity.

It is not just the superfunds and their backers that are fed up, this blog is fed up and so are the increasing numbers of people who back her vision for better pensions.

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USS shows its workings – including a £16bn fall in assets in a single year

Posted on July 20, 2023 by henry tapper

The USS has published its April 2023 Valuation Technical Provisions which can be downloaded here You can read them on the presentation at the bottom of the document (without a title page). Well done USS for sharing them.

The headline numbers are as follows

Which looks pleasing enough till you remember that the assets in 2020 were valued at the lowest point in a market struck by the impact of Covid 19. By April 2022 assets had risen to £88.9bn , they have since fallen almost £16bn. Losing £16bn in a year is going it some.

In my view, the last two USS valuations bring the valuation process into disrepute. It cannot be right that a scheme that has an infinite horizon for its liabilities can move from in 2018 , considering closing to future accrual to in 2020 requiring massive deficit contributions and cuts to member benefits, to in 2023 – considering reversing the benefit cuts, stopping deficit contributions and radically restructuring the contribution schedule.

Any actuaries who think this rollercoaster approach to pension funding and benefits brings them any credit, had better start talking to USS members who are heartily sick of this. Let’s hope that a more stable way of managing this scheme can be found.

Confidence on hold

We will have to await the publication of report and accounts, expected next week , to know what (if anything) USS are saying about how they are valuing their private assets. The valuation of its 20% stake in Thames Water and any Thames Water debt it may own, are matters of immediate concern. Last week, Canadian public sector fund – Omers – announced it had written down its valuation by 28%, has USS followed suit? The £73.1m current valuation of assets is material to member’s confidence in the scheme’s capacity to meet its obligations

The detailed analysis in the technical provisions suggest there should be confidence in the sustainability of the scheme’s funding but not to justify irrational exuberance among USS’ executive, trustees or sponsors. These are faithfully recorded in Professional Pensions, this being an example

UUK chief executive Vivienne Stern had positive things to say about the “extraordinary transformation” of USS’ funding position, which she said was caused by rising interest rates and changes to the scheme following its previous valuation, as well as covenant support from employers.

She said: “Figures today from the USS trustee on the 2023 valuation point towards union and employer representatives being able to take forward their agreement on creating stability, lowering contributions, and improving benefits. This will make a big difference to staff in this cost-of-living crisis and to USS employers faced with significant budget pressures.”

Devil in the assumptions

A detailed examination of the “tweaks” in assumptions in the technical provisions will now commence. USS have no option but to be transparent in publishing its valuation but USS are still to be congratulated for doing so.

But USS stands in stark contrast to other open pension schemes such as Railpen both in its asset and liability management. It has international comparators, one of whom was talking to a UK audience as part of Cardano’s “Pioneering Pensions” series

However, to understand just how far USS is from achieving its potential, watch this

Innovation happens when bold ideas are turned into practical solutions. How do we step out of our comfort zone and implement change? In this episode,  Derek Dobson offers  a real-life case study of how a defined benefit (DB) scheme transformed its core product, to offer fixed contributions for employers and flexibility for its members. As a result, new employers joined the scheme, and introduced defined contribution-style savings with DB value and decumulation products. 

To talk to us about this case study is Derek Dobson, CEO and Plan Manager of Canada’s CAAT Pension Plan. He and Stefan Lundbergh discuss the design and the process of taking an organisation and its trustees on the transformation journey. 

I hope that Stefan has sent it to all stakeholders of USS.

Supporting information

Here is the  detail – here is the supporting information for the technical provision consultation on which USS is about to embark

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Do pension superfunds have super powers?

Posted on May 30, 2023 by henry tapper

Do pension superfunds have super-powers?

The phrase “pension superfund” has been hijacked by the Tony Blair Institute to mean a not for profit investment fund that swallows up pension money from DB , DC from the PPF and maybe the tax-payer (if it wants to relieve us of unfunded public sector pension liabilities). It’s also used of Nicholas Lyons proposed £50bn UK Future Growth fund, which is more likely to get off the ground.

But waiting in the wings are two actual Superfunds, which could and should be doing the work that Tony Blair and Nicholas Lyons want doing. Both could be investing in real assets to provide people with pension payments today and well into the future.

The Pension Superfund is the more ambitious of the two , Clara has less ambition and is the first to have got approval from the Pensions Regulator. Clara is not quite the long term investor that the Pension Superfund intends to be, which is why it may have got its approval. However it has yet to announce any clients and as the HSBC master trust has shown, no clients – no future.

The Pension Superfund hasn’t got any clients because it hasn’t got approval but it is applying again and at a time when pension schemes are being encouraged to take on more risk, it offers many of the features that Blair, Lyons and Jeremy Clarke look for. I am sure its founder Edi Truell wouldn’t mind his superfund being characterised as having “super powers”.

What are these super powers?

The Pension Superfund is just an occupational pension fund able to take on other schemes assets and liabilities because it has a contingent asset  that can be sold if the fund gets into trouble. That asset is valued as the way of keeping PSF out of the PPF if anything major goes wrong.

Its superpower is its capacity to invest in growth assets and harvest returns that other long -term consolidators can’t. Insurance companies cannot invest DB assets in the way that Jeremy, Nicholas and Tony would like because of the solvency regulations that prevent them. The first superpower that the Pension Superfund has, is the power to invest into wider and more lucrative markets than insurance companies.

The second superpower it has , is that it can offer more for less. If that sounds too good to be true, let me explain. The cost of offloading your liabilities and assets into Pension Superfund (or Clara) is likely to be less than offloading them to an insurer. That’s because investing in real assets – is likely to give higher returns than investing the way insurance companies have to. So buying out through a superfund is cheaper and that means more upside. There is of course some downside with taking investment rich but that is compensated for by the contingent asset which can be sold if needs be.

The third superpower the Pension Superfund has, is to invest in amazing things which might otherwise not get funded. Things like a pipeline being built to bring thermal energy from Iceland to Scotland. Insurers can invest to a limited extent into infrastructure, but not to the degree of Superfunds. Superfunds have the capacity to be a source for good

What to do with surplus money?

Not so long ago , people laughed at the phrase “scheme surplus” – saying that such a concept was a “last-century thing”. But there are now schemes that have serious surpluses worried about what to do with them. The worry is that surpluses are trapped if kept within the scheme or lost if the scheme is transferred to an insurer.

The Superfund can operate using a formula to share the surplus with the superfund getting some of the upside (while providing a floor to the downside). This means that members can feel assured of getting 100% preservation of promised benefits with the option of more – if assets continue to exceed liabilities. (there’s an interesting discussion on surpluses in the LCP webinar – advertised at the end of this blog).

Will these Superpowers be deployed?

We have to wait and see. The DWP consulted on setting up pension superfunds in 2018 and has yet to formally respond to its consultation. Superfunds can be set up on some interim approval basis but the Pensions Regulator is nervous.

It is nervous because the Prudential Regulatory Authority are nervous (and perhaps because TPR is naturally nervous). The PRA are worried that pension superfunds will undercut insurance companies offering better prices because of less onerous regulation (a process called regulatory arbitrage).

That has meant that Pension Superfund keeps on knocking without the door opening. But that may change.

All this noise about superfunds from Nicholas Lyons, Tony Blair and voices inside Government may means that what has been a “no” and “come back later” could now be a “yes” and “what are you waiting for?”.

I hope that we will see the Pension Superfund approved before much longer and to see both it and Clara taking on and investing the assets of pension schemes contracting with them- this year!

Why not?

A lot of people, Tony Blair is one of them, would like to see pension superfunds set up as “not for profits”, meaning that while the management can get paid what they like, there is no shareholder to take dividends and increase price and risk.

I’ve never bought mutuality as a good model. I can see arguments for a not for profit PPF acting as a long-stop, but not for a competitive superfund competing against insurers.

We need the same entrepreneurial zeal from pension superfunds as we do from the companies they could be investing in. That’s not going to come from a “not for profit” mentality – though it could use not-for-profits investments to get returns.

Oc course, Pension Superfund’s rivals would be happy for it never to be approved, they fear the impact its presence would have on its volumes and margins and they could and should lobby against any change that restricts their unfettered freedom to choose which schemes to buy-out.

But just because the ABI is a powerful lobbyist , doesn’t mean that Clara and Pension Superfund can’t eat some of its lunch, and with the capacity of insurers to meet the demands of those buying out , limited – the arrival of new kids on the block should be welcomed by potential customers and regulators alike,

What’s changed?

I sense a spring in the step of the people I talk to in superfunds and it’s there because they see the attitude of Government changing. And more importantly, schemes now feel they are in charge of their own decisions – not in the grip of a deficit and the Regulator.

It’s not just Government pushing for change, it’s the progressive parts of the industry.

You can hear what LCP think has changed (and why) and you can listen and watch their webinar from the link below.

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Will the PLSA recognise the pension investment agenda has changed?

Posted on May 29, 2023 by henry tapper

For a second time in a row, a PLSA  Conference will take place at a time of national debate about the impact of pension investment on the economy. The last Conference in October coincided with the BOE’s purchase period of long dated and index-linked gilts. This Conference will occur as our funding of pension promises appears to be being repurposed.

The noises coming out of the Treasury over the past week and reflected in Nausicaa Delfas’ speech last Monday represent a change of position on the management of pensions.

There will be profound ramifications for trustees, sponsors and  investment consultants.

Con Keating foresees a very different world going forward. It will be interesting to see how far this is recognised at the forthcoming investment conference in Edinburgh.

The new Funding Regulations and DB Code must now be dead. With all of this chatter about enhanced roles for the PPF, the motivation for that legislation has gone in the stroke of a pen. It was that there is harm to scheme members arising from the reduced benefits payable by the PPF.

Amazingly the PPF have never analysed just how large that loss was for the members of schemes which entered the PPF. This was always the central fault with those proposed Regulations and Code.

Consultants’ estimates of the degree of replacement vary from 80% to 95% of the sponsor promise. The more mature the scheme, the smaller the loss suffered by members. Our survey put the difference between PPF benefits at end 2021 and the technical provisions at 12.3%. The current loss to the existing members of the PPF will be smaller than this as its book of ‘business’ is more mature than the market broadly. Schemes within it have been in runoff for as long as 17 years. It is well within the existing surplus of the PPF.

It means that the low dependency, low risk portfolios required under that approach, which would of course be entirely inimical to any growth or productivity agenda, are history.

It also means that schemes will not have to meet the administrative costs of that regime, no small sum in itself, and that sponsors will not be called upon to meet the increased funding costs of that regime. These have been estimated to lie in the range £100 – £200 billion – funds which will now be available for investment in the sponsor business. Of course, whether they will be used for that purpose rather than the payment of dividends and share repurchases is another matter.

Another comment on a recent blog, this time from Jnamdoc is even more graphic

We cannot ever underestimate the damage that TPR deathstar has inflicted to our economy, systematically stripping our pension schemes of an investment mindset and responsibility, and the costs will be borne for some generations.

And the key word here is ‘responsibility’ – each demographics sector (and as a proxy lets assume DB schemes represent the economic interest of the non-working aged) has a responsibility to support and nurture the others. With improved longevity, the pensioner sector is just too large to freeload expecting a risk-free age-wage. All wages – whether working or age-related – need an invested functioning growing economy, in which all can share in the risks and the rewards.

Because of an utter and complete lack of oversight and/or understanding across successive governments, none of them really noticed or challenged the continual and corrosive powergrab of the TPR, and relied upon the actuarial experts. Actuarial experts can bring skills in complex maths and in hindsight analysis. Not about investing.

TPR only produced data that supported their narrow minded funding approaches, and despite the very very considerable power it wielded over Trustees and the professions, and hence over the investment direction and outcomes of c£1.5 – £2trn of Scheme assets, it operated without any remit or consideration to the broader economic impact. They will say, they were only doing their job.

We all know the dangers of the State seeking to choose winners in innovation and technology, but hitherto we have suffered under the worst possible regime – an unelected deathstar of a quango actively sucking all energy out of the economy. Of course until it is extinguished the deathstar will continue to look to blame others for not understanding including targeting trustees for not being “professional” enough to understand the maths modelling, or not having enough buffers to cover the known unknowns induced by TPR’s unique approach to investing.

TPR must step out of trying to offer Trustees investment guidance. Single solution mandated approaches (statism) doesn’t work. Let the market find and invest in the innovation and to deliver the growth we all need. Trustee board need to be filled with business people, not maths modellers doing the bidding of TPR.

I doubt these two voices will be much heard at the PLSA conference, but I will try to represent this point of view where I can.

Just as LDI took over the October Conference, so I expect the Growth Agenda to take over this.

This blog is restricted to a discussion of DB funding, there is an equally important discussion to be had about the repurposing of DC investment. While the funding of DB schemes is likely to be considered “legacy”, DC “is the future”. These characterisations are of course wrong, most of the pensions arising from our DB system are yet to be paid, there is no system yet to pay pensions from DC pots.

In future, we need to think of DC and DB pensions as one –  certainly in terms of  funding, They will differ in the duration of liabilities but  will eventually have  a common purpose. That purpose is the payment of an income for life which gives people dignity in retirement.

 

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Capita admits 470,000 academics’ pension data hacked

Posted on May 12, 2023 by henry tapper

Three of Capita’s servers were hacked in March of this year. The Sunday Times put the hack on its front page in April and since then Capita has been reporting on its  cyber incident.  You can read the details on the blogs at the bottom of this page.

Capita until recently thought that only a small amount of data had been compromised but this turns out to have been wistful thinking. Yesterday the dam burst.

USS uses Capita’s technology platform (Hartlink) to support its in-house pension administration processes.  It says it  has been liaising closely with CApita over the course of its forensic investigations.

While it has been confirmed that USS member data held on Hartlink has not been compromised, USS was informed on Thursday 11 May that details of USS members were held on the Capita servers accessed by the hackers. The information potentially accessed includes:

  • Their title, initial(s), and name; their date of birth; their National Insurance number; their USS member number.

The details, dating from early 2021, cover around 470,000 active, deferred and retired members.

While Capita cannot currently confirm if this data was definitively “exfiltrated” (i.e., accessed and/or copied) by the hackers, they recommend USS members work on the assumption it was.

USS are telling their members that they are awaiting receipt of the specific data from Capita, which they will in turn need to check and process. USS uses Capita systems but not Capita’s administration.

USS will be writing to each of the members affected by this – and, where applicable, their employers – as soon as possible to make them aware, to apologise for any distress or inconvenience caused, and to provide ongoing support and advice.

Other Capita clients are not so patient. Colchester appears to have had a similar problem.

Colchester Council’s chief operating officer Richard Block told the Colchester Gazette and Standard

“The council is extremely disappointed that such a serious and widespread data breach has occurred and is robustly addressing the matter with Capita.

“I want to reassure all residents that we are taking steps with Capita to fully understand how they have caused this data breach as well as any further action required.

To be fair to USS

From the sideline, it does appear that USS are doing rather better than Capita in keeping “stakeholders” involved.

USS has information on its website providing tips on how to spot scams, and a set of Q&As is available here to  address any immediate questions.

Members can also email mydata@uss.co.uk if they have any further queries not covered on www.uss.co.uk.

USS is encouraging members to only ever give out personal information if they are absolutely sure they know who they are communicating with. It is advising members

  • If you receive a suspicious email, you should forward it to report@phishing.gov.uk. For text messages and telephone calls, forward the information to 7726 (free of charge). For items via post, contact the business concerned.

  • If there are any changes to your National Insurance information, HM Revenue & Customs would contact you – but you can also phone them on 0300 200 3500.

  • If you are concerned someone might be impersonating USS, please let us know by emailing mydata@uss.co.uk.

The National Cyber Security Centre and the Information Commissioner’s Office (ICO) both provide guidance that may also be useful.

USS has  reported this incident to the ICO and will work with them on any investigation they choose to conduct and any recommendations they might subsequently make to USS. USS has also informed the Pensions Regulator and the Financial Conduct Authority.

It says it is  confident members’ pensions remain secure. USS has reviewed their  own systems and controls to ensure they remain robust. My USS login information has not been compromised.

View of an outsider

This is more than an embarrassment . The data was hacked over 6 weeks ago and it is only now that the USS trustees and executive have been made aware. I have spoken with USS on this and have been told that to date no member has reported any impact from their data being compromised.

But the fact remains that nearly half a million current, retired and former academics are at risk from their data being traded on the dark web.

Alan Chaplin, my senior correspondent on these matters, has this to say

And the Pensions Regulator is clearly anticipating more trustees with problems

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Has it really come up roses for UK’s private sector DB schemes?

Posted on May 10, 2023 by henry tapper

Over the last 7 yers, First Actuarial published its FABIndex which explained that using “best estimate” actuarial valuations , rather than “marked to market” accounting valuations, the defined benefit pension schemes sponsored by corporate employers were not running deficits but were in rude good health.

Rather than the volatility shown by the accounting method’s estimates of surplus and deficits, the actuarial method shows that the PPF 7800 schemes under scrutiny have consistently been in surplus and that surplus has hardly out of a range of £20-30bn.

While FABI is less noisy and less newsworthy, it makes sense of pensions to the ordinary person in a way that the FRS17 accounting standard doesn’t.

There are few fundamental changes to the amount pension schemes are on the hook to pay their pensioners. We heard at yesterday’s Pension PlayPen coffee morning, that the anticipated improvement to life expectancy over the period hasn’t materialized and that there is likely to have been a slight reduction in how long the current generation of pensioners are likely to get their pensions. But this Covid-dividend is of relatively small import.

What has happened over the period, which has turned accounting deficits on their head has been the end of QE , the reappearance of inflation, the increase in gilt yields and the increase in the discount rate that governs marked to market liability valuations.

While these factors have also been recognized in FABI, they are much less pronounced in terms of impact and could have meant that – had assets maintained their value, pension schemes would now be so much in surplus that they would be once again a national treasure.

Sadly, the yield dividend was wiped out by over £500bn of real asset losses resulting in part from poor investment conditions in 2022 and in part by the impact of the LDI blow up in Sept/Oct.

So has it all come up roses?

The story that defined benefit schemes were in desperate trouble and were likely to drag our larger companies down with them was one that gave birth to the de-risking fever that gripped consultants and trustees in the years following the financial crisis. It was a story that the Pensions Regulator was only to happen to go along with, de-risking made for a chance to show off TPR’s powers to extract deficit payments from employers.

Employers were able to justify coercion to get members out of pension schemes as prudent. ETV and PIE “exercises” meant that members lost their pension rights for a cash equivalent and many members did. Low discount rates meant for high transfer values and over the period between 2016 and 2020, over £100bn of pension promises were swapped for cash paid to retail pensions by Trustees.

Meanwhile, deficit contributions to DB pensions meant that DC pension contributions were kept to a minimum, investment in R and D, plant and machinery and in the innovation British companies needed to compete was swapped for massive pension contributions to meet the cost of all this de-risking.

It now turns out that they need not have bothered. The most solvent funded DB pensions are those that had no need to de-risk, the schemes such as the Local Government Pension Scheme that did not over-purchase gilts using the derivatives market but invested for the future without thought of any end-game.

They are now seeing everything coming up roses. They are the schemes that can afford to invest in productive capital for the benefit of Britain’s economic future and they are now in the fortunate position of being less of a burden on their sponsors (both employers and members).

The opportunity cost

Employers will look back on the past decade with regret. They will ask whether they should have adopted pension strategies which led to such massive exposure to collateral calls when their borrowing strategies went wrong, they will asked why they paid so much to de-risk liabilities relative to the transfer values of today and they will rue the opportunity to focus on growing the assets of their pension schemes , rather than worrying about fake deficits on their balance sheets.

First Actuarial pointed this all out throughout the period when schemes were being herded into “de-risking”. They pointed out that the PPF, in whose name , TPR and Trustees were demanding deficit repayments, was in rude health and they were right. The PPF is now embarrassingly over-funded. Corporate pensions have not folded and – as this article shows, project fear is now exposed as project fake.

All this de-risking has been at a massive opportunity cost to schemes, to members and ultimately to the UK. We will  look back at the past twenty years of DB pension strategy as lost years in which pensions played a substantial part in the UK’s poor economic performance.

To read how one consultancy stood out against the trend – here is the link to FABI and First Actuarial’s monthly briefings/

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Capita and their clients – there but for the grace of God…

Posted on May 2, 2023 by henry tapper

Spare a thought for Capita staff , spending much of the weekend working out what has been hacked from the three servers reportedly impacted.

If you are a data controller, you probably depend on organisations such as Capita to manage the data effectively and keep it safe, but are we confident that were we the victims of a Russian cyber-attack, we would have a plan in place, much better than Capita’s Plan A.

We have our trust in Amazon Web Services, we have a Plan A and we have insurance, we were instructed by a NED one of whose businesses was hacked, we have taken what precautions we could but I remain nervous – who wouldn’t be? How would I react if the unthinkable happened?

Most of us, I suspect, would instinctively want to pull down the shutters and minimise disruption and reputational damage to the business. That’s what Capita did , until the Pension Regulator wrote to 300 trustees responsible for pension funds that use Capita asking them to  investigate whether the personal details of millions of people had fallen into the hands of foreign cybercriminals.

A problem shared is a problem halved – unless you have no data. Most trustees must have read that letter thinking this problem hadn’t halved but doubled. Capita and the trustees are very much in this together.

It is Capita that has to identify which members have had their data compromised and it’s up to the trustees to break the bad news. All that trustees can do right now is thank the grace of God that they have Capita to support them .

Ultimately, the decision to employ Capita, or any other third party administrator, is taken by trustees, they have that reckoning to follow. So have Capita

The Trustee plan A required perfect knowledge from March, clearly plan A did not work

Each now has to develop their own  Plan B as they respond to the very specific request from TPR

“As a data controller you need to gain assurance that your data processed by Capita is secure and take action as necessary to protect your members … Please tell us what steps you have taken to meet your obligations as a data controller.”

If you are a trustee reading this that didn’t get such a letter, then give double thanks for the grace of God as you can now prepare yourself to ensure that if your data  is compromised, either directly or through a third party, you have a Plan A in place that learns from what Capita and their impacted clients, are going through now.

There is a common enemy in this and this may be a case where the best means of self-defence is adopt a common approach. What is obvious from the failure of Capita’s Plan A is that saying nothing , when hacked, simply kicks the problem down the road.

These hacks occurred in the middle of March ,we are now in May, if you are a data controller, make sure that months don’t go by before you know what has happened.

Use your time before your hack wisely to have a plan A that works.Then pray for the Grace of God to grant plan A will never be actioned.

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Consultants – we must end the “AMC limbo” now!

Posted on April 27, 2023 by henry tapper

A long time ago , I and a colleague were presenting to the trustees of the parliamentary DB pension plan (the PCPF), an alternative AVC arrangement to the Equitable Life (whose proposition was collapsing).

We knew that we were offering our service at twice the price of others presenting in the beauty parade which had been organized by a firm of consultants. Our pitch was based on the value we would bring and – even then – the value for parliamentarians money.

When we finished, the Chair of the Trustees, an eminent MP , asked us how he could justify to his members putting forward the more expensive service.

My colleague, inspirationally replied

” Sir, we believe our rivals are selling at a loss, if you agree with me and appoint one of them,  then you must instruct your members to report every contribution they make to the parliamentary privileges’ committee”.

We were appointed , I suspect on a combination of product, wit and chutzpah. But I suspect that many purchasers of DC pensions know that their fiduciary duty to those they purchase for extends beyond comparing prices.

Selling on price

Selling workplace pensions on price is nothing new. It happens out of laziness. It happens because of a combination of these three things.

Those who market pensions workplace pensions are too often rewarded on volume not margin, their job is to squeeze their pricing actuaries – an internal broking job that enables to compete when the horse-trading happens prior to an appointment

Those who purchase workplace pensions, employers – or trustees selecting the workplace pension to transfer member assets too, have insufficient information or education to consider a decision based on value.

Those who advise on the purchase find it easier to justify their fees by quantifying the saving in price to the purchaser of each bp off the AMC.

It has happened for decades and it is still happening today and this is why we are seeing so little innovation in the investment of DC.

To win new business , providers need a headline AMC which is not only competitive enough to make the shortlist, but has the give in it to win the horse trade prior to appointment. If you go into a pitch knowing that ultimately you will win or lose on price you need an investment proposition which can be stripped down to win theAMC  limbo dance.

“It’s only DC”

The problem is systemic and it comes about because of a phrase I have heard when working in pension consultancies . “DC” pensions are not taken seriously by many consultants  who value their work in DB over the work of their colleagues in DC. DC is – to them – a kind of broking, the product a commodity and the outcomes of the products of little interest. They are only DC and the people in the actuarial practices assigned to the DC departments are those not up to doing proper work.

This engenders low esteem in DC consultants which encourages them to sell their wares on their broking skills. Since they haven’t the courage of their convictions with regards “value”, they commit resource into marketing themselves to potential clients rather than researching providers. If the value of the service they are offering is challenged, they point to their fees being lower than those who do the job properly and the results of their work being lower AMCs.

Dumbing down has become vertically integrated from the senior partner to the most junior consultant- “it’s only DC – normal standards do not apply”.

What does this mean?

The consequences of the dumbing down of DC pensions are these

  1. Pricing of workplace schemes is now so keen that providers have no choice but to strip out value enhancers in favor of the cheapest passive funds they can purchase.
  2. Passive managers, starved of margin, look for back door profits
  3. Fund governance – such as ensuring transitions are completed at fair value – is not done
  4. What members get by way of achieved return is less than the declared net performance
  5. In this race to the bottom, quality decision making is abandoned.

And this is the area of financial services  that Jeremy Hunt wants to encourage to invest in high-value , highly-priced growth opportunities.

Measurement must change

We must start measuring the outcomes of the investment strategies employed by workplace pensions better. That means moving away from the top-down approach where fund performance is measured in theory, charges based on assumptions are netted off and net performance based on hypotheticals is ditched. Performance measurement must be based on achieved outcomes using member data, what and when they save and what the pot value is on the day of measurement.

Moving to a measurement system based on what actually happened is the only way of outing poor practice, hidden fees, kickbacks, sloppy transitions , late investment of contributions , dry powder in funds – all of the little things that create the tracking error between what a saver gets and what they should get.

If standards improve -accountability will follow

If workplace pensions are considered on the basis of what they have actually delivered, employers and trustees can hold those who manage their saver’s money to account.

If the declared net performance is not being achieved in practice, then providers should be asked to explain where there is leakage and either improve or be sacked.

Simply taking the investment manager and the administrator’s word for it is not good enough. Their performance needs not just to be measured but properly benchmarked.

Without this accountability, there can be no hope of moving towards better practice.

 

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A year off you life – a year on your pension. Windfalls are for sharing

Posted on April 7, 2023 by henry tapper

What’s that William McGrath up to now? Sweet-talking the Trustee with a lyre and a tablet?

One year off your life – a year on your pension. Windfalls are for sharing

 

 

Well said that man – and there’s more

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The pension dashboard needs more than a reset – it needs a rethink.

Posted on March 3, 2023 by henry tapper

Aon’s bizarre messaging to keep us working on dashboard data and connectivity.

The dashboard is being delayed again. Team PDP is already four years late getting the pension dashboard  crossing the line but our grand-prix racecar is in the best of hands –  even with that retro-refuelling pipe!

It was originally intended that pension schemes would join in three waves, with large schemes due to jump on between August this year and September 2024, medium schemes between October 2024 and October 2025 and smaller schemes from 2026.  That timetable has been scrapped – there is no new timetable.

That we are already a number of laps behind our European counterparts is of no consequence to the current Minister for Pensions. This is not a problem that happened on her watch, like successive ministers over the last decade, she is merely managing someone else’s bright idea.

Like the iconic watch,  ministers never actually own  dashboards , they just look after them for the next generation.

The dashboard’s illustrious timeline

This dashboard won’t be ready in this parliament and there’s no certainty it will be ready in the next.  The dashboard will be  “transforming how consumers think and plan for their retirement” but not for a few years yet.

The story of the dashboard dates back into the last millennium with Hansard recording Frank Field being told by the then DWP SOS that Combined Pension Forecasts had been piloted in 1999!

Nearly a quarter of a century has passed since that pilot and now we hear that the digital descendent of the CPF is to be delayed again as Government struggles to display  digitally combined pension forecasts on our phones.

In the meantime we have seen open banking become a reality for most of the population with payments managed in seconds with a flick of a finger.

Open Banking happened because of the resolute refusal of a group of people who refused to take “no” for an answer. Requiring the core retail banks to sign up to a set of protocols and make data available to their customers sparked a step-change in our approach to banking.

Today, nobody writes cheques and most of us even use a cashpoint, we seldom visit banks and the time we take managing our finances has been radically reduced. We are reminded of when we have a bill to come by smart messaging and banks can now display pension balances on their apps in the spirit of pension forecasts.

All of this started from a very small base. Pension dashboards were launched in 2016 as pensions answer to open banking. The enthusiasts did open banking, the DWP and MaPS have stymied open pensions.

Now we hear, despite all promises , the pension dashboard is further delayed, with the dashboard availability point for consumers now receding into the second half of the decade.

Once again, we have no timetable. The odds of my accessing my state pension  (Nov 28) before my dashboard in BAU, are shortening.  Amidst all this – Aon can still liken progress to a pit-stop on a grand prix and PASA , the ABI and the PLSA can breathe a sigh of relief.

The days of sabre rattling from Guy Opperman against unprepared schemes are long gone. The DWP , MaPS and the PDP is now looking more like the special military operation this time last year.

For 7 years this blog has been calling for a simple pension finding service from which we can build. The DWP has not listened and along with MaPS they’ve made an arse of this – just as predicted. It sounds to me like Laura Trott has worked this out.

The Statement from the MfP

Laura Trott’s statement to the house 02/03/23

Time for a rethink

It is time to rethink what people want from a pension dashboard

Here are my two must-haves

  1. A means to find my lost pots
  2. A display of all the pots I have and links to pots  I may have

There’s £26bn in lost pots, Martin Lewis dedicates half his show to it.

People don’t lose their DB entitlements – they don’t lose their state pensions, they lose their pesky pots.

Here are my three nice to haves

  1. A reminder of where  I have defined benefit pension rights (with links)
  2. a forecast of my entitlement to my state pension
  3. a forecast of my defined benefit pensions

If you can remind me who’ll be paying my defined benefits – that’s kind. Yes it would be nice to know what I’ve got coming but I’m not holding you to it, please don’t bother me with GMP rectification , McCloud and complex forecasts of future inflation.

Here are the things I am really not bothered about

  1. Certainty about what my pots and pensions will give me in the future
  2. Completeness of information – I can live with information gaps
  3. Being scammed – sorry but I expect to be protected from data mismanagement

If you can’t be certain what my pension is going to be – tell me this is your best guess – be honest and brave

If you won’t link your data to dashboards say so, the dashboard can list all the schemes that couldn’t find a way to make their data available. Be honest about your incompetence.

And if you can’t share data with a pension dashboard without the risk of it being stolen, don’t  – just tell us that you can’t share data securely (and we’ll giggle).

Please listen this time.

Every successful dashboard in Europe and around the world has started by displaying the information it can display with the promise of completeness in years ahead.

If when this digital dashboard kicked off under the Treasury in 2016, we had limited its scope to my nice to haves , we could have had an operating dashboard finding pots and reminding us of pension rights by the original delivery date in 2019.

No one listened to the people who called for open pensions , instead the DWP took control (as they are doing now) and in a series of hideous meetings transformed dashboards from fintech enterprise to 20th century mainframe mindset.

Yes Britain has the most complicated pension system in the world, which is why we need a dashboard more than any other country.

But it may not be this decade that we   deliver a dashboard that focusses on the things ordinary people aren’t that bothered about.

We need to prioritise, work out what we can deliver now and deliver it. We must stop this foolishness that the dashboard available point needs to deliver the lot – it can’t.

Delivery must be staged with the priorities around the things that matter most to people- finding their pots and showing what can be found.

We must put a full time person in charge (maybe Chris Curry but the evidence is he can’t run this and job run the PPI) . We must take MaPS out of the equation and let it sort itself out – the dashboard is first and foremost a technology project- it needs to be treated as such.

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The public’s bullshit detector caused the “pension pandemonium”.

Posted on October 25, 2022 by henry tapper

There were two quite separate dynamics to today’s Pension PlayPen coffee morning.

Speaking on behalf of the millions of members of workplace pensions scared stiff by talk of a pension crisis was Tom Selby, head of retirement policy at AJ Bell  and speaking back at him were a number of experts on LDI led by Con Keating but including Jon Spain and John Hamilton.

The common theme was “mis” or possibly “dis” information. Has the public been misinformed over the nature and consequences of the crisis in LDI. For the purposes of this article. I’ll define misinformation as careless with the truth while disinformation is the deliberate telling of lies.

In Tom’s view, the “waterfall of information” from the BOE to broadcast journalists through to the broadsheets, tabloids and trade press created misinformation because the subject matter was complex, the consequences obscure and ultimately because there is a story that needs to be told that cannot bide too much “nuance”.

In Con’s view, the telling of the story of the breakdown of LDI is – if not a conspiracy of lies – certainly a deliberate perversion of the truth.

As chair, I was left to conclude that the public and most people in pensions are not well informed about the consequences of the surge in gilt yields and the crash of gilt prices and have not not had access to good quality information from top to bottom. If we take the point of information to be guidance, then the guidance from the Bank  of England, the Government and the media has been lacking and frankly whether that is because of laziness, lack of bandwidth or because of a deliberate attempt to hide the truth – the end result is damage to pensions.

Tom Selby’s time spent answering the calls of those frightened by reports of a pension crash is recounted in this story in Money Marketing.

It is the mark of a very good journalist that he or she can make a complex subject accessible without dumbing it down to a point where we get misinformed. This is how a very good journalist describes Liability Driven Investments (LDIs)

LDIs are designed to hedge off the risk associated with gilt yield movements. At a simple level, that means when gilt yields fall and the accounting value of liabilities increases, the investment bank running the hedge will pay the scheme money. Conversely, when gilt yields rise – as we have seen recently – the scheme has to pay the investment bank.

This worked fine during an ultra-low gilt yield environment but became a problem as yields spiked in the wake of the mini-budget – particularly for those LDI funds that had leveraged positions.

he continues

As a result, some LDI hedges demanded huge sums of cash, with the risk the gilt sell-off precipitated by the mini-budget would be made even worse by pension funds dumping gilts to post extra collateral. What we saw was therefore a gilt crisis involving a specific type of investment held by a specific type of pension scheme, rather than a crisis that posed any direct risk to people’s pensions.

Bear in mind that Tom is riding for financial advisers who understand what a hedge is , a pension liability is and a gilt yield is – this is clear information that guides advisers to an understanding that this was not a crisis leading to insolvent pension funds , rather one that threatened the stability of the gilt markets.

Talk of pension funds becoming ‘insolvent’ or pensions being at risk was, at best, hyperbole and, at worst, entirely misleading. It is the strength of the employer that is paramount when determining whether or not a DB pension promise will be paid – and even where this is compromised, the PPF provides a valuable safety net.

Employers stand behind pension promises and the PPF stands behind an insolvent employer to provide a safety net.

The problem identified by Tom is that on the buy-side of the story are punters who have no idea whether their workplace pension is going to provide them with a pot of money or a replacement income, or whether their pension is invested or provided by the taxpayer. To quote the OFT some eight years ago now

So how can employees in workplace pensions seek reassurance about the pensions they are in? What are the solutions?

Firstly we need better direction from the very top , in this case , the Bank of England, the DWP and the Treasury. For various reasons , mostly connected with the crisis in question, all three have been preoccupied. But none has been able to put out a sensible briefing that explains how a pension crisis involving the solvency of (LDI) pension funds is not going to damage people’s retirement prospects. Simply telling people that their pensions are now safer because gilt yields are higher is meaningless.

Part of the problem we have with communicating this LDI crisis is that we refuse to tell the story in a credible way. People do not believe that a pension crisis is not a crisis for their pensions (something that Tom repeated several times)

The reality is that the actions of the Government (the micro-budget) have weakened most people’s pensions either because they held gilts and bonds in their DC plans, which were worth less when gilts plummeted in value) or because of the collateral calls from leveraged LDI which forced many schemes into a fire sale of investments  or simply because the economic situations of those in workplace pensions have or will hit savings levels and/or drawdowns. There is no upside to the 1.6% increase in the cost of Government borrowing at the end of September or the intervention of the Bank of England both of which mean that the country is more indebted and our pensions in real terms – weakened.

Unless these consequences of the crisis are accepted, people will continue to see what is being told them as a cover-up.

Here we move into areas which may be called disinformation. If – for the purposes of keeping a lid on a crisis, participants deliberately conceal what is going on, then they risk pandemonium from dodgy information. People will infer that their schemes are insolvent even if (and especially if) they are told that there is no problem.

I will return to the PLSA conference and the silly attempt to bounce the Bank of England into extending the support for DB pension schemes which told the market that the pension schemes were not ready for the October 14th deadline. At the same time that the PLSA pressed this panic button , they were reassuring us that there was no problem. Is it any wonder that people were baffled.

This purposeful attempt to calm the general public only led to what Tom calls “pensions pandemonium”.

The solutions to problems such as the one pension schemes were facing is to tell it how it is and let the public decide based on the guidance they take from the facts. Failing to provide a clear factual account of what was going on , meant that the likes of Robert Peston briefed his viewers that pensions were in danger but that could have been avoided.

Meanwhile those pensions that were in danger , had it not been for calm brought about by the BOE, were given signals from the Regulator, the PLSA and the docile pension press, that there was nothing to worry about. Which is why so many schemes did run out of runway and became forced sellers – or even lost their hedge and their collateral.

As any good punk knows, the way to convince people is with the truth, bullshit will out. The solution to the problem people have with pensions lies in transparency, You cannot dress up the truth , we must learn to explain the complex with the skill of Tom Selby.

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We should have a Government of National Unity.

Posted on October 21, 2022 by henry tapper

We are about to embark on another Conservative leadership election that will divide not just the country but the Conservative party. There is a strong moral argument for a General Election but this is unlikely to happen. Watching Question Time last night, there was an appetite for a general election but that was demonstrated by those who wanted to participate in the political debate. Most people don’t, we need a way of Governing over the next two years that recognises that the will of the country is for something quite different than what we have had over the past 18 months.  I propose a Government of National Unity, please read on.

There are two electable Conservative candidates and a third whose very candidature is an insult to our parliamentary democracy. That does not mean that Johnson, who is currently on holiday will not do his best to mount a comeback. He will have plenty of supporters amongst Conservative backbenchers who will see him as their best hope of getting re-elected.

For those who have given up on politics as a serious business, Johnson would I suppose be fun – the Clown Prince returning after a short rustication. But if we are to take our democracy seriously – and we should – there should be no door open to him. Ideally he should resign his seat before it is taken from him, he should leave the political arena .

But I fear he will hang around like a bad smell, he should be given no job, nor should Rees Mogg – they have disgraced themselves. Johnson should give up his classical pretension to be Cincinnatus , he is a petty criminal who needs to learn the law applies to him as it does to us all.

We have a new monarch but we have an old parliamentary system. Worse we have the old parliamentary Conservative party to contend with.

The Conservative party is  the big problem facing Truss’s replacement, whoever they may be: is this a party capable of unifying around any real-world programme?

This is a party that has, since the UK voted to leave the EU, voted against the spending cuts of Philip Hammond, rejected the tax rises of Sunak, driven itself towards the tax-cutting excess of Kwarteng and may now reject the return of austerity under Jeremy Hunt. It opposes higher inflation and dislikes higher interest rates. It wants a balanced budget but endeavours to keep taxes low and spending unchanged. It wants to be pro-growth but also to have a distant and at times hostile relationship with its nearest trading bloc.

But there is an alternative to a Conservative Government, I’m calling for a Government of National Unity.

This  new Government could be led by the elected party but include in its Cabinet and Ministries, the best of all parties.  We have able leaders in the SNP and the Labour Party and we would probably have more unity between a cabinet including the SNP, Liberals, Greens and Labour than the various factions of the right. Indeed I see much more that unites Sunak and Starmer , Rayner and Mordaunt than the between the left and right of the Tories.

I have been impressed in recent weeks by a number of politicians who have shown good sense in a time of crisis. It is right that the Conservative party forms the Government but that does not mean that it cannot work with other parties to get us out of the current mess we are in.

Ideologically , the center left and center right can work together for the national interest without the rancour we are currently seeing. Excluding the far left and far right from a Government of National Unity makes absolute sense but such a Government should not exclude the Scots and Welsh and Northern Irish , all of whom could and should be considered part of the Union.

This radical suggestion is made seriously. Reaching across the floor of the House of Commons for the remaining two and a bit years of this parliament would make for a more productive political process where we would see things done at a rate. The Conservatives have nothing to lose, if they continue as they are doing they will lose catastrophically and their best hope is to show that they can act in the national interest for the last part of this parliamentary term. For Labour and maybe the Liberals, working within Government rather than against it may mean that at the end of this parliament there is a chalice handed to them which is not poisoned.

This could happen only if the Conservatives agree to play nicely over the next week. They should move fast to ban Johnson from contesting, there should be an agreement between Mordaunt and Sunak that one will stand down if it becomes clear the other will win (Sunak should have done this early in the last contest). There need not be a vote and there need not be any factionalism going forward. Ministers who were doing their jobs prior to the Truss regime, should return to their former positions, those who have behaved vilely, should be banished to the back benches (Bravermen , Truss and  Johnson for starters). Where this leaves vacancies Kier Starmer should be invited to offer his best candidates.

Starmer himself should stand beside the new Prime Minister as Clegg did beside Cameron. Hunt is a passable replacement for Osborne but he should be shadowed by Rachael Reeves and Yvette Cooper in a Treasury team that takes the really tough decisions consensually.

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What is “useful content” on LDI and who should publish it?

Posted on October 20, 2022 by henry tapper

John Belgrove , who has long been a friend to this blog , has published on Linked-in a Venn diagram.

This is not an ad hominem attack on John, he is being helpful in articulating a commonly held view (judging by the 200 or so comments on a recent FT article trying to explain why the BT pension scheme has lost £11bn in a couple of months)

John’s diagram suggests that the vast majority of the red box – people writing about LDI, neither understand it or understand DB funding. They are therefore not producing “useful content”.

Patrick Lee, a former  member of the Institute and Faculty of Actuaries has asked..

Isn’t it rather odd that [the IFOA] has had nothing to say about the crisis in #LDI pension plans which caused the Bank of England to intervene in the UK gilt market to prevent a possible catastrophic downward spiral and which independent pensions expert John Ralfe has said .. requires an urgent investigation by regulators including the Bank of England and the Pensions Regulator?

Presumably , to properly understand all the nuances of LDI , you need to be an actuary, lawyer, pension scheme expert and investment professional. Even John Belgrove is not all of those!

Who can write about LDI?

So we might conclude that the FT should not be writing about LDI and that I shouldn’t either. Infact we should confine the comments on LDI to the tiny coterie who John considers can write “useful content“.

Patrick Bloomfield, partner actuary at Hymans Robertson is worried that the press are needlessly alarming people

“Many of the headlines, especially mainstream press stuff, has been wildly misleading and scaremongering,” ,

“Most schemes use a bond yield for that calculation or maybe a gilt yield plus a margin. So as gilt and bond yields have gone up, there’s more discounting and liabilities have come down. So high yields means low liabilities. In other words, this is good for pension scheme funding.”

So the public have been misled by the Bank of England’s £65bn safety net, designed to stop LDI pooled funds being wiped and segregated funds being met with collateral calls that if met could do serious harm to scheme and sponsor?

In answer to my question, I suspect that discussions of the impact of LDI on UK pension schemes should be written by actuaries and lawyers for actuaries and lawyers in their journals and the doors firmly locked against journalists , let alone the general public (aka pension scheme members). Click this link to get an idea of what I’m talking about.

This reminds me of the days when people who published biblical texts in English were burnt at the stake. LDI is as accessible to ordinary people as the bible was in vulgate Latin. Allowing people to see what is going on in the bible , means allowing them to make their own minds up – something that the Church was so afraid of that they martyred the publishers and translators.

I doubt that many journalists felt quite that heat this month, but reading the comments to their article from anonymised experts, I am sure they felt uncomfortable. It is not they that should be uncomfortable, it is those who wish to suppress the provision of information and the revelation of the consequences of schemes over-loading with gilts to meet regulatory demands that should feel uncomfortable.

There were other ways to fund schemes over the past fifteen years, LDI was not the exclusive strategy  . There are those outside the inner sanctum who are trying to talk and read about LDI in a language we all can understand!

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Are LDIs the greatest scandal of the lot?

Posted on October 17, 2022 by henry tapper

Let’s unpick this headline , statement by statement.

Do we need a rethink of pensions?

Undoubtedly we do , the current pensions regime is under review and the DWP have drafted some draft regulations which are supposed to make them safer. These regulations have met considerable opposition, particularly from leading pension experts Willis Towers Watson. Ironically, compliance with these regulations would force pension scheme to be more rather than less dependent on gilts.

Do gilts increase rather than reduce risk?

The gilt rate represents the cost of borrowing for the Government, normally Government’s borrow cheaply because they don’t default on debt. Currently the markets are marking up the cost of Government borrowing because they see it as irresponsible and incompetent.

This doesn’t mean that the fundamental reason for buying gilts has gone away, they normally pay a yield that is low but safe. Gilts become risky when packaged into LDI contracts which double , triple or quadruple the risk when something goes wrong. The problem that the pensions regime has is that two thirds of all defined benefit pension schemes have been at it.

So why have gilts been so popular? The answer is that the accounting standards to which pension schemes report , and have done since 2004, make holding gilts the best way of demonstrating solvency of a scheme. But as Terry Smith (the boss af Fundsmith) has shown, where an employer is prepared to stand behind a scheme, a more risky strategy can be more rewarding.

And what do we make or a risk free asset that can do this?

As anyone who has found themselves in a standalone “pre-retirement” fund , losing 20% in a year leading up to your wanting your money, is not a pleasant experience.

Gilts are risky assets , no matter their matching properties. Doubling or tripling down on gilts is a risky business. LDI is a risky strategy and pension schemes that have embraced it are now at risk of losing their hedge, their collateral and even their solvency.

Is the pension regulator a weak and captured watchdog?

Let’s hear what Ruth Sunderland has to say

The Regulator promised that lessons would be learned and its powers in regard to reckless employers have been strengthened. The UK is no stranger to pension scandals, from Robert Maxwell to Equitable Life. But LDIs dwarf the lot combined and the Regulator is out of its depth.

That no one knows how big the potential write off of collateral, the sell down of equities and the cash calls on employers are . is evidence that this crisis is out of control.

I sat and watched as TPR CEO Charles Counsell explained to an audience eager to be reassured that there was really nothing to see. That was because TPR have are blindsided.

They have been captured by circumstances that they will say were beyond their control but which happened under their noses.

Why does LDI dwarf the lot?

We don’t know what has been sold to meet collateral calls. JP Morgan are saying £149bn, which looks a precise number until you remember that there are 9 zeros behind a billion.

I suspect the figure is a lot higher and while some of that money will revert to the scheme, an indeterminate amount won’t.

The reorganisation of asset strategies now involves such exotics as “synthetic equities”.  We are in unchartered waters.

Is the Regulator out of its depth?

A smiling and calming CEO , an urbane head of policy, a charming and charismatic Chair, all very much on display in Liverpool, but the damage that has been done to the system has happened in countless meeting where case-workers have co-erced schemes into LDI strategies that worked for a decade but blew up in a few days

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Millions may have small pots, but thank God they have!

Posted on August 11, 2022 by henry tapper

Occam Investing – thanks!

Occam Investing is a blog I thoroughly recommend. Its author is anonymous but  highly qualified, meticulous in the presentation of his/her work and the narrative is relaxed, personal and pitched at those (like me) with little aptitude for complexities! You can subscribe to the blog here, I hope the author gets as much fun out of Occam as I am out of my blog. The author is also on twitter as @OccamInvesting.

What DC pot sizes tell us about financial resilience today

I’ve nicked some of the charts from a recent Occam blog that repurposes ONS data on pot sizes to show that the amount we’ve got coming from our private pensions isn’t as much as we might think. I’m going to look – not at the wealth in the system, but at the lack of it. That’s because my focus these next few months is on what the least wealthy (aka poorest) in our society, do with the limited means available to them.

My argument is simple, many people will be financially resilient over the next two years with the help of their pension savings. Occam’s charts show us why we should be focussing our efforts on those with small pots, they need our help most.

Occam starts by looking at the distribution of pensions wealth across age bands (cohorts)

This shows a picture of pension wealth concentrating on those approaching state pension age with it diminishing as people get into their later years.  Those who worry about lack of consumption may ponder why there is so much wealth in the 75+ cohort, but that’s not for this blog.

Even these averages don’t suggest that with a drawdown of 3-4%, the average saver is going to be anywhere near what the PLSA consider “comfortable” in retirement, but they show that there’s a lot of wealth in the system for all that.

But things start getting less rosy when you consider that 55% of us have no pension wealth at all

It’s worrying because the self-employed, those caring for others and those who are simply not working, are not enrolled. There are also opt-outs of auto-enrolment (and increasing number of them). Put these people on the first chart and averages start falling

 

But this is still fairly abstract information , we need more granular charts to work out what the distribution of pot sizes is. Occam, creates two really good charts that show that the bottom quarter of pots when looked at separately , are nowhere near £100,000 at maturity.

If we look at personal pensions, which tend to be funded with discretionary spend (above AE minima) the picture looks like this.

The orange dots are shooting away, representing the kind of wealth looked after by advisers at SJP, non-advised SIPPs and by IFAs. The red dots may or may not be advised, but the pots represented by the blue dots , those who are in the bottom quarter of pension savers by pot size, are unlikely to be getting much help- other than from Pension Wise.

And when we get onto occupational schemes, some of which like those of the banks are super well funded but most of which , like NOW, Nest, People’s, Smart and Cushon- aren’t. The picture is even more dramatic

The blue dots are struggling to get beyond a £15,000 average.

So what does this tell us?

It tells us that we cannot generalise about pension wealth. More than half of us haven’t got any and so we should be congratulating the 45% who have got some (not telling them they haven’t got enough!)

It tells us that the bottom half of savers are struggling to have saved £50,000 when they get to state pension age and that the bottom quarter struggle to get to half that.

It tells us that pension wealth , as recognised by the wealth management industry and to some extent, insurers, is really concentrated by the top quarter of savers – only about 12% of adults and that we simply can’t treat pensioners as a homogenous group. Most pensioners will regard their private pension as a side-pocket , their income will come from the state pension and benefits. This is Steve Webb’s lesson to us

A sobering thought

I am hearing a lot of tosh at the moment about our pension pots being precious, that they should be preserved for the future and not spent on household bills as the cost of living crisis squeezes us.

But when we look at the proportion of income coming from occupational Dc and personal pensions (look at the pink slither), then we get some perspective. It really doesn’t make much financial difference to the low-earner whether they spend their pot now or in a few years (we’ll leave out the implications on means tested benefits which point to spending now).

In the grand scheme of things, what matters is that people have got pension savings available to them right now- which they could fall back on – if they needed to as fuel poverty kicks in.

And that is precisely the message I would like the pensions industry to be giving those people needing reassurance. We can give those over 55 this assurance.

“You may not get by without access to your retirement savings. If you need it- here is your money.”

Thank God for auto-enrolment which means millions who would have nothing, will have enough. It may not have made us self-sufficient, but it will get millions through this crisis.

 

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August 1st – CDC day!

Posted on August 1, 2022 by henry tapper

The 1st August is the day applications open for a new type of UK pension – what pension people know as CDC (though in regulation it is collective money purchase).

The party line from the DWP is about innovation and can be read here. The DWO – and especially the Pensions Minister , have been supporting innovation through CDC since March 2018 (read this blog for Guy Opperman’s early comments). But by setting the regulatory bar as high as TPR’s CDC code does,  the DWP has so far only offered a  niche service for Royal Mail , its actuaries and lawyers. The DWP acknowledges that it needs to widen the user-base, but it’s light on a marketing plan. For consumer driven innovation, the DWP should be looking more broadly, in particular it should be making CDC part of its “decumulation review”, due to launch a consultation soon.

I am more interested in the views of those who have a consumer focus, and look at CDC as potentially a “pensions boost for millions”.

Adrian Boulding is one such enthusiast, I am another. It’s not just Adrian and I , who are excited. The FT has firmly pinned its colours to the mast in supporting a collective way of spending on. as well as saving for, retirement.

Research conducted by the RSA from customers saving for retirement (July 2021)

Employers are not very enthusiastic

CDC currently looks like a work in progress

Retail or “contract based” CDC

So far, there has only been interest in running CDC as an employer sponsored scheme. But I see demand from consumers for a default investment pathway that is neither an annuity or a drawdown policy but something in-between.

“Annuities without the guarantees” or “Drawdown which never runs out” (bottomless drawdown) are concepts yet to be properly explored by insurers or regulators.

It’s likely that retail – or contract based CDC will be delivered through a fund not a scheme.

Let’s hope that now CDC is “open”, we can get on with “opening” the concept to those not the Royal Mail delivers to!

 

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Al Rush calls out FSCS for failing BSPS transferees

Posted on July 26, 2022 by henry tapper

Al in Port Talbot

In a scintillating hour long session, Al Rush

  1. condemned FSCS for its lack of transparency towards steelworkers
  2. explained his relationship with Clark Wilmott and how Philippa Hann became involved with the FCA
  3. confirmed that Andrew Bailey fell asleep not once but six times in a meeting with him
  4. argued that while most of the steelworkers he had worked with were happy, they still deserved compensation
  5. annoyed IFAs by telling them that the British Steel Action Group’s financial analysis was irrelevant to the 404 redress scheme
  6. called the FCA inherently not fit for purpose
  7. explained the level of care needed to get steelworkers ready to decide on whether to transfer or not
  8. remembered the behavior of rogue advisers in time to choose
  9. made us laugh many times
  10. left us with a deeper understanding of how the BSPS fiasco happened and why it is turning into a mess for FCA, FSCS, TPR, FOS, IFAs, Tata and most of all the steelworkers.

Billy Burrows called it one of the best sessions he had ever attended. I thought Al captured the Zeitgeist of the moment. You will not be able to capture the immediacy of the moment by listening to the audio, but it is well worth a listen nonetheless

The link to the recording is here

Bailey
Rush
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Treasury deprives the low paid of nine years of savings incentives – with a press release

Posted on July 20, 2022 by henry tapper

 

After 7 years of campaigning that started when Kate Upcraft identified the problem for the Friends of Auto Enrolment, the Treasury has pulled the rabbit out of the hat , righted the wrongs and tried to cover itself in glory. “It has at least fulfilled on its promise to provide legislation that can be implemented in time for its leisurely timeframes , something that the Low Incomes Tax Reform Group acknowledge in their cautious welcome for  the amended rules”

In this blog, I comment on the press release that accompanies the new regulations published today.

The Treasury has not covered itself in glory. It has spent 7 years telling campaigners

  1. That those who don’t pay tax – can’t get tax-relief (despite paying the equivalent of tax-relief to non tax payers in personal pensions that use relief at source) HMRC pays incentives to children of wealthy parents before they even go to school!
  2. That it does not have a means to incorporate these changes into its systems (which seems to have been resolved by not backdating payments but allowing those who have missed out for the past 7 years to wait 3 more years for recompense , only one of which will be eligible for compensation).

It has been peddling these half-truths for so long that by the time they receive their first repayment they will have lost up to 9 years of their entitled incentives. One year’s compensation out of ten years missing out. This is 1/10 solution.

So what is the Treasury saying now?

The standard text is from HMT’s press release, my comments are in bold.

  • 1.2 million low earners to see a boost to their take-home pay from 2025

Around 1.2 million low earners will receive top-ups to their take-home pay from 2025 which could be worth hundreds of pounds a year. Note how this is being woven into the cost of living agenda. The repayments won’t boost pensions – they will divert money from pensions back into take home pay. People will get one year’s repayments though they may have missed out for ten years!

Today the government has published legislation confirming that low earners who save through a Net Pay Arrangement (NPA) will get the same level of government top-up as those who use Relief at Source schemes. But will they? These top-ups will be considered earnings – with negative implications for universal credit payments – HMRC gives with one hand – takes with another

For NPAs, pension contributions are deducted before income tax is calculated, whereas with Relief at Source it is after.

1.2 million people are eligible for this pay boost – with 200,000 set to see a £100 increase in their take-home pay. The average beneficiary will receive an extra £53 a year. Information that is available in a press release today that the net pay action group has been denied for years.

75% of those to benefit are women, whilst 11% are based in the North-West and Merseyside and 12% are in London. Playing to the levelling up agenda…

Financial Secretary to the Treasury Lucy Frazer (in post since September 2021) said:

A quirk in our pensions tax system has meant that over a million low-earners have lost out on government top-ups to their pensions, resulting in comparatively less take home pay. (a quirk/anomaly that’s been known about for 7 years and results from complexities created by the Treasury – abetted by DWP)

We are correcting this injustice so low earners will get the same level of government support, no matter what type of pension they use. This injustice was created by a coalition government and perpetuated by a conservative government. It will be partially corrected, but not until we have another government in place. This solution has been extracted out of government with huge difficulty and is nothing for the Treasury to be proud of.

Since 2015, people saving through a Net Pay Arrangement (NPA) have had less take home pay compared to similar earning savers who use a Relief at Source scheme. This is because those using the latter type of pension scheme receive a 20% top-up from the government on their savings, whilst those using NPAs receive tax relief at their marginal rate – 0%. The Treasury here repeat their persistent trope that the RAS top-up is tax-relief – it is infact an incentive to save – which is why non-tax payers get the incentive. HMRC like to repeat that non tax-payers can’t receive tax-relief under NPA – as if the “incentive” didn’t apply. This is pure mendacity, the kind of thing that drives people to despair of ever understanding pensions. 

Today the government has published legislation confirming that it has rectified this anomaly (quirk),  as low earning pension savers will receive similar (but not the same as RAS top-ups aren’t considered earnings) top-ups regardless of what pension scheme they are using.

Beneficiaries will receive their top-ups directly into their bank accounts from 2025 and HMRC will be notifying those who are eligible then (there is still clarification as to whether low-earners  will have to claim the money – which is not the same as getting it – see Pension Credits). The net pay action group’s understanding is that claiming this money will an application process and the sharing of bank details with HMRC. Despite people’s pension contributions being taken by payroll, no payroll solution has been considered to ensure the money is returned.

The government has pledged to deliver these changes in full and on time and will ensure the complex nature of these IT changes are ready to deliver this wide-impacting change. The “in-full” assumes 100% take-up; this is highly unlikely unless the payment is automatic and paid by HMRC through payroll, universal credit or even pension credit. I would be interested to see HMT’s internal estimates of take-up of the benefit. This is of course not being shared in the press release.

In short!

This is as begrudging an acceptance of a cock-up as the Prime Minister’s resignation speech. Like that resignation , we will have to wait for rectification and the damage done will not be put right.

In claiming it is righting wrongs, the Treasury/HMRC is insulting the people who it has robbed, is robbing and will continue to rob for years to come. Margaret Snowden shares my annoyance at the Treasury’s approach, Here’s her response to fellow members of the Net Pay Action Group

.. the announcement made my blood boil!  We must be careful not to praise government for a solution that sounds like a teaser for a forthcoming election campaign. NPAG has fought hard to right this wrong and it has not been righted yet. The solution looks like some sleight of hand

While it is good that a solution has been found, it could and should have been found earlier .The size of the problem (which is now being used to show how generous is the solution) has never before been published – a glaring failure in public disclosure.

Government seems to think that it can present resolution of its mistakes as a major achievement. It cannot – it should be called out for its poor behavior and its pathetic attempts to spin its way out of an apology to the 1.2 million savers who have been short-changed on promised savings incentives.

The pension taxation system is quite biased enough against the low-paid and in particular women. It does not need the bias to be made worse by the failure of HMRC to put right a quirk it created.

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Better savings beat bitter outcomes!

Posted on February 18, 2022 by henry tapper

I watched Martin Lewis’ pension edition of his Money Show last night with a mix of admiration and disappointment.

I admired Martin and his panellists, eloquence, precision and passion, but I was disappointed in finding myself struggling to keep up with what were pension basics. As my partner, who was chair of the PMI examiners, said to me – “it didn’t exactly make pensions easy..”

It didn’t because they aren’t, which is why so little is said by Martin about the things that drive successful pensions – investment – pooling and 20%+ contribution rates. These aren’t things within the compass of those saving through workplace pensions, who form the majority of his audience. Successful pensions, measured by their capacity to deliver meaningful replacement of final or average salary, are in short supply and what is left to us, is the promise of free money from the taxman and employer to boost what otherwise would have gone into cash ISAs or deposit accounts.

For many of the 10m new retirement  savers who Martin was addressing, the message was “don’t opt-out, do opt-in”. This is a good message, especially as the tax advantages to those with small pots are savagely good (most won’t save enough to pay tax  and their biggest worry is preserving their right to pension credit and other benefits which can be wiped by drawing the pension pot in the wrong way. That’s real world economics.

Which brings me back to the tweet exchange with the admirable Steve Glennon (top accountant, top man). Steve was responding to my blog on the opportunities for those in the public sector to top up their pension rights, he’s right to highlight the issues for high earners and those with long service for whom this may not be a good idea.

It is extraordinarily easy to blight a simple concept like topping up your pensions with tax-subsidised AVCs, because of the risk of penal taxation on the benefits arising. But to do so is madness. Just as stopping low-earners is madness because many overpay their contributions by 25% or get caught in a means-tested benefit trap on benefits arising. We cannot allow the exceptions dictate the agenda!

And whether you are an accountant or an IFA or a lawyer or a regulator, you must accept that there will be bad outcomes arising from well intentioned policy, or advice, which arise because of changes in circumstance. How (for instance) do you explain the tax implications of a pension contribution to someone on the margin of a tax-band, when you don’t know if the contribution will get a 20 or 40% tax rebate? It’s one of those “it depends” – where the decision is ultimately about alternatives (investing, spending, paying down debt or simply banking salary).

And notice the word that comes to my mind when I talk of contributing to a pension . It’s a word that Martin Lewis is very familiar with and very fearful of – “investing“.

Martin did refer to saving for retirement as “investing“, but if you look at the faces of those who he is addressing on the video-clip above, you can see how sceptical many ordinary savers are of giving money to people who “invest” it.

This is the biggest achievement (so far) of auto-enrollment, it has finally realised the Thatcherite dream of turning Britain into a nation of owners in UK PLC. (Well maybe more overseas equity, but that may change). The people in that video may not know their retirement money is invested in UK and world markets, but it is.

And what if the world markets did crash, as they nearly did in 2008?  What if those investments were virtually worthless? Would we then be saying that people should never have saved? There are risks which cannot be insured, because they are so systemic that the risks would wipe the insurers too!

Which brings me back to Steve Glennon’s tweet and my response. I was very struck by a presentation made by Steve Webb in early December last year. Steve’s thrust was that pensions are a lot more about the state pension than pension experts generally admit and that the things that bother pension experts tend to be “first world problems” associated with earning too much or having too much wealth.

That is spot on, even for public sector pensions, which give people the chance to be part of a successful pension (see above) for little more than minimum auto-enrolment contributions.

My message to those who are in public sector pension schemes is to ram home their advantage

My message to those who run workplace pensions is to use everything at your disposal, your capacity to pool investments, longevity risk and your marketing capacity to increase contributions; – to give better value for money on the investments your savers make.

We have a two-tier workplace pension system that can broadly be described as public sector and private sector. Some people in the private sector may be paying more towards public sector pensions than into their own such are the oddities of our taxation system. But the oddities do not mean that pensions are bad, they just mean that pensions are odd- sometimes!

Let’s encourage weak workplace pensions to aspire to be best, not level the best by limiting their outcomes.

And oh that we could all look at life with the charm and grace of these two!

Having a sense of humour about these things is important, as it gives us a sense of perspective. The broader perspective needed , looks beyond the problems with the AA, LTA and MPAA and addresses the bigger question of how we make the most of the great  possibilities of retirement. A key lever in creating the retirement we want are the tax-incentivised pension savings plans available to us and nowhere are the tax-incentives for saving greater than for those in public sector pensions.

 

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Public sector worker? Two great ways to boost your pension.

Posted on February 17, 2022 by henry tapper

This chart is from LCP’s excellent paper “the ski-slope of doom” which explains that a generation of workplace savers employed in the  private sector  will no longer be getting DB pensions but inferior DC pots (which they will have to turn to pensions).

For them the getting through retirement looks like a black run!

To get down the mountain, many private sector workers will have to take big risks

But I’m focussing not on the private sector’s “ski slope of doom” but the public sector’s blue and green runs which take skiers down the mountain in a much less risky way!

It’s a gentler ride if you’re in a public sector pension scheme

While those in peril are in the orange and red slices of the pie at the top, those on the blue and green runs are in the grey slice. They are the 6.6m people paid by the public purse to teach, police, fight fires and judge; they work in  local government, in the NHS or in the civil service.

And those with public sector and state pensions could do even better by using available facilities to top up these pensions

I found myself this week talking to people who are in public sector pension funds , I was amazed at the deals available to them. So I thought the perspective of someone who most definitively isn’t a public servant might be useful.

I urge you to use available cash you have to improve your retirement prospects by topping up your public sector pension and perhaps your state pension too!

Financial advice (and tax)

On this occasion, I’m not suggesting you automatically go to an IFA for advice. What I’m suggesting costs you nothing in fees as you can get these deals directly through Government and private websites.

If you are a high earner or if you’re like Jeff and been in a public sector scheme all your life, you should model before you meddle. Most public sector schemes offer modellers to check if you have headroom to improve your pensions and there is a lot of guidance to be had from the schemes and from unions. Here for instance is the guidance to members of the NHS pension scheme from the BMA.

The three limits you should be checking if you have pension wealth and/or are a high earner in a publics sector scheme are 1) the lifetime allowance (LTA), 2) the Annual Allowance (AA) and if you are or are thinking of drawing down from a personal pension of SIPP, the Money Purchase Annual Allowance (MPAA).

I worry that some advisers over-egg these three tax problems.

Much financial advice to high earners  on pension top-ups  is “don’t risk it – take out an ISA” – with the “it” being the risk of breaching the AA, MPAA or LTA. This advice carries its own risks, principally the risk of missing out (opportunity cost).

I’d remind the expert reader that pension tax limits are largely irrelevant to most people. To quote Steve Webb at a recent PMI event

“According to HMRC, “95% of savers approaching retirement are currently unaffected” by the LTA

With regards Annual Allowance charges, in 2018/19:

-13,660 charges reported via ‘accounting for tax’ returns by schemes

-34,220 people reported contributions over AA via self-assessment

In that year there were 31,600,000 taxpayers!

Most people don’t earn £40k per year, still less put that much in a pension!

One limit which does matter to ordinary people is MPAA which needs reform”

MPAA – an unexploded bomb

Sadly, the MPAA is rarely mentioned in any Public Sector documents , it is a limit that occurs where someone starts drawing money from any pension while still saving into other pensions.

Drawing from a personal pension while saving into a public sector reduces your annual allowance to the money purchase annual allowance level of £4,000 pa. This presents a much more significant risk to many in public sector pensions, a risk that can be easily avoided by leaving pension pots alone – until you’ve started taking your public sector pension.

Further information and guidance available on pension tax.

Be aware that paying Class 3 NICS (see below) does not impact your annual or lifetime allowance. It is usually  a better way to top up a pension than to use an ISA if you have annual allowance problems – I hope that IFAs point this out.

In any case, if you are lost –  you can also get personal guidance from Money Helper. This guidance will be based on the provision of factual information and will be, I hope, aligned to what you are reading here.

Most people who have problems with the Annual and Lifetime Allowances know to speak to IFAs and accountants.

If you are considering topping up or drawing on  any pension and are not clear after reading this article, please validate your decision with an independent financial adviser. Be aware, this could and should cost you a fee.

Part One – Topping up your Public Sector Pension Scheme

Firstly. public sector pension schemes do not always provide you with a full pension. Infact unless you are in a public sector scheme a full 40 years (hat-tip to LGPS supremo Jeff Houston who has ) you will need to pay extra pension contributions to properly replace your wage in retirement. You can do this in two ways.

1.1. Paying for extra service (added years)

In the olden days, people bought added years of service, but this has rather fallen out of favour as the terms for purchase aren’t favorable to members. Instead there has been an explosion of interest in another way to top up your public sector pension. You can read more about this option here (this is the LGPS example- you can do this in other public sector schemes).

1.2. Paying (money purchase) AVCs

This other way  is known  as paying  AVCs and there are a number of insurance companies who provide investment services to public sector funds. Prudential are the main one, followed by Standard Life, Clerical Medical and General, Scottish Widows, Aegon , Zurich and L&G. There are still a few AVC schemes with the now discredited Equitable Life (who now trade as Utmost).

The great thing about these AVC schemes is that they can be exchanged at retirement for tax-free cash, meaning that on your AVCs you get tax relief on your contributions, your investment and on your cash benefit. It also means you don’t have to sacrifice pension to take your cash (often on unfavourable terms).

Although you still have a choice, the vast majority of those who choose to top up, use AVCs over added years.

1.3 Paying Shared Cost AVCs

Recently, a new kind of AVC has been pioneered for the Local Government Pension Scheme called a “Shared cost AVC”, where the cost of contributing is even lower as the employer shares savings in national insurance by paying your contributions for you (in exchange for salary).

You pay £1 per month into your AVC fund as your contribution and the remainder of your total monthly contribution amount is paid by your employer, through a salary sacrifice arrangement.

You make savings in Income Tax and National Insurance Contributions (NICs) on the amount of pay you have sacrificed. As a result your take home pay increases in a Shared Cost AVC arrangement, when compared to paying AVCs in the standard way.

The organisation that has made this AVC sharing possible, AVC Wise has so far only marketed it to the Local Government Scheme, but the standard AVCs are available to any member of a public sector plan.

If you are an LGPS employer and you are not using Shared Cost AVCs, you can contact AVC Wise on this link

If you are in the LGPS and your employer offers Shared Cost AVCs you should contact AVC Wise on this link.

If you are in the LCPS and your employer doesn’t offer Shared Cost AVCs – you should contact AVC Wise on this link and they’ll see what they can do

You can learn more about the LGPS and Shared Cost AVCs by watching this video

Part 2 – Topping up your state pension

Public sector  pension schemes were designed to provide a part of the old state pension with a part of member and employer’s contributions. In return for this, both paid lower national insurance contributions. The problem today is that for the time that people paid lower contributions, they were not building up an entitlement to the state pension and some people retiring early from Government schemes may not have a full 35 years contribution history. That means they’ll get a reduced state pension.

An example of a pension forecast showing a shortfall in state pension

This Government video explains the basics well

2. Paying Class 3 National Insurance Contributions

If people have decided to opt out of work, they may not be able to make up these “lost years” and get to their full set of 35. Instead they can buy the years back paying what are called class 3 National Insurance contributions.

Buying extra state pension is becoming an increasingly popular use of pre-retirement cash – especially as payments aren’t part of your annual allowance (if you are struggling with that – lucky you!)

The reason why Class 3 NICs have been growing in popularity is that they are a very cost-effective way of buying extra state pension.

The  cost of buying an added year in 2021/22 is £15pw or £800 pa. Each additional qualifying year works out to be an extra £5.13 a week (or £266.83 a year) in State Pension, based on 2021/22 rates.

So you only have to live 3 years past your state pension age to find yourself in credit.  Compare this to an annuity purchased from an insurance company and you will see what a bargain class 3 NICs are for those who need them and can pay them.

Of course before you think about Class 3 NICs you should check to make sure that you aren’t going to get a full state pension anyway or that the extra years are needed. You can only go back 6 years to purchase extra state pension , so the benefit is rationed but if you have headroom and can afford it, this is a sensible investment of cash in the bank for people close to retirement to consider.

I’m grateful to Aon’s Lydia Whitney who points out that

you can always go back 6 years to fill in gaps but some people can also fill in earlier gaps. It is a complex set of rules so do check your forecast. This loophole to go back more than 6 years closes in April 2023 so do check whether you could take advantage if you are not going to get to 35 years by the time you retire. It can even cost you less than £800 if you had some earnings that year but not enough.

You can find out how do this by using this Government website using these contact points

Which should I do first?

In my opinion, the advantages of AVCs and especially Shared Cost AVCs are so great that you should look at them first. Of course you may have no headroom to bolster your benefits (like lucky Jeff Houston) but most people can and the only downside of paying AVCs is if you are so well off that you fall foul of Annual Allowance or the Money Purchase Annual Allowance (details here). You may already be protecting your Lifetime Allowance in which case AVCs are definitely a “no-no”, but these are first world pension problems and if you are rich enough to have them, you should have a financial adviser or accountant to help you!

For those who have topped up their state pension or have an anathema to investing money with an insurance company, paying added Class 3 NICs is an obvious alternative.

Model before you meddle!

But only think of investing for your future once you’ve worked out what your income in retirement is going to be. You can do this using a modeller provided by your public sector scheme or by referring to your most recent pension statement (this link’s for the Civil Service Scheme but all public service schemes should offer one) . Once you’ve worked out your works pension , check out your state pension using this link.

When you have the information from your public sector pension, your state pension , you can add in any other pension pots or pensions you have found and use the Moneyhelper calculator to work out how far short you are of where you want to be .

Although public sector pensions  are brilliant, most people will not get a replacement salary from them in retirement (even with the state pension included) is less than £5,000 p.a. That’s because people don’t stay long enough in the scheme and sometimes miss valuable years of pensionable service.

Put together, the State Pension and your public sector pension , put you ahead of the game. Ram home your advantage by investigating these two great ways to boost your income.

 

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Picking an IFA who’ll stay the course.

Posted on February 16, 2022 by henry tapper

 

John Quinlivan

My friend John Quinlivan is fond of asking me “capital or covenant?”

He means me to answer whether my business case is  based on the weight of money I can call on , or my trust that I am right.

He is right to ask the question, when you are dealing with other people’s money, it’s right to have recourse to capital – if you make a serious error.

Most IFA’s have little capital; you only need £20,000 in reserve to do the basics and while your reserve rises as you expand an diversify, the bar isn’t very high. If asked whether they have additional capital to call on in case of a negligence claim, they would point to the limits of their professional indemnity insurance.

The covenant or “promise” made by an IFA is not based on retained capital but based on trust. You trust in qualifications, websites, listings, ratings and ultimately the word of the IFA – that things will go right.

Most people chose an IFA based on covenant rather than capital. They are not expecting an IFA to go bust.  But going bust is precisely what many IFAs have been doing –  at an alarming rate ; especially in the hinterland of the large steelworks where steelworkers with large BSPS transfer values, looked for their services.

Such was the demand in 2017/18 for these transfer values to be realised as more readily available capital that could be drawn on, that for many steelworkers, capacity was the issue. There simply weren’t enough IFAs in town. Questions about the covenant of the IFA were secondary, the job had to be done and Terms of Business were signed with little thought to resulting risks.

The latest intervention from the FCA is against an IFA that is known to me, one of the Directors is a member of my AgeWage and Pension PlayPen linked in group. The unfolding story shows how the slow car-crash following the debacle of “time to choose” is playing out as  a series of mini-catastrophes.

None of the players would have ever thought that the consequences of what appeared a “no-brainer” decision, would be so public or so ruinous.

The FCA’s decision to prevent AJH from depleting its capital without its permission poses many questions as to how the protections that the FCA put in place – fell away. What is clear, from reading the judgement and AJH’s accounts, is that the dividends payable to AJH Directors are small relative to the claims being generated by the Financial Ombudsman.

The sad end-game

What is the context for this intervention?

And why has it taken till 2022 for this action to be taken?

Rich Caddy, a steelworker himself, has taken the trouble to look at the IFA’s accounts, these show the depletion of capital has been going on some time

IFA Andy Boyt, who after 40 years service, describes himself as a “financial services survivor” , questions the proportionality of this judgement.

Capital or Covenant?  Can the customer make that choice?

If we were to determine our decision on who to take advice to those properly capitalised, we would find ourselves with a short list of what IFAs call “nationals”, firms with private equity or insurance company capital and recourse to more if time get hard.

The lucky claims are against IFAs whose pockets are lined with inward investment.

But most IFAs are not like that, they pride themselves of being their own masters and indeed the value that many place in such IFAs is that they are able to operate with a personal service that is lost by the homogenisation of the processes which comes with scale.

But choosing an IFA primarily on trust (covenant) means that you are in danger of falling back on the FSCS minimum, if things go wrong.

The National Audit Office will no doubt be noting this and the fact that many of these smaller IFAs were promoted on websites such as “Unbiased”, “Vouched For” and the Government’s own directory at MaPS.

Should such listings have included a “financial strength” assessment or score? It is easy to ask such questions in retrospect, but I doubt that many potential clients would have acted on such information in the circumstances of Time to Choose.

The NAO will have to ask itself whether small IFAs were properly insured and why that insurance fell away in cases where IFAs went bust because of professional negligence claims.

And the NAO will have to ask whether the FCA should have reacted sooner to the capital depletion going on , not just at AJH Financial Services Limited.

The FCA has made this statement on the matter

We will act to prevent firms from disposing of assets which may be required to pay redress. We will look to impose requirements where firms have not acted in accordance with the expectations in our Dear CEO letter or have attempted to phoenix or put in place structures to avoid potential redress liabilities. We will continue to monitor firms who have advised on BSPS transfers and take action where necessary.

No doubt this is the right way to go but it will be scant comfort to many whose redress has been capped because the IFA did go bust, for whatever reason

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How do we measure the value of financial advice in retirement?

Posted on January 16, 2022 by henry tapper

What do we worry about in retirement and how do advisers help?

 

We are often told to take advice in retirement but we don’t often know what to expect for the money we pay. This has become an important issue for me, because I am due to speak shortly with the National Audit Office as they conduct their review of the FCA’s regulation of those advising steelworkers who chose not just to transfer away from the British Steel Pension Scheme, but also chose to pay ongoing advisory fees in retirement.

I have been reading a long post by my friend Al Rush , explaining to his clients and others connected to him on Facebook, what they might expect from their adviser and why they may have reason to claim they are not getting value for their money.  It is of course easy enough to see how much we pay advisers (thanks to the RDR), but it is a lot harder to assess the value of that money.

I will be commenting on this post and the important issues it raises about how FSCS compensation works (or doesn’t). In the meantime, I’m asking myself whether we really understand what the value of retirement advice actually is.

Five reasons I’d pay for advice.

  1. I want to manage my retirement cashflows so I maximise the amount I pay myself, without finding myself short in later life.
  2. I want to minimise the amount of tax I and those I love, pay on the money I’ve saved. as it’s paid back
  3. I want to ensure that any benefits due to me from the state are fully claimed and not prevented from being paid by the way I get paid from my pot
  4. I don’t want to (inadvertently) commit a fraud against the taxman, benefits agency or anyone else.
  5. And I want to make sure that whatever I do with my money, it matters in terms of ES and G.

I do not consider the increase in my net worth as a key measure of retirement advice

The problem with this kind of advertisement is that it doesn’t tell me what I’d be worth if I hadn’t had an adviser. Most wealth managers see wealth preservation as an indicator of success, while most people I know are not made happy by wealth but by their capacity to have a fulfilling lifestyle.  My five measures do not focus on wealth but on income, as the one thing I don’t have in retirement – which I had when I was at work – is a regular wage.

Cashflows

The amount I take from my pension pot as a regular income can vary from a return of capital with minimal interest from my bank , to the 8% pa  drawdown that is commonly taken (according to the FCA’s Retirement Income Survey).

I would like advice on the risks of drawing too much or too little but I also want to know how much risk I am taking in the pot (or perhaps I should say “in my portfolio”.) There has be a “golden mean” or sweet spot for me – where I take enough risk to get what I can but not so much risk that I get what I want today and run out of money.

Here the need for advice is ongoing, you cannot “set and go” a strategy around drawdown, our capacity to take risk is not static, we often change as we get older

I would pay good money to be able to outsource this  problem to someone I trusted both as competent and as acting in my best interests. I would pay more to know that there was a system in place that meant that if my adviser left, his or her cashflow strategy for me, continued to be reviewed/

Tax

We have a duty to pay tax, but no duty to overpay tax. Managing my tax affairs as efficiently as I can is no easy matter with such a range of income and capital taxes that my retirement income could be subject to.

I’m worried not just about my tax coding and self-assessment in 2022 but in 2032, 2042 and to some extent I’m worried about the tax burden I could leave my loved ones when I die.

I would pay good money to make sure that I do not get landed with unexpected bills and that my pay-coding in retirement remains as light as possible. I’m interested in tax-free cash but I’m not so blinded by tax exemptions as to want them to prevent me getting a proper income in retirement. So I’d like to know how and when to draw my tax free cash and I’d want to have strategic advice about the shape of my retirement income from my savings and other pensions, so I can avoid paying higher marginal rates of tax.

I can imagine situations in the future where I might like help on capital gains tax. The need for tax advice increases as I get richer , the need for benefits advice increases as I get poorer.

Benefits

I don’t get much by way of state benefits but I recognise that in 7 years or so, I will be getting my state pension. But for most people I know, their state pension , universal and pension credits and other bits and bobs from the state make for a fair portion of my retirement savings

 So an adviser needs to make sure that I’d expect that If I am going to lose any benefits the loss will must be explained  documented and justified.

I’d want my adviser to be finding out whether you could be entitled to any benefits I don’t already claim.

Compliance

Like a lot of people, I am most scared of what I don’t know and I don’t know when I fill out my self-assessment , that  I am always 100% right. For instance I nearly claimed higher rate tax-relief on my pension contributions before being reminded that I sacrifice salary so have already got my relief.

I would pay good money to any adviser who limited my capacity to inadvertently claim reliefs or benefits I was not entitled to.

This may sound trivial but it is not.

Making my money matter

I give money to good causes out of charity. But I don’t want to give up my rights to an income in retirement to improve governance, help society or save the planet. I want my money to matter but not at a cost to my pension.

Or if there is a cost to my pension, I want to know what the cost is and then make an informed choice as to whether to pay it.

I would pay good money to know how my money is managed , what it is costing me and what good it is doing .

Is advice worth it?

Like most luxury items, advice is only worth it if it can be afforded. If the cost of advice is at the expense of pension to a point that the pension would be bigger without advice, then advice is not value for money.

The attraction of advice increases the greater the need for it , tax being an obvious area where it is needed by the wealthy.

There is also a question of self-sufficiency. Many people love DIY and not just for home improvements! Those people who claim that we should all take advice (or guidance) run into the same problems as those who demand we are all vaccinated. But by not taking advice we are unlikely to be doing anyone harm but ourselves.

So I am not an advocate of requiring people to take advice- other than where the capacity of people to get things hugely wrong (such as transferring DB) and making ourselves a burden on others.

So when I speak with the NAO, I will be asking myself , whether those who have bought advice following their decision to transfer out, have got value for their money. There has to be an objective measure for valuing advice and I suggest that advisers would do well to document the value of what they have done, rather than rely on an assumption that advice is always worth it.

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What will this “investment big bang” mean for our pensions?

Posted on August 6, 2021 by henry tapper

This u-turn comes 6 months after the publication of its draft DB funding code of a suggested cap in investments in private markets,  explained in a blog from the Pensions Regulator.

Jo goes on to consider what might be the Regulator’s next steps.

So why has the Pension Regulator changed its tune?

Hours before TPR’s announcement , a “challenge” letter appeared on the Government website.  It challenged  UK pension funds, both DB and DC to

To seize this moment, we need an Investment Big Bang, to unlock the hundreds of billions of pounds sitting in UK institutional investors and use it to drive the UK’s recovery. It’s time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth and  prosperity across our country

It explains the Treasury’s efforts to make this happening , pointing to the issuance of the first green gilts in September , the launching of the Long Term Asset Fund as a new investment vehicle in the autumn and relaxation of solvency II rules to let insurers participate.

The letter says that the Government were under pressure to mandate investment in these areas but chose instead to encourage a “change in mindset” among institutional investors.

Choosing which assets to invest in to secure the best outcomes remains a matter for pension fund trustees, and other custodians of institutional capital. We recognise that there is no single ‘right answer’ for the amount that should be invested in these long-term asset classes. Some funds are already highly active; some – for good reason – are not. You will know best what is right for your business– whether that is committing to invest a greater proportion of your capital in long-term UK assets, establishing the vehicles to allow others to do so, or
providing the necessary specialist advice. But we strongly believe this is a question that all institutional investors should be considering.

It looks as if that change of mindset has applied to the Pensions Regulator too.

Understanding the DWP’s position on consolidation

Many  have questioned the motivation of the DWP to accelerate the consolidation of smaller DC schemes into master trusts and other multi-employer schemes.

The language used by the DWP is the language of the Treasury, it is about removing barriers to change, changing mindsets and building back better.

The investment big bang, envisaged by Johnson and Sushak needs to be not just in the interests of the larger British economy, it needs to be in the interests of DC savers and the funders of DB plans. It needs to result in higher inflation adjusted returns on the way up and better pensions in retirement.

The investment big bang is likely to accelerate a move towards collective pensions arising from DC saving – aka the use of Collective Defined Contribution within master trusts. The long-term nature of the illiquid investments envisaged is aligned to the long term time horizons of pension schemes (as opposed to retirement savings schemes)

How does this change our view on value for money?

To date, the value for money equation has centered on costs , charges and the features of a pension scheme.

If we are to have a change in investment mindset, it needs to include a change in how we value our pensions.

It appears that the FCA have pushed back its publication of its response to its consultation of CP20/9 (on value for money) and I fully expect it to include a measure of value that reflects the change of mindset. Will the FCA go so far as to say that DC Pension Schemes that do not invest assets in private markets are not offering their members value?

Stranger things have happened, including the U-turn from the Pensions Regulator.

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Webb and Snowden on the state pension and scamming

Posted on July 28, 2021 by henry tapper

There are no better people to listen to on the problems people have getting their pension entitlements than Steve Webb and Margaret Snowden.

To get an invite to the coffee morning, login to http://www.pensionplaypen.com or register (it’s free). You’ll find registration using the “event” tab.

There will be loads of great content coming your way if you do.

It’s great to see Pension PlayPen hosting this online coffee morning and I hope that plenty of  us will be signing up for the session.

The Pension PlayPen is a great forum for discussion and I’m very proud the work that’s been done to restore this site to former glories.

If we are to “confidence in pensions”, then we need Steve and Margaret to be listened to.

Margaret Snowdon
Steve Webb
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Does Britain need an Aussie style “Retirement Income Covenant”?

Posted on July 21, 2021 by henry tapper

 

The Australian Treasury has recently consulted with its citizens on how to oblige Trustees of its huge Super funds to provide them with retirement income.

There are parallels in the UK. Over the autumn and winter, the DWP will be talking with our master trusts about what they would need to offer in-house pensions (as part of the CDC initiative). Some DC schemes already offer investment pathways and some signpost pathways of other providers. However, there is no obligation for them to do so, and the discretion of trustees is often used to protect the scheme and sponsor from the liabilities arising when people get their later life finances wrong.

A Retirement Income Covenant

The Australian Retirement Income Covenant ; “will place a key obligation on trustees to formulate, review regularly and give effect to a retirement income strategy outlining how they plan to assist their members to balance key retirement income objectives.”

The strategy will be a strategic document developed by the trustee, outlining their plan to assist their members to achieve and balance the following objectives:

  • maximise their retirement income
  • manage risks to the sustainability and stability of their retirement income; and
  • have some flexible access to savings during retirement.

In the UK , savers have access to 25% of their pot at any time after 55 as tax-free cash. However there is little obligation on trustees to maximise retirement income on a stable and sustainable basis.

There is a strong case for the UK following Australia down this route. Requiring trustees of the fast diminishing stock of sole-occupation and multi-employer DC schemes to spell out the service they offer their members will help determine whether the scheme is providing value for members. Trustees who cannot offer answers to the questions posed by a Covenant Assessment are the trustees that the Pensions Regulator should be asking to consider their and their scheme’s future.

Why does Australia need to introduce this measure?

Despite being held up as a model for other countries, the problems facing members of Aussie Super Schemes sound remarkably like those approaching the close of their working lives in the UK. They struggle with decisions on how to spend their savings

The long-term implications of these decisions, and their complex interactions with other systems like tax, social security, aged care and housing, make it very challenging for retirees to determine an optimal retirement income strategy on their own.

And as with their UK counterparts, Australians are reluctant to take advice

Yet most people do not seek financial advice at retirement to help navigate this complexity.  Rather, in the face of this complexity, evidence shows that Australians currently follow others, disengage, or fall back on rules of thumb and defaults that are not fit‑for‑purpose

The consultation suggests that Aussie savers struggle to spend their pots (clearly as much a  problem for the Treasury as for ageing Australians.

The ‘nest egg’ framing of superannuation compounds the complexities around deciding how to manage their superannuation in retirement. Partly because they have only ever been primed to save as large a lump sum as possible, retirees struggle with the concept that superannuation is to be consumed to fund their retirement.

Because retirees struggle to develop effective retirement income strategies on their own, much of the savings accrued by members through the superannuation system are not used to provide retirement income. Rather, they remain unspent and become part of the person’s bequest when they die.  By 2060, it is projected that 1 in every 3 (Aussie) dollars paid out of the superannuation system will be a part of a bequest

All of this resonates with the UK experience of pension freedoms so far. Retirement living standards in the UK are requiring massively more than the average DC pot can bring, yet there is evidence that many DC savers are starving their lifestyle’s for fear of running out of money later on.

And of course there is the risk of doing quite the opposite and spending your savings too hard, which appears to be equally a problem

So what will these strategies look like?

The consultation document makes it clear how a strategy should be created

In effect, the strategy is a strategic document developed by the trustee that:

  • identifies and recognises the retirement income needs of the members of the fund; and
  • presents a plan to build the fund’s capacity and capability to service those needs.

The retirement income needs of members, and the plan to service those needs, may be different from fund to fund, or from cohort to cohort within a fund. There is significant flexibility for trustees to identify the particular needs of their members and develop a retirement income strategy that is suited to those particular needs.

Knowing your members

The consultation makes it clear that trustees should not be getting involved in providing financial advice individually, introducing soft defaults (such as an option from which you have to opt-out) or a “one size fits all approach”.

Instead the Trustees of a Super Scheme are expected to gather data about their membership and organize them into cohorts who can be offered support as a group

The factors used to identify cohorts of their members are at the discretion of the trustee, but could include consideration of:

  • the size of a member’s superannuation balance
  • whether a member is expected to receive a full, part- or nil-rate Age Pension at retirement
  • whether a member is partnered or single
  • whether a member owns their own home outright, owns their home with a mortgage, or is renting at retirement;
  • the age a member retires and/or starts to draw down from their superannuation.

Clearly some of this  information is not available to UK trustees (and GDPR will make it hard to find it out without member consent).

However, there are interesting thoughts here for UK policymakers to consider. This is the kind of thing, I’d like Nest Insight to be pursuing.

Balancing three objectives – (returns, risk-reduction and flexibility)

The toughest decisions for trustees look like being around trade-offs between mazimising returns, minimizing the risk of money running out and providing the freedom to take cash when needed.

Frankly, this is where I start getting concerned.  There are many good points made in the consultation, not least the recognition that on average income needs fall as people get into extreme old age, but can trustees really manage these trade offs without either financial advice , a soft default or a one size fits all approach?

It strikes me that a strategy that simply highlights the problems isn’t much of a strategy, more another guidance document that leaves members not much better off.

Even if the guidance documents are presented to different cohorts in different ways, this kind of approach still relies too much on members working out the trade-offs. Put simply, members cannot take financial decisions in four dimensions (time being the fourth).

The solutions being put forwards focus on “more products”.

I suspect that in the UK, “attractive products” will be slower to emerge and depend on a highly regulated approach to product development (see CDC regulations published earlier this week)

 

Does Britain need an Aussie Style Retirement Income Covenant?

My answer is “yes”. However I think that the Covenant needs to be better defined than in Australia, where the trustees are in danger of just adding to the noise with glorified decision trees.

Trustees may consider it perverse to be providing people with guidance towards pensions, but I consider trustees as perverse for running a pension plan where the pension option isn’t at least the soft default.

We have investment pathways but we have no soft option default and (other than Royal Mail) no one size fits all solution.

We should be thinking hard about what a Retirement Income Covenant could do in the UK and how it might be introduced. Put this on your shopping list Mr Opperman!

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Freedom – at what cost?

Posted on July 19, 2021 by henry tapper

Rousseau’s famous phrase “man is born free but everywhere is in chains”, will be to the front of many people’s minds today. The true liberal reaction to the pandemic is herd immunity and early blogs from the Covid actuaries explored what that might look like in terms of infectivity , hospitalizations and deaths.

In early April 2020, Joseph Lu wrote for the Covid Actuaries

With a high proportion of infected people displaying little or no symptoms, the lack of a blood test to confirm how many people are indeed infected is problematic to modelling.

For example, without the number of people infected, we would not know if the proportion of infected at risk of severe disease is 1 in 10, 100 or 1,000. Lourenco and colleagues (2020) showed that this uncertainty could lead to a wide range of estimates for the percentage of people infected and immune in the UK, ranging from 5% to 70% by around mid-March.

This has an important policy implication. If the population is, say 70% infected and immune, no stringent measure is needed because we have achieved herd immunity. If it is only 5% immune, then the UK has challenging days ahead and the lockdown is essential. 

15 months later we remain divided as to whether we have got to a stage of herd immunity and whether further lockdown is necessary.

If not now-when?

The question is being asked the world over. If not now- for the Tokyo Olympics – when. The surreal spectacle of a huge air balloon shaped as a human head, now hovers over the city , suggesting that the success of the games is down to our cerebral reaction to what we see.

Over the weekend, I went out twice on Lady Lucy, most of the people who came on the boar had had Covid , all of them had had two jabs, no-one wore face masks, except where required and life seemed pretty normal.

We were outside and the river and locks were full of those like us.

But many people, including one couple who cancelled their cruise,  spent the weekend in isolation as a result of being pinged. We have at last found a way to warn each other that we have been in the company of those infected, precisely when that no longer seems so dangerous. The  danger of scanning a QR code is now obvious, your future plans are dependent on the company you keep.

The idea that you should voluntarily submit yourself to “chains” is an odd way to celebrate freedom. If my experience of the weekend is common, most of us will find freedom by celebrating this amazing country and its natural beauty

Slipper launches in Freebody’s yard

One elderly boater dived from the roof of my boat into the pool outside George Clooney’s house and declared that this was because having had a stroke , lost most of his eyesight and having been hospitalized by Covid, he needed to stay free of fear.

We pulled him out with a sling and a rope ladder and he delighted in his feat of bravura. I suspect that he is not the only 75 year old who feels and behaves this way.

As his wife told me “this is his way of keeping going“.

Our way of keeping going

I know that many people have lost momentum in their lives. It is as if they have furloughed everything and now contemplate a return to freedom as a challenge they do not want to take.

I hear these people talking on the radio in all night shows which have become a place they can share their inhibitions.

We must allow them  the freedom to remain in isolation and not impose freedom on them. The challenge facing our society is to keep going and be tolerant of those who have withdrawn. We must be kind to each other.

The trauma of the pandemic for many people has not abated and is made worse by the sight of millions of Britains who don’t feel traumatized. The inscrutable Japanese head looks down on us all without emotion as if to say “how you go forward is a conscious decision”.  

I worry that many people are not mentally ready to move forward and are struggling to stay still. We need to be very careful how we go, for freedom is being won at a cost.

 

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The proof of SJP’s self-confidence is in customer outcomes.

Posted on July 16, 2021 by henry tapper

From Boring Money’s “SJP – value of financial advice”.

My friend Robin Powell who speaks for the evidence based investor has republished my comments on SJP’s Value Assessment (it’s nice to see my words properly set). I agree with Robin’s title,

WHY SJP’S LATEST VALUE ASSESSMENT STILL DOESN’T CUT IT

But maybe for different reasons!

Tim Simpson offers an interesting perspective as an SJP customer

SJP talk to their happy customers – should they talk to us all?

..like last year, the first I knew of it was when someone in Citywire recommended your commentary for the previous Assessment. I then checked my SJP Client login: nothing. I had to request it. Yet again this year I still have had no notice of it, so presumably I will have to request it again unless it’s just on their website for anyone to see. Interesting that all their weekly notices that are circulated never mention these or similar publications available. I assume, to use an SJP word, that would be a ‘distraction’. Yes the Contact does quickly reply and is reasonably helpful but, nowadays, they aren’t even SJP staff.

So, in answer to your question, unless your investing over eight figures, I doubt that it will ever be likely..

Actually, the report is on SJP’s website, you can access it here, but Tim’s comment opens up an important question.

“Who owns the client relationship, the platform or the partner?”

As platform manager, SJP reports to the FCA and is responsible for reporting to  client/customers such as Tim. But in reality, the relationship is primarily with the SJP partner/adviser who is self-employed and effectively a franchisee.

This most delicate balance has been preserved over five decades since Mark Weinberg set up independent distribution at Abbey Life and then Hambro Life (Allied Dunbar). Owning your own distribution is nothing new, nor are the issues it brings.

SJP’s partners are of course restricted in the products they advise on and responsible to SJP as well as their customers for the advice they give.

SJP have argued to me that the partner is responsible for distributing the Value Assessment but that many partners do indeed see such formal documents as a distraction to their clients.

I would hope that SJP can break down this perception over time. If Value Assessments are to be worthwhile, they need to be high-class documents that tell the truth and that is what the SJP 2021 Value Assessment is. SJP Partners should be proud of their value assessment and Tim should not be having to ask where to find it (psst…here)

I would like it to be talking to a wider public than just its internal stakeholders, as SJP is the largest financial adviser in the land. It has over 4000 regulated advisers meaning that more than one in five advisers are working for them. It is the single largest contributor to FSCS, it pumps £30m a year into training and has its own academy. It is the breeding ground for the next generation of financial advisers. It should talk for financial advisers.

Unfortunately, it doesn’t. Nor does it talk of its own experience to a wider public. Bearing in mind it owns data on the behavior of around half a million  Brits over the age of 55, SJP has the capacity to be authoritative on how the mass-affluent are arranging their financial affairs in later life. If the average drawdown on our Sipps is 8% pa, SJP may be able to show us that with advice, we can do better!

The value that is sunk into paying for advice, comes from the funds people own and the fees that many complain of, are used in part to ensure customers do not overpay tax, do not invest inappropriately for their needs and that cash flow is managed so money is in the right place at the right time for the right people.

I was educated as a financial adviser in the 1980s to focus on adding value this way and it seems that people value financial advice delivered by real people as much today as they did when I worked at Hambros and Allied Dunbar.

Where I differ from Robin is that I am not opposed to the advisory regime or indeed the fees charged by SJP partners if they can be seen to be value for the money they cost. What SJP appear to be defensive about is whether all the money that flows to partners, platform management  and shareholders, is delivering value in terms of outcomes.

Bearing in mind the encomiums from those who pay the fees, it could be argued that the value is in the sense of financial security that the client/partner relationship brings. This is well brought out in this study by Boring Money. But the b-side to the Holly’s hit single is the financial proof in the pudding. Are the Partner’s clients and SJP’s customers getting good outcomes?

For all the assessment of value, there is very little hard data in what SJP produce to show that the platform and funds are delivering what Partners promise.  And its this that justifies my and Robin’s criticism of SJP falling short. It is not enough to deliver financial well-being today, you have to deliver on expectations tomorrow, expectations that you as an adviser and platform manager have to set.

There is nothing to say that SJP aren’t delivering on these expectation, but there is nothing to say that they are. SJP in the past have told people like me that this is none of our business and that is right, I am not a customer or client and my status as a “commentator” is based entirely on this blog. Nonetheless I will keep asking the question, how are your customers doing to SJP because I can’t ask Partners how their clients are doing.

And if we don’t know how half a million of the nation’s affluent oldies are doing, then it’s pretty hard to judge what can be done for the rest of the nation.

My call is to the management of SJP and to its Partners to be more trusting with the wider public, to get on the front foot and share information that is important for us to know. Principally I think we should know about the outcomes of saving within the SJP Sipp and about how the Sipps are being used to provide income or capital in later life or on death.

This high level information, presented in ways that make sense to the financial services industry and the general public, would be the ultimate Value Assessment and proof that SJP are as confident in delivering on their promises as I believe they are.

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What is consolidation doing to DC contribution rates? WTW’s surprising results!

Posted on July 13, 2021 by henry tapper

The collapse in confidence among small pension schemes gathers pace as Corporate Adviser reports.

Two-thirds of employers who currently run their own trust-based pension plans are considering switching to a master trust within the next two years, according to new research from Willis Towers Watson.

Its annual FTSE 350 DC pension study shows that on top of this 12 per cent of employers who already use a master trust are also considering reviewing their provider within this time scale.

Corporate adviser  reports Gemma Burrows, director in Willis Towers Watson’s Retirement business, as saying:

“For many employers that moved to a master trust five plus years ago, the options available in the industry have changed dramatically. Some of those employers are now starting to look around and consider whether there are more suitable, alternative providers that could offer better value or service to members.

Master trusts now represent the chosen method of delivery of nearly 1 in 4 companies in
the FTSE 350, given it is only a little more than 7 years since they entered the mainstream
market – that is amazing!

Contributions matter  and it matters who you work for.

With every member having the option to take their benefits from their DC scheme to wherever they like, WTW are right to emphasize the importance of a healthy employer contribution

If you are working for a FTSE 100 or FTSE 250 company, you are likely to have contributions well above the AE statutory minima. I suspect that WTW’s results are biased towards employers who care about pensions (and are prepared to pay for good consultants). Nonetheless, you have to look at these improving numbers with satisfaction as Gemma Burrows does

“Clearly it’s good news for employees that DC contribution rates held up during the recent challenging financial circumstances for many employers. However, we can see that from a retirement savings perspective less than 20 per cent of companies enrol at a default contribution rate in excess of the minimum level on offer. Therefore, there may still be work to do to overcome inertia in decision making so individuals understand and take advantage of the more valuable contribution rates that could be available to improve their own outcomes.”

It interests me that WTW report on the move to master trusts and the increase in sponsor contributions on the same slide. I am hoping that this is sending a subliminal message to sponsors that money spent on maintaining their own trust is money not being spent on improving the contribution rate. Let’s hope that consolidation improves contribution rates as WTW infers it may be doing already. I’d be interested to hear more from WTW on whether savings in scheme management costs are being passed on as improved contribution rates or whether consolidation is leading to a further dumbing down of pension sponsorship

WTW are right to point out that where there is an employer match available, take up of that match will settle at the default rate. So the question for reward and pension managers is to what extent they want to set the match low and target those people who have the sense and financial capability to opt-in to higher contributions and to what extent they want matters the other way round. Inertia will determine the take up of the match and the default is the “inertia setting”.

A final point worth making is that the vast majority of employers do not contribute to workplace pensions at anything like the rates advertised above. Can Government find encouragement in these numbers to nudge up the AE rate for all employers with workplace pensions as they have promised to do by the middle of this decade? Levelling up is devoutly to be hoped for.

Hope for CDC?

Willis Towers Watson are principal consultants to Royal Mail and have been firm supporters of legislation allowing that employer to sponsor CDC. For the first time in a WTW DC survey, I have seen mention of CDC as an option for other employers.

I doubt we will see many employers engage with CDC directly, but I suspect that master-trusts that offer CDC scheme pensions as a default  option for members in retirement – will be working at a commercial advantage in the consolidation process. Willis Towers Watson offers the market Lifesight, a commercial master trust which could take advantage of CDC.

Perhaps the title page of the report offers another subliminal message. Is this WTW’s view of investment pathways?

WTW’s perception of investment pathways?

With Guy Opperman intent on introducing legislation for multi-employer schemes like Lifesight, to use CDC rules from 2022, we ought to watch this space and look forward to next year’s report!

Thanks to the WTW team for an excellent paper , which I will return to in future days.

 

 

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TPR – publish your pension scheme register – or be damned!

Posted on June 24, 2021 by henry tapper

£400m now thought to be £20,000m – big numbers

Following yesterday’s blog moaning at the Pensions Regulator for not getting its act together and publish a register of scheme URLs I have been informed of regulations changes that have the potential  to make this happen. 

DWP’s climate governance regulations which, subject to parliamentary approval, will come into force in October have put TPR in a position to be able to publish central repositories of a number of scheme disclosures.

Regulation 3 of the draft Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021 amends the Register of Occupational and Personal Pension Schemes Regulations 2005 so that TPR must require, via scheme return notices, that trustees provide the website address where their most recent TCFD report has been published as well as the website address of their published Statement of Investment Principles, Implementation Statement and excerpts of the Chair’s Statement. Trustees will be under a duty to provide this information in their scheme return to TPR.

As part of their Climate Strategy, TPR have already committed to publish on their website an index of the web addresses of schemes’ SIPs and will be able to replicate this for TCFD reports also.

This compares with the aforementioned TPR’s statement on launching a register of  the 1200 DC schemes facing consolidation…

The only trustee details we publish are those of the ITs on our register of trustees that we appoint to schemes in certain circumstances – it’s not available on line but a copy can be requested (About the trustee register | The Pensions Regulator). We don’t currently hold website details, though we are hoping to start collecting the urls for the VFM, charges and investment information that trustees are (or will shortly be) required to publish on line, via the annual scheme return. We have not yet taken a decision on whether we will publish that information

The URLs for  TCFD and SIP statements is the URL for value assessments and most pressingly for consumers, a searchable address to find people who can trace lost pensions.

So let’s hope that the tPR will join hands and adopt a single approach to all occupational schemes that allows us to research companies and create a new more dynamic approach to finding out who’s looking after our money.

If they feel constrained , pass the information to the DWP who seem more confident in listing and sharing websites already in the public domain.

If big Government wants us to move faster , we can do, but we need its help too!

Publish – or be damned!

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What if your pension is being consolidated?

Posted on June 12, 2021 by henry tapper

Over the past five years, millions of people have found their money , locked into company pension schemes , under new management.

The trend for company pension schemes to close and transfer people’s savings into multi-employer schemes (known as master trusts) looks set to increase as Government announces new tests for the viability of company schemes which may encourage or even force trustees to “consolidate”.

Even  large employers such as Vodafone have decided that the cost of managing their own staff’s money is not worth the kudos and effectively outsourced pension arrangements. It’s understandable that staff who may have felt loyalty to their company of former employer, may not be so happy having their money managed by the trustees of  an insurance company or a pension consultancy.

What then are the the options for employees as they face the future?

Option one – roll with it.

The people responsible for making the decision to move your money to new management are trustees. If you are in a group personal pension, only you can pull the trigger. So if your money is moving it is because your  trustees think that at worst you won’t be worse off and at best you could benefit from being in a larger scheme with better resources to manage your money.

The option of “rolling with it” and letting the money move across is usually a good option. Multi-employer schemes usually have better retirement options because they are set up on a commercial basis and want to manage your money to and through retirement. If you want to find out what your new pension managers have on offer, you can usually find out online or by speaking to its support team. Your current employer may not resource its trustees to offer these options and may feel uncomfortable taking on responsibility for the outcomes you get. In general, the commercial master trusts into which you are likely to be consolidated will be safe havens for your money for longer and may even be able to pay you a pension in years to come if they adopt a collective approach to turning member’s pension pots into an income that lasts as long as you do.

Option two –  manage your pot yourself

For many people, money management is a hobby which they pursue enthusiastically. For such self-confident people there are a range of self invested personal pensions (SIPPs) which are looking for you to transfer your company pension pot. If you have such a SIPP already, the chances are that it has a tiered charging structure that means the new money you bring to it should be managed at a lower rate than your existing money. SIPPs  are typically  on-line and user friendly for the tech-savvy. They can also offer a range of investment options including a facility not to use funds but to invest directly into the markets.

The well known names in this space include Hargreaves Lansdown, AJ Bell and Pension Bee.  If you are looking at SIPPs , you don’t need me to tell you how they differ, you will be able to work that out for yourself and if they baffle you, don’t use them. I have to say I find Pension Bee very simple while some of the more technical SIPPS scare the life out of me but this really is an “each to their own” market where you pays your money and you makes your choice.

Option three – you give your money to your adviser to manage

Many master trusts are managed by pension consultants and could argue that they are “adviser managed”, but you may feel that kind of management a little remote and not what you want.

If you have a financial adviser, the chances are that he or she offers a pension management service which either watches over decisions you take or offers a discretionary management service which takes decisions for you unless you look to over-ride and take back control.

Financial advisers are able to manage your money with you in mind. Investment decisions can be tailored to your chosen level of risk and advisers can advise you of the tax consequences of what you pay into and take out of your pension. They can also help you with the paperwork involved with consolidating small pots and the best ones can also manage the transition of money to reduce out of the market risk and take some assets “in specie” meaning transition costs are kept to a minimum.

Of course all this personal attention is expensive so this kind of option is really the preserve of the wealthy. Few advisers want to manage portfolios of less that £250,000,  which is just as well, as the fees for small pots can make this kind of service uneconomic.

What everyone could and should do!

The movement of your money from a company pension to a master trust is an event which you can use to review your plans for the future, even if retirement feels a long way off. It will probably be in your interest to take the line of least resistance and roll with it, but it could be the time you decide to go it alone or employ an adviser to do the work of managing your money for you.

If you’re about to make important decisions about your work and retirement savings, you should consider taking professional advice.

But a good starting point is the free information and guidance available from a number of online tools and resources. If you are among the millions feeling extra financial pressure, consult the Money Advice Service. If you’re 50 or over,  phone Pension Wise for free to talk about what you can do. If you’re worried about the movement of your money derailing your retirement plans, contact the Pensions Advisory Service.

 

Want to know more about pension scheme consolidation?

If you are interested in the dynamics of the retirement savings market , you may want to spend some or all of next  Thursday  afternoon (17th June) at a pension master class I am helping to organise.

For those who would like to register an interest, here is the link:

Register Interest to Attend Consolidation Masterclass — SG Pensions Enterprise

Here’s the agenda

WILL PENSIONS CONSOLIDATION DELIVER REAL EFFICIENCIES?

Thursday 17th June 2021

ONLINE IN ZOOM

CHALLENGES FOR MASTER TRUSTS, LGPS POOLS AND DB PLANS

Consolidation is the name of the game in UK pensions.  In the DC space, employers are increasingly rolling their plans into master trusts, in pursuit of efficiency gains, scale economies and wider investment opportunity sets, and are strongly encouraged by the authorities to do so.  Similar arguments pertain for DB plans, especially smaller ones, though the rush to consolidate is less pronounced to date.  LGPS plans have already implemented asset pooling across the entire sector, of course, with the streamlining of administrative activities a possible next step.  Delegates to the Masterclass will examine the actual state of consolidation across the pensions industry, whether it is really delivering on its promises, and what further developments need to take place in order to deliver significant and measurable improvement to the health of the industry and to overall member outcomes.

PROGRAMME

13.30 – 13.50

Meet and Greet

13.50 – 14.00

Welcome and Introduction

Chair                                                                                                        Programme Director

Robert Branagh                                                                                     Stephen Glover

Chief Executive Officer                                                                         Director

London Pensions Fund Authority                                                      SG Pensions Enterprise

14.00 – 14.25

Presentation and Q&A:  The State of Consolidation Across the Pensions Industry

Magnus Spence                                                                                     Hal La Thangue

Managing Director                                                                               Associate Director

Broadridge                                                                                             Broadridge

Our speakers will set the scene with the historic context for consolidation in UK pensions.  They will discuss the drivers of consolidation, among them the current low return environment, the increasing burdens of reporting and regulation and the demand for better services to members of pension schemes.  This will be explored in relation to trends and projections for the 3 main pensions sectors in UK pensions:  LGPS, private DB and DC schemes.  He will posit that there is a minimum level of AUM to achieve scale benefits, and discuss the significance of the emergence of new players in the pensions marketplace, including fiduciary managers, transition managers and master trusts.

14.25 – 15.05

Panel Discussion:  The Big Consolidators Account for Themselves

Moderator

Robert Branagh

Chief Executive Officer

London Pensions Fund Authority

Adam Saron

Chief Executive Officer

Clara Pensions

LGPS and Master trust executives to be confirmed

Senior executives of three large consolidators, representing an LGPS Pool, a Master Trust and a DB consolidator, will describe and justify their approaches to consolidation, and how well they are working.  The themes they will explore will include the correlation between size and investment performance; the governance challenges imposed by scale and how to manage them; whether consolidation is necessarily better for members; the pitfalls and drawbacks of rapid growth; and the optimal limits of consolidation on an industry-wide basis.

15.05 – 15.25

Sponsored Presentation:  Best Practice in Transitioning Assets

Graham Dixon

Director of Transitions

Inalytics

As consolidation trends develop further across UK pensions, this will translate into an enormous volume of assets on the move between funds, between institutions and into new investment vehicles.  The importance of managing this process efficiently can hardly be exaggerated, given the great costs involved and the need to mitigate significant out-of-market and operational risks.  Our speaker will discuss how best practice in transition management is evolving in light of these circumstances and the steps involved in getting this critical process right, including the vital criteria for identifying the right transition manager.

15.25 – 15.45

Coffee at home and Online Networking

15.45 – 16.05

Sponsored Presentation:  A Special Case – The DC Small Pots Problem

Adrian Boulding

Director of Policy

NOW: Pensions

It is well documented that the proliferation of small pensions savings pots will continue to grow almost exponentially if left unchecked.  This gives rise to a huge administrative burden, rendering many pots totally uneconomic, both to the saver as well as to the pensions provider.  Various solutions have been proposed, among them raising the bar on flat rates; transforming the general levy; nudges and pushes to members to consolidate their pots; legislative measures; and various technological solutions, not least the pensions dashboard.  Our presenter will outline the scale of the problem and propose a personal view of the best way to resolve it.

 

16.05 – 16.55

Expert Discussion Groups:

Group 1)       Predator or Prey?:  Consolidating Smaller DB and DC Schemes

Facilitator:               Henry Tapper, Chief Executive Officer, AgeWage

Lead Discussants:  Andrew Blair, DC Investment and Governance Lead

Department for Work and Pensions

Paul Budgen, Director of Business Development, Smart Pension

Louise Sivyer, Policy Business Lead, The Pensions Regulator

Further discussants TBA

Themes

Savings to employers

Improved contributions to members

Wider investment opportunity sets

Exorbitant costs per member for small scheme administration

Barriers to consolidation

Why even big schemes could shed a bit of weight

 

 

Group 2)       Next Steps for LGPS Pooling

Facilitator:               Mike Weston, Chief Executive Officer, LGPS Central

Lead Discussants:  Anthony Parnell, Treasury & Pension Investments Manager, Carmarthenshire County Council

Abigail Leech, Finance Director, Local Pensions Partnership

David Rae, Head of Strategic Client Solutions, Russell Investments

Further discussants TBA

Themes

Achievements to date on asset pooling  –  is it working?

The LPP model:  consolidating admin activities as well as assets

Lessons from overseas public schemes

Future legislation and outlook

 

16.55 – 17.00

Return to Plenary

17.00 – 17.30

Panel Discussion:  Feedback from Expert Discussions and Lessons from the Conference

Moderator

Robert Branagh

Chief Executive Officer

London Pensions Fund Authority

Henry Tapper                                                                                         Mike Weston

Chief Executive Officer                                                                         Chief Executive Officer

AgeWage                                                                                                LGPS Central

Discussion group facilitators will report back on their main conclusions, followed by a debate on the main takeaways and action points from the conference this afternoon. This will include who will be the significant winners and losers of consolidation trends, the further step changes that will need to take place and, as a consequence, what the future pensions landscape will look like.

17.30 – 18.00

Final Thoughts and Open Networking

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FCA delivers tardy providers and their IGCs a sucker punch

Posted on June 8, 2021 by henry tapper

In a surprise statement, the FCA has accepted it my not given providers of workplace Group Personal Pensions (GPPs), sufficient clarity on what the FCA is looking for them to disclose.

Some stakeholders think that costs and charges data should be published at the level of the overarching HMRC registered scheme, with the data indicating a range of charges paid by members in different employer arrangements within that overarching scheme.

We don’t consider that aggregation of costs and charges at the level of an overarching scheme would promote meaningful comparisons, however. Instead, comparisons at the employer level could play a useful role in helping to improve value for money in workplace pensions.

However, some firms have told us that they were unclear at what level disclosures were required and have been preparing disclosures at registered scheme level.

It is more surprising that the handful of firms who have workplace GPPs to report on, had not sought clarification (the consultation has been open nearly a year). It sounds to me that either they are bad at reading consultations or they decided to put the original proposals in the “too hard” box.

The FCA’s sucker punch

Despite the FCA saying they are offering an easement, some employers can now look forward to some even more interesting disclosures over the summer, not least – an understanding of what other employers participating in the same “HMRC scheme” as them, are getting by way of a deal.

The disclosures that will be published by the IGCs this scheme year (by July 31st) go considerably further than any information previously published. The workplace pension Independent Governance Committees (IGCs) will need to either comply with the existing requirements laid down last summer

  •  To ‘pick a small number of reasonably comparable schemes or investment pathways, including those that could potentially offer better value for money (against the factors set out in the rules), to conduct their assessment.’
  • When selecting these schemes,   ‘take into account the size and demographics of the membership. This comparison with other comparable options on the market applies to the extent that information about those options is publicly available.’

or

  • disclose each set of costs and charges that they levy (and the number of employer schemes which have these costs and charges), or

  • show the distribution of costs and charges by employer arrangement in some other way, for example by dividing the range of charges into deciles (ie without also disclosing the relevant employer or scheme details against the particular costs and charges)

The  second option  appears an easement but may prove even more disruptive. It is infact a sucker punch to insurers and IGCs.

It will be interesting, reading this summer’s IGC reports , to find out which route each IGC takes and whether they and their providers consider the original disclosure the better of two evils.

That some IGCs and their providers have struggled to disclose benchmarking information is no  credit to them. That the FCA needed to publish this “easement”, suggests a growing frustration with the IGCs inability to act for savers rather than their sponsors.

Impact on provider margins

In my experience (I was head of sales at Zurich/Eagle Star 1995-2005), employer scheme pricing was based on what margin we could agree with the gatekeepers – the employee benefit consultancies.

These gatekeepers worked on “leaving something on the table for the next man“, which added up to providers getting deals at pretty favorable prices to the insurers.

The schemes which were set up at the turn of the century with no assets, are now looking very healthy, if your employer pension has £100m in assets, the provider is earning £1000 pa for every basis point (0.01%) of charge they are making. The range of charges is between 10 and 75 bps (0.1% to 0.75%) so there is considerable scope for negotiation and the FCA know it.

Indeed, the statement that the FCA put out early in June shows that they are now on top of this subject and have grasped how important it is that employers are empowered to understand their costs. The FCA sees the disclosure of charges at employer level as meeting three statutory objectives;

  • competition – scheme members and others can access better information about costs and charges, promoting more effective competition between firms in the interests of consumers.

  • consumer protection – better information about costs and charges should enable scheme members to decide if their scheme is giving them value for money and if it will meet their future needs.

  • market integrity – workplace pension schemes should be better held to account by their members, which would improve the orderly operation of the financial markets.

I think it ambitious to expect members to be picking up on costs and charges they are paying, through disclosures from the IGCs. However employers have the capacity to be more assertive.

And I see an opportunity for HR, reward and payroll departments to benchmark themselves and renegotiate charges for staff either with the existing provider, or by switching to a rival.

The problem for employers was correctly identified by the Office of Fair Trading in 2013 when it wrote in its market study.

“The buyer side of the DC workplace pensions market is one of the weakest that the OFT has analysed in recent years. Part of the reason for this is that most employees do not engage with, or understand their pensions. Pensions are complicated products, the benefits of which occur a long time in the future, for many people”.

Consumerists have long argued that employees did not have the information to make sense of their pension pots. But moves are afoot at both the FCA and the Pensions Regulator to make sure savers in workplace pensions have simple statements that tell them both the costs they are paying on simple pension statements published by law. So, both employers and members will be better empowered to take decisions – and soon!

Of course, employers should not be making purchasing decisions just on price, (value is the other part of the equation), but this move from the FCA should be picked up on by every employer that runs their workplace pension as a GPP (and many who participate in master trusts and have their own company workplace pension).

 

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TPR/FCA and Government – shining light on value for money

Posted on May 20, 2021 by henry tapper

There is a crack in everything , that’s how the light gets in

TPR’s Corporate Plan  for the next three years is for the most part solid and uncontroversial. Where it extends beyond the 2020 plan is in a long section on value for money which I have quoted in full below. The pensions industry has yet to get the message but “value for money” now informs every aspect of the Government’s DC agenda. Put another way,  if a measure does not improve value for the saver, what is it’s point?

Thankfully the artificial and divisive phrase “value for members” has been dropped and it is clear that where tPR speaks , they speak with the FCA. It looks like what will come out of CP20/9 (the FCA’s VFM consultation) will be a discussion paper published shortly by both regulators

As someone who has pioneered the benchmarking of performance and the scoring of value for money, I am encouraged by the statement

Our exploratory work around value for money will include considering the merits and practicalities of a common, cross-industry standard and the development of benchmarks

This standardization is long overdue. The over-elaborate value for money frameworks established by IGCs and Trustees are so diverse they provide no means of comparison and the saver has no idea what value he/she has actually had.

Reference is made to the DWP’s work on “improving member outcomes” which I understand will be providing us with more detailed guidance next month. It is absolutely right that the focus of improvements is on the outcomes of members, too much talk to date has been about the characteristics of a good DC scheme and too little on what such schemes have provided by way of pounds in their saver’s pockets.

As such a saver, I want to know who has provided value and make informed choices based on evidence.  The longer-term work coming out of the FCA/TPR discussion paper is focused on the saver and focused on “cross-industry” standards, this is absolutely right.

Here is what TPR is saying , I have emboldened those statements and headings that I consider particularly important and I’d welcome comment.

 

Sarah Smart – Chair
TPR

Value for money

We believe savers’ money must be suitably invested, costs and charges must be reasonable and good quality services and administration are provided to all.

Savers in DB schemes have the promise of a certain level of income at retirement. However, significantly more people are saving into DC schemes where the retirement income amount is dependent on the level of contributions and the performance of investments – as well as the decisions made on approaching retirement by the saver.

Value for money was one of two priority areas in our joint strategy with the FCA published in October 2018. We will be using our powers to help drive value for money for savers and this includes setting and enforcing clear standards and principles where relevant.

Our research indicates that smaller DC schemes are often less able to meet standards of good governance and administration. The economy of scale of bigger schemes often means savers will benefit in a variety of ways, and therefore we encourage consolidation as a means of improving saver outcomes. Further to the introduction of the regulations from October this year, we will seek to ensure that schemes consolidate where they are unable to achieve value for money.

Savers are also less likely to receive good value for money when they have multiple small pots with varying performance and charging structures. Improved saver engagement through tools such as the Pensions Dashboards could help to address these issues in the longer term by putting the saver in control of consolidating their savings. However, there is more that industry can do now to address the existing stock of small pots and to prevent the problem continuing, and we support the DWP’s Small Pension Pots Working Group.

Figure 2 below depicts an activity timings plan for the work under Value for money. There is a date range across the top of the chart from left to right showing three consecutive financial years: 2021-22; 2022-23, and 2023-24. This date range is used to show where the activity (shown in swim lanes below) starts and ends.

Year 1 (2021-22)

A focus on developing a broader understanding of value for money

In year 1, we will increase our focus on this strategic priority, developing a broader understanding of value for money: its components, risks, and opportunities. This development will build on our current joint work with the FCA and ongoing dialogue with government.

Our exploratory work around value for money will include considering the merits and practicalities of a common, cross-industry standard and the development of benchmarks and we will publish a joint discussion paper with the FCA. We believe value for money assessments will be key to ensuring DC pensions deliver the best possible retirement outcomes for savers, and we have been guided by our stakeholders and industry on the importance of this work.

Following the DWP’s 2019 consultation ‘Improving outcomes for members of DC pension schemes’, regulations in relation to value for money assessments and consolidation of smaller DC schemes will come into force in October 2021. Statutory guidance in this area will be updated to help trustees and advisers ensure they understand what is required of them and that they are able to take the necessary action to comply with the law.

Years 2 and 3 (2022-23 and 2023-24) Continuing to work with trustees and our regulatory partners to establish cross-industry standards

During years 2 and 3, we will continue to work with the FCA to deliver common standards across the market. This will follow the joint discussion paper with the FCA on value for money, which invites discussion from the industry but does not set out a finalised framework. Clear, cross-industry standards would help drive positive change, particularly in the context of a smaller number of DC occupational schemes with large numbers of savers.

Continuing our work from year 1, we will work with trustees so they can assess value for money in relation to their scheme, and in accordance with the regulations.

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Can Pension Wise deliver a financial vaccine?

Posted on May 10, 2021 by henry tapper

a financial vaccine?

Yet another consultation (the 11th this year) arrives from the FCA, looking to nudge people of my age into the arms of Pension Wise and away from scammers.

This looks sticking plaster on a wound that will continue to bleed our savings for some time to come. Take up rates for Pension Wise remain low and the dial is not likely to move much once the proposed changes come into place.

I have read the paper but it was heavy going …..

Click to access cp21-11.pdf

I’m not quite sure how I managed to insert the paper as I did, but I’m keeping it on display because it shows just how long-winded these papers are getting.

In practice, the 39 pages boil down to this

we propose that, when a consumer has decided, in principle, how they wish to access their pension savings, or transfer rights accrued under their existing pension to another pension provider for purposes of accessing their pension savings, pension providers must:

  • refer the consumer to Pension Wise guidance
  • explain the nature and purpose of Pension Wise guidance, and
  • offer to book a Pension Wise guidance appointment.

This is the big idea to get the guidance points illustrated at the top of the page- into play.

Financial vaccination

There is an obvious comparator, it is what the NHS is doing in getting us to go and get vaccinated, where there is pretty well universal take up (see C10-arg blog The public response to vaccine hesitancy – Joseph Robertson)

The way to win people’s hearts and minds is to present a clear counter-factual. If you don’t get vaccinated you run the risk of getting Covid whenever your third wave arrives and what’s more you’ll be limiting your capacity to join into the new normal (as you won’t get a covid passport). I know that isn’t exactly what the Government is saying, but it is what the public is hearing.

For Pension Wise to become as relevant as a vaccination, it is going to have make a promise as compelling and  that is a very long way from what the public are seeing. Pension Wise is not going to vaccinate us against scamming , nor is it going to provide us with a definitive course of action about what we should do with our retirement savings. Instead, it is seen by the majority of people I speak to as extremely worthy, very boring and rather ineffective. A bit like going to a vaccination center and not getting the vaccination.

The alternative

Rather than putting people in financial harm’s way, which is what pension freedoms do, why not turn the question round and provide people with a financially healthy way forward that pays them a pension with them having to buy an annuity?

Ensuring that every DC pot has as its default a scheme pension paid from a collective retirement fund is not fanciful. It simply requires any provider, whether the funder of the trust or the supplier of the contract, to offer directly or through a third party, a properly managed collective pension scheme set up and managed to pay a wage for life in exchange for the pension pot.

This doesn’t mean that the current choice architecture of investment pathways should be disposed of, but the variants – cash, annuity and DIY drawdown would be self-select options and only accessed where an individual wanted to make a positive choice.

This may seem like a return to the bad old days of compulsory annuitisation, but it is not. The annuity was the only option unless you could prove you had adequate income elsewhere. The opt-out proposal I’m mooting simply follows the tried and tested approach to pensions which is to put the onus on people to opt-out and not opt-in to the right decision.

The “right decision”

We are of course a long way from having consensus that a CDC scheme pension paid from a collective pool and insured by the collective pool is preferable to the investment pathways.

We are looking for a financial vaccine to protect people at retirement. In my view CDC will pay most people what they want better than any of the investment pathways – it is our best hope going forward.

A CDC pension could be paid from any existing DC trust that was willing to convert to CDC and could be authorised as one by the Pensions Regulator.

I see – within  a decade, CDC sections existing as the “wage for life” default option, of all the master trusts and it may be that one or two large employers decide to commercialise their existing DC trust based schemes. Put simply, if I wanted to defray the cost of providing a DC scheme to my members “to and through” retirement, I would offer the facility  admit the public to my CDC provided they were transferring benefits from elsewhere and I would admit these savers on commercial terms.

This should not prove a problem for the ABI, whose members are prominent either as funders of master trusts or suppliers of investment platforms and funds that will sit within CDC arrangements. Nor should it be a problem for the PLSA, for whom CDC should be a lifeline for ongoing relevance.

Where these proposals will meet with most opposition will be from scammers who will have to justify the arrangements they propose as opt-outs of collectives – on a value for money basis.

 

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The FT moves the needle on CDC

Posted on April 28, 2021 by henry tapper

As I predicted, yesterday turned out to be a day of pension debate and what started as an editorial in the FT , was continued in an excellent seminar where Claer Barrett , Jo Cumbo and Sebastian Payne explored the idea of a “new pension deal for the young”.

Unequivocally, the FT put forward as its preferred solution a collective approach driven by defined contributions but providing non-guaranteed schemes pensions – like the state pension.

This is perhaps the most radical endorsement of CDC from outside the small fraternity of enthusiasts known as the Friends of CDC – to date. It is an endorsement based on improving the outcomes of the 10m new savers for retirement introduced by auto-enrolment and not a solution to the issues surrounding the employer covenant behind defined benefit schemes.

For once, the focus was on the hapless saver, a role for which Sebastian Payne had volunteered.

I’m not sure that Sebastian fully represented the “pension lumpen” but he showed a representative disinterest in any of the “solutions” being put forward to become a self-investing pensioner. Like most people I know, he wanted pensions done for him and was prepared to take a non-executive role in his own retirement.

Most of us, when it comes to personal decisions, find it hard. We can be convinced when shown the economic advantage to us of an employer match on what we put in, to put more in. We can be convinced not to opt-out of our pension saving  even if it means slowing our saving for a house deposit and we can even grasp the fiscal advantage of salary sacrifice, when that advantage is passed on to us. But beyond that it’s hands off – both in terms of investment and – so it seems – in retirement decision making.

Which of course is not what DC is supposed to be about. The FT seminar spelt out the alternative to engagement , an awareness of what needs to be done and a willingness to trust others to do it. Which is how CDC works (and why for many, DC doesn’t).

The pension industry response

I was frustrated to see response to the FT’s initiative being so feeble. Far from engaging with the issues that Jo, Claer and Sebastian were grappling with – issues of everyday people. The debate moved to discussions over whether the University Superannuation Scheme would move to CDC and was quickly mired in politics.

Jo Cumbo had to intercede and explain that what she had written and what she would be discussing was not to do with USS.

What the FT seminar was saying is that CDC , despite it being received as a political solution to the Royal Mail industrial dispute, is not a tool for employers to de-risk liabilities , but a means for those saving for retirement to make sense of that saving in terms of pensions.

It is a shame that in the febrile hot-house of USS politics and in the pension industry’s debate with itself over guarantees, the wider DC picture is being ignored.

A word about the LCP conference

I was a little disappointed that LCP ran their DC conference with no dedicated session on DC. This may be pragmatic as it focused very much on what employers and trustees can do right now (and clearly we still await the roll out of secondary regulation allowing multi-employer schemes to incorporate CDC).

What was said about CDC, was said with little enthusiasm or passion. It is clear that even a consultancy as progressive as CDC , still struggles to understand what it is like not to be a pension expert!

This conference comes round but once a year (and we missed last year). Which means an opportunity lost to consider the alternative to setting up investment pathways – or whatever the PLSA’s variant might be.

I would urge Laura Myers, Steve Webb, Dan Mikulskis and the many blue-sky thinkers within LCP to think of alternatives to engagement. Whether we think of everyday people as “lumpen” or “non-exec”, we have to accept that most people do not want to make strategic decisions about how they invest or how they disinvest their retirement savings.

Most people, like Sebastian , want things done for them – so they can get on with their lives without having to worry how to pay the bills in retirement. If we can focus on that simple truism, then we can start making sense of CDC.

The FT moves the needle on CDC

The last word goes (in this article) goes to Jo Cumbo.

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It’s time we tested the value we get for the charges we pay

Posted on April 20, 2021 by henry tapper

If I had read the PLSA’s response to the DWP’s proposals to flex the pension charge cap, this time last year, I would have applauded it. I told the Pensions Minister to his (virtual) face that I saw no demand from the funders of commercial master trusts or employer DC trusts. I was wrong, while the barriers that the PLSA are still up for smaller schemes (and even the cash-starved People’s Pension), those master trusts moving to scale and those few employer trusts at scale are looking to allocate to private illiquid markets.

We learned this week that Nest has appointed CBRE Caledon and GLIL Infrastructure to invest £3bn into infrastructure equity by the end of the decade. This is on top of its initial allocation of £250m of its default fund to a partnership with Octopus energy to invest in renewable energy.

Stephen O’Neill, Nest’s head of private markets, told the FT :

“Nest’s investment strategy is evolving at pace in line with the growth in our assets under management, opening up new assets classes in the pursuit of the best risk-adjusted returns for our members.

We believe direct infrastructure equity investments can offer diversification benefits and a return premium to public market equities, at lower levels of risk.”

So when I read in the PLSA’s response to the DWP

we do not believe that the alterations will lead to a material change in investment in illiquids as there are a number of other important reasons why schemes do not invest in them. In particular, a focus on low charges in a competitive market, the prudent person principle which requires schemes to take careful consideration of risk and reward and this
is likely to always result in only a very low proportion of scheme investment in such assets and operational barriers, such as the flexibility to move pots when requested and daily dealing….

I have to question who the PLSA is speaking for.

It is not just Nest, there are a number of large DC pension schemes who are looking to invest from their margin, in more expensive assets, this can only be in the hope of improving member outcomes.

The PLSA may consider Nest misguided in putting outcomes above profit but they cannot deny that Nest have a plan in place and Nest is a member of the PLSA.

Is Nest a special case?

It might be argued that Nest is special because it enjoys the benefit of cheap Government debt and does not have the cash flow worries that beset many of its commercial rivals. It can better afford to take a long view and has a public obligation to tow the line. The line is being set by the Treasury and its agent the DWP.

The PLSA actually agree with the Treasury that investments such as those Nest are committing to, are in the long term interest of default investing savers.  So what are they caviling about?

It would seem they are assuming that DC pension schemes going forward look like DC pension schemes in the past. The DWP do not and make it clear that they want small DC schemes (by which they say schemes <£100m but really mean schemes <£1000m should not be investing at all, but folding into larger schemes that can afford to run illiquids in their defaults.

This is where the disagreements between the PLSA and the DWP/Treasury’s position seems to spring from. I can understand from a membership organization’s point of view, the collapse of small schemes into large schemes is not good news. A founding member of the PLSA’s Pension Quality Mark club – the Vodafone DC scheme- has already collapsed its assets into WTW’s Lifesight plan and if such a large scheme can go, what mightn’t. The PLSA are necessarily  concerned that we may find their role representing DC members limited to a few large schemes but that is what the DWP clearly sees the market offering them.

Nest is only a special case if you think its current size (£16bn+) will be exceptional within the time horizons the DWP have in mind. My feeling is that by the end of the decade there will be several large schemes with more than £30bn in them and that Nest will be challenging the largest DB schemes to be the largest funded pension in the land.

A changing landscape not a changing need.

The need for growth and income in the accumulation and decumulation of pensions does not change over time. The means of delivery changes, schemes in the future will no longer offer the sponsor’s covenant that defined income levels will materialize. So it is strange that the PLSA respond to the DWP that

“having a 5 per cent allocation to venture capital in the most popular “default” pension funds could “effectively double the total cost” of the investment portfolio. For this reason, private equity costs are not affordable within the default, and from a scheme perspective, appetite for this type of investment will also be tempered by the fact that higher costs, resource scaling-up and management will not guarantee higher returns”.

There are no guarantees on investment and you certainly don’t get certainty of better returns for paying a fund manager higher fees. But the risks of over concentration of capital in the most liquid markets suggests that value by continuing to rely on a single source of growth (passive equities) may be a false economy.  The need for reliable returns and the risk of not achieving them rest with the trustees who act on our behalf. The PLSA need to discuss with Nest and others why they are not relying on low charges to deliver to member’s needs and expectations.

It’s time we tested the value we get for the charges we pay

I agree with Con Keating that there is no reason for performance fees to manage most of the illiquid investments being considered by DC funds. Con suggests that many of the investments can be managed within investment trusts where the trust itself can declare a charge within the scope of the cap.

I also agree with Mick McAteer in considering the motives for industry pressure on the charge cap – self serving

However, I am also a pragmatist and I recognize that what the Government is really saying, by relaxing the charge cap to accommodate the smoothing of performance fees is a means of bringing alternative managers to the table.

So I am not against the flexing of the charge cap. I neither see it as necessary or deleterious. It is a sop to the hedge fund managers but no more than that.

What is needed is vigorous testing of the efficacy of the strategy being propose and this testing needs to be a field test, with real charges and using real DC member data. We know that the strategies of the managers touting for business have been back-tested, but have they been back tested in the context of the funds into which the managers want them allocated?

For the public to feel comfortable with these new illiquid strategies, it would be sensible for trustees and managers to abandon the usual non disclosure agreements and tell us what the strategies are, how they have worked in the past and what their impact will be on member outcomes. It’s important for people like Mick McAteer and Chris Sier. but even more for those invested in the defaults of schemes such as Nest.

 

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How DC consolidation can benefit DC members

Posted on April 18, 2021 by henry tapper

 

Like Climate Change, Pension Consolidation isn’t something theoretical, it’s happening and at a great pace. I remember when DB transfers were at their peak (2018) people talking about what was to come. It had come and before the regulators had worked that out, the horse was cantering off into the distance.

Unlike Climate Change and unlike the tsunami of DB transfers in the late part of the last decade, the consolidation of pension schemes is not a threat but something to be devoutly encouraged. Most of the sub-scale DC schemes in the UK know they are likely to offer inferior outcomes to members and trustees are not holding their members or their employer sponsors to ransom. They are freely handing over their pensions to consolidators.

In this blog, I focus on the commercial advantages of consolidation and question whether they are currently benefiting members as they should. There are of course other advantages , than the economies of scale (specifically the capacity of large schemes to broaden and strengthen investment strategies. But consolidation should also bring lower charges to members and better facilities (such as retirement options).

I fear that much of the value is being too freely given to commercial master trust funders by employers who don’t fully understand the value of their gift

“Freely given”

I do not fully understand this phrase. The employer sponsored trust is in essence a mutual structure, it has no objective other than to provide benefits to members. In the past it was financed by employer contributions and where the trustees incurred expenses, these were met by short service refunds (if you left within the first two years of service, the employer contribution returned to a pot which paid the trustees and their advisers.

The abolition of short service refunds has meant a lot more small pots but it has also cut off the oxygen supply to the advisers who now have to bill the trustees who pass on these bills to the employer. Very few trustees now  have their own budgets and can take decisions autonomously. This has changed the market – especially for consultants who are find it harder getting paid.

The consultants have moved from a pure advisory role to become the funders of DC master trusts, arguing that this is the most cost efficient way for employers and staff to get the benefit of their administration skills, communication expertise and best investment ideas. It probably is.

But what consultants offer is not is an employer mutual, it is a commercial master trust which is freely given assets by employers who – with the consent of their trustees, decide to wind up the employer trust.

Outside of pensions , this would be considered “de-mutualisation” and the owners of the mutual – the employer, might reasonably expect to be paid for the transfer of the asset. In this case the asset is the fund value of the scheme and the ongoing covenant from the employer towards the staff’s pension. This could be valued and paid for as a premium for consolidation paid to the employer, who could choose to pass this money on to staff or keep it for shareholders.

Inside of pensions, this premium is reflected not in a cash payment to the employer but in enhanced terms to the transferring members. If the RRP of a workplace pension is 0.75% pa as an AMC, any discount from that amount could be considered a premium. In practice , the “going rate” for AMCs is well below 0.75% and commercial master trusts compete for consolidation at much lower rates.

On the face of it, the competition for consolidation is benefiting members because employers are not demanding cash for their schemes. But I wonder if most employers are aware of the valuable asset they are giving away in the consolidation process and whether they should be driving a harder bargain. Just as I wonder whether employers who participate in multi-employer workplace pensions (to comply with auto-enrolment) realise the value of these contributions.

The value of the bargain

The employer is potentially ill-served by a consultant who is both adviser and purchaser. Where the consultant is bidding to become the fiduciary manager of the employer’s DC assets, it is in the consultant’s interests to downplay the value of those assets and the future income stream from ongoing contributions.

Smart employers, engaged with “selling out” their trust based scheme, should consider getting the scheme independently valued , prior to entering negotiations with consolidators. It makes no sense putting this negotiation in the hands of the one of the bidders for the value of your scheme.

But I fear many of the master trusts that are run by consultants have done just this and have found they have sold their birthright for a mess of potage.

Should  commercial Master trusts  be considered  “fiduciary managers”?

The rules on the competitive tendering of fiduciary management are laid down by the Pensions Regulator and are explicit in what they cover. Fiduciary management does, under these rules, extend into DC trusts but only where the trustees are offering an investment mandate to a fiduciary manager.

But the consolidation of an “employer mutual” into a commercial master trust is akin to the granting to the funder of the commercial model, a  grant of fiduciary management. After all, members are given no choice in the matter and are simply seeing one set of trustees replaced by another.

The ceding employer , even when in future participating in a master trust, retains some control. It could be over the charges paid by staff who are members, it may even be the employer retains control of the investment of their money (with the help of consultants).And the employer retains the right to withdraw further sponsorship of the master trust and transfer future contributions to  another scheme.

But generally, the ceding of a single occupational trust in exchange for participation in a master trust , signals the end of employer control over the fiduciary management.

I don’t think that sufficient attention is being given to the commercial consideration to employers in this ceding of control and I sense that this is an uncompetitive market where employers, who the OFT consider “poor buyers” are being led by the nose.

Office of Fair Trading market study 2014.

Call to action

The table above and the chart below shows the state of the master trust market. It is at least a year ago as we know that Nest’s assets are £16bn today (rather than the quoted £12.7bn).

It shows how the market is dominated by a few large funders (mainly consultants and insurers) . Nest and Now , Smart and People’s Pension are the main providers to smaller employers operating Auto-enrolment.

Lifesight (Willis Towers Watson), Atlas (Capita), the Mercer and Aon master trusts plus Nations Pension (XPS) are the main consultancy funded schemes. These schemes are primarily consolidators and don’t depend so much on auto-enrolment (employer covenants are AE+).

Legal & General, Aviva , Standard Life and to a degree Aegon and Scottish Widows are operating in both spaces and working with consultants to offer bespoke sections of their schemes to consultancy driven bespoke defaults.

My concern is that the regulators will only pick up on the implications of this transfer of value to master trusts after it has been completed and that many master trusts will  have grown fat on poorly negotiated deals with employers. Some of these deals may need to be considered for conflicts (especially where consultancies take over the management of assets without a proper tendering process).

However, all is not lost. The ongoing role of employers in funding master trusts means they can and should have insight into the management of the schemes they fund and here “value for money” considerations can and should be strengthened. Mandates to asset managers need to be tested periodically, administration similarly. We can’t go on measuring value purely on the asset manager’s reporting, it needs to be tested at member level with reference to internal rates of return achieved. There needs to be proper benchmarking against a standard (a replacement of caps median) and there needs to be commonality of reporting.

All this needs to happen fast and needs to be driven by Government and its regulators.

The consolidation of the workplace pension master trust into a few mega schemes is good news for consumers, but only if it results in value  being passed on to members.

 

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MaPS – this is not the way to buy investment pathways!

Posted on April 10, 2021 by henry tapper

I wonder how many of the 60,000 people who each month decide they want to “get at” their pension money, are finding their way to MaPS website set up for people to understand and compare their investment pathway options (for pension drawdown).

Not many I’ll be bound;  those who do are likely to be the 10%  with inquiring minds who took their Pension Wise consultation. Speaking to a couple of the pathway providers who I spoke to last week, traffic from the comparator site is minimal. This may be just as well as the site is a disgrace.

I have complained in previous blogs about the lack of relevant factual information on the site with which to make meaningful comparison but – having now had a month or two to dig deeper, I will restate my objections to the site.

Why is the MaPS investment pathway comparison site a disgrace?

First and foremost it focuses decision making purely on cost

This is a clip I did on a search for myself. I did so having been excited by this claim on the MaPS site

This is not a shop around service, many of the readymade investment pathways are not represented – where is the LV Product – where is the Vanguard Product, where are the offerings from True Potential, Open Money and SJP?

Confusingly the site tells me

I originally took this statement to be the reason why MaPS could not be inclusive. But I suspect that MaPS have been bullied by incumbents into including this statement. I would imagine that “deals” could be had with any provider – why the home bias?

Secondly, the basis of the “cost” comparison is deeply suspect. Everyone inside pensions should know that the amount you pay for pension management is much more than the explicit charges disclosed by the platform provider . But the site gives no details of the true cost of investing in these pathways . Instead every comparison gives the same explanation. The first year charge shown …

will take into account the expected charges for the pension drawdown product and the investment pathway chosen and, if applicable, any income you have chosen to withdraw.

But there is nothing on the site that allows the inquisitive purchaser to understand whether the hidden costs are included or a breakdown of costs. This is important because if you want to use the site filter, it becomes clear that the only basis of comparison is charges

You can also sort High-Low on the first year charge.

Not whole of market – not clear on charges – so what about value?

My journey through the site has given me “an idea of what the market looks like” and two ways to compare the market (hi-lo, lo-hi on charges). But I am also being told that I can

  • Click on ‘more information’ to find out additional details such as the product features and charges, along with a description of the risks and investment objective of the chosen investment pathway option you’ve selected.

Clicking on “more information” does not lead to any objective assessment of the value of the product purchased. It just gives the marketing departments of the various providers an opportunity to show off their compliance with FCA strictures. I have written at length about the inadequacy of this approach

What is iniquitous and disgraceful is that MaPS are making the purchasing experience one dimensional and giving no instruction on value whatsoever.

What is needed is a quantitative approach to value assessment and that needs to be done independently of providers using proper simulations of how these pathways and platforms actually work. This is not as hard as it sounds and I will be putting forward suggestions to MaPS on a way to compare the effectiveness of these pathways based on historic simulations (ex ante). No doubt those with stochastic models could do the same going forwards – though these monte-carlo simulations don’t do it for me.

Similarly, there are independent assessments of the sustainability of funds – ranging from TCFD reporting to Morningstar’s Sustainalitics, which could be employed to provide an insight into the E, S and G of the pathways.

Solutions are available, why aren’t they being explored?

I am increasingly frustrated with MaPS, which will come as no surprise to readers of this blog. The £108m spent by the organisation last year came out of levies which ultimately find their way into the charges we pay for financial products.

The users of those products should be demanding a service from MaPS that is at leas fit for purpose, this service is a disgrace. Someone needs to be held accountable for its delivery.

The best thing that can be said about the MaPS investment pathway is that no-one appears to know about it, let alone use it. It could easily become just another failed project that quietly fades into the distance, unused and unloved.

But investment pathways are the only game in town for those who cannot afford or do not want an advised product. Many non-advised products are providing value and many of those do not make it onto the platform. Those that do are being ill if not misrepresented. Purchasing decisions are being reduced to price comparisons and the price comparisons are dodgy.  Solutions that are available are not being explored and no one seems accountable.

We deserve better.

 

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Can the “cost of lifestyle” be measured or managed?

Posted on April 8, 2021 by henry tapper

I’m pleased that Julius Pursail has commented on my post on lifestyling. He’s someone who cares a lot about member outcomes. He’s made it clear in Professional Pensions that he wants the trust he advises – Cushon – to do more than the lowest common denominator or a strategy of “minimum detriment”.

Here’s what he has to say….I’ve put my tuppence worth in red

There are two sources of cost that members bear inherent in Lifestyling.

The first is the potential forgone return that derives from members not being fully exposed to a high return asset class (equities) as derisking (into whatever lower risk asset mix the trustees have decided upon) takes effect in the run up to “expected” benefit vesting.

Trustees take these decisions based on complex trade offs around the range of possible returns for different cohorts of members and uncertainty around the timing and type of benefits the member is likely to take.

As Con Keating pithily observes, the size of this forgone return that materialises when benefits are taken, represents the cost the member has born for decisions the trustee has taken about risk.

I think of this as “opportunity cost” which can be measured by comparing the lifestyle outcome with the outcome from not lifestyling. Here is an example

Here the orange line represents the return for someone who had not been lifestyled and the green line the person whose fund had been totally de-risked of equities (the other lines are for those who are in between. You can see that for five years after the crash that followed the market peak at 2000, lifestyle would have produced better outcomes. But staying in a de-risked fund had an opportunity cost from around 2005.

You can see that the same pattern emerged in the 2008 crash, it wasn’t till 2014 that the lifestyle fund showed an opportunity cost.

By comparison , the impact of the pandemic on outcomes in 2020 was short lived and lifestyle only provided protection for a year. 

There really is no telling when the market is in freefall, how long lifestyle protection is worth having but like any insurance, its value is in relieving the stress of the short term market calamity. How many of those who enjoyed lifestyle protection over these crashes , were aware of the job it did? Conversely, how many savers are currently still in bonds and failing to enjoy the current market rally?

Lifestyle is an insurance that few know they have purchased. The value of that insurance is hit and miss and its cost can be immense. Using this insurance when it isn’t needed is a waste of money and this is why the kind of interactive messaging that Cushon wants to employ is helpful.

The second cost to members flows from the cost of trading between asset classes. This is an area where providers can help to minimise costs and improve outcomes by unit matching wherever possible between different members, benefitting both the seller (the older DC member) and the buyer (the younger member, still buying equities).

It must be right that trustees understand the impact of both these sources of cost, by measuring ex post member outcomes in the way AgeWage has pioneered. Understanding how well decisions made by the trustee about risk have turned out can help review the ex ante decisions trustees have taken about the risks members bear.

This is about execution and it’s something that trustees should be able to control. We can see historically the operational cost of lifestyling by comparing similar strategies executed in different ways. It’s a bit like measuring the time it takes to change wheels in a formula 1 pitstop, every car goes through the same wheel change but some lose more time than others. You can’t guarantee winners and losers but you can see which tyre- change times get it right more often than not. Past performance should be a guide to future performance – especially if its judged over two or more cycles (see above).

Turning to the questions you raise in your subsequent post about Cushon’s ability to use technology to engage with members, the 60% App driven member engagement figure relates to schemes that have been launched direct onto Cushon tech (we are in the process of porting the old Salvus (now Cushon) MasterTrust onto our technology). By using straightforward behavioural techniques and push messaging, that figure has climbed rapidly to 80% after just a few months. This level of engagement offers transformational capacity to create well tailored lifestyle strategies for our members, based on their own risk preferences.

As I have said above and in the previous blog, Cushon’s approach is a good one, provided it doesn’t overwhelm the member and get them sending messages to spam. Here is the challenge- laid down by Richard Chilman as a comment on my initial blog.

The trouble with much of this is that life is quite unpredictable.

Many of those for whom life is more predictable have great difficulty knowing when they might retire and what that retirement might look like, especially if it is a few years away. When it comes to it, retirement is often a gradual process involving part time working.

However, for very many people, retirement is driven by unforeseen and unwelcome events. There are first the redundancies, with the uncertainty of what (if any) work can realistically be done afterwards. There are then the health issues which often stop or limit the work that people can do, and indeed the things they may be able to do after work. And then there are the family issues like separation or caring for others. All these are the practical things that drive “retirement” for many and their access to their pensions and state benefits.

At least for most people, it is difficult to see how personalisation can work with any reliability at all. It can’t change how money has been invested in the past. For the future, the small percentage of financially sophisticated and organised people may continually feed changes of personal circumstances to a pension provider.  However, this is pure fantasy land as far as most of the “pension lumpen” are concerned. They don’t keep on top of a number of complex things in their lives and have little if any understanding of investment issues. They just understand cash.

It would be interesting to see any examples of the kind of nudge that Cushon have in mind. It would also be good to know whether Cushon’s nudge to their membership to think and invest green, extends to those in their fifties and sixties. “Lifestyle” can be interpreted in many ways, but for the lumpen  it is most connected with the quality of life we can lead!

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“The new bargain” – in conversation with Ros Altmann

Posted on April 7, 2021 by henry tapper

This is our chance to speak with the bosses!

This blog is in response to Ros Altmann’s comments on Mark Fawcett’s “new bargain”. It is good that this discussion is happening, though my thoughts are amateur and are driven by opinion rather than a deep understanding of private markets. We need a proper debate about how our retirement savings are managed and this looks like part of it. Ros’ comments are in italics, mine in red.

Dear Henry, thanks for your response to my comments. I certainly do not advocate LDI and bond-yield returns for DC and am referring to the performance of the assets in DB schemes which have benefited from diversification into illiquid and other types of asset class, to benefit from long-term risk premia that should be available for success.

I am pleased you talk about long-term risk premia, from what I hear from those close to private investments, current conditions mean the harvesting of short-term risk premia will yield a meagre crop. This may be a good thing as it reduces the opportunities to trade – which I see as damaging the stability of companies invested in and rarely in the interests of investors.  There have been attempts to replicate LDI structures within DC, they have failed – DC is not ready to be locked down just yet!

The problem with DC investing, relying only on equities and bonds, is that this does not take advantage of the market inefficiencies which exist more frequently in less publicly scrutinized markets.

I agree that the private markets provide opportunities for growth , let’s hope we can avoid strategies which take advantage of vulnerable stocks and profit from their demise. This seems to be against the S in ESG and trustees need to be clear with their managers that they are looking at long-term growth.

Also, with assets like infrastructure, there is both a growth and a real income rationale, which can be tapped into and which DB schemes have used to their advantage. The current DC landscape does not seem to factor in long-term inflation protection directly at all. Even in the annuity space, the emphasis is always on fixed, level annuities (because they are the only way that buying an annuity at a relatively young age (in your 60s!) can look even remotely attractive for those in good health.

Your argument seems to accept that “DC and pensions” can be spoken of together. I agree that large DC schemes should be considering paying inflation proofed pensions and that the emphasis on scheme design needs to turn from lifestyling (where the aim is typically to de-risk) towards an ambition to pay a wage in retirement. Infrastructure supports the payment of “real income” – which I take you to mean – “income that keeps pace with inflation”.  Your points about annuities are well made. Currently, many annuities are set up with the option to be replaced within a couple of years by lifetime annuities, the current annuity market is in a holding pattern awaiting the return of interest.

Having a more diversified approach can help with inflation protection as well as upside returns. DB has become more obsessed with managing downside risks that many schemes have perhaps focussed too little on gaining the upside above liabilities which is essential for paying the pensions after costs.

Is this not a consequence of over-zealous regulation designed to protect the PPF at all costs? Your work in the Lords , with Sharon Bowles did much to convince Government to relax its position on “open DB pensions”, I hope this will be reflected in a softer re-write of TPR’s DB funding code. I have made the point to the Pensions Minister that open DB, CDC and consolidated DC share the capacity to invest for growth.

In the end, though, on the issue of fees, only the largest schemes are likely to have the muscle to negotiate the best fee deals and that is the same in DB. The advantage that DB trustees have is that they are not held to daily pricing or liquidity and can take a longer term view, which is what I believe we need in DC too.

This is part of the new bargain isn’t it? Mark Fawcett’s phrase has implications not just for fees but for people’s expectations from their pensions. So long as pensions are promoted as tax-advantaged wealth then liquidity will be to the fore. This is where the advisory market  and DC pension trustees diverge. The wealthy , especially since Woodford, have a right to be wary of illiquids. They find themselves locked into property funds and “gating” is still a specter hanging over hedge-funds. Right now, trustees are wary about offering illiquids on a stand-alone basis as members may be in the legal position of demanding liquidations under scheme rules.

I have heard legal opinion  that trustees may be liable to create that liquidity – possibly with recourse to the sponsor. Trustees have a right to be nervous.  But large schemes with defaults that allocate a small percentage to illiquids need not have these worries. The Government’s agenda is to bifurcate the market with SIPPs serving the wealth market and large workplace pensions serving the non-advised (and typically less wealthy).

I would not pay 2+20% to any manager because I believe the advantages are too skewed towards the manager. A 2% annual fee in the current interest rate environment seems extraordinary for an institutional portfolio. It has taken many years for DB trustees of the largest funds to negotiate harder on fee levels, the smaller schemes are still paying more. I suspect the same for DC is likely.

I am sure you are right, though Government seems bent on recreating the DC market so that the “new bargain” can happen quickly. I see a lot of people paying 2 and 20 type fees in the wealth market. They are not formally structured that way but if your client is paying 2%pa +  and being hit by exit penalties, the impact is at least as severe.

Of course a lot of this cost is to do with platforms and advice and buys a lot more than fund management, but if organizations like Nest can offer no penalties on entry and exit and funds that include the diversifying strategies you talk of, workplace pensions become an attractive alternative for the wealthy. The FCA continue to push advisers to get their clients to consider workplace pensions as a benchmark, I can understand why advisers are nervous – this kind of competition is good news.

There are no easy answers and QE has distorted conventional risk measures in ways we cannot yet understand, so we do not really know what relative risks in capital markets are. The Capital Asset Pricing Model relies on the underlying risk-free rate being ‘risk-free’, but central banks have interfered with this now, so I would argue there are no risk-free assets and concepts of ‘high risk’ and ‘low risk’ are less reliable than ever before.

This argument is new to me but I can see where you are coming from. Of course much advice is given on the basis of a client’s “risk appetite” and the assumption is that “risk” is measured against cash as a risk-free rate. If you are suggesting  that this assumption needs to be revisited, what do you see the new “risk free rate” as being based on? Do you think that “risk free” is a misnomer? I like Leonard Cohen’s view in his anthem 

“There is a crack in everything, that’s how the light gets in”

Once again, an argument for diversification across assets. But certainly not a case for paying extortionate fees.

I am very happy with your conclusion. I don’t understand why the price to access private markets should be set at such a premium. It is up to those who demand high prices to justify their value and it’s up to those who pay them to exercise their right not to.

The “new bargain” may include concessions on both sides. DC funds cannot demand daily pricing and force liquidity. Private managers must find a way to price their services at rates acceptable to trustees, regulators and the law. This discussion is helpful to me and I hope it is helpful to people who read this blog. If you have comments to make and would like to join in the conversation, please post them. We are all learning and the new bargain is still a long way from being settled.

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Fair shares from the state pension

Posted on April 2, 2021 by henry tapper

 

In her recent article on the state pension in the FT, Sarah O’Connor reminds us

“In the UK in 1917, King George V sent 24 congratulatory telegrams to citizens who had reached their 100th birthday. By the mid-1980s there were about 3,000 centenarians. In 2019, there were more than 13,000.”

 

But what if longevity isn’t rising for everyone? Data from England, which predate the coronavirus pandemic, show a nascent but troubling development.

While life expectancy has continued to rise in rich neighbourhoods and in the poor parts of affluent regions like London, it had started to fall since 2010 in the most deprived areas of poor regions like the North East

Should the state pension be underwritten?

Is it fair that we increase the state pension at the same rate for everyone? Should where you live determine when you get your pension.  Should the state pension like most purchased annuities, be underwritten?

These are ideas which are being openly discussed in the columns of the FT .  Baroness Ros Altmann, a former pensions minister, has called for an urgent rethink of the system, with new flexibility so that struggling groups can access their state pension early.

John Ralfe, an independent pension consultant, argues the system is fair already because more affluent workers pay more tax.

“The people with the highest likelihood of reaching 103 are the people who are paying in the most anyway.”

Since the publication of this blog, Ros Altmann has commented on more fundamental issues (for the full comment, scroll below this blog).

Latest ONS figures show the shocking reality that the least well-off women have healthy life expectancy little beyond age 50, whereas in the best-off groups women’s healthy life expectancy lasts till their early 70s.

That is fundamental (and similar disparities apply to men too, but this fact may explain the tendency of policymakers to assume that raising State Pension Age close to age 70 is a reasonable option.

On the basis of these ONS stats and the vast differential in private pension coverage (again with women worst off, as well as many women losing out in State Pensions too), it seems clear to me that a flexible band of starting age is much fairer than the current system.

At the moment, if you are healthy and wealthy enough to wait longer to start the pension, you can get more, but if you are not healthy or wealthy in your early 60s you get not a penny! Even if you have 40 or more years of NI contributions.

The argument that the current system is ‘fair’ does not stand up to scrutiny. Firstly, higher earners pay far less National Insurance as a percentage of salary because of the cut-off of the upper earnings limits.

Secondly, higher earners can receive more State Pension by delaying the start date. Thirdly, higher earners have much more chance to build up other pensions.

I believe it is vital to reconsider the idea that raising State Pension Age is a reasonable response to rising ‘average’ life expectancy. The vast differentials in both healthy life expectancy and average longevity, as well as the fact that 35 years is not a full working life for most people, suggests room for meaningful reforms.

I was disappointed that the recent review ruled out using a flexible band of pension ages that allows for ill-health and very long working life. Flexibiilty should work both ways, not just for the better off!

These arguments stretch beyond financial economics and even social equality. There are arguments that there is little labor for laborers  in their late sixties , partly because those who toil with their hands , lose physical capacity earlier and partly because they don’t want to work until they drop.

Al Rush is currently running  a poll on this aspect of the debate, responses have been sufficient to make it meaningful

According to a large official survey of European workers, 72 per cent of high-skilled white-collar workers said they could do their current job at age 60, but only 44 per cent of lower-skilled manual workers. And that was all before the pandemic hit. It is likely the virus will worsen the health divide between rich and poor.

Although we still have a lot to learn about its long-term effects, we know that deprived communities had the highest infection rates, and that many of those admitted to hospital are struggling to make a full recovery

Those who rail against the cash stripping and high drawdown rates reported by the FCA in their retirement income market studies , should consider that many who have what are deemed “small pots”, see the proceeds of retirement saving as a windfall and as a bridging payment till the onset of the state pension.

Should small pots be used to bridge to the onset of the state pension?

A 55 year old today with a retirement pot of £30,000 has 12 years to wait for their state pension but could reasonably expect to pay themselves £250 per month from their retirement account without too much fear that the account would run dry at 67. I mention these figures as they approximate what’s in the pot for the average person by the time they get to 55. But of course the number is wrong for the poorest in society because so much employment has not been pensionable – especially if someone has been out of work, in self-employment or in work before auto-enrolment staged. The situation is particularly grim for women.

The grim truth is that there is rarely enough in the savings pot to reduce the burden of work, which brings into sharp perspective both the poverty of private pensions for the poorest and the value of the state pension, when it finally arrives.

Should there be early retirement options for the state pension?

This is where there are questions about the fairness of increasing the state pension age at the same pace for everyone.  A number of other countries have already opted to give pension benefits early to some groups. Portugal, France and Germany allow penalty-free early retirement for people who started work young and have had long working lives. Last year, Denmark decided to allow 61 -year-olds to retire one to three years earlier if they had spent more than 42 years in the labor market (which can include periods of unemployment).

I think there is an argument for allowing those who have most need of the state pension early – to have access to it early – with generous early retirement factors that recognize that the state will subsidize where it sees hardship. But this introduces an element of means-testing into the state pension which will be controversial. Whether the means testing is on medical grounds -(impaired annuity underwriting) , or linked to financial circumstances (becoming part of universal credit),  there is a strong argument for offering those in their sixties an early retirement option – based on need.

Fair shares for the state pension

There is no argument for offering people in good health with sound finances this option. People like me need to recognize we must work longer than we set out to do, or save a lot harder than we used to do or simply trim our expectations for retirement income.

My readers tend to be  the lucky ones who will benefit most from the state pension being a “wage for life”. We  should be innovating so that those with reduced means and impaired health get a just state pension.

 

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It’s not just what you save, it’s the way you invest it – that’s what gets results

Posted on March 30, 2021 by henry tapper

Bananarama  and the Funboy Three do not figure on my Spotify playlists , they supplied us with some annoying earworms and the inspiration for this blog but  ‘Tain’t What You Do (It’s the Way That You Do It) is a song written by jazz musicians Melvin “Sy” Oliver and James “Trummy” Young. It was first recorded in 1937 by Jimmie Lunceford, Harry James, and Ella Fitzgerald and here it is

I’m going to remind readers – boringly. that the majority of your pension pots at retirement aren’t down to your savings, but your investments

The financial services are keen to promote saving because without it there wouldn’t be a financial services industry and it annoys me that most of the measurement of how good a pension system we have, is measured by organizations who’s primary measure is the level of mandated savings in the system.

The chart above shows the impact of contributions on the pot in red, a core level of growth in grey, a 1% boost from getting to average investment performance in yellow and a further boost of 1% which is about the best you can hope for, being outperformance of 1% against the average. All these results are taken from our proprietary data set and I’d be happy to share this and other charts with any of you.

In an excellent article, which I hope to publish on this blog shortly, Robin Powell explains that despite being ranked 4th in the world by dint of its $2tr mandated savings pot, Australia has work to do

..there is a broad consensus that the system could be improved by increasing transparency, lowering costs, reducing tax concessions for the well-off and having a legislated goal for super.

From July 1, 2021, new reforms will be introduced aimed at improving the efficiency of the system, reducing fees and holding super funds to account for underperformance.

There are also steps being taken to get wealthy Australians to spend their pots , many of which roll up as reservoirs of capital , feeding the financial services industry but doing little for the economy and sucking tax revenues from poor to rich (sound familiar?).

The Australians are waking up to some alarming realities, the retirement savings industry is neither socially just or economically advantageous, it is becoming otiose. While this realization sinks in, the plan to increase Super’s mandated contribution increase from 9.5 to 12% over the first five years of the decade has been put on hold. $30bn in rents is being extracted by financial services companies from the existing pots, enough it seems is enough.

Putting something back

One Australian reaction to the pandemic was to release wealth from younger people’s pension pots to provide emergency cash. This has been much criticized in the UK as it is can be seen as a  tax on  the future prosperity of the young rather than relief from general taxation.

Playing hardball with the young goes hand in hand with playing hardball with the planet and Australia lags other OECD countries, especially Britain, in the use of its retirement funds to drive positive change on climate issues.

I do not want to over-egg this pudding, but the Australian retirement savings system seems to be focused entirely on wealth preservation. It looks from here, that the economic miracle of Super is stifling wage growth and driving inter-generational inequality to a much greater degree of other – less highly rated pension systems – the UK’s especially.

Having spent much of the last 25 years being lectured by David Harris esq. ,I think now is the time to hoist the union jack up and make a few claims for what us limeys are doing right.

The way we invest it

Britain has embraced ESG like no other country. We can look forward to COPS 26 in November with impending pride. We will by then be reporting , using TCFD on our pension funds, we will have launched a Government backed special purpose vehicle to allow our savings to access private markets and we will be close to launching our first collective scheme that will see over 160,000 savers get pensions not pension pots at retirement.

We are increasingly investing for social good and the social purpose of our investments will be a proper wage in retirement for millions who have saved, not because they have to, but because they chose to. Rather than a mandatory savings system, we have a voluntary system with a not too generous safety net for those who choose to opt-out.

The Government has improved the investment of our pensions by making positive interventions that have kept the right balance between  innovation and  regulation. The charge cap and bans on active member discounts and consultancy charging have had a large part to play in limiting excesses in workplace pensions. The reporting of hidden costs and charges in Chair report have made for greater transparency and reduced bad practice. Now moves to drive consolidation, especially among occupational schemes, is creating the economies of scale enjoyed in Australia by Super Funds.

Government policy appears in many ways, ahead of Australia as does industry practice. Indeed we have so turned round our pension saving system since the Pension Commission reported  in 2004/5 that we are well on the way to restoring public confidence in pensions in the UK.

We are saving better and investing better and we should be back among the best pension systems in the world. Currently we rank only 14th. but I would put a “PP” against that place, Britain is once again going in the right direction. It’s not just what you save, it’s the way that you invest it.

 

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Pensions without purpose have gone wrong

Posted on March 27, 2021 by henry tapper

I read two articles this morning on the sustainability of pensions, both are short and are free to read. If you have a few minutes read Richard Butcher’ “The future is… consolidation?” in Pension Expert and then read  “Social factors must be at the heart of pension schemes’ ESG strategy”, by Guy Opperman and Nimco Ali in City AM

Despite its chummy style, Richard’s article paints a brutal picture of scheme eat scheme consolidation where the winners will be commercial master trusts that can a) win the most business pitches and b) best engage members. Success is defined in terms of marketing.

Opperman and Ali adopt a diametrically opposed position, arguing that pension schemes

need to adopt investment strategies which deliver long-term value, by considering the risks and opportunities relating to supply chains and communities, employees and business models, local economies and landscapes. Success is defined in terms of social impact.

This is not a strictly fair comparison but for Richard Butcher – as a professional trustee – to argue in an FT publication that

Admin is a hygiene factor: get it right and no one notices, get it wrong and you are in trouble. Same, in a sense, with investment (leaving aside style preferences) and governance.

Shows how far apart policy and commercial practice have become. As with any polarization, reality lies somewhere in between. In writing together with one of Britain’s leading campaigners against violence to females, the Pension Minister is positioning himself in a very particular way which may be considered marketing. In writing an article that only mentions member interests tangentially, the Chair of the PLSA is positioning himself as the devil’s advocate.

Nevertheless, both Opperman and Butcher see consolidation in radically different terms, for Opperman consolidation is about improving member outcomes through undiluted ESG, for Butcher it is a commercial necessity. Many reading this that Butcher’s position is the more honest, but for me it is a misrepresentation of pensions – pensions without purpose have gone wrong.

Pensions and social purpose

Opperman and Ali argue that

While their money is often invested in familiar businesses, those businesses may make decisions and undertake activities that put people’s pension savings at risk. Pensions have huge repercussions for a healthy and stable society.

The article goes on to link causes that most of us would call “just” with the investment strategies that pension schemes could adopt

…economic justice for women – particularly in the economically developing world – is one of the biggest opportunities we have for unleashing a new wave of growth, while simultaneously reducing violence and discrimination against women and girls such as female genital mutilation (FGM) and sexual violence.

The Home Office’s call for evidence on violence against women has just closed but recent events have shown that this is front and center in the minds of almost all women and most men. Any pension scheme that can show that through the way it invests, it has reduced the risks of women being violated, has a higher chance of engaging with members (one of the two differentiators Richard Butcher claims can make master trusts “winners”).

Butcher’s argument is that engagement is about helping member to help themselves to better income in retirement and  Ali and Opperman argue that misogyny in business practice is bad business and devalues investments. It presents a risk to people’s retirement incomes which can be mitigated through properly managing the S in ESG.

Investment – to Ali and Opperman – is more than a hygiene factor in the value delivered by pensions and here I think there is a fundamental difference in the views of the two articles. For Opperman and Ali, pensions without purpose have gone wrong.

Is there evidence of a bridge between social idealism and commercial practice?

I think there is. The success of Pension Bee suggests that organizations that clearly demonstrate their social purpose by the way they organize and promote their investments can be commercially successful. Its  recent announcement that it intends to float on the London Stock Exchange, confounds conventional views that financial organizations can only be valued against Ebitda.

Smart Pensions has recently confounded me by investing nearly 10% of its default fund in an expensive illiquid fund that provides credit to parts of the world economy other investors will not touch. Nest has recently partnered with Octopus to improve the carbon footprint of the energy business. Cushon has focused its value proposition around the impact of its investments by declaring itself carbon neutral from inception.

The capacity of these organizations to stand on their own too feet and not be consolidated is largely due to their taking big commercial bets on social purpose. These bets could in the short term reduce profitability but I don’t see the shareholders of Pension Bee, Smart or Cushon objecting.

Pensions without purpose have gone wrong; pensions with purpose could be “winners” , unlikely as this may seem to some.

If you feel strongly about these issues – why not let your feelings be known. The Government’s Call for Evidence will help increase our collective understanding of what is being done here and around the globe, and what more we can do, to ensure both the risks and opportunities presented by social factors are adequately considered by pension schemes.

You can contribute to the call for evidence via this link

 

 

An answer to John Ralfe

 

 

If we believe in protecting ourselves we should believe in protecting our society and thus investing responsibly.

“Nel mezzo del cammin di nostra vita
Mi ritrovai per una selva oscura
Che la diritta via era smarita”.   Dante
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The Chancellor’s listening – are you? (a shouty blog)

Posted on March 25, 2021 by henry tapper

I’m certainly going to be on this call and listening to both the Chancellor and the special guests

When it comes to talking pensions , it looks like Pension Bee are more likely to get the Chancellor’s ear than the usual suspects. No wonder the stock market is valuing what is still called a “start up” at £350m.

Sunak will be talking with the CEOs of Plaid, who hook financial institutions up via APIs, Plural AI who help us take better decisions by getting us better data, Hopin who provide digital platforms for conferences and 20 Minute VC , that gives Fintechs a voice to get funding.

You may not have heard of these organizations, I have not heard of some of them but they are the stuff of the future and that’s why I’ll be tuning into the call this pm.

So what’s the agenda?

APIs first!

If you don’t know what this is about, don’t walk away, listen! I’d have expected to see Pension Dashboard as a heading, it isn’t – I think I know why. The Pensions dashboard cannot happen without a digital strategy which makes pension data “smart data” and that means opening up pensions as the CMA opened up banking.

That means organizations like Plaid and Yappily, working with the big 12 pension providers to ensure that most of our data is available on an app to app basis, so that firms like Pension Bee, AgeWage and many other Pentechs can deliver information in real time. Putting the information people need to value their pensions is not hard , nor is it hard to imagine people using that information in constructive ways. The counterfactual is that people don’t get the data, don’t get it translated into meaningful information and don’t have the chance to take the necessary steps to sort their later life finances

To think that the pension industry is too important to listen to the arguments of Pension Bee, Plaid, Plural AI and Coadec is delusional!

This is no stunt!

Is Rishi Sunak playing a PR game? I don’t think you need to play PR games when you are the Chancellor facing the kind of problems he is.

Is the London Stock Exchange being bamboozled by Pension Bee? I don’t think you get a full listing on the back of a strong social media offering.

What is going on , behind the backs of the pension establishment is a revolution in financial technology, in digital communication and in the way the market values companies. It’s about responding to change – big and lasting change brought about by the climate, by our leaving the EC and by the jolt of the pandemic.

Sunak understands that these changes and the challenges they bring, are best met through innovation. Painful as it is for us to change, we must. We mustn’t miss out.

Pensions mustn’t miss out!

There is a very real chance that in focusing on our local issues, the UK pension industry misses the great surge in innovation happening everywhere else. I got a few emails yesterday from friends complaining that I wasn’t criticizing Pension Bee for an unrealistic valuation.

It is true that Pension Bee makes a loss and will probably make more of a loss as it invests more for the future. To those who quote Ebitda , I respond Ebitladeedah! The rewards of innovation are far distant – as are the rewards of a pension. If you don’t think that the innovation that Pension Bee, can deliver lasting benefits over time , perhaps you should be on this call. I urge you to come into the Clubhouse at 4.30pm this day – Thursday 25th March!

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Auto-enrolment’s difficult second album

Posted on March 21, 2021 by henry tapper

When auto-enrolment started I, naively as it turns out, hoped that small employers would be excited enough by the chance to choose a workplace pension, to consider what made for a good scheme and download a report that told them why they’d made the choice they did.

Pension PlayPen did produce such reports and the methodology behind the report was signed off by a firm of actuaries who stood behind the research. In total we produced more than 7,000 of these reports and I hope that employers have kept them in their digital pension file to explain to staff why they are saving into the scheme they are.

But for most of the 1.1m employers that staged auto-enrolment, the default button was “choose Nest”, followed by “People’s” and “Now Pensions”. Many employers , new to workplace pensions, did not take a decision based on member outcomes, their primary concern was support so that they could remain compliant with auto-enrolment regulations.

But things have moved on and workplace pensions are now being asked to show how they will deliver more value for the saver’s money. A quick look at this simple chart shows that the main way that a pot builds in the early years of saving is through the red box (contributions) , but over time investment returns increasingly determine the size of the pot. This chart shows how , even where investments underperform (the grey box) , investment returns overtake contributions in the build up of the pot. If investment returns are in line with the average of all other savers, people get the additional build up of the yellow box and  if people can get a higher return of just 1% more than average, their pot builds with the addition of the blue box. The message is simple, improving member outcomes is all about improving long term returns.

Put another way, members and employers control the red box, trustees determine the rest.

Of course there are people who want to determine their own strategies and trustees must ensure they have the tools to do so, or make it clear why this isn’t allowed. At present only NOW pensions doesn’t allow self-selection.

In July we will have been auto-enrolling for  9 years. Many DC savers were saving before their employer staged auto-enrolment. For many people, their pot is now filling up faster from investment returns than from contributions.

The jewel in the auto-enrolment crown is that almost everyone who is auto-saving  is auto-investing into default funds that are growing at a tremendous rate (and have been for many decades). The chart above shows how people’s pots have actually grown over the past 30 years , net of average costs and charges but with average performance on an average contribution.

By comparison, an investment in a cash ISA would be filling the pot up at a trickle.

The difficult second album

The Government (in the shape of the DWP but with Treasury support) is embarking on launching what Guy Opperman calls auto-enrolment (2.0). Much of the noise is about increasing contributions for the self-employed, the young and those on low incomes.

But the much more radical agenda is Government’s interventions in the investment of workplace pensions , which are subtle but could be very important. Get it right and people will be getting the blue box, get it right and you’ll be stuck in the grey-zone of the chart above.

There are infact two interventions, the first is what woodsmen call “coppicing”, where Government is planning to cut out deadwood to leave the strong trees in the forest to grow stronger. This will be done by small scheme trustees voluntarily winding up their work and handing their assets to bigger schemes capable of managing money with an eye to the blue box.

This is a fraught process as many of the saplings in the wood have every chance of growing to strong trees, we don’t want to see innovative and courageous schemes being uprooted. We need to work out where the deadwood is and that means testing a few trunks.

But if Government gets it right and the coppicing speeds ahead, then we will find much fewer trees but trees that can grow to full strength delivering timber and lumber for many years ahead.

Excuse the mixed metaphor, but I think Government is going about this the right way and that in getting increased scale into our workplace pensions, it is creating an opportunity for DC schemes to make the kind of difference to people’s pots that means they are in the blue and not the grey. But to get to that point, things will be difficult and there needs to be collective resolve among people in pensions to accept that the long-term good outweighs the short-term advantage of immediate profit.

 

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The politics behind extending auto-enrolment

Posted on March 17, 2021 by henry tapper

Yesterday the TUC conference discussed widening the scope of auto-enrolment to include the self-employed, the youngest workers and those on low incomes within the financial net of auto-enrolment.

Yesterday UBER finally admitted that it controlled its workers to a degree that , amongst other things, it would be establishing a workplace pension for them.

The two events are connected of course for , without pressure from unions, UBER’s drivers would not have the rights conferred on them yesterday. Some may call the GMB’s victory a restriction of trade (including some UBER drivers) but for those of us who consider workplace pensions a benefit, UBER’s change of position is welcome as is the trade union’s part in it.

But the big questions on pension inclusion remain to be answered, not least whether the 2017 proposals have the support of the Treasury. The success of auto-enrolment came at a price to the public purse, requiring huge increases in tax relief granted to the newly enrolled , increases that were not anticipated against opt-out forecasts from the DWP that happily proved too pessimistic.

But the 2017 reforms would take levels of tax-relief to new heights. Even if it fixed the net-pay problem, HMRC’s system of tax relief rewards the wealthy and does little to encourage those previously financially excluded. Moving to a system where those on high earnings only received tax-relief at basic rates or the more draconian system where tax relief was granted on the pension not the contribution (TEE), would free up the money needed to pay for auto-enrolment (2.0) – the DWP’s formulation.

I don’t think that we have a radically redistributive Government and I don’t think that we have a Chancellor who wishes to prioritize redistribution within pensions so I remain concerned about where the money to pay for the extension of auto-enrolment is going to come from.

But the debate at the TUC conference did at least show a consensus among those on Jo Cumbo’s panel that unions do see the financial inclusion of those not fully eligible for auto-enrolment as a priority. It would be good to see pressure coming from other parts of the Labour movement to support the DWP as the current timetable for roll-out of the 2017 proposals (mid decade) could well mean that they do not appear within the lifespan of this Government (which ends in 2024).

If we are serious about extending Auto Enrolment to properly cover excluded groups like low earners, the self employed and the young, then pressure needs to be put on the Treasury to show it is willing to pay the bill.

Right now there appear to be a lot of good intentions but precious little to show for them… and that goes for sorting out the net-pay anomaly too!

I should have mentioned that today’s session at the TUC is on CDC and I hope that this point will be raised there. You can book tickets for each day here https://www.eventbrite.co.uk/e/tuc-pensions-conference-fair-pensions-for-all-tickets-141667161293 It’s free but tickets do get sold out

Check out Derek Benstead’s comment
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Is now the union’s time?

Posted on March 16, 2021 by henry tapper

Yesterday was the  first of the TUC’s pension conference and in a single session, the conference debated “investing in a just transition to a low carbon economy”. Guy Opperman spoke and was well received by Chair Paul Novak and by the 150 odd delegates who were noticeably easier about his agenda in the chat rooms than they had been openly on his previous visits to Congress House.

Opperman spoke of his work to “free up” the opportunity to invest the long-term capital sitting in workplace pensions in the just transition. He sounded and looked more at home in this environment than last week when he was urging those who managed the money to do better. Strangely for a Conservative politician, his position on the planet, on financial inclusion and social purpose seemed more at home in this environment than at the PLSA investment conference.

This was a deeply serious discussion grounded in the context of a pandemic now a year old and of lockdown – but a few days from it’s anniversary. The TUC has clearly found a place for itself in this “just transition” and the debate had none of the tub-thumping razzmatazz I associate with some of their conferences. This was more in line with the dignity of the movement my father and grandfather talked to me about. Their grounding in west country Methodism linked their Liberalism to the social agenda of the Labour Party. With a Conservative Government , a Liberal party that has lost its way and a Labour movement in deep shock,  can we turn to the Unions again for leadership?

There is certainly an agenda for change. Over the next few days, the conference will be debating

  • Extending workplace pensions coverage to those workers currently excluded
  • Ensuring more workers can benefit from collective pension schemes
  • Rethinking the balance between state and workplace pensions to tackle poverty and inequality in old age

Fair pensions for all

“Pensions” are not just a minority sport – tax wrappers for the wealthy. They make the difference between a financial future in later age of state and family dependency and  financial independence and dignity.

The TUC’s agenda is spot on and I am looking forward to attending these sessions , even though they clash with the equine investment conference in Gloucestershire.

The pandemic has accelerated parts of the economy that we once thought marginal, our towns and cities buzz with electric bikes and scooters delivering us meals from restaurants that have been thrown a lifeline by the gig economy. The Unions have fought and won rights for the Uber drivers and they can do more. Workplace pensions need to be included as a right for those doing  these important jobs. If you have an FT subscription you can read here about the fate of migrant workers trapped on British farms since Brexit, the unions need to include all groups whether urban or rural, no-one’s life or livelihood is more special than another’s,

We can vote at 18 but young workers have to wait till they are 22 to be enrolled (though they have and usually miss out on) the right to an employer contribution before then. Many are excluded from auto-enrolment because they do not earn enough and many who earn enough find much of their pay is not pensioned. Many who earn under £12,500 are denied the promised Government incentive to save because they find themselves in the wrong kind of scheme. The Unions can and I hope will, champion the reforms promised in the 2017 auto-enrolment review and due to be delivered in the time of this parliament.

Having played such a pivotal part in opening CDC to large employers, the Unions should now recognize the role of the commercial master trusts in spreading the coverage of the CDC concept. While single employer DC schemes work out how to consolidate themselves into multi-employer schemes and the contract based workplace pensions struggle to introduce investment pathways, it is these master trusts that offer the best hope of ensuring more workers enjoy pensions as well as pension pots.

Finally the Unions need to be clear about their position on redistribution of the nation’s wealth through the state pension and through the tax system. The maintenance of the triple lock well into the third decade of the century is a great achievement for Britain but we still have a poor state safety net relative to other economically developed country.  We cannot go soft on the continued improvement of the state pension as it is the way to ensure dignity in retirement for everyone – and that means everyone.

As for tax, the agenda for change has never been more open. Post pandemic, all bets must be off. We cannot allow austerity 2.0 to mean those who use public services, lost public services while those who have wealth, keep it in tax privileged savings vehicles that contribute little at a great opportunity cost to the public purse. We do need proper reform of the pension taxation system to remove the huge inequality that means the vast majority of tax-relief benefits those who least need it.

We need fair pensions for all and judging by yesterday’s session, the TUC and its unions are in a position to help deliver them.

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The money behind annuities “matters” too!

Posted on February 18, 2021 by henry tapper

Important research into how insurers are making the money behind annuities matter

We tend to forget that a very large amount of the money yet to be paid as pensions , is backed by funds held by insurers and that money is invested, not just in gilts but in a wide variety of income producing assets capable of meeting the promises made originally by pension schemes or by the insurers themselves, at the point when an annuity is sold.

Annuity specialist Retirement Line has started to research the annuity providers it uses to get its customers annuities.  I work with Mark Ormston to better understand what is going on and Mark has supplied me with a summary of Retirement Line’s research into the ESG initiatives within the life companies. This money matters every bit as much as the money accumulating in DC pensions (which do not invest in  annuities) and DB pensions (which sometimes buy-in annuities to reduce longevity risk)

This research is the first I have seen of its kind and I hope it will be picked up by firms monitoring the progress of insurers towards their climate goals. All too often, the high-profile flagship products, GPPs and Master Trusts get all the attention. We cannot let in house funds get left behind. Well done Retirement Line for kicking this off. Let’s hope they can use their distribution clout with insurers to drive positive change.

ESG investment considerations within annuities

 

Aviva

Are working on pinning down by year-end some more succinct public messaging on this front, however, in the meantime, they have quite a lot out in the public domain already, eg particular asset deals where they have issued press releases (e.g. green trains, wind farms, sustainability-linked commercial mortgage loans), articles they have done in Pensions Age and the Sunday Times, their green asset investment commitment that they made in 2015 (which they met well ahead of time: they now have c. £6bn of green assets across Aviva) and their wider Aviva commitment to £10bn of UK infrastructure and real estate investment which was announced by Amanda Blanc our CEO recently.

In 2020:

Galloper wind farm

Aviva supported a UK renewable energy project with a £131m loan to finance offshore transmission assets for a wind farm off the Suffolk coast. Each year, the Galloper Offshore Wind Farm’s 56 turbines generate enough green electricity to power the equivalent of more than 380,000 British homes.

https://www.avivainvestors.com/en-gb/about/company-news/2020/05/aviva-investors-finances-acquisition-of-galloper-wind-farm/

Big Yellow

Aviva lent £35m to support the Big Yellow self-storage company, including an agreement that they would add solar panels to their facilities.

https://www.avivainvestors.com/en-gb/about/company-news/2020/04/aviva-investors-agrees-additional-35m-debt-deal-with-big-yellow-group/

Coastal Housing Group

Aviva entered into a corporate debt facility for a, not for profit housing association with 6000 homes under management

https://www.avivainvestors.com/en-gb/about/company-news/2020/07/aviva-investors-provides-60m-debt-facility-to-coastal-housing-group/

 

Settle

Completed a £75 million Private Placement on behalf of the Aviva UK Life annuity business with settle, the not-for-profit housing association which manages over 9,000 properties across Bedfordshire and Hertfordshire.

 

 

 

 

 

Canada Life

The link below that provides some info.

https://www.canadalifeassetmanagement.co.uk/assets/esg-policies/

However, they are working on a full policy.  This will probably not available for 6 months.

 

 

Just

This is a statement issued by Just

The United Nations has set out sustainable development goals that businesses who value sustainability have a moral obligation to align to as best they can. We will aim to make a positive difference to those goals that we can directly affect and make a concerted effort to not harm others.

Many efforts we are already undertaking across the business are aligned to these goals and contribute to our becoming a sustainable business. Some examples of these are:
–  conscious changes to our investment strategy to increase our involvement in sustainable practices and away from unsustainable ones;
– creation of the diversity and inclusion strategy that David Richardson is championing;
– continuing our efforts to reduce our own carbon footprint;
– embedding the possible impacts of climate change into our risk management activity.

Last month debt investors subscribed £250m to our first Green Bond, which suggests they have strong confidence that we are creating a green sustainable business. All of this activity should improve our Environmental, Social and Governance (ESG) credentials (the measures that others will assess us by).

 

Legal & General

LGR (Legal & General Retirement – the entity that conducts annuity business) consists of two parts: LGR Institutional, which transacts worldwide pension risk transfer (PRT) business, and LGR Retail, which transacts individual retirement business. LGR invests the premiums it receives in a combination of fixed income (or similar, fixed cashflow generating) assets, hedging derivatives and reinsurance contracts to provide a safe and secure cash flow which enables us to back pension liabilities. Most of the asset management services are sourced in-house through LGIM, which executes LGR’s strategic ESG objectives.

 

LGR has three ESG objectives:

 

  • Environmental impact through portfolio decarbonisation: to align with the Paris Climate Agreement, support net-zero objectives and reduce our portfolio carbon emission intensity to half by 2030.
  • Social impact: invest in assets which create real jobs, improve infrastructure and tackle the biggest issues of our time – including housing, climate change, fostering an inclusive society and the ageing population.
  • Governance: good investment underwriting requires LGR to identify and manage financial related risks including ESG.

 

LGR considers ESG to be a primary factor in all of its investment objectives. ESG factors are particularly important in long-term credit risk assessment because, by nature, many ESG risks are low probability and high impact.

The assets which back regulatory and shareholder capital are managed separately to the annuity portfolio. These assets are invested through Legal & General Capital (LGC) in an impact-aware and ESG-aware manner, which further diversifies LGR’s portfolio exposure in equity and real asset markets.

More details on this and L&G’s Inclusive capitalism can be found in L&G Sustainability report

https://www.legalandgeneralgroup.com/media/17877/lg_sustainability_report_2019_v2-2.pdf

and the following links are to LGIM’s ESG policies

  1. LGIM’s approach to Responsible Investing

https://www.lgim.com/files/_document-library/capabilities/lgim-approach-to-corporate-governance-and-responsible-investment.pdf

  1. Corporate Governance and Responsible Investment Policy

https://www.lgim.com/files/_document-library/capabilities/lgim-uk-corporate-governance-and-responsible-investment-policy.pdf

 LV=

Whilst ESG is considered within the investment process for the assets they hold, they do not have any specific restrictions relating to ethical investing on the mandate that controls the assets backing our annuity liabilities.

 

Scottish Widows

  • Don’t have an overall ESG score for the annuity portfolio investments, although they will be looking to develop such metrics during 2021;
  • They will be reporting the CO2 outputs that they finance in their annual report and working on the detailed strategy for how they aim to meet the CO2 commitments they have made;
  • Their targets of 50% carbon footprint reduction by 2030 and net-zero by 2050 in their investments cover the whole of Scottish Widows.  Shareholder assets are one part of that strategy although some areas may move at a faster pace than others;
  • For information, the largest sectors they are invested in their annuity fund are long term loans to:
    • UK Housing Associations – funding social housing
    • UK Infrastructure Projects – funding social infrastructure (schools, hospitals, etc), renewables, railways, etc
    • UK Universities – funding higher education facilities
    • UK Real Estate – with a significant investment in the supply of affordable rental properties

Annuity money matters.

Kudos to Retirement Line, an annuity broker that’s thinking beyond the usual metrics of “rates” and considering the social , environmental and governance going on with the money they broke. Let’s hope, in  time, that ESG considerations  become part of all annuity purchasing decisions.  Retirement Line work in the retail space ;  I wonder how much attention is taken by trustees when they buy-out pensioners or buy-in annuities.

I encourage Retirement Line to pick up from this start and create an ESG research lab. They are uniquely placed to help not just their customers but institutional trustees, their advisers and the Governmental departments and regulators charged with ensuring TCFD on all money in the pension system.

The more scrutiny on insurers operating in this space, the better for the planet.  Retirement Line are never shy in self-promotion – on ESG they are indeed….

 

 

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Pension comparisons need not be invidious.

Posted on February 16, 2021 by henry tapper

In two recent posts I took a helicopter view of the new pension legislation that received Royal Assent earlier this month. I look first at how the Pension Schemes Act 2021 will be remembered by pension historians and what it sets out to do – consolidate and simplify our private pensions.

In this post I look at the Government’s favored measure ,to help consolidation take place- value for money (VFM for short). I look at the work going on at the regulators in creating a new framework for VFM and look at how such a framework could be used in practice.

The DWP, FCA , TPR and the Work and Pensions Select Committee have all called for a common definition of value for money but only the FCA has so far produced one. The FCA have stated their intention

To provide a clear direction for IGCs, we propose to introduce an explicit definition of VfM. In developing a definition, our aim is to make this specific to the role of the IGC and to align it with TPR’s DC code. This definition would be set out as guidance in our handbook.

In its consultation paper “Driving Value for Money in Pensions” (CP20/9), the FCA make a tentative attempt at the definition

The administration charges and transaction costs borne by relevant policyholders or pathway investors are likely to represent value for money where the combination of the
charges and costs and the investment performance and services are appropriate

It may be tweaked but this looks like the basis for a new simplified VFM framework. But this framework is not proving universally popular.

Opposition to comparing different DC pensions.

The FCA’s also suggest in CP20/9 that IGC’s identify failing employer schemes , write to them and compare them with alternative workplace pensions.

We think it is difficult to conduct a meaningful assessment of VfM when an individual provider’s schemes are reviewed in isolation. A review of other options available on the market can provide a point of reference, and may provide better value for scheme members

I understand that the FCA has received several representations arguing that  comparisons are  invidious and potentially misleading. They argue that simplifying value for money to a point where it can be used to compare different types of workplace pensions, is not practical and could be misleading;

The FCA have told me  they are not minded to back down from the position, indeed they told me  they were working with TPR on the consultation response which is delayed till the second quarter of 2021

Should we protect the diversity of VFM definitions?

To date value for money assessments  have  focused on technical details such as cost and charges ,compliance with service standards and complaints. Each IGC and Trustee Chair has had the freedom to create their own VFM framework

A great deal of time and effort has been invested in these bespoke frameworks. They have involved  institutional measures aligned to how providers measure themselves. These assessments have been based on the FCA’s requirement to

whether the default investment strategies or pathway solutions are designed and undertaken in the interests of scheme members or pathway investors, and have clear statements of aims and objectives
• whether the firm regularly reviews the characteristics and net performance of investment strategies or pathway solutions to ensure they align with the interests of scheme members or pathway investors and that the firm takes action to make any necessary changes
• whether core financial transactions are processed promptly and accurately
• the level of charges scheme members or pathway investors pay
• the direct and indirect costs incurred as a result of managing and investing, and activities from managing and investing, the pension savings of relevant scheme members, or, the drawdown fund of pathway investors, including transaction costs

I can quite understand why IGCs are unwilling to move to a new framework. But move they must. Basing VFM assessments on these measures  alone makes it hard for employers (let alone savers) to make meaningful comparisons as each scheme sets its own benchmark and marks its own homework.

We at AgeWage think that important as these factors are, they are only elements of good pension governance and not the framework for explaining value for money. We need something simpler and more intelligible to ordinary people. Above all we need something consistent that allows employers and savers to compare one scheme with another – and  one pot  with another.

The current diaspora of VFM frameworks make it impossible for employers or savers to make choices. Pension comparisons need not be invidious, we need a new framework for VFM.

The new framework  the FCA are proposing for VFM

The FCA  propose to introduce a common definition of VfM and 3 elements that
IGCs must take into account in a VfM assessment. These elements are costs and charges, investment performance and quality of service

For GPPs to be compared with trust based schemes, employers need a common means of comparison for  both value and money. In our view such commonality is best measured by the internal rate of return (IRR) achieved by each saver. The IRR shows the achieved investment performance net of costs and charges.

Quality of service can be measured by the quality of data and this can  be assessed by considering the  plausibility of the data (do the IRRs make sense?).

We argue that while the complex VFM constructs advertised in IGC Chair Statements do a good job in helping IGCs measure VFM on their and their providers terms, they do not serve the greater purpose of helping employers and savers work out what good looks like.

We agree with the FCA that a new VFM framework is needed, it should simplify the assessment and focus on the three elements that form the common definition

What does good look like? – the need for comparability.

So what does a good IRR look like and how can we identify an implausible IRR?

What is needed is a benchmark, a common comparator which defines what good , bad and average is. Such a benchmark exists in the form of an index created by Morningstar that defines the average return a DC saver in the UK would have received since 1980.

Comparing actual IRRs with the synthetic IRRs arrived at by investing contribution histories in the benchmark fund allows each scheme to be measured for the excess value it has given savers/members over time. This can either be measured as a monetary amount of as a score – providing an algorithm can be created that takes into account out performance over time.

Analyzing contribution histories using an actual and synthetic IRR, not only shows defines the value created or lost but gives a metric for suspect data where the difference between the IRR and the synthetic IRR is implausible.

The answers to the questions of what good looks like and how we can define VFM so that it provides a common comparator, are to be found in the data of each employer scheme.

Ironically , the answers are startling simple and easy to demonstrate, all that is needed is access to data – something which IGCs have no problem getting and a standard way of analysing it.

If it’s that simple, why has no one tried it before?

A system of marking  VFM based purely on measuring returns has two fundamental challenges

  1. It offers a view of the past which cannot be relied upon to be mirrored in the future
  2. It is dependent on consensus that the benchmark is representative

The first challenge is fundamental to any outcomes based definition of VFM, but it addresses the concern of savers who in the 2017 NMG research commissioned by IGCs made it clear that what mattered most was the outcome of their saving. This may be a “populist” approach but it should have the advantage of being “popular” with the people IGCs are there for.

The second challenge is peculiar to fiduciaries  for whom the benchmark does not represent the investment strategy of their ideal default. Clearly most defaults will not replicate the investment strategy of the default and this will be one of the reasons schemes provide more or less value for money invested.

Other factors include costs and charges, the sequencing of contributions and the demographic of the scheme members where dynamic strategies such as lifestyle are in place. No two schemes are the same but they share a common objective, to maximize outcomes.

Practical measures that allow comparisons to be made.

We have proposed a common benchmark , the  Morningstar UK Pensions Index, (UKPI), It was designed specifically to represent the average fund but  will not represent all funds or all life-stages of a member’s use of the default fund. The  UKPI is 80% invested in growth  and 20% in defensive assets, most funds will have different weightings , aiming to take more or less market risk. Some fiduciaries will want to measure value per unit of risk taken.

It is possible to measure value for risk taken by analyzing data and we supply this measure to our clients on request. It is a measure of the skill of the designer of the default but it is not as easy to compare as a measure of nominal returns, nor as easy to explain.

We need to accept that any common definition of VFM will be retrospective and will not take into account value for risk taken. but this should be set against an important consideration which in our view outweighs both challenges. The measure proposed , based as it is on outcomes, takes into account all identified risks whether supposed or realized.

For instance, a member insured against the increased cost of annuity purchase by lifestyling into bonds may be insured against a risk he/she will never take while someone invested in equities in the later stages of accumulation may be insured against inflationary pressures if the fund is left to grow. It is simply not possible to get the right benchmark for every saver (unless savers intervene and choose their strategy – as perhaps they will with investment pathways.

We have to start somewhere and the UKPI is that “somewhere”, no doubt it will change, adopting factor based indexes may be such a change, but until it is challenged, it remains the only pretender to a common benchmark and the AgeWage algorithm and score the only pretender to a common definition of VFM.

Towards standardization

The UK private pension system is very complex and can only be simplified if simple measures are implemented. Necessarily standardization means losing the diversity of VFM definitions in IGC and Trustee Chair Statements and adopting a standard approach.

Our view is that what Government needs is the VFM framework proposed by the FCA and it needs to be reinforced by a VFM standard that enables VFM to be compared between schemes and indeed between pots. We believe that any pot that can offer an IRR that looks plausible against a benchmark can be assessed for VFM, pots that need to be excluded are those with short durations, those with safeguarded benefits and pots where data is suspect (which may fail the VFM assessment for showing a poor quality of service).

Creating a VFM standard would be easier than establishing prescriptive regulations. Standardization would mean that any employer or individual could apply to know the VFM of their pension pot and we would expect in time, that the standard would be used to create VFM assessments disclosed on pension statements alongside the value of the pot the internal rate of return and the amount deducted from the pot for costs and charges.

Standardization will only happen if people are prepared to accept that simplification is needed and that requires trade-offs between delivering something that can be delivered intelligibly and to scale and ensuring that people are not misled.

It will require bold thinking and bold implementation. Until recently, I thought this could not happen, but I sense a change in Government arising perhaps from seeing how we have coped with the pandemic. Britain needs a strong and stale private pension system capable of not just providing pensions but helping Britain towards its sustainability goals.

We can get there but we need to grasp the nettle and now we have the chance to do so!

 

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Too many schemes, too many pots, too little pension!

Posted on February 15, 2021 by henry tapper

We need to sort out pensions and we pensions need to sort out the climate. These are the challenges we face and I’m pleased to see Government is on to them!

Over the weekend , I tried to put the Pension Schemes Act 2021 in some kind of context. Its big ticket items, dashboard, CDC, powers to the Regulator are nuancing what we have before, the mandating of TCDF reporting is new and not introduces the idea of a pension fund  as a responsible investor.  There really isn’t time for us to have the debate (which should have been had long ago) , the Government has decided that making our money matter (in terms of reducing carbon emissions) is not a discretionary task for trustees, it is what they are gong to have to do over the 30 years leading to 2050.

There is a secondary agenda to the reforms and it sits behind almost all of the measures outlined above. The Government is well aware that pension wealth and pension  income are  too fractured, complicated and inaccessible to make sense to ordinary people. They are told they need to take financial advice but financial advisers don’t want them as clients. People are told they can see their pensions online but struggle with government gateways, logins and passwords and often the information they need isn’t even online.

There is so much money, so many pots , so many schemes and such little help that many people struggle knowing where to start and how to construct their living wage in retirement.

stats collated by AgeWage

“Targets” miss the point

For as long as I’ve been advising, and it’s getting on for 40 years, we have seen retirement planning as a process where you start by working out what you need , find out what you’ve got , calculate the shortfall and work out what you need to save to hit your target income.

This is still the best way of going about things, but it’s very hard. People’s older pension pots are with insurers under new owners, new names and the chances are they know less about you than you do about them.

Savings you made through your employer need you to trace the employer and often who they gave your money to. If you can remember and locate your pot, you have still to go through the process of finding out what you can do with your money, which is neither consistent or easy. Most employers don’t pay pensions and have little interest in you, if you’ve left them.

Add to this the lack of certainty around defined pension schemes where inquiries are now likely to be met with a barrage of warnings not to transfer and caveats about the pension promise that might be impacted by obscure adjustments to do with “GMP equalisation”

There is too much choice, too many schemes and not enough information and advice to go round.

Will the Pension Scheme Act help?

I predict that consolidation will happen  at three levels – “scheme”, “pot” and “retirement income”. The need to combat Climate Change will accelerate this change

Pension schemes will consolidate

The Government seems to be losing its patience with the pension industry that shows no interest in getting its act together and helping the consumer out.

Conversations I’ve had in Whitehall, Stratford and Brighton suggest that the secondary regulations that will follow the Act will make life uncomfortable for those providing pensions that cannot demonstrate they are offering “value for money”.

With the inclusion of the new purpose of saving the planet, that now includes compliance with TCDF and probably a number of further interventions as trustees, fund managers and platform providers are required to steward the assets they invest in with ever greater vehemence. This will drive consolidation of pension schemes.

The proposals in the FCA’s CP20/9 consultation on value for money introduce the idea that employers have the right to know the value they are getting for their and their staff’s money and while the proposals so far focus on employer sections of GPPs, GSIPPs and Group Stakeholder Plans, it looks inevitable that these proposals will spread to the master trusts whose assurance framework is getting tougher. VFM reporting , and especially VFM benchmarking, will drive consolidation of pension schemes

Pension pots will consolidate

And it seems certain now, that we will have the infrastructure in place for pension dashboards to happen. By infrastructure, I mean “open pensions”, that system of data flow that replicates open banking and allows people to see information about their personal assets and future promises from the people who keep your records and manage your money. The question is not whether but when, and when we can see this information, we need a means to act upon it, managing our pots for ourselves, seeing our pension rights in one place and maybe even getting to the point where we can do the shortfall calculations in real time. The pension dashboards will drive consolidation of pension pots

And the Government are looking to the future to create new primary legislation that will reduce the number of very small “micro-pots” through simple ideas like “member exchange” where pots below a certain size are transferred in bulk from one provider to another so that in time , people start thinking of one provider as managing their money.

If this works for micro pots, the Government looks likely to create more ambitious schemes where money moves when people move jobs either to a “master pot” or to the next employer’s scheme. This will drive consolidation of pension pots

Retirement income will consolidate

Most of us spend our working days dependent on income from one or two sources and it’s odd that we expect people to manage in retirement getting paid income from a variety of sources. Those who have a portfolio of DB pensions are few (and lucky!) but those with multiple pension pots are many (and unfortunate).

Pot consolidation is likely to be driven by the need for income from a single source. We see annuity brokers consolidating many pots into a single annuity plan paying one stream of income and I suspect there is demand for this service elsewhere in the system. Typically this is where advisers have scored with their capacity to find , advise on and ultimately manage the income through vertically integrated wealth management.

But there is not capacity for advisers to do this for people with smaller pots which in total aren’t worth more than £100,000 (most people).

So far master trusts have focused on consolidating themselves and more recently consolidating occupational pension schemes. But they have not yet focused on consolidating member pots. This is because master trusts so far have been focusing on building pots up , not on providing pensions to people who want their money back.

But they are uniquely placed to offer scheme pensions (rather than collective drawdown) by pooling people’s retirement pots into one big pot and paying pensions from that pot based on the collective life expectancy of those choosing to be in the pool. This is the most likely application of the CDC legislation , in my opinion.

Curiously this puts master trusts into the same role for individuals , as the new DB superfunds are for DB schemes, leveraging the opportunities to bulk administration, investment and advice into collective arrangements with much lower capital requirements than bulk or individual annuities.

These super consolidators can take advantage of the opportunities they get from being occupational pension schemes rather than insurance companies and become a new kind of mutual, whose principal function is to pay pensions, with varying degrees of guarantees surrounding the pension promise.

The current legislation for CDC and the secondary regulations which are to follow will see DC consolidation at the point of retirement. Meanwhile the emergency regulations for superfunds and the likely primary regulation in the next pension bill , will see consolidation around retirement income

In Conclusion

The long term direction of UK pensions is towards a simpler framework where people get a better understanding of what they will get and find it easier to get their money paid back to them as a pension.

Many people will choose to opt out of this simplification and into the flexibility of pension freedom, especially where they have the capacity to afford advice. The wealth market is already fully formed , driven by firms such as SJP and Hargreaves Lansdown and strengthened by a large number of IFAs using platform technology to manage individual wealth to individual specifications.

Mass market solutions will emerge and (as this blog is showing) are emerging with schemes , pots and retirement income all set to consolidate in the next few years.

Right now the mass- market is only semi-formed and the Government’s task for the remainder of this parliament is to create the conditions where consolidation increases to a point that ordinary people get back confidence in pensions.

We will not go back to employer sponsored DB pensions, but scheme pensions paid by master trusts, small pots consolidated by master trusts, wealth management and insured workplace pensions  and small schemes , consolidated by master trusts and superfunds, should make for a less complex and easier pension landscape as we move towards 2050.

Footnote; Climate Change is the final driver of consolidation

2050 is the new pension horizon and over-arching everything else is the need to get the trillions in UK pensions moving the dial on climate change. The final driver for consolidation is the need to create leverage on the assets that determine our carbon footprint and this will also drive consolidation – this time around a common desire for change

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There is more rejoicing in Brighton….

Posted on February 9, 2021 by henry tapper

From PMI Pensions Aspect

My spy at the PMI passes me a copy of this month’s Pension Aspect with the finger pointed at this article by David Fairs.

Those versed in current a- Fairs , will have noticed a relaxation in the Regulator’s tone with regards DB schemes that want to stay open.

When David opens an article confirming common ground, his natural balance will pivot him to areas where the Regulator feels (to use a racing term) the ground is becoming “false”.

So in this article, where Fairs quickly moves to a refreshingly candid admission/

It seemed elegant to us that a truly open
scheme could not mature, would not be
expected to de-risk and would be able to
continue to invest in a long-term way.

My friend Derek Benstead has produced an illustration  which may not be as elegant as David but puts in pictures what David says in words.

There is a nice irony here. The first time I heard David speak of what we now as the DB funding code proposals, was at a First Actuarial conference, where his comments went down like a lead balloon.  Derek was in the audience and so was I.

David Fairs at the 2019 First Actuarial Conference

What has happened in the intervening 18 months has been nothing short of miraculous.

The industry has apparently moved towards the regulator

In Bespoke, we could see perfectly
acceptable scenarios where open
schemes propose to fund and invest
based on their expectation that they will
remain open. But trustees should be able
to evidence to us how they could (among
other things) manage the risk of their
scheme closing or maturing faster than
expected. All part of good integrated risk
management.

Going Bespoke may mean more regulatory
engagement but, in many cases, there
is unlikely to be any (or only minimal)
additional engagement if the thinking has
been done, is clearly explained and well
documented.

This is almost exactly what we said, but we
would go further and say that just ‘planning’
is not enough; it needs to be something
more concrete and evidenced. However,
I’m comforted that we may not all be as far
apart as we thought.

This will come as news to the delegation of open schemes that met with the Pensions Minister, to the monstrous regiment in the House of Lords who fought so hard for the Bowles amendment and for the many people who have curated their thoughts on this blog.

They must now be recovering from a waking dream of nightmarish complexion. Like lost sheep they wandered from the fold of the Regulator’s care and collectively struggled with inner demons that caused them to misinterpret the Regulator’s intentions.

But now there is rejoicing in Brighton that the lost sheep have returned and an expectation that they will accept their foolish peregrination.

This interpretation of the last eighteen months is truly elegant,  it is also – to use a phrase much loved of my friend Con Keating “utter bollocks“.

Is she amused or bemused?

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Another expert – Woon Wong- finds USS accumulating surplus assets.

Posted on February 7, 2021 by henry tapper

Universities’ superannuation fund is accumulating surplus assets – Woon Wong.

19 Jan 2021

 

Woon Wong1  believes  that the valuation of the USS’s liabilities and the call for higher payroll contributions are incorrect. Woon argues that the scheme is entirely viable and indeed accumulates surplus assets even at the pre-2017 contribution rate of 26 per cent of payroll. 

Following yesterday’s blog from Con Keating (which references Woon’s work), I am pleased to re-publish a piece first published by the Royal Economic Society here

1. A contrasting, positive, message

In its consultation (the ‘Consultation’) with the Universities UK (the ‘UUK’) on the proposed methodology and assumptions for the Technical Provisions in the 2020 valuation, the Universities Superannuation Scheme (the ‘USS’) reports deficits ranging from £9.8bn to £17.9bn, giving rise to contributions of 40.8 per cent to 67.9 per cent of payroll, respectively.3  Prior to the 2017 valuation, the contribution stood at 26 per cent of payroll.

In sharp contrast to the Consultation, this article provides evidence that suggests the USS is viable at 26 per cent of payroll contribution, and has been accumulating surplus assets with several benefits in waiting for the stakeholders.4  The benefits include (a) surplus assets to act as a further buffer to absorb investment risk; (b) the scheme will be self-sufficient which implies little support is required of employers; (c) future contributions lower than 26 per cent of payroll will be possible; and (d) it offers a cost-effective pension provision for the higher education sector that few other sectors and countries can rival.

The rest of this article is organised as follows. Sections 2, 3 and 4 provide evidence for the positive outlook whereas section 5 criticises the USS’s valuation methodology. Finally, summary remarks are provided in section 6.

2. The falling funding cost

There are two sources of funding to pay for liabilities, namely the contributions by stakeholders and investment returns on assets held by the scheme. Since the controversies arise mostly from the setting of the discount rate (a prudent estimate of rate of investment returns), we consider here the funding cost in terms of the required rate of investment returns, which is defined as the discount rate that equates the present value of liabilities to the asset value. Keeping contributions constant at 26 per cent of payroll, Figure 1 shows that the realised funding cost (based on realised asset value) has fallen drastically since 2011 to 1.2 per cent in real terms as of March 2020.

The first sign that the USS is sustainable at 26 per cent of payroll contribution is to note that the scheme would continue to invest significantly in growth assets, the long-term return of which is estimated by USS as 4.4 per cent, which is considerably higher than the funding cost of 1.2 per cent. Indeed, during the Valuation Methodology Discussion Forum (the ‘VMDF’) that took place earlier this year, the funding cost is projected to continue decline to negative territory in 2040.5

Falling future funding cost implies that assets would grow at a faster pace than the growth of liabilities. This prompted the USS to acknowledge that the scheme is fine in the long-term. To add to the good news, the valuation date of 31 March 2020 happens to be a low point for financial markets due to the pandemic. Since then, the USS’s assets have rebounded from £66.5bn to £75bn, giving rise to an even lower funding cost of 0.7 per cent (see Figure 1), a strong indication that the scheme is in surplus.

3. A reality check on discount rates

The positive message in the preceding section conflicts with the past and current deficits reported by the USS. Figure 2 provides an explanation.

The dotted bars in Figure 2 represent the discount rates used in the 2011, 2014 and 2017 valuations. They are significantly lower than the realised growth rates of the scheme assets (to reach the asset value in March 2020, represented by striped bars). For example, the discount rate for 2011 valuation is set at 4.1 per cent. The £32.4bn of assets in 2011 grew by 6.3 per cent per annum to reach £66.5bn in March 2020. The difference between the discount rate and the realised growth rate in 2014 has increased since, mainly due to a lowering of the discount rate.

The 2017 discount rate has fallen to 0.8 per cent. Despite March 2020 being the low point for financial markets, the realised growth rate of USS assets between 2017 and 2020 is higher than the discount rate. If the latest asset value (£75bn) is used, the realised growth rate (the rightmost bar) is considerably higher. In short, the USS’s assets have consistently grown at rates that are significantly higher than the discount rates. This not only explains the sharp fall in the funding cost over the past 10 years, but also implies that the USS’s past deficits could be due to overly pessimistic discount rates. The next section shows this is indeed the case.

4. Are ever lower discount rates justified?

This section shows that the lowering of the discount rate in both the 2017 and 2020 valuations are far more than what is justifiable by evidence.

For simplicity, suppose the USS invests only in gilts and equities. Let y and rE denote the gilt yield and expected return on equities, respectively. If the weight of gilts is w, then the expected portfolio return (rp) is given by:

rp = wy + (1-w) rE

A gilt-plus approach to the discount rate assumes perfect correlation between gilt yield (y) and expected return on equities (rE). For example, a 1 per cent fall in y is accompanied by the same fall in rE, resulting in the gilt-plus discount rate declining also by 1 per cent.

Evidence shows that the expected return on equities is broadly stable despite the falls in long-term interest rate in the past few decades.6  The implication is that as gilt yield falls by Δy in recent years, the discount rate would fall by w x Δy < Δy as w is only about 0.35 for the USS.

The USS has repeatedly claimed that it does not use a gilt-plus approach to set a discount rate. It turns out that its discount rate is lower even than that set by the gilt-plus approach. To illustrate, gilt yield fell by 3.5 per cent between 2011 and 2020. Since the discount rate in USS’s 2011 valuation is 4.1 per cent, the gilt-plus assumption would set the 2020 discount rate as 4.1 per cent minus 3.5 per cent = 0.6 per cent, which is approximately the upper end of the discount rates (0.0 per cent to 0.5 per cent) set in the Consultation. Since the proportion of low-risk assets held by the USS is less than half, the 2020 discount rate should be at least 3.5 per cent ÷ 2 = 1.75 per cent higher. A 1 per cent rise in the 2020 discount rate reduces the liability by approximately £16bn.

If readers think the pandemic may make the above example less convincing, setting the discount rate lower than the gilt-plus method is also found in the 2017 valuation. If a gilt-plus discount rate is applied to the 2017 valuation, the liability would be reduced by £4.1bn.7

5. Economically irrelevant methodology and un-evidenced assumptions

The deficits in the 2017 valuation and the current Consultation are driven primarily by the stipulation of a self-sufficiency portfolio (comprising mainly gilts and low-risk securities) in the valuation methodology to manage risks. In the former, the deficit is caused by de-risking the scheme portfolio to a hypothetical self-sufficiency portfolio over 20 years, in order to manage long-term risk. For the latter, the concern of short-term risk requires, among others, the sum of the employers’ affordable risk capacity and assets to exceed the liability of a self-sufficiency portfolio. Because of quantitative easing, the liability of a self-sufficiency portfolio becomes exorbitantly expensive, exceeding the sum of employers’ risk capacity and assets. Consequently, because of short-term risk, prudence is set at 73-85 per cent confidence level (cf. 65-67 per cent in past valuations), lowering the best estimate return by 2.1-2.6 per cent (cf. 1-1.1 per cent in past valuations) to arrive at the discount rates in the Consultation.

However, self-sufficiency is not required by pensions legislation. This is pointed out by the Association of Pension Lawyers in their recent submission to the Pensions Regulator on Defined Benefit’s funding code:

[N]othing in the legislation suggests that a move to minimise dependence on the employer’s covenant will always be appropriate or that trustees should be pushed in that direction… and of course could well be inconsistent with the sustainable growth objective [of the employer].

Moreover, successful risk management requires identifying and measuring risks that are relevant. The self-sufficiency portfolio is counterfactual and economically irrelevant to the USS because

a) It is open, immature, has positive cashflow with last-man-standing employer support.

b) There is no plan to de-risk the portfolio.

Therefore, the Joint Expert Panel (the ‘JEP’) set up in 2018 recommended more risk could be taken and criticised the hypothetical construct of a low-risk self-sufficiency portfolio in the 2017 valuation.

Consistent with the JEP’s view, in the VMDF, stakeholders disagree over the use of a self-sufficiency portfolio and suggest cash flows as a basis for managing risk in the 2020 valuation. For example, the UUK notes that

…[m]aking self-sufficiency the centrepiece of the Trustee’s risk metrics … is fraught with difficulties. We believe other methods — that are more directly linked to cash contributions — are more effective to measure risk.

The need for evidence and transparency

Regulatory guidelines require valuation assumptions to be evidence-based, and evidence suggests the impact of pandemic on valuation is considerably smaller than is implied by the low discount rates in the Consultation. A stochastic simulation finds the impact of  the 1918 Spanish flu pandemic on the discount rate to be small. Intuitively, this can be understood by the long-term nature of the USS’s liabilities — they take 80 years to payoff, whereas ‘…[t]he pandemic is unlikely to have significant long-term consequences for the sector as a whole.’ (Consultation).8

Indeed, as financial markets are forward looking, the USS’s low asset value in Mar 2020 has priced in the negative shocks and increased uncertainties caused by the pandemic. The low discount rate imposed on an already depressed market is effectively double counting the price of risk. Since the USS is relatively immature, the cash from contributions alone are sufficient to pay for pension outgoes for almost 20 years. Unfortunately, the USS chooses to disregard such evidence and insists on using self-sufficiency portfolio to justify the high confidence level of prudence. Moreover, as the Consultation remarks, ‘[d]ifferent assumptions could produce lower confidence levels,’ no details are provided on what these assumptions are.9 Also, no evidence is provided by the USS to justify the assumptions that give rise to the high confidence level of prudence.

Finally, the UCU has long complained the lack of transparency in the USS’s valuation methodology, which has been described as complex by both JEP and the Pensions Regulator (the ‘tPR’). Therefore, evidence and transparency are vital for the USS to engage properly with its stakeholders, thereby resolving the disagreements in the 2020 valuation.

6. Summary remarks

Since quantitative easing to lower long-term interest rates is now an established monetary policy, gilts-based funding for pension schemes has become prohibitively expensive. The USS does not seek gilts-based funding; thus, gilts-aligned valuation methodology is inappropriate.

Most economists believe that quantitative easing benefits the economy, especially large institutions such as the USS. It is thus no surprise to find the scheme is not only viable at 26 per cent of payroll contribution, but also on a pathway to achieve self-sufficiency based on surplus assets.

What is concerning about the 2020 valuation is that the deficits and high contributions are due to issues that were neither resolved nor discussed in the VMDF. Indeed, the very low discount rates of 0.0 to 0.5 per cent in the Consultation are based on a methodology that uses un-evidenced assumptions and economically irrelevant input (a self-sufficiency portfolio).

Securing payments for accrued benefits may tempt the trustees to err on the side of excess prudence. On the other hand, an unnecessarily low discount rate using un-evidenced assumptions may render trustees breaching stakeholder trust. For tPR, securing the Pension Protection Fund and ensuring sustainable growth of employers provide similar opposing forces to the valuation. Surely, using evidenced assumptions as required by the regulatory guidelines to carry out the 2020 valuation is the best course of action for all parties concerned.

Notes:

  1. Woon Wong is Reader in Finance and Director of Trading Room Operations & Development, Cardiff Business School, Cardiff University.

  2. No. 185 (April 2019). See aso the subseuent discussions in Nos. 186 (July 2019) and 187 (October 2019).

3.  The USS is a privately funded pension scheme for pre-92 universities in the UK and the UUK is a representative organisation for the university employers.

  1. Subject to agreement by the stakeholders, surplus assets may be kept in the USS via a contingent support vehicle.

  2. The VMDF was formed in response to the second report of the Joint Expert Panel, and was participated by the USS, the UUK, and the University and College Union which represents the scheme members.

  3. See Wong (2018) and the references therein.

  4. See the letter submitted to the Pensions Regulator.

  5. See page 63 of the Consultation.

  6. See page 26 of the Consultation.

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Con Keating calls the “obscurantism” of USS

Posted on February 6, 2021 by henry tapper

In recent weeks we have seen blogs from Professors Emeritus Michael Bromwich and Dennis Leech both addressing the travails of USS. The blogs can be read here and here respectively. Professor Bromwich’s note is a particularly good attempt at piercing the veil of USS disclosures, which once again can best be described as murky.

The irony of the pension scheme, for those leading transparent scientific endeavour and innovation, hiding behind unsubstantiated half-truths and avoiding peer review would be rather funny if the consequences were not so dire. Bromwich’s blog is worth reading on these grounds alone.

Both these blogs come down in favour of a cash-flow driven analysis of the situation, though they differ in detail. It is also clear that neither believes that the position with USS is as dire as the management of USS would have employers, employees, the Regulator, and the world believe. And when two eminent academic economists find something disturbing, it is probably wise to pause and consider.

Rather than attempting to parse the actuarial models and assumptions, a process which would surely get bogged down in the detail, I simply want to answer one question: how credible are the deficits that we are being asked to consider? I will approach this by asking: what is the required rate of return on assets held at the March 31st 2020 valuation necessary to fully discharge the projected liabilities?

USS published the technical provisions projections of the scheme at this date. In total, they amount to £137.5 billion over the coming 82 years. As these are technical provisions inputs, they will be prudently estimated, though we do not know the extent of this prudence. Scheme assets were reported at £66.5 billion. With these benefit projections and the asset portfolio valued at £66.5 billion, the required rate of return on these assets is just 3.22% pa. This is a nominal rate.

In line with avoiding peer review, we are not treated to a full description of the input parameters of these technical provisions. However, we are treated to two tables listing the gilt yield and CPI inputs. Given what we know about inflation and government bond yields, I find these bizarre. I have reproduced them below, together with their difference, as chart 1.The asset valuation above occurred close to the bottom of the pandemic panic. Asset prices have since then recovered. There have been recent comments that the asset portfolio recently had a value of £74 billion – in which case the required rate of return would now be 2.68%

These are nominal rates of return applying for the long term; the final horizon for this return is 90 years from now and the duration of liabilities is 19.8 years. The resultant question to be asked is: how do these required rates compare with USS Investment Management’s published expected returns? To present these in comparable nominal terms, I have used a CPI value of 2.0%  as applied on average in the projections estimates.

These are shown as table 1.

Table 1.

 

 Expected Return
Equities 6.39%
Property 3.80%
Listed Credit 3.68%
Index Linked Gilts 0.43%
Gilts 0.86%

From this it is immediately obvious that a return of 3.22% is easily feasible within USS’s own expectations. This is particularly true if gilts and index linked gilts are only sparsely held (if at all). It is also far below the historic returns of the investment portfolio, which are substantially higher than the expected returns of Table 1. The claim that a deficit exists is therefore on extremely weak ground and  this becomes even weaker in the light of recent asset price performance.

If we look to the technical provision liabilities figures published in the UUK consultation in Table 2 below, and require funding to these levels, we see the following required rates of return.

Technical Provisions (bn.) 76.3 78.8 81.4 84.4
Required Return on Portfolio 2.53% 2.37% 2.22% 2.05%

These are, quite simply,  obscenely low.  It is just not plausible that these low rates will persist for the next 80 years.

At these rates, it would make sense to take the money out and invest it in the universities given the economic value added of the sector!

Conclusions

It is immediately obvious from the projections of one year’s accruals that the scheme is growing, and growing strongly – with new accruals and £6.86 billion and pensions paid of just £2.24 billion, it is growing at 3.36% p.a. Moreover, the duration of these new liabilities is 31.8 years which compares with the scheme’s prior assessment of 19.8 years.

This scheme is not maturing – in fact, it is growing larger and longer. In this situation, it is difficult to see why there should be any meaningful focus on the various de-risking strategies of which USS management appears so enamoured.

More attention should be paid to the economic consequences of the management of USS, both to the sector and  the economy.  We shouldn’t allow obscurantism to let USS pursue a strategy that is decoupled from these basic realities of investment and pensions.

The impact of obscurantism

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Why mandating TCFD reporting is a game changer.

Posted on January 29, 2021 by henry tapper

The DWP’s proposals to insist that pension schemes set targets and use standard measures to report on the impact of the money they invest makes sense. But like the few radical interventions that work (think auto-enrolment), it is likely to be misunderstood. This is already happening.

The Government’s demands on schemes to report with various measures and to set certain sustainability targets are being taken as investment instructions. They are misunderstood by clever people who have not thought through the nuance but assumed big Government is  dumb government.

Take my good friend David Harris’ comments on the latest consultation and regulations on TCFD

The Government’s prescription is not on where to invest but on what to measure. A sinful scheme is allowed by legislation but will it be tolerated by an increasingly concerned membership?

The intervention Government is taking is simply about reporting. The DWP assumes that when people start seeing the publication of scheme targets and data on what is measured, they will start to apply pressure. But all that is reported is not always read and the question “how green is my pension?” has yet to become as cogent as “what is the R number?”

The task of Government now is to make sure that people to consider their pension as mattering to the planet with the same urgency as they consider their behaviour mattering to the infection rate of the pandemic.

Making money matter

The Government may take issue with the simplistic approach of “Make my Money Matter” , who do argue for disinvestment from sin stocks, but they need a populist movement to focus attention on the capacity of pensions to matter in meeting climate goals.

My partner, whose pension schemes have over £60,000,000,000 of other people’s money in them, hasn’t any time for what she calls the antics of Richard Curtis either. She is appalled by the  MMMM  “bandwagon” and berates me when she finds me Zooming with them. But she is adamant that the various pension schemes she runs will enthusiastically adopt TCFD because it measures risk and allows risk to be mitigated.

Put simply, if you can’t measure risk, you can’t manage it and there is no bigger risk to the assets held by her pension schemes than the impact of climate change.  Frankly, she too should be grateful to MMMM’s populism, as it will allow her schemes to shine (in time). The end does justify the means and though I share my partner’s dislike of “cheap shots”, I support MMMM and what they do.

That’s because mobilizing people to the message that pension schemes can make our money matter will change the way pension schemes work – for the better.

So what if people do get the message?

There seems to be an assumption that ESG and TCFD and all the measures we are talking about are pension issues and that nobody pays their pension much attention.

So what does happen if people want their money to matter? What happens when people start considering their money not as “financial capital” managed in the City but as “social capital” as a “catalyst for change”?

Might it be possible that the targets adopted by pension schemes and their measures become matters of public interest?  Is it possible that trustees and IGCs are held to account for what they target and how much they have contributed to the great endeavor to avert the impact of global warming?

Might the trustees and IGCs wake up to their own importance and take their jobs more seriously?

Engagement has its downsides!

Transparency of reporting on the carbon footprint of the scheme, the value at risk from climate change and even the success trustees have in getting the data they need to do the TCFD stuff will lead to people making comparisons.

If people have access to data and are interested they will use the data to compare sheep with goats and league tables will emerge showing which schemes are making our money matter and which are not. This scenario is where transparency takes us and it will make a lot of pension people very anxious as not everyone will be at the top of the table.

Engagement has its downsides, it leads to people who do not do their job well , being shamed and even sacked. This is what public scrutiny does – ask the politicians!

But without public scrutiny, pension schemes will not change, which is why the Pension Schemes Bill/Act legislates for getting this reporting mandated. We can say this with confidence because, despite the science telling us a crisis is coming, pension schemes have not changed. Even now they are following not leading. To use Ben Pollard’s phrase, pensions are the sleeping giants.

Why I support the DWP’s “measures and targets” approach.

There is a final point that unfortunately needs to be made. There are an awful lot of people who see “Environmental, Social and Governance” as a banner behind which they can open a pension schemes cash register and rob the till. The practice of green-washing, where a half-hearted coat of paint is applied at great expense and to no effect, needs to be discovered and banned.

There is no quick fix to the problem of global warming and ESG is not a marketing gimmick to promote new business. Work on ESG  is instead a sunk cost that should reduce fund managers margins and improve the value we get for our money.

The arguments that “all this ESG stuff will put up fund management costs” cuts no ice with me. The business of knowing what is going on inside a portfolio of bonds or equities or property or any alternative asset class is now the core business of any fund manager whether they want to call their funds green or environmental or sustainable or not. All funds are ESG funds because they all report to TCFD and are judged by the same targets.

What will happen is that fund managers will change the way they compete and start targeting a position at the top of the TCFD target tables. No doubt there will be some cheating and some scandals along the way, but what will happen – because of this Governmental intervention, is that the game will change – and change for the better.

 

 

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“Comply or die” – the DWP gets tough on climate change

Posted on January 28, 2021 by henry tapper

DWP calls on pensions to embrace not just comply with tough climate change rules

Pension schemes face a significant challenge over the next twenty years. Whether they see that challenge as complying with a series of edicts from Government , or as an opportunity to tackle the risks of a changing climate, may decide  Britain’s contribution to the global threat to our planet.

The long-term nature of pension scheme investment and the weight of money tied up in pension funds, means that our pension system is the key that can unlock a deceleration and eventual reversal of the destructive change brought about by global warming.

There are two schools of thought as to what is meant by “opportunity”. To some, ESG is a speculative strategy that involves ditching stocks with a high carbon footprint and purchasing equity in companies that do the planet little harm.

The consultation makes it clear that this kind of opportunism is not what the Government is after. It quotes Baronness Stedman-Scott speaking  in the House of Lords last February

“ This does not mean that it is for the Government to direct schemes or set their investment strategies. The Government never have directed pension scheme investment, and do not intend to. Our clear view is that the amendments do not permit us to do that”

It also quotes Therese Coffey in October, speaking in the Commons

The Bill will bring transparency for the first time about what is happening with individual investments. This Government are not in favour of trying to force divestment of different elements of fossil fuels and similar.”

Guy Opperman , introducing the new consultation on the regulations, makes it clear that the Government’s proposed approach is not about pushing climate risk about and around  the financial system but using the system to reduce and eliminate climate risk.

Addressing trustees that are sceptical of the government’s direction or pace of change, he said:

“To these trustees I say that the world is changing, the challenges are changing. You need to change.”

The issue of reducing the fundamental risk (rather than transferring it) is written like a watermark through the various documents published by the DWP yesterday which build on earlier consultations and introduce the regulations which will turn the high level aspirations of the Pension Scheme Act into business as usual.

Opperman insists that meeting this challenge is now part of the fiduciary duty

Failing to ensure climate risk, the most systemic risk facing financial services, is properly considered is – in my view – a failure in trustees’ duty to protect members.

So what does this mean in practice for our pension schemes and those who manage them?

Here is the DWP’s  published  consultation on climate risk regulations and guidance as well as non-statutory guidance on how to apply the Task Force on Climate-related Financial Disclosures, following on from its August consultation. The new consultation closes on 8 March, suggesting that climate change is a risk that will not work to the usual timescales of the pensions industry,

Various pension schemes and industry participants had pleaded for an exemption from the climate regulations on the grounds that they are closed or invested primarily in gilts or hedging instruments, or asked for the size threshold to be increased to £10bn.

But the DWP does not mince its words in the response, saying while it notes the view

“that an asset-based threshold is a relatively broad-brush approach to defining the scope of our proposals”

it believes that

“the alternative approaches floated by respondents would likely be as blunt or blunter whilst typically more complex to apply”.

It questions the logic of assuming that government bonds and hedging instruments are not exposed to climate risk and notes that models are emerging to take account of this, concluding

“It is right that large schemes which provide for the retirement of many thousands of savers should be subject to our requirements, irrespective of whether they are open, closed, fully or under-funded and regardless of how they are invested,”

Where there are concessions

The department has given way on a few other points. Among others, trustees will have to select at least two emissions-based metrics, one of which must be an absolute measure of emissions and one which must be an intensity-based measure of emissions, as well as one additional climate-related metric.

However,

“trustees will be required, as far as they are able, to obtain the data required to calculate their chosen metrics on an annual basis – rather than quarterly”, the DWP says.

The change was made because many respondents to the previous consultation had pointed out that underlying companies only report their greenhouse gas emissions annually, and so quarterly reports by investors would add little value. Similarly, trustees will now only need to measure performance targets once a year.

The DWP has also extended its “as far as they are able” provision to the calculation and use of the trustees’ chosen metric, rather than just the collection of data.

Scenario analysis is, compared with the August proposals, now slightly less onerous as well. Trustees will now only need to conduct scenario analysis of at least two scenarios in the first year and then every three years thereafter, instead of annually.

They will in the intervening years have to do an annual review of their scenario analysis and

“carry out fresh analysis where they consider it appropriate to do so”,

which the DWP says is likely to be the case if there is:

  • a material increase in data availability
  • a significant/material change to the investment and/or funding strategy
  • the availability of new or improved scenarios or events that might reasonably be thought to impact key assumptions underlying scenarios; or
  • a change in industry practice/trends on scenario analysis

Trustee Knowledge and Understanding

Trustees should also prepare for training on climate risk. The DWP has added to the proposals on governance and will require trustees to have

“an appropriate degree of knowledge and understanding of the principles relating to identification, assessment and management of climate change risks and opportunities to properly exercise their functions”.

Elsewhere, the government is now no longer considering consulting on Paris alignment and ‘implied temperature rise’ at this point, the consultation notes, acknowledging that there are methodological challenges in doing so.

“As there is still uncertainty and inconsistency between the methodologies used to measure ITR, it is our view that now is not the time to consult on making it mandatory for trustees to measure and report their ITR… However, we still recognise the potential benefits of trustees working out the ITR of their portfolios. We have therefore included the option of a portfolio alignment metric within the draft statutory guidance accompanying our proposals on metrics and targets,”

The DWP is putting its foot down on the accelerator

The timetable for implementing these new rules looks to be accelerated. The DWP has  brought forward the planned review for schemes not yet in scope revisiting whether climate governance and reporting obligations should be introduced for those schemes in the second half of 2023.

Some DB schemes which have swapped managing their own liabilities by “buying in” the insurance  bulk annuities, will be exempted from reporting on the buy-in.

And trustees will be please by the decision to require that trustees conduct scenario analysis once every three years rather than annually, although schemes must still do their first scenario analysis in the first year that the regulations apply to them.

Inevitably there are going to be tensions with data availability here, so it is helpful that the regulations acknowledge that trustees may need to take a proportionate approach, although I predict much debate around what may or may not be required in practice.

But the radical change is in the introduction of new “metrics” and “targets”

The most radical sections of the new regulations are the metrics and targets section of the Statutory Guidance

One of the more difficult aspects of the new rules will be the performance targets,  even if these must now ‘only’ be reported annually.. Trustees will need to think hard about how the targets they set align with their fiduciary duties and what is in the best financial interest of their scheme members.

Trustees will have to gather information on the total green house gas emissions produced by companies within their portfolio and report on their intensity, explaining why the numbers are as they are.

They will have to choose one of three targets set by the DWP

  1. There is an obscure target that Trustees can adopt known as “climate value at risk” which I profess not to fully understand.
  2. Trustees can also choose to report on the Implied Temperature Rise of their portfolios
  3. Or they can simply report on the quality of the data they are receiving from external sources (the fund managers or directly from companies they invest in)

Will it work?

The DWP reckon these new rules go further than any country has gone so far, to manage climate risk within pensions. So we appear to be in unchartered waters. But there is a comparison that can be made – one that strangely – can be made with France.

Torsten Bell of the Resolution Foundation has pointed out that the Banque de France has recently published a paper looking at how laws adopted following the Paris agreement affected the choices of French investment firms. Uniquely in Europe, France required insurers, pension funds etc. to report annually on their exposure to climate risks.

Comparing firms within France to French firms based abroad (not subject to the legislation), the research finds that affected firms chose to reduce their investment in fossil fuel companies by 40 per cent.

While better reporting and stewardship (rather than divestment) may be the desired outcome of this consultation, this suggests that the approach being adopted by the DWP, may well be the right one.

Posted in pensions | 4 Comments

Maintenance payments are not a benefit, they are a carer’s and a child’s right

Posted on January 27, 2021 by henry tapper
Guy

This article’s about the payment of child maintenance, something I did for 20 years. To me it is the very first priority of a paying parent as it is the lifeline for the carer and the child. You can read about the various ways that payment can be made here.

Payments can be made (usually where other methods have failed) directly from pay. At this point such payments enter into the world of payroll. I have heard these payments referred to as an employee benefit, they are not. They are deductions from pay about which there is no discretion, they are not a benefit but a right to those who receive them.

I came across this post on linked in and it made me think- think a lot.

Please take a moment to watch the Parliamentary debate from last Thursday, 21st January, regarding the operation of

the Child Maintenance Service during Covid-19 and important plight of many families in such unprecedented times. For many of us the global pandemic, lockdown, homeworking and home schooling has been one cog in a wheel of complexity. It is 45 minutes well spent, drawing on issues that affect our own industry more broadly, as well as the responsibility of employers. Whilst the debate starts at 15.53 and commences with scene setting of the issues, in particular I would draw your attention to Rt Hon Caroline Nokes at 16.05 and Guy Opperman at 16.49 in the footage (link attached) Department for Work and Pensions (DWP)

Clearly Caroline Nokes’ is aware of certain live cases where payments are being frustrated by one parent seeking variation orders, by employers not co-operating and by the non-disclosure of the paying parent’s financial resources. I quote a statement from Caroline Nokes also quoted by  the Pension Minister.

“There is a special place in hell for parents who go out of their way to hide income”

We should be particularly disgusted with such goings-on at this point in time, when the Child Maintenance Service is so under pressure.  Paying parents and parents who care both have responsibility for the child or children. But so do employers – employers have a moral and legal role to enforce payments out of pay.

Not all domestic abuse is physical, some is financial. Deductions from earnings orders need to be honored by employers and should not have to be chased up by parents who are left without maintenance payments. Payroll must not be allowed to be bullied in taking an employee’s side, no matter how senior the employee.

It is good to see Government stepping up powers to protect parent’s who care and those they care for as nobody should exploit this crisis to get out of making payments. It is good to see Guy Opperman report on the DWP’s widening the scope of  the CMS’ investigatory powers to include all sources of income. Compliance with “collect and pay” is – according to Guy Opperman is only 74% – and shows a shockingly high level of non-compliance.

I very much hope that no company involved with the payment of pensions is found to have fallen short in its duty to make direct payments where an order is in force.

I will let the final word on this fall to Jay Kenny, a noble man who is consistently on the side of doing the right thing.

 

 

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Some thoughts for IGCs and Providers on investment pathways.

Posted on January 24, 2021 by henry tapper

It’s nice to get into conversation with Peter Robertson, who I know as the first man promoting Vanguard in the UK but many know as the doyen of Standard Life International. Peter sent me an article he’s written directed at IGCs, who are currently cogitating on the suitability of their provider’s investment pathways. I include it in full as it touches on a long and amiable meeting with the new chair of Vanguard’s IGC, my former boss – Lawrence Churchill.

The Vanguard IGC is all about investment pathways. Much as I enjoyed my conversation with the great man, it made me aware of how little I know about how we can predict where value can be had, when investing in later life.

Will IGCs find alternatives a roadblock on life’s pathway?

A decade or so ago a colleague and I ran a masterclass for a group of journalists on Target Date Funds (TDF). “Masterclass” might have been overegging it but, as few in the UK knew much about TDFs, the one-eyed man principle applied and it gave us a chance to talk about lessons from the USA that might be applicable if UK pensions legislation changed.

The TDF annuity route, or “to retirement” strategy, followed a glidepath much like that used in UK life-styling, 80+% growth assets early on ending in a 75:25 bond:cash split at retirement. The TDF method involved changing the asset allocation within the fund rather than switching between funds as in life-styling.

The drawdown or “through retirement” strategy looks the same early on but sees less de-risking, with an equity allocation of 30-40% at the target date and beyond and does not match the tax free lump sum with a cash allocation.

The unexpected introduction of Pensions Freedoms soon turned our theoretical musings into reality, re-enforced by the recent need to identify appropriate investment pathways.

IGCs need to find pathways, that offer, among other things: value for money, an appropriate investment strategy and a suitable approach to ESG, for the non-advised, particularly those entering drawdown. How the fund is legally structured may have a significant bearing on this last point.

UCITS are the gold standard in retail distribution of investment products and are limited to investing in listed equities and bonds. To make their usage more widespread in pensions they can be wrapped in a life fund (but not vice-versa).

Life funds offer scope to invest in alternatives like real estate, infrastructure and private equity. If a mutual fund holds such assets it will be classified as an Alternative Investment Fund (AIF), which ordinarily cannot be distributed directly to retail investors.

Two existing products in this sector get top marks for value for money, follow well structured, if differing, investment strategies, yet manage to fall either side of this fund structure divide: the UCITS has a higher equity content before and after retirement but, in this instance, no obvious ESG screen while the Life Fund is strong on ESG and includes real estate and infrastructure, offering lower expected volatility and potentially making a given level of income more sustainable and hence more attractive to drawdown customers.

This lower volatility is a direct consequence of the reduced liquidity of its alternative allocation and comes with an explicit risk warning around delayed repayment. Whether its gated property funds or Woodford, the last year has provided plenty of examples of liquidity risks coming to fruition.

Different arms of the FCA oversee investment pathways and mutual fund distribution so the rules could change. Nevertheless, a pathway with alternatives may see drawdown customers without income when they ask for it. So, for all their merits, does use of alternative investments present an impassable roadblock to life funds and mean IGCs can’t deem them to be appropriate?

Thanks for the heads up Peter!

There is some “new stuff” here – well “new” to me anyway. My first question is “what are the merits of illiquids that make them so attractive?”. If the major advantage is in the consistency of valuation, is that because there is no ready market for the asset, meaning it is not being re-valued by the market but by someone putting a finger in the air and giving a theoretical number? That doesn’t sound very transparent and it does sound very open to manipulation. It sounds remarkably like the black box of with-profits.

The valuation of private equity is a particular problem and this blog has featured a number of articles over the past two years , questioning the practices of private equity managers who seem to find every more exotic ways of justifying the valuations that suit their needs. The trouble is whether these valuations are realizable when cash is needed.

As Peter points out, illiquids can sit within a fund that is building up and is not needed for spending, but that’s not what an investment “life” pathway is, as people can call on some or all the money from the fund, when they choose.

Peter’s analysis suggests that Life wrappers may become a way for contract based pension providers to manipulate the marketing of investment pathways so that they are seen to be delivering the absolute returns that guard against the ravages of sequencing risk, until the proverbial hits the fan. We all know what happened the last time that life companies tried that trick and Equitable it wasn’t.

Why can’t UCITS adopt ESG?

While I am with Peter in his caution against  illiquids within a life fund, I find his distinction between a Life Fund and a UCIT approach to drawdown confusing.

Life funds can invest 100% into equities, just like UCITS, but UCITS can’t include alternatives and be used for retail investors (using investment pathways). So far so good, obviously life funds are more flexible and look like they will dominate the investment pathways targeting drawdown or an investment roll-up.

But what has this got to do with ESG? Surely the composition of an ESG factored fund depends on more than screening?

To my mind, the ESG in a fund depends on the commitment of the manager to exercising stewardship by publishing  its TCDF and  exercising direct influence (voting) and indirect influence by letting its views be known to the management of the companies in which equity or debt is held.

In which case a UCITS fund can be managed for ESG in the same way as a life fund. We’ve got to get away from a view of ESG as being something that is exclusive to one set of funds over another, and consider it desirable in all funds. Why would you want to have your fund not managed for  Environmental sustainability, Social purpose and  good Governance?

Peter here seems to be hinting that not only can investment pathways not risk investing in illiquids, but that they should be avoiding ESG factors too.

Is there an obvious reason to use life wrappers over UCITS ?

It’s very good to have Peter as a correspondent and he’s kindly agreed to answer my questions. I have a number of questions I want to ask.

  1. What advantages do life funds offer life companies compared with offering UCITS directly?
  2. How and who benefit from any differences in taxation?
  3. Can life companies offset illiquidity of assets such as private equity (and if so – at what cost to performance)?

It strikes me that for decades, advisers have taken for granted that life companies ran GPPs and occupational pensions unbundled themselves from life companies. There is still some anti-life sentiment among trustees and a lot of misunderstanding of trust based schemes within life companies.

But investment pathways should be common to both GPPs and trust based schemes and a proper understanding of the advantages of life and UCIT structures is important if we are to get to best practice in this field. In answer to the question that heads this section, I simply don’t know enough and should do!

Time to open the debate?

We need transparency, and we also need the information to formulate opinion on what is best. We can’t allow a small band of “experts” to decide what is done and – even with regulators on the case – we need to be able to decide for ourselves (whether as advisers or informed investors).

So I’m really pleased about Peter’s offer and look forward to following up on this blog very shortly. In the meantime, I will be mugging up with Peter on answers to my questions.

I hope that in airing these issues, I will be helping the Chairs of IGCs, thinking about their impending reports, on how to assess the value for money of the impending pathways.

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Ping but no pong – we have a Pension Schemes Act ready to go!

Posted on January 20, 2021 by henry tapper

 

At around 5pm on the afternoon of 19th January after 4 arduous years, the Pensions Schemes Bill emerged from the House of Lord/Commons “ping pong” ready to be signed by the Queen who will give it Royal Assent. It will then be the Pension Schemes Act and not a moment too soon.

The delays in parliamentary process have had consequences. Further regulations are needed on CDC schemes, dashboards, climate change governance, regulatory powers, defined benefit (DB) scheme funding and pension transfers.

David Everett of LCP told Pensions Age

“Although this feels like the end of a long journey, in reality it is more like half-time…we expect to see a phased implementation of the new Pension Schemes Act, with the scheme funding powers almost certainly not biting until well into 2022″.

Not everything made it. Several proposed amendments, including committing schemes to net-zero carbon emissions by 2050 and mandatory Pension Wise appointments, were voted down by the Commons. the brave attempts by the peers to reduce the powers of the Pensions Regulator to intervene in the funding strategy of  open pension schemes thought to have been snuffed out by the Pensions Minister. However…

Saved at the bell! – BREAKING!

The FT is today reporting that  the depth of feeling from many such schemes will  impact the secondary legislation now being considered.

Lady Stedman-Scott, said subsequent regulations, to be set out by The Pensions Regulator would “acknowledge the position of open schemes” but had yet to be set out. “I want to make it absolutely clear that they do not need to invest in the same way [as most closed schemes do now],” she added.

TPR has still to properly report on the first consultation and the interim consultation response has drawn some sharp criticism, not least from Con Keating in yesterday’s blog

And I’d agree with Jo, that the change of tone is very much to do with converting the economic capital in our great pensions schemes into social capital.

Three cheers for democracy!

If it were done when ’tis done, then ’twere well it were done quickly

Macbeth’s advice to himself on murdering Duncan must be echoing in the heads of many civil servants and indeed politicians but there is reason for parliamentary process and the year long debate on the Pension Schemes Bill has at least flushed out the problems with new laws.

It is now up to the civil servants in the DWP to get rules on the table and there is something of a rules race going on. If I was to run a book, I would have the rules on TCDF reporting as first to be consulted on, followed shortly after by the CDC secondary regulations. We can’t expect rules on TPR powers till much later in the year as we’re still to hear back on the Funding Code consultation

But one area where there is more need for urgency is on the pensions dashboard. We urgently need progress on the identification process needed to link person to pot and we need progress on the specification of the Application Programming Interface (API), that will enable data to be searched for, found and sent to the dashboard. We also need to find a way to assess the quality of data to establish which schemes are dashboard ready and how close we are to the dashboard available point.  Most importantly, we need confidence in timelines of delivery, we have about as much confidence in dashboard delivery as we do of passengers using Cross Rail.

New legislation already backing up.

Like lorries in Kent, new legislation is already being parked ready for a further bill. Pensions Minister, Guy Opperman, has said that he expects there to be a further pensions bill in the current parliament, which would include DB pension superfund legislation.

We are already 13 months into the new parliament and if that legislation is not to meet the wash-up process that set back the last bill, civil servants will need to be getting some of the legislation “oven ready”.

As well as superfund legislation, it looks likely we will get legislation permitting small pots to be aggregated into bigger pots. When it comes to speed of delivery, the DWP should look to the small pots working group as an exempla.

We live in a time of quickly arranged Zoom meetings , of digital documentation and electronic signatures. Let’s hope that this feeds through into the completion of the secondary regulationss for the Pension Schemes Bill and that the sequel will be a little quicker to pass into law!

Ping but no pong!

Whatever the frustration for us commoners, the frustration for the ministers, the civil servants of the DWP and  the regulators in Brighton, getting the Pensions Schemes Act over the line must have been much greater.

As the van with the parchment  paperwork, rolls down the Mall from the Westminster document department, we should congratulate them for their patience and forbearance – the Pensions Minister especially.

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Opperman – CDC makes pensions “more sustainable for employers”

Posted on December 31, 2020 by henry tapper

From the office of Guy Opperman

Guy Opperman signs off his end of year vale dictum like this

Finally, we’ve made significant strides in terms of introducing collective defined contribution schemes. We’ve outlined a legislative framework for them, which spreads the investment risk, allowing for greater returns to members and improves schemes’ sustainability for employers. (my bold)

Those prone to conspiracy theories will note that this message wasn’t placed in the FT or any of the institutional pension magazines but in Money Marketing, whose readership has little interest in collective defined contribution schemes and less in the sustainability of pension schemes for employers. The conspiracy theorist will and is asking, “just how will CDC improve the sustainability of employer’s pension scheme? “

To which (if I were the minister) I would choose between three answers

The proper answer

Many people in “workplace pension schemes” actually think that by participating, they will be entitled to a pension when they retire. If, these people reach retirement and don’t get a pension, then they will (unless something better comes along) have to follow various investment pathways to annuities, drawdown, cash-out or wealth creation.

The proper answer (if I was pensions minister) would be to declare DC workplace pensions unsustainable as they lead to a bunch of hard choices , none of which are efficient as a means of providing a wage for life. CDC makes workplace DC pensions more sustainable as they provide a promise of what people call a pension – (AKA – “a wage for life”) to participants.

The likely answer

The most likely reason for the inclusion of the claim that CDC improves the sustainability of an employer’s scheme is simply infelicitous phrasing. If this is the case, then this section of the article has been drafted rather more loosely than is usually the case at the DWP. Maybe Christmas festivities had spilled over into work-time and we can overlook a loose claim for CDC (unless you think as I do , that DC workplace pensions are fundamentally flawed to a point where they don’t deserve to be called pensions at all).

In the balance of probabilities, I suspect that the likely answer to what “improving sustainability of employer schemes” means, is that the drafting team were in end of term mode and weren’t too precise about what was said.

The disruptive answer

Ministers aren’t prone to throwing hand grenades into the carp-pond but that’s what this phrase could be interpreted as doing. If we are to consider employer schemes as DB schemes, then it would seem that the Minister is hinting at an easement for employers in the strain of supporting a DB arrangement.

If the minister means that open DB schemes might use CDC for the future accrual of pensions, which is what Royal Mail is doing, then there will be a number of employee representatives, most notably unions, lining up to protest. Open schemes such as much of the Railway Pension Scheme and USS are guaranteeing the defined benefit of an inflation proofed wage for life. CDC was never meant to replace those promises. The small but significant number of open schemes that backed the Bowles amendment should be reading this final paragraph with interest.

The alternative (and much more radical) interpretation of this phrase undermines the existing guarantees in place. If we are to read this phrase as the opening of a door that allows DB schemes to switch to CDC not just for future but for past accrual, we dispense with the entirety of the Pension Regulator’s funding code and swap it for a funding system where members get the best pension available within the constraints of a fixed set of contributions (which is what CDC gives).

I very much doubt that is what Guy Opperman meant, but the fact that several of my readers have picked up on the comment and asked this question proves that such thoughts are in the minds of hard-pressed employers. For many employers the DB funding code (as last presented) looks like the last thing they need when struggling to deal with the costs of the pandemic, Brexit and transforming to meet the challenge of climate change.

The idea that CDC might replace DB has been tried in the Netherlands and it hasn’t worked too well. People don’t take kindly to finding no rise in their pensions when the market goes down, when they believed the promise of inflation proofing. While it is possible to convince members of DC schemes that a pension can go down as well as up, the Dutch have shown that is much harder when a DB pension promise is in place.

Any idea being floated that CDC could replace DB pensions is highly disruptive.

What do you mean- Minister?

It would be helpful if the Minister, or one of his aides would clarify what is meant by the very ambiguous suggestion that risk-sharing improves the sustainability of pensions to employers.

I know of no employers who consider DC pensions unsustainable (that is one of the reasons auto-enrolment is succeeding).

I know of many employers who would be worried if they were participating in a CDC scheme where “risk-sharing” became “risk-reversion” when times got tough (the risk of supporting CDC pension increases through deficit contributions is still considered a risk by many employers).

I know of many employers who would gladly swap obligations to fund DB for a defined contribution into a CDC scheme.

CDC has the potential to transform pensions in this country, which is why it is such a debated topic. It has to be spoken of precisely as ambiguity will lead to speculation. For with CDC, careless talk is dangerous.

If there is a plan for CDC within the DWP – even if it is no more than a ministerial pipe-dream, then it is best it is shared. If – as seemed the case- CDC is simply facilitated by Government legislation and secondary regulations, then loose claims about risk-sharing “improving the sustainability of employer schemes” are best avoided.

After thought (but a good one!)

For those in an optimistic frame of mind, I urge you to consider Derek Benstead’s green line which represents the desirable outcome of any pension scheme, the ongoing payment of pensions to scheme members without any time horizon for closure. As this diagram shows, the enemy of good here is scheme closure, whether we are talking DB or CDC.

IF this is what the Minister is getting at then I thoroughly agree. If that is what he is getting at, then he is casting a cold eye on what has happened to DB schemes in the past 20 years and that gives grounds for optimism that the mania for de-risking  at all costs, that underpins the DB funding paper, may finally be receding. That would be a good thing.

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I’ve lost my pension pot – somewhere in Germany – what should I do?

Posted on December 29, 2020 by henry tapper

I’ve lost my pension pot…

The BBC has made an excellent program building on last year’s exposure of problems at Dolphin Capital. At that time alarm bells were beginning to ring for thousands of UK investors in Dolphin’s bonds. The bonds had been marketed to people with pensions and savings in the UK by direct marketing from abroad, as well as authorised and unauthorized advisers in the UK.  The 2019 You and Yours program was promoted on this blog in an article I called Grand Designs.

The point of promoting the problem was to alert consumers to the perils of investing in something as intrinsically attractive as these Dolphin bonds; they were marketed to a template based on four  hooks which are the template for most unreliable investment schemes

1)    Plausibility. The Dolphin investment sounded plausible – it’s German, therefore reliable. It’s property, therefore tangible.

2)    Tax related – always a winner. Often mask the fact that the investment itself isn’t sound – but the fabulous tax breaks make it sound like it is

3)    High digit returns promise – 10% plus should sound an alarm bell to everyone but the financially vulnerable

and what wasn’t disclosed to investors but which was key to introducers

4)    High Commissions – which incentivise people to sell – and to people high risk investments aren’t suitable for.

It was almost possible for  an introducer to take a 20% commission and consider he/she had done the due diligence, in some cases introducers were flown to Berlin to see Dolphin Capital’s investments. It should be no surprise that marketing focused on countries (Britain, Ireland, Singapore and Japan) where many people are obsessed by property investment.

Somewhere in Germany

The latest You and Yours makes it plain that while Dolphin started off being open about its investments, those who have invested in the past few years have been given no idea where their money has gone and much of the program was spent on Dolphin sites which had not been developed, had been over-mortgaged or in one case, was claimed to be a Dolphin site but turned out never to have been purchased at all. While early investments may have been in prime sites (in Berlin for instance), latterly investor’s money had been spent on property in the back of beyond , some of it never even visited by Dolphin’s management. In short – what was sold as geographically sound, was anything but.

Geography is also important here, because though it is estimated that over 6,000 people in the UK bought into Dolphin bonds, it looks like most of what was going on fell outside the FCA’s “regulatory perimeter”.  Consequently most investors will have no recourse to the Financial Services Compensation Scheme and will have to stand in the queue of unsecured creditors awaiting the liquidation of Dolphin’s assets following the bankruptcy of Dolphin Capital.

As with the recent scandals surrounding the regulation of LCF and Connaught investments and the mis-selling of pension transfers, the FCA have been slow to the case. The first notice on its website was posted in October of this year

This despite the You and Yours program in May 2019 and the growing protestations of investors that money promised was not being returned to them. The FCA’s statement confirms that most of what was going on was not on its watch but that it is liasing with the Financial Ombudsman and the Financial Services Compensation Scheme as to what can be done for those who invested through FCA authorised SIPPs and other pension products.

This has prompted former FCA director and consumer champion Mick McAteer to tweet

I agree with Mick, we need our regulators to find a way to pick up on the tsunami  before and not after the wave has broken. This wave is likely to be bigger even than LCF and Connaught and more destructive – it is thought that more than £1bn of investor’s money may have been lost to Dolphin.

What you should I do if I am a Dolphin investor?

I did act as an adviser to the program and comment at the end of the program. My advice to those people who have money in Dolphin Bonds is to get in the queue (either for FSCS) or for a pay-out from the liquidators now. If you are such a person and want to know what to do next , you can contact the Financial Ombudsman Service either directly or via the Money and Pension Service.

How to complain to the Ombudsman service if the firm you dealt with is still trading

You should immediately contact the financial services firm that you have dealt with (for example, the financial adviser who advised you to invest in the GPG scheme and/or SIPP operator through which the money was invested) and submit a complaint. This means that the firm must take certain actions within certain time limits.

If you are unhappy with the response received from the firm, or do not hear from them within the relevant time period required by the FCA, the Ombudsman service may be able to help. It is a free and easy to use service that settles complaints between consumers and businesses that provide financial services.

It is important to note that every complaint to the Ombudsman service will be judged on its own individual merits. Further information on how to complain can be found here.

But what of those who did not invest via their FCA regulated pension?

The FCA website can only help those who invested through their pension but I have no “regulatory perimeter” – it is important that someone is helping those people termed “cash investors” who did not use their pension money but paid for their bonds directly.

Although the program did not refer to this, I understand that there is likely to be a criminal investigation about what happened to Dolphin investor’s money. If such an investigation finds against Charles Smethurst and the management of what is now the German Property Group, then there may be further avenues for compensation.

But for now the prospects for cash investors are limited.

These people are now being assailed by a number of claims companies , many purporting to have semi-official status. I strongly advise (if you are a cash investor) you are wary of all of them and direct any correspondence to Goerg – the lawyers in charge of the administration

The person to contact is Tim Beyer, whose details are here

Tim Beyer – insolvency partner at Goerg

 

 

 

 

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Bitcoin is the currency of the wild web

Posted on December 27, 2020 by henry tapper

Peter Crowley is right to make the connection. Bitcoin is the currency of the dark web and it’s used to pay for the requisites of life if your wellbeing is dependent on a regular supply of under the counter drugs. Reading the quoted article from the London Review of Books is like diving down Alice’s rabbit hole into an alternative web with its own rules.

Some readers of this blog will use it regularly but not many. The 21st century version of the dirty-mac brigade, lurk down the virtual allies where sites whore virginity as ruthlessly as the 18th century madams depicted by Hogarth. The means are different but the impact is the same and bitcoin oils the wheels.

So what do we make of the boasts of this man (thanks for two of my readers for independently sending me this press release from the deVere Group.

Nigel’s power profile on Linked In

 

“I sold half my Bitcoin holdings over Christmas”: deVere CEO 

-FOR IMMEDIATE RELEASE-
December 26 2020

As Bitcoin hits nearly $25,000, the CEO of one of the world’s largest financial advisory and fintech organizations has revealed that he has sold half of his Bitcoin holdings.

The revelation from the deVere Group chief executive Nigel Green – one of the first high-profile cryptocurrency advocates – comes as the Bitcoin price hit yet another all-time high on Christmas Day.

The world’s largest cryptocurrency by market capitalisation jumped to more than $24,661. The value of all Bitcoin in circulation is now around $452 billion.

Mr Green stated: “I have sold half my holdings of Bitcoin as it hit an all-time high.  Why? Because it should now be treated as any other investment –that’s to say, where possible, it’s better to sell high and re-buy in the dips.

“The steady gains in the price of Bitcoin has made the digital currency the top performing asset of 2020, up over 200%. As such, I felt the time was right for profit-taking.”

He continues: “There should be no misunderstanding about my decision to sell.  It is not due to a lack of belief in Bitcoin, or the concept of digital currencies – it’s profit-taking now to buy more later.

“Indeed, more than ever, I believe that the future of money is cryptocurrencies.”

As Bitcoin surged past $20,000 for the first time ever last week the CEO noted that as some of the world’s biggest institutions – amongst them multinational payment companies and Wall Street giants – “pile ever more into crypto, bringing with them their enormous expertise and capital, this in turn, swells consumer interest.”

He went on to note that with governments continuing to support economies and increase spending due to the pandemic, investors are increasingly going to look to Bitcoin as a hedge against the “legitimate inflation concern.”

Previously Mr Green observed that inherent traits of cryptocurrencies are ever-more attractive. “These characteristics include that they’re borderless, making them perfectly suited to a globalised world of commerce, trade, and people; that they are digital, making them an ideal match to the increasing digitalization of our world; and that demographics are on the side of cryptocurrencies as younger people are more likely to embrace them than older generations.”

In addition, a global poll carried out by deVere Group found that nearly three-quarters of high-net-worth individuals will be invested in cryptocurrencies before the end of 2022.

The deVere CEO concludes: “Like me, many traders will sell record high prices as an opportunity to sell, so we can expect some pullback on prices in the near-term.

“But the longer-term price trajectory for Bitcoin is, I believe, undoubtedly upwards.”

The dark web is the new wild web

Bitcoin’s value is sustained and increased by high-net-worth individuals speculating on its future price, but the fundamental value of Bitcoin is as a way of paying for things that by-passes the MLRO and the governance of the traditional banking system.

There is nothing illegal about investing in Bitcoin or converting crypto into fiat money. There is no need for investors to “look through” to what is enabled by Bitcoin, nor the consequences of all this activity on the dark web.

When the west opened up to Americans in the 19th century, it enabled unbridled licentiousness , unpunished murder and a general lawlessness that was tolerated since it was out of the sight of those building up the apparatus of state – including the financial services on which platform America has built its global dominion. The expansion of America across its badlands from sea to shining sea, happened because the west was permitted to be wild.

The dark web is our wild west and like the entrepreneurs who made their fortunes from the pillage of indigenous culture and wanton lawlessness, those who work the dark web are furthering the wealth of nations such as the USA and the UK.  We can read the article on how to buy drugs, log into the dark web and – buy drugs. But to do so, we need to buy some of those bitcoin- but don’t worry about that last bit, there are plenty of speculators like deVere’s Nigel Green, who are creating the liquidity for you.

 

Nigel J Green – making my money matter

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The small pots working group find a progressive way to grasp the nettle

Posted on December 19, 2020 by henry tapper

 

Almost as important as its findings, the constitution and delivery of the small schemes working group is an exciting foretaste of a new way of working for the DWP and its pension policy unit.  The 86 page report that was delivered to the public by the Pensions Minister this week is the distillation of experience of the past ten years of workplace pension development through a three month virtual alembic.

It’s a triumph of people getting things done by harnessing the new found collaborative technologies that the pandemic has forced us to use and what it means is that by June of next year we will be trialing a solution to one of the most difficult challenges to the long-term success of auto-enrolment. Unbelievably, this initiative was only laucnhed on September 22nd 2020.

Decisive and determined – “pot for life” gets the order of the boot.

A major calamity for payroll has been averted thanks to prompt and decisive action by the DWP’s small pot working group. Proposals put forward by Hargreaves Lansdown would have required payroll to pass contributions to each saver’s “pot for life”. This would be fine if the saver’s pot for life was the employer’s workplace pension, but for new joiners and for pension savers who fancied choosing their own pension, big problems loomed for payroll.

Those who have struggled to clear contributions to one pension provider will appreciate that the prospect of limitless interfaces would simply have been inoperable. My understanding is that the views of Samantha Mann of the CIPP, which chaired the implementation committee of the Working Group were crucial to the group’s decision to ditch the proposal. The Group’s report concluded

A lifetime provider solution would introduce a fundamental change in how workplace pensions operate and could result in losing the benefit of inertia, which AE has been built on, unless an approach was developed that did not rest on new employees having to provide existing pension details to new employers. In addition, it would also be complex and place an increased administration burden on employers and payroll as they would need to deal with paying contributions into multiple schemes.

Grasping the nettle

Small pots can breed nettles that sting

For year, small pots have grown like stinging nettles – dealing with them has been thought too painful . The best way to get to grips with nettles is grasp them firmly (it saves you getting stung and gives you full control).  This is  how this Working Group has gone about its task.

Happily,  the decision to ditch this payroll-breaking proposal did not put the kybosh on reform. the Pension Policy Institute have modelled how auto-enrolment proliferates small member pots meaning that by 2030 we might have 28m pots with less than £1,000 in them , the DWP have previously estimated that by 2050 there will be 50m abandoned pots.

There has been a school of thought that savers would get their act together and consolidate their pension pots -especially once the much-heralded dashboard arrives. However, the Working Group has determined that member action will not on its own be enough. So, to bring people’s small pension pots together, the Working Group is proposing that master trusts and other workplace pensions conspire to exchange members to the benefit of both the members and the schemes they join and leave.

This will be known as “member exchange ” and it will work like those exchanges of prisoners we used to see in the cold war. To use the prisoner exchange analogy, members will be lined up on either side of the bridge and at an agreed time, they will march past each other to their new homes.

While the concept is easy to grasp, there are some hurdles to leap before next summer when a pilot is due to be launched. Firstly, there needs to be a reliable member identification system to allow pots to be accurately allocated to members. Here there is an opportunity for workplace pensions to adopt in advance, the simple processes outlined in the find and view processes laid out by the Pension Dashboard Program.

There also has to be a universally recognised rationale for the selection of appropriate consolidation vehicles. Crucially, if public confidence is to be achieved, there must be robust safeguards against members losing out. There is not a risk of fraud here – we are dealing with internal processes that are subject to the controls put in place to meet the exacting standards of the master trust authorization process. The issue is one of member detriment, we cannot allow members to exchange a strong and well managed workplace pension for a pot that has slim chance of delivering good outcomes.

The Working Group have come up with a solution to this problem which focuses on the Government’s favorite measure

“In addition to looking at this in the context of trust-based schemes, consideration will also need to be given to contract based schemes concerning transfers without consent. Trustees / Independent Governance Committees (IGCs) would need a common Value for Money (VFM) assessment framework in order to enable pension pot exchanges without potentially creating unacceptable risk to the member or unacceptable burden on the Trustee/IGC”.

But member exchange only deals with the sins of the past

While member exchange has advantages in consolidating the already fragmented service histories of pension savers, it is not a forward-looking policy – it does not stop pots proliferating in future. Beyond the immediate remedy of member exchange, the Working Group is proposing what the pensions industry is calling a Master Pot.

The Master Pot collects small pots as they are left and is allocated to the saver either because it is run by the saver’s first provider or by means of some random selection called “the carousel”. It is proposed that savers would have an override so that they could deem the provider who would automatically pick up their small pots after them.

A paper well worth the reading

There is a lot more to the Small Pots Working Group paper than outlined here. There are good proposals on how multiple pots held by a single provider can be identified and brought together and there are excellent sections looking at (and rejecting) changes to opt-out options and the reintroduction of “vesting periods”. The paper is driven by consumer advantage but mindful of the needs of providers to offer sustainable value and employers to operate pensions. It is mindful of what can be done in the future and not constrained by what has not been done in the past.

It is quite extraordinary that the Working Group has delivered an 86 page paper covering so much ground in only three months. It is (by pension standards) a very good read and if you fancy following the arguments in more detail, you can do so using this link

 

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So who is accountable for the FCA’s failures over LCF?

Posted on December 18, 2020 by henry tapper

Reading the Treasury commissioned report on London Capital and Finance by Dame Elizabeth Gloster was harrowing. Reading the FCA’s response was worse – two days after attending a superb event that asked if our primary regulator is doing its job, my previously held belief that the FCA is fit for purpose has been shaken

The dual purpose Lord Prem Sekka spoke of was to both promote UK financial services and protect the public from bad practice. In the case of LCF, the FCA has failed on both accounts, allowing a major scandal to happen in Britain and for its perpetrators to do so , seemingly with the FCA’s blessing. Although the activities that have lost investors around £237m were conducted “outside the FCA’s “regulatory perimeter”, all the financial promotions made by LCF relied on LCF being an FCA regulated business for their credibility. The Gloster report states clearly that the FCA was wrong and that the losses incurred by bondholders would have been much smaller had the FCA behaved correctly,

When whistleblowers tried to warn the FCA , years before the balloon went up, they were dismissed by FCA senior managers and no action taken. When Elizabeth Gloster asked for the papers that the FCA had on the case, she was repeatedly obstructed by being given information which was wrong or by being denied information altogether. This delayed the publication of the report by months. In the meantime, Andrew Bailey, the then CEO of the FCA has slipped away , promoted to the post of Governor of the Bank of England.

The full catalogue of failures by the FCA is listed at the end of this article. But none of these failings matters so much as the failure of the FCA to accept that the blame for this rests with the key individuals within the FCA.

Who was to blame?

Alfred Tennyson’s famous question for the carnage at Balaclava , rings out through the report and is answered by what will doubtless become the report’s defining statement

“Responsibility for the failure in respect of the FCA’s approach to its Perimeter rests with ExCo and Mr Bailey,”

The most frightening section of the whole report comes at the beginning and deals with the objections the FCA had to the report pointing fingers at the ExCo and Mr Bailey.

A number of participants in the representations process asked the Investigation not to make findings about individual responsibility for the FCA’s deficiencies in regulating LCF. For example, the Investigation was asked “to delete references to “responsibility” resting with specific identified/identifiable individuals”.

Similarly, the Investigation was told that criticism of senior managers who were recruited to overcome structural, cultural or institutional difficulties was “likely to have the undesirable consequence of discouraging people from taking on and tackling difficult and vital roles

The findings in this Report are certainly not intended to have that effect. In any case, it is difficult to see why an individuals’ willingness to take on challenging tasks in public bodies should absolve them from accountability.

A further comment was that “it is neither necessary nor… appropriate for individuals to be identified as bearing
particular responsibility for the matters which are the subject of the criticisms in the draft Report”.

The Investigation does not agree with these suggestions for the reasons set out below.

First, it was represented to the Investigation that there was “an inherent ambiguity” in the use of the word “responsibility” For the avoidance of doubt, the findings of individual
responsibility in this Report are not conclusions about the personal culpability of any individuals or groups of individuals.

In particular, the fact that the Investigation has
identified an individual as being responsible for one aspect of the FCA’s deficient regulation of LCF does not necessarily mean that the individual had specific knowledge of the relevant
problem(s), or that the individual failed to take reasonable steps to address them.

The Investigation has not made findings about personal culpability (as opposed to responsibility)
because it has not found it necessary to do so in order to answer the questions put to it. …. It follows that the Investigation has also not made findings about whether there was
any causal connection between the actions or omissions of specific individuals within the FCA and losses suffered by Bondholders.

In this Report, the term “responsibility” is used
in the sense in which that term is employed in the FCA Statements of Responsibility and the FCA Management Responsibilities Map. In short, it refers to a sphere of activities or functions of the FCA for which a senior manager bears ultimate accountability.

Second, it was said that the scope of the Investigation “does not require the attribution of “responsibility” to particular individuals within the FCA, but rather is directed at whether
the FCA (as an organisation)” discharged its functions.

The Investigation disagrees. Addressing responsibility of the senior management of the FCA for its failures in regulating LCF is well within the remit of the Investigation:
(a) The Direction asked the FCA to appoint an independent person to investigate the “circumstances surrounding”
“the supervision of LCF by the FCA”. These
“circumstances” plainly include the role that senior individuals within the FCA played in supervising LCF.

Moreover, paragraph 3(2) of the Direction provides that “the Investigator may also consider any other matters which they deem relevant to the question of whether the FCA discharged its functions in a manner which enabled it to effectively fulfil its statutory objectives”.

For the reasons provided in paragraphs below, accountability of the FCA’s senior management is a matter relevant to whether the FCA effectively fulfilled its statutory objectives in relation to LCF.

Third, it was suggested that since “investigations of this type are generally directed at identifying “lessons learned” following a high-profile financial failure, it is normal for such
investigations to focus on identifying institutional rather than individual failures”.

As to this, the Investigation is required not to identify publicly FCA employees below Director-level. This Report does not do so.
The primary role of the Investigation is not to identify the “lessons learned”…,that is a matter for the FCA. As
explained above, the key question for the Investigation is whether the FCA effectively fulfilled its regulatory responsibilities in respect of LCF.

It is also not correct to say that investigations of this nature are required to focus exclusively on institutional, rather than individual, failure. The following observations of the Treasury Committee in relation to the Davis Inquiry Report’s 100 findings about the FCA are instructive in this regard:101

“Simon Davis reached conclusions about the responsibility of certain individuals for the events of the 27 and 28 March. However, it is not clear from his report where individual responsibility lies for the failures of the FCA’s Executive Committee and Board. Instead, he concludes that the Board and the Executive Committee are collectively responsible for their respective failures.

This is a well-rehearsed and unfortunate mantra. The Committee has heard it often from regulated firms, and particularly banks. One of the key conclusions
of the Parliamentary Commission on Banking Standards was that “a buck that does not stop with an individual stops nowhere”….  

Mr Davis should have paid closer attention to individual responsibility in reaching his conclusions.”

Fourth, it was suggested that “no benefit arises (and the… report’s findings and conclusions are not strengthened) by the attribution of responsibility to particular individuals”.102 This
assertion is inconsistent with the FCA’s own approach to the public accountability of its senior management:

In March 2015, the Treasury Committee recommended that the FCA publish a ‘Responsibilities Map’ allocating responsibilities to individuals within the FCA.

The Committee stated that the FCA’s allocation of individual responsibility should be compliant, as far as possible, with the Senior Managers Regime that the FCA and PRA apply to banks

In 2016, the FCA published a document applying the fundamental principles of the Senior Management Regime to the FCA’s senior staff contained the ‘FCA Statements of Responsibility’ and the ‘FCA Management Responsibilities Map’.

It states that the FCA’s “senior management should meet standards of professional conduct as exacting as those we require from regulated firms” and “reaffirm[ed]… the FCA’s commitment to individual accountability”.

The FCA’s policy regarding the public accountability of its senior management is also reflected in paragraph 24 of the Protocol for this Investigation, which states that “[i]t is the policy of the FCA that employees at Director and above should be
publicly accountable for the FCA’s performance…”

For these reasons, the Investigation considers that it would have been inappropriate for it not to have made findings about the responsibility of the FCA’s senior management for the
deficiencies in the FCA’s regulation of LCF.

Having read the FCA’s response to the Gloster report,I get no sense that those on the ExCo or the new CEO have taken responsibility for the failings of the FCA. Some of the current ExCo were members of it through the period though most have now resigned. While the Senior Managers Regime is now in place for all regulated firms, the core principles by which managers (including me) agree to , are still being ducked by the people we’ve agreed them with.

This is why I wrote this tweet yesterday

And it’s why my position with regards the FCA’s credibility as my Regulator has been shaken.

Appendix;

The nine recommendations of the Gloster report  which found the FCA failed LCF bondholders.

Recommendation 1: the FCA should direct staff responsible for authorising
and supervising firms, in appropriate circumstances, to consider a firm’s
business holistically

Recommendation 2: the FCA should ensure that its Contact Centre policies clearly
state that call-handlers: (i) should refer allegations of fraud or serious irregularity
to the Supervision Division, even when the allegations concern the non-regulated
activities of an authorised firm; (ii) should not reassure consumers about the
nonregulated activities of a firm based on its regulated status; and (iii) should not
inform consumers (incorrectly) that all investments in FCA-regulated firms benefit
from FSCS protection.

Recommendation 3: the FCA should provide appropriate training to relevant teams
in the Authorisation and Supervision Divisions on: (i) how to analyse a firm’s financial information to recognise circumstances suggesting fraud or other serious
irregularity; and (ii) when to escalate cases to specialist teams within the FCA.

 Recommendation 4: the senior management of the FCA should ensure that product
and business model risks, which are identified in its policy statements and
reviews159 as being current or emerging, and of sufficient seriousness to require
ongoing monitoring, are communicated to, and appropriately taken into account
by, staff involved in the day-to-day supervision and authorisation of firms.

 Recommendation 5: the FCA should have appropriate policies in place which
clearly state what steps should be taken or considered following repeat breaches
by firms of the financial promotion rules.

 Recommendation 6: the FCA should ensure that its training and culture reflect the
importance of the FCA’s role in combatting fraud by authorised firms.

Recommendation 7: the FCA should take steps to ensure that, to the fullest extent
possible: (i) all information and data relevant to the supervision of a firm is
available in a single electronic system such that any red flags or other key risk
indicators can be easily accessed and cross-referenced; and (ii) that system uses
automated methods (e.g. artificial intelligence/machine learning) to generate alerts
for staff within the Supervision Division when there are red flags or other key risk
indicators.

Recommendation 8: the FCA should take urgent steps to ensure that all key aspects
of the Delivering Effective Supervision (“DES”) programme that relate to the
supervision of flexible firms are now fully embedded and operating effectively.

 Recommendation 9: the FCA should consider whether it can improve its use of
regulated firms as a source of market intelligence.

In addition Gloster makes four recommendations to HM Treasury

Recommendation 10: HM Treasury should consider addressing the lacuna in the
allocation of ISA-related responsibilities between the FCA and HMRC.

Recommendation 11: HM Treasury should consider whether Article 4 of MiFID
II or section 85 of FSMA should be extended to non-transferable securities.

 Recommendation 12: HM Treasury should consider the optimal scope of the
FCA’s remit.

 Recommendation 13: HM Treasury and other relevant Government bodies should
work with the FCA to ensure that the legislative framework enables the FCA to
intervene promptly and effectively in marketing and sale through technology
platforms, and unregulated intermediaries, of speculative illiquid securities and
similar retail products.

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Dolphin Trust and LCF – it’s Germany v England but will it go to penalties?

Posted on December 16, 2020 by henry tapper

Speaking at last night’s Transparency Symposium, Prem Sikka, spoke with authority about the advantages of the German regulatory system where pressure is applied from stakeholder groups to get action in a timely way.

As we in Britain await the report on the LCF mini-bond scandal (where losses are around £260m), news is leaking out of Germany that a criminal prosecution is underway against those at the heart of the collapse of Dolphin Trust (now called the German Property Group). Apparently the simple question was asked “why has nothing been done in over a year?”. The Dolphin Trust collapse now looks like claiming over £2bn of savings  (ten times as much as LCF. For the latest news on this you can read Bond Review  , Beat the Banks  or follow the reporting of the BBC’s Shari Vahl on You and Yours.

Shari Vahl told me that her interviews with those promoting Dolphin suggest that many of the advisers felt they were acting in good faith (despite them receiving commissions of typically 20% of money invested. Similarly , the Times reported sympathetically on Wealth Options Trustees , who were the German Property Group’s representatives in Ireland. There appears to have been no problem convincing previously reputable intermediaries that what was clearly a massive ponzi, had strong fundamentals. This is the challenge facing both the German and UK regulators.

Following the progress of LCF and Dolphin Trust investigations will be a useful test of Prem Sikka’s contention that the German regulatory system is both more responsive to consumer pressure and less influenced by the financial lobby. Having listened to an array of speakers talking at last night’s symposium about issues with the FCA, I read again last night Prem’s work for the Labour Party that found itself into its manifesto in 2019. This work is worth promoting beyond political circles,  good examples being linked from this Guardian article

I am pleased to hear that You and Yours will be re broadcasting its recent session on Dolphin Trust having broken the story over a year ago and followed it up earlier this month. It would seem that matters are moving fast in Germany as the scale of the scandal is revealed. Let’s hope that help arrives in times for people like these to get back something from their investment.

Four people interviewed by the BBC with investments in Dolphin 

The behaviour of British advisers in actively selling bonds in Dolphin and the supine failure of the pension platforms that admitted these investments into client portfolios is another test for the FCA.  But this time we have the opportunity to see how the FCA works with the German authorities (the German Property Group is a German company).  This is a chance for the FCA to show – in a post Brexit world – how it compares with its European counterparts.

Smethurst and Lenz – The architects of Dolphin Trust

 

 

 

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TPR goes blog to blog with its critics

Posted on December 10, 2020 by henry tapper

 

How to Start a Blog in 2020

Fight fire with fire, even if it’s friendly fire! That seems to be the tactic adopted by David Fairs as head of policy at the Pensions Regulator.

His latest blog is the clearest indication yet that TPR is adopting a more considered position regarding its DC funding code and for that he has to thank the pigeon blogger whose work features on this very blog.

My friend Henry Tapper has blogged on this topic many times and in fact in one of his recent blogs an ‘anonymous’ contributor said almost exactly this:

“I would suggest that a reasonable alternative would be to allow open schemes to set their funding and investment strategy based on the trustees’ expectation of the future flow of new entrants, but require all schemes to carry out contingency planning regarding the actions they would take if their scheme were to close to new entrants (and even potentially future accrual). This would include consideration of how they would achieve their LTO (funding and investment strategy) and their expectation of how long they would have to get there (ie when they would be expected to become “significantly mature”, if they were to close to new entrants tomorrow).”

This is almost exactly what we said, but we would go further and say that just ‘planning’ is not enough, it needs to be something more concrete and evidenced. However, I’m comforted that we may not all be as far apart as we thought.

David is keeping his friends close – but are there enemies closer still?.  This we will find out when the consultation response is published, which cannot be a moment too soon!

Friends –  but not that close!

David Fairs

 

Much as I like David Fairs, I still see there being a fair amount of distance between his position and that of the market (if the responses I have read to TPR DB funding code are representative). The market will be his friend when TPR shows it has paid  its consultation responses the attention they deserve!

David’s big boss, the Pension’s Minister has gone on the record saying that the consultation response will include full  impact statements. Frankly, the consultation should have done so too. The Pensions Regulator thought it had a done deal but it was listening too much to that part of the DB trustee and advisory which had fallen under the spell of de-risking. It had not been listening to the trustees , advisers and commentators who take the view that there is life in collective pensions yet.

The impact statement that should have accompanied the DB funding code consultation should have made it clear that the cost of de-risking is not just felt in the inferior retirement benefits of those kicked off future accrual, but in the cash-flow implications for sponsors moving to self-sufficiency and/or buy-out.

The belated arrival of some proper disclosures on financial impact will be welcomed as “not before time”; regulators need to be even-handed in consultations – and considerably more transparent than TPR has been thus far!

Friends – getting closer.

Guy

Let’s be clear, the Pensions Minister is holding TPR’s arm behind its back till it accepts his dictat that DB and DC pensions use long-term investment strategies that deploy patient capital into UK infrastructure. The alignment of this dictat to the wishes of the Chancellor of the Exchequer is surely no coincidence. Our pension funds are important to Government – not just to meet its climate change promises – but to help build back Britain post pandemic.

This is the context with which to read Guy Opperman’s statement in his Professional Pensions article

We will use the regulation-making powers to ensure that the secondary legislation does not prevent appropriate open schemes from investing in riskier investments where there are potentially higher returns as long as the risks being taken can be supported, and members’ benefits and the Pension Protection Fund are effectively protected.

As “my other friend”, Con Keating has pointed out in his excoriating deconstruction of Guy Opperman’s peice, the concept of “risk free”, as promoted by the pension industry’s characterization of investment in Government Bonds is not “political risk” free, RPI is what politicians want to make of it and may not be quite what you were sold.

The same could have been said of “fast-track” and it’s co-joined twin “bespoke” – as defined by the DB funding consultation. These strategies appear to be under review as they will need to be , if their impact statements are to be palatable to the CBI and Britain’s large employers.

It is good that much of this debate is being played out “blog to blog”. The fire is friendly but we are dealing with live ammunition. What is at stake is the capacity of employers to pay the pensions they have promised, the strain on the PPF if they can’t and the impact on millions of people’s financial security over the next thirty to fifty years. The debate cannot be played out within the walls of Napier House in Brighton, it has to be continued on pages such as this and the Pension Regulator’s helpful blog.

Note to Regulator

It is common protocol when cutting and pasting from other’s blogs, to leave a link to the plundered blog , so that the comment can be read in context. Examples of best practice are to be found on this page. 

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Pensions are stranded off-line; this must change!

Posted on December 3, 2020 by henry tapper

Live link to the ONS data is here; https://lnkd.in/ewiZBHW

Alistair “@HelloMcQueen “McQueen has the knack of finding insights where others fail to look. Here he is showing us how our behavior has changed radically as a result of a little spikey ball that none but scientists has seen and no one had heard of this time last year.

In a year we have woken up, locked down and found a vaccine for a deadly pandemic. In a year we have (nearly) agreed a data template for a pension dashboard and announced a timeline that (nearly) tells us when we might be able to see our pensions and pension pots in one place.

“Time is an ocean, but it ends at the shore”, sang a noble laureate, the dashboard will arrive but in the meantime we must wait to be rescued like Robinson Crusoe – with no signal.

The internet makes keeps those who guard our pensions honest. On-line there is no hiding from the impact of poor pension management. Whether it be in terms of investment, the costs levied on our pension pots, the quality of the record keeping or simply the capacity to show us what we’ve paid others to guard.

Organizations that cannot today, nearly two years after the original “dashboard available point”, make our data available to us online are failing us.  But in our recent test in the FCA sandbox, the average time for a provider to satisfy an online data request was 29 days – and even then – only 45% of responses were in a digitally readable format.

Meanwhile, I attend many well-meaning seminars that agonise over “engagement” with pensions as if – by posting another video on another static website, we can rescue Robinson from the sandy margin of his island. I am skeptical about the capacity of any data provider to engage with its membership if it has not made a commitment to be dashboard ready by now; meaning that I am skeptical about all pension providers.

The day that one provider offers an API to me and allows my organization immediate online access to pension data that it holds on behalf of its customers is the day that I will declare pensions officially open. But there is not one- not even Pension Bee or Smart , that offers this facility to a third party adviser.

What we have instead is the online platform, where financial advisers are granted exclusive access to a view of funds held , at their instigation, in a gated community to which only the adviser and the client has access. This is not “open pensions” but the equivalent of an “intranet of things”, where the data is kept within the confines of a closed group. There are obvious advantages to this, not least that it enables data, like money – to be part of the fiefdom of the adviser and platform manager. But this is like Robinson Crusoe being allowed to communicate online with the monkeys and parrots , but having no access to signal beyond the strand.

The failure of the Pension Dashboard Program to go beyond the narrow expectations given it in 2019 is a crying shame for pensions. While the rest of the  country has stepped up to the challenge, the dashboard program has hunkered down and accepted that it must wait for the pandemic to end before moving forward.

So back to McQueen’s chart, we are now able to do just about anything online but pensions. We have a timeline that says we may be able to see our pensions online in 2023 but that depends on the capacity of providers to be ready by then. The providers should have been ready by 2019 and have shown no noticeable interest in improving their readiness in 2020, despite the very obvious advances in people’s readiness to go online.

It is time that Robinson Crusoe had a SatNav and some signal to get him home. It’s time that the pensions industry started putting its customers fairly. Organisations like Pensions Bee and Smart who have gone the extra mile are cruelly denied the right to share data via dashboards by the rest of the pension ecosystem that resolutely sits on its hands and debates the arcane detail.

  • People cannot find their pension, £20bn is lost – that is a scandal that we need to address now!
  • People have a plethora of pots, that is an inconvenience that we could address now.
  • People have no way to engage with their retirement income holistically, that – in a time of open finance – is a nonsense.

 

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No blubbing over the future of RPI please.

Posted on November 28, 2020 by henry tapper

“I love the way they are doing this – it is not a move from RPI to CPIH, but recalculating RPI as if it were CPIH – and unless the Bank of England says that is a material change, eliminates any possibility of claiming this as a default. Still wannabuy those ‘risk-free’ gilts, as per TPR’s proposed Code??” – Con Keating

The Treasury’s announcement that RPI would morph to CPIH while still calling itself RPI was announced simultaneously with the Government spending review, prompting participants to criticize it as a £60bn raid on pension schemes. It is infact a £60bn raid on pensioners who will get lower pension increases but it is not increasing the liabilities of pension funds which promise RPI linking for pension increases. These schemes will still pay RPI but at a reduced rate. LCP’s  Jonathan Camfield, wirting in The Actuary Magazine summed up the efforts of pension schemes to float their deficits with gloomy black balloons

The angry brigade

All this makes comments from the purveyors of index linked gilts wrapped in LDI packaging very cross. This is about as cross as an LDI salesman can get (with a media policy guiding him)
The change from RPI to CPIH wipes £100bn off the value of these bonds, according to Insight Investment, a major pension investor. Jos Vermeulen, of Insight Investment, told the FT the firm was “disappointed” with Wednesday’s decision.

“This decision has been made despite substantial concerns being raised during the 2020 consultation, from a broad range of market participants,” he said. “Another chapter in the RPI saga has drawn to a close, but with 10 years until the decision is implemented, we struggle to believe that this is the final chapter, and we will continue to advocate for an equitable solution.”

The broad range of market participants are presumably Insight’s customers who had been sold long-dated RPI gilts as risk free assets. Often they had been buying RPI but promising CPI, a lower returning index than CPIH, banking the difference between what they held and what they had to pay as an asset mitigating deficits elsewhere.

What the Chancellor has done is unwind this artificial asset by narrowing the gap between RPI and CPI. In these cases it is the scheme funding that will suffer, but only because the scheme had got away with CPI indexation in the first place.

More generous schemes, that offered RPI, will see their liabilities decrease in line with the value of their assets, the losers in this case will be pensioners whose pension increases will be less generous from 2030 (but still more generous than if they had CPI).

So why is the pension industry blubbing?

Undoubtedly there is some skin in the game for those at the top of the pensions tree. Those senior pension figures with RPI linked pension promises in payment or soon to be in payment will lose out personally, unless they can find a way to get scheme rules to pay out on “old RPI”. I doubt that even the most brilliant lawyers will be able to argue that the Treasury are in default – as Con Keating points out – they aren’t changing the playing field, they are changing the rules of the game and they make the rules.

The pension industry is blubbing because they trusted the Treasury to be on their side and defend them as they have poured money into Treasury coffers over the past twenty years in the frenzy to de-risk pension schemes. Much of this has been smoke and mirrors stuff playing off corporate accounting policies and trustee funding statements using financial economics rather than common sense.

This has led to artificial funding gains resulting from “gearing” (borrowing to you and me) by buying derivatives of these RPI linked gilts at great expense to the pension funds who have to foot huge bills from the packagers of this “financial engineering”.

But while all this was being sold as “risk free” – it wasn’t. The risk was always there that the Government could change the rules of the game and these tears are the tears of crocodiles.

Those at the top of the tree are a lot more concerned that their reputations are now on the line and that a lot of these risk-free strategies now look a lot less attractive than they did at the beginning of last week.

Jonathan Camfield explains to other actuaries that much of their strategic planning over the past decade has been for nothing will need to be reversed

  • Does it still make sense to hold index-linked gilts and swaps to hedge CPI pension increases?

  • Changes in assumptions will lead to changes in member option terms, such as transfer values, pension increase exchange terms and commutation factors for converting pension to cash at retirement.

  • RPI changes could trigger further reviews of the appropriate index to use for pension increases under some scheme rules.

  • The knock-on impact on bulk annuity pricing may make insurance contracts more or less attractive to some schemes.

  • Trustees will need to think about appropriate communications to members in due course.

In short, the strategies were based on tactical plays which will now need to be reversed leading to extra costs to the scheme and little net gain to anyone but the advisers and fund managers

A more balanced view

I prefer the views of the eminently balanced Daniela Silcock, speaking for the Pension Policy Institute

“Some people are losing out but the economy overall should benefit if this is done correctly,”  Silcock told Pensions Expert.

The supposed threat to employers (following the proposals in the DB funding code)

The PLSA, who are now funded as much by the fund management industry as their pension schemes told the FT

“We are disappointed the government has chosen to disregard the detrimental impact this move will have on both savers’ retirement incomes. The change will also raise the risk of insolvency for employers as they seek to address the shortfall in funding of their workplace pension schemes.”

Those employers who have been following the advice of their consultants to de-risk with a view to buy out or self-sufficiency, have handed trustees billions to plug deficits calculated on discount rates determined by those advisers. This has been with the approval of the Pensions Regulator which is now proposing an acceleration of these “end-game” strategies to ensure that schemes do not tip into the PPF.

But the cost of these strategies is just what is pushing many such employers into the PPF, as – strong as the pension schemes appear to be, the cash flow drained from employers is leaving them unable to pay the operational bills. The PLSA cannot support the wholesale de-risking of pensions on the one hand , but complain that the adjustment to RPI is damaging employers – on the other. The wholesale rush to “risk-free” assets (gilts) over the past 20 years is the problem – and the risk that some of those gilts were over-valued has always been there.

So where does this leave the Pensions Regulator?

I can hardly imagine the Treasury’s decision went down well in Napier House, Brighton – home of the Pensions Regulator.

The extra costs associated with the decision are going to fall on the schemes that have been following the path advised in the funding code, those schemes that have not locked down into gilts are not the ones that will have to write off their RPI/CPI reserves.

The market new this was coming, the price of RPI linkers actually went up as a result of the announcement (the market had feared that the change would have come in from 2025 rather than 2030). If the gilts market knew, why is this coming as a shock to schemes and why has the Pensions Regulator been proposing schemes buy more of these over-priced gilts – when the risks were clearly understood?

To me, this suggests a fundamental rethink in what pension scheme investment strategies should be about. If pension schemes were set up to pay pensions, they should be investing in the long-term assets that make this country tick – businesses like Astra Zeneca that can do virus-beating things because of the backing of UK pension funds purchasing their equity. Rishi Sunak wants to get the money from the private sector going into  his £100bn reflation of industry.  That money is going to go into illiquid investment, not into funding more Government borrowing.

All this investment is at odds with de-risking and at odds with the DB funding code. to get Britain back on its feet , after the COVID punch to its solar-plexus, we will need to move towards a more ambitious approach to pension scheme funding and that means abandoning the mantra of “de-risking” and getting our DB pension schemes investing again. The Treasury’s message regarding the new calculation of RPI says just that.

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Lessons to learn from Dolphin Trust

Posted on November 27, 2020 by henry tapper

 

18 months after its first program, Radio Four’s You and Yours program has produced a second program on Dolphin Trust (aka the German Property Group). You can listen to the second program here

As I’d followed up on the first report, I got asked to speak this time around. Sadly, the timings got mixed up so I’d only just started my carefully timed Spiegel when the program ended and I found myself talking on Facetime with no one listening!

I’d done the research and answered the program’s exam question “what lessons can we learn” from the debacle. The answer, in a simple phrase, is that if it looks too good to be true , it almost certainly is”. Dolphin looked and was too good to be true

Too plausible

Vorsprung durch technik and all that, Dolphin was a group of  German property company that had an all too perfect pitch, German companies don’t go wrong and this was based on the Grand Designs model – turning fabulous run down East German properties into desirable residences for the newly minted East German middle class.

Too much easy money

As if German property wasn’t exciting enough, the sauce was spiced with a healthy dose of German tax-payer’s money, lined up for anyone who wanted a “no-brainer” investment.

Too easy all round

Dolphin Trust was formed to provide two and five year bonds, with guaranteed exits and interest payable on terms that were at least four times what you could find on the high street. Investors could feel like savers, they were just smart enough to use the compelling combination of German Property with tax incentivized returns.

So why did this need to be sold at all?

The question that I asked in my last blog and ask in this, is why what seemed like a no-brainer needed to be sold with introductory fees of 20% or more? Surely this could sell itself with the developers taking their slice. What was wrong with German banks – why were the developers seeking crowd-funding in Singapore, Britain and other property mad countries.

The answer is that the developers did not want to develop, even when they got the builders in, they didn’t pay them. According to the joint investigation by the BBC and its German counterpart, what little building work that was commissioned wasn’t paid for.

In July 2020, German Property Group began filing for bankruptcy in Germany. It is estimated to owe at least £1bn to investors worldwide and at least £378m is thought to have been invested by people in the UK.

You can read the sad tales of those who lost out on the BBC website or listen to them on BBC Sounds but you may by now be weary of these stories, for the template is always the same and lessons are not being learned.

What lesson needs to be learned?

The lesson is in the returns you are actually getting on your pension savings. If you ask most people what a reasonable long-term return should be , you will probably get a default of 8-10%. Those numbers are hard-coded into our imagination. They were the numbers we learned from the 1980s and 1990s for that is when most people who Dolphin targeted were first saving into pensions, or PEPs or (later) ISAs.

But the actual returns most people have been getting since inflation was turned off at the turn of the millenium has been much lower. The average pension default fund has been returning around 3.5% pa since 2000 after all charges. Some have done  better

Some have done worse

The first data set shows returns from 2004 (where on average people have been getting 3.29% and the latter from 1997 (where on average people have been getting 5.91%.

Returns since 2010 have been comparable, despite our being in a bull market for shares and bonds, people have struggled to achieve an average net return of more than 5% in almost any of the large data sets we have analyzed.

The reality is that generally available 8-10% returns on 2 or 5 year bonds, live only in the imagination and the returns offered on Dolphin Trust bonds are – to those who study the facts – unimaginable.

There is a simple lesson to be learned from Dolphin Trust. When organizations are offering returns above the market rate, even with tax advantages, there is risk involved and if you can’t identify the risk, the risk is you are being scammed.

 

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The four green leaves of the clover

Posted on November 27, 2020 by henry tapper

It’s my privilege to attend the three-weekly sessions of the Pensions NetWork and I’ve found them a welcome relief over this year of lockdown from the trials of the diurnal round. The 80 minute sessions are positive, informative and intellectually creative. Last night’s was no exception which reminds me to include the link to TPNW’s website from where you can apply to attend the sessions yourself. The next session is on December 17th and will be, like last night’s interactive with a number of panelists chaired by the avuncular John Moret, Pension’s answer to Bruce Forsyth.

The Pensions Network

The four green leaves of the clover

The success of last night’s session was in bringing together four distinct and complimentary approaches to responsible investment.

Tomas Carruthers, a risk-taker who has put his money where his mouth is since being a student, to improve transparency and value for the private investor.

Maria Nazarova-Doyle, a force of nature who flattens cynicism that insurance companies see ESG as “extra sales guaranteed” with the weight of her conviction.

Jonathan Parker, a consultant with a keen understanding of how to influence fiduciary decisions for good.

Tony Burdon, the mild campaigner with a tenacious focus on making our money matter.

Green for Go

I cannot report in detail – what was said – nor do I need to, the value of the evening being in the combined impact of four short presentations and questions from the floor from an audience that included many who could have been on the panel.

The big picture from a big-hearted Tomas Carruthers

Tomas’ approach is to clear layers of intermediation and create a 21st century stock exchange that enables people to take direct stewardship of their financial assets.

He sees the big picture, the $210trillion in the global financial ecosystem and considered how this money could convert to hitting Paris goals by 2030 and 2050. His estimate was that it would need to convert at $1.5tr a year over the next ten years for our financial assets to be on track for 100% carbon neutrality by 2050. There is £6.2 trillion tied up in the UK pension system, which is as good a place to start as any. He gave us three general insights to underpin what was to come

  1. Transparent governance works
  2. Don’t treat people as fools
  3. Respect the power of technology

Greta Thunberg in her thirties

Maria Nazarova-Doyle started turning up at Pension PlayPen lunches maybe 10 years ago. She was new to pensions then , finding  her way  as a transition analyst at Capita. She is now running the investment proposition for Scottish Widows and her presentation showed what intelligence, dedication and emotional intelligence can do. It is not for nothing that I liken her to Greta Thunberg. It’s greatly to Scottish Widows credit that they have given the responsibility of transforming their investment proposition to someone who fits none of the characteristics of a senior manager role within an insurance company.

The power of influence

Jonathan Parker has moved from being a senior manager within an insurance company to consultancy in a mirror image of Maria’s recent career path. His strength is in his capacity to influence while Maria’s is in transforming the environment directly. Both approaches are needed if we are to hit our Paris goals with the wealth of the nation.

We have to accept that the fiduciaries who look after other people’s money are not going to adopt new investment beliefs because of the noise of the market. They are rightly skeptical about “green-washing” and struggle to see through the complexity of different approaches to ESG, the wood for the trees. Jonathan Parker put forward a compelling case for using clear analytics and patient explanation to influence those with their hands on the levers of change.

Leading the campaign

What the responsible investment movement has lacked so far is a focus for popular support. Make My Money Matter is that focus and Tony Burdon is the CEO though not the poster-boy! There needs to be a backroom to any front room , and while we all know Richard Curtis, Tony is less of a household name.

But he brought to last night the perfect conclusion, a mild-mannered passion that left us in no doubt that what the transformation of pensions means is a better place for us to live both in terms of our planet and in terms of our social goals and the way we govern ourselves. The popular campaign for change makes influencing those with the hands on the levers and transforming the financial institutions a whole lot easier. It makes the big picture laid out by Tomas- happen.

The Four Green leaves of a clover

Clover is good, it makes honey and four leaf clovers are especially good, they bring good luck and they are exceptionally green.

Last night felt good, I felt lucky, I felt exceptionally green and in such good company saw a way forwards to the green goals we have set ourselves.

Further Zooming…

Learning about how financial services (and pensions in particular) are adapting to the challenge of a burning planet is an education devoutly to be wished for. I am looking forward to attending another such panel session hosted by Chatham House’s Hoffman Institute. , the IFOA and FiNSTIC We are fortunate to be able to get this education online and with minimum logistical difficulty, this will not always be the case, I urge you to  access to such learning , while we can.

Thanks to the actuaries for transformational change for bringing this to my attention.

 

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Tomorrow is a day of reckoning -DIES IRAE

Posted on November 24, 2020 by henry tapper

Wednesday will be a day or reckoning – DIES IRAE, DIES ILLA, that day is a day of wrath. We have paid a high price for less productivity and less enjoyment. If there is such a thing as a lose-lose, the pandemic is it for there is no economic silver lining, unless you consider the Oxford vaccine a game-changer for our economy – which is optimistic in extreme.

SOLVET SAECLUM IN FACILLA, the earth is in ashes. For the second time this century, the prospect of progress has receded and we are shaping up for a second sharp intake of breath as we contemplate who will pay not just for what has happened in 2020, but for the cost of vaccinating us in 2021.

The question is both how we’ll pay and who will pay. Following the financial crisis (the first sharp intake of breath) it became clear that those without money would pay more tax , get less services and receive no pay-rises. This was austerity. It was deeply divisive, not least because the finger of blame could be pointed at those who had created the crisis, for whom austerity was just a fancy word.

The pandemic has hit the poor hardest. The second wave is repeating the first, hitting those on low incomes, in cities and in poor health . But will the poor have to  pay the economic price of COVID as they paid the price for the breaking of the banks?

What of the future?

While Wednesday will be about spending and borrowing, at some point the chancellor will have to decide how it will be paid for. He will start to address this in next March’s Budget, although most economic commentators feel the economy will still be too fragile for major tax rises.

It is possible that, with the success of a Covid vaccine, the economy could bounce back, limiting the need for big rises. However, Paul Johnson expects that four or five years down the road he still expects the economy to be about 4%-5% smaller than before the pandemic.

Rein in spending and raise taxes too early, and recovery will be choked off. Leave it too late, and the public finances will spin out of control.

Who pays?

It is possible that the austerity program that was introduced in 2010 could be repeated ten years on, but both Sunak and Johnson have publicly stated this is not the way they will go.

If the price for the pandemic is not dumped on the poor, then it must be paid by the affluent and that will mean taxing us (and most readers of this blog are affluent) on our income and on our assets. Higher marginal rates of income tax, higher taxes on capital gains, lower reliefs on pensions and investments and a reduction in the privileges  of those who have the means to pay more . This may not sound very Conservative, but it is the price that will need to be paid for national unity. DIES IRAE

A fair price for us to pay.

I live in the City of London, we have some of the least infected postcodes in London. But I do not have to cycle more than five minutes to be in Lambeth, Southwark, Hackney or Islington where infection rates were amongst the highest in the country earlier this year.

I cycled through Dalston last night and it struck me how huge the gap is between the lives of those I talk with on business calls and the daily lives on the Roman Road. The street that I live on has a hostel for the homeless, it is full and those who cannot get in are in tents along the embankment. Wherever I go , to exercise, I see affluence and destitution living alongside each other.

So my message to Ricki Sunak, as he prepares for DIES IRAE tomorrow is in the great chant.

Or , to put a 21st century slant upon the subject, here is the inimitable Jonny Cash with what Springsteen called the  “Momentous – ‘The Man Comes Around’.”

&
;

 

 

Posted in pensions | Tagged , , | 4 Comments

The Regulator’s not for turning; in conversation with David Fairs,

Posted on November 23, 2020 by henry tapper

 

David Fairs – speaking last year at the First Actuarial conference

David Fairs and I were born within a couple of months and have both spent our careers in pensions. We enjoy each other’s company so when David suggested that we spent the last 90 minutes of the business week on a Teams call, I cleared my afternoon. Whereas I have spent the last 37 years thinking about how to get better member outcomes, David has approached pensions from the employer’s perspective wrestling with the difficult questions of affordability, security and fairness that underpin “integrated risk management”.

But whereas the beaten track for policy-makers tends to start at the Pensions Regulator and end in consultancy, for David has been the other way round.  After 23 years as a partner at KPMG, David chose to move to Brighton to work for the Government, forsaking a much more lucrative end of career move in the private sector. Few people would call David a career regulator, his strength is that he sees issues with the benefit of a commercial career behind him.

A conversation focused on the corporate (not saver’s agenda)

Although TPR has recently set out its strategy for the next 15 years in terms of protecting savers, we scarcely touched on DC in the hour and a half we spent together. Where DC entered the conversation it was in relation to big data issues, especially the data-readiness of DC schemes to meet the challenge of the Pensions Dashboard. TPR are clearly interested in any information they can get on the quality of data in the DC schemes over which they have oversight, the speed at which the dashboard is delivered and the value people place upon the dashboard will depend on the capacity and willingness of these schemes to share data.

It was typical of the conversation that we focused on the challenges to schemes and scheme sponsors in releasing this data (not on the the engagement with members). My take is that TPR will continue to focus on DC from a corporate perspective (AE compliance, dashboard compliance) and is a long way from the FCA’s stronger consumer perspective. Despite TPR professing to be strategically moving towards protecting savers, there is evidence of this consumer focus. Even work on scams is focusing on employers adopting Margaret Snowden’s Pension Scams Industry Group.

Fairs on funding

As TPR pours over 130 submissions to its consultation on the DB funding code (and I hope the points raised by Keating, Clacher, Compton and others on this blog), it is not surprising that our conversation quickly moved to the funding of the guaranteed pensions that many in pensions seem to want to consider “legacy issues”. I asked whether the maintenance of schemes that remain open to future accrual and indeed new entrants was an irritant or (as Guy Opperman has stated) , something that should be encouraged.

Fairs was keen to point out that within the definition of “open scheme” were schemes that had to retain a section for future accrual and new entrants and those who saw the provision of pensions to future generations as what they did. For the purposes of the long-term objective of a scheme, those that sort to pay pensions from within the scheme (as opposed to buying out) might share a similar investment strategy with an open scheme. This point came out of a discussion over the capacity of defined benefit schemes to embrace “patient capital”, the illiquid investments into which everyone in Government from the Prime Minister down, is keen for pensions to invest. The conflict between fast-tracking pensions into risk-free strategies and the broader policy issues around re-funding Britain through its pensions is a live topic for TPR.

Fairs was keen to differentiate the investment strategies linked to funding from the disclosure requirements from the DWP’s TCFD initiative (where the emphasis is on mindfulness of the impact of the scheme’s investments on environmental sustainability). I was surprised that TCFD was not seen as a part of the Long Term Objectives of the scheme and separate from the funding debate, TPR are clearly wary of getting dragged into debates on the impact of ESG on returns (and so scheme funding).

Fairs on push back from open schemes

Guy Opperman has openly stated that the DWP were surprised by the vehemence of opposition to the powers being conferred on tPR to enforce the DB funding code (as evidenced by the debate on amendment 123 or the Pension Schemes Bill- the Bowles amendment).

We talked about the position adopted by Guy Opperman during the debate which appeared to point to greater flexibility in the use of the bespoke option within the DB funding code.

Trustees and sponsors  have been concerned about of open schemes having to get tPRs blessing when moving away from “Fast-track”. For them, this sounds like more of a pre-requisite than a cross-check on trustee and sponsor plans. Schemes  feel they may be treated as guilty until proven innocent and that the Pension Scheme Bill’s powers will give tPR way more leverage in agreeing investment and funding plans.

In practice, the industry seems to be dubious as to whether tPR has the capability or resources to agree bespoke solutions for all who want to go that way. One multi-employer has written to me on this

We handle over 100 sponsors … and agreeing with some of these can be a lengthy and protracted process. The Scheme specific funding regime that the Minister is looking to build on is more of an art than a science. TPR would need a deep understanding of sponsors business, it’s barriers to entry, capital and debt structure, opportunities and threats as well as the nature of benefits offered and scheme membership characteristics.

The question of whether the Pensions Regulator has the capacity to enforce its powers , if bespoke becomes the predominate route for schemes, seems to go the heart of the matter. There may be flexibility within the code for a thousand flowers to bloom, but who will keep the beds weed-free?

Fairs on impact assessments

David Fairs has clearly got his hands full with the 130 responses to the 58 questions of TPR’s recent consultation and he was giving nothing away with regards any changes in position from the regulator. However, he did drop a broad hint when confirming that the consultation was the product of a pre-pandemic world, that changes might be afoot.

He was keen to push back against criticism that TPR had provided no impact-assessment of the proposals within the code arguing that TPR could not pre-judge the outcomes of its proposals before the proposals had been finalized.  Here he seems at odds with many of the consultancies who have been keen to tell their clients and the world the cost of the Code on sponsors. We discussed the specific numbers published by LCP, which Fairs was keen to downplay. Here at least, I felt that we were moving into an area about which the Regulator felt uncomfortable. It will be interesting to see whether TPR approach any concessions on fast track and bespoke as resulting from local conditions (Covid) or from a more fundamental re-assessment of its role.

Fairs on transparency

That this conversation could be had , suggests that David Fairs is prepared to put his views into the open, even as the consultation responses are being absorbed. This is unusually transparent in itself, though Fairs is far too accomplished a spokesperson, to drop hints to an amateur blogger.

There were points our conversation when I sensed engagement with genuinely difficult issues but for the most part, David Fairs gave the impression that what we saw in the  consultation , was what we were going to get.

With no hint of any major changes in position by TPR, the debate moves from the substance to the nuance of the regulations and here Fairs is at a great advantage holding most of the cards and being an accomplished player.

I suggest that what we get from this consultation will be nuanced change resulting from what Fairs referred to as “some interesting ideas”. But what we are unlikely to see is any major changes in the direction taken by the Pensions Regulator, the regulator’s not for turning.

Posted in age wage, Blogging, pensions, Pensions Regulator, Politics, Public sector pensions | Tagged , , , | 2 Comments

Is Salesman Simon a pension scammer? I think not!

Posted on November 21, 2020 by henry tapper

Simon Eagle is not your common or garden pension salesman. He is a mild-mannered actuary with a mischievous smile and a stammer that he has bravely overcome.

Simon Eagle

When he claims that CDC beats drawdown by 57%, we should listen up.

I am 59 and using (the largely discredited) 4% rule, I could draw down at 65 £25,000 pa or Simon’s 3.5% (safe rate) £17,500. My ears prick up at the thought of a whole of retirement pay rise from £17,500 to £27,500 pa.

Is Simon Eagle a pension scammer?

If your common or garden pension salesman offered me a 57% whole of retirement pay rise , just for switching to his pension plan, you would give him the bum’s rush. I know a few tweeps (and the bearded wonder) who would need no second invitation.

But here are the five reasons why I am looking to CDC to provide me with a pension.

  1. I need more from my pension pot than I can get from an annuity or a safe rate of drawdown
  2. I want a wage that lasts as long as I do and has built in inflation protection
  3. I’m prepared to take my chances that pension increases don’t come through and am not afraid to  take the odd pay-cut.
  4. I do not want to be worrying about pension decision making – especially as I get into the later stages of retirement
  5. I understand and accept the basis of Simon’s bold claim. Unlike DB pensions and annuities, CDC pensions don’t have to be subject to locked down investment strategies and unlike drawdown pensions, they aren’t subject to the ruinously expensive advisory costs and wealth management fees that make drawdown so risky for all but the experts,

Salesman Simon Eagle is no scammer – he’s just a very bright man who has integrity in spades. Thank goodness we have actuaries like him who have the courage of their conviction.

Putting our money where your mouth is….

There is a sixth reason which I will admit to. By wanting it, I hope I can influence some of the people who are in a position to me getting it. Among them I include Simon, who works for a consultancy that provides Britain with one of its most successful master trusts – Lifesight. Willis Towers Watson could soon be one company with Aon. Aon offer the Aon Master Trust, which like Lifesight , has over £2.5bn in assets and carries the retirement hopes of hundreds of thousands of savers.

I am waiting for both WTW and Aon to announce firstly that they will be opening a CDC section of their master trust as soon as regulations allow. Simon told the Corporate Adviser master trust conference that he expected to see the regulations for master trusts in place by 2022. In a conversation with TPR’s David Fairs yesterday, I gathered that CDC secondary regulations are “in plan” for the spring of 2021. On a Friends of CDC call on Thursday I asked salesman Simon and Aon’s CDC-guru Chintan Ghandi if they were thinking about CDC pilots. Right now the answer is “no”, but that won’t stop me asking (again and again and again).

The second question I’ll have for them – once they’ve got the CDC pilot agreed, is how I can transfer the AgeWage workplace pension from its current provider – to the new CDC offered by WTW-Aon.

And in case anyone from Aon or WTW are worried about over-promising, I will emphasize that nothing – nothing – has been promise by salesman Simon or guru Chintan to me or any other friend of CDC – yet!

 

Posted in advice gap, CDC, consolidation | Tagged , , | 9 Comments

USS; are UCU and UUK missing the big picture?

Posted on November 15, 2020 by henry tapper

The image of two grizzly bears fighting each other is both eye-catching and appalling, we know this will not end well but we are drawn to the spectacle. As an image of the ongoing struggle between university teachers and their employers over pension rights, it is spot on or “apposite” to use the language of academia.

The problem for the public is that we are tired of the argument and want some resolution. We do not want the teachers to compound the damage of current distance learning with another wave of strikes, but that is where this dispute is heading.

Nor is the problem as easily solvable as John Ralfe would suppose. Though university teachers may not think of themselves as like postal workers, in terms of retirement planning, they are not that different. The average don has neither the inclination or the financial capability of managing a DC pot to pension and would certainly be shocked by the meagre fayre offered by an equivalent annuity from a DC scheme, relative to the benefits available from USS.

A wholesale shift to DC would cause the kind of industrial unrest that would have crippled Royal Mail. What is needed is the kind of leadership displayed by the UCU an UUK as occurred at the crisis point of Royal Mail’s negotiations at ACAS with the Communication Workers Union.

What happened there was that the heads of the two sides, Jon Millidge and Terry Pullinger, agreed that for the greater good , a compromise solution could be put together. Royal Mail gave up its insistence  on a DC solution while the CWU gave up their demand for guaranteed pensions.

The key is guarantees.

As we move towards the next round of negotiations over the future of the University Superannuation Scheme it seems inevitable that guarantees will have to be discussed and negotiated. The perilous position facing many individual universities with falling revenues from the loss of overseas students does not suggest they will return to the table better able to afford massive  hikes in pension funding costs.

The University and College Union, under the capable leadership of Dr Jo O’Grady now find themselves much as the CWU did, with a new way of teaching threatening the livelihoods of its 120,000 staff. If things have got to the point where students have to distance learn, why should they support the infrastructure of universities and colleges and the massive pay and pensions bill of lecturers when the teaching and information they need is readily available on line.

Universities are going to have to radically reinvent themselves post pandemic as the current tuition costs to students and tax-payer do not give value for money. In the wake of the pandemic , it is inevitable that the cost of guaranteeing funded pensions to academic staff will have to be revisited.

Mike Otsuka – speaking sense

Mike Otsuka

I very much hope that the three lectures being given by Mike Otsuka have been well watched. I could not make the first two and can’t make the third either (clashing work commitments).

As these lectures were delivered on Zoom I hope that there will be recordings which can be distributed to the wider public. For those who can attend, the third lecture (on the role of unfunded Pay as you Go pensions, goes ahead on Tuesday 17th.

 

;Mike’s work on the subject is very important but it is too inaccessible for the ordinary person to properly understand. Here is the advertisement for the CDC lecture which was given last week

On any sensible approach to the valuation of a DB scheme, ineliminable risk will remain that returns on a portfolio weighted towards return-seeking equities and property will fall significantly short of fully funding the DB pension promise.

On the actuarial approach, this risk is deemed sufficiently low that it is reasonable and prudent to take in the case of an open scheme that will be cashflow positive for many decades.

But if they deem the risk so low, shouldn’t scheme members who advocate such an approach be willing to put their money where their mouth is, by agreeing to bear at least some of this downside risk through a reduction in their pensions if returns are not good enough to achieve full funding?

Some such conditionality would simply involve a return to the practices of DB pension schemes during their heyday three and more decades ago. The subsequent hardening of the pension promise has hastened the demise of DB.

The target pensions of collective defined contribution (CDC) might provide a means of preserving the benefits of collective pensions, in a manner that is more cost effective for all than any form of defined benefit promise. In one form of CDC, the risks are collectively pooled across generations. In another form, they are collectively pooled only among the members of each age cohorts.

Mike is putting forwards the solution that Royal Mail and its union found. If the UCU and UUK could come to a similar compromise on guarantees and future benefit structures then many students would not lose more face to face or remote teaching times in the months and years to come.

But there are headwinds, and they come from entrenched positions both within and without academic circles. Take this tweet from Norma Cohen, representing a “no retreat – no surrender” position on DB pension guarantees.

 

The reality is that most employer with DB schemes are no longer honoring the offer of future accrual and are piling in money to meet deficits (which is getting tax-relief). The DB system is soaking up resources otherwise needed for Britain to bounce back. Both these deficits and contributions into DC schemes are tax-deductible for employers. Why do some people prize guarantees so highly?

I suspect for universities to bounce back, they too will need to dishonor their offer of future DB accrual. Now is the time for UCU and Government to think seriously about CDC as an alternative.

Let’s hope that Mike’s second lecture can be watched by all those with an interest in resolving the long-running dispute over the USS and lecturer’s pensions. Otherwise we will continue the argument from entrenched positions and miss the big picture.

I would refer those debating university pensions to look again at the work done by Royal Mail and CWU and learn from it.

 

Posted in advice gap, CDC, USS, Value for Money | Tagged , , , , , , , , , , , | 2 Comments

Cumbo asks “can pension schemes invest for social good and keep TPR happy?”

Posted on November 12, 2020 by henry tapper
tPR

 

Rishi Sunak is keen to see pension schemes invest to get Britain to its climate change commitments. This week the Treasury set out its financial services policy  which ended with a promise

to encourage investment in long-term illiquid assets, such as infrastructure and venture capital, the Chancellor announced his ambition to have the UK’s first Long-Term Asset Fund (LTAF) launch within a year.

We know the DWP are taking steps to enable DC schemes to invest in such a fund and have issued a consultation on how to create larger DC schemes which can invest in less liquid funds. The DWP is also looking to tweak the charge cap rules to enable  notoriously expensive illiquid asset classes to be used within the charge cap. Success for DC schemes is far from certain as liquidity in DC is a lot less certain (who knows when people will want their money?). Successfully  embedding long term illiquid investment in collective defined benefit schemes sounds easier but will trustees commit to long term investment strategies if they are being regulated using short term measures?

Josephine Cumbo took to the tweets, to quiz the Pensions Regulator on how it might be resolving the seeming conflict between improving member security while supporting the Chancellor’s green objectives.

 

Whether the Government wants to get DC or DB pensions investing in the LTAF , it is going to need to provide different messaging about the duration of pension liabilities. If trustees are planning to buy-out or transfer assets into a superfund then they are going to need assurance that any investment in  the LTAF will be transferrable to whoever buys their liabilities out. Assets will need to be transferred in specie and its far from clear whether commercial organizations will want assets within the LTAF wrapper or indeed the assets at all.

Ironically, those DB schemes not looking to get bought out but which are either open to new members or future accrual  are likely to be subject to the Pension Regulator’s “bespoke scheme guidance”. There is considerable concern in and outside parliament that these bespoke rules offer little more opportunity to invest in “patient capital” than the TPR’s fast track. This is why there are attempts being made to carve schemes that want to stay open from being subject to the strictures of the DB funding code. By escaping “bespoke”, these schemes  would be much more free to invest in the LTAF (it is supposed).

Josephine Cumbo’s questions pose salient challenges for TPR’s DB funding code as well as to issues of member security they address directly. It is good to see invites coming out of TPR to attend briefings and even one on one meetings, this suggests that what appeared to be a slam dunk DB funding code consultation, may yet offer hope to schemes with longer time horizons to do as Rishi Sunak wants them to.

Posted in pensions | Tagged , , | 1 Comment

Bob Compton speaks out on Pension Funding

Posted on November 11, 2020 by henry tapper

Bob Compton

Bob Compton  MD of Arc Benefits is  quietly spoken  but an acute listener. He wrote to me yesterday this mail which provides a fascinating insight into the debate over how we fund our open and closed DB schemes and the alternatives we can offer to employers for whom providing a DB pension presents insuperable challenges.

Email sent to Henry Tapper 10/11/20

I listened to the Pensions Bill committee reading as it happened on Thursday. As a result I have a few comments to share with you.

  1. Guy Opperman was very impressive in his grasp of the issues debated, with one exception.
  2. There appears to be all party support for the majority of clauses in the Pensions Bill, other than some would like to hard code legislation in a number of areas to a tighter degree.
  3. Guy Opperman has committed to taking action to legislate on CDC within this parliament, but this will take 3 to 4 years to become reality. As we have seen from the speed of policy changes from the current government, this could easily be conveniently forgotten in the coming months ahead if more pressing post EU jurisdiction problems arise.
  4. Guy Opperman has unbelievable faith that the Pensions Regulator DB funding code consultation will not lead to closure of ongoing DB schemes, and as a consequence has squashed proposed Bill amendments which would have ensured TPR could not create an environment where DB schemes have no option but to move to an end game faster than previously anticipated.

In point 1 above the one exception is this:

TPR has gone into print as follows:

“We propose that Bespoke arrangements should meet the key principles and be assessed against the Fast Track standard.” …..“ They will submit their valuation, along with supporting evidence, explaining how and why they have differed from the Fast Track position and how any additional risk is being managed.”….. “Bespoke arrangements may receive more regulatory scrutiny..”

Guy appears to have been persuaded by the Regulator that this means Trustees choosing the bespoke route will be free to adopt Scheme specific assumptions without hindrance.

However TPR’s Fiona Frobisher has on 2 October at an FT webinar stated Bespoke

  1. will be benchmarked against Fast track assumptions
  2. will be have a greater evidential burden
  3. will face greater Regulatory involvement.

When challenged on the implications for open DB schemes in terms of increased governance cost, the pressure to conform to a gilts based investment strategy based on comply or explain, Fiona made a telling statement (summarized as) TPR is only concerned about securing accrued pension rights, not about future accrual, and that if TPR’s remit were to consider future accruals, i.e. open DB schemes that is a policy matter best left to government.

The implication being, TPR is more concerned about its remit for PPF preservation, than ongoing Pensions accrual.

This is further reinforced when Charles Counsell at a later PLSA event stated TPR’s future policy was all about looking after “Savers” with no mention of “Pensions”, leading me to question should TPR change its name to “TSR” The Savers Regulator.

AE has been successful in increasing the numbers saving for retirement, but has a long way to go to match the success of past DB schemes in delivering quality of life in retirement. DC is not a pension, merely a means to have the option to purchase an expensive annuity which the majority will not take up.

So to sum up Guy Opperman has and is doing a great job, but he has a blind spot, which if not challenged will lead to the hammering of the final nail in the coffin of open DB schemes.

 

Posted in pensions | Tagged , , , , , | 2 Comments

Can our pensions build back better? Sunak paints a greener picture.

Posted on November 10, 2020 by henry tapper

Ricki Sunak’s first speech on financial services in the House of Commons came on the day we absorbed a Biden and a vaccine win. It was a bad day for viruses but a good day for the markets which bounced about with irrational enthusiasm. While all this was going on, Sunak’s plans went largely unreported – only the FT has given his speech much coverage.

The headline shows how complex Government messaging has to be over the weeks ahead.

Sunak sets out ‘green’ post-Brexit financial services regime

The content of the speech needed to address the three immediate priorities for the Chancellor

  1. Bounce Britain back after an appalling year of Covid-lockdown
  2. Maintain “equivalence” with the EU after December 31st to ensure BAU for UK financial services
  3. Ensure that investment both in Government debt and in UK equity promotes Britain’s commitment to be carbon-neutral within 30 years

There are many people who see Brexit, Covid and climate change as unmanageable problems and adopt a fatalistic approach to the future, Sunak doesn’t appear to be among them.

The speech sounded more like the autumn budget we never quite got. Sunak told MPs…

  1. he will grant equivalence to EU and European Economic Area states on financial services,
  2. pledged the launch of Britain’s first “green gilt”
  3.  launched a review of the listing regime to attract fast-growing technology companies to London
  4. proposed a new regulatory approach for “stablecoin” initiatives — involving privately issued digital currencies
  5. announced plans to launch the country’s first green gilts
  6. announced that Britain would become the first country in the world to make large listed and private companies disclose the threats to their business from climate change by 2025, including pension schemes.
  7. hoped to have the UK’s first long-term asset fund launched within a year to encourage investment in illiquid assets such as infrastructure and venture capital.

If some of this sounds familiar it is because much of this policy is in the Pension Schemes Bill and forms the heart of the DWP’s agenda for UK pension schemes.  With DB pension funds de-risking , green gilts will immediately attract the attention of consultants and trustees keen to work out how a shift to Government bonds can improve their commitment to E,S and G factors.

Those schemes with headroom to invest into growth assets (sadly mostly DC schemes) will be looking with interest at opportunities from exposure of the long-term asset fund, while trustees contemplating TCFD reporting will have the comfort of knowing that they are not alone- it will be a reporting requirement for insurance companies banks and large companies as well.

In the context of the Treasury’s agenda for financial services, it is now possible to see why Guy Opperman is so adamant that pension schemes should play a part in building back better. Opperman, unlike Webb and Altmann, plays to a gallery of those “above his pay grade” ( a phrase he uses regularly). This sense of being a part of a wider political enterprise has been lacking from pension ministers and those lobbying for amendments to the Pension Schemes Bill and TPR’s DB funding code should be mindful of that.

He should also be aware of his boss’ expectations!

&

;

Pensions a part of building back better

Pensions are governed by old men who have served their working lives within the EU, without the mental and physical stress of a global pandemic and without fear of a broken climate. Sure there have been other threats, but never such a triumvirate of significant headwinds.

To meet these three threats to our long-term financial well-being, the old men will need to change, many will need to step down and make way for younger ,gender diverse and more attuned successors. Those that remain will have to adapt and adopt new ways to invest, report and consider risks and reward.

The financial crisis of 2008-9 was relatively easy to fix. The legacy of the pandemic and the economic consequences of Brexit will take longer to work through. But we have to address the changes they bring. Most of all we need to recognize the paradigm shift in behaviours we need to display and encourage if we have any hope of averting climate change and building a society where social fairness and governmental standards improve.

Pensions own a great slice of Britain and have a critical part to play in transforming financial services so that it plays a part in resolving the crisis we are currently in. We cannot stand by and await a bad fate. We need to rise to the challenges , as Rishi Sunak and other Government ministers (Opperman among them) appear to be doing.

But no matter how well intentioned we may be, open pension schemes  cannot invest pension funds into patient capital and be subject to the proposed DB funding code. Something has to give and let’s hope it’s the intransigence over Clause 123 of the pensions bill, of TPR’s senior management – or both.

 

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Sharon Bowles has thrown the Minister a lifeline, he should grab it with both hands.

Posted on November 8, 2020 by henry tapper

 

The DWP is in an awkward spot over the funding of defined benefit pensions. The 130 responses to its regulator’s consultation paper are likely to be making uncomfortable reading to those scrutinizing them in Brighton and the Pensions Minister is hearing on all sides that the DB funding code , far from protecting DB schemes, could so undermine the sponsor covenants as to risk losing retirement income and current jobs.

For a minister for “work” and “pensions” ,  the messaging is pretty grim. Having listened to the audio and now read some of the Hansard transcripts of the Committee stages of the reading of the Pension Schemes Bill, DB funding is the one area about which Guy Opperman appears defensive.

Even before the debate on the Pension Regulator’s powers, the Pension Minister was keen to let MPs know he was not introducing CDC as a Trojan Horse to sack DB schemes.

We will debate DB schemes, which I think have a great future. We have gone to great efforts to support the future of DB schemes.

This is an alternative way forward that some organisations—Royal Mail is the classic example, but there are others who are looking at this—will welcome. Under no circumstances should it be implied or in any way taken that the Government will do anything other than support DB schemes on an ongoing basis.

He opened his arguments for ruling out the Bowles amendment thus

We do not want good schemes to close unnecessarily, or to introduce a one-size-fits-all regime that forces immature schemes with strong sponsors into an inappropriate de-risking journey.

Opperman continued to acknowledge the risk of the one size fits all strategy (termed fast-track by TPR)

Open schemes with a strong sponsoring employer that are immature and have managed their risk appropriately should not be forced into an inappropriate de-risking journey.

Opperman tried hard to give assurance that the proposals within the DB funding code would do just that. MPs were asked to accept that they would be giving tPR powers to enforce secondary legislation which were it to follow the proposals in the Code , would put such strain on DB sponsors as to imperil  both work and pensions.

I make it clear that the Government can commit to using the regulation-making powers available to ensure that the secondary legislation works in a way that does not prevent appropriate open schemes from investing in riskier investments where there are potentially higher returns as long as the risks being taken can be supported and members’ benefits and the Pension Protection Fund are effectively protected.

This would sound more credible if the conciliatory tone was shared by the Pensions Regulator, but recent pronouncements from David Fairs and Charles Counsell do not acknowledge the need to move from the “scorched earth” proposals of the code.

I hope that the Pensions Regulator will be reading the Minister’s statements and recognizing they cannot have their code which eats what it seeks to protect.

I say this because the Pensions Regulator (through the aforementioned spokespeople) has relied for its positioning , not on what the pensions industry wants, but what parliament wants.

What does parliament want?

On most subjects in the Pension Schemes Bill, there is cross party support for the Government’s position, but with regards clause 123 of the Bill, which seeks to offer open pension schemes a carve-out from the DB code, there is not. Here is the position of the SNP put succinctly by Neil Gray

There is a problem with encouraging good open schemes to de-risk. We know where the bond market and gilts market is right now; we know that that puts them at risk. Baroness Altmann has intervened this week to say:

“If you decide to ‘de-risk’, then you are also deciding to ‘de-return’, taking away the upside potential that is so vital for making DB affordable. Deficit schemes just keep getting worse and contributions keep on rising. QE”—quantitative easing—“has undermined funding of all DB schemes”.

At which point Guy Opperman has to accept that Ros Altmann, who sits on the Conservative benches in the Lords, is indeed supporting the Liberal peer (Sharon Bowles)’ amendment.

Nor can he enjoy the usual support of Labour , who join the debate through Seema Malhotra (deputizing for Jack Dromey

We regret that the Government seek to remove the amendment made to clause 123 in the Lords. As the Minister is aware, there are grave concerns about the impact of the provisions in the Bill on open DB schemes, which includes many public sector schemes. Labour has been clear all along that we do not accept the premise that good DB schemes are not worth protecting.

And as Neil Gray reminds him, he can’t rely for support from employers or trustees with large schemes.

It is not just me or Baroness Altmann saying this. The schemes are saying that following this path puts their own good and open schemes at risk for members to continue to enjoy.

Faced with a considerable array of opposition, Opperman may have thought he had survived , only to be hit in the solar-plexus by Richard Thomson (a former Scottish Widows corporate account manager and now another SNP pension expert. Thomson pointed out to the Minister that the unintended consequence of squeezing open schemes into the DB funding framework would be to prevent them investing in the patient capital that Opperman has so promoted.

At this point Opperman’s hard line stance showed a crack (if not a crumble).

There is a legitimate and relevant point, although I will resist the amendment, that this is a perfectly valid debate to have in this place. It will definitely influence the regulator’s approach and ensure that, if there is any doubt whatsoever, not all schemes will be treated the same. There is not a one-size-fits-all approach. If anyone is proposing that that is the case, it simply is not. Every scheme should be looked at on its own merits and in its own particular way, because, as all colleagues have rightly identified, schemes have different profiles, different amounts and different objectives. That is what the regulator is trying to do—to build on the current approach.

The main theme of TPR’s DB funding code is that most schemes should not be looked at on their merits but be put on a fast-track conveyor to self-sufficiency and buy-out. This will mean wholesale investment in gilts and the kind of high-grade bond that puts liquidity at a premium (and is quite the opposite of patient capital.

If Guy Opperman believes that the DB code should allow open schemes to continue to take risk as part of their funding strategy then he is either going to have to change TPR’s view on what kind of investment risks are “supportable”.

Alternatively, he may give up the fight and accept that what parliament is calling for, as many schemes are calling for, is the right to determine their own investment strategy based on their time horizons. I make no apology for once again showing why it is economically more efficient for schemes to remain open.

For schemes to stay open , the sweet spot of the “infinite time horizon” must be rewarded. The Bowles amendment to clause 123 ensures that that reward is available. I am quite sure that Ros Altmann, Sharon Bowles or the other supportive peers, are not ready to give up their amendment yet.

 

 

Posted in Big Government | Tagged , , , | 2 Comments

Who pays for us doing nothing? Pension schemes and the poor!

Posted on October 30, 2020 by henry tapper

It would seem that Britain has used the 9 months to pay off its consumer debt. Have we simply dumped our personal borrowings on our Government?

With so much public debt and so little interest available, it’s no wonder defined benefit pension schemes are fast becoming the nation’s bankers- is this why TPR are so keen on de-risking? What but  pension schemes could pick up the cost of furlough without anyone seeming to getting hurt?

What will be interesting, and here I will be relying on the Office of National Statistics, is to know just how interested private individuals have been in sinking cash saved on commuting , meals out, holidays and general jollification into long term savings and how much into the rainy day fund (codenamed “second wave”).

All the signs are that this Government, while it was comfortable with lockdown I, is not so sanguine about Lockdown II. I suspect this is for financial reasons and this is both about personal and public finances. What is needed is a whole lot of work (or as economists would have it – productivity). What is about to happen is that the work equivalent of quantitative easing – the furlough – will end on Saturday night.

These are not easy thoughts, my fellow Brits. We work to pay the bills and if we do no work, we rely on those who do to pay them for us. The alternative is the kind of problem we last saw in the great depression (before we had fancy banking).

This very fundamental issue looks like what’s behind the sharp intake of breath we’ve seen from world markets this week. The elephant is poking his head out of the window and waving his trunk about and people worry about the state of the room!

Who pays? Why the vulnerable* of course!

Pension schemes aside, the other easy target for those selling credit is the derelict borrower.

As Mick’s tweet points out, the people left with consumer debt are the people least likely to afford it, which means – the way credit markets work – that the cost of their debt is higher. The banks have found a way to balance their books and it’s at the expense of those who haven’t got their debt under control. This is from the Bank of England report Alistair is promoting.

The effective rates – the actual interest rate paid – on interest-charging overdrafts continued to rise in September, by 3.52 percentage points to 22.52%. This is the highest since the series began in 2016, and compares to a rate of 10.32% in March 2020 before new rules on overdraft pricing came into effect.

Someone brighter than me will tell me just what happened to make personal credit so much more expensive, I’ll just ruminate on how the cost of unsecured borrowing is sky-rocketing and how this isn’t called profiteering (when we are facing the prospect of negative interest rates). The problem first came to my attention with this article from June this year from MoneyExpert.com

The uptick primarily comes from an increase in rates on subprime credit cards, which are targeted at households which can’t pass credit checks and can’t qualify for credit cards from mainstream banks.

* “vulnerable” in this context means “financially vulnerable” – people  we used to call “poor”.

Do credit markets have to dump on the vulnerable?

I ask this question of friends like Con Keating, who I invite to comment on this blog and the BOE numbers.

If they do, then all the sidecars in the Nest car-park can stay there. If those who are borrowing unsecured are seeing their interest payments rocket to over 22.5% , then what are we doing prioritizing their saving more?

And why are organizations calling for an increase in auto-enrolment rates , especially the recommendation that we contribute from pound one of our salary?

And why are we charging 1.7m low earners 25% more for their pension contributions, just because they don’t earn enough to pay income tax?

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Why investors don’t have to choose between their values and their pocket books

Posted on October 26, 2020 by henry tapper

I am a 58 year old investor whose pension pot is invested mainly in equities which are managed with ESG factors. I have invested this way for a few years now and am beginning to see the fund I use providing me with a better return than my previous strategy, which did not employ management to environmental , social and governance factors – to the same degree.

I took the view when I found I could use the L&G Future World fund, that though all funds would naturally move to ESG, because the underlying assets would be required to be managed that way, accelerating that process would pay dividends to me and make my money matter. This approach is criticised by Robert Armstrong, the author of the article Jo refers to – on the basis that you can’t have your cake and eat it.

Robert Armstrong

The article makes a few assumptions which for me are just plain wrong. Chief among them is that retirement savers suffer from short time horizons.

There are no investment returns at all on a planet left uninhabitable by climate change. But that is not the time horizon individual investors operate over (they might have just 20 years between acquiring significant assets to invest and retiring). And it is far beyond any corporation’s planning horizon.

There are two reasons to challenge this statement, firstly because it is much more widely held than many liberals (like me) would care to admit and secondly because it is plain wrong.

  1. The saver’s perspective

Looking at the subject from the pension saver’s perspective, people do not stop investing when they reach retirement. Unless they choose to put their savings under a mattress , they keep investing whether the decision is taken by them (DC) or by fiduciaries (DB and CDC) most people’s pension savings rolls over into retirement in broadly the same assets as prior. Even annuities are now backed by investments into social enterprise (see my blogs  on the capacity of annuity books to invest in patient capital).

2. The corporate perspective

People’s time horizons are long and so are companies, at least when long term investors in them demand it. The second fallacy of Armstrong’s statement is that the management of the companies to whom we lend money or invest in equity can behave as they please. They can’t; the management of a listed company is subject to the scrutiny and to a degree the control of shareholders- this is what is called stewardship and it is not some tree-hugging concept that doesn’t exist in real life. It is a reality of running a modern company. Corporate time horizons are having to merge with their investors whatever the past tells us about short-termism.

3. The global perspective

The third perspective trumps the first and second and is absolutely conclusive. “There are no investment returns on a planet uninhabitable”…  to suppose that a generation like mine can consider that those living in our shoes at the back end of this century will have to pay the price of our behavior is shocking. Can we really have become so carnal in our pursuance of immediate gratification that we can accept that our actions are condemning another generation to an “uninhabitable planet“?

I can think of no sentient parallel in nature, Within the DNA of the species that live on this planet is the capacity to mutate. The purpose of our mutation is to perpetuate the evolution of the species as it faces up to future challenges. Of course there are failures and they are known as “dinosaurs” because we know that dinosaurs couldn’t adapt! Are we really choosing to be dinosaurs?

Secondly let’s challenge Armstrong’s  market hypothesis

Armstrong argues that

it is the goal of the ESG movement to push investors away from “wicked” portfolios — making their prices cheap, and setting them up to outperform “virtuous” portfolios over time!

This allows him to suggest that there will come a time when cheap “wicked” stocks become valuable enough to reinvest in, meaning that we revert to mean – mean being a return to the ways of the past 200 years.

But this is not the reason for ESG. ESG is about changing the way that wicked stocks behave so that they become virtuous stocks and in so doing, avert the impending issues surrounding inhabitability.

There is nothing that says that the market is any different from the components of the market. If the weight of investment is so behind ESG that fundamental change happens, arbitrage against change will be swept away. There is no fundamental reason for financial markets not to be aligned with general good, indeed the converse is likely to be true.

ESG is more than an investment approach

My final beef with Armstrong is that he considers ESG investing a style , rather than a fundamental principle. In this he is currently right, we still hear trustees talking of the need to include an ESG factored fund into a range of investable options. But that is becoming rarer and what is becoming common is the shift of defaults to be managed along ESG lines.

Armstrong compares his adoption of “value investing” in the first decade of the millennium, to the current adoption of ESG factors. This is an introspective and myopic view of investment that sees the purpose of investment purely as a means to provide short-term in-flows of money into funds through marketing gimmicks.

But the demand for ESG in funds is coming, not from “experts” but from the general public and it is based less on investment theory than on observation of what is going on – both on the planet and in the boardroom.

We are now faced with the task of living in a world where Coronavirus is likely to inhibit economic growth, setting about making fundamental change to the way we manage our financial affairs does not seem so daunting , now that we have found ourselves adapting to a new way or work and living.

Within this new paradigm of circumstances, the arguments of Armstrong hark back to the old normal, to which few of us either expect or want to return. The world is moving on and so should Robert Armstrong.

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“Let my data go” – our plea to parliament

Posted on October 25, 2020 by henry tapper

Submission to the Committee scrutinising the Pension Schemes Bill

 

1, This submission from Henry Tapper in his capacity as CEO of AgeWage and Chairperson of the Pension PlayPen. These private companies are digital resources for individuals and employers to make informed decisions on their workplace pensions and non-workplace legacy DC schemes. AgeWage is currently exploring whether guidance can be given individuals on choosing pensions, consolidating pensions and spending pension pots. It is doing so with the assistance of the FCA in the FCA regulatory sandbox. Our view is that technology can help consumers take informed decisions but that guidance (like advice) needs to be delivered in a regulated way.

2, We believe that the amendments in the name of Baroness Drake will be against the interests of consumers who need a pension dashboard to find lost pensions and have access to their providers to make decisions about choice, consolidation and the spending of benefits.

3,There is evidence that MaPS is extremely good at delivering high level information about options but are not able to give detailed guidance at the granular level of individual policies. If the MaPS dashboard has no transactional capabilities and commercial providers operate on a T+1 basis where T is the yet to be communicated launch date of the MaPS dashboard then the public will be denied the detailed guidance they need to manager their retirement affairs.

4, The main reasons given for preventing transactional capability on the dashboard is concern over people taking decisions without advice. This is certainly a concern where there are safeguarded benefits within the ceding scheme. But most pension pots since 2000 have no safeguarded benefits and have been set up if not as stakeholder pensions, in the spirit of stakeholder pensions (which were designed to provide portability without need of advice).

5, What is needed for pension dashboards to operate successfully is to recognise the vast majority of pension pots that are not carrying safeguarded benefits and legislate around them. It is up to regulators, especially the FCA, but also tPR, to ensure that member’s benefits are protected. The Drake amendments close the door on innovation and good practice to shut out poor practice and indeed scamming. However, poor practice and scamming focusses on larger pots and especially on defined benefit rights where the FCA report, the average loss to members is £82,000 per victim. There is no evidence that scammers are targeting smaller pots and we recommend that the Government sets a limit below which pots can be transferred not just without advice, but at the click of a mouse from the pensions dashboard.

6, The amendments in the name of Baroness Drake would have a second impact which would be systemic and negative. There is a reluctance amongst many pension providers, about which AgeWage has considerable evidence, to provide data to enable transfers and to accept legitimate data and transfer requests from consumers. They argue that by offering their customers a poor service, they are providing the “necessary friction” to prevent self-harm. This is giving inefficient providers an excuse not to upgrade systems and adopt better technology. It is giving them reason not to participate in the pensions dashboard project and is counter to consumer interests.

  1. Finally we would like to address the question of consumer confusion resulting from multiple dashboards. This same argument was being made prior to auto-enrolment when it was thought that only Nest should be able to participate in AE. This turned out to be a false alarm, competition has and will continue to improve value for money from workplace pensions. Nest competes with a variety of providers because the Government resisted calls, not least from within Government to grant Nest a monopoly. Consumers have not been confused and the system is working well.

8, It is often thought by those who are in the public sector that the private sector is predatory and trending to bad practice or worse. When the worst recent case of pension scamming occurred in Port Talbot and other British Steel towns it was private sector advisers who were on hand to give immediate support to those who had been scammed and the public sector regulators who were absent. Latterly, history has been re-written. There is a strong moral backbone to many financial advisers and to organisations like my own who often go where others regulators fear to tred. We should recognise a lesson from British Steel is that where good quality information and guidance is not readily available on transfers, poor quality information will be given much greater credence.

 

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Plagues past (and current matters ) Covid-19 Friday report (26)

Posted on October 24, 2020 by henry tapper

                                        WWW.Covid-arg.com

The Friday Report – Issue 26
By Matthew Fletcher, Nicola Oliver and John Roberts

Matt
Nicola
John

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

COVID-19 is still one of the hottest topics for scientific papers and articles. The COVID19 Actuaries Response Group will provide you with a regular Friday update with a curated list of the key papers and articles that we’ve looked at recently

Clinical and Medical News

Evolution and effects of COVID-19 outbreaks in care homes

Care homes have suffered disproportionately during the pandemic; indeed, care homes in   a 79 percent increase in excess deaths at the height of the pandemic.

This study published in The Lancet Healthy Longevity Journal describes the evolution of outbreaks of COVID-19 in 188 registered care homes located in the NHS Lothian region which encompasses Edinburgh and surrounding region (this included 5,843 beds, of which 5,227 (89%) were in care homes for older people).

Data for COVID-19 testing (PCR testing of nasopharyngeal swabs for SARS-CoV-2) and deaths (COVID- 19-related and non-COVID-19-related) were obtained, and several variables including type of care
home, number of beds, and locality were analysed. (Availability and quality of personal protective equipment (PPE) were not included because no reliable data were available at the care home level during the study period.)

Around a third of care homes (69 of 189 [37%]) had a confirmed COVID-19 outbreak, but with wide variation in the size, duration, and pattern of outbreaks. The number of beds was strongly associated with the presence of an outbreak; (odds ratio per 20-bed increase 3·35, 95% CI 1·99–5·63).

Deaths were largely concentrated in care homes with known outbreaks.

Asymptomatic and presymptomatic infection rates in skilled nursing facilities

Additional insights into the impact of COVID-19 in care homes are provided here. Asymptomatic and presymptomatic infection rates in a large multistate sample of US skilled nursing facilities (SNFs) are presented


Data was drawn from a multistate long-term care provider with roughly 350 SNFs.

The table shows that around 40% of cases were asymptomatic, 40% symptomatic and 20% presymptomatic. It was also reported that SNFs located in areas with high SARS-CoV-2 prevalence detected higher numbers of asymptomatic and presymptomatic cases during initial point prevalence surveys, building on emerging evidence that SNF location is an important predictor of outbreaks.

Tocilizumab

Tocilizumab is a monoclonal antibody drug used for its immunosuppressive properties to treat rheumatoid arthritis, juvenile idiopathic arthritis and cytokine storm syndrome for patients treated with CAR-T cell therapies. It has been investigated as a potential treatment for patients hospitalised
with COVID-19.

Two studies have reported results this week.

The first, entitled the Boston Area COVID-19 Consortium (BACC) Bay Tocilizumab Trial, is a randomized, double-blind, placebo-controlled trial of tocilizumab administered relatively early in the
disease course, with the aim of preventing progression of COVID-19.

The second is part of the CORIMUNO-19 Cohort, a series of trials testing different therapeutic regimens in France. This is also a randomised controlled study testing the effectiveness of
Tocilizumab in patients with moderate to severe pneumonia requiring oxygen support but not admitted to the intensive care unit.

At this stage, neither study report any impact on mortality.

Characteristics associated with racial/ethnic disparities in COVID-19 outcomes

Many previous studies have reported that those from BAME populations are overrepresented in the number of COVID-19 infections, hospitalizations, and deaths. In this analysis from the US, the researchers set out to determine patient characteristics associated with racial/ethnic disparities in COVID-19 outcomes.

The study cohort consisted of 5,698 tested or diagnosed patients, including 5,548 patients who were tested at University of Michigan Medical School (MM) from March 10, 2020, to April 22, 2020.

The main outcomes were: being tested for COVID-19, having a positive test result for COVID-19 orbeing diagnosed with COVID-19, being hospitalized for COVID-19, requiring intensive care unit (ICU) admission for COVID-19, and COVID-19–related mortality (including inpatient and outpatient).

The following were observed:

 Black patients were significantly more likely to be tested for COVID-19 and have positive test results than White patients (OR, 6.11 [95%CI, 4.83-7.73]; P &lt; .001)

 Every 10-year increase in age was associated with increased odds of having positive test results (OR, 1.09 [95% CI, 1.05-1.14]; P &lt; .001)

 In addition, higher BMI was associated with increased odds of having positive test results (OR per 1-unit increase, 1.03 [95%CI, 1.02-1.04]; P &lt; .001), as well as alcohol consumption (ever
vs never: OR, 1.58 [95%CI, 1.29-1.95]; P &lt; .001)

 Residential population density was also associated with positive test results (OR per 1000 persons/square mile, 1.12 [95%CI, 1.08-1.16]; P &lt; .001) A higher comorbidity burden was associated with worse outcomes overall, with statistically significant differences by race. The figure below displays the results of the multivariate analysis.

In conclusion, the findings suggest that racial disparities exist in COVID-19 outcomes that cannot be explained after controlling for age, sex, socioeconomic status, and comorbidity score.

Modelling

Estimating the infection-fatality risk of SARS-CoV-2 in New York City during the spring 2020 pandemic wave: a model-based analysis (Yang et al)

The infection-fatality risk (IFR) of COVID-19 (the risk of death amongst those infected, including asymptomatic and mild infections) is a key factor when considering how many might die from COVID-19 in future.

This paper estimates the IFR in New York City, the first American city to experience significant levels of mortality from the pandemic.
The estimates produced are based on over 200,000 laboratory confirmed infections and over 21,000 confirmed and probable COVID-19 related deaths of city residents between 1 March and 6 June 2020. Infection figures were adjusted based on a model for the proportion of infections that were not detected, with the model estimates validated using three independent serology datasets.

The overall IFR estimated is 1.39% (95% interval 1.04-1.77%) –  the study also estimated IFR by different age bands, ranging from 0.12% for those aged 25-44 and 14.2% for those aged 75 and above. These figures are broadly in line with previous estimates (see for example our earlier report on IFR).

Living risk prediction algorithm (QCOVID) for risk of hospital admission and mortality from coronavirus 19 in adults: national derivation and validation cohort study (Clift et al )

This paper derives and validates an approach to estimate hospital admissions from COVID19 in adults. It draws on data from the QResearch database which covers 1,205 general practices in England, with linkage to COVID-19 test results, death registry data and Hospital Episode Statistics.

The algorithm aimed to predict time to death from COVID-19, with a secondary outcome being time to hospital admission following confirmed SARS-CoV-2 infection. The data used for the initial derivation of the algorithm was from 24 January to 30 April 2020, and the second validation covered May to 30 June 2020 – multiple predictor variables were considered, with the final approach being based on age, ethnicity, deprivation, BMI, and various comorbidities.

The algorithm performed well – it explained 73% of the variation in time to death, and those in the top 20% of the predicted risk of death accounted for 94% of all deaths from COVID-19.

Because the algorithm appears to pinpoint those at highest risk of death, it may be possible to use it to help clinicians and patients in decision making, as well as targeting recruitment for clinical trials and prioritising vaccination.

However, the authors caution that the models will need to be re-calibrated as absolute risks vary over time.

Quarantine and testing strategies in contact tracing for SARS-CoV-2 (Quilty et al ).

This paper has not yet been peer reviewed.

In many countries, there is a quarantine period of 14 days following exposure to a COVID19 case, to limit onward transmission. ]

This paper looks at whether PCR testing can be used to reduce the length of quarantine. The approach taken is to simulate various characteristics of an exposed contact’s possible infection (for example, time between exposure and detection, chance of being infected, incubation period, infectivity profile), using the UK as a case study.

The study finds that self-isolation on symptom onset can prevent 39% of onward transmission – a further 14 days’ quarantine for all contacts reduces transmission by 70%.

A negative PCR test taken once traced, with no quarantine requirements after a negative result, can reduce transmission by 62% – alternatively, a negative PCR test taken after a 7 day quarantine period (with no requirementfor further quarantine after a negative test) can reduce transmission by 68%.

This suggests that PCR testing combined with a shorter quarantine period could achieve similar results to the longer quarantine period.

However, structural issues in contact tracing (delays in tracing and / or poor adherence of traced individuals to the quarantine requirements) reduces the ability of quarantine and testing to reduce
transmission – the authors suggest that addressing these should be a key focus of future policy.

Data

Excess Home Deaths

The ONS has released a study which notes around 25,000 additional home deaths (up 30%) since the start of the pandemic. This was widely reported by the media, often with the implication that these were all additional deaths. In fact, the majority of these were displaced from other settings, most notably from hospital.

Although significant excess home deaths continued throughout the summer, overall there was no excess during this period, reflecting continuing displacement. ]

Many of the deaths were from causes that typically accompany end of life care in the elderly. With very limited visiting in care homes and hospitals, a possible conclusion is that many relatives have chosen to provide end of life care at home where at all possible.

Whilst hospitals have been open for all emergency care throughout the period, there will undoubtedly have been some instances where, possibly through perception that emergency care would be lacking, or fear of entering the hospital environment, the appropriate help was not sought.

This emphasises the need to reiterate the messages are hospitals are open for emergencies as usual.

ONS Surveillance Report

The latest report published today shows continued increases in infectivity in England, with numbers infected during the week reported of 433,000 (up from 336,000), or 1 in 130 people (1 in160).

New infections per day are estimated at 35,200 (27,900), which has doubled in the last fortnight

The regional analysis continues to show some signs of a levelling off in the North East and Yorkshire regions, to which can now be added the East Midlands.

We also see a marked downturn in the late teens age group,though the level at older ages continues to rise, which is clearly of most concern in terms of hospitalisations and outcomes. The age analysis suggests that we should be cautious about those regions showing improvement, as it is likely to be driven by the younger age reductions.

New this week we have some data on Scotland, which shows infectivity at 1 in 180, consistent with Wales. For completeness Northern Ireland is at 1 in 100. All these figures have wider confidence intervals than England, so need to be treated with some caution.

Additionally this week we have an update on antibody prevalence.

There are signs of a gradual drift downwards in prevalence, although the confidence intervals for earlier periods are wider, so it’s not compelling evidence. The latest level is 5.6%.

Finally, there has been some comment of late noting that the ONS surveys typically show a reduction in growth rate in the most recent week, which is then revised upwards in the following week.

The reasons for this are unclear, and it will be interesting to see whether ONS responds to the criticism.

R Estimate

The latest estimate of R for the UK is put at between 1.2 and 1.4 (compared with 1.3 to 1.5 last week). As usual this estimate is based on those with symptoms and requiring healthcare, so is lagged by a couple of weeks in relation to the current position.

For England, SAGE also estimates 1.2 to 1.4 – this is consistent with our own view, published yesterday, which has also suggested a small reduction in the past week. Regionally, SAGE puts the northern regions, along with London, at 1.1 to 1.3, with the South West an outlier at 1.3 to 1.6.

CDC Survey

Finally under data, and taking a less parochial view, in the US we note the recent CDC Report which suggests that 299,000 excess deaths had occurred up until early October.

Whether the reporting date was set to avoid breaching the significant milestone of 300,000 deaths is a moot point, but even so it is unlikely that the timing of the report was welcome for one of the presidential candidates.

When adjusted for population size the figure is broadly consistent with the estimates of 60,000 excess deaths for the UK, but the proportion not attributed to COVID is much higher at a third. ]This is likely to reflect differences in the policy for recording cause of death between the two countries as much as any true underlying difference in the proportions of COVID-19 deaths between the two populations.

A notable feature in the UK has been the increased mortality amongst ethnic minorities. That pattern is also seen in the US, with Hispanic, Asian and black communities all showing much higher excess percentages.

Other

13 cases, 10 million tests: China swabs city of Qingdao after COVID-19 outbreak 

This article  sets out some details of a mass testing effort in China. In the days following the discovery of 13 COVID-19 cases linked to a hospital in Qingdao, health workers have carried out almost 10 million tests and returned over 7.5 million results – they are on track to test 9.4 million residents and 1.5 million visitors within 5 days of launching the programme. They have not found any additional cases.

This effort is clearly very impressive; however, it remains to be seen whether it is possible to replicate over the longer term, either in China or elsewhere.

And finally….

Perhaps we can learn a little more about the current pandemic from medieval history. This fascinating paper reports that during plague outbreaks in the 14th century, the number of people infected during an outbreak doubled approximately every 43 days. By the 17th century, the number was doubling every 11 days.

Researchers believe that population density, living conditions and cooler temperatures could potentially explain the acceleration, and that the transmission patterns of historical plague epidemics offer lessons for understanding COVID-19 and other modern pandemics.

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A DC investor writes….

Posted on October 21, 2020 by henry tapper

 

A rare but wonderful experience!

Once in a blue moon I get a mail from someone who is clearly an expert in pensions  but  modest enough to recognise she/he struggles with their own money!  I feel in awe of such people!

I got a message on social media from such a person this morning.  I hope that the questions (and my answers) prove helpful to people in our shoes!

Those questions and my answers!

Q. Henry, I’ve been thinking, probably a little too much about my DC pension pots, as I have multiple funds both contract based and trust based. 
A.

Thanks for your questions , I am replying on linked in and on your personal mail (which I got from Linked in)
Your questions  are all pertinent, I’m not qualified to speak for DC schemes but here are some thoughts.
You aren’t unusual, and you look like you are beginning to think, “these pots are my financial future”?
Q. My own role looks after DB schemes, but that is not quite what I have been provided with all my career. What frustrates me is I want my fund to grow by more than the default. But is that right?
It seems reasonable to want more than average. But you’ve got a number of pots  and  the default return on each will be different, if you’re in a very good scheme then your default return will be above the general average so it may be best working out which of the schemes you are in is offering best value for money and starting there. Our data analysis (and we’ve analysed over 1m pots) – is that those who self-select , statistically are unlikely to beat the default.
Q,  Should I know more than the organisation running my pension? 
 
A. Ideally you would know your pension , study the IGC report or Trustee chair statement and look at the statement of investment principles when there is one, but you’ve got several and I wonder if you can really do due diligence on all of them. You need someone to tell you where you are getting value and where not. You could employ an adviser – if you’ve got the money, or you could use a resource such as agewage.com which provides value for money scoring , providing you can give the website the details of your policies and membership.
Q. Is the default fund the best return per unit of risk? 
A. It’s a question that has been troubling us a great deal. We have a metric called “value for risk taken” which we use where we have a great deal of data from savers in an individual fund (typically we need 5,000 + records in the fund. It allows us to see the experienced risk people have taken in the fund and the experienced return for that risk. It’s a technical calculation and we haven’t rolled it out to individuals yet, but that will come.
Q If not then why not?
A. The main reason we haven’t found a way of providing a metric for value for risk taken is that we need a large data set and we have only got about 40 such sets. The second reason is that we are still testing with the FCA, what can be shared as factual information (guidance) and what is considered individual investment advice.
 
 We are using the FCA sandbox as a controlled environment to test whether providing value for money information – of the type you are talking about, can be considered factual. If we deliver investment advice to individuals, we are into a different “cost paradigm” – e.g. it becomes very expensive to you!
Q. Secondly, why does a scheme offer suboptimal funds?
 
A. The answer is almost certainly historic and could be to do with a good round of golf! 
 
When I worked on provider investment propositions we would get all kinds of intermediaries contacting us wanting their preferred funds on our platform and many went on with little due diligence. Ongoing fund monitoring has often been poor and good funds have turned bad. Woodford is a classic example. Twenty years ago “open architecture” and unlimited choice was all the rage – a triumph of marketing hope over the sober reality of saver’s financial capability!
Q. Finally, why does a scheme provide dozens of funds, but then only provides a quarterly fact sheet, which can be three months out of date before it is published?
A. Investment reporting via factsheets has been allowed to fall into disrepute because providers know that only a minority of their users (customers) use the information on offer. It’s a supply and demand thing and monthly factsheets are too much of a fag for many fund managers, let alone the insurers who have to convert them to reflect the unique information created by their fund wrappers. 
 
I guess many of the more well heeled providers are  moving to a more efficient digital means of reporting but the traditional factsheet is not telling the modern saver what he/she wants. For instance – if you are interested in ESG and personal stewardship , you want to know where your money is invested (not just the top 10 or 5 holdings) and you will want to know what the fund’s doing on stewardship, this kind of information isn’t ever going to be on a factsheet , but progressive providers, like L&G are adopting software that will give you a look through to the fund’s holdings and even allow you to participate in the stewardship of your investments.
Q. Why does a benefit statement provide little or no information about the return achieved? 
This is a real bugbear of mine.
I’ve attached a couple of pictures of the kind of information we would like to see on trustee reports
and individual benefit statements.
We think everyone should be entitled to see their internal rate of return, the rate of return they’d have got as an average investor and a score that tells them how they’ve done against the benchmark. This goes for trustees, IGCs and GAAs who should be able to see the average scores achieved by people in various schemes, funds, by age group, by pot size or any other way that their data can be cut!
 Q. Having a deferred pot in the XYZ master trust, I recently received a survey, so suggested there should be a separate helpline for investment questions. It feels to me that to get people more engaged with their pension savings, then the investment information and assistance to members needs a rethink
 
This is a great suggestion. If I was running your master trust , I’d be sending you an email asking whether you wanted to apply to be a trustee!
 
The problem with such helplines is that unless the discussion is data-based and factual, it strays into advice. What is needed is better quality information available to you and to the person on the helpline so that you can have a meaningful conversation about your situation, without it being deemed advice.
Henry Tapper

CEO AgeWage Ltd          www.AgeWage.com
Tel  07785 377768
AgeWage is authorised and regulated by the Financial Conduct Authority (FRN: 917800) and registered in England and Wales (Companies Registration No.11429498).
Find us on  LinkedIn  Facebook  Twitter
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CDC – a new type of pension provision coming to the UK

Posted on October 5, 2020 by henry tapper

On Wednesday (October 8th),  CDC will be debated in the house of commons and with a fair wind, legislation enabling employers and multi-employer master trusts to provide DB like benefits for defined contributions will be enacted  by the end of the year.

To mark this special week for CDC, the consultancy-Willis Towers Watson has published a guide to CDC together with supporting analysis of how CDC competes with other types of pension schemes.

The aim of the Guide is to increase the public’s understanding of CDC pensions, and increase levels of interest in CDC in the pensions industry.

The new analysis compares the likely outcomes of CDC pensions to those of insured annuities, and typical DB pensions (for given levels of contributions.  The “spectrum of choice” , as the Pensions Minister calls it , has become clearer for this guide.

It is good to see that the new type of pension has, in Royal Mail, an early adopter. It is good to see how Royal Mail’s CDC plan has brought together the company’s management with its major union (the CWU) to avert what could have been damaging industrial action and replace it with a constructive “wage in retirement” solution. A solution that has been embraced by over 100,000 mail-workers.

It is good too that it has brought three pension consultancies, WTW, Aon and First Actuarial together.  They have worked to test and promote a new way. It is of course a “new way” that refers back to an “old way”, when DB pensions provided members with an income using the best endeavors of all parties , rather than an income guarantee whatever the market conditions.

Demand for CDC emerged out of negotiations for a new DB scheme for Royal Mail staff

But we should not forget early pioneering work that goes back to Derek Benstead’s stakeholder pension submission last century. Nor should we forget the work of David Pitt-Watson and Hari Mann with the RSA in their research “Towards Tomorrow’s Pension” which goes back to 2011.

CDC’s definition of a benefit is , after more than two decades of debate, finally gaining currency at a time when certainties of employment are most challenged.

One certainty has been the challenge of “pension freedoms” to the concept of collective pensions. It is particularly good to see this collective enterprise providing an alternative to the challenges creating retirement income from individual pots  identified only a week back by the FCA .

You can see the challenge of converting pots to pensions here https://www.fca.org.uk/data/retirement-income-market-data

 

It is good to see that CDC is enjoying cross party support in both the Commons and the Lords.

But of course CDC has critics who have made their opposition to this form of provision well known on social and conventional media. Their objections have helped make the CDC framework more robust and we should be grateful for constructive critical interventions.

It is in part , to counter valid concerns and in part to demonstrate balance against less rational prejudice that  WTW has published this analysis.

You can access the WTW reports from this link.

I can think of no better recommendation to read them than words taken from the email sent me by WTW’s Simon Eagle, who helped broke the Royal Mail deal with my former colleague Hilary Salt.

We have written the guide to be balanced, and the analysis to be transparent – with the aim of helping the truth about CDC’s advantages become more widely known and accepted, which will hopefully shine through.

Appendix; CDC – a little more detail

To help those coming to CDC afresh or after a decent interval, here is a little detail of what a CDC scheme is and some detail on how it fits into that “Spectrum of choice”.

Collective Defined Contribution (CDC) is a new type of employee retirement provision under which employers pay a fixed rate of contributions into the scheme and members are paid pensions with variable increases.  This will be a third option for employers, the two existing options being defined benefit (DB) pensions or individual defined contribution (IDC) pensions.

CDC is likely to be most compelling for those employers where the following key advantages of CDC pensions are important:

  • Pension costs are fixed, so employers’ pension budgets will not need to vary year-on-year.
  • Expected pension levels are higher – for a given contribution rate, the expected CDC pension is on average 70% higher than from buying an insured annuity with an IDC pot, and 40% higher than provided under a typical DB scheme.

And a CDC scheme provides benefits in the form of a pension, so:

  • Market volatility is smoothed out so that member pension levels (both pre and post retirement) are relatively stable.
  • Members don’t run the risk of running out of money (from a drawdown pot).
  • CDC is simpler for members than IDC, as they don’t need to make investment or retirement provision decisions.

Initially, employers wanting to provide CDC will need to do so through their own trust arrangement – employers with large workforces of over 5,000 employees would be best placed to open a cost-effective CDC scheme.

In time, further law changes could enable CDC multi-employer schemes or master trusts, making CDC more accessible for employers with less large workforces.

 

 

Posted in CDC, pensions, Royal Mail | Tagged , , , , , , | 5 Comments

Long COVID – Nicola Oliver tells us what we need to know

Posted on September 25, 2020 by henry tapper

 

                                                                                           

By Nicola Oliver                                                                                Covid-arg.com

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

What is ‘Long COVID’?

“Long covid” is a term used to describe illness in people who have either recovered from COVID-19 but are still report lasting effects of the infection, or have had the usual symptoms for far longer than would be expected.

Symptoms include fatigue, chronic joint and muscle pain, insomnia, reduced exercise tolerance, shortness of breathe, mental health issues and headaches. Clinical follow-up finds that even in mild cases, damage to the heart, lungs and brain may be permanent.

This worrying emerging condition may represent a material future morbidity burden, with some studies reporting up to 95% of people with mild cases experiencing symptoms more than 3 months from onset of the initial disease.

Symptoms

The UK government published guidance[1] on the possible long-term health effects of COVID-19 on 7 September and identified a number of persistent health problems that have so far been reported by people with mild or more severe disease. These are included in the following table which covers the main reported symptoms in those considered to have ‘long COVID’.

 

Respiratory Chronic cough Shortness of breath
Lung inflammation Pulmonary fibrosis
Pulmonary vascular disease  
Cardiovascular Chest tightness Acute myocarditis
Heart failure  
Mental Health Depression Anxiety
Cognitive difficulties/confusion  
Gastrointestinal Nausea/vomiting Diarrhoea
Quality of Life Chronic fatigue/weakness Insomnia/sleep problems
Chronic pain/headaches Prolonged loss of taste/smell
Other Skin rashes Clotting problems
Liver dysfunction Kidney dysfunction

Post-viral health problems are not a new phenomenon. Post-infectious fatigue[2] is known to be associated with a number of viruses including SARS and influenza, but also others such as human herpesvirus 6 & 7, HIV, herpes simplex, and hepatitis C. Symptoms include extreme fatigue, muscle pain, joint pain, sleep disorders, headache and psychoneurotic symptoms.[3] If these symptoms persist, the condition is categorised as chronic fatigue syndrome (CFS).

With particular reference to on-going respiratory problems, long-term follow-up from the previous SARS outbreak reports that lung function continues to be compromised many years following the onset of symptoms. In particular, pulmonary fibrosis, in which the lungs become scarred with functional compromise, has been observed in SARS survivors, even in those with relatively mild disease.[4] [5]

Prevalence

A key question is of course how many people in the population are affected? The main challenge is that it is likely that many of those who are affected may have suffered mild disease, and so may not have had testing or any contact with health professionals at onset.

The CDC published a report in July 2020 which addressed the symptom duration and risk factors for delayed return to usual health among patients with mild COVID-19.[6]

This study reports that around a third of those interviewed had not returned to usual health 3 weeks after testing positive, and that around 20% of young adults aged 18–34 years with no chronic medical conditions reported that they had not returned to their usual state of health. Pre-existing medical conditions and increasing age appeared to be key risk factors for prolonged symptoms.

A survey[7] carried out by the Dutch Lung Foundation reported that of 1,600 people who were asked about returning to normal activities after largely ‘mild’ (non-hospitalised) COVID-19, 95% indicated that they continued to experience problems including fatigue, shortness of breath, chest pressure, headaches and muscle aches more than three months following typical COVID-19 symptoms. Almost half reported that they are no longer able to exercise.

Similarly, research[8] from Italy has also identified that a high proportion of patients recovering from COVID-19 reported persistence of at least one symptom, particularly fatigue and shortness of breathe.

Challenges and Support

The many unknowns around SARS-CoV-2 now extend to recognising and managing long COVID. Many social media groups have emerged, and in the UK, a support group[9] formed in partnership with The Sepsis Trust has written to Jeremy Hunt MP, Chair of the Health and Social Care Committee asking that the UK government set up a multi-disciplinary Long Covid taskforce, including researchers, professional bodies, and representatives of peer-led groups, to address the urgent needs of people living with persistent, ongoing symptoms of COVID-19.

Further afield, a citizen scientists’ group known as the Body Politic COVID-19 Support Group[10] with a global membership, published analysis of a Prolonged COVID-19 Symptoms Survey[11] in May 2020, which identified similar symptoms to those listed in the previous section. The group is now working on a follow-up study to fill in gaps in their first report, including examining antibody testing results, neurological symptoms, and the role of mental health.

A letter[12] published in the BMJ on 15 September and signed by 39 British doctors all affected by persisting symptoms of suspected or confirmed COVID-19 called for a clear definition of recovery from COVID-19. “Failure to understand the underlying biological mechanisms causing these persisting symptoms risks missing opportunities to identify risk factors, prevent chronicity, and find treatment approaches for people affected now and in the future,” they wrote.

Research to evaluate the long-term health and psychosocial effects of COVID-19 continues. Major studies include the Post-Hospitalisation COVID-19 study[13] in the UK and the International Severe Acute Respiratory and emerging Infection Consortium (ISARIC) global COVID-19 long-term follow-up study[14].

Management

Trisha Greenhalgh and colleagues published guidance[15] in August 2020 on the management of post-acute COVID-19 in primary care. The guidance covers respiratory symptoms, fatigue, cardiopulmonary complications, mental health and wellbeing, thromboembolism and social and cultural considerations. The key to management, say the authors, is to consider that post-acute COVID-19 is a multi-system disease, requiring a whole patient perspective. The wide-ranging damage caused by SARS-CoV-2 cannot be underestimated; the long-term course is unknown.

Long-term Impact

The lengthy list of long COVID symptoms coupled with the fact that as yet, the exact pathophysiology of the virus is largely unknown(though more knowledge is gained all the time), means that we may be faced with a significant morbidity burden.

Follow-up of COVID-19 patients, even those with what is considered to be a mild case, has shown that damage extends to the heart, the brain and the clotting mechanism. Cardiac scans of a group of patients has revealed cardiac involvement in 78% of the patients studied and ongoing myocardial inflammation in 60%, independent of pre-existing conditions, severity and overall course of the acute illness, and time from the original diagnosis.[16]

There is potential that this will increase the risk of myocardial infarction, stroke and even Parkinson’s disease and Alzheimer’s disease in relatively young people.

The ongoing research projects will reveal the extent and impact of ‘long COVID’, not just to understand the disease’s long shadow, but also to predict who’s at the highest risk of developing persistent and chronic symptoms and the associated health problems, as well as to identify potential treatments that may be able to prevent them.

 

24 September 2020

[1] https://www.gov.uk/government/publications/covid-19-long-term-health-effects/covid-19-long-term-health-effects

[2] http://www.med.or.jp/english/pdf/2006_01/027_033.pdf

[3] Memory impairment, confusion, impaired concentration and depression

[4] https://www.thelancet.com/journals/lanres/article/PIIS2213-2600(20)30222-8/fulltext

[5] https://journals.lww.com/thoracicimaging/Fulltext/2020/07000/Long_term_Pulmonary_Consequences_of_Coronavirus.11.aspx

[6] https://www.cdc.gov/mmwr/volumes/69/wr/mm6930e1.htm?s_cid=mm6930e1_w

[7] https://www.biomax.com/lib/press-releases/Initial-Result-Announcment_English.pdf

[8] https://jamanetwork.com/journals/jama/fullarticle/2768351

[9] https://www.longcovid.org/

[10] https://www.wearebodypolitic.com/covid19

[11] https://patientresearchcovid19.com/research/report-1/

[12] https://www.bmj.com/content/370/bmj.m3565?ijkey=8abdf55c0b7baf571557260e7d8191930c44b482&keytype2=tf_ipsecsha

[13] https://www.phosp.org/

[14] https://www.ox.ac.uk/news/2020-09-11-global-consortium-launches-new-study-long-term-effects-covid-19

[15] https://www.bmj.com/content/bmj/370/bmj.m3026.full.pdf

[16] https://jamanetwork.com/journals/jamacardiology/fullarticle/2768916

Posted in actuaries, coronavirus | Tagged , , | 1 Comment

Why a vaccine can provide better immunity than an actual infection

Posted on September 22, 2020 by henry tapper

Thanks to Nicola Oliver for highlighting this article from the Conversation in Linked in. At a time of increased anxiety, information about roads to immunity give some comfort, but this article by Maitreyi Shivkumar manages to underpin optimism with medical science and do so in a way a non-scientist can understand.

Maitreyi Shivkumar, De Montfort University

Two recent studies have confirmed that people previously infected with SARS-CoV-2, the virus that causes COVID-19, can be reinfected with the virus. Interestingly, the two people had different outcomes. The person in Hong Kong showed no symptoms on the second infection, while the case from Reno, Nevada, had more severe disease the second time around. It is therefore unclear if an immune response to SARS-CoV-2 will protect against subsequent reinfection.

Does this mean a vaccine will also fail to protect against the virus? Certainly not. First, it is still unclear how common these reinfections are. More importantly, a fading immune response to natural infection, as seen in the Nevada patient, does not mean we cannot develop a successful, protective vaccine.

Any infection initially activates a non-specific innate immune response, in which white blood cells trigger inflammation. This may be enough to clear the virus. But in more prolonged infections, the adaptive immune system is activated. Here, T and B cells recognise distinct structures (or antigens) derived from the virus. T cells can detect and kill infected cells, while B cells produce antibodies that neutralise the virus.

During a primary infection – that is, the first time a person is infected with a particular virus – this adaptive immune response is delayed. It takes a few days before immune cells that recognise the specific pathogen are activated and expanded to control the infection.

Some of these T and B cells, called memory cells, persist long after the infection is resolved. It is these memory cells that are crucial for long-term protection. In a subsequent infection by the same virus, the memory cells get activated rapidly and induce a robust and specific response to block the infection.

A vaccine mimics this primary infection, providing antigens that prime the adaptive immune system and generating memory cells that can be activated rapidly in the event of a real infection. However, as the antigens in the vaccine are derived from weakened or noninfectious material from the virus, there is little risk of severe infection.

A better immune response

Vaccines have other advantages over natural infections. For one, they can be designed to focus the immune system against specific antigens that elicit better responses.

For instance, the human papillomavirus (HPV) vaccine elicits a stronger immune response than infection by the virus itself. One reason for this is that the vaccine contains high concentrations of a viral coat protein, more than what would occur in a natural infection. This triggers strongly neutralising antibodies, making the vaccine very effective at preventing infection.

The natural immunity against HPV is especially weak, as the virus uses various tactics to evade the host immune system. Many viruses, including HPV, have proteins that block the immune response or simply lie low to avoid detection. Indeed, a vaccine that provides accessible antigens in the absence of these other proteins may allow us to control the response in a way that a natural infection does not.

The immunogenicity of a vaccine – that is, how effective it is at producing an immune response – can also be fine tuned. Agents called adjuvants typically kick-start the immune response and can enhance vaccine immunogenicity.

Alongside this, the dose and route of administration can be controlled to encourage appropriate immune responses in the right places. Traditionally, vaccines are administered by injection into the muscle, even for respiratory viruses such as measles. In this case, the vaccine generates such a strong response that antibodies and immune cells reach the mucosal surfaces in the nose.

However, the success of the oral polio vaccine in reducing infection and transmission of polio has been attributed to a localised immune response in the gut, where poliovirus replicates. Similarly, delivering the coronavirus vaccine directly to the nose may contribute to a stronger mucosal immunity in the nose and lungs, offering protection at the site of entry.

A boy in Pakistan being given an oral polio vaccine.
The oral polio vaccine elicits an immune response in the gut. Rehan Khan/EPA

Understanding natural immunity is key

A good vaccine that improves upon natural immunity requires us to first understand our natural immune response to the virus. So far, neutralising antibodies against SARS-CoV-2 have been detected up to four months after infection.

Previous studies have suggested that antibodies against related coronaviruses typically last for a couple of years. However, declining antibody levels do not always translate to weakening immune responses. And more promisingly, a recent study found that memory T cells triggered responses against the coronavirus that causes Sars almost two decades after the people were infected.

Of the roughly 320 vaccines being developed against COVID-19, one that favours a strong T cell response may be the key to long-lasting immunity.

Maitreyi Shivkumar

Senior Lecturer in Molecular Biology, De Montfort University

Maitreyi Shivkumar does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

De Montfort University provides funding as a member of The Conversation UK.

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Andy Cheseldine’s VFM assessment is just too good!

Posted on September 20, 2020 by henry tapper

Andy Cheseldine gave , in 21 minutes , one of the most complete and articulate expressions of what makes for good value in a DC pension scheme. I hate the word “masterclass” but on this occasion it is appropriate and I hope that Pension Age will publish the recording of this session of its Annual Conference.

It was, as it was billed.

Value for (Member’s) Money is the crucial criterion for trustees and IGC members. It encompasses everything – not just the basic charging level in a DC scheme. In this session, Andy will look at what trustees need to consider; what should be measured, and with what relative weightings (not all features are of equal importance), against which criteria; how your own services rate against those benchmarks; and how to articulate the results to members, regulators, employers, service providers and, where relevant, advisers/intermediaries.

The balanced scorecard – the impossible dream

Andy is trustee chair at a number of schemes, most noticeably Smart Pensions. The approach he suggests is a very sophisticated version of that we adopted at the Pension PlayPen where you take the characteristics of a good DC pension scheme and weight them according to the relevence to your membership to get a scheme score that tells you how well your scheme is working towards delivering good DC outcomes.

Getting to a common definition of a balanced scorecard is an impossible dream. When we are trying to help small employers choose their workplace pension we found that whatever level of sophistication we employed in researching the providers, the scorecard became weighted towards the employer’s agenda – compliance, ease of use and headline cost.

The agendas of employers, regulators and members of workplace pensions should be aligned but they are not. The member wants the scheme to pay as much to him or her in retirement as possible. The employer wants to keep its costs to a minimum. The Regulator is primarily concerned with the risk of failure. So within the balanced scorecard , there are at least three versions of value for money for the trustee to tell and three audiences that might listen.

And there are not enough Andy Cheseldines to go round!  While Smart Pensions benefits from this inclusive governance , what of the thousands of DC schemes not covered by the authorization framework, failing to meet the minimum governance benchmarks laid down by the Pensions Regulators?

While the major workplace pension schemes get the benefit of the high quality IGCs, what of the long tail of legacy that cannot benefit from the sophistication of Andy’s approach?

My issue – and I mentioned it in my question to Andy, is that the all inclusive balanced scorecard approach is actually a measure of how well the trustee is doing his/her job. It is not something that can be easily explained to anything other than a group of experts and by anyone other than an expert trustee. The approach has its place, but it cannot be the final word.

The final word

The only attempt I have seen from a regulator to formulate a common definition of value for money appears in the FCA’s CP20/09 document

The administration charges and transaction costs borne by relevant policyholders are likely to represent value for money where the combination of the charges and costs and the investment performance and services are appropriate

This definition looks at the issue of VFM not from the top down (as Andy’s does, as the Pension PlayPen did).

But the FCA – and the DWP in its recently published consultation on better DC outcomes, are looking at VFM from the member’s perspective. “By your fruits shall you be known..”.

Being brutally honest, however good the endeavors of trustees or IGCs, if they cannot improve member or policyholder outcomes , they have failed. What we need is not a means of measuring good scheme governance (which we have had within TPR for decades) but  a means of measuring outcomes.

This is what both the FCA and DWP are edging towards, by focusing on what members are paying and getting from the pensions they invest into. For quality of service, read the confidence members have that whatever statement is made by the scheme that it provides quality is realistic. After reading IGC and Trustee Chair statements for the last five years, I do not expect to ever read that a scheme is giving poor quality of service.

There are independent measures, especially as regards data quality, that can be employed to measure service quality and people like Holly Mackay and her Boring Money team are busy finding them.

Customer satisfaction with service is temporary, but the impact of poor performance and of unnecessary charges is permanent. We should not make the mistake of ignoring the data. One of the reasons I hold Pension Bee in high regard is that their high service quality is backed up with a deep understanding of the quality of their data , their costs and their member outcomes.

The final word on value for money is not in a definition but in the phrase. We need to make “value for money”, the standard by which we judge our pensions and in that we need Andy, Holly, Romi and  we need regulators with open ears.

Thanks to Pension Age for Andy’s session and a good day on Thursday

 

Posted in age wage | Tagged , , , , , , , | 1 Comment

“Shape up or shape out” – DWP give small DC schemes one year’s notice

Posted on September 13, 2020 by henry tapper

 

 It is not acceptable for savers to be enrolled in arrangements that do not deliver value in terms of costs, investment returns or secure and resilient governance. Government would expect trustees acting in the best interests of their members to take appropriate action to wind up and consolidate without TPR needing to exercise its powers.

This is how the DWP have responded to its 18 month long consultation on DC scheme consolidation. In case such schemes think they can spin this out for as long again, the DWP continue

It is proposed that these regulations will come into force on 5 October 2021.

Trustees will be required to assess their scheme for value for money on a basis prescribed by the Pensions Regulator. The consultation’s assumption is that most small DC schemes will fail their own assessment.

Trustees with failing assessments  can be given grace to improve but their homework will eventually be marked by the Pensions Regulator.

 If the trustees fail in this attempt to improve they will be expected to wind up the scheme and consolidate the members into a scheme that offers better value.

In case trustees are in doubt, the DWP end their summation

TPR has the power to issue an order to wind up the scheme, to remove trustees in certain circumstances, or to appoint new trustees to properly manage the scheme’s assets.

The Government has widened the scope of the schemes that concern them (previously schemes with less than £10m). It’s scope now includes all DC schemes with less than £100m that are more than 3 years old

A new Value for Money/Member assessment

Lurking behind this is a new and much tougher VFM test.  This is aligned to the proposals in FCA’s CP20/9 VFM policy statement and calls for the same three legged stool approach with the test focusing on returns , charges and ” governance and administration”. The FCA opt for “quality of service” instead of governance but a peek behind the curtain suggests that the terms amount to much the same. This is an unusual and most happy alignment between the Regulators.

The risk remains however that Trustees , IGCs and GAAs can continue to argue that in their opinion “their provider continues to offer value for money”. To mitigate the risk that the opinion is biased by a conflict in favor of self-survival, both regulators appear to be moving towards a quantitative assessment where opinion is based on evidence and evidence based on data and benchmarking.

This assessment is variously described as “new” and “more holistic” but it’s clear from the sub-text of the consultation that for occupational DC schemes with less than £100m in assets that have been going for more than three years life is going to get a lot tougher. That includes commercial master trusts, some of which will fall need to take the new assessment.

So what of the new assessment?

Reporting will be against net returns

The key new idea is that of a “net return”.

We agree that while costs and charges have a significant impact on member outcomes they are best understood in the broader context of what the scheme delivers. The net returns received is a crucial factor in measuring value for members

The net return of a scheme may be measured by the quoted performance less stated charges but the DWP seem to be pointing at the return experienced by members in “various age cohorts”. This suggests a move towards measuring returns experienced by members. The illustrations in the Statutory Guidance (published in annex E)explain how this will work and it looks very complicated and makes comparisons between schemes all but impoosible

As I’ve noted on this blog several times, it is not what fund managers and trustees report as their estimate but what members see in their pot values – that matters. This blog will continue to press for the full transparency of actual experienced returns and not a proxy created using assumptions rather than outcomes.

The DWP are suggesting that

 in order to provide greater transparency to members all relevant schemes, regardless of size, must publish net returns for their default and self-selected funds in the annual chair’s statement.

This suggests that net returns will become a common feature by which members, employers and fiduciaries can judge workplace pensions. I would suggest that they are also relevant to SIPPs and to value assessments from fund platforms.

Shortcomings of the net return approach

However, if we are to have proper transparency, we need to move beyond net returns and look at the internal or individual rates of return achieved by members. This is the only true way to measure the value a scheme can measure value delivered and it can be bench marked.

scheme dashboard showing average IRRs achieved against benchmarked IRRs – a simple way of comparing returns.

People are rightly concerned about whether they are getting value for money not at scheme level but in their pocket.  While we agree with the thrust of the consultation to use value for money to help schemes consolidation, trustees need to be looking at value for money experienced by individual members.

The only way to assess returns that does this is bottom up, by measuring scheme returns by averaging the individual returns. The Net Return approach does not do this, it assumes that everyone’s experience of funds is the same – it never is.

Reporting will be against governance and administrative metrics

measures of administration and governance include:

  • promptness and accuracy of financial transactions
  • appropriateness of default investment strategy
  • quality of investment governance
  • quality of record keeping
  • quality of communication with members
  • level of trustee knowledge, understanding and skills to run the scheme effectively
  • effectiveness of management of conflict of interest

Some of these metrics are easily measurable- (a study of internal rates of return will provide evidence of the quality of record keeping).

Excerpt from an AgeWage report showing suspect data items identified by anomalous IRRs

Others will rely on a finger in the air. How for instance can trustees measure the effectiveness with which they manage conflicts of interest without declaring a conflict? TKU similarly needs external measurement as does the quality of investment governance, but there are no authoritative independent agencies to establish good from bad. There is no standard, let alone a certified standard for any of these measures. As for the appropriateness of a default, what board of trustees is going to call itself for running an inappropriate default?

These are not matters that can be measured by net promoter scores from members of by trust pilot, attempts to provide DC schemes such as the PLSA’s Pension Quality Mark have struggled to gain acceptance for measures beyond the bar set for contribution rates.

The worry is that a liberal interpretation of value for these measures  will be used to justify value for members even where net returns are poor. The DWP  is cute in its observation.

The outcome should be a holistic one but made with regard to government’s statutory guidance

It is going to be important for TPR to take a strong hold on the term “holistic” and not allow consultants and lawyers to deflect focus on the main event – the outcome of pension saving in the member’s pocket.

Bench marking

As in the FCA’s CP20/9 , the purpose of the VFM assessment is not just to establish an absolute measure of VFM but to allow the trustees to see the scheme in the context of others. As with the FCA, the bench marking is proposed to set the scheme against comparison schemes that span the options available to employers when choosing a workplace pension.

41. For the purposes of the assessing costs and charges and net investment returns as part of the value for members assessment, each specified pension scheme must compare itself with three “comparison schemes”.7

42. We expect trustees to have a clear rationale for the schemes they have chosen as comparators. The comparators should include a scheme that is different in structure to their own, where possible. For example, bundled corporate pension schemes should look at an unbundled example, and pension schemes not used for Automatic Enrolment should not limit their comparison to other such schemes.

This will only work if the comparison are simple. Here is an example of net performance reporting from the Guidance.

In this example, the scheme applies different charges to different employers, meaning that returns may vary between employees. Trustees do not need to produce multiple tables of returns but can instead provide additional information for each group of employers. The example below shows a scheme with four groups of employers who are charged differently:

Table shows employees in Group A.
Employees in Group B: add 0.05% to returns
Employees in Group C: add 0.15%
Employees in Group D: add 0.20%

Annualised returns % (if available):

Age of member in 2021 (years) 20 years (2001 to 2021) 15 years (2006 to 2021) 10 years (2011 to 2021)
25 x.y % x.y % x.y %
35 x.y % x.y % x.y %
45 x.y % x.y % x.y %
55 x.y % x.y % x.y %
65 x.y % x.y % x.y %

Annualised returns % (expected):

Age of member in 2021 (years) 6 years (2015 to 2021) 5 years (2016 to 2021)
25 x.y % x.y %
35 x.y % x.y %
45 x.y % x.y %
55 x.y % x.y %
65 x.y % x.y %

Much the same can be said for costs and charges and indeed governance and administration. I will be strongly responding to the consultation to suggest ways of simplifying this reporting.

What is the DWP’s big picture?

The consolidation section of the consultation comprises only one chapter of a 6 chapter consultation with 7 annexes and 2 impact assessments. Small wonder it was 19 months in the making.

The other chapters mainly deal with the introduction of alternatives into DC funds which is seen by Government as a positive. Alternatives include private equity investments and investment into what is variously known as “patient capital”, “infrastructure” and “impact” investments. The Government argue that these forms of investment cannot exist within the defaults of small schemes and that consolidation can ensure that more members get exposure to new forms of growth (with the positive social impact they can bring).

The consultation uses the imperative of getting these investments into DC defaults to dismiss calls for a more inclusive charge cap. Indeed the consultation into the charge cap is summarily dealt with in chapter 5 of the consultation and annexes F and G.

It would be easy to read this consultation as a whole and consider the point of it no more than to placate certain asset managers who are excluded from DC investment. This would be to miss the bigger picture.

Of much more relevance to pension savers is that pensions produce good outcomes by making their money matter. The requirements for TCFD reporting look beyond all but the best funded and most committed trustees.

Better returns need to be allied to better investment and implemented through better governance. By linking consolidation with an extension of the impact of workplace DC investment, the DWP may have pulled off something of a coup. For once this reads as a joined up document and let’s hope that when the FCA reports on its VFM consultation, the messages are equally direct and aligned.

Something of a coup for Guy Opperman and the DWP

 

Posted in advice gap, age wage, DWP, pensions, Pensions Regulator | Tagged , , , , , , | 1 Comment

Weathering the Storm

Posted on September 13, 2020 by henry tapper

Iain Clacher & Con Keating

As part of our Funding Code research, we searched for academic or practitioner papers covering long-term expected returns forecasts. We were particularly interested in the ex post accuracy of these forecasts. We found none which used historic market performance[i] other than for short-term concerns such as corrections to market bubbles and periods of boom and bust. There were a few, macro-economic in nature, where long-term returns are functions of growth and demographics. To use an analogy, this is climatology rather than weather forecasting. We shall revert to this later.

What we do know

There are a few things we do know about gilt yields – they are strongly predictive of future long-term gilt returns, but that relation is tautological. They are not predictive of equity, property, or other asset class returns at any holding period horizon. This renders their use in gilts + presentation of expected returns highly questionable. To misquote Ralph Nader, they are unsafe at any horizon.[ii]

We have spent much of the past week trying to reconcile various claims and figures cited in the latest USS valuation consultation with UUK as these two things seem inextricably linked. We have had little success.

As best we can tell, the single equivalent discount rate for USS would be less than 2% nominal and the required rate of return on scheme assets would be around 3.2% nominal. These seem to us to be low and readily achievable. With that in mind, we looked to the long-term expected returns forecasts of other long-term financial institutions. The expected returns of other UK pension funds are not a valid comparator as they are subject to the same regulatory panopticon.

Looking further afield, The Norwegian Fund for Future Generations publishes its expected returns – they expect 3% real above their CPI which has averaged around 1.75% in recent decades, so a nominal of around 4.75%. The risk (volatility) of their portfolio is 12%. The most interesting aspect of all of this is that in 2017, in response to declining government bonds yields globally, they moved their target asset allocation from 60/40 equity/bonds to 70/30 equity/bonds and increased the expected return to 3% real from 2.75%. In the context of this shift in investment strategy and return expectations, it is worth bearing in mind this is the largest of the sovereign wealth funds (with circa $1.2 trillion of investments as of July 2020)[iii]. This is a fund that has access to the best advice in the world. Moreover, it has  achieved these types of returns over the long-term[iv].

By our calculation, if USS were to use this rate, it would not be reporting any deficit but rather a surplus of similar order to the headline-grabbing £18 billion deficit.

Intergenerational fairness

This issue of what do future returns look like (and what returns do we need) is also linked to the recent blogs on cash equivalent transfer values.

If we fund a scheme to the levels of liabilities arising from low rates of interest, we are effectively pre-funding those liabilities relative to their contractual values. This also has the effect of lowering the required rate of return on the asset portfolio, and with that, the potential future cost to the sponsor employer. If a scheme is fully funded at this rate, the required rate of return on assets is that rate.

In these circumstances, if a member takes a transfer based on these values, albeit that the transfer may be limited to the degree of funding of the scheme, then it is crystalizing the employer’s cost to that date. Crucially, this transfer enables the employee to extract all of the pre-funding, and denys the employer the possibility of recouping the costs of this prepayment,  as any future outperformance of the asset portfolio relative to this low return, is no longer possible on the assets that have been removed from the scheme.

While it may be the case that transfer transactions throw up gains in accounting terms when those accounting liability values are inflated by the use of low gilt rates, but that is a short-term accounting gain, which comes at the expense of longer-term real gains from higher returns than those we currently observe in the market.

Moving to a gilts-based de-risking strategy has the same effect of crystalising the elevated sponsor costs while removing any possibility of recouping them.

Another comparator

It is worth comparing these transfers with the size of the PPF; at £80 billion they are four time the liabilities of the PPF, and  in reality, the PPF is rather small relative to the overall DB pensions marketplace. In its 15 years of existence, it has assisted just 2% of scheme members and less than 1.5% if measured by liabilities, and it has done so at eye-watering cost. It is apparent that the fear of sponsor insolvency greatly exaggerates the actuality.

The Funding Code consultation makes much of protecting members. This raises the question of just how much of members’ pensions is at risk. The answer is rather little. If we consider the scheme we used in illustrations in earlier blogs, we have 63% as pensioners in payment and 37% deferred. The pensioners in payment are fully covered by the PPF so the risk exposure is limited to the 10% haircut applied by the PPF – so just 3.7% of future pension payments. These have a total future value of just £756k – a small fraction of even the minimal present-day funding cost of the proposed code. It is not difficult to conclude that this funding code strategy is more about protecting the PPF than members.

A final thought

The ‘lower for longer’ view of interest rates is now conventional wisdom. As such, it and its associated returns expectations are suspect. The shifting global demographics imply that we are moving over the coming three decades from the deflationary environment of the past three decades to one in which inflation and higher interest rates will prevail and with that low growth. This unconventional view is explored fully and coherently in Charles Goodhart’s latest book, ‘The Great Demographic Reversal’; we recommend reading it. This is a change in the financial climate that is perhaps as important as the change in the natural climate.

One consequence of that would be that this is surely the wrong time to de-risk in the manner proposed in the DB Funding Code.

Postscript

In the brief time since we wrote this blog, we have had some very productive discussions with some of our peers. Our attention was drawn to the Canada Pension Plan which publishes 75 year return expectations for each of its two funds. These are 5.95 % (CPI + 3.95%) for the ‘Base’ fund and 5.38% (CPI + 3.38%) for the more conservatively allocated ‘Additional’ fund. Obviously, it is too soon to evaluate the accuracy of these forecasts but the indications to date are supportive. It is notable that both CPP and the Norwegian employ peer review of their assumptions. We feel that the Pensions Regulator’s prescriptions should be subject to similar peer review.

It has also been pointed out to us that the large Canadian funds have proved able to harvest ‘illiquity premiums’ very successfully, with which we agree. However, we will make just one point here, though we will return to the subject in our commentary on the proposed second Code consultation. That point is that it is liquidity in the sense of tradability which has a cost rather liquidity which receives some extra compensation. The means that if you buy liquid securities you pay this cost regardless of whether you exercise the option to use it by selling in a market. Gilts, of course, are the most liquid and most expensive of securities from this perspective. One of the effects of quantitative easing is to lower the cost of liquidity, though relative value differences should persist between on and off the run securities should persist, This lowering of the cost of liquidity should also result in a greater reluctance by dealers to hold large inventories of bonds in pursuit of their liquidity provision role – the returns to capital are less attractive.

Finally, we have had much commentary on the prudence of buying gilts at times when their expected returns are negative in real terms[v]. However, as we have been promised a definition of prudence by the Regulator in the second consultation, we shall leave further discussion until that point in time.

[i] The long-term memory literature results for UK markets are mixed.

[ii] The original comes from Unsafe at Any Speed, Ralph Nader, 1965.

[iii] https://www.statista.com/statistics/276617/sovereign-wealth-funds-worldwide-based-on-assets-under-management/

[iv] Those interested in more detail should read their White Paper (in Norwegian) available at:

https://www.regjeringen.no/contentassets/114c28f5daba461e95ed0f2ec42ebb47/no/pdfs/stm20620170026000dddpdfs.pdf

[v] For more on this aspect see:  https://www.bankofengland.co.uk/statistics/yield-curves

 

 

Posted in actuaries, advice gap, age wage, pension genome, pensions, risk | Tagged , , , , , | 2 Comments

L&G shows we can all innovate if we try!

Posted on September 7, 2020 by henry tapper

FCA sandbox

 

I have been reviewing the performance of various pension providers responding to  over 500 letters of authority issued by the 300 testers as AgeWage progresses through the FCA’s regulatory sandbox. The performance is mixed.

This blog looks at how some pension providers are rejecting innovation and how one has built a powerful business – by embracing smart contracts and the block chain. The lesson is clear – we can innovate if we try.

Abuse of our right to use e-signatures

ipo 2

A large number of pension administration teams still consider digital signatures as insecure and demand we print out digitally signed authorizations. Some go so far as refusing to accept or pass any data using email meaning that information requested under the GDPR arrives by post and has to be scanned back to digital format.

The most egregious example of these  breaches  of data rights is from an insurer whose email footer reads;

We’ve made a number of changes to make it easier to do business with us online, including submitting paperless instructions, removing the need for client signatures and managing your investments safely and securely online. 
We have a series of emails with this footer which begin
Unfortunately, we are currently unable to process your request as the provided Letter of Authority (LOA) has been electronically signed.

Providers who still take this approach might want to read the 124 page document from the Law Society or read this abridged summary entitled

“Electronic signatures legally valid, Law Commission confirms”

 

The impact of refusing to acknowledge this determination is that customers do not get to see the rates of return they have enjoyed from their savings in real time and can’t apply this data to get bench marked performance to compare  their pots.

Abuse of our right to be delivered portable data

Let’s remind us what the GDPR says about our rights to portable data.

  • The right to data portability allows individuals to obtain and reuse their personal data for their own purposes across different services.
  • It allows them to move, copy or transfer personal data easily from one IT environment to another in a safe and secure way, without affecting its usability.
  • Doing this enables individuals to take advantage of applications and services that can use this data to find them a better deal or help them understand their spending habits.

These rights are not recognized by many of the administrators we deal with.  They re-interpret them for their own convenience.  One of our major insurers has decided to limit the data they will provide their policyholders to the last two years, arbitrarily creating an internal rate of return that starts in 2018 whenever the policy was taken out.

I could go on. The point is that insurers cannot fight innovation by hiding behind security issues. It is up to them to make sure they comply with the rules without breaching data protocols.

But insurers do not have to behave like this

When there is a commercial case to adopt technology, insurers can and do. This is an extract from an article in Forbes magazine from Maarten Ectors, Legal & General’s Chief Innovation Officer

maartenectors1_avatar_1576179778-400x400

One challenge faced by the reinsurance market is the high degree of complexity inherent in these contracts. What’s more, setting them up can be a labor-intensive exercise. Parties and counterparties must verify and agree to complicated business rules. Contrast this with consumer insurance policies that can be set up in a few clicks.

At Legal & General (L&G), we use blockchain to break through these challenges to make complex reinsurance more efficient, affordable, and effective.

We are .. a provider of reinsurance for the pension risk transfer business. In pension risk transfer, an insurance company provides a guarantee to pay the annuities for members of a pension fund for the rest of their lives.

L&G has demonstrated an in-depth understanding of mortality trends and longevity risk, and proficiency in payroll, administration, and communication services. As part of our passion for moving the industry forward, we are pursuing innovative approaches to setting up contracts using blockchain.

Even though property and casualty insurance has been an early adopter of blockchain, we believe it is equally suited to the life and annuities sector and particularly the pension risk transfer business.

We considered several existing systems, but none could deliver the combination of security, flexibility, and auditability of the blockchain. We are convinced that blockchain is uniquely suited to the long-term nature of annuities, as it allows data and transactions to be signed, recorded, and maintained permanently and securely over the lifetime of these contracts, which can span more than 50 years.

It enables parties to exchange and agree upon data, to digitally and cryptographically sign the data, and to ensure that the data is perfectly traceable over any period of time—all without the need for a centralized authority. All members maintain a copy of the ledger database, providing greater transparency and independence.

Numerous benefits flow from this approach. First, blockchain provides a single version of the truth that remains immutable for the entire lifetime of the contract. At any point in the future, we can “turn back the clock” to any point in the lifetime of the contract, whether 5 years or 50 years in the past. We will be able to clearly understand what happened: who made which changes and when, who agreed to them, and the effects they had on the agreement. Given that pension contracts can last for decades, this is an essential feature.

Second, blockchain enables the use of smart contracts, which embody the business logic of a contract in code. This enables rapid execution of agreements and reconciliation of transactions, which are not possible when tracking contracts in Excel spreadsheets or using a ledger database technology with SQL-like interfaces. With a smart contract, we can automate complex transaction logic, enabling one-click execution. In our solution, we use smart contracts to manage pricing, claims, financial reporting, and collateral, providing an end-to-end ecosystem to streamline the reinsurance marketplace.

Our solution, known as Estuare, replaces multiple processes and systems traditionally used to support each function of reinsurance. The participants are L&G, direct insurers, and other reinsurers we partner with. We are exploring extending the system to more partners and insurers. Estuare has proven to cut monthly reconciliation from weeks to minutes. We expect it to lower costs, increase agility, and reduce risk for the pension risk transfer market. For the thousands of individuals whose pensions depend on risk management, this is exceptionally good news.

Feedback from clients that have piloted the system has been positive, especially about the simplicity and clarity of the underlying smart contract and the auditability it creates over any period. We are tremendously excited about the potential of blockchain to transform the life and annuities marketplace—and working closely with AWS to realize it.

Innovation where it suits

I totally agree with the approach adopted by L&G through Estruare. I suggested to its head of workplace pensions when some years ago she was exploring a new record-keeping system.

“Adopt smart contracts and move forwards” – said I

Right now, L&G are struggling to meet data requests from their workplace pension clients – corporate, trusts and individual. If only workplace pensions could have access to the technology that has revolutionized reinsurance!

The selective adoption of new technology seems to select against the customers who need innovation most – the DC savers. I do not single L&G out in this, indeed they have been a force for good through auto-enrolment.

But we have an immediate and pressing requirement for the sharing of pension data. We are in the midst of a consultation on data standards for the pension dashboards.

Whether it be through the adoption of the smart contracts – which are at the heart of the blockchain or by simply accepting the value of e-signatures and portable data at this difficult time, it is time we saw innovation for pension savers.

 

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Value Assessments and False Prophets

Posted on September 6, 2020 by henry tapper

 

sermon

You shall know false prophets by their fruits

The FCA are said to be unhappy with the results of its first round of value assessments.  They could do worse than re-read the sermon on the mount and in particular Matthew 7 15-16.  But more of that in a moment.

There seems to be a gap between what a consumer sees as good value and what fund managers do. To be blunt, consumers do not want to judge a book just by its cover. They want to know what really happened to the money they handed over and how it  “did”.

These simple questions have to be the priority for value assessments, but once again financial services companies, left to their own devices have proven deficient in providing a common definition for value and too little practical help on working out what our funds are really costing us. The latter issue is particularly concerning for vertically integrated fund managers like SJP where the fund is paying for advice.

The lack of prescriptive guidance from the FCA on how managers should define value means that the first round of assessments vary widely from manager to manager. Why can’t they just tell us what we got?

Of course the absolute return of a fund is not the only standard by which a fund should be judged. If your fund claims to be invested for social purpose , you expect to see how that purpose was followed. If you decided to invest in technology , you want to know how you did compared with investing in the technology benchmark index. But the alpha and omega of value assessment has to be based on consumer “experienced” outcomes.

I think I speak for most consumers in saying that at the heart of any value assessment, we expect to see what we got for our money . The chief indicator of that is the internal rate of return on our investment over the period we gave our money to someone else to manage.

Beware false prophets

The review said the FCA was probing the process and governance behind the value assessments rather than the statements themselves.

And pleased to read co-founder of AgeWage, Chris Sier’s comment that that while cutting fees was eye-catching, it was only meaningful if accompanied by concrete steps to improve performance.

“Only if you do both will you get good value for money –  cutting fees on an underperforming fund just makes a bad fund cheaper.”

The famous phrase – “you shall know them by their fruits” would seem to be one guiding principle the FCA could follow. As the FT points out

The fact that some managers with high-profile performance issues did not identify a single failing fund raises questions about whether some groups have taken a wide-ranging interpretation of what constitutes value. For example, Hargreaves Lansdown’s value report was blasted as a “whitewash” by investor campaigners for giving a clean bill of health to its multi-manager funds, despite their large exposure to the failed Woodford Equity Income fund.

Clearly many funds that failed to deliver rates of return to consumers in line with expectations they gave in their prospectus and marketing literature made claims that turned out, at least for the period of the assessment to be false.

Thinking about the context of “you shall know them by their fruits”, I went back to Matthew 7 and re-read the Sermon on the Mount

Here is verse 15 which warns of false prophets

Beware of false prophets, which come to you in sheep’s clothing,

but inwardly they are ravening wolves

and here is how you can conduct a value assessment

Ye shall know them by their fruits.

Do men gather grapes of thorns, or figs of thistles?

Value assessments on the consumer’s terms

For the consumer, the idea that a fund manager can set the homework , do the homework and then mark the homework, is difficult.

Currently only a quarter of the fund boards who do the value assessments are independent of the fund manager. Indeed, their independence is compromised by their being paid by the fund manager.

As with IGCs and commercial master trusts, the incentive to stand up for consumers when it puts at risk your burgeoning “portfolio career”, is greatly diminished.

The consumer is looking for a champion but the fund management industry seems reluctant. The Financial Times ends its report on this year’s assessment , quoting the CEO of the Funds Board Council (representing fund directors)

“The Cadbury report [on corporate governance reform] was published in 1992 and we’re still talking about it today. If we expect the fund industry to make such fundamental changes in the first year [of new rules coming in], we’re asking too much.”

Many will be reminded of the wayward prayer of a follower of Chris, St Augustine

Lord make me pure  but not yet

Changing expectations in 2020

2020 has been a year when we have expected delivery on promises quickly and authoritatively.  The pandemic, climate change and Brexit have made us less tolerant of prevarication and more definitive about what we want.

If fund managers think that the slow implementation of the Cadbury report can be considered a comparator for the delivery of proper value assessments, then the FCA should intervene.

I as a consumer have no  difficulty in paying the right price for something, but if I can’t see what I’ve bought, how can I know if I paid the right price?

The process and governance of value assessments needs to meet consumer expectations and the value assessments I have read are simply not telling me what I paid and what I got.

We need a way to find out what we’ve got for our money and that means giving us access to our own experienced internal rates of return..the benchmark rate of return for our investment and a way to make sense of the difference.

Investors deserve no less.

augustine

Augustine by Sandro Botticelli (1480)

 

Posted in pensions | 10 Comments

Covid-19 actuaries give us their monthly medical update

Posted on September 5, 2020 by henry tapper

Monthly medical update – Issue 2

4 September 2020

By Nicola Oliver and Joseph Lu for

Nicola
Jo

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

Given the pace of change with ‘all things COVID’, it can be hard – even for those who follow all the updates – to know what the overall state of play is regarding medical developments in particular, as opposed to just the most recent news.

In this new type of Bulletin, we provide a summary of what we believe the current medical position to be. We will aim for these summaries to be accurate as at the date of publication but they will of course date rapidly, so we plan to issue an updated summary each month.

Vaccines

As at 3 September 2020, the following potential vaccines were in clinical trials[1]:

Stage Phase 1 Phase 1/2 Phase 2 Phase 3
Vaccine Candidates 12 11 3 8

In addition, there around 140 preclinical trials in progress for vaccines to tackle SARS-CoV-2.

Clearly, the vaccines in the more advanced stages of clinical trial development hold the most promise. The compound under investigation by the University of Oxford has demonstrated the ability to provoke both an antibody and T-cell response. However, the durability of this response is still unknown. Results from the larger phase 3 trials will shed more light on its potential success.

A candidate vaccine developed by U.S. biotech company Moderna and the National Institute of Allergy and Infectious Diseases (NIAID) was the first to be tested on humans in the U.S.. Results from this ongoing study also report evidence of neutralizing antibodies in participants.

The compound being developed by CanSino Biologics, in collaboration with the Beijing Institute of Biotechnology, has also demonstrated promising results. The study has reported that around 90% of the participants developed T-cell responses and about 85% developed neutralizing antibodies, according to the study.

 

 

Treatment

  • Corticosteroids have been shown to be effective in severely ill patients hospitalised with COVID-19 who are receiving mechanical ventilation. A recent prospective meta-analysis of clinical trials of critically ill patients with COVID-19 concluded that administration of systemic corticosteroids, compared with usual care or placebo, was associated with lower 28-day all-cause mortality. (steroids)
  • Results from trials using the antiviral drug remdesivir indicate that patients who received remdesivir had a 31% faster time to recovery than those who received placebo. A phase 3, randomized, open-label trial showed that remdesivir was associated with significantly greater recovery and reduced odds of death compared with standard of care in patients with severe COVID-19. (remdesivir)

 

Testing

  • There are currently two types of diagnostic test available. The molecular real-time polymerase chain reaction (RT-PCR) test detects the virus’s genetic material, and the antigen test detects specific proteins on the surface of the virus.
    • RT-PCR tests are almost 100% accurate if carried out correctly.
    • Antigen tests are less accurate but have a faster turnaround, potentially under one hour. However, false-negative results from antigen tests may range as high as 20-30%
  • Antibody tests are not diagnostic tests and are used primarily to identify whether you’ve recovered from COVID-19. Antibody tests also are subject to false-positive results. Research suggests antibody levels may wane over just a few months. And while a positive antibody test proves you’ve been exposed to the virus, it’s not yet known whether such results indicate a lack of contagiousness or long-lasting, protective immunity.
  • Unfortunately, it’s not clear exactly how accurate any of these tests are. Development in all test types is ongoing.

 

Antibodies

  • There is emerging evidence that those who have previously been confirmed positive for COVD-19 may not develop a sustained antibody response and are susceptible to reinfection.
  • Several cases have been reported (reinfection); this has implications for vaccine development and strategies to contain the virus.

 

 

[1] https://www.who.int/publications/m/item/draft-landscape-of-covid-19-candidate-vaccines

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Reasons to be excited about Marcelo Bielsa’s Premier League arrival

Posted on September 5, 2020 by henry tapper

Guest post from Oliver Tapper

If you hadn’t heard of Marcelo Bielsa when he became Leeds United manager in June 2018, then you almost certainly will know his name now. In just two seasons at the club, Bielsa has been involved in a spying scandal, won a FIFA Fair Play Award, and been promoted to the Premier League.

On 12th September Bielsa will manage in his first top-flight game against the Premier League champions Liverpool, in what is likely to be one of the most anticipated opening games in Premier League history. But what is it about Bielsa that has given him cult status in Leeds, and why should you be excited about him managing in the Premier League?

He is ‘The Crazy One’

In 1992, Marcelo Bielsa suffered a 6-0 defeat to San Lorenzo in the Copa Libertadores while managing the prestigious Argentinian club Newell’s Old Boys. That night a gang of around twenty enraged Newell’s supporters travelled to Bielsa’s house and demanded he come outside to explain the team’s performance.

Bielsa did go outside; however, it was not to talk about the game. When Bielsa opened the door, he was holding a grenade and allegedly told the fans that if they didn’t leave he would pull the pin. This was the moment that led to Bielsa becoming known as ‘El Loco’ or ‘The Crazy One’.

English football has seen many characters in its time, from Mario Balotelli to Paolo Di Canio, the Premier League is rarely short of eccentric protagonists. But stories about ‘El Loco’ make Balotelli letting off a firework in his own house look about as dangerous as a cosy night in with James Milner.

Marcelo Bielsa turned up to Leeds United 100 year celebration black tie dinner in his Leeds tracksuit

In 1985, while working as a youth development coach for Newell’s, Bielsa went on a scouting trip to Sante Fe to assess and hopefully sign a promising young teenager. Except, this was not the usual meet the family and talk to the young player scouting trip. Bielsa arrived at 2am and asked the teenager’s parents if he could see their son’s legs to check whether they were ‘footballer’s legs’. After inspecting his legs while he slept, Bielsa signed the teenager on the spot in perhaps the most bizarre transfer agreement of all time. Oh, and by the way, as if this story couldn’t get any weirder, that teenager was Mauricio Pochettino.

More recently, when the Leeds board contacted Bielsa in 2018 he spent the rest of the night watching footage from Leeds’ previous season. By the time a face to face meeting had been set up, Bielsa had watched every single game of that season in full, that’s 70 hours worth of footage. To call Bielsa an obsessive is to massively underestimate the man’s attention to detail, even if it is a bit crazy.

It does not seem like Bielsa’s entertaining antics and methods are likely to change anytime soon. It’s for this reason that everyone should be excited about a season of Premier League football with Marcelo Bielsa. ‘El Loco’ is effectively a supercharged Jose Mourinho, so we should all be ready to expect the unexpected when the season starts in September.

Bielsa vs Lampard Part Two

As if the historic Chelsea vs Leeds rivalry didn’t need any extra spice, well try adding to the mix an unhappy personal history between the current managers of both clubs. Chelsea vs Leeds on the 5th December is definitely a fixture you should be circling in your calendar and clearing your plans for.

If you’ve been living under a rock for the last couple of years and don’t know why Marcelo Bielsa vs Frank Lampard part two is such a big deal then let us explain what happened in part one.

In January 2019, Leeds United were caught ‘spying’ on Derby County ahead of a crucial Championship fixture. Marcelo Bielsa had sent an intern to the Derby training ground to observe then manager Frank Lampard’s plans and tactics. The spy was caught and reported to the police, resulting in a mass media hurricane referred to as ‘spygate’. Bielsa was widely criticised for his major part in the scandal and Leeds were eventually fined £200,000 by the league.

 

Frank Lampard’s response to the scandal was to go after Bielsa, who he said had ‘violated fair play rules’. The comments were water off a duck’s back to Bielsa though, who even gave an unprecedented press conference explaining why he spied and his meticulous process for preparing for every match.

It’s fair to say that there is no love lost between these two managers which makes both fixtures between Leeds and Chelsea particularly mouth-watering prospects for the coming season.

He doesn’t fit the footballer mould

Whether you like him or loathe him, one criticism that cannot be levelled at Marcelo Bielsa is that he fits any stereotype. This will perhaps become most clear when Bielsa becomes a Premier League manager. The Premier League, much like any other major European Football league has become associated in recent decades with money, glamour and fame. Staggering weekly wages, flash cars, and luxury mansions are now part of being a top flight footballer or manager.

Who could forget when Manchester United funded Jose Mourinho living in the Lowry Hotel between May 2016 and December 2018 for 895 nights in a $1,040 per night room. Now contrast that with Marcelo Bielsa, when Bielsa moved to Leeds the club housed him in a high end spa close to Harrogate that was probably not dissimilar to Jose Mourinho’s living situation at the Lowry. However, Bielsa quickly got tired of living in a hotel and instead decided to move to a modest apartment in Wetherby because it was within walking distance of the training ground. Bielsa walked the 45 minutes to the training ground every day, spent time with locals in coffee shops, and did his weekly shopping at Morrisson’s. There is nothing ‘Premier League’ about Bielsa and his lifestyle and that surely is something that we should be excited by.

For all of El Loco’s eccentricity and sheer weirdness, he is a man of principles and values and that must be respected in him. Bielsa refused to let Leeds pay the £200,000 fine for spygate, instead funding it himself. In 2018, he donated 2 million pounds to Newell’s Old Boys calling it a repayment for all that the club had done for him. This is a man who once took time out of football to live in a monastery, and on other occasions to retreat to relative anonymity on his farm.

Bielsa’s different approach to life is one that we can all look forward to seeing in the Premier League next season and his philosophical outlook should provide plenty of food for thought for players, managers and fans alike.

His teams play amazing football

It’s not just Bielsa’s approach to life that is different: Bielsa-ball and his approach to football is unique and it’s an exciting prospect to see how it fares at the top level. ‘The Bielsa-way’ has a cult following among football fanatics and coaches within the game. Pep Guardiola is among one of many world-class managers who see Bielsa as a trailblazer for modern footballing tactics.

Leeds fans have bought into the ‘Bielsa Way’

While you will see a few of Bielsa’s trademark tactics in every game he manages, he demonstrates a great deal of strategic flexibility, thinking deeply about each match like an intricate game of chess. Against teams with a lone striker Bielsa typically uses a 4-1-4-1 formation; however, when an opponent plays two up front Bielsa opts for a Football Manager-esque 3-3-1-3. This unusual formation serves as a means of overloading the wings and creating tactical interplays that allow his teams to get through even the most congested areas.

Perhaps the most famous aspect of Bielsa’s style that has become a staple of the major European teams in the last few years is the ‘high press’. Bielsa is widely accredited as the instigator of the high press and it makes his teams a joy to watch as they play each match at a frightening pace.

As a result, Leeds training sessions are intense and involve constant running. This relentless intensity has led to various commentators referring to Bielsa’s style as ‘Murderball’. In the last few seasons newly promoted Wolves and then Sheffield United have had major success with their relatively new tactical approaches. Bielsa’s Leeds will offer something new and they are at the top of our ‘ones to watch’ list this season.

Predict Premier League games in the new season on Tenner!

It might be pretty pointless trying to predict what Marcelo Bielsa is going to do next, but one thing that is definitely worth predicting are next season’s Premier League matches on Tenner. Our free-to-play predictions games offer you the chance to win cash prizes for free! You can read more about what Tenner is here or check out more information on our homepage.

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Sam Marsh’s response to TPR’s DB Funding Code

Posted on September 4, 2020 by henry tapper

db code

sam marsh

Sam Marsh is a lecturer and branch president of the Sheffield UCU. He has responded on his own behalf to TPR’s consultation.

My initial reaction when reading the consultation was “why consult?”. At that time we were concentrating on staying safe and Government had effectively assumed a state of martial law. We had voluntarily agreed to abide by its rules so when the Pension Regulator laid down its prescription for Defined Benefit funding, it seemed (to coin a phrase) that resistance was futile.

I have been proved wrong. The consultation has brought forth some great thinking from Iain Clacher and Con Keating and some great responses from Ros Altmann and now Sam Marsh. I am pleased to see more great responses in my inbox, keep them coming they are getting read (send your submission to henry@agewage.com).

They don’t have to disagree with the new funding code (though most submissions do), you will be guaranteed a non-edited publication.

Thanks to Sam and to all he and the UCU are doing to support the cause of open DB pensions, thanks too to dissenting  voices like Sharon Bowles in the House of Lords and thanks to David Fairs at TPR for his urbane gentility throughout.

We are lining up a lamb to the slaughter David – in support of your efforts to raise money

Keep on running everyone!

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Ros Altmann’s response to TPR’s DB funding code consultation.

Posted on September 3, 2020 by henry tapper

db code

I have asked for responses to the Pension Regulator’s consultation questions and Ros Altmann has obliged. If you have submitted a response and would like your replies to be publicized in a similar way, I would be delighted to assist.

Clearly as a member of the House of Lords and former Pension Minister, Ros’ replies will be of particular public interest .  I have split them into two slideshows for ease of viewing.

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Please forward your consultation responses in word or PDF to henry@agewage.com.

Ros Altmann new

Ros Altmann

 

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They don’t do plagues like they used to

Posted on September 3, 2020 by henry tapper

Defoe_Journal_of_the_Plague_Year.jpg

Daniel Defoe’s Diary of the plague year was published in 1722, over 50 years after the 1665 plague that struck the City of London. They don’t do plagues like they used to.

All the same, it has been a bizarre few months for those of us who stayed in the City and the manager of the Cockpit pub tells me he has not left the City boundaries since early March.

All the better then that the pub is open now and looking no different than the day it closed on March 19th. (I lie – the carpets are cleaner, the brown is browner).

 

The pubs of Blackfriars

Legend has it that when Henry VIII dissolved the monasteries (Blackfriars priory among them) , the land remained with the Church, even it the church was removed from the land. While the City of London swung to a puritanical lockdown, church land was outside the control of the City fathers.

The site of the Cockpit (now and then in Ireland Yard) was church land and the string of pubs that led up from the river were known as the four castles, each echoing Baynard’s Castle, a Norman stronghold and residence of Edward III that still gives its name to the ward to the East of Blackfriars.  Edward decided to move his glad-rags up to the Kings Wardrobe which gave our neck of the woods some glamour in the middle ages.

The Cockpit was nicknamed the fourth castle being the furthest from the river. Those who work in 60 Queen Victoria Street will be pleased to know that the BNY Mellon’s building is built on the sites of two other castles.

Pubs were able to flourish on church land as were brothels and playhouses. Twelfth Night and the Winters Tale both had their first performances in the Winter Playhouse, situated in what is now the Apothecaries Hall adjacent to Playhouse Yard.

For Defoe, this was a depraved but most enjoyable part of London, It was of course cursed by the plague and destroyed by the fire that engulfed the City in 1666. When Shakespeare bought property in Blackfriars (probably the other side of Ireland Yard from the Cockpit), it would have been inside Blackfriars . Shakespeare’s theaters in Bankside, Moorgate and Blackfriars, were even then handily sited for pubs and whore houses.

They don’t do plagues like they used to.

COVID-19 might well have been a plague had it arrived in 1665.

Week after week I bashed pans in the intersection of Ireland Yard and St Andrews Hill (formerly Puddle Dock Hill) at the entrance to  Wardrobe Terrace (marked in green)

11464_rocquemap.jpg

The  street plan for my building in “Fryer Street” is that of the sixteenth century (above) It survives though the church was gutted in 1666 and 1940.

StAndrewWardrobeChurch

St Andrew by the Wardrobe , the Wardrobe Terrace is behind

There is a priest hole in the church and in the pub, many eminent punters would not be seen entering Blackfriars by the gate but preferred the subterranean passage between the ale house and the prayer house (for obvious reasons).

As I stood banging my pan at this little cross-roads , I thought how little our danger compared with our forefathers for whom life was rather less than half as long.

“Solitary, poor, nasty, brutish, and short”. Hobbes described the natural state of mankind in Leviathan and we would do well to remember that we never had a plague so good.

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BONFIRE. Keating and Clacher conclude their articles on the DB funding code

Posted on September 1, 2020 by henry tapper

bonfire

Con Keating and Iain Clacher

After critically reading and re-reading the consultation on the new DB Funding Code and its associated documents several times, we decided that we would not submit a response to it.

Our principal reason was that it read to us more like a marketing document than a true consultation.

But having engaged with numerous consultations to see no meaningful change in approach or willingness to steer a different course, regardless of the facts, we thought it would be better to write extensively and hopefully spark some meaningful debate in the run-up. We are always available if anyone including the Regulator wish to debate and discuss.

Regarding the consultation itself, it states that it has been prepared in compliance with the government’s consultation principles. It even lists nine key principles. By our reckoning, the consultation breaches more of these principles than it complies with.

The problem with marketing documents is that they do not invite challenge and criticism; in this case they strongly suggest that the Regulator is not interested in listening to or changing anything. Their reported reaction (one of being less than happy) to the Bowles Amendment supports that view. In other blogs we have criticised the use of misrepresentative language such as “objective”. The dominant question that a marketing document seeks to provoke is: ‘Where can I get it?’ It is the setting out of a stall.

One major issue with the current consultation is that there is no cost-benefit analysis in either the consultation or supporting documents, though we are assured, in the Executive Summary, that: “We will take account of…our assessment of impacts.” This naturally raises a question: if this has been done, why not share it with us? If it has not been done yet, on what basis is the support for so many of the assertions and assurances in the Consultation?

The Introduction of the Consultation implies an objective to: “…ensure DB schemes’ efficient run-off phase”, which naturally raised concerns for open schemes and led to the Bowles Amendment. Taken together, these points led us to investigate the cost, impact, and efficiency of the proposed Code.

We began by attempting to model the cost to the entire universe of pension schemes, which the Consultation tells us have current technical provision liabilities of £1.9 trillion [as at 31st March 2019 – para 98 of the Consultation Document]. Unfortunately, there is insufficient information in the Consultation or the public domain more generally to do this reliably.  With many heroic assumptions and inferences, we simulated ranges of possible total cost outcomes.

The results ranged from £10 billion to £600 billion, with the 5% – 95% range being £80 billion – £200 billion and the most common outcomes lying in the range £100 – £120 billion. Perhaps the only significant result was that there was no instance of a net gain rather than cost. These results also take no account of the higher costs of administration, which we would estimate to be of the order of £500 million per year. We note that these simulations are far higher, perhaps orders of magnitude higher, than the risk exposures reported by the Pension Protection Fund. Given our low confidence in these results, we concluded that they could not form the basis of any further research or analysis and decided that instead we would investigate the costs and impact on a few small DB schemes[i]. We report here the results for one of these as it is extremely informative. We do not claim that this scheme is typical or representative.

An illustration

We consider one small open scheme, which is large by comparison with its sponsor employer. It has technical provisions and assets of £25.8 million at December 31 2019, while the sponsor has equity of £8.3 million with annual sales of £11.25 million and pre-tax profits of £1.24 million. The sponsor employer is small but of prime credit quality.

Although the scheme is open, we treat it as if it were closed to new members and future accrual, and then consider the position 25 years from now as the long-term objective (LTO) horizon. The scheme is today in balance with an expected rate of return on assets of 6.1% pa; this is high by comparison with other reported discount rates, but it is lower than the scheme’s twenty-year historic returns performance of 7.6%. We report this historical investment performance figure for completeness but do not rely on it in any of the analysis which follows.

At this 25-year forward point in time, it should be funded to a self-sufficiency basis, which we take to be a discount rate of 1%. The amount outstanding at this future date is 30.4% of today’s total projected benefits but only 10.9% of today’s present value. At a 1% discount rate the scheme would be funded at 97% of the buy-out level and 91% of the ultimate projected liabilities would be 100% funded.

It is immediately apparent that the proposed Code is a far from comprehensive solution for any scheme, focusing on a small tail of member benefits.

At this time, the Macaulay Duration[ii] (at 1%) of the scheme would be 9.23 years and pensioners in payment would account for 63% of the projected liabilities. The scheme would be mature.

As an aside, we do not believe that duration is a suitable measure of scheme maturity, as its value is dependent upon the prevailing level of interest rates. The duration of a perpetual is the inverse of its yield, so a perpetual yielding 1% would have a duration of 100 years, while that same perpetual would have a duration of ten years at a 10% yield.

The present value of the residual liabilities at this future date using a 1% discount rate is £18.6 million. This is an increase of £5.7 million on the current projected funding required (a 45% increase). This has a present value at 6.1% of £1.3 million. This is the amount of special contribution required today to arrive at a 1% funding level, 25 years from now.

This is slightly more than one year’s pre-tax profits. It is 1.7 times current annual contributions. It would require shareholders to forego any dividend. This is well within the employer’s current liquidity of £1.1 million and existing unutilised overdraft facility of £2 million.

But the Code does not end here; it requires the scheme to have transitioned to a low risk, and low return portfolio (1%), in 25 years from now when this level of funding is required. This will further raise the cost to the employer. For modelling purposes, we choose a uniform rate of transition over the 25-year period. The portfolio’s expected return declines from 6.1% to 1% and estimated one-year volatility from 20% to 10%. We then make a very important choice: we assume that only the assets currently supporting these future claims (£ 2.8 million) are ’de-risked’. If we ’de-risk’ all, the cost rises dramatically.

The cost in this limited case rises to £11.9 million in future terms (2.1 times the earlier cliff-edge case). This would require a current special contribution of £4.97 million, four years’ pre-tax profits, and 44% of total annual revenues. In the opinion of management, with which we concur, this would simply not be supportable. It would preclude any new investment for at least three years, damaging future productivity and sales.

If we were to ’de-risk’ the entire portfolio, the position becomes even more dire. It would be a future shortfall of £15.7 million requiring a current special contribution of £6.6 million, 5.3 years of current pre-tax profits. This would be truly catastrophic; to quote one director: “If we liquidated the remains of the business, we might just be able to cover employees’ redundancy payments.”

These costs are material given the size of the scheme; respectively 19.2% and 25.5% of total scheme assets.

How much risk to the employer would be removed by ‘de-risking’?

We use as our metric the expected loss given loss. We assume one-year volatility of 20% for the existing portfolio and 10% for the ‘de-risked’ portfolio. In the current situation, the risk to the sponsor at the future date is £916,955, while for the ’de-risked’ case it is £1,068,535. In other words, the proposed new Funding Code would increase the cost to the employer of pension provision by a very substantial amount while also adding to the employer’s risk exposure. We wonder how this could be considered compatible with the Regulator’s duty to employers to minimise any adverse funding impact on the sustainable growth of an employer.

The employer and trustees are comfortable with a current risk exposure of £1.9 million, arising from the volatility of the asset portfolio; particularly so, given its odds ratio of 2.65 :1 (Expected gain given gain: Expected loss given loss). By contrast, they are not comfortable with £1.07 million exposure given its odds ratio of 1.35: 1. The employer has equity capital resources of £8.3million; its risk exposure is 4.3 times covered in the present case. By contrast, the risk exposure coverage in the two ‘de-risked’ portfolio circumstances are respectively 3.12 and 1.59 times. This is a deterioration of the sponsor covenant equivalent to that from AAA to B.

We find it incredible that the 30% tail of the distribution of projected benefits should be so risky that it requires an increase in funding of 20-25%.

The claims to efficiency of TPR’s approach are surprising and it is well-known that pure funding solutions are sub-optimal; as the age-old adage has it, prevention is better than cure.

With this in mind we next examine the cost of an insurance solution. This is a policy with deferred effect where, if the sponsor fails, the insurer steps in and pays the full benefits as originally promised. This is the cover which the PPF could and should have provided.

It has been suggested to us that it is not wise to provide the top cover via the PPF. However, we see the precise form of arrangement for the provision as a matter for later discussion. (See endnote[iii]) )

The cost today of this pension indemnity cover[iv] is £343,609.10. The policy also has a value as an asset of the scheme. The value today of the policy is £1,370,423.12. This policy asset will increase in value until the date at which cover commences and then decline rapidly as pensions are discharged. In addition, its value moves in a counter-cyclical manner; its value will increase when scheme assets fall in value. Perhaps the greatest attraction of such an approach is that it would allow the scheme to follow return-optimising investment strategies.

It is clear that TPR claims to ‘efficiency’ are, at the very least, open to debate.

Conclusions

If we return to our earlier attempts at macro-level estimations of the costs of the code. The most extreme outlier, £600 billion, would correspond to the apocalypse of all schemes failing entirely unfunded at the objective date. In fact, the low estimates of cost are as high or higher than the highest estimates of the risk posed by schemes. It appears that this low-dependency ‘solution’ costs five to six times as much as the likely losses arising from expected sponsor and scheme failure. The cost to the taxpayer in lost corporation tax receipts is also substantial (as tax relief is given to these ‘costs of the code’), and particularly meaningful in the current pandemic circumstances.

The Regulator has failed to make any case for a special regime for schemes in run-off, let alone open schemes.

We began this series of blogs and articles with a call for a bonfire of regulation; at the very least we should start with this proposed Funding Code.

[i] We examined four scheme in total, varying in size from the £25 million of the reported scheme to a maximum of £180 million of liabilities. The results for these other schemes were broadly similar to those reported. For two of these schemes we do not have access to sponsor financials.

[ii]https://www.investopedia.com/ask/answers/051415/what-difference-between-macaulay-duration-and-modified-duration.asp

[iii] A range of issues have been raised and some suggestions made. For example: All of the current members in the PPF will ask for an upgrade. Better politically to require a compulsory mutual insurance or support fund – perhaps with 10%-25% of the annual premium being born by scheme members and collected by reducing future revaluation/ pension increases- should be weighted by value of pension – and can put in a exemption for small pensions.

[iv] The cost of this cover may be calculated in a variety  of ways from the complexities of forward start strips of credit default swap contracts to differences in single premium current start policies. The results are not highly sensitive to the method, though  they might be relevant in an active traded securities market. The figures quoted in  this blog are derived from the difference between two policies – one covering the entire period and one covering the entire scheme tenor.

 

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Has our attitude to wealth changed with Covid or with Brexit?

Posted on August 31, 2020 by henry tapper

 

Covid brexit.jpgIt seems that we are in for another round of will he won’t he over wealth taxes. He being Rishi Sunak and the taxes in question surrounding business profits, wealth in excess property and the distribution of pension tax relief.

And once again the argument is being couched in terms of an internal discussion within the Conservative party about votes.

Of all the things that needn’t worry the Conservative party right now, it is votes. They have a massive majority and they are dealing with a series of issues resulting from the pandemic, all of which are immediate and some of which are existential.

But there is another good reason for Sunak to ignore the squeals of the backbenchers and that is the votes that won him the election weren’t from the wealthy but from the relatively deprived areas of the country which had traditionally been known as working class. Many of these people will not be working right now and for them , paying more tax on pensions, second homes and business profits will play out well. They quite rightly point to increases in VAT and council tax and the cuts in benefits and social services and are saying “we’re not paying again”.

Because they paid last time and while the pandemic can’t be blamed on corporate greed, there is an underlying resentment that while services have gone down, pay has not gone up and most people feel cheated – even if they don’t know why.

Cheated and you don’t know it!

What is amazing about there being 1.7m people in this country overpaying their pension contributions by 25% is that the only people who understand why are tax specialists.

The traditional spokespeople for those on low earnings – the unions – have been quiet about the net pay anomaly. The Labour party has hardly mentioned it. Ironically it has been those like Ros Altmann, in the House of Lords who have become the champions of fairer taxation for those on low incomes.

The great pension rip-off is the redistribution of tax opportunties from the poor to the well off and if Sunak wants to have a go at pensions he should appeal directly to the voters who got him his job.  They’re the ones who are owed.

Labour, Liberals and Greens are now the parties of the mass affluent.

And this is why there is political capital for the conservative party in pensions. They are not fighting their voters, they are fighting Labour votes. London, where average incomes are noticeably higher than anywhere else in the UK , is Labour’s heartland.

And I have absolutely no time for the whingeing of the homeworking classes. The homeworkers are the lucky ones, they are not having to worry about the end of furlough, they don’t have to ride public transport, they can choose how they organise childcare when the kids go back to school. Financially they have been convenienced by the pandemic with nothing to pay for commuting and with the perks of Government give-aways none of which have been means-tested.

Has our attitude changed to wealth because of COVID

The pandemic may not have changed us as much as we think. I suspect that attitudes to money are strongly ingrained in families and communities and that the fear of losing the tax priviledges around pensions , property and business equity is as strong among the mass affluent as ever.

What has changed is the empowerment of those who don’t have money in the political pecking order. The Conservative party is still run by Wickhamists and Etonians but it can see its power base being in the Brexit loving communities who voted for it last year.

There is an opportunity for Sunak to deliver a radical redistributive solution to the challenge of COVID and I suspect that it will be his confidence in his party’s appeal to low-earners , not the appeal of social justice , that will give him courage.

That said, I have learned not to underestimate the power of the shires and of the funders of the Conservative party. Sunak will need to be a stronger chancellor than any of his recent predecessors to tax the rich, and I include Labour chancellors in that estimation.

COVID may be the excuse, but the political swing occasioned by Brexit is what may drive change.

Posted in advice gap, Brexit, coronavirus, pensions | Tagged , | Leave a comment

Dangling temptation in our way – DB transfers in a time of pandemic

Posted on August 30, 2020 by henry tapper

Final salary transfer

I read this and my heart sunk.

It sunk for the hundreds of thousands who have taken their transfers and must now be wondering why they didn’t wait for ol’man Covid.

It sunk for those advisers who have either been barred , blocked or chosen not to offer transfers.

And it sunk for those deferred pensioners with the right to a cash equivalent transfer value who are going to read the LCP research in the FT and go on a hunt for an advisor to unlock their treasure chest.

Bart 2

It simply doesn’t make sense that while markets have fallen, DB transfers have risen by 30% in the pandemic. It exposes the nonsense of DB pension valuations for what they are, academic exercises uncoupled from reality.

Why oh why?

This is the lunacy of pensions lock-down, the mania for self-sufficiency, the drive to de-risk.

All the prudence that has been built into  DB pension schemes has been at a cost to jobs, investment as George Kirrin pointed out in a comment on a recent blog on DB scheme funding  by Keating and Clacher 

And where does this prudence go? It is transferred to the wealth management accounts of those who by accident, have got lucky with a pension windfall.

Merryn Somerset Webb said a few years back now “If I had a  DB pension I’d take my transfer now”.  If it wasn’t for the economic nightmare that is upon us, interest rates should now be rising as we finally kicked off the shackles of austerity. Transfer values should be going down and the insanity of discount rates set at 1% or even lower would be a thing of the past.

Why oh why do we continue to dangle these over-inflated DB transfer values? They aren’t prudent and are an offence to the millions who face personal hardship at this time.

The details

Here’s an excerpt from the FT report

Analysis by Lane Clark & Peacock, the pension consultants, showed the average value of defined benefit pension transfers reached £556,000 in the second quarter of 2020 — an increase of 30 per cent compared with the previous quarter — and the first time in three years that the average transfer has exceeded half a million pounds.

Only about one in five of those who received a transfer value quotation from their pension provider in this period opted to take the cash; the lowest quarterly take-up rate since 2016, according to LCP.

Although average pot sizes increased dramatically, the analysis also found that overall levels of transfer activity in the period fell by 25 per cent — partly because some pension schemes paused transfer quotations under lockdown, in line with regulatory guidance.

But we are also in that period before the arrival of the ban on contingent charging where advisers are reconsidering the economics of transfers. The risk of getting it wrong are substantial (which is why PI premiums for those still advising on them are so high). Coupled to this, pressure on fees, now they can’t be cushioned by contingent charging, mean that advisers may decide their boots are full enough.

So what can be done?

Many trustees still see CETVs as the victimless crime. They get liabilities away at below buy-out cost and please employers who can book the technical accounting advantage into their short-term reporting (often with positive impacts to management’s remuneration).

But there are victims. The true discount rate for these liabilities is what Con Keating and Iain Clacher call the CAR or the underlying rate of return needed to meet scheme liabilities over time. If the CAR was used as the discount rate ,  CETVs would be slashed and schemes would retain pensioners.

Of course that isn’t going to happen , but if we took a long-term view of our DB liabilities we would continue the ability of trustees to voluntarily ban transfers. Indeed we might decide to put funded pensions on the same basis as their unfunded counterparts and just stop transfers where the discount rate fell below a nominal level (say 3%).

bart 3

Bart (not Ben) Huby. LCP’s actuary with the numbers

Posted in pensions | 4 Comments

Want to live longer? Get a pension!

Posted on August 29, 2020 by henry tapper
live longer

Thanks to Jim Hennington for this

I’m writing on a sad morning when a great man died at 43 from cancer. Death can kill any of us in random ways and Chadwick Boseman died nobly cut short in the most unfair of ways

It is easy to let your head go down when someone dies this way. It is easy  to think that you have no control of your own mortality, but statistically and practically this is not true.

Chadwick Boseman’s death was untimely and also unusual, most people live long and healthier lives than at any time in the history of mortality records

life 2.jpg

However you look at the data, we are living longer and it’s for the reasons in the green boxes at the top of the blog.

Below is another chart confirming that life expectancy for women around the world  is increasing in a straight line over a very long period.

life 3

Those little red lines flattening the improvements were projections that life expectancy would not improve – which turned out to be wrong.

We are in control of our own life expectancy

As I write, I am listening to an episode of  “More or less” that is looking at obesity and our capacity to keep our weight down and the fat off our tummies.

Fake fat news. Jamie Oliver’s stat that over a quarter of children’s fruit and veg came from pizza eating, is proved to be fake news. Similarly, Matt Hancock’s stat that if everyone who is overweight lost 5 lbs then we would save the NHS on average 30p  per patient per year. So stats

Fatually correct. Thankfully we got one set of statistics from Stuart McDonald that did make sense. His stats tell us that if the UK hadn’t been quite as obese as we are , we would have had about 600 less deaths than our European neighbors this year and about 1300 less deaths if we had all been Italian (who are notoriously thin)

Stuart put this in context, Britain’s excess death are down to a lot more than our being a nation of fatties

 

Being fat matters but being fat does not mean you will die of COVID-19

This matters to me because I am about 15 kg above my right weight and that is because I do not take enough exercise, because I drink too much in the evening and because I eat a lot of hula hoops.

If I am going to be incentivised to spend more time being active and turning down the second glass of wine in the evening, I am going to need facts I can trust. I trust Stuart and I don’t trust Jamie Oliver or Matt Hancock.

I know that being fat is unlikely to kill me today but it can lower my tomorrows. Presumably why Boris Johnson announced this week he has hired a personal trainer. Boris may be thinking about all his tomorrows

Which is where pensions come in

Although I have saved hard into DC pensions all my life, I am lucky enough to have a DB pension from  my time working at Zurich. I also have the prospect of a state pension in 8 years time. Boris too has a nice civil service pension coming his way.

These pensions become more valuable to me for every year I live , indeed they pay off by the day.

So – being a value for money kind of guy, I see my pensions as my financial incentive for drinking less and going to the gym. I  want to be a happy, financially solvent pensioner for a  very long time – for as long as I live. And I want Stella , who is younger than me (and as a woman has a longer life expectancy than me) to benefit from my pensions when I die. So I bought her a gym membership last month when the gyms reopened!

And this is something that is very peculiar to pensions (rather than pension pots). A pension is an incentive to live longer. A DC pot is a worry.

I am not suggesting that people with DC pensions consciously shorten their lives to ensure their pot doesn’t run out before they do.

But I do think that the security that comes from knowing you have a wage for life coming my  way, is a weight off my mind.

And I wonder, in 30 years time when I will close to 90, if we’ll be adding to that list , pf factors known to increase life expectancy – a proper pension!

Posted in actuaries, Blogging, pensions | 2 Comments

Why your pension records – like your medicals – should be yours by right

Posted on August 28, 2020 by henry tapper

right to record 3.jpg

This blog sets out for the first time a fundamental right of the retirement saver, a right to see their pension record in a digitally readable format. The right is fundamental to the “treat customer’s fairly” principal that FCA regulated firms sign up to and it underpins the trustee’s duties in an  occupational scheme. It is reinforced by the General Data Protection Act and it will be mandatory for pension providers to demonstrate when the pension dashboard arrives.

There are two reasons why pension contribution histories really matter

  1. They evidence that the amount you have paid into and taken out of your pension tallies with your pot
  2. They can be used to determine what rate of return you got while your money has been in the pension scheme

The right to see your pension records is as fundamental as your right to see your medical records.

Not all providers recognise you have this right

Over the past year, AgeWage has dealt with hundreds of letters of authority received from savers asking us to get them their contribution histories and the value of their pots.

We find most pots but when we submit the letter of authority we are rebutted with numerous excuses for not giving up the data you have asked for.

A good proportion of the refusals relate to the letter of authority which is often refused because signed with a signature. One provider sent us such a refusal on an email where the footer boasted

We’ve made a number of changes to make it easier to do business with us online, including submitting paperless instructions, removing the need for client signatures and managing your investments safely and securely online.

And other providers either flatly deny the data  or simply ignore the request. I will not mention names on this blog but we are compiling our dossier. Frankly we think these providers are behaving illegally and certainly against the principles of their regulators.

right to record 2

Why does record keeping matter?

  1. Because it is your audit of receipts

In America, those who administrate pensions are known as “record keepers”. Their job is to keep a record of the money they have taken in and the money they have paid out and accurately record the investment. We use a less intuitive phrase- “administration” – an administrator is a record keeper.

If there is no record, you have no way of checking that your money has been invested for you and not for the next person. But it you have a contribution history, a firm like AgeWage can tell you whether your data looks accurate or whether there is something that seems amiss. We can do this by looking at the rate of return you have received and compare it with an average rate of return for those contributions. We have tolerances and if those tolerances are broken, we will call your contribution an “outlier” and will ask that it be checked by your administrator.

Mistakes happen and if you are paid not to make mistakes then you need to be accountable when things go wrong. AgeWage reckons that around 2% of all the data sets it reads , are unaccountable outliers.

right to record.jpg

2. Because it enables you to see how you have done

There is another reason that record keeping matters. It is the means by which you can understood how the choices you made – the choice of provider, of fund and of when you made your contribution have worked out.

For many people these weren’t much of a choice, you may have been auto-enrolled into a default fund of a pension of your employer’s choosing. But necessarily somebody made that choice and you consented and you are carrying the risk of things going wrong or the joy of things going right.

And because there is no other way of checking on the progress of your pension pot, it is enormously important for you to have access to your record so that you or – more likely- your agent – can tell you how you are doing.

agewage dashboard

 

Quality of service

I have been reading IGC , GAA and Trustee reports on DC workplace pensions for the past five years and I cannot remember once, seeing an audit of contribution histories.

For the next round of IGC reports, due in April next year, AgeWage will be sending IGCs a report on the quality of service we received from the administrators of the schemes they oversee  and we hope that this information will be commented on in the reports.  Our reports will also talk to the quality of the data we received , what level of outliers we found and how the administrators went about looking into anomalies.  As I mentioned above, mistakes happen , but it is how you deal with the mistakes that is a mark of good or bad service.

igc2020

I would like to say that our experience so far has been good. But I cannot. every day we receive an item of post from one or other provider who interprets “data in digital format” as a wake up pack. A wake up pack does not include a contribution history, it is not auditable, it does not tell us about how the pension pot has done.

One notable provider has a glitch in the system so that every contribution history is wrong.  I could – but won’t go on. The quality of service we have received actioning the 500+ LOAs we have received in our FCA Sandbox test has been variable trending bad.

What can be done about this?

There are a number of trade bodies in pensions dedicated to ensuring good quality record keeping – most notably PASA .

The Pensions Administration Standards Association exists for a single purpose: to promote and improve the quality of pensions administration services for UK pension schemes.

We will be taking our findings to PASA and asking them to look into the issues ordinary savings have getting hold of their records.

And we will be asking them to take matters up with their members to ensure that we have standards for the delivery of contribution histories in a timely way, accurately  and in a digitally readable format.

If we are to have standards, PASA are the people to establish them and we will be asking PASA to give us their view on what members and policyholders of workplace pensions can expect.

pasa.png

Posted in accountants, advice gap, age wage, DWP, pensions | Tagged , , , | Leave a comment

Changing the way our pensions work

Posted on August 27, 2020 by henry tapper

mmm2.jpg

I suspect when we look back at significant events in 2020, pension folk will consider yesterday’s consultation from the DWP;-

Taking action on climate risk: improving governance and reporting by occupational pension schemes

as another small step in the upheaval in the way our pension savings are invested. The consultation covers both those investments that back the promises made by our employers and those that directly impact the money we get later in life. The guidance in the consultation does not yet cover the default investments made by insurers offering contract based workplace pensions nor the fund selections made by SIPP platforms. But we can reasonably assume that TPR is moving in lockstep on this, as it is on matters such as Value For Money.

When the Pension Schemes Bill becomes an Act (we hope in September) it will become compulsory for certain trustees to demonstrate governance and reporting aligned to the recommendations of the international industry-led Task Force on Climate-related Financial Disclosures (TCFD).

This will mean changes to the strategy and risk management of the money which one day be spent by us and the intention is that it is invested for the good of the world in which the money is spent. This is about very real things. It’s about calculating the ‘carbon footprint’ of pension schemes and assessing how the value of the schemes’ assets or liabilities would be affected by different temperature rise scenarios, including the ambitions on limiting the global average temperature rise set out in the Paris Agreement.

It’s about changing the way our pensions work, not just for our benefit but for those of a future world.

Improving the value of our money

Currently we conducted an analysis of the returns that savers are getting on various default strategies employed by workplace pensions, both contract based and occupational. The analysis will be carried out while AgeWage is in the FCA sandbox and will include data submitted voluntarily by our 300 testers (thanks to you).

The bulk of the data (the big data) will come from large DC schemes of the type covered by this consultation. The early signs suggest that since their introduction, funds managed with regard to  the environment, good governance and social purpose have delivered better outcomes than those that haven’t bothered.

Currently the benchmark index for measuring the value for saver’s money is set to “not bothered”.

ms

as a stakeholder in the development of this index, we have- following the publication of the DWP consultation, asked Morningstar to review the rules of the index so that it does in future incorporate ESG criteria. The means to do this are simple enough as Morningstar has created comparable measurement of performance based on ESG and non ESC management criteria.

We are keen that Government policy influences that part of the pension eco-system AgeWage has some influence on. Though this is a small part, we think change needs to happen from the bottom up as well as the top down

The average UK pension pot will – we expect – reflect the impact of ESG and I am happy to say that early work of our analysis suggests that the prospects for British pension savers look better for the changes proposed in this consultation.

Making our money matter

The money we save into workplace pensions is not a tax or even a payment of national insurance. It is a payment to our future selves in a future world. It is an investment in our future so making this money matter is critically important.

Those trustees and those charged with watching over our personal pensions are now protected by the law in exercising the recommendations of the TCFD. Things will no doubt go wrong for ESG funds, there may be failures in the application of ESG principles in the investment of a fund and underlying assets may fail for reasons outside the ESG framework. This is to be expected and we can also expect, when failures happen , that there will be people who call into question the management of money this way.

But we live in a parliamentary democracy that has and is debating the adoption of TCFD disclosures by our pension schemes. Assuming the Pension Schemes Bill is enacted, the law will protect those who follow the TCFD disclosures and the detailed guidance in this consultation. The law will impose penalties on those who don’t.

The maximum fine for a penalty issued for the breach of any of the requirements proposed in this consultation would not exceed £5,000 for an individual trustee, or £50,000 for a corporate trustee

I expect that those few remaining trustees and members of IGCs and GAAs who are in denial of the value of ESG, will – in the face of the forthcoming Act and the detail within the consultation, step down.

The world is moving against them and if you read the consultation you will understand why.

mmmm

Posted in age wage, DWP, ESG, pensions | Tagged , , , , , , | 9 Comments

“Velvet glove- iron fist” – the DWP get punchy with trustees on TCFD disclosures

Posted on August 26, 2020 by henry tapper

TCFD

The DWP has published a further consultation to mandate climate governance and risk reporting for large occupational schemes (assets of £1bn+) and all authorised master trusts in line with the international industry-led Task Force on Climate-related Financial Disclosures (TCFD).

It follows the consultation published prior to lockdown on “Aligning your pension scheme with the TCFD reccomendations”

The proposals, which apply to both DC and DB schemes, would require trustees to have effective governance, strategy, risk management and accompanying metrics and targets for the assessment and management of climate risks and opportunities, and to disclose these via an annual TCFD report.

This builds on last year’s Green Finance Strategy, which set an expectation that disclosures would be made in line with TCFD recommendations by large asset owners by 2022.

DWP say their objective in these proposals is to ensure trustees consider climate change and the likelihood that climate change is a financially material risk, as well as an opportunity, for pension schemes. Trustees have a fiduciary duty to act in the best financial interests of their scheme members. Given the likely material impact climate change presents, they think it is vital to accelerate pensions schemes’ governance considerations and disclosure on sustainability.

The DWP are at pains to point out that none of the proposed measures attempt to direct the trustees of pension schemes in their investment decisions.

“Government has no such powers and does not intend to seek them”.

The measures can only be used with a view to securing effective governance and disclosure by schemes with respect to the effects of climate change.

Velvet glove – iron fist

The consultation builds on considerable research carried out by the DWP and the private sector .

Collectively this research suggests that advised pension scheme trustees are
complying with the letter of the law but taking their time on making decisive
changes to strategy.

DWP CC2

At a conceptual level large schemes are supportive. Hymans Robertson  found that 70% of trustees were supportive of the regulations, with 27% strongly supportive, while only 7% oppose them.

More difficulty has been found in the smallest defined contribution schemes.
TPR’s DC schemes survey, carried out ahead of the regulations coming into force, found that only 21% of schemes took climate change into account when formulating their investment strategies and approaches, with the most common reasons being that it’s “not relevant to our scheme” or that trustees were “not required to do this”.

TPR’s research suggests that non-compliance appear to be highest in the
smallest pension schemes and that as yet the TCFD recommendations  have not been adopted

dwp cc 1

The DWP see adoption as a fiduciary  duty and the document makes it clear that the law is on its side.

The same standards will be expected of trustees in relation to estimates and
disclosures about the effects of climate change, as are expected in relation to any
other estimates and disclosures that trustees make about their pension scheme.
Trustees are expected to comply with their existing duties under the Trust Deed
and Rules for the particular pension scheme, under general trust law and under
existing pensions legislation.

First and foremost, they must act in accordance with their fiduciary duties towards pension scheme beneficiaries. This means acting in their best interests and carrying out their duties prudently, conscientiously and with the utmost good faith and taking advice where specialist input is needed, for example about investment decisions and applicable legislation.

 

Who has to do what and when?

Armed with a strong legal case and the provisions of the Pension Schemes Bill, the DWP are proposing an aggressive timetable for adoption

DWP CC times

Conclusion

The bulk of the paper deals with t minutiae through guidance and will no doubt make a number of consultants and lawyers a good living for some time to come.

But the bottom line is that the DWP seem in no move for diluting their ferocious determination to get compliance with the TCFD proposals.

It might be argued that small schemes are off the hook,  small schemes might argue that their days are numbered and the DWP are anticipating their demise.

Look out for some serious stuff in the Pension Regulator’s consolidation consultation response – due in September.

We cannot continue with the current tail of under-governed , under invested and under-performing small schemes for ever. By setting the bar at £1bn for a single employer occupational scheme and including all multi-employer trust based schemes – the DWP is making its intentions clear

It looks like “shape up or shape out” for trustees  and that can only be good news for members and for the planet.

iron

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Pension scams reported at just £10m a year?

Posted on August 26, 2020 by henry tapper

Shortly after receiving this news on my twitter feed , I had a press release sent me by the FCA reminding me of the dangers of being scammed.

Pension savers claim over £30 million lost to scams as regulators urge footie fans to show scammers the red card

  • Putting time pressure on pension transfers continues to be a key tactic for scammers
  • Many know more about football finances than their own lifetime savings
  • FCA and TPR team up with legendary football commentator Clive Tyldesley to show there is no transfer deadline for pensions

I also got a warning from the redoubtable Pension Bee -Mrs Savova

“There is no doubt that pensions scams are rife, particularly in the wake of the pandemic. Savers should stay vigilant and not feel pressurised into giving away personal information or rushing to complete a pension transfer. As an industry we also need to do our bit to educate people.

There is a wealth of information available, and with so many scams moving online, we’ve decided to create our own online game to raise awareness of scams in an engaging way. It is by learning how scammers operate that we’ll put an end to their ploys”.

You can find Pension Bee’s game, Scam Man and Robbin’ created in conjunction with AgeWage, Nutmeg and Smart Pension here: scam-man.com

The football connection – transfers.

Alternatively you can go to the FCA’s scamsmart site  which is being advertised by football commentator Clive Tildersley.

HMV Football Extravaganza in aid of Nordoff Robbins, Grosvenor Hotel, London, Britain - 29 Oct 2013

For what it’s worth, this is that hook

 

TPR and the FCA  said fresh research showed football fans approaching retirement, notably men in their 50s, were being targeted

Typically scammers are putting pressure on people to transfer their pension with short-term offers to release savings.

The FCA and TPR have launched ScamSmart the highlight the issue, with Tyldesley, 65, fronting it.

The veteran commentator said: “Scammers are very good at breaking down your defences and putting you under pressure with various deadlines. But your pension isn’t a football transfer – there are no deadlines! Your favourite team wouldn’t buy a new striker just because his agent says he’s good.

Football’s transfer deadline may have been responsible for a few dodgy transfers but it is stretching an analogy to suggest that football fans are prey to transfer deadlines for their pensions.

Tyldesley recently said he was “upset, annoyed, baffled” at ITV’s decision to replace him as the broadcaster’s senior football commentator in favour of Sam Matterface.

My advice to Clive is that he makes a better football than pension pundit. The whole idea is far-fetched and faintly ridiculous.

£30.8m – surely the wrong number?

£30.8m is the amount reported to Action Fraud. Out of a total pension savings pool of some £2.5 trillion it does not strike me as a huge amount. I actually had to check the FCA press release to make sure that m wasn’t a bn.

There are around 30.8m football fans in the UK, I am one. The FCA’s celeb endorsement of the Scam smart site hangs on a number that bears no relation to the true size of the problem.

I refer to an early comment on here by Richard Chilton, which I’m integrating into the blog.

I think there is a big messaging problem with pension scams. Scams that are criminal acts do seem to be incredibly rare. By far and away the biggest risk seems to come from financial services organisations that can validly quote an FCA registration number. The compensation awarded by regulators dwarfs the frauds reported to Action Fraud. Perhaps the warning messages to those with pensions should concentrate on the chance of being fleeced, rather than on the risk from criminals.

Let’s take one example of “fleecing” which is generally considered a scam.

If the FCA are serious that at least half of the BSPS deferred membership were wrongly  advised to transfer, then they are saying that at least half the £3bn taken out of BSPS was scammed. That’s £1.5bn. I doubt that any of these transfers was reported to action fraud but the total mis-transferred is around 45 times the total reported to Action Fraud in the past 3 years.

BSPS represents a tiny fraction of total DB transfer problem and that’s before we start looking at the problems with transfers from good quality workplace pensions into insalubrious SIPPs.

For sadly, much of the damage has been done by  regulated advisers who did not follow the FCA’s rules and the fractional scamming, where many organisations take a small cut leaving a big hole in people’s pensions, continues to this day.

The truth is that the FCA do not have a number for the amount that leaks out of the system through dodgy advice.  The resources at their disposal to stop scamming are so small that they cannot even report on the proper size of the problem.

Under- resourced as the FCA are , they should work with the private sector

It would be better for the FCA that they reached out to organisations like Pension Bee and ourselves and promoted the tools that we have curated . It makes no sense to  hang an initiative as important as Scam Smart on a hook as lightweight as this one.

The FCA could and should have participated in the Scam man project and missed a trick not using the Scam Man game.

They should work with Margaret Snowden and the Pension Scams Industry Group, and they should work with the Transparency Task Force who are liasing with the All Party Parliamentary Group on pension scams. And they should be integral to the WPSC’s current inquiry.

They should work with Angie Brooks and others who have the intelligence on the scammers operating out of Southern and Eastern Europe who reside beyond the FCA’s regulatory perimeter.

And they could talk a long hard look at the offshore arms of some FCA regulated firms who appear to be at least complicit with the trafficking of money out of the UK pensions system and into the back-pockets of unregulated advisers.

As the problem is one of resource, the FCA must find ways to integrate with the pensions industry which has (by and large) common intent to drive the scammers away. Weak campaigns based on incomplete data do not solve the problem, they give the scammers courage,

 

Posted in advice gap, age wage, Blogging, pensions | Tagged , , , , | 4 Comments

Open and shut conversations on pensions

Posted on August 25, 2020 by henry tapper

BSPS.jpg

As BSPS2 is still up and running I assumed it was an open scheme even though it is closed to new members and future accrual…….I appear to be mistaken?

Even so, I am baffled why The Pensions Regulator doesn’t seem to be supporting the Bowles Amendment to the Pension Schemes Bill which is to ensure that open DB schemes may remain open, continue to provide the high-quality pensions they have provided for decades, and that no new costs or impediments are added to their operations?

This is a comment from a steelworker who has kept faith with the British Steel Pension Scheme. He is as baffled as a non-cricketer is baffled when he’s told he has to go out as he’s “in” .  To him his scheme is open, it is not closed because it has not been bought out by an insurer or been moved into the Pension Protection Fund.

And as a steel worker, taking an interest in pensions, this fellow asks reasonably what the Pensions Regulator is doing to keep high-quality pensions going. I am quite sure that the Pensions Regulator are not saying publicly that they oppose or support the Bowles amendment, it is not its job to interfere with the process of Government. But everything in the DB funding code suggests that the direction of travel, is in their direction of scheme closure, and so far Government is not making its intentions clear with regards the Bowles amendment.

The Bowles amendment is an attempt , by certain members of the House of Lords, to help DB occupational schemes that want to take on new liabilities , to do so.

The steelman’s views, which you can read in the comments section to Iain Clacher and Con Keating’s blog on this subject, can be read by following this link.

The right of everyone to understand their pension

Considering how important pensions become to those in their later years, it is surprising that the kind of debates that happen on this blog are assumed to be  confined to academic and professional circles. Yesterday, in yet another delay to the long term strategy of USS, the Trustees announced they were putting back the start of the consultation on the valuation methodology to Sept 7th, the consultation will not be with members but with the employers . The consultation which will run to October 30th will run in parallel with the debate on the Bowles amendment.

It is sad that voices like that of this steel worker are not informing either the consultation at USS or indeed in parliament. It is thought I suppose that these matters are beyond the interest or comprehension of members who have not been equipped with the Trustee’s toolkit.

This is not the case. I regularly read and occasionally comment on the debates of the steel workers about their pensions future. I am privileged to have been in the British Steel Pensioners Facebook group since early 2017 and have followed the self-education of many steel workers as they grappled with their Time to Choose and with questions about the (lack of ) revaluation of certain pre 1997 benefits, the preservation of scheme benefits such as partner’s pensions and questions about the distribution of surpluses (above technical provisions).

I’ve watched them see their scheme move from the kind of arrangement Sharon Bowles is trying to support to a scheme that is on a “flight-path to buy-out”. Many steel workers feel locked out of any further improvement to their benefits and are fearful of the consequences of buy-out.

The standard of debate on the Facebook page of the pensioners page is extraordinarily high. Take this recent comment from a steelworker from the north east.

I have posted about a buyout and what the Trustees intentions are following the Gov’t consultation in 2016 on the old BSPS.

They have always stated that the long term future of the scheme (which became BSPS2). They said

“33.According to December 2015 figures, the scheme has assets of £13.3 billion and liabilities based on running on with a solvent sponsoring employer of around £14 billion, so has a deficit estimated at around £700 million on a technical provisions basis. However, the scheme is around £1.5 billion short of what would be needed to BUY OUT benefits equivalent to Pension Protection Fund compensation levels (this is known as a section 179 basis in pensions legislation). The deficit to buy out the benefits in full is estimated to be around £7.5 billion.”

This was when they hoped the Gov’t would approve reduction in benefits without members consent – which of course didn’t happen. We had to opt in to BSPS2 thereby giving consent.

Note they say PPF compensation levels which are less that BSPS2 benefits.

Extrapolating to now with fewer members and liabilities, the scheme is in a very strong position with a surplus. We are approaching BUY OUT level for a PRIVATE insurer BULK ANNUITY which requires assets to be at least 103% of liabilities on a different calculation (IAS 19 I believe).

In a nut shell:

1/ We are currently still tied to TSUK as sponsor for BSPS2 which means we could be forced into PPF assessment if they become insolvent.
2/ That would most likely lead to a BUYOUT at PPF levels of compensation (less than we have now).
3/ The Trustees are building the assets through a low risk investment strategy so that they can control the outcome and choose the insurer to give us a better outcome that PPF compensation. (This is exactly the same as Open Trustees Ltd are doing with the old BSPS members who went into PPF assessment).

After a Buy Out our benefits would be paid through an annuity – ie pensioners would see no difference or potentially better than now.

There is still a lot of work to be done and we will not know the details for some time. It was expected that the assets would have grown sufficiently by next April 2021. The Trustees have said they would consider restoration of some portion of pre-97 service benefits at the same time.

(July 2019 – Rothesay Life, L&G and Pension Insurance Corporation are among the parties thought to be interested in completing a deal.)

There are many similar “self-help” posts from members sharing their understanding and some corrections , which are moderated with great delicacy.

So what are we doing for deferred and actual pensioners?

Coincidentally, I spoke with someone involved in  the management of pensions that have bought out yesterday. We discussed what insurers like Rothesay Life , Pensions Insurance Corporation and Legal & General can do for their annuitants.

it seems clear that many of them have a need to be informed about their pensions and will continue to want to be treated as customers of whoever buys them out. They are used to having been in a trustee led community and see the future as a transfer of responsibilities to their new employer. To all intents and purposes that is what a pension scheme is to a working person who stops working.

To the list of buy-out specialists we know about, will be added Clara, Superfund and maybe others, who will become the “new employer” to many more pensioners.

These pensioners and soon to be pensioners do not see their pension schemes as closed because they are still paying them money. A pension scheme is closed when it stops paying pensions.

For pensioners, pensions are very much open. We need to think more about how these DB pensioners are treated and start thinking of their needs for understanding and for financial services.

Port talbot sun 2

A south Wales sunset, photographed  at Port Talbot by Al Rush

 

Posted in age wage, BSPS, pensions, Public sector pensions | Tagged , | 2 Comments

Pension Self Help

Posted on August 20, 2020 by henry tapper

self-help.jpg

We live at a time of self empowerment. If we don’t know how to do something we learn, searching for answers from the web. We’ve learned how to do things from You tube, understand things from Wiki and with a little bandwidth – we can generally get there.

Self-help is not encouraged in finance. Generally self-helpers are considered vulnerable by a regulatory system that encourages the taking of regulated financial advice. In the polar thinking that results from a dogmatic belief in regulated advice, those who avoid it are in the hands of scammers. But this is patently not the case.

The vast majority of people in Britain go to the grave never having paid a financial adviser and generally they muddle through.

But there is no doubt that things are getting harder. Although those saving into tax-advantaged retirement savings plans has increased, the numbers in defined benefit plans has decreased. The dismantling of the State Earnings Related Pension Scheme in favor of auto-enrolled pension pots means people have to fend for themselves when selecting their investment pathways in their retirement.

While the numbers saving into auto-enrolled savings pots has mushroomed, support for people in their fifties and sixties has actually reduced. The number of regulated advisers has fallen over the past ten years, primarily because of the RDR but also because of the increased cost of regulation , compensation and professional indemnity insurance.

Time to encourage self-help?

The industry response to the move to self-help has been timid. A new concept has grown up known as guidance. The Pensions Advisory Service is now subsumed into the Money and Pension Service. Pensions Wise and TPAS are offering guidance and doing a good job of it. But this is a long way from what people need to do complicated things like find their lost pensions, compare and combine pension pots and make decisions on how they turn these pots into retirement plans.

Faced with what may look impossible decisions, it is not surprising that many people do nothing, or worse- take outrageous gambles with their money – ending up paying away their savings to the taxman or worse to scammers.

But I am encouraged, when I go on the websites of many major providers, about how much help there is for those wishing to explore their pension options. Many of these providers are dependent on financial advisers and may feel conflicted by providing facilities for those who want to do pensions themselves. They shouldn’t be.

There is no evidence that financial advisers are gearing themselves up to provide mid or mass market advice. The banks – in as much as they want to be involved – are restricting their activities to competing for the mass affluent.

One of the many things that I am considering doing with http://www.agewage.com , is making it a directory of web facilities available for self-helpers. It strikes me that there is ample information and what is needed is a search facility that ensures people end up with information that really helps – wherever it comes from.

Of course, all this is made more urgent by the pandemic and more possible by the way people are learning to use the web as a resource. The acceleration of self-help using the internet will I’m sure be a theme when social historians look back at the year or years of lock down.

I am so very pleased that AgeWage is able to pioneer a self-help website and application at this time, and to do so in the benign conditions of the FCA Sandbox.

 

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AgeWage is now authorised by the FCA.

Posted on August 20, 2020 by henry tapper

FCA Agewage

Getting regulatory permissions for AgeWage has been a journey for both AgeWage and the FCA. We are a firm  offering guidance to our customers on the  value of their pension pots,  and we make arrangements for them to take decisions about their retirement finances.

We are the first firm to commit to the assessment  of value for money as a means to assist savers and employers take decisions about their pension provision.  We would like to thank the FCA for going on this journey.  Ultimately we have found common purpose in Purg 8.28

The provision of purely factual information does not become regulated advice merely because it feeds into the customer’s own decision-making process and is taken into account by them.

We are an internet only service and offer a web-app that can be accessed at http://www.agewage.com.

Currently we are conducting a trial with the FCA in the FCA’s sandbox. We are restricted in what we can do within the sandbox.

FCA restrictions

If there is anything you want to talk about or complain about, please do so to me – Henry Tapper.

FCA Agewage complaint

AgeWage is about a new way of doing things, a way that puts transparent information in the hands of people who want to know what has happened to their pensions and to carry out their business as efficiently as possible.

We are not an advisory business , though we understand the need for advice and promote good advisers when needed.

We strongly believe that having saved your money over the years, you have the right to meaningful information about it. We believe that most people could and should take decisions about how much they save, when they stop working , how they organise their pension pots and how they spend them using their own resources.

We are partnering within the sandbox with Pension Bee who will be our default aggregator, the Better Retirement Group who will be our default source of individual financial advice and Retire Easy who will provide cashflow modelling for those working out what they can afford to retire on.

You are very welcome to join us in the trial, we are limited to 300 trialists but there are still a few spaces left.

You can trial this new service for free at http://www.agewage.com

 

agewage dashboard

Posted in pensions | 1 Comment

Taking someone else’s numbers for it. The shortcomings of AoVs.

Posted on August 19, 2020 by henry tapper

parachute

 

I suffer from pension dreams, these wake me up at odd hours of the morning with questions that I cannot answer. This morning’s question was put to me by someone who bought a pension savings plan from me when I was starting out.

“How can I track how my plan is doing?”

It’s the same question as fund platforms are supposed to answer in Value Assessments and the answer I gave 35 years ago is not much different from the answer you can get from the Assessments of Value (AOV). You’ve got to take someone else’s numbers for it.

I have not read all the AOVs , but what I have read suggest that fund reporting assumes that an investor makes a single payment on a given day and takes his or her money back on a single day. These two days mark the beginning and end of the assessment and are determined on an arbitrary basis.

But for most people who save into funds, life is not that simple, money comes in through plans run on a monthly basis with top-ups paid at financial year end and withdrawals made to pay for certain capital expenditure or as regular income. The experienced performance for investors depends on factors that are not picked up in a simple point to point performance figure. The investor suffers the hidden spreads within a single swinging price and the out of market risks associated with inexact investment administration. The investor has to take chances on “sequential risk”, where lumps of money arrive or depart on the wrong or right day for investment or encashment.

As far as I can see, none of these risks is considered , let alone measured, by AoVs. The results of these AoVs remind me of the advertising for MPG figures before road-testing took into account concepts such as the “urban cycle”.  People want to know the MPG they are likely to get, not what can be got from driving on a frictionless track at a constant speed.

So why don’t we monitor experienced performance?

Historically the fund management industry sold through intermediaries (like me). I would point to the newspaper and say – “look at the Hambro Life funds”. And people would look in the newspaper and find something that might correspond to their fund and see 1, 3 and 5 year performance figures and have to work out whether they were in the right fund series and whether these funds were reporting gross or net of charges and then work out what charges were in the fund and what came out of the fund and….. people gave up.

If I saw the saver again , which was usually to try to induce a bigger contribution, I might be asked for an update on what had happened so far and I would whip out a “sales aid” which would show that the vast majority of funds under the management of Hambro Life were outperforming so that there was nothing to worry about.

But the reality was that if the saver asked for a current plan value , they were given two numbers, the first being the notional value of the plan if they didn’t want their money back and the latter being the encashment value.  Even with my poor maths, I could see that the encashment value rarely matched the contributions paid, meaning that the savings plan was paying someone else and not the saver.

This is an extreme example of a problem that still besets the financial services industry, We take  people’s money and then report on it using other people’s numbers.

And the reason is that the fund manager and the intermediary and the saver all have different agendas. Which is why we have platforms.

Fund platforms are there so that investors can see how their investments are doing, not how the funds they invest in are doing – or so I thought.

 

But this doesn’t seem to be the case. Instead of reporting on how the investors are doing , those who manage platforms and produce these Assessments of Value are still reporting on their assessment of the funds, which is very much like reporting on performance on a test track and not at all about the urban cycle.

How hard is it for vertically integrated platforms to report on experienced returns?

I ask this question of fund platforms and wealth managers because my understanding of modern technology is that it’s quite easy to work out the difference between the experienced return of the saver from the reported returns of the fund manager. You simply look at outcomes.

But when I talk with those who do try to road test funds properly they talk to me of abstract notions such as “model points” and of “charging assumptions” from which they create synthetic outcomes. The complicated models used by performance specialists do not capture the actual experience of savers but an artificial view of what is going on.

I know that many of the models that are out there are sophisticated and can determine ranges of synthetic outcomes based on all kinds of simulations. But they are not based on real life. They cannot capture the granularity of a savers experience nor create insights based on what has actually happened.

And I don’t understand why these models persist when the vertically integrated platform manager now has access not just to the inputs but to the outcomes and can see pretty well everything that is happening to the investment using the platform’s technology.

I just don’t get why some platforms cannot tell the investor what is going on with their money. And I don’t get why AoVs are based on simulations rather than experienced returns.

I am asking as an outsider – would any insider care to comment?

Transparency is a very difficult thing. It requires those offering it to be accountable for not just what has happened , but what is happening. Clearly transparency can’t stop fiascos like the implosion of the Woodford funds but it can make it clear to investors where things are going wrong and where right.

Historically we have fought shy of encouraging investors to take the short view . We tell investors to jump out of the aircraft and trust the parachute and typically the parachute opens. When it doesn’t there is a reserve chute – there are few fatalities.

But investors need to have confidence in the governance of their money, just as the parachutist needs trust in the safety equipment and no amount of jump simulations can compare with an inspection of the actual safety record.

It strikes me that with the technology at the disposal of fund platforms, telling investors how they are actually doing, rather than what their funds are doing , is a much better way of inspiring confidence.parachute

 

Posted in actuaries, advice gap, age wage, pensions | Tagged , , , , , , | Leave a comment

A user’s guide to AgeWage.com

Posted on August 18, 2020 by henry tapper
henry agewage

I am Henry Tapper and I am responsible for your experience of AgeWage

As regular readers will know,  I campaign for better information to be made available to savers about their pension pots and to help people understand their pot, have formed a company, AgeWage.  AgeWage.com helps people make sense of their pots and take decisions to convert pots into retirement plans.

To do this we have devised a way of using your data, specifically the value of your pension pot and the money that you contributed, to provide you with a score that told you how you have done against the ordinary saver. The result is the AgeWage score and we have produced over one million scores for organisations like your employer, your provider or the people who oversee pensions – trustees and Governance Committees.

How to use your AgeWage score

The AgeWage score is a way of telling how your pension has done and if we believe in history, there’s a lot to be said for following the winners.

AgeWage evolve 2

 

But our score won’t tell you what will happen in the future and there are reasons why your pension may have given you value for money, even if you got a low AgeWage score and there are reasons why a high score may not mean your pension will give you value for money in the future.

AgeWage will help you find your pensions, help you measure how they have done and organise your pots on a dashboard so you can work out what to do next.

agewage dashboard

In this blog we explain the limitations of any scoring system and offer some guidance as to how to get the most out of the analysis that has been carried out by AgeWage

Five reasons why high AgeWage scores may not predict good times ahead.

  1. You have been saving and in the future you will be spending, if you are planning to spend your pot using draw-down, then you need to make sure your pension fund is still suitable for your changing circumstances.
  2. You may have got that high score by taking risks you did not want to take. You should check with your provider how your money has been invested and make sure you weren’t getting lucky backing long-shots
  3. You may have got lucky with your investment timing – especially if you were just investing lump sums. Have a look at your contributions and if they were erratic , speak to AgeWage who whether you got lucky with your timing.
  4. You may have enjoyed the benefit of a star investment manager, that manager may have changed and the fund may not do as well in future.
  5. The world is changing, there are many investment trends today, especially to do with environmental, social and governance issues that your fund may be ignoring – your fund may be complacent – make sure you aren’t.

Five reasons why low AgeWage scores may not mean you did that badly

  1. You may have enjoyed during your time saving protection that was paid for from your fund. Examples are life cover and “waiver of premium”, where your contributions were insured by your provider should you go sick
  2. You may have safeguarded benefits in the future, benefits like a guarantee on your annuity rate or a bonus paid at the end of your savings period. These benefits will have been paid for from your fund and mean that you pot may be worth more in the future
  3. You may have financial advice paid for from your pot. This may mean that your pot under-performed but it may not mean you got bad value for money. The value of the advice may have compensated for the lower performance and you may consider you still got overall value for money
  4. You may have been paying for reduced risk. Even though you might now wish you hadn’t, you may have sacrificed part of your return to get a smoother investment ride.
  5. Your return may be being smoothed. If you are in a with-profits fund, you may not be getting the whole investment return you have earned, especially if we are now in a good period for investment returns. Some of the return may be fed back into the pot if we have bad times ahead.

And what about the quality of your service?

For most of your time saving , you may not have noticed the service you got, this is probably a good thing as we generally notice poor service but not good! But quality of service can have a positive effect on your saving, especially if you are nudged into taking good decisions by a good provider.

We cannot tell if you have had good service from your provider but the AgeWage analysis can pick up if something has gone wrong. Typically we can see if there’s a big difference between how you’ve done and how the average person did.

That difference may mean your data may be suspect and we will flag this with you , telling you your score looks unreliable. In such a case you may want to get your provider to look into your data to make sure they haven’t made a mistake. Data mistakes are bad news and a sign of poor value of service.

On a more positive note, to have produced a score means we have had some co-operation. We will be producing a league table that shows which providers have shown us most co-operation and which have consistently obstructed you. We will be collating information which we will feed back to IGCs , Trustees and Regulators. Our experience of provider service will also be shared with savers using the AgeWage test (available at http://www.agewage.com).

What we do for our test group cannot be used as a proxy for quality of service overall but for the test group if is their  quality of service and informs on their view of value for money.

We’re all different, for some people quality of service will be unimportant , for other’s it may be as important as the AgeWage score. We know all too well from current events, how trying to mark individual performance with a one size fits all approach – can prove disastrous.

However, we think that in the longer term, a measurement of value for money will emerge which will take feeds from a variety of sources, including Trust Pilot, net promoter scores, internal reporting against service level agreements, call answering times and turnaround of member data requests.

Much of this information is available in IGC and Trustee reports, but – other than in my limited survey of IGCs and similar from Share Action , there is precious little collation of the findings of the fiduciaries.

Once such a measure has been devised, it can be standardized and applied across all DC providers. I would hope that a league table will be created to ensure that people can compare their experience with that of others and come to their own conclusions about the quality of service they are receiving.

For now, our limited feedback is the best you can get. We recognize that it is incomplete, but we are mid-way through the journey. We have a way to go till we have a standard approach , indeed a VFM Standard.

Choosing your investment pathway

The AgeWage score is primarily about helping people understand their saving for retirement. When people get to the point where they want to start spending their money,  they are faced with choices

  1. Should I convert to a pension and buy a wage for life type annuity?
  2. Should I leave my pension pot to my family and rely on other income?
  3. Should I draw-down from my pot and create a DIY pension?
  4. Should I take all the money as cash?

If you decide to use options 2 or 3 either for all or a part of your savings then you need to ask yourself why it is that you got a good or bad score and if you feel comfortable that the score is telling you , you have value for money, then you should be using pots with high AgeWage score for your investment pathway.

If you want to buy an annuity or take your money as cash then the AgeWage score is of little use to you in this decision.

The AgeWage default provider

As a rule of thumb, the more interaction you have with your pension provider, the more important Quality of Service is to you. In our opinion , Pension Bee offer outstanding Quality of Service and we promote them both for the high AgeWage scores that their savers get and for the customer experience their Beekeepers give. We use Pension Bee as a default investment pathway, where you feel dissatisfied with your existing provider.

It may be that in time , others pension providers will match or even surpass Pension Bee, but we think it is important – to simplify matters – to offer a default provider going forward and that provider is currently Pension Bee.

To summarize

  • AgeWage scores offer you an insight into how your pension has done and allow you to make comparisons with other experiences (including those of your other pots)
  • Sometimes a low score can predict good outcomes to come
  • Sometimes a high score can predict bad outcomes to come
  • But generally the higher the score, the more value you’ve got from your pension

While you should not rely on your AgeWage score as advice on what to do in the future, it can inform your decision making and we hope it gets you thinking about what to do next

As for your overall estimated of value for money, that is for you to decide, based not just on your view of the score , but on your view of the quality of service you receive from your provider.

Finally, the decision you take in the future is a difficult one and ,unless you outsource it to a financial advisor, it’s one you have to take for yourself. AgeWage will give you access to a good quality source of advice from the Better Retirement Group, a good quality annuity broker in Retirement Line, access to a cash-flow modelling service from Retirement Easy and a default Pension Provider in Pension Bee.

agewage dashboard

If you would like to test AgeWage while we are in the FCA sandbox, you can do so for free and without obligation.

You can test AgeWage here

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How regulation suffocated DB pensions (Pt 3) – Clacher and Keating

Posted on August 17, 2020 by henry tapper
Ian con

Iain Clacher and Con Keating

 This is the third of a trilogy chronicling how we’ve messed up our defined benefit pension framework. It brings us from the Pension Act 2004 to date

And suddenly you are doing the impossible (but only if you want to)

Our two previous articles considered the development of occupational DB pensions from the early post-war period until the eve, in 2004, of the regime under which we currently operate. There were over that period many changes introduced and these interventions, sought to increase the quality of the defined benefit pension being offered.

However, this situation has changed to member security and been far from benign. The costs of DB have soared unceasingly, through deficit recovery and much more, with no commensurate increase in pensions.

Moreover, in what can only be the most depressing of ironies,  much of the population  has been left without the comfort of a DB pension and all the benefits of risk sharing that go with it.

The most significant change that led to schemes closing to new members and future accrual was the imposition of the debt on employer legislation. This changed the obligation of the employer from being simply to pay a contribution, to being to pay the contribution and to guarantee the return needed on that contribution to generate the benefits promised.

In turn, this change altered the role and purpose of the pension fund from the stand-alone ‘to pay the pensions as and when due’ to being ‘to secure the accrued rights of scheme members, and to defray the employer’s cost of provision’. Unfortunately, little, if any, of the subsequent legislation and guidance has recognised the effect of this change, with very predictable consequences.

The Pensions Act 2004 introduced a new body, The Pensions Regulator (TPR) and a mutually organised compensation fund, the Pension Protection Fund (PPF). Unlike its predecessor, OPRA, TPR was given a statutory set of objectives.

The first of these objectives

“to protect members’ benefits”

sets the direction and objectives of its operations but it is somewhat surprising given that the Act was also creating the Pension Protection Fund. At the inception of the PPF, members’ benefits could only be at risk to the extent that the PPF cover was lower[1] than the amount of the member’s benefits[2].

The second objective is ambiguous

“to reduce the risk of calls on the Pension Protection Fund”

and ambiguity in a statutory objective is never good. As such, TPR has often interpreted and described this as being to protect the PPF. It is worth noting there are institutions, with similar purpose to the PPF, in many other jurisdictions, both publicly and privately organised, and none has need of, or has such a guardian angel.

The payment of only partial benefits to members by the PPF is an important defect in its design. There is no justification for this; there is no moral hazard involving members. It is certainly feasible to pay full benefits, indeed it is the practice in other jurisdictions, such as Sweden. It does, of course, leave TPR with some benefits to protect. It cannot be argued that the coverage of full benefits would be unaffordable. Their excess reserves far exceed the benefit reductions of schemes admitted or in assessment.

By expressing this duty in terms of risk, it opens the door for the Regulator to focus on the pension fund rather than the sustainability of the sponsor employer, as the risk to members is employer insolvency, and exposure to deficits at the time of failure. In Part 3 of the Pensions Act 2004, the Pensions Regulator is simply told  that the valuation assumptions etc. are to be prudent (as determined, usually, by the Trustee and the employer).

However, if the Pensions Regulator does not consider the assumptions to be prudent or the recovery plan to be prudent, the Pensions Regulator has power to substitute its own basis. To the best of our knowledge, this is something the Regulator has so far avoided.

Discipline and Punish (French edition).jpg

The absence of such interventions is not an abrogation of its duties, rather, it seems that this is an exercise in good old Foucauldian disciplinary power. The Pensions Regulator has essentially created the Panopticon for pensions through the publication of distributions of assumptions.

Panopticon

Jeremy Bentham’s Panopticon

As such, professional advisors know ‘what will be accepted by the Regulator’ and so the aim is not be visible lest the wrath of the Regulator be visited upon them, and so employers and trustees dutifully comply. Employers have essentially lost control and been alienated from their schemes.

The funding emphasis has also been embedded in legislation as the scheme’s claim in sponsor insolvency is now the amount of any deficit of assets relative to the cost of buying out the benefits with an insurance company. Of course, this is inequitable to other stakeholders. This inequity has had negative effects on sponsor employers, for example, many venture capital and private equity firms will simply not entertain investing in companies with even closed legacy DB schemes.

A buyout funding requirement is a very poor idea. It provides an incentive for sponsors to lower the quality of the pension offered, since that will have a lower replacement cost[i]. Even if minimum quality standards are introduced, the ultimate end point of this spiral is the cessation of provision.

We should not forget that employers voluntarily choose to offer DB pensions. The emphasis on scheme funding continues to this day. Objectives such as funding to levels of self-sufficiency or buy-out are expressly trying to reduce or eliminate any dependence on the sponsor employer. It is incredibly inefficient. It is the equivalent of putting aside savings to pay for the full rebuilding costs of our homes rather than simply insuring them.

An odd omission when regulating pensions

There is a missing but obvious objective for the Pensions Regulator – to promote high-quality pension provision. This is not a new idea. It was actively lobbied for in the wake of the global financial crisis.  The government did respond, but all that was offered was a consultation.

An additional objective for the regulator requiring it to consider the affordability of deficit recovery plans for sponsoring employers was proposed, but not the stronger objective requested by NAPF, to promote good pension provision and to ensure the health and longevity of schemes.[ii]

As noted earlier, the introduction of the debt on the employer also changed the purpose of the fund; it now serves as collateral to secure members’ accrued benefits. It is the current market value of those assets which should be of interest to members, not their performance over either the short or long term. The scheme member should be concerned solely with the sustainability of the sponsor employer, and for most active members the continuance of their employment is the greater concern.

The presence of the PPF greatly mitigates the exposure of scheme members, and it could, if extended, eliminate it entirely. All of the risk management, scenario analysis and long-term objective formation, promoted by the Regulator, for the scheme to conduct would then be redundant, with unnecessary compliance costs.

The sponsor employer should be concerned with the performance of the fund as it serves to defray the rate of return embedded within the pensions awards outstanding, which it is now guaranteeing. It is concerned with the level of the portfolio returns and their covariance with their earnings.

A hedging strategy such as LDI, which is concerned with the elimination of portfolio variability, is most unlikely to be optimal, particularly so given its short-term nature. Notwithstanding this, in 2019 the Pensions Regulator[iii] was advising trustees to

“understand and quantify the liability valuation risks you are running”

and to consider mitigating those risks

“by investing in assets that move in a similar way to the value placed on the liabilities as market conditions change”.

A belief has recently gained currency that the tails of the distributions of pension projections of closed schemes are, in some sense, riskier and more difficult to manage than a less mature scheme. This is simply not true. Negative cash flows are only a potential problem when the fund is viewed as the sole source of pension service. There is no net gain to the company from contributions.

The cash flows of tails decline exponentially, and the total risk exposure, the residual value of the scheme declines hyper-exponentially, and with this the potential debt service load on the employer. On these grounds the covenant of the employer will tend to improve as time passes as the potential service cost diminishes.

This negative cashflow misunderstanding appears to have driven, at least in part, the Regulator’s desire for a new, separate regime for schemes in run-off. The resistance reported to the Bowles amendment is misplaced. Inclusion of open DB schemes within that proposed framework will certainly lead to their closure.

MOH.jpg

Michael O’Higgins (then TPR Chair) said in a speech in 2012:

“There will be occasions when the right thing to do for the employer and the scheme will be to invest in the growth of the sponsoring company rather than making higher pension contributions.”

We wonder if it has ever happened.

 

[1] For completeness, it should be noted that the PPF can adopt measures to “balance its books” by reducing the level of revaluation and indexation and, ultimately, the compensation percentage – albeit with a floor of 50% of the member’s pension each year from that which would have been payable from that member’s scheme before it went into the PPF.

[2] Recent judgements in the ECJ and in the High Court have modified this original position and removed some of the iniquity of the original structure of PPF compensation.

[i] Until the late 1990s schemes commencing winding up were often sufficiently well-funded that they could buy-out the liabilities with an insurance company. This was partly due to the higher gilt yields then prevailing but also to the fact that it was the basic pension with no allowance for discretionary increases which was bought.

[ii] This is an edited quotation from an excellent paper, which we recommend should be read in full:

Deborah Mabbett (2020): Reckless prudence: financialization in UK pension scheme governance after the crisis, Review of International Political Economy, DOI: 10.1080/09692290.2020.1758187

[iii] TPR. (2019). Investment guidance for defined benefit pension schemes.

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What MaPS can learn from Australia’s MoneySmart Retirement Planner

Posted on August 14, 2020 by henry tapper
super 7

MoneySmart Retirement Planner took me four minutes to use

The Australian Government has built what it calls the MoneySmart Retirement Planner which is a dashboard tool. You plug in your savings in “Super” and tell the planner a little about yourself (and your partner) and within five minutes you are able to see your retirement situation

super 1

The user experience is great; everything I want to know is available quickly and simply. I don’t need to find lost pensions, as the Australian system rolls everything into one. I don’t need to worry about all my other savings because the Australians are clear about what’s retirement income and what’s a capital reserve. All I am focused on is saving enough to stop work and enjoy a decent lifestyle for myself and my partner.

But – and this is even better, there are options , for those who want to use them, to go further.

super 2

These projections show “account based” pensions – where the money runs out if you don’t hit investment targets.  The calculator allows you to look at guaranteeing your income lasts as long as you do.

One of my Aussie friends wrote me

The government’s MoneySmart Retirement Planner tells me I can spent $65,707 per annum when I retire. But buried in the advanced section is an assumption that I’ll totally exhaust all my savings at age 90. I’m not happy with that assumption (and my wife is younger than me too) so I changed it to 99 to be more prudent. It then tells me I can only spend $56,177 per annum.

Ouch! That is a BIG difference and shows what a nasty impact longevity risk has on superannuation member outcomes.

Funnily enough , the Australians are no greater fans of annuities than we are . like us they want the return of an equity based draw down plan with the certainty they’d expect from a defined benefit pension promise and there’s a fierce debate about how you measure financial security in retirement

super 5

For people who want to know more about financial security , there are new options coming to the market which are neither draw down or annuity

super 3

For my friend who wants his pension paid through his and his partner’s 9th decade and beyond, some Australian Super plans are building the equivalent of scheme pensions that provide the protection against living too long from within the fund

super 6

Making Super more ambitious in providing greater security in retirement

So what can we learn from Australian innovation?

  1. A really simple Government modeler is an effective way of establishing trust
  2. That modeler can and is being used to think beyond account based pensions (drawdown).
  3. That innovation is happening in the private sector , with the Government’s modeler as  the rock on which innovation is built

And all this is built around simple messaging. about keeping the idea of a pension distinct from savings and by focusing on pensions as the way to stop work when you get to the age.

The more you move into the back end of the modeller, the more you can find out about the impact of costs and charges, taking career breaks and of living longer than you expect.

But by putting the simple stuff at the front and not getting bogged down with health and wealth warnings, the Australian Government is teaching us a lesson.

Can MaPS replicate?

We need in the UK , a retirement planner that gets to the point as the Australian Government’s does

We need it now, not when the dashboard is delivered.

MaPS has the resources to do this and now is the time for it to deliver.

And if we have this dashboard, we will be able to move forward, as the Australian retirement industry is doing, and innovate.

We need this rock!

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We need to take people and their pension savings more seriously.

Posted on August 13, 2020 by henry tapper

FCAtpr

There is a section of the FCA’s rulebook  entitled PERG/8/28 which deals with the vexed subject of guidance and advice.

. When answering the question “do you give advice?” PERG/8/28 is helpful.

The Pension Advisory Service  sees advice as “delivering a definitive course of action” which in less flowery language means telling people what to do. I feel a little responsible for the fancy definition as Michelle Cracknell says I gave it her, I may have done but I didn’t make it up.

People who operate in the unadvised space want to give their customers the information they need to make informed decisions. One of those decisions may be to take advice , referring people to advisers is something that goes on all the time, not least from the Government’s own Money and Pensions Service.

There is a useful distinction to be made between information and “meaningful information”, the latter you can take action on, the former is noise. In a recent conversation on value for money, the FCA wrote me

“in order to be meaningful we need the IGC to obtain data on what each employer’s scheme is achieving for its members”

This is meaningful information about meaningful information. It confirms that value for money is specific to the entity analyzing it. But the statement is also inferring that current IGC VFM information is less than meaningful to employers, because it does not refer to them.

If you take this logic a stage further , you can see that value for money information is only meaningful for savers, if it relates to them. A statement that the IGC considers its provider is delivering value for money is not meaningful information unless a saver considers he or her is typical.

Most people resent being treated as typical, especially when something as important as their financial savings are involved. They want to know about their money and their value and don’t like being lumped together as anonymised members of a scheme. This is fair, they are the people taking the risks of things not going right and even if they opt out of taking control of their investment decisions, they still hold those who manage their money accountable.

At the heart of what AgeWage does is the measurement of value for money through an AgeWage score.  This is not a subjective process, the score is derived from data on contributions and outcomes of contributions and uses an algorithm which assures consistency. The score is information as it shows people what has happened to their savings, but it is not telling them what to do.

As Perg/8/28 puts it

The provision of purely factual information does not become regulated advice merely because it feeds into the customer’s own decision-making process and is taken into account by them.

If  an assessment of “value for money” is ever going to help those who aren’t being told what to do, to take decisions, then it is going to have to be delivered in a way that is meaningful and feeds into the customer’s own decision making process. It will only be taken into account by customers if it is meaningful to then which means it has to be personalized.

Taking customers seriously

AgeWage scores tell people what they have done with their money, how it has grown since they said goodbye to it. But they don’t not tell people what to do with their money.

People are not stupid and they know that there’s more to a pension than the investment of their contributions. People are interested in the quality of service they get and they get that what happens when they start spending their money is different from when they are saving.

People get that their money could run out before they do, that their are other ways to fund their retirement spending than their pension and they know they have choices.

Where they choose to invest their money after they stop saving may be quite a different place than when they were saving for a host of reasons, including tax.

People are prepared to be guided towards options which interest them and we are testing what is of interest and how much guidance people need in our FCA test going on at the moment.

Our view is that if people have been given meaningful information about their pensions , they are more likely to trust the information that comes after because the trust deficit has been repaired. Getting people on your side means treating them seriously.

What we give people at retirement is not meaningful

Most wake up packs struggle to deliver meaningful information because of the delivery mechanism (paper), the format – a lot of words and because simple questions like “how have I done” aren’t either addressed or answered.

Pensions Wise is good but it is only a start – it too struggles to give people meningful personal information

Wake up packs and Pensions Wise simply can’t do the job that people need doing when they are taking decisions on later life finances.

The past is ignored as if it were irrelevant, but for savers, their savings are full of meaning. Each contribution was made at the expense of that money being spent elsewhere. Cars, holidays and items of everyday living weren’t bought so that pension contributions went on. Giving people an idea of what’s happened to the money they sacrificed is about taking them and their savings seriously.

Our view is that value for money scores can help people compare their pension savings accounts and create the engagement needed to get people ready to make the big decisions about aggregation, investment pathways and holistic retirement planning. For many this will mean taking advice, but many will find ways to struggle through themselves.

Giving people meaningful information about their savings is not advice, it’s just common financial decency that takes customers and their money seriously.

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93% of advisers put two fingers up to TPR’s Fast Track funding proposals

Posted on August 13, 2020 by henry tapper

This is how the Society of Pension Consultants Professionals concluded their survey

Our members’ responses show a widespread belief
that the new code will essentially move the funding
regime from one that is scheme specific to one
where any deviation from the Fast Track standard
needs to be explained. Nevertheless, there seems the
expectation that around half of all schemes will go
down a bespoke route, something that if it occurred
would seem to challenge the central premise of the
new Code (that it allows tPR to target its resource
on a small subset of schemes). Key to the decision
whether to go Fast Track or Bespoke seems to be
concerns about the lack of flexibility in the Fast Track
approach and whether or not it will be suitable for
their clients’ schemes.
That said there is a great deal of uncertainty of
how the new funding code will work in practice,
particularly the calibration of the Fast Track
assumptions and how bespoke the Bespoke route
will be.

 

SPP

The SPP is a trade body representing 15,000 people whose livelihoods depend on providing services to occupational pension schemes. They depend on a diversity of approaches to scheme funding. Should the Pensions Regulator determine a one size fits all approach to scheme funding, that diversity disappears.

The comments of the SPP membership are to an extent biased against the Pension Regulator’s proposals. The main proposal is to Fast Track the majority of pension schemes away from a dependency on the employer and towards either self-sufficiency or buy-out. As has been noted on this blog many times there are drawbacks to this approach, not least the ruinously expensive cost to sponsoring employers of getting there.

Two fingers up to fast track?

First lets look at the numbers in the survey. The survey starts with a challenge  The SPP members see “bespoke” as a myth, less than 10% of members see it as allowing schemes to do as they please , the majority see it as the start of an argument with the emphasis being to “comply or explain”.

What is unclear is the appetite of trustees and sponsors to get into an argument with the Pensions Regulator and to what extent TPR will make the lives of trustees and employers difficult if they do.

SPC1

The survey goes on to survey the advice that SPP members will be giving trustees.

SPC2

There is a very low appetite for advising schemes to accept fast track. As mentioned before this is almost certainly biased by the needs of advisers to advise and fast-track requires precious little advice – just a lot of compliance.

The survey looks at the reasons advisers are giving to justify recommending bespoke. We can assume that “self-survival” wasn’t an option.

SPC3

Unsurprisingly, the short term consideration that Fast Track will jack up scheme funding rates is bottom of the list and longer term considerations about flexibility and suitability head it.  But we can be pretty sure that for sponsors, the considerations are the other way round, the cost of funding for self-sufficiency or whatever the long-term objective is, is not pleasant for sponsoring employers in a pandemic driven recession.

Finally we have a degree of consensus (which means balance) about the degree of prescription tPR should adopt. Although this may look anodyne, it isn’t

SPC4

The SPP are lobbying here for scheme specific consulting with only 7% agreeing with the Regulator that Fast Track should be Fast Track. This really is two fingers up to Fast Track.

With the advisers at odds with the Regulator, sponsoring employers are in for some interesting conversations. As the survey concludes

….our survey shows tPR has a very
fine balance to strike between setting Fast Track
assumptions at a sufficiently prudent level (requiring
only limited regulatory scrutiny) and setting them
such that the significant majority of schemes elect
to go down the Fast Track route.

How influential advisers are in that choice remains to be seen.

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Justice delayed is only just justice. The Avacade judgement is 7 years late

Posted on August 11, 2020 by henry tapper

The FCA’s judgement against Avacade and Alexandra Associates is justice but only just.

The FCA is requiring the two companies and three of their directors to pay £10.7m in restitution to retirees who were “induced” to transfer their pensions into self investment personal pension (Sipps) plans between 2010 and 2013.

For many investors, justice will arrive 10 years after the crime was committed.  I quote from the FT reporting.

In a judgment dated June 30 2020, the court found that Avacade’s and AA’s activities were unlawful as they had engaged in the regulated activities of arranging and advising on investments, made unapproved financial promotions and issued false or misleading statements.

The court found Craig Lummis and his son Lee Lummis, directors of both companies, and Raymond Fox, a director of Avacade Limited, which is now in liquidation, were “knowingly concerned in” the breaches. It ordered Avacade to pay up to £10m, AA £715,000, Craig and Lee Lummis £2.5m each and Raymond Fox £1.7m.

However, it added that the FCA could not recover any sum greater than £10.7m.

Avacade’s activities led to 1,943 investors transferring about £87m of pension funds into Sipps, according to the court judgment. Of that, £68m was placed into investment products from which Avacade received commissions and fees totalling £10.6m.

AA’s activities led to at least 59 investors transferring roughly £4.8m of pension cash into Sipps, of which about £950,000 was placed into a single product known as the Paraiba Bond. AA promoted the bond, receiving commission of 25 per cent, according to the judgment.

About £42m of the cash was invested in ethical tree plantations in Costa Rica, which suffered significant damage during Hurricane Otto in late 2016.

This judgement comes as Stephen Timms and the Work and Pensions Select Committee investigate the impact of the pension freedoms. There will be many who lump pension scams together but let’s be clear, this money did not get shipped off because of pension freedoms, it was shipped off because the owners of the money would rather have had their money in Paraiba Bonds and ethical tree plantations than stuck in conventional UK pension schemes.

If this case informs the WPSC’s work it is in the light it sheds on people’s confidence in the regulated pension system between 2010 and 2013. It has become a commonplace for us to blame the pension freedoms for scamming, but these offences pre-dated the announcement of the freedoms in April 2014.

The investment schemes project investments in infrastructure and socially responsible investments that gave investors a sense that their money was invested with purpose.

Meanwhile , investors felt no such sense of purpose in their UK regulated funds. The WPSC must also ask what led to the dissatisfaction  with existing pensions.

What’s the story?

If you want to read the backstory to the marketing of these investments, it has been chronicled for some years by Beat the Banks

Operated by the father and son team of Lee and Craig Lummis along with Raymond Fox, Avacade Limited, trading as Avacade Investment Options, was wound up in November 2015. Although Lee and Craig Lummis continued to trade through Alexandra Associates (UK) Limited, under the name of Avacade Future Solutions.

Both companies operated as unregulated introducers, passing pension transfer business to a number of independent financial advisers (IFAs) including Cherish Wealth Management, appointed reps of Shah Wealth Management and Black Star Wealth Management. They offered potential customers a free, non-advised pension report, the results of which were skewed to entice them to transfer their funds into Self-Invested Personal Pensions (SIPPs) and invest in a host of alternative investments.

It’s believed that Avacade (in both its guises) made arrangements with a number of SIPP providers, such as Liberty SIPP, to introduce and process a raft of Unregulated Collective Investment Schemes (UCIS). Variously these are said to include:

Ethical Forestry
InvestUS
Brisa Investments
Paraiba Projects Mini Bond

Investors will have known for some years that their money had been lost to commissions ,management fees and dissipated by unscrupulous asset managers who never quite got the assets built.

Justice – just

The wheels of justice grind slow. Whether the money will ever be recovered is in doubt. Those who have lost money will be pleased that the perpetrators will not be authorised in future, but as they were not authorised in the past, this appears to make little difference.

Alexandra Associates still trades today and the Lummis and Fox families are still at large. If this is justice, it is partial justice and shows that the punishment for financial crime involving pensions is a lot softer than other forms of theft.

It has taken 10 years to judge the scammers class of 2010. Can today’s scammers consider their end-date 2030? Is the worst they can contemplate, an FCA order to return money to those whose pensions they’ve spent for a decade?

We need swifter and more complete justice as a deterrent. That means more timely investigations as well as the sexy TV ads.

 

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If payroll can integrate to our pensions, why can’t we?

Posted on August 9, 2020 by henry tapper

auto-enrolment-traffic-jam.png

Cast your mind back to the back end of 2012 when the big retailers and banks were staging auto-enrollment.

The big employers were spending hundreds of thousands of pounds re-coding their payroll software or were ransoming themselves to “middle ware” – which would soon be renamed “muddle-ware”.

There was a need for a data standard to which payroll software suppliers could build. The standard could save payroll millions and this could be passed on in lower pension integration costs to employers. A group of software suppliers , bureau operators and some pension providers started meeting , convened by Andy Agethangelou’s Friends of Auto-Enrollment and led by Will Lovegrove of PensionSync , watched over by Neil Esslemont of the Pensions Regulator.

They devised a data standard, it was called PAPDIS, but it arrived too late. The PAPDIS data standard was rejected by Nest on the grounds that Nest considered itself the data standard.

Fast forward six years and in the meantime those big red spikes of companies staging from 2016 to 2018 found a way. Payroll software companies found a way and the pension providers found ways to integrate. The great vaccination  – the API is finally happening. But it is happening selectively

integrate

PensionSync integrations

integrate2

AEclipse integrations

If you are a small employer, choice is still governed by the interoperability of payroll and provider and the mainstream providers are those who have invested in interoperability.

Why did they do so? Here is Dave Lunt , commenting on linked in on behalf of People’s Pension.

lunt

Less cost for People’s Pension means prices stay low. Better data quality means less problems at “claim”. More security means less scamming. But how much has been lost by our failing to get data direct from payroll submission. When she worked with PensionSync , Ros Altmann made her feelings clear

In truth , auto-enrollment muddled through and the great Government success story has been achieved with some grievous failures from employers who have over -or more seriously – underpaid contributions. Many payments got lost (we will not forget the cost of rectifying NOW’s middle-ware). many employers chose sub-optimal workplace pensions to suit the needs of their payroll.

Let’s not suppose that auto-enrollment gave us all the answers. But it did at least teach us where we shouldn’t be going wrong.

Lessons for the future

If you look at those advertisements of AEclypse and PensionSync you can see that what matters to future purchasers is integration to some core providers and both products are being targeted at a relatively few payrolls.

Note to the Pensions Dashboard Programme (1): a market will form around the major participants. The Data Application (go live) point is when the market feels that the service is sufficiently inclusive and auto-enrollment shows there is no appetite for 100% inclusion.

Note to the Pensions Dashboard Programme (2); direct integration can involve competition between integrators as displayed but at great cost. It would have been better off for all if a data standard had been adopted when auto-enrollment was young. We do not want to see the same mistake made twice. The pensions dashboard needs the dynamism of the private sector and the co-operation of Governmental organisations to common purpose. That’s why I’m a supporter of the approach being taken by the Pensions Dashboard Committee in getting the common data standard agreed at outset.

Note to the Pensions Dashboard Programme (3); Pensions are payable because people defer present pay for future pay. Pension providers do no more than maximize the effeciency of that deferral. Auto-enrollment is a slight of hand that enables this deferral to happen without compulsion. But auto-enrollment works because savers stay out of the way, it does not encourage savers to get involved with their pensions. The pensions dashboard seeks to reverse that process. Having effectively excluded the saver from the process, we should not expect the saver to be well informed. We need some simple ways to get people engaged with their money. Auto-enrollment data integration has worked where the service has been direct to the customer.

Pragmatic on inclusion, authoritative on data standards and insistent on consumer access to their data.

Auto-enrollment roughed out its solution and it’s not a perfect solution. But it’s got there.

The pensions dashboard was conceived as combined pension forecasts in the early years of the millennium.  AE is about real money, the dashboard is about the data that tells us the money is real.

The dashboard has been slower because money makes the world go round. But … the money we are talking about is our money!

Why can’t we integrate to our pensions?

Those who have managed our money, have held our data and held it close. Rob Mann is not the only member of the public who is frustrated by why his data and his money aren’t more easily available.

It is a crying shame that the priority for pension providers has been  in integrating  with payroll – not with dashboards.  But that is because money talks. No.w we must make our money talk. We must demand better access to our data and our money. We cannot allow the dashboard delivery date continue to recede into the distance. We cannot allow our providers to dictate the service we receive and leave these questions unanswered.

 

Google “pension integration” and you will see hundreds of images of flow-charts. You have to scroll a long way till you get to a human face that isn’t being used to sell software. When you do , this is what you find.

questions

The other face of “pension integration”

 

Posted in age wage, Payroll, Pension Freedoms, pensions, Sage | Tagged , , , , | Leave a comment

“Dragging pensions out of the digital stone age”

Posted on August 8, 2020 by henry tapper

I was interviewed yesterday by a young lad from Johnston Greer called Lewis Campbell. I’ll share next week. On several occasions I was asked for examples of people who I admire for promoting pensions and I came back to Alistair McQueen. He has the knack of asking the right question in the right way and here he is at his best.

Back to the age of printers?

It’s been one of those weeks. We’ve been dragging printers out of cupboards and borrowing them from friends. Why? Because if you want to make an inquiry on pensions,  you may have to send it in by post.

I ask you, what good is it the Law Commission requiring British businesses to accept e-signatures, if you can’t send a request to a company by email?

This blog does not contest Alistair’s contention. It asks why the pension consumer is so poorly served by the internet.

A commercial imperative for change?

The problem for pension consumers is that there is no commercial imperative for pension providers to update their processes for a digital age. Whereas other retailers depend on your digital footfall for future custom, pension firms make money on your money when you are not around. The less the pension firm sees of you the better.

For all the talk of engagement, the thought that consumers actually want to know what is going on with their money, fills many pension firms with dismay. That’s because their financial forecasts deliver margin based on a low claims-experience. A claim in this context is any kind of client interaction which gives rise to a manual intervention.

What is worse, rather than investing to eliminate manual intervention, most firms suppress claims by making it as hard as possible for customers or their agents to get to the information needed to work out how their fund has done.

This is not just the case for individual inquiries. It is extremely difficult for employers to find out how their work-forces have fared saving into multi-employer schemes. Only where an employer has set up its own pension trust can it have primacy over staff data and even then they are dependent on service agreements with third party administrators.

In short, our experience is that while most pension firms are uncomfortable with claims either on the money or data they hold on their customers behalf.

The dashboard – our pensions Crossrail?

John Zammit

Recognizing that there is no commercial imperative for pension firms to digitize, the DWP is in the process of mandating change. The Pension Dashboard Programme will be empowered by the forthcoming Pension Schemes Act to demand that data be available first to a Government Dashboard and then to commercial dashboard, on presentation of a digital certificate authenticating the request.

However, the process of unlocking our data is being frustrated by delays in pre-determining what data is available and how it is presented. Arguments are breaking out about how much access to data private sector dashboards should have and the net result is that change is happening at a snails pace. Indeed the delays in the legislative process are meaning that the Pensions Dashboard Programme is becoming our pension Crossrail.

The public was promised Crossrail by December 2018 and the Dashboard a year later. Crossrail now expects to be fully open by December 2022, we have no timeline for the Dashboard. Without a commercial imperative or mandation, the pensions industry can sit on its customers data and cash indefinitely.

The pandemic should have increased digitization – not held it back.

The delays in the Pensions Scheme’s Bill passage through parliament are being blamed upon Covid-19. but Covid-19 should not be holding back insurer’s spend on research, development and implementation of digital access to our pension data.

One senior executive told me last month that her company no longer had the budget to develop APIs due to decreasing revenues from a fall in the markets. Linking customer service to the volatility of the markets is a worrying concept, the executive was in earnest.

The pandemic showed some providers having no digital plan B

The fragility of that service and disaster recovery was exposed by Covid-19. At least two insurers were unable to service basic customer needs in late March and April because they had no capacity for homeworking.

For all the talk of straight through processing, the pandemic showed that some of our largest firms were still requiring manual processes based on centralized call centers working on mainframe systems. The lack of agility was also  worrying +++ as was the lack of accountability for those responsible for the maintenance of services+++as was the acceptance of failure from trustees and IGCs.

The failure of certain firms to maintain telephony in the key weeks of March and April when markets were plummeting should not be forgotten by the firm’s executives, fiduciaries or customers.

Dragging pensions out of the stone age

Managing pensions is a profitable business. Margins may not be quite as high as in the funds industry but it is still possible to make a decent margin from running a funds platform for open and closed pension books. Witness the success of the pension consolidator Phoenix and the inexorable rise of master trusts such Lifesight and Smart and (at a consumer level) Pension Bee

If there is hope that pensions can be dragged out of the stone age, it may be because there is capital outside of pensions that can be committed to researching , developing and implementing new systems that are built with API layers integrated into them.

If the mindset of the new administrators starts with the presumption that every process can be automated, then manual processes will be phased out.home automation Consumers will find that they can view and manage their investments with the automation they expect for their home.

Looking at the ONS data makes sorry reading. Accessing investment or pension data does not figure in the top 20 items. Internet banking is now used by 76% of us , up from 30% in 2007.  Open banking is a reality but open pensions seem further away than Crossrail.

It will be down to a few thought and business leaders, such as Alistair McQueen to change things. I would like to think his firm, Aviva- would be in the van.

mcqueen

McQueen – dragging pensions out of the Stone Age.

 

 

Posted in advice gap, age wage, pensions | Tagged , , , , | 3 Comments

Is value only in the eye of the beholder?

Posted on August 7, 2020 by henry tapper

Yesterday’s blog on the capacity of “value” to simplify pensions has solicited some strong comment and a very interesting debate on linked in

I am  interested in the comments of Simon Ellis who has been assessing value in funds

For those us who have grappled with Assessment of Value statements for UK authorised funds over the last twelve months there is nothing new here, and compared to your wish, no rapid adoption of a single simple approach.

The factors that drive perceptions of value have been established, ‘measures’ or opinions of what constitutes value in the eye of the beholder remain disparate.

In a way that’s right- there’s a big difference in expectations or senses of what is good value between an auto-enrolled scheme for a small number of lowly paid shop-workers and the high paid employees of, say, an investment bank.

What I think is more notable is the continuing convergence of thinking and methods between the two lead regulators. Anyone who thinks these two worlds will remain separate is, in my opinion, being naive.

The names and people may stay different (and the reporting into different Government departments too) but the direction of travel and emphasis is getting more common by the day.

Philosophically, I believe value is intrinsic in what is being bought. A can of beans tastes the same in the mouth of a prince and a pauper. There is no reason why a shop-worker shouldn’t be invested in the same fund as the investment banker though the banker is likely to have lower pension costs if the shop-worker’s employer cannot get good terms.

But if you are in Tesco’s workplace pension likely, getting more value than almost any employer scheme we have analysed. I have spoken with several fund platforms who are struggling with value assessment and I agree, the difficulties are in comparing perceptions of funds. It should be remembered that until recently , Neil Woodford was considered to deliver more value than any other single manager.

So long as we measure value as the marketability of a fund, then it will be the capacity of the manager to talk a story that solicit expectations and drives money to the fund. But that is the sizzle and not the sausage. The sausage tastes the same whether you play polo or drive one.

Is there anything new in a single definition?

  • The funds industry relies on value assessments of authorised funds
  • The IGCs rely on value for money assessments of contract based workplace pensions
  • The Trustees rely on value for member assessments of trust based pension

But strip away the marketing and what is being measured is what happens between the money arriving and the point of measurement.  In all three instance we are measuring individual experiences within collective vehicles – whether we define collectivity as a mutual fund or a workplace pension and I think there is something new about measuring and bench-marking the saver’s experience as that is fundamentally the same.

This is radical and disruptive because it denies the rights of marketing to assert “segmentation” as a source of value in itself.

Is there any value in quality of service?

I believe there is. A high quality of service should lead to more targeted outcomes. Take SJP , where perhaps 50% of the money that leaves the fund pays for advice. The advice itself is valued by customers , as is witnessed by high customer retention and high customer satisfaction. The bundling of advice into a management charge is highly tax-efficient and makes life easy. The quality of service argument at SJP has to take into account the old argument that advisers get the right money in the right time in the right place.

Stripping out the cost of advice, SJP may or may not be offering value from the funds they manage and that is what the value assessment should be about. As I have argued on this blog before, a value assessment of funds should be independent of a value assessment of advice and it is up to SJP funds to demonstrate that they offer equivalent of better intrinsic value than promised both by the expectation of the fund holder and against alternatives.

So how does a single definition simplify?

We all look the same without our clothes on and that’s true for our savings too. Much as we like to consider our fund, advisory or tax-wrapper a value-add, what matters to the saver is its capacity to deliver.

There may be a need for a different benchmark for life assurance endowments or for cash ISAs, but DC pensions are homogeneous.  We put money in on the hope we can get money out at a future point and this is a commoditised activity. I believe that a single benchmark can be used to measure a wide variety of pensions and that this presents a saver with an entry point into an understanding of how his or her pots have done.

A single definition – money in V money out of course takes into account costs and charges leaving the pot in the meantime. The saver who chooses an individual rather than a default strategy can overlay their own measures of success, but VFM is really about establishing the average experience.

Towards unified fund governance.

If we accept my assertion that people converge on a default and that a default for pension saving is measured by money in – money out then we can converge value assessments, value for money and value for members.

Quality of service is of course a factor but that is in the eye of the beholder and that will influence purchasing decisions for those who have money to buy advice and fancy features.

But the engine is performance and can be measured by the experienced rate of return measured inclusive of charges.  If we can accept this universality , we will have taken a giant step towards simplifying pensions.

And where is this helping ordinary savers?

The current perception of pensions is that they are hard, complex – even toxic. Many people may think of pensions in terms of the FCA’s adverts about scamming.

To change this perception, we need to make pensions easier, simpler and comparable.

Value for money is a concept which goes a long way to achieving this. It is not a new idea, but if we can apply it so that a wealth management pot can be compared to a workplace pension pot then we will be further on. Whether our idea of wealth is £5m or £5,000,  our fundamental understanding of value for money is the same.

simon and henry

Simon Ellis and Henry Tapper

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Our best shot at pension simplification in a generation!

Posted on August 6, 2020 by henry tapper
FCAtpr

Can DC pension regulation align and simplify around VFM?

It’s an interesting time right now for those involved in DC regulation. This blog suggests that if we can find a single definition of value for money that is acceptable to TPR and FCA, then we can massively simplify DC pension regulation and had pension choice back to employers and savers

I  believe the current debate around a single definition for value for money could provide us with our best shot at simplification in a generation,

The current focus is on benchmarking value for money in DC pension schemes. We are  still waiting for the DWP’s response to its 2019 consultation on Investment and Innovation which considered the consolidation of DC schemes.

Trustees and advisers are wondering

“Will changes need to be incorporated into any new VFM guidance and if so , will those changes align with the radical proposals in the FCA’s CP20/9 consultation?”

The FCA have highlighted three areas that contribute to VFM in their recently published consultation:

  • charges and costs,
  • investment performance, and
  • quality of service.

I for one would support this radical simplicity as opposed to the 6000 words of guidance from tPR. The history of  TPR’s thinking of what makes for a good occupational DC scheme is a long one. It started with Ian Costain’s 6 good outcomes in 2010 which ballooned into 6 principles and  36 features two years later. 

How did defining what made for value become so complicated?

Looking back at the original 6 outcomes, I am struck by how easy the are to understand . 10 years ago, we could measure value as simply as this’

  1. Appropriate contribution decisions
  2. Appropriate investment decisions
  3. Efficient effective administration
  4. Protection of assets
  5. Value for money
  6. Appropriate decumulation options

The 36 features were designed to underpin 6 new principles but both the principles and the  features were a different kettle of metrics. If you want to read all the principles and  features, I’ve appended them to the blog. I said at the time and hold to this day that it was the over-complications of the original 6 good DC outcomes that has blighted discussions on value and money ever since.

Neither the features or principles included  “value for money”  but in they form the value for member guidance – and in an unhelpful way – they have moved the agenda away from what mattered to the consumer so that DC governance has become a matter for experts.

Currently TPR regulated entity are required us to look at the services members get for the charges they pay and for us to make our own evidence based assessment of value, based on TPR specified criteria when compared to other similar options available in the market :

  • Scheme management and governance
  • Scheme investment and governance
  • Communications
  • Administration

It is up to each scheme to make  the comparison and provide evidence based conclusions.  Schemes  do not use comparative metrics, other than to consider the publicly available member charges other schemes make. A few conscientious trust based schemes  reference independently rated risk-adjusted returns on the default fund

The  requisite VFM statement, which reflects the VFM assessment is published in the Chair’s Statement in the Scheme Annual Report and Accounts.

One large multi-employer scheme told me that

“it  did publish a member focused version of the assessment for many years but it was hardly ever viewed by members and has been discontinued”.

From October this year , the statement will have to be published on a publicly accessible site and we are already seeing progressive schemes like Nestle ,  publishing their value for members statement within the Chair Statement (it’s at 4.2). The problem is that what is published is not for the common person and I suspect that won’t get read either.

Too complicated for the ordinary person

To my mind, if a concept as simple as value for money has become so complicated that nobody reads a value for money report, something has gone wrong.

Something went wrong with the guidance on VFM 8 years ago and it is not till tPR gives up on the 2012 principles and establishes a simple definition of value for money as suggested by the FCA, that we have any chance of  getting VFM reports read by ordinary people.

I feel that there is now a chance to achieve the radical simplification in the way we present schemes to members and I will be doing everything I can to get tPR and FCA into one “virtual” room.

The prize of creating a single definition of value for money to which we can all sign up, is not just that we can junk the current guidance but that we can offer employers and ordinary savers, a way to compare pensions in a way that improves outcomes and helps ordinary people turn their pension pots into a retirement plan.

 

FCAtpr

 

Appendix; TPR’s  6 principles and 36 features of a good pension scheme

The six principles

Principle 1 – Schemes are designed to be durable, fair and deliver good outcomes for members.
This principle covers the features necessary in a scheme to deliver good outcomes for members, including features such as the provision of a suitable default fund, transparent costs and charges, protected assets and sufficient protection for members against loss of their savings.

Principle 2 – A comprehensive scheme governance framework is established at set-up, with clear accountabilities and responsibilities agreed and made transparent.
This includes identifying key activities which need to be carried out, and ensuring each of the activities has an ‘owner’ who has the necessary resources to carry out the activity.

Principle 3 – Those who are accountable for scheme decisions and activity understand their duties and are fit and proper to carry them out.
This principle ensures that those who are given accountability or responsibility for a key governance task are able to carry this out. The principle will cover definitions of fitness and propriety for accountable parties and also conflicts of interest that may arise.

Principle 4 – Schemes benefit from effective governance and monitoring through their full lifecycle. This principle looks at the ongoing governance and running of the scheme, including the internal controls and monitoring needed to ensure that the scheme continues to meet its objectives, and continues to be run with the best interests of its membership in mind.

Principle 5 – Schemes are well-administered with timely, accurate and comprehensive processes and records. This principle is informed by our previous work on record keeping, looking specifically at the administration processes required in a DC scheme.

Principle 6 – Communication to members is designed and delivered to ensure members are able to make informed decisions about their retirement savings. This includes all communications to members during their time with the scheme – from joining through to making decisions about converting their pension pot into a retirement income, including promotion of the Open Market Option.

The 36 features

  1. All beneficiaries within a pension scheme are treated impartially and receive value for money.
  2. All costs and charges borne by members are transparent and communicated clearly at point of selection to the employer to enable value for money comparisons to be made and to assess the fairness to members of the charges.
  3. Those running schemes understand and put arrangements in place to mitigate the impact to members of business and/or commercial risks.
  4. Those running pension schemes seek to predominantly invest scheme assets with entities regulated by the Financial Services Authority or similar regulatory authorities. Where unregulated investment options are offered, it must be demonstrable why it was appropriate to offer those investment options.
  5. Those running schemes understand levels of financial protection available to members and carefully consider situations where compensation is not available.
  6. Products offer flexible contribution structures to members and/or employers (over and above minimum scheme qualifying thresholds).
  7. A default strategy is provided which complies with DWP default fund guidance and scheme investment strategy.
  8. The number and risk profile of investment options offered must reflect the financial literacy of the membership. Different ranges of investment options could be offered to different membership groups.
  9. Investment objectives for each investment option are identified and documented in order for them to be regularly monitored.
  10. A process is provided which helps members to optimise their income at retirement. Principle two: Establishing governance A comprehensive scheme governance framework is established at set up, with clear accountabilities and responsibilities agreed and made transparent. Features:
  11. Sufficient time and resources are identified and made available for maintaining the on-going governance of the scheme.
  12. Those running schemes support employers in understanding their responsibility for providing accurate information, on a timely basis, to scheme advisers and service providers.
  13. Accountability and delegated responsibilities for all elements of running the scheme are identified, documented and understood by those involved.
  14. Those running schemes establish procedures and controls to ensure the effectiveness and performance of the services offered by scheme advisers and service providers.
  15. Those running schemes establish adequate internal controls which mitigate significant operational, financial, regulatory and compliance risks.
  16. Arrangements are established to review the on-going appropriateness of investment options. Principle three: People Those who are accountable for scheme decisions and activity understand their duties and are fit and proper to carry them out. Features:
  17. Those running schemes understand their duties and are fit and proper to carry them out.
  18. Those running schemes act in the best interests of all beneficiaries.
  19. Those running schemes are able to effectively demonstrate how they manage conflicts of interest. Principle four: On-going governance and monitoring Schemes benefit from effective governance and monitoring throughout their full lifecycle. Features:
  20. Those running schemes are open and honest with their regulators and regulatory guidance is addressed in a timely and effective manner.
  21. Those running schemes regularly review their skills and competencies to demonstrate they understand their duties and are fit and proper to carry them out.
  22. Sufficient time and resources are made available for monitoring and reviewing schemes to ensure that they continue to meet good practice and continue to include the essential characteristics established under Principle 1.
  23. Those running schemes maintain procedures and controls to ensure the effectiveness and performance of the services offered by scheme advisers and service providers.
  24. Those running schemes maintain adequate internal controls which mitigate significant operational, financial, regulatory and compliance risk.
  25. Those running schemes take appropriate steps to pursue and resolve all late and inaccurate payments of contributions.
  26. Those running schemes monitor the on-going suitability of the default strategy.
  27. The performance of each investment option, including the default option, is regularly assessed against stated investment objectives. Principle five: Administration Schemes are well-administered with timely, accurate and comprehensive processes and records. Features:
  28. Member data across all membership categories are complete and accurate and is subject to regular data evaluation.
  29. All scheme transactions are processed promptly and accurately.
  30. Administrators maintain and make available their complaints process.
  31. Administration systems are able to cope with scale and are underpinned by adequate business and disaster recovery arrangements. Principle six: Communications to members Communication to members is designed and delivered to ensure members are able to make informed decisions about their retirement savings. Features:
  32. All costs and charges borne by members are disclosed to members annually.
  33. Members are regularly informed that their level of contributions is a key factor in determining the overall size of their pension fund.
  34. Scheme communication is accurate, clear, understandable and engaging. It addresses the needs of members from joining to retirement.
  35. Members are regularly informed of the importance of reviewing the suitability of their investment choices.
  36. Those running schemes clearly communicate to members the options available at retirement in a way which supports them in choosing the option most appropriate to their circumstances.
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A practical illustration of Contractual Accrual Rates – Clacher and Keating

Posted on August 6, 2020 by henry tapper

 

Ian con

Clacher and Keating

In this article Con Keating and Iain Clacher explain an alternative to the current way we require DB schemes to be funded. It challenges received thinking and offers a way forward to regulators struggling to find an acceptable funding methodology to both trustees and sponsors. A must read

Here is Derek Benstead’s comment as a summary

As discount rates have been progressively reduced over the past 20 years, the funding target set in actuarial valuations has been set progressively higher. Pension schemes don’t have a problem of persistent deficits. The improvement in funding achieved over the years has been hidden because the funding goal posts have been moved further away at each valuation.

The major advantage of the method advocated here is the fixing of the goal posts. The contribution to benefit accrual implies a discount rate which values the benefit awarded at the contribution paid. The premise is a simple one. These are the terms on which the benefit was awarded and contributed to, so these are the terms on which we should judge progress since then.

Had we used this method down the years, we would have a better understanding of how pension schemes have actually fared down the years since the original funding plans were made.

Contractual Accrual Rates – A Practical Illustration

In various documents we have described the contractual accrual rate (CAR) of a DB pension award as that rate of return which equates the contribution made with the projected benefits payable under that award. The contribution is the scheme asset and the projected benefits the liability. The contractual accrual rate of a scheme is the weighted average over time and members of these rates.

The CAR is both the correct rate at which pension awards should accrue or equivalently be discounted and is the rate of return on the scheme assets necessary to meet the liabilities on time and in full with a UK DB scheme, and this is guaranteed by the sponsor employer.

To estimate the CAR of a scheme using the historic records of contributions and awards would be a complex and tedious exercise, and for many schemes would not be feasible given the quality of these records. However, we may exploit the return on assets property to establish the current CAR of a scheme. If we take the current market value of assets and the associated projected benefits, we may establish the rate of return on those assets needed to discharge the liabilities; this is the CAR of the scheme, at the current time and going forward.

We shall take an illustrative open scheme as our pedagogic example. This has assets of £25,853,771, which we shall consider as our contribution proxy and projected liabilities totalling £ 67,181,556, which are distributed over the ensuing 70 years as illustrated in figure1. The CAR is 6.1%.

con 1

Although this scheme is open, we consider first the situation with no new awards in the first year. We show, first, the development of scheme liabilities at Table 1. There are no revisions to the projected benefits in this illustration.

Table 1

Amount   (£s) Note
Opening Liabilities          25,853,771
Accrual            1,577,080 at 6.1%
Pensions Paid –          1,537,896
Closing Liabilities          25,892,955

The accrual is the increase in the present value of liabilities, at the CAR rate, due to the passage of time. Next, we consider the income and expense position and the evolution of assets as Table 2. We introduce the asset portfolio income (3.4%), from dividends and bond coupons received, as well as the mark to market gain in asset prices. We see that the scheme is cash flow negative, relying on the sale of assets to pay pensions. This would be the position if the scheme were closed.

Table 2

Amount (£s) Note
Dividend Income                879,028 at 3.4%
Pensions Paid –          1,537,896
Net Operating –             658,868
Opening Assets          25,853,771
Gain / Loss                491,222 1.9% Mark To Market
Net Operating –             658,868
Closing 25,686,124

 

The solvency position is shown in Table 3. Unsurprisingly, there is a deficit as the asset performance (3.9%+1.9% = 5.3%) is less than the contractual accrual rate of 6.1%.

Table 3

Amount (£s)
Assets          25,686,124
Liabilities          25,892,955
Solvency 99.20%

 

The scheme was, in fact, open to new members and future accrual. The stand-alone characteristics of the new awards are shown in Table 4. The assumptions driving the projected values for benefits are the same as those used for the historic scheme.

Table 4

Amount  (£s)
Contributions             733,296
CAR 4.20%
Benefits Added            2,706,706

 

The lower than historic CAR on the new contributions and liabilities added will reduce the scheme CAR marginally. Table 5 presents the asset position.

Table 5

Amount (£s)
Dividend Income                  879,028
Pensions Paid –           1,537,896
Contributions                  733,296
Net  Operating                    74,428
Opening Assets            25,853,771
Gain/Loss                  491,222
Net Operating                    74,428
Closing Assets            26,419,420

 

Next, we consider the liabilities scheme as a whole, including the new awards in Table 6, and Table 7 shows the solvency position of the scheme.

Table 6

Amount Note
Opening Liabilities            25,853,771
Accrual              1,577,080 at 6.1%
Pensions Paid –           1,537,896
New Liabilities                  733,296
Closing Liabilities            26,626,250
New CAR 6.03%

 

Table 7

Amount (£s)
Assets     26,419,420
Liabilities     26,626,250
Solvency 99.22%

 

We now consider a further year in which contributions were made and new liabilities added. The contributions and liabilities added are shown in Table 8.

Table 8

Amount
Contributions 782,182
CAR 4.19%
Benefits Added 2,873,610

 

Comparison of these statistics with the earlier Table 4 shows a substantial increase in both liabilities and contributions, though the new awards CAR is almost unchanged. The cause of this was higher than expected salaries for new recruits and greater than predicted increases for existing actives. This led to a decision to revise the assumptions for the existing benefits to be consistent with those applying to the new awards. We shall return to this later, but first will address the income, expense and asset position, as Table 9.

Table 9

Amount (£s) Notes
Dividend Income                  924,680 at 3.5%
Pensions Paid –           1,475,281
Contributions                  782,182
Net  Operating                  231,581
Opening Assets            26,419,420
Gain/Loss              1,400,229 5.3% MTM
Net Operating                  231,581
Closing Assets            28,051,230

 

The revaluation of projected benefits shows these to have a total extra cost of £ 861,694 and the CAR of the scheme rises to 6.13%. Table 10 shows the liability position of the scheme and the solvency position of the scheme is shown in Table 11.

Table 10

Amount Note
Opening Liabilities            26,587,066
Accrual              1,629,787 at 6.13%
Pensions Paid –           1,475,281
New Liabilities                  782,182
Closing Liabilities            27,523,754
New CAR 6.08%

 

Table 11

Amount
Assets          28,051,230
Liabilities          27,523,754
Solvency 101.9%

 

This illustration has shown how the contributions-based CAR may be proxied by the required return on assets and shown it in practice for a closed scheme, an open scheme, and an open scheme with revisions to the projected benefits.

These illustrations also show the low natural variability of the correct discount or accrual rate. The changes which do occur all arise from real world changes to the benefits offered by the scheme. They are not changes in liability present values arising from arbitrary changes in the discount rate.

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Pension Bee and the fintech annuity

Posted on August 5, 2020 by henry tapper

Legal & General Retail Retirement has agreed a new partnership  to provide annuities to PensionBee customers.

BLAG

From 3rd August, customers enquiring about an annuity with PensionBee will be introduced to Legal & General for further information, or to get a quotation. Legal & General will also help customers find the best rate available through its whole of market annuity comparison service, www.annuityready.com .

Pension Bee are getting ready for the COVID-delayed investment pathways , now due to be launched in February 2021 and including a pathway to an annuity providing guaranteed income

For Legal & General , this is this is the  fifth deal  announced and follows similar partnerships with  AEGON, Prudential and Sun Life Financial of Canada.

So what?

Well so quite a lot actually. “Pension Bee and annuities” wasn’t a combination that many would have expected to think about only a couple of years ago and this announcement shows just how far Pension Bee has come since its early disruptive days.

The partnership developing between Pension Bee and L&G is also interesting. L&G’s Retirement Division is currently a jewel in its  crown and  Emma Byron is building  a formidable team. Pension Bee is also led by a strong and progressive team under Romi Savova and both of the power brokers in this deal have youth on their side.

Annuities are being  purchased in increasing numbers.

Mark Ormston reports that Retirement Line is doing record volumes of business through the pandemic.

Retirement Line, who are a major distributor of L&G annuities report, have been actively promoting the deal

The promotion of annuities is generally through non-advised arrangements and is creating a new and generally under=reported infrastructure. But in a re-emerging market it is good to see brokers and advisers working together. We have been struck by how customer-focused the personal annuity is and the breadth of choice available to people interested in annuity options.

Annuities – and online choice

Five years on from the introduction of pension freedoms ,  annuities are making a resurgence , not just as a means to buy out defined benefit liabilities but as part of the choice architecture people consider when turning pension pots into retirement plans.

People have the choice of buying annuities through a financial adviser or through an annuity broker who can give information about choices but can’t provide a definitive choice of action.

At AgeWage we will now be featuring three routes to an annuity as next steps for people who are interested in the different choices available to them.

  1. Access to Billy Burrows’ Better Retirement Group who offer advice on retirement options and an annuity service
  2. Direct access to Retirement Line
  3. Indirect access to L&G’s Annuity Ready service through Pension Bee.

It seems that financial technology is well placed to promote not just annuities, but ways to access them. We are looking forward to finding out from our test group, which approach suits them best. If you’d like to be a part of this test , you can register at agewage.com and follow our simple journey to these choices.

In marked contrast to wealth management

While the likes of Pension Bee and AgeWage actively embrace annuities as a pension freedom, they appear to be pretty well ignored by the wealth management industry. Referrals to annuity brokers from wealth managers are rare and annuity providers can see from Equifax Touchstone that their business is sourced primarily from Retirement Line, Hub Financial and other on-line and telephony based businesses.

The increasing penetration of Legal & General into the at retirement decision making of organisations such as Aegon and Prudential suggests that the non-advised market is regrouping  in new ways.

Who would have thought that annuities would have embraced financial technology in this way?
Who would have thought that Pension Bee would be promoting annuities through L&G?

 

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Pot consolidation doesn’t need alchemy – it needs common purpose and leadership

Posted on August 4, 2020 by henry tapper
Sun Pension Pot

Pot consolidation doesn’t need alchemy

 

The case for Government intervention on “small pots” is made very well by Dirk Paterson

Dirk

It is indeed time for Government intervention, but the choices are many and each has its issues. The danger of relying on Government intervention to solve a private sector problem is most obviously delay.  The politics of the pension dashboard risk not just delaying a public dashboard, but stifling the innovation that could solve the problem independently of Government involvement.

Here are the options , well laid out by the PPI in its paper

Policy options for tackling the growing number of deferred members with small pots

 

ppi table

The PPI conclusion is that

“Policies aimed at consolidating pots are likely to provide a better long-term solution than tackling charging structures”

I quite agree, and say so in our response to the DWP’s call for evidence over the charge cap and restrictions on complex charging structures.

It’s worth asking whether there is precedent for speeding up the process through interim regulations and perhaps policy commentators and makers could look at how tPR has engineered space for superfunds by adapting the secondary legislation for master trust authorization.

Because if we are to wait for primary legislation to force through consolidation , we may get to the scenario Dirk outlines before the remedy is available. The vaccine needs to come from the private sector, supported by sympathetic  and aligned regulation.

The private sector’s part to play

The solutions outlined in the box above come at three levels of intervention

Minimum intervention

If we take politics out of dashboards, then we need no intervention for technological intervention to play a part in the solution. Organisations like Profile Pensions, Pension Bee, Zippen,  and AgeWage are testing solutions that improve consolidation through better pension finding , better safeguarding and better comparisons. As the Pensions Minister told me in July, delays in the dashboard should not be stifling innovation.

Similarly the provider consolidation pursued by Smart and other more acquisitive master trusts is benefiting from the lifting of requirements for actuarial equivalence (GN16) that dogged market consolidation in the past. The master trust authorization  framework encourages consolidation at scheme and platform provider level while the consolidation of insurers should mean over time , that relevant schemes can be combined under the same insurer,

There is much that can be achieved from open pensions independently of intervention. The only intervention needed right now is for Government to clarify this and remove amendments 52 and 63 of the Pension Schemes Bill at the Commons readings next month.

Medium intervention

Pot follows member and member exchange can both work on the principle of auto-enrollment, a nudge and an opt-out beating mandation.  If you find that your pot is stalking you and you don’t like your pot , you should be able to reset the consolidator. If you find yourself part of a member exchange and heading to a provider you don’t like, you have the right to opt-out and consolidate elsewhere. There are start-ups like Zygot encouraging technological solutions for member exchange and Government should be encouraging their innovation.

Here I  see regulation as an enabler and facilitator, not as mandating and i can see regulators finding ways for this to happen without waiting for another Pensions Bill (and all that entails)

Full market intervention

Creating Lifetime Providers and Default Consolidators are the kind of interventions that go down well in Australia but not in the UK. It’s not just the market distortion but the impact it has on personal empowerment. Let’s remind ourselves of a simple statement made recently by NEST

nest guided

This is in the spirit of auto-enrollment. Making Nest or any other pension a default provider or requiring individuals to stick with a Lifetime Provider would not work for consumers or businesses for whom the option to choose remains central to a default culture.

Thoughts for Government

The Pensions Schemes Bill is taking an age, this is mainly down to the pandemic, but also due to differing philosophical positions adopted by the Lords and the Commons (this is not a party thing).

The Government is going to have to decide whether it supports innovation and the adoption of Open Pensions, or whether it puts protecting the consumer as its priority.

If it wants the private sector to sort things out, it needs little or no more legislation, it needs regulators to facilitate and encourage innovation and it needs an open door to the innovators.

If it wants to control the market then it should intervene and set out a new legislative agenda. Frankly, I would have expected this had the Labour party won the last election but I see there being little political appetite for mandated consolidation.

It strikes me Government is best off using its two pension regulators to work in alignment towards a pragmatic, non-legislative solution. It should be reaching out to the innovators and to an extent it is. I am pleased that AgeWage has made it to the FCA Sandbox and please to be helping a large test group tell us how easy or hard they find consolidating their pots.

AgeWage will be feeding back to the FCA and we will continue to respond to Government consultations. We will also work through the Pentech lobby established by FDATA.

This blog will continue to engage with these issues and I hope that worthy organisations such as the PPI will push forward that debate in its even-handed way.

This is about improving the value people get from their pension saving, and in that we should all be on the  same side.

Sun Pension Pot

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Prem Sikka’s peerage – its value to accounting , governance and pensions

Posted on August 2, 2020 by henry tapper

prem sikka.jpg

My thanks to Dennis Leech, for pointing this out, I will return to Dennis’ comments in a moment but first need to focus on Prem Sikka, for he is not a person I’ve come across. This is my bad.

Reading various articles and comments by Prem Sikka , I am struck that his twitter timeline makes no mention of the honor bestowed on him, focusing instead on instances of poor corporate governance, weak accounting and the points deduction on Sheffield Wednesday.

His writings consistently question the governance of British governance and its adherence to the principals behind ESG.

The House of Lords has a another peer who is quite contrary.

This is taken from an opinion piece published in the Guardian and written by Prem Sikka in May of last year

BSL (British Steel Limited) is another corporate disaster entirely made in the UK. Despite a string of similar scandals and collapses there has been no reform of corporate governance, insolvency, accounting, auditing or anything else. There is hardly any scrutiny of private equity and its devouring of businesses. None of this neglect can be attributed to the European Union. Rather it is all the consequence of an economic and business ideology which continually seeks to appease the financial industry and oppose the democratisation of business.

Reading the paper tweeted by Dennis Leech, I discover that this man has been talking a huge amount of sense since at least 2006 and much of what he has been saying is directly relevant to the pensions debate. Which makes me wonder why it has taken Jeremy Corbyn to give us his voice in the House of Lords.

Sikka joins a growing number of voices in the Lords dissenting from the received position that pension schemes should de-risk , avoid taking on future liabilities and allow retirement risk to pass from collectives to individuals.  I hope he and Bryn Davies will be given the warmest of welcomes by Baronesses Bowles and Altmann.

But back to Dennis

Dennis Leech ‘s thread is a better tribute to the relevance of  Prem Sikka than you will find from my fingers, so here is the thread started above and concluded below

If the legacy of Jeremy Corbyn to pensions is the elevation of Bryn Davies and Prem Sikka to the House of Lords, then it is a good legacy and the House of Lords a better place for pensions.

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“That’s an interesting choice”

Posted on August 2, 2020 by henry tapper

“That’s an interesting choice” is a statement that interests me a lot. It is an entirely satisfactory response to a test we have just started with the FCA in which we allow people to compare pension pots by way of a single score assigned to each pot

agewage dashboard

an interesting choice?

The phrase should also be welcomed by policy makers when  those not taking advice are offered investment pathways at the point they have to consider their retirement income options.

pathways

an interesting choice?

We could add to this the choice an employer needs to make when choosing or reviewing the choice of their workplace pension.

playpenratings

All of these choices come with varying levels of information , presented in ways that are designed to make the choice meaningful and interesting.

Today’s exam question is – when does  interesting choice become advice?

Interesting and meaningful?

When you scan the price tags of instant coffee on a supermarket shelf you are presented not just with a price, but with a price per 100g. This information is interesting and meaningful but it is only becomes vital if I think that all the coffee tins contain the same powder.

If I have a preference for one coffee of another, I will mark that as my main decision maker and only refer to the price point as a decider where the choice elsewhere is not clear. I am creating a balanced scorecard in my head and though the decision will take me only a couple of second, the coffee hits the trolley with a more satisfying clunk if I am happy with my choice. If I cannot decide, I may not buy and I may have to shop elsewhere.

Looking at the presentation of the choices above, I think I would find some of the choices clearer than others. A lot of this comes down to the clarity of information presented and the logic behind that information. If I am feeling I am being led down one pathway, I will be wary, worrying that I may be being led down the garden path.

Or led down the garden path?

If the point of every comparison is to lead me to the same overwhelming conclusion then we may feel coerced and reject the basis of choice. We may ask are there other pathways of coffees we are not being shown.

This is the risk of comparison and why for decades the concept of “whole of market” was the basis of “independent advice”.

But necessarily we have turned to restricted advice because not all choices may be available. The Pension PlayPen table (dated around 2013) shows that several providers weren’t prepared to offer terms yet, would the purchaser hang on or take a restricted choice?

This is always a dashboard dilemma. The problem for the pension dashboard is whether a dashboard is offering meaningful information if the information is incomplete, or whether there is enough information to be getting on with.

In the AgeWage dashboard, information is incomplete and boxes hang like hanging chads.

Should we be so needy of our customers?

In yesterday’s blog, I was asking what mattered in the game. For the purists, the game will be remembered for the purity of certain moments, or the cut and thrust of the first half or for the empty stadium or the refereeing. But for most people the FA cup final will be remembered for the result – Arsenal winning 2-1. That is the meaningful and interesting information on which we judge the merits of the teams.

We test and innovate around what matters to people and if we can’t provide meaningful information in an interesting way – we fail. I fear that we are failing a great number of the 650,000 people who reach 55 each year for whom the promoted current options are Pension Wise and Financial Advice.

Which is why it is so important that organisations step up and provide default continuation options to people who simply do not engage with their pensions.  I wrote last week about how good it is to see  Nest’s guided retirement fund.

This is why we test and innovate.

For nearly a decade now, I have been focusing on non-advised choice. I have looked at choice in car showrooms, estate agency, supermarkets and on price comparison sites. I have compared tangibles with intangibles and I now see that people spend time on choice if it is interesting, not because it is important.

We may think it is important for a retiree to choose the best annuity rate or an employer to choose the best workplace pension , but that choice will only be made if we can get choice onto the agenda in the first place.

I was talking to some people the other day about the FCA/tPR anti-scamming campaign that compares an unfortunate victim to the jet-ski-ing  scammer. Unfortunately, the interest was with the scammer (Milton gave Satan all the best lines). One of the people watching the advert thought that pension scamming looked an interesting career choice.

My point is that presenting choice can solicit the wrong reaction and sometimes we must accept that no choice will be made (witness the 99% default rates into some workplace pensions). This is why it seems so important that we test whether choice works at retirement or whether a default decumulator is necessary.

All the evidence going back to the days when we tried to promote open market options on annuities, suggests that we cannot be needy of our customers and that our ambitions for getting engagement with investment pathways may be doomed from the start.

The power of collectives

Despite providing individual’s financial advice to individuals for much of my career, I am a believer in collectively delivered decisions. That is why I accept consolidation as natural and (within limits) desirable.

The power of collectives to deliver consistent value for our money is much greater than our power to deliver this individually.  I totally agree with Nest’s strap line

nest guided

When does interesting choice become advice?

To my mind, to have got people’s interest in their choices is an achievement and much more than can generally be hope for (we should not be too needy).

That said, the amounts that people are and will build up in workplace pensions are meaningful and interesting, when people realize they can have the money back.

The responsibilities of those presenting choice are therefore very onerous. For we know the consequences of taking bad choices

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The  choice presented by the man on the jet ski is likely to be a lot more interesting than the investment pathways presented by  pension firms. Which is why we need regulation and why we are spending time in the FCA sandbox testing what engagement we can get from ordinary people.

If you have been interested either by this article or the one I published yesterday, you may want to join our growing group of testers. You can do this very simply by going to agewage.com. All you need to test is to have a UK DC pension pot.

We want to see if you find your pension choices can be made interesting and will be listening to your feedback very carefully

 

To test with AgeWage, press here

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WAITING FOR THE VACCINE. C-19 actuaries new monthly medical update

Posted on August 1, 2020 by henry tapper

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nicola

Dr Nicola Oliver

Given the pace of change with ‘all things COVID’, it can be hard – even for those who follow all the updates – to know what the overall state of play is regarding medical developments in particular, as opposed to just the most recent news. In this new type of Bulletin, we provide a monthly view of what we think the medical state of play is. That said, the main uncertainty at the moment in considering future strategies is the ‘if and when’ of vaccines, and so this first update looks only at vaccines.

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Introduction

Back in May, we described the state of play with regard to vaccine development to protect from the SARS-CoV-2 virus (link). At that time, several compounds were in phase 2 of the clinical trial process; most were in phase 1 or pre-clinical. Of most interest were those that had been partially developed and then shelved following the SARS outbreak in 2002.

As of 31 July, according to the World Health Organisation, (WHO), there are 26 candidate vaccines in clinical evaluation, (phases 1-3) (link). Of these, six are in phase 3 (the final stage of clinical testing in which safety and efficacy are tested). If successful, this will usually lead to application for approval.

The clinical trial process does not guarantee a final, approved product, even in those that reach the later stages. However, past experience of vaccine development adjusted by the immense pressure and funding to achieve success make us think that a declaration of phase 3 success for one vaccine is likely by end 2020 / early 2021.

If we do get to a final, approved product soon there are additional challenges to consider. The development of an effective vaccine is being widely heralded as a key milestone in combating the pandemic; here we present some concerns regarding this view.

Challenges

Effectiveness

SARS-CoV-2 is a novel virus and so there are many unanswered questions regarding, amongst many things, the generation and levels of antibodies in those who have been infected with it. Whilst some trials have reported the generation of strong immune responses in participants, it is not certain how sustained this response will be.

Furthermore, the pressure to expedite the clinical trial process could raise safety concerns. We should not rely on a future vaccine to be the holy grail of exiting from the necessary social distancing measures when we are still in the dark as to its effectiveness.

Manufacture

As mentioned, there are only a handful of candidate vaccines in the later stages of the clinical trial process. Following successful results, manufacturers will require regulatory approval. Clearly in a pandemic, this process will be shortened as much as possible; but bear in mind the mumps vaccine was the fastest-developed vaccine ever, and that took four years from start to finish.

A potential bottleneck will be scaling up production sufficiently to be able to vaccinate enough of the population to bring the pandemic under control. (There is also the real possibility that more than one vaccine shot will be required across a lifetime). Even if only half of the world’s population are willing, and able, to receive the vaccine (another hurdle), that is still a staggering 3½ billion doses that will need to be manufactured for a one-off dose.

We expect the time from approval to mass manufacture to be of the order of at least 6 months. However, that could be shorter for (eg) manufacture in the UK initially targetting key groups. Given the pressures, it is possible that pharmaceutical firms could start some production before phase 3 trial results are finalised.

Administration, uptake and acceptance

It is likely that an effective vaccine will be offered to the most vulnerable first, and to healthcare workers. It is possible that in the event of a successful phase 3 trial, emergency use vaccinations could commence to include healthcare works and vulnerable people. Following that, the challenge to vaccinate as many people as possible in as short a timeframe as possible will be on.

During the 2018/2019 influenza vaccination programme, 14 million doses were administered in England. It is likely that the vaccination programme for SARS-CoV-2 will be scaled up and ultimately offered to all age groups regardless of vulnerability.

Optimistically, if the vaccination programme was in progress throughout the year, and scaled up, then perhaps more than double could be administered each year through GP practices. In addition, some pharmacists already administer flu vaccines (one million doses in the 2018/2019 season), and this could increase administration capabilities. Widespread vaccine administration will take time.

The second factor here is acceptance and willingness to receive the vaccine. There is unfortunately a growing and vocal anti-vax movement, enabled by social media and the rapid dissemination of fake science with no evidence base.

Ironically, some of this is fuelled by the rapid pace of the vaccine development programme reported in the media; many vaccine opponents are seizing the potential safety concerns as a reason to avoid the vaccine altogether. More caution needs to be applied when reporting on vaccine development progress.

Conclusion

We cannot assume that an effective vaccine will be available (and utilised) at scale before mid-late 2021 and even that may be optimistic. We should therefore be acting in a way that assumes no effective vaccine in the short term for most people. Until that time, a new ‘normal’ should become part of our daily routines. Use of face coverings, sensible physical distancing, track and trace and localised protocols are essential.

As epidemiologist Mark Woolhouse at the University of Edinburgh, UK, told New Scientist in early April: “I do not think waiting for a vaccine should be dignified with the word ‘strategy’. It’s not a strategy, it’s a hope.”

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Arsenal v Chelsea – what matters tonight is the result.

Posted on August 1, 2020 by henry tapper

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Tonight we have an FA Cup final. It may or may not be a great game but that’s not what Chelsea and Arsenal fans are worried about, they are worried about the score!

The score will create an outcome, the trophy. There may be many who see football as a beautiful game , but to the fan it is all about winning and losing.

Now I have to admit that i have brought you to this blog on false pretenses, this blog is not about football but about results and specifically about the results of your saving for retirement.

I guess that if you want season tickets in perpetuity to the Emirates , or Stamford Bridge, or even Huish Park, you are going to need a result on your pension savings. So perhaps you’ll forgive me for tricking you!

What’s the score on responsible investment?

I am much the same with my pension as I am with Yeovil Town, I want my pension to be a winner and I think about what helps me win. Yesterday I published a blog that suggested that pensions that are invested on a responsible and sustainable basis are bigger than pensions that aren’t.

That was not advice, that was fact. Data scientists in Harvard had looked at what had happened to American mutual funds and found that it was responsible investment that had protected people through the pandemic.

Will this information influence some readers to switch their pension pots to the ESG alternative in their fund range. Perhaps. It is certainly more likely to influence people to do this than not. People are free to make up their own minds but if they can see evidence of responsible investment protecting people through a pandemic, they may well choose to invest responsibly.

From the evidence presented in the blog – I can see responsible investment beating “don’t give a shit” investment 3-0.

Evidence based decision making

My friend Robin Powell is a fan of evidence based investing. He is interested in the outcomes of investments and he has spent his career pointing to what works and what doesn’t. in his introduction to his blog “The evidence based investor“, Robin points out

There has, in fact, been a welter of independent, peer-reviewed research dating back to the 1950s on how best to invest, and the findings are remarkably consistent. Yet although this evidence is widely known in academic circles, the investing public remains largely oblivious to it. Even investment professionals and industry commentators are either unaware of it or for their own reasons choose to ignore it.

We have to take decisions on something and it is best we take decision on evidence rather than supposition.  Robin’s job is to separate fact from fiction and help us take financial decisions based on facts rather than superstition.

For the rest of this blog I’m going to be talking about how we can work out winners and losers amongst our various pension pots  and why we need to do these measurements.

We need to pay attention to our pensions

Most adults in the UK are investors, auto-enrolment has seen to that. Many of us don’t recognise we’re investors, we don’t even know we are investing and that is because most investment is made on our behalf, NEST estimate that 99% of its 9m savers are investing in its default fund, the 90,000 who aren’t are the outliers.

But though we are happy to let people invest on our behalf, we have a responsibility, if only to ourselves to check how our investment has done, compared with others. It would be good to have this information to hand but it’s not that easy.

The need for employers to take decisions on their pensions

In it’s recent paper on value for money, the FCA points out that employers – who choose our workplace pensions, aren’t given much evidence on which to take their decisions

We think it is difficult to conduct a meaningful assessment of VFM when an individual provider’s schemes are reviewed in isolation. A review of other options available on the market can provide a point of reference, and may provide better value for scheme members  (CP20/9 4.13)

The paper goes on to suggest FCA and TPR schemes could be benchmarked on a common basis.

The scope of this comparison would be a matter for the IGC. For workplace pension schemes, this could include not-for-profit options such as NEST or The People’s Pension. (CP20/9 4.15)

The need for people to take decisions on their pensions

If it’s tough for employers , it’s even tougher for employees.

If an employee is unhappy with their workplace pension scheme, they have little option other than to continue to make contributions to the scheme, opt out and keep their pension saving in the scheme or opt out and transfer their pension saving to a new scheme (CP20/9 Annex 2.7)

It is only after leaving a workplace pension that employees are able to make a choice as to what to do with their money. In the absence of meaningful information, they will do nothing, which leads to the pot proliferation described by the PPI in a recent paper. This pot proliferation is hugely inefficient and  is likely to reduce the scope of improving value for money over time. As the Now press release accompanying the paper puts it

There are already 10 million small deferred pots, costing £130 million a year in administration. With 27 million small pots in 15 years the bill for servicing these pots will be £1/2 a billion a year.  The report explains that, today, every active member in an auto enrolment pension is supporting one inactive member. But by 2035 the PPI research shows that every active member will be supporting more than three inactive members.

But of course people don’t bring their pots together to reduce the servicing costs to the providers of workplace pensions, they do so to make it easy for them to manage their money in later age, either by consolidating to an annuity, drawdown, onward investment or to their bank accounts. Even without investment pathways, people will take decisions because this is their money and they are free to do so.

Back to scores

As with football matches , so with pensions, what matters most is the result (to use today’s jargon – the outcome). We cannot escape results, in the end the data catches up with us, as my friend Ben Piggott says, you cannot drink performance data.

So how do you score a pension? How can you tell winners from losers? How can you work out if you got value for your money?

You need three things

  1. You need your data – you need to have a history of all the contributions you’ve made since you started (when  and how  much) and you need to know the result, the value of your pot
  2. You need to have something to compare it with – a benchmark
  3. You need to have a formula (an algorthm) which compares how you’ve done with your benchmark

What you need to do with your data is to create an internal rate or return

There is only one measure that tells you how you’ve done. Technically its called your internal rate of return and its unique to you. Only you made the precise contributions, into the precise funds on the precise days over all those years and your result or outcome is the current value of your pot net of all charges taken from the pot over the years.

Then you need a benchmark internal rate of return

Knowing your internal rate of return is a start, but it is unlikely to be enough, you need to be able to compare this number with the next person. The trouble is that you can’t – because the next person did things differently. So you need to compare your return against the average person. The average person , in financial circles is called a benchmark and the way you work out how the benchmark did is by investing your money into the average person’s fund.

There has never been an average person’s fund, till now. And the reason there is one now is because of two organisations, one is AgeWage and the other is Morningstar and together we have created an average fund called the Morningstar UK Pension Index which goes back 40 years and creates a  price for the average investor for the best part of 15,000 days.

Then you need a formula to compare the two and turn the comparison into a result

Just as in football , so in pensions – the result depends on data. While it is quite easy to see the data of a football game – via a scoreboard. it is harder with pensions, because pensions go on for 40 years not 90 minutes and because there can be up to 15000 measurements of both your results and your opponent’s (the benchmark).

But computers are good at doing this stuff and we’ve got some good mathematicians who can arrive at a formula that makes sense of the comparison and simplify it into a single number

AgeWage evolve 2

Infact we could give you a comparison of all your pots

agewage dashboard

And in doing this, we could tell you who has provided you with more value for your money and who less. If you scored 50 out of 100, you would have drawn with the benchmark.

Tomorrow I will move on from creating a scoreboard (dare I call it a dashboard) to start thinking what good knowing the scores does us.

Tomorrow we will know whether Chelsea or Arsenal have won the FA Cup for 2020.

Thanks to all the testers of AgeWage scores, who are beavering away to find out their scores, please feel free to join them by submitting your pension pots for analysis at http://www.agewage.com

 

 

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Bryn Davies ; Our new voice in the Lords

Posted on August 1, 2020 by henry tapper
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Bryn Davies

There were three peerages created yesterday for services to pensions , all three deserved. Frank Field and Helena Morrissey are high profile and  fly their own flags, Bryn is less well known but no less deserving.

Bryn’s career

Brinley Howard Davies, usually known as Bryn Davies (born 17 May 1944) is a British trade unionist, actuary and politician who was Leader of the Inner London Education Authority in the early 1980s – so starts Bryn’s wicki entry

During his time at ILEA , Bryn defiantly  opposed the prevailing political zeitgeist returning to pensions in n 1985 as a Director of Pensions and Investment Research Consultants. Later that year he was appointed as a Research Actuary at Bacon and Woodrow, and resigned from the GLC and ILEA.

In 1989 he set up Union Pension Services Ltd., a consultancy on occupation pensions specialising in those for trade unions. He was also director at Pensions and Investment Research Consultants in 1984, chairman of the Independent Pensions Research Group in the 1980s, pensions officer at the Trades Union Congress from 1974 to 1981, and member of the Occupational Pensions Board from 1976 to 1981. He has been a fellow of the Institute and Faculty of Actuaries since 1974.

Bryn  continues to work in and write about pensions and frequently comments on this blog.

Bryn’s influence on me

Although not a left-wing firebrand, I have been influenced by Bryn Davies. He understands how pensions work and is authoritative on unfunded pensions. He taught me how the State Earnings Related Pension worked and explained to me how the original plan for it , devised  by Bryn , Tony Lines and sponsored by Barbara Castle, was diluted and ultimately dismantled first by the Thatcher Government and by a succession of right leaning politicians till it was dissolved into the single state pension by Steve Webb.

Many people, me among them look back at SERPS as a noble vision of rewarding the low-paid with a proper top up to the state pension. Along with the late and lamented John Shuttleworth, Bryn showed me how pensions can be the reward of hard work – for everyone. The cost of delivering a pound of pension under SERPS remains well below the cost of any funded pension. Bryn Davies gave me, a  salesman of funded pensions, a fresh perspective and a renewed sense of purpose to restore people’s confidence in retirement planning.

A reward for a lifetime of industry on other’s behalf

Now in his mid 70s, Bryn is still a force for good. I have drunk beers with him at First Actuarial parties and eagerly read his comments on this blog. Bryn himself blogged on the Union’s Touchstone Blog  

A man of immense integrity and gravitas, Bryn is most generous to those who reach out to him. I can remember conversations with Hilary Salt, Jon Spain, Douglas Anderson and Chris Daykin where Bryn has indeed been the Touchstone

Another actuary wrote to me last night a simple message

“At last I have a voice in the Lords, Bryn Davies.”

Bryn , like Gareth Morgan , speaks for people who have no voice and I am very proud that he has been nominated by Keir Starmer for a life peerage. Bryn’s voice will be heard in public again, 36 years since he last held public office.

Bryn Davies

 

 

Posted in actuaries, advice gap, age wage, pensions | Tagged , , , , | 1 Comment

Did active managers protect us from the pandemic? American research says “NO!”

Posted on July 31, 2020 by henry tapper

 

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The National Bureau of Economic Research

 

Are active fund managers working harder for us through the pandemic?  Not according to an analysis of mutual fund returns and flows. It seems that what has served investors well is being in funds investing in  equities that show “sustainability” – what ordinary people think of as responsible investment.

In a paper published this July, Lubos Pastor and Blair Vorsatz  present a comprehensive analysis of the performance and flows of U.S. actively-managed equity mutual funds during the COVID-19 crisis of 2020.

They find that most active funds  have underperformed passive benchmarks during the crisis, contradicting a popular hypothesis. Funds with high sustainability ratings perform well, as do funds with high star ratings. Fund outflows largely extend pre-crisis trends.

Investors prefer funds that apply screening  and funds with high sustainability ratings, especially environmental ones.

they find that investors remain focused on sustainability during this major crisis suggests they view sustainability as a necessity rather than a luxury good.

Contradicting a popular hypothesis

The authors are surprised that the active fund management industry despite its long-lasting underperformance, remains large, managing tens of trillions of dollars. They are puzzled as an alternative—passive funds—is easily available to investors.

The paper explores a popular hypothesis that investors are willing to tolerate underperformance in a time of “normality”  because active funds outperform in periods that are particularly important to investors.

News that American actively managed mutual funds have under performed in the time of the pandemic will come as a shock to those who believe that active fund management is an insurance or hedge against recession.

Relentlessly the paper tests each of the arguments put forward by the fund management industry in support of itself. COVID-19, the paper argues, presents a perfect opportunity for active managers to prove their worth.

It has led to an unprecedented output contraction and the fastest increase in
unemployment on record. Investors surely want to hedge against such a severe crisis

Under the hypothesis that active funds outperform during recessions,they should find it particularly easy to outperform when markets are rife with mispricing.

What actually happened.

Choosing to analyse the ten week period between February 19th (the first day of falls and April 30th , the quarter end) , Pastor and Vorsatz find that the underperformance of active equity funds is particularly strong when measured relative to the S&P 500 benchmark.

They find that 74.2% of active funds—about three quarters!— underperform the S&P 500 during the COVID-19 crisis. The average fund underperformance is −5.6%  during the ten-week period, or −29.1% on an annualized basis.

The paper goes on to explore performance against other benchmarks and factor adjusted returns and finds the same thing. Despite all the conditions being in place for active managers to show their worth, they have underpeformed.

Where investors were protected over the period was through investment in sustainables. It looks at Mornngstar’s “sustainalytics” which rewards responsible investment with a high number of gloves

High-globe funds (those with four or five globes) significantly outperform the remaining funds within the same investment style by 14.2% per year in terms of FTSE/Russell benchmark-adjusted returns. This result is driven largely by environmental sustainability—funds with higher environmental ratings outperform those with lower ratings

The impeccable behaviour of investors.

In their analysis  Pastor and Vorsatz look at behavioral traits to explain why so much money remains in active equity funds concluding that the weight of advertising and information put into the market by those with an interest in highly traded funds has been influential.

It also explores a widely held view that ESG managed funds are “luxury items” that may outperform in good times but are found out when a recession arrives.

The paper accepts that a ten week period is too short to draw conclusions for all time but concludes that investors may be rather less cynical than some managers supposed, Investors did not dash for cash and net outflows from active funds were only just above 1%.

This  perspective predicts that interest in sustainability should subside during a major economic and health crisis. In contrast, we find that investors retain their commitment to sustainability during the COVID-19 crisis. The research found that sustainable funds actually received net inflows over the period

This finding suggests that investors have come to view sustainability as a necessity rather than a luxury good

If investors are taking a long term view on sustainability,  it may be time for active fund managers and marketeers  to change their behavior too,

Is this the end of the line for active managers?

Pastor and Vorsatz are clear about the limitations of their study. It is time limited and does not take into account much of the data that would be needed to analyse the sources of out and under performance (stock selection v market timing).  It accepts that 2020 nor the pandemic is over yet.

The research did validate research by Morningstar into funds with high risk adjusted returns (Morningstar stars) , these funds continued to do well through the crisis period, which suggests that there were pockets of active management which did provide protection

This is not the end of the story and we should not be selling out of active and buying into sustainable ETFs because of this study

But once again, the claims that active managers as a class protect us in times of trouble have proved false.  Each time active managers fail to deliver, the arguments for a passive approach become more compelling.

It appears that investors did not panic in the crisis. Active funds as a whole saw net outflows of about 1.3% over the period but much of this was to passive equivalents. Sustainable funds actually saw net inflows over the period.

It may be that investors are a wiser crowd than many fund active managers supposed!

Thanks to Richard Taylor for sending me this report.

 

ownership of america equity

Source – Goldman Sachs

Posted in advice gap, age wage, pensions | Tagged , , , , | 1 Comment

Investing in the right place

Posted on July 30, 2020 by henry tapper

I am very pleased to hear about a new project designed to get pension schemes investing in the right place. You can read about it here

It’s an initiative that impacts us all, we all pay council tax or at least benefit from those that do and a lot of our council tax goes to fund the pensions of those in Local Government Pension Schemes. It makes absolute sense that the investment of these pension schemes protects the council tax-payer from nasty surprises. The obvious nasty is the failure of an investment which is why strict rules apply to how funds invest and why investments are made by expert.

But there’s another kind of “nasty”, which happens when we find that our money is invested in the wrong place. Investing in the right place is a good definition of what “Environmental Social and Governance” investment sets out to do.

A new initiative that “replaces” investment

Reading about the aims of the Good Economy’s initiative I get quite excited

The UK is a country of extreme and entrenched place-based inequalities. The geography of socio-economic deprivation in England and Wales as well as Scotland has hardly changed over the last three decades.

The North-South Divide, with its roots in the Great Depression and 1980s deindustrialisation, threatens to become an enduring feature of Britain’s
economic development landscape.

Brexit revealed the economic, political and investment risks that these place-based
inequalities can bring.

For decades, UK governments have introduced place-based policies as a strategic approach to tackling place-based inequalities. This approach is continuing with the City Growth Deals and Towns Fund. As of now, the overarching goal of UK place-based policies is to bring about inclusive growth and sustainable development everywhere – to ‘level up’opportunities for people and communities to flourish across the entire country.
The Covid-19 crisis has deepened and increased public awareness of the country’s place-based inequalities. It has made the challenge of ’levelling up’ very much greater and uncertain.

The costs to the nation of rebuilding economies and communities – with an ambition to ‘build back better’ – are considerable and unprecedented. There is an undoubted
need to leverage private capital alongside public sector funding – and to link new investments to place-based policies.

Thus, the Covid-19 crisis has inadvertently moved place-based impact investing (PBII) to the centre of the policy stage.

This coincides with a rising tide of interest in impact investing from institutional investors, including pension funds, who are increasingly seeking to create positive impact alongside a financial return.

Can we exploit this timely market interest to develop a local dimension to global impact investing that can support place-based policies in the UK?

I don’t know about you but I don’t think the financial interests of the council tax payer are compromised by seeing tax paid towards the development of local projects that benefit the communities in which the tax-payers live.

Even if this means a redistribution of investment from down south to up north.

A sense of place and a sense of purpose

Behind the idea of place based impact investing  is  a sense of purpose. People relate firstly to purpose , if they can see the purpose of an investment , then they can understand its value.

My friend John Godfrey said he wanted every investment Legal & General made to feature on Google Maps so as he got around the country he and his colleagues and his customers could be reminded of the purpose of Legal and General investment management. I have written about this many times on this blog , referring back to a presentation delivered by Nigel Wilson some five years ago.

It seems to me that the time to deliver this is now and the place to deliver it is in the Local Government Pension Funds and the people to deliver it are the organisations behind this collaboration.

 

 

This is about making my money matter and though I am not a member of LGPS, I do help pay the pensions!

Posted in ESG, leadership, pensions | Tagged , , , , , , | 1 Comment

Why I’m changing my mind about NEST

Posted on July 30, 2020 by henry tapper

Jeremy Cooper is no lightweight, author of the Cooper Review he is one of the key influencers in the Australian superannuation system.

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Jeremy Cooper

He comments on Nest’s pivotal role in providing those previously excluded from funded retirement savings with a critical insight which articulates a thought that his been brewing within me over the past few months.

Frustrating as Nest can be (and it can be horribly bureaucratic), it is addressing an imbalance or bias by offering a service that sets out to be self sufficient. Along with  other leading master trusts , it is not dependent on third parties to meet its obligations.

By third parties, I mean financial advisers of various hues. Nest is genuinely distanced  not just from the IFA community but from the actuarial practices who provide high level advice to large employers.

I have often commented on the substantial subsidized Government loan of which  Nest is  a beneficiary

.

nest debt

the rise and fall of Nest’s debt to the DWP

But I am now coming round to the view expressed by many within the DWP, that this loan is not only necessary to the proper functioning of auto-enrolment but also increasingly good value.

We are learning how to redress historic wrongs in a number of ways. Maybe Nest is achieving for the financially excluded , the kind of positive action we accept in other areas of social injustice,

Nest’s impact

Rather than focus on Nest’s debt, I am now thinking of NEST as an innovator.

and as an ambassador

A stable team

Charlotte Clarke (who has moved this week from the DWP to head regulation at the ABI)explained to me that the success of auto-enrollment in its early years was largely due to the stability of the team working on it.  Clarke herself is key to this stability and it is a sorry week for the DWP that sees  her leave.

But her legacy is auto-enrolment and Nest and her original team embedded both in the DWP and in Canary Wharf (where Nest’s executive now is).

Auto-enrolment has been for the DWP, the department’s success story and Nest is now looking like its golden egg.

nest-185x114

Nest’s impact on competition?

I am not concerned that Nest is achieving so much , I am concerned that some of its rivals appear to be treading water. I am thinking specifically of NOW pensions and People’s Pension , both of whom seem to be de-energised at present. NOW is recovering from the sins of its first 8 years and being re-incubated by Cardano. People’s Pension appears to have stalled in its intention to lead the market. It has become inward looking and seems to have lost its appetite to innovate. I worry for it.

While Smart pension moves forward at pace, it is the only private sector workplace pension seriously giving Nest a run for its money as a self-sufficient DC pension.

As for the insurance sector, we are now down to a handful of workplace pensions competing for mandates. Legal &General, Scottish Widows, Aegon , Aviva and Royal London are the last men standing in workplace pensions , the res is legacy.

These insurers are no longer competing against Nest but against the vertically integrated master trusts of Willis Towers Watson, Aon, Mercer and to a lesser extent XPS, Capita and Creative Benefit Consultants.

This part of the market is fed by the weakness of all but a very few single employer occupational DC pensions . When even a scheme as big as Vodafone’s announces it is better inside WTW’s lifesight, it is clear that all single employer trusts are going to have to work hard to avoid consolidation.

I am not worried for this part of the DC market and see Nest raising standards in terms of governance and especially investment strategy.

One cloud on the horizon

The cloud that blights the sunny sky is pot prolifertion. A PPI report, published last week,  confirms what NOW , Peoples and (very quietly) Nest have been telling us for a few years.

There is no silver bullet here, no easy option. In the long term technology will help but just as Nest is forging ahead, so MaPS is struggling so much as a timeline for the delivery of a pensions dashboard.

For Nest , People’s Pension , Smart and NOW  in particular, technology cannot arrive soon enough.  It will be the innovators , not the Luddites who will survive and I’m now thinking of Nest as an innovator. Which is a great relief!

 

 

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Nest nudge pension freedoms to one side

Posted on July 29, 2020 by henry tapper

Are you saving into NEST? Around 8 million Brits are and I’m currently one of them.

I was looking at what AgeWage signed me up to and found out some surprising things

Firstly I am soon to turn 60 and NEST has a number of options for me!  Although the video explains that I can self-manage my pension, if I choose to do nothing, I will  find myself  in the Nest guided retirement fund.

As most people faced with baffling choice tend to do nothing, this  fund sounds important It’s Nest’s newest fund and from this month (July 2020) people’s retirement savings are flowing into this fund unless they exercise their freedoms for themselves.

nest guided 2

It’s all very simple, if you don’t tell Nest what to do, Nest will move you into  the guided retirement fund at your state retirement age (the default Nest Retirement date) or your selected retirement date – if you have chosen one

nest guided 6

I have a Nest retirement date. it’s 67, being the age I can draw my state pension and that means, unless I tell NEST otherwise that my savings, currently in a target dated fund due to mature in 2029, will move into this new fund

I’d never heard of this fund  my friend Philip, who’d been exploring NEST’s accounts , pointed me to to this headline

Back in March this year, Nest launched a new fund. The launch was very soft but this is what Nest was telling the market then

By 2025, NEST will have more than 1.75 million members aged 55-plus and for most of them retirement is no longer a cliff edge, Many are likely to choose to work for longer, for example, and we don’t think they should miss out on investment returns during these transition years.

Our new retirement hub and support services will help guide our (participants) through their choices, and for those who are still making up their minds we’ve now got more appropriate investment funds to suit them,”

NEST participants who do not notify NEST they intend to withdraw savings in the form of a lump sum by their intended retirement age will be automatically placed into the NEST Guided Retirement Fund by July 2020,

Not to put too fine a point on it, this new fund is where the biggest DC pension scheme in Britain is going to invest the nation’s retirement savings . This was news to me! Now what else was going on in March this year….?

So how did this happen?

Well first of all, NEST has found a way to keep your money for the whole of your life.

This will come as a surprise to many in  financial services as back in March 2017 the DWP announced that it was blocking the development of NEST’s Retirement Income BluePrint

The government has blocked a proposal by the National Employment Savings Trust to provide income drawdown products to its members

The Department for Work and Pensions announced the decision today (2 March) in its response to a consultation on the future of the government-backed auto-enrolment provider.

But it stressed this decision was not permanent, saying it would keep the issue “under active review in light of market developments”.

“If it is clear that the market is not developing in line with the needs of Nest members, we will consider enabling Nest to offer a fuller range of solutions,” the DWP response said.

Some time in the intervening three years , the  DWP  has decided to unblock NEST and in the meantime , NEST  has simply gone ahead with the build of its Retirement Income Blueprint which is now renamed the Nest Guided Retirement Fund.

Bearing in mind the full consultation on the Retirement Income Blueprint and the violent opposition from the private sector to NEST competing for business post retirement , it is surprising that the Guided Retirement Fund has arrived , without any further protest.

Nest’s Guided Retirement Fund has happened by stealth, a bit like the pension freedoms. You could say the DWP have nudged the pension freedoms out of the way.

What happens when I get to my NEST retirement date?

nest guided 3

Unless I say otherwise, money in my target date fund will be allocated to a wallet , a vault and a safe, each of which will do different things

nest guided 4

I’ll be able to draw-down from my wallet, use my emergency cash “slush” fund for emergency capital  and the bulk of my money will remain invested for the future , with a small pot being allocated to buy me an annuity if I live to 85.

The freedoms nudged out of the way

The Work and Pensions Select Committee, under new Chair Stephen Timms, is looking into the pension freedoms.  I hope that he will look at Nest’s new fund as a way of having a pension without losing their freedom,

NEST’s new default, which is taking our money  by default from this month  looks set to become the biggest decumulation fund in the UK.

It is designed to pay a regular income – a pension , but it does so in a Heath Robinson way with safes and wallets and cash. I remain to be convinced that this could be better achieved via a collective drawdown using the CDC legislation and especially section 47.

I’ve been arguing that NEST should be paying Scheme pensions since 2010 and I’m not going to stop now!

But that is technical detail. Much more importantly, NEST has been allowed to provide a to and through retirement savings and spending product which will become hugely important over time.

Those who are in control of their pension affairs will probably opt out but the vast majority of NEST savers will use this fund.

Other master trusts will surely  find ways to do the same. For the vast majority of savers  pension freedoms will be the “security of a regular income without being tied into one option”.

I guess that for the DWP, that is all the freedom most people want.

I agree.

nest guided

 

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How can pensions be giving savers VFM but not be dashboard ready?

Posted on July 27, 2020 by henry tapper

 

Data

How pension data can appear!

Outcomes for dough, portals for show!

Over the weekend, I’ve been thinking about how I can judge the quality of service I receive from my pension provider. As a consumer there are a number of things I would like from my pension scheme, such as the ability to draw down my pension using all the options available under the pension freedoms, on-line access to my account and the capacity to move funds around using a portal. All these features have benefits and I can judge the benefit I am getting relative to other financial service products I can use, most especially online banking.

Actually I am quite able to take purchasing decisions if all I had to look at was the look and feel of a provider’s website and online functionality. But that shouldn’t be the end of it. There are more important things that I need than a good user experience.

But  I work on the basis that while these portals are great for show, what really matter is what is happening to my dough.

I am more interested in answers to questions like

How sure can I be that my contribution records have been kept up to date?

Have all my contributions been invested in a timely way?

Does my current pension pot accurately represent all transactions on my account?

We cannot be sure the value we see online or on a paper statement is the right number. There are all kinds of errors that occur and the longer we’ve saved , the greater the possibility of a data error. Which is why trust is so important and why most DC pensions have trustees. The pensions that don’t have trustees (personal pensions) now have people watching over our pensions, making sure that we can trust the outcomes of our savings.

It would be good to know that we can trust the record keeping of our pension administrators and for the most part we can. But there is always an element of doubt and where there is doubt, trust can break down. So good trustees test the data they hold to make sure it is clean.

Unfortunately it is not always clean and it is one of Ros Altmann’s bug-bears that the amount contributed to our workplace pension by our employers may also be wrong. Because pension rules are complicated, we need our data cleansed. We also need strong regulators capable of doing spot-checks on data and we need firm whistle-blowing from auditors and payroll to ensure when things go awry, they are flagged to the regulator.

I am comfortable that in the current world of master trust authorization and with strong controls in place among the small numbers of insurers and SIPPs operating in the workplace pension market, current record keeping standards are high.

Organisations like PASA, the PMI and the CIPP see to that.

However…

The ongoing reluctance of many pension firms to put their data on open display via a pension dashboard does not fill me with confidence. Last week I spoke on this with the Pensions Minister and he made it clear that firms who do not want to participate in the dashboard project must explain why. What is it that makes them uncomfortable about the data they should be sharing with their customers – the savers?

I share this worry. When AgeWage analyses a data set, we record what we call outliers. An outlier occurs when a contribution history of an individual when compared with the value of the pot (the NAV) shows that a dubious return has been achieved for the member.

We have seen the data sets we analyse have between 0.5% and 28% outlier rate.

By dubious, we mean that the return we record for the members deviates from the norm by an amount that makes it abnormal- I am reminded of my favorite data cartoon

Data distribution

Data distribution

Where individuals and groups of individuals, show data that doesn’t conform to normal data distribution, trustees and IGCs should ask questions.

One of those questions should be whether the data is right and whether there is an issue with the quality of service.

The dashboard data anomaly

For me here is the dashboard anomaly. Some  pension schemes claim to be dashboard ready today.

dashboard ready.jpg

 

But we have delays on the dashboard because many DC pension schemes say they cannot provide an online interface with the dashboard.

dashboard-ready

The Pension Dashboard Programme suggests that we are still years away from even finding who has our money

find

And yet the trustees , IGCs and GAAs of schemes that cannot even tell the dashboard whose records they keep are claiming they are giving members and policyholders good value for money.

I cannot see how both statements can be true at the same time.

How can pensions be giving savers Value For Money but not be dashboard ready?

A simple quality test all schemes could take (and for free).

AgeWage is currently running a pilot with the CIPP to test workplace pensions for value for money. One of the outputs of each test is an AgeWage score for the aggregate data. Another output is an outlier score where we tell schemes the percentage of contribution sets we analysed which are anomalous. If you are a member of the CIPP, you can get your scheme’s data analysed for free by AgeWage.

If you are not a member of the CIPP, you should contact info@agewage.com for a quote on the cost of this service to your organisation.

Agewage logo

 

 

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The mess we’re in (pt.1) and how we got here.

Posted on July 26, 2020 by henry tapper
Ian con

“Start by doing what is necessary”.

Iain  Clacher and Con Keating

Since their heyday in the 1990s, UK occupational DB schemes have been winding up at a rate of about one every two days. Their replacement, DC schemes, are a poor substitute; they are tax-advantaged savings schemes rather than pensions. They fail to satisfy the desire for a specified income in retirement, which has been found repeatedly in numerous polls and surveys of employees. The members of a DC scheme bear all its risks; a task for which most are ill-equipped. DC pensions also look like they will produce highly variable retirement outcomes, many of which will be grossly inadequate, offering little comfort or certainty even as retirement approaches[i].

Of the 5,400 schemes[ii] still covered by the Pension Protection Fund only a small minority are still open to new members and future accrual. DB pensions are increasingly confined to public sector employees.

There is a widely held belief that DB pensions are unaffordable and prohibitively expensive. It is undoubtedly true that the cost of providing DB pensions has risen substantially in recent decades, giving rise to the paradox that the pensions being offered have themselves not increased to a similar degree as the proportion of new capital which has been invested. In this, and subsequent articles, we shall investigate the role that legislation and regulation have played in this transformation.

The term ‘defined benefit’ (DB) is a quite recent introduction, imported from American parlance and was not used by the Regulatory Authorities. In the 1950s, 1960s, and until the late 1970s, they were simply pensions, or occasionally more specifically, as final salary pensions or superannuation. The name ‘defined benefit’ has also been a source of some confusion; it was just shorthand for schemes where the benefit ambition, the pension, an income in retirement, was formulaically described or defined. More recently it has been adapted to distinguish between schemes which have explicit or implicit guarantees from those where there are no guarantees, and the fulfilment of the ambition depends upon the performance of its pension fund[iii].

In the early post-war period, occupational pensions carried, for beneficiaries, a certain air of    privilege; the status of relatively menial, low paid jobs could be enhanced by their description as pensionable positions. As pension provision grew to be widespread, this privilege steadily dissipated and by the mid/late 1970s, occupational pensions had become almost a standard term of employment; particularly so where the workforce was large and unionised.

Baldly stated, the pension element of the employment contract was:

‘I, as employer, agree with you, as employee, to enrol you in my (DB) pension scheme and to contribute each year the cost of one year’s accrual estimated at that time for that year.

In the fat years, my contributions may be reduced by valuation surplus. In the lean years, my contributions may, if I so choose, be increased. But I always retain the right to terminate payments to the pension fund (with no obligation to make up any deficit and no obligation to continue future accrual).’

There were no guarantees here and no enforceable debt on the employer. There is no liability or shortfall to be included in the sponsor employer’s balance sheet. In this framework, it is hardly surprising that the primary purpose of the fund should be regarded as being to pay the pensions when due.

Becoming an ever-more binding obligation

It is possible for reasonable expectations arising from behaviour, e.g. from prior practice, to convert into legally binding terms of the pension agreement part of the contract of employment. But, normally, the employer communications were boiler-plated to prevent that happening and case law evidencing the conversion of expectations into legal rights, in general, has come out in favour of the employer[iv].

If we consider the benefit ultimately payable, clearly the investment accumulation on the contribution through time is far larger and more important than the initial contribution, and the sponsor is not involved in the investment accumulation.  However, when we introduce legislation making it a debt on the employer, we are changing that. The employer is now guaranteeing the investment return, and the role of the fund becomes defraying the employer cost of that investment return and serving as collateral security for the accrued benefits.

Regulation over the 1960s and 1970s was light. The scheme’s trust deed governed its management and operations. Schemes could and did make hard promises, which might be described as guarantees; for example, some offered fixed indexation of pensions in payment. Usually and almost invariably the directors and other officers of the sponsor were members of the scheme, with some also trustees. With pensions then a more important part of their total compensation than now, they were anxious that it did not fail. This community of interest now no longer applies but was previously critical in ensuring good governance through common interest. The chairman of the first scheme joined in the 1960s by one of the authors (Keating) would have been delighted to be described as a gentleman amateur in the best British tradition.

In recent decades, there has been a radical shift in emphasis in the governance and trustee duties, away from this quasi-paternalistic model, to one in which employee representation and professionalism dominate. Professional trustees have been described as ”regulators in residence” while the lay trustees for their part are being slowly drowned in torrents of regulatory guidance

In this regard the extensive emphasis in recent consultations on propriety in ’fit and proper’ tests for trustees gives us cause for concern. The financial soundness condition is reminiscent of the Victorian idea that only men of property might vote. With propriety defined as “conformity to conventionally accepted standards of behaviour”, innovation and inventiveness seem unwanted, which is concerning as diversity, and more specifically cognitive diversity, is frequently viewed as highly desirable for problem solving and for effective decision-making.

Following the introduction of the PPF, practices when sponsor employers were in difficulty or insolvent changed. However, in the early period, of course, some companies with DB schemes did fail, but failure was anticipated. The trust deeds invariably contained a specified way of re-allocating benefits, even if that may only have been at the discretion of the trustees. They were taught to cut benefits more for younger, working members (including former employee, deferred members) than retired members, since the former had time to rebuild their rights with another employer. Trustees had the right and in fact were expected to run the scheme on (in wind-up) rather than buy annuities, to lower and spread the costs over time.

The first externally imposed and determined guarantees came, in 1978, with the state second pension, SERPs[v]. National Insurance contributions were reduced (rebated) for those contracting out, but the scheme had to offer benefits at least as good as those of the state scheme – the infamous guaranteed minimum pensions (GMPs). These were not considered onerous, and there was a flurry of new contracted out schemes (COPS) created. As was predicted by some, the terms of GMPs did become more onerous: notably with the introduction of indexation from 1988. GMPs are the longest-running open sore of the pensions industry; their administrative cost has often far exceeded the value of the rebate received. Painful though these legacy issues have been, with the ending of contracting out in 2016, they are not material in the ongoing question of DB pension affordability. The introduction, in 1985, of compulsory revaluation of deferred member benefits is far more important. This was compounded, in 1986, by the changes to cash equivalent transfer values.

In the 1980s, the issue was not scheme deficits but the magnitude of scheme surpluses. The valuation practices at this time were questionable, smoothing of assets[vi] and liabilities when determining contribution rates. In the late 1980s, schemes which were more than 105% funded on a prescribed basis were required to remedy the situation over five years in one of three ways. The route most frequently taken was to increase benefits, but more than a few opted to take refunds in the form of reduced contributions as well. The least popular of the three options was payment of surplus to corporate sponsors, which was taxed at 35%. This regime undoubtedly contributed to the willingness of companies to use scheme surpluses in the redundancy packages offered in their restructurings in response to the 1991-1992 recession. Early retirement on full pensions figured large. However, the impact of this has often been overstated. There was only one year in the 1990s in which DB pension contributions declined[vii], and then only very marginally; the aggregate addition to liabilities was perhaps 10%.

Summary

The various additions to pension costs over these decades added to the benefits payable; they do not however, explain the current paradox of liability values having grown far faster than the actual benefits promised. The changes we have described added perhaps 15% – 20% in total to scheme liabilities, but schemes remained open. There was no systematic movement to close to new members or future accrual, and few schemes were voluntarily wound up. The elephant in the room is that none of this addressed the fundamental questions of member security. The positive is that these pension schemes emerged unscathed from a radically changing economy, rampant inflation, and several severe financial disruptions.

The Pensions Law Review, the Goode Report, is a convenient marker for the end of this period in 1993, as what comes next is the modern era of pensions regulation.

Goode

Professor Roy Goode

[i] A fuller discussion of DB versus DC is available from the authors on request. This takes the form of slides and notes to a presentation at the Royal Society in early 2019. (or from henry@agewage.com)

[ii] Down from 7800 in 2005.

[iii] Collective Defined Contribution (CDC) In this and subsequent articles we shall use the term to describe occupational schemes authorised by the Inland Revenue / HMRC following the 1921 Finance Act model. We will not cover unauthorised schemes, the pension policies issued by insurance companies or money purchase (Defined Contribution(DC)) schemes.

[iv] See,for example:  http://www.bailii.org/ew/cases/EWHC/Ch/2011/960.html

[v] State Earnings Related Pension

[vi] In smoothing asset values the UK appears to have been almost unique internationally

[vii] See ONS  MQ5

Posted in accountants, actuaries, advice gap, pensions, trustee | Tagged , , , , , , , | 1 Comment

How Pension Providers become winners in a data driven world

Posted on July 26, 2020 by henry tapper

winner.png

Data requests are a key measure of  “quality of service”.

This is a sister piece to my blog for pension consumers published here.  Under GDPR, consumers are entitled to their pension data in a timely fashion. In a test last summer we were able to see the service standards which various providers operated to. At the top of the list was Royal London who supplied what we wanted almost online. At the bottom of the list was USS who’s pension administrators would not acknowledge their customer’s request for information. But the sample size was too small for us to draw general conclusions.

In our current test we will have 500 consumers issuing letters of authority to hundreds of providers – some will receive dozens of requests. It will give us a better understanding of who is providing quality of service and who isn’t. Just as this is a chance for consumers to understand the quality of service they are getting, so it is a chance for the fiduciaries of pension providers to understand the quality of service they are giving to their savers.

We won’t be afraid to publish the information we gather on quality of service and share with relevant authorities. Transparency is the best disinfectant.

By your data shall ye be known!

Pension providers are understandably nervous about committing their pensions data for AgeWage analysis. Analysis can show  that the achieved performance of members is below par and can point either to poor investment returns, high costs and charges or both. The analysis can also show up poor data quality through “outliers”, individual analysis which suggests that the data itself is faulty.

Having your data analysed by an independent firm is doubly daunting when it is being compared to an independent benchmark (the Morningstar UK Pensions index). We understand that it takes courage to submit your data to independent assessment and we understand the reluctance of many providers to share it with fiduciaries.

Nonetheless, the new consultation on Value for Money (CP20/9) issued by the FCA makes it clear that not only are IGCs and GAAs to offer those who purchase their providers products “comparables” but the comparability metrics are to be data driven. It is very difficult to argue that a traditional value for money matrix is fit for purpose. These are too reliant on subjective judgement , too inconsistent and often lacking in genuine independence. The FCA make it clear in their report on IGC behaviors that several have not been sufficiently independent of their provider.

By your data , shall ye be known. Reluctance to share data with employers running their own schemes (and by extension participating employers of master trusts) suggests problems with governance that should be sprouting red flags.

How providers can win…

For pension providers who can share data with their IGCs, GAAs, Trustees  and their key customers, the large employers with their own schemes and even smaller employers, there are three big wins.

  1. The transparency dividend – trust between provider and fiduciary
  2. The dashboard dividend – confidence that the provider will be dashboard ready
  3. The dividend from your savers – confidence with savers that VFM can be discussed on their terms

I will not labour these points as I have been over them many times.

In the short term , blocking data requests from your stakeholders may be the easiest thing to do. But it does not solve the problem, every time a stakeholder is frustrated , pressure grows, trust reduces.

Arguments around data readiness or the strain on the system at a time of pandemic wear thin. Provided a data request is reasonable, unreasonably blocking it on the grounds of inability to share data, suggests fundamental problems with “quality of service” and value for money.

But if data is shared and shared through fiduciaries with savers, there is a transparency dividend to be had. It is to be had not just from savers but from employers, fiduciaries and ultimately Government.

A call to action

We intend to mobilise the pensions industry, though Government, through fiduciaries , through employers and (in the Sandbox) through savers, so that this data is shared and value for money is understood.

We are doing this directly, through the CIPP and through social media. We will not be stopped!

If you would like to know more about making your provider a data-winner, contact henry@agewage,com. I’d be delighted to talk things through.

 

Agewage logo

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How can you test the “quality of service” you’re getting from your pensions?

Posted on July 26, 2020 by henry tapper

dat request

“Value for money is more than just an analysis of cost” – we are told

“Value for money is more than just an analysis of the money paid” – we are told

“Value for money is also about ‘quality of service'” says the FCA.  Quality of Service  is better tested by the member than relied on from an affirmative Value for Money statement -says AgeWage.

In this blog , I propose a simple test of service for the providers who receive letters of authority from AgeWage. We will, as well as telling you how your pot has done relative to the average pot, tell you the quality of service you have received – though you will be the best judge of that.

GDPR is our friend

Many people in business see the General Data Protection Requirement as restricting access to data, that’s because businesses want to see data that isn’t theirs. Infact GDPR is about giving people who own data access to what they own in digital format.

So far , organizing people to help themselves to the data they need has been frustrated by teething problems. These include

  1. concerns from both consumers and data controllers about e-signatures
  2. distrust of intermediaries (fears of scamming)
  3. Failures from data controllers in accessing data from their systems
  4. In some cases willful obstruction

When AgeWage conducted its initial data requests last summer, it was in a pre Covid-19 world. Over the past 36 hours  434 testers  have signed off letters of authority to pension providers asking for the data for AgeWage to produce value for money scores and reports on their pension pots.

The test with in the FCA sandbox is primarily to understand consumer behavior so that AgeWage can use its scores in a responsible way both as an employee benefit and directly to consumers. But it is also a test of the capacity of pension providers to service the needs of their customers in a timely fashion.

Data readiness – the key test of quality of service.

I had a call with the Pensions Minister last Monday , at which he stated again that organisations cannot use the poverty of their data-readiness as an excuse for not co-operating with the pensions dashboard.

It is a commonplace that data is money and if data is unavailable so will be people’s access to money. If there is one quantitative measure for “quality of service” (the third leg of the FCA’s value for money formulation) it is data- readiness.

I have said that I intend AgeWage to be an independent arbiter of data readiness. If we do not get data on legitimate request in a timely fashion we will be letting not just the FCA know , but the Pension Dashboard Programme.

Despite many years notice, many data controllers still hide behind lame excuses for not having data ready. Where data is held within a trust, we will be escalating to trustees , when held within workplace and legacy pensions, we will escalate to IGCs and GAAs and where neither trustee or IGC is available , we will escalate beyond the data controller to the FCA.

Because AgeWage is independent,  it is not conflicted. Nor is it intimidated. I agree with the Pensions Minister, not being able to provide data in a timely fashion is both a breach of GDPR and a breach of fiduciary duty. It is not treating members fairly, it is not treating customers fairly.

What you can do?

Anybody who wants to join our test group and be treated as part of AgeWage’s FCA sandbox test should contact info@agewage.com. We will add you to our 500 strong testers list.

If you want us to help find your (UK) DC pensions , analyse them for the value you’ve got for the money you’ve paid into them and get some bright ideas as to what to do next, can simply go to http://www.agewage.com .

We cannot promise you that getting your data will be easy, but we can promise you we’ll be honest and frank with you about the process we go through to get it.

We agree that quality of service is part of your test for value for money.

If you want to get an understanding of the quality of service you are getting  from your provider, our test will help! Go to agewage.com and get started

 

agewage dashboard

What our test will show you.

 

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AgeWage enters FCA’s Sandbox

Posted on July 25, 2020 by henry tapper

sandbox

 

Cohort 6 of the FCA Sandbox has been announced , with the FCA selecting 22 of its 68 applicants.

AgeWage, a “pentech” that provides people with value for money scores is pleased to be joining two other pension firms-  NEST Insight and Just’s Hub Financial Solutions

AgeWage offers a way of understanding a pension pot using a value for money score. The sandbox  test measures how understanding Value For Money can empower savers to find and compare other pensions and turn pots into retirement plans.

AgeWage’s inclusion in the Sandbox comes at an interesting time. The FCA’s consultation on value for money (CP20/9) challenges IGCs and GAAs to find a universal definition of value for money and a way of helping employers and employees compare their workplace pensions.

Henry Tapper, AgeWage’s CEO says

“people are fed up with phoney-baloney claims; they want data-driven reporting on what’s happened with to their pension savings. We’ve found a way of converting their savings data into a meaningful score that tells them how they’ve done”

“We’ve helped Morningstar create a new index which tracks the average workplace pension every day since 1980. Our score lets people see how their money has grown compared  with the average saver”.

AgeWage will not just be reporting the results of the Sandbox test to the FCA, they plan to feed into the DWP’s call for evidence on charges and the Pension Dashboard Programme’s work on data standards.

Anyone can test the app for themselves by going to www.agewage.com  but if you would like to be part of the official test group you should mail info@agewage.com heading your mail “test group request”.

Henry Tapper is available on 07785 377768 or at henry@agewage.com

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Wear a mask – but where?

Posted on July 25, 2020 by henry tapper
gold hill.jpg

Shaftesbury’s famous Gold Hill

Today I am preparing for my first expedition outside of the metropolis since March. I am going back to see my Mum in my hometown of Shaftesbury in Dorset.  I will have to take precautions with regards PPE as I travel down on the train so searched for what Dorset County Council was advising.  Inspiration came from the Shaftesbury Town Clerk

I am pleased to see I will not have to be following this gentleman’s example

 

 

 

dorset 2

Wear a mask – but where!

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C19 Actuaries round up (17) including a reappraisal of “excess deaths”.

Posted on July 25, 2020 by henry tapper

Screenshot 2020-05-21 at 05.12.58

The Friday Report – Issue 17

By Matt Fletcher and Dan Ryan

danmat

Ryan and Matt

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

Every week, more is written on COVID-19 than any individual could possibly read. Collectively, the COVID‑19 Actuaries Response Group read more about the outbreak than most, so we’ve decided each Friday to provide you with a curated list of the key papers and articles that we’ve looked at recently.

Modelling – reports

Initial Estimates of Excess Deaths from COVID-19, 8 April 2020 (link)

This SAGE paper was published on 12 June 2020 but received much attention recently, following a report in the Telegraph (link) and other newspapers highlighting the headline conclusion that lockdown could result in 200,000 excess deaths.

The report represented the best estimate of excess deaths based on data available in April 2020. It notes specifically that most of the 200,000 deaths reported (185,000 over the medium and long term) are based on an assumption of 75% of elective care being cancelled over 6 months and not re-prioritised, and that with reprioritisation the actual impact would be much smaller.

The Contribution of the Age Distribution of Cases to COVID-19 Case Fatality Across Countries: A 9-Country Demographic Study (link)

This study notes the variation of observed Case Fatality Rate across countries (for example, 9.3% in Italy compared to 0.7% in Germany) and considers the contribution of the age distribution of confirmed cases to this range.

The conclusion is that selectively testing and identifying older cases is likely to increase estimates of the lethality of COVID-19 within populations – in Germany, testing was disproportionately among younger individuals, where in Italy, Netherlands and Spain it was among older individuals. Overall, 66% of the variation across the 9 countries considered in detail is explained by the age distribution of cases. After adjusting for these differences, the age-standardised median CFR is 1.9%.

Clinical and Medical News

Oxford Vaccine Group Phase I/II Trial Results

On 20 July, the much-awaited results (link) of the multi-centre Phase I/II trial of the ChAdOx1 nCoV-19 vaccine led by Professors Sarah Gilbert and Andrew Pollard at the Jenner were released. The study found no serious adverse events in in the test group (n=543), and showed specific T cell responses at day 14 and IgG responses at day 28.

By way of reminder, the body initially generates the much larger IgM antibodies before switching progressively to the production of IgG antibodies which are more nimble and specific. Patients were able to generate neutralising antibodies to a new infection. However, it is worth noting that the study protocol involved a booster vaccine at day 42. This has clear implications for rolling out the eventual vaccine, regarding both production and administration.

Long-lasting antibodies (?)

Back in March, Florian Krammer and his lab at Mount Sinai shone a light on the potential for convalescent serum therapy to help in the management of COVID-19, leading to programmes around the world. They have continued to investigate the extent and duration of antibody responses, and a pre-print study this week (link) on 19,860 individuals screened in New York City indicated the majority of those testing positive for COVID-19 with mild to moderate symptoms showed stable levels of IgG antibodies thereafter. These antibodies, most likely produced by long-lived plasma cells in the bone marrow, were able to neutralise new infections for a period of at least 3 months.

(But in this time of ‘emergency epidemiology’, not all results will point the same way – a small study by King’s College London (link) looked at the concentration of neutralizing antibodies over 94 days and found that the concentration could fall to become almost undetectable after around one month.)

Rashes – yet another symptom of COVID-19

Various clinical datasets have greatly expanded our understanding of those symptoms that should be associated with SARS-CoV-2 from the initial set of persistent dry cough and fever. A pre-print study (link) that looked at over 300,000 UK users of the COVID Symptom Study app indicated that those with positive swab tests were 1.67 times more likely to have a body rash. The study also reported on a separate online survey (n=11,546) of those with rashes, and this indicated that rashes were the only clinical sign in 21% of those with positive swab tests. Thus, recognising rashes is very important for identifying new cases of COVID-19.

Hydroxychloroquine – preliminary results from RECOVERY trial

Preliminary results (link) from the Randomised Evaluation of COVID-19 therapy (RECOVERY) on the use of hydroxychloroquine that has attracted so much attention and controversy are not encouraging. The study of 418 patients treated with hydroxycholoquine (against a control group of 788) indicated that patients were less likely to be discharged alive at 28 days (60.3% vs 62.8%), more likely to require ventilation (29.8% vs 26.5%) and were likely to spend longer in hospital. Although the differences are slight, they point in the wrong direction.

COVID-19 Behaviour Tracker

The ongoing collaboration between YouGov and public health experts at the Institute of Global Health Innovation at Imperial College London brings together weekly survey responses across 30 different countries looking at changes in behaviours and attitudes in the time of COVID-19. The underlying data can be explored at https://github.com/YouGov-Data/covid-19-tracker.

As of today (24 July), it is mandatory for customers in England to wear face coverings in shops, supermarkets, shopping centres, banks, building societies and post offices. It is therefore rather opportune to look at differences in self-reported use of face coverings in different countries around the world (using data from June 28-July 5).

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Nuffield Trust – lessons for healthcare systems from COVID-19

Whilst the deficit in expected hospital admissions has reduced significantly in May and June compared in April, waiting lists are expected to increase significantly for the rest of the year as the healthcare system is forced to operate below normal capacity and population health suffers from missed or delayed treatment.

The Nuffield Trust has released an excellent briefing (link) that focuses principally on European healthcare systems and asks what lessons can be learned. It describes the common strategies that many healthcare systems, including the NHS, adopted such as prioritisation based on immediate need, partnerships with the private sector and the creation/freeing up of additional capacity.

The report highlights that the NHS is likely to face greater strain because, before the pandemic, the UK had higher occupancy rates than other countries but fewer doctors, nurses and capital assets. Many hospitals lack single-occupancy rooms and common areas are too restricted to allow segregated movement.

The report warns that much investment will be needed to update facilities, and that the extra capacity so far announced will be insufficient. The report praises innovation and flexibility in patient triage and care delivery, but challenges over-staffing with high vacancy rates, dependence on volunteers and demands on those that brought us through the first wave.

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Data

ONS: Deaths involving COVID-19 by local area and socioeconomic deprivation: deaths occurring between 1 March and 30 June 2020

This is an update of the previous ONS report which covered the period to 31 May 2020. Overall, the conclusions are similar to the previous report – specific statistics drawn out were:

  • 9% of deaths occurring over the period involved COVID-19;
  • London had by some way the highest age-standardised mortality rate of COVID-19 deaths and the South West had the lowest;
  • The age-standardised mortality rate for COVID-19 deaths in the most deprived areas was more than double that in the least deprived areas (140 per 100,000 vs 63)

All English regions and Wales saw increases in COVID-19 mortality between March and April, followed by decreases in May and June. In London, the mortality rate involving COVID-19 fell by 96.7% from its peak.

And finally …

It’s been a few weeks since we’ve ‘been outdoors’ in our weekly roundup, so a couple of interesting outdoor-related stories to finish.

Whilst indoor gyms and swimming pools are re-opening in the UK tomorrow (25 July), they will be at reduced capacity with more regulations – will more of us make use of rivers over what’s left of the summer months? (wild swimming)

Lockdown is thought to have been good for hedgehogs, as lower traffic volumes have led to fewer encounters with cars. However, there is some concern that this means that scavenging prospects may be reduced for some birds of prey. (mixed outcomes)

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24 July 2020

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The FCA can’t blame the DB transfer debacle on pension freedoms.

Posted on July 24, 2020 by henry tapper
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Nikhil Rathi

 

Nikhil Rathi, the FCA’s CEO elect is only partly right in linking the upswing in transfers away for DB schemes to the precipitous introduction of pension freedoms.

It is very important that the FCA properly understand the cocktail of factors that have and continue to make transfer values so attractive that of 250,000 transfer cases coming across advisers desks, 70% were signed off and monies transferred

In January, a  freedom of information request revealed that the FCA was planning to write to 1,841 financial advisers about “potential harm” in their defined benefit transfer advice. This represented 76 per cent of 2,426 advisory firms advising individuals between 2015 and 2018, when pension transfers began to boom

The impact on the availability and cost of financial advice will be of immediate concern.

But of longer-term concern is that the estimated £70bn which is no longer under the stewardship of pension trustees but in SIPPs managed by wealth managers is no longer providing a wage for life solution for those who have taken transfers, but something quite different. A major slice of financial security for a sizeable portion of the population is now at risk from mis-management.

The impact on the financial security of the lucky generation of those who had DB pensions is of longer term concern.  Nikhil Rathi must be clear about what has happened, the causes of this problem go much deeper than the introduction of pensions freedoms.

Cause one – transfer values are needlessly high

Transfer values of 40 times the pension are common, they arise from discount rates trending to zero as pension schemes de-risk. De-risking is supported by the Government’s own Pensions Regulator as a way of protecting the PPF. These high transfer values make it easy for advisers to show that by reinvesting into growth portfolios, ordinary people are better off out.

This has nothing to do with pension freedoms and everything to do with the extraordinarily low yields trustees have achieved on low-risk investments – such as Government bonds. This has everything to do with quantitative easing which has created artificially low yields and artificially high transfer values

Cause two short-termism among the DB stakeholders

Part of de-risking has been the promotion of pension transfers by employers and trustees of enhanced transfer values through corporate IFAs. These “exercises” are typically advised on by corporate pension specialists and lawyers who carry no liability for the outcomes. The corporate IFAs – such as LEBC have recently been hung out to dry, while the employers, trustees and their corporate advisers have received no sanction.

In the short term, the encouragement of transfers has led to substantial improvement in corporate balance sheets. Unfortunately these short term gains have been achieved at the expense of the financial security of those who have taken the offers presented to them. These exercises have been nodded through by the Pension Regulator whose aim is to see risk transferred from schemes (and the PPF) to members.

Again the primary driver is not pension freedoms but the short-termism of all parties concerned with pension scheme management to aid and abet those advising on transfers- to transfer. The adviser is pushing at an open door. Nobody was protecting the member – not employers, trustees, the FCA, tPR or the corporate and financial advisers.

Cause three – the incentive to advisers

Around 2015, financial advisers worked out that they could get round the obstacle that the FCA had placed in their way on transfers. The Pension Act 2015 required schemes to only release transfer money if an advisory certificate was produced recommending  the transfer. The idea was that this would stop the flow of transfers but it did quite the opposite. Advisers found that they could charge for advice which 70% of the time would lead to a transfer but take the money out the proceeds of the transfer. This was tax-efficient and effectively created  a no-win no-fee culture.

Phrases like “no-brainer” were regularly in use to describe the decision people had to take about DB benefits, it was a no-brainer because it seemingly cost nothing – the value of contingent charging. The rewards of using contingent charging with transfer value advice were huge. With average transfer values of £400,000, it was common to see 2% as an initial charge with a 1% charge on assets transferred for ongoing advice and maybe another 1% charged for managing the assets.

Once again this cause has nothing to do with pension freedoms and everything to do with short-term gain for advisers. The FCA is  finally banned contingent charging from October but the damage has been done.

Cause four – pension freedoms

The prospect of being able to spend the money from a transfer as the member pleased, certainly helped sell transfers.

But I suspect that even if the pension freedoms hadn’t happened, people would still have been able to enjoy much of the freedom, both from tax-free cash and from drawdown.

The amount of a £400,000 CETV needed to be ring-fenced and used for annuity purchase would have been insufficient disincentive, especially as annuities themselves pay IFAs quite well. There is not space here to go into ways round annuity purchase for those with wealth but anyone advising on large DC pots in the first years of last decade had plenty of scope to liberate pots from the clutches of annuities.

Conclusion

It would be convenient for Nikhil Rathi and the FCA to conclude that the problems with pension transfers were down to the over-hasty introductions of pension freedoms. But it would wrong.

In truth what happened over the past five years because it was in everyone’s short-term interest to see transfers go ahead. Though both the FCA and tPR protested about the number of transfers, they were not so concerned as to stop them happening. TPR got de-risked schemes and an under used PPF, the FCA had a burgeoning advisory sector and the Treasury could see tax revenues surge as pension money surged back into the economy as people accelerated the taking of their pension benefits.

But the longer term issue is that our DB pension schemes are denuded of future pensioners and Britain is faced with a very real possibility of seeing the currently wealthy boomers finding themselves a burden on the State in later retirement.

The FCA cannot walk away from responsibility for what has happened. A new CEO should not be allowed to  blame the Treasury. What happened , was happening even before 2015  and has continued ever since.

The banning of contingent charging in October may turn off a still dripping tap, but it is not the FCA that has stemmed the flow so much as the Professional Indemnity insurers who have denied advisers the protection to write new transfer business.

The FCA may take some credit for putting the wind up PI, but that is about all they can take credit for. Stopping firm like Tideway and Quilter months before contingent charging ceases is just too little- too lates.

Posted in FCA, Financial Conduct Authority, pensions | Tagged , , , , , , | 1 Comment

“Drawdown doldrums” indeed! Apathy on unadvised drawdown is shocking.

Posted on July 23, 2020 by henry tapper

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Pension Bee have commissioned Dominic Lindsay to write up the results of research they have carried out with 1000 ordinary people aged 55-70 who had access or tried to access and failed or planned to access their pension pot(s). The resulting report is excellent but the turn-out at yesterday’s “Q&A” was tiny and I was the only person asking  questions.  I continue to ask questions   “What is going on?”

No bolt from the blue

The report is the latest in a string of warnings

In April Zurich carried out an online survey of 2,028 adults aged over 55 who had accessed their defined contribution pensions since 1 April 2015. Shockingly, 52% of those surveyed did not know they could reduce their withdrawals, and a further 56% were unaware they could stop withdrawing money altogether.

In July Openwork carried out research from its advisers. The study found 68 per cent of advisers say retirement savers who enter drawdown without advice is their key concern since pension freedoms started in 2015.

But this work is of a different order of magnitude

You can read the report here. I would recommend it to anyone involved with designing or managing investment pathways. It should be required reading for IGCs and GAAs tasked with working our the value for money of investment pathways.

Pension Bee is one of the few organisations gearing up to provide unadvised drawdown. One of the things that this report tells us is that for most DC savers, the spending of their money is a lot harder than the saving of it. To use a regulator’s phrase, it seems to be about “alignment of incentives”.  To put it more simply the organisations that have our money have no reason to give it us back. To quote from the report

 There are.. an increasing number of people accessing income drawdown without taking advice – 37% of all drawdown customers were non-advised, compared to 5% prior to the introduction of the pension freedoms.

Non-advised drawdown is sold almost exclusively to existing customers of pension firms – inertia still rules the market. 94% of non-advised drawdown sales were to existing customers, meaning that people did not shop around or switch providers compared with 35% of advised sales.

This means that there is only limited market pressure on the large pension firms to improve the service available to non-advised drawdown customers. Driven by a desire for control and a lack of trust, thousands of people have cashed in their pension or taken a lump sum withdrawal and put the money into products with low long-term returns

Those with medium term memories will hear echoes of the state of the annuity market ten years ago with virtually no shopping around , a lack of information, control and  trust leading to people taking bad decisions. Worst of all, there seems precious little interest in the subject from anyone, the numbers on this webinar could (according to the Chair) be numbered on one hand.

So what is Pension Bee hearing? It is hearing a cry for help from those most vulnerable to the health and economic threat to COVID-19

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It finds that pension firms have not always been giving that help

The coronavirus pandemic has made decisions about accessing pensions harder, there is more worry and a greater appetite to access advice and guidance. But only a small minority of people have been contacted by their provider and feel very well supported to make decisions about accessing their pension.

Many people surveyed were worried about the value of their pension as a result of the pandemic and 40% of those working said they would withdraw money from their pension if they became unemployed

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People are ill-prepared to manage such a sophisticated financial product on their own

  • For many, pensions have become disconnected from retirement. People are accessing their pension early,leading to them paying too much tax and losing out on potential returns.
  • Charges are complex and difficult to compare, many accessing income drawdown are paying high charges – costing people £40 to £50 million extra each year
  • People need simple charging structures and products which offer value for money.
  • It can be difficult to make decisions about investments and pension providers are not asking people how they plan to access their pension or helping those without advice choose an appropriate investment strategy – this highlights the need for clear investment pathways, however the Financial Conduct Authority (FCA) has delayed the implementation of the new rules.
  • Retirement income decisions are daunting and complex and people are less confident making decisions about pensions than other, widely held financial products.
  • Those for whom a Defined Contribution (DC) pension is going to be their main source, or a significant source,of income may not have access to good value products and support to help them make a plan and decide howto access their pension.
  • People lack basic information about their DC pensions or don’t know how to find it. It is time consuming and difficult for people to gather the information they need to take a decision
  • .There are low levels of trust and satisfaction among holders of DC pensions

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People are transferring money out of pensions to accounts which give them easier access to their money

  • People are accessing their pension without taking independent advice or guidance and are choosing retirement income products without considering important factors which might influence their decision.
  • Retirement income products do not accommodate the changing preferences people have to access secure income as they get older.
  • Shopping around and switching for those without advice is complex and few do so.
  •  People are surrendering valuable guarantees and paying more tax than is necessary when they access their DC pension – the pension freedoms have raised £6.2 billion in extra tax revenue for the Treasury, £2.4 billion more than expected
  • People don’t understand what represents a sustainable withdrawal rate and many are taking out too much
  • People continuing with high withdrawal rates during market downturns will run out of money. Decisions about how much to withdraw each year are complex and pension providers are doing little to help people understand sustainable withdrawal rates or develop withdrawal strategies.
  • 8% is considered a sustainable withdrawal rate and 8 is becoming a default number.

So what are the remedies put forward in the report

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IGCs and GAAs take note

By April 2021 the IGCs and GAAs charged with issuing value for money assessments on the investment pathways of the providers they govern. They will no doubt say that since the implementation of the pathways has been delayed till February 2021, they have nothing to base their assessments on. This will not wash with me.

If the IGCs and GAAs want a VFM framework for investment pathways, these six points are that framework.

IGCs and GAAs are not full time fiduciaries, they need to access research. They should feel grateful to Pension Bee, not just for the headlines in this blog but for the 90 pages of charts and tables that follow.

I hope that the FCA read the Pension Bee report and that they pick up on the message of this blog. Ignoring the underlying problems of unadvised drawdown will lead us down the same road as we went with annuities and pension transfers . The consumer must be protected but it looks like there is precious little appetite to find out about the problem.

Pension Bee’s research must be taken note of, it should not be allowed to sit on a shelf.

 

 

Posted in pensions | 3 Comments

The Treasury looks at fundamental tax reform.

Posted on July 20, 2020 by henry tapper

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The way we tax ourselves looks about to change. On Friday the Chartered Institute of Taxation , chaired by former tax minister Mel Stride introduced the

Launch of Treasury Committee inquiry into tax reform after the pandemic – Tax after Cornonavirus

The inquiry has a deadline of 28th August in its call for evidence by the Treasury on tax reform. There seems to be widespread public consent that something needs to be done on tax.

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Stride gave an introduction to the reasons behind the Treasury’s inquiry.

  1. We’ve seen no fundamental reform  since the late 1960s
  2. Taxation is vital to sorting the structural deficit caused by the pandemic
  3. The groups most impacted by pandemic aren’t best served by tax system

Stride went on to identify three areas where we change

  1. Change in terrain where taxes are applied – digitization means catching up with Amazons and Googles.
  2. Secondly the way people choose to structure their tax affairs.This involves how we choose to be employed but should also address the concentration of wealth in the hands of older people. Do younger people need a tax break?
  3. Thirdly the area of tax-reliefs. The five largest reliefs equal 10% of the total tax-take.

Stride said the big picture will be about green taxes, wealth taxes and redistribution of taxation.

The need for fundamental reform.

Angela Eagle saw a balance between growing the economy and the need to increase wealth taxes. She spoke about the importance of not getting lost in the weeds when we could be looking at the flowers.

She gave an example. The Chancellor has said that he is looking at national insurance for the self-employed. But is simply tinkering with an increasingly complex system (such as national insurance) the way forward, or do we need a more fundamental look at the way in which taxes and benefits interact.

It was good to hear the inquiry will be looking at the high marginal tax rates for those on universal credit looking to draw an income.

Stride pointed out that radical reform typically costs money. The money for reform inevitably comes back to the two big tax reliefs “the primary housing stock and pensions”.

While dealing with specific injustices

On the other hand, a tax  (or tax-relief) can work even if it does not bring in a lot of money (or cost Government a lot).

The Digital Services Tax is a tax that underpins confidence in tax in the system that only collects £2-3bn in tax each year. This is chickenfeed compared with income tax, VAT and national insurance .

Similarly there are tax-reliefs which may not be hugely expensive to Government but which have a particularly negative impact on public confidence. An example might be the inexpensive to fix, but potentially fraught area of the incentivisation of low earners paying into pensions

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It was particularly good to see Darren Philp’s question receiving a lot of support from others asking questions at this committee.

It was also good to see Margaret Snowden picking up on a related point.

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The net pay issue was directly addressed by Sam Mitha at around 46 minutes of the inquiry. The Low income Tax Group ( a part of  CIOT)  has been driving this forward under the sponsorship of Ros Altmann. It was good to hear that this particular issue is now coming to the fore.

Specific injustices fuel the need for wider change.

Having listened to the launch and the comments of all the contributors, I was reassured that now we are likely to see something genuinely different coming out of the Treasury.

The pandemic is the great disruptor and now is the time for us to lift the bonnet on the variety of reliefs such as EIS, Entrepreneurs relief and the various opportunities for small businesses to claim tax credits for investment in technology,,

Similarly the issues highlighted by the Taylor report which have been addressed.

I hope the inquiry will also look at the hugely important issues around the funding of care – both residential and domestic.

And, as Jo Cumbo is reporting this morning, we have to look at whether the £38bn opportunity cost of pensions is actually working. That the Public Account Committee is alsoasking this specific question suggests that the writing is on the wall for the current pension taxation system.

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Addendum  – The Treasury’s call for evidence

The coronavirus pandemic has had a major effect on the UK economy and public finances, and when the economy recovers from the crisis, debt levels will be significantly higher than they were before. The UK will need a strong tax base to maintain the level of public services at sustainable rates of borrowing. The crisis has also brought to the fore issues such as whether the Government’s economic response to the pandemic should be reflected in changes to taxation.

The UK tax system has been largely unchanged for many years, whereas the 1960s, 1970s and 1980s saw a number of radical and far reaching reforms. But even before the crisis there were a number of pressures building up in the tax system which had already led to calls for reform. For example, demographic shifts are changing the tax base and demands for public services, and the growth of online- and data-driven employment and business models are eroding traditional sources of taxation and raising questions about the future of the tax system. The reconstruction of the economy after the unprecedented economic fallout of the coronavirus pandemic is an opportunity to reflect upon and address these issues.

The Committee is seeking evidence on:

o What are the major long-term pressures on the tax system in the UK, including those arising from changes in working practices, demographics, the environment and other factors? How are these affecting the efficiency of the tax base and the overall level of demand for public services?

o What more can the UK do to protect its tax base from erosion as a result of globalisation and technological change, and what further impacts will the coronavirus pandemic have on our tax base?

o Do these pressures need to be met with tax reform, and if so, is this the right time for reform?

o What overall level of taxation can the economy bear without undesirable or counterproductive harm to economic growth?

o Which areas of the tax system are most in need of reform, and which are best left alone?

o What reforms should be considered in response to the pressures on the tax system?

o What is the role of tax reliefs in rebuilding the economy and promoting economic growth and efficiency? Does the current regime of tax reliefs perform this role well?

o What are the areas for simplification?

o Is there a role for windfall taxes in the post coronavirus world?

o What is the right balance between taxation of work, savings/pensions and wealth?

o What is the best way to tackle tax reform, including what changes might be needed at HMRC to support implementation, and how should the Government consult with stakeholders and parliament?

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A calm hand needed for this pension face off

Posted on July 19, 2020 by henry tapper

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Mark Twain reported that reports of his death were exaggerated. A journalist had in fact mistaken his state of health for his brother’s (who was in a much worse way).

The same could be said for the Open Defined Benefit Pension Scheme. There are 6.5m  Britains accruing benefits in funded open DB schemes. We do so in schemes as various as USS, RailPen, BBC, Pensions Trust, Saul, Unite, Unison and the Local Government Pension Scheme.

But the remaining DB pensions are in terminal decline and will find their everlasting resting place with an insurer, super                                                                                         fund or PPF. We call these pensions closed, their mantra is de-risking and they really are on the way out.

Confusing Mark Twain and his brother is as bothersome as confusing open and closed DB, which is why the House of Lords voted through an amendment to the Pension Schemes Bill calling for the two types of schemes to be treated differently.

Dogmatism doesn’t help

Open pensions cause trouble. In our flat, I only have to say “future accrual” and  the wrath of Stella is visited upon me. If this blog is spotted on social media by the financial engineers, my timeline will be subsumed by vitriol.

In my day as a consultant, I often heard it said that the Pensions Regulator policy teams were for future accrual and the case workers against it. There appear to be few people who swing both ways . This is a shame,

For dogmatism is not helpful , many schemes have no choice but be open. Take RailPen which is in fact  107 schemes under a single trust, 45 of which are open to future accrual. In this wonderful article by my friend Giannis Waymouth, you can understand why many railway companies keep their scheme s open as a condition of tendering for and keeping rail contracts. Sometimes you have to be pragmatic and so long as benefits are safeguarded , so there will be future accrual.

RailPen were the driving force behind the Bowles amendment which , as it stands, means that the it can invest differently for its 45 open schemes than its 62 closed ones. I met the Railpen team who helped Sharon Bowles with her amendment and was struck by how undogmatic they were.

Perhaps this was why they got so many of the Lords and Ladies to support the amendment. While some who spoke for the amendment took the whip and voted against it, the combined power of Baroness Altmann and Bowles seems to have won the day and genuinely surprised the Government.

The task now switches to the Commons who will debate the amendments in September. The message from Railpen is simple, they aren’t looking to change legislation, but clarify it. They accept that the wording in the Bowles amendment could be improved and they are seeking a meeting with the DWP to see if a wording can be found that might prove acceptable to Government and regulator. Clearly what is needed is consensus not an argument, with its current majority the Government could chose to undo the Bowles Amendment if it chose to.

Of course there are plenty of objections to the amendment. One of my friends succinctly summed up why he considers the House of Lords’ Pension Schemes Bill amendment 71 bad news

1. The bird has flown

2 it is flawed as an amendment.

3 adds another conflict to TPR objectives.

4 so needs flesh on HOW to do it.

5 needs anti abuse – add 1 member and ease requirements

6 does it address the real issue of sponsors being on the hook?

7 it is the government’s role to encourage any particular sort of private provision. Not the regulator.

It would make a lot more sense to respond constructively to the consultation on the code.

I look forward to hearing the power of Keating/Clacher refuting these arguments. But my trust is in the calm and persuasive of the Railpen team I met. It is good to know that pensions have such people in them.death.jpg

News of DB’s death has been exaggerated.

Posted in advice gap, Big Government, pensions | Tagged , , | 8 Comments

Should the tax-payer subsidise the cost of vertically integrated advice?

Posted on July 18, 2020 by henry tapper

 

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Is advice being unfairly subsidized by the tax-payer?

The cost of pensions tax-relief is likely to be a burning issue in the months ahead. The tax-payer is supposed to incentivise good behavior. Pre-funding retirement income leads to self-sufficiency and independence on younger generations in later life. That’s why the Government pays incentives to save, even to those who don’t pay tax (we’ll leave net pay out of this for the moment).

The Government has also accepted that a financial adviser, can charge the cost of advice to a pension, in so doing avoiding having to charge VAT , taking the payment out of a pot which may have had a 45% incentive on inputs and 0% taxation on growth.  This is no small matter as a comment by Stanley Kirk on a recent blog confirms

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The important bit , for the purposes of this blog, is the final sentence. The high charges on SJP Pensions and those of their competitors is down to the pension fund paying for financial advice. Here are the other numbers

SJP charges

At a time when gross return expectations on a pension pot are 3-5% pa, to find that charges are between 1.7% and 3.8% suggests that SJP and similar organisations feel they are still treating their customer fairly when they are reducing the pensions yield at such a rate.  Here is my rely to Stanley, who I don’t take issue with.

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Here is the big question. Are vertically integrated advisers justifying the high Reduction in Yield on people’s pensions by the value they are bringing to the pension, or is the RIY paying for the many benefits that SJP policyholders get from SJP (holistic financial advice, financial  education, mentoring , access to tax and legal services and networking).

I think it is unlikely that the cost of advice is made up for by better financial outcomes from the pension. But I think this can be tested as a separate measure, the value for money of advice.

I think it very likely that the cost of advice pays for the wider lifestyle benefits listed above.

But should the tax-payer be subsidizing the SJP customer experience through pension tax-relief?  A high proportion of funds under management at SJP (£106bn)  is in pensions which are paying 2.4% pa on average to SJP and advisers.  A high proportion of that 2.4% is paying advisers who appear to being supported primarily from pots that have been highly tax-advantaged. In practice both SJP and its partners are receiving a very substantial tax-subsidy through the vertical integration of the advice. This subsidy covers everything – right down to the financial foppery of the cruises and cufflinks.

The problem is not unique to SJP, indeed SJP – according to Grant Thornton are relatively “less-expensive” than their rivals – according to Grant Thornton

SJP charges

The social issues

At a time when social justice is to the fore, I question whether this tax-payer subsidy to SJP and its partners can be justified. I am not just thinking about the 1.7m savers who are being denied savings incentives due to the net pay anomaly

I am also thinking of the 1m pensioners who do not claim pension credit because they do not understand the system.

I am also thinking of the 600,000 people who get to 55 each year and who take no advice, principally because advice has become the preserve of the mass affluent.

The social issue with the payment of tax relief on pensions advice (and all the cross-subsidies) is that it gives to those who have and is paid for by everybody.

“Nudge” at St James Place

The system employed by SJP to minimise the pain of financial advice is very successful and has been in operation since 1970 when Hambro Life set up in Swindon. SJP, whose HQ is five miles out of Swindon, has refined every aspect of the system so that clients are nudge through it with the minimum of friction.

So friction-less is the experience that it wins accolades from its clients and outstanding customer service ratings.

SJP service

But as Michelle Cracknell often reminds me, the quality of the experience can leave you penniless (Michelle was referring to the high level of service from scammers –  I am not).

SJP do produce great service and their recent AVA is a very high quality document, but a value assessment needs to consider opportunity cost.

The opportunity cost of the SJP production values is seen in the shortfall in funding in areas of public life that SJP need not concern themselves with.

SJP are in fact hugely philanthropic and have one of the highest levels of payroll charity giving in the country, but they can afford to be, blessed as they are with the excess wealth not just of their clients but from the Treasury’s tax rebates.

“Nudge” at SJP is not about creating better savings behaviors but about reducing the disruption of the sales process. So long as partners can rely on being paid from charges contingent on clients moving wealth to their management, then the complicity of the vertically integrated tax cross-subsidy will continue another 50 years.

SJP and firms like it will have to change.

I do not consider that SJP can continue to charge as it does (both in quantum and manner) indefinitely. So far it has reacted to criticisms by taking away the foppery of adviser incentives but they have nothing to address the fundamental governance issues  that flaws their revenue model.

So long as the governance within SJP is flawed, then attempts by Robert Gardner and others to embed ESG into the fund management process, will be compromised.

The eye-wateringly high charges quoted aren’t even the end of it. Because SJP is employing active management, the funds they use create high transaction costs on top of the stated charge.

Everything that leaves the pension fund, is subsidized by the tax-payer through pensions tax-relief and as we can see , this means something in the region of £2bn is diverted from private pensions to pay for some form of inter-mediation or other.

This is the real issue at SJP and it can’t be solved on the golf course.

SJP Golf 2

Posted in advice gap, age wage, dc pensions, pensions | Tagged , , , , | 1 Comment

Are you or your parents missing out on pension credits?

Posted on July 17, 2020 by henry tapper

Martin-Lewis.jpg

This article is important. We urge people to save for retirement but for many people retirement is already here and things are going to be tough as the economic impact of the pandemic hits us all. So it’s good to be prepared. If you – or those close to you, are pensioners , this article is for you. 

One million pensioners could be missing out on £3,000 a year in the form of pension credits, Martin Lewis has warned.

The consumer expert has issued an urgent message to all retirees as the government prepares to revoke free TV licences for over-75s next month.

Martin Lewis said one million families are currently missing out on pensions credit – and many of them are struggling financially as a result.

If you’re over state pension age, live in the UK, and earn less than £173.75 a week as a single person or £265.20 a week as a couple, including pensions, savings and work, then you could be entitled to a top up.

And those who qualify may be able to unlock thousands of pounds worth of additional savings, such as the free TV licence for over-75s.

From August 1, free TV licences will only be available to those who claim pension credit – so now is the time to check if you could be eligible.

The BBC already announced that the free service was being scrapped last year, however a two-month delay due to coronavirus means it’s now due to be axed next month.

Pension credit is an income-related benefit aimed at people over state pension age 
The average weekly pension credit payment is £58 – more than £3,000 a year

As well as free access to TV, those who claim pension credits may also get a council tax reduction, £25 a week off their gas bills, free dental care and a £140 warm home discount to cover their winter bills.

Those who wear glasses may also qualify for vouchers worth up to £215 as well as housing benefit to help cover rent payments.

The scheme, which is run by the Department for Work and Pensions, is not automatic – meaning you will have to apply and be assessed first.

It’s largely available to those who live in the UK, have reached state pension age (your partner must be at state pension age too) and have less than £10,000 in savings (if you have more, you may get a reduced payment instead).

You can apply via Gov.uk if you’ve already claimed your state pension, but otherwise you’ll need to phone the Pension Service on 0800 99 1234.

From August, free TV licences for over-75s will only be available to households where someone gets Pension Credit.

But more than a million of society’s poorest families miss out on the benefit despite being eligible.

You can download the Daily Mirror’s full guide on who can claim pensions credit, here.

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A new hope

Posted on July 17, 2020 by henry tapper

Ian con

Con Keating and Iain Clacher

Amazon commenced trading in 1995. It has proved a remarkable success; its market capitalisation is now around $1.5 trillion. That year also marked the debut of the modern era of DB pensions regulation with the Pensions Act 1995 (PA95) as its keystone; it was informed by the earlier Goode Review at a time when DB arrangements were the dominant form of occupational pension, and taxation of surpluses was an issue. Unlike the performance of Amazon, the success of DB pensions regulation in the UK is highly questionable looking back at the consequences of the past 25 years.

The years since have seen a welter of further regulation motivated by the shortcomings of the last piece of regulation; a trend that had continued unabated. These successive pieces of regulation have proved inordinately costly to corporate sponsors. In the period since 2009, for which consistent statistics are available[i], some £160 billion in special contributions alone have been paid into deficit recovery, with no discernible impacts on deficits or member security. Taxpayers have borne about £30 billion of this cost (See Box 1) and occupational DB provision is now marginal.

Box 1

 

The over-arching and all-consuming concern of government has been the security of member pensions. The cost of the regulation to “protect” members has resulted in the closure of DB schemes to new members and future accrual on a grand scale. The principal concerns that drove this regulatory tsunami were abandonment of the scheme by an employer and sponsor insolvency.

Of course, the presentation of this regulation as enhancement to pensioner security could be relied upon to find parliamentary support – pensioners vote. Scheme abandonment was precluded, effectively, by the 2003 debt on employer legislation and the valuation (in wind-up) of liabilities for solvent employers was raised to the level of buy-out.

Section 75 of PA1995, which deals with deficiencies on winding-up is a particularly good indicator of how legislation has moved the goal posts over time. In its original form, it is innocuous. It precludes pension debts from having priority over other general unsecured creditors and requires liability values to be calculated in the prescribed manner, and that prescription was contained in the associated minimum funding legislation, and the Actuarial guidance notes 19 and 27. These notes specify the selection of discount rates and include different rates for pensioner liabilities to those for other members. We have previously criticised prescribed methods extensively in a range of commentaries and publications, and describe out in Box 2, what is the correct discount rate for the estimation of the present value of DB liabilities.

Box 2

The Pensions Act 2004 (PA04)

Since the introduction of PA04, its subsequent scheme funding regulations, provided a new regulatory architecture, creating a new Pensions Regulator and the Pension Protection Fund (PPF). Under this regime, section 75 liabilities became full buy-out for both solvent and insolvent companies at wind-up, and with that, any pretence of equitable treatment of the other creditors of an insolvent firm was no more.

The scheme funding requirement is based on “technical provisions”, which are upwardly biased estimates of liabilities, and are erroneously heavily dependent upon market yields and asset prices. The result is that as interest rates have fallen, liability valuations, but not pensions themselves, have exploded, and schemes have progressively followed defensive asset allocation strategies. More importantly, in the context of the retirement outcomes of future generations, schemes closed to new members and future accrual in droves, replacing some level of security in retirement with what was at the time lacklustre DC.

Throughout this period, the Regulator’s emphasis has been one of ever more funding, motivated in part by its statutory requirement to protect the PPF. The missing objective[ii] for the Pensions Regulator is the absence of any requirement to promote the ongoing provision of high-quality affordable occupational pensions (and this did not have to be DB).

In looking at the history of how we arrived here, we could be criticized as having a rear-view mirror to pick holes in what was well meaning regulation. And who could have predicted the outrageous largesse of central banks to encourage moral hazard, maintain property prices, and keep zombie companies afloat. However, the game of discount rates was clearly identified in the Myners Review in 2001 in relation to the Minimum Funding Requirement:

“For that reason, it does not agree with proposals for a standardised test, even if it were only applied to some portion of the benefits. This would still create artificial incentives to match the assets used to generate the discount rate for the liabilities.”[iii] 

In looking at The Regulator’s proposed new DB Funding Code, we now have foresight from before the 2004 Act that identified the gaming of incorrect discount rates; we have the hindsight of the past 15 years or so and the significant economic consequences of not understanding discount rate game; and today we have foresight as to what will most definitely come under the new Code.

Simply put, the new Funding Code is all concerned with management of the ’end-game’; a world where DB is dead in all but a few places. Self-sufficiency, the elimination of dependency upon the sponsor employer, is the new objective. It will require further funding on a massive scale. The PPF currently reports a total deficit[iv] (for schemes in deficit) to the section 179 value of £290 billion, and that is likely an under-estimate of complete self-sufficiency. Further funding on this scale would be an economic and fiscal disaster. Perhaps, the least of this would be the loss of £60 billion in corporate tax revenues.

A New Hope

However, there is now hope that the worm has finally turned. Baroness Bowles of Berkhamsted introduced an amendment, which was adopted, to the current pensions Bill, which would require:

(a) schemes that are expected to remain open to new members, either indefinitely or for a significant period of time, are treated differently from schemes that are not;

(b) scheme liquidity is balanced with scheme maturity;

(c) there is a correlation between appropriate investment risk and scheme maturity;

(d) affordability of contributions to employers is maintained;

(e) affordability of contributions to members is maintained;

(f) the closure of schemes that are expected to remain open to new members, either indefinitely or for a significant period of time, is not accelerated; and

(g) trustees retain sufficient discretion to be able to comply with their duty to act in the best interests of their beneficiaries.

Hope springs eternal.

quote-hope-springs-eternal-in-the-human-breast-man-never-is-but-always-to-be-blest-alexander-pope-23-43-50

[i] The Pensions Regulator has compiled deficit repair contribution aggregates only since 2009. The ONS reports a closely related statistic, total special contributions. They are closely related. The principal difference would arise from sponsor contributions to scheme annuitisation in buy-out or buy-in transactions. From the ONS figures, it appears that deficit repair contributions from 2004 to 2009 may have totalled some £40 billion.

[ii] The Pensions Act 2014 did introduce a requirement for the Regulator to minimise, for funding purposes, any adverse impact on the sustainable growth of the employer. It has had little obvious effect.

[iii] See, Paragraph 67, Page 12, of Institutional Investment in the United Kingdom: A Review, 2001.

[iv] Analysis by the Regulator of the latest tranche of valuations suggests that had they all been conducted as at the end of period, March, date, sharp rises in deficit repair contributions would have been warranted,

Posted in pensions | 13 Comments

Opperman – pensions are for the long term

Posted on July 15, 2020 by henry tapper
guy online

Opperman at the PP Conference – July 14th

 

It was good to see Guy Opperman speaking at Professional Pensions Live. This is my take on his speech and the direction of Government pension’s policy as we come out of lock-down and into the summer recess!

Recently Guy  and Flora Opperman lost their twins at birth. We are all mindful of his and his wife’s well-being. It was good to see him back in action yesterday and speaking about the long term. Yes we need pensions in the long-term but we also need a long-term pensions minister. We seem to have one.

The long-term future of the planet (bouncing back)

The long-term was the theme of Opperman’s address and at the heart of it, as had been the case when he last spoke in public to the PLSA in March, were his words on TCFD and the reporting on ESG in general.

For the three minutes he talked of “building back better”, Opperman seemed to be enthused by the certainty of his being right – he sounded like a man on a mission. He argued that even where a scheme held nothing but Government and corporate bonds, the threat of climate risk to the creditworthiness of the assets sill needed to be tested.

He talked tellingly of the impact of sustainable investment on the employer covenants of some DB schemes and he talked of the threat to member outcomes where DC schemes do not properly protect members against the risks posed by the environment, social changes and poor governance, Quite clearly, his heart is in the sections of the Pensions Schemes Bill that demand strong TCFD disclosures from trustees. Trustees be aware, the Minister is not for turning by PLSA or TPR,pls

A spectrum of option for employers

It is clearly in Guy Opperman’s head that he is building a range of options for employers providing pensions for their staff. He talked of the Pension Regulators “flexible” Db funding code. I can’t see much flexibility in it myself (its Fairs-way or the highway) but perhaps he was referring the Bowles Amendment going through to the Pensions Scheme Bills which will give DB schemes the chance to have a long-term future if they want. More on this shortly.

Opperman’s support for CDC was stoutly defended. It needs to be as we have not seen much enthusiasm for CDC outside Royal Mail (and this blog). Opperman talked of CDC being neither DB nor DC which is dangerous talk, it most certainly is a DC variant, losing CDC into the mess that Steve Webb created with the “many flowers” Defined Ambition nonsense, would be a mistake.  Instead the Minister would be well advised concentrating on DC as a means of sorting the outcomes of the hundreds of thousands of savers who will be constipated spending their savings (even with the investment pathways).

As regards consolidation, Opperman is clearly a collectivist. His wrestling through of the superfund agenda, against the ABI lobby and Treasury opposition is a personal triumph, There is a consultation on superfunds and illiquids but we are unlikely to hear on it till September, the job is already done. If I were Eddy Truell, I would be gratified to hear the Minister proposing superfunds as a home for the kind of long term investments that Opperman has been promoting, Surely Opperman is right to see long-term run-off funds , annuity backing and open DB as the homes for illiquids. Let’s hope that the charge-cap consultation puts paid to illiquids in DC.

The spectrum for employers starts with closing DB and running DC,  consolidating DB into superfunds, buying out DB with an insurance contract right the way across to keeping DB open (Bowles)and going forward with CDC. So long as all employers are on the spectrum, I support  that.

Pension Bill and consultations keeping the Department busy

Clearly there are too many consultations outstanding. The Minister listed 6

  1. the call for input on the charge cap(rather dismissively referred to as “meeting a manifesto pledge” – this doesn’t seem one that the Minister’s too excited about
  2. jargon free simple pension statements– apparently the response is weeks away, this is all about whether the statements will be allowed to say something meaningful on costs and charges. There were no questions on this so the Minister wasn’t drawn,
  3. aforementioned consultation on illiquids – kicked back to September
  4. consultation on superfunds – superseded by interim regs
  5. trialing for the self-employed (this sounds as successful as tracing on the Isle of Wight). This is a dead end for Government and needs re-thinking
  6. financial inclusion work – I wasn’t clear if this was a current consultation or an ongoing nag from a minister with “inclusion” in his title. The current focus seems to be on employers

(links are to blogs on here dealing with the underlying issues)

Easily the most important item for Government is seeing through the Pension Schemes Bill. In line with his mantra of pensions being for the longer-term, Opperman told those on the broadcast that there was unlikely to be much opposition from Jack Dromey, the shadow pension minister, apparently pensions are too long-term for politics.

The big ticket items in the bill now include many Lords amendments and Opperman did not make any statement on whether he was similarly as one with Ladies Altmann, Drake and Bowles. I wouldn’t be surprised to see some push back on the amendments 52 and 63 to the pensions dashboard. By and large the Lords debate (which ends today with the third reading, has been one of the most interesting discussions of pensions I have seen in the past twenty years and when we have this Bill as an Act, it will be the better for them.

The speech started with a drum-roll for Rishi Sunak’s support for auto-enrolment. The broadcast ended with the Minister losing bandwidth as he was asked about pension taxation. We now know we should blame 5G and Chinese intervention not the Treasury.

It didn’t spoil an interesting and engaging appearance.

5g

did bad luck, the Treasury or 5G stop the Minister from commenting on pension taxation?

Posted in advice gap, age wage, Dashboard, open pensions, Pension Freedoms, pensions | Tagged , , , , , , | 1 Comment

Workplace pensions fall short over “at-retirement support”

Posted on July 14, 2020 by henry tapper

At Retirement Support (with its unfortunate acronym) is not high on workplace pension provider’s priority lists and this is reflected in this survey published by Pensions Expert in an article by Stephanie Hawthorne

ars

The survey, conducted by Broadridge, was of 152 employers. Several employers said they would switch providers if their incumbent did not improve its service to staff:

“Member experience is a vital issue for us – if our members are not being supported then this is a big problem, and would encourage us to switch.”  one employer told Broadridge

The dilemma – too much choice – too little support

Few people are formally retiring right now, of the 650,000 of us who reach 55, the earliest point at which we can access our savings, only a tiny number will leave the workforce. For most of us, the future will be one of changing work patterns and uncertainty. This uncertainty is worsened by the impact of the pandemic and the end of furlough in October.

The dilemma for many who have been saving into workplace pensions will be that they have too many choices.

The FCA recognizes that many savers in workplace pensions will not have access to advice as to what to do and are likely to be vulnerable if they have access to their pension savings but no clear retirement plan, I have likened these savers to ships sailing through the Strait of Hormuz, laden with oil, under threat of scams , with precious little support.

They have tasked the providers of contract based workplace pensions to provide the unadvised who reach 55, with four simple options from which to choose

  1. Keep your money invested for later
  2. Take your money now
  3. Convert your pot to an income for life by buying an annuity
  4. Start drawing down your pot as an income

Where support is available

Pensions Wise offers straightforward help to anyone over the age of 50, needing to understand their options. We suggest everyone books a Pension Wise interview, it is the platform for future action

The providers of workplace pensions should be competing for your attention at this point . But as the survey shows , they are not geared up to meet the demand for aggregation. This is why pension aggregators like Pension Bee, Open Money and Profile Pensions have proved successful.

But we think that more is needed than can be provided through Pension Wise or its parent the Money and Pension Service

A universal application to help

At AgeWage, we are targeting our service to help people who are at that point of their life when they are needing to turn pension pots into retirement plans.

We think there are a number of simple things they can do , using a simple universal app.

  1. Find pension pots , understand their value and make a plan to bring them together
  2. Model their likely income in later life using simple software
  3. Look at the income that could be had from purchasing an annuity
  4. Take financial advice where necessary

We are expecting to trial this app with a group of nearly 500 testers . We are hoping to do this within the FCA’s sandbox and to track and trace how our users react to the options made available to them. We hope to pass on the results to the FCA and to the Pension Dashboard Program.

You can join us

If you are interested in helping those people who are approaching an uncertain future with little support, you might like to help to test our app yourself. We still have space in our user group. The work will take 2-3 hours and in return for your working with you, we will help you to find your pension pots, understand what you are saving into and give you easy next steps for the future.

Who knows, we might even be able to help some of the providers of workplace pensions who appear to be struggling.

To join the test group mail henry@agewage.com

agewage evolve 1

 

 

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An alternative to the dystopia of “pension de-risking”

Posted on July 13, 2020 by henry tapper

 

 

dystopia.jpg

Positive alternatives to de-risking are emerging

 

One interesting thing about this episode is that we have seen the Pension Regulator’s preferred view ahead of the final legislation itself. Their usual defense of ”It’s the law that Parliament decided, and we are only implementing it.” has no clothes.

The missing statutory duty, to promote high-quality pensions, has allowed them to preside over and encourage the wholesale closure of DB schemes. This is a good first step towards rectifying that oversight. – Con Keating  comment

The wholesale closure of the corporate defined benefits schemes that were quite recently described by Frank Field as Britain’s economic miracle, will be considered by history an economic act of cowardice.

Once corporates were convinced of the short-term advantages of moving from open DB pensions to workplace DC pensions , the pensions agenda moved to the flight-path to buy-out. Provided the compliance officer approved, anything that improved the price of pensions on the balance sheet was justified by “de-risking”

The dystopia of de-risking

In the name of de-risking, schemes have been denuded of members through enhanced transfer value “exercises”, pensioners denuded of pension increases through “pension increase exchanges” and members have been persuaded to swap  pensions by vertically integrated financial advisers for what Steve Webb used to call “sexy=cash”

Companies have been able to book substantial improvements to their balance sheets from all this but are now faced with the consequences of over-paying for the de-risking. In the end, the accounting trickery is catching up with them.

The real money that has left our DB schemes has often  been squandered on over-complex, over-priced investment solutions that feed the wealth management industry. Now the advisers are subject to various reviews from the FCA. The advisers are also being pursued by claims against their PI from FSCS and these are likely to be accompanied by private litigation organised by legal firms as class actions

This great program of de-risking has been organised by corporate pension advisers, legitimized by pension lawyers and nodded through by scheme actuaries and consultants. All has been in the name of de-risking.

The “Mr Bigs”of this sit in the glass-fronted offices of More Place, Canary Wharf and the City of London and ,unlike the small-time IFAs, appear invulnerable even to criticism.

in all this , the interests of the former beneficiaries of the pension schemes are now looked after by firms whose continued existence is put in doubt by the weight of transferred money under management.

Putting things right

As Con Keating points out , the Pensions Regulator has fallen in line with the market’s position on de-risking and revealed in its DB funding code that it has no interest in those

  “who have found good ways to make their DB schemes flourish and last”.

There is no likelihood that change will come from the offices of those who have benefited from the closure of DB. Change is likely to come from outside the tent.

The quote above is  from Sharon Bowles’ summing up of her argument for an amendment to the Pension Schemes Bill which allows open defined benefits not to de-risk but to invest for the future. You can read her argument here.

Her amendment was successfully passed in the Lords and I hope it makes it to the Pension Schemes Act .

There is an alternative to de-risking and it’s one that is likely to find more favor as a result of this pandemic. Rather than de-risking the pension schemes we spent 60 years building, we should be de-risking the members of DC pensions by focusing on what we did right for them when DB schemes were working.

This means looking at open collective arrangements ,whether DB or DC and promoting them , not as finite, but as open.

CDC lifecycle

Where DB is open, let it stay open and where DC is failing, let’s find ways to recreate the a collective approach which shares the risks between the members.

In a very real sense , funded pensions work when we’re all in it together. De-risking destroys collectives and requires people to go it alone. That doesn’t work.

If we want a more open , financially inclusive, pension system – we have to keep pensions open and collective.

Posted in actuaries, advice gap, de-risking, pensions, Retirement | Leave a comment

Boohoo should test how much we want our money to matter

Posted on July 12, 2020 by henry tapper
nasty

Fast Fashion and fast profits

Are you wearing any of these brands?

boohooMAN,

PrettyLittleThing,

Nasty Gal

MissPap.

Karen Millen,

Oasis

Warehouse.

Probably not – Boohoo targets the 16-24 year old fashion market and is principally bought by young women. Happily young people have better things to do than read my pension blogs. Speak out if you are a young reader – my comments box needs you!

Boohoo has done very well out of the pandemic as it sells its clothes online.

Boo hoo 2

But the sharp decline in Boohoo.s share price in the past few days is explained by an expose in the Sunday Times last weekend.

Boo hoo

Boohoo has been found to be sourcing many of its garments from businesses which are not paying the minimum wage and are allowing employees to subsidize the cost of labour by claiming universal credit.

The conditions in which people are working to make Boohoo garments and the principle town making these garments in the UK is Leicester.  Leicester has a very fine university , a great football club and is held up as one of Britain’s multi-cultural success stories. But Coronavirus doesn’t do hype. The conditions people are living and working in – in Leicester is thought to have created the second wave of cases and the BBC has shown that it was demand for fast fashion garments sold over the internet that has created these conditions.

While there are several rivals to Boohoo, it is Boohoo which is the principal purchaser of garments made in Leicester.

After a wave of allegations over illegal conditions — including a groundbreaking FT investigation in 2018 — fashion retailers such as Asos, New Look and Missguided reduced their reliance on the city. Boohoo, by contrast, maintained a significant presence.

Manufacturers said most of the city’s output goes to Boohoo and its brands, such as Nasty Gal and Pretty Little Thing. The retailer sources around a third of its stock there, with orders worth at least £100m last year, according to FT analysis of company filings. – Financial Times

I want to make my money matter

Whether we spend our money buying Boohoo shares or  buying Pretty Little Thing blouses, we are accidentally triggering trouble for Leicester and in particular the people who work in the garment factories.

And people who what their money to matter, including many of the 16-24 year olds who are wearing the brands I’ve mentioned may well be asking themselves whether they haven’t been “nasty gals”.

The fund managers that invest in Boohoo may be having interesting conversations with their ESG teams and working out their exit strategies, or not. Boohoo , even after the falls in its share price over the past few days, is still trading around the level it achieved prior to the pandemic.

If Richard Curtis and his team want to test the capacity of the pension industry to practice the ESG principles it is preaching, then it should be getting fund managers to read the FT’s excellent explanation of

How Boohoo came to rule the roost in Leicester’s underground textile trade

Either the exposes in  the Sunday Times are false (and Boohoo is currently denying wrongdoing), or they are correct. If correct then Boohoo stock can only be held on a promise of an immediate change in its business model with management looking hard at their impending 150m GBP bonus and Boohoo accepting operating margins will fall or prices will rise.

The challenge is not just to Make My Money Matter, it is to the funds industry who, in holding Boohoo, but doing nothing, is accepting either that Boohoo is right or that their ESG policies are only cosmetic.

People matter more than prices

The human cost of poor labour practices is  just felt in the mainly Asian communities that work in the factories. They are the people in Leicester’s hospitals and we know that BAME communities suffer disproportionately from COVID-19 when they get to hospital. Black lives matter.

Everything else, the reputational damage to Leicester, Boohoo’s share price, the impact on the performance of Boohoo invested funds is of no importance relative to the lives of the people infected by COVID-19 in Leicester.

So I don’t just want to see a statement on this from Richard Curtis, I want to see statements on Boohoo from the ESG teams of all the leading fund managers.

Because how we conduct ourselves in business in this country matters , most of the fund managers are signed up to UN Sustainable Development Goals

sustainable development goals.png

To my mind , Boohoo are not living by the UN sustainable  goals and their stock and debt have no place in funds that are run along ESG lines.

Boohoo are about fast fashion, let’s hope they can be fast to change their business practices and make sure that they are paying prices for their garments that ensure the people who make them do so on at least the minimum wage and in conditions that are safe to work in.

Posted in ESG, pensions | Tagged , , , , , | Leave a comment

What it’s like to be in hospital right now.

Posted on July 11, 2020 by henry tapper
Cancer centre.jpg

Where I stayed – up the top!

From Sunday to Tuesday this week , I was in the Cancer Center adjacent to Guys Hospital having work on my bowels under general anesthetic. My surgery was “elective” rather than “emergency”. I had had emergency surgery for the problem a year ago. Last year I was treated by the NHS, this year I was treated by the same surgeon but this time privately. I will not pretend I had much choice, it was private or wait.

Since my condition could have created complications that could have been life-threatening and having waited already, I took the plunge. I hope that by doing so , I did not stop someone more in need than me – from getting treatment. You may judge me selfish and I will have no defense if you do.

A blog for Peter and Paul – take courage.

This blog is about being in hospital in the pandemic and I don’t think the slightly cushier conditions of a private room rather than a general ward made much difference to me. I didn’t watch my television , I used my own wi-fi and though the attention I got was exceptional, it was exceptional in the NHS ward last year.

What I want to convey is the relief I now feel for having had the procedure, my gratitude to the nurses , doctors and my surgeon Mr Nair, and encouragement to those who are going into hospital, have friends and relatives going into hospital or who are fearful that they may have to go into hospital as a result of the pandemic.

My message is to be fearless and brave, use our medical system, whether NHS of private.

I have two friends, Peter and Paul who are staring death in the face with terminal prognosis. Dear friends, I cannot give you comfort for your long-term future though my faith tells me there is beauty ahead, but I can comfort you that you will find your hospital a kind and loving place despite the strangeness of the time. Peter and Paul, may you have courage.

What is hospital like right now?

There are big differences between hospital now and a year ago

  1. You are quite alone, you arrive and leave alone , you have no visitors
  2. You are subject to COVID-19 conditions – meaning you have to wear PPE
  3. You are aware that any risks are exacerbated by the risk of catching the pandemic, you self-isolate before and after

The lack of visitors is not so much an issue for a short stay like mine, but it is still significant. You are frightened and in need of love and the web cannot quite replace a physical visitor. However, my short-time suggested to me how much more severe the mental fatigue of loneliness must be for those on longer stays and in particular for those in residential care, who may not have seen loved ones for months. I wrote about this in relation to dementia earlier in the week. I found making my way to and from hospital quite scary, especially as I was self-isolating, it is something to mentally prepare for.

The need to wear PPE at all times is acute, there is no alternative and you are constantly aware of COVID-19. It was only in the operating theatre that I saw full PPE and it was frightening to see, it must be frightening to spend your day under full PPE conditions. However, I felt , four months into the pandemic, that the hospital had so adapted to PPE that it did not feel strange. Although the conditions were different from my admission last year, COVID-19 did not make an appreciable difference to my stay.

But the two weeks of self-isolation and the weeks following (including today) are really difficult, Britain may be coming out of lock down but I and Stella are not. The support of my partner has been critical to my well-being, I am very mindful that not everyone has that support. In many ways it has been the build up and the coming down from my stay in hospital that have been most difficult.

Some lessons I am learning

Firstly it is important to support yourself , to think positively and not be dragged down by thoughts of opportunity cost in terms of what you might otherwise be doing.

Secondly it has been important for me to remind myself of why I elected from surgery, I fear that many will not present their symptoms. If you are one, please don’t be frightened – use the healthcare system.

Thirdly, be kind. I noticed that every one of my nurses and doctors wanted to be kind to me, and when I found ways to be kind back, there was so much more love . To all my nurses and doctors, thanks for being kind – and thanks for your great expertise and patience.

Finally – thank God. My thanks to those in my church who prayed for me and my thanks to my loving father who looked after me. I was able to attend a virtual service at Wesley’s Chapel minutes before my operation and I thank my Church for the support I got. Add to this the  many good wishes of my friends , I  now see how I took courage from the love of others

For those who do not have these things

As you can see , I have been very blessed, but the majority of patients in hospital with me did not have it so easy. There are many suffering at home waiting for treatment and many who have not sought medical help for many reasons.

I hope that if you are one of these and are reading this blog, you take courage and take action. For those like Peter and Paul, may you take courage. May we all be kinder.

Let’s take comfort in whatever way we find to get us to that that spiritual love which provides us with consolation .

Let’s pray for each other and for the world!

wesley-3

Where they prayed!

 

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Support the young , we are done!

Posted on July 11, 2020 by henry tapper

I realized , as I filled in my submission to the Pension Dashboard Programme’s call for input (you can do yours here), that for my generation, the boomers, the dashboard will arrive too late. Most of our pensions are either in payment or meaningfully managed by advisers. The less affluent are more in need of help with benefits than managing their savings.

Dash 5

I am a boomer, my pensions are coming into payment. I have access to advice as I am in the mass affluent part of boominess. Those less fortunate are more likely to need help with benefits than managing their savings, their financial affairs are going to be organised around the state pension, universal and pension credits and (if they are lucky) unlocking the value of their house.

Dash 4

For the generation that follows me, pensions are so complicated that the dashboard is likely to be overwhelmingly complex. If the pensions dashboard is built around the needs of Generation Y , educating them  to understand their pensions, I fear it will not deliver in time . I explain this further later on.

Dash 3

For this generation, the pensions dashboard can be of help and I suspect it will arrive in time for them. In our submission , I point out that millennials started taking out pensions at the time when stakeholder pensions arrived. They may not have joined DB plans and if they did, they did not accrue long enough in them for those plans to matter. This is the first generation that has clean DC and they have most to gain by consolidating pensions into one pot and turning the pots into a retirement plan.

dash 2

For those like my son, who are starting their careers today, the cpncept of a pension dashboard is probably already obsolescent. Whatever happens over the next twenty years is likely to offer this generation options to manage their financial affairs that we cannot currently imagine.

We are done

By the time dashboards are up and running it will be too late for the Boomers. If the dashboard is built Gen X it will deliver too slow and be overtaken by other ideas – there are questions in the PDP call for input that suggest that the PDP are going to take on the complexity of some of the complex pensions owned by this generation

dash7

If the scope of the initial “MAPS” dashboard is to include ERI for multiple tranches of DB pensions, then it will not be a minimum viable product, the dashboard delivery date will way beyond 2025 and for many Gen X ers that will already be too late. The designers of the dashboard (the PDP) could see the whole dashboard project flounder if they focus too heavily on Gen X, Gen X need to become more self-sufficient, use the resources from MAPS, from their scheme managers and take advice.  If the dashboard is to be relevant to them , it will need to help them understand the risks of losing safeguarded benefits from the complex products sold them prior to 2000.

Support the young

There is a generation – the millennial generation for whom the pensions dashboard will deliver. This generation have clean pension policies and lots of them. They want to find their money, manage their pots into one and then set up retirement plans that work for them.

This is a generation without the complexities of DB plans or legacy DC pensions and it is a generation that is currently feeling deprived. Take this comment in today’s  FT (this link is free to read)

dash 1

If the dashboard has an overriding purpose, it is to help millennials get back on their feet.

Support the young, we are done!

There was a time , five years ago, when I thought that a private/public partnership could deliver boomers and GenX the support they needed to manage their pension affairs. I now think this unlikely, those who are by now over 50 need much greater help than a simple dashboard can deliver and if the dashboard is designed to sort out our problems (multiple ERIs with multiple payment dates for instance) then it may never deliver at all.

The insanely complicated pension system is too heavy a load for a dashboard

To the PDP question 7

Are there any segments of the population for whom the majority of their pensions could be covered early by selecting a subset of pension provider/scheme types?

the answer is

Dash 3

This generation should reasonably expect to see all their pension pots on a dashboard within the next three years with some very serious questions to be answered by providers who post 2000 pension policies that cannot API to the pension finder and MAPS service. The minority with occupational DB rights need to have separate conversations with their public sector pension schemes

But we are a long way from getting there. Pension Bee says that most of their customers are still only able to see 60% of their pots through a digital search .

dash 8

If the pension dashboard provides the millennials with a single view of all their DC pots, it will have given a bit of help getting them back on their feet.

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The Care Home tragedy continues

Posted on July 10, 2020 by henry tapper

It’s an unassuming tweet, not shouty like many of the replies, but it calls attention to an issue picked up on by the BBC

Whereas other parts of the UK have adapted to the changing nature of the pandemic, in England there has been no change to the guidance given to Care Homes and to Care Home visitors in April

In April, the DHSC said in a document that all “family and friends should be advised not to visit care homes, except next of kin in exceptional situations such as end of life”.

In Scotland, care homes that are virus-free for 28 days were able to accept visitors from 3 July.

In Northern Ireland, as of Monday, care homes that are free from the virus can allow one person to visit at a time, with a second person accommodated “where possible”.

In Wales, visits have been allowed to care homes and their residents since 1 June, provided they take place outside and 2m social distancing rules and hygiene procedures are followed.

So what is going on in England and how is Government justifying keeping care home residents away from their families to the great distress of both?

Care England are in doubt this is negligence from a Government which has recently criticized the care sector for failing during the pandemic.

Clearly there is frustration on both sides, but caught in the middle are care home residents and their families. Residents are deteriorating for want of the stimulation and affection of their loved ones while relatives and friends grieve that they can’t alleviate the loneliness of loved ones locked inside.

Care homes were hit hardest by the first wave of COVID-19. This is an unseen second wave of suffering. Government could and should lift visitor restrictions in line with the rest of the UK- without delay.

 

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An advert you wouldn’t see in Britain!

Posted on July 10, 2020 by henry tapper

Most UK pension people  will look at this advert (on Linked in) with bemusement, some may think it a scam, but I know the people behind this initiative and that, in Australia, they are in earnest for good. This article looks at a practical solution to a societal issue – our ageing; it asks whether we might see this direct talking in the UK before too long.

jim

posted by Jim Hennington

 

 

Half of baby boomers have already retired. Yet the reforms to improve retirement solutions are still overdue. Most funds still run simple account-based pensions where all risks are borne by members. If they spend to little their savings overshoot what’s needed. If they spend too much (or live too long) they run out. Come on Australia we can do better than this.

Retirement product designs that provide 15% to 30% higher income and cannot run out, are ready. Life Pensions provide older Australians with significant peace of mind compared to 100% account based pensions. Super fund trustees, click here to white label one for your fund

The link takes you to the products features and benefits

opt1

opt2

A classic financial promotion

The first thing I see is classic marketing, the advert speaks directly to the trustees of large Australian Superannuition Schemes and calls on them to incorporate Real Lifetime Pensions into their retirement offering under the Super’s white label.

The product does not interfere with the Super’s fund revenues as it relies on the growth of the super to drive its performance, the product is simply an insurance against individual members living too long and it’s selected by the member against the alternative option of chancing it.

To top it off, it appeals to the nation’s sense of pride in how Australia is managing its retirement risk. “Come on Australia we can do better than this”.

life risk

Why aren’t we doing this here?

 

On the face of it, UK DC plans and their trustees face the same demographic. Half of our baby boomers have also retired.

However there are some differences; firstly Britain still has twice as much invested in DB plans as in DC and the DB plans are paying out to senior white collar workers and , especially to public sector workers – some entire work forces.

Secondly- other than early movers to DB closure, the majority of single employer DC trusts in the UK are still under funded for retirement, account balances of more than 100,000 are still rarities. But these schemes look rich when compared with auto-enrollment schemes where some account balances are barely large enough to pay the levies trustees have to pay. In short there is not yet sufficient need for trustees to take action,

Thirdly- the FCA is holding out hope of a non-advised solution to the dilemma people have when turning pension pot to retirement plan. It’s called “investment pathways” and the Government has commanded providers of contract based workplace pensions and unadvised SIPPs to set these up for April 2021. The UK Government is intervening

Stronger DB -weaker DC and pre-existing Government intervention – that’s why….but

But things are changing, the impact of DB is waning and the DC pots are growing, there is no certainty that investment pathways will prove a success and from the sound of the product design and marketing of investment pathways , there is a good chance it will fail.

If investment pathways don’t turn out the latchkey to post-freedom security, then the search for financial products with “defined ambition” will continue. One ready-made solution may be CDC, which while still to be fully legislated for, is well modeled and could be used to help people manage their longevity risk as the Real Lifetime pension.

The pure CDC product depends for insurance on creating its own mortality pool and doesn’t rely on reinsurance from the market, but in terms of reliance on the underlying investment structure of the CDC scheme to pay a wage in later age, the Real Lifetime pension acts like a CDC arrangement.

And with a degree of flexibility and control in the mix between guarantees and growth – afforded to Super members, the Aussie plan is satisfying the need of many – especially in early retirement – to be in control of their income needs.

Something for the UK to consider

We should watch and see the appetite of Super Trustees to take on the Real Lifetime Pension. I don’t think we are ready to embrace such options yet, nor are we ready to embrace CDC yet, but that should  not make those in strategic roles , dismiss the opportunity .

And even if we don’t directly import Real Lifetime pensions into the UK, we can certainly lean a thing of two from Optimum Pensions about how to market with a straight bat!

jim h.jpg

Jim -the man behind the plan

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Is COVID-19 Seasonal?

Posted on July 9, 2020 by henry tapper

Covid 190

Nicola
Adrian
Matt

Summary

Common coronaviruses, like influenza viruses, are highly seasonal diseases, with cases peaking in winter months. As we move out of lockdown and through the summer months in the Northern hemisphere, an obvious question is whether COVID-19 exhibits seasonality, as this will have a direct’impact on the timing and level of any second wave of infection.

This bulletin considers the factors typically involved in seasonality of diseases, and the research on the likely seasonality of COVID-19. Whilst direct evidence is limited, based on our overview of the research and the data available, we do expect the virus, SARS-CoV-2, to show some seasonality in transmission in the UK and other countries.

It is worth noting that it is difficult to make a strong assertion on this as lockdown will have significantly reduced the number of cases which would otherwise have been experienced in many countries.

A further (directly season-related) complication is that Southern hemisphere countries are now in their influenza season. This means that they are finding it difficult to definitively allocate cases of (and deaths from) respiratory diseases to COVID-19 or other seasonal respiratory diseases.

Introduction

Because SARS-CoV-2 is a new virus, there is no direct evidence of seasonality within an individual country. It is also likely that, with a novel pathogen, typical seasonal patterns of infectivity will be masked because no individuals have been exposed in the past, and possibly also by the evolutionary path of the virus over the early phase of its transmission in humans.

We can make some tentative inferences on the likely drivers of seasonality of SARS-CoV-2 based on the behaviour of other viruses. We can also look at how the outbreak has manifested itself in countries with different climates.

Drivers of seasonality

Influenza transmission has been found to be enhanced by cold and / or dry air , and increases in risk of SARS is linked to sharp changes in temperature .
The transmission method of SARS-Cov-2 (predominantly via respiratory droplets and aerosols) is also indicative of likely seasonality, because it is harder for viruses transmitted in this way to spread in more humid conditions. Again, an inverse relationship between infection and relative humidity has been seen in studies of other coronaviruses (SARS and MERS).

Studies have also shown that the survival time of coronaviruses on surfaces depends on temperature, suggesting that this may be afactor in disease transmission.
Whilst there have been a number of studies carried out on the impact of seasonal factors such as temperature and humidity on the COVID-19 outbreak; most are based on experience from early in the outbreak and hence have relatively little data. Alongside these studies, we can also look at the spread of the COVID-19 outbreak across countries with different climates
One such study  found that 83% of testing and 90% of cases had been conducted in non-tropical countries, meaning that a simplistic reading of the statistics relating to temperature and humidity could be misleading. However, even at an early stage, several countries between 30°N and 30°S (including Australia, Singapore and Japan) had carried out extensive testing.

Because positive COVID19 tests were lower per capita in these countries, the role of climate and seasonality should be considered.

Temperature

A study of COVID-19 transmission in Chinese cities in January to March (link) found no association with either temperature or UV radiation. This study estimated the basic reproduction number (R 0 ) for 62 cities, 50 outside Hubei and 12 inside.

The authors hypothesised that warmer seasons were likely to lead to lower reproduction numbers, but the data did not support this – the paper also cited a similar outcome from analysis of the MERS epidemic.

A study analysing 749 locally acquired cases during the early epidemic phase in New South Wales, Australia also found no link between temperature and increased numbers of cases. This study also included analysis of the impact of humidity which is summarised in the next section of this bulletin.

On the other hand, a study  of transmission in cities in Brazil, again early in the epidemic
(February 27 to 1 April) showed that transmission was at its lowest for temperatures below 25.8°C, with each 1 degree rise in temperature up to 25.8°C being associated with around a 5% decrease in the number of confirmed cases of COVID-19.
A third study , using data up to 10 March, compares 8 cities with significant COVID-19 spread with 42 cities which either had not been affected or did not have substantial community spread. The study found that the most affected cities were located within a narrow geographic band (broadly 30°N to 50°N) and that they had similar mean temperatures (between 5°C and 11°C). This study suggested that, based on climatic conditions in March and April, community spread was likely to affect areas north of the existing areas at risk. In particular, Eastern and Central Europe, the UK, the
Northeastern and Midwestern United States were areas mentioned as being at risk during March and April

In addition, recent clusters of reported cases of COVID-19 in meat packing facilities in Germany and the United States are also indicative that temperature and humidity are likely to be factors in the spread of COVID-19 – the environment in these facilities is cold and humid; with people working very close together.

Humidity

Humidity is a measure of the amount of water vapour in the air. Typically, warmer air can carry more water vapour than cooler air, given a significant amount of available water. Relative humidity is the most common measure used, measuring how close the air is to being saturated. If relative humidity is at 100%, then no more water vapour could be contained in the air at that temperature.

The physiology behind relative humidity and infection is not fully understood or proven, but it is hypothesised that we may be less able to clear our airways of trapped pathogens at lower relative humidity, whilst there may be more aerosolised virus at higher humidity, and hence more exposure opportunity.

The Australian study noted above suggests that lower relative humidity (but not rainfall and temperature) was associated with increased numbers of cases, with a 1% reduction in relative humidity being associated with an increase of 6% in COVID-19 cases. It is worth pointing out that this study was carried out under the conditions of higher temperatures in the southern hemisphere summer.

This review  gives a slightly different view, setting out that transmission could be lowest between relative humidity levels of 40% and 60%. In addition, the third study noted in the temperature section above found that, as well as having similar temperatures, the worst affected cities had similar levels of absolute humidity.
In the UK, the winter months typically have the highest relative humidity – in the summer, humidity is lower but not sufficient to mean that our ability to clear our airways is inhibited.

Biological / behavioural aspects

Human behaviour differs significantly by season – in summer months, people tend to spend more time outside. This can lead to higher concentration of vitamin D (which may be associated with lower susceptibility to infection). It also means that individuals are naturally more socially distanced (on average) than in winter months when people tend to be indoors and often in poorly-ventilated public spaces.

People also tend to have higher physical activity in spring and summer compared to
winter. The human immune system also appears to experience seasonality, with higher vulnerability to infection in winter months. It has been suggested that this is either due to vitamin D or seasonality of melatonin production.

Overall, these factors are likely to mean that many viruses (including, presumably, SARS-CoV-2) are less likely to spread as quickly in summer than winter months.
International comparisons In the temperate regions of the northern and southern hemispheres, influenza transmission is at its highest in winter months – typically peaking in December / January in the Northern hemisphere, and August in the Southern hemisphere. (As an aside, Australia has seen a much lower level of flu in 2020 than in previous years, apparently due to fewer travellers from the Northern hemisphere
bringing in infections, combined with social distancing measures).
The pattern in tropical and subtropical countries is somewhat more complex. Research suggests that most of South America plus South Africa, India and much of Asia, have a primary season in April to June. Central African countries typically have primary seasons in July to September or October to December, and Northern African countries in October to December or January to March

Looking at the spread of COVID-19 across the world (for example via the charts produced by Conrad Edwards which we have previously presented (link, and shown below)),whilst the outbreak in Europe was significantly later than a typical flu season, the fact that recent significant outbreaks have been in Southern hemisphere and tropical countries (see for example Brazil, Singapore and South Africa) appears to align well with what might be expected from a seasonal virus.

It is of course very difficult to draw strong conclusions from this observation, particularly given the likely impact of social distancing and lockdown on outbreaks in the various different countries.

brazil2

Conclusion

As we set out above, studies that have looked to investigate the impact of seasonal factors on the transmission of SARS-CoV-2 have not shown consistent results; however, the pattern of cases and deaths in countries with different climates does appear to be indicative of seasonality in disease transmission.

For Northern hemisphere countries, seasonality is likely to mean that infections will remain at a relatively low level over the summer months, despite the easing of social distancing and other non- pharmaceutical interventions (NPIs). However, if it does not prove possible to keep the number of infections to a very low level, we would expect to see a second wave of infection in the winter months, which is likely to need to be mitigated (via test, track and trace if this is feasible, or by re-applying some NPIs), and lead to additional excess deaths.

Alternatively stated, whilst a low level of circulating SARS-CoV-2 in the UK during the summer will be welcome, it should not be assumed that higher numbers of cases will not return later in the year. It is also important to note that a seasonal resurgence in SARS-CoV-2 and subsequent COVID-19 diagnoses would coincide with the influenza season, meaning that hospital and other medical resources may be stretched. Of course, only time will provide us with the bigger picture.
8 July 2020

References:

Ward, M; Xiao, S; Zhang, Z The role of climate during the COVID‐19 epidemic in New South Wales, Australia 
Bloom-Feshbach K, Alonso WJ, Charu V, et al. Latitudinal variations in seasonal activity of influenza and respiratory syncytial virus (RSV): a global comparative review. PLoS One. 2013;8(2):e54445.

Bukhari, Qasim and Jameel, Yusuf, Will Coronavirus Pandemic Diminish by Summer?

Chan KH, Peiris JS, Lam SY, Poon LL, Yuen KY, Seto WH. The Effects of Temperature and Relative Humidity on the Viability of the SARS Coronavirus. Adv Virol (link)
Sajadi, Mohammad M, MD; Habibzadeh, Parham MD; Vintzileos, Augustin et al, Temperature, Humidity, and Latitude Analysis to Estimate Potential Spread and Seasonality of Coronavirus Disease 2019 (COVID-19)

Prata, D; Rodrigues, W; Bermejo, P, Temperature significantly changes COVID-19 transmission in (sub)tropical cities of Brazil

Singer, B, COVID-19 and the next influenza season

You, Y; Pan, J; Meng, X et al, No association of COVID-19 transmission with temperature or UV radiation in Chinese cities 

Fares, A, Factors influencing the seasonal patterns of infectious diseases

Posted in coronavirus, pensions | Tagged , , | 5 Comments

Bench marking will challenge IGCs and raise their game!

Posted on July 8, 2020 by henry tapper

This blog is a follow up to my piece which asks whether the FCA has let the IGCs off with impunity.

The FCA has chosen not to publicly humiliate failing IGCs but to give them clear guidance for  the future. After 5 years of non-intervention on value for money, the FCA has clearly decided that enough is enough.

The measures that IGCs will have to take in future will be prescribed and monitored by the FCA. I suspect that being an IGC Chair and member is going to be a lot tougher going forwards.

The FCA’s new bench-marking requirement

In its value for money consultation, the FCA have radically shifted their position on value for money. Previously this was a measure to be understood by savers but this new work suggests that it is employers who will be acting on IGC VFM assessments.

There has also been a change in terminology with “savers and consumers” being replaced by “members”.  The FCA has  started to refer to “schemes”.  AgeWage wrote to the FCA asking what “scheme” referred to  (in the context of  CP20/9).

The FCA responded

” In this context, schemes means anything in scope of the IGC or GAA – so workplace personal pensions.”

AgeWage asked whether a  workplace pension scheme  could have (sub) schemes within it.

“Where employers have their own terms and/or funds within a GPP of SHP book, is that too a scheme?”

The FCA responded

” Yes, we mean something narrower than the ‘scheme’ for HMRC purposes – in order to be meaningful we need the IGC to obtain data on what each employer’s scheme is achieving for its members.  Clearly there will be some need for proportionality here – where members have chosen a fund for themselves (usually in small numbers) it is less important that the IGC looks at VFM than that it considers the VFM of the default, for example.”

Within CP20/9 , the FCA expand on the impact of an IGC telling  “what each employer’s scheme is achieving for members” .

For workplace pension products, our proposals should lead to IGCs/GAAs
telling employers if firms are not offering VfM and there are better options elsewhere.This should lead to employers switching their workplace pension scheme to a different provider, so that their employees receive better value pensions products  (Annex 2; cost benefit analysis 40)

Turning to the main body of the consultation, we see the FCA’s moving towards bench-marking

We think it is difficult to conduct a meaningful assessment of VfM when an individual provider’s schemes are reviewed in isolation. A review of other options available on the market can provide a point of reference, and may provide better value for scheme members. But this review of other options should not form the sole basis of an assessment.

4.14 So, we propose new guidance to define VfM in the context of the IGC assessment
process: The administration charges and transaction costs borne by relevant policyholders or pathway investors are likely to represent value for money where the combination of the charges and costs and the investment performance and services are appropriate
a. for the relevant policyholders or pathway investors; and
b. when compared with other comparable options on the market.

4.15 The scope of this comparison would be a matter for the IGC. For workplace
pension schemes, this could include not-for-profit options such as NEST or The
People’s Pension.
4.16 We do not expect IGCs to have the time, resources or expertise to compare all other options on the market. This would not be cost effective. In practice, we expect an IGC to pick a small number of reasonably comparable schemes or investment pathways including those that could potentially offer better value for money (against the factors set out in the rules), to conduct their assessment. When selecting comparable schemes, we expect the IGC to take into account the size and demographics of the membership.
4.17 This comparison with other comparable options on the market applies to the extent that information about those options is publicly available.
4.18 In relation to schemes only, we propose that firms require their IGCs to state in the annual report the reasons why the comparable schemes selected provide a reasonable comparison. In future, we would like to see the emergence of suitable benchmarks to make a reasonable comparison easier

Is comparing “Employer Schemes” a practical idea?

These comparisons present considerable difficulties for traditional VFM methodologies. We expect to hear push back from IGCs arguing that there being no consistent definition of VFM  across schemes nor a single benchmark of performance, a comparison of say NEST with the Standard Life GPP is very difficult.

At present the FCA seem to be saying that the comparisons of schemes would be using the methodology in     PS20/2: Publishing and disclosing costs and charges to workplace pension scheme members and amendments to COBS 19.8

But this is only possible where the costs and charges are at the “relevant scheme” level (and not discounted for specific employers). There is no way to work out the impact of costs and charges on “employer schemes” in PS20-02.

But employers who have negotiated their own charging structure and/or default fund are entitled to know if they are getting a good deal and should welcome the FCA’s position. We know that employers have difficulty getting reporting at “employer scheme” level and we have had difficulty getting data from insurers and master trusts for the employer.

The employer finds themselves with little negotiating power should master trustees or the GPP managers choose not to provide data. We would hope that the FCA’s position will prompt the owners of data to be more forthcoming about sharing data with organisations that set up “employer schemes”. However, we see little hope that PS20-02 will help IGCs or employers and even if scheme specific charges could be worked out for every employer scheme, what good would it do.

The question remains whether a meaningful comparison can be made between an employer scheme in (say) the Legal General GPP and an employer’s scheme in (say) the People’s Pension master trust.

How could two employer’s schemes be selected and what would be the basis of comparison?

Thinking about “comparable schemes” takes us into underwriting territory. An insurer will typically look at employer schemes as comparable (for pricing purposes) if they have roughly the same assets , members and contributions per members.

It is not hard to create a database of employer schemes from within your workplace pension of master trust that can be searched for . Insurers and master trusts that offer underwritten terms to employer schemes could share such a database with their and rival IGCs and indeed with master trustees.

Alternatively such a database could be set up by a consultancy or a data-gatherer such as my company – AgeWage. We would argue that there are no practical obstacles to setting up a database of anonymised employer schemes that could allow IGCs to make fair comparisons

Fair comparisons

The enemy of VFM assessments is diversity. The diversity of approaches to establishing VFM frameworks has meant that almost every IGC has been able to claim they have provided VFM.  This isn’t hard if you’ve been able to set the questions and mark your own schoolwork.

But the FCA is looking for comparisons that are “meaningful” . Specifically they are suggesting in the mail send to me that “in order to be meaningful we need the IGC to obtain data on what each employer’s scheme is achieving for its members”.

Here comes the AgeWage ad!

We at AgeWage have long-argued that what is meaningful for members is a good outcome. A high quality of service is of course a good thing but you can’t eat service. For too long service has been used as a smokescreen to hide poor performance and high charges. It is the get out of jail card for the lazy IGC.

If we exclude quality of service then  we would argue that not only is such a comparison possible , but is already in use.

AW dashboard

A comparison of outcomes from a £520m DC scheme.

The simplest way of establishing value for money for an employer scheme is to compare contributions with the net asset value of the individual’s pot. This gives a saver an internal rate of return which he/she can compare to a benchmark return by redeploying data into a benchmark fund (we use the Morningstar UK Pension index which track the prices of DC defaults going back to 1980).

By comparing the actual IRR with a simulated “benchmark”, it’s possible to create a coherent scoring system where the score represents the average of individual’s experienced outcomes relative to the average person’s outcome.

We’re building a library of employer schemes that could be searchable by IGCs and GAAs and indeed by employers looking to benchmark their scheme.

We believe that fair comparisons can be made and we intend to be in the vanguard of organisations offering to provide them.

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Have IGC’s let savers down with impunity?

Posted on July 8, 2020 by henry tapper

When it all began

Back in 2015 , when the IGC chairs first met, I wrote a blog critical of IGC Chairs and their advisers who seemed to be publicly questioning the purpose behind Independent Governance Committees. You can read the blog here

The IGCs had met at Eversheds apparently to work out what their purpose was.

I responded that the IGC was writing for the “member”, or more correctly the policyholder of saver.

What followed was an appalling series of tweets from senior lawyers, trustees and IGC members suggesting that IGCs should not challenge providers in IGC reports for fear of putting savers off saving.

Wind forward five years

Some 80 IGC reports later and the FCA report on IGC’s progress so far. Here are some edited highlights of the FCA’s Thematic Review The effectiveness of Independent Governance Committees and Governance AdvisoryArrangements

I have published appraisals of all IGC reports since 2015 and as you can see some IGCs report better than others. If you want to read any of my 82 IGC reviews – just use the search button above, they are all on this site!

igc2020

As I did, the FCA found a mixed picture when assessing IGC reports. The FCA chose not to mention which IGCs were falling short  (to the annoyance of the FT)

 

cumbo

but were quite clear that some savers had been short-changed on value for money.

IGC1

IGCs didn’t find a consistent way of assessing value for money, for all their conferences, savers had no way of comparing one workplace pension with anotherIGC2

Nor did IGCs find a way to escalate concerns to providers or the FCA

IGC3

Some didn’t even get so far as finding the information they needed to assess VFM

IGC4

The FCA thematic review is damning, the IGCs aren’t generally doing their job and the FCA make it clear that they are going to have to start bench marking the VFM of their scheme against others .

IGC 6

In a companion blog to this, I will explore how this bench marking is going to work.

Have the IGCs let savers down with impunity?

picnic

Whether heads will roll as a result of the IGC review is open to question, Most of the Chair and their boards have been in place five years and natural turnover would be expected. Some of the really bad IGCs have been disbanded as a result of insurance consolidation and I hear of more changes over the summer months.

But for those Chair who remain, it looks like the FCA are going to be a lot tougher, especially in the area of value for money.

The image of the teddy bears picnic that I used to characterized the early days of IGC meetings has never quite been shaken off.  I was not surprised that the thematic review was damning.

What matters going forward is not the vilification of IGCs of the past but the improvement in IGCs in the future. I am confident that the FCA have got the bit between its teeth on this . Read my follow up blog for more.

 

 

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AgeWage and Pension Bee call for Dashboards to tell us what we’re paying for our pensions.

Posted on July 7, 2020 by henry tapper

people charges

Yesterday the Money and Pensions Service  opened a consultation on Pensions Dashboards’ data standards, seeking industry-wide input on the definition and scope of the information dashboards will  display.

The call for input seeks views on:

  •       the personal data items which will be used to digitally match individuals to all their different pensions, and also
  •       the specific information about each pension which dashboards will display.

Clare Reilly, Head of Corporate Development of PensionBee, commented:

“PensionBee believes savers have a right to know how much they are paying in charges for their pensions. It is essential to include charges information on pensions as part of the initial phase of the Dashboards in order to help savers of all ages make informed decisions about their pensions before their pots are spent and gone”.

In June PensionBee found that 95% of retirement age savers think it’s essential that they can see how much their provider is charging them when they log in to the Pensions Dashboards.

AgeWage support PensionBee’s call for savers to be told what they are paying. AgeWage is researching ways to show whether what they pay gives each saver value for money.

AgeWage believes there needs to be clear and independent measurement of both value and money and calls on those charged with assessing VFM to adopt a consistent measure.

It calls on Trustees, IGCs and GAAs to include in their Chair Statements Value for Money scores based on the returns each saver has achieved relative to the money each saver has had paid into their pension pot.

Later in July,  AgeWage will be testing the impact on savers for being given this information on multiple pension pots.  This will form the basis of AgeWage’s input.

AgeWage CEO Henry Tapper added.

Let’s make sure everyone’s pension statement tells them what they pay from their pot . Let’s agree now how this information goes on the dashboard and let’s make sure that we agree a proper measure for value for money that can help ordinary people turn pots on a dashboard into a wage in later age.

Romi Savova who is on the Dashboard Steering Group as well as being Pension Bee’s CEO concluded.

By the time it launches, we believe savers will have waited more than 20 years for a dashboard so it needs to be fit for purpose from day one. The reputation and future of pensions depend on it.

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A dashboard for lawyers or laymen?

Posted on July 7, 2020 by henry tapper

layman's law

 

“We are all individuals” is one of those phrases when spoken by everyone at once that is innately funny! Though we are many , we are one body.

I was reminded of the paradox by one of my nurses who wanted to discuss  the wording of the sacrament (she is a Catholic and I am a Methodist). I guess she has a much more collective approach to the communion of saints than I do- though we are one body.

I was asking for an individual response to the bread and wine, she smiled at me and said “I am dogmatic, there can only be one view”.

Reading the pension dashboard call for input, I realized that this clash between individual choice and the need for a common data standard is a similar, if not rather less passionate dialectic.

Individuals

The language that will be used by the pensions dashboard is strange, and a little forced. Instead of opting for “saver”, the dashboard will talk of its consumers as individuals

Many different terms are used across different parts of the pensions industry to describe a person who is entitled to benefits (i.e. money) from particular pension arrangements.

For example, an individual logging on to a pension dashboard might simultaneously be a deferred member´ of a Defined Benefit (DB) pension scheme, a “non-contributing member´ of a Master Trust (MT), an “active member´ of a public service scheme, and a “policyholder´ (“in force´ or otherwise) of a personal pension plan. We need an umbrella term to describe a person who has one or more pension entitlements and we have settled on Individual as it sits well with different types of pension (i.e. better than do Member, Policyholder, Customer, Consumer or Citizen, which are all, to some extent, sector-specific).

But it is not quite as easy as that. There is difficulty in the phrase “pension entitlement”

Research shows that individuals struggle to distinguish between the different types of benefits that different pension arrangements provide (for example, Defined Benefit (DB) per annum incomes, Defined Contribution (DC) pots, and so on. We’ve therefore decided  to use the generic term Pension Entitlement to describe the different types of monetary benefit an individual can derive from a pension arrangement (which could be a future retirement income, future draw downs, cash lump sums, and so on).

Here the word “pension” is stretched too far. People may have difficulty  differentiating a pension pot of £25,000 with a pension of £25,000 but they by conflating the two into “entitlement”, the dashboard’s language could be reinforcing the confusion.

The difficulty with the terminology is in words like “difficult” and terminology”. Not one of the nine phrases in the dashboard glossary avoids a polysyllable of at least three! There aren’t any simple words like “pot” and “saver”. In going for a universal language, the dashboard has settled on a language for experts. The worry is that the pension dashboard will be phrased for the lawyer not the layman.

Inclusive

As with “individual”, “inclusive” is a polysyllabic and it is not a word that practices what it preaches. “Inclusion” is a concept that is exclusive to people with a certain way of thinking, a taught way of thinking.

The Pension Dashboard  Programme’s call for input refers us to the two papers produced by the Pensions Dashboards Programme  “Data definitions – working paper – April 2020” and “Data scope- working paper – April 2020“. Apart from the similarity in title, the papers share the same content and in particular the finding that people are unlikely to be satisfied with a dashboard that shows anything less than all their pension entitlements. This is one mantra of the consultation.

But it competes with the DWP’s targets for quick delivery of what we could call a minimum viable product. To keep enough flexibility in the system to move forward, the Dashboards Programme has come up with the concept of the Dashboard Available Point which is the moment in time when dashboards become sufficiently inclusive to be viable with the public

DAP

The DAP is somewhere in the grey box above and is going to be the source of constant argument between the dogmatists who believe it can be imposed from above and individuals who will argue that they can be the judge of when they have enough on their dashboard to start using it in a meaningful way.

The paradox of inclusivity

The dogmatic approach to inclusion is based on a fear of people acting on incomplete information. If for instance an IFA is audited by the FCA, they will be held to account for the completion of a factfind. If an IFA cannot prove he or her knows all relevant information about the customer, advice may be deemed invalid. The fear of regulatory sanction or civil litigation drives thoroughness and this is one of the reasons that financial advice is outside the affordability of most individuals.

If someone is told that their dashboard will be 90% complete in 9 minutes and 100% complete in 10 weeks, which does  he/she consider the dashboard available point?

In a highly regulated world the answer will tend to 10 weeks, where there is pension freedom, then 9 minutes might be the dashboard available point.

There is currently a debate in parliament over whether commercial dashboards should be allowed to integrate with the non commercial dashboard data and the conclusion is that there should be a 52 week lag meaning that if the MAPS dashboard available point is say 2024 then the commercial dashboards would be integrating in 2025.

These are long lockdown times and in the meantime, it is likely that a range of fintechs will be offering the services of the MAPS dashboard – privately

goal

These goals cannot be exclusive to the MAPS dashboard, they are common goals of all who aspire to help others with their pension affairs, including TPAS, company pension managers, call centers and digital pension applications.

Nor can there be exclusivity on the phrase “pension dashboard” as this is something that advisers and the non-advised will create for themselves in advance of the DAP.

It will be over 20 years since the idea of a pension dashboard (then a combined pension forecast), was first promised by Government. Getting to a point where experts stop arguing about definitions and scope is something devoutly to be hoped for.

Having read both working papers thoroughly and often, I can see no reason why we cannot move forward quickly.

Unless , that is, we strive for an nonviable inclusivity which excludes millions needing a dashboard over the next five years, from the information they need.

We need a dashboard for the layman, to date we have had a debate dominated by lawyers.

 

Responding to the call for input

It’s important that the dashboard is not left to the lawyers, it is a dashboard for the people and we should have our chance to input. We will be responding with more detailed thoughts on scope and definitions. If you want to – here is the link

call

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The G in ESG is vital to pensions and our pensions governance vital to ESG

Posted on July 6, 2020 by henry tapper

ESG.png

 

Sarah Wilson, chief executive of Minerva, the shareholder adviser, said: “At a time when innovation and [research and development] is so important it would seem that financial engineering is taking a higher priority.” – Financial Times 

Employers looking for an easing of their deficit funding plans should be reminded of their recent payments of dividends.

In the past decade through a combination of share buy-backs and reckless dividend payments companies who had reported sitting on a cash mountain are now claiming vulnerability as a result of the pandemic.  Some executives pleading to the Pensions Regulator will be met with stern faces as the facts behind the erosion of this capital base become apparent.

A report from Sheffield University, Queen Mary’s in London and the Copenhagen Business School, found that  28 per cent of FTSE 100 companies, 37 per cent of S&P 500 firms and 29 per cent of the S&P Europe 350 paid out more in shareholder distributions than they generated in net income in the last available accounting year.

Sarah Wilson is right to call this Financial Engineering as these behaviors trigger excess reward to those setting dividend rates.  These executives know full well high dividends lead to high share prices and trigger big bonuses.

While Make My Money Matter focus on the E in ESG, it is right that organisations like Minerva continue to pick up on egregious behavior of this kind. It is from their work that trustees can make meaningful decisions when voting and how to construct their statements on ESG that due to become a legal requirement when the Pension Schemes Bill gets Royal Assent.

I am sure this is not lost on Josephine Cumbo

This is why the corporate G in ESG is so important to pensions. The balance of equitable interests between pension funds, sponsors and the taxpayer is not best served by financial engineering which massages reward for the few at the expense of the many.

Inter generational fairness on pensions

Commenting on yesterday’s blog in which I promoted alternatives to the Pension Regulator’s DB funding code, Derek Scott made some observations which carry the weight of his being chair of the trustees at the Railways Pension Fund and latterly at Stagecoach.

Inter-generational fairness is hard to achieve without margins of safety on both sides. Even inter-generational fairness is seldom achieved if high earners with higher expectations of salary increases and longer longevity are lumped together in the same open scheme. This is where I have particular sympathy for the Keating & Clacher proposals into CARs being applied to test the real, lifetime costs of higher paid people’s pensions.

If we look at the pension incentives on senior executives they are weighted to keeping pension schemes solvent not just because many are in these schemes (and risk serious hair cuts from the PPF) but because the scheme emperils the sponsor and the sponsor’s executive. We have seen with the  BHS and British Steel Pension Schemes, expensive restructuring (known as regulatory apportionment agreements) designed to keep schemes and companies out of the PPF and insolvency respectively.

The cost of keeping the scheme open falls on generations of workers who do not benefit from the defined benefit scheme who are prone to losing their jobs or seeing their remuneration fall to financially immunize the senior management.

While I am all for schemes staying open where they can, I am not for RAAs which carry the inequalities of the financial engineering identified by Sarah Wilson.

If we are to take pension governance as an aspect of ESG, we need to consider the fairness of the pension promise to everyone and not protect schemes because those who have most to lose from their falling into the PPF are those negotiating with tPR.

While the Pensions Regulator has a duty to protect the PPF, well run schemes like BSPS and to a degree BHS, are not likely to damage the PPF’s sustainability. The PPF as a superfund has much to offer a member and – as importantly, those generations of worker for the sponsor who have no accrued rights in the scheme and rely on AE workplace pensions.

This is why the G in pensions governance is so important to ESG.

 

Posted in ESG, governance, pensions | Tagged , , , , | 1 Comment

With the benefit of hindsight…a blog on pension transfers in draft for 30 months

Posted on July 5, 2020 by henry tapper

hindsight

 

I never published this blog – it has been sitting in draft since early 2018. Re-reading it today, it is clear that everything the FCA are saying today was public knowledge in 2018. Judge for yourself, could and should the FCA have acted sooner?

 

IFAs and the defined benefit promise

This article explores the relationship between IFAs and defined” benefit schemes, one that has historically been uneasy. It argues that the polarisation of opinion between IFAs who see pensions as “pots” of wealth, and those who regard them as a “wage for life” has never been stronger. This polarisation is present in politics, demonstrated by the differing view on “pension freedoms” at the DWP and Treasury, and present in Regulation, with polarisation between the FCA and tPR’s approach to these same issues.

This deep divide is philosophically between those who believe is that the management of financial assets should be a matter for the beneficiaries of those assets (the member) and those who think the creation of a lifelong income, a matter for collective endeavour.

And the fault lines created by these polarised positions are clear to see, wherever you look.

They are apparent from the Work and Pension Select Committee’s inquiry into Pension Freedoms, which focussed on the divisions in Port Talbot between BSPS members desperate to liberate the wealth in their pension scheme and the Trustees, who were (until recently) oblivious to the demand for “pension freedom”.

The fault lines were equally apparent in the disputes between Royal Mail and its membership (represented by the CWU) and the current dispute between USS and its members (represented by the UCU). In both cases, the employer believed philosophically that it was doing the right thing by switching from DB to DC accrual, based on evidence that ordinary people value a pot of wealth rather than a wage for life.

Contrarily, members have said no to a DC pot and held out for a wage for life. In the case of Royal Mail’s membership, this will mean an unguaranteed CDC pension and in the case of USS members, a continuation of guaranteed accrual from a DB plan.

An IFA, reading these paragraphs, has every right to be confused. Steel-workers are not normally considered as candidates for wealth management, but with average pots of c£400,000, they proved to be of great interest to a large number of IFAs. Meanwhile, the professors and lecturers who one would imagine financially capable, have gone out on strike , rather than be switched to a DC pension.

The polarisation of opinion cannot be defined on socio-economic lines, nor can it be defined in terms of education. In fact, the pension freedoms seem to be as popular on the streets of Tai Bach as in the City of London.

It now looks likely that once all transfers out of BSPS are completed (some time in April), around £3bn will have moved from “pensions to pots”. This is roughly the same amount that has been transferred out of the Lloyds Bank staff pension scheme and around 75% of the £4.2bn that Barclays have reported moving out of their pension scheme. It was not long ago that KPMG were estimating the total transfers from DB to DC in 2017 would be £6bn. What has happened?

The explosion of transfers  that has happened from mid 2016 onwards, cannot be explained by the Pension Freedoms alone, indeed , in its 2014 impact analysis, the Treasury saw no reason for the changes in the tax treatment of DC pensions as having little to no impact on DB to DC pensions.

Nor can it be considered a function of quantitative easing or the shift of DB assets from equities to gilts. While there may have been a marginal shift (major at BSPS), quantitative easing and the trend for DB pensions to “de-risk”, were established well before 2017.

What I believe has happened over the past eighteen months has had everything to do with adviser confidence, especially confidence in the IFA sector. Underpinning this confidence is the rise in world stock- markets which has seen equity-based wealth management solutions deliver fabulous returns to their customers for nearly ten years. There is a sense among many advisers I speak to , of invincibility in market forces and the power of investments in growth assets to deliver better outcomes than can be achieved from DB pensions.

The second factor that has given advisers confidence, is finding a mechanism to unpick the lock on the CETV, without creating disruption to their client’s cash-flows.  I mean by this the practice of conditional charging. By putting the bill for advice at the back end of the advisory process, IFAs can achieve a painless transfer to their wealth management solution that enables them to be paid from a tax-exempt fund without concerns over VAT. It enables clients to release their “DB wealth” without reaching for their cheque book and  it is a very elegant solution to the problems posed by the requirement of those wishing to transfer an amount above £30,000, to take financial advice.

There is nothing uncompliant about conditional charging and it is now widely used by the majority of Britain’s 2,500 transfer specialists. However, conditional charging is showing signs of stress. Ten firms have now “voluntarily” handed back their permissions to advise on DB transfers , leaving hundreds of clients orphaned from the transfer process and marooned in DB.

A recent article in the Financial Times, saw the Personal Finance Society’s Keith Richards, claim that Professional Indemnity Insurers were jacking up premiums for those remaining PTS’ and denying some cover. The practice of outsourcing pensions advice to specialist Transfer Value Analysts, has come under considerable pressure from the FCA.

All this is evidence of the deep divide between those who see a pension as a “pot of wealth” and those who regard it as a wage for life. Many advisers, such as John Mather, consider the defined benefit system, so broken, that engineering a route out of DB for clients , is the right thing to do. Meanwhile, the FCA insist that from their sampling in 2017, 53% of transfers examined, contained either questionable or wrongful advice.

The Pensions Regulator and the FCA are at last working together to produce a joint pension strategy. In a recent session of the Work and Pensions Committee, its Chair- Frank Field- suggested that advisers and trustees were living in “different countries”. The same criticism has been made of the two regulators.

It remains to be seen where this will all end up, few believe that we have seen the end to the DB transfers. The results of SJP, Old Mutual, Prudential and many other providers, suggest that pension providers are now reliant on the massive flows of assets brought to them by advisers. Many advisers now seem as addicted to conditional charging as they were to commission and the FCA and Pensions Regulator, seem powerless to prevent CETVs becoming business as usual.

As always, the analysis of the issue , post-dates it. The transfer from pensions to pots will go on, till a point where either the available assets within DB schemes have been exhausted, or a proper brake has been put on the transfer process, most likely by a Government with the will to ban conditional charging.

In the meantime. we have to hope that those in charge of this new found wealth, can deliver on their promises.

 

Posted in pensions | 3 Comments

Lets stop kidding ourselves about pensions

Posted on July 5, 2020 by henry tapper

time-bomb-2.jpg

Three things prompt me to write this article

The work of Dr Iain Clacher and Con Keating into the unequal burden regulation places on the sponsors of defined benefit pension schemes

The agreement between unions, Government and employers in the Netherlands to move away from guarantees and towards what we call CDC

 

The amendment in the Pension Schemes Bill that commits the Pensions                       Regulator to sanction relatively aggressive investment strategies where                         trustees and sponsors want to keep a DB scheme open

The three matters are aiming in the same direction, the proper payment of pension promises through the efforts of employers, regulator and trustees working together.

It has long been recognized through surveys conducted by consultants (Aon and XPS most recently) that ordinary people look for their workplace pension to provide them with a pension. While there are many people who have opted instead to transfer their pension rights into the hands of wealth managers, it is generally acknowledged that such transfers are for the few who do not need a wage in retirement, rather than the many for whom pension freedom is a tank trap.

The Dutch decision should be seen in this context, if the alternative to a guaranteed system of pension payments is the workplace DC systems of the US (401K), Australia (Super) and the UK (workplace pensions), then better to keep a system which does at least offer people what they were promised – a wage in later age. 401K, Super and the British workplace pension system offer people wealth not pensions and the term “wealth” is not that suitable , if it is kidding people it is a substitute for a pension.

Simple truths (no kidding).

It costs a lot to pay a wage for life. If you want a wage for life at 60 and you want wage growth of 3% pa and for it to continue to your spouse if you die first, then think  of saving £750,000 before you can retire to  what the PLSA considers a moderate retirement  lifestyle. This level of wealth is beyond the comprehension of most people in the UK today but it is what is needed to provide a private income of £20,000 pa for the rest of your days.

This is why we need to inject some realism not just into the debate about what UK workplace pensions are supposed to be doing but also asking how we can preserve what’s left of our collective pension system, both in the UK and in the Netherlands.

Read Con Keating and Iain Clacher’s excellent article as an answer to that question. Consider the Lords amendment to keep DB open, as an answer to that question.

“I want to level with you”

Boris Johnson’s phrase, with which he introduced lock down , lives with us. COVID-19 has asked and will ask questions about the true state of affairs in the UK. If truth be known, if we use the valuation techniques employed for DB transfers and implied by the Pensions Regulator’s funding code, the transfer value of a full state pension is around £300,000- to provide us with a wage for life of c £8,000. You cannot take that transfer value as the purpose of the Government backing the pension promise is to keep people from destitution not make them “wealthy”.

£750,000 might give you a moderate retirement income but that is on top of your state pension, the reality is that to have even a moderate income in retirement , you need a million pounds to fund it – or you need to stay at work or you need to die young. These are the hard COVID-19 truths.

I want to level with you. There is no cheap way round this problem. Though you may want to create a lifetime mortgage on your property, you are unlikely to generate sufficient liquidity to provide you with the wage for life you would have got had you been in a DB scheme.

Those in tax-payer funded pensions such as the Civil Service, Teachers, Fireman’s or Local Government pensions will be getting millionaire’s pensions if they can retire on as little as £25,000 pa.

For the vast majority of workplace pension savers, the 8% of band earnings that is paid into their workplace pensions will not be enough and even if that 8% was doubled, there is no proper way of returning the wealth in the DC plans as a wage for life. The cost of advised draw down are currently excessive, the price of annuities too high and the risks of DIY retirement planning for the bulk of the population too awful to give much thought too.

We need pragmatic solutions for today and strategic solutions for tomorrow

By harnessing technology, we can at least make sense of our retirement savings today. A proper system of finding pensions, displaying pots and providing people with investment pathways is the best we can do today. It is not the nirvana promised by pension freedoms but it is better than nothing.

For the future we need a strategic solution and were we thinking as the Dutch are thinking, we would start moving to a non-guaranteed system of workplace pensions which did not promise wealth but pensions.

We need ways to encourage employers who want the real promise of a wage for life to be able to use their best endeavors to fund those promises. This might mean continuing to other funded pensions without guarantees or it might mean thinking about funding as Clacher and Keating do.

We need to resist the lock down of open pensions into “de-risked” bunkers from which there is no prospect of future accrual and every prospect of penury or bankruptcy for the sponsoring employer.

Posted in age wage, CDC, consolidation, pensions | Tagged , , , , , | 6 Comments

Why more funding doesn’t mean safer pensions.

Posted on July 5, 2020 by henry tapper

I published this article last week under a different title and it didn’t get read much . I’m publishing it again because it is  very good  and because it challenges current received wisdom on DB pensions. Pensions have become needy and as the article explains, for all the wrong reasons.

pig.jpg

The funding gap

Con Keating and Iain Clacher

Scheme funding is now the principal risk management tool for DB schemes, a development which has been encouraged by parliament and the regulatory authorities.

It appears that the answer to everything is ever more funding of the pension promise and at the heart of this approach is the risk of sponsor insolvency.

The purpose of funding appears now to differ between secured accrued debt and paying pensions obligations. Historically, for DB pensions, this purpose was to provide security for the promise accrued, or earned and unpaid, up to the date of insolvency.

It has changed to funding being adequate to pay all pensions as they become due or to purchase a contract replacing the as-yet unearned future benefits promised in the case of DB pensions.

This change of purpose significantly raises the level of funding required, which is costly to the sponsor employer. In previous blogs we have commented on the inequitable nature of this latter interpretation.
In this blog we shall investigate the costs that these funding strategies impose on the sponsor employer and conduct a small thought experiment to illustrate the nature and magnitude of the issue.

We abstract from the complexities of a full DB pension scheme, and consider a zero-coupon 15-year bond issued at a yield of 6% p.a. which we can view as a simplified approximation of the costs (of the employer) and benefits (to the employee) of a pension scheme.

The bond matures at par (£100) and the initial subscription is £41.73 (the discounted present value of the par value, where the discount rate is 6%). We choose 6% as the yield on this bond as our analysis of a small number of DB pension schemes has shown the average contractual accrual rates (CAR) of their stock of undischarged awards to lie in the 6%-7% range.
If this rate appears high, given current market yields, it should be remembered that it is the result awards made over a history stretching back as far as the 1960s and perhaps even 1950s. One notable feature of DB schemes is that awards made in the mid and late 1970s may have embedded very high accrual rates – in many cases over 14% at the time of award.

Subsequent experience and revised projection assumptions have lowered this rate materially, to less than 9%. This is principally the effect of far lower than assumed wage and price inflation, countered by increasing longevity.
Returning to our thought experiment, we next consider the position after one year, when the accrued value of the liability is £44.73 on the contracted terms. As above, this figure may be derived as the discounted present value of the ultimate payment (benefit) or the accrued value of the subscription (contribution) using the 6% contractual rate.

Let us also consider the effect of using an externally chosen discount rate, say, the gilt yield for the remaining 14-year term. Assuming the gilt-based discount rate is 1%, then the reported value of this liability is now £87.0.
Ordinarily, these values would be immaterial if no action is based upon them. However, to maintain the comparison with pensions we now introduce a collateral security funding arrangement for the obligation, in the amount of these reported values.

conian

The difference in required funding cash flows is stark. It is immediately obvious that these funding strategies cause this obligation to differ in its effective term or duration, and with that their cost.

The original unsecured bond was 15-years. The secured 6% CAR-based accrued liability has a duration of 9.06 years, and the 1% discount rate variant has a duration of just 2.70 years.

The cost to the sponsor company in the unsecured case, where the obligation is funded at maturity, is 6% p.a. This rises to 10.13% p.a. when funding to the CAR level is required, and 38.07% for the 1% discount rate case.
A sponsoring company might well be prepared to accept a 15-year 6% obligation, and perhaps even a 9.06 year 10.13% obligation, but it is difficult to believe that any company would knowingly sign up for a 15 year 6% bond which could be foreshortened to a 2.70 year obligation at a cost of 39.07%.
This thought experiment illustrates the method by which DB pensions have become ’unaffordable’ even though there has been no material increase in the ultimate amount payable. It is the arbitrary application of exogenously sourced discount rates.

Investment returns and funding strategies

To estimate the cost of these different funding strategies to the sponsor company, we have assumed no investment returns. However, if we assume an investment return, we observe a fuller picture.  A return of 6% p.a. (1) is particularly informative.  At this rate, there is no cost to the sponsor beyond the initial contribution made at the time of award.

By contrast, an additional contribution of £42.77 (2) is still needed for the 1% discount rate case at the year one valuation. This contribution like all other assets in the fund will need to earn 6% per annum. This means that, in future, it will result in surpluses relative to the 1% discount rate liability valuation (assuming the discount rate remains at 1% for the remainder of the liability and is not decreased by other exogenous factors such as government largesse and QE).

This contribution is effectively an advance to the scheme on which it will earns the subsequent surpluses. If the excess funding (relative to valuation) can be extracted (3) at the time of occurrence (which is unlikely) the advance has an average life of 7.19 years, and 14 years if it cannot be recaptured before the discharge of the pension(s).

The practice of spreading large contributions over several years as a form of ‘deficit repair schedule’ is now common with changes to average schedules published annually in the Purple Book.

While having a schedule may alleviate a sponsor’s immediate liquidity concerns, it does little other than shorten the term of the advance i.e. . and these contributions still all earn the investment return of 6% p.a. in our example.

It may be that a 6% p.a. return on capital is competitive with the long-term investment opportunities available to the sponsor company, but this has the unique feature that, when market discount rates are used, its timing lies outside of the control of the sponsor employer.

Concluding Remarks

As pension funds are often promoted because of their long-term nature, it is worth noting that any contributions to a scheme, beyond the initial contribution, which constitute part the long-term capital of the scheme come about by extinguishing a long-term liability of the company.

There is no net gain in long-term investment. In fact, it may be that there is a reduction in productive investment as the money that comes into the pension scheme is invested in the financial economy i.e. existing assets e.g. equity in the secondary market or credit that is already in issuance.

This thought experiment is intended to illustrate the extreme dependence of the sponsor company’s cost of provision on the level of funding imposed and the shape of this through time. We have kept this to a single valuation, but it is perfectly possible to extend this analysis to include multiple dates, stochastic variation, and adjustments such as ”prudence”,but there would be little by way of new insight to the logic illustrated here.

Taken together, funding is a very inefficient and incomplete solution to the risk management problem of DB schemes, namely sponsor insolvency.

(1) If the investment return is just 1%, the sponsor cost is the single contribution of 44.85% for the 1% discount
rate case, while the cost for the CAR case is 9.44% p.a.
(2)This figure is the discounted present value at 1% less the initial contribution and the accrual on that of 6%.
(3) We have ignored the taxable nature of withdrawals from the fund.
Ian con

Keating and Clacher

Posted in pensions | 20 Comments

Enjoy summer safely in a pub?

Posted on July 4, 2020 by henry tapper
summer.png

The slogan from a Conservative party mailing to me this morning.

There wasn’t much surety about Boris Johnson’s messaging in his briefing yesterday evening. The idea that having a few drinks in your local is a good idea is bonkers.

I burst into laughter when the Prime Minister told me that I could get a drink in a pub at 6 am. Perhaps he was thinking of his youth when students roamed my part of London, up all night to get lucky.

If I was writing this blog in the 1990s, there could be pubs in Smithfields opening their doors at 6.05 am (my time of writing) .  If I wasn’t in quarantine I could wander up past the Old Bailey to try and find that pint at dawn. Except I’d have a very long walk indeed.

pubs at dawn

Romantic as it looks, that photo, taken 800 yards from my flat,  was shot in 1961. Pubs don’t open at 6am round here any more , there are hardly any “early houses” left in Britain as this article makes plain.

The final early houses have long since outlived their earlier purpose. Even in Johnson’s student days, they weren’t serving market porters but the stragglers from the clubs , so crazed by narcotics that they couldn’t sleep.

These clubbers aren’t much to be found in these days of Covid. From the Ministry of Sound in the Elephant to the clubs in the City, the message is the same

clubs

Google search; Saturday 4th July

The clubs are closed and the pubs are closed as well. That 1961 photo was taken in the Fox and Anchor – no more a pub.  You won’t be getting a drink today in any other pubs in Smithfield Market; none are opening their doors for Super Saturday.

city pubs

Google search at 6am Saturday 4th July

As with  much else of yesterday’s “shambolic” performance, the messaging on drinking was out of touch, not just with the facts about pub opening, but with the mood of the public

The Government seem to be badly mis-reading the appetite of Middle Britain to take unnecessary risks . My local landlord told me there would be no point in opening the Cockpit until people felt safe to mix inside. I don’t have to google, I  can lean out my window and  see the Cockpit is staying closed.

the cockpit

Enjoy summer safely in a pub?

The summer can be enjoyed without a pint in our hand. It can even be enjoyed from the oncology ward of Guys hospital where I’ll be for the next few days. I can have my operation because there is now capacity for elective surgery because we have flattened the curve and suppressed the pandemic.

The public understand this and we are in this for the long haul. We will not be going to the pub because we can and the pubs round here are staying shut because they know it. Publicans don’t want to get infected any more than the rest of us.

Going to the pub is nothing to do with enjoying summer safely. There are many safer ways to have a drink.

Speaking sense – not nonsense.

As an aside, people do read what they are sent as intently as they watch and listen to the TV broadcasts.

This is taken directly from an email I have just received from a Conservative MP. It appears to come from some central source and is so badly written as to make me wonder whether the person who put it together even read it over…

We also need to continue to remember the basics, such as washing your hands with soap and water more often and for at least 20 seconds, and if you have any symptoms of coronavirus (a new and continuous cough, a temperature, a loss of taste or smell), you should immediately self-isolate and get a test. You can apply for a test by clicking here. 

Whilst these relaxations will allow us to enjoy a much more normal way of life, it is vital that we all safely by following the guidelines and keeping your distance from others so we can keep the coronavirus under control.

There is no way you can be authoritative, if you write as badly as that.

We know what we are doing.

The public are very well informed about this pandemic. Apart from a hardcore of herd immunists there are very few people who enjoy taking the risk of getting the virus.

We don’t like nonsense, we like certainty. We get Nicola Sturgeon and we don’t get Boris Johnson. “Shambolic” is Sturgeon’s word for the performance of her counterpart in Westminster, few are gainsaying her.

We get the bulletins from the COVID-19 actuaries, we don’t get drivel from Conservative HQ. Mailing us rubbish is not a public service, it is an abuse of priviledge,

The public will make the best of this summer whatever its circumstances . We are mindful of ourselves and of others, we do not need to be patronized and misinformed. 

We do not need to be told – we now know what safe is.

summer

Postscript

In case anyone thinks that in focusing on messaging, I am validating the rest of the Government’s performance, I am not. this linked in blog by James Souttar makes it clear that he sides with Sturgeon’s descriptor “shambolic”, I’ll let the numbers speak for themselves.

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So what can our past performance tell us of the future?

Posted on July 3, 2020 by henry tapper

It is narcissistic to blog about your own tweet but I’m going to anyway!

As regular readers know, I am interested in the value I and millions like me have got for the money we’ve had paid into our pensions. I choose my words carefully, few of us save directly , most of us do it through payroll.

And because this money is paid through payroll it is part of our pay – the amount sitting in our pension pots is a combination of the money we paid in , the money the tax-person paid in and the amount it has grown since being  paid in. This is our savings experience, it is unique to us and we know very little about it.

We don’t get receipts for the money we , our employers and the tax-person pay in, nor do get a statement telling us how much our pot has grown. Instead we get statements from time to time telling us how much is in our pot.

Not only do we not know how fast our money has grown but we don’t know much about where our money has been invested. We know very little indeed about what – apart from our house – is likely to be our biggest asset

wealth2

From the Institute of Fiscal Studies

But it doesn’t have to be like that. A simple analysis of your contributions received and the current value of your pot results in your unique rate of return. We call it your internal rate of return with “internal” meaning – inside you!

It’s also easy enough to work out what your internal rate of return would be if you were invested in the average workplace pension. AgeWage helped Morningstar create Britain’s first every pension index. It tracks the daily increase in price of a unit in a fund going back to 1980. By reinvesting your contributions into this index we can find out what you would have got – had you been the average person.

What is hard, what we’ve spent a year on, is how to express the return you have experienced (your IRR) with the return you would have got in the UK pension index (what we call the universal benchmark).

Recently we have been doing a lot of research involving millions of simulations to discover how most fairly to express one return against each other. The word “fairly” applies because we want the score to tell you not just the experienced return you have experienced but the experienced risk you have taken.

To investment analysts we could explain the process we follow like this.

The AgeWage score takes the IRR achieved by a member. The IRR embeds the risks actually experienced by the fund into which contributions were made. In other words, it is the member’s risk-experienced performance.

In order to produce the score, we compare this IRR with the distribution of other IRRs
which might have been experienced by the member. These comparator IRRs consider all of the risk which crystalised during the period, including those experienced by the  member.

The score does not consider risks which might have occurred but did not.

Destinations are important, but so is the journey!

During the course of your saving career, you will experience a few bumps in the road, you probably felt one in February, there will be more to come.

The way your pension fund deals with these bumps over time is your experience of risk. The longer we can measure your journey, the better we can look at the way your pension fund absorbs these bumps (experiences risks) and this is the point.

Your experience is relative to the risk you faced, not all the risks you could have faced. If you had prepared for every risk, your rate of progress would be so slow you might never have got to where you wanted to be – or could have got.

So what does past performance tell you about our future?

Well it tells us how much value we’ve got for our money and (with a benchmark) tells us how we’ve done against others. Assuming we’re travelling the same road in future, it tells us whether we’re in the right kind of vehicle or at least asks us to think more closely about how we want to travel in future.

This is important as there are huge differences between the outcomes of one pension fund against another and simply spraying your pension money across lots of little pot is unlikely to be a good idea. By consolidating pensions you are likely to pay less fees and have a more manageable way of paying yourself an income in later life.

Understanding the experience you have had from your various pension pots is a starting point in working out how to bring your pots together.

As we consider our futures, we cannot ignore the past, history is an important subject.

performance.jpg

 

Posted in advice gap, age wage, pensions | Tagged , , , , | Leave a comment

Could a wealth tax fix our broken economy?

Posted on July 3, 2020 by henry tapper

wealth coins

Britain is broke, for the second time in 12 years our economy has hit the buffers but this time the noises coming out of Government suggest that it is the wealthy who will pay to fix it. This would be in contrast to the austerity policies of the coalition, Cameron and May governments.

A recent You Gov poll found 61 per cent of the British public supported a wealth tax on individuals with assets worth more than £750,000, excluding pensions and the value of their main home.

Former Head of the Civil Service Gus O’Donnell said yesterday “there may be more of an appetite for a wealth tax than you might have thought”.

The goals of a wealth tax

The IFS start with the fact that

wealth

and that ….

wealth old 2

Wealth is increasingly associated with being old

wealth old

and concentrated in housing and pensions

wealth2

Many people may have wealth tied up in assets but little income.

wealth 3

There are very few countries in Europe which still have meaningful wealth taxes and this reflect the historical fact that wealth taxes tend to be introduced after a major crisis. There have been few major crisis of late and the last one was dealt with through cuts in public services and increases in taxes on spending which hurt the poor most.

At an abstract level, a wealth tax seems to be aligned with the goal of a fairer tax system, but clearly it is a tax that will present practical difficulties to introduce.

Reasons we don’t have a wealth tax (on the living)

A large part of the IFS presentation focused on the practicalities of introducing and maintaining the taxes. In particular issues of avoidance (trusts, emigration, borrowing), valuation and liquidity.

But despite the issues surrounding a wealth tax, the IFS pointed to recent public opinion polls that suggest that we are ready to see a wealth tax in Britain for the first time (the land value tax introduced in 1909 was repealed ten years later when it was found that it was costing more to administer than it collected). The last time the UK looked at a wealth tax was under Harold Wilson’s Government in 1974.

The IFS will be looking at a final report on whether Britain should have a wealth tax later in the year.

Gus O Donnell’s arguments for considering the hard problem are

  1. That with Covid-19 we have a “clear burning platform” for change
  2. We have a Government with a big majority
  3. There is a desire withing Government for genuine reform
  4. This can only be done at a time (like now) when we have a popular Treasury

While Covid’s health impact has been on the elderly and males, the economic impact is likely to be on the young and females. In terms of “least bad options” , tax increases and especially taxes that don’t hurt those impacted, appear  to score well.

A tax on the living or a tax on the dead?

The meeting concluded by thinking about inheritance tax, a tax that has fallen into disrepute,

O’Donnell pointed out that the council tax which was brought in to replace the hated poll tax started well and has also fallen into disrepute.

According to O’Donnell, introducing a new tax (or a package of new taxes) would be easier than to reform a broken tax (where the losers would shout louder than the winners).

Whatever the solution that the Treasury choose, it is clear that it’s going to be tough. In a modern way of living, the new taxes we pay should respect the way we want to live our lives. Right now our tax system doesn’t look like it pays that respect.

Now is the time for us to talk about  the way we fund our way out of the pandemic and this was a good start to that debate.

gus

Gus O’Donnell

 

 

 

 

Posted in pensions | Tagged , , , , , , , | 4 Comments

Public and private sector partnerships in pensions.

Posted on July 2, 2020 by henry tapper

 

Romi Savova

Mick McAteer of the Financial Inclusion Centre and Romi Savova of Pension Bee

 

I have a high regard for Mick McAteer, someone who’s passion is compassion. Mick fiercely believes in the primacy of the public sector in delivering pensions in the UK and he argues against private initiatives that he sees diluting the impact of state sponsored projects.

His Financial Inclusion Centre mobilizes publicly held money to be put to work for social good.

 

Mick’s view, as the views of others such as Jeannie Drake and Gregg McClymont inform and temper our thinking. Without the interventions of the state, we would follow the dystopian world of unchallenged capitalism which has led to consumers seeing value destroyed.

This position means that even on issues of sustainability, state sponsored initiatives are promoted and private work denigrated

I don’t share this view and though I am not an economist, I see evidence , even in this time of pandemic of the private sector delivering answers to the nation’s problems.

Banking

So let’s look at three areas where the private sector is serving the public interest

Macquarie Infrastructure Debt Investment Solutions (MIDIS) has raised £2.7 billion in commitments from predominantly UK corporate pension schemes, local authority pension schemes and insurance companies in the latest round of fundraising for its UK infrastructure debt strategy.

MIDIS raised more than £220 million via its second UK focused pooled fund targeting investments in inflation-linked debt in essential UK infrastructure businesses. A further £2.5 billion of commitments was raised to invest alongside the fund through separately managed accounts.

Many maturing defined benefit pension schemes and insurance companies have increased their exposure to inflation-linked infrastructure debt seeking to better match their inflation-linked liabilities. Investors have also been attracted to the prospect of higher returns than those offered by other assets with inflation protection and the lower risk profile of the asset class when compared to corporate debt

Insurance (pensions)

In the middle of June, Legal & General released a report called the power of pensions in which it suggested that the massive flows of defined benefit pension schemes to bulk buy out could release money that can plug the £200bn gap in funding for further infrastructure projects.

power

Data (dashboards)

There is a third area where the public and private sectors can work together and it is in the gathering and distribution of data sharing.

Increasingly our financial affairs are simplified by ready access to data. The open banking initiative, the general data protection requirement and the development of the Government Gateway have meant that we can gather data about our savings and out tax affairs online and do everything from paying tax-bills to consolidating pensions from our phones.

For this to happen, Government has worked with the private sector to establish protocols and police behavior to ensure that the public can do what they need to do in real time without fear.

But I fear that progress towards a goal of consumer empowerment, where people can look into their pensions and make informed decisions on where they want their money invested and how they want their retirement wages paid to them is under threat.

It is under threat from the well-intentioned but ultimately regressive views of those who want to take the private sector out of the dashboard project. Consumers have already seen promises of pension finding, data aggregation and dashboard delivery slip back year after year.

A long history of state and private sector collaboration

nigelThere is a long history of successful projects where state and private sectors have worked together to deliver good. That history continues to this day as is evidenced by the banking activities of McQuairie and the Insurance activities of Legal & General.

It is up to those on the skeptical left, Mick and Jeannie and others, to accept that the aims and aspirations of the private sector. People like Nigel Wilson, L&G’s CEO,  of Macquairie’s Alistair Yates (who shared the MIDIS fund with me) and with the data sharers such as Romi Savova of Pension Bee are not financial hooligans but business people who organise wealth to meet the needs of society. Whether this be through private sector investment or the generation of taxable wealth, the business of finance is to mobilise capital.

Those who work in public service must trust these people just as we must respect those who work to protect the public within Government. That is the way it is, has been and will be.

wilson and

Guy Opperman (Pensions Minister) and Nigel Wilson (CEO L&G)

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Keating and Clacher ask “Why do DB Funding levels matter?”

Posted on July 1, 2020 by henry tapper
Ian con

Iain Clacher and Con Keating

Scheme funding is now the principal risk management tool for DB schemes, a development which has been encouraged by parliament and the regulatory authorities. It appears that the answer to everything is ever more funding of the pension promise and at the heart of this approach is the risk of sponsor insolvency.
The purpose of funding appears now to differ between secured accrued debt and paying pensions obligations. Historically, for DB pensions, this purpose was to provide security for the promise accrued, or earned and unpaid, up to the date of insolvency. It has changed to funding being adequate to pay all pensions as they become due or to purchase a contract replacing the as-yet unearned future benefits promised in the case of DB pensions.

This change of purpose significantly raises the level of funding required, which is costly to the sponsor employer. In previous blogs we have commented on the inequitable nature of this latter interpretation.
In this blog we shall investigate the costs that these funding strategies impose on the sponsor employer and conduct a small thought experiment to illustrate the nature and magnitude of the issue.

We abstract from the complexities of a full DB pension scheme, and consider a zero-coupon 15-year bond issued at a yield of 6% p.a. which we can view as a simplified approximation of the costs (of the employer) and benefits (to the employee) of a pension scheme.

The bond matures at par (£100) and the initial subscription is £41.73 (the discounted present value of the par value, where the discount rate is 6%). We choose 6% as the yield on this bond as our analysis of a small number of DB pension schemes has shown the average contractual accrual rates (CAR) of their stock of undischarged awards to lie in
the 6%-7% range.
If this rate appears high, given current market yields, it should be remembered that it is the result awards made over a history stretching back as far as the 1960s and perhaps even 1950s. One notable feature of DB schemes is that awards made in the mid and late 1970s may have embedded very high accrual rates – in many cases over 14% at the time of award.

Subsequent experience and revised projection assumptions have lowered this rate materially, to less than 9%. This is principally the effect of far lower than assumed wage and price inflation, countered by increasing longevity.
Returning to our thought experiment, we next consider the position after one year, when the accrued value of the liability is £44.73 on the contracted terms. As above, this figure may be derived as the discounted present value of the ultimate payment (benefit) or the accrued value of the subscription (contribution) using the 6% contractual rate.

Let us also consider the effect of using an externally chosen discount rate, say, the gilt yield for the remaining 14-year term. Assuming the gilt-based discount rate is 1%, then the reported value of this liability is now £87.0.
Ordinarily, these values would be immaterial if no action is based upon them. However, to maintain the comparison with pensions we now introduce a collateral security funding arrangement for the obligation, in the amount of these reported values.

conian

The difference in required funding cash flows is stark. It is immediately obvious that these funding strategies cause this obligation to differ in its effective term or duration, and with that their cost.

The original unsecured bond was 15-years. The secured 6% CAR-based accrued liability has a duration of 9.06 years, and the 1% discount rate variant has a duration of just 2.70 years.

The cost to the sponsor company in the unsecured case, where the obligation is funded at maturity, is 6% p.a. This rises to 10.13% p.a. when funding to the CAR level is required, and 38.07% for the 1% discount rate case.
A sponsoring company might well be prepared to accept a 15-year 6% obligation, and perhaps even a 9.06 year 10.13% obligation, but it is difficult to believe that any company would knowingly sign up for a 15 year 6% bond which could be foreshortened to a 2.70 year obligation at a cost of 39.07%.
This thought experiment illustrates the method by which DB pensions have become ’unaffordable’ even though there has been no material increase in the ultimate amount payable. It is the arbitrary application of exogenously sourced discount rates.

Investment returns and funding strategies

To estimate the cost of these different funding strategies to the sponsor company, we have assumed no investment returns. However, if we assume an investment return, we observe a fuller picture.  A return of 6% p.a. (1) is particularly informative.  At this rate, there is no cost to the sponsor beyond the initial contribution made at the time of award.

By contrast, an additional contribution of £42.77 (2) is still needed for the 1% discount rate case at the year one valuation. This contribution like all other assets in the fund will need to earn 6% per annum. This means that, in future, it will result in surpluses relative to the 1% discount rate liability valuation (assuming the discount rate remains at 1% for the remainder of the liability and is not decreased by other exogenous factors such as government largesse and QE).

This contribution is effectively an advance to the scheme on which it will earns the subsequent surpluses. If the excess funding (relative to valuation) can be extracted (3) at the time of occurrence (which is unlikely) the advance has an average life of 7.19 years, and 14 years if it cannot be recaptured before the discharge of the pension(s).

The practice of spreading large contributions over several years as a form of ‘deficit repair schedule’ is now common with changes to average schedules published annually in the Purple Book.

While having a schedule may alleviate a sponsor’s immediate liquidity concerns, it does little other than shorten the term of the advance i.e. . and these contributions still all earn the investment return of 6% p.a. in our example.

It may be that a 6% p.a. return on capital is competitive with the long-term investment opportunities available to the sponsor company, but this has the unique feature that, when market discount rates are used, its timing lies outside of the control of the sponsor employer.

Concluding Remarks

As pension funds are often promoted because of their long-term nature, it is worth noting that any contributions to a scheme, beyond the initial contribution, which constitute part the long-term capital of the scheme come about by extinguishing a long-term liability of the company.

There is no net gain in long-term investment. In fact, it may be that there is a reduction in productive investment as the money that comes into the pension scheme is invested in the financial economy i.e. existing assets e.g. equity in the secondary market or credit that is already in issuance.

This thought experiment is intended to illustrate the extreme dependence of the sponsor company’s cost of provision on the level of funding imposed and the shape of this through time. We have kept this to a single valuation, but it is perfectly possible to extend this analysis to include multiple dates, stochastic variation, and adjustments such as ”prudence”,but there would be little by way of new insight to the logic illustrated here.

Taken together, funding is a very inefficient and incomplete solution to the risk management problem of DB schemes, namely sponsor insolvency.

(1) If the investment return is just 1%, the sponsor cost is the single contribution of 44.85% for the 1% discount
rate case, while the cost for the CAR case is 9.44% p.a.
(2)This figure is the discounted present value at 1% less the initial contribution and the accrual on that of 6%.
(3) We have ignored the taxable nature of withdrawals from the fund.
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Trustees have nothing to fear from making members money matter

Posted on July 1, 2020 by henry tapper
glesga

Pension scheme members can be passionate about pensions!

“How can schemes make ESG compliance meaningful?“

that’s the question Angus Peters of FT’s Pension Expert asked his readership. It may not sound the snappiest of headlines but here’s what followed and after spending yesterday afternoon at the launch of Making My Money Matter, I’m pleased to hear a journalist speaking with some conviction.

 The UK pension industry’s first attempt at compliance with new sustainability reporting rules has left campaigners unimpressed, to say the very least.

Two-thirds of pension schemes in the UK failed to even submit their revised statements of investment principles, required to outline positions on environmental, social and governance risks, by the October 2019 deadline.

Analysis of their content by the UK Sustainable Investment and Finance Association suggested heavy use of boiler-plate statements drafted by consultants, and the organisation called the regulator’s response “as vague as trustees’ statements”.

How do we get beyond compliance?

The change that is needed is in the mindset of trustees who still see their job as managing the scheme to the rules. The rules say you minimize risk and so you don’t take the risk of embracing ESG as the guiding principles of your scheme. You do the minimum required to comply with the law and that means boiler-plate statements that nobody reads.

Yesterday Make My Money Matter launched a campaign to get some intention into pensions. On its website are two templates, one addressed to employers, another to pension providers, there should be a third , to trustees. Because despite the noise about workplace pension £2trn of the £3trn in UK pensions is under the control of trustees and committed to paying defined benefits.

Dear trustees

I’m getting in touch about my company pension. I’d like to know what impact our pension investments are having, and if that impact is aligned with our organisation’s values?

Through our pension fund we could be investing in things like fracking, arms, and tobacco. I think it’s important we find out if this is the case.

Can you tell me where our company’s pension fund is invested and what it’s doing for the world? And could you let me know what alternative options might be available to us to make sure our pensions are helping create a world we want to retire in to?

If you’d like to find out more about how we could have this conversation please visit Make My Money Matter.

I appreciate your support and hope this conversation will lead to our organisation having a pension we can all be proud of.

Thank you,

In Pensions Expert, Stuart O’Brien of Sackers explicitly mentions Make My Money Matters. Commenting on the failure of many trustees to talk with scheme members about what the trustees are doing, he says this reticence to give members the full picture extends even to schemes that are leading the market in terms of what they actually do:

“There’s a surprising amount of nervousness around putting information out there for members.”

Cautioning schemes to embrace transparency before it is forced upon them, he adds:

“There’s a risk here that if trustees don’t start being more transparent with members, we’re going to have organisations like Make My Money Matter putting pressure on them to do more. Some of that pressure might be well-intentioned, but not necessarily appreciate the environment within which trustees operate”.

As the “G” in ESG stands for “governance”, perhaps it would be in the trustee’s interests to help them understand this environment. Maybe I’m being naive but I thought the direction of travel of the Pension Schemes Bill was directly aligned with the direction of travel of Make My Money Matters.

While I appreciate that ESG can create conflicts between employers and trustees and that sponsors need to have a say in the management of scheme assets, I do not see why these conversations should not be explained to members.

Rather than fearing MMMM, trustees could be reaching out to them. Rather than worrying about receiving emails using the template above, they should be sending out requests to members asking them to look at  https://makemymoneymatter.co.uk/make-a-change/

Indeed the chair of trustees of HSBC, Russell Tricot, was featured in yesterday’s launch and he spoke feelingly of the trustee’s duties. HSBC’s staff scheme, we should remember, has fully embraced the principles of ESG and is largely responsible for the FutureWorld fund run by L&G.

Make Members Money Matter

We are in no ordinary times, we can go two ways. Either we can lock down or look up. Locking down into the old ways of investment risks missing a chance to engage with members on the management of their money. All the research suggests that ESG clearly matters to people when properly explained.

Trustees have the opportunity to reach out to popular movements such as MMMM or to react to them.

I urge trustees to go to Make My Money Matter and make a pledge

 

Posted in pensions | 2 Comments

Making My Money Matter – all a little bit polite.

Posted on July 1, 2020 by henry tapper

MMM

It didn’t feel like winning, it didn’t feel like losing. The launch of Making My Money Matter has just over 500 attendees and featured accomplished performances from Richard Curtis, Mark Carney, Helen Dean, Gillian Tett , Tanya Steele and Russel Picot.

Everyone spoke well and there was a chance for pre-selected questions to be answered but something was missing. I realized what it was when I pressed on Quietroom’s video. What was missing was the passion of the people speaking from outside the tent.

This is going to be the challenge for MMMM.  In terms of PR, the event has not registered, even in the pensions trade press.

If you google My Money Matters this morning , the listings are headed by an enterprising IFA whose website leads insidiously to a data capture not to Making My Money Matter but to the servcices of The Path Financial Ltd, Watch Oak, Battle, TN33 0YD.

There is no story, there is no protest, it is all feeling a little over-sponsored and underwhelming.

What is the call to action?

There are three calls to action on the MMMM website but they are going to need to be a lot louder than they are right now for this campaign to catch alight.

You can sign their petition ,

Together, we call on all UK pension funds to put people and planet on a par with profit when investing in our pensions.

Unfortunately doing so triggered me subscribing to an MMMM newsletter and I’m not clear who I’ve petitioned and how our call is going to influence UK pension funds to change their behavior.

You can share the campaign

This link allows you to send tweets mentioning up to ten pension providers which include (bizarrely) AXA, but don’t include L&G, Aegon or any of the 42,000 occupational pensions that don’t have master trust authorization.

Sorry to sound a little less underwhelmed but I don’t see anything in these calls of action that is going to catch the popular imagination.

This campaign is competing against some pretty powerful grass roots campaigns such as #BLM . It is going to have to speak with considerably more conviction and power than it has so far if it is going to extend the argument beyond the 500 who tuned in yesterday.

You can email your employer (or pension provider)

Here’s the text

Dear employer,

I’m getting in touch about my workplace pension. I’d like to know what impact our pension investments are having, and if that impact is aligned with our organisation’s values?

Through our pension fund we could be investing in things like fracking, arms, and tobacco. I think it’s important we find out if this is the case.

Can you tell me where our workplace pensions are invested and what they’re doing for the world? And could you let me know what alternative options might be available to us to make sure our pensions are helping create a world we want to retire in to?

If you’d like to find out more about how we could have this conversation please visit Make My Money Matter.

I appreciate your support and hope this conversation will lead to our organisation having a pension we can all be proud of.

Thank you,

there is a variant to the pension provider you can access here.

How will MMMM prosper?

It is going to have to tap into the deep wells of passionate support for change in a way that Greta Thunberg has and yesterday’s launch didn’t.

There appear to be a number of PR agencies and communication specialists on board but beyond the Quietroom video, I don’t see much on the MMMM website that is going to get people moving. The under thirties I introduced to the launch tell me the same.

People are going to have to buy into Richard Curtis and Mark Carney for this to happen and the two star turns are conspicuously absent from this blog because I have very little I can remember from what they said yesterday which I haven’t heard many times before.

So what can I share with you this morning?

I wrote this down because it was repeated throughout the morning, I believe the source is an article on Nordea.com

Your pension, savings or investments could have 27 times more impact on your carbon footprint, compared to all other activities combined.
I could also share the blog of Nossa Capital, which is integrated into the MMMM website. But I’m not going to because it is infact a call for you to subscribe to Nossa Capital’s newsletter.
I want to share with you my passionate belief in the power of people to make our money matter. But I do not feel that this campaign has reached out beyond the 500 or so who logged on to the webinar.  I will continue to promote the campaign with what reach my blog has, but right now I feel it has yet to find its spark.

 

Right now it all feels a little too polite

climate-trump

Remember what we’re up against

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For workplace pensions value for money means……..

Posted on June 29, 2020 by henry tapper
VFM like justice must be blind

 

 

One of the questions in the FCA’s consultation on value for money is whether its definition is ok or whether we can find a better one.

This is our definition

Pension value for money’s measured by the amount we can spend for the amount we’ve saved.  It takes into account the quality of service we’ve received and the amount we’ve paid in charges.

This is the FCA’s

The administration charges and transaction costs borne by relevant policyholders or pathway investors are likely to represent value for money where the combination of the charges and costs and the investment performance and services are appropriate
a. for the relevant policyholders or pathway investors; and
b. when compared with other comparable options on the market.

We think ours wins for four reasons

    1. Ours is inclusive, the FCA’s specifically relates to what IGCs are concerned with but doesn’t talk to people who contribute to defined benefit plans , members of trust based DC schemes and those who save outside the workplace. We prefer a universal measure – it was what the Work and Pensions Select committee called for
    2. Our is intelligible using phrases that people use in everyday speech. The FCA’s definition sounds like it was written by lawyers.
    3. Ours is structured to divide what ordinary people measure (outcomes and contributions) from what experts measure (costs and charges and quality of service). The FCAs is hinging the definition on a value judgement, what is “appropriate”. The prominence of this word in the definition suggests that VFM is out of the ordinary person’s reach.
    4. Ours does not require intimate understanding of the markets but is based on a simple metric – contributions against outcomes. This metric can be benchmarked because it is the internal rate of return – something common to all funded pensions.

Let me expand on that final point. If you read the articles of Iain Clacher and Con Keating, you will recognise that even Defined Benefit plans are based on am implicit rate of return which links assets to liabilities. If over time schemes cannot achieve this return they fall behind and can’t pay the pensions, the payment of pensions then becomes a problem for the sponsor (usually employer).

In Defined Contribution plans there is very rarely an internal rate of return implicitly targeted. One exception is Prudential’s workplace pension which has been set a target by its IGC of CPI + 3% as the return members should be getting. This doesn’t guarantee members any kind of pension but it is the benchmark internal rate of return for members.

The IGC can – using their own definition – tell members whether they have been getting value for their money by measuring how many have beaten the benchmark. This is a complex way of telling people what they can spend for what they’ve saved and it relies on all contributions going in being measured against what’s left after all monies have been taken out. Except where the money out has been a partial transfer or a drawdown, “what’s left” is the net asset value.

Since the money to be spent counts for most of what we value in a pension, we consider the impact of charges and the quality of service are of secondary importance. If someone has had a very high quality of service, they may forgive poor outcomes (the basis of the SJP business model). If the cost of managing the money is very high but the outcomes are good, then there may still be value for money (the private funds model). People can take into account high costs and high levels of service and still consider they’ve had value for money.

Phoney VFM

If the 100 or so IGC reports that I’ve read over the past five years are to be believed, 98% of the time VFM has been achieved. This begs the question – relative to what? The FCA are keen that benchmarking happens, but other than league-tabling the admin costs of workplace pensions to employers, they haven’t found a common benchmark.

We could take the Prudential’s CPI +4% and at AgeWage we seriously considered measuring IRRs against this. We rejected this as we thought that with 60m DC pots , a better benchmark would be the average return of the 60m pots. Ultimately we hope that AgeWage scores tell you how you have done relative to everyone else (simply by reinvesting your contributions in a benchmark fund representing the average person.

Which begs the question, how did 98% of people do better than average? We can only conclude that 50% of people did better than average and the rest is fake news resulting from a phoney marking system – phony VFM.

What of quality of service and cost and charges?

The best advisory service I ever saw was delivered to the steelworkers at Port Talbot. Their every need was catered for, right down to application forms being taxid to their doors. A high quality of service does not mean a great product and ultimately you can only paper the cracks so far (and this is not a pop at SJP who have realized this and are doing something about it). But generally there is a correlation between quality service and good outcomes which means service quality is not only a part of the equation but a validation of the assessment.

High charges are a flag that something may be wrong in the governance of the plan and even when returns are high, there is something to worry about. But we need to understand what charges really are before we say a charge is high or low. You get a lot for Terry Smith’s 1% AMC. As I’ve pointed out many times, some of the AMCs displayed by Fidelity and Old Mutual (two examples only) show only a small amount of the charge (with much of the charge hidden in the unity price) . Workplace pensions with combination charges are further examples.

We need to take account of costs and charges and quality of service in the VFM assessment but they should not drive the assessment itself. Ultimately what matters to savers is outcomes.

So what do you think?

We think our definition of value for money is one that could catch on. It’s not the snappiest but neither is it superficial. We hope it starts people thinking.

We do believe that if people feel they have a way of testing the value they get for their money , they will be more likely to engage with this complex intangible thing – called a pension pot.

We’ll be finding more about that as we test our AgeWage scores in the sandbox, but in parallel we’ll be testing our definition and that process starts here!

Please drop a comment on the blog or email henry@agewage.com  with your thoughts or what you consider better alternatives.

 

 

AgeWage evolve 2

 

 

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One love or schism?

Posted on June 29, 2020 by henry tapper

“Batley and Spen is a gathering of typically independent, no-nonsense and proud Yorkshire towns and villages. Our communities have been deeply enhanced by immigration. While we celebrate our diversity, what surprises me time and time again as I travel around the constituency is that we are far more united and have far more in common with each other than things that divide us.” – Jo Cox (from her maiden speech in parliament -2015).

-ism; “the grand narrative”?

-ism is a suffix in many English words, originally derived from the Ancient Greek suffix -ισμός (-ismós), and reaching English through the Latin -ismus, and the French -isme.[1] It means “taking side with” or “imitation of”, and is often used to describe philosophies, theories, religions, social movements, artistic movements and behaviors.[2]

The suffix “-ism” is neutral and therefore bears no connotations associated with any of the many ideologies it identifies; such determinations can only be informed by public opinion regarding specific ideologies.

When I talk of a grand narrative, I mean a way of explaining the world so that it makes sense to us in a grand over-arching way. We find isms everywhere, in 2015 Webster’s dictionary made -ism , its word of the year as it had appeared in more searches than any other. Perhaps we are looking for grand ideas, but all too often, the grand ideas collide and clash with each other. This is happening now, as people try to make sense of things at a confusing time. Take this tweet

Racism is a grand narrative that explains the subjugation of one race by another. Zionism is a particular kind of racism , colonialism another and anti-semitism another, these words are informed by public opinion. When we start out with one -ism , we can easily end up with several

 splitter

A schism is a split or division between strongly opposed sections or parties, caused by differences in opinion or belief. 

Like many isms – it is a grand narrative gone wrong.

One love!

Bob Marley’s great hymn is the antithesis of schism. It is what Jo Cox was talking about and it brings people together. It brings black and white together, Jews and Palestinians , it heals the scars of colonialism.

I cannot think that we will prosper if we use the language of schism. We start with  a divided and unjust world  and reach out to a world where all are equal.

But that world is not another world. In olden days, preachers said that “heaven is under the earth” . That kept those who were oppressed, oppressed. The same man who wrote “One Love”also wrote “Get up, stand up” a song which demands we take action on earth.

Most people think,
Great God will come from the skies
Take away everything
And make everybody feel high
But if you know what life is worth
You will look for yours on earth
And now you see the light
You stand up for your rights. Jah!

It is possible to hold the idea of “One love”, while battling to free yourself from prejudice. I take it what the very wonderful Steve Simkins is saying here!

Steve Simkins

That final insight is very fine.

“One love” or schism

We can approach the injustices in this world in one of two ways. We can deal them by thinking positively in the spirit of one love, or we can throw rocks at each other and drive ourselves apart.

The lady in the tweet quotes Nelson Mandela, but she quotes the young Mandela who fought the law with violence. The old Mandela changed the law through love.

We can choose to fight inequality with violence or with love. I think love is more successful.

Posted in Big Government, pensions | Tagged , , , , | 2 Comments

Sweden – a stark warning for Britain?

Posted on June 28, 2020 by henry tapper

sweden

COVID-19 is really putting Sweden on the map, and maybe for the wrong reasons.

Unlike most EU countries, Sweden did not try to shut society down. It closed schools for the over-16s and banned gatherings of more than 50 people, but otherwise relied on Swedes’ sense of civic responsibility to observe physical distancing and home working guidelines. Shops, restaurants and gyms remained open

Authorities argued that public health should be viewed in the broadest sense, saying the kind of strict mandatory lockdowns imposed elsewhere were both unsustainable over the long run and could have serious secondary impacts including increased unemployment and mental health problems.

These are not the arguments being employed in the United States but the results are similar in terms of infections per 5 million population.

brazil2

Sweden is now the Covid country of Europe and though Sweden may argue that it’s death rate per infection is low (511 deaths per million against our 650) , it look like popular support for the strategy is beginning to wane.

An Ipsos survey this week for the Dagens Nyheter newspaper showed confidence in the country’s management of Covid-19 had fallen 11 points to 45% since April, with backing for the national public health agency down 12 points.

The proportion of respondents satisfied with the centre-left government’s actions in the pandemic also fell to 38% in June from 50% the previous month, while the personal approval rating of the prime minister, Stefan Löfven, also slid 10 points.

The political consequences of high infection numbers is also important in the United States.

Over the past two months, Mr Trump’s approval ratings have nosedived, first because of his heavily-criticised response to the coronavirus pandemic and, more recently, his reaction to the antiracism protests following the killing of George Floyd by a Minneapolis police officer. Although most developed countries have succeeded in bringing down sharply the number of cases, the US on Thursday saw its biggest one-day total of new coronavirus infections as the pandemic spreads in southern states such as Texas, Florida and Arizona.

A lesson for the UK?

The UK has yet to see the kind of surge in cases we have seen in the US or Sweden , but we seem to be doing our best to catch up.

Having had the very worst numbers in Europe through the early days of lockdown, we appear to be putting ourselves “on the knife-edge”. Last night saw a rave on Clapham Common and isolated instances of youthful insouciance are all over social media.

We have got to keep ahead of the pandemic and if we do the right things in June ,July and August, medical experts say we can avoid a big second wave.

Public health is based on trust, testing needs to be in place, the vulnerable must be protected.

Perhaps the strongest safeguard that Britain has is the political imperative. Getting it wrong, whether for good or bad reasons, means losing public trust and no politician wants to lose its public.

 

Posted in pensions | 2 Comments

“Make my Money Matter” launches Tuesday; here’s your invitation

Posted on June 28, 2020 by henry tapper

Make My Money Matter, spearheaded by Richard Curtis, Co-founder of Comic Relief, is launching a movement calling for the trillions of pounds invested in our UK pensions to build a better world – one that puts people and planet alongside profit.

After all, what’s the point of saving for retirement if we don’t have a world we want to retire into?

On Tuesday 30th June, there will be a   panel discussion and Q+A with leading sustainable finance, climate and pensions experts.

Moderated by Gillian Tett, Chair of the Financial Times Editorial Board, speakers will include:

Richard Curtis, Founder of Make My Money Matter

Mark Carney, United Nations Special Envoy for Climate Action and Finance, and Former Governor of the Bank of England

Helen Dean, CEO of Nest

Tanya Steele, CEO of WWF UK

Russell Picot, Chair of the Trustee Board at HSBC UK Pension Scheme

Make My Money Matter

I’m very pleased that after a long gestation, this initiative is now launching to the public. There is nothing that could be better for our pension money than to put it to responsible use.

Those of us who have been invested in responsibly invested funds during the past four months know that we have profited from the management of our money in this way.

I split my pension pot four years ago 50/50 between a passive fund with no responsible investment and a passive fund with the same allocations but strong tilts towards environmental sustainability , social value and good governance. I am £6000 better off for moving money into responsible investment and would have been £12,000 better off if I’d moved it all!

It will not always work like this but it is time we recognized that investing for good makes long-term financial sense for savers.

And it’s great to watch this video on the landing page of the MMMM website. This reminds me that getting people involved with their pensions as a force for good leads to the kind of behaviour that leads to better retirements!

It’s well worth you giving up some time on Tuesday (30th June) 13:45 – 15:00 BST to hear about

PENSIONS  WITH  INTENTION – YOU CAN REGISTER HERE

 

 

Posted in age wage, ESG, pensions | Tagged , , , , , , , | Leave a comment

The FCA promote a secondary market in workplace pensions

Posted on June 27, 2020 by henry tapper

FCA VFM

It’s an obscure section of a paper that will probably be read by a relatively few people expert in pensions. If I hadn’t published it this morning it might have been overlooked as it is buried deep in the cost benefit analysis of the FCA’s9 CP20/9  Driving Value for Money in Pensions

but it’s worth some discussion.

In what cases might an IGC/GAA tell an employer the scheme they ran for members was poor value for money?

4.21 We propose that for workplace pension schemes firms require their IGCs to
consider whether any of the comparable schemes assessed in the VfM assessment process offer lower administration charges and transaction costs.

This should drive competitive pressure on costs and charges of workplace pension schemes. We are confident that IGCs will have access to such pension scheme data to conduct this  comparison once scheme governance bodies begin publishing costs and charges information on their websites following our new rules in PS20/02.

4.22 We also propose new guidance that as part of this comparison, if any scheme offers lower administration charges and transaction costs, the IGC should bring this matter, together with an explanation and relevant evidence to the attention of the firm’s governing body and, if the IGC is not satisfied with the response of the firm’s governing body, inform the relevant employer directly.

The information referred to in PS20/02 is presumably

We proposed that provider firms must require that scheme governance bodies ensure all scheme members are provided with an annual communication which includes a brief description of the most recent costs and charges information available and how it can be accessed. This costs and charges information should include all the information set out in paragraphs 3.11 and 3.13 of CP19/10.

Should this include large employers with their own schemes?

The term “schemes” is ill-defined by the FCA and I am writing to the VFM team to discover whether it simply refers to the GPP offered to all employers on standard terms, or whether it refers to the special terms offered to employers for whom the provider has had to compete for business under a competitive tender. The terms for large employers like British Telecom from Standard Life will be very different from those offered to a start-up.

A comparable scheme to BT might be the terms on which Vodafone participate in the WTW Lifesight Master trust.  I would not expect IGCs and GAAs to be benchmarking  “schemes” which have non standard terms or funds, this is the job of pension consultants. I would expect “scheme” here to reflect the generally available terms.

A secondary market for smaller employers

The role of IGCs in escalating to employers is to make sure that employers who don’t have access to advisers, take action. PS20/06 includes in its cost benefit analysis this view of such employers.

Pensions products are often very complex, meaning that consumers struggle to
access and understand information about their pension. This makes any decision making about the value for money of their pension difficult for consumers. This lack of understanding also means that consumers have limited ability to exert pressure on their employers or providers regarding value for money.

Employers often lack the capability to challenge providers for the same reasons. There is also a lack of incentive on the employers’ side to ensure that their employees receive value for money in the long term. In DC pension schemes, employers are not liable for the final income that schemes provide for their employees, and employee turnover means that employers are further distanced from any long-term pressure to make sure their chosen pension scheme provides value for money.

The FCA is arguing for a secondary market where employers can review and replace workplace pensions. The IGCs/GAAs are there to promote change where change is needed. They cannot implement change and there needs to be a broking market for schemes as well, but they can be the agents of change.

I will also seek clarification from the FCA of the concluding paragraph

The combination of the complexity of pensions products and the misalignment of incentives for employers means that the demand side of the market for workplace pension schemes is weak. There is limited incentive for firms to ensure that their products provide value for money for their members.

Although the general sense is clear, it is as hard to work out what “firms” and “members” refer to as it is to tie down what the FCA mean by “scheme”.

Will this work?

For the FCA to see a more competitive market for savers into workplace pensions, it’s clear that employers are going to have to step up to the plate and the FCA thinks that IGCs can be the agent of change. This remains to be seen.

For the IGCs to tell the employers of the providers who employ them , to consider moving their workplace pension there will need to be considerably more distance between provider and IGC/GAA than we have seen to date. To date the FCA report only two instances of escalation by IGCs because of perceived poor VFM. Is there any grounds for thinking things will change?

The FCA are backing bench marking and are suggesting that where bench marking shows an IGC their provider is consistently in the relegation zone of any league table, they should demand an explanation of the manager and – should no satisfactory explanation be forthcoming – the IGC should recommend the manager be sacked.

This will only work if the IGCs become more independent, that the bench marking works and that employers feel, once prodded, that they are under an obligation to their staff to review and to change.

There are a lot of “ifs” here and having run the Pension PlayPen for 6 years, helping employers to choose workplace pensions, I am conscious that the numbers of employers who give a damn is quite small. There are relatively few advisers in this sector and those advisers who are active depend to be vertically integrated , typically advising employers to consolidate to their proprietary workplace pension.

Actually this is not a bad model. If advisers are to be incentivised to reach out to employers , they must have a means of getting paid and the accumulation of funds under management is a good way. Providing of course that the workplace pension run by the adviser is itself giving value for money.

 

pensionplaypen-350.jpg

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

Give the funds industry an inch and they’ll charge you for 20cm.

Posted on June 26, 2020 by henry tapper

london bus

London busses

It’s almost like having joined up Government. No sooner has the FCA’s consultation on VFM pinged into the inbox when along comes the DWP’s call for evidence on the charge cap. But I’m not complaining; “What Zoom has brought together may no blog tear asunder”.

But whereas the FCA consultation is a crazy-radical consultation, the DWP’s paper is just a call for evidence (which ends August 20th). It is a feisty paper which begs as many questions as it asks. Guy Opperman would like to see DC with social purpose – his department are nervous of the funds industry. The DWP want to protect small pots – HMRC are penalizing small savers. Pension policy isn’t easy, especially now.

I support the proposals in this paper but only if they are implemented as part of a consistent Government strategy which rewards the savers of small pots and makes it easy for small pots to be rolled into bigger ones.

First the important un-sexy stuff

The one new idea in the paper is to protect people with small pots from NOW’s £18 pa admin deduction . The DWP propose that flat rate fees are banned in certain instances

fee

This will be painful. The two levies alone make small pots uneconomic, small pots are already causing a lot of pain to master trusts and they are moving to combination charges out of financial necessity.

People’s Pension has now has a flat fee of £2.50 pa , some Smart members pay flat fees and many of the smaller master trusts have “combination charges”. NEST is not impacted because its combination charge is different, it comes from the contribution not the pot.

There are rules around combination charging already and it’s worth noting that there are occasions when NEST’s combination charges has the impact of breaching the cap. For savers close to drawing benefits, NEST’s 2% contribution charge is very expensive.

The DWP are open to further criticism of market distortion by leaving NEST alone while threatening to remove the spark plugs from its rival’s financing engine.

Government is not in a strong position either as owners as NEST or as the collectors of taxes and the granters of savings incentives .  While the DWP get exercised about combination charging , HMRC are failing to fix an excess 25% contribution charge that  they  promised low-earners in net pay DC schemes – something that’s costing those who are in net pay schemes but pay no income tax around £63pa.

So just why are the flat rate chargers getting singled out? I can hear “disgusted of DWP arguing to the likes of NOW

but hold on: you took all these members on thinking they could safely charge their pots (employer’s money, taxpayer’s money, savers’ money) down to zero? Despite all the noise being made Work and Pensions Select Committee, Pension Bee and others? Why is that OK for you, when it’s not OK for the insurers, who for once are on the side of the angels

I think the flat rate charge on small pots is wrong but I don’t think its fair to demonise Peoples and Now and angelify L&G and Aviva,

The insurers have a culture of mono-charging which arrived with stakeholder pensions. They are set up to take their money at the back end of contracts which is what a mono-charge does.

The commercial master trusts (e.g. everyone but NEST) have done the heavy lifting during auto-enrollment while the insurers cherry- picked business.

Were it not for the commercial master trusts there would have been no choice for most small companies and that would not have played well. The legacy of being open for all is that most of the auto-enrolling master trusts already have more deferred members than active and actual pot sizes are so low as to require flat rate charging.

While the DWP are telling the master trusts, “you entered into this with open eyes”, the master trusts have every reason to feel let down.

The DWP are right to take on the ruination of small pots but there needs to be a quid pro quo in this.

If the Government wants to force People’s , NOW, to a degree Smart and several smaller master trusts it’s got to give them the means to mitigate the existential risk of small pot proliferation.

  • It must allow small pots to be exchanged in bulk between master trusts (what is not supposed to be known as prisoner exchange

prisoner exchange

  • It is going to need to detach the pension finder service from the dashboard build so that aggregators like Pension Bee and others can link into the databases of the big auto-enrolling master trusts and grab small pots.
  • Its going to make it clear that the rules that apply to DB pensions don’t apply to DC pots – certainly pots which have no need for safeguarding and that means modern workplace pensions.
  • Finally it’s going to have to fix the net pay problem because big Government is looking totally idiotic no paying promised incentives into the poorest pots.

Right now the direction of legislation is to make it harder not easier for ordinary people to transfer small pots and it looks as if moves to safeguard DB benefits may have the unintended consequence of slowing transfers down even more (Lords look to mandate guidance on pension transfers)

small pot

a proliferation of small pots

Now for the sexy stuff.

All this pounds shillings and pence stuff concerns the little loved pension poor and is  a million miles from where the action is in “the funds industry”.

Here the talk is of whether Guy Opperman’s plans for infrastructure and Private Equity firms plans for private equity are going to be dashed because the DWP impose an all inconclusive charge cap. It should be remembered that transaction charges were originally included in the charge cap.

Back in 2014 the IMA had argued that there was no way to identify hidden charges and indeed there wasn’t. They were hidden for a reason. The IMA went so far as to joke that hidden charges were like the Loch Ness monster

But 5 years later things are different , we can get the hidden costs and the FCA has adopted slippage as the way of measuring them. Of course there are ways of cheating at charges but (like golf) if you get caught cheating, there are ways of excluding you from the party. The charge cap is a way of excluding high-charging fund managers from the party.

So the argument is that the old objection has gone.  But there is a new objection to having an inclusive charge cap and that is it would stifle innovation and mean that the fourth road bridge can’t be repainted at the pension scheme’s expense.

If you’ve been reading Chris Sier’s articles in Pensions Week or on here , you’ll know that as soon as Trustees get a billion quid to play with , they go out and buy expensive asset management which usually turns out to do what cheap asset management does – more expensively.

The argument is that  this privilege should be extended to DC. Fortunately, people who run DC schemes are generally commercial animals that know that anything they spend on fund management is money they can’t spend managing pots of less than £100 for 0.75% (especially when they’re laying out 0.9% to pay the levies).

In short the platform managers of workplace pensions are not going to be buying expensive versions of what they can buy cheaply (for all the undying love of the fund management industry).

Fund management is actually a  pretty small cost for a DC platform manager. But it can become a much bigger cost if the hidden fees which were charged to savers now become part of the cap. That’s because those hidden fees are either going to put up the price (which isn’t going to make friends of employers and members) or it’s going to come out of the provider’s margin. So the provider’s platform manager is going to make sure that whatever’s bought has manageable hidden costs.

Putting hidden costs inside the cap makes them the responsibility of the platform manager. Continuing with the current regime means that firms like Fidelity who have hidden costs coming out of their ears, have to do something about them.

If you don’t follow my gist , here are the disclosed costs for Fidelity’s leading DC funds. (taken from this year’s  IGC chair’s statement which publishes  these numbers without comment). The bulleted numbers represent the impact of transaction costs on Fidelity’s three principle funds. These costs are not included in the annual management charge  which is what is capped.

Fidelity 10

Now if Fidelity had to declare those transaction costs in their AMC, they would be looking pretty expensive. But because they don’t include them in their AMC, they look very cheap.

If the Government want fund management houses like Fidelity to use proprietary funds in workplace pensions , they had better make sure that disclosure is on the total cost of ownership and not on a lite AMC with most of the charge being under the water.

charge

And if it’s not Fidelity it will be someone else, even the passive managers who can make more money out of stock lending and other rinki-dinks than they can our of AMCs.   Give the funds industry an inch and they’ll charge you for 20cm.

It really does make sense to include hidden costs in the cap and make sure that hidden costs in a default trend to zero. This is not going to bankrupt anyone, it is just going to make sure that private equity and other expensive asset hunters go fishing in other ponds.

Posted in pensions | 2 Comments

7700 letters sent – 80% of advice wrong – £350m in compensation; lest we forget.

Posted on June 24, 2020 by henry tapper
pension debate

It is good that steelworkers are getting compensation

On June 19th 2017 , 500 financial advisers crammed into the East of England showground’s hall to participate in the Great British Transfer Debate. It was originally to be a small meeting between First Actuarial and some IFAs, organised by Al Rush and myself. It’s explosion suggested that pension transfers were a much hotter topic than anyone had previously supposed.

Later that year Al Rush and I went to Port Talbot and reported back on what we saw. Jo Cumbo picked up on our reports, the Work and Pensions Select Committee interviewed steel men , the FCA and the BSPS trustees.

I got to speak of what I saw, Darren Reynolds failed to show up claiming he had been intimidated by Al, Al failed to show up being banned for allegations of intimidation. It was all rather messy, got a lot of headlines but the transfers went on.

We now know that one in five of those eligible to transfer did so and this resulted in over £3bn moving from a defined benefit scheme to a variety of DC plans, some of them wildly inappropriate for the steelworker’s needs.

The FCA has written to the 7700 steelworkers who took transfer values with a formidable intervention. This from New Model Adviser.

‘Our findings are sufficiently concerning that we have taken the formal step of contacting you directly and encouraging you to act. You should check the advice you were given and, where appropriate, complain in order to seek any compensation you are potentially due,’ Butler wrote.

The FCA provided the steelworkers with a link to its ‘advice checker’ which can help them decide if they should make a claim. It said that claims should first be made to the firm itself, before approaching the Financial Ombudsman Service (FOS). If the advice firm is no longer trading complaints will be considered by the Financial Services Compensation Scheme (FSCS).

Butler also warned steelworkers against using a claims management company (CMC) or a solicitor to make a claim.

‘It is quick and simple to make a complaint and you do not need to use a CMC or a solicitor to do this, if you do you will have to share any compensation you get with them.’

 

Mick McAteer, co-director of the Financial Inclusion Centre, a think-tank, and a former FCA board member, estimated the compensation bill could total more than £350m, on the basis that 80 per cent of members may have been given bad advice. The average value of awards so far made to BSPS members is £56,000.

We cannot allow this happen again – lessons must be learned

In a week when the FCA got a new CEO, it should be remembered that the FCA never went to that first Great Pension Transfer Debate, were nowhere to be seen in Port Talbot until the WPC put the wind under them and that it is now three years.

Although it is good that the FCA has finally taken steps to right wrongs and shut the stable door on contingent charging, it has acted too slowly.

The FCA cannot draw a line under BSPS with those 7700 letters, the cost of the compensation will be met by good advisers through PI bills and higher levies. Those costs will be passed onto people taking advice in the future. This bill could and should have been avoided by quicker and more decisive actions from the FCA and to a degree from tPR.

port talbot 4

The club where we first met steelworkers highlighted red

 

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A great report on tax injustice from the ABI at prayer.

Posted on June 24, 2020 by henry tapper

tory

The ABI has commissioned the PPI to model the impact of a flat rate tax-relief structure for DC pensions in the UK. The case for reform is evident from the PPI’s analysis of who’s getting what incentives.

But as the report reveals, there is a lot more to the ABI’s proposals than meets the eye.  I wonder whether the purity of the report’s main findings isn’t diluted by a partial analysis of the solutions on offer.

A brilliant explanation of the inequalities of pension tax incentives

Methodically and without emotion the PPI has dissected the UK pension tax-relief system to who it biased towards the wealthy, towards men, towards the haves and away from the “have nots”. In short, it shows the tax-system to be in a shocking mess and the sponsors to the PPI’s report, the Association of British Insurers are calling for change.

What is the report saying?

The report is talking specifically about DC pensions (that famous oxymoron) which implies that DC pensions should be treated separately from DB pensions

  • A flat rate of tax relief on DC pension contributions would increase the proportion of DC pension tax relief associated with basic rate taxpayers from 26% to 42%.
  • A basic rate tax-payer, who works and contributes continuously to a pension could get around one fifth more from their savings under the current tax advantaged system than under a non-advantageous structure.
  • A higher rate tax-payer could receive around half as much again from their savings.
  • For every £100 of DC pension contributions made from gross earnings or by an employer, £32 of income tax has been relieved.
  • The total value of contributions to DC pensions schemes was £29bn in 2018 from individuals and employers.
  • Around £9.3bn of income tax was relieved in respect of these contributions.
  • Since the implementation of automatic enrolment the proportion of pension tax relief going to those earning less than £30,000 has only increased from 23% to 24% despite the proportion of claimants increasing from 52% to 63%.
  • 71% of tax relief on DC pension contributions goes to men, who make 69% of the contributions.

The ABI issued comment as the PPI launched its paper noting that

“Basic rate taxpayers make up 83.4% of total taxpayers but only receive 26% of the pensions tax relief related to Defined Contribution pension contributions”

So what is the call to action?

The report will probably be remembered for the headline in light blue above. But it is surprisingly assertive in the remedy it calls for, moving DC pensions to flat rate relief (implying DB tax relief would remain unchanged).

The report says that introducing a different tax regime for DC pensions to DB pensions could prove tricky and give rise to “unintended consequences including arbitrage opportunities“.

It is surprising that the issue of reform across all forms DB pensions are excluded and no good reason is made in the report for doing so. It may be that the ABI as sponsors decided to stick to its own, having little skin in the DB game anymore.

It is also surprising that the report says little about the impact of employer contributions and so much about personal contributions. The impact of moving to flat rate contributions is that it could require higher rate tax payers to lose 50% or more of personal tax relief but also be lumbered with a tax liability of 20% or more of the employer contribution.

This impact is touched on lightly- but not modeled. It is – alongside the treatment of national insurance on pension contributions the most contentious aspect of the flat-rate proposal.

Is the PPI the ABI at prayer?

The reference is to the Church of England which is (in some circles) regarded as the Conservative party at prayer.

I am sure that the ABI policy team are devout believers in greater fairness in society, but they still guard the estate of the British insurance industry and Government incentives to drive pension saving remain one of the insurance industries great value adds.

relief

This chart does not split out the impact of DC tax relief from tax relief on DB pensions. Since the vast majority of pension contributions into DB and DC schemes are by employers, the chart really talks to the strain on the exchequer, not to the argument about personal tax-relief.

The net cost (the thin blue line) has risen from £23bn to £37bn over the first 17 years of the millennium.

Set against this, the cost of DC reliefs (estimated by the PPI) are quite small (£9bn).relief 2

If we accelerate the HMRC 2017 net number through to today and call it £40bn, then DC is not even a quarter slice

Dealing with DC in isolation from DB, means dealing with less than a quarter of the pension incentives budget . Which is odd.

It is hard not to see the report as a “local fix” not a societal solution. The ABI may have gone to church , but they seem to  control the order of service.

It is up to commentators such as me to explain that there are other churches and that while all churches agree on fairness, some see solutions to the societal problems differently than others.

Conclusions

It’s a good and timely report and its analysis of inequality is excellent. But it is only addressing a quarter of the Government’s incentives bill and the solution it models is a lot more painful to the mass-affluent than the report implies. Lumping a 20 or 25% benefit in kind tax on an employer contribution of more than £10,000 would not sit well in the aisles.

I would have liked the report better if it had focused on analyzing how the inequalities it highlights are created and less on modelling various flat rate solutions.

The report also takes a  swipe at CDC schemes

Being a DC scheme primarily operating as an alternative
to DB they present a potential conflict point in the system.

This is unworthy of the PPI who know better. (They are looking to run a project on CDC as an investment pathway for DC funds). There is currently no DB pension scheme looking to convert to CDC nor any employer I know who wishes to convert DC to CDC who wants CDC to be considered as a defined benefit.

I am pleased that the report is vocal on the net pay anomaly, though there is more information in the public domain about its impact than the report picks up on. It was very good to see Lesley Carline of the PMI picking up on the net pay issue in the pages of Professional Pensions . Fixing incentives for the 1.7m low paid affected should not have to wait to a more general review of pension taxation.

Pensions Management Institute president Lesley Carline agreed. She said: “Amending the rate of tax relief is all very well, but the rate itself is just one inequality and fairness requires us to address them all. Firstly, there is the relevance of tax relief to members of defined benefit schemes since there is no direct correlation between contribution rates and benefit accrual. Secondly, and probably the most pressing at the moment, is the anomaly between the net pay arrangement and relief-at-source for DC members who are low earners.”

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

Pension dashboards get a timeline to a timeline.

Posted on June 23, 2020 by henry tapper

 

The Pensions Dashboard has at last got its own website which you can access here

It’s not the prototype website which you can still access here

Nor the excellent dashboard ideas site which is here

Nor does it link to the House of Commons website on the pensions dashboard here

Nor is it the MAPS website page,

It is the website or the Pensions Dashboard Programme

pdp2

I am not saying it is the easiest URL ;https://www.pensionsdashboardsprogramme.org.uk/

Nor that it’s strap line is  the most catchy;

dashboard program

But after 18 months of too-ing and fro-ing there is at least and last a place to go to find out what MAPS is saying is going to happen next.

For now we have Chris Curry’s blog which does at least give us a timeline to a timeline but stops well short of telling us when we can have tangible delivery by way of a pension finder service, let alone the delivery of the whole 9 miles.

If it did no more than find our pensions it would have worked.

We are about to set out on a consultation on what should be on the dashboard. There will be a data standards working group to work out what data standards we need and this will be informed by research being done by PWC on what the pension providers feel they want to share. We are still at the stage of establishing scope and definitions which is rather discouraging to those who remember promises at the beginning of 2019 that the single state dashboard would be up and running by the end of this year.

COVID-19 cannot be blamed for these delays. Most of us have been finding ourselves more rather than less productive over the past three months, there was ample opportunity for the consultation on these matters to have already have completed. Like the website, things are taking a lot too long and there’s too much complexity.

What we need to be able to do is find our pensions and have a nice bit of kit to see them in one place, that is the minimum viable product that we crave and if we can get 90% of that up and running by the end of 2021 that will be a win. My guess is that when we get a timeline (which now looks like in October) the pension finder service will be integrated into a lot of other stuff and the delivery date pushed back into 2022 or later.

My fear is that the pension finder won’t be available till we have close to 100% of all schemes sharing data on a mandated basis – which pushes the timeline for an integrated product back to 2025 or later.

I am a little outside the tent, but I do get to talk to Chris Curry and he is not just courteous but really helpful in getting me to understand the art of the possible.

My message to Chris, after reading his blog is that we must be able to launch a pension finder service sooner rather than later and that it should be the minimum viable product that keeps the pension dashboard in the public mind.

These are the top google searches that emanate from keying in pension dashboard

PDP3

The questions the public are actually asking when they search “pension dashboard”

Procurement

It is with a heavy heart that I remind myself that delivery of even an MVP such as the Pension Finder Service will be subject to a Government procurement process. This has at least started with a request for expressions of interest

All this is fine if it was being done at pace, but it isn’t. We know what happens to Government projects which are done at pace, look to the Isle of Wight. So you might ask why I want this sped up. It’s because when the Government worked out they could not track and trace themselves , they went to Google and Facebook and others who can, and so we’re going to track and trace as the market does.

The parallel is clear, while we embark on all this consultation and procurement, the answer is staring us in the face. Origo have built the kit and have planned the architecture for integrating, I imagine they have their data standard template which is ready for delivery, we should be up and running finding pensions as soon as we can get the standards into the public domain.

It seems to me that the best way forward for the pensions dashboard is to leave all the arguing about what should be shown on the single non-commercial MAPS dashboard to consultation and get on with delivering a service that the public overwhelmingly say they want, a way to find out lost pension pots and to see them all in one place.

Let’s get on with it!

 

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Don’t cash-out your pension #buildbackbetter !

Posted on June 22, 2020 by henry tapper
sausage brick

You can’t buy a sausage with a brick

This blog is about how we make sure we have enough cash to pay the bills (including the butcher’s bills)

Cashing out pensions – the lure

In its recent policy statement (P20/6), the FCA leaves two carve-outs (loopholes) for advisers wishing to use contingent charging to ease the advisory bill. The first is in cases of extreme ill health and the second is where the client is proven skint.  I can see sense in both, very occasionally the rules of an occupational scheme will not sanction the taking of the lump sum prior to normal retirement date and even more rarely, it is in someone’s interest to take much more than 25% of the pot up front.

However it is only the exception that proves the rule, the rule is that a pension is a pension.

Since the client/adviser declaration will, on both occasions, need to satisfy the legal requirements of the FCA and the commercial strictures of professional indemnity insurers, it is unlikely that defined benefit schemes will be used to provide greater liquidity, more than once in a blue moon.

Safety in liquidity?

For most people , their three greatest financial assets are

  1.  property
  2. pension
  3. capacity to work,

Property is an immediate utility. It is linked to work only if you need to purchase or remortgage and sadly you are not able to get a sausage from a brick if you have no capacity to work. Selling the family home to pay bills is not going to be easy in the next few months and is only an option for those who own their home.

It’s work and pensions that are the primary source of liquid cash for most of us. Items 2 and 3 conflate in people’s heads. Especially for those over 55, the capacity to fall back on the pension has always been a comfort, it is the safety net if there is no capacity to work.

For many people there will be no capacity to work for much of 2020 and though many will still being paid, the inevitable conclusion is “no-work, no-pay”.

In the UK, money can only be released from pensions once you have reached 55 *.

In Australia , the situation is different. Rather than set up a furlough scheme, (borrowing against future taxation) the Government has allowed savers in Superannuation schemes the chance to take money from their pot early.

The latest results are now in and they make for interesting reading.

Australia

So of the 15m saving into Aussie Super around 2m are currently raiding their pots though the average raid is quite small $7.5k in Aussie Dollars is around £4,000.

 Would this work in the UK?

Giving people the right to raid their workplace pensions to fund them as they try to find another job seems , on the face of it, a reasonable thing for Government to do. This is after all an unprecedented time. But it would be the worst thing that Government can do.

The Pensions Regulator estimates that 10% of employers are currently under funding their defined benefit schemes , it could be argued that they are paying wages by not paying into pensions – which sounds rather like raiding pension schemes, but it’s not. There is a Plan B for a defined benefit pension scheme that gets into trouble and that is the PPF.

For private individuals there is no Plan B, in fact by taking money out of the pension pot early, many of us would scupper our own plan B’s.

Because as soon as you make pension funds part of you available cash, you give Government the option to rule you out of the Universal Credit till that money runs out.

Because the money that you’ve spent on yourself today, you’ve robbed from your future tomorrow.

And because if we extend the concept of pension freedom in the way Australia has, we corrupt any remaining legitimacy of pensions as pensions. In so doing we give Government the right for them to rid pensions of their savings incentives (as the Australians have done).

The Australian system works on compulsion, Super is effectively a privately operated tax on wages that defers compensation to later life. Government and unions can change the terms of the contract at their command. The Australian system demands a much higher contribution into funded pension and has been around fo longer.

In the UK, there is no compulsion, people enroll into pensions on a promise of certain incentives in exchange for certain restraints, the single largest constraint left is that the money stays in the pot until at least 55. Pots are typically small as most people haven’t been enrolled for long enough, or saved at Aussie rates to use their pension pots for partial encashments. In the UK, for most people “encashment” would mean taking the lot.

Building Back Better..

I expect the calls for an easing on early encashments will be restricted to  some hard-right policy wonks. They will point at Australia and call the numbers in the infographic a policy success, primarily because it de-risks the general tax-payer and passes yet more risk onto those finding themselves unemployed post-furlough.

But as with the carve-outs created in PS20/6 and the easements on defined benefit schemes to fund pensions, there is precedent for easements at a time of destitution.

I am pleased to see that googling “can I take my pension before 55” no longer leads to a page of paid adverts from lead generators taking you to Qrops and overseas SIPPs.  I am pleased to see that instead, MAPS and other government agencies have taken their place advertising a simple message “no”. Well done MAPS and well done Google.

Instead of entering a debate about early encashment of pensions, I hope that we will consider the positive  #BuildBackBetter .

There can be nothing so stifling of hope for the future than to give up on your retirement savings. Demoralizing indeed to have to raid your super to pay your bills, how much worse in the UK to put in peril the good work of auto-enrolment by turning the motorbike into the sidecar.

We can build for the future in a positive way by making pension taxation fairer, by ensuring that low-paid people get the incentives they’ve been offered and eventually by turning the system of tax-relief around so that it favors those who most need pensions.

* I am aware there are a few people in special professions who can take money from pensions before 55, but they generally know who they are and aren’t  part of this argument

Posted in advice gap, age wage, Australia, auto-enrolment, pensions | Tagged , , , , , , | 1 Comment

“Pandemics are catalysts for change- #buildbackbetter” (Stuart McDonald)

Posted on June 21, 2020 by henry tapper

BLM2

In his most confident thread yet, Stuart McDonald (@actuarybyday) looks again at the weekly data provided by ICNARC and focusses on two key issues, the particular impact on British BAME communities and the statistical congruence between high levels of poverty , high levels of infection and death and non-white ethnicity.

I am publishing the entire twitter thread because it provides a unique insight for us in the general public. I know many of my readers do not take their news from twitter and this is real news.

 

 

 

 

 

 

 

 

 

 

 

 

 

BLM

 

 

 

 

 

 

 

 

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Who’s protecting pensions from the impact of COVID?

Posted on June 20, 2020 by henry tapper
protect

Fairs ,Cumbo, Morley and Altmann

This is a very real and important question as the priorities of Government tend to be protect jobs and the businesses that create job over the incomes of those who have left the labor market. The key performance indicators of Government are the economy (stupid) and the measure of a healthy economy is Gross Domestic Product. The problem with pensioners is that they don’t produce much, so the tendency of Government departments other than the Department of Work and Pensions is to de-prioritize pensions.

So there have to be people in Government standing up for pensions and for pensioners and I’m pleased to say there are. Step forward Ros Altmann, who is reported in the Financial Times today.

“We hope to persuade the government to ensure that any assets pledged to a pension scheme cannot be sold during a moratorium without approval of the PPF and also ensure that financial operators cannot game the PPF by moving themselves into ‘super-priority’ status, leaving other unsecured creditors such as pension schemes with far less resources on insolvency,”

The Baroness was speaking after an important change of direction (aka climbdown) from the Department of Business Energy and Skills over the Corporate Insolvency and Governance Bill.

To quote Josephine Cumbo on the matter

Emergency proposals laid before parliament last month would have reduced the influence of both TPR and the Pension Protection Fund, the lifeboat scheme, in recovering debt owed to a company retirement plan by a sponsoring employer.

But   the FT were able to report

On Friday, the government said it had “listened” to concerns and would extend the bill so that both the PPF and TPR would be able to play a “key role” in ensuring that the interests of pension schemes were “fully taken into account” in any restructuring or rescue plan.

There has been an effective rearguard action by the pension industry and  everyone from Ros Altmann and Jo Cumbo (providing the publicity) to the PPF and tPR hammering within the machine  , to trade bodies such as the PLSA and the Society of Pension Professionals should be congratulated.

Of course Ros Altmann is more than a publicist, there is an effective group in the House of Lords who know about defined benefit pensions and understand what battle to fight in standing up for pensioners. The “Upper” House is of course the senior house in terms of years, and the maturity of most peers means that they have skin in the game.

It is also worth noting that most of the peers who speak up for pensioners are female and that they are cross party.

This latest intervention from the pensions lobby will be followed through on Tuesday 23rd June  when Ros Altmann and the peers will be able to table further amendements.

For those with a legal bent, the Bill – amended by Committee last week can be read here.

An effective pensions lobby.

It is easy to dismiss the House of Lords but it is no longer a gentleman’s club, it is (amongst many things) providing a very real service to pensions and pensioners both present and future.

And while I have dismissed in the past the Pensions Regulator and the pension trade bodies , in this matter I think we should be grateful for their effective lobbying. The PPF under its excellent CEO Oliver Morley, is also worthy of praise.

According to the Pensions Regulator , 10% of the 5500 DB schemes in the UK are not getting contributions meaning their sponsors are breaching their covenants with their trustees. This is highly worrying for deferred pensioners who have the very real possibility of having reduced pensions paid to them by the Pension Protection Fund.

But the financial difficulties of employers does not mean the pension scheme need to be abandoned to the PPF. So long as there contingent assets and other protections in place, pension schemes and the PPF can protect themselves from other creditors jumping ahead of them in the queue, selling these protections for the benefit of shareholders and those holding company debt.

We wish Altmann and company success next week and look forward to further positive reports from the always reliable Jo Cumbo.

 

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Dashboard customers form an orderly queue!

Posted on June 19, 2020 by henry tapper
Pensions Superfund
Clara

I sat in on a 90 minute Zoom last night hosted by John Moret’s Pension Network. I am allowed to say that the panel consisted of Paul Johnson, Emma Douglas, Jamie Jenkins and Steve Webb. I can’t attribute comments to individuals but can say with under John’s Chair we talked of the impact of the pandemic on people’s retirement planning and discussed pension policy.

One insight that came out of the conversation was the role of pensions policy in delivering or stymieing innovation. The two innovations that were discussed most were the pensions dashboard and the developments of defined benefit super funds.

In this article, I ask if the creation of safe harbor legislation to allow super funds to operate in a regulated environment might not be copied for the dashboard. Let me explain what I mean; it has long been possible to run multi-employer defined benefit schemes (the Pensions Trust is a good example). But only one defined benefit scheme exists where there are no sponsoring employers and that is the PPF, it gets sponsorship from a very large levy on solvent schemes.

Short of declaring insolvency (in which case your DB scheme goes into the PPF assessment period) , an employer has in the past been able to buy-out all or part of its pension obligations with an insurer , but there has not been an opportunity to sell-out to private markets. The two private market funds Clara and Pension SuperFund have been ready for business for some time but without the rules from the Pensions Regulator in which to operate, they have not opened their doors.

shoppers

Like socially distanced shoppers, interested schemes have formed an orderly queue.

What the Pensions Regulator did yesterday, was offer super funds and prospective clients a safe harbor in which to negotiate terms and transact. It seems that the pensions regulator has applied the same methodology to authorizing super funds as it did DC master trusts. It is raising the bar but providing security for those operating within the authorized perimeter.

I am allowed to exempt myself from the Chatham House so can say that I asked the meeting last night, whether such safe harbor regulations might not be applied to the development of pension finding services – and indeed to those using those services to offer people dashboards.

The risk of not having

Despite not making it into the Pension Schemes Bill, the arguments for having super funds backed by capital rather than insurance have all been around protectionism. The ABI argued (and still do) that super funds provide buy-out on the cheap while pension schemes want buy-out on the cheap. Perhaps the solvency of many employers forced the DWP’s hand , tPR sees itself protecting the PPF and if a number of schemes can avoid the PPF by buying members into a super fund (where insurance was too expensive) needs must! Super funds are now competing with insurers which hopefully brings down the cost of insurance (guaranteed annuities). The risk of not having super funds became too great.

A similar argument could be made for the pensions dashboard. Progress of late has been painfully slow , there is a “new” website that has been published this week by MAPS, but it is just a better brochure but we are yet to see progress on common data standards for the pension finding service , the promised consultation on next steps or the onset of procurement. This cannot be blamed on any part of Government, it is just in the nature of large IT projects managed by Government that they go at the pace of the slowest.

Guy Opperman , the Pensions Minister, is aware of the pressing need. He is reported to have written to pension schemes telling them to be “dashboard ready”. There is much that DC schemes can do to make sure they have clean data to share and there is much that legacy pension providers can do to make sure their systems are ready with what is called an “API layer”. However the PLSA is right in saying that unless the Government makes it clear what data standards schemes are signing up to , there is not much they can do to give the Minister the thumbs up.

dash plsa

Here the slowness of the Government is creating new risks and not just the risk of confusing pension schemes .

It was mentioned last night that now that DB pension transfers are pretty much out of bounds, the focus shifts to DC transfers which are very much in the sites of the less savory parts of the pension community.

I have seen it argued that the creation of commercial dashboards that show people’s policies in one place will increase the likelihood of scamming. The FCA’s pension policy statement PS20/06 mainly focuses on DB transfers but does look at safeguarded benefits with DC schemes (GMPs and GARs  are treated as if DB). There are of course a lot more opportunities to lose money on a DC transfer – they include the loss of terminal bonus from a with-profits contract, exit penalties (especially for the under 55s) and the loss of loyalty bonuses or guaranteed life cover and waiver of premium.

For all these reasons, DC transfers should properly be conducted under the eyes of the FCA , But whether however all DC transfers need to be “advised” is another matter.

The FCA has said that it wants to regulate commercial dashboards and for this reason commercial dashboards have not emerged. Just as pension super funds had to wait for the safe harbor regulations, so with pension dashboards.

But just as the pressure for DB schemes to consolidate has increased, so the pressure from consumers to get to grips with DC pots. I’m pleased to see that we now have nearly 500 volunteers waiting to test our DC aggregation service in the FCA’s sandbox. This is around ten times the size of test group we had originally envisaged.

The risk of not having properly regulated DC aggregation services is primarily because it allows scammers to operate outside of the perimeter in much the way as we saw at the peak of pension transfers in 2017/18. But there is a further risk posed by pot proliferation, some master trusts already have many times more deferred than active members with small pots abounding. The increase in unemployment predicted at the end of furlough will create a further spike in deferred pension pots. The DWP estimate that unless something is done we could see 50m abandoned pots by 2050, the PPI currently estimate that there is £20bn of lost DC pension pots.

So long as there is not a safe-harbor for firms offering people the chance to see their pensions in one place, there will continue to be suspicion among pension providers of letters of authority used to find pensions, Pension aggregators increasingly need to be FCA regulated to properly carry out pension searches and it is only a matter of time before the aggregators find ways of displaying the various pension pots so that pension consumers can make informed decisions for themselves.

Since the cost of advice on transferring a DC pension pot can be more than the value of the pension pot itself, there is clearly a need for ordinary people with pots not subject to safeguarded benefits, to be able to use aggregation services without advice.

The risk of this not being allowed is that frustrated savers find help with those on the fringes of decency.

The right balance

It is great to have MAPS building its dashboard team and I admire the thoroughness with which Chis Curry is building the dashboard proposition. But we still don’t have a timeline for having a timeline and are unlikely to have a clear delivery timetable till the end of this year.

Online pension inquiries are, according to one insurer speaking last night – rocketing. Empowered by their use of new technologies during lock-down, people are using all kinds of financial services online. But there is no pension dashboard for them to use and commercial firms who have the capability to show multiple pensions on one screen are shying away from doing so because they do not want to jump the gun.

So while it is great to have MAPS building a non-commercial dashboard, the speed of progress is creating precisely the problem that we have seen in DB consolidation. It is important that Government looks to DC consolidation services and gives them safe harbor status , as it is doing in the DB consolidation space.

shoppers

Consumers patiently waiting

shoppers 2

and not so patiently waiting

 

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Thoughts on the triple lock

Posted on June 18, 2020 by henry tapper

rishi 4

There’s no doubt that the unwinding of the furlough presents the Treasury with a technical problem with the triple lock. You can read the details here

But that does not mean that the pensions industry can consider the state pension the tap which can be turned off to safeguard private and public pension privileges. With pensions as with COVID we are all in this together. We cannot dump on pensioners the problems of a flawed pension saving system.

I woke to Petrie Hoskins at 4am , announcing that she would be spending the next hour of her phone in discussing the Pension Triple Lock. At 7 am Jo Cumbo discussed the triple-lock with Nick Ferrari on LBC.

 

 
Clearly something is afoot and it looks likely that the manifesto pledge to retain the triple lock is being reconsidered.Whether it is suspended or abolished, it looks as if the benign climate in which the state pension has grown over the past decade is in for a change of temperature,

If so, I am worried.

Nobody wanted to talk with Petrie about the impact of the triple lock, I almost phoned in myself. The state pension, along with pension credit,provides a  way for many older people to get some financial independence. For those who do not have private savings or the benefit of an occupational pension, the triple lock has meant that the state pension has moved from “nugatory” (Michael Portillo’s descriptor) to something paying up to £173.75 pw increasing by 3.9% recently.

The system is complicated by changes to the state pension introduced under the coalition Government that mean that many older people get pension credits to top up a lower entitlement to state pension and these “pension credits” do not always get claimed.

Department for Work and Pensions figures show an estimated £2.2 billion of available Pension Credit went unclaimed in 2017/2018.  On average this amounted to more than £2,000 per year for each family entitled to receive Pension Credit who did not claim.  Official figures show that Pension Credit take up was similar for those under 75 (62%) and those 75 and over (61%) but was lowest among pensioner couples – with just over half of those entitled received the benefit.

There is real pensioner poverty in the UK and it results from a pension system which works well for those who are enjoying the benefits of a tax-privileged workplace pension system and not so well for people who are had to save for themselves or not save at all.

Kicking away the crutch of the triple lock, without properly reforming the taxation of workplace pensions, would be socially regressive. I accept that the £290bn that COVID-19 looks like costing the Exchequer this year needs to be found from somewhere, but starting with the pension poor is not sending the right signals.

The pensioner has not been shielded from COVID-19. If you read the article published on this blog yesterday by distinguished actuaries, it is clear that the opposite was true.

Economically, the old have not benefited from the main recipients of the £290bn of state aid. They have not been furloughed nor have they participated in business support. They have suffered the consequences of years of under-funding of our elderly care syste,

It now looks likely that they will be asked to accede to a u-turn in Government policy.

I hope that the Treasury will look at state funding of retirement incomes holistically , recognizing the huge inequalities that exist. They should not focus on any one item to the exclusion of any other. The main items HMT should be looking at are

  1. The long term implications of current state pension promises (of which the triple lock is only a part)
  2. The taxation system that is supposed to incentivise workplace and private pensions.
  3. The cost of Government guaranteed pensions to public sector employees
  4. The (self) exclusion of the self-employed from funded pensions.

In my opinion, the state pension , pension credits and surrounding benefits provide too weak a safety net for the poor pensioner, the taxation system (including the egregious net pay anomaly) is not properly incentivising saving and has become a safe harbor for otherwise taxable wealth. I do not think that we can continue to fund all state backed defined benefit pensions and we need to look at future promises sector by sector. Finally, I think it time Government makes a meaningful contribution mechanism available to the self employed through the tax and national insurance system , a system from which the self-employed can choose to opt out.

There’s no doubt that the triple lock was never built to meet the explosive consequences of the unwinding of the furlough on wage inflation. But this is a technical issue and shouln’t be confused with the strategic importance of dealing fairly with our older citizens.

Demonising the cost of the triple lock where there are such inequalities elsewhere is short-sighted and unfair. I hope that as well as the voices of the Treasury, the voices of those who stand up for poor pensioners (such as Age UK, Ros Altmann and our pensions minister) will be heard today and tomorrow.

Posted in auto-enrolment, pensions, self-employed, steve webb | Tagged , , , , , | Leave a comment

Care homes – forgotten by us- not by Covid

Posted on June 17, 2020 by henry tapper

care three

Adrian and Dan

Adrian Baskir and Dan Ryan

This article can also be found at the COVID-19 Actuaries website http://www.covid-arg.com

Introduction

In their weekly analysis of deaths, the Office for National Statistics (ONS) reported that the total number deaths in excess of 5-year averages in the 12 weeks up to 5 Jun was 58,765 in England and Wales.  These numbers are much higher than the reported number of deaths from the Government briefings each evening, or the numbers where COVID-19 is reported on the death certificate.  In the absence of accurate reporting, excess deaths are the clearest indicator of the impact of COVID-19, both direct and indirect.

Within this tragedy is the realisation of the scale of the devastation that COVID-19 has wreaked within care homes across the UK and elsewhere. The prioritisation of provision of sufficient personal protective equipment (PPE) to NHS hospitals over care homes resulted in staff being placed at increased risk and increased the likelihood of rapid spread within the care homes.

Moreover, the mental impact of lockdown should not be underestimated for those in receipt of care, suffering from isolation in their rooms as well as disruption to normal routines and much needed support. Over 45% of those excess deaths in England and Wales were care home residents. From 13 March to 25 June, almost 1 in 7 residents died in their care homes, doubling the toll that we might have otherwise expected.

Timeline

It is worth reminding ourselves of the timeline of the dawning recognition of COVID-19 in care homes in the UK, to compare the UK experience with that of other countries and to consider what lessons can be learned for future waves or pandemics.

25 February – Guidance issued to care homes from Public Health England (PHE) on precautions and processes in the event of COVID-19 outbreaks. The guidance stated that it was “intended for the current position in the UK where there is currently no transmission of COVID-19 in the community. It is therefore very unlikely that anyone receiving care in a care home or the community will become infected.”

13 March – New guidance from PHE did not ban visits but advised care homes to “ask no one to visit who has suspected COVID-19 or is generally unwell, and emphasize good hand hygiene for visitors”.

23 March – General lockdown order issued

26 March – Sarah Pickup, deputy chief executive of Local Government Association, warned the UK health select committee hearing that “access to PPE is insufficient in the care sector” and that patients discharged from hospital risked infecting others at their care home (BMJ).

9 April – Care England warns that up to 1,000 COVID-19 related deaths may have occurred in care homes whilst the latest data at that time (up to 27 March) from ONS was reporting only 20 deaths with COVID-19 mentioned on the death certificate.

28 April – Care Quality Commission (CQC) starts two new series of publications in respect of deaths of care home residents.  First, a daily update to PHE of deaths notified where COVID-19 was confirmed to complement those that have been reported by NHS England since 2 April.  Second, an extension to the weekly deaths release from ONS which included deaths in care homes where COVID-19 was mentioned on the death certificate, as well as more detailed data by local authorities in England for all deaths and COVID-19 notified deaths.

16 June – Most recent publication on deaths in care homes from CQC and ONS.

The overall reported numbers of deaths from PHE have now been updated retrospectively to the beginning of the COVID-19 pandemic, but the CQC provides separate information on deaths in care homes going back to 10 April.

Figure 1 below sets out the number of deaths that were daily notified as well as a rolling 7-day average to compensate for reduced notifications over weekends and public holidays.  The peak number of deaths is almost 2 weeks later than in NHS England hospitals where the peak occurred on 8 April.

Since then the numbers have generally reduced but at different speeds in different regions, and there is a clear need to remain vigilant as lockdown restrictions are steadily eased.  A more focused strategy aimed at containment within communities and/or within care homes will be needed as there is further easing.  The need for shielding of care home residents will be increased in this phase where outbreaks are more localised.

Figure 1 – Deaths of care home residents notified to Care Quality Commission

care one

Source:  CQC data on notified deaths

The CQC provides an up-to-date directory of all care homes in England, with detailed information on care homes including location, number of beds and whether they provide services for older people. The most recent version of this directory indicates that there are 411,000 such beds available with occupancy rates of 90% in 2019.

Whilst more granular analysis should be conducted with more data, the publicly available data allows us to assess the excess mortality in care homes by local authority, split between COVID19 and non-COVID19 deaths. Figure 2 and Table 1 illustrate the high degree of heterogeneity of mortality experience across different local authorities in the seven English regions. (The blue lines in the graph correspond to the respectively labelled columns in Table 1.)

Figure 2 – Mortality in nursing homes across English local authorities (10 Apr – 5 Jun)

Care two

Table 1 – Variation in mortality across English regions (10 Apr – 5 Jun)

Region % of local authorities where non-COVID19 deaths alone are more than 100% of total expected deaths
(1)		 % of local authorities where total actual deaths are more than 150% of total expected deaths
(2)
East of England 64% 73%
London 44% 63%
Midlands 35% 48%
North East 59% 78%
North West 13% 74%
South East 53% 68%
South West 50% 36%
ENGLAND 43% 63%

Source:  Analysis based on CQC data on notified deaths up to 5 June

These variations could reflect significant levels of undiagnosed COVID-19 given the inability to conduct systemic testing in care homes over the period. However, it may also highlight regional and local differences in the impact of COVID-19 on frail populations and the disruption of health services and normal routines through general lockdown.

Further analysis of these datasets would be of value to care home providers and health authorities.   This analysis would inform preparation for any second wave of infections, for better understanding of how to reduce the impact of future flu pandemics and benchmarking of best practice. This analysis would identify mortality and morbidity differences between different settings. Potential drivers of differences could be due to staffing levels, occupancy levels, home demographics (age, pre-existing underlying health conditions, length of prior occupancy), funding levels, availability of PPE, community transmission (carer and visitor access), and transmission from NHS transfers.

Further information and International dimension

COVID-19 has led to rapid innovation in many spheres, not least in the sharing of data and research findings. The International Long-Term Care Policy Network and the Care Policy and Evaluation Centre at the London School of Economics have been instrumental in ensuring the widest dissemination of data on care homes.

They set up a really useful website ltccovid.org on March 21 as a rapidly-shared collection of resources for community and institution-based long-term care responses to COVID-19, aiming to:

  • Document the impact of COVID-19 on people that rely on long-term care (including unpaid care) and those who provide it.
  • Share information about policy and practice measures to mitigate the impact of COVID-19 in long-term care and gather evidence about their success or otherwise.
  • Analyse the long-term implications of this pandemic for long-term care policy.

Their blog on March 23 highlighted the international dimension to the problem of COVID-19 and care homes, sharing disturbing experiences from Spain, Italy and the USA.  This has led to a living repository that collates and summarises experience in different countries.

LTCCovid.org is actively looking for contributors from elsewhere. They have developed a form to collect information on numbers of long-term care residents and staff who have had COVID-19, and numbers of deaths in different settings. This form attempts to gather data and insights on those that died with probable COVID-19, where they died and estimates the level of excess mortality. For example, in France deaths in care homes are estimated to be 34% of all COVID-19 deaths, whereas deaths of care home residents are 51% of all COVID-19 deaths as some patients transfer to hospital.

The list of countries for which data has already been collated currently includes:

  • Australia, Austria, Belgium, Canada, Denmark, France, Germany, Hong Kong, Hungary, Ireland, Israel, Italy, Norway, Portugal, Singapore, South Korea, Spain, Sweden, United Kingdom, USA.

A recent report on LTCCovid.org attempted to further compare the experience of different care homes in Ireland.  This followed a breakdown of 1,030 deaths in 167 Irish care homes that was published in the Irish Times and was broadly criticised for not considering the number of beds or more complex factors that would be likely to affect the outcome. In contrast, this report undertook a more intensive investigation and retrieved data for each facility from the latest HIQA inspection report on compliance, processes and occupancy, developing a multivariate binary logistic regression model of expected mortality.

The report found good compliance with standards throughout, but common challenges in obtaining appropriate testing and PPE as many care homes exist outside the traditional national health service model, a problem consistent with that in the UK. However, the report showed a significant association between the number of deaths reported and the level of occupancy. This brings into question current models of long-term care delivery during a pandemic, and highlights advantages for multi-unit care models over multi-occupancy buildings.

Lessons to be learned

“Necessity is the mother of invention”. The COVID-19 pandemic has forced individuals and groups at every level to innovate and to improve outcomes with resources available.  The experience of care homes around the world has identified both issues to avoid/address earlier and opportunities to innovate.

The following have been highlighted in different arenas as well as discussed in a further report from LTCCovid.org

  • Likelihood of asymptomatic transmission by both staff and residents means that regular testing is necessary rather than relying on symptom presentation. Moreover, the elderly may be more likely to display non-classical symptoms such as lethargy, lack of appetite and delirium. Furthermore, the elderly may have underlying health conditions which mask the obvious symptoms. This was acknowledged by the UK Government on 28 April when swab testing was made available to all care home residents and staff, regardless of symptoms, and when an online portal was subsequently launched.
  • Changing staff patterns and care home layouts to reduce maximum occupancy and to allow for segregation zones / quarantining of possible, probable and confirmed cases respectively.
  • Ensure that no patients are directly discharged from potential “hotzone” hospitals to care homes. Instead use suitably staffed “quarantine centres” or sections within the care homes as an intermediate step with final release dependent on repeated negative swabbing over multiple days.
  • Better information systems that monitor outbreaks in care homes and link care homes to supplies of PPE and medications.
  • Consider whether CQC ratings adequately reflect preparedness for future pandemic events.
  • Rapid response teams to be deployed where outbreaks occur to maintain continuity of care for all residents as resident illness is likely to be mirrored by staff illness.
  • Reduce risk of staff bringing infection by limiting staff to one care home and ensuring that staff do not feel that they have to work when ill. Where possible, staff could be accommodated on site rather than having to commute within the community.
  • Use of tele-medicine to limit need for visits from offsite healthcare professionals during outbreaks.
  • Blanket restrictions on visiting can intensify isolation, and alternatives such as social distancing and PPE for visitors could lead to better overall outcomes.

Further innovation will clearly be needed as both optimal infrastructure and modes of delivery of care are examined.  Such innovation will be more productive if the costs and benefits of each innovation can be identified and benchmarks established to aid comparison.  Some care homes may not survive COVID-19, but those that do should not only be better prepared but able to demonstrate how they are prepared.   The longer term impact of the potential closure of many care homes requires further consideration particularly where there are already capacity and funding constraints in the social care sector. Before the pandemic, in the Queen’s Speech on 19 December 2019, there was a commitment from the UK Government to reform the social care system but now, in our current situation, this reform is even more urgent.

17 June 2020

References

  1. Comas-Herrera A, Zalakain J, Litwin C, Hsu AT, Lane N and Fernandez J-L (2020 Mortality associated with COVID-19 outbreaks in care homes: early international evidence. Article in LTCcovid.org, International Long-Term Care Policy Network, CPEC-LSE, 21 May 2020.
    (https://ltccovid.org/wp-content/uploads/2020/06/Mortality-associated-with-COVID-21-May.pdf)
  2. Romero, Ortuno R and Kennelly S (2020 COVID-19 deaths in Irish Nursing Homes: exploring variation and association with the adherence ot national regulatory quality standards. LTCcovid.org, Iternational Long-Term Care Policy Network, CPEC-LSE, 1 June 2020.
    (https://ltccovid.org/wp-content/uploads/2020/06/Ireland-care-home-variations-in-numbers-of-deaths-and-quality-indicators.pdf)
  3. Comas- Herrera A, Ashcroft E and Lorenz-Dant K (2020) International examples of measrues to prevent and manage COVID-19 outbreaks in residential care and nursing home settings. Report in LTCcovid.org, Iternational Long-Term Care Policy Network, CPEC-LSE, 11 May 2020.
    (https://ltccovid.org/wp-content/uploads/2020/05/International-measures-to-prevent-and-manage-COVID19-infections-in-care-homes-11-May-2.pdf)
  4. Altringer L, Zahran S and Prasad A (2020) The Longevity-Frailty Hypothesis: Evidence from COVID-19 Death Rates in Europe.
    ( https://www.medrxiv.org/content/10.1101/2020.04.14.20065540v2.full.pdf)
Posted in actuaries, coronavirus, pensions | Tagged , , , , | Leave a comment

The best way to manage a DB Scheme (Keating & Clacher)

Posted on June 17, 2020 by henry tapper
Ian con

Iain Clacher and Con Keating

 

This is the third of three blogs co-written by Con Keating and Iain Clacher informing on the current  consultation on the DB funding code of practice,

The other articles can be accessed at the bottom of this blog

Optimal Scheme Management

For the calculation of scheme liabilities this should be done as either the accrued value of contributions, or the discounted present value of the projected (unbiased i.e. with no prudence) best estimate of the ultimate benefits using the contractual accrual rate (CAR). While for scheme funding, we advocate that this should be to the level of liabilities calculated in this manner, with assets being valued using market prices. However, this leaves the scheme facing just one risk, sponsor insolvency at a time when this level of funding is insufficient to purchase equivalent benefits in the open market or alternately, to run off the scheme. There is a solution to this risk – pension indemnity assurance; a specialised form of long term credit insurance.

This class of business is effectively, offered by the PPF but in a manner that can be considered as both deficient and inefficient. The deficiency arises from the offer of only partial benefits; there is no valid justification for these cuts to member benefits. The inefficiency can be seen in the PPF’s excessive levy charges – the evidence for which is the massive reserves they have accumulated in a very short period, and this levy is effectively paid with corporate capital. This therefore raises the question: what is the likely cost of pension indemnity assurance for schemes funded to the level of best estimate? Here the PPF provides a poor guide, given its history of excessive levy charges.

There are many variables which determine the premium in any case. These include the quality of the sponsor covenant, the degree of maturity of the scheme together with its status e.g. whether it is open or closed, and the basis of calculation of the best estimate. Dependent upon these specifics, modelling indicates that the premium will lie in the range 0.2%-0.5% of liabilities for all but a handful of companies that are in particularly bad shape. It is also worth stating this again – this is insurance of the full benefits, not PPF reduced variants. The interval for premium setting may be either fixed for scheme life or set at some shorter period, such as annually.

Business models for writing pension indemnity assurance

There are two classes of business model possible. These differ in the annuity and deferred annuity treatment post insolvency; the indemnity assurer may either purchase these from another insurer/reinsurer at the time of sponsor insolvency or it may write these itself and run off the pension liabilities. Purchasing annuities on insolvency is less efficient from a return on capital standpoint as it reduces the modelled return on capital by between 15 and 25%.

This business model is also not hypothetical, with the most notable specialty insurer of this class of business being PRI-Pensionsgaranti. Several specialty insurers have also offered a related instrument, surety bonds, though these have a fixed pay-off rather being benefits related. PRI-Pensionsgaranti has already written a small number of policies in the UK, mainly in a form qualifying as contingent assets. In Sweden it has written insurance for some 1400 entirely unfunded, book-reserve schemes. It operates the less efficient business model of purchasing annuities from another company on an insolvency event. It charges 0.4% of liabilities as a premium and has been highly profitable. As a mutual, it rebates these as dividends to the member schemes. This premium is not a pure sunk cost; unlike the PPF arrangement, the policy is also an asset of the scheme and not a contingent asset. It is also interesting to note that as in this asset role it is an automatic stabiliser for the scheme.

PR-Pensionsgaranti has even insured funded schemes specifically to allow them to move from funded to unfunded status. This liberates scheme assets for corporate business investment. There are complications with respect to the taxation of such liberations, but the Swedish treatment has been at the generous end of the spectrum; no taxation if reinvested in corporate activities within a specified, short period. If liabilities were to be calculated using the CAR best estimate, many schemes would be materially overfunded and so the liberation of some scheme assets may be both feasible and desirable especially at a time when corporate profits and cash flow are likely to be severely constrained.

Advantages of pensions indemnity insurance for scheme management

One major advantage of the use of pension indemnity insurance is that the duties placed on trustees are significantly reduced. Trustees would be concerned only with the administration of pensions and the current valuation of collateral assets. No integrated risk management, no long-term objective. Consideration of the future performance of assets and all the risk management practices associated with that would be redundant and as such would save significant sums of money for the scheme and its sponsor.

 

For the sponsoring employer, they would be concerned with the extent to which the assets held as collateral security would defray their future costs. As such, the asset management style they adopt would be a matter of their risk tolerance and would most likely follow a simple risk and return analysis. Liability driven investment would not be necessary as the hedging of the spuriously introduced interest rate sensitivities is no longer required or desirable. As these currently account for around 40% of overall scheme assets in many larger pension funds, the net returns to sponsor employers should, ceteris paribus, be significantly higher than those which have or might be achieved under the existing or proposed models.

Creating a market for pensions indemnity insurance

To ensure a competitive market for pension indemnity assurance, private sector provision should be permitted and encouraged. The PPF should be required to offer full benefits cover and should also be privatised as an industry owned mutual insurance company. Shares in this mutual should be awarded free of cost to schemes in proportion to the total levy contributions they have made. This would augment overall scheme assets by an amount of the order of £6 billion and generate approximately £2 billion in tax revenues.

If the funding to best estimate model is followed, it will reduce significantly, almost entirely, the requirement for special contributions, reducing the tax lost under those arrangements by £2-£3 billion per year. The total cost of pension indemnity assurance premiums would be approximately £3 billion if all schemes adopted it, and the tax cost would be of the order of £750 million. Of course, in this situation there would be no justification for schemes participating in the PPF scheme as is or paying the £550 million of the scheme levy.

If funding were to be to the CAR best estimate, and all sponsors were to liberate their excess assets, the windfall tax gain would be of the order of £45 billion at standard corporation tax rates, and in the range £90-£100 billion at 55%, though at this latter rate it is highly unlikely that many sponsors would wish to liberate. The amounts available to be freed for new corporate investment would lie in the range £150-£250billion.

The DB funding consultation

The proposed new scheme funding requirements carry with them an annual tax cost of at least £1 billion, rising to £3 billion after a few years, and perhaps considerably more. The Regulator has stated: “Our funding consultation is about the balance between member security and affordability.”, which makes the absence of any cost/benefit analysis in the 175 pages of the consultation document noteworthy.

The consultation is principally concerned with management of the ’end-game’ for closed schemes now running off, but open ongoing schemes, though few in number, are not treated differently. The traditional solution of bulk annuitisation has been supplemented by a wide range of proposals and products; some, such as the efforts of the consolidators, have been widely publicised. others, such as surety bonds and Legal and General’s “insured self-sufficiency” less so.

In this series of blogs, we have concentrated on a few of the problems arising from DB pension regulations and the practices they induce. Our coverage was deliberately minimalist, there are many other issues which we might have highlighted. It is true that some people suffered and lost pensions in the pre-Goode days, but they were far fewer in number than the many millions who received their pensions routinely over many decades. The ‘fixing of pensions’ has been completely disproportionate and its cost outrageous – running to hundreds of billions of pounds and the remedy has killed all too many schemes which were in rude health.

Further reading

Pensions need a bonfire of regulation this blog calls for a radical shake-up of the rules governing DB pensions

The following blogs are designed to be read consecutively.

The other way to value DB schemes

A different approach to pension scheme solvency and funding

The best way to manage a DB scheme

 

 

 

 

 

 

 

Posted in pensions | 2 Comments

Managing means knowing what to measure

Posted on June 17, 2020 by henry tapper
famous five

George Kirrin’s other famous five

 

One of the most interesting (and challenging) parts of running a blog is in encouraging and moderating comments. This site gets quite few (real) comments, but sometimes the comments are as insightful as the blogs they comment on. Such has been the case with the comments of George Kirrin and Derek Scott on recent articles from Chris Sier.

George’s challenge to Chris focuses on a credo of data science which Chris endorses. Chris argues that by not measuring the true cost of asset management, we risk not managing those costs. Recent blogs on the work of Ludovik Phalippou have argued that Private Equity carries just such risks , as this tweet explains.

George Kirrin’s criticism of the measurement/manage adage is different and more fundamental.

Out of many received wisdoms “what gets measured gets managed” or Chris’s version that “you can’t manage what you don’t measure” must be one of the more widely accepted as obvious. After all, how could we ever manage something if it isn’t being measured?

The quote is usually attributed to Peter Drucker, the late management theorist.

A bit of research reveals, however, two surprising things.

One, Drucker — according to The Drucker Institute even — never said it. The usual source given by others is Drucker’s 1954 book, The Practice of Management, but I’ve got a Kindle edition and searches for the term (and Chris’s version) both came up blank. I tend to be skeptical of all quotes attributed to great people unless I can find a written source. There are helpful websites out there like quoteinvestigator.com which should be used more often.

Let that penny drop. Various Harvard Business Review articles attributing the quote to him? Wrong..

Two, the fact that something is wrong with “what gets measured gets managed” has been argued for a long time.

VF Ridgway published a paper in 1956 criticising the measurement mantra.

Simon Caulkin, a Guardian columnist, neatly summarised Ridgway’s argument as:
“What gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so”.

https://www.theguardian.com/business/2008/feb/10/businesscomment1 goes further and asserts that “What gets measured gets managed – so be sure you have the right measures, because the wrong ones kill.”

Ridgway’s 8-page paper is entitled “Dysfunctional Consequences of Performance Measurements”.

It’s common sense that not everything that matters can be measured. It also follows that not everything we can measure matters.

The tendency to report against certain metrics may even distort our priorities.

Pensions consultants tend to measure pension deficits using metrics which Jon Spain, Iain Clacher, Con Keating and others have shown up to be flawed. Other metrics are available, but for some reasons many pensions consultants choose not to show them.

To summarise: Drucker never said the infamous sentence, and since 1956, if not earlier, we’ve been warned that a “what gets measured gets managed” mantra is deeply flawed, Chris.

I will come to Chris’s defence here, because Chris has spent his life measuring the fractional costs of asset management without trying to prejudice wider debates to which George alludes.

Chris would argue that though he collaborates with Keating and Clacher, his work on the cost and charges templates which have allowed us to see and compare costs, has informed on “value for money”. I sympathize with Chris who is not about establishing value, just about money.

However, George’s criticism becomes real when Chris starts validating value in the products he is analyzing. Here Chris comes dangerously close to validating LDI in terms that echo Eugen Neaugu’s criticism of investor’s “obfuscating their own performance”.

And therein lies the point George: LDI, whether it’s reality of fiction, allows you to remove the volatility of valuation, further reducing the risk to the scheme sponsor. At least that is one hypothesis I’m considering.

George Kirrin had skillfully been arguing that “The volatility of gilt investment returns is masked by the obsessive measuring month-to-month of pensions “deficits”
concluding through an analysis of gilt returns that “in fact there’s quite a lot of gilt volatility over time, yet the LDI measures show none of it, by simply assuming it away”.

Measuring should not mean validating

The act of measuring costs and charges within born by a pension scheme in executing investment strategies is a matter of standalone fact. If you can’t find out where Private Equity made its money then PE could be a sham, sooner or later the impact of those costs will work its way through to valuations. Which is why the work of Phalippou is important. The work of Chris Sier on LDI is important, but knowing the true cost of LDI doesn’t validate LDI (as Kirrin points out) anymore than knowing what Phalippou knows , endorses Private Equity.

Here the difficulty is similar to that observed in the NHS by Simon Caulkin

‘It seems unlikely that hospitals deliberately set out to decrease survival rates. What is more likely is that in response to competitive pressures on costs, hospitals cut services that affected [heart-attack] mortality rates, which were unobserved, in order to increase other activities which buyers could better observe.’

If by over-relying on the adage “what gets measured , gets managed” we introduce a false measure by which to judge management, we can accidentally do great harm (Calkin and Kirrin’s point).

Those, including Chris Sier, who see transparency as an end in itself are right to, in the context of the business that they run. But an over-reliance on “what gets measured gets managed” risks not just validating the wrong things but failing to measure the right things.

It is of course a nice irony that the adage itself is of dubious provenance , suggesting a phrase or opinion that is overused and betrays a lack of original thought. We may well think that “what gets measured , gets managed” is a cliche.

Further reading

You can read all Chris Sier’s articles in one place here. If you can’t access the link, then you should register to Pension Expert which is free. Chris has a new blog out asking whether paying more delivers more performance, you can read it here.

You can see all the comments mentioned in the right hand side bar of the blog or by searching “Chris Sier” and clicking through to the comments on each of his recent articles.

famous five 2

Posted in actuaries, advice gap, pensions | Tagged , , , , | 1 Comment

Private Equity Laid Bare (by the FT)

Posted on June 16, 2020 by henry tapper

private equity

 

Yesterday I wrote about Ludovik Phalippou’s report  “An Inconvenient Fact: Private Equity Returns & The Billionaire Factory”.

My interest had been prompted by an article of Chris Sier’s  I’d re-published on my blog. It showed that 2/3 of the costs of Private Equity investment are not revealed to the investor.

I wrote about private equity in the context of my work with UK DC pensions. But a much wider audience were reading a piece in the Financial Times by Chris Flood. 

The FT is one of very few financial institutions that speak openly on this issue. In February Katy Wiggins had reported

“While the most successful private equity funds still outperform public markets, the worst offer significantly lower returns”.

I was surprised that the FT were running Wiggins’ story questioning Private Equity’s current hegemony.

But Chris Flood’s article , written the other side of the first wave of the pandemic is much stronger in tone.

A handful of super wealthy multibillionaires have accumulated vast riches from running private equity funds that have performed no better on average than basic US stock market tracker funds since 2006.

Not only did the FT run Flood’s piece but it  followed up with this salient statement from its Due Diligence team

The Study that rattled the entire private equity industry

Report says it is difficult to see how the business model can add up given how costly it is

Nobody likes to be told they’re overpaid and that their work’s not that impressive.

Those are the charges laid at the door of the private equity industry in a report this week from Oxford university, provocatively titled

“An Inconvenient Fact: Private Equity Returns & The Billionaire Factory”.

The report’s author Ludovic Phalippou says private equity funds have returned about the same as public markets since at least 2006, but generated about $230bn in performance fees for a small number of people.

He goes on to accuse the industry of a

“wealth transfer from several hundred million pension scheme members to a few thousand people working in private equity”

and to say it’s

“difficult to see how the private equity model could add up given how costly it is”. 

(Side note: the Harvard economist Josh Lerner also found private equity returns lagged behind stocks over the past decade, in this report from February.)

This is the kind of thing that really gets under private equity tycoons’ skin.

In an unusual move, Phalippou showed his academic study to Blackstone, KKR, Carlyle and Apollo and the lobby group the American Investment Council before he published it and invited their comments. They didn’t hold back.

Blackstone went as far as to write a 2,150-word statement accusing the academic of

“a number of very serious statistical and conceptual errors”.

There were sharp exchanges of words with the others, too.

You can read all of the to-ing and fro-ing in the paper here, and the FT recommends you should, because it makes for a rigorous debate even if it’s tediously predictable in places.

And you can delve into the reams and reams of online commentary that the report has provoked,

In an era when nuance on social media often seems to be dead, some of the debate is pretty high quality.  Things get particularly contentious when it comes to the reasons why institutions choose to invest in the funds — a timely consideration since the US’s largest public pension scheme, Calpers, has just said it’ll move deeper into private equity, seeking to juice returns.

Phalippou’s take on the pension funds question: some institutions’ private equity specialists don’t complain about returns for fear of losing their jobs, and some trustees may lack financial literacy.

Blackstone is unimpressed.

“We fundamentally disagree with your portrayal of public pension officials,. These are exceptionally sophisticated investors.” 

“Exceptionally sophisticated investors”

Nobody likes to be told they’re overpaid and that their work’s not that impressive.

That goes for the buy-side as much as the sell-side. In  a separate interchange on diversity yesterday , Phalippou commented on

C-suite white males whose main talent has been to be best-buddy with the other white males that were controlling promotions and appointments

This circularity of praise for and from private equity  and its investors is at last being questioned and it’s good to see that it is being questioned by the FT, Oxford Said Business School and Ludovic Phalippou.

This blog’s for all the public pension officials who aren’t such sophisticated investors to accept the received wisdom of private equity.

feb

One such person commented on another Chris Sier article

 Many larger schemes – who tend to have followed their herd into alternative assets – should also take a hard look at their own agents, whether external consultants or in-house officers, who put them into these onerous (cost) contracts apparently without realising the full ongoing costs of their contractual commitments.

The Railways Pension Scheme now appears at conferences alongside Chris Sier and others and almost boasts of how they went from underestimating their full costs of management and transactions by a factor of five or six times, I think, to now having costs under better control.

If I were a member of that scheme – I’m not, but I know a few who are – I think I’d want to know first of all how the well paid executives of their scheme got them into such onerous contracts in the first place through ignorance or negligence or both.

And I’m sure there are similar tales to be told about other very large UK schemes, the ones which win all the awards but seem unable to own up to their shortcomings on cost control.

It is not just DC pension schemes that need to read Ludovic Phalippou’s work.

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DC challenges the Private Equity billionaires

Posted on June 15, 2020 by henry tapper

Robin Powell (the evidenced based investor) makes a bold claim.

Ludovic Phalippou is a hero.

 

phallipou

Phalippou

Who is Phalippou?

Ludovic Phalippou is an economist who has written a paper detailing the workings of the Private Equity industry and how it manages to pay itself $230bn from our money.

 

You can download or browse the paper from this link

For those who want to see the data on which Phallipou’s conclusions are drawn, it can be downloaded, curated by Phalippou himself on linked in .

As promised, my last piece. I sign-off. I wrote all I know. All the calculations and data are on my website (which is not finished/updated yet: https://lnkd.in/dpUyws2). As I wrote in the intro, questioning returns in PE is akin to questioning the existence of god. It makes people very emotional.

Moving in mysterious ways…

Private Equity, like God, moves in mysterious ways. Here is the synopsis of Phalippou’s argument.

Private Equity (PE) funds have returned about the same as public equity indices since at least 2006. Large public pension funds have received a net Multiple of Money (MoM) that sits within a narrow 1.51 to 1.54 range. The big four PE firms have also delivered estimated net MoMs within a narrow 1.54 to 1.67 range. Three large datasets show average net MoMs across all PE funds at 1.55, 1.57 and 1.63. These net MoMs imply an 11% p.a. return, which matches relevant public equity indices; a result confirmed by PME calculations. Yet, the estimated total performance-related fee collected by these PE funds is estimated to be $230 billion, most of which goes to a relatively small number of individuals. The number of PE multibillionaires rose from 3 in 2005 to over 22 in 2020. Rebuttals from the big four and the main industry lobby body are provided and discussed.

Having read the 40 pages of the paper I agree with Phalippou’s fundamental message  “PE is a surprisingly expensive form of financial inter-mediation”.

…. its wonders to perform

If , as Phalippou’s analysis suggests, PE is delivering what public equity delivers, only with a fee extraction of gargantuan proportions, we have to wonder who is paying the $230 bn bill. Anyone who has worked for an organisation that is funded by private equity knows what happens. Margins are squeezed, jobs cut and businesses run on the margin of effective delivery. Most UK care homes are owned by private equity, when COVID-19 came, most UK care homes did not have the capacity to cope. The wonders of PE have been cruelly exposed and we now know who paid the biggest price of all.

The examples in Phalippou’s analysis are various, he takes the leveraged Buy-Out of  Hilton Hotels as a case study and analyses what actually happens. He looks at other cases in details and then deals with the various rebuttals to his analysis by the big four PE houses (Blackstone, Carlyle, KKR and Appollo).

What Phalippou points to in terms of finance, we experience in terms of value (or should I say negative value).

Have private markets anything to offer DC pensions?

At first sight- yes. There are those, the Pensions Minister among them, who have argued that there should be scope within the defaults of large DC schemes for “alternatives”, of which private equity plays a major part. The argument is that this is the way for these pension funds to invest into social enterprises (under the private financing initiative). Private Equity and Private Debt are  seen as part of “patient capital”.

I support the investment of my pension fund into long-term liquid assets provided that it does not render my pension pot so illiquid that I can only access my money when my fund’s gate is open.

Several large DC pension schemes offer property funds without and within DC defaults that are currently “gated” to protect the fund. I have met trustees who are concerned that they may have a statutory obligation to “open the gate” if a member wants to transfer or take money at retirement.

Whether the risk is born by the trustee (and so to the sponsoring employer) or by the member, the risk of illiquidity is not  born by the fund and asset manager who protect their performance numbers by not selling assets. This is the kind of chicanery identified by Phalippou, it is no more than a transfer of risk from the fund to its owners and so to the beneficial owners.

The social purpose of illiquid investment is clear, but where control of the capacity to liquidate is lost to trustee and member, the social purpose is of no use, you cannot eat social purpose.

Can large DC pensions access private equity?

The received wisdom is that the larger your pension scheme, the wider your investment options. For one thing, they can dilute the liquidity problems mentioned above by investing significantly without gating the fund as a whole.

In recent papers, Chris Sier has pointed out that larger DB funds (with more than a billion pound of assets) tend to swap public equity for private equity. Sier argues that private equity appears to provide less volatile but equivalent returns over time. Here his research and Phalippou’s seem closely aligned.

Recently I have been on several calls where large DC scheme trustees and platform managers are being pitched “alternatives” (mainly private equity) because that’s what £1bn pension schemes do. The IFoA are running such a seminar this week (details here- NB £35 joining fee for non-members).

It appears the privilege of a larger scheme that it can invest in alternatives. They  are sold as producing the outcomes of a with-profits fund “equity type returns without the volatility”.

$230bn – A victimless crime?

Sier’s analysis suggests that this argument is accepted by the CIOs of large DB funds but it also  suggests that the hidden costs of PE investment are high. 

In private debt and private equity, for example, annual management charges only account for 33 per cent and 38 per cent of total costs

This appears to make private equity more “affordable” than it really is. The platforms that pay for asset management through private equity funds only need to pay a third of the real cost, the rest being passed on to savers through hidden charges that impact performance.

This slight of hand appears attractive if it enables members to get equity like returns without the volatility and trustees being able to show they are punching their weight.

But I am not buying the argument.

Firstly, while I can just about see why DB schemes are prepared to invest in PE to dampen volatility, I do not see the same need for DC schemes as they accumulate. DB schemes (ridiculously) have to account for solvency on a mark to market basis but DC members do not have a solvency issue, their only issue is to accumulate over time. They do not need to dampen down returns – which is why with-profits has not made a return into workplace pensions.

Secondly, there is a very real cap on charges on any DC fund that savers are defaulted into. While hiding 2/3 of the cost of running a fund in the unit price may look commercially attractive, it is not good governance, it is certainly not the kind of thing that trustees should be doing – not if they believe in transparency.

If the overall cost of PE is declared to members, what started as commercially possible -becomes difficult at all kinds of levels.  And if the justification of investing in private equity is based on higher levels of ESG then trustees are going to have to deal first with the lack of transparency detailed in Phalippou’s paper  

Second they are going to have to explain to those who are looking for responsible investment , how the plight of redundant work-forces and under-funded care homes equates with good societal values and good governance.

DC cannot afford illiquidity, has no budget for Private Equity fee structures and should not run the reputational risks highlighted by Ludovic Phalippou

phallipou

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“We’re racist , and that’s the way they we like it…”

Posted on June 14, 2020 by henry tapper

The prequel

It’s a sunny June morning, I had just cycled down the embankment from Blackfriars to turn left over Westminster Bridge. As I crossed Bridge Street I could hear a chant but not the words, I looked into parliament square and it was full of people, I turned my bike towards Lambeth.

The chant I heard is the chant on the tweet. It’s a male chant and you can hear it in any football ground in the land, except if those words were used, the club would identify the fans singing them, and ban them.

But when we watch the football, we know there are people in the crowd who would sing those words to themselves and not feel uncomfortable. We probably know friends and even family who secretly like being racists. When we consider our own reactions, can we always say that they aren’t colored by prejudice?

The sequel

Turning east I made my way along the south side of the river into Southwark and along Jamaica Road to Rotherhithe, I swung round to Surrey Quays and rode down to Deptford and New Cross, returning to Central London on the A2 (the Old Kent Road).  Because I was wearing a mask and gloves, I didn’t get to chat to people but I got to observe.

I saw people queuing outside supermarkets and grocery stores – obeying the distancing rules.

I saw thank yous to key workers in people’s windows, I saw tributes to the NHS , to postmen and on one occasion to council workers who’d kept an estate clean.

People were in the parks, behaving  responsibly, people drove cars carefully and cyclists stopped at lights to respect pedestrians.

Society was not broken, these things co-existed with the events in Westminster though the only link was the faint sound of police helicopters.

Society isn’t broken – it’s being tested.

Right now we are asking honest questions about our society and finding some disturbing truths.

I know racist people, I meet them in my pub. When black or Asian people walk into my pub I see the reaction. I still love the pub. There are racists among the supporters of my football team, I still love Yeovil Town. Many people I work with are racist.  I still work with them. There is racism within me, I am still proud to be me.

Society integrates very slowly and sometimes not at all. There are many sites of synagogues in the City of London, but few synagogues. Each synagogue that closed did so because of some anti-semite purge. And yet Jewish people have continued to live and work in the City and they are now as much part of our society as the WASPS.

We are at one of those points where we are testing our capacity to work as a society. For the rest of this blog I think about our identity, and how we define it, both in relation to categorization and in terms of our personal values (#IAM)

Don’t call me WASP – I won’t call you BAME

We don’t like being categorised, I don’t like to be called a White Anglo Saxon Protestant (though that is exactly what I am.

This article , by Zamila Bunglawala (of Indian descent) says why she shuns BAME as a self-descriptor.

BAME for her WASP for me, a shorthand for a part of society which is useful in analysis but only in understanding the differences that still divide us.

Zamilia

Zamila

There is no doubt that WASP and BAME have had different experiences of the pandemic. And there is no doubt that the two communities are not fully integrated. And there’s no doubt that the people who were singing that they liked to put down people of a different race than theirs, “liked it”.

Pretending that we are all the same is as dangerous as pretending that we are not racist. We are not all the same and our differences are to be wondered at and admired. In her article, Zamila points out that even in White ethnicity, minorities such as Gypsy, Roma and Traveller exist as heritage groups . Tyson Fury has brought a better understanding of aspects of these minorities but he has not brought them from the margins.

WASP and BAME may be useful in talking about demographics and as scientific short-cuts but we want to define ourselves better. A Bangladeshi and an Indian have radically different identities and they want their identity to have a capital letter to denote it. I would be insulted to be called english and I’m sure my friend Rahul wouldn’t like being called indian! The capitalization says it loud and proud and BAME and WASP says nothing about our identity.

#IAM

Recently we’ve taken to going on social media to promote our identity using a selfie and a placard to define #IAM . Many of these placards start defensively ( #saddenedby ), but  lead to a positive affirmation.

I think this is my favorite statement  about personal affirmation but I love them all. It is a privilege to read the statements on personal identity from people I’ve known for a long time

I found out about #IAM through Dawid Konotey-Ahulu who has also introduced me to a load of good stuff going on in financial services on diversity.  

Change begins at home and this feels like home to me.

But what of the events in parliament square?

Society isn’t broken but it’s being tested. Individually we can say #IAM but there is still a groundswell of prejudice against what we aren’t. there are tensions between Indian and Bangladeshi , Jew and Muslim and within the white ethnicity.

The events we saw in parliament square yesterday were only the whistle of the kettle, the simmering water within the kettle can erupt at any time in any place. We are being challenged by the conditions we find ourselves in and as the furlough ends , the hardship that brings the kettle to the boil will spread. We will see more outbursts and each will have a focus.

We started with Dominic Cummings, move to Colston, now it’s Winston Churchill. Each iconic figure becomes a target of our intolerance. We must learn to stop blaming others and stop fighting those who have different views than our own, If we are have prejudice (as I think we all do) we mustn’t like it.  We mustn’t allow us to wallow in our own sense of superiority. We must keep the #IAM humble.

If we allow ourselves to see those chanting and throwing stuff at policeman as the problem, we miss the point of  #IAM.   I am not blaming racists for being racist, I am discovering my own racism. I am the agent of my own change.

 

Dawid

Dawid – a mentor to many

 

 

 

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Estimating R for the UK using Publicly Available Data (Stuart McDonald)

Posted on June 13, 2020 by henry tapper
Stuart mc

Stuart McDonald

 

By Stuart McDonald for

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

Screenshot 2020-05-21 at 05.12.58

Summary

r-change

The Rate of Reproduction

Key to understanding the spread of a virus is the reproductive rate “R”. This rate varies over time so we refer to the rate a time t as Rt (R0 is the R value at the start of the epidemic).

To measure Rt in real time requires extremely widespread testing at a scale which has not been available in the UK. Instead we can look at the rate at which events such as hospital or intensive care admissions and deaths vary over time.

R is of course a simplification and there are clearly differences in the distribution of the virus by geography, age, sex and other factors. Nonetheless, we believe our approach to estimating R gives us a reasonable picture of how the rate of transmission is varying over time in the UK as a whole. We will provide more detail of our method of R estimation in a future paper, including details of how actuarial techniques can be used to produce a more up-to-date estimate than is used in this bulletin.

Data Sources

Useful sources of reliable data are:

  • Deaths of patients in hospitals in England who had tested positive for COVID-19 or where COVID-19 was mentioned on the death certificate produced by NHS England
  • Deaths where COVID-19 was mentioned on the death certificate for England and Wales produced by the Office for National Statistics (ONS)

In this bulletin we use data from:

  • NHS deaths registered by 8 June (published 9 June)
  • ONS weekly deaths registered by 29 May (published 9 June)

These reports contain daily time series which can be used to examine how deaths are varying by day. By choosing the ONS reporting by date of death rather than date of notification we avoid distortions caused by weekends and public holidays. NHS reporting is also by date of death.

Deaths peaked on 8 April with 1,341 deaths total deaths in England and Wales where COVID-19 was mentioned on the death certificate (ONS). 899 of these were in English hospitals (NHS).

R1

We looked also at ICU admissions, applying similar techniques to see if we could get more up to date Rt estimates. The estimates were consistent when daily admissions were high but became noisy as daily admissions fell through April.

Estimating R

We can estimate the reproductive rate of the virus at a historical point by examining how the number of deaths was changing, after allowing for the average interval between infection and death. We assume a 19-day interval between infection and death, consistent with the 26th Report from Imperial College London (ICL).

R is a function of the ratio between the number of new deaths and the equivalent number at an earlier point. In order to reduce the volatility of our estimate caused by random fluctuations we use a measurement interval of five days and average over a three-day period.

Estimated Rt values are illustrated in the following chart, showing values estimated from ONS and NHS data and a weighted average of the two estimates.

Observations

Several observations can be made from our estimated Rt values.

The estimates are reassuringly consistent with Rt clearly falling over the period in question. It was around 2.5 at the start of March and was in the range 0.6 to 0.8 throughout April.

R2

It appears that R may be rising back towards 1.0 at the end of the period for which we can currently estimate it. This is the weekend in which the VE Day Bank Holiday fell and the emphasis from Government relaxed from “stay at home” to “stay alert”.

There are no clear step changes in the data as might initially be expected in response to the introduction of control measures. There are several reasons for this including:

  • Natural variation in the gap between becoming infected and infecting others
  • Natural variation in the gap between becoming infected and being admitted to ICU or dying
  • Control measures were introduced in stages, often just a couple of days apart
  • Different groups responded more or less rapidly to control measures; for example, large employers were moving towards working from home before the instruction to “stay at home” was given by Government
  • Our averaging approach smooths the underlying time series
  • The transmission rate naturally falls as the susceptible population falls. This has only a very small effect over the period considered.

The relationship between the R estimates is interesting. We know that the average age at death in hospitals is lower than for deaths occurring elsewhere, for example in care homes. We can therefore surmise that when the estimate of R from NHS data exceeds that from ONS data, as in the latter period, then R is higher among the working age population. When the estimate from ONS data is higher then R is higher among the older and more frail.

R3

Limitations

As noted above, this method results in apparently gradual changes in R over time. This means that it is not possible to reliably identify the date at which interventions have had an effect. To demonstrate this we have created an artificial projection of infections and deaths, setting R to be 2.0 until 23 March and 1.0 thereafter. We have then applied our method to estimate R to see how close we get to the actual answer (the actual answer in this artificial exercise being “2.0 becomes 1.0 on 24 March”).

stuart changed

 

As can be seen on the graph, the estimate produces a smooth transition beginning before the actual fall in R. This could lead to an incorrect conclusion that interventions were unnecessary as R had already fallen before they were introduced.

It is likely that other estimates of R over March may suffer from similar methodological limitations, casting doubt on the validity of statements that R was starting to drop below 1 by 23 March.

Next Steps

Having estimated R at different points in time, we could now produce scenarios estimating how different the number of infections (and ultimately deaths) would be if R had stopped falling.

We can apply similar logic if Rt begins to rise as social distancing measures are relaxed, having been clearly under control for nearly two months. We can also produce regional estimates using the breakdown of NHS deaths (noting that smaller numbers mean these will be less certain).

It is clear that infections and deaths are highly sensitive to relatively small changes in R. Great care will be required, and close monitoring of early warning indicators of change, as we relax control measures. We will continue to update and share our estimates of Rt over the weeks ahead.

References

https://www.icnarc.org/Our-Audit/Audits/Cmp/Reports

https://www.england.nhs.uk/statistics/statistical-work-areas/covid-19-daily-deaths/

https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/datasets/weeklyprovisionalfiguresondeathsregisteredinenglandandwales

https://www.imperial.ac.uk/media/imperial-college/medicine/mrc-gida/2020-06-08-COVID19-Report-26.pdf

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It’s isolation for me for the next few weeks!

Posted on June 12, 2020 by henry tapper
Wonky tapper

Groundhog day

 

Just as I thought I’d be coming out of lock-down it seems I must stay indoors for another month. A year ago I found myself in Guys hospital and under the knife, the alternative being most unpleasant. On July 5th I must go back for the same operation but this time at a time of pandemic. This means two weeks isolation before and after and that greatest of luxuries – a COVID-19 test to ensure I don’t have surgery while infected.

I am one of the thousands of people who has treatment delayed and I don’t complain about that at all. My symptoms are sleepless night and abdominal pain but in the context of what’s been happening in hospitals (like Guys) , I have nothing to moan about. But the seriousness with which I have to take the COVID-19 threat prior to and after surgery has come as a reminder of just how immune I have come to the threat that surrounds us.

In practice I will still be working as usual and will simply swap WeWork for homework. If I find I am an asymptomatic COVID carrier, I will thank my strong immune system and start wearing tubes in unusual places.

The person who will bear the strain will be my partner Stella, for whom i have undying love! She has only my irascibility to look forward to!

Having immersed myself in medical science as a result of publishing the COVID-19 actuaries various publications , I now feel much more comfortable with my position. I may have co-morbidities! I may even be of interest to medical science. It is always good to look on positives!

One positive is that I have the kindest and most sensitive of doctors who I find out has got married in the time of the pandemic to a lady who has been working on a COVID ICU. Now that really is quite something.

There are many positives to spending the summer stuck inside and I am going to rehearse them all.

Despite this,  the word that is on the tip of my tongue starts with an f and ends with a k.

Apologies to those who expected to come on the boat!

Lady Lucy June

one day!

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Not all asset managers are created equal

Posted on June 12, 2020 by henry tapper

This is the second of ten articles written by Chris Sier which were originally published in Pension Expert. The original can be found here and is republished with the kind permission of the editor

Chris-Sier-teaser_small

In the first piece of this series, I stated that asset managers were not the problem when it comes to cost collection. That said, not all managers are equally committed to, or enthusiastic about, transparency.

 

It turns out that providing cost and performance data can sometimes be difficult for managers, both practically and emotionally. You learn more about an asset manager when they are asked to do something difficult or new, than when they are asked to do something easy.

We think this manager performance should be assessed according to three indicators: willingness – the willingness of the manager to give data; ability – the technical ability to generate and give the data; and responsiveness – an assessment of the attitude of the manager and those we deal with at the manager.data

For each interaction, ratings are awarded based on a scoring from one to four for each of these dimensions, and these scores are reported to clients along with a commentary describing why the managers were rated as they were.

Few managers refuse requests

To date we have requested data from well more than 400 managers in and outside the UK, and very few have declined to supply data at all. Only two managers have been reported to the Financial Conduct Authority by their clients, although there are a couple more that are close.

However, beyond this small number of ‘detractors’, we have seen a range of increasingly warm responses from managers, and below is a list of the highest-rated managers with which we have dealt so far. This list represents those that have regularly scored three or four on each of the three characteristics of willingness, ability and responsiveness.

Data crunch table_0705_350

This list has obviously grown and changed over time, not just because we have gradually increased the scope of our mutual clients’ requests, but also because those managers that were initially reluctant have come around.

In basic terms, if you work with these managers they should give you no trouble at all in supplying data.

Within this highest-rated list there is a best-of-the-best group, and recently we were asked by Pensions Expert to name these to be put forward for the Pensions Expert ClearGlass Transparency Award.

These nominees are marked with an asterisk, and one of them will win the Pensions Expert ClearGlass award, to be announced in September.

There are many more managers who are now fully compliant with data provision requirements. At some point we will list them, so pension funds can have a head start in understanding which managers will be compliant.

For a trustee, this will be one less thing to worry about, which is important given that academic research shows that some trustees are reluctant to ask for data on their costs because they are afraid of its complexity.

Private sector leads the way

The list of managers we recognise as willing to give data is different and significantly larger than the list of managers that have signed up to the LGPS Code of Transparency. This is a clear indication of the willingness of most managers to submit data without the need for the compulsion imposed by the LGPS code.

What is also important to understand is that just because a manager is willing to give data to LGPS clients, and has publicly signed up to the LGPS Code to indicate as much, does not mean they will give data to you if you are not in the LGPS. We saw this a number of times initially, with managers offering LGPS clients a better service than non-LGPS clients, but this is increasingly rare as transparency has become ubiquitous.

This confirms for me that private sector pensions and their consultants, rather than the public sector, are leading the way on cost transparency. And that is very good news for everyone.

Dr Chris Sier is chair of ClearGlass Analytics and led the Financial Conduct Authority’s Institutional Disclosure Working Group

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The public just want a pension dashboard

Posted on June 11, 2020 by henry tapper
darrengregg

Gregg McClymont and Darren Philp

 

Yesterday afternoon was busy but I had time to catch a headline in Professional Pensions

 Lords pensions bill amendment could confirm single dashboard approach, says TPP

I’ve retained the original article as a PDF and here is how it appears.

A small amendment to the pension schemes bill on 8 June has been labelled ‘significant’ in meeting criticism of the pensions dashboard and could confirm a ‘water-tight’commitment to run a single dashboard, The People’s Pension says.
Director of policy Gregg McClymont said he believed the amendment made
by Lord Young of Cookham to clause 122 of the bill this week would oblige
the Money and Pensions Service (Maps) to provide a single dashboard and
see out terms laid down in the clause.

McClymont said the wording within the clause was changed from ‘may’ to
‘must’ regarding specific functions and delivery of the dashboard.
Clause 122 of the bill states that as part of pensions guidance function, a
single financial guidance body must provide information about state
pensions, basic and additional retirement pensions, and state pension
information relating to an individual by means of a pensions dashboard
service.

McClymont said: “This is very welcome and suggests that cross-party support
is building to ensure that a commitment on government to deliver a single
dashboard is written into law. The public – as the government’s own research
confirmed – is more likely to trust a non-commercial dashboard model.”
He added: “There was much criticism of the dashboard clauses during the
bills Lords second reading and it is notable that a senior government peer
has now tabled an amendment to try and ensure the bill contains a watertight commitment to publicly run single dashboard.”

By the time I finished my meetings the headline had changed and so had the story

Lords pensions bill amendment sparks confusion over dashboard approach

The breaking news was that the original report had sparked confusion over whether it could confirm a ‘water-tight’ commitment to run a single dashboard.

The reason I’ve retained the original of the article was because I had written to Gregg McClymont wanting an explanation for a story I couldn’t understand.

It appears I wasn’t alone. The later version of the article suggests the first  “has sparked confusion over whether it could confirm a ‘water-tight’ commitment to run a single dashboard”. It now concludes..

Smart Pension director of policy Darren Philp said: “We have a very different understanding of the amendment. All this amendment does is to simply say that the Money and Pensions Service has to provide a dashboard.

This is our understanding of government policy, so all this does would enshrine that in law. It says nothing about single versus multiple dashboards and we are pleased that the government’s approach is for multiple dashboards.”

Smart got there before me and I’m glad it did, the original story was just another attempt by a lobby group to rubbish private sector innovation in favor of a centralized approach. Anyone who has had to manage their medical records online knows that a centralized approach to data and document management is not something that the Government does well.

It is irrelevant whether the MAPS or private sector approach is trusted more. If there is no dashboard in place the public will trust nobody. 

We are a demand not a command economy!

The Government’s position has been to first build the minimum viable dashboard within MAPS and then allow the private sector to develop alternatives, each private dashboard working to the data standards established by Chris Curry and the steering group and delivered by MAPS.

But of course there are prequels to the dashboard. The public has a taste for seeing all its pensions in one place and has a reasonable expectation of seeing all its pensions in one place. Where there is demand , supply will follow and organisations like my own are laboriously finding pensions and helping people see their entitlements on one screen so they can make informed decisions on how to consolidate and how to convert pension pots into retirement plans.

Since the dashboard steering group has been unable to publish a delivery timeline, even for a minimum viable product, the private sector has assumed that it will not be able to build from a MAPS dashboard for several years. The development plans of the kind of innovative Fintechs that work in this space are rarely longer than five years. This means building on the assumption that the MAPS dashboard will arrive too late for the needs of the 650,000 people who get to 55 each year.

For firms like Zippen, AgeWage , Pension Bee, Profile Pensions and others, the MAPS dashboard is already going to be delivered too late. The reality is that pension dashboards are germinating now to meet public demand and have been and will be tested within the FCA’s Sandbox before Lord Young will even get the Pension Bill to Royal Assent.

While Gregg McClymont may hanker for the delivery of public services at the command of Government, the private sector innovates. Smart Pensions is a prime example of innovation and I’m pleased to see that Darren Philp was able to put the record straight with Professional Pensions.

Let’s just follow the agreed plan

If we had adopted the path of open banking and agreed a series of pension data sharing protocols in 2016-17, Origo would now have built the architecture for finding pensions and we would have the dashboard in the palms of our hands – today.

Instead the DWP and the Treasury argued over ownership, proto-types were built and ignored and experts spent days in conferences arguing over projection assumptions, the inclusion of DB CETVs and how to include DC pensions disgraceful tail of 42,000 micro schemes that may never share their data , it being so poor.

The result is that we are still awaiting the next consultation and we are still to see a timeline for delivery of the MAPS minimum viable product. This is what happens when with a  command economy and it’s why the demand of ordinary people to see their pots in one place is not being met.

Every time that the single dashboard lobby intervene, there is more confusion, more delay and the interests of the dashboard consumer are further prejudiced.

Can we please let Chris Curry and co get on with their laborious job so that we can see a dashboard delivered within the next five years. If we continue to argue over a pin, we won’t see a universal dashboard this decade.

In the meantime, the innovators will have to get on with things with no help from Government at all.

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Let’s stop blaming everybody else!

Posted on June 10, 2020 by henry tapper

Blame

 

Blame the Crossfit CEO, blame Sainsburys, blame Peter Shilton and blame Little Britain. The twitter hits of the day are consistently pointing fingers at others for the state we’re in.

Thankfully we aren’t blamin Prince Philip who is 99 today and I hope in a year’s time he will get a telegram from his wife!

philip

I don’t blame anyone for blaming everyone but I do think a lot of people would be better off considering the public service of this happy couple than by putting everybody else down!

So here are the five blogs published on here which I’d point you to for positive alternatives to the deepening despond.

  1. Con Keating and Iain Clacher propose an alternative way of funding DB pensions which better balances the interests of pension scheme members and shareholders. If you want to see both companies and pension schemes stay solvent read this
  2. I praise Michelle Cracknell for not blaming Dominic Cummings for 65,000 excess deaths (keeping her head where all were losing theirs)
  3. Demonstrating how an insurance company can respond positively to the crisis in our care homes and provide a better way for the elderly to plan ahead
  4. Nicola Oliver provides a scientific analysis of the merits of wearing a face mask at the current time
  5. I urge the Treasury to engage with the over-payment of pension contributions by 1.7m savers who need every penny they can get.

These are five of the 345 blogs published in 2020. That’s nearly 350,000 words or around seven novels worth!

Keeping this blog positive

I publish and I’m frequently damned. But the blog is read and I hope read positively. Readership is running at around 40,000 per month and has remained consistently at this level for around three years.

And though I write blogs that are critical of Government, companies and often of individuals , my aim is to raise issues and create positive change. Of course there is dissent but there is not hate. Where I see hate I will delete it.

IP

These two comments were deleted from the site yesterday. They came from the same computer and  John Peters and Duncan Ferguson are bogus. The ongoing defamation of Angie Brooks is shameful. I will stand by those who persistently stand up for others.

Let’s stop blaming everybody else

There is much kindness to be found on the web and on social media. I see kindness in the queen and indeed in her often curmudgeonly husband (happy birthday). I see vulnerability everywhere and can often forgive a personal attack , knowing that it comes from a personal sensitivity which it were better I understood than exploited.

Last year, when I had two serious health scares, I saw much good in those whose views I don’t share and that has made me more tolerant.

This blog and its sentiments are dedicated to Naibuka (Sam) Qarau

Today I am attending, virtually, the funeral of a man on whose face I never saw anything but a smile or a look of concern. He died too soon and we will mourn his passing.

Nabushka

Naibuka

If you would like to read a tribute to this man by Leslie Griffiths, here it is in full.

If you would like to spend time between 1.30 and 2.30 in his honor, his funeral service will be streamed here

lesley

Posted in pensions, St Paul's, Wesley's Chapel | Tagged , , , , , , , | 2 Comments

A different approach to pension scheme solvency and funding.

Posted on June 10, 2020 by henry tapper
Ian con

Iain Clacher and Con Keating –  authors of this blog.

Solvency and Funding

This is the second of our blogs answering questions which arose from our original essay written in response to the proposed DB Funding Code. It covers issues of solvency and funding.

Solvency estimation involves the comparison of assets with liabilities. Current practice is to use market prices for assets and discounted present values for liabilities, making this approach mixed attribute in nature. The consequence of a mixed attribute approach is to introduce spurious volatility and bias into the solvency estimate.

In an ideal world, we might consider projecting the cash-flows associated with the asset portfolio and compare this with the projected pensions payable. The comparison is most easily done in terms of their present values using a common discount rate. Regardless of the rate chosen, any deficit would be proportionately correct but measured in terms of the value attributed to assets. However, the value attributed to liabilities would not accurately reflect the obligations of the company sponsor, unless this discount rate were the contractual accrual rate.  Moreover, the value arrived at using a present value discounted cash flow would mean that asset values would likely differ from the current market price of those assets.

When this projection method for assets was in use it frequently led to higher values for assets than their market price, and was open to abuse, which led to its discontinuance. For the avoidance of any doubt: we advocate the use of market prices for assets and a discounted present value using the CAR for projected liabilities.

Best estimates, prudence, and dual discount rates

Projected benefits should be derived using standard actuarial techniques using the best estimates of the factors which determine those ultimate pension payments e.g. mortality and inflation. As time passes, experience will mount and any errors arising from faulty factor or parameter assumptions will diminish; put another way, the projected values of benefits will converge to the ultimate pension over the life of the pension promise, even if those factor assumptions are not revised.

The value of liabilities calculated in this manner is the best estimate of the accrued corporate obligation. There is no place for estimating this value in a conservative manner in the mistaken belief that this is ’prudent’. So-called ’prudent’ values imply inequitable treatment for other stakeholders and mislead scheme members by overstating the true amount of their pension accrual. It is also worth noting that accounting practice has also abandoned ’prudence’ in favour of ‘faithful representation’ i.e. economic substance has been substituted for legal form.

Some actuaries have developed the practice of using two different discount rates to value liabilities; one, usually bond-based, for pensions in payment and another, usually higher, for the pre-retirement accrual period. This approach is also present in the proposed Funding Code. The usual justification for this is that growth assets are attractive in the accumulation phase and bonds best suited to meet the cash-flow demands of paying pensions in retirement.

This is problematic in several ways. First, as noted in previous blogs, the amount of the liabilities of a company, and by extension, its pension scheme, is independent of the manner in which those liabilities are funded. Second, all the pension liabilities, regardless of their class (in accrual or payment), are secured by all the assets of the scheme, and the sponsoring company. Third, members must be treated equally; there can be no segregation of the assets of a scheme for the benefit of one or other class of members. Preferential treatments within the membership are prohibited.

The purpose of pension fund assets

Implicit, but unstated, within the practice of dual discount rates is the idea that the fund exists to pay the benefits when due rather than to secure the accrued liabilities of the sponsor. It is also evident in the proposed Funding Code’s ambition to reduce or eliminate the scheme’s dependence upon its sponsor. This is motivated by the principal risk faced by a scheme and its members, sponsor insolvency. However, this difference in purpose for the fund is not some subtle and nuanced philosophical distinction, it is substantial and important, and merits close examination.

The pension promise is a long-term liability of the sponsor company and is created by the company as part of the terms under which staff are employed and compensated. It is in many regards comparable to a long-term debt security issued by the company. A corporate bond promises a return on the subscribed amount and the return of the full principal at maturity. With a DB pension the company promises a return on the initial contribution(s) and payment of the pensions in retirement. DB pensions share a common characteristic with zero-coupon corporate bonds, whereby the interest accruals are much larger than contribution or subscription amounts, often by an order of magnitude.

As the concern is with sponsor insolvency, we should consider the treatment of ordinary long-term corporate debt in such situations. The amount of the claim of a bond holder is the return of the original subscription plus any unpaid interest due to the date of insolvency. With a zero-coupon bond, as no interest is due or paid until maturity, the majority of the claim is usually unpaid interest. Note that the rate is endogenous to the insolvency process, drawn from the original contract terms; it is not some arbitrary exogenous discount or accrual rate. It is also not a replacement cost of the future elements.

If this is a secured bond, this claim amount is the amount of collateral security required; it is the amount arising from the due performance of the company accrued to the date of insolvency. If collateral security is held to this level, then the bondholder has no further claim on the insolvent corporate estate. It is usual to hold such collateral security in a trust, to ensure their bankruptcy remoteness.

The duties and concerns of bondholder trustees are light. These trustees are concerned only with ensuring that the current value of collateral security equals this amount and if there is a shortfall requiring cure of that deficit within the term specified in the contract. This is usually a very short period of time e.g.90 days.

Given the immediacy of the situation, mark-to-market is an appropriate valuation technique for these assets. Here, trustees are not required to consider what may or may not happen in the future; they are not required to consider whether the assets held will generate the returns needed to service the promise made by the company. These practices have come about because they are equitable among all stakeholders of the company.

DB pensions belong to the same class of creditor and so they should be treated in the same manner. Any other treatment will be inequitable to one or more other stakeholders. Of course, Section75, PA1995, defines the pension claim amount as an open market replacement cost estimate, less the value of assets held by the scheme. This is inequitable to other stakeholders and should be expected to result in other creditors making arrangements under higher priority status and requiring more restrictive covenants for their advances. It is notable that many private equity and turn-around specialists will simply not engage with companies with DB schemes because of this.

While the section 75 value is relevant for solvent companies wishing to abrogate their obligations, it is wholly inappropriate in insolvency.

Self-sufficiency

The ambition of the proposed code is to have schemes funded to levels which eliminate any dependency on the sponsor company. This is far higher than current levels. It amounts to raising the cost to that of purchasing an insurance policy externally. It is one thing for a company to offer a generous pension when the cost of that generosity will be borne over the life of the pension but quite another when that cost must be fully borne immediately.

To understand why such an approach is wholly inappropriate, it is useful to go outside of DB pensions and consider another stakeholder group i.e. shareholders. Shareholders have two sources of return: capital gains and dividends. Dividends are a major source of income for shareholders, but dividends are risky and can only be paid if the company exists.

If the company becomes insolvent, then as the residual claimants, shareholders will get very little once everyone with higher priority has been settled. If a company were to decide to direct corporate funds to set up a fund that paid dividends to shareholders irrespective of whether the company existed or not, then this would be challenged in court.

This is the logic of self-sufficiency. The aim of trying to remove risk from members is laudable but misconceived in this way. Member risk has been reduced via the existence of the PPF. Any funding above best estimate is, effectively, to give one stakeholder group preferential status and to misdirect corporate capital, which could be used for a myriad of purposes e.g. higher wages, expansion, dividends etc.

However, if schemes were to be funded to replacement cost levels, we would expect the application of section 75 in insolvency to be challenged in the courts. It is one thing for other creditors to tolerate inflated claims when the recoveries are highly uncertain, but quite another when there are substantial and visible assets involved.

The argument could rightly be made that funding to this level was improper in the exact same way as the placement of some company assets in bankruptcy remote vehicles for the payment of dividends to shareholders after insolvency or more generally under the principle of equity.

The problem which all the regulatory paraphernalia is seeking to resolve is that of sponsor insolvency and the desire to preserve member pensions as promised. This is a question of credit and may be addressed by credit insurance, which will be discussed in the third of our explanatory blogs.

solvency

Posted in advice gap, de-risking, economics, pensions, Retirement | Tagged , , , , , , | 5 Comments

Pension committees “stay alert”!

Posted on June 9, 2020 by henry tapper

 

Stay alert

Local Authorities must stay alert through the storm

 

Alarm bells rang when I read Stephanie Hawthorne’s report on the reaction of some Pension Schemes to the challenges of the current pandemic ‘Lockdown spikes fears of democratic deficit in LGPS’ 

A survey of 83 local authorities conducted on behalf of the Local Government Pension Scheme Advisory Board and the Local Government Pensions Committee of the Local Government Association showed that some councils are sluggish to adapt to the new normal, with 61 per cent of respondents not going beyond mere planning of virtual meetings.

The research, conducted in the first two weeks of May, also showed that other local authorities were delegating decisions to senior officers such as the section 151 officer, the chair and the vice-chair of the pension committee. One council delegated decision-making to the chief executive with appropriate advice from officers, while another had a Covid-19 special committee.

The concern at this comes from within LGPS and specifically from the uber-proactive Jeff Houston, LGPS head of pensions. 

Houston

Jeff Houston

Comments from the various advisers interviewed by Hawthorne in late May , do not reflect much pro activity.  They seem to accept pension torpor in the face of the crisis.

 “Meetings tend to be planned on a quarterly cycle, and this (survey) was less than two months into the lockdown.”

“the main local government regulations about how to manage matters with Covid-19 in terms of virtual meetings, and enabling access to the public, were only issued by the government on April 4”

Anyone charged with managing a UK business through the COVID-19 pandemic will recognize such behavior as a voluntary furlough. Three monthly meetings in a time of crisis? Two months to digest instructions on virtual meetings?

These committees are there to protect the public from the pension risks  created by the pandemic. These include the probability of many participating employers going bust and ceasing contributions, many members losing pension rights and the scheme losing its primary source of funding.

There is genuine distress within many participating employers and that distress will extend to staff when the furlough ends. Council tax-payers should be demanding more.

If ever we needed the pension committees of local authorities to raise their game, now is that time.

Has time stood still?

Third party providers to the LGPS are clearly comfortable to maintain the status quo. Hawthorne quotes a spokesperson from JP Morgan

“No doubt there will be some permanent change that will come from the current experience. Some companies will not survive while others will thrive, as we emerge into a post-Covid-19 world. But, overall, we do not believe long-term growth prospects have been fundamentally changed.”

So should Local Authorities be taking asset manager’s word for it?

Any council tax payer in the land is going to blanch at the assertion that “long-term growth prospects”, haven’t “fundamentally changed”.  Perhaps this remark refers to the asset management industry , for whom the furloughing of 61% of pension committees could mean business as usual.

And are local authorities right in thinking pension administration is business as usual through the pandemic.

very few authorities appeared to be revising administration budgets to deal with the current situation, with 87 per cent not making any changes.

My experience as a small company dealing with my local authority is that it is virtually impossible to get any answer on any matter. Small employers with very real pension issues may find that the “spike in the democratic deficit” means they have, like me- no one to talk to. I find myself agreeing with Stephen Scholefield

PM

 

 

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Does not discussing salaries, only benefit employers?

Posted on June 7, 2020 by henry tapper

salary.jpeg

Having kicked the traces with corporate reward strategies, I now operate a company where everybody knows the wages of the company. For good reason I am AgeWage’s lowest paid employee and I’m proud that we are able to talk about salaries in an open way,

Transparency being the best form of disinfectant , we have got used to seeing the reward packages of company’s senior managers published in corporate accounts.

Khaleesiana is  lucky to have a chance to discuss her wages with her colleagues. This should not be a privilege but sadly it is. Because most of us are not allowed to disclose our earnings to our colleagues. There is an assumption of fairness out there that’s like  ‘most favored nation’ status. If you confer most favored nation status on your reward strategy, you are implying that  no one has anything to  gain by comparing salaries. It is then easy to say that by comparing salaries you are de-stabilizing the trust in place.

And as soon as people feel disclosure could lead to a leveling down or even dismissal, non-diclosure is – as Klaleesiana says , of exclusive benefit to the boss

I do agree that there needs to be some flexibility within pay grades to pay more or less for what appears to be the same job. But is it really ever sensible to allow the gap between Khaleesiana and her colleague to develop?  Would such a gap have developed if disclosure of all salaries had been place? Would the publishing of grades and of who is in what grade be enough or do we need absolute disclosure?

The truth is we are terrified of litigation and in fear of own reward strategies. We consider the collusion between Khaleesiana and her colleague as against spoken or unspoken rules but in reality, once a gender pay gap issue is in the open, it can be resolved. Much worse is the lingering doubt engendered by the leaking of salary information over time which leads to a culture of distrust within a company.

As a start-up, we’ve started the way we mean to go on but I am no reward expert. I’d be interested in anyone’s thoughts on Khaleesiana’s behavior and what you think of her employer’s pay strategy.  Is there a point where a company has to impose non-disclosure of salaries on staff or is transparency on pay as important on the shop floor as in the boardroom?

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Let’s not forget the low-paid’s pension problems

Posted on June 7, 2020 by henry tapper

 

The initial financial shock of the pandemic was on markets.

dwp3

and the headlines about mortality

dwp2

 

The occasion was a Zoomed up pension conference and specifically a break-out session with Glyn Jenkins .

We were discussing the impact of COVID-19, with concern that the sharp drop in markets in March might have driven savers away. NEST spoke with authority that savers had not panicked  but that they recognized that the pandemic was going to hurt them financially.

nest analysis

 

Emboldened by stirring remarks from Glyn on the importance to ordinary people of the state pension , I thought it time to introduce the issue of the low paid who are overpaying their pension contributions – (typically by 25%),

Here as I remember is the conversation (anonymised as we were under the Chatham House rule)

Chair: I can see Henry has his hand up and has been asking a question in chat. Henry, I do hope you aren’t going to bore us about net pay?

Me: yes, that’s what I asked my question about.

Chair; is there an investment solution to this

Me; no this is not about investments, it’s about being fair to a group of people who are currently not getting value from their pension contributions because they are over-paying by 25%

Chair; oh go on – if you must…..

I am grateful to the chair as she is one of the very best minds in pensions and she can properly said to care for people.

She wasn’t trying to shut me up on her behalf  but she knew the other people in the room were not thinking of defined contribution pension schemes as they touch the bottom decile of earners in this country.  But pension pots matter to low earners as much if not more than to the people on the call.

NEST’s research on its membership shows a consistent worry about the impact of COVID-19 across age groups, gender , sex and those with and without children. Where there is greatest financial worry is among those on low incomes and where there is leas worry is among those with incomes above 30k.

The question of how we manage pensions for those on the lowest incomes is the more important for these savers, as they feel most vulnerable

nest analysis 2

 

Everybody’s pension matters

Here, for her and for all the other bright people who are desperately searching for ways to embed alternatives into DC defaults is the latest information solicited by Baroness Ros Altmann the low paid saving into workplace pensions

‘HMRC estimate that 1.3m individuals earning below the personal allowance in 2017-18 made workplace pension contributions via Real Time Information (RTI) using relief at source arrangements. About 65% of these individuals are estimated to be female and 35% are estimated to be male.  The personal allowance in 2017-18 was £11,500’.

Those in NEST are in a relief at source pension, which means that low earners saving into NEST are getting the promised Government incentive which amounts to 25% of their personal contribution under the 4+1+3 formula set out for auto-enrollment contributions.

However there was another and more sinister disclosure to the Baroness;

HMRC estimate that 1.5m individuals earning below the personal allowance in 2017-18 made workplace pension contributions via Real Time Information (RTI) using net pay arrangements. About 75% of these individuals are estimated to be female and 25% are estimated to be male.

HMRC’s Survey of Personal Income (SPI) and administrative data was used to produce the estimates. The 2017-18 SPI data (published in March 2020) is the latest year available. The SPI is updated annually.

For 1.5m of us not saving into NEST or People’s Pension or into an insurance company GPP or the relief at source section of the L&G master trust, the 25% incentive is still going missing.

It’s a poverty issue and especially a gender poverty issue

From these two disclosures we can get a picture of what is actually going on when the low paid let themselves get enrolled. We should be grateful to Kelly Sizer of the Low Paid Tax Reform Group for crunching the numbers.

Individuals earning below the personal allowance and contributing to pension schemes

Estimated for 2017/18

 

 RAS(1) NPA(2) Difference – number of NPA contributors compared to RAS
Total 1,300,000 1,500,000 +200,000
Female 65% =      845,000 75% =       1,125,000 +280,000
Male 35% =      455,000 25% =          375,000 -80,000

 

(1) https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Lords/2020-05-18/HL4642/
(2) https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Lords/2020-03-18/HL2729/

What does this mean?

  1. The pension tax system is discriminating against one and a half million low paid people who have been promised a 25% top up on their pension savings and are not getting it.
  2. The pension system is discriminating against women who represent 65% of the people who aren’t getting the money promised them.
  3. Despite promises in the Conservative manifesto ‘this will be sorted’ and the budget which promised the Government would ‘shortly publish a call for evidence on the subject, nothing has happened. My message to the group on the Zoom call was simple,

Pension’s thought leaders cannot be complicit in Treasury delinquency.

A problem that is going to get worse.

You will notice that the numbers sourced by Baroness Altmann are for 2017. The net pay action group which she chairs estimates that the true number of people who aren’t getting their fare shares is now 1.7m. The Real Time Information system seems to be lagging.

But even if we work on the 1.5m figure, it is  shameful that  this matter is still considered ‘boring’. There is a simple way to sort this important issue and it simply requires HMRC to do some coding of their systems to put the 1.5m right.

But so long as we don’t bring this up at pension conferences or dismiss the issue as ‘boring’, we are indeed complicit in the Treasury’s delinquency. Around the world people are protesting to make every life matter. We need to adopt that attitude to pensions. We should all be concerned about the net pay anomaly and we should not allow COVID-19 to be used as a reason not to reward the low-paid for saving as they’ve been promised

 

 

 

Posted in pensions | 4 Comments

The impact of banning contingent charging for pension transfers

Posted on June 6, 2020 by henry tapper

FCA balance

The end of an era

After over three years of mounting pressure, the FCA yesterday announced it would be banning the practice of contingent charging for work on Defined Benefit transfers from October 1st. Although some pipeline cases will conclude in the next four months, it is unlikely that advisers will embark on any new work on a ‘no transfer no fee’ basis.

From now on advisers will have to charge the client the same if the transfer proceeds or if it doesn’t. This will either lead to uneconomic work for advisers (in which case transfer case-load will decrease) or the  risk to clients of no transfer and a big bill , in which case the transfer won’t go ahead.

There may be some advisers who see the lure of funds under advice as sufficient to offer transfer analysis as a loss-leader, but the cost of professional indemnity insurance around transactions will probably make such a service unsustainable.

This does not spell the end of DB transfers, there will be a ‘carve out’ for people in extreme ill-health who will be able to capitalize future pension payments from their scheme , provided they are not within a year of normal retirement. Some wealthy people will pay for advice rather than the outcome of the advice.

But as a mass-market activity, the practice of transferring the pension promise offered by a defined benefit scheme to a pension pot with full market exposure, is finished.

If you want to read the comments of IFAs on the announcement, you can read there are around 100 behind this post

If you want to get the back-story, then you can read the parliamentary briefing published in mid May, and available here

The impact on IFAs

Many IFAs became heavily dependent on DB transfers not just for immediate income from the conditional charge, but for the embedded value to their businesses of advising on the proceeds. Many who had the permissions were able to take a charge on the transferred assets in return for discretionary management agreements that made them not just advisers but fiduciary managers.

The cessation of new flows is likely to have relatively small impact on IFAs who have seen the end of contingent charging coming. It’s estimated that 700 IFA firms have already resigned their transfer permissions and some have had them taken away.

The FCA are currently carrying out a number of investigations into the activities of some advisory firms including Lighthouse, that was recently purchased by Quilter (formerly Old Mutual and previously Skandia). Quilter are reported to have set aside a substantial sum as a provision against future claims.

Ominously for many IFAs , the FCA have announced that they will be writing to all 7700 steelworkers they can find, who transferred out of the British Steel Pension Scheme. The inference to steelworkers is that there is money on the table. In the case of Lighthouse advised cases the source of that money is clear, but many smaller advisers with less resource behind them will need to rely on their insurers. In many cases the excesses they will need to meet themselves will severely impair their businesses.

The FCA’s sampling of transfer cases from BSPS only gave a clean bill of health to one in five cases, in total well over 3bn GBP was transferred and BSPS is only one of a large number of schemes that were systematically targeted by advisers.

While criticism of the FCA has focused so far on the impact on the availability of advice, the much greater worry is the impact on the sustainability of adviser’s businesses.

The impact on pension providers

In terms of pension provider finances, the continuation of a pension transfers was a win-win. Defined benefit schemes were able to de-risk, sponsors reported transfers as improving the corporate balance sheet. Money arrived in SIPPs and to the large insurers with no risk attaching. The major insurers who benefited included Prudential, Royal London , Zurich and many other household names. Those insurers who had vertically integrated propositions such as Old Mutual, Standard Life and in particular St James Place were particularly well positioned to benefit from transfer inflows.

Tom McPhail, now released from PR duties at Hargreaves Lansdown has commented

It will be interesting to see how the markets see the FCA’s intervention with regards insurer’s liabilities.

Fund managers

The further from the retail coalface you go, the more beneficial the flows from DB to DC became. Retail margins on funds transferred are not subject to any cap and the pressure experienced on fund management margins by trustees and their advisers made for good business ‘upstream’.

Whether transferred monies are going to stay in high margin funds is hard to predict. If the FCA review is ongoing , it is likely that it will focus not just on what happened but on what’s happening and this will mean having to justify the high cost of ownership of the personal pensions managed by wealth managers.

DB pension schemes

News of the FCA’s announcement has been welcomed by the PLSA . But I suspect that it is not over-celebrating. Many large pension schemes have invested in technology to give members on-line transfer value quotations. This at a time when large numbers of members face the likelihood of redundancy. These transfers are now all dressed up with nowhere to go.

Only last month, British Airways announced that online transfers were available days after announcing that 12,000 jobs were at risk. The trustee and corporate agendas were to some extent aligned since – in the dystopian world of pension accounting, transferring members out at today’s high CETV values, benefits the scheme’s funding position (and the corporate balance sheet). It also sets the FCA’s agenda of protecting consumers against the Pension Regulator’s agenda of protecting the PPF.

Workplace pensions

One of the very few areas within pensions that has been untouched by DB transfers has been the DC workplace pension. Since the transfer process was inextricably bound up in advice, it was likely that the advised solutions to the ongoing management of the transfers would be controlled by the adviser – not by an insurer+employer +IGC.

I have yet to read one IGC report that mentions the influx of money into the insurer from DB schemes, this is because the IGCs look after the workplace pensions not the SIPPs . Ironically much of this money may be destined for unadvised investment pathways (for which IGSs and GAAs are responsible.

I argued during BSPS’ Time to Choose that Tata and Liberty’s workplace pensions (with Aviva and L&G respectively) should have been promoted by IFAs as a transfer alternative. I have never seen figures published on how much of the BSPS CETVs made their way to the workplace pension schemes that active steelworkers had open to them.

However I suspect that many who have transferred from schemes such as BSPS do have good quality schemes (such as NEST) into which transfers could be made. It would be good for the FCA to be thinking of investment pathways for funds orphaned of advisers or needing a radical rethink with regards value for money.

The impact on the public

The FCA have had this question in the front of their minds since the day when Frank Field and the DWP Select Committee first grilled Megan Butler and her team.

Last summer I met with the FCA’s Chairman who asked me the simple question “do you think contingent charging should be banned?’ I said yes (with a carve out for the very sick). The discussion focused on the impact on the public of losing the freedom to do what had been granted it in 1986 by Norman Fowler – to freely move DB rights into a personal pension.

The FCA have not of course banned that right, but it has made it sufficiently difficult for most people to transfer as to have taken this freedom away. For those who have not taken a transfer, the door has effectively been shut and it will be interesting to see whether there is public outcry.

It will also be interesting to see the extend that the public seek redress. This is taken from the aforementioned Parliamentary briefing (updated yesterday).

Where a DB transfer has been made on the basis of unsuitable advice, the individual may be able to make a complaint and, if upheld, get redress to put them, as far as possible, back into the position they would have been in if they had not received the advice.

To get redress consumers must first complain to the firm that gave the advice. If the individual is not satisfied with the firm’s response or the firm has not responded, they can complain to the Financial Ombudsman Service (FOS). If the firm that gave the advice is insolvent and cannot pay compensation, a claim can be made instead to the Financial Services Compensation Scheme (FSCS).

Both the FOS and the FSCS have reported rising levels of pension complaints. Financial advice firms have expressed concerns about the consequent rising costs of the levy and professional indemnity insurance.

Some have speculated that there might have been a “multibillion-pound mis-selling scandal” related to this financial advice. The extent of any problem might only come to light in the event of an economic downturn, when the implications of a decision to switch to a DC pension might become clearer to members.

We wait to see.

 

Posted in advice gap, BSPS, Change, DWP, FCA, pensions | Leave a comment

What happened in week 10; science from the COVID Actuaries

Posted on June 6, 2020 by henry tapper

 

Screenshot 2020-04-10 at 12.03.32

C19ffin

Every week, more is written on COVID-19 than any individual could possibly read. Collectively, the COVID‑19 Actuaries Response Group read more about the outbreak than most, so we’ve decided each Friday to provide you with a curated list of the key papers and articles that we’ve looked at recently.

Modelling – reports

Effects of non-pharmaceutical interventions on COVID-19 cases, deaths, and demand for hospital services in the UK: a modelling study (Davies et al, 2 June)

This paper, from the Centre for the Mathematical Modelling of Infectious Diseases COVID-19 working group, is a useful summary of some of the modelling that was carried out at the start of the outbreak. It sets out the key analyses and scenarios presented to decision makers over February-March 2020, based on information available at that time. The group modelled the impact of four key interventions (school closures, physical distancing, shielding of over-70s, and self-isolation of symptomatic cases), alongside phased lockdown-type restrictions, and found that

  • Interventions without lockdown would not be sufficient to bring R0 below 1;
  • An unmitigated outbreak would have led to 350,000 deaths by December 2021;
  • The most stringent lockdown scenario would have resulted in 50,000 deaths by December 2021.

Clinical and Medical News

Racial Disparities

There has been growing concern that those from BAME populations may be more vulnerable to COVID-19 in terms of both risk of developing the illness, and risk of mortality. The reasons for this are considered in this rapid data review published in April. The review finds that:

  • There is evidence that morbidity and mortality within all ethnic groups is strongly patterned by socio-economic position;
  • There is growing evidence that racism plays a role in the poorer physical and mental health of minority ethnic populations via direct personal experience of racist victimisation or discrimination and via the fear or expectation that racism may be encountered;
  • There is clear evidence that ethnic minority people reside disproportionately in areas of high deprivation with poor environmental conditions, with concomitant negative impacts on health;
  • There is growing evidence of differentially poor access to primary and secondary preventive and curative healthcare that could help to reduce inequalities in the major causes of morbidity and mortality;
  • There is widespread consensus amongst geneticists and epidemiologists that genetic factors contribute only marginally to ethnic inequalities in health.

 

Surgical Outcomes in Patients with COVID-19

Whilst we know are starting to understand the impact of COVID-19 from a clinical perspective, little is known about the impact on those with COVID-19 who require medical procedures/input for something other than COVID-19.

Analysis of patients undergoing surgery finds that pulmonary complications occur in half of patients with perioperative SARS-CoV-2 infection and is associated with higher mortality. Men aged 70 years and over who have emergency or major elective surgery are at particularly high risk of mortality, although minor elective surgery is also associated with higher-than-usual mortality.

Physical distancing, face masks, and eye protection

We’ve recently reviewed the effectiveness of facemask wearing for the general public, , and the UK government has now mandated facemasks on public transport with effect from 15 June, likely spurred on by this excellent analysis by Professor Trisha Greenhalgh.

The impact of all personal protection measures reviewed by the COVID-19 Systematic Urgent Review Group Effort (SURGE) study authors on behalf of the World health Organisation  finds that:

  • Current policies of at least 1 m physical distancing are associated with a large reduction in infection, and distances of 2 m might be more effective;
  • Wearing face masks protects people (both health-care workers and the general public) against infection by these coronaviruses;
  • Eye protection could confer additional benefit.

Diabetes and COVID-19

Diabetes, cardiovascular disease and hypertension are the commonest chronic long-term co-morbidities in people with severe COVID. Analysis seeking to understand the relationship between hyperglycaemia and other modifiable risk factors including obesity, and risk of COVID-19 related mortality in both community and hospital environments provides some insights into this.

The authors report that the total number of deaths per week among people with diabetes in England has more than doubled since 3 April 2020 compared with what would be expected in this period. In addition there was a clear relationship between COVID-19 related death and socio-economic deprivation among people with diabetes of either type; the level of hyperglycaemia was also associated with increased risk of mortality.

Accessing Treatment During Lockdown

The British Heart Foundation (BHF) have reported that half of people with existing cardiovascular disease have had difficulty accessing medical treatment during the pandemic. This includes access to medicine, and cancellation or postponement of planned tests, surgery or procedures. Patients also reported reluctance to put extra pressure on the NHS, and fears about contracting the virus in healthcare settings.

Hydroxychloroquine Controversies

A rare retraction has been issued by the authors of a paper that originally concluded that  hydroxychloroquine or chloroquine decreased in-hospital survival and increased frequency of ventricular arrhythmias (link). The authors state that  the veracity of the data and analyses conducted by Surgisphere Corporation and its founder and our co-author, Sapan Desai, could no longer be relied upon. The supply of flawed, and possibly fabricated data for analysis is at the heart of this controversy.

 

 

Data

ONS – Analysis of death registrations not involving coronavirus (COVID-19), England & Wales: 28 December 2019 to 1 May 2020 

It has been clear for some weeks that the simple count of COVID-19 deaths in England & Wales has been significantly lower than the overall excess mortality – what has been less clear is whether these deaths have been related to COVID-19 (and not recorded as such) or deaths not directly related to COVID-19 deaths.

ONS have analysed the causes of excess mortality up to 1 May 2020, and found the largest increases to be from dementia and Alzheimer disease, as well as ‘symptoms signs and ill-defined conditions’ (typically frailty / old age). Their conclusion, based on the information available, is that undiagnosed COVID-19 could help explain the rise in non-COVID-19 excess deaths, although they do note that a full analysis of non-COVID-19 excess deaths will not be available for several months.

Comparing mortality data

We, and other commentators, have noted that it is very difficult to compare COVID-19 mortality figures – the ONS analysis above illustrates how hard it is to compare within a country, as it seems likely that the ‘official’ COVID-19 figures may need to be increased.

Cross-country comparison is also very problematic, and could lead to inaccurate conclusions. For example, it was widely reported that Spain recently recorded no daily COVID-19 deaths on a couple of occasions, but this is based on a change in reporting such that they only add additional deaths if they occur and are reported in the 24 hours before the daily bulletin . Whilst the numbers of COVID‑19 deaths in Spain are lower than in the UK, it is not possible to compare the figures directly.

And finally …

What’s in a name?

The pandemic seems to be influencing the choice of names by new parents. Names such as Cora, Corina and Viola have fallen from favour, whilst ‘secure’ names are more popular. These include Florence, Hero, Hope and Joy for instance

coronavirus-baby-names-1588673227

However do spare a thought for the twins Covid and Corona!

5 June 2020

Posted in actuaries, advice gap, coronavirus, pensions | Tagged , , , , , , | Leave a comment

Why planning for “care” is everyone’s business

Posted on June 5, 2020 by henry tapper

fp ltc

Whether we are carers or ‘cared for’, we are likely to be involved in caring in the future. Of course the pandemic has highlighted the under-funding of residential care homes and the lack of support given to many home carers, most of whom are not professional but doing the job out of love.

Yesterday, I and around 100 others attended a webinar organised by Legal & General looking at the issues of later life care.

The session was hosted by John Power of Legal & General Retirement Living Solutions

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and featured

Andrew Parfery, CEO and co-founder of Care Sourcer,

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Tish Hanifan, Founder and Joint Chair of the Society of Later Life Advisers (SOLLA)

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and Phil Bayliss, CEO of Later Living, Legal & General

JP4

Care touches everyone

Mention was made of the many younger people also “in care” and getting care in the community. But it focused on those in later life for whom care will be needed through to death, this of course includes palliative care but is most widely needed by those who lose physical and cognitive independence as they grow older.

Many of us have been shielding elderly people from the current pandemic. Many of those shielded would otherwise be independent and this is an extension of later life care. Almost everyone has been made aware of the vulnerability of the old by Coronavirus, if only  by mortality statistics.

The key message coming from this meeting is that while caring might in the past have been considered a specialist area, it is no longer. This goes not just for our general responsibilities to the old, but very specifically , to those advising people in retirement. Whether you are considering care for yourself or for those you love, care and the cost of providing it, are part of later life financial planning.

To demonstrate this, Legal & General shared important data which I will reproduce from screenshots here.

The media headlines are on residential care and its cost (especially to self funders)

L&G care 1

L&G Care 2

This is critically important to our understanding of the financial burden of care as that £139bn figure is an opportunity cost to those in retirement. Largely unpaid, our home carers are effectively sacrificing salary for love. They may also be sacrificing future pension prospects by being out of workplace pensions.

L&G Care 3

Not only are people needing care for longer, but carers are caring for longer. This is not a steady state situation, it is an escalating problem – at least in terms of the financial implications. This is because we are not just living longer

L&G 4

This is why we have to have a financial plan that not only takes into account the financial cost of residential care but the cost of prolonged social care, whether that cost is directly falling on us (as future carers) or on our parents’ wealth and our future estate.

And when we talk “estate” we are talking typically of housing. We need urgently to address the housing needs of those in later life and ask whether the homes they currently live in, however emotionally attached we are to them are fit for purpose.

L&G 5

So we have many issues to face, both personally and – if we are advising others- professionally.

L&G 6

We can all play a role

The idea that later life planning is separate from retirement planning is daft. COVID-19 has let the elephant out of the care-home and let it trumpet some uncomfortable messages about the lack of funding in the care sector and the miserable conditions many older people have to endure because of lack of planning.

The message is clear, care touches everyone and we must make the planning either to care or to be cared a priority item in our financial planning both in later life and at the point when we approach retirement.

I will be focusing much of the resource that AgeWage brings , to dealing with these uncomfortable and previously under-recognized issues.

Everyone needs advice about these things but most people simply don’t get it.

agewage advice

Posted in advice gap, Change, pensions | Tagged , , , , | 2 Comments

Facemasks for public use – Nicola Oliver

Posted on June 5, 2020 by henry tapper

 

nicola

Nicola Oliver

 

facemasks

Introduction

The question of whether to protect yourself from becoming infected with the SARS-CoV-2 virus by wearing a mask in public places is one that has been vigorously debated. The counter-argument to mask use is that it will produce a false sense of security in the wearer who will then take other protective measures, such as physical distancing, less seriously.

Types of face mask include:

  • Cloth;
  • Medical (non-surgical);
  • Surgical
  • Filtering facepiece respirators such as N95 masks and FFP masks.

In this bulletin, we will explore the evidence on mask efficacy and benefits of use by the general public.

History

Jan Mikulicz-Radecki, a Polish surgeon born in 1850, is the first doctor to record the wearing of surgical face masks during surgery in around 1897. In addition, it is worth noting that he was a pioneer in infection control as well as in what were considered ground-breaking surgical techniques and an inventor of surgical tools that have been permanently assimilated in the world’s surgery[1].

His practice of mask wearing was initially met with scepticism; however, a study of more than 1000 photographs of surgeons in operating rooms in US and European hospitals between 1863 and 1969 indicated that by 1923 over two-thirds of them wore masks and by 1935 most of them were using masks[2].

Face 2

Face mask wearing to protect the wearer is likely to have emerged during the 1918 influenza pandemic with the US mandating police officers, health workers and some residents to wear them. This signalled a shift in the concept that the mask could protect the wearer, rather than protect the vulnerable surgical patient.

The two other corona-virus outbreaks in this century (SARS 2003, MERS CoV 2012) witnessed the widespread adoption of mask wearing by the general public in the affected countries as a means of personal protection.

Evidence of Effectiveness for Personal Protection

Generally, when guidance is issued for health-related purposes, the issuing body will carefully weigh up the evidence, the risks versus the benefits, and may rely on controlled trials of the intervention in order to reach an evidence-based conclusion. In normal contexts this is essential to protect us from the potential harms of an intervention, such as new pharmaceuticals, or surgical procedures.

One of the arguments against the use of face masks for personal protection by the public is that there is a lack of such evidence. However, we do know that the particulates expelled during a cough or a sneeze have the ability to spread several metres and to linger in the air for many minutes. For a cough, the distance travelled is up to 6 metres and for a sneeze, 8 metres[3].

Additionally, we now have insights into contaminants expelled during normal exhaled breath[4] (figure one). This analysis suggests that in addition to droplets, SARS-CoV-2 may also be transmitted as aerosols.

Owing to their smaller size, aerosols may lead to higher severity of COVID-19 because virus-containing aerosols penetrate more deeply into the lungs.

It is therefore logical that placing a barrier over your mouth and nose will reduce the emission of contaminants to other people and your environment. The Mayo Clinic in the US states clearly that face masks combined with other preventive measures, such as frequent hand-washing and social distancing, help slow the spread of the virus[5]. The ECDC suggest that due to increasing evidence that persons with mild or no symptoms can contribute to the spread of COVID-19, face masks and other face covers may be considered a means of source control complementary to other measures already in place to reduce the transmission of COVID-19[6].

One key analysis published in Nature on respiratory viral shedding and the efficacy of face masks provides additional evidence on using face masks to prevent transmission of the virus[7]. A key finding relates to the earlier point on aerosol transmission. This study sought to quantify the amount of respiratory virus in exhaled breath of participants who had medical attention for acute respiratory virus illnesses (ARIs) and to determine the potential efficacy of surgical face masks to prevent respiratory virus transmission.

Figure two shows the results of viral shedding (in terms of viral copies per sample) identified in nasal swabs, throat swabs, respiratory droplet samples and aerosol samples with a comparison of the latter two between samples collected with or without a face mask. The results indicate that surgical face masks could prevent transmission of human coronaviruses and influenza viruses from symptomatic individuals.

 

Cloth Masks?

However, given the concern regarding the supply of surgical face masks to healthcare workers, what about the efficacy of cloth masks? Testing of various fabrics to examine their filtration efficiency finds that multiple layers of fabrics with different properties can be effective. In particular, if the combination of fabrics can offer mechanical and electrostatic filtration as illustrated in figure three.

Combinations of fabric (such as cotton−silk, cotton−chiffon, cotton−flannel) achieved the ideal mechanical/electrostatic effect, but, it is worth noting that correct fitting of any mask will affect its efficacy. Improper fitting can result in a more than 60% decrease in filtration efficacy

Impact of Masks on R0

A pre-print evidence review published 12 May 2020 [8] finds in favour of the wearing of face masks by the general public. This review identified the following key questions to consider:

  1. Do asymptomatic or pre-symptomatic patients pose a risk of infecting others?
  2. Would a face mask likely decrease the number of people infected by an infectious mask wearer?
  3. Are there face covers that will not disrupt the medical supply chain, e.g. homemade cloth masks?
  4. Will wearing a mask affect the probability of the wearer becoming infected themselves?
  5. Does mask use reduce compliance with other recommended strategies, such as physical distancing and quarantine?

Figure four shows the impact of public mask wearing under the full range of mask adherence and efficacy scenarios. Clearly, compliance needs to be high to be most effective at reducing spread of the virus. Recommendations from this review include that mask use be mandated by governments. When governments do not, then by organizations that provide public-facing services, such as public transport providers or shops, as “no mask, no service” rules. Such mandates must be accompanied by measures to ensure access to masks.

          Face6

Recent meta-analysis published in The Lancet which investigated the e­ffects of physical distance, face masks, and eye protection on virus transmission in health-care and non-health-care (e.g., community) settings finds that a combination of the three approaches provides the most effective protection.

Mask4all

Finally, a campaign by Professor Trisha Greenhalgh and colleagues point to the precautionary principle, such that a strategy for approaching issues of potential harm when extensive scientific knowledge on the matter is lacking. “As with parachutes for jumping out of aeroplanes, it is time to act without waiting for randomised controlled trial evidence.”[9]

Professor Greenhalgh is one of more than 100 health experts to call for cloth mask requirements[10] for the general public based on the following:

  • People are most infectious in the initial period of infection, when it is common to have few or no symptoms
  • Cloth masks obstruct a high portion of the droplets from the mouth and nose that spread the virus
  • Non-medical masks have been effective in reducing transmission of coronavirus
  • Cloth masks can be washed in soapy water and re-used
  • Places and time periods where mask usage is required or widespread have been shown to substantially lower community transmission
  • Public mask wearing is most effective at stopping spread of the virus when the vast majority of the public uses masks
  • Laws appear to be highly effective at increasing compliance and slowing or stopping the spread of COVID-19

“Whilst not every piece of scientific evidence supports mask-wearing, most of it points in the same direction. Our assessment of this evidence leads us to a clear conclusion: keep your droplets to yourself – wear a mask.” (Professor Trisha Greenhalgh and Jeremy Howard)[11]

 

Appendix: Guidelines

The table contains a snapshot of the guidelines and advice that have been issued by various governments on face covering either through mask or cloth covering.

 

Country Advice/Guidance
Angola Outside the home
Argentina Public transport, any one in contact with members of the public (Buenos Aires) (fines for non-compliance)
Austria Outside the home
Bahrain Outside the home
Benin Outside the home
Bosnia & Herzegovina Outside the home (mask or cloth covering)
Burkina Faso Outside the home
Cambodia Shopping and public places
Cameroon Outside the home
Canada Where it is not possible to keep enough distance between one person and the other
China Public places
Colombia Public transport, shops, outdoor markets and banks
Cuba Outside the home
Czech Republic Supermarkets, pharmacies & public transport
Dominican Republic Public places & the work place
DR Congo Outside the home (Kinshasa)
Ecuador Outside the home
Equatorial Guinea Outside the home
Ethiopia Outside the home
France Public transport (fines for non-compliance)
Gabon Outside the home
Germany Public transport & shopping
Honduras Outside the home
Hong Kong Public transport & crowded places
India Certain states outside the home (mask or cloth covering)
Indonesia Outside the home
Ireland Enclosed public spaces where it’s difficult to maintain social distance
Israel Outside the home
Italy Outside the home (Lombardy & Tuscany)
Ivory Coast Shopping
Jamaica Outside the home
Kenya Outside the home
Liberia Outside the home
Lithuania Public places
Luxembourg where it is not possible to keep enough distance between one person and the other
Malaysia With symptoms ((delivered to each household)
Mexico Metro stations & trains
Mongolia Public transport
Morocco Outside the home (fine for non-compliance)
Mozambique Public transport & large public gatherings
Nigeria Outside the home
Pakistan Outside the home
Peru Outside the home
Philippines In areas under enhanced community quarantine
Poland Outside the home (mask or cloth covering)
Qatar government and private sector employees and clients, shoppers at food and catering stores and workers in the contracting sector (fines and potential prison sentence for violation)
Russia Outside the home
Rwanda Outside the home
Sierra Leone Outside the home
Singapore Outside the home
South Korea Public transport & taxis
Spain Indoor public places & where it is not possible to keep enough distance between one person and the other
Taiwan Public transport (fine for non-compliance)
Turkey Shopping and crowded places (free delivery to every citizen)
UAE Outside the home
Uganda Outside the home
UK In enclosed spaces where social distancing is not always possible (mask or cloth covering) & public transport. (Scottish government on all public transport)
USA Non-medical cloth face coverings when in public places (some state variation)
Venezuela Outside the home
Vietnam Public places
Zambia Outside the home
Zambia Outside the home

Further links

General

https://www.aljazeera.com/news/2020/04/countries-wearing-face-masks-compulsory-200423094510867.html

https://en.wikipedia.org/wiki/Face_masks_during_the_COVID-19_pandemic#cite_note-152

Specific

[1] https://pubmed.ncbi.nlm.nih.gov/15832074/

[2] https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)31207-1/fulltext

[3]https://www.nature.com/news/polopoly_fs/1.19996!/menu/main/topColumns/topLeftColumn/pdf/534024a.pdf?origin=ppub

[4] https://science.sciencemag.org/content/early/2020/05/27/science.abc6197

[5]https://www.mayoclinic.org/diseases-conditions/coronavirus/in-depth/coronavirus-mask/art-20485449

[6]https://www.ecdc.europa.eu/en/publications-data/using-face-masks-community-reducing-covid-19-transmission

[7] https://www.nature.com/articles/s41591-020-0843-2

[8] https://www.preprints.org/manuscript/202004.0203/v2

[9] https://www.bmj.com/content/369/bmj.m1435

[10] https://masks4all.co/letter-over-100-prominent-health-experts-call-for-cloth-mask-requirements/

[11] https://www.fast.ai/2020/04/13/masks-summary/

 

Posted in actuaries, advice gap, coronavirus, pensions | Leave a comment

WTF- AgeWage wins 4 nominations for UKP awards!

Posted on June 4, 2020 by henry tapper

I got a call from a journalist friend of mine congratulating AgeWage on being nominated for a Professional Pensions UK Pensions Award.  I thought it was a wind up – but being a vain sort, I thought to see if there was any substance in this.

I googled UK Pension Awards and found this.

UKPA date

But then my heart fell, for the screen switched to this…

UKPA

When you think of all the money in pensions, all the innovation – all the brilliant minds, how could a small start-up, setting out to change the world possibly be recognized to be among the best?

I sadly scrolled down , looking for the great organisations that Professional Pensions had picked as finalists, hoping that one day I’d see AgeWage’s name. And then I saw this!

DCin

i blinked, I rose from my chair and I ran whooping and hollering around the 7th Floor of my WeWork  – except I was the only person on the 7th floor. So I went back to my laptop and scrolled down and  found this

DCin2

and then this

DCin3

and the very last award showed this!

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And I was so proud!

Thank you Professional Pensions

Thank you Professional Pensions for thinking outside the box and finalizing AgeWage four times. Let’s hope by October we’ll be able to meet in the Brewery and have a night of it.

Till then we will bask in the reflective glory of those whom we compete against and dream that one day, we will be as good as them!

Posted in age wage, pensions | Tagged , , , , | 6 Comments

The other way to value DB schemes- Clacher and Keating.

Posted on June 3, 2020 by henry tapper

 

Ian con

Iain Clacher and Con Keating

DB scheme value Valuation – the long way round

Our blog (May 28th) calling for a bonfire of pension regulation led to a surprising amount of interest and a wide range of questions and even some requests for expansion of subjects touched on within that short piece. Given this, we will do so now, and in two further blogs.

Liabilities and assets

We will start with the relation between a corporate liability and its corresponding asset.

The identity here is one of rigid rotation (multiplication by -1) i.e. the cashflows are equal and opposite in sign, and so £1 paid to the holder of the liability is a cost of £1 to the firm.

However, the value of the asset to its holders is determined by its utility to them whereas the market price of an asset is determined by its utility to the marginal buyer.

There is no reason to believe that the company creating a liability and its holders share a common utility, and, as we shall see later, good reasons why they should not.

This means that it is inappropriate to use the market price of an asset to evaluate the cost of the liability to the company, as the bases for valuation are so clearly and fundamentally different.

This also extends to pension liabilities, and so even if the pension liability were tradeable and traded, it would be wrong to use of the market yields[i] on gilts or corporate bonds as the discount rate because the utility is different depending on perspective i.e. member vs sponsor.

The pension contract

Another key aspect of understanding this problem is the ambiguous effect of the non-negotiability of the pension contract, and the fact that pension contracts are complex and non-tradeable assets from the perspective of the member.

The terms of the pension contract may be changed, but only by a process of negotiation and agreement.

However, the pension contract may not be freely traded or even charged e.g. a member cannot sell their pension rights to a third party. Ordinarily, if an asset is traded it commands a higher price than if the same asset were to be non-tradeable i.e. liquidity has a value.

However, in the case of pension schemes, there may well be members who value the pension fund’s futurity; that is, the fact that the pension cannot be accessed until retirement without incurring punitive tax penalties.

Dangers of market prices

Another missing part of this debate is the fact that an asset may serve speculative, short-term purposes for trading.

Ignoring this means market price is therefore considered to wholly impound its future returns and their distribution, which is not true.

A consequence of the relation between an asset (the pension to the member) and corresponding liability (the sponsor’s obligation to the member) is that the symmetries of these distributions are reversed; the company’s cost/(risk) is the asset holders’ gain/(return).

Add to this the overwhelming empirical evidence that risk and return (gain and loss) are not valued (priced) in a similar manner, and the case against using market prices to value liabilities is obvious.

Using inappropriate methods can also be expected to yield paradoxical results e.g. the use of market prices to value corporate debt during the 2008/2009 financial crisis. During this time, we saw the prices of the debt of many financial institutions plummet as their viability came into question.

However, the actual obligations of these companies had not changed, and indeed in many cases had become harder to service, but this ‘valuation’ resulted in many companies reporting substantial, often multi-billion dollar, profits. The paradox is obvious.

The use of market yields therefore introduces bias and volatility into the valuation by sponsors of their pension liabilities. The exogenous nature of the market yield leads to a further problem, an absence of time continuity. The value of the liability arrived at by discounting at this rate will not equal the amount arrived at by accrual of the contributions at this rate.

This is problematic, as it can materially distort sponsor performance and as a result, corporate behaviour.

One case of this being liability driven investment.

LDI can be seen as an attempt to counter the volatility introduced by the valuation method;- and so sponsors are managing the volatility in measurement rather than underlying risk, as the contractual obligations remain unchanged. But these are hidden by a yield-based valuation approach.

Expected Return on Assets

Determining the discount rate as the expected return on assets is a method permitted by legislation. However, the amount of a company’s liabilities is independent of the way in which they are funded.

Pensions are no different.

There is no economic linkage between the amount of the pensions ultimately due and the assets held by a scheme as security for the accrued pension promise.

This is important and warrants repetition: a company’s liabilities be they pensions or otherwise do not rise or fall in amount with either actual or expected performance of the assets held to meet the promise.

There is also a question of achievability in the sense that subsequently realised returns rarely accord with assumed expected returns.

While the expected return method was discontinued for assets, the method is not entirely useless. The use of the expected return does provide an indication of the degree of scheme dependence upon the sponsor.

 Whereby, if the value of the pension assets and discounted present value of the pension liability (using the expected return on plan assets) are equal( i.e. there is no deficit), then there would be no deficit recovery calls on the sponsor at that point in time.

Likewise, if there were to be a deficit then this would show the extent to which the scheme is reliant on the sponsor to make good any shortfall via additional contributions.

There is an assumption in such an analysis however, that implies that deficits may be one, immediately funded, and two, earn the same expected return as the existing portfolio of pension fund assets.

This method is also exogenous and will introduce spurious volatility and bias, though to a lesser extent in practice than gilt or bond market approaches. It lacks time consistency, and so both methods specified in legislation are counterfactuals to the question: what is the accrued amount of sponsor liabilities?

Contractual Accrual Rate (CAR)

The problem of liability valuation at a point in time between its award and its discharge by payment is generically one of amortisation.

There are many possible schemes for amortisation e.g. straight line. Indeed, it is possible to argue that many are superior (notably those which are time invariant) to the existing methods currently in use, as they do not have the property of being time invariant.

We choose an amortisation or accrual method which is consistent with the manner in which the projected benefits actually evolve and crystalize, namely standard compound growth. We call this rate the contractual accrual rate (CAR).

In the case of a single year’s award to an individual, it is the rate at which the contribution must compound to meet the projected benefits. The projected benefits are derived using standard actuarial techniques and the contribution is a matter of record. For a scheme, the CAR is the aggregate of these across members and time.

As was noted in our previous blog, this rate is time-consistent and fundamentally invariant.

It, and the liability valuation, will only vary to the extent that experience of the factors determining the projected liabilities varies from that expected;- or those assumptions or expectations are themselves revised.

In other words, these variations are all based in real changes to the amount of the pensions promised.

The second theme to our first essay concerned the role and level of funding, which we will cover in a later blog.

However, a prerequisite for the proper level of funding is the accurate and consistent valuation of liabilities and the use of the CAR delivers that, in addition to providing true and fair values for corporate accounts.

 

[i] A bond yield is an alternate form of presentation of price.

Posted in accountants, actuaries, advice gap, de-risking, pensions | Tagged , , , , , , | 5 Comments

Chris Pond and Financial inclusion

Posted on June 2, 2020 by henry tapper

chris pond

If all the little announcements that Linked in gives us, the one that’s given me most pleasure is that Chris Pond has been promoted to Chair the Financial Inclusion Commission. For those who don’t know the Commission, this is what it has to say of itself

The Commission is an independent body of cross-party parliamentarians and policy experts which aims to make financial inclusion a national priority. It seeks to explore the measures most urgently needed to extend access to financial services to those currently excluded, and to gain support from all major UK political parties so that its recommendations may be meaningfully integrated into their election manifestos.

Words that come to mind when thinking of Chris include, ‘gentle’, ‘considered’ ‘funny’ and ‘wise’, he has empathic skills that make for inclusion and this is why Chris can also claim key roles as Chair of the Lending Standards Boar, Chair of the Equity Release council and a member of Tech Nation’s Fintech Delivery Panel as well as governing numerous charities.

Between 1993 and 2005 Chris was an MP and for a time a secretary of state in the DWP. He also spent time in the Treasury and is widely respected across parties as being on the side of the ordinary person. Inclusive, non-partisan and compassionate, he is precisely the person who we need driving policy right now.

Financial inclusion

It matters that as we go through and come through the crisis caused by the pandemic, we keep as many people solvent as we can. Our well-being is tied up with our solvency and the consequences of financial failure are typically linked to a deterioration of mental and physical health.  In extreme circumstances , as we are seeing in America, the consequences extend as far as civil strife.

Chris is someone who bridges the striving world of financial innovators with a concern for those who are marginalized by financial services. For me he represents a mentor and inspiration and I am very pleased his hand is strengthened by moving into the Commission’s Chair.

 

 

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Why partial disclosure of pension cost and charges is bad news for savers.

Posted on June 1, 2020 by henry tapper

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Historically pension costs were none of the savers’ business.

One of the things people find hardest to understand is what they’re paying for when they put money into a workplace pension.

Historically , the answer is a promise of an income paid according to a formula which lasts the rest of your life. That was the DB covenant and it holds good for those in public sector schemes and for a few people still accruing in private sector DB schemes.  In these cases all the costs of paying the promise are taken care of by the scheme itself. The only worry consumers have about costs relate to the employer’s capacity to fund the balance of costs needed to meet the promise. For this reason costs and charges have not historically been a member issue.

I suspect that many savers thought that they got a free ride when paying into a defined contribution plan. Indeed some munificent employers have historically picked up the charges of employer sponsored DC plans, as an extension of the DB pledge. But for the most part, the members of workplace pensions have been expected to pay for their own costs, the employer being on the hook only for the contribution paid into the scheme. This has contributed to the acceptance of the provision of workplace pensions as BAU for UK employers.

In the early years of workplace pensions , there was no charge cap and practices such as active member discounts allowed advisers to take a chunk out of workplace pensions through what was briefly known as consultancy charging. This practice was knocked on the head by then pensions minister Steve Webb who levied a charge cap on default funds of 0.75% pa.

This 0.75% was originally thought to include all costs (what is now known as the total cost of ownership to the saver). But the Government stepped back from this allowing some of the management costs of a workplace pension to be disclosed and some to be hidden (and impact the performance of the fund in a clandestine way).

This ‘partial disclosure’ of the costs of workplace pensions was considered pragmatic at a time when there was no proper way of reporting on the hidden charging. But lately there have been advances in reporting that mean that these hidden costs and the disclosed costs could be reported on in one single charge.

But this has been resisted by pension providers , who see that it could easily become a single charge under the existing price cap, with the provider’s margin picking up the strain of the hidden charges where in aggregate costs exceeded the cap.

But there is another confusion amongst the public about what the annual charge they pay on their fund actually pays for. Understandably, because the AMC is charged against the investment fund, it is thought of as an investment charge – the cost of managing the money.

But it is not an investment charge, most of the money raised from a workplace pension AMC doesn’t go to the fund manager but stays with the pension provider, to meet the cost of supporting the member. Sometimes the amount paid to fund managers is negligible.

We know that fund managers can manage our money at no cost to the investor, so long as the investor gives the manager rights on the investment that make the manager money. For instance, investment managers can make money by lending stock out to third parties and there are all kinds of side-deals going on that mitigate fund management expenses.

The trouble is that the more ways that fund managers find to reduce the cost of their fund managers to workplace pension providers, the more the temptation is to transfer costs onto members through hidden charges.

Full disclosure of cost and charges is only just beginning

Last week, CACEIS published a startling number

Screenshot 2020-05-30 at 17.56.26

It suggested that hidden costs are on the rise (though this may be just because CACEIS are getting better at reporting them).

The worry is that as workplace pension providers try to squeeze better deals out of fund managers, fund managers just bury more and more of their charge into the hidden charges  which – falling outside the cap, means that members end up paying more while providers pay less.

This is why vigilance amongst trustees and IGCs is so important. They should be able to see the Investment Management Agreements between the pension providers and the fund managers and check what is going into the AMC and what is being buried in hidden charges and they should be able to make sure that providers are properly disclosing all the costs of managing funds, including the costs they trigger by moving money from fund to fund (life-styling).

Who watches the watchers?

Just how much access fiduciaries like IGCs and Trustees get to these investment agreements seems to vary, I suspect the amount of close attention to the detail of these agreements also varies. The agreements tend to be long and the bits which allow hidden costs to be passed on to savers – tend to be hidden.

And IGCs and Trustees tend not to want to antagonize providers by probing too deeply into the revenue sources of the fund managers and the providers themselves.

And because the general public are often not aware of what they are actually paying for, when they pay into a workplace pension, there is very little pressure on workplace pension providers not to let the hidden costs creep up.

If the IGCs and Trustees aren’t pushing back on hidden costs, who will?

We may know the answer to this question this summer when the FCA publishes its review of IGC performance. I would like it to cover this question of cost disclosure as the FCA is the organization that watches the watchers.

What further disclosure do we need?

In the past I have pushed for proper disclosure of what pension providers are paying for fund management. This information is detailed in the Investment Management Agreement but this is subject to non disclosure agreements that prevent savers working things out for themselves.

I’ve wanted this figure to be in the public domain so that savers can see that most of the money they pay by way of AMC and other overt charges, does not pay for fund management.

It would also have the benefit of showing just how much of the cost of investment management is hidden and how much is disclosed. If CACEIS are right and the hidden costs are just over a third of the total cost, then the situation is manageable.

But look at this extract from the Fidelity IGC’s 2020 report. It shows that transaction costs for those in the Fidelity default fund are running at 0.31% pa. That is as much again as the cost to members of being in the Diversified Markets Fund.  Here the transaction costs are not 37% but 100% of the fund management cost.

Fidelity 10

I have urged the Fidelity IGC to push back on what appears to be an unacceptably high level of non-disclosed costs (the saver only gets to see this in the IGC report – which are seldom distributed to savers).

The advantage of full disclosure

Savers into workplace pensions are not good buyers, nor for the most part are employers buying workplace pensions on behalf of staff. That was the finding of the 2014 OFT report on workplace pensions and their findings remain true today.

IGCs and Trustees have the powers to escalate matters to the FCA where they see poor practice. They seldom declare they have done this in their reports and I suspect that most issues are sorted out without escalation.

But I am also sure that many trustees and IGCs are simply unaware of the problems highlighted in this blog, They may not be aware that fund managers can offer better deals (IMAs) to pension providers, without sacrificing margin, by adding extra costs to the hidden charges . They may not be aware that these hidden costs are not capped and can mean savers pay more than 0.75% for a default. Finally , they may not be aware that the choice of fund manager may be influenced by a complicity between fund manager and provider to pass costs on to members through hidden charges.

So the more disclosure IGCs and Trustees can get on IMAs the better. I have given up on being able to see these IMAs myself but I very much hope that the FCA are checking that the IGCs and GAAs they oversee, are making it their business to be very nosey indeed!

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Is there wisdom in this crowd?

Posted on June 1, 2020 by henry tapper

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This picture was taken in a time of lockdown (May 31st). It was taken at a time when the Government advice is still to stay at home where possible. It is taken in a country that has more than 60,000 excess deaths to last year, that has probably the worst outcome from Covid-19 of any nation on the planet and I don’t understand it.

Unless we believe in mass-immunisation , an idea tried and rejected at the onset of the pandemic, our behaviour in flocking to the coast appears unwise. This is not a surreptitious dash to the family home for childcare, this is a pleasure beach this mass-congregation is an affirmation of a return to normality.

The collective madness was even worse close to this beach scene in Bournemouth when tourists found their way in thousands to Durdle Door, just the other side of the old Harry Rocks.

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The famous arch became a platform for base jumping with three of the fearless athletes finding themselves in hospital when their jumps went wrong. That was Saturday,,,,

On Sunday , the same thing happened , despite Dorset police trying to close the beach. Bournemouth beach suffered the fate of the hotel swimming pool with people arriving early to get their towels down

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The Rs get the elbow?

Will we pay a price for this crowd-bathing? The science says yes. If trace and test works , is should be telling us that the people who travelled down from London to Bournemouth and the Isle of Purbeck took with them nine weeks of living in one of the most contagious places on the planet. I know, I live in the east side of London.

I worry that these people believe that they have licence for this from Government and that if this results within the next two weeks for R>1 and restrictions being applied, will blame Government and no doubt Dominic Cummings for leading them astray.

Sage is being straightforward , telling people “don’t tear the pants out of liberty“.

Most people are listening, the majority of people in this country are still working from home, observing social distancing and adopting voluntary PPE out of courtesy for their neighbours.

One  litmus test for the appetite of the non- hedonistic majority to put at risk the progress made to reduce hospital admissions and deaths, will be the return to school today. Those who are offered places do not have to take them, how many will.

If they go to school they will not be presented with the chaos of our beaches. Instead they will find the classroom and corridors marked out to minimise close contact between pupils.

The same goes for my workplace which I expect to see peopled for the first time since late March, this morning. WeWork has been NoWork, I have had  50,000 square feet to myself and the privildge of self-isolation within walking distance of my home. There is the rub – for City offices to function , they must be accessible in a safe way and the most consistent statistic throughout lockdown is the public’s refusal to use public transport.

As I ride around the City , I see people at bus-stops and going into tubes. They are not pleasure seekers but essential workers (including the hospital staff at Guys, Barts and other nearby hospitals).

When I think of these people, I reach for my mask and put on my plastic gloves, their dedication and responsibility demands that I show them respect.

The bigger crowd stays wise.

The mass indignation with the Durham dash one week, the mass dash to the beach, the next. What are we to make of our collective behaviour?

There is no wisdom in the crowds on our beaches, just as there was no wisdom in scape-goating Cummings. What matters is we behave seriously towards our neighbours, whether they be those in nearby locations or simply those isolating next door.

I am pleased that those who have been shielded now have the chance to see further than their front door (or if they’re lucky their garden).

queen

I’m pleased that we are taking baby-steps back to education.

I’m pleased that my son is taking his final exams this week , at home.

I will be working a full day as I have every day since this lockdown started.

I urge people to take their civic responsibilities seriously , not to use others as a justification for irresponsibility and not to use the good weather as a trigger for a return to normal.

We know in our hearts that we are a long way from normal and our behaviour over the next month will determine our freedoms in the months beyond. By then the money will be tighter and the choices fewer. By then the mothballed Nightingale Hospital may need to be recommissioned and we may yet see the kind of conditions we have had in London, spread to parts of the country with much lower concentrations of infection.

We have a breathing space and it is vital that unlike our last hiatus in Q1, we make good use of it. This weekend’s run to the sun on the south coast beaches was not wise and the crowd that congregated , were nuts.

But the people on the beach were numbered in thousands, we are a nation of 66m. There is wisdom in the wider crowd, who did stay safe and alert this weekend.

queen

 

 

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Pensions coming out of lockdown!

Posted on May 31, 2020 by henry tapper

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Let’s put the past behind us

I’ve just published a blog where I criticise Pension Age, CACEIS and DC fiduciaries for not telling it straight on what we are paying for pensions and whether we’re getting value for this money.

I don’t want to leave things on a negative note. I do believe there is a better way of helping ordinary savers work out if they are getting value for money and in helping them take decisions on who runs their pension money going forward.

But this system cannot rely, as so much reporting does, solely on made up measures that are meaningless and confusing to consumers. You’ll have to read my blog to understand how confusing  this headline is.Screenshot 2020-05-30 at 17.56.26

No more meaningless made up mumbo-jumbo

Instead of relying on phrases such as Total Cost of Ownership , “Costs and Charges” and even “Value for Money” to make grandiose claims on behalf of hundreds of thousands of savers, we should be encouraging members to investigate what value they got for their money.

To date we have not given them those tools. We cannot even give a saver a simple statement of how their savings have done since they started saving. We certainly can’t tell them how the average person would have done , had they saved like them and we can’t give people any way of comparing how their various pension pots have done , so that they can make informed choices going forwards.

Let me be clear about this, in the absence of any better information, people are entitled to make decisions on who manages their money on who has done well and who has done badly. This is the basis of all accountability.

This is why I want to give everyone who has a DC pension (workplace or non-workplace) the right to a score which tells them how their saving has done relative to everyone else’s.

AgeWage evolve 2

That score takes into account all the costs and charges you’ve paid and all the value you’ve got. It is a score that tells you if the pension provider has given you value for money (or not).

It does not rely on people understanding percentages or the mumbo-jumbo of the VFM lexicon. It goes straight to the point , engaging people with what matters to them, the outcome of their saving. It answers the question “how did I do” and allows people to question “what should I do next”.

Let’s have clear data driven analytics that we understand?

Over the bank holiday weekend I wrote around 2000 personal invitations to people I am connected with on linked in , asking them to test an app which gives them their AgeWage score and nudges them to get more pots scored so they have a dashboard of scores and a platform for decision making.

I’m pleased to say that we have had 350 people apply to be testers when we go into test mode under the auspices of the FCA’s Sandbox very shortly.

This is a phenomenal response from a wide range of people, most of who don’t appear to have much to do with the pension industry. I’m pleased to see we have testers from 23 to 68 and there’s great diversity in the test group. If you would like to join the test group , mail me at henry@agewage.com and I’ll send you some details.

To me, this response suggests the latent desire to get good quality information about our pensions and I hope that the IGCs and Trustees who work with us, will be encouraged too!

Does it have to be so hard?

We have made pensions so hard for people that many simply don’t engage with the opportunity of turning these pension pots into a retirement plan.

Research from the FCA and DWP concurs that only a minority of us are ready to use our pension freedoms to buy a pension (an annuity) or pay ourselves an income from our pot (drawdown). Instead people rely on carving out their tax-free lump sums for immediate use and furlough the rest of their money.

Many people retain multiple pension pots even as they draw down the money and a lot of people simply roll up their pensions in the hope that something will come along to sort them out (perhaps a national pensions dashboard,  perhaps a new way of being paid the money back.

And while people think about what to do, those who have no morals or scruples are waiting for them with their scams. We describe the period between 55 and 65 when we take retirement decisions as like being in the Strait of Hormuz – our tanks full with the prospect of the open sea beyond , we are at our most vulnerable to pirates.

It doesn’t have to be this hard, but for things to get better, we need to have people working together to a common goal. Over the summer, the 350 testers will be working together with us and the FCA to see if we can sort some of these problems out,

AgeWage’s positive call to action!

Right now, millions of people in this country are facing an uncertain future with limited personal resources. Many of us will not return to work after furlough and if we do, it may not be as lucrative a work. We will have to pay high taxes to repay the debts we are wracking up and we will need to call on our pension savings to manage.

It is absolutely vital that those of us in the pensions industry who are able to take a lead in this, do so. That means taking action.

As well as going into the Sandbox, AgeWage is launching a funding round using its EIS status to develop the product through the autumn so that we can crack on and do great things next year. If you would like to know more about our fund raising activities, please contact me at henry@agewage.com.

lockdown 2

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Pension experts and enthusiastic amateurs

Posted on May 30, 2020 by henry tapper

A pinch of actuarial salt.

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Mike Harrison is for my money a pension expert and has every right to rattle my cage.

I had earlier owned up to not having read the full 175 pages of TPR’s DB funding consultation (published March 3rd) preferring the 16 paged “quick guide”. I would argue that I made it down the mountain but took the cable car not the black run!

Each week I publish a round up of the C19 Actuaries reading. They are rather gentler on the amateur reader

Screenshot 2020-05-30 at 05.48.37

TPR’s consultation and the wider context

As an enthusiastic amateur in actuarial matters, I don’t expect to be admitted to the inner chamber where white hot actuarial analysis is performed. But I defend my right to comment on the outcomes of their thinking.

The debate kicked off by tPR on March 3rd has been superseded by much larger debates on how we support the UK economy, our health service , our care service and most relevantly of all, the livelihoods of generations of working people who are facing unemployment.

It is helpful for those focussed on the particular to be reminded that the balance between the interests of pension sponsors, members and the PPF needs to be considered in the wider context of what is happening to ordinary people. In this, the enthusiastic amateur has the advantage of not having too intense a focus. So I would challenge Mike’s assertion that he’ll take my views with “a slightly larger pinch of actuarial salt”.

A large packet of actuarial fudge!

pinch 2

Sadly I have recently finished a large packet of very excellent fudge brought me by David Hare ( an eminent actuary). David brings the packet when he visits (sadly too rarely these days) and it’s intended as a peace offering before he whacks me in the solar plexus with some actuarial rabbit punches.

David’s superior grasp of numbers is matched by a superior sense of humour. I prefer his actuarial fudge to Mike’s actuarial salt but that’s because I have a sweet tooth. But whether it’s from David’s intestinal digs or from Mike’s haymakers, I get a constant intellectual battering from the profession.

 

The enthusiastic amateur

We’re forever being told that pension is complicated. It is so complicated that the enthusiastic amateur struggles to get to grips with any part of it before being warned off. In retail pensions the warning is usually to go and see a financial adviser (who doesn’t usually want to see you). In institutional pensions the phrase is some variant on “that’s down to the expert” which usually means down to the actuaries.

I am happy to sit at the feet of the COVID-19 actuarial response team and understand my Rs without getting the elbow, but I struggle with much of the actuarial science behind pensions which has created an exclusive consensus that brooks no challenge. Mike is not part of that consensus but he needs to keep perspective.

Just because you haven’t read the 175 page consultation, doesn’t mean your views aren’t valid. Those outside the actuarial sanctum – including Con Keating and Iain Clacher, may even be right!

pinch 3

 

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C19 Actuaries Friday Report – May 29th

Posted on May 30, 2020 by henry tapper

Screenshot 2020-05-30 at 05.48.37

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Modelling – reports

European Centre for Disease Prevention and Control

Projected baselines of COVID-19 in the EU/EEA and the UK for assessing the impact of de-escalation of measures
As the UK and EU/EEA countries start to de-escalate lockdown and other social distancing measures, ECDC have published a technical report  setting out a model to provide a 30-day forecast of COVID-19 cases, deaths and hospitalisations under a set of assumptions Their first analysis corresponds to a ‘status quo’ where all control measures will be continued until 7 June – this baseline can be compared (alongside the results of other models) to actual figures, to help assess the impact of lifting current measures in different countries.

Methodology for estimating point prevalence of SARS-CoV-2 infection by pooled RT-PCR testing

ECDC have also published a paper  setting out the proposed methodology to monitor the activity of SARS-CoV-2 in the population, including estimating the asymptomatic population and the prevalence in specific risk groups. It is hoped that following this approach will lead to better and more comparable estimates of the disease’s prevalence.

Clinical and Medical News

Impacts of COVID-19 on care for people with long-term conditions

Admissions to A&E and access to non-COVID-related healthcare in general have declined during the pandemic. The Health Foundation examined the impact of COVID-19 on access to and use of health care services for people with existing conditions. They were asked about their use of health care between January 2020 and the end of February 2020; the same group were then asked if they had accessed any health services since the end of February 2020 and what it was for.

Access to health services by such people was 20% lower during the COVID-19 peak period. Some of the largest falls in the use of health services were for mental health (-25%) and cancer (22%). Reasons given for not using health services: just under half reported that they no longer needed access, 10% that they could not get an appointment, and 22% were concerned about contracting or transmitting the virus.

Remdesivir for the Treatment of Covid-19

Remdesivir, an anti-viral drug, is being investigated for its potential use in treating COVID-19. Latest analysis of a double-blind, randomized, placebo-controlled trial of intravenous remdesivir in adults hospitalized with Covid-19 examined whether it was effective at reducing the time to recovery .

As of 28 April 2020, a total of 391 patients in the remdesivir group and 340 in the placebo group had completed the trial through to day 29, recovered, or died. Preliminary results of this trial suggest that a 10-day course of remdesivir was superior to placebo in the treatment of hospitalized patients with Covid-19 (median number of days to recovery 11 vs. 15).

Cluster Settings

The types of indoor and outdoor settings where transmission of SARS-CoV-2 has been reported to occur which result in clusters of cases have been the focus of this systematic review.  Unsurprisingly, clusters were linked to a wide range of mostly indoor settings (12/18). Almost all clusters involved fewer than 100 cases (141/152), with the outliers being transmission in hospitals, elderly care, worker dormitories, and ship settings. This could inform post-lockdown strategies by identifying places to be kept under close surveillance and/or should remain closed to avoid a resurgence in transmission.

Treatments Explained

The array of treatment approaches for COVID-19 are clearly explained here in a user-friendly infographic developed by Birmingham Health Partners, (an alliance between the University of Birmingham and two NHS Foundation Trusts – Birmingham Women’s & Children’s, and University Hospitals Birmingham). The infographic illustrates the mode of action of each of the pharmaceutical interventions including anti-virals, monoclonal antibody therapy, and steroids.

Nursing Homes and COVID-19 – Outcomes

Nursing home residents have been particularly vulnerable to COVID-19. The World Health Organization has estimated that as many as half of all COVID-19 deaths in Europe occurred in care homes.

The results of an outbreak investigation published this week are reported here. The study included 394 nursing home residents in four nursing homes in central London. It is reported that many of the residents did not display the typical SARS-CoV-2 symptoms of fever and cough, but died after a short period of becoming acutely unwell.

Very sadly, 26% of the residents died over the two-month period leading to an increase in all-cause mortality of 203%. 43% of those tested were asymptomatic and 18% had atypical symptoms such as confusion and vomiting. Widespread testing of staff was not carried out.

And finally …

Sewage as a predictor of COVID-19 outbreaks?

Forget testing, it appears that SARS-CoV-2 RNA concentrations in sewage may be ‘highly correlated’ with outbreaks of COVID-19 and hospital admissions . Primary sewage sludge in New Haven, Connecticut (CT) was analysed and it was found that the SARS-CoV-2 RNA concentration therein closely followed the epidemiology curves established by compiled COVID-19 testing data and hospital admissions and were a seven-day leading indicator. (This report has attracted significant interest over recent days, but analysis suggests that the correlation may be due to a statistical artefact …)

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29 May 2020

 

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“He that hath ears to hear, let him hear.”

Posted on May 29, 2020 by henry tapper

Joe Strummer

I am very pleased that Con Keating and Iain Clacher’s recent article has got so much attention , both in terms of readers and in terms of social media comment.

Though I am one of those who thinks the Pension Regulator is going through the motions on its DB consultation, I am happy to be proved wrong. If Guy Opperman wants to look at an alternative to the wasteful system of valuations and complex de-risking strategies that characterize DB funding, then he should seriously consider the Keating alternative.

To do so would be to challenge massive vested interests within the funds and consultancy businesses that make up a big chunk of the pension industry so I very much doubt anyone will dig out the many fine essays that Con and others have published in Long Finance longfinance.net/media/document

‘He that ears to hear’.

As a 15 year old I bought one of the first 5000 copies of the Clash’s eponymous first album, it came with a sticker which you posted to the record company and you then got a bonus EP sent you in the post. One of the tracks was the band in conversation with an NME journalist. Strummer is asked why nobody can hear the words and he replies that his singing is like the Jamaican toasters, only meant to be heard by those who have ears to listen (Joe knew his scripture).

I always sided with the journalist as the Clash didn’t put their words on the inner sleeve (till later) and I didn’t know what Joe was going on about in songs like White Riot. But I got there in the end and I can say much the same about Con Keating’s arguments. They take some studying but you get there in the end.

This is principally to explain a tweet from the very wonderful @highereducationactuary (Aka Mike Harrison) who features regularly on this blog and a very good answer from Mark Rowlinson, a former colleague whose company and insights I miss a lot.

Derek 5

There is of course another way to promote your views on twitter. Here John Ralfe seeks to make fun of Con Keating by publishing an unflattering photo of Con and a flattering photo of himself. This does not make for constructive debate.

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(I am often criticized for my rejection of John Ralfe’s arguments and conduct and this is why).

Challenging the received idea.

That there is a debate on how we fund our pension obligations going forward is to a very large extent down to contrarians like Con Keating. Which reminds me that the biblical quote ( Matthew 11:15; Mark 4:9, 23) that headlines this blog and has been referenced with respect to Joe Strummer is that while we all have ears, fewer have ‘ears to hear’.

Another of my friends commented to me (after reading Con’s piece)

The issue of should we protect older people or open up the economy has huge parallels to the DB and DC dichotomy.  On covid we started by protecting the members at risk.  DB like.  Threw money at it.  Now we need to pull back, remove most of the prudence, get employers back to making money.  Let’s hope we don’t go too far though and do the pensions equivalent madness and throw all the risks on to pensioners.  Not looking good though.

He went on to ask if I agreed with Con.

Do I agree with Con?

In as far as I am capable , I agree with Con. But for me to say that I fully understand the deep simplicity of Con’s arguments, I would say that I can only partially agree. My ears are a bit bunged up and I suffer from a low understanding of the maths.

My inability to properly argue Con’s case is not the same as my denying its validity. I  agree with Mark Rowlinson’s comment, which I take as a kind characterization of my admitted limitations!

Con Keating has never ducked a debate and always answers genuine questions. I am keen to give him a platform (as Professional Pensions had) and there is something about the immediacy of a blog that can ignite this debate.

I’m pleased to see that Mark went on to explain his position on Con Keating’s thinking and in interceding , couch the argument in a language that Mike can understand and articulate.

Derek 4

My challenge to the Pension Regulator

I may have rather clumsily dismissed the forthcoming DB consultation as a distraction from getting on with fixing DB pensions by force majeure (something the Treasury may have to do).

If the Pensions Regulator thinks there is time to consult, then it should not consult for the sake of validating its pre-existing position but consult on all options, including Con Keating and Iain Clacher’s proposal.

My challenge is also to Guy Opperman, who as Pensions Minister has responsibility for keeping DB funding within the remit of the DWP. If the DWP are not to lose DB pensions to finance (with the potential consequences of brutalizing pensioners), then radical arguments need to be included in the discussion.

I sit in on a number of conversations between trustees and consultants about upcoming valuations (mainly at LCP 11ses). At yesterday’s event, someone attempted to bring up Con’s article. That someone has gone on to write a comment on my blog.

Derek

Con Keating’s response is entirely in line with my thinking

Derek 2

 

My challenge to the Pensions Regulator, (who has been openly challenging me back) is to open his ears (for he has ears to listen).

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Cummings – no smoking gun – no prosecution- no further investigation.

Posted on May 28, 2020 by henry tapper
cummings

No story, no news

The BBC are reporting that the police will take no retrospective action against Dominic Cummings. The worst they could find against him was not actionable

,“[We] have examined the circumstances surrounding the journey to Barnard Castle … and have concluded that there might have been a minor breach of the Regulations that would have warranted police intervention. Durham Constabulary view this as minor because there was no apparent breach of social distancing.”

The police didn’t consider the 520 mile round trip from Islington to Durham constituted an offence and the Barnard Castle excursion  “minor ” because there was no apparent breach of social distancing rules during their visit.

The third accusation against Cummings – that he made the journey again some days later had no substantiation and was dismissed.

Let’s not call this a vindication for Dominic Cummings , but it is certainly not worthy the vilification he is generally receiving from large parts of the press and politicians of all parties.

So what has the Sunday Mirror and the Observer’s reporting achieved?

  1. A distraction from the matter in hand – getting R below 0.5 , PPE into every care home and the Britain united against COVID-19
  2. A loss of confidence in political authority.
  3. A lot of distress to a family living in Islington and Durham
  4. A reason for those who did not want to socially distance – not to socially distance.

What have the 40 Tory MPs and the minister who has resigned left to grind their teeth at? The answer is undoubtedly a sense of injustice that Cummings continues to wield more power than any the Conservative Party and probably more power than Sage or the Cabinet

But this is what the nation voted for, it is not what I voted for but I agreed when casting my vote to abide by political process and there is nothing within the political process that is different from what was happening from the moment Boris Johnson stepped through the door at 10 Downing Street

As Michelle Cracknell said at the beginning of the week, throwing Cummings out will achieve nothing.  It will simply leave a vacuum to be filled by another Cummings, a baby Bismarck who probably won’t be as good. That will not stop Brexit – or Covid – or the recession. All these things are happening – whether you/me like it or not.

As it turns out, the attempt to get him thrown out has achieved a lot of ill-will and to no clear purpose.

Dominic Cummings – just another member of the public

No doubt Cummings will continue to be a lightning conductor to those of all persuasions who see him as a malign influence but to a large proportion of the country

He will be the butt of jokes but in the words of the Newcastle professor I saw on the TV he will be viewed by working class people as  “another privileged man doing whatever he likes”.  Cumming will not be loved ,he does not appear to crave admiration, but he won’t be hated.

Because most ordinary people don’t give a damn about Cummings or what he did. They want to know how to quote again the Newcastle prof “how they will pay the rent”, They don’t care how the Westminster village squabbles. The Durham police seem to take the same view. Their press release laconically observes

“Had a Durham Constabulary police officer stopped Mr Cummings driving to or from Barnard Castle, the officer would have spoken to him, and, having established the facts, likely advised Mr Cummings to return to the address in Durham, providing advice on the dangers of travelling during the pandemic crisis.

“Had this advice been accepted by Mr Cummings, no enforcement action would have been taken.”

The force said it would not be taking retrospective action against Mr Cummings since this would amount to

“treating Mr Cummings differently from other members of the public.”

No different – no scapegoat

Scapegoating Cummings or Johnson , gets us nowhere. We are a few months in to a five year political term. We are a couple of months into a vicious pandemic in which Britain has the highest density of excess deaths in the world.

It is time we focussed on how to get through this and out of it, and stop looking for a smoking gun and the author of all this trouble.

 

PR Durham

 

 

 

Posted in pensions | Tagged , | 7 Comments

Pensions need a bonfire of regulation – (Con Keating and Iain Clacher)

Posted on May 28, 2020 by henry tapper
Dr Iain Clacher

This essay is motivated both by the Pensions Regulator’s consultation on its proposed code of practice for scheme funding and by papers published in recent years by the Institute and Faculty of Actuaries, such as “Actuarial valuations to monitor defined benefit pension funding”.[1]

There have been calls for the consultation to be withdrawn and revised to reflect the post-Covid world. We do not agree with these calls but do believe that both this consultation and this crisis provides an opportunity to revisit and correct many of the misconceptions and errors which persist and bedevil DB schemes.

Our approach is normative; we address how schemes should be valued and managed. We shall not invoke or rely upon either economic or financial economic theory as this is unnecessary and indeed often unhelpful. Starting with economic or financial economic theory and applying it to the real world (a non-ergodic system) is not a sensible starting point for understanding the mechanics of what is really going on. The guiding principle in all that follows is that the relation between sponsor and scheme, and by extension members, is equitable, that is to say: fair and just. We note that the Regulator invokes this principle extensively in the consultation paper, as “equitability”.

Valuation

We start with valuation i.e. the determination of the amount of the liabilities of a company. First and foremost in valuation is a fact that is rarely considered in any discussion of liabilities – the amount of a liability or liabilities is fully determined by the terms of the contract which created the liability and is independent of the manner in which it is financed or funded. In the case of a DB pension award, the liability incurred is a function of the contribution(s) made and the projected benefits. These give rise to an endogenous rate of return, which we call the contractual accrual rate (CAR).[2]

This rate is time continuous, meaning that the amount returned by discounting the projected benefits and the amount arrived at by accrual of the contribution are the same. Moreover, this amount is equitable among the scheme and its members, and the sponsor and its stakeholders. It is the amount arising from the agreed terms. It is notable that no financial market volatility is introduced into the liability estimate. It is clear that the discount rates specified in legislation and in other areas such as accounting standards are misconceived; they are counterfactuals and answer the question ‘What would the liability be, if the terms of the contract were based on [insert discount rate of choice]?’

The discount rate is technically a measure serving to reduce a sequence of projected future benefits to a present value. For consistency in interpretation of results, time invariance of the discount rate is a desirable property. None of the rates admitted by regulation possess this property; the discount rate used in any valuation of DB pension liabilities is the largest source of variability in valuations, and this variability is spurious. The contractual accrual rate is time invariant; it will vary only as the experience of the factors driving projections, such as wage and price inflation, and mortality, vary from their expected values, or where expectations and assumptions are revised. Unlike the situation with existing measures, changes to the contractual accrual rate and valuations reflect only changes in the projected benefits payable; and most importantly, they are grounded in reality.

The valuation generated using the CAR is a best estimate of the accrued amount of the sponsor’s obligation. Other approaches, such as ‘prudent’ estimates, introduce a bias into estimates of the sponsor’s obligation and are therefore inequitable to the sponsor and its stakeholders. This best estimate of the sponsor’s obligation is the amount which would be admitted in equity as the amount of the scheme’s claim at the time of an insolvency event. This amount (or its asset equivalent) may or may not be sufficient to purchase similar benefits in the open market at the time of insolvency. However, there would usually be a shortfall. This arises because the open market from which benefits are secured is through regulated insurance companies. The Section 75 value, which is based on replacement cost, is misconceived, and is inequitable to other stakeholders and the sponsor. Simply put, it is an overstatement of the amount of the DB scheme’s claim in insolvency.

Funding

The next question which arises concerns the purpose of funding a DB scheme. The idea has taken hold that the funding of DB schemes is to pay pensions as and when they fall due. This is also misconceived. The primary purpose of the pension fund is to secure the accrued liabilities of the scheme, valued based upon the CAR. The secondary purpose of the assets of the pension fund is to defray the cost to the sponsor of providing these pensions. The trust structure serves to ring fence these assets, protecting them from the claims of other stakeholders in sponsor insolvency.

Attractive though the ‘pay pensions when due’ idea may appear, it leads to a wide range of potential abuses of the equitable relations among all stakeholders. Specifically, it leads to demands for funding in excess of the amount of the sponsor’s accrued obligation. Such overfunding could, in principle, be subject to clawback by the receiver of an insolvent company. The consequence of this is investment strategies and objectives that are inappropriate e.g. liability driven investment. It also places an overly onerous set of duties and responsibilities on trustees, which have been systematically imposed by the Pensions Regulator through an ever-increasing burden of regulation.

By contrast, with the fund as security for the sponsor liability, trustees are concerned solely with the current market value of the fund in relation to accrued liabilities of the scheme. The management of the fund is a matter for the sponsor; this is appropriate as they bear the risk of its performance. In the event of a shortfall of assets relative to the liability value (as measured by the contractual accrual rate), trustees have a duty to call upon and require the sponsor to redress this shortfall within an agreed period.

The problem at the heart of DB funding regulation is the possibility funding being inadequate at the time of sponsor insolvency, and this has led to notions of self-sufficiency i.e. that a scheme can pay pensions whether the sponsor supports the scheme or not. This is not an equitable solution for sponsors or other stakeholders. Any regulation which attempts the impossible, i.e. self-sufficiency, of course, propagates ever more complex mutations of itself as its failings become evident. If we wish to eliminate this possibility of shortfall, and given the importance of DB benefits to scheme members, we should, it is then necessary for the pension contract to be written with an independent supplier, such as an insurance company (though even those may fail). Pension indemnity insurance covering full benefits in the event of shortfall is both feasible and affordable and works in other jurisdictions e.g. Sweden.

History tells us that inequitable arrangements do not endure. Earlier arrangements in the sphere of pensions, such as the priority or preference given to pensioners in payment, were inequitable and predictably gave rise to public outcry; the decline in the provision of occupational DB is the result of extremely costly but ineffective regulation.

 

The situation we face demands a bonfire of regulation, not the introduction of masses more.

[1]https://www.actuaries.org.uk/system/files/field/document/Actuarial%20valuations%20to%20monitor%20defined%20benefit%20pension%20funding.pdf

[2] https://www.zyen.com/media/documents/Primer-Risk_Structure-DB_Pensions-2017.10.18.pdf

This article first appeared in Professional Pensions May 26th 2020. Re-published with the kind permission of the authors

Posted in dc pensions, de-risking, pensions | Tagged , , , | 13 Comments

Keep saving!

Posted on May 28, 2020 by henry tapper
Henry Tapper
Romi Savova

Financial Security and the wellness agenda are not phrase I’m particularly fond of as they are linked to a lot of difficult ideas I’m not equipped to comment on. Not being very introspective, I’m far too careless of my vulnerabilities and will no doubt come unstuck over time. But at 58, I am in a rhythm and complacent as it sounds, I like that rhythm.

Part of that rhythm is the rhythm of saving which I do every month with the help of payroll. Occasionally in my life I have had the good fortune to get a bonus which I have generally sacrificed to my pension saving pot so that – despite the local economic difficulties we are now going through, I feel a high degree of financial security.

So when my friends at Pension Bee sent me one of their pieces of research yesterday, I was happy to agree with their big idea

Pension savers poised to make the most of market rebound can not only recoup recent losses, but make up for years of saving neglect

Pension Bee reckon that any savings lost during the COVID-19 crisis can by caught up by increasing your pension contributions ahead of a market rebound.

PensionBee,  has calculated that savers approaching retirement could make up for recent losses and get their retirement savings back on track, should markets bounce back to their pre-Covid peak values within the next five years.

PensionBee’s modelling shows that if a saver in their 50s, who has the average pension value of £48,456, makes a contribution of £10,000 while markets are down 20 per cent, they could boost their pension by around £53,000 more than if they kept it in cash over a 15-year period. This relies on markets recovering within one year and would amount to an additional annual income of around £2,000 in retirement.

If markets were to recover in three years, based on the same £10,000 contribution, the pension would be £41,500 higher over the 15-year time frame. If recovery took place in five years, which is the amount of time it took to recover following the 2008 financial crisis, savers would be £31,000 better off than if they’d kept their savings in cash.

PensionBee is encouraging savers to think twice before moving their retirement savings to low-risk, low-return funds which as well as offering limited potential for growth, could  lock in the recent losses made by markets. To take full advantage of the eventual market rebound, savers may wish to consider increasing their contributions, which will usually be eligible for tax relief. If a basic rate taxpayer makes a £10,000 contribution, this would be increased to £12,500 due to a 25 per cent tax top up from the government.

Romi Savova, Chief Executive of PensionBee, commented: 

“Time and time again, periods of economic uncertainty have proven to be a great opportunity for investors of all sizes to benefit. Downturns can often enable investors to take advantage of price falls, leading to greater returns during market recovery. While the 2008 financial crisis took c.5 years to recover, it is possible, given the speed of the downturn in this bear market, for markets to recover more quickly, say in one-three years. If savers can afford to make additional contributions to their pensions now, ahead of recovery, they could make up for years of savings neglect and put themselves in a strong position for retirement.”

This may sound a little self-serving but there’s no harm in Pension Bee serving itself while encouraging sound financial practice amongst us savers.

There has already been a bit of a market rebound and we should be aware that things could get a lot worse before they get better but – coming back to my original point – the rhythm of saving is what leads to financial security and financial security makes us feel food.

So “keep saving” and I’ll keep blogging! Savings one of the sensible rhythms of everyday life that keep us going through the difficult time – and this is a difficult time.

 

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COVID-19 – our chances IF we survive.

Posted on May 27, 2020 by henry tapper

Screenshot 2020-05-27 at 13.30.37

 

Screenshot 2020-05-27 at 13.36.59

 

 

Introduction

Given the complexity of the question, and the different facets, we are breaking our commentary on this question into three bulletins:

  • What is the likely mortality of the ‘survivor pool’ in the short term?
  • What are appropriate ways to consider setting mortality assumptions at the ‘post-pandemic’ stage?
  • What are the long-term mortality implications of the pandemic?

In this bulletin we look at the mortality of the ‘survivor pool’ in the short term. The objective is to consider what the mortality of the population will be after the initial pandemic, not allowing for any ‘nth wave’ returns of the coronavirus. 

What will affect the mortality of survivors?

The overall mortality of the survivor pool will be different from the equivalent pre-pandemic mortality to the extent that the COVID-19 fatalities exhibited different mortality (pre-pandemic) from those who survived.

What do we know about the COVID-19 fatalities that may have affected their ‘pre-pandemic’ mortality?  Clearly they were primarily the old, and primarily male: however, demographers and actuaries (amongst others) will take account of age and sex in considering mortality, and hence these aspects are not relevant to the question here.

To estimate the mortality of the ‘survivor pool’, we can work through the following thought process:

  • What aspects of COVID-19 lead to disproportionate deaths for some types of people?
  • What would be the likely mortality (pre-pandemic) of these people?
  • Thus, what would be the likely mortality (pre-pandemic) of all those dying from COVID-19?
  • If we remove those people from the overall population, what is the remaining average mortality?

What aspects of COVID-19 make deaths arise disproportionately?

So far, we know that the following factors are particularly relevant (where we provide also some indication of typical mortality impacts, expressed as ‘odds ratio’ multipliers – so e.g. the figure of 1.5 for obesity means an obese person would have 150% the mortality of a non-obese person, all other things assumed equal – that can be combined, so eg an obese diabetic would have mortality of approximately x 1.5 x 2.0 = x 3 normal mortality):

Factor

Comment

Obesity

An important factor. The effect of obesity is of the order of 1.5.

Diabetes

Very important. The effect is of the order of 2.0.

Other chronic conditions

For common conditions (eg history of heart disease, cancer), of the order of 1.25

SE Class
(IMD quintile)

Top quintile 0.8 of middle (ie average) quintile, lowest quintile 1.4 of middle

Ethnicity

BAME 1.5-2.0

Note that the figures in the above table are approximate and indicative only. We have commented specifically on risk factors in [link to bulletin], and since then further papers have emerged (many of which we have noted in our Friday Reports).

What would be the likely mortality (pre-pandemic) of the people in those groups?

We know from existing research that people in the above groups have normal (ie all-cause mortality absent the coronavirus) mortality somewhat different from the average. Using the same way of presenting this effect as we did in the above table, the factors as they would apply to people in the 60-80 year old age group are, very approximately:

Factor

Mortality effect (all-cause)

Obesity

1.2

Diabetes

1.3

Other chronic conditions

2.0

SE Class (by IMD)

1.5 (ratio bottom to top IMD quintile)

What would be the pre-pandemic mortality of those who die from COVID-19?

We can use the known (disproportionate) nature of COVID-19 to estimate how the deaths break down, for instance as follows (considering here just diabetes and obesity for simplicity). We can then calculate the expected pre-pandemic mortality of these subgroups, and hence the overall average ‘pre-pandemic’ mortality of the whole group of COVID-19 fatalities.

Splitting just by diabetes and obesity, this table shows the proportion of COVID-19 deaths we might expect (from the first table above on COVID-19 mortality risk factors in conjunction with population prevalence).

Group

Population
prevalence

Proportion of
COVID-19 deaths

All-cause mortality multiplier

Normal

65%

48%

1

Obese, non-diabetic

20%

22%

1.3

Obese, diabetic

10%

22%

1.6

Diabetic, normal BMI

5%

7%

1.2

Total

100%

100%

All-cause mortality

1.10

1.20

This table also shows the all-cause mortality multiplier, weighted by population prevalence, and also weighted by proportions of COVID-19 deaths.

We can therefore calculate that the expected ‘pre-pandemic’ mortality of the group who died from COVID-19 is 1.2 / 1.1 = 109% of the same number of people randomly selected from the population.

With the COVID-19 deaths no longer in the overall population, what is the survivor mortality?

Suppose 1% of the population die from COVID-19. Although this is a high (hopefully unrealistically high) figure for the whole UK population, it is a reasonable figure (perhaps even an under-estimate) for older age groups.

Having estimated the mortality of the group of all those who died from COVID-19, we can estimate the relative mortality of the survivor pool:

Group

Proportion

Relative mortality

COVID-19 deaths

1%

109% of normal

COVID-19 survivors

99%

99.9% of normal

Combined population

100%

100% of normal by definition

The 99.9% above is ‘solved for’ by finding the value that, combined with the 109% of normal mortality for the COVID-19 deaths group, takes us back to 100% for the combined group. Thus the mortality of the survivor pool is (in this example) around 0.1% below normal (pre-pandemic) mortality.

The effect is light in this example largely because we have assumed a small proportion of deaths from COVID-19 in the ‘base’ group. For high age (and male) segments of the population, we expect higher proportions to die from COVID-19 and hence a greater eventual differential between pre- and post-pandemic mortality.

The figure is also lighter than the ‘real’ figure will be because, in the above, we have looked at only two categories (obesity and diabetes). Introducing more categories (e.g., other common medical conditions, or socio-economic splits) accentuates the effect (if, for each extra category, we have both an increased risk of death from COVID-19 and increased ‘all-cause’ mortality, which is generally the case).

Further work by the author testing the effect of this extra granularity increases the all-cause pre-pandemic mortality ratio of COVID-19 deaths to normal population from 109% to of the order of 130%.

Conclusion and further work

COVID-19 mortality is associated with various risk factors (such as obesity and diabetes) that are themselves associated with higher ‘normal’ (all-cause) mortality.  If we consider this aspect only, ignoring for now other aspects (noted below), then the overall mortality of the post-pandemic ‘survivor pool’ will be lighter than overall population mortality pre-pandemic (allowing for age and sex effects).

The example calculation above, which illustrates the underlying dynamics, shows that the effect is likely to be low other than in subgroups of the population with a high proportion of COVID-19 deaths.

The other aspects to be borne in mind in estimating the likely mortality of post-pandemic survivors are:

  • How are future mortality improvements likely to differ because of the pandemic? (For instance, what effect might the associated economic shock have on healthcare expenditure or personal health-related expenditure that may affect mortality?)
  • What is the effect on human physiology of surviving a ‘severe symptoms’ (hospitalisation necessary) infection of COVID-19? (For instance, the Spanish flu was associated with long-term features that had a material morbidity / mortality effect.)

In the next two bulletins on this subject, we consider the points above, and we also consider how, once we are ‘post-pandemic’, we could conduct an experience analysis in a way that allows appropriately for the largely ‘one-off’ nature of the pandemic.

Matthew Edwards
27 May 2020

Screenshot 2020-05-27 at 17.45.02

Posted in actuaries, advice gap, consultant, coronavirus, pensions | Tagged , , , | Leave a comment

The still small voice of calm

Posted on May 27, 2020 by henry tapper
George kirrin 1

The Famous Five

Yesterday was busy for me and  I didn’t have a chance to see the comments on my blog-either on twitter or on the blog during work-time.  The blog called on us to move on and let Cummings be.

Yesterday evening I did see some of things that were said on twitter and was upset by some violent language from people I like.

“But by and large our suffering has been minimal ” Feck off, Henry, and then feck off some more and write about something you know about instead of this odious drivel.

I don’t need to defend my comment, most of the people I know have not had to face the choices that Dominic Cummings made – I certainly haven’t. Our church – whose congregation is mainly BAME- has seen deaths.

But the consequences of COVID-19 for most of the people I know have been financial , emotional but not existential.

There was also some bad tempered comment on yesterday’s blog itself, chiefly  an argument between two regular contributors. I don’t want to moderate genuinely held views but let’s be kinder to each other.

The still small voice of calm

Although the majority of comment was calling for Cumming’s resignation, there are two comments from George Kirrin which are here.

The media’s Cummings story no longer stands up for me, Henry.

He didn’t go to Durham for a second time on 14 April, as reported on the front pages of both the Sunday Mirror and the Observer. He didn’t have any physical contact with Durham-based family members. The police didn’t talk to the Cummings family about the Covid lockdown guidelines but about security (presumably if/when the media posse arrived there, as they now have done). Durham police issued their own press release at 4:01pm yesterday, just when Cummings was supposed to be about to start his rose garden press conference.

Cummings didn’t carry on doing things that nearly everyone else had stopped doing — he missed the funeral of his uncle who died from Covid-19 in London on 5 April. He didn’t leave his London home for leisure reasons — he left because he was receiving threats as a result of media demonisation. He was ill, his wife was ill, and at one point his child was taken to hospital in an ambulance in Durham.

His family has had a really rough time and parts of the media have told lie after lie about him. The real scandal is not Cummings’s behaviour — it is the collapse of ethics and objectivity in leading parts of the British media.

Cummings is, however, guilty of what many of us have done when overworking – driving when impaired, putting work before family and personal health, and maybe putting work colleagues at risk of catching whatever it is we’ve got or we’ve had.

I have put the final paragraph in bold because it gives an insight into Cummings’ behaviour that rings true with me and which I haven’t seen or heard elsewhere in the debate.

As illuminating is George’s second comment

Jenny Harries and her “exceptional circumstances” on 24 March, and it’s here:

http://www.bbc.co.uk/iplayer/episode/m000h32w

The question (about a hypothetical 2-y-o child is asked at 62 minutes in) and her exact quote is at 65 minutes, part of an answer that begins at 64’50” ….

Those who argue that Cummings’ use of “exceptional circumstances” is  exploiting a  loophole must listen to what Jenny Harries says in these four minutes.

There was some speculation before Dominic Cummings’ conference that Dominic Cummings’ child is autistic.

As far as I know , other than the child being taken to hospital, Dominic Cummings’ has made no mention of “special circumstances” for his child. The restraint employed in not responding to comments such as Pete Wharmby’s is admirable. The circumstances Mrs Cummings and their son find themselves in is tough.

Thanks to George for providing the still small voice of calm.

We are being kinder

Until this matter, I had thought there was national unity based on a common front against the pandemic. Unfortunately this unity has been broken. We have the Conservative back-benchers yet again rebelling , a junior minister resigning and we continue to see the normal questioning of Government on its COVID response being interrupted by questions about when Cummings will resign. On social media this has degenerated into  #sackthemall .

Although we are allowed to have our judgement on the performance of the Government (and the bare numbers of deaths , hospitalisations and  (lack of) testing do not speak well of it), we must be kinder.  There is no B- team ready to step up and replace the cabinet, the PM and the Spads.

The A team was elected only 6 months ago and are less than 10% into its term. When we have an election, we have to accept the result and support the Government in its endeavours. This is particularly true at this time.

One of my most left-wing of friends sent me these two direct messages on twitter last night

we can aspire to more than one thing – a decent PM AND a policy of more fairness and better public services post the mad rush to finance running the world.

and separately

Ideally the Tory party needs to boot out Johnson. I don’t suppose it will happen, but the smart guys and gals – and I do believe there are some – need to manage him and sort themselves out.

We want to be kinder ; let’s hope  we will turn a corner by better  protecting the most vulnerable in our society. To do that  we will have to spend a lot more of the nation’s wealth on  welfare and a lot less time throwing stones.

This will mean a radically different reaction to this crisis than “austerity”. It will mean that those of us who have the means to be kind, must be kind.

We are already be kinder, let’s not let this Cummings’ episode stop that.

George Kirrin 2

George Kirrin – aye!

Posted in advice gap, age wage, coronavirus, pensions | Tagged , , , | 18 Comments

Michelle’s right, the last thing we need is Cummings to go…

Posted on May 26, 2020 by henry tapper
Cummings

Enter a caption

On a day when very little of what was said carried much authenticity, I heard a lady from Newcastle University say something that seemed real to me.

Speaking on the BBC evening news following the interrogation of Dominic Cummings in the Rose Garden, she explained that most working class people she knew didn’t find a rich elite British male doing what he liked the slightest surprising – or even interesting, their thoughts were elsewhere. She explained they were concerned with   how they would make ends meet over the next few months,

To suppose that we are all in it together is absurd, as she went on to say 99% of people in the north east don’t have the choices Dominic Cummings had – to them he was quite simply -irrelevent

Cummings matters to the liberal elite – because he represents us.

Listen to the people who are howling against Cummings and what you are hearing are people who have also had his choices and chosen not to take them. The stench of entitlement is overwhelming as we hear of the sacrifices we made to the general good.

But by and large our suffering has been minimal , by and large we are raging against the opportunity that we turned down and Cummings grasped, the loophole we missed. And in likening ourselves to Cummings, we elevate ourselves to his level of public service. Cummings wasn’t broadcasting from Downing Street’s Rose Garden for nothing, he is doing more than what we do – he is running the country.

This spelt out to me my unquiet, explained in my  two blogs , making your own rules and Boris’ Bismarck. 

No matter how much better  blaming Cummings makes us feel,  sacking him is not going to help people pay the rent.

As Michelle Cracknell put it on Linked in

“Love him or hate him, the last thing all of us need is for Dominic Cummings to go. We need to focus on the things that matter (testing, PPE, moving out of lockdown) rather than what DC did or did not do”.

Michelle was agreeing with this statement

Cummings is a vital cog in the strategy to defeat Covid. Not some clown driving across the country to buy a puppy.

How this reflects on us?

Dominic Cummings has still not been tested for Coronavirus, he does not appear to have been treated as part of “Government” at all.  He was juggling his job and duty to Johnson and the country against personal fear for his health and the health of his wife, child and wider family and he was seen running accross Downing Street in what looked like panic to the press.

Screenshot 2020-05-26 at 06.26.24

Cummings running to help his wife

We now know that Cummings was not running away in fright, he was running to his wife who had symptoms of COVID-19. The images we have of Cummings are of a man isolated and pursued by cameras, he is also a husband and father.

Yesterday we saw a man give a press conference who was nervous. Never once did he play to the camera or the press. He did not impress as a politician would have impressed.  He didn’t impress at all.

Frankly it does not matter much how many times he stopped to fill up for petrol, how long he was outside at Barnard Castle or whether he dialled 999 or 111. The Guardian and the Sunday Mirror can go on with their forensic investigation , un-turn rocks and keep this story alive for another week, but this isn’t going to help us move out of lockdown or pay the rent.

We watched Cummings hoping for drama, we got the opposite. I was left asking why I was watching and feeling decidedly queasy. In wanting drama I realised I was complicit with the press. Their prurience was my prurience. I wanted to wash my hands.

Damaged goods?

Far from being damaged goods, Cummings is now centre-stage and a full-on anti-hero for anyone chippy enough to challenge liberal sentimentality. And having listened to the endless tales of self-sacrifice by those in lock-down I am now immune to that sentimentality.

What is becoming damaged goods is the line of press lined up to throw stones at Cummings. To them I add those who compare their tale of hardship to that of Cummings. Whatever we are going through is our cross to bear, we cannot tie Cummings to it.

It is not unusual for members of the elite to become working class icons. Churchill did it, Farage did it (a little bit) and Cummings has got all the makings of doing it himself. Nervous as he was yesterday, he managed to last 90 minutes without losing control and unimpressive as his delivery was, he came accross as considered and deeply serious.

Cummings has no Checkers or Sandringham , he did have his family home and it appears that became so attractive he recklessly drove himself and his family there, against all Government advice. Like the Newcastle University professor , I don’t find this in the slightest bit surprising, I don’t find it news. He did what he could with the hand he held and his bets paid off.

Screenshot 2020-05-26 at 06.13.21

From George Osborne’s newspaper

No apologies – no regrets

The press are angry that Cummings stays “elite”, They want him to apologise and show regret. Based on achieved outcomes Cummings has nothing to regret, he is back safe and so his family. As for apologies, he refuses to apologise for taking responsibility as he does.

Cummings 2

And for so long as the media continue to lay into Cummings, the more he will divide the nation. He clearly isn’t going to stand down and the best that we can do is climb down from our high horses. He is Johnson’s Bismarck, he makes the rules and I am glad that he stood firm yesterday. I do not want another resignation , another failed Government and yet more disruption .

It is our job to repair not damage goods. Like Michelle says.

 

 

Posted in coronavirus, pensions | 18 Comments

DWP furloughs Gran’s pension data

Posted on May 25, 2020 by henry tapper

Screenshot 2020-05-23 at 07.15.21

I’m pleased to hear that Steve Webb’s campaign to encourage us to get our (or our mother’s fair share of the state pension has already been a success.

LCP report that over 20,000 people have already used its calculator and that the flow of interest shows no sign of abating. Those who use the calculator land on the link to the LCP report I mentioned in yesterday’s blog (for which I got a number of requests). For those who want to understand the issues Steve Webb is raising – here is the link. (you don’t have to pretend to be your Mum here!)

granny

Freedom of information has been critical to my sanity over the past nine weeks. Without the COVID-19 actuaries teaching me how to read ONS and other reports, I would have felt myself a pawn in the chess game of the Downing Street briefings.

DWP FOI and the absence of briefing

But even Steve Webb, till recently a DWP Minister, cannot get the information he needs to help Mums and Grandmas and elderly spinsters to their proper state pension.

I understand that after his first Freedom Of Information request in February (FOI) , he tabled a follow up to get more details (so he wouldn’t have to make so many guesstimates for his report);  it went in on Feb 28.

At the end of Mar (the normal deadline) The DWP said that because of Coronavirus they would be delayed in replying;  but another two months later they still haven’t replied;  it feels like they’ve furloughed FOI.

Repeat offenders?

The DWP has form on this. The WASPI women are seething with indignation that they haven’t been informed and now we have one of their former ministers in the same boat!

The matter is at its most stark for the over 80 year old women. To remind you of the entitlement;-

Once you reach 80 you are entitled to a state pension of £80.45 a week if your existing state pension is less than that or you do not get one at all. To qualify you must be

  • aged 80 or more
  • live in the UK or the EU when you reached 80 or when you claim
  • have lived in England, Scotland, or Wales for at least ten years out of the last twenty.

It is not means-tested and does not depend on your National Insurance record. The full rules are here.

If you are over 80 but get less state pension than £80.45 or none at all then claim it now. It can be backdated up to a year.   (details from Paul Lewis)

The one major exception is that people living outside the UK in a country where the state pension is frozen – (it does not rise with inflation) – may well be getting less than £80.45 a week and not be entitled to any top up.

The over 80s pension (known by the DWP as Category D) is the closest thing we have in the UK to a citizens or basic income;  there is no NI test, just a residence test.

I find it really hard to believe that the large numbers of over 80 year old women Steve Webb found getting less than the flat £80.45 all failed the residence test

Shocking

When you get to 80 , the rules become simpler and that’s to make sure no-one gets left behind.

It is shocking that there is still – in this simple environment – doubt over the payment of the full £80.45 to resident pensioners. That doubt could be put aside by the DWP publishing the information requested.

If there are underpayments, then quick restitution should follow.

COVID-19 is not a good reason to defer the publication of this information. Infact it is all the more reason to make sure that the basic entitlement to older women (less than £4,500 p.a) is paid in full.

 

So come on DWP- do the work – you’re not in furlough. 

 

You have not been granted leave of absence by your customers nor has Steve Webb  furloughed his inquiry.

Screenshot 2020-05-25 at 06.49.40

 

 

You can claim your extra pension either online at the Pension Service or call free 0800 169 0154.

Posted in pensions, steve webb | 1 Comment

Making our own rules; (Cummings II)

Posted on May 25, 2020 by henry tapper
Screenshot 2020-05-25 at 06.07.30

Ruling but not leading

The Cummings and lack of goings of the past 48 hours are dividing Britain between the absolutists, the pragmatists and the people who just hate Dominic Cummings.

I suspect the number of people who know Cummings well enough to hate him is very small and comprises those people whose journalistic and political careers are thwarted by him.

The numbers who see him as an archetype of “arrogance”, “hypocrisy” etc, is much larger and these are people are fuelled by a sense of injustice that we are not all in this together , that they have done their bit and that they are being laughed at. Many of these people have genuinely suffered self-deprivation or illness and some have lost loved ones to Coronavirus.

Finally , there are the pragmatists, who seem to include most of the Conservative parliamentary party, all of the Cabinet , the Prime Minister and a very large part of the country who are more interested in just getting on with, siding with productivity within safe limits over the strict obedience to absolute standards.

Wherever you sit, your position is relative to others and the ruling you are making on Cummings results from personal prejudice. There is no absolute position since the people who made the rules, are now interpreting them differently to how we understood them and implying that there are things we cannot know about Dominic Cummings’ behaviour , because that is in the public good.

In the public good

Churchill once redefined the word “lie” as a “terminological inexactitude” so as to imply a member of the house wasn’t telling the truth. In doing so he poked fun at the system but kept his integrity.

This is probably the best response from most of us to Cummings’ road trip. No one needs to like him for it, no one needs to like Cummings – one of the most attractive things about the man is his complete disregard for most people’s opinion (see yesterday’s blog)

Our Government believes it needs Cummings and is therefore protecting him. The Government has worked out that it can take some collateral damage in this. This is not necessarily political , more based on Cummings’ genuine leadership. He appears to be the Bismarck to Johnson’s Kaiser and Johnson still appears to be working at half power (he had a genuine brush with death).

My view, as expressed yesterday, is that if you take Cummings out of 10 Downing Street, you are left with an underpowered PM and not a lot of depth in the rest of the team. We should not underestimate the reliance on Cummings at this point.

So it is probably in the public good that we put the road-trip away in a cupboard and accept that some must act at this time and we must accept that they can act differently in the public good. Which is the only way I can mentally accept the behaviour of Dominic Cummings.

It is of course the same leap of faith that allows me not to throw my laptop at the TV when I see the briefings on those who “tragically” have died, knowing that the briefings have consistently been telling us half the picture, to keep us in order.

My mother’s comment remains relevant, for her it is more important to trust authority than to believe in its absolute probity. Just as Machiavelli knew how to control the people, so the people accepted the principles of the Prince, to maintain social order. This complicity looks likely to prevail, for all the ranting in the papers, on social media and in radio and TV phone-ins.

There is little genuine comfort in being absolutely right

Without going into the doctrine of original sin, it’s worth finishing with a thought about moral absolutes. “Let he who is without sin, cast the first stone” is probably the most pragmatic phrase to come out of the Bible and it certainly applies here.

Anyone who claims absolute moral authority in their behaviour, bullshits me.

There is also a sense of humour failure just around the corner.

And unless you are very different than me, it feels very uncomfortable sitting on a high horse. It’s a long way down and you never know if the horse mightn’t just buck

It is great fun, in the fury of the moment, convincing yourself you are right. But as I know, when I re-read my blogs, I have often been either wrong or hypocritical or both.

So reluctantly, as I see Cummings as a bell-end much of the time, I am prepared to move on and accept that for the public good, the man needs to be excused if not exonerated.

We live in a very imperfect world and sadly , kicking Cummings out will not make it more perfect.

Screenshot 2020-05-24 at 07.34.21

leading but not ruling

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A whole new can of “defaults”

Posted on May 24, 2020 by henry tapper

worms

The Pension Regulator’s found a new can of worms to open. This time it relates to a very local problem but creates some difficulties for those running and governing DC pensions. As the vast majority of money going into DC pensions is our money- coming from our salaries, this is important.

The issue

Currently it is very hard to put a value on a property and to value units in a property fund. In order not to liquidate properties at a false price, most property funds are currently in lockdown or “gated” as fund managers call it.

Trustees are nervous about allowing savers who’ve chosen property funds to pile more money into a fund that has uncertain value so they are beginning to divert money that would have gone to property into alternative assets that behave like property funds but are more liquid so don’t go into lock-down.

The Pension Regulator has this to say about replacing a property fund with an “alternative” fund.

Some trustees, having taken investment advice, are redirecting scheme contributions into alternative funds until the gated funds re-open. This could result in the alternative funds becoming default arrangements and therefore subject to legal requirements such as the charge cap (if the scheme is used for automatic enrolment) and the requirement to have a statement of investment principles for that default arrangement.

You may need to take legal advice to assess whether this is the case for your scheme. According to the DC code of practice, the position will depend on how the members who selected their investment made their choice. Were they aware and did they agree to their contributions being used in this way?

We believe that the only circumstances where a default arrangement would not be created are if either:

  • members were made aware before they selected the original fund that contributions could be diverted to another fund in certain situations
  • you contacted the members before diverting contributions and obtained their consent: please note that you should consider taking advice on the implications for your scheme before doing this

If you have discovered that you have unintentionally created a default arrangement by diverting funds you should immediately take steps to ensure this arrangement meets the legal requirements. These requirements include falling within the charge cap if the scheme is used for automatic enrolment and having a statement of investment principles that meets the requirements for a default arrangement.

Fund substitutions – can of worms

There are some real problems here. Firstly, most workplace pensions sit on fund platforms which rely on fund substitutions when things go wrong.

There are exceptions. We saw with Woodford that SJP did not need to substitute the fund , they just substituted Woodford as manager and got new managers to sort out Woodford’s mess. But most people exposed to Woodford  were directly invested in a Woodford fund and had to divert future monies to alternatives.

What tPR is saying is not just to do with property funds, it’s to do with any fund substitution and it’s saying to trustees that changing fund (not fund manager) is tantamount to making the new fund the “default”.

Trustees can get round this by telling members who self-select they have the powers to substitute or by giving the members who’ve made a selection the job of choosing for themselves. But both options are likely to be difficult. Trustees do not want to be seen to be accountable for substitutions, especially if when the old fund comes out of lockdown, it shows it was resilient and a better bet than the replacement. But nor do trustees want to have new defaults to report on (with all the hassle of policing charges and writing SIPPs). This is the can of worms.

So what is tPR worried about?

TPR says it is worried about members who specified how they wanted their contributions invested, finding that the trustees hi-jacked their choice (in breach of their DC Code of Practice)

But I suspect there is a wider issue of value for members, at play here. What tPR are doing is de-railing the process of fund substitutions by demanding each time this happens a “mini-default” is set up. Ultimately this would lead to any self-invested option that was replaced coming under the same rules as the scheme default.

This looks to me like the work of the DWP, who are keen to limit the capacity of workplace pensions to offer semi-governed fund options on platforms, with little responsibility for the outcomes of those funds.

So if you want to offer a Woodford style fund to workplace savers, you will forward have to tell members you are  accountable for how it does and tell them you have the right to  change it if things go wrong, or you will have to treat the substituted fund as a mini-default. Either way – your duty of care to the funds you offer under self-select has changed.

Broader issues for fund platforms.

Most money that goes through workplace pensions defaults to a single fund or option. However, the fund platforms used for self invested personal pensions are the other way round with advisers avoiding default solutions and promoting choice.

The issues of gated property funds, of Woodford and of all the unregulated UCIS funds that have given so much trouble are much more prevalent in this self-invested world.

In the past few days, the High Court has finally rules for Carey Pensions , saying that the management of the SIPP could not be held accountable for the value destruction caused by using funds selected on its platform by investors (usually under advice).

So while tPR is tightening the duty of care for trustees of workplace schemes, the FCA is seeing its capacity to enforce governmental requirements on non-workplace pensions reduce.

Differing approaches to self-investment

So to sum up- tPR are hinting at a regime where trustees take more responsibility for the outcomes of self-selection within workplace pensions (and occupational schemes in general) while the FCA are finding that contract-based providers are “off the hook”.

The FCA came in for some criticism earlier in the year (from me and the FT)  for not requiring IGCs the same reporting standards on self-select as on default funds.

I am more worried (post the Carey judgement) that contract-based pensions – especially those beyond the inspection of IGCs and GAAs will be under-regulated and that it will be FSCS and IFA policies that will be required to pay compensation.

But I am comforted that DWP/tPR are taking a tough position on the governance of self-selected funds – requiring trustees to be clearer about their duties and ensuring that where things go wrong, trustees are subject to the “default rules” and/or clear disclosures that they will be accountable for fund substitution when members take choices.

Conclusions for investors

If you are looking to manage your own fund portfolio then increasingly you will be able to do this within a master trust or within a contract based plan.

Not all master trusts offer self-invested options but expect many to move into this space as they try to increase their average account balances.

It looks as if the default legislation that covers workplace pensions is being used by DWP/tPR to protect members from illiquidity and high charges.

But there are other questions that arise, especially the statutory rights of members to 100% of their money on transfer and at normal retirement age. These rights appear to apply equally to single employer and multi-employer schemes.

So long as these statutory obligations remain (and I think they are exclusive to trust based schemes) then trustees are going to be very nervous of having any illiquid funds or illiquidity within its default. There is only one place to go for that liquidity and that is the sponsor. Which opens up another can of worms.

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Cummings; Boris’ Bismarck

Posted on May 24, 2020 by henry tapper

Screenshot 2020-05-24 at 06.49.27

In conducting his lockdown tour of London and the North East , Dominic Cummings has confirmed himself the central figure of British politics. He is  the Bismarck to Johnson’s Kaiser and the most effective British political operator of the past 10 years.

Cummings’ refusal to admit to having done anything wrong and his sneering at the left-wing press have endeared him to at least 52% of the country,

Cummings has become the focus for the frustration of many but his defiance is absolute

I have three observations to make

  • We all love a baddie
  • We want the baddie on our side
  • Cummings is the person we don’t dare to be

We all love a baddie

Cummings has all the attributes of a political baddie.  He’s unelected, arrogant and secretive. He has absolutely no interest in pleasing anyone and he’s quite ruthless.

He is not a pantomime villain, a Dick Dastardly, he is a very real baddie

We want the baddie on our side

If you had to pick your political  football team, you’d want Cummings in charge of the defence. For everything that his behaviour tells us about the abuse of power, we want Cummings in charge – even if he picks up a few cards along the way

Cummings is the person we don’t dare to be

Forget all the minutia, Cummings is the husband and Dad, as well as the Bismarck to Boris’ Kaiser.If he survives (and I think he will), he will be the most notorious adviser in Downing Street  for decades.

Though he focusses all our discontent, he  thrives on the opprobrium heaped upon him. And his stature is the greater for him driving a reasonably sized family car into which he piles his family and all that goes with them.

He is what we want to be and that is hugely frustrating.

Is Dominic Cummings running Britain?

The answer quite clearly is yes. Have we the power to sack him – we will see, but I suspect the answer is “no”. Will he diminish those around him- undoubtedly he will, Johnson already looks a second order Kaiser beside this Bismarck.

Does it matter if he does?

It’s worth noting, that Britain is not only in the grip of the pandemic, but it is in the midst of a political change. Both are likely to be momentous and both are being managed by Cummings.

We have to look at the alternatives to the Cummings way, the problems we had moving forward under May and Cameron, the ineptitude of most of the current Cabinet and utter irrelevance of the opposition (though this may change).

Cummings is where he is for a good reason. He is filling a vacuum. If we find a way of ridding ourselves of him, we will have to find an alternative. Where is that alternative?

I am encouraged in this view by this blog by Simon Carne. He argues that whatever we think of Cummings’ behaviour, the press are not the judge and the jury.

Posted in age wage, pensions | Tagged | 13 Comments

Is your Mum getting her proper state pension? – Steve Webb’s making sure!

Posted on May 23, 2020 by henry tapper

Screenshot 2020-05-23 at 07.15.21

Apologies to readers whose Mums are no longer around and to younger readers whose Mums are still to retire. but the majority of people who read this blog are millennials and boomers whose Mums are drawing the state pension along with Dad or on their own – as widows. This blog is for pensioner Mums and for adult children who care about their finances.

The problem

The DWP have a very complicated set of rules about the payment of state pension to women and a computer system that relies on human intervention. The intervention is usually prompted by claims from pensioners , many of which are not filed – as most citizens don’t understand the rules. The DWP, like all administrators, is also prone to human error. The usual toxic cocktail – lack of financial capability – inadequate automation and over-reliance on manual administration. The WASPI cocktail (II).

Sir Steve Webb highlighted that many older women are being short-changed of their pensions as a result. Initially this was taken up by the Daily Mail’s This is Money website.

Now LCP, Steve Webb’s firm, have issued a report on what’s happened and the Times is running the story as a £135m state pension error

The real problem is that most of the problem relates to elderly women who aren’t best placed to sort this out for themselves and are reliant on children who struggle to find out the facts on their behalf.

So to date, restitution, where restitution has been due, has been confined to cases where children have applied obsessive zeal on their mother’s behalf. Witness this case study that will be no doubt be attracting the attention of furloughed PPI claims specialists

Widow, 96, with dementia gets £117k after she’s paid wrong state pension for 20 YEARS

  • Rosemary Chattell’s son was fobbed off THREE times by DWP staff
  • He made a fourth call about her low pension, thinking ‘I will give it one more try’
  • DWP then paid arrears of £107,850 and no interest – but stumped up a further £9,500 when This is Money intervened 
  • Rosemary might now face a massive income tax bill on the belated payment 
  • Ex-Minister Steve Webb says: ‘This is one of the most shocking cases I have ever come across’

So what is Steve Webb doing about it?

Credit to the man, Steve is dong a lot. Firstly he’s explaining how the problem came about…

The problem affects a set of women covered by the ‘old’ state pension system – that is, those who reached state pension age before 6th April 2016.  Under the old system, married women could claim an enhanced rate of state pension when their husband reached 65 in cases where they had only a small state pension entitlement in their own right.  Parallel rules applied to widows and divorced women.  At current rates, the pension that a married woman can claim based on her husband’s record of NI contributions stands at £80.45 per week, provided that their husband was receiving a full basic state pension.  This is 60% of the full basic state pension rate of £134.25.

Since March 2008, married women on low pensions should have been awarded this 60% rate automatically when their husband turned 65 but before that date they needed to claim the uplift.  Data obtained in a Freedom of Information request submitted earlier this year by Steve Webb to the Department for Work and Pensions suggest that many tens of thousands of married women who would be eligible for this rate are not receiving it.  In the majority of cases it seems likely that this is because they not actively claimed the uplift, but in some cases it will reflect the failure of DWP computers to automatically award the uplift.  Where women needed to make a claim and do so only belatedly they can only backdate their claim for 12 months – any uplift for years before this is lost.

In addition to gaps for married women, LCP have found other groups who may be missing out.  These include:

  • Thousands of widows who appear to be on very low state pensions, well short of the expected rate for a widow claiming on her late husband’s record;
  • Thousands of divorced women who should, in principle, be benefiting from the ability to ‘substitute’ the NI record of their ex-husband for the period up to the end of their marriage;
  • Thousands of women aged 80 or over who should in principle be entitled to an £80.45 pension on a *non-contributory* basis provided that they satisfy a simple residency test;

Without access to DWP administrative data, it is difficult to put precise figures on the numbers missing out, but by combining the FOI data with data from the DWP’s online ‘stat xplore’ tool and data from the DWP’s Family Resources Survey, LCP estimates that tens of thousands of women are being paid less in state pension than they are entitled to.

Based on typical amounts repaid when women contact the DWP, the amounts underpaid could be up to £100m in total, not including ongoing increases in regular pension payments. (which the Times are estimating make up the balance of their quoted £135m)

Secondly he’s lobbying for change

Steve Webb is now calling on the government to investigate this issue as a matter of urgency, and to automatically uplift the pensions of those who are entitled.  He is also calling for a review of the 2008 rule change which means those who became entitled to a higher pension before that date can only now backdate a claim for 12 months.

We should be giving Steve Webb credit, gratitude and support!

Steve-Webb-MP-006

Credit due!

 

So what can you do?

If you want to understand this problem properly, you need to read LCP’s guide

Screenshot 2020-05-23 at 07.07.01

At the time of blogging, this document hasn’t been posted to the web (no pun-intended), when it is, the link will be here and for now you can request a PDF from henry@agewage.com because it is the weekend and the LCP press office isn’t open.

If you don’t want to “gen-up” but want to check-up, your next port of call is LCP’s web-page for Grannies 

This contains links to the DWP’s Pension Service , and the Government’s Money Advice Service

You can claim your extra pension either online at the Pension Service or call free 0800 169 0154.

To see if you qualify use this calculator provided by Steve Webb at Lane Clark & Peacock. Note- this is not an exhaustive tool. If you want to exhaust yourself – read on!

What should Grandma have got?

If you want to know what your Mum/Grandma’s entitlement are you can read the brilliant Paul Lewis’ factsheet here.

And for the hard of clicking, here is what Paul is saying.

SUMMARY

Tens of thousands of married women in their seventies or older are being paid too little state pension. Some could be owed £4000 a year. 

You are almost certainly entitled to extra state pension if 

  • your husband was born before 17 March 1943

AND

  • you get less than £80.45 a week state pension

Some slightly younger women – aged at lest 67 – and some women with younger husbands may also be due extra money.

The women affected get the old state pension, not the new one which began for those who reached state pension age from 6 April 2016.

These married women are normally entitled to a top up to bring their basic pension up £80.45 a week. However, many did not claim it or it was not paid due to an error by the Department for Work and Pensions. See ‘Married women’ below.
Some divorced or widowed women may also be entitled to a bigger state pension. See ‘Widowed or divorced’ below.

Anyone aged 80 or more – men and women, married or not – should normally get a state pension of at least £80.45 a week. See ‘over 80’ below

DETAILS

Married women 

Nowadays most married women have their own state pension paid for with their own National Insurance contributions. But millions of older women do not. Women born before April 1950 needed 39 years of contributions to get a full pension. If they had fewer than that their pension was reduced and women with fewer than 10 years contributions got no state pension of their own.

Many married women did not earn enough at work to pay National Insurance contributions or, if they did, they chose to pay the reduced married woman’s contribution – known in the past as the  ‘married woman’s stamp’. It did not count towards a state pension. The result is that millions of older married women are only entitled to a reduced state pension of their own, or none at all.

To help them there is a special rule that when a husband reaches state pension age his wife can get a pension based on his National Insurance Contributions. That married woman’s pension is 60% of the basic pension – and currently comes to £80.45 a week.

If a married woman has a basic state pension of less than £80.45 a week or none at all it is topped up to that amount when her husband reaches state pension age. That applies even if he – but not she – gets the new state pension (men born from 6 April 1951 get the new state pension).

Nowadays that top up to £80.45 a week should be paid automatically when her husband reaches state pension age. However, before 17 March 2008 a married woman who already had a pension when her husband reached pension age had to apply for the upgrade.

Research done by former Pensions Minister Steve Webb indicates that there could be more than 100,000 women whose husbands were born before 17 March 1943 who get a state pension of less than £80.45 a week but who did not apply for the top-up. Those women were born before 17 March 1948 and are now aged 72 or more.

They can apply for the higher pension now. It will top up their state pension to £80.45 a week and the top up will be backdated for a year. A woman with no state pension will get £4183 plus £80.45 a week for life.

There may also be some younger women born between 17 March 1948 and 5 April 1953 and some women with younger husbands – born 17 March 1943 or later – whose pension should have been upgraded automatically but was not. Steve Webb’s figures show that error did happen in many cases. They can apply for this pension now and, because the mistake was made by the Department for Work and Pensions, it will be backdated to the date it should have been paid. That can be up to 12 years.

Any married woman who has a basic state pension of less than £80.45 a week should claim the extra. She will probably be successful.

Widowed or divorced

A widow can use her late husband’s record to get a state pension if that would be more than was due on hers. In most cases her reduced pension can be boosted to 100% of the basic state pension – currently £134.25 a week. She can also inherit some or all of his SERPS.

A woman who is divorced can use her ex-husband’s National Insurance record instead of her own up to the date of the divorce. If she has had more than one husband then it is only the record of the most recent one she can use to boost her state pension. This should be done when she claims her state pension. But it may not have been so it is worth checking.

Women who are widowed or divorced and get less than the full 100% basic state pension of £134.25 should ask the DWP to check they are getting all they are entitled to. If it was worked out wrongly in the past it could be backdated to the date of that error. 

Call the Pension Service free on 0800 169 0154.

Over 80

Once you reach 80 you are entitled to a state pension of £80.45 a week if your existing state pension is less than that or you do not get one at all. To qualify you must be

  • aged 80 or more
  • live in the UK or the EU when you reached 80 or when you claim
  • have lived in England, Scotland, or Wales for at least ten years out of the last twenty.

It is not means-tested and does not depend on your National Insurance record. The full rules are here.

If you are over 80 but get less state pension than £80.45 or none at all then claim it now. It can be backdated up to a year.  

You can claim your extra pension either online at the Pension Service or call free 0800 169 0154.

Exceptions


Not every married woman with an old state pension of less than £80.45 will be due extra pension. Some husbands themselves had less than a full state pension – they needed 44 years of National Insurance contributions then to get a full one. If he gets less than the full basic state pension – currently £134.25 a week – then his wife will also get a lower married woman’s pension. However, it is his basic state pension that counts (called Category A), so ignore all extras like additional pension – what we used to call SERPS – graduated retirement benefit, or extra pension for not claiming it at 65.

If he was originally given less than a full basic state pension then his wife’s pension on his contributions will be 60% of that and will be less than £80.45 a week. But she may still be getting too little and should claim.

People living outside the UK in a country where the state pension is frozen – it does not rise with inflation – may well be getting less than £80.45 a week and not be entitled to any top up.

End point

Is this a conspiracy against Grannies? – no. This is what happens when you have a complicated system, poor computers and a problem too big for a Government department.

Is this solvable? It looks like it, though as Ros Altmann points out , the solution looks like it’s in a queue that stretches from Caxton House , round the houses or parliament and back again (all socially distanced).

Is this affordable? – yes. The sums quoted in this article are chicken-feed relative to the State Pension budget.

Why it’s important to get this problem and associated state pension problems sorted, is that our state pension has to be relied upon as the platform for all our retirement. Steve Webb knows this more than anyone and it’s good that he’s spending his and his consultancy’s resources on what is (for them) pro bono.

 

Posted in actuaries, advice gap, age wage, pensions, steve webb | Tagged , , , , | Leave a comment

Increasing pension scam awareness

Posted on May 22, 2020 by henry tapper

 

Screenshot 2020-05-22 at 10.24.52As AgeWage prepares for its journey into the FCA Sandbox, we are becoming more aware of the vulnerability of ordinary people to pension scams. We are really worried about the impact of unemployment, especially on those who are over 55 and within reach of their pension freedoms.

Screenshot 2020-05-22 at 10.17.46

Now news reaches us of  PensionBee, the UK’s leading online pension provider, who’ve released The Pension Scams Awareness Report, an 11-page document highlighting the varying levels of pension scams awareness among the general public, amidst a rapid increase in online fraud and scams.

Screenshot 2020-05-22 at 10.18.55

The report, which surveyed 500 UK adults in April 2020, found that up to two thirds of respondents failed to identify some of the most commonly used scams. The two scams least likely to be identified are ‘early pension access’ and ‘free pension advice’, which are among the most prolific and costly scams for savers.

Screenshot 2020-05-22 at 10.18.16

According to the report, less than half of those surveyed know that you can access your pension from age 55, highlighting an overall lack of awareness in how long a pension is designed to last.

Screenshot 2020-05-22 at 10.28.59

 

” News” that  pensions can be cashed in at 55 , is a tempting prospect for someone facing immediate hardship. Panic about the impact of the epidemic on people’s prospects of retiring  could result in savers running out of money in later life. Worse, it could make them vulnerable to scammers seeking to capitalise on their confusion leading them to believe that accessing a pension at 55 is a perk that only they can provide.

A fifth of respondents do not expect scammers to target them by phone or email despite a huge increase in scams of this nature in recent months., People staying at home as a result of social distancing and lockdown restrictions are easy targets for cold calls. Cold calls are a hallmark of scammers, and have been so prolific in recent years that a ban on pension cold calling has been in effect since January 2019.

 

Screenshot 2020-05-22 at 10.18.01

The findings are of particular concern as the number of scams has peaked since the start of the coronavirus pandemic, with Foreign Secretary Dominic Raab issuing a stark warning in early May, highlighting that cyber criminals are targeting individuals and organisations in the UK using Covid-19 related scams and phishing emails.

Sam-awareness is particularly dismal amongst older people who have a trust of “in person” approaches.

Screenshot 2020-05-22 at 10.28.05

The UK’s National Cyber Security Centre (NCSC) and the US Cybersecurity and Infrastructure Security Agency (CISA) have also published warnings to consumers in recent weeks.

Screenshot 2020-05-22 at 10.18.41

While consumers are encouraged to remain vigilant, innovators in the pensions industry are also working together to educate savers on how best to protect themselves. One new initiative is Scam Man & Robbin’, a pension scams awareness game created by four of the UK’s leading digital pension platforms: PensionBee, AgeWage, Smart Pension and Nutmeg. To win, players must correctly identify six of the most common pension scams and are given advice on how to spot a scam along the way.

Screenshot 2020-04-28 at 14.47.40

This is what Pension Bee’s – Queen Bee – Romi Savova has to say

It is concerning that so many savers are unaware of the common tactics employed by scammers. Any one of us could fall victim to a scam and the coronavirus pandemic has only heightened that risk.

People should be extra vigilant and refuse to share any sensitive information about their pension, or indeed anything else, with people they do not know. It is clear that the pensions industry must do more to educate savers and take a stand against scammers.

The Scam Man & Robbin’ game is a great start, but we must continue to work together to find new and innovative ways to play the scammers at their own game!”

Screenshot 2020-05-22 at 10.18.29

 

 

 

Posted in pensions | Tagged , , , , , , , , | 1 Comment

Shoot the message – not the messenger.

Posted on May 22, 2020 by henry tapper
henry agewage

If you can’t tell your savers what’s going on – let me!

Watching Martin Lewis’ money show last night I found myself aghast! Someone was trying to weigh up whether it was better to get 0.1% pa tax-free from an HSBC ISA or get 0.4% pa from another HSBC account and run the risk of paying tax on it.

Who’s framed this choice? HSBC I’ll be bound!

Lewis turned on the question with grim relish “clearly you are a new viewer” – (sub-text or a total loser)

“you are asking me whether to take money from a spit-worthy account to another spit-worthy account ” the answer is you should use neither. You should be taking the money away from HSBC and getting a proper rate elsewhere (and by the way I very much doubt you are earning enough interest on your savings to need an ISA anyway)”.

I paraphrase from memory but  you can see the episode (f you can bear the ads) here. (8 minutes thirty).

The point is not that the question came in on some digital account but that the answer was clear and real. This is Martin Lewis at his absolute best getting viewers off their sofas and onto their devices , searching best rates and making their money go further.

Compare Martin’s with our pension messaging

Yesterday I had a go at Professional Pensions for publishing three articles in as many days all saying that pension schemes can use data-analytics to push messaging out to members in a more targeted, more personalised and more effective way.

My grouse was that the power of data analytics is awesome and just because you can identify the members of your pension scheme who you think need “education” or “nudging”, doesn’t mean that you are giving people the information they want.

I get “targeted” by hundreds of messages each day, all driven by my social media profile and all trying to sell me things I don’t want. It’s boring and time consuming junking mails and I do precisely the same with the pension messages. They are not telling me what I need and want to know. They are not interesting.

As my Mum tells me “If you haven’t got anything interesting to say, keep your mouth shut”.

Our messages are mostly junk

Just because you own a data-set, doesn’t mean that you have the right to bore.

The data you hold on your customers holds some very interesting information

  1. The actual return your savers have achieved (known as the internal rate of return)
  2. The amount of risk taken to get that return
  3. The value your savers have got for the money they’ve given you
  4. The value you’ve given them for the risk you’ve taken

This data is held within the contribution history of each of your savers and unlocked by comparing the contribution history to today’s outcome, the pot size – technically the NAV.

If you own the data set, or even if you have a right to an anonymised version of it, you can unlock the answers to the questions people are really wanting answering

  1. What have I got?
  2. What will it get me?
  3. What has cost me?
  4. Have I done well?
  5. Did you do a good job?

By “you” I mean the people who had hold of people’s pension savings.  If you are not telling people the answers to these questions , you really aren’t telling them what they need and want to know.

You are keeping your savers in the dark and all the messaging about saving more, or being financially resilient are you being boring. People should have the right to turn you off , but most people can’t – so they just send your messages to junk.

This is a shame, your data holds the information people want to know but you either don’t know how to, or don’t want to tell your captive audience what they want and need to know.

Do you want to be like Martin Lewis?

If you want to be trusted, you need to be fearless and tell people how it is. i would love to say that I agree with this post on Linked in! But I don’t….

Screenshot 2020-05-22 at 07.00.47

 

I don’t agree with the post or the blog that Rhys has written because it perpetuates a long-standing myth that so long as everyone else is doing it, it’s ok.

“If I can see the benefit to me – a more relevant message, richer information, a smoother process, a more enjoyable read and best of all, a more prosperous life after work – then it’s all good”.

Actually being fed the placebos of the pension industry that everything is going to be good is what people dislike about our communications.

Right now people’s pension pots are between on average about 20% lower than they were in February. Many of us will have to stop paying into a workplace pension because we will be made unemployed. Many of my age will not get a job again, we may never see pension values like they saw in February again. These are uncomfortable messages but they are the ones people need to hear and act on.

Many people are very frightened about their pensions and they need someone like Martin Lewis who is not going to feed them the “which shade of HSBC” bullshit but point out that to get the best from their savings .  People are going to have to find out what is going on and make informed choices.

If you want to be like Martin Lewis and properly communicate with your members/policyholders/savers, you’re going to have to stop agreeing bland placebos with each other and start telling people how its is.

Shoot the message not the messenger

Data is awesome and data analytics tells us everything we need to know about our customers.

Data analytics should not be used just to feed the same old stories to our customers as we’ve been churning out for the 40 years I’ve been doing this job.

People are bored with hearing the same messages telling them to save more , longer and with their current provider.

People would like to know their choices and those choices have to be “open market”, As I keep saying, so long as you suppress choices, the less people will trust you.

Telling people how it is – good or bad – using the data you hold for your savers – is the RIGHT THING TO DO.

If you can’t tell you people what their data says – I will.

 

Screenshot 2020-05-22 at 07.23.33

Fabricated numbers but you get the point.

 

Posted in advice gap, age wage, Martin Lewis, Payroll, pensions | Tagged , , , , , | 2 Comments

“Your pension data could be taken down and used against you”

Posted on May 21, 2020 by henry tapper
Latest casualty

The last two weeks has seen Professional Pensions going data barmy with not one, not two but three stories extolling the use of personal data to manage pension scheme risks.

The first is a gentle and sympathetic article by Michelle Cracknell that won her the PMI student essay competition. I congratulate Michelle for the award and for qualifying as a student.

The second is the scarily title “Introducing the Maslow-style hierarchy of data-enabled communication” by Karen Quinn and Rhys Williams which calls on schemes to “reap the rewards of personalisation” by “targeting people based on their behaviour”. As these headings suggest, this is not a gentle article.

The third article is an interview with the BA’s Fraser Smart which takes the use of data to another level

“The most important priority of all the things we’re working on this year is about member experience,” Smart explains. “We’re trying to introduce a mobile application for members to increase their access to us. Every single member – whether they are a pensioner, deferred, or active member – will be able to see information about the schemes, about the benefits they have, when the next increase is, and who to contact if they’ve got any queries. Essentially, we want to give them a sense of trust that the right information is there.”

Shortly before the publication of this article, BA announced 12,000 job cuts, which made the article’s next paragraph a little sinister

For deferred members, the aim is to also provide indicative transfer values instantly available to look at, speeding up the process for those members who wish to take advantage of the facility.

The language of Trust

Michelle Cracknell’s argument is that “life moments”, the birthdays, marriages and moments of moving house and jobs are “teachable moments” and that schemes, who know about these life moments can use what they know to teach what they know.

This of course assumes that schemes are trusted and their teachings credible, if this isn’t the case then this messaging can become creepy and invasive. I remember NEST’s Tim Jones telling me he’d taken all his personal information off his linked-in profile to avoid being congratulated on life moments  by “people like Henry Tapper.”

Which is why we  need to be very careful about using words like “targeting” .”reaping” and loaded phrases like “take advantage”.  Taking advantage of a DB transfer at a “life moment” like redundancy,  does indeed require a “teaching moment”. I wonder how many of the 12,000 soon to be redundant members of the BA pension scheme will find advisers willing to teach them how to use this advantageous data.

The protection of GDPR

The General Data Protection Regulation means that we have to give our consent for our data to be used to help us. We generally have to opt-in to messaging from social media or our pension schemes. Tim Jones won’t have any of it while I – a born sharer, spend half an hour a day weeding my inboxes of unsolicited offers of help. We all have different tolerances for “privacy”.

But I wonder about the pedagogic aspects of all three articles. For Fraser, Rhys , Karen and Michelle there are “teachings” to be “targeted”.  There’s no doubt people want to be taught, look at the popularity of the Martin Lewis Money Show. But people choose their content, whether on TV, youtube or through their choice of apps.

Getting people to listen to you

Smart communication is of course personalised. Rhys and Karen cite Swiss Re’s research which suggested car insurance renewal letter “open rates”, improved from 33 to 81% by putting the insured’s registration number on the outside of the envelope.

But getting people to open a personalised message only to get a depersonalised call to action like “increase your monthly contribution” or “use our drawdown service” is not so smart. You might get people listening to you , but to keep them listening to you, you are going to have to tell them something that doesn’t come accross as “junk”.

Repeating the dose

Michelle argues that great information is repeat information. There can be few better examples than the work of TPAS which hammered out the same messages for years and did so with grace and good will. Michelle is now a non-exec at Pension Bee who are doing much the same thing with their messaging.

The “Nirvana for BA pension members” envisioned by Fraser Smart, is a two way communication with members that does what Fraser did to a “ditch-digger” who once walked into his office looking for an explanation of his pension.

The person that walked in was kind of fearful about the future. The person that walked out was confident about their future.

Rhys and Karen’s pyramid involves getting data right, organising it  and using it to deliver insights.

In all three articles, there is an essential similarity of view, that communication is a conversation, not something delivered from on high.

This is quite the opposite of the pedagogic communications that have failed trustees in recent years. In a classic example – the top down approach of the BSPS trustees, failed to get to the steel-men, while the Facebook pages put out by expert BSPS pensioners worked brilliantly. Eventually BSPS discovered that using the medium chosen by their members was more effective than teaching through a website no-one visited.

The Facebook pages are still there and still used on a daily basis. The reason everyone remembers TPAS is because Michelle got TPAS onto everyone’s social media feeds. Quietroom and ITM get read not just because of Professional Pensions but because they use their own sites effectively.

Using Social Media is (for many)  an activity of daily living, visiting a pensions website isn’t.

Using our data against us

The dialectic of this argument has swung between my admiration of Karen, Michelle , Fraser and Rhys and my concern that what starts out as engaging is seen to be boring (Michelle), scheming (Karen and Rhys) and downright dangerous (Fraser).

And before you accuse me of being a pedagogue myself, let me explain that there are simple rules that can be followed that stop us feeling we are being bored into submission, that we’re caught up in Maslow’s spider-web or that we are part of a grand de-risking program designed to keep BA and its pension scheme out of the PPF.

These are the rules of GDPR and they can be summed up in its bill of rights

  • the right to be informed,
  • the right of access,
  • the right to rectification,
  • the right to erasure,
  • the right to restrict processing,
  • the right to data portability,
  • the right to object
  • and rights around automated decision making and profiling.

Keeping these rights to the front of mind, makes it clear that unless you keep the communications “clear, vivid and real” people will use GDPR to turn you off. Unless you stick by the rules on automated decision making and profiling members (and regulators) will object and if you overstep the mark and move from “nudge to tell” you put yourself on the hook for the outcome of your advice,

Our pension data is precious, powerful and awesomely dangerous! “Tread softly , because you tread on our dreams“.

Screenshot 2020-05-21 at 07.07.49

Rhys, Fraser, Karen and Michelle

Posted in dc pensions, de-risking, digital, pensions | Tagged , , , , , , | Leave a comment

And it was all going so well…

Posted on May 20, 2020 by henry tapper

Mortality chart

Like a cobra poking it’s head out of the Fakir’s basket, like Nessy sticking its neck out of the Loch, the black mortality line is a stark reminder for those who think they’ve got away with it, that Covid-19 is not being stood down.

It is worrying when you discover that scenes in North Devon remind the police of an August Bank Holiday.

In case you are under any illusion, the virus is still wiping out small towns of us every week

And while North Devon and the South West in general have seen little of the infection, it will not have benefited from the immunisation seen in more built up areas.

It now seems it was a cocky sense of invulnerability that led to Britain having the second highest death count in the world and if we continue to ignore the very grave threat to life and health of this pandemic, then areas like the South West will likely feel the brunt of a second wave.

It is really painful to hear that many of the cars found in North Devon car parks come from outside the South West.

Because things are getting better – does not mean things are going well. It was all going well on the graph in January, February and March, but we now know that was when things went wrong.

Screenshot 2020-05-20 at 17.24.15

Not going well at all

 

Posted in coronavirus, Fred Goodwin, pensions | Leave a comment

#Carehomedynamo – caring for veterans

Posted on May 20, 2020 by henry tapper
Lockdown has been great for bringing people with different day jobs together with common interests. In this case it’s care homes. And the person to make contact is David Prowse, who is clearly one of those gentlemen the armed forces nurture – who live to serve.

David’s a full time carer for his mother and this is only one of the amazing things he’s done in his life. He wanted me to know about the plight of armed forces veterans in care homes and I’m very proud that he thought my blog a good place to get his point across. Perhaps we can do more.  Those of us in the Playpen know a few pensioners between us and may even be able to help give Op DYNAMO a steer.  Volunteers, anyone?

 

#Carehomedynamo

 

The challenge

The ‘Emergency funding for Frontline Armed Forces Charities working with Armed Forces communities’  is a  £6m opportunity. Can we use it  for  once in a generation support to a significant part of the Defence community and help address the #carehomecrisis?

The problem

The Royal British Legion Household Survey 2014 estimated 290,000 to 390,000 Armed Forces family members were living in care homes, meaning our ex-Service family makes up about half the UK care home population.

We don’t know all the needs in those 18,000 homes, but we can be pretty sure they want love and to know we’re there for them.

 

My suggestion

– a reverse Op DYNAMO (800 vessels assembled in six days to rescue 338,226 troops over nine days from Dunkirk) to:

Find – the veteran

Fix – their needs

Strike – up a long-term relationship

The military charities could divide the country between them, sharing out care homes and finding out their needs.

Typically, 10,000 care home residents die every month, that rate has doubled (ONS Eng & Wales 15 May 20); let’s mobilise DYNAMO now for our greatest generation.

If you agree – share.

If you can help – get in touch

If you know somebody that could help – ask them to get in touch.

The major military charities could collaborate and pool resources, divide the country between you, sharing out care homes , find out how many veterans each home has and what their needs are.

Colour of uniform doesn’t matter here, that can be sorted out later between the charities and I’m sure a funding quotient can be agreed through @Cobseo. Face-to-face is not required, charity coordinators can work from home and the risk is low.

Please use hashtag    ##carehomedynamo  on LinkedIn/Twitter.

 #carehomeDYNAMO #mentalhealthawarenessweek #militarycharities  #veterans #Cobseo #COVID19

 

David Prowse OBE can be reached on Linked in 

DP2

 

Posted in coronavirus, pensions | Leave a comment

ESG? – don’t take anyone’s word for it!

Posted on May 20, 2020 by henry tapper

 

We employ asset managers for a reason

The reason we employ asset managers is that they are better at investing our money than we are ourselves. They can do the job more time and cost effeciently , execute our wishes more accurately and provide better financial outcomes in terms of income and capital returns than we can ourselves.

Nevertheless, in employing someone to invest for us, we are moving one stop away from the coalface and have to accept someone else’s word for it.

When the brief is just about maximising returns then the conversation with the asset manager is quite easy, finding out if the strategies worked is simple enough, there are metrics in place to benchmark performance and means to compare the impact on the pure return of the local costs and charges incurred by the manager.

But when the brief is to invest according to values, then matters get a lot more personal. The rating given by one analyst to Tesla might be based on the way the company treats people, another analyst might weight Tesla according to the impact its products have on the environment

The electric carmaker is rated in the bottom 10 per cent of all companies by one rating agency (JUST Capital) but receives an “A” grade from another (MSCI). It is easy to see how investors looking at this might be left scratching their heads.

We employ asset managers to make sense of the noise.

While some asset managers make sense of the noise – most don’t

Share Action, which has campaigned for a decade for asset managers to engage with basic human rights discover that most still only pay lip service to how workers in the third world are treated.

It is clear , reading Share Action’s report that not all asset managers are the same and that the best, which include UK managers LGIM and Aviva are followed by a long and toxic tail.

When it comes to picking who should manage our assets , we need an independent assessment because in the race to virtue – not everyone obeys the rules!

The race to virtue..

Annoyingly, we start out with a broad concept like “responsible investment” or “FTSE for good” , narrow down to Environmental, Social and Governance and soon find ourselves involved in heated debate about “green washing”.

There is sufficient “fake news” about ESG, that intermediaries are now employed to separate “noise” from “action” and we start judging ESG managers by their capacity not to be gulled by the management of the companies they invest in.

Everyone now knows that if you can convince investors that you have embedded ESG into your working practice you are more investable than your rival who hasn’t and we find ourselves caught up in the corporate “race to virtue”.

Leads to more regulation?

So within a few years of our first hearing about ESG, we can read Steven Maijoor, chair of the European Securities and Markets Authority (ESMA)  in the FT

Companies that certify information on (ESG) criteria need “strong registration and supervision to prevent greenwashing. Personally, I believe that, where ESG ratings are used for investment purposes, [accrediting] rating agencies should be regulated and supervised appropriately by public sector authorities.

The FT rightly points out that the standardisation of analysis does not always lead to good analysis (witness the analysis of CDIs that allowed the housing finance crisis in 2008 to blow up the financial system).

It is possible to imagine an infinite regress of audit , marking each analyst , regulator and regulatory supervisor. But what happens here is a thickening of the layer of intermediation between the investor and the owned asset.

Value driven ESG needs bottom-up engagement.

 

MMMM

To counter this thickening of intermediation we need some anti-coagulant. We actually need the people who own the shares  to vote the shares, disrupt organisations issuing dirty green bonds and generally be heard. Whether this is through the public disruption of extinction rebellion or the activities of voting agencies, the voices of individual investors can be heard.

And if software can be developed that allows people to see the investments chosen by others and make their own mind up on the ESG of those investments, we can get a different kind of rating, one based on individual conviction which – collectively – can influence from the bottom up.

So the investors at Pension Bee started asking Legal & General questions about why there were fossil fuel holdings in its Future World Fund into which they were investing. Legal & General became answerable to Pension Bee as a proxy for these savers and I am quite sure that L&G now factor in the views of this group of investors – organised as they are by a pension manager which takes the governance of the funds on its platform seriously.

As organisation like PIRC, Minerva and Share Action have shown, a relatively few activist shareholders can influence corporate behaviour as much as ESMA.

And technology means companies find it harder to avoid scrutiny

Technology is driving greater transparency, The FT cite the impact of satellites tracking gas flares in the US to establish under-counting of wasted emissions by US oil companies.  Data analytics can highlight inconsistencies in financial  reporting  and social media can build up a picture of actual behaviour based on first hand accounts.

It is increasingly hard for investable companies to get people to take their word for it. Which is what gives us hope that value-based investing is worth it.

Left to its own devices, the asset management industry could quickly absorb ESG into its business as usual with all the regulatory thickening necessary to meet Steven Mijoor’s predilections.  But that would not a responsible investment industry, responding to the values of investors.

MMMM could organise this bottom up revolution

For investor’s to impose their values on the investment process, they will have to become more active, just as the investors in Future World, organised by Pension Bee, became more active. We need “share action” from individual investors through ESG’s Trustees,  the investment committees of platforms, employer governance committees and ultimately we need this driven by individual investors. We need more apps like Tickr , software like Tumelo and more people using them.

We need Richard Curtis’ “Make My Money Matter‘ campaign to kick in and for young partnering companies  to make their way forward.

These are the partners to Make My Money Matter and I hope to see this list of excellence grow.

Screenshot 2020-05-20 at 06.37.18

My Money Matter Partners

I look forward to reporting more on developments in this space!

Posted in advice gap, age wage, brand, ESG, pensions | Tagged , , , , | Leave a comment

IFS says low-earners should quit saving for retirement.

Posted on May 19, 2020 by henry tapper
Screenshot 2020-05-19 at 06.17.13

See notes at the bottom for how IFS came up with these numbers.

The Institute for Fiscal Studies has called into question the wisdom of many poor earners paying into workplace pensions under auto-enrolment.

It is not clear why the small number of people who would probably be better off not sticking with the default, and instead opting out of pension saving (at least temporarily), do not do so.

The IFS put forward various hypothesis’ – poor earners don’t know about the opt out, don’t know how to opt-out or can’t be bothered for the extra pay-roll cash it would bring.

The average gross earnings among the least financially secure group in 2018–19 were £357 per week, so ceasing pension contributions at 5% of their gross qualifying earnings (equivalent on average to over 3% of total earnings) would on average raise take-home pay by around £12 per week.

The numbers get worse for savers in net-pay schemes

That £12 per week figure is  problematic. If the IFS’ poor-earners were in NEST it would be £12 but the Low Income Tax Group reckon it would be around £1.20 a week more if the low-earner saved with NOW or one of the other occupational pension schemes that don’t get low earners automatic tax relief (relief at source).

The IFS’ study should point out that for low-earners, the economic argument for opting out of a net-pay pension is up to 25% stronger than for opting out of a relief at source scheme.

Actually the real poverty tax is that those contributing to a net- pay scheme when earning below the minimum tax threshold could be paying a quarter more than those paying into a relief at source scheme, and they have absolutely no idea this is going on.

The graph has it

As you can see from the graph  participation rates in auto-enrolment have increased even since the increases in contribution as the introductory taper wound out.

Screenshot 2020-05-19 at 06.17.13

This is because of the steady inclusion of small employers at the end of the staging cycle and the consistency of opt-out which haven’t increased as contributions have been hiked.  When Marks & Spencers first introduced AE – it required an employee contribution rate of 5% and this was thought to exclude many low-earners who would have opted out. The opt-out didn’t happen and M&S got an embarrassingly high bill for casual staff who they thought they’d not need to pension .

I think the same mistake may have been made in the Treasury. How else can we explain their failure to act on the “net-pay anomaly” when they had the chance (eg pre pandemic)?

What the IFS are pointing to as Auto-Enrolment , not as a policy success but as a policy failure (and its argument is reinforced by the net pay anomaly). This is the headline from a second IFS paper “who leaves their pension early after being auto-enrolled”

Pension participation amongst the least financially secure 3% of the eligible workforce is still 90%, up from just 22% before automatic enrolment

It is likely that there are significant numbers in this group who would be better off leaving their pension, at least temporarily, to have higher disposable income. Practically all of these employees have less than £1,500 in liquid savings, and could potentially benefit from a ‘rainy day’ fund.

So what is the counter-argument – why include the poor?

I am not going to fight fire with fire, on economic grounds Paul Johnson and the IFS are right, the lowest earners are probably better off putting better food on the table and avoiding debt than becoming sufficient in retirement.  They are probably paying a poverty tax and being gulled into providing for themselves when they could rely on others in later years.  I wrote back in 2017 that auto-enrolment could easily become a stealth-tax on the financially vulnerable and this worry has re-emerged

Frank Field would undoubtedly point to the dignity of those who labour and want to pay their way – at whatever price. There has always been an aversion for means-tested benefits and Field’s lifelong campaign to ensure that everyone was rid of them has a legacy in auto-enrolment.

But I don’t think you can establish a policy on the romantic notion of the dignity of labour. There has to be a bigger picture which allows those who are enrolling millions of poor earners to feel they do so for good.

I have been staring at this screen for a considerable amount of time, trying to come up with that argument and I cannot.  Someone will need to explain to me the long-term benefit of millions of excess-pots being managed into retirement income by people with no access to affordable advice .

For me to be able to put up a reasonable argument for the exclusion of the poor from auto-enrolment , I am going to have to argue that there is a pension product for the poor which relieves poverty in retirement by increasing retirement income. I do not see one.

Who do the IFS say shouldn’t be in workplace pensions?

The IFS have constructed an index of the types of people saving into workplace pensions. At the top of the index are the people  for whom AE is excess savings and at the bottom those for whom AE is a tax driving them further into poverty.

  • 1st:most ‘financially secure’: meet the ‘financial security’ condition and have none of the ‘financial difficulties’ (22% of the 2018–19 AE sample);
  • 2nd: do not meet ‘financial security’ condition, but have none of the ‘financial difficulties’ (38% of the 2018–19 AE sample);
  • 3rd: have one ‘financial difficulty’ (29% of the 2018–19 AE sample);
  • 4th: have two ‘financial difficulties’ (9% of the 2018–19 AE sample);
  • least ‘financially secure’: have at least three ‘financial difficulties’ (3% of the 2018–19 AE sample).

You will notice that figure of 3% they quoted earlier.

Hit and hope?

So far auto-enrolment has worked on the principle of “hit and hope”. Hit millions with a pension tax which they don’t have to pay and hope that something turns up in the future which solves the societal problems of people living longer and dying expensively.

So far the one initiative that is working is the triple lock , paid for by pushing back the state retirement age.

But nothing has been done to address the question “how do people spend the money they have saved”. We are hoping that something will come up – some vaccine. But whereas a health vaccine makes the front pages, a means of improving people’s pensions from their retirement savings most definitely hasn’t.

Mel Charles, the new AE Director at tPR, should not let the Government rest on its laurels.  The pressure on family incomes from the impact of pandemic should increase opt-outs, not just because people need rainy day savings but because auto-enrolment saving is not saving for a pension , but saving for a different rainy day.

To really bed down auto-enrolment and make pension savings more than hit and hope, we need  strategy to turn pension pots into retirement plans. We may have one , for the mass affluent, but for the people in the bottom tiers of the IFS’ “financial security index, I am on the IFS’s side .

Unless we can get people saving for a decent retirement income when they want their money back, auto-enrolment will have failed. People need to be able to swap cash for proper pensions and those proper pensions – for low earners at least – need to be collective.

The argument for enrolling low-earners must be made by demonstrating the future benefit and we are ill-equipped to do that right now.

 

target-pensions

 

 

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Posted in actuaries, advice gap, age wage, pensions | Tagged , , , | 1 Comment

Protecting the public from financial fraud.

Posted on May 18, 2020 by henry tapper

fraud

Protecting the victims of financial crime

I am returning to the difficult question of financial fraud and its impact. We should not underestimate the emotional impact of fraud. This simple testimony makes this point better than I can.

Whatever the vehicle which is used to relieve people of their money, the impact is the same.

The symptoms in those defrauded include a diminishment of self-confidence that leaves the defrauded unable to stand their corner. They are often made vulnerable and the duty of those fighting crime is threefold

  1. To identify frauds at an early stage and limit their contagion
  2. To apprehend and limit the perpetrators of crimes, ensuring they do not re-offend
  3. To protect the financial interests of the defrauded by seeking to recover the proceeds of financial crime

And if these actions sound familiar it is because the spread of financial fraud has aspects in common with a virus. Thankfully , we do not treat the victims of CV-19 as we do the victims of  financial fraud.

Where regulation is failing

The capacity of financial regulators to deal with scandals such as the creation , promotion and sale of LCF min-bonds has been called into question, not least by the testimony of Maria.

There were all the usual warning signs – opaque structures – the use of overseas investment platforms – the involvement of intermediaries – the payment of commissions and promises which were plausible.

In many frauds, including LCF, the fundamental deception was masked by the involvement of legitimate organisations who may have been wholly or partially operating within the law.

Which is why regulation must start with the question “was the customer treated fairly” and – assuming they weren’t , assume implied guilt on all parties involved. It is not good enough to assume that those who have been ripped off are guilty of not properly protecting themselves.

Regulation is still focussing on issues of procedure and the scope of the regulatory perimetre which allow those with criminal intent to carry without prosecution. There is ample evidence of repeat offending and the patterns of criminality are well known.

There is an opportunity for the UK regulators to get tough, as happens in other countries (especially the US but also Spain). We need action on the three points I’ve highlighted.

  1. To identify frauds at an early stage and limit their contagion
  2. To apprehend and limit the perpetrators of crimes, ensuring they do not re-offend
  3. To protect the financial interests of the defrauded by seeking to recover the proceeds of financial crime

Justice cannot be furloughed

Sadly, the trial of suspected financial fraudsters in Spain – associated with Continental Wealth Management has been put on hold and will be resumed when social distancing resumes.

In London, over the last two weeks, the complexities of GMP equalisation have been discussed in the High Court and a judgement is expected shortly.

Financial crime continues and – as financial vulnerability increases, we are likely to see more criminality.

If fraudsters could get away with it in normal times, what can stop them in lockdown.

The UK authorities , collectively known as “Action Fraud”, have to be seen to be active and this must go beyond issuing warnings  for the public to be alert.  We need to see evidence of my three requirements. The authorities need

  1. To identify frauds at an early stage and limit their contagion
  2. To apprehend and limit the perpetrators of crimes, ensuring they do not re-offend
  3. To protect the financial interests of the defrauded by seeking to recover the proceeds of financial crime

And this needs to be visible and reported. We cannot have justice furloughed.

Protecting whistleblowers

Sadly whistle-blowing on financial fraud is likely to lead to claims of “no smoke without fire” where the whistleblower finds him or herself implicated in the fraud by the fraudsters.

I know of instances where those campaigning on behalf of victims of fraud have been suppressed by lawyers, the media and sometimes the regulators themselves. The rules surrounding tipping-off can be used by scammers to turn regulators against informers. I have a file of solicitors letters demanding blogs be taken down. The laws of defamation are also used to provide fraudsters with a smokescreen.

So long as the authorities regard whistle-blowers as disruptive, they are likely to be distrusted. We need to encourage whistle-blowing, not distrust whistle-blowers.

This is about more than staying alert.

I am very keen to promote alertness to the red-flags that surround fraudsters. But it is not enough for the UK authorities to simply publicise the need to be vigilant.

We need to see positive action from the participants of Action Fraud to prevent those known to be scamming to continue operating in financial services.

Those who are authorised who deal with known scammers need to be investigated and where necessarily censured.

The payment of unreasonable commissions to introducers needs to be investigated and stopped.

The regulators in the channel islands, the Isle of Man, Malta ,Gibraltar, Switzerland, Germany, Eastern Europe and Spain need to work together.

Public warnings need to be published, victims encouraged to come forward and whistle-blowers protected.

The scourge of scamming is a financial pandemic which can best be contained by the sharing of data on its activity.

There is no vaccination , no mass immunisation, the only measure that we can employ to protect the public is suppression.

With financial fraud – suppression is possible

I started this blog with a tweet from Maria, I do not know Maria – know nothing of our circumstances, I only know of this tweet. If you listen to her for 90 seconds you will understand the damage that scammers do- to self-esteem.

Social media – used properly – can raise awareness , and Maria is doing just that. But social media can also broadcast scams. Where scamming is detected it needs to be explained and publicly pilloried, as Martin and Paul Lewis do.

But it also needs to be reported to Action Fraud and Action Fraud need to acknowledge and report back to those who make reports. Where the general public, journalists and those paid to combat financial fraud, work together, there is a chance to suppress fraud.

I hope that the severity of the threat facing us from COVID-19 will embolden those at the FCA and elsewhere to take action against those who they have information on and make life uncomfortable in whatever way they can. That particularly means working with others.

Suppression of financial fraud is possible , but it means authorities working better with the public for the common good.

 

Good for Scottish Widows for continuing to promote this tweet

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Do you work in the bullshit economy?

Posted on May 17, 2020 by henry tapper
bulllshitjobs

Bullshit jobs 

Stefan Stern has kindly shared an opinion piece he’s written in the Guardian, which I like very much. You can read it for free here (thanks to the Guardian’s enlightened sharing policy)

Five years ago, Stella and I moved back into the centre of London so we could walk to work and avoid tubes and trains. Ironically, affluent people like us don’t have to worry about going to work. Stella’s employer has told her it doesn’t intend her to go to her office this year.

But Stefan’s point is that the choices available to Stella and me, aren’t available to most London Commuters , for whom cycling and walking aren’t practical.  I did actually commute to the City from Windsor by bike for a few yers and good luck to you if you are as fit as I was then – I certainly couldn’t do it now. I applaud the City of London’s move to ban cars from large parts of the City  so that pedestrians and cyclists can find it easier to get safely to their offices (existing pavements and cycle lanes aren’t wide enough to cope).

For all that employers aren’t going to risk their high-paid workers to exposure to COVID-19 on public transport – which is why home-working for the “haves’ will continue and why the “have nots” will face the trauma of the tube

guardian

It’s not just bosses who won’t do it.

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But people who are not furloughed and need to pay their bills will travel into London tomorrow on a crowded bus or tube or rail-carriage and they will be putting at risk more than R<1. They’ll be risking themselves and their fellow passengers.

Do we work in the bullshit economy?

Another Guardian writer, Larry Elliott, is less gentle than Stefan Stern, Back in 2007 he lambasted new labour’s knowledge economy and re-christened it the “bullshit economy”

The essence of successful bullshit is that the really top-notch exponents not only manage to convince others but also manage to delude themselves. Some explanation has to be provided for Britain’s increasingly lopsided economy, dominated as it is by those not-so-heavenly twins, the City of London and the housing market.

These comments were not just Pre Covid but pre financial crisis. They are echoed by Stefan

Work is a practical matter that involves completing tasks and meeting needs. That is one of the lessons of the past few weeks. We have taken too many people in the workforce for granted for too long, while our leaders have loftily declared economic triumph.

It is not good enough for those of us who in our ‘heavenly” houses and top City and Westminster jobs to order people off Furlough and into the offices. It is up to us to make work safe and that means finding new ways to work- even if work is in our kitchen.

For those who have to travel, we must make it as safe as it can be, as Stefan concludes

General Omar Bradley, commander of US forces at the D-Day landings, said: “Amateurs talk about strategy. Professionals talk about logistics.” The logistics of getting safely to and from work should be what concerns us all now.

For those of us who get paid to carry umbrellas so that bosses don’t get wet – we should be asking can we find ways to get things done.

For those of us who employ the umbrella-holders, can we really call ourselves leaders?

We need to think again about what defines “essential work” and ask ourselves if we are doing it. If we cannot answer that question, we may well be in the mire – in the bullshit economy..

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Will Covid unite us and make us kinder?

Posted on May 17, 2020 by henry tapper

More people believe that Britain will be united and kinder following the recovery from the coronavirus (COVID-19) pandemic, than it was before

This little survey by the Office of National Statistics has gone unreported. But it’s worth thinking about.

United?

There were two Questions:

How united or divided do you think Britain was before the coronavirus (COVID-19) outbreak?;

How united or divided do you think Britain will be after we have recovered from the coronavirus (COVID-19) outbreak?;

Answers

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Thoughts

Lockdown is having a dramatic impact on  the way we think about ourselves in society. Messages like “we’re all in it together” and phrases like “blitz spirit” circulate. For the moment ideological and religious differences are suppressed. How much of this is hysterical and how much genuine. Will Covid-19 make us more united and in what ways will this manifest itself when the “new normal” arrives.

Younger adults saw the largest change in their feelings of unity. For adults aged between 16 and 69 years, 19% believed Britain was united before the coronavirus, compared with 56% thinking this would be the case afterwards. For adults aged 70 or over, the change was from 28% to 59%. This suggests that lockdown has a much higher impact on the emotional response of the young than the old and that older people have a much higher sense of unity to start with.

Equal?

How equal or unequal do you think Britain was before the coronavirus (COVID-19) outbreak?

How equal or unequal do you think Britain will be after we have recovered from the coronavirus (COVID-19) outbreak?

Answers 

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Thoughts

Lockdown is having some impact on how equal we feel society is. It would be interesting to see attitudes to this question among different socio-economic and religious groups. There are many of my church friends who would answer “we are all equal in the eyes of God”, many ideologues would answer similarly, but most of us define equality in terms of wealth and there doesn’t seem to be much anticipation of a levelling of wealth.

Kind?

Questions

How kind or unkind do you think Britain was before the coronavirus (COVID-19) outbreak?;

How kind or unkind do you think Britain will be after we have recovered from the coronavirus (COVID-19) outbreak?

Answers

Screenshot 2020-05-17 at 06.50.56

Thoughts

Kind is associated with benevolence and words like “indulgent, considerate, or helpful”;  and “humane”.

For those aged 70 years or over the change was from 51% to 72%, suggesting that tolerance was and will be higher among the older in society.

We thought ourselves kind before lockdown but lockdown makes us more so.  That over two thirds of us think we will be kind rather than unkind after what we’ve been through is touching. But as with thoughts on “unity”, we have to be cautious, it is easy for social confidence in our benevolence to recede when the outcomes of the pandemic become apparent. Will people continue to be kind when economic lockdown replaces social lockdown? Can we afford to be kind when we have little financial security?

Pension Conclusions.

These questions are new to the Coronavirus and the Social Impacts on Great Britain survey and were asked in the week 24th April – 3rd May.  I hope that the survey will be run again to see how consistent responses are.

It is of course too early to draw conclusions but the questions that these responses throw up are interesting in themselves, especially if you work in an area where words like “unity, equality and kindness” have not been used much lately.

Pensions and unity

Pensions have always been collaborative and involved pooling. Even until 2015, the point of saving for a pension was assumed to purchase an income for life (an annuity). Pension Freedoms not only challenge that assumption, they actively promote the breakdown of pooling “From this day forward , no-one will have to buy an annuity”. But did the announcement of pension freedoms mark the high-water-mark of pension neo-liberalism?  Will a post-Covid world be more interested in collective solutions where security in numbers beats aspirations to out-perform?

Pensions and equality

The current pension savings system works well for the affluent who get the majority of the tax-perks, can best benefit from pension freedoms and have easy access to advice.

Poorer people are dependent on state benefits and don’t pick up on many of them (pension credits in particular). They get a small share of the tax incentives and tend to use pension saving as a cash reservoir rather than an income for life. The self-employed – who are now mainly poor, are increasingly missing out on pensions.

The survey suggests that people will expect greater equality going forward though the results were less dramatic. It will be interesting to see if Government policy towards pension equality changes, especially with regards the treatment of pensioners who need to go into care homes

One thing that COVID-19 is breaking down , is myths around f inter-generational transfers from young to old. That the virus has so over-impacted the BAME and those in lower socio-economic groups will highlight underlying inequalities in society

The inequality of suffering from the virus is bound to ask questions about the burden of taxation and create pressure on wealth transference towards a more equal society. But it looks like we are sceptical that this will take us very far. My view is that COVID will break the camels back and we will see a juster pension taxation system going forward  . We will see more money being directed towards later life care and less into wealth creation.

Pensions and kindness

There has already been a movement towards ‘financial well-being’ as a workplace benefit. The impact of COVID in the workplace is going to immediate. If we go back to work, it will be a workplace where soft-values of security and wellness are to the fore.

Savings rates are likely to increase despite higher taxes and lower bonuses and we are already seeing evidence of that. People will want to be kinder on others but also on themselves as binging is replaced by a more responsible and conservative approach to money.

Linked to kindness, we can expect to see more giving to others and a greater sense of welfare as a concept that needs promoting. I suspect that this “kindness culture” will allow Government to implement changes in the taxation system that will create greater unity and equality. We will be kind enough to tolerate these changes and this may be, in economic terms, the big shift in society from before to after.

These points are of course not exclusive to the UK!

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Acts of kindness promoted in the USA

 

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

C19 Actuaries weekly report – 16 May

Posted on May 16, 2020 by henry tapper
Screenshot 2020-04-10 at 12.03.32

Matt Fletcher and Nicola Oliver

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Every week, more is written on COVID-19 than any individual could possibly read. Collectively, the COVID19 Actuaries Response Group read more about the outbreak than most, so we’ve decided each Friday to provide you with a curated list of the key papers and articles that we’ve looked at recently.

Modelling – reports

Estimating infection numbers in European countries

A key variable in determining the timing and extent of easing lockdown and other restrictions is the proportion of the population that have already been exposed to the virus SARS-CoV-2 – if a large proportion have been exposed then re-opening with relatively light social distancing measures in place might be feasible without leading to a devastating second and subsequent wave of infection. If the proportion is small, then stricter measures may be required for a longer period.

There have been several recent studies aiming to determine the prevalence of infection – where some studies we have previously reported on have relied principally on estimates based on modelling of other variables (principally infections and deaths), data relating directly to infection is starting to become available in various countries:

Estimating the burden of SARS-CoV-2 in France (H. Salje et al, Science) 

This is a brief but wide-ranging report, looking at various aspects of the outbreak in France. The researchers estimate that, by 11 May 2020 (when interventions were scheduled to be eased), between 1.8 and 4.7 million people will have been infected, or between 2.8% and 7.2% of the population. This suggests that in France, population immunity is likely to be insufficient to avoid a second wave if all control measures are released.

This conclusion is based on modelling of hospitalisations and deaths, but notes that a prevalence of the virus of around 3% has been estimated among blood donors in Hauts-de-France, which is consistent with their findings.

Coronavirus: the first seroprevalence data estimates that 5% of the population has been infected (report (Spanish) & article (English))

The Carlos III public health institute collected blood samples from almost 70,000 participants, to determine the proportion of people in Spain that had developed antibodies following infection. Results suggest that around 5% of the Spanish population have been exposed to SARS-CoV-2, with prevalence highest in areas closest to Madrid, typically over 10%.

A phased approach to unlocking during the COVID-19 pandemic – lessons from trend analysis (Heald et al)

This is a report which has received some recent media attention, focusing on experience in England – the analysis set out information about COVID-19 cases in each of 149 Upper Tier Local Authorities and estimates that the reproduction rate R has fallen on average from 2.8 to 0.8, sufficient to suppress infection from the disease. They also estimate that 29% of the UK population has already been infected; however, they do note that this finding relies on a linear extrapolation of current trends, an assumption which may not hold. In addition, a significant proportion of deaths are not mapped to a Local Authority which may distort the trend within a given local authority.

It’s worth noting that there is a substantive seroprevalence study underway in the UK, with initial results expected in June – this should give a direct indication of population-level exposure without needing to extrapolate from alternative data sources.

The studies in France and Spain in particular show that, as expected, prevalence is higher than the official counts of positive tests – for example in Spain, over 200,000 cases have been recorded, where a 5% prevalence would indicate over 2,000,000 cases. But the figures are not indicative of a level of ‘herd immunity’ to SARS-CoV-2 being reached.

Clinical and Medical News

How Scientists Plan to Develop a Coronavirus Vaccine

We have covered the potential for vaccine development and examined the pharmaceutical pipelines previously. The process of exactly how a vaccine will eventually make it to market is outlined here: This includes a step-by-step overview from sequencing of the virus, through to testing, approval and manufacturing. This confirms that the process is far from simple and nothing is guaranteed to succeed.

Antibody Tests

An antibody test developed by Roche that has demonstrated excellent specificity and sensitivity following evaluation at the government’s Porton Down facility has gained approval from Public Health England . At this stage, there is no official announcement on whether these tests will be adopted by the NHS. The test already has approval from medical regulators in the EU and the United States.

The role of vitamin D?

The protective role of vitamin D in COVID-19 is unclear. In an insightful commentary piece, Dr JoAnn Manson, professor of medicine at Harvard Medical School and Brigham and Women’s Hospital discusses the potential benefits of vitamin D . It is known that vitamin D has an immune-modulating effect and can lower inflammation. Emerging evidence from COVID-19 patients suggests that vitamin D deficiency may be implicated in more severe disease.

A randomized clinical trial of vitamin D supplementation is planned in moderate to high doses, to see whether it has a role in the risk of developing COVID-19 infections and in reducing the severity of disease, hence improving clinical outcomes.

Heart Health

Interesting analysis of data derived from Fitbit users around the world suggests that, when comparing the baseline data from January to that of February, March, and April, the average resting heart rate declined . Three key trends were identified: step counts declined, but active minutes increased; sleep duration increased; and, bedtime variability decreased. This is all good news for cardiovascular health.

Air Pollution Reduction and Mortality Benefit

The stringent traffic restrictions and self-quarantine measures adopted by China have resulted in a reduction in transportation emissions. Emissions from residential heating and industry remained steady or slightly declined. . This analysis suggest that interventions to contain the COVID-19 outbreak led to improvements in air quality that brought health benefits in non-COVID-19 deaths. Whilst emissions are likely to increase again once restrictions are eased, perhaps there is now increasing appetite to maintain some transport restrictions considering the impact on health outcomes.

Kawasaki Disease

Kawasaki disease is a condition that mainly affects children and causes inflammation in blood vessels throughout the body. Early treatment results in rapid recovery for most; delayed treatment is associated with increased risk of prolonged disease with cardiac involvement. Clinicians are starting to report increasing cases of Kawasaki disease, probably associated with SARS-CoV-2. Analysis of paediatric patients in Bergamo reports a worrying 30-fold increased incidence of Kawasaki-like disease.

Research Research! Part Two

Last week we reported on a key repository for COVID-19 research in which studies published in pre-print or without peer review are assessed for their strengths and weaknesses .

This editorial in the BMJ highlights how poor quality research is damaging to an effective response . The authors note that many of the registered clinical trials are likely to be too small and too poorly designed to be of any use, that access to preprints has led to irresponsible dissemination as flawed studies are picked up by the media and that there is a plethora of duplication.

Data

ONS data

The Office for National Statistics continue to produce timely data on both COVID-19 and all-cause deaths. On 15 May, they published two new datasets:

Deaths involving COVID-19, England & Wales: deaths occurring in April 2020 (data & report)

This dataset sets out how many people have died from COVID-19, where deaths occurred up to 30 April 2020 and were registered up to 5 May. Information is provided about the characteristics of those who died (including pre-existing conditions), comparisons of COVID19 to other causes of death, along with other relevant information about the registration of deaths.

It shows that of the 33,841 deaths involving COVID-19 occurring between 1 March and 30 April, 95% had COVID-19 assigned as the underlying cause of death; for context, this is equivalent to the third highest cause of death for the whole of 2018. For April 2020, COVID-19 was the most frequent underlying cause of death for deaths occurring in April 2020.

Dementia and Alzheimer disease was the most common pre-existing condition found among deaths involving COVID-19, involved in around 20% of COVID-19 deaths.

Deaths involving COVID-19 in the care sector, England and Wales: deaths occurring up to 1 May 2020 and registered up to 9 May 2020 (provisional) (data & report)

This dataset sets out information on the number of deaths between 2 March and 1 May 2020 among care home residents, both from COVID-19 and other causes, and splitting out where these deaths occurred. In total, there were 45,899 deaths of care home residents; of these, 12,526 involved COVID-19 (27% of all deaths of care home residents). Of these 12,526 deaths, 72% (9,039 deaths) occurred within a care home and 27% (3,444 deaths) in a hospital. This means that, of all deaths in hospital from 2 March 2020 involving COVID-19, 15% were deaths of care home residents.

Health Data Research UK repository

Health Data Research UK is a group looking to bring together UK health data for research and innovation. Their COVID-19 response website can be found here. HDR UK have also set up a repository containing resources for COVID-19 research  – this pulls together a wide array of links to datasets and research relating to COVID-19 from the UK and elsewhere.

Et finalement …

boy or girl

Not sure if it’s a boy or a girl

One thorny issue that those on the continent are grappling with is whether the disease is masculine or feminine.

In France, many started off using the masculine ‘le covid’, but it seems that L’Académie Française, the esteemed guardians of the French language who are largely concerned with ensuring that the language is not infected by Anglicisms, have decided that it should in fact be ‘la covid’. On the academy’s website under the heading ‘Dire, ne pas dire’, (‘say, don’t say’), they announce:

‘On devrait donc dire la covid 19, puisque le noyau est un équivalent du nom français féminin maladie.’

‘We should therefore say (la) covid 19, since the nucleus is an equivalent of the French feminine name illness.’

In Italy, the situation is more complex – according to virologist Fabrizio Pregliasco, the disease Covid19 is feminine (la covid) , but the virus SARS-CoV-2 is masculine (il SARS) 

And in Spain, the debate continues …

We’ll keep you informed as data from other countries comes in – do let us know if you have the relevant information!

16 May 2020

Posted in coronavirus, pensions | Tagged , , , , | 1 Comment

Living and working in the City of London

Posted on May 15, 2020 by henry tapper

 

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Places featured in this blog

I live in Blackfriars in one of the areas of the City which were historically beyond the control of the City Fathers (what we’d call the Corporation of London today). Where I live in Blackfriars there was a priory.  The land was owned by the Church and  when the priory was dissolved in 1538, the land remained in the ownership of the Church – and not subject to City laws.

That is why we live next to Playhouse Yard and the  Apothecaries Hall which was once the site of the City’s only theatre. This is where Twelfth Night had its premiere. Shakespeare is thought to have been a Catholic, he is said to have attended St Anne’s Church next to PlayHouse yard. It was a catholic church long after Mary’s reign, Malvolio wouldn’t have liked Blackfriars much.

St Annes  is now subsumed into the Church of St Andrew’s by the Wardrobe. St Andrews claims to have the chalice from which Will would have drunk – we drank from it recently.

Shakespeare bought a property next door to where I live (now the Cockpit pub). He used it to house his players, the area was and remains a site of many ale-houses.

Indeed my next-door pub (the same Cockpit) could have been accessed from the Church of St Andrew by the Wardrobe (outside the Blackfriars Gate ) via a tunnel. It is thought that  puritans who fancied a bit of the other, made their way into Blackfriars via the tunnel. I have seen the start of the tunnel and where it  emerges but have not crawled it. Like much of the history of London, it has been embellished in the telling.

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Views of the Cockpit

John, the publican at the Cockpit. proudly told me the pub was once called the Third Castle;- being the third pub you came to as you walked away from Barnard Castle on the river, the river is 300 yards away.

The City has not been like this since 1667.

Following the Great fire of 1666, the area where I lived burned down and new buildings emerged (including the Third Castle pub and the Church of St Andrew by the Wardrobe).The Wardrobe was a changing room for the monarch who used it to get in and out of City garb. It too burnt down and is now serviced accommodation for City visitors.

The old church of St Anne  which existed within Blackfriars church ground was not rebuilt. Its churchyard remains one of the City Gardens and it’s where  Stella and I have sat on a gravestone with a glass of Prosecco and toasted the NHS and 75 years of peace .

Normally our little area of the City, a hive of paved streets is noisy with tour groups but these have gone for now. There is little noise in the City once the construction workers have shut down for the day (mid afternoon). Busses still make their way up Ludgate Hill and past St Pauls and ambulances speed to and from St Bartholomew’s hospital, but there are no planes or helicopters above and few trains below.

It feels like 1667 when the Citizens of the City decamped north to the mallow fields and south to Southwark. When I last looked at the ONS map, the City of London with 8900 residents, had only 16 hospital admissions for COVID-19 and but 3 deaths.

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The City of London Covid Death rate is conspicuously lower than neighbouring areas

Like 1667, most of our residents are outside the City Walls . They have gone to their second homes in the shires.

The Barbican flats are empty, I see them from WeWork. There are a few joggers on its walkways but the great cultural centre is furloughed. Only in the City of London owned estates of Golden Square and Old Street are there still queues for the shops. In Blackfriars there is no-one, most of the flats around me are serviced either for short term business rents or by Air B&B. Even the “lonely harlots” who use AirBnB lets – have no custom – and have gone home.

The Grange Hotel at St Pauls is now a hostel for the homeless. The homeless of St Pauls continue to lie in doorways during the day but make their way to hotel splendour as the night draws in. This is a City being reconstructed where only derelicts and a few people such as Stella and I, choose to remain.

Reconstruction

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The  great plan for 1667 would have seen the City’s street structure overhauled and a grid plan replace it. This never quite happened and the City remains a hive of small backstreets, ally’s with one or two through fares and a massively busy circumference road from which the City is serviced.

The City Fathers (now the Corporation) are now looking to reconstruct these streets so that they become what they were, mainly pedestrianised with motor cars prohibited from large parts

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You will no longer be able to drive your car up Ludgate Hill past St Pauls, there will be no more cars crossing the Bank interchange and you won’t be able to make yourself East to Aldgate, north past Moorgate or down to Tower Gate by car.

It is not yet clear whether the ban will include taxis and hire cars. Busses are not mentioned. Right now the vast majority of cars in the City are limos ferrying in the traders and senior execs of the financial and professional institutions. It will be interesting to see whether these execs have to make the final mile of their journeys by bus, bike or Shanks’ pony.

The City of London is keen that when the 90% of the 550,000 non-residents return (current estimates from Land Securities is that office space is at 10% capacity), the City will be ready.

For this reason , large parts of the City are currently being reconstructed. The interchange at the east end of Cheapside is being dug up, the whole of Cheapside is dug up, much of the rest of the Blue Roads (see map above) look to be going the same way with wider pavements and bigger cycle lanes replacing the two-way traffic systems of today.

No going back?

When you go back to the City, it will be a different place. On many of the Square Mile’s streets, pavements are too narrow to maintain safe social distancing, even if only a small proportion of the City’s workforce initially returns to work. In some streets, the Corporation thinks  it is likely that existing arrangements will be a danger to the public.

So the emergency measures will be drastic, I wonder if they will be permanent.

The corporation’s plans  point out that Covid-19 could mean a longer-term effect on traffic levels. During the 2008 recession, traffic in the Square Mile fell 16.5 per cent between 7am and 7pm — but there was no subsequent rebound in volumes as the economy recovered.

My suspicion is that the City of London will become not just less congested, but less populous. Many people will never go back to the City. For those who do it will be quieter, less polluted and less friendly to pandemics. As a resident, I see obvious benefits , but if I was part of the eco-system of shops, bars and hotels that support the pre COVID City of London, I would be concerned. If I was Land Securities or WeWork or any of the Office landlords or sub-landlords I would be very concerned.

As in so much else, I see the pandemic as fundamentally changing lifestyles and with them our geography . The geography of London has always been changing  and so has its population. More people have died from the pandemic in London than in any other region of the UK and COVID alertness is high here.

London is ahead of the curve both going in and coming out of this first (we hope only) surge of the pandemic.  I am pleased to see that it is making radical preparations for the future, recognising that the City of London  will not be the same again.

Screenshot 2020-05-15 at 05.36.32

Further up and faster down

 

 

Posted in London, pensions | Tagged , , , , , , | 4 Comments

Is the UK institutionally ageist?

Posted on May 14, 2020 by henry tapper

Screenshot 2020-05-14 at 06.57.49

This week we hear that numbers in England and Wales dying in care homes is exceeding those in hospital. In March Government told these homes the risk of death in homes was “most unlikely”. How did it come to this?

It seems only when Government can show that COVID-19 has done its worst, are we allowed to know its impact on our most senior citizens. The figures suggest the impact of the virus in care homes is finally reducing. Is this supposed to give us comfort?

The grim reality of the last seven weeks for those in residential care homes is becoming clear. The numbers told us it was happening and so did the presence of morticians parked outside care homes.

Academics at the London School of Economics found that data on deaths in care homes directly attributed to the virus published by the Office for National Statistics significantly underestimated the impact of the pandemic on care home residents and accounted for only about four out of 10 of the excess deaths in care settings recorded in recent weeks in England and Wales.

ONS statisticians said on Tuesday that 8,314 people had died from confirmed or suspected Covid-19 in English care homes up to 8 May.  They are based on reports filed directly from care home operators to the regulator, the Care Quality Commission. Care Inspectorate Wales has said Covid was confirmed or suspected in a further 504 cases in homes up to the 8 May in Wales.

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Graph showing how care home deaths (though falling) are moving ahead of hospital deaths

But academics at the care policy and evaluation centre at the LSE found that when excess deaths of other care residents and the deaths of care home residents from Covid-19 in hospitals are taken into account, the toll that can be directly and indirectly linked to the virus pandemic is likely to be more than double the current official count.

Why the ONS numbers don’t tell the story

Adelina Comas-Herrera and Jose-Luis Fernandez who wrote the LSE report tell us that

“Data on deaths in care homes directly attributed to Covid-19 underestimate the impact of the pandemic on care home residents, as they do not take account of indirect mortality effects of the pandemic and/or because of problems with the identification of the disease as the cause of death,”

“Data on registered Covid-19 deaths in care homes in England and Wales only accounts for an estimated 41.6% of all excess deaths in care homes. Not all care home residents die in care homes … Calculating total excess mortality in care homes since 28 December and adjusting this by the assumption that 15% of care home residents die in hospital, suggests that by 1 May there had been in excess of 22,000 deaths of care home residents during the Covid-19 pandemic – 54% of all excess mortality – in England and Wales.”

These numbers are truly shocking. Over a month ago ,I published work via the COVID-19 Actuaries that predicted that care homes would account for half as much again as hospital deaths.

Screenshot 2020-05-14 at 06.04.02

This week we have found that COVID-19 deaths in care homes in the UK are  running not at half but at more than hospital deaths and these deaths aren’t just “excess”;- many appear to have been avoidable.

Additional fatalities may have been caused by care home residents who did not seek or receive medical care for other health conditions for fear of contracting Covid-19 or over-burdening the NHS as well a lack of access to normal care.

Care homes have been running at 10% to 20% staff absence rates and many homes have been trying to isolate residents in their rooms to reduce infection spread, but this can also make their normal care more difficult and residents’ needs less visible.

The academics, who have been tracking virus death tolls in care homes globally since the start of the pandemic, cited concerns raised internationally about deaths being linked to the consequences of residents being isolated in their rooms, without adequate eating, drinking or medical support, and not to the virus itself.

Fundamental failings from being under-prepared

We have known for some time that the staff-absence rates in care homes result from staff having to self-isolate because they suspect (but do not know) they are infected.

Because we couldn’t test, many self-isolated unnecessarily leading to problems from under-staffing. The lack of tests at the early stage is now showing in reported excess deaths and these will finally be admitted as COVID-19 related deaths.

And then there is the human costs on carers, many of whom have to work in more than one care home (mostly because of poor pay and high demand). There is strong anecdotal evidence that movements in and out of residential care homes by carers is spreading the infection. This spreading happens because many carers are infected and this is because of inadequate protection – down to PPE.

Yesterday two workers came to move furniture out of an adjacent office to mine in WeWork Moorgate. They came in full body suits, had masks, gloves and total head protection. This was for the protection of these workers and had been provided by a thoughtful and financially strong employer. To get to that office they had to pass dozens of workers outside the building with no PPE on whatsoever.

The presence of these removal specialists- would have graced an ICU unit. All they were moving were files, computers and books. Watching them through the glass panels of our offices, I thought that this is how it must feel for carers in residential homes, when they watch NHS staff working in intensive care.

Taken together, the lack of testing , the lack of PPE and the lack of publicity around nursing homes has led to the situation we have today and the Government telling us that numbers dying in Care Homes is now falling, is no comfort at all to those residents and carers  who are no longer with us.

Most awful of all, many elderly patients have been taken off NHS wards into residential care – taking COVID-19 into the care system with them. Recent research from the Alzheimers Society suggests a third of our residential care homes have received people cleared out from the NHS to make way for COVID-19 cases.

If the stated aim of Government was to keep people safe and avoid deaths, then the situation in nursing homes shows them to have failed. By focussing throughout the early days of lockdown on hospital deaths, the Government not only missed the bigger problem, they helped make it worse,

What this tells us about our society.

There is a body of prejudice in this country against investing money in those in later age. You hear that prejudice in comments about people in nursing homes being at death’s door. Sadly there are some who don’t see these deaths as more than natural selection.

This is not “natural selection” it is geriatric genocide. It is the opposite of immunisation, it is cold and heartless cleansing of a part of society that has no economic function.

If we accept the argument that those in residential care homes would have died anyway, then we are on a slippery slope that can extend to other less economically viable sections of society.

Ros Altmann, Stuart McDonald and Debora Price have all written on these pages on the iniquity of considering deaths in care homes as of a lesser order to hospital deaths. I will add my voice to theirs.

What has happened and is happening in Care Homes is a national disgrace. That more people are dying in Care Homes than in hospitals is a terrible  indictment of our handling of this pandemic. That the LSE  estimate that over 22,000 people have already died in English and Welsh residential care is a terrible indictment of our handling of the pandemic. And the terrible conditions go on. This from the Guardian’s reporting of the LSE research

Asked to comment on the estimates, a spokesperson for the ONS said: “ONS is undertaking further analysis on all deaths of care home residents which will be published in the coming days.”

The figures came as the Alzheimer’s Society said care homes have been “left to fend for themselves” amid continuing shortage of personal protective equipment and testing for residents and difficulties isolating infected residents.

It said that of more than 100 homes surveyed last week, 43% were still not confident of their PPE supply, with one home resorting to taping bags around carers’ arms, feet and hair. Fifty-eight percent of homes said they were unable to isolate residents and a third said they have taken in Covid-19 positive patients discharged from hospital.

It is good that the Government announced yesterday another £600m in funding against the infection in care homes but Keir Starmer is right to remind Boris Johnson (as he did in parliament yesterday- May 12th) that in early March the Government were telling nursing homes it was “most unlikely” they would see deaths.

The neglect of residential care homes (and of carers whether in care homes or isolated at home) tells us that we as a society have much to learn. We care too little about our senior citizens and we need to move to a national care service, as the Labour Party has been calling for. And we need a Beveridge to make it happen.

Posted in actuaries, advice gap, age wage, later life, pensions, Ros Altmann | Tagged , , , , , , , | 4 Comments

Tackling COVID-19 through electronic health records

Posted on May 13, 2020 by henry tapper

Screenshot 2020-05-13 at 13.50.17

Dan Ryan

Dan Ryan

As we in England change our mantra from “Stay at Home” to the more nuanced “Stay Alert” and the possibility of increasing numbers of socially distanced contacts, it is vital to understand the range of data sources that the UK government is using to understand the spread and impact of this crippling disease. And indeed, what data is being shared with us now and what will be shared in the future.

Our changing diet of data, thanks to Public Health England

Back at the beginning of April, there were only three metrics from Public Health England (PHE):

  • Numbers of tests (all of the PCR swab variety).
  • Numbers of confirmed cases of COVID-19.
  • Numbers of deaths (but in those days limited to those happening in hospitals).

Since then, the breadth of modalities of data has spread to cover many different activities in hospitals, care homes and the community.

In particular, since 23 April, PHE has been publishing a COVID-19 epidemiology surveillance summary report each Thursday at 2pm. Each report is a veritable smorgasbord or treasure trove of information, that highlights the wealth of different data sources that PHE can call upon, using new and existing channels.

The series of reports aim to provide a picture of COVID-19 in the wider community that is intended to help plan the national response to the pandemic and assist regional stakeholders in local planning.

Here is a snapshot of the different key sections in the most recent 20-page report from 7 May, providing data from week 17 (April 20-26):

  1. Confirmed cases – setting out total number of tests and those confirmed with SARS-CoV-2 in England up to 29 April, broken down by age, sex, date of sample, ethnicity and region
  2. Community surveillance – reports on 1,006 new acute respiratory outbreaks from PHE’s Health Protection Teams and groups in the devolved countries and on internet-based surveillance systems covering both Google search queries and a national survey of 4,425 on trends in influenza-like-illness (ILI) using the FluSurvey template.
  3. Primary care surveillance – numbers of GP visits (covering 55% of England), numbers of unscheduled visits and calls during out of hours (covering 70% of England), and the sentinel swabbing scheme at 200 GP practices which shows that 20-30% of those presenting with influenza-like-illness (ILI) are testing positive for SARS-CoV-2.
  4. Secondary care surveillance – attendances at Emergency Departments and admissions to hospital, including data from CHESS (Covid-19 Hospitalisation in England Surveillance System) that tests all those admitted with ILI, lower respiratory tract infections (LRTI) or pneumonia for SARS-CoV-2.
  5. Virological surveillance – data collated in Respiratory Datamart from the various PHE laboratories that have been monitoring circulating viruses since the last influenza pandemic in 2009.
  6. Mortality surveillance – cumulative numbers of deaths by date of occurrence split by age, sex and ethnic grouping. As this report only summarises data up to 27 April, it predates the inclusion of deaths in nursing homes from the Care Quality Commission. It remains to be seen how this will be presented in future weeks. And finally, reference to excess mortality analysis provided by the ONS each Tuesday.

All of this is helpfully summarised in a multi-part infographic together with a fuller explanation of the underlying sources and motivation:

Figure 1 – Infographic from PHE Surveillance Report for 7 May 2020

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An impressive feat of data collation that provides vital insights. And yet. And yet. It is much like the “curate’s egg”: tantalising in parts. It probably meets its core objective which is to provide those inside and outside the health system with reassurance that the situation is being monitored.

It leaves those wanting to develop forward-looking models and scenarios to continue their search. But it gives them the vital sign that such data does exist. All the activity information on GP and out-of-hours calls and visits are but a single slice of the patient electronic health records that collectively are one of the most valuable assets of the nation for research. Closely and correctly guarded, the various custodians of this mosaic of health datasets have supported approved researchers for years from leading research institutions around the world in improving our understanding of health, disease and treatment through tightly governed and ethically approved research projects.

Custodians of our individual health data

One of these custodians, the Clinical Research Practice Datalink (CPRD), has long collected de-identified patient data from GP practices across the UK to provide a longitudinal picture of UK population health[1]. This dataset alone includes records from 14 million registered patients. Over the last 6 weeks, CPRD has approved 9 different cohort studies from leading research institutions such as University College London, King’s College London and the London School of Hygiene and Tropical Medicine to investigate the many different aspects of our battle with COVID-19. Impressive, but might we not have expected more given the quality and quantity of such data?

Figure 2 – Approved research studies by CPRD focusing on COVID-19

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Source: Clinical Research Practice Datalink

The CPRD and other similar electronic health record datasets contain rich data built up from patient consultations in primary and secondary care, whether directly or through the referral process. Rich data covering diagnoses, laboratory tests, immunisation records, risk factors such as smoking and blood pressure, medications, outpatient and inpatient stays. Linkages with other key datasets dramatically extend the granularity and list of clinical outcomes that can be investigated, such as:

  • Small area level data from ONS on deprivation measures
  • Hospital episode statistics from NHS Digital
  • Cancer registration, treatment and quality of life data from PHE

Many will be familiar with the attempts in the past to synthesize all these many different healthcare datasets into a single entity, increasing both the power and depth of health insights that could be drawn. Now is not the time to debate or rehash that history. Instead, I would rather highlight how the threat of COVID-19 has led to the rapid development of a new dataset that illustrates how electronic health records can help researchers in identifying new insights and strategies for how we tackle COVID-19 more effectively in the future.

Rapid innovation in unleashing the power of electronic health records

Last week on May 7, we were introduced to the OpenSafely platform that used NHS electronic health records to look for patterns in hospitalised patients who die from COVID-19. This platform has been built in a remarkable 5 weeks, bringing together 24 million patient primary care records into a virtual data centre.

OpenSafely represents a multi-disciplinary collaboration between the DataLab at the University of Oxford, the EHR group at London School of Hygiene and Tropical Medicine, electronic health record software companies such as TPP and wider groups such as ICNARC, working on behalf of NHS England and NHSX, the group in the NHS driving forward the digital transformation of health and social care. The full background can be found at the OpenSafely website. This collaboration released its first analytical report at the launch, providing multi-variate analysis on which patients are most at risk of death in hospital from COVID-19[2].

Figure 3 – Multi-variate analysis of mortality risk, including ethnicity and deprivationScreenshot 2020-05-13 at 13.54.36OpenSafely is taking a deliberately open approach to both its collaborations with leading research institutions and its analytical approaches. Approved researchers will be able to carry out large scale cohort analyses within the TPP data centre. Further active areas of research would include the following:

  • Identify those treatments that increase and decrease both the risk and severity of COVID19.
  • Identify those individuals at highest risk of hospital admission, ventilation or death to inform advice and planning at all levels.
  • Use local clinical data to predict local spread and health service need.
  • Provide early warnings on disrupted clinical services such as cancer referrals and emergency interventions for heart attacks and stroke to better monitor and measure the likely indirect impact of COVID-19 on population health.

All of which serves to highlight the power of well-maintained electronic health records to answer questions that are simply not possible with snapshots of activity data and limited morbidity and mortality data. Rapid innovation and iteration is enabling research that previously was either impossible or would have taken years to orchestrate.

Our data scientists and researchers have never been more crucial as we chart a course through the maelstrom that is COVID-19, and accessible electronic health records are an invaluable resource in that battle.

Dan Ryan
13 May 2020

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REFERENCES

1. Wolf, A., et al., Data resource profile: Clinical Practice Research Datalink (CPRD) Aurum. Int J Epidemiol, 2019. 48(6): p. 1740-1740g.

2. Williamson, E., et al., OpenSAFELY: factors associated with COVID-19-related hospital death in the linked electronic health records of 17 million adult NHS patients. medRxiv, 2020: p. 2020.05.06.20092999.

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“The way we were” – DWP AE Evaluation

Posted on May 13, 2020 by henry tapper

way we were

In normal times, the publication of a major Government review of auto-enrolment would be newsworthy. Apart from a series of mentions by Jo Cumbo, I have seen no publicity for it – from the DWP or their press office or even from the reliably upbeat Guy Opperman. It appears to have been overtaken by events – but it is a significant piece of work, which is a useful benchmark for future studies . I hope it does not mark the high-water mark for pension provision in the UK, but I fear we will look back at it with a sense of nostalgia as “the way we were”.

A COVID-19 free publication

The publication of its Automatic Enrolment Evaluation Report contains data till the end of 2019, but no mention of events this year that are likely to have a major impact on the long-term savings habits of many.

The forecast is, by its nature, uncertain and does not account for future economic factors, threshold changes or the effect of the National Living Wage, to give a few examples. It also does not account for cases where employers may come into existence or cease to exist as a result of changes to financial or legal status.

I must say ,  this publication shows remarkable integrity in not mentioning the threat of  a pandemic. This is either heroic or blindly obstinate but either way it makes the report an interesting read

The majority of the report is not new being a re-appraisal of ONS ASHE, HMRC RTI and NatCen’s British Social Attitudes survey . There is not much re-evaluation to be done, but collating this work into a single publication and organising it effectively is valuable in itself

The report’s executive summary represents a snapshot of auto-enrolment functioning as it should in the months leading up to pandemic. It stops short of being self-congratulatory and is largely an objective view of what has happened till the end of last year.

“AE Employer duties” now part of employment DNA

The report suggests that awareness of employer duties is now part of employment DNA

In instantaneous newborns, prior experience of automatic enrolment implementation was even more common. The person responsible for setting it up had usually been employed at a previous workplace when automatic enrolment was introduced

The fear of large scale un-compliance amongst smaller firms and of unbearable administrative burden has receded. One’s mind goes back to initial reports by the IOD in 2013 . While auto-enrolment may have led to the suppression of wage growth , it should be remembered it was introduced in a period of wage lockdown as a result of the program of austerity introduced by George Osborne and maintained throughout the staging period.

 

NEST has been an outstanding success in terms of coverage

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News of why NEST has been such a success is less encouraging

It was common for newborn employers to spend only a little time researching providers and to consider only one provider seriously. While some employers explained they had considered two or three providers, these were the exception. Employers’ limited research into available providers was typically due to a cautious attitude to compliance, and willingness to follow what they saw as an authoritative recommendation.

The typical decision-making process followed by newborn employers was to choose Nest in the first instance, unless they were prompted to do otherwise by some external factor. Where employers considered an alternative provider to Nest, this was usually triggered by a recommendation from a third party. Research with small and micro employers in 2017 indicated similar approaches. Most of these employers governed their selection of a pension scheme around the schemes ease of set up and use as well as its reliability, often choosing the “safest option” which was seen to be Nest.

For many employers the phrase “NEST is auto-enrolment” would go unchallenged. The DWP has done little to promote choice amongst small employers, the majority of active decision making has been amongst the pre-2014 stagers. But even for larger employers setting up a workplace pension , the provider procurement process was sketchy

Some of these employers used advisers to review other providers, however if the employer took responsibility for reviewing this themselves, the majority tended to describe only looking at new master trusts (e.g. Nest, Now Pensions, The Peoples Pension).

Most small employers sought help in choosing their workplace pension

The DWP survey with small and micro employers in 2017 found that 90 per cent of these employers had sought advice or guidance on choosing their new workplace pension scheme.

Most commonly, they approached an accountant or financial services firm (49 per cent), TPR (28 per cent), pension providers (27 per cent), payroll providers (22 per cent), Independent Financial Advisers (IFAs) (18 per cent) or pensions advisers (12 per cent).

Nest was the most popular pension provider amongst small and micro employers (chosen by 58 per cent), followed by The People’s Pension (11 per cent) and a range of other providers (each chosen by three per cent of employers or fewer).

By the clumsy categorisation , I suspect that most decisions were taken out of convenience rather than any conviction about “value for members”

It would have been good to have some more up to date numbers from NEST and some insights from this Government funded body as to their experience of employer decision making.

The “new” EPP survey

Where there is up to date data is in the DWP’s Employers’ Pension Provision (EPP) survey, which is shared in this report though yet to be published.

The main findings of this new research are that in the private sector less than 2/3 of employers are enrolling workers – a figure skewed by the large number of sole proprietor businesses within the 1-4 employee band (which didn’t have to stage).

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This has led to a significant proportion of people missing out on workplace pensions. Less than 2/3 of employees in micro schemes get enrolled. It would be interesting to know whether these people are self-providing or falling through the cracks

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Opt-outs

The new findings of the EPP report are basically “no news”

New analysis within this report

  • the proportion of workplace pension savers who made an active decision to stop saving (including opt-out and cessation) shows a slight increase from the 2018/19 financial year to the first quarter of the 2019/20 financial year (0.72 to 0.76 per cent), following the second increase of the automatic enrolment minimum contribution rates. Despite this slight increase, the overall rate remains low
  • from April 2018 onwards, the period in which the increases to minimum contribution rates took place, the largest increases in rates of stopping saving (due to active decisions) were observed among those aged 22 to 29 and 30 to 39 (0.23 percentage points and 0.15 percentage points respectively). These increases are modest but notable relative to other age groups where the changes observed are negligible
  • between April 2014 and June 2019, the average active decision stopping saving rate was slightly higher for males (0.76 per cent) than for females (0.59 per cent)

So what of tomorrow?

We heard yesterday (May 12th) that the furlough was to be extended to October 2020 with employers required to pick up 40 rather than 20% of furloughed pay. This is likely to put more strain on employer’s and furloughed employee’s cashflows and we await to see what this does to a) employment rates and b)voluntary contribution and opt-out rates.

If people keep on saving and employers keep on spending on workplace pensions then we really do have a robust and resilient savings system.

COVID-19 will be the latest and greatest test of auto-enrolment so far.

Posted in age wage, DWP, pensions, Pensions Regulator, Retirement | Tagged , , , , , | Leave a comment

Would CDC have helped your pension?

Posted on May 12, 2020 by henry tapper

 

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This is a blog by three bright consultants from Willis Towers Watson. I’ve been rude about WTW over the years but (as the picture shows) , there’s some sunshine after the rain. Thanks to my old buddy Anne “Freemers” Swift and to Simon and Henry for this affirmative statement of CDC’s worth in times of trouble.

How would recent market falls have affected members approaching retirement in a CDC scheme?

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Collective Defined Contribution (CDC) is expected to be a new way to provide pensions in the UK from 2021, once the Pension Schemes Bill 2019/20 has achieved Royal Assent and the associated legislation is in place.

One of the aims of CDC is to smooth out the volatility in at-retirement pension levels seen in individual DC. This is done by sharing risk collectively between members and gradually varying benefit levels in reaction to market movements.

This way, benefits can be paid as relatively stable pensions, giving members greater certainty with which to plan for retirement relative to individual DC particularly during times of market volatility, but still be funded by contribution levels which are fixed in advance.

The first quarter of 2020, which saw the global equity market suffer a severe fall of around 20% in reaction to the Coronavirus pandemic, demonstrates this attractive feature of CDC as we explore in this blog post.

How would a CDC scheme have coped with the market falls?

As an example we’ve looked at the effect on CDC pensions under the design published by Royal Mail. We’ve looked at someone close to retirement who, in this scenario, would be able to retire as planned with no reduction to their retirement income.

Why is this case? Well, the Royal Mail CDC scheme design determines benefits as annual pension amounts based on career average pay, where the pension increase levels – both before and after retirement – vary each year in reaction to changes in the funding health of the scheme. Contribution rates are fixed in advance.

When the scheme is opened, there is a certain amount of ‘headroom’ in the contributions, designed to fund for future pension increases; it is only if the funding health suffers very materially that the headroom could run out and pensions would be reduced.

Based on Royal Mail’s scheme design, the initial headroom is over half of the contributions and is expected to provide for average long-term increases of 1% pa above CPI. It would therefore take a far more significant fall in markets for a member’s pension to fall; in the vast majority of scenarios, it would only be the level of future pension increases that would be at risk.

Under this design the Q1 market shock therefore has no effect on current pension levels for the CDC members – whether this is a current pensioner, or someone due to retire in the next few years. Instead it affects the next pension increase, and future pension increase expectations.

Based on the Royal Mail’s intended diversified return-seeking asset portfolio, we estimate that the collective assets would have fallen by around 7%. This reduces the ‘headroom’ funding for future increases but is nowhere near severe enough to remove it. In isolation this asset fall would have reduced future CDC pension increase levels by around 0.25% a year.

So, for a CDC member about to retire, there would have been little effect on their initial retirement income, but potentially a modest reduction in long-term future pension increases depending on how markets develop. As intended, Q1 market falls would have been smoothed out and the member could retire as planned without the need to face a difficult retirement decision.

How does this compare to individuals in DC plans?

The effect on each individual DC member depends on the timing of their retirement, their investment strategy, and how they plan to take their retirement savings.

For members many years from retirement, while the market movements might be disconcerting and had a significant impact on their pension pot, we expect the majority to make no changes to their retirement arrangements and wait and see how things develop until they are closer to retirement.

For a member due to retire in the near future with a typical drawdown investment strategy, we expect their pension pot to have fallen by c. 10% over the quarter. While this member could still choose to retire as planned without locking in this loss, as their pension pot will largely remain invested, the market falls will have introduced significant uncertainty for the member. This may require a rethink of retirement plans, for example changing their planned pace of drawdown or deferring retirement.

A member looking to buy an annuity will however typically invest in assets with less exposure to equity markets and have some bond holdings once they are close to retirement, so overall their pot will typically have remained broadly flat. However, prices for level annuities have become around 8% more expensive over the quarter due to falling bond yields.

This member is therefore left with a conundrum – go ahead and retire now on a pension which is around 8% less due to unlucky timing or, if he or she has the option through alternative income, defer retirement in the hope that markets and annuity prices eventually combine to provide a higher income.

In both cases, the market fall has therefore led to uncertainty and difficult judgements for the individual DC member near retirement. The CDC member on the other hand has been able retire on the income they expected, with a modest potential reduction in future pension increases.

Footnotes

1. DC analysis

We have assumed the drawdown member held 80% of assets in a diversified growth fund, which returned -12% over the quarter. For the annuity member, diversified growth fund holdings would typically be much lower, and government bond holdings would have typically achieved 6% returns over the quarter which would counteract the growth falls.We have based the 8% movement in assumed annuity conversion rates on market pricing for a single life level annuity for a member aged 65.

2. CDC analysis

CDC schemes would usually be relatively large, and would typically have the scale to invest in a well-diversified return-seeking portfolio which could include private markets, credit and infrastructure. CDC schemes will be subject to the charge cap and, based on our modelling, asset splits and expense approaches are available which allow such diversification at costs within the charge cap. Based on the intended asset strategy we estimate falls in return-seeking asset values over the quarter of around 7% – this is less than half of the global equity market falls due to this diversification.Under the Royal Mail CDC design, pension increases are determined as follows:

  • Each year there is an actuarial valuation on a best estimate basis.
  • The purpose of the valuation is to determine the long-term pension increase rate which results in a 100% funding level, ie the pension increase rate which the assets are assessed as being able to fund over the long term.
  • That long-term pension increase rate is then applied in the current year.
  • This increase will be applied both to pensions in payment and to the accumulated pensions of active and deferred members.

As set out in the blog, we have determined that the asset fall over the quarter would have in isolation reduced future CDC pension increase levels by around 0.25% a year. The total change in this year’s CDC pension increase would also depend on any changes in future asset return expectations or demographics.The 0.25% pa reduction in pension increase levels would be a planned long-term reduction to increases, subject to revision each year. For example, the following pension increase would then take account of any market recovery or further falls over the next year. Over the long term, pension levels will be higher or lower than expected depending on how markets develop and valuation assumptions change.

3. How does DB compare?

Defined Benefit schemes are another matter entirely. A member enjoys the security provided by the employer and the PPF, but the employer faces the ‘double effect’ of the crisis on both its business and its pension scheme (unless the scheme is both fully funded and fully hedged). Trustees must grapple with whether a weakened employer covenant can cope with an increased deficit, and contribution level negotiations can be difficult to conclude. Funding rules mean that, over the long term, calls on the business for pension funding are ‘lumpy’, and often come at a bad time. That all comes as a consequence of the employer providing a long-term guarantee of pension levels.

Contacts

Simon (the) Eagle
GB Head of CDC Consulting
Email | +44 1737 274670

Anne (Freemers) Swift
Senior Director, Investments
Email

Henry Parker
Associate Director, Investments
Email
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Eu-clidding us? Mathematical BS from BJ

Posted on May 12, 2020 by henry tapper

Screenshot 2020-05-12 at 07.11.51

Boris Johnson is a classicist, but he’s not a mathematician. When Boris’ spin doctors decided to formulate the Covid-19 risk rate – this is what they came up with.

To the delight of genuine mathematicians who were able to display their posting skills to make this grandiose claim all the more ridiculous.

You don’t have to be a genius to work out where this formula goes wrong

Once again Boris Johnson had brought Britain together in gleeful mirth

and even the curmudgeons had to admit

Credit where it’s due, it’s in keeping with the overall themes of opacity, imprecision and general confoundedness displayed by Johnson since the glory days of Brexit.

“Euclidding us?”

Euclid was a Greek scholar , alive in the third century BC and considered one of the founders of maths. Apart from having a punnable name, little is known about Euclid.

Because the lack of biographical information is unusual for the period (extensive biographies being available for most significant Greek mathematicians several centuries before and after Euclid), some researchers have proposed that Euclid was not a historical personage, and that his works were written by a team of mathematicians who took the name Euclid from Euclid of Megara (à la Bourbaki)

Although Euclid of Megara was opposed to arguments by analogy, I will make the analogy between this version of Euclid and our version of Boris Johnson. Boris Johnson is delivering stuff and nonsense with Churchillian grandeur as if he was Euclid. But unlike Churchill, who put forward content he’d thought through.  Boris Johnson  is spouting the nonsense of his researchers/advisers.

Eu’s Clidding who?- Euclid of Megara left and the Euclid of Alexandra right

Some may think that Boris Johnson is not a historical personage either, and that his work is done for him by Sage and those advising him in #10. Right now he’s sounding a lot more like the “imperfect Socratic” Euclid of Megara.

 

 

Is Boris fake news?

I’d like to think that the NHS, who’s logo gives spurious legitimacy to this ridiculous formula, will have given #10 the appropriate bollocking. In the meantime there are serious mathematicians who do want to know the link between the Covid Rating, R and the number of infections

This is very much the point, and Edward Russell drives it home

Boris is no Euclid – but he’s better than this.

As my Mum keeps telling me, “it’s no use having a go at our leader if it just makes people like me frightened”. She thought he was good on Sunday night and so did most of the media.

Boris Johnson is no chump but his advisers seem to want to make him look one.

What comes out of Boris Johnson’s mouth, or from his tweets, needs to inspire confidence and not be damned wrong.

We have a lot of people like Kat Arney, Mike Harrison and Edward Russell who can do the maths, and even mathematicians like me lie awake in the wee-small hours reading Covid-19 Actuary Response Group papers so we know.

Knowing is reassuring , science helps us know things and the abuse of science undermines out learnings , mocking the very science it seeks to promote.

The Government has committed to daily press conferences and a torrent of social media, but right now a little less might be more. Let’s have tweets that are right and helpful, inspiring us with confidence in the Government’s strategy and not delivering fake news

covid-temperature-mask-promo.xd6293ff5

NHS – Proper measurement

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Powers during wartime- tPR and funding.

Posted on May 11, 2020 by henry tapper

 

Screenshot 2020-05-11 at 06.51.45

Talking Heads-Life During Wartime.

Jo Cumbo has written a fine piece in the FT’s Pension Expert . 

She is sympathetic to the Pension Regulator’s current dilemma and supportive of its position over deficit holidays.

Jo FT.jpeg

To be exact, Jo is supporting the balanced position between the tough stance tPR adopted prior to the pandemic and the de-prioritisation of pensions (against preserving cash) advocated by some in the UK and adopted by many in the USA.

The Regulator and “its powers”

Jo Cumbo writes positively of the 3 month easement given to employers on deficit repayment contributions but in looking forward she is less certain

.. the dilemma the regulator now faces is what to do beyond June 30, when it is due to review its emergency three-month easement. Without the benefit of a crystal ball, it is difficult to know whether the emergency measures will still be fully required, or will need to be loosened even further.

I have been advocating that the Pensions Regulator continues to hold a strong hand to the tiller, to the annoyance of respected commentator George Kirrin.

Aren’t you being a little inconsistent about tPR here, Henry?

Yesterday: “I call on Guy Opperman, Charles Counsell and David Fairs to call off this DB consultation and to take the decisive actions that have seen elsewhere in Government.”

Today: “Right now, I see the DWP kicking cans down the road (TPR DB funding consultation, pensions dashboard and taking on the FCA over transfers). Let’s hope that some of the tools – CDC – tPR powers, dashboard legislation – are unlocked soon and we get the Schemes Bill through.“

Without proper scrutiny of the Pension Schemes Bill by our legislators, those “tPR powers” could move the DB consultation up from guidance to statutory authority. Be careful what you wish for.

Right now, the Pensions Regulator is rightly nervous about being seen to assume powers not vested in it, for the purpose of meeting its twin objectives of protecting members and the Pension Protection Fund (which aren’t entirely at odds).

I can see David’s point and perhaps I’m being rash in calling for a fundamental re-think of the pension promises we have made. In many ways, schemes – especially schemes that have immunised against market volatility, are able to look forward with a degree of confidence, sufficient as they are becoming. For the trustees of the biggest schemes, the pandemic still affords the luxury of consultations

But Jo’s point about the smallest 2000 DB schemes is a good one

“The regulator already has concerns about the quality of trusteeship in thousands of smaller schemes where governance and administration has been found to be patchy.”

Poor governance and admin are the symptoms of under-supported schemes. The principal argument for consolidation seems to me that where standards are low, the covenant is weak and whether the consolidator is the PPF or a commercial superfund, members would be less at risk from being in a big scheme.

The Pension Schemes Bill originally intended to provide consolidators with a better regulatory framework to take on small schemes. Instead the DWP went with giving tPR more power and with CDC.

I anticipate a flurry of comments from George Kirrin, Robin Ellison and Con Keating who are implacably opposed to granting tPR emergency powers, but I suspect they will need to act decisively by June 30th without consultation and pushing the regulatory envelope.

In a gnomic statement on twitter, David Fairs suggests that he may become the Matt Hancock of the pensions world.

Life during wartime

There are clearly trustees, employers and advisers who are able to look at the current economic situation with sanguinity. Some may have sponsors who’s covenant is actually improving.

But there is a much larger contingent who see lockdown as an existential threat to their sponsor , to their funding and to their scheme’s capacity to meet their obligations.

The question of whether they should all head for the PPF is not one that can be determined in the normal consultation cycle. Put bluntly this is “life during wartime” and as David Byrne put it “I ain’t got time for that now”.

The new toolkit , in preparation for tPR – includes a radical new type of funding solution – CDC. There is time over the next few months for the DWP to work with tPR (and the FCA) to look at ways to avoid funding meltdown later in the year. This time is to pensions what December to March were to healthcare, a window for preparedness.

Despite my natural instincts to see market driven solutions though consultation, I think the Pensions Regulator and DWP should be scenario planning right now for worst case scenarios. I hope that by the time they have to take decisive action, they can be confident that the provisions of the Pension Schemes Bill are enacted and that we can see Government standing up and being counted – as effective emergency pension regulators.

Posted in advice gap, age wage, pensions, Pensions Regulator, Retirement | Leave a comment

Pension Scamming – Justin Cash and I talk frankly

Posted on May 10, 2020 by henry tapper

 

Screenshot 2020-05-10 at 08.31.48

To activate press the play button in the embed below

I’m found here talking to Money Marketing’s Justin Cash about pension scamming and financial resilience. It was a good day to speak as we’d just launched our anti-scam game http://www.scam-man.com.

Doing a podcast by Zoom (I think it was Zoom) is weird.  Prior to Lockdown, you’d physically get to the meeting, think about what you are going to say and deliver an accomplished performance with the help of your compliance department.

This conversation appeared as a diary item, popping up in my calendar 10 minutes before we went live with the WeWork server flickering on and off. If I sound a little discombobulated at times, it was because I was frantically trying to find enough signal to keep my conversation with Justin going!

But back to my theme, I was asked whether the Pension Regulator’s extra letter to those executing  DB transfers was going to be effective. The problem is simple – many people don’t read the letters they get sent, they get warning fatigue.

We found in Port Talbot that one of the most effective tactics of Active Wealth Management was to tell punters they’d be getting a pile of letters from the British Steel Pension Scheme and the FCA warning them not to transfer. What the steel men heard was that Tata were trying to stop them get their money, the warnings made it worse.

What people wanted was someone to talk to and that’s what people thinking of transferring want today. I’m pleased that the FCA and tPR are giving help to pension administrators on what they can say to pension scheme members at this time. I’m pleased that many pension administrators continue to work from home and – like me – find themselves speaking on important matters outside of the workplace.

In such a time as this, there is no time for shilly-shallying. If a pension administrator spots a scam -whether on a DB transfer or anywhere else, he or she has a responsibility to raise a red flag.

There are of course rules that must be followed and they include the Anti-Money Laundering rules about tipping off. But there are also rules around how we treat vulnerable customers and at this time of lockdown, the assumption must be – that everyone should be treated as potentially vulnerable.

What I am saying in the podcast, which despite my incoherence is brilliantly managed by Justin , is that at this time, we need to step up and take responsibility for the protection of people’s pensions – especially where we see financial self-harm.

The very best IFAs do intervene and stop people busting their LTA protections, missing out on Guaranteed Annuity Rates, triggering unnecessary exit penalties and overpaying advisory fees. People like John Mather and Al Rush fearlessly prevent self-harm.

But at this time, we must recognise that sometimes , a  withdrawal from a pension scheme , even if it creates a tax-hit or is struck when the market is particularly weak, must be expedited. When money is needed quickly , then it is the responsibility of all intermediaries to ensure that the supply chain isn’t blocked.

Here I am aware that the customers interests and the advisers are not necessarily aligned. Where the adviser preaches financial resilience to avoid his losing client money from a pension withdrawal, then it could be argued that the scam is in the delay. i wrote yesterday about why we cannot allow the phrase “financial resilience” to become a justification for delaying the necessary payment of money.

There is a very simple rule in all this, it is that transparency is the best way forward.

Which is why I love these new rapid response podcasts. Being put on the spot to say what you think at a time when you have none of the usual support mechanisms means that you have to take responsibility. It’s scary and it’s rewarding and I urge you to listen to what I’m saying by activating the podcast link at the top of the blog.

I also advise subscribing to future blogs (by those more coherent than me) by pressing this link

 

 

 

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What’s happening in intensive care?

Posted on May 10, 2020 by henry tapper
Nicola

 

Nicola Oliver analyses the latest ICNARC report which tells us what is happening to patients in England and Wales in Intensive Care Units (ICUs). These numbers relate to hospital admissions and don’t cover those being treated in care homes and elsewhere. The latest study of causes of death in care homes was in 2018 and can be accessed here.  Thanks to Nicola for helping us to understand the latest available data on this subject.

 

 

 

 

 

 

 

 

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Will COVID promote ESG or destroy it?

Posted on May 9, 2020 by henry tapper

Screenshot 2020-05-08 at 17.22.17

This time last year I was talking with BNY Mellon about using AgeWage as an ESG platform to help investors vote their shares. It’s not we decided to do (though there is one Fintech that’s taken up the challenge). The BNY Mellon office is largely empty today and I’m writing to them to turn off the 24 hour a day street lighting it provides to the Blackfriars backstreets (where I’m locked down).

Today the air I breathe is cleaner and corporate leaders are forced to consider how to be a good employer amid record job cuts.  But will the immediate improvements in ESG be maintained or will we return to a 1970s style dystopia as imagined by Robert Shrimsley

Screenshot 2020-05-09 at 08.24.21

Regress or Progress?

Before the pandemic I was reading the optimistic  thinking of Rebecca Henderson and John Elkington in their new books about the future of capitalism

I have no reason to suppose that a nation that has voluntarily locked down for the NHS, would not be prepared to pay in higher taxes and lower wages for an economy where environmental , social and governance values were prized higher than they were.

Put very simply, people want purpose and the pandemic has given us purpose in abundance. Which is why I am optimistic that Henderson and Elkington are right and that the pandemic will be a green rather than a black swan.

Screenshot 2020-05-09 at 08.48.07

Driven from below

Yesterday we were asked to cast our minds back to May 8th 2045 when Europe started a period of peace that has lasted 75 years. What we won most on VE day, was a victory over war. What was created in the 1940s and 1950s, the welfare state and the NHS, are replicated throughout Europe. The pandemic is posing the greatest threat to this new world order since the war ended. But reading a recent article by Lottie Meggitt – (my reason for talking with BNY Mellon) , I got my answer to the question in the title of this blog.  Lottie wraps up her article

Not since the Second World War has the concept of ‘shared value’ been so relevant.

If we maintain the purpose with which we are tackling COVID-19, not just in the UK but around the globe, then I think Lottie and those like her – will be the people to make it happen. But doing business differently , as the  “shared value” approach demands, is only possible with a social consensus.

The strong sense of purpose that brought in the NHS and welfare state after the war, enabled these forces for good to be constructed when Britain was financially least robust. It was the determination of the British people that what had been fought for , should materialise that made social progress in the decades following the war, a reality.

COVID-19 will promote shared value and the ESG agenda

Irrespective of the price of oil , the state of the aircraft industry or any of the other reasons why ESG funds have outperformed, the key argument for ESG is the social purpose that is carrying us through this lockdown as it carried people through the last war.

We want a Britain fit to live in and the pandemic has shown us just how fragile our stewardship is. We are not masters of our own destiny but subject to the malign influence of COVID-19. When we are rid of COVID-19 we will remain vulnerable to the  next existential threat.

And in the knowledge of our vulnerability , the great issues of sustainability – asked by the ESG agenda become a lot more urgent

Not since the Second World War has the concept of ‘shared value’ been so relevant.

Lottie-3

Lottie Meggitt 

 

 

 

Posted in ESG, Financial Conduct Authority, pensions | Tagged , , , , | 1 Comment

Club Vita’s latest picture of the Covid-19 data.

Posted on May 9, 2020 by henry tapper

Screenshot 2020-05-09 at 07.36.17

Club Vita is an actuarial resource that helps pension schemes understand what’s going on death and health wise. It uses big data sets to create pictures which non-actuaries like me can understand. If , like me, you want to understand what is the real impact of COVID-19, you must look behind the Government figures. That is what Club Vita does, and in this report there is the information that helps us understand

  • How the various death tolls for UK COVID-19 differ
  • Where  people are dying
  • The UK’s management of the virus relative to our peers
  • Reasons for the impending quarantine on those coming into the UK
  • Scope for easement in Lockdown to be announced on May 10th by the Prime Minister.

This is one aspect of the “science” that the Government is talking about. It is actuarial science and it helps us not just in our social planning, this information informs business in its operational planning and of course economists in their market forecasts,

Here then is Club Vita’s latest briefing, the original of which you can read here. It is good  that Club Vita is  sharing its knowledge through blogs and reports. Like the COVID-19 Actuaries Response Group, it is a credit to its profession.

Covid-19: The latest picture

Screenshot 2020-05-09 at 07.50.37

Last week we explored how the death tally shared at the daily Downing Street briefings were materially underestimating the true scale of COVID-19, due to a combination of “missing” and “missed” deaths. Since then the official statistics have been revised. However, underreporting remains an issue.

Sadly, our previous conclusion remains true: the true loss of life directly and indirectly from COVID-19 is likely to be double the official tally. As at 5th May 2020 that could mean the loss of 60,000 lives across the UK.

In this blog we explore the latest data, and how the issues of “missing” and “missed” deaths have evolved over the last week.

The “missing” deaths…

The daily numbers being reported in the media are those on the official government site. Initially these figures covered deaths in specific locations and often only included those who were tested positive for COVID-19 prior to death.  This misses a significant number of COVID-19 deaths.

In particular, England’s contribution to the daily tally previously only included hospital deaths. However, from 29 April the approach used in England was revised to include those who died “in the community” (generally, but not limited to, deaths in care homes).  This approach is closer to that adopted in Scotland.

Screenshot 2020-05-09 at 07.52.40

In both countries the ‘official’ count continues to only includes those deaths where the individual tested positive for COVID-19.  As such they exclude those with symptoms of COVID-19 but for whom no test was carried out.

There will therefore still be issues with ‘missing’ deaths, as reflected in differences between the official figures and those published by the ONS (along with similar publications from the respective national statistical agencies of Scotland and Northern Ireland).

How has the change in approach impacted the ‘missing’ deaths?

The latest statistics from the ONS include COVID-19 deaths registered up to the 2nd May, where there is a mention of COVID-19 somewhere on the death certificate, regardless of location.

Focussing in on the 24th April we can again compare what we now know had happened in terms of deaths (i.e. including those deaths registered between the 24th and 2nd May), with the official statistics published the following day.  This provides an indication of the level of “missing” deaths. (We have chosen the 24th of April as it is the end of the last week detailed in the ONS publication.)

The change in approach to the data published for England has reduced the under-reporting gap, however a significant issue remains.

We estimate that the official figures may understate direct COVID-19 deaths by around 40%, equivalent to some 11,500 missing deaths, which would bring the total UK death toll to over 40,000.

The “missed” deaths…

Our second blog of last week looked at the issue of ‘missed’ deaths; the un-seasonally high levels of deaths which make no mention of COVID-19. The past few weeks have seen around 2,000-3,000 more such deaths each week than is usual for this time of year. These deaths may sadly be indirectly related to COVID-19.

This trend has continued, with the latest data suggesting some 3,500 ‘extra’ deaths (excluding COVID-19) in the week to 24th April, bringing the total since mid March to over 12,000.

Screenshot 2020-05-09 at 07.54.22

Weekly figures for Scotland use a different definition of weeks, running from Monday to Sunday rather than Saturday to Friday. The chart above is based on using the Scottish data for the week ending on the Sunday immediately after the date shown on the horizontal axis.

We estimate that the total ‘missed’ deaths, allowing for experience over the last few days, may now be as high as 20,000.

Combining these 20,000 “missed” indirect deaths with the 11,500 “missing” deaths not counted in official COVID-19 statistics, suggests that the combined direct and indirect loss of life from COVID-19 may now already be 60,000 lives across the UK

Have deaths peaked?…

Understanding the wider death toll is one of the key factors to consider when contemplating moving towards ending lockdown.  While the headline daily deaths figures have been tending downwards for a week or two, there were concerns that the ‘true’ figures may still have been increasing.

Screenshot 2020-05-09 at 07.54.32

The fact that the total weekly deaths figures (including all deaths) appear to be starting to decline is therefore very welcome news. Hopefully this has continued since the 24th April.

What do we know about the COVID-19 deaths?

The death registrations data includes information on where a death took place. While the reduction in COVID-19 attributed deaths is clearly welcome, it is noticeable that the proportion of such deaths occurring in care homes has been increasing steadily.

Screenshot 2020-05-09 at 07.54.43NB: Figures for Scotland use a different definition of weeks, running from Monday to Sunday rather than Saturday to Friday. The chart above is based on using the week ending on the Sunday immediately after the date shown on the horizontal axis.

We can also see that care homes have seen a noticeable jump in deaths, both with and without COVID-19 on the death certificate. The COVID-19 impact appears to have started later in care homes than the hospital deaths; with no sign of a peak as at 24th April.

Screenshot 2020-05-09 at 07.54.55Given the ongoing concerns around availability of PPE in care homes, alongside the challenges care homes can face in isolating those symptomatic of COVID-19, it seems likely that we will continue to hear sad news of tragedy emerging in UK care homes.

All of the team at Club Vita wish to extend our condolences to anyone who has personally been touched by bereavement in recent weeks. We know that these deaths leave behind people who are missing loved ones. Our thoughts are with you…

Screenshot 2020-05-09 at 07.36.17

 

Posted in actuaries, advice gap, coronavirus, pensions | Tagged , , , , | Leave a comment

“Financial resilience” – austerity’s twin brother

Posted on May 8, 2020 by henry tapper
Screenshot 2020-05-08 at 09.10.33

The images of financial resilience  

In the aftermath of the collapse of Northern Rock in 2008, many savings institutions were hit with a run on deposits from savers keen to put their cash under the mattress.

Mark Scantlebury and Vincent Franklin, who were then setting up Quietroom tell the story of how they were called in to stop people withdrawing their savings. Subsequently, HBOS credited the pair in saving £400m flying out the door. But the strategy that Quietroom advised upon was not intuitive to the bankers – quite the opposite.

Quietroom suggested that the call-handlers and tellers , rather than making it difficult for people to have their savings back, promoted Halifax as a bank that would make it easy for savers to withdraw their cash – no questions asked.

And as soon as it became clear to savers that they could have their money, they stopped and thought about it, and they stopped withdrawing – because they trusted the Halifax again. Lock-ins, even partial lock-ins – are usually counter productive.

The mark of a good pension system…

Is that it puts the right money in the hands of the right people at the right time. Clearly in Australia, where Super is seen as a good system, a lot of people who need money right now – are getting it.

I suspect that this is considered a “bad thing” by most pension people. But is it? If you follow the Quietroom logic, the Super system is working fine. Nathan Long, who is a really good guy, has I think got his tone wrong (if I can be so Hancockian)

For me, “financial resilience” is usually associated with saving money not spending it. I guess many people will consider HMT’s furlough scheme the opposite of financial resilience. But it is underpinning the current lockdown and the lockdown is generally accepted as necessary. I have tried to suggest that rather than preaching to savers, the gospel of financial resilience, we preach the gospel of Quietroom and offer savers over 55 “ease of access to their savings”.

Nathan’s last point is particularly interesting as it is when market conditions are tough, that people want money (toilet rolls etc). We become hoarders because we fear – irrationally – that if the money is not under the mattress – it isn’t ours.

But of course as soon as you make it easy to get your money, the issue with  trust disappears.

But if money held for a rainy day cannot be drawn on that rainy day – without a big chunk being taken out by “market conditions” , then people have a different problem.

Sunny day money stays invested because it’s not needed but if you are advertising a rainy day pension (with all the freedoms) with sunny day money, then people are going to grumble. You need an “all weather” fund that you can draw on whether its rainy or sunny. Part of the problem people have with pensions is that whenever they want their money – the market conditions are raining cats and dogs!

“Financial resilience” is austerity’s twin brother

The last financial crisis taught people that when the financial system buckled, they had to pay the price. Austerity cannot be promoted a second time in two decades and nor can “financial resilience”.  People need to be aware, that even if its just a sidecar, their pension saving is theirs to spend without lectures on financial resilience!

Andy Leggett supports Nathan’s position by characterising it a “putting customer’s first” and I’m quite sure a lot of financial planners and SIPP providers do feel that stopping people raiding their pension is just that.

But I’m not sure that the customer sees it that way at all. The customer sees paying his bills as more important than having to pay extra tax on a big pension withdrawal, or being hit for six by market conditions.

Vulnerability

One definition of vulnerability is a “lack of financial resilience”. Two months ago a whole load of customers who are feeling vulnerable felt anything but. The IGC reports all spoke in glowing terms about how the insurers were treating their vulnerable customers, usually without referencing the likely impact of the pandemic.

When we come off furlough, then we may see up  new vulnerable customers numbered in millions. They will be needing an extra wage and a good proportion of them will be of an age that they can draw it from their pension pot (s).

I notice that the Government is considering setting up a COVID-19 Digital Sandbox to help those who’ve become vulnerable, use financial services to meet those vulnerabilities.

My questions to financial services providers – holding money for people in pensions are

“what steps are you taking to make sure that money can easily be accessed from their pension and how can people get help to mitigate the risks of penal taxation and market conditions?”

To my mind this is what the vulnerable customer is interested, not in lessons about getting “financially resilient”.

Posted in advice gap, age wage, pensions | Tagged , , , , | 1 Comment

Why we’ve failed to build a national care service

Posted on May 8, 2020 by henry tapper

Screenshot 2020-05-08 at 07.49.15

Sage seem to consider the major problem in care homes the impact it is having on the R number. At least that is how it is being reported. Sage member Professor John  Edmunds told the FT

Covid-19 infections in hospitals and care homes had pushed up the R number to between 0.75 and 1.

The rate of new infections in the community is “levelling off,” , but the country had been left with “residual epidemics” in hospitals and care homes. The community transmission rate had “come down quite sharply” but the R in hospitals and care homes was not going down at the same rate,

Prof Edmunds added. Dominic Raab, foreign secretary, agreed that the situation had been “a real challenge” owing in large part to the ebb and flow of people through homes, but added this could be controlled.

We will have to wait to know why the R in care homes isn’t going down, but whatever the answer is, it will come too late for those in these homes who have died, whether residents, or carers.

“Residual epidemics” may sound a side-effect of the pandemic, but they are in fact the fastest growing aspect of the pandemic in the UK

Screenshot 2020-05-08 at 06.51.07

Because many deaths in care homes are reported by GPs without the patient being tested for COVID-19 , many of these “excess deaths” are not being reported on the official figures for COVID deaths,

Screenshot 2020-05-08 at 07.46.51

Later numbers unavailable,

This is allowing the impact of the “residual epidemic” to be downplayed. Indeed the tone of Government reporting is now shifting to blaming the care homes for the R getting stuck and for non-residents having to stay inside.

A national care service

The crisis UK care homes are now in is not unique. Other European countries have been reporting high excess death rates of as much as 60% of total hospital deaths – again.

The numbers in my blog in April will certainly by now have been exceed. Care Home deaths are thought to account for a high proportion  of the gap between total excess  deaths (between 55 and 60,000) and reported COVID deaths (30,000).

The elephant is out of the care home, and is now trumpeting 20 years of Government failure to create  national care service, to match our NHS.

In Labour’s Towards a National Care Service, published last autumn, we were reminded that 1.4m people in the UK go without the help they need to perform basic activities of daily living. The document was an update of the Command Paper in 2010 when Gordon Brown was prime minister. Since 1999, there have been 11 green and white papers on the need to reform and improve care but there is still no proper in strategy and it shows.

Screenshot 2020-05-08 at 07.12.49

What Labour called for and we rejected

Labour’s plans were widely dismissed as too radical and formed part of the “policy failure” that was seen to have made Labour unelectable last year. The electorate weren’t in a mood to listen to arguments for spending on the vulnerable.

This is not a party failure, it’s a general failure of Government created by an electorate who have stood in the way of a proper debate on the issue. Indeed the failure of Teresa May to win an overall majority in 2017 is in part attributed to her botched attempt to make reform of elderly care an election issue.

Rather than make the failure to address the inadequacies of our care system with a national care service, a political issue, we should be asking ourselves what have we individually done to engage with the elephant.

I should point out that one area of financial planning provision that has lagged all others is the provision of products and advice on the private funding of long-term care. I hope that this change as we go forward.

The PM’s belated admission of failure

In one of the few signs of compunction for failures so far, Boris Johnson said last week that he bitterly regretted the care home crisis. This is not regret for the R number not dropping to 0.5 (see above) but grief for the casualties of logistical failure

it has been enraging to see the difficulties we’ve had in supplying PPE to those who need it” but the government is now “engaged in a massive plan to ramp up domestic supply”

Care homes are not quarantined from society, people come in and out of them and they bring out infection. Many of the residents in care homes were in hospital and were taken out to care homes to free up beds. The infection was brought into care homes with them.

And while we clap each Thursday for the NHS we do not clap for the carers, despite them taking the same risks and performing the same duty of care to their patients.

There is a double standard at work which results from this 20 year long failure of parties and electorates to treat those in residential care as part of our health service.

That they are dependent on others is a sign of their cogitative and physical decline. Were these people younger, they would be more valued and Ros Altmann is right in campaigning for the rights of older people to be treated with the same dignity as everybody else.

As part of the realignment of priorities following the end of the pandemic, we must make sure that we build a national care service of which we are as proud as the NHS.

 

Posted in actuaries, advice gap, coronavirus, pensions | Tagged , , , , , | 2 Comments

COVID-19 ; Vaccines and Antivirals

Posted on May 7, 2020 by henry tapper
nicola

Nicola Oliver

Screenshot 2020-05-07 at 16.14.54

 

What is a vaccine?

Vaccination is the administration of a vaccine to help the immune system develop protection from a disease which is achieved by essentially imitating an infection. Vaccines have historically been constructed to  contain either inactivated viruses or attenuated (alive but not capable of causing disease) viruses. Following administration, the body’s adaptive immune system is stimulated and primed to recognise the infectious agent if it is exposed to it subsequently. This may take several weeks to develop.

More recently, wider approaches for construction of a vaccine have been developed. This includes, for example, an mRNA vaccine which provides a synthetic mRNA of the virus, which the host body then uses to produce the viral proteins itself thus mimicking the natural infection of the virus.

Widespread immunity as a result of vaccination and herd immunity is largely responsible for the eradication of smallpox.

Vaccine production

At the start of the production process, the antigen is generated. The next challenge is how to actually manufacture the vaccine. There are many different vaccine-making platforms, each with its own set of advantages and disadvantages.

It takes between 6 to 36 months to produce, package and deliver high quality vaccines to those who need them.

Current status of vaccine development against Sars-CoV-2

Coronaviruses have caused two other recent epidemics – severe acute respiratory syndrome (SARS) in 2002-04, and Middle East respiratory syndrome (MERS), in 2012. In both cases, work began on vaccines that were later shelved when the outbreaks were contained.

These vaccines have now been repurposed for human trials, specifically by Maryland-based Novavax, and biotech company Moderna in Cambridge (USA) who are developing the vaccine in cooperation with the National Institute of Allergy and Infectious Diseases.

In addition, CanSino Biologics in China has also entered phase 1 testing of a vaccine. CanSino also markets a vaccine for Ebola virus in China.

The table below presents an overview of vaccine development.

Screenshot 2020-05-07 at 16.12.21

The studies in phase 1 or 2 are summarised below. As can be seen, there is considerable variation in the potential study completion date.

Moderna ‘mRNA-1273’

The dosing of the first participant in a phase 1 study of the so-called mRNA-1273 vaccine was announced on 16 March 2020. The early-stage, or phase 1, trial will test the vaccine on 45 males and non-pregnant females between the ages of 18 and 55. The primary and study completion date is 1 June 2021.

Moderna’s primary objective is to assess the safety and reactogenicity of a two-dose vaccination schedule of its mRNA candidate. The trial’s secondary objective is to study the immunogenicity to the SARS-CoV-2 S protein.

CanSino Biologics ‘Ad5-nCoV’

The phase 1 trial will be conducted in 108 healthy adults 18 to 60 years of age in Wuhan, China. The study’s main objective is to examine the vaccine’s safety, and researchers will also evaluate efficacy measures, including levels of an antibody against the spike protein on the coronavirus cell surface which effects entry to cells through binding to ACE2 receptors, as well as neutralizing antibody against SARS-CoV-2.

The primary completion date is estimated to be 30 December 2020, and study completion date is 20 December 2022.

Inovio Pharmaceuticals ‘INO-4800’

INO-4800 is a DNA vaccine candidate being developed by Inovio in conjunction with Inovio’s proprietary platform hand-held smart device called Cellectra. As of 28 April 2020, this phase 1 trial is fully recruited with all 40 healthy volunteers receiving their first dose, with interim immune responses and safety results expected in late June 2020. The estimated primary and study completion date is April 2021.

University of Oxford ‘ChAdOx1 nCoV-19’

University of Oxford researchers have begun testing a COVID-19 vaccine in human volunteers, the first doses were administered on 23 April 2020. This randomised controlled study will recruit a total of 1112 participants and is planning to reach primary and study completion by May 2021.

Sinovac

Sinovac has commenced a Phase I clinical trial, a randomized, double-blinded, placebo controlled study, for its vaccine candidate against COVID-19. As of 13 April 2020, enrolment of the first group of volunteers and the first dose of vaccination for these volunteers have been completed. Final study completion date is proposed for December 2020.

Biontech & Pfizer ‘BNT162’

The first cohort of BioNTech’s Phase 1/2 clinical trial has been dosed. Twelve study participants were dosed with vaccine candidate BNT162 in Germany since dosing began on April 23, 2020. The study will also assess the effects of repeated vaccination following a prime injection for the three vaccine candidates that contain uridine containing mRNA (uRNA) or nucleoside modified mRNA (modRNA). A fourth vaccine candidate, which contains self-amplifying mRNA (saRNA) will be evaluated after a single dose of vaccine. Subjects with a higher risk of severe COVID-19 disease will be included in the second part of the study. Primary completion is not expected until 2023.

Novavax

Novavax has produced and is currently assessing multiple recombinant nanoparticle vaccine candidates in animal models prior to advancing to clinical trials. Initiation of Phase1 clinical testing is expected in late spring of 2020.

Antivirals and other pharmaceutical approaches

There are currently no pharmaceutical treatments that are specifically indicated to treat COVID-19 in terms of being able to eradicate the disease from the human body. Individuals that require hospitalisation are managed according to their clinical need by each body system. For instance, intensive care units have established protocols for respiratory support, cardiovascular support, and renal support.

So where are we in terms of developing a specific pharmaceutical to treat COVID-19?

Antivirals

The aim of antiviral therapy is to minimize symptoms and infectivity as well as to shorten the duration of illness. These drugs act by arresting the viral replication cycle at various stages. Antivirals are currently used to treat influenza viruses, herpes viruses, hepatitis B and C viruses, and HIV.

The image below displays the viral replication cycle; antiviral drugs work by inhibiting this cycle at a number of different stages.

Screenshot 2020-05-07 at 16.11.46

There are currently 47 antiviral drug trials registered with phase 3 clinical trials for the treatment of COVID-19, 138 in total across all trial phases.

Remdesivir has been recently recognized as a promising antiviral drug against a broad spectrum of RNA virus (including MERS-CoV) infection in cultured cells. It’s key mode of action is through interference of the action of viral RNA-dependent RNA polymerase causing a decrease in viral RNA production.

Remdesivir is not yet licensed or approved anywhere globally and has not yet been demonstrated to be safe or effective for the treatment of COVID-19; trial results to-date have been disappointing. There are 19 clinical trials registered at www.clinicaltrials.gov which are testing the effect of Remdesivir on patients with COVID-19; 11 of which are actively recruiting, one is terminated and one is suspended.

Favipiravir is a further drug under clinical development and has a similar mode of action to Remdesivir. There are 12 clinical trials registered at www.clinicaltrials.gov which are testing the effect of Favipiravir on patients with COVID-19; however, none are actively recruiting at this stage.

Other pharmaceuticals

In addition a number of other classes of drug are being investigated for their utility in treating COVID-19. This includes ACE inhibitors, monoclonal antibodies, (MABs), and anti-inflammatories. The drugs under investigation include existing (hence, ‘repurposing’) and novel compounds.

It’s also worth noting the use of convalescent serum as an effective treatment. This describes administering antibodies from blood donated by people who recovered from COVID-19 and hyper-immunoglobulins. A convalescent plasma program has been instigated by physicians and investigators from across the US, and similar programs have been initiated in the UK and EU. The convalescent serum studies are focused on treating patients currently facing severe cases of COVID-19.

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The end of furlough and what it means for pensions.

Posted on May 7, 2020 by henry tapper
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advice 1.pngScreenshot 2020-05-07 at 06.46.27
A question was asked of the DWP on April 24th filed under  “Pensions: Advisory Services” 
To ask the Secretary of State for Work and Pensions, what discussions she has had with the Financial Conduct Authority (FCA) on when the FCA plans to (a) publish and (b) implement regulations directing pension savers to Pension Wise when they choose to access their pension savings.
The question was answered on May 4th, on Tersea Coffey’s behalf byGuy Opperman

The Secretary of State has not personally had discussions with the FCA in relation to this matter, however senior officials at the FCA, DWP and MaPS are working closely together on this and will continue to do so.

Existing Financial Conduct Authority (FCA) rules require firms to signpost to their customers the availability of pensions guidance via Pensions Wise. These include, for example, rules requiring firms to issue wake-up packs, designed to be one of the main sources of information for consumers about their options for accessing their pension savings.

Furthermore, the Money and Pension Service (MaPS) has undertaken trials to gather evidence on the possible ways to help encourage more people to take Pension Wise guidance before accessing their pension, fulfilling the requirement upon Government and the FCA set out in the Financial Guidance and Claims Act 2018.

MaPS, with Behavioural Insights Team (BIT) will publish an evaluation report of the trials in Summer 2020. We will use the evidence provided from the trials to help inform and assess the impact of the trials and conduct a consultation prior to implementing any regulations. For the FCA this also includes a duty to consult on the proposed rules. The due processes that DWP must take to lay regulations and the FCA must take to make rules will be followed.

The terminology

The DWP has done its best to expunge the word “advice” from its pension lexicon. The Money and Pensions Service (MaPS) has replaced the Money Advice Service and the The Pension Advisory Service. Pensions Wise most definitely doesn’t provide advice and “guidance” is the watchword for all Governmental interventions when people are in the pre-retirement zone.

But parliament still files these parliamentary questions under “pensions advisory‘ because that is what the layperson expects to get when navigating the pensions equivalent of the “strait of Hormuz”.

The Financial Conduct Authority regulates financial advice and is arms length to the Treasury, MaPS delivers guidance and is arms length to the DWP.

Anyone coming to this afresh – say from abroad – would recoil from this outbreak of acronyms, especially when learning that trials on nudging people towards Pension Wise have been conducted by BIT – itself an acronym for the newly independent Behavioural Insights Team.

Assistance is furloughed

One theme of my recent blogs is the need for the Government to toughen up on matters of advice and guidance. I am saying to the Pension Regulator not to consult but be decisive on the rules surrounding pension scheme funding. There is no time of space for deliberation and consultations make cowards of us all

And MaPS is clear on what people should be doing before accessing money from their pension.

  1. They should be clear about the investment implications (especially if cashing out from funds invested in the market)
  2. They should be clear about the tax implications, especially if large amounts are being withdrawn
  3. They should have options to take advice laid out for them

Although all the information needed to take good decisions at retirement is available online, (and on the MaPS website), there is no obvious route to follow – no clear pathway.

Sadly, rather than accelerate the investment pathways to be offered by providers , the FCA has given providers the opportunity to delay their implementation (due in August) because of the epidemic.

I am vey worried that we are entering a period of financial hardship for many people with the assistance people need – in a bit of a mess.

A digital pathway to pension freedom?

And even in the best of time, decisions are tough for those with pension freedoms

The FCA’s business plan, published in April, cites pension freedoms as diving consumer harm.

The pensions dashboard is awaiting legislation that may or may not receive Royal Assent before the summer recess in July. In any event, it too will be “consulting” in the autumn and it looks increasingly unlikely that this key consumer tool will emerge from MaPS either this or next year

We now hear that the FCA have further plans

Prior to the pandemic the FCA had been exploring the concept of a digital sandbox, which would allow innovative firms to test and develop proofs of concept in a digital testing environment, and enable greater collaboration to solve industry-wide problems.

We hear in Professional Advisor that

The regulator has decided to move forward with plans sooner than anticipated so it can provide support to firms looking to tackle coronavirus-related challenges facing firms and consumers.

It said it will particularly support firms developing specific coronavirus-related work, and will evaluate the effectiveness of the feature or tool through the pilot.

The FCA believed developing a permanent digital testing environment would provide significant value to financial services on the whole.

The foundations of the sandbox would include giving users access to data, regulatory calls-to-action and access to regulatory support, as well as the ability for fintech and regtech firms to list their application programming interfaces and solutions to encourage exchanges of information.

The FCA said it would keep the industry updated with information on specific proposals for launching a coronavirus pilot of the digital sandbox.

It sounds as if the horse may have boulted before we even get to the stable door.

Need for a clear statement on how this fits together

With so many initiatives going on, it is hard to work out what the overall strategy is. MaPS , the FCA, HMT and DWP all have a need to work together but it seems hard to see how this is gong to happen without someone taking charge.

I am pleased that there is such clarity from the Treasury

There is a need for one voice from Government that is authoritative and provides clear advice to people about what they can and cannot do with their pension pots once they reach 55 and we need one of the elected or non elected “leaders” to stand up and be heard.

Perhaps we should find a COVID-19 savings Tsar – a Martin Lewis for pensions?

When the furlough is over

So far, people have been broadly shielded from the economic consequences of the pandemic. The furlough is providing many people with a broadly equivalent standard of living and many who are outside its scope have been drawing on savings rather than pensions. Nonetheless there are already signs of emergency withdrawals from pension pots.

The use of Pension Tax Free Lump Sum to meet emergency needs is sensible and an advisable decision for the over 55s, but for those not there yet, the opportunity to raid money early is a chimera presented by scammers.

Unfortunately, the opportunity to speak out on pensions is being missed because the spokespeople are falling over themselves not to give advice. initiatives such as that described by Guy Opperman at the top of the blog and outlined by the FCA in its recent statement on the Digital Sandbox are pointing in the right direction. But we need more than a “nudge unit” and “guidance” to stop people financially self-harming once the furlough is over.

With savings levels for the majority of the population at around £100, the immediate consequence of the removal of the furlough will be unemployment leading to personal debt and the kind of desperation that leads people to pension liberation.

When the furlough is over , we may find the withdrawals from pension pots from the over 55s spiking and insurers and trustees should be preparing themselves and their members for that occurring.

This really is a time for financial leadership from Government as the furlough looks like ending very soon.

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Kick-starting a new pensions commission?

Posted on May 6, 2020 by henry tapper
Jo Cumbo

Josephine Cumbo

Jo Cumbo is Britain’s foremost pension journalist and respected not just as a news hound but as a serious commentator. As an Australian, a mother and someone 20 years my junior, she represents an independent type of thinking that provides insights from looking at things in a different way.

Jo’s perspective through this current crisis is important in itself, but her capacity to listen to others and assimilate differing points of view into a central thesis, makes her authoritative. She is unflattered by praise and fierce when crossed.

Jo has put out a call for views on what the current lockdown will lead to – this is the message

Jo may not be a one woman pension commission, but she could be the maven to a Government body set up to manage our ambitions about life in retirement. Since I started talking with Jo about this, I’ve seen a couple of friends sending in contributions. Each one is worth space on these pages, but collated, edited and properly organised by Jo, I am sure together we could recreate the dynamism that made our last pension commission – 16 years ago – a success. I have opposed pension commissions in recent years as talking shops, but the urgency of the current situation demands a congregation of minds and Jo Cumbo.

 

 

I’ve put my views , written over yesterday’s lunch and published as I sent them. If you are interested to send her yours, then she can be contacted at Josephine.cumbo@ft.com. Jo’s particularly interested in views by close of play today (May 6th).

 

Technology is the key to recovering some of the ground we’ve lost to COVID-19

Our biggest issue in the short term is mass unemployment especially where technology cannot replicate – physical labour. So technology could initially make things worse (in terms of employment).

But technology make things better in terms of productivity. Not since the purge on manufacturing in the late 70s onwards have we seen such a threat to traditional labour. This is a real threat to chunks of the workforce who had seemed inviolable. Large amounts of local and central government, transport, hospitality and office services seem replaceable, if the concept of home-working embeds itself.

Technology could keep Britain on its feet by improving productivity, in the long term technology will create jobs -if we can adapt, but as in the late 70s, this change looks very daunting. Perhaps the most interesting aspect for pensions is not the impact of technology on obvious things like comms and admin but the changes the pandemic could make in social organisation.

Will we see a surge towards collectives – as the “we’re all in this together” spirit reasserts itself, or will personal freedoms come to the fore and we see an every man for himself approach? I see the traditional forces of collectivisation – employers – as receding into “facilitation” with payroll and a smaller contribution to pensions (both DB and DC).

But I see the new collectives, the master trusts and to an extent the insurers, playing a leading role in pensions organisation (this sounds a bit Australian). If I’m right, then the unions look a bit stranded right now, they need to find new friends at places like NEST , NOW , People’s and Smart who stand to gain in importance as employers pack pensions in (as a fiduciary force).

Will the master trusts fill the void left by DB and start offering “pensions” again – as opposed to “investment pathways”? Or will pension saving become a feeder for the wealth management industry, with people’s retirement accounts becoming their main source of later life liquidity? This is a big unanswerable! We will have to wait and see how brave some of these providers are.

Consultation makes cowards of us all

Right now, I see the DWP kicking cans down the road (TPR DB funding consultation, pensions dashboard and taking on the FCA over transfers).Let’s hope that some of the tools – CDC – tPR powers, dashboard legislation – are unlocked soon and we get the Schemes Bill through.

I hope that what will come out of COVID-19 will be a much more demanding public who won’t stand for poor value for money and will put their foot down to get the information they need to make proper decisions as they start retiring. I think the state will have to keep the big safety nets – PPF ,Pension and Universal credits and State Pension in place. But they’ll become intolerably expensive – so I can’t see the triple lock lasting if inflation kicks off and I can’t see people accepting a PPF haircut without an option to transfer out.

I’d like the DWP to start thinking of lighter solutions – such as a CDC section for the PPF and a CDC option for DB schemes that otherwise would dump and run (I mean pension pre-packing).

If this means an orderly move away from guarantees, so be it. One of the questions- as your note puts it – is to find a way to “afford what we need”. Guaranteeing pensions may be what we want – but like so much else – is it what we need?

Henry  AgeWage

 

 

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COVID-19; Out of Africa?

Posted on May 6, 2020 by henry tapper

Screenshot 2020-05-06 at 05.28.52

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Dermot Grenham

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Cases in Africa

If the COVID-19 situation and outcome is far from clear and certain in countries such as UK, the same could be said with even more justification for countries in Africa. Just as questions can be asked about the accuracy of the data for say UK cases and deaths the same questions can also be asked about the accuracy of the data from Africa.

The latest map of cases (as at 5 May 2020) in Africa shows: (1)

Screenshot 2020-05-06 at 05.29.36

The top 10 countries in Africa, by number of confirmed cases are:(2)

Country

Confirmed cases

South Africa

       7,220

Egypt

       6,813

Morocco

       5,153

Algeria

       4,648

Cameroon

       2,104

Ghana

       2,719

Nigeria

       2,802

Guinea

       1,710

Cote d’Ivoire

       1,432

Djibouti

       1,116

These figures compare with current figures of around 1.2 million in the USA, 250,0000 in Spain, 210,000 in Italy, and in the 150-200,000 range for France, Germany and the UK (3).

The lower prevalence may be partly due to less testing (South Africa, for example, with a population of 56 million is doing around 7,500 to 10,000 tests a day while Italy with a population of 60 million is doing well over 60,000) and less extensive health care systems but it will also reflect many areas in Africa being less connected with places suffering more from the COVID-19 crisis. However, it does not seem that there has been any noticeable spike in morbidity nor hospitals overflowing with patients, so the current lower prevalence rates may well reflect the reality of the situation and not be an artefact of the amount of testing. In some countries, the cases that have arisen were due to those returning from abroad and restricted to people of a certain social milieu.

Epidemiologically it has been speculated that Africa’s warmer climate and younger population makes it more difficult for the virus to affect people and if it does, the symptoms may be relatively mild and less noticed. The following charts comparing Japan and Uganda clearly illustrate the demographic difference.

Screenshot 2020-05-06 at 05.29.56

Although COVID has a high infection rate, it is possible to believe that African countries have built up, during the past few decades, a robust responsiveness to epidemics (eg cholera, measles or Ebola). In the DR Congo for example, they successfully managed to contain the last Ebola epidemic despite it happening in a part of the country with recurrent security problems. With some flexibility, the experience accumulated in dealing with other epidemics could be used to deal with COVID 19 without lockdowns – or at least, not such severe ones. But, the presence of other disease such as HIV-AIDS and malaria may make some sectors of society more vulnerable.

Responses to the COVID-19 crisis in Africa

Many governments in Africa have also imposed lock downs to deal with the pandemic. For example, on 23 March, President Cyril Ramaphosa President of South Africa addressed the nation and announced a 21-day national lockdown effective from midnight 27 March to 16 April, with the deployment of the South African National Defence Force to support the government. On 9 April the President announced a two-week lockdown extension, until the end of April. This may have been enough to not just ‘flatten the curve’ but to significantly reduce the spread of the disease.

In Kenya, there has not been a lockdown on the same scale although travel restrictions have been imposed within the country and many events and large gatherings have been cancelled. Rwanda has focused on raising public health awareness of the importance of hand-washing and wearing face masks in public. They are making special provisions for cross-border truck drivers who could bring the virus in from other counties. Many, if not all, African countries have suspended international flights.

However, this may not have as much of an effect as, say, in Europe and the US. Fewer people in Africa will be in the age groups that would require shielding in other demographically older countries although the relative proportions of those with co-morbidities is not known.

On the other hand, the economic impact of a lockdown, to the extent that they are adhered to, may be much more severe in African countries or certain parts of those countries than they are in Europe (where the economic consequences are bad enough). African countries have less well developed social insurance and protection schemes, and rely more on informal and community-based support systems, which can come under strain if lockdowns and social distancing are imposed. In many parts of African people need to go out each day in order to earn what they need to buy the food for that day to collect water. It is hard to socially distance in areas of urban overcrowding and poor infrastructure.

The motivation for staying home to protect a nation healthcare system is less applicable in countries where there is a limited healthcare system to protect and where other causes of death such as malaria and measles and poverty in general are much more serious. The current number of COVID cases in Africa is not just small but small compared to the incidence of other diseases which more developed countries have largely got under control or eradicated. There is also less incentive for people to try and protect their health service if they cannot realistically access due to cost of distance.

African countries may therefore be better advised to take alternative approaches to lock down, such as shielding the most vulnerable while letting the rest of the population continue to go about their lives as best as they can and over time build up ‘herd immunity’.

One additional impact that the virus will have on African countries will be the aid and remittances they received from more developed countries. Governments’ aid expenditure is often formulated as a percentage of GDP. As GDP is expected to fall this year this could reduce the amount of aid to Africa. Remittances from the African diaspora can be more important than aid but, as people in the diaspora lose jobs or see their own earnings reduce, flows to their home countries may fall. African countries may therefore see a reduction in income to their country which will affect the trajectory to economic and social development.

McKinsey & Co have commented on the impact of COVID-19 on Africa (5). In their least-worst case scenario, allowing also for the impact of the collapse in the oil price, they estimated that Africa’s average GDP growth in 2020 would fall from 3.9 percent to 0.4 percent. Their worst-case scenario saw a -3.9% fall in GDP. The impact would vary by country. Prominent voices inside and outside the continent have already started asking for debt forgiveness from international organisations such as the World Bank. President Magufuli of Tanzania recently cancelled a USD10 billion loan from China, as he judged it was impossible to pay back, insisted on taking more serious preventive measures but avoiding at all costs lockdowns that would devastate struggling economies.

As the history of pandemics shows, food shortages after a pandemic could lead to more famine. According to the Global Report on Food Crises (2020), more than half of the global population affected by acute food insecurity is from Africa. If in the normal course of events these numbers were expected to double (from 135 million in 2019 to 265 million in 2020), after a pandemic they would certainly worsen. Although many African countries have great potential in terms of farmland, the reality is that they can barely feed themselves. Foreign direct investments from countries such as France, the UK, the US or China are more turned to mineral resources, and local governments invest little in the agricultural sector preferring to buy food from abroad.

Conclusion

These are clearly early days in the development of COVID-19 in Africa. Therefore, it is difficult to know with any certainty how this is going to play out over the coming months. One thing we can be sure of is that it will be different to how the pandemic has unfolded in Europe and the USA, and this may be for both better and worse. The direct health impact may not be as great as elsewhere but the economic consequences of lockdowns in African countries and the knock-on effects of reduced economic activity in the external markets for African goods and services are likely to have major adverse impacts on Africa’s economic development, and hence on health and education.

Africans are, though, resilient and resourceful. If Africa turns out to have a low infection rate, the area end up being a very attractive destination for the provision of goods and services, especially f countries and organisations start looking for alternatives to China.

References

1 http://covid-19-africa.sen.ovh/

2 (Ibid)

3 https://www.worldometers.info/coronavirus/#countries

4 CIA World Factbook and indexmundi

5 https://www.mckinsey.com/featured-insights/middle-east-and-africa/tackling-covid-19-in-africa

Posted in coronavirus, pensions | Tagged , , , , | 1 Comment

All plans off for DB funding proposals

Posted on May 5, 2020 by henry tapper
Screenshot 2020-05-05 at 07.09.39

John Ralfe and Steve Webb don’t see eye to eye

I’m sorry to have missed the FT’s DB funding debate, it sounds like a lively affair!

Mercer, the professional services firm, last week estimated the aggregate accounting deficit for DB schemes for the UK’s 350 largest listed companies was £52bn at the end of April, compared to a surplus of £10bn the month before, as equity markets and interest rates experienced record falls.

Recommended Final salary schemes Pension transfers under lockdown Sir Steve Webb, former pensions minister, said it did not make sense to continue with the consultation in the current environment.

“It was a document written in a different era,”

said Sir Steve, now partner with Lane, Clark & Peacock, a firm of actuarial consultants.

“This isn’t just a three-month blip and everything goes back to normal. We are in a different world, at least for the medium term. If you look at that (revised) funding code, scheme recovery plans were going to have to be a lot shorter. Does that make sense in the world that we are now moving into?”

The debate is raging  not around the financial economics of mark to market valuations but of the priorities that we put on pension promises against other promises in the workplace. So John Ralfe can find support for a hard line position from Mark Rowlinson  and Mike Harrison – normally moderates in this debate. Meanwhile the former pensions minister has moved towards a less regulated approach.

This realignment is – as Webb says – around your view of whether business as usual after the pandemic is on old or new normal. Forgive me for using  politically charged terms but this is really about conservatism and liberalism with the conservatives looking for a return to the old certainties and the liberals, looking to a progressive future.

It is enervating to have such debate and I’ minded of Wordsworth’s recollection in the tranquility of older age

Oh! pleasant exercise of hope and joy!

For mighty were the auxiliars which then stood

Upon our side, we who were strong in love!

Bliss was it in that dawn to be alive,

But to be young was very heaven!

There is now an opportunity to re-evaluate the way that pensions work for people that takes into account the wider societal issues of employment and welfare. Consideration for those too young to have benefited from DB, for those who were not fortunate to have worked for an employers with a strong pensions covenant or an employer at all.

Consideration too for the massive cross subsidies between one group of tax-payers and another that has led to a large proportion of the UK workforce finding themselves dependent on the state pension, pension credits and the scraps of workplace pensions whilst paying taxes for their peers to retire on career average or a final salary based pension – as well as rights from the state.

The polarities of this debate are intensified by the insistence by those who have them, on guarantees and by those who don’t – on the capacity to save.

The capacity to save

For future generations of those retiring, the option of a pension from private means is dependent on their capacity to save. The primary driver for this capacity, is the ability to work. We are facing, when this furloughing is done, a massive hike in unemployment which will include many over fifty losing work which they may find it hard ever to recover.

Those who talk about the recovery plans of defined benefit pensions would do well to consider what recovery plan there is for the older worker in a time of sustained recession. So I side with Sir Steve Webb. Shortening recovery plans risks driving the remaining employers accruing guaranteed pensions into closure. It drives employers with closed DB plans and weak covenants into the PPF and it means that millions of workers will be facing even greater hardship in their personal recovery plans.

I don’t think that those who have charge of DB pensions (and were among the 700 people who could attend this session) have got the message

Screenshot 2020-05-05 at 07.19.34

Poll taken at the start of the FT debate

 

Screenshot 2020-05-05 at 07.51.21

The follow-up question

Screenshot 2020-05-05 at 07.52.14

For me – the key question

A direct appeal to David Fairs, Charles Counsell and the Pensions Minister

Yesterday , Guy Opperman tweeted in praise of the current measures being taken by Government to protect workers from the most grievous impact of the current situation

I  agree, the Government has acted decisively and have been very effective. The intervention of the furlough shows that for limited periods – we hope between now and vaccination, Government can spread the acute pain of destitution , exchanging it for the long term ache of higher taxation. It’s called smoothing and it’s what Steve Webb is suggesting happens in pensions.

Against this view is the Darwinian view that schemes who are strong will survive and the rest will go to the wall

I strongly disagree with Mike’s position. I call on Guy Opperman , Charles Counsell and David Fairs to call off this DB consultation and to take the decisive actions that have seen elsewhere in Government.

And most farcically, the USS are pressing on with their valuation

The poster-boy for the “no retreat- no surrender” hard line , espoused by Mike and others is USS. Even in the teeth of the gale it decides to press on with a valuation that will surely be torn to shreds by the impact on universities of the incapacity of students to use the campuses they have so expensively constructed. The underinvestment in teaching is now being exposed. The lack of prudence in competing for students through ever more extravagant extra-mural facilities is resulting in a realisation that many universities are under exponential threat

The FT, unlike many in the pension industry, has recognised that we cannot return to the old certainties

It is now time for the pensions industry to decide whether it wishes to cocoon itself in the certainty of yesterday or move forward with the rest of the country. I urge you to listen to this webcast (free to listen thanks to the FT)

 

Posted in actuaries, advice gap, Blogging, dc pensions, de-risking, defined ambition, DWP, pensions | Tagged , , , , , , , | 1 Comment

“The new normal” will be driven by consumers: NB – financial services.

Posted on May 4, 2020 by henry tapper

code.jpg

Many claims are made of the data we have today but two things appear clear to the layman.

  1. The more data you have on the spread of the virus, the easier it is to make the right public policy decisions.
  2. Ultimately those decisions  are based on politics as well as science, economics and well as health.

What Michael Gove yesterday called the “new normal” will emerge as a result of what politicians allow us to do and what the laws of economics dictate. Rents must be paid, people must eat – but we must do so as safely as we can.

Take these comments which appear in a pay-walled article in the Times

Given that the risk of dying from Covid-19 is low, politicians can assure the public that our worst fears are over.

Another consequence is that a lockdown is no longer a proportionate response, particularly given its profound negative impact: massive unemployment and increases in domestic violence, mental health problems and child abuse, as well as deaths caused by delayed or cancelled medical treatment.

“The risk of dying is low” is a politicisation of science, the authors are John Ioannidis is professor of medicine, epidemiology and statistics at Stanford.  and Rohan Silva , senior policy adviser to No 10 and is a senior visiting fellow at the London School of Economics

What they mean is that for the productive workforce – those of working age who pay taxes. it’s time to go back to work. If you are a pensioner, in your 50s and BAME and if work means commuting in a metal tube, then going back to work presents a different new normal to if you’re office based and in your 30s and 40s.

I see the new normal as I run and cycle around the City, I see key workers in offices, they are key usually because they do the manual jobs like post, security and maintenance, for them the old normal hasn’t and won’t go away. Nor for those digging up the roads and constructing and reconstructing the infrastructure in which we work. If I was writing in a rural area I am sure I could find similar divisions of labour (cows need to be milked etc,)

It looks unlikely that we will feel comfortable getting in a metal conveyance alongside others any time before mass vaccination proves effective and that looks at the least a year away by which time habits formed over the past six weeks may have become the new normal to a point where concepts such as commuting will have changed for ever.

We may never again class “fear of flying” in terms of aircraft crashing, in future we will fear our being confined in a metal tube for hours alongside fellow passengers. I’m not the first to point out that self-preservation in terms of health may trump good intentions in delivering climate change targets.

The new normal – at least in terms of work – looks like a less mobile, more digital era where we become used to less social interaction and a much greater importance on the means with which we get our information.

So we see the arrival of new terms to describe software development “low code- no code” software that relies for its value not on year long development projects but on getting ideas to market quickly , effectively and to as many braincells as possible.  This is from Soren Kaplan, a Californian management consultant

Anyone in the software business should become intimately familiar with the various tools, APIs, and business models that will power the next generation of the industry.

Check out Google’s Data Studio to track various data connectors or GitHub to access open-source out-of-the-box code snippets. Get new skills through an online course from Udemy or others, or get a basic overview from searching YouTube.

Indeed – when software development doesn’t require coding, we may start thinking of software development as a branch of journalism where the media of delivery is governed by the demands of users for information. YouTube, Udemy and GitHub are examples of companies we employ to deliver our ideas, but the idea remains the intellectual property that’s most valued as it contains the proper understanding of what people want.

This seems to be the driver for politicians and economists, for software developers and for those who run and finance businesses. It’s very simple, people seem generally to be moving on from the pre-pandemic paradigm and waking up to a new world where things can be done differently. While some will not make that transition (and need to be served in old ways) the new normal is about delivering what people want in new ways.

Which has particular relevance to financial services, which have the means to do just that – with important implications for the development of pension dashboards (amongst  other deliverables).

dashboard

Delivering to braincells!

 

 

Posted in advice gap, digital, pensions | Tagged , , , , | 1 Comment

Squeaky-bum-time for start-ups

Posted on May 3, 2020 by henry tapper
agewage wework

Easier times!

Plenty of promises!

Running a start-up at this moment is spooky. The Government promises support. but each new product seems to apply to someone like you – but not you!

We haven’t furloughed anyone because what we do – help people retire – is not something that waits. So everyone on our payroll has stayed on the payroll, we’ve continued to pay HMRC tax and national insurance, and we’re paying our VAT bills.

We haven’t borrowed money under the new CBILS scheme, because we don’t have EBITDA yet, we’re a start up! We might get some help from a bounce-back loan though it’s not clear whether we quality.

Till now, we’ve had no expectation of a grant under the Small Business Rate Relief scheme, because we paid our rates through a third-party.

But maybe things are beginning to improve. Next week (beginning May 4th) we get to hear about various initiatives.

We have interest in our equity from venture capital, maybe the Future Fund can incite that future further.

We’re looking to develop our data analytics and need money for research. Perhaps some of  the £1bn promised to Innovate UK (who we have already worked with) could come our way.

And yesterday we heard that we have hope of getting some small business rate relief after all.

The shortening runway

To get the rate relief grant you have to prove COVID-19

The one thing  start-ups  find easy to  prove is that their runway is shortening. COVID-19 has focussed minds of  customers on survival but that excludes discretionary spend on nice-to-haves .

Invoices get lost , calls not returned and meanwhile the bills keep coming. We are lucky in having some suppliers who are deferring costs but we know many of our collegiate firms haven’t been so lucky.

When I visit the WeWork office (a five minute jog from home), I see rows of deserted desks, offices where the pot plants are falling into the sear (the yellow leaf).

It is really tough to think of the personal stories of the people I used to bump into each day. Now the thought of bumping into anyone fills me with horror.

I hope that the £617m which is pointed towards shared-workers is going to come in time, and that our agents (Colliers) will start helping us . Colliers  are quoted in the FT

More than 10,000 companies based in shared offices originally missed out on the grant because their premises had not been assigned a ratable value by the Valuation Office Agency, according to research from property firm Colliers.

In shared offices, such as those operated by WeWork and IWG, regular reconfigurations mean the VOA has not always assessed individual units.

The original design of the scheme meant money could be delivered quickly, but it came at the expense of comprehensive cover for companies in need, according to John Webber, head of business rates at Colliers.

“The easiest way to get to 95 per cent of businesses was using the criteria from the business rates system that was in place. But there are 5 per cent missing out,” he said.

 I can tell Colliers that in our WeWork, each office has a rateable value and I have the rateable value of the office space we occupy. The trouble is that our relationship with the City of London business rate team is non-existent. They don’t know who we are -because Colliers have never told them that we are the occupiers of the space.

As of April 27, local authorities had allocated 61 per cent of the funds earmarked for small businesses which were eligible, leaving almost 345,000 businesses waiting for the grant. “Many of the companies that have been unable to use existing government support schemes are already on borrowed time — and will need these grants paid out swiftly if they are to survive,” said the British Chamber of Commerce.

Each time I correspond with the City  Guildhall , the response comes back – “can you tell us who you are?” We are AgeWage and we’re 200 yards up Coleman Street from you!

AgeWage will come through this

You will be pleased to hear that despite the yet-realised promises and the shortening runway, AgeWage is going to make it through and that it will come out of this the stronger.

I am sure we are like most small businesses, we are able to cut our cloth to meet the current circumstances. We live in an ecosystem of optimism that ensures we look at ways to grow rather than mothball.

But we do need to be able to access the money that is on hand this quarter (eg by the end of July) and so do all the other firms.

We are happy to stand in the queue behind essential services and those in absolute poverty.  PPE is more important than SME, but if we are to come out of this pandemic with an economy capable of recovery, we must keep the spores of recovery watered!

office for agewage

Our office

 

 

Posted in age wage, Big Government, pensions, Value for Money | Tagged , , , | Leave a comment

Have you got a hungry heart?

Posted on May 3, 2020 by henry tapper

Hungry+Heart+Sept-126

If you’re reading this before 1pm on Sunday May 3rd, there is time for you to click this link and here what remains of Hungry Heart’s Springsteen-athon.

Hungry+Heart+Sept-115.jpg

I’ve had my headphones on for just nearly 13 hours, taking me off to explain to my partner that I’m ducking Britain’s got talent and explaining that she can dance along with me by sharing the music through the TV!

Hannah from Burgers and Bruce, Thom from Pizza Pilgrims and Jon from RedLine run Hungry Heart and it’s been a pleasure to listen to Hannah and Jon as they seek to raise £1,000 per hour for the 24 hours they dj Springsteen songs.

Screenshot 2020-05-03 at 06.23.02

Since I bought a copy of Darkness on the Edge of Town in 1978, Bruce Springsteen has been in my head;- that’s my entire adult life. Every one of his gigs I’ve been to has renewed my admiration of the man.  Alongside Nick Cave , he’s the person I turn to when I need some fortification against the vicissitudes of life. (I put Jesus in a super-category!)

Thanks to Andy and Sara for alerting me to Hungry Heart.

Thanks to Hannah and Jon for making it through the night!

So what are you waiting for?  Slap on the cans , plug them into your nearest device, check your broadband and click here. Even if you’ve missed the live streaming, there are some excellent playlists.

And don’t forget to tip!

 Screenshot 2020-05-03 at 06.34.52

Posted in pensions, Springsteen | Tagged , , , | Leave a comment

COVID-19 Actuaries’ May Day round up

Posted on May 2, 2020 by henry tapper
Screenshot 2020-05-02 at 06.08.45

Matt, Andrew and Nicola

Screenshot 2020-05-02 at 06.10.21.png

Every week, more is written on COVID-19 than any individual could possibly read. Collectively, the COVID19 Actuaries Response Group read more about the outbreak than most, so we’ve decided each Friday to provide you with a curated list of the key papers and articles that we’ve looked at recently.

Modelling – reports

Imperial College reports

The MRC Centre for Global Infectious Disease Analysis at Imperial College London continue to produce interesting reports on COVID-19 (their site can be found here)

Report 16 – Role of testing in COVID-19 control (23 April 2020) 

This report notes that immunity passports based on antibody or infection tests could face significant technical, legal and ethical challenges. They conclude that, whilst molecular testing is vital in monitoring the pandemic, its direct contribution to preventing transmission is likely to be limited to healthcare workers, patients and other high-risk groups.

Report 17 – Clinical characteristics and predictors of outcomes of hospitalised patients with COVID-19 in a London NHS Trust: a retrospective cohort study (29 April 2020) 

This study found that older age and male sex, plus comorbidities such as renal failure, were associated with increased odds of death. It also found that ethnic minority groups were over- represented in their cohort, and that people of black ethnicity may be at increased odds of mortality compared to whites. The authors suggest that further research is urgently needed to investigate these associations at a larger scale.

The role of genes in COVID-19 symptoms

The latest data from researchers at King’s College London, based on data logged by pairs of twins on the COVID-19 Symptom Tracker app, suggests that genes are 50% responsible for the presentation of key symptoms of COVID-19. This includes fever, fatigue and loss of taste and smell. covid-temperature-mask-promo.xd6293ff5

Features of 16,749 hospitalised UK patients with COVID-19 using the ISARIC WHO Clinical Characterisation Protocol

This study  presents the largest detailed description to date of hospitalised COVID-19 patients.  The multivariate analysis undertaken allows us to understand how factors such as age, sex and comorbidities interact to determine overall risk of death for individuals.

Age was found to be a strong predictor of mortality. The influence of sex and comorbidities was less strong. The authors note that “although age-adjusted mortality rates are high in the elderly, most of these patients were admitted to hospital with symptoms of COVID-19 and would not have died otherwise”. We commented on this and another multivariate study from New York in a recent bulletin.

“The wider impacts of the coronavirus pandemic on the NHS” – Institute for Financial Studies report

 

The Institute for Financial Studies has been applying itself to evaluation of a number of economic and resource matters that the epidemic is generating for the future.  In a recent article they investigate “The wider impacts of the coronavirus pandemic on the NHS” (Link).  Of great concern is the clear evidence of backlog building up on a range of elective procedures, care volume drops and appointment cancellations.  Collectively these will result in delayed diagnostics with severe implications.   The article is well worth a read for assessing possible insurance related implications for morbidity, mortality and health over several years into the future.

Thermometer.png

Estimating the burden of United States workers exposed to infection or disease

The easing of lockdown will be a challenge; not least the timetable for return to work for many of those currently not able to work from home. Understanding which occupational groups are at most risk of infection can help with the public health effort in in planning for potential subsequent infectious disease outbreaks. This analysis  suggests that 10% (14.4 M) of United States workers are employed in occupations where exposure to disease or infection occurs at least once per week.

Clinical and Medical News

Remdesivir in adults with severe COVID-19

Remdesivir is an antiviral known to be effective against Middle East respiratory syndrome coronavirus, SARS-CoV-1, and SARS-CoV-2 replication in animal models. Hence, it is a drug of interest in the fight against SARS-CoV2. Disappointingly, recently published results from a double-blind, placebo-controlled multi-centre trial report that Remdesivir use was not associated with a difference in time to clinical improvement

However, patients receiving Remdesivir had a faster time to clinical improvement than those receiving placebo among patients with symptom duration of 10 days or less, though this did not reach statistical significance. This finding warrants further
investigation.

Internet Searches for Unproven COVID-19 Therapies in the United States

Whilst the use of on-line meeting platforms and the ability for fast-track publication of research have (in some ways) been a positive that has emerged from the period of social distancing, the internet has also unfortunately provided us with the ability to access questionable information, and products.

This was highlighted in some interesting analysis  which showed alarming increases in internet searches for purchasing chloroquine and hydrochloroquine following high profile endorsement.

Renin–Angiotensin–Aldosterone System Inhibitors in Patients with Covid-19

The interaction between the SARS viruses and ACE2 has been proposed as a potential factor in their infectivity. Given the common use of ACE inhibitors and ARBs worldwide, guidance on the use of these drugs in patients with COVID-19 is urgently needed. On the balance of the evidence reviewed in this publication , researchers suggest that these drugs should be continued in those patients in otherwise stable condition who are at risk for, being evaluated for, or with COVID-19.

Studies are underway to test the safety and efficacy of these drugs including recombinant human ACE2 and the ARB losartan in COVID-19.

An analysis of SARS-CoV-2 viral load by patient age 

Whether or not children are sources of COVID-19 infection is not fully understood. Professor Drosten from the University of Berlin and his team analysed the variance of viral loads in patients of different age categories in this study (Link).

They suggest that they have to caution against an unlimited re- opening of schools and kindergartens in the present situation – children may be as infectious as adults.

What policy makers need to know about COVID-19 protective immunity

This review cautions against hastiness when it comes to easing lockdown. In particular, the article notes that the linchpin for a strategy to move out of lockdown seemingly rests on increased testing and contact tracing, possible return-to-work permits based on immune status, repurposed or new therapeutics, and, finally, vaccination.

Concern that a [COVID-19] related inflammatory syndrome is emerging in children in the UK ,

An alert to GPs in the UK says that in the “last three weeks, there has been an apparent rise in the number of children of all ages presenting with a multi-system inflammatory state requiring intensive care across London and also in other regions of the UK”.

The absolute numbers are very small, and the syndrome appears to share some features with serious COVID-19. The rationale of this alert is to allow clinicians to recognise potential cases so that appropriate and timely interventions can be provided.

Data

ONS data by local area and socioeconomic deprivation

The ONS published analysis of COVID-19 deaths in England &amp; Wales between 1 March and 17 April by various geographic factors, including region, local authority, middle layer super output areas and index of multiple deprivation (IMD) deciles .

 

Unsurprisingly, London is the region with the highest age-standardised mortality rate for deaths involving COVID-19 (85.7 per 100,000 over the period 1 March to 17 April).

This is nearly double the rate in the second highest region (43.2 for West Midlands) and five times the rate in the lowest region (16.4 in the South West).

Focussing on local authorities, the highest rates were found in London (144.3 in Newham, 141.5 in Brent, 127.4 in Hackney), with high rates also found in and around other major cities including Liverpool, Birmingham and Manchester.

Aggregating data according to Urban Rural Classification presents a similar picture, with the highest rate in areas classified as urban major conurbations (64.3 per 100,000 over the period 1 March to 17 April) and the lowest rate in rural hamlets and isolated dwellings in a sparse setting (9.0 per 100,000).

Of particular interest is the analysis of death rates by Index of Multiple Deprivation (IMD) decile (chart reproduced below). This shows that the three most deprived deciles have age-standardised mortality rates (for deaths involving COVID-19) that are more than twice as high as the rate in the least deprived decile.

In addition it can be seen that this COVID-19 IMD differential is greater than the corresponding differential based on all deaths. In other words, COVID-19 linked deaths are proportionately greater in the most deprived areas.

Screenshot 2020-05-02 at 06.13.24

UK deaths in care homes

We have previously commented on the various sources of data on deaths, both from COVID- 19 and all-cause. Much of the data on COVID-19 deaths has related to those who died in hospital.

ONS have published data coming out of the Care Quality Commission on the number of deaths in care homes in England . Typically there are fewer than 400 deaths per day reported in care homes – this data shows that in the period up to 24 April 2020 the figure has passed 1,000 on several days, with up to 500 of these confirmed as involving COVID-19.

Deaths from other causes

John Appleby of The Nuffield Trust has reviewed the data on deaths from causes other than COVID19 over March 2020, noting that deaths from other main causes (other than dementia and Alzheimer’s disease) were significantly lower than their five year average.

And finally…

Virtual meetings

Everyone who’s been working from home for the past weeks will have participated in endless virtual meetings, sometimes on platforms that you didn’t even know existed before the pandemic.

Here are some interesting things people are doing with the format:
For a $100 donation, a California animal sanctuary will allow you to invite a llama, a goat or a range of farm animals onto your video call 

Screenshot 2020-05-02 at 07.00.44

Noticing that people are giving themselves (often disastrous) home haircuts during lockdown, a pair of friends are offering £15 video consultations with a barber – the money is split between the barber and NHS charities

Screenshot 2020-05-02 at 07.02.49
1 May 2020

Posted in actuaries, advice gap, coronavirus, pensions | 2 Comments

Risk factors for COVID-19

Posted on May 1, 2020 by henry tapper

 

Matt Edwards

Screenshot 2020-05-01 at 15.18.11

Introduction

A primary objective of epidemiology in respect of any disease is to establish the ‘risk factors’ that affect morbidity (succumbing to the disease) and mortality (dying from the disease). For most established diseases, for instance major cancers or heart disease, we now take for granted the ability to analyse large, well-curated datasets using relatively advanced statistical techniques in order to identify and quantify the risk factors.

The short ‘history’ of COVID-19 means that, to date, very little ‘multivariate’ analysis has been done to quantify the effect of risk factors simultaneously. Risk factors have mostly been considered in isolation, through simple ‘one-dimensional’ analyses. This creates potential to misunderstand the operation of risk factors regarding COVID-19 because of confounding – where the effect of one risk factor is distorted by the effect of another.

Example of confounding

In the example below, we set out how the effect of one risk factor can be distorted by another major risk factor with which it is correlated. The numbers used are ‘made up’ for simplicity, but they are broadly plausible. We have based it on a population split into two age bands, and two risk levels (smoker and non-smoker). We start with two elements: the population split across this 2×2 combination of age bands and smoker status, and some assumed mortality relationship between them (with smoker mortality higher than non-smoker mortality).

So in this example, we have:

Population

Smokers

Non-smokers

Mortality

Smokers

Non-smokers

Age 50-80

100

400

Age 50-80

1.4%

1.0%

Age >80

50

450

Age >80

10.5%

7.5%

Total

150

850

Multiplying the population by the mortality rates, we expect the following deaths:

Deaths

Smokers

Non-Smokers

Age 50-80

1.4

4.0

Age >80

5.3

33.8

Total

6.7

37.8

However, if we now compare overall smoker and non-smoker mortality, we see that both are almost identical (  = 4.47%;   = 4.45%).

So, although we know that smokers have higher mortality this is not apparent from the one-way analysis. This is a direct result of a correlation in the data between age and smoking status – the lives in the example were not distributed evenly across the four ‘cells’.

We can see from this how the effect of a factor such as smoking, if damaging in the context of COVID-19, could be masked by the effect of age – and hence it would appear from a simple look at the data that the factor had no effect on COVID-19 mortality. Conversely, it is also possible for insignificant factors to appear influential.

Terminology

We should note that the meaning of “risk factor” varies across professions. Actuaries generally use it to denote something measurable with a material impact on the risk in question. Hence age is a risk factor for all-cause mortality despite just being a proxy for physiological degeneration.

Likewise, in the context of COVID-19 we are interested in the observed relationships, even if features such as age are proxies for poorly understood ‘real’ risk factors such as the strength of the immune system.

What we know about risk factors so far

Age and sex

The one thing we can be sure of from data accumulated so far is that age and sex are very strong risk factors. For instance, using the most recent Italian data (because of the age and sex breakdown, and the sadly large volumes) shows us the following relative age and sex case fatality rate (‘CFR’).

We present it as relative to avoid, in this context, the many uncertainties regarding the absolute numbers – for instance, the effect of unknown cases, as discussed in a previous bulletin.

Screenshot 2020-05-01 at 15.20.52

Here, compared with the ‘Female 60-69’ band taken as a reference point (the choice of reference point is arbitrary), we can see both the clear increase of the CFR with age and the effect of sex.

However, although the above relativities show the age and sex impacts of COVID-19, it is useful to interpret them in the context of normal (all-cause mortality) age and sex effects. If we normalise for Italian population mortality, we find the effects above not only disappear but to some extent reverse.

Screenshot 2020-05-01 at 15.21.04

So, there is a strong age and sex effect with COVID-19, but it is not out of line with normal mortality. If anything, the high-age effect seen with COVID-19 is less marked than for normal mortality.

Other risk factors

Obesity, hypertension and diabetes appear to be risk factors, with their prevalence in COVID-19 cases and deaths noted by (for instance) the Istituto Superiore di Sanità in Italy and the Centers for Disease Control and Prevention in North America.

In the UK, the Intensive Care National Audit and Research Centre (‘ICNARC’) publishes weekly reports showing the characteristics of COVID-19 patients admitted to intensive care units (ICU), and also the characteristics of patients for whom outcomes are recorded (those who have been discharged from ICU, or died).

Looking first at obesity, we see that in the most recent report obese patients account for 38% of ICU cases. This compares with UK population obesity prevalence of 30% (above age 65). Obese patients have a 50% chance of surviving ICU, consistent with other patients.

So there seems to be a material morbidity effect, although it is not overwhelming given the population statistics, and even this increased propensity may be partly explained by other factors. There is no discernible mortality effect.

Two factors that have started to receive more attention are ethnicity and socio-economic status.

Using the same data, we find that the two most deprived of the five quintiles used in the report account for 50% of ICU cases. 40% would be expected if there were no socio-economic effect. The most deprived patients have a 47% chance of surviving ICU, compared with 51% for less deprived groups.

Again, a material morbidity effect, though there will be confounding with obesity in particular (prevalence is higher among more deprived groups). There is only a small mortality effect, and it is lower than the socio-economic mortality differentials seen in the UK for all-cause mortality.

Considering ethnicity, the ICNARC report shows that non-White patients account for 34% of ICU cases. This compares with a 23% non-White proportion of the population in the patients’ locations. Non-white patients have a 45% chance of surviving ICU, compared to 52% for whites.

The non-white admissions are higher than expected, and it is not plausible that this is caused by the non-white population being older (in fact the reverse is true). It seems that ethnicity is a strong risk factor for morbidity and may also be significant for mortality.

Finally, one risk factor that has surprised many has been smoking. So far, there has been no evidence from ‘one-dimensional’ analysis showing that smokers clearly exhibit higher morbidity or mortality from COVID-19. Indeed, there has been speculation that smoking may confer some degree of protective benefit.

This highlights the importance not only of being aware of the dangers of confounding, but also bearing in mind the need to interpret data with regard to clinical and biological plausibility. It seems unlikely that a smoking history would result in lower mortality risk for instance, as smokers will generally have damaged respiratory systems from prolonged tobacco use.

What multivariate analyses are there?

One ‘by patient’ multivariate analysis is a New York hospital study, ‘Factors associated with hospitalization and critical illness among 4,103 patients with COVID-19 disease in New York City’ by Petrilli et al.

This brought out the following main results in respect of hospitalisation, where the multivariate analysis allows results to be presented as ‘odds ratios’ (i.e. showing the increased chance of hospitalisation from the characteristic in question, allowing at the same time for the effect of other factors in the data). The odds ratios are expressed relative to some assumed ‘base level’, e.g. for age, higher age band effects are expressed relative to those for the 19-44 years banding).

Characteristic

Odds ratio

Compared with base of

Age 45-54

2.6

19-44 years

Age 55-64

4.2

(as above)

Age 65-74

10.9

(as above)

Age 75+

66.8

(as above)

Diabetes

2.8

No diabetes

Male sex

2.8

Female

Hypertension

[1.2]

Absence of hypertension

Obesity

4.3

BMI < 30

Ethnicity

1.4 (Asian) – 2.0 (other)

White

Tobacco use

0.7

None

A few comments:

  • The hypertension result is shown in square brackets as it was not statistically significant, but we thought it interesting to observe how small the effect is compared with other factors, given how much the condition has been noted in other analyses;
  • The obesity result shown is for BMI 30-39.9, above BMI of 40 the effect is higher (6.2);
  • For ethnicity, African-Americans showed no significant difference, but as with hypertension it is interesting to see the result anyway – the risk factor was [0.88];
  • The tobacco result is interesting.

The study also considered severe outcomes (defined as needing intensive care, or ventilation, or discharge to hospice, or death). What is interesting at this point is that very little was found to be significant here. Many of the medical conditions that were significant for hospitalisation (such as diabetes) were not significant.

If we look at age, we see:

Age

Odds ratio

To 18

6.3

19-44

Base (reference) band

45-64

[Not significant]

55-64

1.3

65-74

1.9

75+

2.6

Regarding ethnicity, the study found:

Ethnicity

Odds ratio

White

Base (reference) band

African-American

0.6

Asian

1.9

Other

[Not significant]

Another multivariate analysis we are aware of looks at a large number of hospitalised UK patients, with particular regard to prior medical history. The event studied was survival vs death, with the following factors found significant for mortality:

Factor

Odds ratio

Age < 50

Base (reference) band

Age 50-69

4.0

Age 70-79

9.6

Age 80+

13.6

Sex = female

0.8

Chronic cardiac disease

1.3

Chronic pulmonary disease

1.2

Chronic kidney disease

1.2

Cancer

1.2

Obesity

1.4

Dementia

1.4

The study did not appear to consider social class, ethnicity, hypertension or smoking habits.

Overall, the effects of prior medical conditions appear low compared with one-way COVID-19 analyses we have seen, and this would be consistent with confounding between medical history and age. The sex effect (20% lower mortality for women) appears low compared with other results.

Conclusion 

We are only now starting to have enough data to look at risk factors properly, through multivariate analyses. At the moment, before we have good studies in a range of countries to consider, the most important thing is to be aware of the issue of confounding, and hence avoid ‘double-counting’ some aspects.

The multivariate analyses we have seen show results that are appreciably different from the one-way analyses of COVID-19 morbidity and/or mortality, these differences being generally consistent with the confounding mentioned (for instance, hypertension ‘disappears’ as a factor because it was confounded with age).

It is also advisable to consider the issue of biological plausibility of any results.

Understanding risk factors better can help with understanding the underlying pathogenesis, and with evaluating strategies to move beyond lockdown.

Matthew Edwards
1 May 2020

1 Author’s simple calculations from data in ‘Epidemia COVID-19, Aggiornamento nazionale 23 aprile 2020’, http://www.iss.it

2eg the work by Cairns and Kleinow https://www.actuaries.org.uk/system/files/field/document/E3%20Kleinow_LifeConf_2018V2.pdf

3 https://www.ethnicity-facts-figures.service.gov.uk/uk-population-by-ethnicity/demographics/age-groups/latest#main-facts-and-figures

4 Factors associated with hospitalization and critical illness among 4,103 patients with COVID-19 disease in New York City, Christopher M. Petrilli, Simon A. Jones, Jie Yang, Harish Rajagopalan, Luke F. O’Donnell, Yelena Chernyak, Katie Tobin, Robert J. Cerfolio, Fritz Francois, Leora I. Horwitz, medRxiv 2020.04.08.20057794

5 Features of 16,749 hospitalised UK patients with COVID-19 using the ISARIC WHO Clinical Characterisation Protocol, medRxiv 2020.04.23.20076042

 

Matt Edwards

 

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People don’t have a “sell by” date

Posted on May 1, 2020 by henry tapper

Expired

Two articles have been troubling my conscience, the first is by Debora Price  and is featured on this blog. Debora champions the vitality of older people. The second article is by Ros Altmann and is on a similar theme. It is not on this blog but I have quoted from it, you can read it here.

Ros’ central argument is that older people should not be punished by and for the pandemic.

  • Old people must not be confined just because some are vulnerable.  
  • Surely collective punishment of all those over a specific age is unacceptable in our democracy.
  • It is not acceptable just to blame the virus for ‘targeting’ some age groups.
  • I urge Government to consider the social and political consequences of such authoritarian policies.

There is a lot of overlap between the articles as you would expect. They both spring from the news, confirming what scientists had known for some time, that excess deaths in care homes and amongst isolating older people is much higher than previously reported. There is still a gap between UK deaths brought on by the pandemics – around 47,000 and those reported as from the pandemic (26,500) is because of the lag in feeding through bad news and because many people’s cause of death- reported on the death certificate is nor reported as COVID-19. This is particularly the case in nursing homes.

This slide shows that it is the old who have most “hazard” from the virus, something that has been known from the early data coming out of China but is now reinforced in the UK

Screenshot 2020-05-01 at 05.53.19

But as Stuart McDonald has written most poignantly, there’s life in the old dog yet. Stuart’s was the most read article published on my blog last month. I am clearly not alone in feeling guilt about the fate of so many of our older citizens. We have it in our moral DNA to honour our fathers and mothers and Colonel Tom has focussed our respect for the old on his vitality.

The trope peddled by apologists for the neglect of the elderly in homes (and their carers) is that Covid 19 is some kind of geriatric cleansing that redistributes deaths from the back to front of 2020

Screenshot 2020-05-01 at 06.09.22

Nick Tiggle – twitter (reportedly from BBC)

This is not the first time I have read this argument and sadly I’ve heard it from some of my friends and why it is being repeated is because it is so convenient – especially to those who refer to living people as liabilities (eg almost everyone in the pension industry).

And many people, simply don’t get “longevity”

The truth, as explained in the Economist this week is “yes ten years!”

It is not until the extremes of life expectancy that the impact of a death from COVID-19 can be measured in days and if you are in your final days, every day counts.

We do not become liabilities nor pass our sell by date

We brutalise our emotional response to older people when we talk of them as liabilities. We do not decently talk of older people as “coffin dodgers” or “past their sell by date” – especially in these dark days.

But I fear that there are many of us who cannot share in Ros Altmann’s and Debora Price’s empathy with the vitality of those in care homes. Grandpa in the Simpsons may be another figure of fun, but he is – in the context of the show- a very vivid force with his distinctive voice. He is treated just the same as everybody else.

If we could regard the life of an 80 year old as equal to the lie of a 50 year old, we would be showing a better side to ourselves.  We might also start taking our retirements a little bit more seriously.

 

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Should the Government be levelling with us (or not)?

Posted on April 30, 2020 by henry tapper

BJ.jpg

Boris Johnson’s most memorable phrase, before his illness was “I want to level with you”. At that stage, telling us that people would die in British hospitals was still newsworthy. Six weeks on and telling us how many are dying in our hospitals is newsworthy only that it helps us see that curve flattening.

But the bigger curve – the curve that describes total deaths in the UK from COVID-19 is not being shown to us. Instead we get a lesser version of the great curve “total reported deaths” and deaths reported from COVID-19.

A friend of mine nearly died from a heart attack two weeks ago, the heart attack is thought to have been brought on by COVID-19 though – had he perished, the cause of death would have been “cardiac arrest”.

We now know that many specialists in non-respiratory disciplines have been on COVID-19 wards , meaning that patients with worsening symptoms have missed emergency help, operations and treatments have been postponed and this will have pushed up death rates. These death rates are – with reference to death certificates – not COVID-19 deaths, though COVID-19 was the major contributory factor.

A death is a death

When an actuary is compiling a mortality table, he/she looks for outliers – excess deaths. The latest number of excess deaths in Britain this year is 46,000. In a year when mortality was below average in the first quarter, it is clear that these excess deaths relate to the period from the end of February when the impact of COVID-19 took place.

The Institute and Faculty of Actuaries, who have professional standards akin to those in the medical profession are responsible for working out the 46,000 number and if you follow the links to the CMI page, you can see the working

What is truly frightening is that this shows England against our European peers in a very bad place indeed.

I have followed commentary on this second chart and I understand the comparison isn’t entirely fair. This data is from EuroMoMo.  EuroMoMo does not purport to compare countries to each other. It analyses each country separately showing whether its mortality is unusual based on its own history. (see end of blog for difference between Z scores and excess mortality)

Nonetheless, it is clear that things are very bad in the UK, worse than others shown.


If the Government wishes to level with us, it must admit that we are in a very dark place and accept the consequence of that is continued lockdown for a time to come. This current “tie and tease” which gives us lockdown with the teasing expectation of release is a dangerous game, as the numbers show.

To somehow suppose that those excess deaths in care homes aren’t really deaths is both heartless (Ros Altmann’s point) and untrue – Stuart MacDonald’s point. A death is a death.

Can we stand this much reality?

There is a sub-question in the title of this blog. That question is whether it might be best for the Government to level with us. Is transparency the best policy when it risks other consequences, such as a loss of confidence in Government itself?

This is not as disruptive a thought as it seems. Even if this Government has made strategic mistakes, vacillating between suppression and mitigation, failing to order PPE and being over lenient in the lockdown (all of which may be true), if we lose faith in those who are calling the shots, we risk something much worse.

What seems clear to me is that we are not all in this together and that the vast majority of us my readers have seen very little genuine hardship. The impact of COVID-19 is being felt most within the captivity of care homes, among the BAME and in certain geographical areas, especially parts of London. In this Boris Johnson (and my friend) are outliers.

But to suppose that Middle Britain has escaped the worst of COVID-19 is to suppose that we are on the downward curve for good. This seems increasingly unlikely.

Why we should remain calm.

My natural reaction when I find I’m being fed a line is to get angry and this is what I did last night, listening to the Government 5 ‘Clock Daily Briefing. We were told that the 26,000 figure was the “reality” when it clearly isn’t and the Government’s argument that they will have to wait a couple of weeks for the excess death data is clearly tosh (they just need to read the CMI’s work).

But as I ranted at my mothers (who at 87 knows a thing or two more than me about morbidity and mortality) , I realised that I was telling her something it did her no good to hear. She reproved me and told me the information I was giving her made her sad but would not change her behaviour. I asked her why it made her sad and she said she wanted to have confidence in what the Government told her to do.

My mother was right and I was wrong and I suspect that this Government has no alternative at this point but “not” to level with us. Because if it loses us, it loses the dressing room and it may well lose the game set and match.

So we must stay calm, smile while we are fed the B/S and accept that sometimes sunlight is not the best disinfectant.

Footnote – Euromomo’s Z Scores v Excess deaths

The Euromomo chart plots each country against its own normality, this isn’t quite the same thing as plotting each country against its excess deaths. This is explained here (again with thanks to Stuart McDonald

 

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Judging your workplace pension (by saver outcomes)

Posted on April 29, 2020 by henry tapper

Screenshot 2020-04-29 at 06.43.36

Defaqto has produced an important piece of work for financial advisers wanting to help employers get to know their workplace pension. You can access it via this link (there is a little signing up to do to get there)

As Defaqto rightly point out, it’s not just financial advisers who can benefit from their  work, choosing a workplace pension is an employer duty and doesn’t need an adviser. Of the 1.4m workplace pensions selected by employers , most were selected unadvisedly.

Whether as an employer, you use an adviser or not, it is wise to know why you chose your workplace pension. This is not just because you’d want your money to work as well as it could for your staff, it’s because bad decisions can come back to bite you, especially if you never documented how and why you made the decision in the first place.

The Defaqto guide is split into two sections, the first helps advisers with the marketing of their services to employers and is useful to the general reader in that it sheds light on the “value add” that advisers can bring.

The second section is for the general reader and in particular for employers who want to get to know their workplace pension. It is entitled “key factors to consider when reviewing a default fund” and consists of seven sections

Screenshot 2020-04-29 at 05.42.09

The actual analysis carried out by Defaqto is not on the universe of choices available to employers but on the master trusts. This excludes a number of providers active only in providing GPPs and Stakeholder plans.  Confusingly several providers who don’t offer a master trust (Royal London, Hargreaves Lansdown and Intelligent money) are included in the analysis and the governance section confuses itself a little between IGCs and Trustees.

The IGC and Chair reports provide useful information. However, the lack of consistency in the way data is collated and presented means the results are largely not comparable. In addition, conclusions are often based on internal data and are therefore arguably subjective.

All of this means the relevance of the reports is low, which decreases the trustees’ (sic) strengths. This is certainly an area where further collaboration between the FCA and TPR would improve matters for advisers, employers and, most importantly, members

If Defaqto are confused, so will be advisers and the general public. For what it’s worth, I think that you can compare the quality of IGC reporting , but that some of the best IGC reporting is on workplace pensions that don’t appear in this survey (mainly because they are not open for new business). The Prudential IGC report is a case in point. We need alignment of reporting on workplace pensions, whoever is doing it.

By your fruits shall ye be known

The main thrust of the second part of the report is to find a way of comparing workplace pensions by likely outcomes for savers. While “outcomes” includes the experience of “fantastic service”, Defaqto’s measure really focusses on three measures

  1. The costs experienced by the saver from all sources
  2. The value for the risk taken by the investment manager
  3. The absolute return achieved – the achieved performance.

Screenshot 2020-04-29 at 05.24.54

This is good from a theoretical point of view, but it is hard in practice to marry all these up into one comparison. You’d need to weight the various components by value to create a balance scorecard of results. The provider offering the best value for money in this analysis , might be the suitable solution, but there are other factors – payroll compatibility for one thing, brand another. In my experience of running the Pension PlayPen, decisions are as often as not taken not on value for members as cost to the employer.

But that doesn’t devalue the work Defaqto is doing. We need to move away from the historic bias towards providers who are cheap and easy to use, and move towards selecting workplace pensions that are best for savers. And this report is a step in the right direction.

How do we know that a fund is right for savers?

This report has been commissioned by NEST and People’s Pension. NEST’s CIO is reported as saying

Too often the pensions industry talks about investment performance without considering the risk taken. And yet we know from our research that many pension savers want steady, smooth returns instead of high volatility.

It’s important and great to see that Defaqto has devoted part of this report to the level of risk taken by different default funds. The turbulent market conditions over the past few months have reinforced the importance of diversification and good risk management.

More sophisticated investment strategies are likely to weather difficult markets better than those that rely too heavily on a single asset class, like equities.

“All pension schemes can help build confidence in savers by focusing on achieving the best risk-adjusted returns for our members, and moving away from often misleading short-term, headline returns.

I thoroughly agree with this – but feel that the analysis needs to go deeper and to touch the actual experience of savers. We need to engage with people’s actual saving experience.

Actual data trumps theoretical data

The difficulty of the Defaqto analysis is that it relies on theoretical rather than experienced data. So the Sharpe and Sortino ratios come from data supplied by fund managers , not the experienced outcomes of savers.

This is important as much of the risk that savers take relates to factors outside the fund manager’s control. These are listed by Defaqto in the report

Screenshot 2020-04-29 at 06.25.04

NEST and People’s Pension both have complicated charging structures with different allocation rates, varying annual management charges and annual product charges. While most of the other items are included, some may be extras. The question of “exit fees on transfer” is particularly grey.

We at AgeWage are looking at doing both performance analysis and an analysis of value for risk taken based on the experience of the saver. This kind of analysis looks at what members paid in and what they got back – their experience.

So we’d go further than the CIOs of NEST and People’s and say that what employers and their staff want to know is how the default fund has done for them, not for their trustees, investment committees or IGCs.

The science can create Sharpe and Sortino ratios, can be applied to individual’s experience of saving. While this does not give “pure” information back to fund managers, it gives experienced information to savers and their fiduciaries (trustees +IGCs+investment committees).

Knowing that a fund is right for savers, means understanding how it works in practice. A car can look great in a table of What Car, but until you get behind the wheel and experience it , it’s hard to get a feel if it’s right for you.

We need to be doing a lot more road testing of workplace pensions and that’s where I think AgeWage and Defaqto, might be able to work together in future.

 

Agewage logo

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Prudential IGC reports a notable victory for savers.

Posted on April 28, 2020 by henry tapper

Screenshot 2020-04-28 at 10.25.30

2019/20 – a battle won

Prudential’s is the last IGC to publish its Chair report this year and I suspect the report we get is rather different than the report planned earlier in the year.

Chair Lawrence Churchill tells us

During the year Prudential proposed an increase in charges for around half of Members. After the IGC raised its concerns with both Prudential’s Board and the Financial Conduct Authority, I’m pleased to report that Prudential has decided not to go ahead with the increases for the moment. This is good news for Members.

We learn later in the report that

The big event of the year which has dominated IGC’s time and attention was Prudential’s proposal to increase charges. There was intense discussion with Management, Prudential’s Board and with the Financial Conduct Authority on possible communication to Employers and Members. However, in March 2020 Prudential decided not to proceed.

And Churchill signs off his five year stint as Chair with sober advice.

Prudential has indicated that it may review it’s (sic) position on increasing charges in the future. If they propose an increase, Employers and Members will need to be vigilant about the reduced pension and the impact on Value for Money

It is a mark of just how effective this IGC has been over the past five years that they have won this battle. But I suspect the climb-down by the Prudential owes  much to not wanting to put up prices at the onset of COVID-19.

It is hard to think Prudential’s IGC will be able to replace its chair with a better. The standard his reports have set in terms of tone . brevity and the logic of their VFM assessments, have raised the bar for others. Thanks to Laurence Churchill.

Tone and structure

The report is only 11 pages long (with a further 12 pages of appendices). Although the ICG is clearly dominated by Churchill, the report continues its practice of  giving  equal voice to each of the members. Tellingly, the news of the IGC’s victory on charges is given to the Prudential nominated member to deliver, a use of reporting structure to demonstrate the distance between IGC and provider- even where conflicts might occur.

The style is positive but not effusive and the language plain and direct. Not everything quite works (the odd purpling out of board members in introductions), but you can hear individual voices of board members which makes the report much more engaging.

Screenshot 2020-04-28 at 09.32.35

In previous reports i’d been critical of “fluffy” prose, specifically with Lesley Alexander and I’m pleased to see that all reports this year are precise, concise and incisive. Take this

In common with the rest of the industry, we have not seen any breakthrough on the quality of customer engagement. Indeed the FCA reported earlier in the year that, across the industry, only 49% of Members read their annual benefit statements.

This clarity of expression is encouraging, especially if the IGC can find ways to better engage Prudential’s savers with their savings.

And throughout, there is a sense that the report is talking to you, albeit from a considerable distance

No concerns have arisen to date for IGC and, in line with the new responsibilities, a fuller section will be included in next year’s IGC report.

Meanwhile have a read of the published ESG and Stewardship reports.

Daniels and Kefting’s M&G Stewardship is indeed worth reading and I did so because of the Margaret Kerrigan’s informal but authoritative invitation.

In tone and structure, this is a very good report and I have no problem giving it a green rating.

Is the IGC effective?

We will not know if the charges backdown is a stay of execution or whether the Prudential will back down following the pandemic. The new Chair will be important in this but the existing committee have clearly done the policyholders a good turn and they are many in number.

Screenshot 2020-04-28 at 09.58.35

Prudential don’t appear to be investing in engagement as the IGC would like and Lesley Alexander is on the case.

Their administration is creaking and Jennifer Owens  is on the case

IGC has not seen a clear pattern of service performance from the new system of reporting. Throughout the year, we received service level reports on the old basis. These showed continual underperformance on call handling and one or two periods of poor service on claims caused by computer system problems.

John Nestor is picking up in spikes in transaction costs on internally managed funds and reporting outliers where costs on self-select exceed 30bps – a clear sign that VFM is in danger.

Overall I was happy that each member of the IGC was doing their job, that the team was working as a whole, effectively and to the benefit of policyholders. If only all IGC reports could communicate as effectively, how effectively they worked. I give them a green.

Value for Money assessment

Tellingly, the report stops short of validating the Prudential as giving value for money. This is most unusual, I do not read a statement to the contrary but I suspect that there may have been escalations to the FCA during the year and Laurence Churchill does not sign off with any great celebration of a job done.

Prudential’s proposal to increase its charges for around half of Members, often substantially, served as a wake-up call

Uniquely, Prudential’s Value for Money Assessment is based on outcomes and – as Appendix 4 shows, there is a clear methodology which is transparent to a degree of granularity i haven’t seen in a report before.

The approach being adopted to rate investment pathways next year looks exemplary. I note that no benchmarks are in place on ESG and the engagement benchmarks continue to look woolly .

On the main benchmark, delivery against outcome targets, the Pru continued to deliver, albeit in a storming year for all asset classes (except cash). It will be interesting to see what the CPI+3% outcomes benchmark looks like for 2020 and what COVID-19 does for three and five year assessments.

From day one, Prudential got their VFM assessment right and though they have had to slightly dilute the outcomes based approach, it is still the most effective and consistent benchmark.

I give it a green again, meaning that the Prudential is the only one of the major reports that gets a clear round. Despite being short, this is an excellent report. Indeed its brevity is one of its many virtues. Farewell Laurence Churchill, you have set standards.

LawrenceChurchillChairmanPrudentialIGC.jpg

Lawrence Churchill CBE

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How COVID-19 kills

Posted on April 28, 2020 by henry tapper

Screenshot 2020-04-28 at 06.08.33

Screenshot 2020-04-28 at 05.50.42

Joseph Lu

Joseph Lu

This is what we see

More than 190k people have died of COVID-19 worldwide to date. In EU/EEC countries about 30% of infected people require hospitalisation and 4% go into intensive care units (ICU)1. Of those hospitalised, 12% died.

Those that require hospitalisation and ICU often present with low blood-oxygen levels, suggesting the disease interrupts with oxygen transfer from the air into the blood stream. Normal blood-oxygen levels are above 94% (SpO2), if it drops below 90% the brain may not get sufficient oxygen and below 80% vital organs may suffer damage14. COVID-19 patients with blood-oxygen below 92% are considered seriously ill and would be treated in the hospital or ICU.

UK’s ICU data of 17 April show that COVID-19 can cause lung problems, without the presence of other diseases or frailty2 (the ‘control group’ below are otherwise equivalent non-COVID-19 viral pneumonia patients of the last two years):

  • Higher percentage of COVID-19 patients, 69%, need mechanical ventilation within the first 24 hours in ICU, compared with 43% control;
  • Higher percentage of COVID-19 ICU patients do not have a severe co-morbidity, 93% compared with 76% control. 93% of COVID-19 patients do not need assistance for daily living, compared with 74% control; 
  • Fatality in ICU for COVID-19 is much higher than their control counterparts in all subgroups observed. The reason for this is being debated. Possible reasons are that antivirals are available for influenza but not coronavirus, and that COVID-19 may cause lung damage earlier15.

Autopsies of patients who unfortunately died of COVID-19 show3,4:

  • Damage to the tiny air sacs, alveoli, whose function is to exchange oxygen and carbon dioxide to and from the blood stream. This is supported by X-rays showing ground-glass opacity, indicating acute respiratory distress syndrome.
  • Inflammation in the lung, with the presence of immune cells lymphocytes. The over-reaction of the immune system, the ‘cytokine storm’, could cause collateral damage to the cells in the lung. As puss and fluid build up, the function of the lung is compromised and the patient cannot breathe normally.
  • Mucous in the lung.
  • Bleeding (haemorrhage) and blood clots in the lung. This signifies damage in the blood vessels.
  • Infection in the heart is not ruled out.

This is what’s happening

For coronavirus to replicate by hijacking the cell, the virus needs to attach to the surface of the cell and enter it. The coronavirus attaches to a protein called ACE2 on the cell surface and requires some other proteins, one of them named TMPRSS2, to enter the cell. Laboratory scientists have recently reported that ACE2 and TMPRSS2 are associated with respiratory tract cells lined with hair-like projections to sweep mucus and bacteria out of the lung5. This would explain why COVID-19 affects the lung. 

ACE2 and TMPRSS2 also appear on the cells of the heart, immune system, blood vessels, kidney, brain and intestines6. The functions of these organs and systems have been shown to be disrupted, to various degrees, by COVID-19. ACE2 increases with age and is 50% higher in men than women. This may explain why older people, especially men, are more affected by COVID-19. 

The immune system is expected to play a role in damaging the lung as shown in autopsy6. Heidi Ledford explained further in Nature,

“Some of the earliest analyses of coronavirus patients in China suggested that it might not be only the virus that ravages the lungs and kills; rather, an overactive immune response might also make people severely ill or cause death. Some people who were critically ill with COVID-19 had high blood levels of proteins called cytokines, some of which can ramp up immune responses. These include a small but potent signalling protein called interleukin-6 (IL-6). IL-6 is a call-to-arms for some components of the immune system, including cells called macrophages. Macrophages fuel inflammation and can damage normal lung cells as well. The release of those cytokines, known as a cytokine storm, can also occur with other viruses, such as HIV.”7

The cytokine storm could also be responsible for harming other organs including the heart, liver, kidney and others.

How do other underlying conditions contribute to COVID-19 deaths?

People who are at higher risks of more severe symptoms are those who are older (over 50s), men, with underlying conditions including hypertension, obesity, smoking, respiratory diseases, cardiovascular diseases and others. They play different roles in causing deaths.

Direct role of other conditions

Chronic respiratory diseases and non-COVID-19 lung infection would directly add to the distress caused by COVID-19 in the lung. Diseased organs, such as the heart and kidney, will be more susceptible to damage due to oxygen deprivation from lung damage and cytokine storm from COVID-19, eventually leading to death.

This is consistent with the top five pre-existing conditions of people who died with COVID-19 in England & Wales (table below). The proportions of pre-existing lung-related diseases, chronic lower respiratory and influenza & pneumonia, of people who died with COVID-19 are relatively high when compared with observed in the population in 20189,10. COVID-19 would have added further stress to diseased lungs.

For men, the proportion of COVID-19 deaths with ischaemic heart disease is higher than that in the population (see table below). Many COVID-19 patients die from cardiac arrest potentially triggered by oxygen deprivation or cytokine storm. But we still don’t know if the problems are direct consequences of the virus infecting the heart6.   

Screenshot 2020-04-28 at 05.59.50

Own calculations from ONS data 9,10

The ability of COVID-19 to kill, with or without pre-existing diseases, lends support to debunk the preconception that people who die in this COVID-19 epidemic are primarily those ‘at death’s door’.

However, more research is needed to understand how the virus harms the body, including:

  • The virus could theoretically attach to many organs and systems with ACE2 and other proteins.  How does it affect them, leading to death?
  • How does the cytokine storm affect the lung and other organs, leading to death?
  • What have we missed in identifying how COVID-19 kills? For example, blood clots and damage in the blood vessels are increasingly suspected to play a larger part in harming the function of the lung and heart.13
  • How do pre-existing conditions interact with COVID-19, leading to death? For example, diabetes has been suggested to present favourable conditions for viral infection and to impede part of the immune system. 14

Indirect role of other conditions

Many underlying conditions are proxies for age, rather than acting directly. Immunity declines with age, increasing the risk of inefficient response, lack of co-ordination and prolonged cytokines storms against infection11, 12. This is consistent with the observation in England & Wales that 4 in 10K people died with COVID-19 at age 55-59, rising to 76 in 10k at age 85-89, an increase of 19-fold, in March 2020 10.

The ‘shape’ of the age distribution of deaths are similar between COVID-19 and the population. This is consistent with hypotheses that age drives COVID-19 deaths through weakened immunity and population deaths through chronic conditions related to damages caused by ageing processes. The proportions of COVID-19 deaths among men age 75-84, women 65-84, are higher than that of the population (Figure below).  More work is needed to confirm if this is statistically significant and related to the cytokine storm being more prevalent in these age groups.

 

Screenshot 2020-04-28 at 06.04.30

COVID-19 data in March 2020 and population in 2018, in England & Wales, from the ONS 9, 10.

Research shows that the prevalence of underlying conditions rises with age, regardless of COVID-19.  For example, about 30% of people age 30-34 have at least one chronic disorder increasing to 90% for age 75-79 in Scotland8 (see figure below). Although COVID-19 patients tend to have underlying conditions, it is unclear how, or if, they contribute to deaths. More work is required to better understand how interactions of various underlying conditions affect the progression of COVID-19.

Snapshot of Barnett et al. (2020), The Lancet.

Screenshot 2020-04-28 at 06.00.24

Comments

The virus infects primarily the lung and potentially other organs including the heart and kidney. Our own immune system may over-react, leading to cytokine storm that damages these organs. This damage, combined with oxygen deprivation, kills.

References

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“Nine years ago today, the Budget nearly killed me” – Guy Opperman

Posted on April 27, 2020 by henry tapper

 

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The author

 

This blog is about and by Guy Opperman – our  pensions minister; it’s re-published with his permission. It was first published April 26th here

Today’s date is etched on my memory, and it will be forever.

On Tuesday 26th April 2011, I was embarking on a normal day in the House of Commons. It was the first day back after the Easter recess, and I’d just spent the previous three weeks at home in Hexham. I had been an MP for 11 months and was starting to make a real difference. Over recess, I’d been campaigning across the North East, leading the regional ‘No to AV’ campaign and fighting the local elections.

Since being elected in May 2010, I had increasingly found myself exhausted, but I didn’t put it down to anything. Why should I? I was a newly elected MP doing dozens of visits every weekend across Northumberland. I was working from the early hours until late into the evening almost every night and had a 600-mile weekly commute between Hexham and London.

I simply put the tiredness down to the new job. I was young, and despite suffering a fall as a jockey at Stratford races a few years earlier, I would consider myself to be reasonably fit.

I started the day like any other, with a three-mile run through central London, before heading into Parliament. We were debating the Finance Bill, but through the day I began to feel progressively worse. I had a blinding headache, like something I could only describe as the worst hangover you could imagine. I often say that the Budget nearly killed me.

At 10:30 pm, I was violently sick.

Thankfully, my good friend and colleague Nadhim Zahawi, the MP for Stratford-upon-Avon found me in Central Lobby and put out a call for a doctor. Another new MP, Dr Dan Poulter arrived in minutes.

Dan is a specialist in obstetrics and gynaecology, so I greeted him weakly by saying, ‘Dan, I am not pregnant, but I don’t feel very well!

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With Nadhim and Dan in Central Lobby – they both played a crucial role in getting me the help I needed nine years ago today.

I wanted to go home and get some sleep, but Dan knew something was seriously wrong and insisted I went to hospital. An ambulance was urgently summoned to take me to St Thomas’ Hospital which overlooks the House of Commons. I was taken to the exact same hospital ward the Prime Minister was being treated for coronavirus.

After a series of scans, a young doctor, barely aged 30, and covering the busy night shift in A&E came over. He calmly said to me, ‘Mr Opperman, I am so sorry. I have had a look at the scan of your head. You have a tumour on the inside of your skull pushing down on the brain. You will need an operation to remove it’.

I was numb with fear and shock. I quite literally had nothing to say. Thinking back to that moment now still sends a shiver down my spine. I was shown the scan, and above my left ear was a 2-inch white lump. There was something alive inside my head.

Thankfully, the doctors told me it was treatable, but would require emergency surgery. I was told there was a 1% chance of death, a 1% chance of paralysis, a 1% chance of loss of sight, and a 1% chance of disability. I added these up and didn’t fancy my chances, but surgery was the only option – without it, I would die.

My surgeon was the quite incredible Dr Neil Kitchen. Under his care, I had a variety of scans which showed I had a meningioma, a type of tumour that grows from the meninges, the layer of tissue that lies above the brain. Neil advised me that I needed both a cerebral angiogram, and an embolisation first before they removed the tumour by craniotomy.

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I saw myself as relatively fit, still riding an amateur jockey.

An embolization requires the femoral artery in your thigh to be opened and then a wire passed up through your body into your head, where they burn off the base of the tumour to prevent future bleeding. After being told the details, I thought it best not to think about the process.

Over the next two weeks, I received visits from friends, family and colleagues every day. When in hospital, you have a lot of time to think, and I had a lot of questions. What if the tumour is cancerous? What if the surgery goes wrong? What about my constituents who need my help? Would I have to call a by-election?

On Thursday 5th May I was operated on – I had been an MP for exactly one year. It was the day of the referendum on AV, and local elections across the United Kingdom. After the anaesthetist began his work, my last words were apparently ‘It’s the AV vote today – don’t forget to vote against it.’

A craniotomy is performed by shaving the hair, then cutting the skin with a scalpel to reveal the skull, which is then opened with the medical equivalent of a tiny circular saw. The surgeon then removes the tumour with an even smaller circular saw. Neil managed to remove my tumour without damaging the brain or causing any bleeding. I was very, very lucky.

As I came round that afternoon, Neil came to see me beaming ‘We got all of it out, Guy’. I was beaming too, and said ‘And I can talk, and move my arms and legs!’

Two days later came more good news. The test results came back showing my tumour was benign. Neil advised me that the tumour would not recur. In fact, he told me I would be even better than before.

I was then discharged and went home to my parents. It was odd to be back at home again in my 40’s, but my parents cared for me in a way that only parents can.

I slowly began to read the hundreds of amazing cards and letters I had received from colleagues, friends, constituents and even the Prime Minister. As a new MP, I was still getting used to Westminster. As an outsider, it is easy to think of the Commons as a permanently tribal place, but I received cards from right across the political spectrum. I even received the biggest bouquet of flowers I can genuinely say I have ever seen from a Labour MP.

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Walking Hadrian’s Wall in 2011

 

These messages of support helped sustain me through the long months on the road to recovery that followed. I needed extensive tests and lots of physiotherapy to get my limbs back into action.

I was able to return to work in August, less than four months after my diagnosis.

That summer, I decided to walk Hadrian’s Wall to raise money for the Tynedale Hospice in Hexham, and the National Neurological Hospital that saved my life, which helped fund a new Neuroimaging Analysis Centre for clinical research.

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In early 2012, I presented a cheque to the National Neurological and Neurosurgery Hospital in London

In August of 2011, my Labour colleague Paul Bloomfield was also diagnosed with a brain tumour, one extremely similar to mine. Thankfully, he also made a full recovery, and in 2012 we walked the first section of the Pennine Way together to help raise money for Headway UK, a charity helping both adults and children recover from brain injuries, including tumours.

 

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Labour MP Paul Bloomfield and I in Parliament before walking the Pennine Way together

More recently, I took part in the 100-mile Prudential charity bike ride through London and Surrey. Research is vital to improving life chances for those diagnosed, so I will never stop fundraising. Once Britain gets through this coronavirus pandemic, I am planning to take part in another sponsored walk along Hadrian’s Wall.

I have regular scans, and nine years on, I am still tumour free and still often return to the National Neurological and Neurosurgery Hospital to say hello and take a box of chocolates to the team.

Whilst Britain faces this Coronavirus pandemic, there is a serious point I want to get across – the NHS is still there for us all. If you are concerned about a health problem, please make sure you contact your GP. Other illnesses do not stop because of coronavirus and people will continue to get sick. Please make sure you seek medical attention if you need to.

I will never be able to repay the debt of gratitude to our amazing NHS. It literally saved my life. So let’s all make sure we work to protect the NHS front line staff helping to fight coronavirus by making sure we stay at home.

 

Posted in age wage, Big Government, pensions | Tagged , , | 3 Comments

Is the PPF really suffering a “perfect storm”? I’m not so sure.

Posted on April 27, 2020 by henry tapper
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I am struggling to understand this analysis of the potential bills facing corporates with DB schemes. It appears in the Sunday Times but I’m not sure it’s very helpful.

Here’s the article

Troubled companies face a threefold increase in bills for the lifeboat scheme for pensions — possible rises of £1m or more — in a “perfect storm” sparked by Covid-19, according to specialist adviser Lane Clark & Peacock (LCP).

The Pension Protection Fund (PPF), which steps in when companies are unable to fill holes in their funds, estimated in January that it would impose a levy on the sponsors of defined benefit schemes of £620m for 2020-21. But Alex Waite, a partner at LCP, said contributions were likely to rise as firms’ financial positions weakened in the face of the Covid-19 crisis, at the same time that pension funds were hit by a plunge in stock markets and interest rates were cut.

“The PPF is strong enough to withstand the present crisis but it is likely to need to raise more in levies, with some firms facing particularly large increases,” said Waite. “A rise in corporate insolvencies will put pressure on PPF levies across the board.”

Some companies face far bigger rises if their deficits have increased as their own so-called insolvency risk also rose. Describing this as a “perfect storm”, Waite said it “could eventually see £1m levy increases for some employers”.

LCP’s calculations include an assessment of 4,000 firms graded on their financial risk into ten bands — 1 being lowest risk, 10 the highest.

A firm in band four before the crisis could “realistically” be in band seven at the next assessment, LCP said. The PPF levy for band seven is more than three times higher than that for band four.

The PPF said it was keeping the situation under review.

Here’s my common sense response

The post pandemic world will be a poorer place, companies won’t have the same money and the financial risks analysed by the PPF will mean that almost all companies will be downgraded.

Does this mean that the PPF will suddenly be getting a 300% increase in revenues? I don’t think so.

I suspect that PPF will consider the employer’s capacity to pay. Just as tPR are re-considering the capacity of employers to meet their contribution schedules, so the PPF will reconsider the capacity of employers to meet their levies.

The FT are estimating that up to £1bn in pension contributions could be suspended this year as businesses strike deals with retirement scheme trustees to keep afloat during the Covid-19 crisis.

What should government be prioritising, scheme solvency or levies to protect its lifeboat? Self-evidently the priority must be to ensure schemes remain solvent so they don’t become a burden on the PPF.

And what would be the consequence if some of these under-funded schemes fell into the PPF?

Well I imagine that the PPF will move from the very healthy financial situation it was in prior to the onset of the pandemic, to a less healthy situation in the years to come.

This is entirely consistent to the problems facing Britain as a whole. Pension funding cannot be immunised from the problems of Britain as a whole and like the rest of Britain, the PPF will find a way to adjust.

This will not mean applying a business as usual methodology for collecting levies when quite obviously this is not business as usual. I’m quite sure that LCP will prove itself useful to its clients by helping them reduce the perceived risk of their covenant failing. But that can be achieved without sensationalist headlines that create general anxiety

LCP is one of our best pension consultancies but they  should know better. Instead of scaring its clients and the general public with this talk of “perfect storms” , it should be looking to solutions that suit a new impoverished world. I like LCP but I didn’t like this article which looks like a bid to grab headlines that frighten the public and defy common sense.

It looks like the PPF agrees with me

 

Posted in actuaries, advice gap, age wage, pensions, Pensions Regulator | 1 Comment

Time for some fresh thinking on CDC

Posted on April 26, 2020 by henry tapper

one trick pony

 

The Pension Schemes Bill is making its way through the House of Lords but now seems unlikely to get Royal Assent before July. If it misses its target and we don’t get an Act till the Autumn, a Royal Mail CDC plan in the spring of 2021 looks harder.

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We are at the Black R (as at April 26th 2020)

In the 2 year gestation of CDC  no employer has stuck its hand up and committed to the “whole of life” solution proposed by CWU and Royal Mail for its staff.d

In this blog, I suggest that CDC risks becoming a one-trick pony, unless it gets some fresh thinking. That’s the bad news – the good news is that in this blog, I outline that fresh-thinking so that we can consider applications for CDC, beyond the single employer – “whole of life” model, that is proposed by Royal Mail.

Let’s leave the employer out of it – for the moment.

Some would say that this is a case of “if you build it they will come”.  It may well be that by the time Royal Mail has proved the worth of its CDC schemes, other employers feel that they can build similar schemes, legal templates will have have been published, investment strategies agreed and member communications standardised. Above all confidence will have been established that the modelling is robust enough for people to have an expectation of more value for their money than is achieved through individual plans – what we call workplace and self invested personal pensions.

To suggest that employers, post pandemic – will extend the scope of their financial planning and embrace “risk sharing” is a stretch. Even if the risk sharing is between the membership of the scheme, for a single employer to move from the simplicity of paying a defined contribution to the complexity of paying scheme pensions is a big ask. I believe there will be one or two who may, voluntarily, as a statement of defiance , or for specific reasons – such as  existed at the Royal Mail. Upgrading a DC plan to a CDC plan is likely to be an exception – is is not likely to be the rule.

CDC schemes do not need employers – they need members (with pension pots).

There is, within the lengthy provisions of the Pension Schemes Bill, two sections that envisage CDC not as the vehicle for a single employer but as a means for employers to plug into a pooled arrangement, run as a master trust.

This is the lifeline that CDC may need if single employer schemes do not happen.

The single employer DC scheme is becoming an endangered species. When employers as big as Vodaphone and Tesco pack in their own trusts and plug into LifeSight and Legal & General’s master trust, then you have to ask whether even the single employer workplace pension is viable as an occupational pension scheme.

The inexorable decline of single employer occupational DC plans looks as inevitable as the demise of single employer DB plans – at least in the corporate sector.  To build legislation on a sinking raft risks that legislation being swamped by a sea of troubles, before it even makes it onto the statute book.

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Master trusts can pay CDC pensions as “standard”

CDCs best hope, other than for the exceptions such as Royal Mail, is as a means of multi-employer schemes providing scheme pensions to participants of DC arrangements. Effectively this is the means for master trusts to avoid the perilous business of investment pathways and offer a default decumulation strategy to their millions of members.

I understand that the Pension Policy Institute are envisaging looking at the mechanics of a “decumulation only” version of CDC whereby the “collective” element of the scheme would kick in only when a member chose to stop saving and start spending – their DC pot. This is a timely intervention into the debate and – if it is led by those mooted to be leading it, I have no doubt it will be a great piece of work.

We now know how to get people saving in retirement but since we kicked away the restrictions in 2015, we are giving people little help on how they spend their savings.

People continue to tell IGCs , trustees and anyone else asking the question that they are looking for a default was of turning their pension pot into a retirement plan and that the default is not an annuity.

CDC could be that “default decumulator” – it could be the standard way people get their pot paid back to them. A means of ensuring greater operational efficiency, longevity protection and trouble-free pensions for millions of ordinary pension savers.

CDC could manage the wage in retirement provided by NEST, NOW, Peoples Pension , Smart, L&G, Scottish Widows, Lifesight, the Aon and Mercer master trusts or any other of the authorised master trusts overseen by the Pensions Regulator.

The provision of these scheme pensions would be a matter for the commercial master trust to administer and ensure funding for. The employer would have no liability for outcomes, individual savers would choose between this default and going their own way.

This is a pragmatic and effective solution for millions of savers for whom the investment pathways look dangerously difficult. I will expand on the weaknesses of the investment pathway approach for the mass market in further blogs.

When employers part company with their DB schemes

There is an even more charged debate to be had about the fate of DB pensions post the  Covid 19 pandemic. Yesterday I wrote about complacency among some senior pension people who say that the pandemic is a distraction and that we will return to business as usual in due course.

This is to underestimate the damage it has done to the covenants of many employers which are now holed below the waterline. Many DB schemes will go into the PPF and with them will go many members who have no choice but to take a substantial drop in their pension expectation so as to qualify for a place in the lifeboat.

I do not think that people should have to take that haircut. Here is the opinion of one actuary on an alternative proposal

It is an abiding frustration that the moment a DB employer goes into insolvency, legislation mandates the smallest possible benefit outcome for members i.e. an insurance buy out, being the most expensive way of providing pensions, results in the smallest benefit outcome.

And the moment a scheme goes into PPF assessment, transfers out are banned. Why is that? Why not let members take a share of fund TV to CDC? Deferred members could do very well out of it. I don’t see why a ban is necessary to protect the PPF e.g. do the share of fund TV calculation on the PPF’s S179 basis.

Some high profile schemes where the employer has gone insolvent (British Steel, BHS) were well enough funded for a TV to a CDC scheme to provide a potentially attractive expected outcome.

The only point where members of funded DB plans get no choice is in the PPF assessment period.

Where the link between the employer and the trust is broken, as happens when DB schemes enter the PPF , shouldn’t it be possible for members to choose whether to lock down into a fully guaranteed PPF scheme pension or transfer to a CDC plan with no guarantees but significant upside? Is is fanciful to think the CDC scheme might be run by the PPF?

This is not a new idea, it has been floated on this blog many times in the past, but I think the current circumstances of pending legislation and an actual pandemic, makes this idea worthy of immediate consideration.

Coming out of your employer’s DB plan …”you’re better off together”.

Having been present when the members of British Steel’s DB plan had to choose between the PPF and a new DB plan, I know that many chose what they thought was a better way, preferring to have their transfer value invested in self invested personal pensions. How much better had it been , if they could have continued to participate in a collective plan, albeit independent of their employer (with whom many had lost confidence).

More generally, the resilience of CDC – relative to the SIPP approach will soon be modelled (let’s hope by the PPI as well as by the actuaries involved with the Royal Mail).

The actuarial  modelling  on the impact of the market movements  to the end of March on Royal Mail’s CDC predicted that next year’s increase would be 0.5% lower than otherwise. No cut in benefits was predicted.

Compare this with the sequencing risks faced by those in individual drawdown, where the market is typically off 20% and the fundamental case for collective provision will become clear.

Put simply – you’re better off together.

And finally – DB master trusts

The  positions many small employers in the Plumbing pension scheme find themselves in as a result of the closure of the scheme to future accrual was bad enough prior to the pandemic. What is happening to the scheme since the crash in asset values and the incapacity of many plumbers to earn much of a living, can only be making the situation worse.

Isn’t it time that we started looking at radical alternatives to the enforcement of section 75 debt in such situations. Would the replacement of guaranteed benefits for market based plumber’s pensions be a more sensible way forward than the drastic measures being taken by trustees against their participating employers?

Ros Altmann, who is at the centre of the work the Lords are doing on amending the Pension Schemes Bill, should consider whether the kind of emergency powers assumed by Government in many other parts of the economy, can be employed to relieve the pensions misery that section 75 could wreak to employers and members of DB master trusts.

Time for some fresh thinking on CDC

Until recently, CDC was seen as a DC upgrade, that was in the confident world of a bull market, full employment and a healthy nation.

Things are different now, Covid-19 is a great disruptor, things are not getting back to normal and we are unlikely to find the post-pandemic landscape so benign. DC plans will be particularly vulnerable as they offer members no protection against market falls. Many DB plans look vulnerable both in terms of increased deficits and weakened covenants. The PPF has already cast doubt over its goal of sufficiency by 2030.

In this new environment, the need for a more flexible way of paying scheme pensions, which is based on defined contributions and pays market related pensions is what is needed.

But for the fresh thinking outlined in this article to see more general acceptance than the small number of readers of this blog will mean four things happening

  1. An acceptance that we cannot afford many or the guarantees in future promises
  2. That CDC cannot just be DC+  but can be a lifeboat for DB
  3. That “DB minus” is a reality (the haircut of the PPF)
  4. That CDC could trump DB minus  for many members in PPF assessment
  5. That CDC trumps personal bankruptcy – (for those hit by section 75 claims from DB mastertrusts)

We are – in this period of transition when we are stuck at home, able to think the unthinkable. I hope that the PPI will look at some of the ideas in this blog and test them.

Without an injection of fresh-thinking , I fear CDC risks becoming a one trick pony.

 

one trick pony 2

Posted in advice gap, age wage, CDC, pensions | Tagged , , , , , , , | 4 Comments

Stuart McDonald on who’s catching the virus (part 2)

Posted on April 25, 2020 by henry tapper

Stuart’s first tweet thread on the ICNARC data can be read here.  This is part two and it’s co-morbid.

note – Stuart points out that that this should read  – Asians 50% more likely

 

Posted in actuaries, age wage, coronavirus, pensions | Tagged , , , , | Leave a comment

Aviva’s IGC – more effective than its report suggests

Posted on April 25, 2020 by henry tapper

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Aviva’s IGC has turned up and you can preview it here (it launches properly Monday)

It’s available as  a PDF  you can download here or you can read a digital version

Having read both, I’d suggest that the PDF works better, the digital version running to 82 screens is very difficult to navigate.

Tone and structure

The IGC Chair Colin Richardson is old school and it shows. Since the only way to get the IGC report is from the Aviva website, the idea of “going online’ is a little old fashioned!

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From the chair statement (final screen)

Of course, if you aren’t online when reading the document, clicking the yellow tab takes you nowhere. This clumsiness makes the tone of the report , a bit of a “Dad-Dance”.

This awkwardness continues in the phrasing of much of the text. In the communications section we are told

There is never an end to making communications clearer

Certainly there is scope to make that communication clearer. Similarly, this description of lifestyle is oddly clumsy. Investing in investments is clumsy and “bonds” leaves us hanging.. should we know what “bonds” are?

For those who are close to retirement the main funds reduce the amount invested in company shares and invest in other types of investments instead like bonds.

I decided to look bonds up in the jargon buster but it didn’t show.  It seems pernickety but I can assure you that if you read 82 pages/screens of this clumsy, inconsistent and old fashioned prose, you know how Hamlet felt when talking with Polonius.

One problem is the repetition. I think I counted six separate sections on Aviva’ s “Customer Transfer Programme”. Similar repetition occurs with references to the removal of charges for the under 55s in legacy and for Aviva’s efforts to integrate ESG.

The other problem is that Colin Richardson, for all his qualities – does not write very well and this puts the report – for all its digital endeavour – a poor read.

I’d also suggest that Aviva tone down the relentless supply of trendy digital images. We could do with some more factual diagrams and a lot less beards.

I’m giving the report an orange for tone and structure which is a shame as it has the highest production values of any report. A case of style being let down by substance.

 

Effective

The report arrived late but this does allow the Chair’s statement to include a thought through statement about Covid19 which spoke with an authenticity that I found touching.

The report includes a statement about Aviva’s Solvency Cover Ratio which at March 17th 2020

was approximately 175% which puts them in a very healthy position. This number does not allow for any increase in insurance claims or changes which may arise as a result of the coronavirus outbreak, and so we will be asking Aviva to keep us informed of any significant changes to this number.

It’s good to see an IGC report that is showing itself concerned with the solvency  issues that policyholders should be concerned with and it’s good to see it using up to date data.

Sadly, the performance figures are all to the end of December and large parts of the report could have done with a “refresh”

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For instance, the section on “identified risk events’ , doesn’t make any mention of whether a pandemic was one of them. Or was it one of the 14 events that were dismissed in 2019?

And I was disappointed to read a section on the AAF only to discover

The report for the year ending 31 December 2019 was not available at the time of writing, but we understand that work is well underway to finalise it.

Frankly an AAF on the post Covid-19 world is hardly the most relevant document to be studying in the middle of the pandemic.

That said, for all the omissions and repetitions, the IGC appears to have really got things done and the resume of what it achieved in 2019 and is setting out to achieve in 2020 are really good. They appear as sections 12 and 13 of the report and could better have been at the front.

There’s a relentless pursuit of improvement and (for once) I don’t mind the overt flattery as Aviva are genuinely ahead of the curve.

There is always much for pension providers to do – even those at the forefront of workplace pensions like Aviva.

The IGC appear to have some clout

Prior to issuing this report, the findings were discussed with Aviva’s Board.

I am giving the IGC a  green for effectiveness, their policyholders have much to thank them for.

Value for money

I am not so keen on Aviva’s value for money assessment. We know that what matters to “savers” is the outcomes of their saving. There is very little in this report about the experienced outcomes Aviva savers are getting. We are told the criteria for the assessment but given no detail of how Aviva stacks up on each and the result of the assessment – that Aviva is giving good value for money – is not grounded in much fact.

I appreciate that the IGC is prepared to take a view on the relative merits of Aviva’s My Future Fund and it’s greener brother My Future Focus Fund.

Our investment section outlines our view that the My Future Focus fund is the more attractive investment solution of the two main defaults taking all matters into consideration – but My Future continues to offer good value.

But there is no proper analysis in the investment section that helps me see why.

Where we are shown the analysis – such as the net promoter scores on the quality of transactions,  it’s hard to know what the calibration of “ambition” means

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I am not clear about this chart either. The service standard is 99/3 where 99% of issues are sorted in 3 days, but this chart seems to show an average time in which issues are resolved being around a week.  Where is the Ambition line here?

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I am also disturbed by some of Colin Richardson’s assertions. For instance

For those of you who don’t benefit from the charge cap, then by definition your charges will be higher.

There is no definition that says that the charge cap means lower charges. Not just are the words wrong but the sentiment is wrong.  Aviva should not be charging more when the charge cap allows them, they should be delivering value for money and the less the money the easier to provide value.

A similar issue relates to the strange section in which the IGC looks at the financial advice given by Aviva representatives on DB transfers. I know a little about contingent charging and I couldn’t make head or tail or this analysis.  We are that Aviva advisers charge customers 2.5% of the assets transferred (capped at £5,000)

The service operates on a non-contingent charging basis, which means once an agreement is signed by the customer, adviser activity is chargeable i.e. the customer will be charged for the personal recommendation whether that is to remain in their DB scheme or to transfer.

A view on whether a transfer is suitable or not is only given when a full analysis of the member’s circumstances, attitude to risk and objectives has been completed. The adviser recommendation is tailored to every member and must pass the ‘clearly’ test (clearly in the member’s best interests).

If following the analysis Aviva cannot offer the best destination outcome, then options will be explained, and the customer will not be charged. 

I highlight two statement that appear to contradict each other.  Which makes the statement on the 2.5% – very odd

This is an increase in fees over previous years, but the IGC believes it represents good value when compared to charges levied by other firms and independent advisers.

I am not sure if the IGC are really providing a value for money assessment at all. I do not think they are trying to pull the wool over our eyes, I just don’t think they properly understand what they are assessing.

I give the report an orange for its VFM assessment.

Overall view of the IGC’s activities

The IGC Chair Statement is – I suspect – a poor reflection of the IGC’s performance over the year. I suspect that the IGC is doing better than the quality of the report would suggest.

But as the report is so flamboyant in its presentation, I wonder whether it might not be time for the IGC to review my comments and think about member outcomes rather more and the digital glitz a bit less

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Posted in advice gap, age wage, auto-enrolment, IGC, pensions | Tagged , , , , , , , | Leave a comment

Don’t take your pension for granted

Posted on April 25, 2020 by henry tapper

complacency

 

Of all the complacencies I suffer from, the one I find easiest to fall back on is that when lock-down ends, the world will return to where it was in February.

This pandemic is not a distraction

It is easy for me to think that nothing fundamentally has changed. So far me and my family have been shielded from the worst impact of the virus and I have not lost any close friends. Many of us will be considering the future as business as usual.

This would be a failure of imagination and of empathy. Because lucky as I have been (so far), 20,000 have died in hospitals and up to half as many again in homes.

Millions are not working and hundreds of thousands of businesses are under threat of collapse. The oil price went negative as traders paid for people to store a commodity no-one wanted anymore.

Things are not going to be the same for transport, for oil , for retail, for higher education , for pubs, restaurants and a whole host of leisure businesses.

To describe Covid-19, as the chair of a meeting yesterday did – as a “distraction“, is just not right.

Things will not be the same for pensions

Covid-19 is teaching us that certainties like the capacity of our largest companies to pay their staff , cannot be relied on, when those companies cannot trade. The state is paying 80% of the wages of perhaps 9 million workers ; seven out of ten employers have furloughed part of their workforce.

It looks very likely that unemployment is going to be high for some time to come, many people’s expectations for their wealth in retirement will suffer as they will be furloughed from pension contributions.

Those close to retirement will be seeing their pension pots reduced by up to 20% due to market falls, many awaiting the commencement  of their defined benefit pensions will be anxiously hoping their pension does not enter the PPF , resulting from a failure of their  scheme’s sponsor.

A couple of years back I wrote a blog , stating that universities don’t go bust.  I still hold to that position but I now question my confidence in the capacity of the universities to meet future obligations to USS. John Ralfe and Norma Cohen can point to my blogs about USS and ask whether I would write them today. I would have to say that my confidence in many DB scheme’s ability to meet future obligations has been shaken.

To suppose that Covid-19 is a “distraction” to the business of providing pensions is complacent. We are going to have to radically rethink the system of guarantees that underpin defined benefit pensions if we are to have the flexibility to provide security of work as well as a secure retirement.

 

A re-think of future accrual

We must re-think the nature of the promises we are making to ourselves in the light of the new economic circumstances this country finds itself in.

This may mean linking the future accrual of pension rights not to formulae established in the years of relative certainty, but to the capacity of organisations to meet those obligations going forward. For funded pensions, it means paying benefits linked in part to market returns, something that those reliant on DC pensions know all too much about.

So far, the calls for the limitations on future accrual have focussed (predictably) on the dismantling of the triple lock. This would hurt those on low retirement incomes hardest and have relatively little impact on those with wealth.

We are going to have to take a long hard look at the system of tax-relief that supports both our DC and DB pensions and which distributes public funds upwards towards the wealthiest in society. And we are going to have to ask those with guaranteed benefits to see further accrual limited by the capacity of the sponsor (typically the tax-payer) to meet the bill.

In other words, those things that we held true before the pandemic, cannot be held on to today. CDC as a means of future accrual , may be the radical alternative for the USS , LGPS, even the unfunded public sector schemes. The PPF may need to offer CDC decumulation (perhaps as a member selected  alternative to the haircut of guaranteed pensions).

These radical ideas appeared heretical (even to me) before March. But the extent of the change we are currently going through, a change which looks set to continue for months to come, makes it clear to me that this is not some “hiatus” or distraction, but a rubicon in pension provision. Once we have crossed the rubicon, we will be in a new place with new rules, and that means re-thinking all the old certainties.

 

complacency homer.jpeg

Posted in age wage, CDC, dc pensions, de-risking, pensions | Leave a comment

Actuaries, goats and flamingos; – the Covid-19 weekly report

Posted on April 25, 2020 by henry tapper

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Matt and Nicola

General

On 23 April, the European Centre for Disease Prevention and Control (ECDC) issued their ninth “rapid risk assessment” report on COVID-19 . As with previous ECDC reports, this is a very detailed and informative summary of all aspects of the outbreak in EU/EEA countries and the UK.

They note that the interventions put in place to combat the outbreak have collectively reduced transmission, and that it appears that the initial wave of transmission has now passed its peak in 20 EU/EEA countries.

Modelling – reports

COVID-19 – exploring the implications of long-term condition type and extent of multimorbidity on years of life lost: a modelling study (Hanlon P, Chadwick F, Shah A et al., 23 April 2020).

This paper sets out analysis of the number of years of life lost on average for each COVID-19 death, using mortality data from Italy and routine UK healthcare data. Their conclusion was that, even after allowing for multimorbidity, each COVID-19 death represented on average over a decade of life lost.
COVID-19 Antibody Seroprevalence in Santa Clara County, California (Bendavid et al (16 April 2020))

This paper, based on antibody testing in California, suggests that the prevalence of SARS-CoV-2antibodies was, by early April, between 50 and 85 times as high as the number of confirmed cases.

This paper and a follow-up got a lot of press coverage – however, doubt has been cast on its conclusions – see for example here (quoting “angry statisticians”).

News Coverage

The Wall Street Journal article “Mortality rates tell true tale of Coronavirus’s effect” explains how overall death totals are now being used to determine when governments can ease lockdown measures.

Stuart McDonald (on behalf of the COVID-19 Actuaries Response Group) provided comments for the article.

Clinical and Medical News

Hydroxychloroquine
There has been a lot of attention on the anti-malarial drug hydroxychloroquine and the potential for use in patients with COVID-19. This drug is approved for use to prevent malaria, though in recent years resistant strains of malaria have emerged. Its antimalarial properties are thought to involve stimulation of a process that creates a toxic environment within the parasite.

Hydroxychloroquine is also indicated for use to treat rheumatoid arthritis and lupus. In these conditions, hydroxychloroquine interferes with the inflammatory response.

The study here , which was a retrospective analysis of data from patients hospitalized with confirmed SARSCoV-2 infection in all United States Veterans Health Administration medical centres until April 11, 2020, reports no evidence of benefit, and, alarmingly, more deaths among those given hydroxychloroquine versus standard care.

Nicotine
In addition, it has been widely reported that nicotine may play a protective role in developing COVID-19.  Indeed, studies have been planned in which nicotine patches will be used to test for any protective effect. This is potentially linked to the relationship between nicotine and ACE2, an enzyme known to be the principal receptor molecule for SARS-CoV-2. The hypothesis is presented in detail here .

However, smokers also develop more severe disease once they have COVID-19 (link), therefore, media reporting needs to reinforce that the message is not to take up smoking, or indeed to initiate use of nicotine patches in a non-smoking population.
Comorbidities
Many studies have already indicated that those with comorbidities are at much greater risk of severe outcomes from COVID-19. This analysis from New York  provides characteristics and early outcomes of patients hospitalized with COVID-19 in the New York City area.

As previously observed, common comorbidities included hypertension (57%), obesity (42%) and diabetes (34%). This study adds additional detail in regard to presenting characteristics and reports that only 31% of patients were febrile and 17% had an increased respiratory rate. Significant media attention was given to the finding in the report that mortality in those requiring mechanical ventilation was 88% although this
figure excludes those who were still on ventilators after a five-day period, so may over- or (possibly) under-state the true rates.
Understanding and tracking mutations 

A key feature of coronaviruses is that compared with other RNA viruses, such as influenza, they do not mutate as readily.

However, mutations do still occur and it is important to track these, to better
understand the spread of the virus and also the protective value of current immunity against future infections. Nextstrain.org provides an invaluable resource to virologists, epidemiologists, public health official and community scientists (which is now almost all of us) to look at how different variants are emerging.

So far 8 different strains have been identified based on thousands of genome
sequences, and their site provides a fascinating insight on how the virus has changed during its journeys around the world. The good news is that it hasn’t changed much – but the vigil must continue.

Data

The EuroMOMO network (“European Mortality Monitoring”) publish weekly data on excess mortality in 24 participating countries, including the UK. Within the last week, they have updated the way in which they present their data, with a much more user-friendly set of charts than the previous version.

And finally…

Wildlife

Videos abound on the internet seemingly showing us the return of nature during the period of lockdown (though many clearly predate it). But it is a wonderful fact that many animals are finding the lack of human activity a great opportunity to explore urban spaces (link).
Pour a coffee, sit back, and admire the mountain goats of Orme in Llandudno

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and / or the flamingos near Mumbai

.
24 April 2020

Posted in actuaries, coronavirus, doctors, pensions | Tagged , , , , , | 2 Comments

“Financial strength” – customers will be the judge.

Posted on April 24, 2020 by henry tapper
insurance company

How resilient are our pension providers?

 

One of the most important functions of  pension providers is to ensure that service levels are maintained through the current crisis.

It is a severe test, this time the consequences of failure are not theoretical, if service levels fall below a certain level then vulnerable customers suffer.

A trifling example (for me at least)

This morning I will have to find a printer (we have none at home) so I can print off a medical declaration form so I can keep on cover for life insurance. The declaration could be signed by me using my digital signature, instead I will have to post it to the insurer. This will involve me making unnecessary journeys to maintain a necessary service. In this case the customer is being put at risk (and putting others at risk)  to meet an inflexible process of a life company.

I will be reporting this incident to the insurance company as an example of its not treating a customer fairly.

Failure of financial services companies to adapt their processes to the impact of Covid-19 is not just a breach of TCF, it is evidence of poor controls. It is clear that forcing customers off risk because they cannot get to printers and post-boxes is not what insurance companies espouse, they promote well-being.

I am sure that the insurance company can afford to change its process to meet the needs of its customers, but it seems to consider allocating resource to the problem right now , a low priority.

I will of course find a printer and a letter-box, but what if I had been one of the 1.5m  housebound?

Let’s be clear, bad service is not necessarily a sign of low resource, it can just indicate bad management.

The admirable case of AJ Bell

Yesterday I read the financial statements of AJ Bell, the SIPP provider which included the following

AJ Bell has the financial strength to do this. Most financial services companies have sufficient strength to maintain their service and indeed adapt it to the needs of their customers. I spent yesterday afternoon judging the Money Marketing retirement planner award , listening to submissions of 6 advisers who had , to varying degrees of competence, found ways to support customers through the crisis.

Though it was clear that some were better at managing the new technologies than others, what was clear was a common theme – that customers should not pay for Covid-19 through a reduction in the quality of service received.

It is clear to me that where there is a will to maintain customer service, there is usually a way. Truly customer orientated organisations, whether billion pound SIPPs or advisers working from home, deliver great service.

Less happy experience elsewhere

Compare that to the following message I received (I have redacted the provider’s name and anonymised the comment.

“Any idea of how many have been furloughed at xxxxxx? Service has turned into a nightmare. Surely they can’t be that close to the line? They have furloughed all out key contacts which are all roles which they still need at the moment and are certainly not redundancy roles”.

The reason why I am not naming names is because that provider is now dealing with the situation . I suspect that the provider’s is experiencing genuine financial hardship and that it is taking steps to put its house in order.

And that can only be evidenced by the provider rectifying service levels.

Rectifying problems

I have criticised Legal & General and Aegon earlier this month for not keeping member help-lines. This was not as a result of a lack of resources but of poor preparation. Aegon continue to run a skeleton service but as my correspondent points out

“Other providers have had logistical challenges and had to close their contact centres but are still available when needed. Aegon are on skeleton staff  up in Edinburgh but I still have 3 or 4 people I could be speaking with in 5 minutes”.

Legal & General now accept incoming calls and have changed their notices to clients, Aegon too have found a way to ensure that calls reach the right people and have made their systems more effecient. As far as I am aware neither have had to furlough for economic reasons. Their examples are akin to the insurer I’m dealing with – a failure to deliver in a time of crisis. To be fair to both, they have turned things round.

Where the reason for furloughing is the financial hardship experienced by the provider, we need to ask whether that provider has the financial strength to meet its obligations going forward.

Where  service fails from an advisor then customers should be free to find a new adviser, put simply they are paying for a level of service that has been withdrawn.

Where service fails from a workplace pension provider, the decision is often not the saver’s but the employer participating in that workplace pension. Employers – especially larger employers – take decisions as a result of advisers (such as my correspondent). These advisers are able to make comparisons and see service levels accross a wide range of clients.

Why the balance sheet matters

One of my correspondents on social media reproved me for praising AJ Bell

“Please stop fuelling the myth that asking for #help (e.g. government help) and admitting defeat is shameful. It takes courage to try and save your business or staff and admit you can’t do it alone. #Failure should not be stigmatised. If you are struggling. You have my support”

The anonymous tweeter carries on

To be clear applauding companies who refuse to ask for help and publicise this is indirectly criticising and judging those who do. We’re all doing what we can. Judgement isn’t welcome at this time

Though I can totally understand “vulnerability” in a personal context, I do not agree that we should accept low solvency as a reason to cut service. I appreciate that there are some mutuals who do not have resort to the capital markets and they should be given some dispensation. But necessarily providers and advisers must look to their balance sheets and ensure that they are suffeciently capitalised to meet regulatory reserving standards.

If the only way they can do this is by furloughing staff at a time when customers need support, we should question their capacity going forward.

If we take a different view, then it must be that such organisations are behaving opportunistically and looking to maximise profits for distribution to staff, management and shareholders and that , at this time, is more worrying.

The balance sheets of the companies we put our trusts in , matters most at this time. If we are running a company with a weak balance sheet and are entrusted with other people’s money, it is incumbent on us to reduce the risk to our clients one way or another

Providers need your feedback.

As I prepare to find a printer and a postbox, I am also preparing to write to my correspondent. I do know how many staff were furloughed at the provider he is talking of and I know that that provider is taking the steps I’m talking about to continue to offer value for money for its staff.

Right now, there are trustees and IGCs who should be monitoring service levels and ensuring that failures are not happening. The senior management of companies like the insurer who is messing me around, need to know if service levels have dropped.

It is not enough to sit back and blame COVID-19. If you can’t get through to your provider (on an important matter), if you have to post timely information and if you find as an adviser that “service has turned into a nightmare”, do something about it.

Contact your trustees , your IGC or your GAA. Write to the CEO of the company you are dealing with and bring your problems to their attention. Because there is nothing more important right now, than maintaining customer service. If companies cannot do this now, then we should be asking whether they are fit and proper.

Not taking anything away from ratings agencies such as AKG, but the true test of a provider or adviser’s financial strength, is its capacity to maintain service levels at a time like this.

Ultimately customers will be the judge.

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Posted in advice gap, age wage, open pensions, pension playpen, pensions, Retirement | Tagged , , , , , , | Leave a comment

How to talk to your staff about pensions

Posted on April 23, 2020 by henry tapper

Quietroom are silently curating a lot of good advice using linked in. If you have the dexterity and the eyesight to access their posts , then here’s the link to the document.

But I struggled and when I found the right buttons, I thought there are better ways of sharing this sage advice. So here’s you cut out and copy version of Quietroom’s post, thanks to Mark Scantlebury for permission to re-post

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And here it is as  text….

How to talk to members in a downturn

People are worried about Covid-19. They’re also worried about what it means for their savings, and especially their pensions.

Too many sites have bland information about the ‘long- term nature of investing’. We thought it might help to have some answers to the questions that members are likely to be asking. These questions and their answers cover both DB and DC pensions.

Please feel free to use, adapt, edit and rewrite, to help you talk to your members. We hope they help.

 

How will Covid-19 affect my pension?

Everyone’s worried about Covid 19. As it’s affected stock markets, it is completely understandable that you should think about how it might affect your pension.

In the middle of March stock prices fell. Since then, prices have gone up again, but overall the average price of shares is lower now than it was at the start of March. It’s normal for shares to go up and down in value, but these recent changes were bigger than we’d have expected under normal circumstances.

So, what does this mean for your pension? Well, it depends on the type of pension you have, whether you’re already getting an income from it, and if not, how long it is until you plan to retire.

How to talk to members in a downturn

I am in a Defined Contribution (DC) Pension scheme – where I build up a pot of money that I can then use to give myself an income when I retire

Your pot is probably worth more than the money you’ve saved into it

If you save into a workplace DC pension scheme, your employer pays money in too. You also get tax relief from the government. So, there’s a lot more money going in there than just the money you’re putting in. Because of all this extra money going into your pot, stock market falls would have to reduce its value by a lot before there was less money in there than the amount you put in. Current stock market falls haven’t been nearly big enough to mean this happened.

In other words, your pot is almost certainly worth more than the amount of money you’ve put in.

Some of your pot is likely to be invested in things that aren’t affected by stock markets

The money in your pot is usually invested in lots of different things. For example, as well as investing in a wide range of stocks and shares, you might also be investing in government bonds and in property. The value of these investments hasn’t been affected in the same way as the value of stocks and shares has been So, overall, the value of your pension pot may not have been affected as much as you think. That doesn’t mean you shouldn’t think about your savings. It does mean that it’s worth planning what you want to do, rather reacting suddenly because of worries about coronavirus or share prices.

 

If you’re close to retiring, lifestyling might have reduced the effect that stock market changes have had on your pension pot

Most workplace DC pension schemes use something called lifestyling.

Lifestyling changes the way your pension pot is invested as you get closer to retiring. Instead of the emphasis being on making your pot grow, the emphasis becomes protecting growth you’ve already achieved. To do this, about 5 to 10 years before the date you’re expected to retire, lifestyling starts moving your investments out of stocks and shares and into bonds and cash. As a result, changes in the stock market will have had less effect on your pot’s value than if you were early in your working life.

If you’re not close to retiring, there’s time for the value of your pension pot to recover from a dip in value.

If you are more than 5 to 10 years from retiring and your pot has gone down in value over the last few weeks, there’s lots of time for it to go up in value again before you need the money. In the past, sudden falls in stock markets, like those we’ve seen recently, have been followed by periods of growth, when markets recover. So there’s a good chance that its value will increase before you come to need it.

How to talk to members in a downturn

Can I stop saving into my pension scheme?

You can stop saving into your work-based pension scheme or change the amount you save. You may be able to do this straight away, or you may have to wait, depending on the rules of your scheme.

However, before you stop saving, it’s worth thinking about the free money you’d be missing out on. If you stop saving, there’s a very good chance that your employer will stop putting money in too. You will also stop getting the tax relief you get from the government. So you would be missing out on a lot of free money. If you stop saving now, even if you start saving again later, you’ll never get back the free money you’ve missed out on.

So, while you can stop saving into your pension, it’s worth thinking carefully before you do. Ideally, speak to a financial adviser.

Should I change the way my money is invested?

If you want to make your own investment decisions, you usually can. But members who choose their own investments usually do less well than those who let the scheme choose for them. So, while a fall in stock markets like this can make you want to take control and decide for yourself, it’s worth thinking about whether you’re really ready to make your own investment decisions.

If you’re letting the scheme decide how your money is invested, it will usually spread it across lots of different types of investment. So, as well as investing
in stock and shares it might also invest in things like government bonds and property. As you get closer to retiring, these investment options will often automatically change the way your money is invested.

This is called lifestyling. Lifestyling reduces the risks the scheme takes with your investments as you get closer to retiring by moving to investments that are less like to fall in value, accepting that this reduces the potential for growth too. If you choose your own investments, you won’t benefit from this spreading of investments or from these automatic changes that happen as you get closer to retiring.

Finally, if you sell your investments now and use the funds to buy other investments, you will be selling those investments when they’ve fallen in value. Few people would choose to sell a house when there’s been a fall in house prices, so it’s odd that someone would sell their investments when they’ve fallen in value.

This recent fall in the value of your pension pot hasn’t necessarily happened because you’ve been investing in the wrong things – lots of stocks and shares have fallen in value because of worries about coronavirus. So, while there is no guarantee, there is a good chance that in 6 months, 2 years, or 5 years’ time, as things get better again, so will the value of your investments.

How to talk to members in a downturn

I am in a Defined Benefit (DB) Pension scheme – where the amount of pension I get is based on how much I earn and the number of years I’ve worked

Whether you’re getting an income from this type of pension right now or will be in the future, the amount you get isn’t affected by stock markets and share prices.

I am in a Defined Benefit (DB) Pension scheme – but I also make Additional Voluntary Contributions (AVCs)

Whether you’re already getting an income from your DB pension, or will be in the future, the amount you get isn’t affected by stock markets and share prices.

It’s unlikely that all your AVCs are invested in stocks and shares

If you’re building up a pot of money alongside your pension by making AVCs, the value of this pot might be affected by changes in the stock market.

However, most AVC pots are invested in a range of different types of investment. So, while you might be investing in stocks and shares, you might also be investing in government bonds and property. If this is the case, it will have reduced the effect that changes in the stock market have on the value of your pot. This spreading of investments is often done automatically when you set up AVCs.

 

If you’re close to retiring, lifestyling might have reduced the effect that stock market changes have had on your AVC pot

Lots of AVCs also use something called lifestyling. Lifestyling changes the way your AVC pot is invested as you get closer to retiring – instead of the emphasis being on making your pot grow, the emphasis becomes protecting growth you’ve already had.

To achieve this, about 5 to 10 years before the date you’re expected to retire, it starts moving your investments out of stocks and shares and into cash and bonds. If your AVC pot is invested with lifestyling and you are close to retiring, changes in the stock market will have had less effect on the value of your pot.

If you’re at least 5 years from retiring, there’s time for the value of your AVC pot to recover

In the past, sudden falls in stock markets, like those we’ve seen recently, have been followed by periods of growth, when markets recover. So, there’s a good chance that its value will increase before you need it. If you have 5 years, there’s a very good chance that your pot will recover and even grow to more than you had before. If you’re more than 5 years away from retiring, those chances get even better.

Thanks again to Quietroom for sharing this. You can get in touch with them here

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Posted in actuaries, advice gap, age wage, dc pensions, Linkedin, pensions | Tagged , , , , , , , , | 1 Comment

By their fruits ye shall know them.

Posted on April 23, 2020 by henry tapper

 

fruits

 

Ye shall know them by their fruits. Do men gather grapes of thorns, or figs of thistles?

Even so every good tree bringeth forth good fruit; but a corrupt tree bringeth forth evil fruit.  A good tree cannot bring forth evil fruit, neither can a corrupt tree bring forth good fruit. 

Every tree that bringeth not forth good fruit is hewn down, and cast into the fire. Wherefore by their fruits ye shall know them.

I take these verses from St Matthew’s gospel as the basis of good governance. Unless the tree is good , there can be no good fruit.

So it is companies with sound environmental practices, strong social purpose and governance that ensures that the organisation is a force for good are prospering relative to the market.

ESG – or environmental, social and governance to its friends – hasn’t gone away. Not by any stretch of the imagination. When the dust settles from the coronavirus pandemic, the practice of investing in companies that conform to various ESG standards, whether it be to do with carbon emissions or workplace diversity, will be still a growing force in capital markets.

If anything, the coronavirus pandemic presents an opportunity for those investors with ESG mandates to truly flex their muscles when they meet management teams ahead of a capital allocation decision. Particularly when it comes to the ‘S’ and the ‘G’ in ESG.

It’s often said that under extreme pressure you see someone’s true character, and it’s no different for business.

So here are three questions that you should be asking of your business , whether you own it, manage it or invest in it.

 

Does the pandemic offer insights into our environmental practice?

Do we need the car-fleet?

Do we need to visit analysts in the City driven in in limousines?

Do we need to travel to conferences?

Do we need to meet face to face at all?

Do we need to fly between continents?

Do we need the office car- park?

Do we need the office?

 

Is our business essential to society?

Are we running a business that is in society’s interest or just our shareholders?

Will society miss us if we were not there?

Are we worth preserving?

Should we furlough our staff or mothball our organisation?

What do we have to do to make ourselves essential?

 

Are we well governed?

Are we bringing forth good fruit?

Are we kind?

Do we call out the bad?

Do we change when we find weakness in us?

 

At every level

Many of us work in large enterprises where we cannot individually impact the whole. We can only impact that part of the enterprise which we are in control of. In this crisis we are increasingly self-managed.

When I go out into the streets of the City of London I see many examples of good governance, I see construction workers finding ways to do complex jobs while staying apart from each other. I see sign-in books placed in the middle of office atriums and I see examples of courtesy amongst those driving , biking and walking.

People are looking out for each other as never before. I find courtesy is at the very Heart of the City (an organisation I am proud we are a part of).

This new-found responsibility for our behaviour is founded not just in self-preservation. We are taking to wearing masks not for us but for others, when we social distance, we don’t just think of us, but of the impact of our actions on the health service and those who work in it. This is environmental, it is social and good governance and it is happening whether you are a construction or office worker.

The wonderful Dotun Adebayo has had a rift with his neighbour, he’s been playing his radio too loud. The matter is discussed on early morning radio, conclusions reached, actions taken – ESG in action.

Footnote

The novel-virus asks us to look at how we behave in terms of E-S and G

Yesterday I got a solicitor’s letter from a firm demanding I cease and desist from naming them for unnecessarily furloughing staff.

I am not in the business of fighting my battles through lawyers, I’ve furloughed my criticism but not my sentiment.

The firms who furlough and do so that they can come back stronger, have my support- all million plus of you.

Firms who furlough to maximise the bottom line, must ask what purpose they have in drawing upon the public purse.

By their fruits ye shall know them.

 

forbidden fruit

 

 

Posted in advice gap, age wage, ESG, FCA, governance, investment, pensions | Tagged , , , , | Leave a comment

The pension must go on

Posted on April 22, 2020 by henry tapper

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As we all work in our individual way from our individual workplaces, it’s hard to see the big picture – we see plenty of trees but not the wood.

Pensions are not about us but about the people who get a wage in retirement from their endeavours when they worked. Whether the entitlement to that pension is through the social security system , through DB accrual or through defined contributions, the pension must go on.

 

Pension and Payroll administration

The view of pensions if you are an administrator will be focussing over the next few days on the payment and receipt of Defined Contributions from payrolls run with a proportion of the staff furloughed, some redundant and many senior employees taking pay cuts. If you want to see how complex the job of payroll and pension administration is at the moment , follow @KateUpcraft and read her weekly updates.

The work of payroll and reward in maintaining the auto-enrolment system of workplace pensions is critical. Similarly the payment of pensions , the maintenance of accurate record keeping and the timely investment of monies received are vital to future confidence in our pension system. Payroll and Pension administrators are our nurses.

These are the people in the front-line when it comes to detecting and stopping scams.

There may be more glamorous areas of financial services, but at this point the work of payroll and pension administration is of #1 importance. If we can come out of this crisis without major administrative issues, it will be testament to the hard work of our administrators, the PMI, PASA, CIPP, CIPD and PLSA.

Investment management

The capacity of asset managers to tactically deploy assets to avoid the impact of Covid-19. But tactical plays are dangerous when the value of a barrel of oil can be measured by the cost of storing it (not the utility of the oil.

Yesterday oil dropped to -$40 per barrel. That is not a typo – oil was priced at NEGATIVE $40.  On Friday it was priced at +$27 a barrel.

These mad price swings happen because of derivatives, financial instruments that trade in opaque market , with little oversight, and which regulators have permitted to become a systemic problem.

Yesterday , oil traders who owned derivatives woke up to the fact that they’d have to take delivery of the physical oil they owned. Thousands of barrels.

If this could happen to oil, it can happen to any commodity, it could even happen to bonds.

Whereas pension administration is about delivering people’s wages in retirement, investment management has become a complex game of chicken, played with other people’s money.

The simple business of investing for people’s futures is what pensions are about. Investment management that sticks to that principle and avoids this game of chicken will come out of this crisis the stronger. I fear that many of the more complex structures that underpin our retirement savings are creaking.

The certainty of a pension

It is understandable that – faced with an investment market that can see the price of oil swing from +$27 to -$40 in a day, that people are going to put their trust in others to make sure their pension is paid.

That trust is put in pension providers, whether governed by trusts or IGCs , regulated by tPR or FCA. People are trusting the financial system to see them through and for there to be a recovery over time that will make sure their pensions will be paid.

It is payroll and pension administrators who are key to this. Though we have seen some wobbles, savers have been able to call in about their pensions , get reassurance and see their pensions paid. Most advisers have stayed open, supported their clients and not furloughed support. Indeed , the IGCs and provider executives I have spoken with report that administration and member support has often switched to home work showing that – when put to the test – providers can be a lot more resourceful than I (or they) thought!

I live and work in the City of London, I can see from my window the few essential workers who still have to go to work and the enormous spaces of unused offices – where nothing is happening.

And yet we see markets priced each morning, we see the value of our savings tick up and down through our online portals. The dam is holding.

There is certainty in pensions and – when we come out of this – we will value our pensions the more – for just that.

 

 

 

Posted in advice gap, age wage, auto-enrolment, dc pensions, de-risking, Liability Driven Investment, Pension Freedoms, pensions | Tagged , , , , , , , | Leave a comment

Do Models help us understand Covid-19- Jimi Adams explains how they do

Posted on April 21, 2020 by henry tapper

What are COVID-19 Models Modeling?

This article first appeared in the Society Pages

Image shows a model of the projected number of observed COVID-19 cases in Colorado under different levels of social distancing, starting March 26. Figure from a report prepared by the COVID-19 Modeling Group.

What’s a Model Modeling?*

Two of the most prominently cited figures from US-focused COVID-19 models include estimated deaths between 100k and 2.2 million. How can the public make sense of differences that are more than an order of magnitude apart? It could lead many to throw up their arms, not seeing why we should trust any models. My hope is to convince you otherwise. Models can be useful tools for those of us who are interested in knowing where the pandemic is heading, but doing so requires building some common understanding of why various models are built, the diverse strategies available for accomplishing those aims, and the substantial uncertainty inherent in all models. Without this understanding, we are attempting to compare metaphorical apples and oranges — if not apples and dump trucks — and poorly equipped to meaningfully assess those differences.

Here, I hope to help with that a little, by differentiating between:

  1. What models aim to accomplish.
  2. The mechanics of how they do that.
  3. The importance of uncertainty in all modeling approaches.

What’s a Model for?

By now, everyone’s probably heard some variant of Box’s aphorism:

“All models are wrong, but some are useful.”

If nothing else, when encountering a new model, this should lead anyone assessing its utility to ask “Useful for what?” That is, before attempting to interpret any model, we should ask what it’s trying to illustrate in the first place. All models simplify reality, and do so in order to draw our focus to some portion of that reality. In practice, those typically focus on one of (at least) three aims: (1) explanations, (2) scenario-based projections, or (3) forecasts. At the simplest level, you can think of explanations as providing an account of how something happened, projections as providing predictions about what would happen under certain hypothetical conditions, and forecasts as indicating what can be expected to happen.[1] While I’m simplifying the distinctions here, it will help us consider the differences between varied modelling approaches, the different details reported from those models, and how we can make sense of those differences as we encounter the myriad models now circulating across the globe.

Explanatory models

“What’s our best estimate of what happened?” When sociologists refer to models, this is the type we most often have in mind. These generally attempt to test causal claims about how something came about. Note the past tense. Explanatory models are generally temporally backwards-facing — addressing why things happened the way they did. Thus far, explanatory models have not been the primary type deployed to make sense of COVID-19, because they generally try to account for things that have already happened. A few important examples have arisen showing racial disparities in exposure to the SARS-COV-2 virus, differences in complications among those who are infected, or demonstrating how the differences in countries’ age distributions account for variability in estimates of mortality rates. An important set of models of this type used phylogenetics to demonstrate that the virus had been circulating in the Seattle area for weeks before it was first detected.

Projection models

“What’s likely to happen, if we do XX?” Projection models try to answer what we expect to happen under different scenarios. In almost no case do we actually think the results from projection models will happen. Instead, projections help us motivate and inform policy decisions about what types of interventions can be expected to have what types of benefits. A logical starting place for projection models in a pandemic is to ask what would happen if we didn’t take any action at all? No epidemic modeler is advocating that we do nothing, so they do not expect such projections to come to fruition. Instead, this baseline scenario becomes the benchmark against which we can predict the potential benefits of different intervention scenarios.

The scenarios our team has been working with are based on the types of policies that governments could put into place — social distancing measures that restrict how many people are going to work or school, or close access to social locations like restaurants, bars, and parks, travel restrictions, use of face-masks in public, etc. These types of interventions can be estimated for their combined effects if implemented together (e.g., by using aggregate travel reductions to estimate the effects of social distancing requirements on the face-to-face interactions that facilitate transmission of the virus). Alternatively, each scenario can be introduced individually into models to estimate the differential effects of particular aspects of specific interventions (e.g., if we close schools, but keep workplaces open).

Forecasts

“Where are we likely to end up?” Forecasts combine expectations about which conditions are likely to occur with estimates from projection scenarios, in order to estimate which outcomes the teams think are likely to actually arise. Here’s the thing about forecasts - they’re often what the public most wants, and what epidemic modelers are most hesitant to provide. We’ll get to why in the interpretation of inputs and outputs below (particularly uncertainties therein). One of the biggest difficulties with forecasts is incorporating how interventions that shape the various projection scenarios will alter the relevant behaviors, and therefore the outcomes of interest in the pandemic’s trajectory.

What do models produce?

Each of these types of models can be used to account for a range of potential outcomes. In the case of a respiratory disease like COVID-19, the outcomes of interest are generally (1) counts of things like how many people we’d expect to become infected, how many of those infected would show symptoms, need hospitalization, require a ventilator, and potentially die from the disease or its complications, or (2) estimates of how that same set of outcomes would be differentially distributed across subsets of a population (e.g., by sociodemographic characteristics, geography, or health-care catchment areas).

Models are inherently uncertain things. So, when talking about these outcome estimates, epidemic modelers prefer to present the range of estimates their models produce. This is why epidemiologist Marc Lipsitch said, early in the pandemic, that, if left unchecked, somewhere between 40–70% of the global population (a range he later revised to 20–60%) was likely to become infected. However, when learning about such modeling efforts, the public and policy makers alike often want nothing more than a single number to inform their expectations or to justify policy decisions. And these consumers of models may hear the reported ranges as overly-hedged, or even not very informative. Lipsitch and other modelers would tell you instead that the plausible range is genuinely wide, and reality could easily be pushed to either of those extremes. Asking an epidemic modeler to report estimates with precise, certain outcomes is akin to asking Lorelai Gilmore to give up coffee. It’s just not going to happen. In fact, those uncertainties should bolster, rather than undermine, your confidence in any models.

While embracing the uncertainty in models, I hope you’re also convinced that models should be interpreted according to their aims. Often, I hear people read a projection scenario, then compare its outputs to things that later actually arose; they see a mismatch between those as evidence that the model was faulty. But projections are not forecasts and should not be assessed as if they were. In fact, a mis-alignment between a projection and the eventual reality often provides evidence that the projection served its very purpose. For example, the lead author of a prominent model produced by a team at Imperial College recently testified before the British Parliament. Some people incorrectly interpreted that testimony to undermine the model’s projections. In fact, it justified the social distancing interventions that were motivated by that model. That’s what all projection modelers hope for—that their models can be leveraged to implement meaningful changes, not that they accurately predict the future. In other words, all models should be judged on their aims.

How do models work?

Models consist of three basic parts:

  1. A set of outputs
  2. A model engine or mechanics
  3. A set of inputs

This list is inverted from the process that produces models (inputs, mechanics, then outputs), but it better reflects how those reading about models for the first time are likely to approach them. As noted above, the model outputs are generally what are reported from any model. Next, I want to dive into the mechanics of how different types of models work and the different types of “engines” they rely upon. Then we’ll close with the importance of model inputs (and the uncertainties in those).

If the inputs are the “raw materials” of what goes into a model, and the outputs are what it produces, the mechanics of models are the processes that convert inputs into outputs. Each of the modeling aims described above can be estimated with a variety of modeling “engines.” Just as different types of engines (e.g., internal or external combustion) make vehicles move, so there are different primary frameworks for building epidemiological models. Moreover, the internal mechanics used within each model type can differ as well, similar to the ways that a single type of engine can rely on different types of fuel (e.g., gas vs. diesel), or internal motion (e.g., reciprocating vs. rotary). Here, I focus only on a subset of these possibilities, representing three primary dimensions that differentiate between the most common models being used to explain/project/forecast COVID-19 outcomes:

  1. Compartmental vs. Individually-oriented models
  2. Deterministic vs. Stochastic processes
  3. Curve-fitting approaches

 

Compartmental vs. Agent-Based Models

In epidemiology, one of the most common model forms is a type of compartmental model known as the SEIR model (susceptible, exposed, infectious, recovered).[2] In a compartmental model, every person can be in only one state (or compartment, hence the name) at a time. The model parameters (see discussion of inputs below) specify the likelihood of transitions between compartments, which are applied to everyone within a compartment in exactly the same way. These transitions between model compartments are typically estimated with sets of mathematical (differential) equations.

In contrast to compartmental models, agent-based models (ABMs) are individually-oriented. Rather than applying rules to groups of individuals within a compartment uniformly, in an ABM each individual agent is modeled explicitly. Agents are assigned characteristics and probabilities of acting in certain ways, according to those characteristics. Those characteristics can be based on similar properties to the compartments and transitions of the SEIR model, or can be based on other attributes (e.g., sociodemographic). ABMs model step-wise temporal processes, often with simulations that specify a series of rules designating when agents have the capacity to change, according to their assigned characteristics. ABM outcomes then represent the aggregation of these modeled processes.

Deterministic vs. Stochastic Processes

How the “transitions” in an SEIR model or “choices” of an ABM are estimated can rely on different assumptions about the nature of those processes. A deterministic process is defined only by the parameters and initial conditions of the model. That is, every time a model is estimated with the same set of conditions (e.g., population size and composition) and parameters (e.g., transition likelihoods), the model will generate exactly the same outcome. Such deterministic processes stand in contrast to stochastic processes, which are drawn from a probability distribution, with included error. That is, instead of specifying the precise transition probabilities that will be produced consistently across every model instantiation, stochastic processes identify likely distributions of potential actions, that are sampled within a model. This produces variation in the estimates across each run of the model, even when using the same set of model inputs. On average, stochastic models will behave in the anticipated ways, but individual model estimates can vary substantially from those expected averages. This variation reflects reality—if a novel corona virus enters a new population through a low-mobility, high-risk, mostly un-tested population as found in a nursing home, the projected outbreak scenarios are substantially different than when it enters a population that with concentrated testing and tracing efforts, such as Jeju, ROK.

Curve-Fitting Approaches

Curve-fitting is a general approach for specifying a set of mathematical expressions that best allow modelers to account for the “shape” of an epidemic’s growth curve. Once a curve is fit to existing data or specifications, it can be used to provide explanations/projections/forecasts that weren’t used in its initial formulation. Curve fitting strategies can be simple (e.g., interpolation, loess regression) or very complex (e.g., various forms of bayesian estimation). There are many ways to evaluate the fit of such models, most of which are highly technical and mathematical in how they differ, so I’ll skip that. But one core difference is whether they are parametric (i.e., relying on external predictor variables accounting for the sorts of mechanisms outlined above), or non-parametric (i.e., derived only from the information about the shape of the curve for the outcomes of interest, themselves).

How do a few of the widely reported COVID-19 models fit the descriptions above?

Where does model uncertainty come from?

When modelers report the outcomes generated by their models, uncertainty can arise from a number of sources. As mentioned above, stochastic estimation incorporates uncertainty directly into the model’s mechanics, but there are numerous other forms of uncertainty in COVID-19 models.

Model inputs typically include the initial conditions (e.g., how many people are being modeled, the distribution of sociodemographic characteristics among members of that population) and parameters (e.g., the expected rates of contact between susceptible and infectious members of a population, the likelihood of transmission in each of those contacts, how long someone remains exposed but not infectious, or how likely an infected individual is to recover or die). Ideally each of these conditions and parameters for the model can be informed by other vetted empirical estimates, but those estimates are often difficult to pin down, and sometimes must be input as a range of plausible “best guesses.” Early in this pandemic, for example, we had little evidence to work with on how quickly people recover.[3] Even the best empirical estimates of these conditions and parameters are going to come with some amounts of uncertainty;[4] which propagate through each of the modeling steps that rely on these inputs.

Other sources of uncertainty are directly relevant to our ability to estimate such models. Perhaps the most important of these is that “confirmed case counts” are likely a severe under-count, as are COVID-attributed deaths. Finally, projections and forecasts in particular must be able to incorporate the effects of intervention efforts. It’s often hard to estimate how readily policies will translate into actual behavior changes, how those changes will alter the parameters included in models, and how reasonable are the necessary assumptions to design such scenario estimates.

Hopefully this has helped you understand a little bit of why models appear so different and why the uncertainty in them is important. And just maybe, with these tools, any new models you (and I) encounter can help provide us with a little more clarity in these uncertain times.

* I’d like to thank Carl Bergstrom, Ana Gomez, and Michelle Poulin for helpful comments on drafts of this piece.

[1] Different disciplines sometimes use these labels in substantially different ways (e.g., some literally flipping the way I use “projections” and “forecasts”). What you should take away from this discussion is the varied aims, not the terms I use to represent those aims.

[2] Susceptible individuals are those who could potentially become infected, but are not currently. [There are often individuals with “natural immunity” to many viruses (not because they’ve had it previously, but because of genetic variability or other reasons). I haven’t seen any estimates of whether/how common this is with SARS-COV-2. Moreover, we’re still not certain how long immunity will last for those who have been exposed.] In SEIR terms, those who are exposed are carriers of the virus who are not yet infectious. Infectious individuals are those who have the virus and are capable of spreading it to others. People then can recover from an infection when they develop immunity to it, or could be removed from the population (e.g., through death). Recovery or removal are treated as similar states in SEIR models (because they are neither susceptible, exposed, nor infectious, so no longer contribute to the production of new cases.

[3] Additionally, these parameters may vary across settings in ways that are hard to estimate. For example, different population sizes and densities can change how likely susceptible individuals are to come in contact with those who are infectious, or different behavioral norms or physiological immunity patterns between locations can alter how likely those who have been exposed are to become infectious.

[4] One reason for this is many of the best sources for these estimates are outputs from previous explanatory models.

 

jimi adams is an Associate Professor in the Department of Health and Behavioral Sciences at the University of Colorado Denver, and affiliate faculty at the Institute of Behavioral Science at CU Boulder. His research focuses on how networks constrain or promote the diffusion of information and/or diseases through populations. 

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Future Fund term sheet

Posted on April 20, 2020 by henry tapper

For those who think they might qualify for and want the Government’s convertible loan note, here is the term-sheet

richi.jpeg

Future Fund Headline Terms

The Government has announced a new scheme to issue convertible loans to innovative companies which are facing financing difficulties due to the Coronavirus outbreak: the Future Fund. The Government will initially make up to £250,000,000 available in total for the scheme.

The Government will keep this amount under review. The scheme will initially be open until the end of September 2020.

The scheme will be delivered in partnership with the British Business Bank.

It is expected that the headline terms for these convertible loans will be as set out below.

These headline terms do not represent a binding commitment of any nature from the Government to enter into a long form agreement with any specific company. Full and final details of the scheme (including full eligibility criteria) will be published shortly.

Eligibility: To be eligible for a loan from the Government under this scheme, a business must be an unlisted UK registered company that has raised at least £250,000 in aggregate from private third party investors in previous funding rounds in the last five years and have a substantive economic presence in the UK. If the company is a member of a corporate group, only the ultimate parent company, if a UK registered company, is eligible to receive the loan.

An eligible company shall also be subject to customer fraud, money laundering and KYC checks prior to any loan being made.

Matched funding: The Government shall make unsecured bridge funding available alongside other private third party matched investor(s). The loan shall constitute no more than 50% of the bridge funding being provided to the company, with the remaining amount provided by matched investor(s).

Loan size: The minimum amount of the loan provided by the Government to the company shall be £125,000. The maximum amount of any such Government loan shall be £5,000,000. There shall be no cap on the amount that the matched investor(s) may loan to the company and therefore no cap on the aggregate bridge funding being provided.

Use of proceeds: The bridge funding shall be used solely for working capital purposes and shall not be used by the company to repay any borrowings, make any dividends or bonus payments to staff, management, shareholders or consultants or, in respect of the Government loan, pay any advisory or placement fees or bonuses to external advisers.

Conversion: The bridge funding shall automatically convert into equity on the company’s next qualifying funding round at a minimum conversion discount of 20% (the “Discount Rate”) to the price set by that funding round with a company repayment right in respect of the accrued interest.

The Discount Rate will be higher if a higher rate is agreed between the company and the matched investors. On a non-qualifying funding round, at the election of the holders of a majority of the principal amount held by the matched investors, the bridge funding shall convert into equity at the Discount Rate to the price set by that funding round.

A “qualifying funding round” shall take place where the company raises an amount in equity capital (excluding any shares issued on conversion of the bridge funding or to employees/consultants on exercise of any 2 options) equal to at least the aggregate amount of the bridge funding.

A “non-qualifying funding round” shall take place where the company raises less in equity capital than the amount required for a “qualifying funding round”. On a sale or IPO, the loan shall either convert into equity at the Discount Rate to the price set by the most recent non-qualifying funding round or it shall be repaid with a redemption premium (being a premium equal to 100% of the principal of the bridge funding), whichever will provide the higher amount for the lenders.

On maturity of the loan, the loan shall, at the option of the holders of a majority of the principal amount held by the matched investors (i) be repaid by the company with a redemption premium (being a premium equal to 100% of the principal of the bridge funding); or (ii) convert into equity at the Discount Rate to the price set by the most recent funding round provided that the Government’s loan shall convert unless it requests repayment in respect of its loan.

On a sale or an IPO or maturity of the loan, the Discount Rate shall not apply to the most recent non-qualifying funding round where such round took place prior to the issuance of the bridge funding. In such circumstances, the conversion price shall not include a Discount Rate.

On conversion of the loan, only the principal under the bridge funding (and not any accrued interest) shall convert at the Discount Rate and any accrued interest not repaid by a company shall convert at the relevant price without the Discount Rate.

Valuation cap: The Government shall not set a valuation cap on the price at which the loan converts into equity on the company’s next funding round. Where the matched investors have agreed a valuation cap with the company, the Government shall be entitled to those same terms.

Conversion equity: On a conversion event, the loan shall convert into the most senior class of shares in the company. If a further funding round is completed within six months of the relevant conversion event, the lenders shall be entitled to convert their shares into the senior class of shares of the company in issue post that round.

Interest rate: The Government shall receive a minimum of 8% per annum (non-compounding) interest to be paid on maturity of the loan. The interest rate shall be higher if a higher rate is agreed between the company and the matched investors. Term: The loan shall mature after a maximum of 36 months.

Decision-making: The Government shall have limited corporate governance rights during the term of the loan and as a shareholder following conversion of the loan.

Warranties: The company shall provide limited warranties, including in respect of title and ownership, capacity, its loan eligibility in accordance with the Government eligibility criteria, compliance with law, the borrowing facilities of the company, litigation and insolvency events to the lenders on closing of the loan.

Covenants: The company shall provide limited covenants to the Government during the term of the loan and as a shareholder following conversion of the loan, including undertaking to treat the lenders and the holders of the conversion equity fairly and equally and to provide the Government with the same information rights as other investors in the company, and compliance with law obligations.

Most favoured nation: In the event that the company issues further convertible loan instruments to investors (including any new or existing investors which are not matched investors) with more favourable terms, those terms shall apply to the bridge funding provided under the scheme.

Negative pledge: The company shall not permit the creation of any indebtedness that is senior to the loan other than any bona fide senior indebtedness from a person that is not an existing shareholder or matched investor.

Transfer rights: The Government shall be entitled to transfer the loan and following conversion of the loan, any of its shares without restriction to an institutional investor which is acquiring a portfolio of the Government’s interest in at least ten companies owned in respect of the Future Fund.

In addition, the Government shall be entitled to transfer any of its shares without restriction within Government and to entities wholly owned by central government departments.

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Payroll into battle!

Posted on April 20, 2020 by henry tapper

 

into battle.jpeg

April 20th 2020 will live long in the memories of payroll. The Furlough has begun!

Here is Barry Matthews – payroll enthusiast and BDD of PayCircle and his call to arms!

Monday morning 20th April 2020, payroll teams across the land will be donning their battle fatigues for a day unlike any other!

Why the heck bother?

Because, if you didn’t already know, they care dearly for the financial well-being of the employees whose pay is entrusted to them and for the firms who employ them.

Today and all week, there will be a focus on ensuring that urgently needed furlough claims will be lodged with HMRC, mainly relying on the manual input of millions of records.

In my experience, this onerous task could not have been placed in more dependable hands. Wishing you all the strength and energy to cope guys

Screenshot 2020-04-20 at 06.15.14

Barry Matthews

So this blog is for all my friends in payroll, the Reward 300, members of the CIPP, users of the Pension PlayPen, payroll software specialists and the auto-enrolers

To those who have created the furlough strategy to those who are implementing it. Everyone on my side of the fence should say thank you.

When payroll is run, and run as it should – people will get their money as if all your work had never happened. Like the best background music, you add value by not being noticed.

Thanks Reward, thanks Payroll and thanks to all the outsourced agencies that deliver to the million plus employers running payrolls between now and the end of the month.

You keep us going and the payments you deliver will mean so much to those furloughed and at work alike

Thanks

payrollbureaus payrollservices furlough youcandothis

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icnarc highlights – an actuary explains what the data is telling us (April 17)

Posted on April 19, 2020 by henry tapper

 

Screenshot 2020-04-13 at 06.18.35

Thanks to Stuart McDonald for this excellent thread; I have replaced his original tweet 10 with a later tweet- necessarily this tweet explain typos that don’t appear on the thread – I know Stuart would be mortified if I republished any error – the error was tiny – and I missed it (til he pointed it out).

Posted in actuaries, advice gap, pensions | Tagged , , , , | 3 Comments

Care homes – the elephant is out the room

Posted on April 19, 2020 by henry tapper

Screenshot 2020-04-19 at 07.40.45

We can take as the roughest of approximations that the numbers dying in care or at home is about half of the number in hospitals.

 

That would mean that the number who have died outside hospital by now  (April 19) is about half of those reported dead in hospital – about 7,500 people.

Bearing in mind the immediacy of hospital reporting, the  National Care Forum’s estimate that around 4,000 have died in care  sounds plausible.

These numbers are probably a few days behind and exclude those who died at home. The BBC quote a separate and later study by Candesic, for the Financial Times, which suggested the number of deaths due to the epidemic in UK care homes was at least 6,000.

It doesn’t seem that many people who have advanced symptoms of  infection are making it onto wards and ICU and there are reports of some isolated deaths , where people never made it to hospital and died where they were living. There are also the homeless sick.

These numbers are expected , they have been predicted and the issue is what should be done for carers. If you want to see how actuaries come to a view on the real numbers of those in care, you can read about it here (the elephant in the care home).

Last week calls were made for those nursing the elderly and frail in residential care homes, to be given the same PPE as those nursing those in ICUs. Ros Altmann has been to the fore in this. Writing in the Daily Mail she states

In all my decades of campaigning for the dignity of the elderly, there has been no clearer snapshot of how they are being abandoned like lambs to the slaughter. They are being left to die because we don’t value their lives as highly as the young.

 

and continues

There are no winners here, but when hospitals do not take in the elderly they face a horrible death, at home or in care homes, without ventilators or oxygen nor even the palliative care that any civilised society should be able to provide.

Once again, the elderly are being hung out to dry by this country’s failure to eliminate the artificial distinction between ‘health’ and ‘care’.

Questions of capacity?

Last week saw the FT reporting on a score-card used to allocate ICU to patients. Put simply, patients needing ICU scoring above 7 were seen as unsuitable for intensive care . The thought is that the majority of those in Care Homes wouldn’t get ICU and would be no better off on wards than staying in homes.

The argument for this system of triage is based on the capacity of the frailest to benefit from ICU, sceptics argue that the issue is more to do with ICU capacity.

I don’t have to put  words in Ros Altmann’s mouth, she sees the treatment of the elderly in this pandemic as a societal failing

A millionaire with cancer would normally be treated by the NHS with state of the art equipment and expensive drugs. But an old person with coronavirus or other illnesses may be abandoned in their care home, all the while using their life savings or family home to cover enormous fees.

And for those who work in care homes?

The risks run from treating a dying patient in a care home or a hospital seem similar – and obvious.

Front line carers are more than likely to treat Covid-19 patients, based on the reports from our continental neighbours. While latest estimates suggest 1 in four London nursing homes have infected residents, in Belgium, where testing is much higher – the number is 90%). If it is possible to keep numbers of infections in our homes down, we may do better than 90% but if carers themselves become spreaders then the prognosis is not good.

The cost to carers of the elderly at home has been little talked about. I wrote last week about the phone-in run by Petrie Hosken, which gave this group a voice. 

The Elephant exiting the room

The elephant that is now exiting the room brings bad news for Britain and indeed for other European countries with high numbers of  infected patients in hospital. The Washington based Institute for Health  Metrics  Evaluation (IHME) has revised upwards the expected numbers of deaths in Europe and Britain now leads the way

Screenshot 2020-04-19 at 07.10.20

these changes are primarily driven by the major improvements to the IHME death model. In addition, for some EEA countries, data updates (i.e., incorporating updated time series of COVID-19 deaths by location, some of which experienced large lags in reporting or did not fully account for deaths occurring in nursing homes and the inclusion of the number of reported cases as a leading predictor in the death model.

Complacency , complicity or both?

The IHME are now predicting deaths in the UK at more than twice the 20,000 target mentioned by Government earlier this month.

If the 20,000 target was solely based on hospital deaths then this is not that much of an overshoot (around 12,000 of those predicted deaths may be from deaths out of hospital).

But a death is a death- it is every bit as grievous to die in a care home as in an ICU. To use the Prime Minister’s phrase – we want Government to level with us. Focus will inevitably be on our league table performance (where we seem to be only rivalled by the USA for getting it wrong).

But by excluding deaths in care homes from our daily published numbers we do two things

  1. We give undue credit to our national performance in combating the Coronavirus
  2. We risk abandoning those in care to secondary statistical status – and we know that what is not measured is not governed.

Right now I think that the exclusion of predicted numbers for those dying in care homes and at home is leading to some complacency – most worryingly about the need to support carers with PPE.

Government should level with us on total deaths

The argument that we need to report on a like for like basis with other countries is looking increasingly fragile. Increasingly other countries are reporting on an all-deaths basis (and certainly that’s what IHME is doing).

The management of this sensitive information is now required. If you let the elephant out of the room and people , as a result of sudden changes in data-reporting – lose confidence in the Government’s management of the situation, things will get worse and not better.

So it is time that the Government found a way of getting proper information on what is going on in our care homes (and at home) and making it public. And it’s time we started treating those managing infection in Care Homes with the same the same respect and with the same PPE as those nurses in hospital.

Screenshot 2020-04-19 at 07.40.45

 

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ReAssure’s IGC report

Posted on April 18, 2020 by henry tapper

Screenshot 2020-04-18 at 09.35.24

ReAssure, after a short delay, have published their 2019/20 IGC report which you can read here

It’s a betwixt and between document as at the time of publication, ReAssure is in the process of being acquired by Phoenix and in the process of acquiring a substantial legacy book of business from Legal and General. The workplace pension book of Old Mutual is being acquired from Old Mutual and we understand that ReAssure’s IGC will assume responsibility for both books. That – and the backdrop of the global pandemic has clearly made publication difficult.

Tone and structure

The report sets out to engage members and bemoans the lack of engagement between ReAssure and its customers.  But it’s hard to see how the IGCs call to action will excite policyholders

In your annual pension statement you will find information from me, regarding the new low-cost funds and alternative product options ReAssure have made available. We strongly encourage you to engage with these communications. By taking action you can reduce your charges to as low as 0.65% p.a.

The trouble is that “0.65% pa” has little to excite the ReAssure customer, who most probably took out a policy with Crown Life, Windsor Life, General Portfolio or Alico many years ago and did so because of a financial salesman’s effective salesmanship.

Frankly, customers who entered into contracts with these companies are unlikely to have a high degree of financial literacy and will need a little more to excite them than what’s on show in this report.

Screenshot 2020-04-18 at 10.14.48Take as an example David. David is 61 and wants to retire at 75.

I do not know anyone who at age 61 wants to retire at 75.

David is an actuarially made up person who serves to show that over 14 years he can save £2,700 by avoiding charges in his Crown Director’s Investment Programme.

How can ReAssure or its IGC expect people to engage with Dave’s aspirations – when ReAssure choose a freak to engage with?

If Dave is an example of someone who’d pay less money, John is someone put forward as getting “value”.Screenshot 2020-04-18 at 10.15.43

The problem for the 48 year old John is reading a graph which makes no sense at all. It purports to show the Global Equity Index Tracker 2019 Performance and in case you were wondering what those tiny numbers at the bottom of the chart are, here’s a blow up

Screenshot 2020-04-18 at 10.33.05

John’s £1,000 has gone up to £1,571.17 (net of investment fees), but John is probably invested in something like the Crown Director’s Investment Program where the investment fees are supplemented by all kind of other charges. So John’s £1,571,17 could be substantially less. And the big reveal that John has got 9.46% interest each year is so meaningless that – were this to be considered a financial promotion – it would get the compliance office fired.

Finally, let’s look at Vicky, she may be married to David because she is the other person I have ever encountered who is in her fifties and planning on retiring at 75.

Screenshot 2020-04-18 at 10.46.20

The whole report is suffused with this kind of actuarially inspired nonsense. Spurious accuracy in numbers, spurious intentions and spurious people. Frankly this is the old mutton dressed up as lamb.

So when we come to read of the IGCs disappointment in its policyholder’s failure to pick up on these offers – we can only shake our heads in despair.We remain disappointed that response rates to the lower-cost fund options have remained low. ReAssure have made contact with a small sample of members who were sent our targeted communications. This verified these had been received and helped us and ReAssure to review and refine messaging.

With messaging like the examples above, the failure is not the policyholder’s but ReAssure’s and ultimately the IGCs.

The tone and structure of the Chair’s Statement looks good , but it isn’t – it’s actually pretty rubbish. I thoroughly agree with the IGCs determination to encourage people to seek value, but the messaging has to be effective and this isn’t. I give the report an amber for its tone, it sets out to encourage engagement, but repelled me as soon as I did engage.

Effectiveness

Screenshot 2020-04-18 at 11.22.33

The moves made by ReAssure to reduce charges to 0.65% pa (despite their mis-promotion) are good news for policy holders. But to stay with ReAssure , policyholders need more than the same old same old. What they are being offered is ReAssure Now, which is a mobile application that includes a host of features which sound like cars with safety builds and steering wheels included.

If you are one of the lucky ones whose policy can be accessed on ReAssure Now then you will be able to

View your policy information – current values, payments in and details of any cover provided.

• View projected values at retirement.

• Access letters and documents in an electronic format.

• Get in touch with ReAssure by secure message.

• Review personal information, and let ReAssure know if you need to make changes.

 

But if aren’t so lucky , you can register your interest on http://www.reassure.co.uk/interested which will click you through to

Screenshot 2020-04-18 at 11.27.44

Frankly, the incompetence and antediluvian nature of the functionality on offer in the report suggests to me that ReAssureNow is no more than window-dressing to assuage the understandable annoyance of savers whose hopes of a decent workplace pension took a knock when HSBC Life was consigned to “legacy” a couple of years after opening.

Effective engagement does not look like this and if the promotion of ReAssure as an engaging organisation is based on my experience of ReAssureNow, I’m out. I give the report an amber but did enjoy Venetia Trayhurn’s account of her day out in Telford (p12).

 

Value for Money Assessment

If you’ve got this far, you won’t be surprised that I didn’t think much of the 83% rating the IGC gave ReAssure as a VFM score.

The combination of good service, comparative returns, reasonable charges and customer choice, have delivered Value for Money. Where challenge has been raised, ReAssure have committed to actions. The IGC would like to see greater levels of customer engagement with their pension, and will continue to work with ReAssure to see what more can be done to help customers.

My scepticism is based on my loss of confidence in the report’s tone and my scepticism following my investigation of ReassureNow.

The investment section of the report indicates a lack of strenuous thought about how ordinary people live their lives

Your Annual Statement details the funds that you have selected to invest in. If this is not one of the 5 funds listed below, you can view all funds on the Reassure fund centre: http://www.reassure.co.uk/fundcentre.

This shows current fund prices, investment objectives, past performance data and information about charges.

Because ReAssure workplace pensions don’t offer defaults, policyholders need direction and , in the absence of advice, investment pathways.

At some length, the report talks about the investment pathway process to be monitored by the IGCs next year. These are default pathways – for those who don’t take advice. So why isn’t ReAssure doing the same for savers?

The 5.5/6 score for investments simply doesn’t stack up. Hanging this rating on this statement is simply not good enough – in keeping with much of the rest of the report , it simply doesn’t engage with how ordinary people think about value.

When comparing the funds to their ABI sectors, 69.35% of the funds (or 76.3% of the IGC assets under management) have outperformed their respective ABI sectors throughout 2019, meaning that the rest of the market faced returns that were more negative.

Actually what ordinary people tell IGCs they are concerned about is what comes out of their pensions compared with what goes in. Simply throwing percentages at the problem is not going to solve it. People want to know how they have done and how they’ve done relative to others.

This report does nothing to help them in this, indeed it so befuddles its readers that they are likely to leave it less – rather than more -engaged. The Value for Money assessment for ReAssure is the worst I’ve read this year and I give it a red.

 

 

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Knock knock knocking on heaven’s door

Posted on April 18, 2020 by henry tapper

 

This post was first published here on Geethism and is republished with the kind  permission of Geetha and her family.

Well, where do I begin, right at the beginning is a good place to start as any I guess. My health journey, when you hear the saying “health is wealth” it is not a cliché, believe me. My battle with my health started when I was 12 years old, 6thgrade, I had a very bad case of jaundice, for 3 months and a relapse for another 3 months, I did not go to school for 6 months. It felt strange to go to school for last 3 months of the academic year, how I passed that year is anyone’s guess.

Next episode was when I was 24 my first born was just 3 months old when I was diagnosed with cancer, surgery and therapy followed. I could not hold my new born for months, major torture. It was all downhill from then on as far as my health was concerned. I have had kidney stones, 2 slip discs, ankle fracture, appendicitis, severe case of typhoid ( first knock ) and hysterectomy over the last 20 years. There was only 1 year in between where I wasn’t in hospital and my insurance gave me a bonus!! That felt like a huge achievement to me, until the following year.. 2020… a hell of a year for anyone all over the globe. I was tested positive for Covid 19…

I have been home for 2 weeks and only now am I able to look back and write about my experience. Why me??? I stopped asking that question long back. I accept there are things not in my control and thanks to the past year of my counselling course I learnt a lot about myself. I am served a few issues on my plate, it is up to me how I deal with it. What is served is not under my control, just how I deal with it, that I can control! So I do the best I can, I deal with it. End of the day that is all we CAN do!

Of all the health issues I have been through, up until now the toughest was being away from my child of 2 years for the second time. After a year after my cancer surgery we shifted to London, there the doctors said the therapy I went through in India wasn’t enough to eradicate all the malignant cells, so I had to go through therapy again. Since my son was young, my husband stayed at home with him, while I took a cab and checked into the hospital, with a suitcase, alone, like I was going on a holiday. For a week I was in isolation, no one came into my room, I was nauseated, exhausted and depressed but I got over it.

2020 is the cherry on the cake!! This one is a killer, unkown, deadly. My son and husband returned from London on the last flight before the lock down. I thanked my lucky stars that at least all of us are home. We took all the precautions. They each quarantined, themselves in separate rooms. I did not let anyone enter their rooms. Only me and one of my help served food with mask and gloved hands, washed and kept the dishes separate. 2 days after their arrival, my husband had fever, the second day I drove him to do the testing because we didn’t want to take any chances. I got a call a day later, in the evening from a bbmp officer saying his result was positive. That same day I had developed fever, they sent an ambulance and I told the officer, I have symptoms as well and that I was going along with him to the hospital. I was afraid for my kids. It was just one man help who was there living with us. So I thought kids were taken care of. As I was walking out the door my boys were in shock to see both their parents going to hospital in an ambulance for the virus that is rocking the world. My poor babies. The ripple effect started.

Before I go through my experience I will just tell you the sequence of events. My husband and I went to the hospital on a Saturday, my helpfell ill with fever on Sunday. With the help of my sisters they arranged for him to go to the hospital on Monday. My kids were alone at home with 2 dogs to feed and take care of themselves. They managed, good kids that they are somehow figured out and took care. Then the new rule was enforced. The kids had to be tested too and they have to stay in hospital until the results came. I was in no state to coordinate anything, my sisters and friends stepped in again and arranged for my dogs to be taken care of. Both my boys came to hospital and were kept in separate rooms. This was Wednesday.

From the day I went to the hospital I had high fever, 103. Even with IV paracetamol and all the other drugs they were giving me it never came below 101 for 10 days. The first few days were hell. I was almost in coma, I had no energy, could hardly open my eyes, could hardly sit or eat anything. I was constantly cold with the fever(knock) I was being poked every morning and evening for blood tests, by the end of which I felt like a drug addict my arms and veins were fully bruised. Due to the amount of medicines I was taking or the classic covid symtoms, I started having diarrhea on the 5thday, I was so tired to even get up. All my levels dropped due to my previous illnesses. Potassium, calcium and magnesium were astonishingly low. They had to constantly pump me with the supplement intravenously. But this could not be done through the veins in the hand as these supplements needed bigger veins to go through. So they had to put a cannula in my neck. I have had 2 natural deliveries but believe me this was more painful than either. 2 people had to hold me down to insert this huge needle in my neck. No painkiller or numbing injections. Remember high fever, diarrhea, no energy. One holding my head, the other my shoulder. I screamed! That was the worst day of my 14 days ( knock)

From then on, I could hardly move as they were constantly giving me supplements to bring my levels to normal. I could not move my head, it was stiff cause there was a needle on one side, I had to sleep straight in the hospital bed which is worse than the floor. I started having stiff neck, bed sores and shoulder pain. This was the day I had a strange experience, I actually felt a black cloud hovering over my head engulfing me and I couldn’t breathe. My husband would call me every few hours cause obviously he was freaking out I could hardly open my eyes but I did answer his call and he would keep telling me to fight it. I did not speak to anyone for the 10 days. My cough started on 8thday. Nonstop cough where I could not even stop to take a breath. This is when they almost moved me to ICU ( knock) I could see the fear in Doctor’s eyes. The doctor was really good to me, she stayed that night in the hospital to monitor me to shift if necessary. Medications were changed and I felt slightly better. Maybe the worst was over.

On the 11thday my fever started improving. And on 12thday I was rid of fever. My levels finally improved. And I told the doctor that the virus had left me. I could just feel it.  I was still not able to take a deep breath but I knew I was better. Throughout the nurses and doctor were in protective gear, I could not see their faces, I still don’t know what they look like, I am hoping to go back to the hospital when this is over and meet them and thank them for taking care of me and my family at a great personal risk. There were times when I just didn’t have the will power to push through, the pain and constant torture over the years and probably the fever felt like enough is enough….I had lost track of time and days at one point, to this day I don’t remember, I just remember feeling am I going to wake up from this?

With all the things I was going through, my kids results came. Older one was positive and younger one negative. They had been there for 3 days. The decision was what to do? Do we send him home, alone, no one at home or request hospital to keep him for a few more days?? My son decided he wants to go home and he was confident to manage. He is 15. He was home alone for 5 days. Food was delivered outside the gate from my mom, sister and friend. He managed to handle himself, clean the dishes and stay in the house by himself very bravely.

The rule is you need 2 negative results to go home. My husband, son and myself had given tests on same day, but my result came quicker. My first negative came on Thursday and my second negative came on Friday. Exactly 2 weeks after I went to hospital I was allowed to leave. Both my husband and son came positive.

I came home but still maintained my distance from my younger son. Didn’t want to take any chances. It was another week before my son and husband came home. They both had no symptoms while in the hospital but they were positive. The results would take forever, 3 to 4 days to come. Though they say testing is 6 hours. The day they came home I gave them a hug and it was a first time I touched another human being in 3 weeks. They both were absolutely fine but in a small room, at the hospital, no one came into their room cause they didn’t need any treatment. No sunshine, or light. My husband who is a workaholic and never stays in one place and is also claustrophobic stayed for 21 days in that small room. My 20 year old son for 2 weeks. It is a mental trauma more than anything else. But both are strong individuals and they managed.

I am just grateful for the small mercies, definitely no why me? Just glad that we are all home finally and over this traumatic experience. Or so I thought. I never anticipated the social stigma this caused due to a few  experiences which I won’t go into details.  Ican totally understand how the untouchable castes felt when they were treated like this. Though I am in the clear I haven’t stepped out of my home.

Anyone who knows me will tell you that I always make light of things and never have I described in detail about my personal experiences, but I felt this was different, I had to make a record of this so people who are going through the suffering have hope that they can come out of it or others who take things lightly need to know the depth of this illness and take precautions.

The things that helped me during this crisis or any other was my yoga, meditation and pranayama. The minute my cough reduced, I was doing pranayama as much as I could. I personally feel this stopped the infection going to my lungs.

A sincere thanks to all the individuals who are on the frontline helping and to all the people who are suffering from this very clever virus, we can beat it. If I can come out of this I believe anyone can.

My Covid- 19 symptoms in sequence for the record:

-Loss of taste & smell

– severe headache

– fever

– eye soreness, could not open my eyes

– high fever

– diarrhea

– irregular heartbeat

– cough

– breathlessness

– fatigue

Geethism.jpg

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Actuaries weekly round up ; Covid-19

Posted on April 18, 2020 by henry tapper

Screenshot 2020-04-17 at 20.41.59

Screenshot 2020-04-10 at 12.03.32

Matt and Nicola

Every week, more is written on COVID-19 than any individual could possibly read. Collectively, the COVID19 Actuaries Response Group read more about the outbreak than most, so we’ve decided each Friday to provide you with a curated list of the key papers and articles that we’ve looked at recently.

General

On 8 April, the European Centre for Disease Prevention and Control (ECDC) issued their eighth “rapid risk assessment” report on COVID-19 . This is a very detailed and informative summary of all aspects of the outbreak in EU/EEA countries and the UK.

They note, amongst other things, that there is currently no indication at a Europe-wide level that the peak of the epidemic has been reached.

Modelling – reports

Mortality associated with COVID-19 outbreaks in care homes: early international evidence (Comas- Herrera A and Zalakain J (12 April 2020) 
There has been a lot of discussion over recent days on the number of deaths outside hospitals (see also the data section). This note looks at early-stage evidence from continental European countries, and suggests that, whilst official data is not available in many countries, data suggests that care home residents have accounted for around half of all deaths related to COVID-19.   Institute for Health Metrics and Evaluation – main updates on IHME COVID-19 predictions

In our previous weekly report, we noted that the Institute for Health Metrics and Evaluation (IHME)had concluded in their first publication on 7 April that the UK will have over 66,000 deaths from COVID-19 in the first wave of the outbreak, more than Italy, France and Spain combined. Their updates on 10 April and 13 April both reduced the projections for the UK, with their 13 April prediction being around 24,000.

Clinical and Medical News

Treatments and vaccines

We are witnessing an unprecedented response to the current pandemic in the pharma and biotech industry. Several candidate vaccines are already in early clinical trial stages with potential for development within the next 12 months. In addition, many drugs that already have regulatory approval for other indications are being investigated for treating COVID-19, so-called drug repurposing. In this scenario, safety data and other studies outcomes are already available for the molecule which allows substantial acceleration of the drug development process.
Here is a useful summary of COVID-19 treatments and vaccines in development.
In addition researchers in the US led by the Johns Hopkins Hospital have spearheaded the use of a ‘convalescent serum’ therapy, a potential COVID-19 treatment. This treatment involves extracting serum viral antibodies from those who have survived COVID-19 and transfusing into recipients.

Read about how this potentially game-changing therapy is being developed.

The effectiveness of face masks

The use of face masks by the general public has been debated – indeed, New York Gov. Andrew Cuomo on Wednesday ordered all New Yorkers to cover their faces in public when they can’t maintain a proper social distance.
But how effective are they? Here  Professor Trisha Greenhalgh and Jeremy Howard provide an overview of the different streams of evidence and conclude: keep your droplets to yourself – wear a mask.

Data and Deaths data

We noted the various sources of deaths data in Issue 2 of our Friday Report, and commented on how to understand the data in a recent bulletin
We would draw particular attention again to the ONS weekly deaths publication , which indicates that, whilst 4,122 deaths registered by 3 April 2020 mentioned COVID-19 on the death certificate, there were 6,082 more deaths in the week than the five-year average, suggesting that all- cause (non-COVID-19) mortality was also very high.
CMI also published their first weekly Mortality monitor report  based on this data – further updates will be found here . Their conclusion was that there were 6,112 deaths registered by 3 April more than would have been expected (based on 2019 experience).

These excess deaths were76% higher than the number recorded as being (on death certificates) in respect of COVID-19.

Interventions data

We have recently been looking at data on the timings and impacts of non-clinical interventions across the globe and have found these two sites useful – look out for a forthcoming bulletin using this data.
ACAPS Government Measures dataset sets out a long list of measures that governments have taken across the world in relation to COVID-19.

Google Community Mobility Reports  sets out how different countries’ mobility has changed, in terms of changes to visits to places like shops and parks, compared with baseline.

And finally…

And finally, we all know about Captain Tom Moore who has raised more than £15m for the NHS by walking 100 lengths of his back garden before his 100th birthday, including a guard of honour for his final lap.

All the money Moore raises will be donated to NHS Charities Together to go towards wellbeing packs and rest and recuperation centres for staff on the frontline, as well as electronic devices for patients to communicate with their families while in isolation.
There’s also been a variety of innovative ways that people in lockdown have kept themselves busy/healthy whilst also raising money for good causes.

Punk Actuaries

Punk Actuaries

18 April 2020

Posted in actuaries, advice gap, coronavirus, pensions | Tagged , , , , | 1 Comment

Furloughing financial advice?

Posted on April 17, 2020 by henry tapper

furlough-broker-scaled

This blog has been furloughed

Posted in advice gap, age wage, pensions | Tagged , , , , , | 7 Comments

Lockdown – is the cure worse than the illness? These actuaries think not.

Posted on April 16, 2020 by henry tapper
PT

The author – Peter Tompkins

 

Screenshot 2020-04-16 at 12.27.40

We have reviewed the paper “J-value assessment of how best to combat Covid-19” by Philip Thomas, Professor of Risk Management in the Faculty of Engineering at Bristol University.

Summary of key aspects of the paper

This paper was given some coverage in mainstream media after its non-peer reviewed publication on 23 March. It sets out a proposed methodology for considering the costs and benefits of different strategies to deal with the pandemic of Covid-19 in the UK.

The J value concept is that there is a justified output in terms of values of lives saved compared with the values of lives lost under the hypothesis that the lockdown of the economy leads to a reduction in GDP with a causally linked subsequent reduction in life expectancy.

Section 2.1 of the paper opens the analysis by calculating “The worth of a year of life in the UK”. A GDP per capita of £33,141 is applied to an average life expectancy of 42 years, with a social discount rate on future income and a grossing up factor to account for risk aversion, producing a “value of a life year in the UK as £248,209”. It should be noted that this approach seeks to quantify the value a society may place on a year of life, which is fundamentally different (and significantly greater) than the economic output that may be ascribed to a year of life. The formula is highly dependent on the grossing up factor which values one extra year of life at 11 times average GDP at the margin.

The author does his own epidemiological analysis but this is not central to the paper, whose focus is on translating lives into values.

In Section 5.2 various Government options for responding to the pandemic are analysed. The author takes the distribution of predicted deaths by age, multiplies this by a normal unadjusted life expectancy for that age and then applies his “value of a life year” of £248,209 to this to produce a very large estimate of the societal value to be placed on some of the options presented.

In section 6.2, the author concludes that a reduction of 0.25 years in population life expectancy could be tolerated with the most extreme lockdown approach, and that this would be caused by a 6.4% fall in GDP. On the basis of a prediction of a fall in GDP of twice that figure, the authors conclude that the loss of life in the population as a whole would be greater than the value of the lives saved.

Key comments on the paper

We have identified several issues with the paper.

Firstly, the author implicitly assumes that the base case, with no intervention to save lives, would have no economic impact. We find this implausible. Ignoring the economic impact of COVID-19 in the base case results in an overstatement of the marginal economic cost of the intervention scenarios.

The calculation of years of life saved may be greater than reality since it is clear from studies published to date that a majority of those who have died from Covid-19 infection had underlying health issues. No data exists on the life expectancy, in the absence the virus, of those who die, and consideration of that would be necessary to make sense of the author’s arguments. This may therefore overstate the benefit of the intervention scenarios (and perhaps offset the impacts of some of our other comments). We discussed the life expectancy of COVID-19 victims in an earlier bulletin.

On the other hand, the authors ignore a major impact on health outcomes from the reduction in non-COVID health activity during the epidemic. This will have a difficult to quantify but negative impact on life expectancy of those who might otherwise have been able to receive treatment were it not for the diversion of attention to COVID-19. Without intervention this would be an enormous reduction in resources available for normal treatment in an overstretched health system. With intervention, there is still some reduction as routine and other appointments are postponed. Overall, ignoring this factor serves to understate the net benefits of intervention in maintaining the health system.

The presumption of a causal correlation between a lower GDP and lower life expectancy may need re-examining in the context of a crisis driven by a medical issue rather than a recession arising through other economic activity. It is the policy response to a recession, not a recession per se, that drives any reduction in life expectancy gains.

In addition, by asserting that life expectancy “would have been at least 3 months greater by 2017… in the absence of the recession” the author assumes that much or all of the deceleration in life expectancy gains can be attributed to economic causes. In fact a slowdown in life expectancy gains was expected for non-economic reasons, following the significant reduction in cardiovascular mortality in the 2000s. The extent of the influence of economic causes remains unclear. This and the previous issue imply that the decrease in life expectancy resulting from the economic cost of the interventions may be overstated.

In considering the merits of the interventions, the paper effectively seeks to maximise total life span across the whole population. We would argue that society cares greatly about the distribution of life spans. The prospect of 1% of the population suffering an unpleasant death in the next year motivates intervention in a way that an 1% fall in life expectancy spread evenly across society would not. The paper equates these scenarios as having the same utility. This argument would imply the societal benefits of intervention are greater than the metrics used in the paper imply.

Conclusion

While a number of our comments act in competing directions, overall our view is the paper tends to overstate the (negative) impact that the economic cost of significant intervention will have on life expectancy (relative to the base case of no intervention).

16 April 2020

References

Thomas, P., 2020, “J-value assessment of how best to combat Covid-19”, accepted for publication in Nanotechnology Perceptions.

Posted in actuaries, advice gap, age wage, pensions | Tagged , , , , | 2 Comments

Covid-19 – interpreting the deaths data

Posted on April 15, 2020 by henry tapper

Screenshot 2020-04-13 at 06.18.35

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Matt Fletcher and Dan Ryan

Screenshot 2020-04-15 at 10.31.34

Hospital deaths – Department of Health and Social Care and NHS England

Data for the total number of positive tests for and deaths with COVID-19 in the UK (that is, individuals hospitalised in the UK who tested positive for COVID-19) are published daily at around 2pm, by the Department of Health and Social Care (DHSC).

Taking the difference between the number of deaths reported by DHSC on a given day and the previous day gives an indication of the number of people that died of COVID-19 on that day. Until recently, these were the numbers that were typically reported in the press and used in analysis. However, the focus now seems to have turned to other sources.

On 1 April, NHS England published a list of deaths in England, which allocated hospital deaths reported up to and including 31 March 2020 to the date they actually occurred. They have since published equivalent figures daily here.

The number of deaths allocated to a given day in each data source is very different. This is because the DHSC figures represent the numbers of deaths reported by a given point, so the difference between the figures represents the number of deaths reported on a given day – some of these will have been deaths that occurred on that day, but many will have occurred before that day.

On a given day, both of these data sources give a lower figure than the actual number of deaths that have occurred by that day. This is because there is a lag between deaths occurring and being reported; only a relatively small proportion of the deaths that occur on a given day are actually reported on that day, typically they are reported a few days afterwards. This point was noted in a number of articles – this was one of the first: https://amp.theguardian.com/world/2020/apr/04/why-what-we-think-we-know-about-the-uks-coronavirus-death-toll-is-wrong

This “incurred but not reported” (IBNR) feature should not typically cause forecasting problems in and of itself, provided it is relatively consistent over time.

When forecasting numbers of deaths into the future, we would suggest using the NHS dataset (adjusted for IBNR) rather than the DHSC one – we consider a simplistic way of doing this below. It is important to note that this doesn’t mean that we think the DHSC figures are wrong, rather that they necessarily reflect when deaths were reported rather than when they actually occurred, where typically we are more likely to be interested in projecting occurrences.

We believe that projecting the reported death figures for the UK was one of the reasons why the figures published on 7 April by the Institute for Health Metrics and Evaluation (IHME) were so high. Their calculations resulted in a projection of over 66,000 deaths, significantly higher than any other European country. These projections were widely shared on social and other media, although there was some criticism, including by Neil Ferguson (see for example https://www.theguardian.com/world/2020/apr/07/uk-will-be-europes-worst-hit-by-coronavirus-study-predicts). It is worth noting that after a few more days’ data, IHME reduced their projection on 10 April to around 37,500 deaths in the UK, and then again on 13 April to around 24,000.

Deaths outside hospital – ONS and international indicators

A further challenge is that neither of the data sources discussed gives a full picture of the numbers of deaths with or due to COVID-19 in England or the UK, as both are based only on deaths in hospital, of those with positive tests. The Office for National Statistics publish weekly deaths for England & Wales, roughly two weeks after the deaths were registered. They have started to report COVID-19 deaths, which is any death where COVID-19 is reported on the death certificate (including suspected cases) – so this is a broader definition than the DHSC and NHS England figures in at least two respects.

The difficulty of identifying deaths outside hospitals is not just an issue for the UK. Comparative reports from around the world have highlighted the increasing number of deaths in nursing homes, with studies in France, Italy and the USA estimating that nursing home deaths may account for between 25% and 50% of all deaths that should be associated with COVID.

These figures have been backed up in an initial analysis from other countries, which shows that around half of deaths from COVID-19 have been in care homes https://ltccovid.org/2020/04/12/mortality-associated-with-covid-19-outbreaks-in-care-homes-early-international-evidence/

ICU constraints

Whilst the NHS is increasing ICU capacity (e.g. with the NHS Nightingale hospitals in London and elsewhere, and use of private hospitals), variation in demand may mean that locally accessible capacity may become strained. ICNARC (the Intensive Care National Audit and Research Centre) released a report on 10 April that summarised the experience of all patients (3,883) who had been admitted to intensive care up to 9 April. This report highlighted that 229 of 284 ICU units in the UK had one or more patients with COVID then.

Occupancy rates of ICU units have been published monthly until the outbreak of COVID-19, and are typically high at around 90%. More recent reporting has indicated that some ICU units are now full and are unable to accept further patients, having to make use of High Dependency Units (HDUs) and other capacity.

As well as those in nursing homes, individuals with severe symptoms who are self-isolating and who would benefit from ICU care may face restrictions on who can be admitted. Such restrictions are likely to be on the basis of age and pre-existing medical conditions. This would lead to an increasing number of deaths both in nursing homes or at home that will eventually show up in the ONS weekly reports but would be missed by the data from the NHS and DHSC.

ONS reported on 14 April that there had been a total of 3,475 deaths in England & Wales in 2020 involving COVID19 and reported in the week to 3 April, an increase from 539 in the previous week. As expected, the ONS figure for COVID-19 deaths in England is higher (by 15%) than the corresponding NHS England number.

The ONS publications will also give an indication of total deaths in England & Wales, and whether this is overall higher or lower than previous years. For example, they note that the 16,387 deaths registered for the latest week was the highest weekly total since at least 2005, and around 6,000 higher than the five-year average. The Continuous Mortality Investigation have recently published their quarterly report based on ONS data, and will update this on a weekly basis through the outbreak – the weekly updates will be found here (Link), with the first here (Link).

Estimating the total number of hospital deaths

There are many ways in which the number of hospital deaths can be estimated from the daily death occurrence figures; we set out below a simplistic method and note how different the figure is from those reported on the same day. Please note that we do not recommend using this approach without adjustment for forecasting, it is provided simply to illustrate the concept. The approach could be improved by, for example, allowing for the ‘weekend effect’ seen in the reported figures.

It is worth noting that the death occurrence figures themselves are not immune from data error – it is hard to see the fact that there were only 308 deaths occurring on 31 March, but over 550 on both 30 March and 1 April as anything other than a quirk in reporting.

In total, 557 deaths are recorded as having occurred on 1 April 2020. It appears that this figure represents the vast majority of the deaths that occurred on that date (of the deaths figures reported on 13 April, only 2 occurred on 1 April). Of those 557 deaths, 448 (80%) were reported by 5 April.

Screenshot 2020-04-15 at 10.39.52

Further analysis suggests that subsequent days’ figures (where the total number of deaths can be assumed to be reasonably complete) follow similar pattern; we can use these patterns to estimate the number of deaths that might eventually have occurred on a given day, based on the number of deaths reported for that day so far. The most uncertainty is in the most recent day’s figure where based on the figures seen to date the figure reported by NHS England could be between 5 and 10 times smaller than the total deaths.

On average, to reach a realistic figure for the total number of deaths that have occurred up to a given date, we would recommend uplifting previous days’ figures – a worked example is given below, for the figures published on 13 April 2020, estimating the number of deaths that had occurred by the end of 12 April 2020:

Day

Deaths occurred (NHS England data)

Multiplier

Estimated total deaths

Additional deaths not yet reported

Latest available (12 April)

118

7x

826

708

−1 day (11 April)

443

2x

886

443

−2 days (10 April)

516

1.4x

722

206

−3 days (9 April)

611

1.22x

745

134

−4 days (8 April)

737

1.12x

825

88

−5 days (7 April)

673

1.07x

720

47

−6 days(6 April)

625

1.04x

650

25

Earlier (up to 5 April)

6,537

1x

6,537

0

Total

10,261

11,912

1,651

So, based on this simplistic calculation, we can estimate that there had been a total of around 12,000 hospital deaths in England up to the end of 12 April, compared to 10,261 deaths reported by 5pm on 12 April. If we ratio up for the UK, we estimate around 13,250 hospital deaths up to the same date, compared to 11,329 reported. This could be an understatement as it’s not clear what impact the Easter weekend is likely to have had on the reporting of deaths.

It is important to note that the fact that there may be over 2,000 COVID-19 deaths in the UK that have occurred but not yet been reported does not mean that we think the numbers of deaths have been deliberately understated: the simple fact is that it takes time (for various good reasons) to report and register a death, so it is not possible for all deaths to be reported on the day they occur.

Based on the published data, we believe that it is as yet too early to say whether the number of daily deaths in the UK has peaked or even stabilised.

Finally, as noted above, the total number of COVID-19 deaths to date will be significantly higher than this, because the figure does not include deaths outside a hospital setting, or where COVID-19 is suspected but not confirmed.

14 April 2020

This article is one of a series produced by the Covid19 Actuaries Group;

a full library of these blogs is available by following this link

Thanks to Matt Fletcher and Dan Ryan –  to Stuart McDonald an

Screenshot 2020-04-13 at 06.18.35

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The rocket-fuel for recovery is love

Posted on April 15, 2020 by henry tapper

what thou lovest well

 

In the pursuit of happiness (a principal theme of this blog), I am sometimes having to focus on “distress”. Now is such a time.

There is a fine line between alleviating distress and profiting from it. We all know of the opportunities that exist at this time to make hay by exploiting the vulnerability of others. And yet the vast majority of the un-vulnerable (not invulnerable), choose to step up and be counted as helping.

We see this in the 750,000 who have volunteered to give of their time to help the NHS. And we see this in the behaviour of our colleagues, our customers and our suppliers. There is a wish to play fair and – so far as we can- to alleviate distress in others.

I am very grateful in my business dealings to those who are being patient and understanding, including my staff, shareholders and those who are giving freely so we can build our business to provide support for millions looking to turn their pension pots into retirement plans.

The determination to meet a societal need, often called “purpose” has now focussed on alleviating distress as much as pursuing happiness, but the fundamental commodity is that gift of the human spirit called love.

Love is the positive in our make-up that wants us to assist rather than exploit. Without love we are nothing.

Yesterday , we saw numbers from the Office of Budget Responsibility that spell-out financial misery for millions by way of unemployment, indebtedness and a loss of help for the future. These numbers are deeply distressing.

On the same day, we saw the numbers of the Office of National Statistics of the total numbers dying in week 14 of this year. These numbers are considerably higher than hospital deaths and point to the suffering of thousands who are dying in the care of others – or in no-one’s care. These numbers are deeply distressing.

Being fit and strong in heart and mind, I consider my fortunate position. I do not have to go to a hospital or care home – administering to the sick. I do not have to put myself at risk carrying out essential public services, nor do I have care for others. I listen at night to callers to the radio and I admire that fortitude of others – including the presenters who listen and support – alleviating others distress.

This blog is a personal diary and I hope I will be able to look back at the posts that I place on here over the next few weeks with pride, that they did support others and provide an opportunity to consider the future in a positive way. I am focussing on the work we can do, not just now – but in the months ahead, when we will be helping our country to recover financially and each other – emotionally.

The OBR numbers are just a prediction of what is to come, how we spread the pain of recovery is important financially – it’s a second flattening of the curve.

But how we support each other as we lose those we know and love in the weeks to come is more important.

Rebuilding our financial resilience is an important part of creating immunisation from the emotional and physical impact of the pandemic.

Those of us who are strong, can alleviate distress – both in the business we conduct and in the support we show each other. These two themes intertwine in alleviating distress.

But the drive for our determination, the rocket-fuel for recovery is love.

Ezra Pound 2

 

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The elephant in the care home

Posted on April 13, 2020 by henry tapper

Tomorrow the ONS will publish its weekly numbers – which are likely to be a lot higher than the 11.329 because they will include those who died outside hospitals – in the community and care homes.

The ITC paper, mentioned by Stuart in his tweet is very alarming (though not sensational).

We may be getting immunised to numbers.

Screenshot 2020-04-13 at 18.03.14

But the narrative of the report talks of something we’ve feared, but have had little evidence of.

The impact of COVID-19 on residents and staff has become apparent in two ways: distressing news reports of care homes becoming overwhelmed due to large number of deaths in a short amount of time and too many staff members being either sick or self-isolating, and, increasingly, estimates of deaths of care home residents. Very few countries appear to be testing people in care homes (staff and residents) systematically.

The most recent statistic given by the UK Government is that 13.5% of UK care homes have been infected. This equates to outbreaks at 2099  nursing homes

The Department of Health and Social Care have  confirmed 2,099 care homes in England have so far faced outbreaks of the virus., 92 of those cases were confirmed yesterday.

In Scotland – latest numbers are estimated at more than twice the rate of England at  31% – but this still lags European numbers

The Belgian study, with much greater testing , found that 90% of Belgian care homes had at least one case of COVID-19.

We are clearly at an early stage in knowing what is happening behind closed doors. Data from 3 epidemiological studies in the United States show that as many as half of people with COVID-19 infections in care homes were asymptomatic (or pre-symptomatic) at the time of testing.

If there is an elephant in UK’s care homes, the elephant is currently under sedation.

Alarming or alarmist

The reluctance of the Government to discuss care homes was obvious at today’s 5 O’clock press conference.

Tonight Channel 4 news has run a special on this issue.

The program shows alarming shortcomings in what is happening in care homes , with supply shortages of PPE.

Today we heard of 14 new deaths at the Stanley Park care home. A care home in Nottingham , where 9 residents have died, reported the staff felt they had been “broken inside”. 16 others have symptoms of the disease, hats off to Rebecca Mitchell who bravely faced going to the home this evening.

Wren Hall - in happier

Wren Hall and Anita (right) in happier times

Anita Astell, owner of  Wren Hall care home spoke said that if her residents had gone to hospital “they’d probably have been sent back”. She said she was spending most of her time sourcing masks for her staff.

Is the elephant in the care home and if it is, is there anything we can do to stop it running amok?

Screenshot 2020-04-13 at 18.37.12

Certainly the early prognosis for tomorrow’s ONS numbers looks quite like the elephant is beginning to trumpet.

But are even the ONS figures complete. Without accurate testing of those who have died, we may never know. Testing the cause of death , at this time of crisis, is simply not a priority.

The Channel 4 report suggested that as many people in the UK were dying of Covid19 in care homes as there are in the DHSC numbers, this will come as no surprise to the authors of the ITC paper.

Nor will it surprise Baroness Ros Altmann – who’s piece on this matter in the Mail is available here.

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A dashboard of everything?

Posted on April 13, 2020 by henry tapper

The incidence of opportunistic financial crime has so far been low. People cannot be liberated of DB pensions overnight. The incidence of financial self-harm may be much greater, we have no data yet on withdrawals from flexi-access drawdown since February. Nor do we know how much money has switched to cash or other “low-risk” havens.

We do know that the liquidity  is challenged, witnessed by the gating of most property funds. Where these funds are offered on third party platforms, it may be trustees and platform managers who suffer the reputational damage (rather than the fund managers). I have never heard of a “pandemic proof” financial solution and I am sure that a lot of risk-registers will be being revisited over the next few weeks.

Conventional notions of de-risking will need to be challenged as will abstractions such as “appetite for risk”.

There is a risk, which Jo Cumbo points out, that some people will consider our best way back to normality, is to rid ourselves of the hard-won consumer protections that result from a more open society. The risk is compounded by those who consider technology part of the problem – rather than the solution

This risk of regression

Mixed in with the naked xenophobia behind the “5G Coronavirus” theory, is  simple nostalgia. Burning a 5G mast is pretty extreme, but it comes from the same anxiety that I hear about Zoom. “what was wrong with life before we had 5G, the internet, the telephone etc”

Actually 5G and Zoom are far more likely to be part of the solution than the problem. They represent progression from the physical risks that will persist for many months until a general vaccination program for COVID19 is in place.

I am 100% in agreement with Jo Cumbo in calling for the reinstatement of the pension protections that are currently on hold. I also hope that the progressive policies to put information in our hands digitally – (the open finance initiative, more specifically the pension finder service and the pension dashboards)  – are accelerated – rather than canned. Covid19 should accelerate not repress progress.

 The rise of “Regtech”

Tomorrow I will be meeting with the FCA on Skype for Business . I have never printed a page of our application to be directly authorised or to enter the FCA Sandbox, nor do I intend to. FCA Connect isn’t perfect, but it serves us well.

We expect that all our interactions with the Regulator will be capable of being recorded for audio and video and that (with mutual consent), these recordings can be held in the cloud indefinitely.

This is analogous to our voluntary permitting our phones to permit tracking for potential touch points with COVID19.  Where people have the capacity to share records of their activities of daily living, then they should be free to do so. I recognise that some people do not wish to share with big brother, their every social interaction and the right to opt-out must be maintained.

But to me – the new normal – for consumer protection – will be a massive increase in data sharing, leading to a transparency of information where there will be a dashboard for everything.

If it can be measured, it can be managed.

A dashboard of everything offers infinite transparency. For Government – access to data is – right now – a matter of life or death.

We will almost certainly look back at this stage of the pandemic as defined by the capacity of Governments to access data on the spread of the virus to best martial limited resources.

The dispersion of fatalities between neighbouring jurisdictions suggests that Governments that get things right (for instance Germany and Scandinavia) are at an advantage to those who struggle (Italy, Spain , France UK..)

For those who say we should not progress our pension dashboard (as an example), then I would point to the varying trajectories of Covid19 spread over the past few weeks.

Screenshot 2020-04-13 at 07.52.00

This may be a wake up call for Britain. Our underinvestment not just in pandemic preparations but in our capacity to organise and use data for the sake of public health, are now translating, very brutally , into a high daily death count.

We cannot duck these lessons or pretend that what happens in health, is not applicable in other areas of our lives. Preparedness for later life issues are of course linked to health after all.

We have an opportunity, as we stare down the barrel, to learn and progress. Alternatively we can bury our heads in the sand and spurn and regress.

We can have a dashboard of everything and use digital technology to deliver a better safer world. Or we can burn down 5G masts.

 

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Nicola Oliver on capacity within the NHS

Posted on April 13, 2020 by henry tapper

 

Screenshot 2020-04-13 at 05.55.37

We are reliant upon healthcare capacity to reduce the severity of this pandemic in terms of morbidity and mortality. One of the key challenges will be how a health system copes in times of increased demand.

This is contingent upon:
1. Existing capacity – beds, staff, other resources
2. Ability to create extra capacity – repurposing of hospital space and re-allocating staff

The next table displays an overview of bed and staff numbers across selected populations in order to compare the UK with other countries.

Screenshot 2020-04-13 at 05.44.22

Ratios of healthcare staff to patients in the UK are much lower than many other countries therefore the ability to deal with a surge in demand is much lower.

As we know, the UK has fewer ICU and general acute beds per 100,000 population compared to other countries, and bed occupancy rates are high. Currently acute general beds are running at up to 92% occupancy in some hospital trusts (figure A) and ICU at around 83% (figure B).

Screenshot 2020-04-13 at 05.45.01

Screenshot 2020-04-13 at 05.45.18

Figure B. Critical care bed occupancy rates (NHS, 2020a)

Unfortunately, there is an existing health service staffing vacancy crisis, and so the ability of the NHS to scale up and provide surge capacity is limited. Over the last 35 years, there have been considerable changes to the way health services are delivered: there have been clinical innovations, changes to practice and the development of community services.

The excess bed capacity that was previously in the system to accommodate large numbers of inpatients no longer exists.   Therefore, the UK Government has sought to address this through a number of strategies.

UK Government Strategies

Within the last week, the Government announced that it had struck a deal with the independent sector to re-provision resources from the private healthcare sector to extend its capacity for 3 months.

This has been reported to include an additional 10,000 nurses, 700 doctors and 8000 other clinical staff. 8000 hospital beds will be made available and 1200 ventilators.

However, it is unclear whether the UK will continue to have access to the additional private capacity beyond the end of June if required.  In addition, all NHS Trusts have been asked to free up 30,000 (or more) of the English NHS’s 100,000 general and acute beds through a number of strategies that include:
 the postponement of all non-urgent elective operations
 urgently discharge all hospital inpatients who are medically fit to leave (however, we know that the social care system is already buckling and additional demand could be catastrophic)
The construction of a field-type hospital at the Excel Arena in London, which will treat up to 4000 previously fit and healthy people with COVID-19 and requiring hospitalisation, is under way. (Initial capacity will be 500 beds). Other field hospitals are being created at the Manchester Central Conference Centre and potentially at the Scottish exhibition centre in Glasgow.
However, coronavirus hospital admissions are expected to remain at around roughly 1,000-a-day for the next two to three weeks before “stabilising”, according to the government’s chief scientific adviser.

Preparedness and Risk

The UK still lags many other countries with regard to preparedness and surge capacity in this regard.  Strategies to reduce the impact of an acute demand in healthcare must consider these factors. For example, there is a clear association between staffing numbers and mortality.
A 2007 systematic review and meta-analysis by Kane et al found that increased Registered Nurse (RN) staffing is associated with lower hospital related mortality in intensive care units (ICUs). The addition of a full time equivalent nurse per patient day was reported to be associated with reductions of mortality of 9% as well as a 30% reduction in risk of hospital acquired pneumonia, 60% reduction in unplanned extubation and respiratory failure in intensive care patients and a 28%
reduction in ‘failure to rescue’.

Length of stay in hospital was around 25% shorter in intensive carepatients with each additional full time equivalent nurse per patient day. West et al (2014) find a statistically significant association between the number of nurses and doctors available in Intensive Care Units and patients’ chances of surviving their stay in ICU and for up to 30 days after admission to hospital.

The size of the nursing workforce in ICUs has the greatest effect on the most severely ill patients, whereas the number of doctors seems to be important across the range of patient acuity. In addition to accessing private sector capacity, other strategies
to increase nurse and doctors numbers include asking recently retired staff to assist.

Soon-to-be qualified nurses and doctors are also adding to the staffing capacity.
A 2018 meta-analysis involving 175,755 patients, from six studies, admitted to ICU and/or
cardiac/cardiothoracic units showed that a low nurse-to-patient ratio decreased the risk of in- hospital mortality by 14%. (Driscoll et al, 2018).

Additionally, each 10% increase in the proportion of nursing personnel who are professional nurses is associated with an 11% decrease in the odds of patient deaths after general surgery (Aiken et al, 2016).

Consequences and Challenges

If all NHS capacity was to be directed to caring for Covid-19 patients, it’s unclear as to the
consequences for those patients who would have ordinarily received treatment in ICU.

This has not been reflected in any of the published models to date. The indirect impact of Covid-19 on fatality rates needs to be considered. In addition, further research is required to establish the extent to which Covid-19 victims will have required hospitalisation or would have died in the ordinary course of events had Covid-19 not occurred.
Caring for a patient in ICU requires additional training and experience that cannot be learnt in a matter of days. For nurses, it requires the minimal training period, 3 years, followed by additional post-graduate qualifications and experience. For doctors, even longer. This means that staff from other specialities are not able to be reassigned to ICU without the correct qualifications and experience.

Plus, there will still be emergency admissions, trauma cases, septicaemia, heart attacks,
strokes, that may require intensive care. Once the curve of the pandemic has been flattened, it will take a considerable amount of time for the NHS in the UK to restore capacity and currently over-burdened public healthcare systems will take quite some time to get back to normality and to begin clearing pent-up backlogs. This is an area
for further investigation and modelling.
The so-called “bounceback” of health events will continue and, for many other health perils, patients will have deteriorated whilst waiting to access healthcare. Perils where early treatment would have led to early resolution may now require longer and more complex treatment. This will therefore place an additional burden on the post-pandemic healthcare system.

References

Aiken L et a; (2016) Nursing skill mix in European hospitals: cross-sectional study of the association with mortality, patient ratings, and quality of care BMJ Qual Saf 2017;26:559–568.

Kane R et al (2007) The Association of Registered Nurse Staffing Levels and Patient Outcomes Systematic Review and Meta-Analysis Med Care 2007;45: 1195–1204

NHS (2020a) https://www.england.nhs.uk/statistics/statistical-work-areas/critical-care-capacity/ [accessed 20th March 2020]
NHS (2020b) https://www.england.nhs.uk/statistics/statistical-work-areas/bed-availability-and- occupancy/bed-data-overnight/ [accessed 20th March 2020]
West E et al (2014) Nurse staffing, medical staffing and mortality in Intensive Care: An observational study International Journal of Nursing Studies 51 (2014) 781–794

 

nicola

Nicola Oliver

Posted in actuaries, advice gap, coronavirus, pensions | 1 Comment

Pension Plowman’s guide to 2020 IGC reports

Posted on April 12, 2020 by henry tapper

FCA balance

This is a big year for IGCs. It is their fifth birthday, it’s the year when the FCA reviews their effectiveness and it’s the year of the pandemic, where providers and savers will be under maximum strain.

Most of the 2020 IG reports are now published and analysed.

Click  through to the IGC Chair Statement

Click through to our report
Provider 2020 assessment
Insurers
Royal London https://wp.me/ppXQz-mvM
Prudential https://wp.me/ppXQz-mNB
Legal & General https://wp.me/ppXQz-mzk
Scottish Widows https://wp.me/ppXQz-mAQ
Aviva https://wp.me/ppXQz-mLm
Friends Life Now part of Aviva
Aegon https://wp.me/ppXQz-mCl
Zurich Assurance https://wp.me/ppXQz-mAe
Standard Life https://wp.me/ppXQz-mzU
Asset Managers
Fidelity https://wp.me/ppXQz-mE1
BlackRock Now part of Aegon
Legacy providers
Old Mutual https://wp.me/ppXQz-mCW
Abbey Life Now part of Phoenix
ReAssure https://wp.me/ppXQz-mHX
Virgin Money Stakeholder Pension https://wp.me/ppXQz-mCl
B&CE EasyBuild Stakeholder Pension https://tinyurl.com/wp6quat
Phoenix https://wp.me/ppXQz-mzy
New breed SIPPs
Hargreaves Lansdown Vantage https://tinyurl.com/wnkzt6u
Saint James Place  (GAA) https://wp.me/ppXQz-mDR

 

These are extracts from our spreadsheet which contains live links to all my reviews and on to the reports themselves. If you would like a copy of the big spreadsheet , mail me at henry@agewage.com.

Screenshot 2020-04-28 at 10.48.36

 

 

Here by comparison are the 2019 scores

Screenshot 2020-04-11 at 10.53.58

Here are the 2018 scores

Screenshot 2020-04-11 at 10.59.10

Here are the 2017 scores

Screenshot 2020-04-11 at 11.02.30

Here are the 2016 scores

Screenshot 2020-04-11 at 11.05.40

Some general observations

There is an absence of red in our scoring, no report was really terrible. Indeed Hargreaves Lansdown’s – which in 2015-16 was awful, was this year one of the best- despite its IGC having no chair.

Reports are generally improving as you’d expect. But some parts of reporting aren’t improving – notably the value for money assessments – which in my opinion are regressing.

Value for money is something people understand, but the financial services industry has failed to do what Frank Field asked it to do and agree a definition which gets popular support.

Because no one can understand the various definitions of value for money, and because no common standard has emerged, VFM in pensions remains obscure and the IGCs have failed to capture interest in their reports.

But while value for money has gone backwards, the IGCs have achieved a lot. In the early days, they helped the FCA rid legacy pensions of exit penalties meaning that people over 55 are now guaranteed to pay no more than 1% as an exit fee.

IGCs have also been useful in cutting the hidden costs within pensions. The most notable example of this is in the reduction in transaction costs within Fidelity’s default fund which have reduced from around 0.4% pa to around 0.03%.  IGCs have made providers think about the efficiency of their fund management and this should lead to better execution of asset management.

While the overt costs have also come down,  this has been a function of competition. But we must be careful that we keep a strong market for workplace pensions and this means keeping a variety of providers in the market.

Since 2016, BlackRock has consolidated to Aegon, Friends Life to Aviva, Abbey Life and Standard Life to Phoenix and we shortly expect Phoenix to take over ReAssure who are busy consolidating Old Mutual and a part of L&G.

The consolidator of the future may well be the master trust. so far, only the B&CE Stakeholder pension – which is now within People’s Pension, has gone, but there is a large amount of consolidation between master trusts and most especially between occupational pension schemes like Tesco and Vodaphone which have merged into the Legal and General and Life-sight master trusts.

We are now seeing the master trusts rivalling the insurers for numbers of members and soon we shall see their assets catching up with the more mature GPPs and stakeholder plans in the insured and SIPP sectors.

But while it is quite easy to track down IGC reporting, master trusts are much harder to keep tabs on. IGCs publish reports in a roughly four week window (late March to late April) while master trusts publish chair statements unannounced and throughout the year.

I would like to find a way to report on the big commercial master trusts as I do the IGC reports and it may be that the pensions regulator helps me by getting the master trusts to publish around a certain data – as IGCs do.

Finally, hats off to Sir David Chapman , who as IGC Chair for Virgin Money has struggled- for five years with little success – to get the Virgin Stakeholder’s default updated. He is an IGC hero.

What future for IGCs?

The big two impending tasks for the IGCs are the oversight of their provider’s  investment pathways and their integration of ESG into their investment proposition.

Right now, Covid-19 has eclipsed these prospects and we already know that the August deadline for the pathways has slipped. The IGCs reports were already written before lockdown but it’s very likely going forward that the third new task of IGCs will be helping individual savers with their disaster recovery plans.

If we can look beyond the current crisis, it’s hard to see how IGCs are going to be more effective reporting on  investment pathways or ESG than they have been on the VFM of the savings process.

In order for IGCs to become popular , they are going  to have to find ways to be relevant and provide personal information. This will mean helping people understand how much value they’ve got for their money – by looking at the outcomes both of the saving and spending phases of the workplace pension. Is it possible that IGCs could provide people with reports personalised to each saver and reporting on experienced performance?

Radical as this seems , it is possible in a digital world where data is readily analysable and where algorithms are in place to turn complex information into simple metrics.

ESG

As regards ESG, technology can also be the IGCs friend. It will soon be possible for software to be embedded into the investment platforms to enable savers to see through to the underlying investments of their funds. Once they can see where thier money is invested, it will be possible for them to register their views on the E, S and G , providing stewards with their voting intentions.

If IGCs are to have a role in sustaining ESG within funds, it is in encouraging people to engage in such ways and ensuring that when people make their feelings felt, they are not ignored.

Pension dashboards

Finally , I think the IGCs can have a positive role to play in getting provider data ready for the pension dashboards. The 2020 IGC reports barely mention the dashboards but I hope by 2021 , they will have got this message.

In summary

If IGCs are to encourage engagement , providing individual reporting, enabling voting intentions and encouraging participation in the dashboard infrastructure are three ways in which the IGCs (and GAAs) can really be useful.

 

Agewage logo

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From an empty chair; Hargreaves Lansdown’s excellent IGC statement.

Posted on April 12, 2020 by henry tapper

empty chair

 

A cautionary tale

It has been a difficult year for Hargreaves Lansdown’s IGC and they have launched their Chair’s statement without a Chair. This unusual state of affair followed the departure of David Grimes with clearly no succession plan in place. Indeed his job has been advertised on Linked in and by Reed Personnel since January, but no appointment has been made.

The empty Chair’s Statement for 2020, is also unusual as it follows the debacle of “Woodford” in whose funds many workplace savers had been invested. In July, David Grimes conceded in an interview with the Financial Times that his committee did not spend enough time reviewing the selection process used to choose investments on the Wealth 50 list of Hargreaves Lansdown’s favoured funds.

It turned out that “enough time” was an hour and that the majority of his time had been spent ensuring that the default for Hargreaves’ workplace pension was working properly. This was not what the 2019 Chair’s Statement had said.

The IGC spent time this year meeting with HL’s research team to discuss the selection and de-selection processes, governance and due diligence frameworks for this range of funds. The IGC is satisfied that the same rigorous and robust processes and frameworks are in place for the Wealth 50 funds as for the default funds and ABC funds.

Grimes told the FT he should have selected his words more carefully. Around 1700 workplace pension savers who invested in Woodford’s funds would agree.

The 2020 report is in lockdown on these matters

The report is not signed by anyone and makes no mention of their being no Chair other than it shows only four committee members.Presumably the Committee will at some stage have to declare itself in breach of its statutory obligations. Since its business is governance, this is a serious matter. Of the two company representatives, one is Rob Byett, Group Director of Risk and Compliance. Hargreaves Lansdown is a publicly quoted company.

Although the Woodford issue is mentioned, no mention is made of the IGC’s role and no apology is made. The report is in lockdown mode.

Determined to be effective?

The report does not pull punches. On the matters that their member survey shows matter most to members – performance and charges, the report is brutal

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HL offers employers three choices of default- an actively managed Schroder fund , a passive equivalent and (strangely) a cash fund. We don’t get to know latest splits , but last year it was reported that 65% of employers chose passive . If you’d chosen BlackRock (as at the end of 2019)  you’d have seen defaulting staff doing substantially better in this fund.

The red marker for a second year in  a row suggests that the IGC are not happy about the default options. But it’s unclear whether it’s the delay in HL reviewing or a more fundamental concern that is driving these red flags.

The IGC have demanded – and succeeded in getting an agreement to do away with what HL call their ABC options (aggressive- balanced- conservative). In the 2019 report the IGC had been told the Lindsell Train “A” fund did not represent a “conflict” by holding considerable HL stock, in this report the fund has been replaced on ABC. Again the report is cagey about what actually happened.

There was yet another incident last year when thousands of policyholders found themselves invested in the wrong fund class. The report is matter of fact and doesn’t downgrade its score for administration

But most of the moans from members are reserved for charges.  The report has an extremely good section where this feedback is revealed. The report drily observes•

Feedback on charges from some members remains consistent with previous years – suggesting further improvements are needed to highlight value-added aspects of the service

This may be what lies behind those two red dots. The defaults are far from cheap.

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I have spoken to Paul Black – who has oversight of the funds and suggested that the IGC look at the experienced returns “members” are getting. The total cost of ownership of the Schroder fund is not 0.75% but nearly 1% and I wonder if these funds are giving workplace savers value for money.

Clearly all is not well at the IGC and HL are probably fighting many fires more urgent, but that the IGC is currently down to four members with no Chair suggests to me that is cannot be as effective as it should be. I am giving them an amber in this regard, though I am worried that at this very difficult time, they don’t have a full compliment.

Value for Money assessment

Of all the VFM assessments I’ve read this year, this is the best. It is so, because it listens to what Vantage members tell the IGC.

These members are active and interested  and the IGC is in touch with what they are up to.

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And they are not shy in coming forward (as has been noted above).

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Less than half of respondents thought they were getting value for money from their plan.

The Committee’s view is

Ultimately, the real value from a pension will be determined by the member and will be based on what they receive when they retire or more specifically, the point at which they need or want to start taking money out of their pension. In this context, we will consider what HL is offering employers and scheme members now, which will influence what members may receive in the future. We see this as the way in which HL is working towards outcomes for members in retirement. This is the lens through which we will assess value for money for members

This is entirely right. An outcomes based approach to VFM assessment reflects what members see as important.

This alignment between what the IGC is saying and what the members are saying makes HL’s IGC assessment real.  I give it a green

Tone and structure

I liked the structure of the report. It has done away with the summary and report approach and is now focussing just on one document. The report mixes simple explanations of what it is analysing with meaningful analysis.

It doesn’t talk down to its readership but it does do its explaining as it goes along (there is no glossary at the end).

It uses helpful summaries at the end of each section and it signposts actions to be taken as it goes along, recapitulating at the end of the report

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It took me a long time to read the report because it was full of really interesting and pertinent information. I felt that when i had finished reading it, I properly understood what the IGC were about and how they were doing their work.

For all these reasons, I am happy to give this report a green for tone and structure.

 

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Posted in IGC, pensions | Tagged , , , , , | Leave a comment

Is Fidelity’s IGC papering over the cracks?

Posted on April 11, 2020 by henry tapper
Kim nash

Kim Nash – Fidelity IGC chair

Kim Nash and Anna Bradley are the only female IGC Chairs.  Kim’s not only IGC chair at Fidelity, she’s chair of the master trust. She’s not only chair of the Fidelity master trust , but chair of the Scottish Widows master trust (though she is about to be replaced there by Andrew Warwick Thompson).

I mention this because although I am pleased that Kim brings diversity to her varying roles, these roles necessarily conflict.  Fidelity has a marketing strategy that allows it to compete for mandates where a sponsoring employer may be choosing between Scottish Widows or Fidelity, or perhaps employing Fidelity to run a contact based or trust based plan. It’s not jus Kim, but her entire board (with the exception of one internal appointment) serving as fiduciaries on IGC and Trust board.

This situation looks like being perpetuated for the foreseeable future with the arrival of Gerald Wellesley and Dianne Day who are like Kim herself are Client Directors of their respective independent trustee firms . It may be an alphabet soup of acronyms – PTL, ITS and PSITL – but this doesn’t make for diversity of judgement, it makes for a club.

I am worried by the interchangeability of a small group of specialist professional trustees from a magic circle of trustee firms, dominating insurance company master trusts and IGCs. Fidelity is a particularly bad example and the latest appointments further concentrate the problem.  I thought the Fidelity IGC report showed an ineffective IGC and while well written and slickly presented showed no appetite to challenge Fidelity over the value policyholders were getting for their money.

The report and governance structure ring alarm bells to me and I hope that the FCA – when it comes to report on IGCs later this year, will pick up on this.

Tone and Structure

Like Ian Pittaway at Aegon, Kim Nash chooses to present herself through a video and like Ian, Kim ends up making the video a promo.  I can’t embed the video on this blog but I can offer a screenshot which (confusingly) is labelled – Master Trust Video 2

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Screenshot of the IGC video.

The video is 4 minutes long and provides an overview of the value for money assessment. The only critical note is over the development of certain processes, any criticism translates into this message “still improving” while every other metric gets a big green tick.  All this against a backdrop of St Paul’s cathedral, which looks out onto Fidelity’s offices.

While I suppose this gushing style is supposed to encourage policyholders to save more, but I think it compromises the Chair and the Committee whose report has to live up to the video – sadly it does.

The main report is preceded by a two-page member summary ( a good idea). As with the video – this appears on your toolbar as a “master trust  IGC”  document

Screenshot 2020-04-11 at 07.24.08

There is a section where the IGC hints at what “still improving” means

There are also some areas where we feel Fidelity has only partly met our expectations. We will be working with Fidelity in the coming year to enhance and improve your experiences. These areas are:

• Clear communications sent to you at relevant times, so you can make informed decisions about your retirement plans, with a particular focus on digital communications

• The availability of income drawdown in retirement

• Current contribution levels and how easy they are to change

• Communicating about costs and charges in pounds and pence

I like Kim’s clear style of writing, her unfussy prose and her concision. If I could forget the video, I would give the report a green for tone and structure, but I can’t – it gets an amber. As a general rule, IGC Chairs should stay away from the camera.

Effective or authoritative

Because Kim writes so well, she becomes authoritative in a way that few other chairs can. But this does not mean that either she or her IGC are effective.

The Coronavirus features in the body of the report.

We can report that the restrictions we are all having to deal with as a result of the pandemic have not affected the administration of your pension.

Fidelity , we are told , have benefited from having offices in Asia that forewarned them of the impact of Covid19. To their credit – they have kept telephone helplines in place 8am-6pm, but it’s not true to say that administration has not been affected. This is from Fidelity’s website

We’re very sorry if you experience a longer than usual wait time, we hope you understand it is a very busy period for our teams. Our client services team will be doing their best to respond as soon as possible.

Contact us by email: pensions.service@fil.com Please be aware that we’re unable to discuss account information by email. We aim to respond to emails within 2 working days.

This does not sound like world-leading customer service to me. The IGC report does not sound on top of actual experience – it sounds like it’s been fed a line.

I am really worried about the lack of product development and technology integration at Fidelity.

I see little sign that Fidelity are keeping up with the times. At a recent workshop on investment pathways, Fidelity presented their approach to delivery. There was to be no app for phones or – it seemed – any automated processes. It was as if the conversation was happening ten years ago.

Similarly , I am not convinced that Fidelity’s flagship and default investment strategy “FutureWise” is being effectively monitored. The evidence for Future Wise exceeding expectations is given in two tables, one showing absolute performance and one showing performance against certain benchmarks.

Screenshot 2020-04-11 at 07.41.08

Apart from the obvious comment that these figures do not include Q1 2020, there are plenty of other worries. The comparators are inflation  and interest rates, both of which are squashed by QE, the returns are quoted gross and there is no analysis of experienced returns (using contribution histories). In short the analysis looks designed to present performance in the best light and shows policyholders little that they can hang on to as relevant to them.

There needs to be some kind of peer group benchmark in here , for the report to have any meaning, instead we are given as authority, an un-named investment consultant on who’s testing the IGC has relied. Frankly i do not find this analysis of investment value at all compelling.

I continue to be concerned by the high levels of costs within Fidelity’s self-select active funds with active equity funds average 26bps of transaction costs. Fidelity have been reporting these numbers for three years now and I’m pleased to see the transaction costs are coming down.  FutureWise now averages only 0.03% in costs, this compares to transaction costs in previous years many times this amount

Screenshot 2020-04-11 at 07.53.55

“previous -2018 and revised -2019

Policyholders younger than 65 have seen transaction costs falling from 0.39% to 0.03%. That’s a huge fall but goes uncommented on. I would like to know what was going on in 2018 and 2019 and just what changed.

Space doesn’t permit me to continue challenging Fidelity, but I suspect that there continues to be a lot of papering over the cracks. I don’t feel at all happy convinced by what I’m reading and while I am pleased to see transaction costs falling, I sense a lack of transparency in the report. Coupled with the eulogistic tone of the video, I am not at all sure that the IGC is effectively challenging Fidelity and I give it an amber for its efficacy.

Value for Money Assessment

As I have been reading and re-reading the report, I have become progressively less comfortable with how information is presented and the rigour with which Fidelity appears to have been challenged.

However, the independent assessment of Fidelity through the system of net promoter scores suggests that customer satisfaction levels are improving. Fidelity only markets itself to sponsors who have substantial pension resources and consequently, contributions per member are high, meaning that Fidelity plans should be profitable to Fidelity and that Fidelity should be at the forefront of customer service.

On traditional metrics , such as accuracy of administration and telephony, Fidelity is clear an impressive organisation (despite problems today which are understandable).

But there appear to be some big deficiencies. In particular the inability of policyholders to drawdown from their workplace pensionsIn addition,

Fidelity is developing the capability to allow members to take a regular income in retirement from an existing account through income drawdown (from September 2020) without having to transfer to a new arrangement. We are monitoring progress on investment pathways and the retirement support provided around them. It will then form part of our Value-for-Money assessment in 2021.

Five years after the introduction of pension freedoms and Fidelity still don’t have an integrated drawdown service in its workplace pension.

While the Chair’s report focusses on the nice to have issues around its online portal, policyholders aren’t getting the basic requirement of a drawdown service. It would appear that an online transfer in service was developed this year, but why would someone transfer to Fidelity if there is no equivalent service to get the money back.

As I have mentioned throughout this review, I do not think that this report really asks the right questions and I don’t trust its answers. I am tempted to give the VFM assessment worse, but will stick at giving it an amber rating.

 

Posted in Financial Conduct Authority, IGC, pensions | Tagged , , , , , | 2 Comments

A library of COVID-19 actuarial responses

Posted on April 10, 2020 by henry tapper

Screenshot 2020-04-13 at 06.18.35

When I posted this library,  the actuaries who’ve blogged had no central library of their work. So I published their articles on my blog and curated them here. All the articles they’ve written have also been published on linked in  – since Easter I have been building up this resource and I’m pleased to say that the actuaries now have their own website where you can see the originals together. I will continue to post blogs form the COVID-19 Actuaries Response Group here .

To kick off – here’s a message from Stuart McDonald who provides me with content from the group

Stuart mc

Stuart McDonald

Matt Edwards

Matthew Edwards

Covid19 an actuary’s view    This blog is mostly by Matthew Edwards and lays out the basic assumptions that actuaries were making about the spread of the virus, before interventions occurred. Knowing what we now know, the thought that we had a 1 in 2 chance of being infected in June, makes my sitting inside right now – easier to understand!

stuart

Not Stuart McDonald

Has over half of the UK already been exposed to Covid19?  Here Stuart McDonald explains why he is sceptical of the claims of a group of researchers from Oxford University that many of us are immune. He points out that without better evidence, this could lead to complacency – in case you were making for the door.

nicola

Nicola Oliver

Here Nicola Oliver answers our question “What is a Coronavirus”. In which we learn it is not a very nice virus at all.

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Matt Fletcher

Here is Matt Fletcher calling into question some dodgy conclusions from the Electical Department of Imperial College;  Social distancing – the UK is not like China

Adrian Pinnington

Adrian Pinington

Next up is Adrian Pinington’s article explaining the difference between Suppression and Mitigation and how our Government changed horses mid-stream.

Joseph Lu

Joseph Lu

Joseph Lu gives us a history of the modelling that has happened so far.

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In this- our first co-authored update, Nicola and Matt give us a weekly update at the beginning of April.

Matt Edwards

Matthew is back looking at the myth that most of Covid 19’s victims are already on death row.

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Mohammed Khan and Gary McInally

Here are Mohammed Khan and GaryMcInally on how actuaries have responded to a call to arms

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Matt Fletcher and Dan Ryan

Matt Fletcher and Dan Ryan round up the news for the second week of April

nicola

Nicola Oliver

Nicola Oliver on Capacity within the NHS

Nicola explains how surges in demand could cause the NHS problems and how supply and demand currently match

 

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Matt Fletcher and Dan Ryan

Covid-19 ; interpreting the deaths data

Based on the published data, Matt and Dan believe that it is as yet too early to say whether the number of daily deaths in the UK has peaked or even stabilised.

 

PT

Peter Tompkins considers whether Lockdown will cause more deaths than keeping us at work.

He concludes that Lockdown does more good than ill

Tan

Tan Suee Chieh

Tan Suee Chieh’s unusual slideshow about Risk, Uncertainty, Psychology and Judgement during the Pandemic

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Matt and Nicola

Matt Fletcher and Nicola Oliver deliver the third weekly round up of the must-read articles.

Adrian baskir

Adrian Baskir

Adrian Baskir asks Could Covid-19 help the healthcare sector?

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In the April 24th weekly round up, Nicola and Matt discuss the events of the week and feature a goat from North Wales.

Joseph Lu

Joseph Lu explains how the virus kills; a clear and unsensational explanation

chris daykin

Chris Daykin looks into International Comparisons and finds out how the UK stacks up.

Matt Edwards

Matthew Edwards explains the risk factors behind COVID-19 analysis

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Matt Fletcher, Andrew Gache and Nicola Oliver give us a MayDay round up of the week’s developments,

Dermot

Dermot Grenham looks at the data coming out of Africa.   He reaches an interesting conclusion

nicola

Nicola Oliver

Nicola Oliver tells you all you need to know about the vaccines and antivirals being tested against COVID-19

Dan Ryan

Dan Ryan argues that COVID-19 has raised the game of healthcare systems who are digitalising health records

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Nicola and Matt do another weekly round up – this time to May 8th.

nicola

Nicola Oliver  tells us what happens in intensive care

gordon woo

Gordon Woo explains what needs to be done to protect against a second wave of the virus.

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Nicola and Matt produce the weekly round up – to  16th May

Stuart mc

Stuart McDonald updates us on ICNARC and COVID-19

Louis

Louis Rossouw Compares the South African and UK responsest o COVID-19 and makes some interesting comments on the impact of easing the lockdown

chris daykin

Chris Daykin compares the UK experience of COVID- 19 to similar countries’ upgrading  and expanding his earlier article

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Stuart McDonald and Matthew Edwards

Stuart and Matthew compare two contrasting reports emanating from Stanford University.

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The 8th weekly round up is produced by Matt Fletcher and Nicola Oliver

 

Joseph Lu

Joseph Lu looks at the economic impact of COVID-19 on the UK economy and how we might recover.

Face5

The COVID -19 actuaries managed to presage the Government’s announcement on the wearing of facemasks on public transport by just under one hour. This was the article that precursed it – from Nicola Oliver

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Here is the 10th bulletin , once again from Nicola Oliver and Matt Fletcher

 

stuart

 

Stuart McDonald writes about Rand the policy impact on it in the UK. The article is based on publicly available data.

squirrel 3

Here’s the 11th weekly bulletin, improbably exploring facilities for squirrels (among more important matters.

link

Here’s Nicola and Matt’s  12th weekly bulletin, where as well as the science, the focus shifts to pets.

Dan Ryan and Adrian Baskir produce a hard-hitting report on what really happened in our care homes.

Adrian and Dan

Adrian Baskir and Dan Ryan

Care homes – forgotten by us- not by Covid

The 13th weekly bulletinfinishes with a Covid-19 bookshelf – thanks again to Matt Fletcher and Nicola Oliver.

bookshelf

Nicola, Matt and Adrian ask if COVID-19 is seasonal

brazil2

The 15th weekly bulletin examines data, infection and socially distanced bears

teddy-bears

Is the treatment of COVID-19 in our hospitals becoming more effective ask Matt Edwards and John Roberts

Matt +

Matt Edwards and John Roberts

 The 16th weekly round up is touched by a kind of magic

Tamariz

Nicola Oliver looks at vaccines and asks how long we’ll be waiting for one in the first monthly medical bulletin

nicola

Louis Rossouw looks at South African COVID mortality  relative to the UK and around the world

Louis

Non Covid-19 Actuaries Response Group material that may be of interest

Though its not from the Covid-19 group, Graphs from John Burn-Mudoch and his team at the FT are not behind the FT paywall and are free to access.

Thanks to John whose tweets at  @jburnmurdoch  keep us up to date with the FT’s live charts. (Example below).

A graphic with no description

Another helpful set of charts have been produced by Jamie Jenkins  show how many of us are dying week by week each year going back 7 years

And this graph shows how it is for the over 85s

Here is a thread of tweets from Stuart Mcdonald (set in a blog), explaining the April 17 Icnarc numbers .

A week later Stuart did it all over again, with new numbers and new insights.

Behind all these charts and tables are human beings. I will give the final tweets to Sanjum Sethi – who explains what these numbers mean to people saving lives.

 

 

Posted in actuaries, age wage, coronavirus, pensions | Tagged , , , | 6 Comments

Legal & General – recovering

Posted on April 10, 2020 by henry tapper

legalandgeneral_logo

I wasn’t good at learning on management courses, but I did once write down and remember this list

  1. Acknowledge your mistakes. Never try to cover up or blame others for what went wrong. …
  2. Learn from your mistakes. Once you learn from your mistakes, don’t repeat them.
  3. Teach others from your mistakes. …
  4. Move beyond your mistakes.

Legal & General made a mistake –

They failed to plan for the impact of lockdown – and found themselves unable to support a telephone helpline – even for vulnerable customers . I spoke with Emma Douglas, Head of DC Solutions at LGIM about this and she has written to me confirming our conversation.

When we needed to send staff home for their own safety we had to make a key decision on the helpline, given that the previous business continuity plans (two sites in Cardiff plus a warm site in Bristol) would not work in the pandemic.

The decision we faced was whether to close the helpline down for a short period to ensure we could operate it in a safe and controlled way and focus on online support and outbound calls OR to keep it open but with the possibility of long wait times and high abandon rates. Market feedback is that the long wait times and high abandon rates is what customers were experiencing with a number of our competitors who did keep the lines open and in this case it could be argued that a poor service is worse than no service.

We took the decision to close, knowing this would be for a few days, and we were able to open our phone lines again from Monday 6th April, with a focus on taking calls from vulnerable customers in the first instance. We have increased the number of staff able to take calls over the rest of this week. Our biggest concern during the period when we had closed the helpline was how would customers, especially vulnerable customers, get in touch with us and so we made sure there was robust online support:

  • We prioritised our Important and Critical processes which all relate to customers who either need a regular income or to access to their pension monies.  In terms of financial vulnerability, this ensured that we were able to support customers who needed us most.
  • As part of these Critical business processes, we ensured that the Sensitive Claims team had full home working capability including the ability to speak to customers/beneficiaries in their time of need.  We also offered customers with serious ill health questions and/or a beneficiary notifying us of a death a more prominent trigger as to how to contact the team directly.  We know these are not the only types of vulnerability but they are very significant ones and we wanted those customers to get direct access to the specialist teams trained to deal most effectively with their concerns and queries.  The helpline message provided an email address for these customers, and they received a call back from a member of the team.
  • For other financially sensitive processes we had SIPP trades and fund switches fully supported.
  • The teams working from home were monitoring all contact, across all channels, to identify any other customers who could be vulnerable (and equally any urgent or sensitive requests) and deal with their request fully.  
    • If customers interacted via Manage Your Account, they could send us a Secure Message and we had laptop users at home who were able to sift for sensitive/vulnerable/urgent requests as a priority and were also able to process these requests
    • If customers went online, they could also send an email to a Web Admin Mailbox and we had staff with laptops who were able to sift these requests and allocate them to the correct team to process.
    • If customers were on Social Media and decided to message us, we had laptop users who were able to respond within an hour or so.

The DC team is working successfully from home.

  • We are performing all money in / money out processes as normal – contribution processing, new joiners, payments out, switches.
  • Implementation and Client Relationship Management teams are all working as usual – all are home based anyway. The Member communications team are all working successfully from home.
  • We have worked tirelessly to keep our members, schemes and intermediaries fully updated through regular communications and have a whole range for Covid-19 information available throughout our member journey, including wellbeing advice
  • All trading and dealing services are fully operational. Asset transitions are generally not going ahead due to market conditions but all are being re-planned for later in the year.
  • All Teams have been working very hard over the period – many working round the clock to deliver service and support
  • Feedback from clients and intermediaries is extremely positive about the service and support we have continued to give through this unprecedented period

It’s not for me to judge how well L&G has recovered from its mistake, but this statement suggests that L&G

  1. Acknowledge (their recovery plan was inadequate)
  2. Are learning (what vulnerable customers need)
  3. Are teaching ( themselves new ways of learning
  4. Are moving on ( I understand that they will be publicising their helplines are open after Easter)

It is now with Emma and her management team to ensure they meet future challenges better prepared. I’m grateful to her for putting L&G’s position on this matter for me to publish.

legalandgeneral_logo

Posted in leadership, pensions | Tagged | 2 Comments

Actuaries – are doing it – doing it!

Posted on April 9, 2020 by henry tapper

 Mohammed Khan and Gary McInally

 

Q. How do you get 400 actuaries to work together at one week’s notice?

A. Issue a call to arms with a strong social purpose.

I’m not an actuary, but I promote their profession and in particular I promote the COVID-19 Actuaries Response Group.

A week ago they put out this call to arms

Screenshot 2020-04-09 at 13.30.29

As you will all know COVID-19 is putting a huge strain on Government agencies from the health service to local authorities to other agencies requiring mathematical and statistical skills.

We were conscious that in past times of national need, actuaries with the right skill sets have made a difference with the application of their skills to Government needs. Ten days ago we approached the COVID-19 Actuaries Response Group to discuss what volunteer actuaries could do. Since then we have approached various Government agencies to understand what volunteer actuaries could help with.  Examples from discussions we have already had (but not limited to):

  • supporting service provision experts with organising the logistics of plans to e.g. provide food, medicine and critical services to vulnerable citizens who require to be “shielded” across the whole of society;
  • Government agencies requiring people with actuarial, statistical and mathematical skills to understand the potential demand on their finances and service demand;
  • the Royal Statistical Society has asked for people with experience of development of large scale dynamic models and integration with data science pipelines

We believe that key skillsets will be those with modelling experience.  We also recognise that the more general actuarial skills we all take for granted, such as the ability to collate data, critically assess its value and produce simple spreadsheet models could also be invaluable in many areas.

What are we asking for?

From our discussions it is clear that government agencies want help and support. This is your chance to support the UK with our skillsets.

If you can volunteer at least 25% of your time to support the UK, please write to us at c19actuarialresponse.action@gmail.com

What we are looking for are actuaries who are willing to roll up their sleeves and get involved in modelling and data analysis. Although we will need actuaries with deep modelling expertise, please do volunteer even if you don’t feel that you have the greatest modelling skills. From our discussions, it is clear that Government could also use actuaries with data analysis and interpretation skills – these are skills that are core to what most of us do every day.

This is a critical time for the UK and from our discussions we have the skill set to be able to support and help the UK in its time of need.

Examples of Actuaries supporting nationally at times of extreme crises:

  • During WW 2 actuaries analysed highly sensitive and critical data, often of limited quality, in order to inform decision makers.  The record shows that those “drafted” from their offices to support were commended for making a disproportionally large difference to the war effort in both the UK and US;
  • NHS and Welfare State – following the war, actuaries also played a key role in establishing the most ambitious comprehensive welfare system in the world;
  • 2008 banking crisis – more recently, actuaries from a number of consulting firms were seconded to the UK Treasury to help establish the £540bn bank bailout package.

 This is the response

COVID-19 – Exceptional Volunteer Response!

By Gary McInally and Mohammed Khan for

COVID-19 Actuaries Response Group – Learn. Educate. Inform. Influence.

Introduction

One week ago, on the last day of March, the member-led COVID-19 Actuaries Response Group issued “a call to arms” to actuaries across the profession.  The exceptional request for volunteers to support government agencies requiring mathematical and statistical skills across the health service and wider public sector, has been met with an exceptional response from members across the profession.

The Volunteer Response

At the time of writing more than 400 actuaries had expressed an initial interest in supporting this effort, with more than 350 of those responding positively to an initial short screening email.  This is a truly exceptional response from the profession.

In addition to individual members, we have also had unsolicited offers of support from a number of significant actuarial employers. The volunteer group initiated by Gary McInally and Mohammad Khan have also joined forces with a small but active group of pro-bono actuaries led by Jonathan Halstead, who have been supporting decision making by an NHS Clinical Commissioning Group in the North West of England.

The initial assessment of the pool of volunteers from across life, pensions, general insurance and wider fields, provides an almost ideal with mixture of experience and skills:

  • 30% senior qualified actuaries (typically 20+ years’ experience), with a great depth of knowledge and management skills;
  • 50% qualified actuaries who have evidenced great technical skills and breadth of experience; and
  • 20% are student actuaries at senior and junior levels, all of whom have stated a clear commitment to helping however they can.

The majority of the volunteers are resident in the UK and whilst all of the UK-based work is expected to be remote, we expect that EU residency will be a requirement for volunteers to directly support the public sector in the UK.  We will be considering how to engage volunteers from other parts of the world, including Africa, the Americas, and Asia as well as more than 50 actuaries in India.

Current Activity

Given the volume of volunteers and requests for help we have had, we wanted to give you all a brief update on what we are doing. There are two main areas of focus:

  1. Considering where best we can help;
  2. Organising our volunteers into teams to best support the potential areas of help.

Considering where best we can help

There are currently three areas where we are already starting to provide support and where we believe we are best placed to use our actuarial skills to make a difference:

  1. Supporting NHS Regions – we have already agreed a basis of engagement and commenced activity to “bring the volunteers up to speed” with the requirements of an NHS Regional Planning Team and we will be doing this for more NHS Regions.  The first tasks relate to improving the efficiency and usefulness of data capture and the production of daily “nowcasting” reports on the utilisation of critical resources.  The team have also begun to understand the requirements for making best use of the epidemiological modelling carried out centrally to inform the planning and decision making at the regional, Trust and Hospital Level.
  2. Supporting an NHS GP Commissioning Group – we have developed two “transition state” models for a GP Commissioning Group in the North West of England to support decision making around the deployment of GPs.  The modelling helped to determine that, even under a wide range of assumptions for uncertain factors such as infection transmission rates, a strategy of deploying a smaller number of GPs to the “front-line” with high-quality protection would provide lower GP sickness rates than if all GPs spent some time on the front-line.
  3. Rapid Assistance in Modelling the Pandemic (RAMP) – we have submitted details of the strength of volunteer resource available within the COVID-19 Actuarial Response group to the RAMP initiative, a centralised call for modelling and analysis expertise being co-ordinated by Royal Society.  Our submission, along with those submitted by others, is being considered to prioritise areas that can best support the national effort to tackle the pandemic.  The extent of the support that can be usefully provided by our volunteers will be better understood in the coming days and weeks.

In addition to the above we have also registered our member-lead group on the UK government volunteer register.

Organising our volunteers into teams to best support the potential areas of help

We are currently collating sufficient information about each of the members to support us putting together suitably structured teams of volunteers that can support decision makers in the public sector in an effective manner. We expect that each volunteer team will typically comprise:

  • a lead senior actuary to help make communication effective and to co-ordinate the effort of the volunteer team;
  • a number of qualified actuaries/data experts with an appropriate mix of skills for the task being supported; and
  • one or more student actuaries to provide general support to the team.

We would ask all of our volunteers to bear with us whilst we organise a larger pool of resource than anticipated given the fantastic response.  We expect to call on additional volunteers to help with this important activity to support those already as assisting in this way.

Thanks actuaries – I hope we’ll be able to toast you for your efforts by the end of this year

actuary2

To better times

Posted in actuaries, advice gap, pensions | Tagged , , | 1 Comment

Should we furlough the pensions dashboard?

Posted on April 9, 2020 by henry tapper

Screenshot 2020-04-09 at 07.01.53

The Pension Dashboard took a tiny step closer to helping people find and understand their pensions yesterday with the publication of the Pension Dashboard Program

The paper sets out , with the simplicity that Chair Chris Curry is known for in his work for the PPI, who the Pension Dashboard will ultimately involve

Screenshot 2020-04-08 at 10.34.58

dashboard participants

The pension dashboard is a popular idea, probably the most popular of the Government’s ideas on pensions right now. People can visualise seeing their pensions in one place and having a way of working out what their retirements will look like, at least in terms of available money.

People are frightened that they may have missing pensions and the promise of a pension finder service is appealing , especially to those of us past 50 who have complicated affairs and diminishing memory!

And people like the idea of owning their pensions. A space in which they can see all their pensions , without being sold to – is attractive, which is why having a Government dashboard makes sense. But – just as with TPAS and Pensions Wise, there has to be a clear demarcation line between what the Government can do by way of information and guidance, and what the private sector can do by way of advice and execution.

As a recent Which report put it, people are looking  for answers

How much have I got: Where are my pensions and how much might I have at retirement?

Bridging the gap: Where should I make additional contributions?

All in one place: Should I transfer or consolidate my pensions?

Investment choice: Where are my pension invested?

How are my investments doing and how can I manage them?

Retirement income: How should I access my pension?

Shopping around: How do I shop around for retirement income products?

The “big picture” architecture of the Pension Dashboard, as it will look sometime later this decade, is well explained in these documents .

Screenshot 2020-04-09 at 06.03.41

the dashboard architecture

We are beginning to see in 3D – what the dashboard will look like and what it will cover, the third dimension is dealt with in two technical papers which deal with the data standards that will be created to ensure that data providers deliver accurately and in full. These papers are not final drafts and there will be consultation on them (more of which later).

The fourth dimension – time

Screenshot 2020-04-08 at 10.32.20

I am very comfortable to a staged approach to dashboard provision. Find and view is the minimum viable product (MVP). B+C follow necessarily from having pension and pension pots found and in view.

The really tricky bit is establishing when there is sufficient information on the dashboard to make it an MVP.

That decision is tricky and this diagram shows a timeline which is far from fixed

Screenshot 2020-04-09 at 05.51.02

The blue staggered line shows what happens if a few large providers participate. We can see that pension coverage increases dramatically in the early period of onboarding and then flattens out while the long tail of smaller schemes are onboarded (represented by the yellow line.

The big question in terms of delivery is whether the dashboard can go live in the grey box or whether it should wait for completeness – at the end of the staging window (the right hand vertical dotted blue line.

We are now introduced to a new acronyms which we will have to remember when talking about the Pensions Dashboard. The DAP or “Dashboards Available Point”

Screenshot 2020-04-09 at 05.51.33

I am concerned that if the DAP is at the end of the staging period, we will not see a dashboard till 2026 or even later. If we set the DAP in the grey box period, we might see a DAP in 2022 or 2023. We will not see a dashboard this year and in 2021 we may have a chance to look at a pilot.

These estimates are based on us getting on with things and I see no great wish to get on with things from pension people.

I have now read eight IGC Chair’s statements and struggle to remember one comment about getting provider data “dashboard ready”. The PLSA, who are responsible for the majority of small schemes put out a statement on the dashboard yesterday which encouraged delay

Screenshot 2020-04-09 at 06.12.01

I’m afraid I only have small print but the key phrase is “many schemes have more pressing things to deal with than dashboards”.  The PLSA welcome the postponement of a consultation on the dashboard’s progress to the autumn because of COVID 19.

I don’t think that when it comes to pensions , there are more pressing things for people than finding and seeing their pension entitlements.

I think the PLSA are misjudging the popular demand for pension dashboards and are using COVID19 as a means to push back the tough job of getting data to the dashboard or to Integrated Service Providers even further. There is a very real chance that – should the consultation run well into 2021 – that the 4-5 year staging period could mean that the DAP might be pushed back to 2027.

The fourth dimension – time – changes everything. If we are planning a digital project to deliver even two or three years hence, then we are pushing at the limits of public expectations. We have higher standards for digital delivery than for Crossrail or HS2, Open  banking is being rolled out in a staged way – over a considerably shorter time-frame.

Let’s not furlough the dashboard this summer

We are already four years in to the gestation period of the dashboard. These three papers are the first steps towards delivery of something that is already a reality in other parts of Europe. The papers are each very good.

I am encouraged that the FCA are increasingly involving themselves in the process of delivering information , guidance and advice in a digital age.

I am also encouraged by the adoption of new technology over the past few weeks. Even technology dimwits like me can operate web conferencing facilities.

I see the summer as a period where great progress can be made in digitalising the pension schemes that will provide the bulk of the data to the dashboard. When we have caught our breath we will discover that remote working does not mean we have to be less productive, we may indeed find ourselves with time to think strategically.

My hope is that rather than furlough the pension dashboard for six months. we actively engage in the key questions that these papers throw up.

I for one could sign AgeWage up to each of the pension dashboard goals today.

Screenshot 2020-04-09 at 05.53.26

 

 

Posted in advice gap, age wage, Dashboard, dc pensions, pensions | Tagged , , , , , | 1 Comment

Virgin Money’s IGC sees red

Posted on April 8, 2020 by henry tapper
Screenshot 2020-04-08 at 13.42.52

A simple approach

 

Sir David Chapman is one IGC Chair who does not promote his provider. For five years he’s been demanding an upgrade to the default fund the 80,000 or so savers in the Virgin Money stakeholder pension have been stuck in a default that hasn’t been upgraded for the best part of 25 years.

Sir David’s complaint is that it is now 5 years since the introduction of the Pension Freedoms, and thought Virgin Money and their investment manager (Aberdeen Standard) are promising an upgrade later in 2020 , the review that prompted the upgrade is now 5 years ago!

Unsurprisingly , Sir David is exasperated and makes his feelings very well known in his Chair Statement

Screenshot 2020-04-08 at 12.45.53

As if it weren’t bad enough that the fund is unsuitable for saver’s needs, it’s not doing its job properly either.

Screenshot 2020-04-08 at 12.46.15

Evidence of under-performance is provided.

Screenshot 2020-04-08 at 13.02.49

Part of the reason for the underperformance is way above average transaction charges.

Screenshot 2020-04-08 at 13.05.56

The default fund is marked with the gold background.

It is hard to see any grounds for the blockage of the IGC’s reasonable requests to have the default funds removed and replaced.

It is also difficult to understand why, once these matters were escalated to them, that the FCA did not intervene.

The restraint showed by Sir David Chapman and his IGC is remarkable, but the tone or this Statement is unmistakeable. Sir David and his committee have been badly let down. I give them green for tone and substance – no punches are pulled.

Effectiveness

On the face of it, Virgin Money’s IGC is not proving effective, but that would be grossly unfair. I have visited Sir David in VM’s Newcastle offices and he is a force to be reckoned with.

The IGC is starved of resource (clear from the spartan style with which it is presented) , but it is right to boast that it is overseeing an operation that has not fallen over because of COVID 19

And theI GC has also been successful in achieving a reduction in fund charges with effect from January 2019. Previously charges, while within the regulatory cap, were higher than many of their competitors. They are now in line with the industry average for comparable passively managed funds.

The IGC has unusually given space in its report to allow Virgin Money explain itself Virgin Money has – since midway through 2019 been 50% owned by Aberdeen Standard (ASI) and ASI are promising improvements

Our new products, services and default strategy will provide customers with a new fund range built with the expertise of our partner ASI. As stated in our commitments in relation to Environmental, Social and Governance (ESG) factors we will continue to develop our investment approach with these in mind, with a view to including further in our future development and in our stewardship of the existing funds we manage on behalf of customers.

They had better fulfil on these promises or I suspect the FCA will be hearing more. I give the report a green for its effectiveness (in the face of considerable headwinds).

Value for Money Assessment

As far as I can make out, Sir David Chapman has failed Virgin Money’s VFM assessment (the financial equivalent of an MOT).

Whatever the reasons for the delays, his policyholders are still stuck in a 1995 vintage default fund that is no longer fit for purpose.

The rest of the VFM assessment gives Virgin Money a clean bill of heath. I don’t know if Sir David Chapman is still sending paper copies of the report to policyholders (he certainly did in 2015) but I do know he is keen to get his members engaged in what he’s doing.

So my offer to him is that I’ll analyse his data for him pro bono and give him AgeWage scores which will show just how member outcomes compare with the average outcomes they’d have got since 1995 – elsewhere.

The Value for Money report isn’t that sophisticated , but it is delivered with aplomb and I give it a green score. 

With little resource, David has achieved a powerful statement and I hope he’ll take me up on my offer.

Five year review

At one point in his Chair’s Statement , Sir David Chapman looks back over the five years he’s been producing these statements

Where we have had concerns in the past I would like to think that we have made progress although all the outcomes we have sought are not yet in place. It has been frustrating at times but we have been persistent in robustly challenging management including, of course, escalating our concerns to the Financial Conduct Authority. We have not achieved as much as we would have liked in certain areas, namely regarding the Default Strategy. Even where we have achieved changes, they did not occur as quickly as we hoped.

I hope when the FCA report on IGCs later this year, they will single Virgin Money’s IGC out for the way they have stuck to it. I hope by then , his policyholders will finally have their new default.

virgin money chapman 2

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Does Aegon’s IGC deliver “what matters most to us”?

Posted on April 8, 2020 by henry tapper

Aegon’s IGC Chair Statement has been published , you can read it here

Helpfully Ian Pittaway and Helen Parker have a conversation on the IGC’s activities on the video. Unfortunately, video has a habit of turning lawyers into marketing people and the report is rather more robust in its treatment of Aegon than Ian’s comments might have you suppose.

Aegon are rolling out personal video summaries to members in 2020. It’s good to see a provider getting involved in delivering information in a digital format and in a way people are used to. This is more than “social media”, it is “business media”.

Watching the video is also a useful way in to the report as what you are hearing is the actual tone of voice of Ian Pittaway, who authors  what you read.

Tone and structure

Having given themselves a head-start with the video, the report sets out with bold intent

Screenshot 2020-04-07 at 11.42.30

The trouble with the slogan is in the ambiguity, is the report assessing VFM or delivering it?

What tends to happen with Aegon IGC reports has happened again and the headline splattered over the Chair’s statement is little more than a marketing opportunity for Ronnie Taylor , Aegon’s Chief Distribution Officer, who is on the IGC Committee.

And what then happens is that when something terrible happens, as is happening right now, it is really hard for the IGC to turn round and point out that something has gone wrong. What has gone wrong right now at Aegon is that the disaster recovery system hasn’t fully worked and two and a half weeks after Aegon closed its office after an employee showed symptoms, Aegon can not take inbound calls to its call centres.

Screenshot 2020-04-06 at 06.18.45

I’ve spoken to Ronnie Taylor about this and I know that Aegon are taking this very seriously- it is their most vulnerable customers who need to use phones, those who aren’t web-savvy but those worried about their savings at a time when the market is all over the place.

And Aegon are putting in place means that allow them to call you, if you ask them to

Screenshot 2020-04-07 at 12.34.21

But the bottom line, that like other large providers, the member support system has simply not coped with the disaster, the recovery system has at leas in part – failed.

So when people phone Aegon , they cannot get through and when it matters most , they can’t even get the  value of their savings.

By adopting the congratulatory tone  that characterises his Statement, Ian Pittaway compromises his capacity to admonish, he finds it hard to  support the vulnerable members because he must defend his own assessment.

During 2019,  Aegon announced plans to partner with the customer services company Atos who now provide the servicing and administration to its Existing Business customers. The report states

Aegon remains fully accountable and responsible for all Existing Business customers,

The assessment of the service levels provided by Asos suggested a green traffic light, the same traffic light given Aegon in 2018 and the IGC writes in April 2020

We carried out a detailed review of the Customer Service areas across Aegon and the arrangements that are in place with Atos to provide services to Existing Business customers. We are satisfied that Aegon is meeting the service standards you expect and pleased to see further improvement in the Net Promoter Score (NPS) which reflect how you feel about the service you are getting. Outcome – GREEN – Overall we are satisfied that Aegon is meeting your service needs and is well positioned to maintain this throughout 2020.

This is the problem with the wrong tone and I fear that the structure of the report has meant that this assessment could not be withdrawn. In my opinion, not being able to take incoming telephone calls at this crucial time is a major failure.

For all the innovation around the video , the tone of voice is wrong and  I can only give this statement an amber for tone and structure.

Effectiveness

The IGC has been talking with employers about what they want from Aegon. We learn that

one of the key themes emerging from each meeting was the increasing level of interest in ESG matters and how providers such as Aegon take them into account in their day to day activities, their products and the funds they offer.

The IGC has also been talking  with  key members of the Aegon Workplace Distribution and the Client Service Management team to better understand the key topics that employers and advisers are raising with Aegon.

The key themes have been consistent throughout the year with employers focusing on employee engagement, financial wellbeing for employees and concerns around the impact of Brexit

The IGC  also invited 10,000 customers aged 50-65 to respond to a series of questions about their retirement journey. These were all customers without an adviser and not yet fully retired.

The responses from around 2,000 customers confirmed:

• Pension choices still confuse a large number of customers which is likely to make them defer decisions on how to take an income.

• Taking a cash lump sum and buying an annuity are the options customers are most likely to understand. Information campaigns on what the draw down of regular income means will be required to ensure people weigh up all their options and make the right choice for them.

• The majority of customers agree with helping people without advisers make an initial decision and then setting them on a default investment pathway.

I am very sceptical about all this. It strikes me that the IGC is hearing fro its various stakeholders, precisely what the FCA wants it to hear, namely that Aegon should be putting more effort into implementing ESG  , engaging the workforce in “financial wellbeing” and delivering investment pathways.

This convenient alignment between what the IGC is hearing from Aegon’s stakeholders and what the FCA wants the IGC to be doing, suggests that the IGC is 100% FCA woke

The report shows that Aegon’s IGC team have been assiduous in their duties throughout the year. But as we see, they could not get the phones answered when they needed to be answered.

I fear that though every box has been ticked, the IGC is missing the bigger picture. I give it an amber for effectiveness

 

Value for Money Assessment

Screenshot 2020-04-07 at 13.12.28

There is nothing wrong with this value for money assessment. For the purpose of alerting Aegon’s executive team, it tells them what is working and what isn’t (until you get a disaster that is). It shows a static position between years which is not quite born out by the narrative but suggests that there is nothing within Aegon that needs to be flagged to the FCA or to savers.

The problem is that there is nothing in this VFM assessment that communicates or engages with savers.

But the point of this assessment , as stated at the outset of the report is to give savers a lapel grabbing moment of engagement

Screenshot 2020-04-07 at 11.42.30

We know what members want, they want to know the value they’ve got for their money and that means focussing on the outcomes of all this saving. In a series of graphs, the IGC tries to explain the importance of maintaining contributions, of employer contributions and tax-relief and of increasing contributions. It is of course true that contributions are important to outcomes but they only represent the “money”, the “value” is what happens to those contributions – how they grow.

Individuals are not turned on by performance tables – which cannot translate into experienced value.

Screenshot 2020-04-07 at 16.00.34

Is this really what matters most to us?

Page after page of the report is given over to “valuable investment solutions” , but there is no point of contact with the member that could remotely be described as delivering what most matters to them.

People need to know how they did and how they did relative to others and they simply don’t get what “most matters to them”.

I give the Aegon Value for Money Assessment an amber – it aimed high but never got high.

Conclusion

The FCA are due to deliver their verdict on IGC delivery in the summer. This is an IGC that’s claiming to give what matters most to us. But I don’t think it does.

Instead I think it woke. It is giving us what it thinks are the right answers and it will undoubtedly tick all the boxes.

But it lacks the conviction that we find elsewhere and without the passion – it seems flat.

The report was published in the midst of the worst crisis Britain has faced since the war

Aegon are clearly going through a tough time with customer service and i wish them success in getting their telephony up and running again.

Yet in its 40 pages, its chair statement does not mention Coronavirus once.  I guess dealing with pandemics wasn’t in the terms of reference.

 

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“There’s life in the old dog yet” – let no-one be abandoned to Covid-19.

Posted on April 7, 2020 by henry tapper

We are finding it much easier to talk about death in the current climate. It is not a funny subject but it becomes less frightening when we can better understands why and how it comes to us all. 

This is a blog about death, but it paints an optimistic picture of life – even as death rushes towards it. Abandoning people close to death to Covid-19, should not be part of the plan. Nor should considering those with “impaired lives”, disposable.

This is another fine piece of work from the Covid-19 actuaries, this time from Matthew Edwards. Thanks to them and in particular (my hero) Stuart McDonald for sharing what typically sits in dark corners of linked in.

 

Matt Edwards

Matthew Edwards- the author

 

Screenshot 2020-04-07 at 13.28.02

Background

There has been comment and speculation in the media about the actual and likely future life expectancy of COVID-19 victims – often with an implication of ‘it doesn’t matter as they were about to die anyway’.

This became a perceived official view when Professor Neil Ferguson said in a recent session (25 March) with the UK Parliament’s Science and Technology Committee that ‘the latest research suggested as many as half to two-thirds of deaths from coronavirus might have happened this year anyway, because most fatalities were among people at the end of their lives or with other health conditions’.

Data on COVID-19 deaths

Deaths from COVID-19 have generally been occurring at high ages. For instance:

  • Italy: 84% of male deaths above age 70
  • UK: 93% of deaths above age 65

At these ages, it is important to note that many people will have some form of ‘existing condition’. For instance, in the UK, the 2018 Health Survey for England shows the following prevalence at ages 65 and over:

  • Hypertension: 29%
  • Diabetes: 16%
  • Obesity: 30%

These proportions are certainly not less than the proportions of COVID-19 deaths with co-morbidities reported in China – for instance, diabetes (7%), hypertension (6%). While the change in country reduces comparability, it is clear that the prevalence of existing conditions at high ages is not out of line with the proportions being seen amongst those dying from COVID-19.

Typical life expectancies of impaired lives

‘Impaired lives’ is a term used to denote people with health conditions associated with below-average life expectancy. The accurate calculation of life expectancies for impaired lives is a long established part of actuarial practice in the UK, given the importance of the ‘impaired life’ annuity sector.

For this bulletin, we have made use of a proprietary underwriting engine that calculates life expectancies for people according to age, gender, disease history, lifestyle (body-mass index, smoking habits) and various other factors. The engine was calibrated to very rich data, has been used by or on behalf of most of the UK’s annuity writers, and has been validated extensively against market data.

Using this underwriting engine, a life expectancy below a couple of years can be found only by assuming acute cancers, or other serious but less critical conditions at ages above 90, or such conditions conjoined with adverse risk factors (e.g. smoking) from the mid-80s.

For anything else, life expectancy is typically five years or more. For instance, the table below shows the life expectancy for obese male smokers for various combinations of age and disease. COPD (Chronic Obstructive Pulmonary Disease) is of particular interest in the context of a virus that kills through a pneumonia-like mechanism causing respiratory failure.

Screenshot 2020-04-07 at 13.37.56

By looking at men rather than women (men having a lower life expectancy) and considering the ‘obese smoker’ subset only of these impaired lives, this table shows a worst case scenario. But even with this extreme selection, we do not see life expectancy of below one year, and it takes a lot of ‘forcing’ the factors in the engine to find life expectancy as low as two or three years.

We should clarify, however, that life expectancy is a one-figure representation of a whole future lifetime, with mortality risk in every year. Thus, a life expectancy of e.g. five years does not of course mean you will live for five years – there would be appreciable mortality risk in the first year.

Although some of these cases would die over the course of a year in the absence of COVID-19, the growing study of frailty helps understand the process.  Severe shocks such as COVID-19 lead to deaths in vulnerable people because COVID-19 overwhelms their already impaired ‘defence mechanisms’, but without that shock these people would otherwise have continued to live.

Expected deaths from UK ICU experience in March

The Intensive Care National Audit & Research Centre’s report of 4 April 2020 on COVID-19 critical care patients and their outcomes presents a useful profile of the 2,249 patients recorded. The table below summarises the profile of these patients:

Category

Descriptor

Age (mean)

60 years

Sex

73% male, 27% female

Obese (BMI > 30)

38%

Severe comorbidities

7%

If we take an extreme view, we can ignore the actual age and comorbidity data and represent them en-masse with the 85-year old obese male diabetic smoker considered previously, we can calculate the deaths expected absent COVID-19 and compare with the actual outcome.

In doing this, we have taken the expected first year mortality of this extreme case, increased it by 50% as a further margin (as our estimates may hide some additional material, but unknown, health variation), and assumed two weeks of potential mortality exposure (rather than the real ICU duration of 2-3 days, because that would follow a period of onset and worsening of problems). This leads to:

  • Expected deaths:   43
  • Actual deaths: 346

Note that the expected result (43) is likely to be an over-estimate, because of the fairly extreme model point used, while the actual deaths (346) will be an under-estimate as many of the 2,249 patients are still in critical care. Thus, the real Actual:Expected ratio is likely to be greater than the 346:43 ratio (i.e. a ratio of 8:1 of COVID-19 deaths to comorbidity-related deaths) shown.

It seems clear from this high ratio that the majority of deaths can be regarded as due to COVID-19, not due to other conditions.

For reference, of the actual deaths detailed in the report, only 12% were recorded as occurring in the presence of severe comorbidities (although this may underestimate the real number, to the extent that triage taking place before ICU is likely to exclude some patients thought unlikely to survive).

While it is very likely that other conditions, or unhealthy lifestyles, weaken the immune system and increase the chance of death from COVID-19, that is quite different from attributing the deaths to those other conditions.

Other perspectives

As with much work on COVID-19, this particular question cannot be answered fully and precisely at the moment. The strongest case we have seen for the ‘they would die soon anyway’ position is based on use of Bayes’ theorem. Sparing readers the details, this allows us to look at ‘probability of COVID-19 causation given death’ from an assumption about ‘probability of death given COVID-19’ (i.e. the case fatality rate, ‘CFR’), along with equivalent probabilities of deaths from other causes. If the CFR is very low compared with the ‘other causes’ probability of death for an individual, it follows (via Bayes) that their death in any year can be attributed largely to natural causes, not COVID-19.

Overall, given the arguments already noted, we do not feel that this approach justifies the assertion that the majority of COVID-19 deaths are of people who would have died soon.

The question will not be fully resolved at a population level (as opposed to the perspective of individual cases) until we are in a position to compare total deaths over a reasonable period against total deaths in the same period in previous years. Some work has been done following this approach in the Bergamo region of Italy, and also parts of Spain, showing recent mortality to be of the order of 2.5x (Spain), 4.5x (Northern Italy) what was expected given the experience of recent years. Equivalent UK data to allow a meaningful comparison are not yet available.

The EuroMOMO data will be an extremely useful resource for these comparisons.

Conclusion

Actuaries are able to provide well-based advice in the context of life expectancies, given our extensive experience in this area.

While the impact of COVID-19 may seem to be disproportionately associated with chronic health problems, consideration of both the age ranges affected by the disease, and the fact that only a tiny fraction of impaired lives have life expectancies of the order of one year, makes it seem unfounded to claim that a large proportion of the COVID-19 deaths of 2020 would have died in any case this year.

As well as this being false, this claim is dangerous from a public health perspective if it encourages a ‘so why should I care’ attitude, thus endangering adherence to Government policy on social distancing.

7 April 2020

References

1 https://www.bbc.co.uk/news/health-52035615

2 ISS statistics as at 26 March 2020 www.iss.it

3 https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/conditionsanddiseases/articles/coronaviruscovid19roundup/2020-03-26

4 https://digital.nhs.uk/data-and-information/publications/statistical/health-survey-for-england/2018

5 https://www.icnarc.org/About/Latest-News/2020/04/04/Report-On-2249-Patients-Critically-Ill-With-Covid-19

6 https://www.economist.com/graphic-detail/2020/04/03/covid-19s-death-toll-appears-higher-than-official-figures-suggest; https://www.corriere.it/politica/20_marzo_26/the-real-death-toll-for-covid-19-is-at-least-4-times-the-official-numbers-b5af0edc-6eeb-11ea-925b-a0c3cdbe1130.shtml#

7 https://www.euromomo.eu/

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Precisely right – Scottish Widow’s IGC

Posted on April 7, 2020 by henry tapper
Screenshot 2020-04-07 at 06.06.05

Mark Stewart- IGC Chair

Mark Stewart has issues his first Statement , having taken over as Chair of the Scottish Widows IGC. You can read it here.

It is brief , accurate and it has a distinct tone which I like. The contents page sets out its scope.

Screenshot 2020-04-07 at 05.35.28

The question is , can Scottish Widows IGC do in 22 pages, what others struggle to achieve in 70? Inevitably there is not the granularity in this report of Phoenix or Standard Life’s, nor the folksy charm of Zurich’s, nor the assurance of Royal London’s. What we get is precision and incision, brevity – not levity. The report generally succeeds.

Tone and structure

The precise tone is achieved through consistent vocabulary – he uses an old school vocabulary – talking not of members but “customers”. He talks of “computer system”s not platforms and avoids jargon by referring to legacy books as “old” and the new ones as “modern”.  He actually uses language to take difficult ideas away from the office and into people’s sitting rooms. This is an art.

Where detailed analysis is required – such as the assessment of Scottish Widows “premier portfolios”,  the narrative is clear and the conclusion dry

“with variations in performance since 2015 ranging from -0.6% to -1.7%. The IGC will continue to monitor the relative performance and value for money of the Premier Portfolios”

The tone is never effusive which allows the report to keep an acceptable distance from the IGC sponsor. This allows us to accept the IGC marking its own homework when it praises Scottish Widows’ governance, independent as the IGC is, it is a shop window for what goes on inside and this report is a credit not just to the IGC but to Scottish Widows. I give it a green for tone and structure.

Effectiveness

The IGC are no spring chickens with only Ciaran Barr (of the independents) not in bus-pass territory. “Experience” appears in many profiles and I worry how effective the committee can be in understanding the needs of younger savers. I have in previous years criticised their statement’s tenuous grasp of  ESG as something embedded in the investment proposition, rather than as a  vegan – sideshow. Three out of the four independent members are alumni of Willis Towers Watson, which doesn’t say much for diversity and runs the risk of “group-think”.

Where the report shows the IGC as effective is in the traditional areas of funds, administration and governance. The section on “engagement” lacks conviction and here the “old school” feel of the report does not give space to innovation. There are some real strides being taken in the technology space, especially in the engagement of savers with their investments , I suspect that the appointment of a young CIO at Widows is a recognition of the need to get with the times.

With that gripe, I get the sense that the IGC really know their stuff on Scottish Widows product. Apart from the old and modern Scottish Widows products, they have the “new” Zurich book to oversee. The IGC seem rather underwhelmed by this acquisition and it will be interesting to see the results of this tart warning.

Some service targets were not met during the year. We do expect the service level to improve following investment in systems and staff.

Despite my reservations over the IGC’s current composition, I sense the authority of their commentary. I think this report shows the IGC as effective and I give them a green (though David Hare would have tinged his colouration)

Value for Money Assessment

The origins of the approach adopted by Scottish Widows is in the Pension Regulator’s original breakdown of VFM into five measures. Scottish Widows do not go so far as to weight these measures to provide a balanced scorecard and an overall score (an approach that is adopted by other IGCs).

The simplicity of their approach means that they can easily demonstrate what is working and where and I found it very effective

Screenshot 2020-04-07 at 06.35.44

It is effective if you are considering purchasing a Scottish Widows product , or if you are a regulator , or if you are an adviser. But it isn’t very engaging for ordinary members and frankly neither is the conclusion drawn by Mark Stewart

  1. Scottish Widows modern product is best unless you’ve got
  2. An old Scottish Widows product with guarantees you’re going to use
  3. Zurich gives best outcomes but there are dark warnings about “disruptions fo future service”

Zurich also gives an integrated drawdown product , a self investment option and better self service but the IGC are clearly very far from endorsing Zurich over the old Scottish Widows product (yet).  Hopefully this will give Scottish Widows a boot up the **** to get the Zurich “platform” in play for later this year.

Which brings me to my one major beef with the report, which is that it really doesn’t have a way of talking to members – most especially about the value they are getting individually for the money they’ve entrusted for decades to Scottish Widows.

I am already getting stick from IGC Chairs for banging my own drum but here I go again.

Saving customers are interested in their experience, not the generality of experience. They want to know how their pot has done both against what they could have got from  the bank and what they could have got elsewhere. In other words they want to see their individual rate of return and they want it compared (benchmarked) against how others did.

I hope that an outcomes based measure will be incorporated into Scottish Widows reporting in 2020-21 so that members not only have the chance to see how they did collectively , but test how they did individually.

Since the value for money assessment is limited to the top-down opinion of the IGC and has no quantitative analysis of member’s experienced outcomes, I’m not giving it the green I gave the statement for tone, structure and effectiveness – I’m giving it an amber.

Precisely right

If I was a customer of Scottish Widows (which I’m not), I’d have read this report with a fair amount of confidence that the insurer was going in the right direction. Clearly there are issues around funds and fund reporting and not just in terms of my moan about VFM. Scottish Widows got into a mess when parent Lloyds Banking Group fell out with Aberdeen. Frankly, since Scottish Widows sold SWIP there hasn’t been a strong hand on the investment tiller and fund reporting and governance are its weak spots.

On this, as on most matters, the IGC is precisely right and I’d like to thank them for a mercifully brief report that was good to read.

The proof of the pudding is in the eating. How Scottish Widows survives the pandemic is the test. So far so good – if the following section is good to go by.

Finally a word on Covid19

Scottish Widows is keeping its telephone helplines open to members. I made inquiries about this of IGC member Jackie Leiper and got the following response.

I have been updating the other IGC members twice a week on COVID-19, they have been to see the comms we’re using to support customers especially scheme members and as you say, we’ve worked extremely hard to maintain service over this period with our entire workplace team now working completely from home including telephony.

We had a fairly seamless switch over in Cheltenham having prepared well when disconnecting from the Zurich platform second half of last year, that disaster recovery planning has served us well.  The Edinburgh teams have had more challenges as less colleagues had laptops however we did have a home working pilot in flight that has been running so all of our systems had been adapted to home working so with some exceptional commitment from colleagues coming in to office to cover critical services until laptops appeared, I am delighted that we have been able to maintain a strong service with only a couple of lost days where we had to unexpectedly evacuate buildings

 

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Member support: beyond the trustee’s pay-grade?

Posted on April 6, 2020 by henry tapper
Pension support

Some people need their money now

Since publishing this article , LGIM has made a statement on the closure of the L&G helplines – you can read the statement here

The Pensions Regulator and the FCA have delivered guidance on how those with charge of other people’s money, should behave at this time.

I was particularly pleased to see the Pensions  Regulator’s guidance on administration. Pensions are, as far as most people are concerned, about being paid a wage in retirement. The pension administrator is most important at a time like this, although administration does not come into the regulatory perimetre, protecting member’s interests does.

But the question remains, who is responsible if things go wrong? If administrators see standards falling as they lose people to illness and productivity to home-working does the buck stop with them?

The same can be said for the  IGCs and GAAs who from today have responsibility not just for workplace saving but for the payment of those savings back. The FCA’s PS19/30 gives the IGCs and GAAs responsibility for ensuring value for money from the investment pathways that were due to be in place by August (though this deadline may be  slipping).

While trustees of DC pensions (especially the authorised master trusts) do not – yet – need to offer such options, there is a clear obligation in the title “pension trustee” to make sure money can find its way back to the individual saver as requested. This may be via a third party (which offers all the options under pension freedoms) or it may be directly.

In short, the payment of claims on our pension savings – for whatever reason – are a matter of supreme importance to pension provision.

I am therefore shocked that one of our major pension providers, Legal and General, has closed its member helplines so that we can no longer call our provider in emergency.

I am sorry to see that Aegon have also adopted this position

 

This is in  contrast to others. This is Royal London’s web promis

Phoenix and Standard Life are also keeping their lines open (though they are trying to preserve capacity for the vulnerable. This is posted on their websites.

Our priority is to ensure we provide a telephony service to our more vulnerable customers and therefore if your need is not essential, we would appreciate it if you would contact us via the online enquiry form.

Scottish Widows put out this statement on their contact page

 

Aviva are also taking calls , making this statement on their Coronavirus faqs

As the coronavirus outbreak continues, we’re doing all we can to support you while keeping our people safe. With fewer colleagues on hand and an unprecedented number of calls coming in, we can’t speak to as many customers as we’d like. And because we’ve had to reduce our opening hours, we’re also taking longer than usual to reply to letters and emails.

Aviva give a different answer for inbound calls to their retail platform – indeed you can read how eight other businesses are facing the challenges of the pandemic by clicking this link to some research by Citywire

There is clearly a marked difference between service levels from our major pension providers to customers needing urgent help.

Vulnerability

Pensions are paid to people who are getting old and the old are some of the most vulnerable members of society. The old are the people who have least familiarity with online self-service and most use the telephone.

It is critically important that firms who operate member support services, whether insurers, SIPP operators or third party administrators employed by trustees – keep these telephone lines open.

This is not beyond the trustee’s or the IGC’s pay-grade, this is at the very heart of what your fiduciary duty is – you are there to protect your members and while we do not expect you to answer these calls yourselves, we do expect you ensure that somebody does.

Beyond (or under) your pay-grade?

This is not something that can wait a few weeks till the next Trustee or IGC meeting, it is something that should be reviewed today (Monday April 6th).

Member support is not above the trustee’s pay-grade, nor under it for that matter. The closure of telephone helplines is an immediate issue for  the IGCs and Trustees of the L&G and Aegon contract-based plans and multi-employer trusts.

But how many more pension administrators are looking at these huge providers and taking them for an example?

 

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Standard Life IGC – will engagement drive innovation?

Posted on April 5, 2020 by henry tapper

standard-life-new

Standard Life has published its 2019-20 Chair Statement.  

Standard Life are now part of the Phoenix Group who have rationalised their two  IGC committees removing the Standard Life IGC personnel and replacing them with Phoenix’s established team, under the Chairmanship of David Hare.

Phoenix has already subsumed the Abbey Life IGC and is about to welcome a third IGC to its fold in ReAssure. Look forward to further consolidation as it looks unlikely that I will be reviewing three reports again next year! Perhaps an indication of the direction of travel is in the mailing address if you want to comment on this Standard Life report -igc@thephoenixgroup.com

Necessarily the Standard Life and Phoenix reports often replicate each other, certainly in terms of tone and structure, but also in the value for money methodology and in much of the work the IGCs plan to do in 2020-21.

david-hare

IGC Chair – David Hare

 

Tone and structure

The IGC Chair Statements this year are being published in the midst of the Coronavirus pandemic. The gravity of the situation is recognised in the report both in the member summary and Chair’s introduction.

The Standard Life IGC statement is split between the bit the IGC think members should read and the much longer bit they might like to read, if interested. The bit you really should read is on the link at the top of this article

You have to click through to read the full 2020 Annual Report. using this link to read the detail. I found this approach worked well and meant that I could see the bare bones of the statement  on a single screen with multiple expanding buttons taking me where I wanted to go. This is a big advance.

In his  Chair’s introduction, David Hare focusses on the issue of “getting read” and focusses on the FCA’s new requirement on IGCs to monitor member communications

Screenshot 2020-04-05 at 07.03.02

Hare asks

.. is a document fit for purpose if it is not sufficiently engaging as to encourage readership by a significant proportion of scheme members, even if it contains all the right information?

I am pleased  that Standard Life’s IGC’s Chair’s statement encouraged me to read it but at nearly 80 pages it was too long (especially the member engagement section).

Nonetheless, the report was a rigorous read, often challenging and though-provoking. In terms of tone and structure I was impressed and give it a green – being the best accolade I can give it.

 

Effectiveness

The acid test of a workplace pension is how it treats its customers – all its customers. I have had cause to call out Legal and General for failing its vulnerable customers , the same cannot be said of Standard Life. They continue to offer a level of support to everyone – both through well organised web-pages and through a live telephone help-line.

We appreciate your patience during these exceptional times. We’re following government advice on home working to look after our people so they can continue to give you the best possible service.

Our priority is to ensure we provide a telephony service to our more vulnerable customers and therefore if your need is not essential, we would appreciate it if you would contact us via the online enquiry form.

This is reasonable and validates the IGC’s statement that

We have been very impressed at the speed of planning and implementation of new operational processes, in order that all possible steps are taken to ensure at least the most important needs of customers (particularly the payment of benefits) can be met in even very extreme scenarios of potential Covid-19 impact.

Throughout this report there is evidence of the effectiveness of the Standard IGC committee. It is critical of much it finds.

There are lower levels of satisfaction from customers that they have the information they need to make decisions on their pension and investments.

  • The IGC will continue to monitor Standard Life’s position on the 117 plans that have death in service benefit, including its review of the level of charges for this benefit.

  • The IGC has been disappointed at the time it has taken in order to give us a full picture of this important area (transaction costs).

  • IGC disappointment at lack of visibility of how ESG considerations impact in-scope members’ funds, despite repeated requests from the IGC

 

Performance reporting ; Standard Life were given a clean bill of health from Redington (the IGC’s investment consultants). This was principally because most of the Standard Life funds offered took out their exposure to GARS. GARS is an absolute return fund that found that in taking diverse risks off the table, it missed the chance to capture market growth through the long bull run since the 2008 crash. It would be sad if the protection GARS was designed to give people in falling markets, had been removed at the point when markets fell.

Screenshot 2020-04-05 at 10.46.11

My concern for an over-reliance on the kind of metrics offered by consultants is they tend to be reactive and can precipitate the kind of behaviours that , were they found among amateur investors, would be considered dumb.

in short I find the conclusion drawn is unrealistic

This year’s matrix assessment produced a score of 38 out of 45 (84%) against last year’s score of 24 out of 36, which is 67%.

The performance reporting and analysis cannot change that much in a year. I fear that the value assessment is as volatile as the markets

The most effective way of benchmarking that, is to see what internal rates of return were achieved on individual pots. I will return to this theme in the next section.

Customer Service; It is good to see the IGC pushing for the publication of the results of internal service levels rather than the antiquated public ones. Pressure on these levels is coming from customers (I suspect employers) and the IGC is right to respond to it.

I have to admit that having the lengthy analysis of Standard Life’s benchmarking surveys , I am none the wiser as to whether Standard Life are doing better or worse than in years gone by , either in relative or absolute terms.

Customer engagement: the report spends over 10 pages labouring over Standard Life’s various engagement initiatives, concluding that Standard could do better but that things were moving in the right direction. Standard Life is pioneering advice at retirement through its network of advisers. The danger of this is that in the hurry to get the messages it wants to get to their customers, it forgets to give customers the information it wants from Standard Life. The report makes this point very well.

“although statistics of customer satisfaction with communications are strong, there are lower levels of satisfaction from customers regarding the information they need to make decisions on their pension and investments”

 

Costs and charges; the analysis of the 544 unit linked funds offered by Standard Life suggests that Standard find getting the data from fund managers , easier than Phoenix (for whom there are still significant gaps in reporting. This suggests that fund managers don’t see all platform managers as equal (something Phoenix may want to think about as it continues to grow. There is little to say about the work Standard and the IGC has done but to praise it.

 

Standard Life and the Pensions Dashboard

It’s surprising, considering the amount of the report devoted to engagement, that the IGC has not made more of the Government’s initiative to launch a pensions dashboard. With its emphasis on being the open bit of the Phoenix empire, Standard Life has more to gain from people using a dashboard to find and aggregate pensions.

Perhaps in 2020-2021, the IGC could look at this in more detail

Summing up the effectiveness of the Standard Life IGC in 2019- 2020, I give them a green, my highest level of scoring. This is an IGC that takes it very seriously.

 

Value for money

Here is the VFM assessment – the 93% score compares to an 89% score for Phoenix

Screenshot 2020-04-05 at 10.10.08

The only area where the scoring differed was in costs and charges (Where Phoenix scored a 12 rather than 16.

I find this surprising as Standard Life has a quite different investment proposition and operates customer service from a different unit. While I can see it is possible that the management culture and risk and governance frameworks of both organisations have been merged, I think this is unlikely. I have visited the offices of Standard and Phoenix recently and sense that in many ways, they are quite different.

I suspect that there is a spurious accuracy about the results of the balanced scorecard and that the calibration is wrong. Can we see both propositions as approximately top decile? If there is any kind of benchmarking going on, then what does bad look like?

I was pleased to read that the Standard Life are prepared to change their ways of measuring value for money. This is happening already with the qualitative approach previously being adopted by Phoenix being supplemented by the more quantitative approach pioneered by former Standard Life Chair Rene Poisson.

But I am not sure that the current VFM assessment carried out by Phoenix or Standard Life properly passes Hare’s own sniff test.

…is a document fit for purpose if it is not sufficiently engaging as to encourage readership by a significant proportion of scheme members, even if it contains all the right information?

When talking of the IGC’s aims, Hare tells us

We are also keen to do what we can to help increase the level of engagement between customers and their pension

I need no second invitation. Savers want to know how their money has done, they want to know how it has done as their rate of return and they want to know how it has done relative to other people.

While Hare is keen to benchmark other areas of Standard Life’s  delivery by way of participation in industry groups, the report does not evidence any work on benchmarking the experienced returns of savers, nor how these returns compare with other groups of savers (even Phoenix).

Until I see evidence of outcomes based testing , I will continue to criticise the VFM assessment of Standard Life as failing to engage customers with their pension and the report for containing all the right information but not getting read.

I give the report an amber for its value for money assessment. Notwithstanding this mediocre rating, I am pleased to see the strong words the report contains for fund managers taking two years to provide the numbers for the cost and charges assessment.

I am also pleased to see that the application of ESG principles makes it into the value for money assessment. Standard have clearly got a way to go on this and the relatively low score holds back the whole score from approaching perfection

No doubt David Hare will be pointing this out to Standard’s management. There is much that a funds platform can do to engage members in the ESG management of underlying funds . I hope that David Hare will make sure that Standard Life incorporates market developments which enable transparent viewing of the underlying investments within funds and encourage member engagement and participation in the enforcement of ESG at stock level.

Again I’d hope to see Standard Life’s obsession with member engagement driving innovation, there are clear links between engagement and improved contribution levels.

standard life old

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How modelling helps us understand and deal with the pandemic.

Posted on April 4, 2020 by henry tapper

Screenshot 2020-04-04 at 07.26.22

Introduction

Fighting this COVID-19 pandemic requires a good grasp on how the virus spreads, impacts health care demand and could be managed. This bulletin highlights some examples of how mathematical modelling has contributed to the understanding and intervention of this pandemic, “the health crisis of a generation”.

Slowing down the spread of the virus is central to international policies. A common measure for the spread of a disease is the average number of people who will catch a disease from one infectious person, the reproductive number R. If R is greater than 1, then the disease is expected to spread. If R is less than 1, the disease will become extinct. This has been used to define policy objectives, for example whether the policies aim to reduce R to a lower level, but above 1, to slow transmission or to aim to reduce R to below 1 to end the epidemic (Ferguson et al., 2020).

At the start of a new outbreak, there will be much interest on R in an environment when the whole population is susceptible to the new infectious agent. This is the basic reproductive number R0. The higher the R0 above 1, the faster the disease can spread.

Early outbreak

During the early stage of the outbreak in January 2020, much effort was put into estimating R0 of COVID-19 to understand the nature of transmission and enable further modelling. However, R0 is a calculated number requiring estimates on the duration a person can be infectious, in contact with people and the likelihood of transmission when in contact. Liu Y et al. (2020) reported that there were 12 studies that published R0 for COVID-19 between 1 January and 7 February 2020. All the studies agree that R0 is greater than 1, implying that the virus will spread. This finding when combined with statistics on demands for intensive care and death prompted drastic measures to contain the virus in China. However, the range of R0 of about 1.5 to 7 is wide. It is important to note that there is uncertainty around this figure. Models that uses R0 in China as an input, such as Ferguson et al. (2020) and Danon et al. (2020) will need to know how the wide range of estimates would affect outputs. 

Epidemic in China

Modelling has been used to better understand how the spread of COVID-19 changed over time in the epicentre of the outbreak in Wuhan and how the virus might be ‘exported’ from China to other countries. Kucharski et al. (2020) reported that the median daily reproduction number dropped from 2.35 a week before travel ban on 23 January to 1.05 a week after, suggesting travel bans have a rapid effect in slowing spread. The authors also estimated that it needs only 4 cases in a new population to have more than 50% chance of starting an outbreak, highlighting the importance of tracing newly infected cases and border control. However, attempts to contain the virus through tracing and isolation. A model suggests that we must trace and isolate 8 in 10 contagious persons introduced to a new environment susceptible to the virus to be 40-90% successful in avoiding a COVID-19 outbreak (Hellewell et al., 2020).

Given the severe financial impact of the epidemic in China, attempts have been made to model when the epidemic would be under control in China following different interventions. For example, Liu et al. (2020) considered ‘the unprecedented strict quarantine measures in almost the whole of China to resist the epidemic’. They concluded that the epidemic would peak in February and be controlled by the end of March, 2020 with stringent lockdown in China. At the time of writing at around end of March, the epidemic is indeed under control and lockdown measures are being lifted in parts of China. However, China is now worried about potential waves of new outbreak from imported cases from other countries. New cases, possible flare ups, are indeed being detected in China as shown in the following new case time series since 1 March 2020:Screenshot 2020-04-04 at 07.25.54

Tableau Public based on Johns Hopkins University dataset

Pre-pandemic

By mid-February COVID-19 had spread to some 25 countries but pandemic wasn’t declared by the WHO yet. There were concerns that COVID-19 may overwhelm health care systems in countries with less comprehensive public health facilities in the African continent. Gilbert and co-workers (2020) estimated the risk of ‘importing’ COVID-19 from China into Africa, by examining the volume of air travel flying from various infected provinces in China into Africa.

The authors identified Egypt, Algeria and South Africa to be at high risk of importing the virus, while their public health systems have moderate to high capacity to respond to outbreaks. Nigeria, Ethiopia, Sudan, Angola, Tanzania Ghana and Kenya have moderate risk of importing COVID-19. They have variable health care capacity and are relatively vulnerable to consequences of a pandemic. By matching countries at risks of importing the virus and their capacity to cope, resources can be prioritised. The researchers proposed ‘Resources, intensified surveillance, and capacity building should be urgently prioritised in countries with moderate risk that might be ill-prepared to detect imported cases and to limit onward transmission.’

Pandemic

On 11 March, WHO declared COVID-19 to be a pandemic. The next day, the UK announced that the government would change tactics from trying to contain the virus to delaying spread, but without rules on social distancing, in contrast to lockdown measures in China and Italy. On 16 March, Ferguson and colleagues (2020) released the results of their modelling of the impacts of potential interventions on the spread, intensive care demand and deaths related to the virus in the UK. They concluded that, without interventions, the UK could expect to see 510k people killed by the virus in 2020. For context, total UK deaths in 2018 was 616k. They considered 2 types of strategies: Suppression and Mitigation summarised in the table below.

Suppression

Mitigation

Aim

Reduce average new infections generated by each case, called reproduction number R to below 1.

Reduce health impact, not to interrupt transmission completely.

End result

Reduce case numbers to low levels like SARS or Ebola, for as long as possible or until a vaccine is available.

Herd immunity. Population immunity builds up, leading to rapid decline in cases.

Interventions

Case isolation. Household quarantine. Social distancing: 70+/ all. Close schools. Combination.

Similar but without social distancing for all.

Duration

On-off 2 thirds of 18 months. 

5 months but risk a come-back in winter, as the population would not have achieved herd immunity.

3 months.

Deaths

6-120k over 2020 and 2021, depending on scenarios.

250k in 2020

The model proposed that combined interventions of isolating symptomatic cases and their household, social distancing of the whole population and closure of educational institutions over 5 months would suppress the number of people needing critical care beds to be within capacity at each point in time. However, this risks a come-back of the virus to crash critical care capacity in the winter of 2020, as the population would not have had the required immunity. The authors suggested a scenario where the suppression strategy is implemented over at least two thirds of 18 months, with school closure and social distancing triggered on-and-off by critical care capacity, with the other policies being in place.

Their results highlighted the severity of the pandemic on the UK and urgent actions were needed to avoid a catastrophe. As number of cases and deaths continued to rise, the UK subsequently introduced school closure and social distancing measures. By 23 March the UK was under lockdown with rules including the banning of gathering of more than 2 people in public and people should only leave their homes for essential activities.

With a high proportion of infected people displaying little or no symptoms, the lack of a blood test to confirm how many people are indeed infected is problematic to modelling.

For example, without the number of people infected, we would not know if the proportion of infected at risk of severe disease is 1 in 10, 100 or 1,000. Lourenco and colleagues (2020) showed that this uncertainty could lead to a wide range of estimates for the percentage of people infected and immune in the UK, ranging from 5% to 70% by around mid-March.

This has an important policy implication. If the population is, say 70% infected and immune, no stringent measure is needed because we have achieved herd immunity. If it is only 5% immune, then the UK has challenging days ahead and the lockdown is essential. 

Comments

A wide range of mathematical models, designed with different purposes and features, have played important roles in understanding the nature, projection and management of this COVID-19 pandemic. They have informed policies to contain and delay spread.

However, the inputs, processes and outputs of the various models are subject to uncertainty and limitations. This means that we need to treat the results carefully.

Members of the Actuarial Profession are tasked to manage pandemic risks in insurance or reinsurance firms. It is important that the profession is at the forefront of understanding and modelling pandemics.

We recommend that the Institute and Faculty of Actuaries:

  1. Ensures it has access to international thought leaders in the area of pandemic modelling. This may be done through collaborative research or appointing eminent leaders in this field to be honorary fellows.
  2. Creates opportunities for members to learn and network with experts from other disciplines that involve in pandemic management.
  3. Encourages members to engage with international modelling community by sharing models, expertise and experience.

March 2020

References

Danon, L. et al. (2020) ‘A spatial model of CoVID-19 transmission in England and Wales : early spread and peak timing’, MedRxiv, pp. 1–10. doi: 10.1101/2020.02.12.20022566.

Danon L, House T, Keeling M. The role of routine versus random movements on the spread of disease in Great Britain. Epidemics [Internet]. 2009; Available from: http://linkinghub.elsevier.com/retrieve/pii/S1755436509000553

Ferguson, N. M. et al. (2020) ‘Impact of non-pharmaceutical interventions ( NPIs ) to reduce COVID- 19 mortality and healthcare demand’, Imperial College COVID-19 Response Team, (March).

Gilbert M et al. (2020) Preparedness and vulnerability of African countries against importations of COVID-19: a modelling study. The Lancet.  VOLUME 395, ISSUE 10227, P871-877. https://doi.org/10.1016/S0140-6736(20)30411-6

Hellewell J et al. (2020) Feasibility of controlling COVID-19 outbreaks by isolation of cases and contacts.  The Lancet VOLUME 8, ISSUE 4, PE488-E496.  https://doi.org/10.1016/S2214-109X(20)30074-7

Kucharski A J, et al. (2020) Early dynamics of transmission and control of COVID-19: a mathematical modelling study. Lancet Infect Dis  https://doi.org/10.1016/S1473-3099(20)30144-4

Liu Y, et al. (2020) The reproductive number of COVID-19 is higher compared to SARS coronavirus. J Travel Med 27 (2) doi: 10.1093/jtm/taaa021

Liu X, et al. (2020) Modelling the situation of COVID-19 and effects of different containment strategies in China with dynamic differential equations and parameters estimation. medRxiv preprint doi: https://doi.org/10.1101/2020.03.09.20033498

Lourenco J, et al. (2020) Fundamental principles of epidemic spread highlight the immediate need for large-scale serological surveys to assess the stage of the SARS-CoV-2 epidemic. ‘Oxford Paper’.

This paper is part of a series of articles published by kind permission of the Covid 19 Actuaries Response group.

Thanks in particular to Joseph Lu for helping us look into the actuarial science that helps insurers and the more general public – understand what is going on.

Joseph Lu

Joseph Lu – the author

Posted in actuaries, advice gap, coronavirus, pensions | Tagged , , , , , , , | 3 Comments

IGC reports “good to very good”- as L&G closes member helpline.

Posted on April 4, 2020 by henry tapper
Screenshot 2020-04-04 at 16.57.33

Dermot Courtier – IGC chair

 

Since publishing this article , LGIM has made a statement on the closure of the L&G helplines – you can read the statement here

L&G’s IGC has published its fifth report for savers ; here is the link  for the 2019-20 statement.

March must have been a difficult month for Dermot Courtier , the L&G IGC.’s chair

Clearly the report wanted to say goodbye to L&G’s legacy book to ReAssure, this deal was announced in 2017 supposed to complete in 2019 and has now been put off indefinitely because of the current pandemic. There is a lot of “nearly there” about what is happening at L&G at the moment.

  • The workplace pensions unit is piloting an app but this is still not generally available
  • The workplace pension plan has a new default (the Future World MAF) but it’s not the default default – employers will have to make a conscious decision to adopt it.
  • There are currently 10 self-select funds in special measures but we aren’t told which they are.
  • The IGC undertook a benchmarking survey with other IGCs – but the results are not published.
  • There is no mention of systems developments, there appear to be no plans to  extend the Bravura platform to workplace pensions
  • One of the IGC’s principal jobs for 2020, oversight of the introduction of the investment pathways, is no longer required by the FCA as a result of the pandemic.

The IGC statement is full of what the IGC got up to, but tells us very little about what is actually happening.  L&G workplace seems to have spent another year “consolidating”.

The IGC and the current pandemic.

But L&G is now faced with a challenge

At the time of the statement , information that appears on the L&G workplace member portal in a blunt fashion

Screenshot 2020-04-04 at 16.03.39

In case the print is too small – let me repeat

In these difficult times, we’re doing what we can to look after our customers and our employees. We regret that we’re unable to operate our normal helpline service and our phone lines are closed until further notice

You can reach L&G by secure message or email (though there is no mention of response times). Death and health claims can be made to Pensions.SensitiveClaims@landg.com . The implication is that other “claims” are not sensitive. The language is insensitive.

The links from this statement are helpful but it is simply not good enough for a major insurer to have no telephone helpline. Those who are not online cannot  send secure messages or emails. those who have urgent needs cannot speak with an L&G member of staff. The people who need the helpline most are L&G’s most vulnerable customers.

Bearing in mind the drastic measures being put in place by L&G’s investment arm (LGIM), having no one to speak to – is not good enough.

Screenshot 2020-04-04 at 16.04.18

Is this report effective and does it have the  right tone?

This report has been published at a time when the suspension not just of funds, but of the member helpline is in force. Workplace pension savers might expect to have a rather stronger statement on this than that in the Chair’s statement.

Screenshot 2020-04-04 at 16.30.26

Earlier in the year , L&G had some kind of an admin meltdown. It has led to the IGC marking L&G’s member support falling to 3  on its value for money assessment. That 3 became 3.5 when the admin recovered late in 2019. It is clear however that L&G is suffering sustained problems delivering an acceptable service to customers.

There is nothing in the report about the closure of the LGAS HQ at Kingswood or of recent industrial action. Previous reports have touched on these problems and it seems reasonable for the IGC to be questioning whether the workplace pension book is being properly resourced.

Those who are saving in Legal & General’s workplace pensions have every right to think that though they have low charges and good funds, they are getting a second rate service which is struggling to provide the most basic support at this time.

The report is well -written and nicely produced (perhaps too many stock images). However it really doesn’t sound an effective report and though it’s good that L&G have (at last) abolished the charges levied for us to get our money back, it only gets an amber for its tone, and an amber  for its effectiveness.

Value for money assessment – successful on its terms

The report gives L&G a strong  endorsement. L&G are offering “good to very good” value for money.

The measures for determining value for money are sensible and the weightings make sense in terms of the industry consensus. The IGC is operating a very balanced scorecard.

Screenshot 2020-04-04 at 17.31.19

Properly, the report marks L&G down for poor member service. Surprisingly the report gives high marks for ‘member engagement” – presumably on some improvements to the member portal.

But all the evidence gathered over the years by IGCs shows that the only metrics that really matter to most savers is the amount of money in the pension pot, relative to the money that went into it.

I hope that the IGC look beyond their balanced scorecard approach in 2020 and start looking at what members have actually been getting from their plans , relative to what members get for the same money elsewhere.

For instance, the current approach of looking at investment returns is compromised by it looking only at the performance of funds. This is how we are introduced to the performance table of the various default funds that employers can choose from

The table above shows the performance of the current default funds, as at 30 September 2019. The fund performance is calculated after all fund charges. Other product charges – like the annual management charges – aren’t included

As seriously, especially for those drawing down on their fund, the performance tables don’t give any indication of the volatility of returns within the funds. So the sequential risk experienced by savers and spenders isn’t included in the report.

Experienced performance is what people want to know about – they want to know how their pots did, rather than the abstract top-down approach adopted.

Although the VFM assessment ticks all the boxes for the industry, it really doesn’t mean much to the saver. I give it an amber; it scores for its completeness on its terms, but it doesn’t score for the people who are supposed to be relying on this report – the savers.

The IGC on ESG

I asked the IGC chairs to send me their reports when they were published and Dermot, helpfully included a lot of information on the L&G ESG Hub (hub is the most overused word in financial services right now). The hub can be accessed via this link  https://www.legalandgeneral.com/workplace/esg/

I do think LGIM are very responsible investors, but I’ve been frustrated over the years that employers cannot access an overtly responsible default without taking advice.

Finally , L&G have adopted a green default in FutureWorld MAF , though its standout green fund – FutureWorld can only be used by employers as a default – with investment advice.

Even FutureWorld MAF is not the default default – it requires an employer to stick its neck out and take the risk of being the agent of change. I still think that L&G are not having the courage of their convictions, though I accept that other defaults – such as the pathway funds are being upgraded to reflect LGIM’s responsible ethos.

But so much more could be done than offering green funds. Software exists that allows savers to see inside the funds they invest in and even to vote on key issues relating to environmental, social and governance issues. If L&G have the courage of its convictions , it should be doing more to engage savers than simply offering an information hub.

The IGC should be concerning itself in how it can connect savers to the management of their funds.

The IGC on investment pathways

I have written on this blog about the importance of IGCs in overseeing the choices people need to take at retirement. The FCA has instructed the IGCs to oversee the implementation of investment pathways that people can follow if they don’t get advice on what to do with their money.

The idea was that the IGC would oversee these pathways – “the choice architecture”. Like most things else, the requirement has been superseded by the pandemic but the report has properly reported on its duties.

As with so much else at L&G, work needs to be accelerated to bring  these choices to life, they should be communicated, like ESG, through a modern-day engagement tool.

The IGC really need to get L&G putting solutions in the palms of its savers hands. The delivery of member engagement cannot be marked a five, when – years after first being mooted – an app is still under development.

Conclusion

The IGC -which includes Joanne Segars and Daniel Godfrey , seems to be tootling along at L&G’s place. Now it has to deal with the pandemic and its impact on members. So far, so underwhelming.

IGCs are there to protect members and members need a lot of protection right now.

For all the resource accorded the IGC, this is a me-too report. This IGC needs to raise its game – so does L&G.

 

L&amp;G IGC 3

 

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People’s Pension gets serious on small pots

Posted on April 3, 2020 by henry tapper

Screenshot 2020-04-03 at 06.32.13

The changes announced yesterday by People’s Pension and its parent B&CE are significant.

  1. It’s furloughing its sales team, battening down the hatches to new business
  2. It’s changing its charging structure, protecting itself against the ruinous impact of small deferred pots.

While the furloughing is most significant for the 140 staff who are effectively on gardening leave, it is partly subsidised by the tax-payer and is reversible. It should not impact on service levels to current customers and shows an insurer being ahead of the game – I don’t read this as panic.

Patrick Heath-Lay used his words careful when announcing changes to the charging structure (in the longer term much more significant).

“As we evolve our charging approach to meet changing requirements, we think this approach combines fairness, incentives to save, and prudence”.

I remember John Jory telling me of the 0.5% mono-charge that People’s Pension would employ to simplify pension charging. At the time (2011) – it was expected that the pension cap on defaults would be set at 0.5% and Legal and General were actively lobbying for a cap this low (I tried to stop this madness by literally kicking Adrian Boulding’s butt ).

By introducing the £2.50 per annum member charge, B&CE will enhance revenues from People’s Pension by £10m but they will have abandoned John Jory’s dream. People’s Pension  will join NEST, NOW and some parts of Smart in adopting a complex charge, albeit a much lower fixed charge than their competitors.

This may be “evolution” to Patrick , but there will be many within B&CE and further, that will see it as a retreat from the proud announcements made nearly ten years ago.

A necessary retreat?

By introducing this small but significant charge, People’s Pension has given itself a safety valve. The master trust said its new approach would reduce the cross subsidy by active members of millions of small, inactive pots, which are increasingly created by auto-enrolment”.

As well as implementing the annual fixed charge, it has halved the starting rate for a rebate to a £3,000 pot, at which point members are eligible for a 0.1% rebate. This grows to 0.3% on savings over £50,000.

It expects around half a million members to benefit when this is implemented later this year, with an illustrative member on an annual salary of £20,000 and a pot of £3,000 paying the equivalent of 0.3% total annual management charges over 20 years.

The charging structure at People’s Pension has evolved from the simplest to the most complex in the space of a few months.  Is this necessary?

Is this a challenge to Government to get pots moving?

When I first read the report of this change, I assumed the £2.50 charge monthly (years of selling such charges had inured me). That the charge is annual (21p per month) surprised me and apologies to those who read my erroneous tweet

I don’t expect it to stay so low and for this reason.

Two of the four big auto-enrolment master trusts have now put in place protection against small pots (the other is NOW). Smart has some protection.

If the Government cannot get small pots to follow members when members leave employment, then pot proliferation will increase. The DWP estimate that there could be 50m abandoned pots by 2050.

With the average deferred pots size valued in hundreds rather than thousands of pounds, even a £2.50 pa charge is going to significantly reduce the value of several million small deferred pots , languishing with Peoples Pension and NOW.

Moving these pots on will increasingly become a commercial imperative not just for providers , but for Government and most of all the members. But there is no mechanism in place to do this.

Technology is not in place to allow the pots to tag along behind someone moving jobs and the cost of organising the transfer by a regulated financial adviser cannot be recovered by fees (in many cases the fees would wipe the pot).

This change of charging is a direct challenge to Government to get pots moving. If Government doesn’t listen, People’s Pension can further increase the fixed costs, effectively creating an active member discount to counter current cross subsidies.

Significant changes

Unlike  insurers, People’s Pension is a trust and has little recourse to capital other than from its parent – B&CE – itself a mutual.  People’s can rightly claim that it has been given little choice but to protect itself, its parent and its members from the calamity of pot proliferation.

It should be remembered that Patrick Heath-Lay, as CEO, has a responsibility to all parties to keep People’s Pension solvent and prosperous. These are necessary changes – albeit they make the People’s Pension a complicated beast.

Patrick Heath-Lay was one of the first advocates of a pension dashboard and has been at the forefront of the argument for a technology solution to the problems of pot proliferation.

Patrick Heath-Lay  has now thrown down the gauntlet. If they are sensible, policymakers within both DWP and the Treasury will take notice.

The sooner the pensions dashboard allows people to see their pots in one place the better.

The sooner that significant changes to the rules governing the aggregation of small pots are put in place the better.

The sooner that “pentechs” are allowed into this argument with their aggregation solutions the better.

Screenshot 2020-04-01 at 17.38.45

Finally – some more on the charges evolution

The announcement made to Professional Pensions, is fully inclusive of all changes. But some of the recent changes to the People’s Pension charging structure are so new that they need to be clarified.

Clarification to the new tweak in the People’s Pension charging structure was solicited by Darren Philp of Smart Pensions (formerly head of policy at People’s Pension) and disclosed by the current head of policy at People’s pension (small world)

This compares to the current rebate structure

For the part of their savings:

  • up to £6,000, no rebate is given
  • over £6,000 and up to £10,000, we give back 0.1%1
  • over £10,000 and up to £25,000, we give back 0.2%
  • over £25,000 and up to £50,000, we give back 0.25%
  • over £50,000, we give back 0.3%.

All that is changing is the substitution of the £6,000 trigger point with the lower £3,000 point.

Complex stuff.

 

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Aussie actuary flies DC…

Posted on April 3, 2020 by henry tapper

 

I needed to travel to London. I began my preparations with a call to an airline that I hadn’t used before but that I was keen to try, given its appeal­ing advertising.

“Wombat Airways, good morning, this is Margaret and how can I help?”

“Good morning, Margaret, I’d like to book a ticket for a flight from Mel­bourne to London at the end of next month. My name is David.”

“Well, David, I can help, but before we talk about where you want to land, can I ask how much you want to pay?”

“Well, whatever it takes, I suppose. What’s your price?”

“I’m sorry, I can’t tell you that since that would be giving you advice. No, you must tell me how much you want to pay.”

“But you must give me some idea? What if I said $5000; is that enough?”

“It might be, David, but we won’t know in advance.”

“Well what are other people paying? What would you pay if you were me?”

“Look, I can’t tell you. It’s a risk and you have to make that choice; I can’t make it for you.”

At this stage, I was starting to be­come just a little tense, but did my best to be civil with Margaret. After all, she was probably following a script.

“OK,” I sighed, “we’ll stick with the $5000.”

“Fantastic,” she said “let’s pretend that $5000 is enough and see what happens!”

“Margaret, what happens if $5,000 is not enough?”

“If your money runs out, we will ask you to get off. There are an increas­ing number of passengers being ejected these days, so you probably won’t be alone. If you do fail to reach your objective, you will have to rely on a pair of roller skates and a dodgy plastic com­pass to get you home.

Those items are provided by the Government, but only to those people who don’t already have a pair of roller skates and a dodgy plastic compass. They call it their ‘means test’.”

“And if $5,000 is more than enough?”

I asked, looking forward to hearing a sensible answer for a change.

“In that case, we will send you a cheque for the balance, less a payment fee.”

“Will you pay interest?”

“Yes, but we don’t know how much. It could be positive or negative.”

I didn’t feel like entering into a discussion about interest and the theoretically interesting diversion about whether interest could be negative. In fact, I just wanted my tickets booked, paid for and the phone call to end. But Margaret wasn’t finished.

“Now,” she said with renewed brightness.

“What type of aircraft would you like to fly in? At Wombat, we have a range of options for you to choose from, to allow you to tailor the flight to your personal situation.”

“Margaret, you tell me which one is appropriate, given where I’m going and how much I’m paying.”

“I’m so sorry David, but I’m not allowed to. That would be giving advice. But I can tell you that our different aircraft have different characteristics; some are slower and noisier but they are exceptionally reliable, in that they will get there, but we don’t know when they’ll get there! The really new versions are very exotic, fast and quiet but we’ve lost a few recently.

Their engines have this new device fitted called a cognitive double-quick orbiter (CDO) that can fail unexpectedly but the engineers don’t really know why. It seems some of the pilots weren’t even aware the CDOs were installed.

The really scary thing was that a pilot would report a problem with their CDO on the Los Angeles route and a plane sitting in the hangar at Tullamarine would suddenly collapse under its own weight.”

“Excuse me, does that mean I’m less likely to land in London?”

“Yes, that’s right. There is a full description of all the risks in our Plane Details Specification, or PDS for short. I will send you a copy of the PDS. If after reading it you still have questions, you really should consult a licensed aeronautical advisor. But be careful, make sure your advisor is licensed by ASIC, the Aeronautical Surreptitious Investigations Commission.”

At this point, Margaret clearly felt the conversation wasn’t going as well as it should. She was only young and may have been put off by my surly manner coming over the line.

“Margaret, when I used to fly with one of your competitors, I said where I wanted to go and the airline told me how much to pay. It was easy.”

“I’m sorry, David. We have moved away from a Destination Bound (DB) system to a Destination Concealed (DC) system.”

Bewildered, I thanked Margaret, paid my $5000 and crossed my fingers.

Wombat air 2

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How will USS value itself today?

Posted on April 2, 2020 by henry tapper
Wesbroom

 

News has come in that the University Superannuation Scheme (USS) is going to press ahead with a valuation of its assets and liabilities as at the 31st March 2020. It reasons for it in a public statement.

Screenshot 2020-04-02 at 06.00.28

I had originally thought that this was to comply with the law but Professor Dennis Leech has put me right on that.

So the decision to spend hundreds of thousands of pounds valuing assets that have no market price (because nobody’s buying or selling) is being taken “not to take short term action”.

Not only is it extremely hard to work out what the price of USS’ pension scheme assets are, it’s virtually impossible to work out the impact of COVID19 at 31st March on  future and current pensioners. A valuation at 31st March 2021 could use actual mortality figures , the idea of comparing the 2020 guess with the reality a year on makes no sense to me at all.

The public has no expectation of anything going ahead right now, no Euro 2020, no Wimbledon, no premiership for Liverpool – there may not even be university exams. So why does Britain’s largest funded pension scheme insist on continuity? I just don’t get it. Nor do Kevin and Dennis

The valuation  doesn’t make common sense.

Nor (says Leech) does its methodology

Here’s Dennis commenting on a recent blog of mine  (my italics)

It is disappointing that you report – uncritically – that there are £100 billion of liabilities (in the USS).

The central issue in the valuation dispute is how the liabilities figure is arrived at. It is an artefact with no practical meaning in terms of the payment of benefits.

The expected future benefit commitments of a DB scheme are defined by projections of inflation and mortality rates and other factors. They are therefore are not affected by interest rates on government bonds which are nevertheless used to compute the liabilities figure.

Record low interest rates mean record high liabilities. The liabilities figure is highly misleading. All it does is say that gilt rates are very low (actually negative in real terms).

This suggest option 5 (See blog): do the valuation using common sense and look to see if the investment income from the portfolio would be likely to provide the pensions benefits given that the scheme remains open in the long term. That means looking beyond the daily gyrations in asset values at the economic fundamentals.

The present conditions are unique and not like the financial crisis of 2008-9 because it is impossible to forecast today what the economy will be like in the long term. But one thing is for sure the market ain’t doing that.

So what will USS do with the valuation?

USS say they will use this meaningless information and use it to

  1. Re-assess the support available from our sponsors
  2. The outlook for future investment returns (eg the growth assumptions)
  3. The deficit contributions due from universities from 2021
  4. The outlook for Higher Education and Financial Markets

Taken together, the actuarial valuation will be used by USS to put the scheme in lockdown. Quite obviously the sponsor covenant will weaken, the growth assumptions will be revised downwards, deficit contributions revised upwards and all this will be justified on the grim outlook for higher education and financial markets

USS have just commissioned a justification for pensions austerity for the foreseeable future.

This is not the way forward. The way forward is to keep the scheme open and flex the benefits

CDC lifecycle

It may be that the long term future of USS is CDC – that thought could not be spoken pre Covid-19.

If this is the plan then the trustees should be open about it. The public statement says that USS will be “flexible where we can” but this valuation is chaining it to its own railings.

Instead of pretending that USS is bigger than the pandemic and that its BAU trumps the reality of Britain on March 31st 2020, USS should cancel its 2020 valuation and put up a sign on its gates

All bets are off

 

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How #Covid19 opens finance.

Posted on April 1, 2020 by henry tapper

The pandemic is opening up finance in a way that we could not have imagined a few weeks ago. On the day of the closure of the FCA’s Open Finance call for input, Sam Seaton, CEO of MoneyHub told Professional Adviser

Open finance has the power to transform consumers financial wellbeing and is essential for informed decisions to be made by them… having readily available information is a “basic human right”.

Without the information, it is impossible for consumers to make informed short, medium and long term decisions for themselves, let alone their families.

Not long till the data’s blown

The pandemic has led to home-working and a surge in demand for data.

Screenshot 2020-04-01 at 06.23.28

Organisations holding out for wet signatures are now facing not just the Law Commission’s edicts but the practical impossibility of dealing with paper. Pension Bee’s skeleton staff come in to its office for “essential work” – scanning the post required to keep transfers moving. On the other side of London Wall, WeWork’s only staffed function is its post room, now overflowing with items signed for – never to be read.

This morning – a courier will arrive at Tapper Towers so that a deed can be witnessed and returned. The deed will be delivered – hopefully at a 6 foot distance- and returned. I anticipate a farcical flinging of clipboards accross a back-street in Blackfriars.

Meanwhile, we are learning that Zoom, Hang-outs and Teams all have “record buttons” that allow us to capture moments like the signing of deeds, and mail them to each other as MPEGs.

Band-width will drive us apart (again)

My partner and I are driven apart during the day by the lack of band width from our wi-fi. Though we are only yards from BT’s Openwork HQ, we do not have BT’s “fast” brand – but some crappy version coming to us down copper wires.

For us to work together, one of us has to be offline – most of the day both of us are on web-serviced calls. So I make my way over to WeWork (no work) and am likely to be today one of less than 10 people in a building that last month saw 3000 people a day pass through its doors.

Both and I and my partner can only do our jobs if we operate on separate wi-fis, bandwidth will drive us apart again.

Closed to data = closed to business

Last week, one large insurer , deferred a decision-making meeting from March 26th to August 6th. Presumably it was thought impossible for an organisation to progress its strategy if the decisions were not taken face to face.

The deal will most likely be done elsewhere, online and with agility. Ways will be found – within the law – to enable ordinary people to get access to the information needed.

As Sam Seaton says “having readily available information is a basic human right”.

So long as we regard information as accessible only with the help of postal services, we will be denying people that basic human right. Keeping important information  on microfiche or in physical filing cabinets is simply not acceptable. If information is personal and is needed, the GDPR says it must be accessible in a machine readable format.

Businesses that refuse to share our data will close, and the current pandemic will mean  most will not recover.

The risks of not going digital

Much is made of data security and the risks of scamming, data corruption, data theft and from many other forms of cyber-crime. The fear about these risks is that we do not fully understand them. Necessarily we amplify them out of  that fear . I am not saying there are not risks from the free transfer of data. We need secure networks, we need powerful verification and encryption and of course we need humans to behave in a responsible moral way.

But the risks of not going digital are greater. Sam Seaton’s comments are spot on. If we cannot get the information on which to take decisions, we will take bad decisions or no decisions – which could be worse than bad.

The DWP estimate that unless we take steps to stop current trends, 50m pension pots will be abandoned by 2050. The PPI tell us (via the ABI) that £20bn of money in pensions is unclaimed. People who lose their pensions – lose the right to the kind of retirement they have earned through saving during their working lifetime.

Can anyone say that “closed finance” is working for them?

Here is that video!

This video has been shared 565,000 times (As at April 1st – no fooling)

I’d be very pleased if it was viewed a few more hundred times on this link. It shows how a family in lockdown, can reach over half a million people by pressing “record” and sharing a data file on the internet.

You cannot suppress good things like the Marsh Family’s communal singing. You cannot suppress the free-flow of data to allow us to know about our financial situation.

I suspect that the next few weeks will force the issue and we will return physically to our workplaces later this year, with a radically different view on how data should be shared.

The FCA closed the open finance consultation on 17th March, about the day that Coronavirus opened the new one.

 

Posted in pensions | 1 Comment

12 reckoners to work out what you’ll get.

Posted on March 31, 2020 by henry tapper

Screenshot 2020-03-31 at 10.47.08

 

New help from the Ferret

Gareth Morgan has put online and free for use, his reckoners: – these help people with benefit and grant claims – estimating what they’ll get

They are called Ferret Reckoners

These reckoners, which are amongst those normally only supplied with Ferret’s calculation advice systems, are intended to help advisers with particular assessments which may fall outside our core systems. They are designed to help advisers.

For the duration of the Coronavirus 19 emergency, Ferret are making them freely available for use by advisers.

They are not definitive advice and advisers should make sure that they check and understand the results carefully. We cannot accept any liability for the use of the reckoners… You are using them at your own risk, and by using them accept those terms.

Gareth regrets that Ferret’s Helpline, which provides support for our systems and reckoners, will only be available to subscribers. Please notify any errors or suggestions to reckoner_support@ferret.co.uk

Ferret’s Self-employment IncomeSupport Scheme (SEISS) Reckoner This reckoner provides estimates of support for self-employed people during the covid-19 crisis
Minimum Income Floor reckoner If self-employed, there will be a minimum income floor (MIF) which the DWP use for Universal Credit, even if real earnings are lower. Estimate what this should be.
Home Equity under loans for mortgage interest
(from April 2018)		 See how equity could vary in future as interest rates and home prices change
Self-employed Expenses Quickly estimate the monthly expenses for Universal Credit
Surplus Earnings for Universal Credit Estimate how earnings, which have stopped Universal Credit from payment, will reduce further claims within 6 months.
Particularly useful for weekly paid people who may see 5 paydays in one period stopping UC.
Self-employed Losses carry-forward Estimate how losses in previous Universal Credit periods are taken into account for later assessments
Emergency Tax for pensions How much initial tax is payable when taking lump sums from a pension
Pay Periods in Universal Credit The payments cycle in Universal Credit
State Pension Age Shows when State Pension Age is reached and when ‘Mixed Age Couple’ rules will apply
Combined Periods Pay & Rent Periods in UC
Better Off in Work – no UC A Better-Off Changing Work Reckoner for those not receiving UC
Better Off in Work with UC A Better-Off Changing Work Reckoner for those receiving UC

New help from HMRC

HMRC has a set up a phone helpline to support businesses and self-employed people concerned about not being able to pay their tax due to coronavirus (COVID-19).

The helpline allows any business or self-employed individual who is concerned about paying their tax due to coronavirus to get practical help and advice. Up to 2,000 experienced call handlers are available to support businesses and individuals when needed.

If you run a business or are self-employed and are concerned about paying your tax due to coronavirus, you can call HMRC’s helpline for help and advice: 0800 024 1222.

For those who are unable to pay due to coronavirus, HMRC will discuss your specific circumstances to explore:

  • agreeing an instalment arrangement
  • suspending debt collection proceedings
  • cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately

The helpline number is 0800 024 1222 – and is an addition to other HMRC phone contact numbers.

Posted in age wage, pensions | Tagged , , | 1 Comment

No need to lock-down innovation

Posted on March 30, 2020 by henry tapper
Screenshot 2020-03-30 at 06.50.24

The AgeWage start-up team

 

Brent Hoberman calls for help for Britain’s start-ups;  in the FT he comments with regards to tech start-ups.

Britain leads Europe on almost every measure, more than £10bn was invested in UK tech last year and the sector employs almost 3m people. Beauhurst estimates that more than 1,300 UK start-ups have raised seed rounds over the past two years and now need to raise more funding.

My start-up is trying to raise money to provide affordable advice and guidance to Britain’s retirees.  We urgently need help.

Money is out there, we have a promise from a hedge fund which may or may not materialise. There are private equity funds circling. But for our 500 investors, many of whom have invested less than £100 , the promise was more of the same.

What we need at this time is not short-term debt (on offer from hedge funds and banks). What start ups need is proper long-term equity funding.

There are four ways that I propose the Treasury could involve

  1. It could make immediate Government investment available through grants or equity finance through Innovate UK.
  2. It could relax the rules on EIS and SEIS so that start ups could go back to  the business angels for a limited time and seek further funding from angels under SEIS.
  3. I suggest that  SEIS be extended from £150,000 to £1,000,000 , time limited to the end of 2020.
  4. Contributions to a SEIS paid within the first two quarters of 2020 could be considered paid in tax year 2019-20.

The logic of this is obvious. The money would enable start-ups with viable business models to ride the storm and use the period of lockdown to develop products and services ready for a more general “return to work”.

Tech start ups need not concern themselves with social distancing, our morning meetings connect  Hydrerabad, Delhi, Hampshire and London

The money would save the staff of these organisations being furloughed , the tech start-ups being mothballed and this vibrant success story being cut-off in the bud.

Indeed, when so much needs to be done, start-ups have the entrepreneurial zeal to keep a much wider eco-system focussed on business problems. My diary is full  this week meeting senior executives and junior administrators – all of whom will find their call with me energising, entertaining and productive.

I hope that this little blog will be picked up on and shared. I have no right to claim any influence over Government policy, my firm will contribute little to HMRC this year. But those companies who I trade with are mightily important to the British economy, and if they spread the word, maybe my tiny influence can be amplified as far as Whitehall.

At a time when we are  in lockdown, it is vital that our start-ups are not shut-down.

 

Agewage logo

 

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Our start-ups aren’t getting much help

Posted on March 29, 2020 by henry tapper

It’s tough running AgeWage right now. We are a  Pentech considering a term-sheet for future funding , our development depends on new investment and our customers are waiting on our development. At a time like this , it’s easy for large companies to kick us down the road. 

I could  furlough our staff, mothball my business and wait for the metaphorical  sun to shine. Or we could press on. Life would be a lot easier if we mothballed, but that’s not what entrepreneurs do. Thanks to Brent Hoberman for writing this; I have included the gift link from FT and hope that it will be kind – AgeWage has given the FT a good few stories over the years!

 

This article appeared today in the FT. I’ve included the gift link

Brent Hoberman is chairman and co-founder of Founders Factory and Firstminute Capital

 

Brent Hoberman

Brent

 

The devastating impact of the coronavirus crisis on UK tech start-ups came home to me this week in a telephone call with a brilliant female founder, who was herself sick in bed with the disease.

Based outside of London, her company, which provides cash flow management to small businesses, had previously raised more than £4m. But her board is now urging her to cut half her staff because the Covid-19 epidemic has slashed the amount of time she has before she runs out of money.

Another £500,000 would buy her enough time to get a new product into the market and get ready for a much bigger fundraising and hiring more people once the shutdown is over. There are many conversations like this taking place across the country now. Should founders slash their staff; will they cut too deep so they can’t bounce back when the recovery comes; would a modest amount of cash help them save jobs and their company?

Some companies my organisation supports are finding ways to navigate through these choppy times. A tech company that provides instant access to airline and ancillary supply with a single interface is receiving interest from some of the biggest airlines and online travel agents. A business that provides cloud-based and mobile software for social care facilities is making it possible for family members get instant updates on their loved ones’ care even if they’re self-isolating or in quarantine. It is also giving away its software to help in the national effort.

That is the good news. The bad news is these early stage businesses have seen a swift and severe contraction of investor interest. Some have had funding termsheets pulled and investment deals collapse.

These are not companies like Deliveroo, Revolut and Stripe that have already received huge infusions of venture capital money. They are the pipeline of companies that will become big in the future and must rely on angel investors and small seed funds, a group that is highly sensitive to plummeting stock markets.

Chancellor Rishi Sunak has acted fast and at astonishing scale to support UK businesses. Some of his measures will help start-ups including tax holidays and his plan to cover 80 per cent of salaries for furloughed workers up to £2,500 a month.

However his current Covid business loan interruption scheme does not apply to lossmaking businesses. This creates a gap because start-ups are deliberately lossmaking in the short-term as they invest to grow. Despite recent complaints that some big companies lacked a path to profit, this is a defined, strategically sound and successful model that works.

Britain leads Europe on almost every measure, more than £10bn was invested in UK tech last year and the sector employs almost 3m people. Beauhurst estimates that more than 1,300 UK start-ups have raised seed rounds over the past two years and now need to raise more funding.

To keep them alive, the UK should create a Runway Fund to give extra time to these early-stage businesses. It would provide convertible loan notes with discounts to start-ups of up to £500,000 to give them at least nine more months of operations. The loan would then convert into equity at the next round. A British fund of £300m could invest initially in around 600 start-ups.

Done across a broad range of companies, such a fund should provide a profitable return to investors and salvation for early-stage UK tech. This is not a handout, it is an investment that should generate returns once we get back to a new normal.

The quickest route is for the funds to come from the Treasury or the British Business Bank or for commercial UK banks to group together and set it up. It could match private with public money, to ensure that taxpayers are not stuck funding the least promising businesses.

This model already exists in venture capital across the UK and Europe. We floated this idea last week and many UK tech founders are enthusiastic and more than 50 early-stage funds, accelerators and later stage funds are keen to support us. The start-ups funded should create economic value. Capital Enterprise estimates that start-ups that survive to reach the second stage of funding known as Series B end up raising 10 times as much money, supporting many more jobs.

Launching this fund would be a shot in the arm for UK tech founders, long term employment and tax revenue. It would almost certainly be emulated across Europe. Indeed the French have already launched this type of fund. Once again the UK can lead European tech policy and remain the growth engine for European tech.

Without it, we are in very real danger of losing a generation of companies. These are the businesses that we need to help both the old and the new economy bounce back after the crisis. We are in very real danger of stalling one of the few industries where the UK is a real global leader. And yet, with relatively little, it could be saved.

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Fact not fiction on the #Covid19 “death-threat”.

Posted on March 29, 2020 by henry tapper

We need to get smart about what we’re in for with this Covid19

Depending on how we behave, between 60 and 80% of us will get this infection in one way or another.

We should prepare to be infected without fear of the unknown. This blog is the information I’ve collated for myself and if I’m wrong on any of this stuff, please contact me on henry@agewage.com and put me right.

Here is a chart that I’ve found useful. It was sent me by an Indian friend who is in hospital – now recovering from infection with Covid-19. He has been tested and is using the test to determine how far he is towards the end of his convalescence.

Screenshot 2020-03-29 at 09.03.11

The typical pattern

This tells me that when people are infected , they need to think four weeks before they can come out of convalescence.

PCM identifies presence of  the bad guy and stands for “polymerase chain reaction” it’s a way of looking at DNA to tell if Covid19 is there

IgM is the emergency good guy and stands for Immunoglobulin M which is the biggest antibody that we produce to fight Covid 19. Not around for long, this guy hands off to IgG.

IgG is the long-term good guy and stands for Immunoglobulin G and  immunises us against Covid19 coming back.

 It takes a fair bit of time to get through this disease. The vast majority of us will be out for the best part of a month, 

Covid19 infection  has a typical pattern but for about a fifth of people’s illness is not typical.

The odd thing is that while mild symptoms are most common, some people get no symptoms at all , some people get it really bad and a very few people get a massive attack that can kill even the youngest and healthiest.

Some people who carry the virus remain asymptomatic, meaning they do not show any symptoms.

The virus multiplies in the respiratory tract and can cause a range of symptoms,

There are  mild cases, which look like the common cold, which have some respiratory symptoms, sore throat, runny nose, fever, all the way through pneumonia. And there can be varying levels of severity of pneumonia all the way through multi-organ failure and death.

However, in most cases, symptoms have remained mild.

Experts have data on about 17,000 cases and, overall, 82 percent of those are mild, 15 percent of those are severe and 3 percent of those are classified as critical.

Cykotine storms

Occasionally things go crazy, this is known as a cykotine storm, a study published on January 24 in The Lancet medical journal found a “cytokine storm” in infected patients who were severely ill. A cytokine storm is a severe immune reaction in which the body produces immune cells and proteins that can destroy other organs.

It’s these freak storms that kill young people with no medical history.

So this is what I draw from this

For 4 out of 5 of us, (including my Indian friend) and others who I know have got it, they’re on the 28 day cycle in the illustration

A few of us will get it and not know it (asymptomatic)

A few of us will get it real bad (and need a respirator) – which will be really tough and could kill the weakest of us.

A very few of us will get a Cykotine storm which will likely kill us.

There are existential threats to all of us and they’re not just from this virus. Allowing us to live our lives in the fear of the worst case , means months of misery for us all.

We need to be resilient and adopt a positive mental attitude, follow the instructions given to us and stay strong and fit.

Sources as per links

What happens if you get the Coronavirus?

World Health Organisation Myth busters

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“Advice for Middle Britain” – keeping the cost down.

Posted on March 29, 2020 by henry tapper

I’ve recently published a blog called “Advice for Middle Britain” which argues for a more honest approach to the promotion of dependent advice. It sets out a trade-off between the purity of fee-based advice and what people can afford. Most people are getting advice dependent on advice fees being taken from a pension pot, it isn’t perfect, but for 90% + of us , who would prefer advice at a price we can afford, it will do.

As my friend John Mather tells me, there is nothing wrong with saving advisory fees by charging the advice to the savings product.

Pay from the pot

More on price/quality trade-offs

In this blog I want to focus on further trade-offs price/quality trade-offs. Three in particular

  1. Face to face or remote?
  2. Standard or bespoke?
  3. DIY or managed execution?

Face to face or remote?

fof

I suspect that Britain’s lockdown will radically change our attitude to remote meetings. Most of us have done meetings on Zoom, Skype, Teams or Hang-outs. By the time we’ve come out of lockdown we’ll be quite good at them. There are online tutorials which even I can understand.

Most of the cost of face to face is logistical. The cost of getting to meetings, of meeting rooms, of staff to settle you in , teas and coffees and of writing up the meeting and filing – all make face to face meetings very expensive.

The alternative is for both sides to meet online and agree that the meeting be recorded. Simply attaching an MPEG file of the meeting to the client’s case history is a matter of a minutes time.

We should be plain – whether as advisers or customers, we only have a face to face meeting where absolutely necessary and the cost of that meeting must be laid out and compared with the cost of the remote alternative. I am done with pretending that face to face is cost-free and this goes for that initial meeting too.

bespoke suit.jpegBespoke or off the peg?

The financial services industry likes terms like “triage”, “bucketing”: and “segmentation”, but its customers don’t. We don’t like “default solutions” either. Its not just because all the words are ugly and have negative connotations, it’s because it’s not explained to us why standard solutions offer better value for money for most people.

Most people don’t want to pay the extra £2000 per suit to get it made to measure. They won’t pay the £160 for a tailored shirt or the £600 for a fitted pair of shoes. Instead they will pay a tenth of the price for an off the peg product which is 90% as good.

We need to be clear to our customers that designing bespoke investment solutions with all the modelling that goes with them is simply beyond our means. Setting out the standard costs of the various services on a rate sheet is not just more transparent, it’s excellent marketing. It makes the business of paying for advice a standard experience too.

Self-service or managed execution?

self serve

Making a buying decision is one stage of the process and any rate card of services should itemise what goes into getting to a buying decision and why it costs what it does.

But implementing that decision, including setting up the payment system that ensures that the product/solution is maintained over time through regular reviews, needs to be explicitly stated.

If a client insists on a solution which cannot be funded from the pot, the cost of that insistence needs to be laid out. It means that all current and future fees need to be invoiced and paid for (with VAT) from a bank account.

Crystallising all costs in this way may be acceptable to some clients, but presenting the bill for advice in both ways, not only puts the customer in control, it generates trust.

Similarly, giving the customer a choice between a managed implementation and a self-service approach and laying out the costs and benefits of both puts the client in control and generates trust.

Keeping the cost down

Most advice can be delivered remotely, with standard solutions that can be self-executed. This is how advice can be delivered within a  budget without cross-subsidies. No mates rates  and certainly no hidden or deferred fees.

The cost must be the proper price for the job and build in all the costs the adviser incurs including insurance, regulatory fees, staff and premises and of course the systems and staff used to deliver clear recommendations and if necessary execute transactions.

Maybe the least understood cost, is the cost of dispute. Getting things out in the open through clear terms and conditions and published rate-sheets at each step of the advisory process, may seem unnecessarily commercial.

But here I think a clear distinction must be made between “advice” and “counselling”. Many financial advisers to offer counselling as part of their service and enjoy providing  support to customers which allows customers to consider themselves “clients” or even “friends”. This is absolutely fine, where both sides are comfortable with  this level of service. It is why people are prepared to pay huge amounts for an SJP adviser and why SJP advisers rate highly on trust-pilot.

But counselling cannot be part of the Middle Britain Advice Package. Professional advisors must be clear about what is on the clock and interact with customers in a consistent way.  When I see or phone my GP, I no longer expect a chat.

Necessarily , advice has to be commoditised, packaged and delivered to price and time. Full disclosure of costs at each stage of the process is imperative in creating and maintaining trust. Using product dependent charging is essential to make advice effecient and setting the standard delivery options as

  1. Remote
  2. Standard solution
  3. Self-service execution

…. means that advice can be affordable for most people when they need it most.

I would also argue that doing things in this explicit way, by explaining things in terms of trade-offs and by maximising efficiency, we can create a much more compelling product than the amateur shambles of the past.

Screenshot 2020-03-29 at 07.01.45

Blue sky thinking needed

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Advice for Middle Britain

Posted on March 28, 2020 by henry tapper

agewage advice

 

AgeWage suggests that for the 94% of Brits who don’t pay for financial advice, there needs to be a radically better deal. 

 

This is how advice works today

Since the Government abolished commission in 2013, advisers have had to charge their clients fees and most clients don’t like paying the fees they’re charged.

There are three reasons for this

  1. The cost of regulated financial advice is seen as too high
  2. People aren’t used to paying directly for financial advice
  3. People are distrustful of financial advisers

For the 6% who pay for financial advice there is a highly skilled group of some 24,000 high-integrity professional advisers. Many of these advisers charge fees independently of financial products as a fixed fee or at an hourly rate. Such fees are subject to VAT and really do pay for independent financial advice.

But most financial advice is paid for on a dependent  basis, where payment is not invoiced but taken from the investment policies advised on. This cannot be called “independent” for the obvious reason!

Product dependent advice has three big advantages to ordinary people.

Firstly it exploits a VAT loophole which means it can be charged VAT free and as most people can’t claim back VAT – that makes such advice available at a 20% discount

Secondly, it can be paid for from tax-advantaged products, meaning that the advice is effectively getting tax-relief.

Thirdly, the money comes out of a pot and only appears as a deduction from the investment account. No money comes from the bank account, no cheques are signed and the transaction is – from the client’s point of view – frictionless.

Unsurprisingly, most advisers prefer to use this kind of “product dependent”  charging – rather than invoicing. Provided that the organisation operating the fund platform (the platform manager) operates a system which allows the adviser to get paid this way, the adviser does not have a bad-debtors issue.

There are of course a few snags. Many pension providers don’t mange platforms which “facilitate” adviser charging so these providers don’t get used much. NEST, People’s Pension, Now and Smart Pension don’t offer adviser charging (as examples). Consequently, though these providers offer low fees and value for the money, they don’t tend to get inflows from those taking financial advice.

Although the FCA thought that abolishing commission would do away with product bias, it hasn’t really. Most people still find themselves steered towards products that pay advisers through adviser charging rather than products (like NEST) that don’t.

Advice for Middle Britain is product dependent and it’s going to stay that way until providers like NEST adopt adviser charging or the Treasury (through the FCA and HMRC) take away the advantages to advisers and clients – of product dependent advice.

I’ve been writing about this for some time. My position is changing, I now see the need for people to take advice as more important than the purity of invoiced charging. I no longer worry about dependent charging, which I see as distinct from the conflicts created by “contingent charging” – something specific to DB transfers

AgeWage says “pay from the pot”.

Pay from the pot.jpeg

Given the choice of paying for advice from your pension pot or paying for the advice +20% VAT out of your bank account, we’d expect 94% of you to pay from the pot.

So when it comes for paying for financial advice, we want you to know what you’re doing. You are paying a lot less but you are going to get a second best service. It’s like buying a car- sometimes it’s best to buy not the top of the range – but the car that’s a little less good but a lot cheaper.

We advise middle Britain to do as much as it can itself and when it needs advice, to purchase it from the pot.

A radically better deal

We need to understand the trade off.  Understand that “dependent (contingent) advice” is not best advice but the 90% solution we can afford

If we aren’t in the 6% who pays directly, then the next challenge is to get dependent advice which is value for the money leaving your pot.

That is the subject for further articles – articles that will focus on effecient processes, the appropriate use of technology and lower margins for advisers.

We think that advice for middle Britain can be delivered at radically lower cost.

We also think that advice can be simplified rather than dumbed down. Most of the questions that people ask do not need advice, they need good information. When people need to be told what to do, they need to know what they are paying for and how much it’s going to cost. They should be given the option of a money back guarantee if what is delivered doesn’t meet expectations.

Advice has got to be a product which people can assess and value.

We’re working on a service that can deliver this – watch this space.

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The Coronavirus Job Retention Scheme

Posted on March 28, 2020 by henry tapper

The CIPP continue to provide the best guidance on Government statements to employers in the timeliest way. This information can be found on their website and also on the Coronavirus information page on the toolbar of this blog.

CIPP

The anticipated guidance in relation to the Coronavirus Job Retention Scheme (CJRS), which will see employers reimbursed for 80% of employee salaries up to a cap of £2,500 per month and associated wage costs for furloughed workers, has been published.

There is information designed to assist employees and a separate guidance page for employers.

The advice given is that should employee and employer agree, a company may place the employee ‘on furlough’ where they’re unable to operate or have no work available due to coronavirus. The employer must write to the employee to state that they have been furloughed and should keep a copy of the correspondence.

Employees can receive 80% of their wages, up to a monthly cap of £2,500 and they will continue to pay taxes in the usual manner. They will pay income tax, national insurance contributions and employee automatic enrolment contributions (on qualifying earnings), unless they have opted out of the scheme, or choose to stop contributing.

Employees must not complete any work for their employer in the period in which they are on furlough, so must not provide services or generate any revenue. If employees are still working, but on, for example, reduced hours, then their employer must continue to pay them accordingly and will not be able to claim this back through the CJRS. Employees are still able to complete volunteer work or training, but if they are, for example, completing an online training course, they must be paid at least the National Living Wage (NLW) or National Minimum Wage (NMW) for the hours that they spend doing so. The guidance confirms that as NMW / NLW is only applicable to the hour’s someone works, it does not apply to furloughed workers as they are not carrying out any work.

It is hoped that the scheme will be operative by the end of April, and the grant will start on the day a person is placed on furlough and can be backdated to 1 March 2020.

Any UK employers with a UK bank account can claim, but employees must have been on their employer’s PAYE payroll on 28 February 2020. Employees can be on any of the following types of contract:

  • Full-time employees
  • Part-time employees
  • Employees on agency contracts
  • Employees on flexible or zero-hour contracts

This scheme is not applicable to the self-employed or to any income obtained through self-employment. There is a separate scheme that will be implemented for these individuals, as announced by the Chancellor, Rishi Sunak, on 26 March 2020.

In circumstances where employees are on sick leave or self-isolating due to COVID-19, Statutory Sick Pay (SSP) is payable for that period, but they can be furloughed after this point. Individuals who are shielding in line with public health guidance should speak to their employer about whether they intend to place staff on furlough, but employers do have the option to place these people on furlough.

The expectation is that not many public sector organisations will utilise the scheme as most public sector workers will continue to provide essential services for the duration of the coronavirus outbreak. Employers in receipt of public funding for staff costs should continue to use that money to pay staff as usual, and there is no requirement to furlough them. The same applies to non-public sector employers receiving public funding for staff costs. Organisations accessing public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.

For anybody made redundant after 28 February 2020, their employer can agree to re-employ them and instead place them on furlough.

Employees can be placed on furlough by one employer but continue to work for another. Those placed on furlough by more than one employer will receive separate payments from each employer.

For individuals earning less due to being on furlough, their Universal Credit payments might change to reflect this.

For women on Maternity Leave, those eligible for Statutory Maternity Pay (SMP) or Maternity Allowance (MA), normal rules apply, and they will be entitled to 39 weeks of SMP or MA. For employers who provide more than the statutory rate of maternity pay, this falls within the wage costs that the employer can claim back through the scheme, and the same applies if individuals qualify for contractual adoption pay, paternity pay or shared parental pay. For those who are currently pregnant and due to start Maternity Leave, they should start their leave as normal. If someone’s earnings have reduced due to a period of furlough or Statutory Sick Pay (SSP) prior to the commencement of Maternity Leave, they should be aware that this may affect their SMP.

Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.

Claims can be for a minimum of three weeks and a maximum of three months, but this may be extended in dependent on how the situation relating to the outbreak of coronavirus evolves. Employers can choose to pay more than the grant but there is no requirement to do so.

Where individuals have been employed for a full year, their monthly earnings will be calculated based on the higher of either:

  • The amount earned in the same month the previous year
  • The average of the monthly earnings from the last year

For those in employment for less than a year, employers will claim the average of the monthly earnings they’ve received since they started work. This will also apply where monthly pay is variable, for example, for those on zero-hours contracts. For anybody who started work in February 2020, their employer will pro-rata their earnings from that month. Fees, commissions and bonuses should not be included.

Once the employee’s salary claim figure has been established, employers must calculate the amount of ER National Insurance (NI) contributions and minimum automatic enrolment employer pension contributions they can claim, as they will be reimbursed in addition to the 80% of the employee’s salary, or £2,500 per month. If employers decide to top up employee salaries, they cannot claim for the associated ER’s NI and automatic enrolment pension contributions through the scheme

The scheme is open to all UK employers who had created and started a PAYE payroll scheme on 28 February 2020, and they must have a UK bank account. Any UK organisation with employees can apply, including:

  • Businesses
  • Charities
  • Recruitment agencies (agency workers paid through PAYE)
  • Public authorities

If a company has been taken under the management of an administrator, that administrator will have access to the Job Retention Scheme.

In order to make a claim, employers will need:

  • Their ePAYE reference number
  • The number of employees being furloughed
  • The claim period start and end date
  • The amount claimed (per the minimum length of furloughing of three weeks)
  • Their bank account number and sort code
  • Their contact name
  • Their phone number

Claims can be backdated to 1 March 2020, where applicable. HMRC will pay the amounts via BACS to the designated employer bank account.

When the scheme ends, employers must decide whether employees can return to their duties, and if they can’t, redundancies may be considered.

Employees who have been furloughed retain the same employment rights, such as entitlement to SSP, maternity rights, other parental rights, redundancy payments and protection against unfair dismissal.

Payments received by businesses under the scheme must be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. Businesses can deduct employment costs as usual when calculating taxable profits for those same purposes.

CIPP comment

The CIPP welcomes the guidance in relation to the Coronavirus Job Retention Scheme and thinks that the separation of the employee and employer guides will help both businesses and workers to understand how it will work.

Whilst the information provided will serve to answer many of the questions posed by our members, there are still many other points that require clarification, and the CIPP will endeavour to publish any further updates as soon as we are aware of them.

CIPP

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The E , S and G of this pandemic.

Posted on March 28, 2020 by henry tapper

be kind

This blog calls on us all to be kind to each other 

I believe that the way individuals and businesses behave to each other during the coming months will make a material difference to our day to day lives. But I think it will also define  the types of people we are and the kind of businesses we run in years to come.

We must be kinder in business too..

The most popular blog I’ve written this month has been on resilience. It is incumbent on us , whether in person or in business not to be a burden on others, in so far as that is possible. It is also a moral imperative that those of us who have inner resolve, share that resolve with others , through support.

So far more than half a million of us have volunteered to help the NHS in some way, showing that support. It is more than a statement of goodwill, it is a statement of inner resolve to be bigger than the problems we face.

Undoubtedly this pandemic will finish off many vulnerable businesses too. Despite the business rate grants , the subsidised loans and subsidised furloughing, most businesses will struggle for the rest of the year and well into 2021, not just with cashflows, but with their inner resolve. Businesses are run by people and are subject to the anxieties that beset staff.

There is a temptation to repeat the mantra “that’s business” as if a different set of moral standards apply. But we must be kinder in business too. While we must still compete, we need to support each other too. This was something that came out loud and clear from the talk that Gavin Littlejohn gave to us pentechs in WeWork only a couple of weeks ago.

Can ESG admit “force majeure” ?

It is regrettable that the first advertisement I read this morning was from a leading firm of lawyers advising me how they were helping their clients getting out of paying each other what they’d promised

Screenshot 2020-03-28 at 06.45.46

Clicking on the link , I discovered that CMS can help me use the pandemic to excuse myself and my company from meeting our promises.

Due to the unexpected and rapid outbreak of the virus, it is understandable that companies are now looking to rely on force majeure provisions in their commercial contracts to excuse delay or non-performance.

There are counter-parties to those not getting paid or not receiving what they’d paid for. Those counter-parties may not have the same legal recourse as CMS’ clients.

It is important that in business , we consider the social consequences of how we behave, it is at the heart of the E-S-G equation.

Can ESG permit the suppression of these voices?

Screenshot 2020-03-28 at 07.38.18

They campaign for us

Following the financial crisis , certain firms chose to exploit the power of their balance sheets (or in RBS’ case- the power of the Treasury’s balance sheet) to close down other companies. This predatory behaviour was at the cost of ordinary people’s livelihoods and it is to the great shame of organisations that predated on the weak and vulnerable that they have yet to compensate or even admit culpability.

Gina and Alan Miller have pulled together many of the most egregious examples of poor behaviour in the financial services sector. It is important that even where regulators fail to act, this behaviour is held up to public scorn and derision. To those who are unkind – your fruits are withered, you are known by them. Alan and Gina (especially Gina) have been vilified for their behaviour , their petitions suppressed and they have been declared personae non grata by the establishment

There are other scams not covered by the True and Fair campaign but happening further down the food chain. Many have been covered on this blog. They include the sale of Storepods, the activities of Dolphin Trust and any number of pension scams, all of which revolve around ripping off vulnerable people through lies and deliberate deception.

No one has done more to expose these frauds than Angie Brooks, whose website has often features on this blog. Earlier this month, Angie found herself in the dock of public opinion when a You and Yours article claimed that she was effectively taking money from both sides – both the perpetrators and the victims.

It comes as no surprise that I have received links to the program from many people, most of whom have been on the end of Angie’s ferocious assaults through her website Pension Life. Angie too is considered persona non grata within the financial community

A third very public figure, Ros Altmann, has also been condemned by many (including Angie Brooks).. Like Gina and Angie, she has been outspoken in demanding change on many fronts, but unlike Gina and Angie, she has now a platform for her work – which she is using to great public good.

What Angie, Gina and Ros have in common, is an empathy – an emotional intelligence that has allowed them to speak for and support many. They all have enormous resilience and inner resolve and they have all been the subject of public opprobrium.  I like all three as strong voices of a feminine campaigning Zeitgeist that goes back a long way.

Their fruit are manifold. Angie is contesting and I hope winning a court battle in Spain that may finally turn the tide against the offshore scammers she has battled with these ten years. Gina (and Alan) continue to expose the worst excesses of regulatory failings in the UK , while Ros Altmann has this week reversed some pretty awful behaviour by one major British bank and has (I hope) championed several pension initiatives in parliament relating to the Pension Schemes Bill and the ongoing struggle to create a fairer tax system for pensions.

By their fruits are they known – some will not ripen, some go sour – but these three champions of good need to be listened to, not demonised

Here is the  ESG of this pandemic.

Many will see Coronavirus as an opportunity. I am one of them. I see the impact of this pandemic as a means to scrub clean much of the mould that sits on best practice and come out of this with a sanitised society operating to better standards.

The champions of sanitisation are weak , the power of force majeure is strong, We must be kind in business as we are kind in all else.

 

Kindness underpins the E, S and G of this pandemic.

Posted in age wage, pensions | Tagged , , , , , , | Leave a comment

Royal London IGC report – a welcome shift in focus

Posted on March 27, 2020 by henry tapper

Screenshot 2020-03-27 at 07.18.47

Royal London are (as usual), the first IGC to report. They have been kind and sent me the Chair’s Statement which saves me searching. But it’s easy to track down here

The IGC has delivered a really interesting read which I enjoyed. At 64 pages it is no baby, but it is manageable in length and is seldom boring.

Tone

It’s Peter Dorward’s first full year in charge of the Royal London IGC and this year’s report shows a marked change from the enthusiastic approach of previous reports to a more measured and analytic style.

This  recognises the separation between IGC and provider rather better, despite Royal London being a profit-sharing mutual, the report talks of its savers as “customers”.  While this approach loses some of the warmth of Phil Green’s reports, the report reads at greater arms length.

The report also recognises the realities of workplace pensions. Whereas previous reports have focussed on the needs of IFAs, this talks to  the needs and responsibilities of employers. Royal London is now focussing on the views of members and the report is no longer focussing on intermediaries.

This is a recognition that few IFAs have the resources to provide services at member level to the workplace pensions they may have helped set up and few employers are retaining IFAs for this purpose. The majority of Royal London’s “customers” are non-advised and the independent surveys of customer satisfaction levels show that while Royal London are providing a higher level of customer satisfaction than its peer group, its customers are not particularly satisfied by what they are getting.

In its tone I think this report is an improvement, it is extremely well written and while it is dry, it is hard nosed. I give it a green for tone

Value for money

Here is what that independent poll is saying

Screenshot 2020-03-27 at 05.44.55

Let’s focus on the value for money poll

Screenshot 2020-03-27 at 05.53.58

A staggering 73% of Royal London customers don’t think they are getting value for their money.

The report’s value for money analysis does not pick up on this. The conclusions to the VFM section (which is in itself very well reasoned) state that

“Overall we consider that Royal London continues to offer workplace customers value for money”

The report opens with a section entitled “listening to our customers” and concludes that 73% of its customers are wrong. There is a disconnect here.

I would have preferred the VFM section of the report trying to understand why 73% voted as they did.

With regards to the value for money assessment, I give Royal London an amber. It works on its own terms, but not on its customers terms and IGC reports are for customers.

Effectiveness

The bulk of the report focusses on the three key elements of value for money, performance, costs and the user experience.

 

User experience

The report is very good on the user experience , focussing on important metrics such as the employer’s interface – critical to the delivery of clean data and the avoidance of “out of market” risk. Royal London has a pension “plan holder ” as an IGC member and it shows.

He has been burdened with the role of championing the Vulnerable Customer and I suspect Miles Edwards (the plan holder) is making a positive difference.

Performance

Unfortunately, the saver’s perspective is lost in the analysis of performance and cost. There really is nothing for the saver to hang on to that speaks to his or her experience, only a series of charts showing abstract concepts such as fund performance.

There is some comparative performance analysis (using the Corporate Adviser league table) but again this is based on performance data not on “experienced performance”.

By that I mean what savers actually got as a return (net of all costs) and how this compared to other actual savers.

Screenshot 2020-03-27 at 06.33.50

Instead, there is some analysis of how savers have fared relative to the expectation set by the projected returns on the illustrations they received when they started their plans.

Again I think of the 73% who don’t recognise they are getting value for money and ask myself whether this kind of analysis has much relevance to their concerns.

Cost

Similarly with cost, the report is good at showing where additional costs are being created and mitigated at the fund level. There is also great precision in the analysis of the risk controls in place to reduce the cost of the complex transitions within the default lifestyle transitions.

Screenshot 2020-03-27 at 06.42.35

I could not find any analysis on the overall impact of this complicated “lifestyle journey” and whether value was being retained from all the transitions.

Again some analysis of savers internal rates of return against a charge free benchmark could have illustrated in pound shilling and pence terms what had been gained and lost.

The precision of work elsewhere suggests that Royal London are on top of their funds. The vast majority of the money is managed in-house and I see an opportunity to improve on the reporting by bringing some fuller worked examples into play (without losing the granularity on display this year.

Responsible investment

I was very impressed by the chair statement’s section on responsible investing (the right phrase).

Clearly Royal London have invested heavily in this area and they have won the hearts and minds of intermediaries

Screenshot 2020-03-27 at 06.52.02

But I think the 41% who “lacked all conviction” may best be as honest as those with “passionate intensity”. It is extremely hard to work out which asset managers are really effective stewards and I suspect that Royal London’s head start is because they are being very proactive in communicating the message. This may be  churlish, there is plenty of evidence that they have engaged with the UN charter but the statement is not  being   “wide-eyed” – it recognises that Royal London as the platform for its own and others funds has responsibility for responsible investing.

Interestingly it shows that savers see employers as holding them accountable (and professional intermediaries aren’t mentioned)

Screenshot 2020-03-27 at 05.23.48

The statement acknowledges that there is more to do and it picks  up on the FCA’s call to get member’s involved with stewardship. If 13% of those polled feel they have responsibility for stewardship, perhaps the IGC could think of ways of helping savers who think of their investment access to the kind of voting aggregation software discussed here.  I would be surprised if offering “easy access to self-select ESG funds” will do the trick.

For next year

I hope that we can get more reports like this, Peter Dorward has done a good job. But I think there is more he could do to bridge the gap between the very user-centric parts of the report and those parts which will fly above the heads of all but the experts. Adopting an approach to reporting based on what has actually happened would help here.

I note that change is afoot in the composition of the IGC to meet the challenges of enhanced monitoring of  and reporting on responsible investing. I look forward to a big push on this (as the FCA requires).

The IGC is also going to have to oversee the investment pathways (not just on the workplace pensions but on the unadvised  Royal London SIPPs and legacy pensions.).

I suspect that an increasing part of Royal London’s pension book is not advised and this may include a few policies funded by the transfers of DB pensions (advised then – orphaned now).

Royal London may need to continue the shift in focus from supporting the IFA to supporting the saver – even where products were taken out with advisers. For this is where some of the greatest vulnerability is.

From reading through this report, I think the IGC are well placed to fulfil these important duties.

 

Posted in IGC, pensions, Retirement | Tagged , , , , , , , | 2 Comments

Has over half of the UK already been exposed to COVID-19?

Posted on March 27, 2020 by henry tapper

stuart

 

Stuart McDonald  is my hero. He is able to speak about complicated things in a simple way and his analysis of trends in the development of the pandemic has been consistently proved right.

Here is his latest observation

But lest we get carried away, Stuart is keen to scotch rumours that we are mass-immunised. The recent media suggestion that over half of the UK may have been exposed to the virus which causes COVID-19 is firmly dismissed in this excellent article, published with Stuart and his group’s kind permission

this second bulletin from the newly formed COVID-19 Actuaries Response Group, we discuss the recent media suggestion that over half of the UK may have been exposed to the virus which causes COVID-19.

Screenshot 2020-03-27 at 07.46.03

Screenshot 2020-03-27 at 07.43.51

Detail

The Oxford study describes a simple but widely used Susceptible-Infected-Recovered (SIR) epidemiological model framework. A forthcoming bulletin will describe this model in more detail, so we will not summarise it here. We have no particular concerns about the choice of model structure.

Data

Combinations of model parameters have been chosen which closely reproduce the pattern of deaths during the first fifteen days when death counts were above zero in Italy and the UK. For Italy this was a total of 197 deaths between 21 February and 6 March; for the UK this was a total of 144 deaths between 5 March and 19 March.

These are small numbers of deaths to use to calibrate a model, particularly one which seeks to project backwards from the first death to estimate the date that transmission began. We note the study authors’ stated intent to avoid any potential effects of local control strategies, but we are of the view that a longer time series could have been used given the lag between the introduction of control measures and observed deceleration in the rate of increase of confirmed cases or deaths.

Parameter Choices

Most of the parameter choices, such as the assumption that the transmission rate (R0) is in the range 2.25 to 2.75, seem to be reasonable and supported by the literature.

The authors take a two-step approach to modelling mortality:

  • Proportion of the population vulnerable to severe disease (ρ)
  • Probability of dying having contracted severe disease (θ)

The assumption used for θ looks reasonable and well supported by earlier studies. However, this is not the case for ρ. Values of ρ between 10% and 0.1% are considered, with no justification being provided. This is a crucial assumption since the modelling approach leads to an inverse relationship between this parameter and the proportion of the wider population assumed to have had the disease.

The first sentence in the results section is absolutely key: “Our overall approach rests on the assumption that only a very small proportion of the population is at risk of hospitalisable illness. This proportion is itself only a fraction of the risk groups already well described in the literature​, including the elderly and those carrying critical comorbidities (e.g. asthma).”

So, the whole study is conditional on the validity of this assumption. But, as implied above, some of the values of ρ considered seem implausibly low. Analysis carried out in 2015 showed high levels of disease in England’s over-65 population – for example, almost half had hypertension, nearly one in five had heart disease and a similar number had a chronic respiratory disorder. Whilst it is likely that not all of these individuals would be classified as being vulnerable, given these statistics it is unclear why the authors would consider that the vulnerable proportion might be as low as 1%, let alone 0.1%.

Screenshot 2020-03-27 at 07.40.37

When ρ is assumed to be 10% (dark red line below) the susceptible proportion looks to be around 95%, i.e. the model indicates that just 5% of the population have been exposed to the virus.

When ρ is assumed to be 1% (orange lines) the susceptible proportion is as low as 60%, i.e. the model indicates that up to 40% of the population have been exposed.

When ρ is assumed to be 0.1% (yellow line) the susceptible proportion is just 32%, i.e. the model indicates that up to 68% of the population have been exposed.

The results are even more extreme for Italy, with the ρ = 0.1% scenario implying that 80% of the country had already been infected by 6 March. We struggle to comprehend how the authors concluded that this was a plausible scenario to include in the paper in light of the 7,000 additional deaths which have tragically occurred in Italy since that date, and the significant differences in confirmed cases and deaths between the Lombardy region and the rest of the country.

Media Reporting

The study authors make no explicit claim that the scenarios with a very low vulnerable population, and therefore a very high wider population exposed, are the most likely scenarios. They do however say that “Importantly, the results we present here suggest the ongoing epidemics in the UK and Italy started at least a month before the first reported death and have already led to the accumulation of significant levels of herd immunity in both countries.”

Crucially, and somewhat predictably, reporting has focussed on these high exposure scenarios. For example, the headline in the Financial Times was “Coronavirus may have infected half of the population – Oxford study”.

We feel that this message is potentially misleading and could undermine key public health messages about social distancing. Whilst it is important to communicate and discuss the uncertainty in how the virus has spread (and possible ways of understanding it better), given the seriousness of this situation, both academics and journalists need to take great care to communicate their messages in a clear and balanced way.

References

Fundamental principles of epidemic spread highlight the immediate need for large-scale serological surveys to assess the stage of the SARS-CoV-2 epidemic, Lourenço​ et al, 24 March 2020

By Stuart McDonald FIA CERA for

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

Stuart mc

Posted in pensions | 6 Comments

How savers can change the world

Posted on March 26, 2020 by henry tapper

cvirus

Direct involvement with the way your savings are invested

I spent time (on Zoom)  with a young entrepreneur  whose business it is to get people to change the behaviours of companies they invest in.

I won’t go into detail about her company as it is aiming to sit within the service provided by workplace pensions and won’t be a consumer brand in itself.

But – as I understand it – this brilliant lady and those who work with her, intend that whether we have £50 or 500,000 in workplace pensions, we’ll be able to know what’s happened to our money and express our views on how their behaving.

This is a radically different approach to ESG than setting out to buy a fund that only invests in companies and assets with high environmental , social and governance ratings.

It says that wherever you are saving you can make a small but significant difference to the decisions taken with your money.

How do such things work?

The idea is simple .  A platform manager offering diverse workplace funds can show savers that their money is invested with companies they may or may not have heard of. Savers can chose to learn about the companies or simply look at the key voting issues that shareholders have and get involved. The kind of things people can vote on include director’s pay, the measures companies are taking to reduce emissions or their involvement in social issues effecting our or other’s wellbeing.

Each savers vote is aggregated and fed back through the platform to the fund manages who have the actual voting rights. This collective vote feeds through into the vote of the fund manager on behalf of all investors in the fund.

From small beginnings , such an approach could allow ordinary savers to gradually change the behaviour of the boards of the mighty companies that rule the world.

Why this matters to me

I passionately believe in the power of people to change the world we live in. I believe that new technology can give ordinary people a voice as powerful as Donald Trump’s. Indeed that voice can challenge the bad things that unfettered capitalism can do (like the US shale industry is getting challenged right now).

What savers have (pension savers in particular) is ownership of the means of production. There is nearly a trillion pounds in workplace pensions – most of it invested in the shares and debt of UK and overseas companies.

If only a tiny proportion of people could be mobilised to consider themselves as investors and to act like investors, then the impact on the behaviour of those who run these companies could be immense. Because people now understand trends, they can see that when ideas start trending they can quickly go viral and then those ideas become unstoppable.

Which is how change happens. It happens because of technology, because of the aggregation of data and because the results of all this voting can be presented in a powerful way in real time. Savers can change the world.

Why this matters to platforms

The great workplace savings platforms are run by NEST, Peoples, Now, L&G, Aviva, Smart, Aegon, Scottish Widows , Royal London and the consultancies.

They need to improve in two ways,

Firstly in ensuring funds on their platforms are invested responsibly.

These platforms are governed by IGCs and trustees who are charged with ensuing that the platform funds are managed responsibly. So far, this has been taken to mean on a top-down basis. Consultants are brought in to look at the funds and opine on how green they are. Provided that the fund managers can convince the consultants that they are doing their bit, the IGCs and trustees can state in their chair statements that they have done their duty.

But the FCA and the DWP are both unsure on this. There is in the pension schemes bill, an amendment which will mean trustees will have to measure what is actually going on within the fund’s investments. The FCA are currently conducting a review of IGC activity which is likely to take a dim view of what is commonly called “green-washing”.

Platforms need to do more than create work for consultants which allows fiduciaries to tick boxes.

Secondly in improving the level of voluntary savings

While “improvement one” is a matter of compliance with the requirements of policy makers and regulators, requirement two relates to the commercial viability of the platforms themselves.

These platforms run on the revenues from the funds which sit on their platforms – taken as an annual management charge. The more the funds, the more the revenues, as fixed costs are static , the more the funds – the more the profitability or viability of the platform.

Whether for profit or not for profit – a viable platform feeds back into shareholder or member value.

There is in the eye of platform managers a clear link between an engaged saver and increased contributions.

If they can find a way of getting savers to start thinking of themselves as investors, they are on the way to getting more in voluntary savings.

Why this matters to my business

AgeWage scores are about getting people engaged. When we started out nearly 18 months ago, we had it in our head to produce AgeWage ESG scores by somehow scoring the funds people invested in , using measures developed by businesses like Morningstar’s Sustainalytics.

We have moved away from this approach and now concentrate on engaging people with the value they’ve got from the money they’ve saved – a simple outcomes based measure which provides a simple benchmark – (how others have done).

But our scores do not help people engage with their savings. This does,

So I hope that the simple ideas pioneered by this young lady and her colleagues are adopted by the platform managers and accepted by the fund managers. If they are , then we will use the engagement we create to engage with their savings as investments by hooking people into the process these young people are creating.

And I will be promoting this idea to the Trustees and IGCs who I talk to so that more platforms can adopt this methodology. It will mean fund managers doing what the DWP and the FCA have been calling for – they will need to make their portfolios transparent to the people who save into them and they will have to listen to the opinions of those people as they exercise their vote.

And they will have good commercial reasons for doing so. Because if we are ever going to save enough to have a good retirement, we are going to need ways of engaging with our savings.

How savers can change the world

We are going though a crisis right now which is not about macro-economics. It is about microbes in people’s throats.  The health of ordinary people is tipping economies into recession and routing the markets. The lesson’s simple; people drive markets, maybe this crisis will allow the markets to start listening to the people again.

cvirus2

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

Shouldn’t pensions “stay at home”?

Posted on March 25, 2020 by henry tapper

Should we stop transfers for the next 6 months?

 

ros-102

Ros Altmann is still close to the power brokers

Yields are down, markets are down, has there ever been such a time to transfer your pension rights?

That’s what many people may be thinking and if you were a financial economist you could construct an argument to say that transfer values have never offered such value for money.

So why is Ros Altmann, herself an economist, calling for a temporary ban on transfers.

In her own words

“it is impossible for trustees of pension schemes to be sure of the underlying value of the pension funds, or each individual’s share”

What Ros is referring to is the rationing of money offered by trustees to those taking a transfer according to the scheme’s ability to pay.

Operational problems with transfer values

What actually happens is that when the scheme actuary issues an “insufficiency report” to the trustees telling them that the scheme is underfunded, the trustees should take action and reduce  the transfer value.

For example, it the actuary says the scheme only has 85% of its liabilities covered by assets then the trustees might apply a reduction of 15% to the full transfer value. For a typical member this would reduce the amount paid out over the PPF level of compensation by around a theoretical 45%.

In normal circumstances, these theoretical calculations might have some meaning, but Ros’ point is that we are not in normal times

  1. The liabilities of a pension scheme cannot be readily valued when the valuation rate is determined by emergency measures (the slashing of interest rates)
  2. Assets cannot be properly valued.
  3. Many funds depending on physical assets are insufficiently liquid to meet large cash demands and are currently gated.
  4. Whatever the valuation of the fund one week, could be wildly different the next, the typical guarantee periods for transfer values are too long for comfort.

Add to this , the cost in terms of actuarial and administrative resource trying to administer transfer values, and you can see the kind of frustration developing between advisers, schemes and members, that characterised the end of British Steel Pension Schemes’ Time to Choose.

Vulnerability

We are almost all in some kind of shock at the moment. That shock makes us vulnerable, makes us prone to making ill-considered decisions based on fear. Again I think of the situation that grew in Time to Choose where people wanted out at any price.

The great crime in Port Talbot and elsewhere was that some advisers played to that vulnerability rather than encouraging more rational behaviour. We know now that they were encouraged to advise against member’s interests because of the financial incentives from encouraging transfers to go ahead. While I think advisers have to be more cautious today, those incentives still exist and we shouldn’t underestimate the financial pressure some advisers will be under. Some advisers themselves could be considered vulnerable.

The case for  intervention

The operational issues are with the Trustees and as much as they impact scheme funding levels, a matter on which the Pensions Regulator could provide immediate guidance. Trustees would need to have the strongest of steers from tPR to stop providing transfers, or balls of steel.

The FCA has still to determine whether it will allow conditional charging gong forward. It has no history of intervening in market practice preferring to wave its stick in the air and leave the IFA to make up his or her own mind. Many IFAs have been as influenced by the increase in PI premiums (and retentions) as by FCA threats. Nonetheless , the FCA has closed a number of IFAs and a strongly worded statement from the FCA on the transfer situation is as much as we can expect right now.

In short, I think it is going to take HM Treasury and DWP to get involved for a ban to be put in place and I am not sure that the regulatory bandwidth – stretches this far. But Ros Altmann is a lot closer to the power-brokers than I and her call to action may be directed at the likes of John Glen , Therese Coffey and Guy Opperman.

Certainly if Government can lock the doors of our houses, it can lock the door to our pensions.

Small pot exemptions

Speaking with the Daily Telegraph on this yesterday, I was told that some advisers suggest that small pension pots (valued at less than £30,000) could be unlocked to protect livelihoods, mortgage arrears and financial ruin.

The amount of pension needed to generate a £30k transfer value is typically less than £1000 pa, so the argument is that a pension is a cheaper form of immediate finance.

But an increasing income of £80pm for the rest of someone’s life is a much more valuable benefit than can possibly be imagined by the person prepared to give it up for short term financial relief.

Unfortunately there is no-one to stop someone with a very small pot, taking the money. Because of the “small pot exemption”, members of DB schemes with CETVs less than £30,000 can just be cashed out – the transfer payments leaving a DB scheme, into a SIPP and from there straight to the creditor or worse- the scammer.

If we are to ban transfer values, then closing the loophole that gives vulnerable people the right to self-harm , should be part of that ban.

Protection of the most vulnerable

We are in the midst of a national emergency,  we await further financial measures from the Chancellor to protect the self-employed and those who are so under-employed as to rely on the various parts of universal credit – and pension credit.

These include people with high levels of currently unserviceable debt who (if they have pensions) are most tempted to liberate those pensions.

Pensions are for life and not to be used as a sinking fund for those who are in crisis. Ultimately we have a benefits system which acts as a safety net and prevents people from making themselves long-term casualties. The tax-relief they received on pension contributions was granted to protect not encourage people from becoming a burden on others.

Why I am with Ros Altmann

Any kind of Government intervention on transfers should be deliberate and justified.

I think that it’s brave of Ros Altmann to take this position (she has actually argued for people taking transfers in different circumstances).

It is a recognition of the extreme circumstances people find themselves in which make them vulnerable, those with least – most so. It is also a reflection of the dire circumstances of pension administration (referred to in the same blog). We should be focussing pension administrator’s minds on cleaning up data – not on the substantial burden of transfer value administration.

But most of all, whatever people take today – as transfer values – is unlikely to be fair value for all.

If transfer values are at an all time high (and I think that full ones probably are), then to manage those transfers through insufficiency reports will be a huge task and one that most actuaries and trustees will struggle to execute.

At the end of this argument there is one phrase ringing in my head

You’re better off at home

When it comes to pensions – stay where you are.

Posted in advice gap, age wage, FCA, Financial Conduct Authority, pensions, Pensions Regulator | Tagged , , , , , | 2 Comments

Strong Government and self-regulation

Posted on March 24, 2020 by henry tapper
Lance armstrong

Don’t cheat

Yesterday saw the Government finally put its foot down and demand we comply with its request to stay at home. Short of putting troops on the street there is not much more that it can do- now it is over to us to show some leadership.

There are two things we can do.

Firstly, we can follow orders and not bend the rules. Whatever the rules are on furloughing, businesses must follow them – not bend them.

Secondly we need to start showing leadership ourselves. I had to be “out and about” yesterday, I had a medical appointment in the West End – made on Sunday (happily my lungs are clear). In travelling accross the Cities of London and Westminster I saw all kinds of behaviours that were breaking the rules of social distancing and when they impacted me – I called them.

This is no longer a joke – we are no longer laughing about fist pumps, or shoulder touching, that’s six feet too close for comfort. Unless it’s a member of your household.

If you can stand the reality, read this article, bravely published in the Daily Mail. When I heard my good news, I asked the doctor if I could relax, she looked at me piteously, one of her colleagues – an 18 year old in rude health had died this week. None of us are remotely out of danger.

I have over 25,000 linked in connections and some of them have the virus – at least two are in hospital with it but statistically 20,000 of my linked in connections will get the virus and hundreds will die of it. The behaviours we show from now on will determine whether those hundreds grow to a thousand. 5% mortality is within the bounds of possibility.

Our responsibilities are to ourselves first, our family next – then our colleagues and our wider social circle. Ultimately the wider society contains everyone from those who work on building sites to those who run the markets.

We cannot cheat

The various kinds of anti-social behaviour we have seen are forms of cheating, and cheating on ourselves, While we should take advantage of the breaks available to us in our business and personal lives, we cannot take advantage of others.

In my work at AgeWage , I have been helping fiduciaries, employers and providers understand their data. If my data requests are inhibiting organisations from carrying out their responsibilities to savers, I will withdraw those requests. If however – as I believe – the data can help, I will make sure that help is given.

Now is a time when good citizenship is required in and out of business and that means scrupulous behaviour to each other. We cannot cheat.

For there will be no-one to check on us

One of the consequences of lock down, which has not been properly considered, is that Regulators will not be able to regulate as they had planned. The Pensions Regulator is already withdrawing some of its services, I hear the FCA are relaxing rules on financial reporting.

Here are the comments of one retired actuary to me having looked at the current rules on actuarial valuations (forgive the language – we talk like that).

had to laugh

– went down the list of things to be investigated for an actuarial valn.

Laughed at them all

Covenant in short medium and longer term. Ha fucking ha.

Mortality experience in past 3 years and recommendations for next 50.

Investment returns since last valuation and …..

Asset values.

Prudence in future discount rates.

Then the recovery plan.

Oops – cannot be afforded.

 

We have to keep our promises

My take on this – we make promises but they cannot be measured just by words and numbers, ultimately they depend on integrity .

To suppose that we can rely on peacetime measures for managing our pension schemes is as lazy as to suppose we could wonder around Richmond Park in swarms.

Our capacity to manage the pension schemes on which people will still rely , when this crisis is over, depends on our applying the lessons we have individually learned over a lifetime. Those lessons are experienced and not plucked from COBS or tPR guidance.

We – those entrusted to look after other people’s money (or data) have a responsibility that goes far beyond a rules based regulatory system.

We have responsibilities to ourselves and to others which are grave and onerous. They start with the way we conduct ourselves in our daily lives and they are rooted in the moral framework of Britain’s business community – which is fundamentally sound.

Trust government

Keeping promises

 

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

Confound #covidiots; best practice in a time of crisis.

Posted on March 23, 2020 by henry tapper

Do everything as good as this

best practice

It’s important that over the next few weeks, we don’t let standards slip. There’s a temptation for us to “shut up shop”, because others have to shut up their shops,

But business standards have to be maintained. After a brilliant wake up to money – with Micky Clarke ensuing that the program came from home, it was back to Rachel Burden who was left without a news bulletin. The BBC’s main current affairs program was unable to broadcast its 5 O’Clock news bulletin. This wasn’t a sign of the times so much as a sign of bad planning and incompetence. We’ll make allowances, of course we will, but this was not to the standard we expect of the BBC.

I got cross over the weekend with an organisation that promised a two for one offer for mother’s day. It was only available online but the banking verification service was broken, the email back up support service unhelpfully promised normal service would be delivered within two days. If you’re shutting up shop, put the sign “closed” over the offers.

Here are two examples of bad service where the customer has a right to feel short-changed. Neither has the slightest long-term importance, but if we allow sloppy standards to creep in, then avoidable accidents will happen.

Which brings me on to #Covidiots

I went for a walk with my partner on Sunday down to Greenwich, we walked the tow path down through Rotherhithe, it was a cloudless day and there were others out jogging or biking. People were extremely courteous, rarely did we get within 6 feet of others.

Somewhere around Greenland Quay I noticed a bunch of lads with a soccer ball sitting in a circle, they were passing a joint between each other. Five lads sucking from the same roach – come on guys.

There’s low standards and then there’s crass irresponsibility. I’m glad that social media is calling #covidiots.

 

When going out is right

 

We need to be careful not to demonise those who leave their doors. Millions will go to work this morning and they include all the essential workers in the NHS on whom our lives depend.

I got a call from a guy called Said at 10.30 yesterday (Sunday) morning. He invited me to go for a chest scan at UCH. I asked when, he said I could take my pick – I’m going today. Apparently people were not taking up the appointments they were offered for fear of leaving the house.

Said told me that he was having difficulty filling the appointment slots for essential appointments because people were reluctant to go to an imaging clinic. Having confirmed I have no symptoms of COVID19, I trusted in the NHS – who will be conducting the angiogram I’ll be having, to look after me.

We have to be brave and trust, finding ways of doing the things we are asked or promised to do. I was pleased to hear that blood donations were only 15% down last year, bravo to the 85%.

Covid19 may be the number one threat but other conditions can kill us. When we see people on the streets, we shouldn’t think covidiot, they may be off to save their or our lives.  While we are home-working , many are out there making sure our broadbands work and yes – those news broadcasts arrive on time! The fresh food we buy from the supermarkets has to be picked

 

 

And in pensions too…

The day to day business of administering a pension scheme is essential. Pensioner payrolls must run, contributions must be paid, recorded and money allocated to units in a timely fashion. Lump sum benefits must be calculated and paid as soon as possible.

The day to day business of pension schemes is supporting the most vulnerable groups to the pandemic, those in senior years for whom the pension is the only source of income.

No promise for the pensioner other than the pension itself. For advisers, now is the time to ensure that those in drawdown are aware of the risk of unit encashment at this time. Laughingly referred to (in good times), as “pound cost ravishing”, the full payment of drawdown from units encashed from invested funds has serious sequential risk, especially to those in the early years of drawdown.

Reassuring clients who have seen pension pot values slashed is critical. Trustees , IGCs, GAAs and financial advisers need to be close to clients today and throughout the coming weeks.

Now is the time for us to step up to the plate and do the right thing by those whose money keeps us in jobs.

Letting standards slip at this time is not acceptable. It is least acceptable of all from those or us lucky enough to have our health and have control of other’s wealth.

 

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Holding the thin blue line on pensions

Posted on March 22, 2020 by henry tapper

thin blue line.png

1. The immediate threat of fraud

The policing of pensions is a precarious business and the “thin blue line” is figurative. The police are reluctant , for good reason, to busy themselves in the complexities of criminal maladministration , prosecutions for outright fraud are few and notoriously late. Scammers do not fear police but they do fear alert administrators which is why the work of Margaret Snowden and others active in the prevention of fraud – is so important. It’s especially important today

What is important is that we adopt a zero tolerance policy on suspicious activity. I don’t mean we become vigilantes , but I do think we can tighten up our processes by following accepted codes of practice. Again Margaret Snowden leads on this.

I’m pleased to see that other initiatives, such as Pension Bee’s funding of an anti-scam game that can be distributed to all vulnerable to scams (eg every active and deferred member of a funded DB plan – every saver into a DC plan).

But most of all, we need to make the stigma of being associated with pension scamming, at a time of coronavirus as odious as deliberately spreading the disease. I hope that those found to be exploiting people’s current vulnerabilities will find they have nowhere to go to hide their shame. Perhaps that’s one of the few advantages of a pandemic.

pension scams

2. The longer term impact of maladministration

It is very possible that COVID19 will shut down large parts of our industrial capacity. To avoid this happening in areas where continuity of service is vital, the Government has established a new class of worker ‘the essential worker’.

It is important that pensions administration is considered “essential” to the proper running of our financial system. Thankfully, pension administration is increasingly automated, but much of it is still dependent on manual interventions and if a backlog of work is allowed to build up because there are no essential workers to move the workflow on, then we could see real and lasting damage to the business of DB record keeping and the proper allocation of money to DC accounts.

I am worried that much pension administration is outsourced abroad. There is currently no way to get to countries where our data is held and our records updated, the worry is that a catastrophic failure in another country might not be picked up. Disaster recovery plans are notorious for dealing with the known knowns, Covid19 may yet throw up some unknown risks.

I am not involved in pension administation, other than as a beneficiary of various plans and schemes. But I worry that the risks of poor administration fall into regulatory cracks.  many of the 40,000 schemes that the Pensions Regulator has oversite for, are run on antiquated systems that can’t even make it to Pension dashboard basecamp.

Even though the administration for these smaller schemes is UK based, the worry is that if key people (essential workers) are absent from their admin duties in numbers , that irreparable damage could be done to scheme administration.

Making lives simpler for administrators

pensions_administrator_-_blue_grande

1.Transfers and valuations in general

An actuarial friend of mine sent me a DM on twitter earlier today

My personal – but of course obvious view is that this is a world changer. Generally people don’t get it, and that is understandable.

The next two weeks will demonstrate that this is dire. I am all for big moves now rather than later.

So can I ask  you what you think of

(1) banning transfers for 6 months

(2) deferring all actuarial valuations for a year.

In practice we will not have the fit manpower to do either properly in the next year. Valuations are hugely uncertain and anyway what is a year under current circumstances?

And as last Friday easing up on DRCs makes valuations redundant – and as for loads of actuaries looking at subtle changes in mortality experience in the past 3 years – waste of money.

Idea on transfer is big prevention on scams. Allow the trustees to defer more readily.

This would make life a little easier for administrators (and a lot easier for actuaries – though they may want the work).

2. Lockdown on complaints

But the bigger problem for pension schemes is  “administrative complaints”. If work stacks up, as it surely will, then the complaints will surely follow.

If – as my actuarial friend would have it, let’s have ‘big moves now”.

Let’s make it clear to members  that complaints arising from lack of capacity (essentially delays) should not be escalated through internal dispute processes – lawyers -trustees and the pensions ombudsman.

This goes for private escalations to the press, CEOs and chairs of trustees.  And there should also be a limitation of data access inquiries.

Pension administration – as important as payroll

Payroll – which is immediately accountable if it goes wrong, needs to be accorded essential worker status. So should pensions administration.

You can mothball a lot of things but you can’t mothball the regular updating of payroll and pension administration.

I wrote earlier today, that it takes a crisis for people to realise the real value of salaries and benefits. Ricky Sunak has done that with his latest interventions.

We are still unclear what children will be able to go to school tomorrow , here is the Government’s guidance with regards financial services employees who may be deemed essential. I hope that we will prioritise our administrators and make sure they are allowed to continue to do their job.

Utilities, communication and financial services

This includes staff needed for essential financial services provision (including but not limited to workers in banks, building societies and financial market infrastructure), … information technology and data infrastructure sector and primary industry supplies to continue during the COVID-19 response, as well as key staff working in the civil nuclear, chemicals, telecommunications (including but not limited to network operations, field engineering, call centre staff, IT and data infrastructure, 999 and 111 critical services), postal services and delivery, payments providers and waste disposal sectors.

If workers think they fall within the critical categories above, they should confirm with their employer that, based on their business continuity arrangements, their specific role is necessary for the continuation of this essential public service.

If your school is closed, then please contact your local authority, who will seek to redirect you to a local school in your area that your child, or children, can attend.

thin blue line

 

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Will Covid19 make Britain a fairer place?

Posted on March 22, 2020 by henry tapper

 

Screenshot 2020-03-22 at 06.45.46

There are signs that the pandemic has jolted Britain out of the lethargy that has persisted since the last economic crisis. In this blog, I simply reprint  the comments of Torsten Bell , CEO of the Resolution Foundation, which themselves are comments on an article appearing in the FT. The gist of the article is in the title of this blog, but its substance is in the realisation of the social injustice that is becoming apparent because of this crisis. Literally the crisis is realising  for middle class intellectuals what has been apparent for poor people for many years.

The FT is a serious newspaper , a shift in its position on economic and moral matters is in itself “newsworthy”

Political decisions are now being driven not by the impact they will have on public sentiment but by scientists warning of potential catastrophe. For the first time in my lifetime, Britain seems to be on a war footing.

This formulation “lives and livelihoods” makes sense to individuals. In the immediate few months we will face the prospect of not living, thereafter the emphasis will consider a new post Covid world. At some stage there will be a realisation that we have an 80% chance of being infected.

 

So although it isn’t business as usual, we need to behave (economically) as if it were. Simple things like continuing to invest in pension plans are a part of this. We have to live not just to survive the present but to ensure our future livelihoods.

It has taken this crisis for Government to realise the inadequacy of our social security as a safety net. While the Government’s underwriting of wages is temporary, the FT suggests the upgrade in benefits won’t be.

 

It is easy to make political points here; yes- much of this looks like the Corbyn blueprint, but I think it very unlikely that even had Labour won, there could have been a consensus in the country behind these measures. What the Government is doing is embracing collectivism, while it has the chance. For the first time this century, the phrase “one nation conservatism” has some meaning.

blindfold

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Bored? Why not save humanity?

Posted on March 21, 2020 by henry tapper

Screenshot 2020-03-21 at 09.18.22

 

By circuitous serendipity I have something to excite your braincells which could help us stabilise the economy, relieve pressure on healthcare systems and relieve suffering.

www.PandemicChallenge.com

The competition is a lure, the prizes are incentives. The objective is to attract competitors, evaluate and rank them.

There has to be a winner, but all entrants will have ideas of some value, i.e. the ‘innovation juice’ is an aggregate of everyone’s efforts.

Judges

It is well proven that competitions solve  problems, this competition’s already engaged judges whose calibre suggests this will be no different.

 

Ideas

The purpose of this competition is to elicit sensible viable ideas that can help abate the pandemic, i.e. to support and not try to conflict with or replace the work of healthcare professionals, businesses, NGOs and Government.

The scope of your idea can be far and wide, anything that abates the pandemic, the judges do not envisage there being any ‘silver bullets’.

Examples will come from engineering, business practices, behavioural change, scientific discovery applicable rather soon and frankly whatever else does the job. Perhaps there are really simple abatements we haven’t thought of yet, but you will.

The competition will end on 14th April 2020, necessarily quite fast so ideas can be put to use.

 You can download an application form here.

Screenshot 2020-03-21 at 09.00.25

Executive Program Overview

The Executive Program is a five-day immersive course that examines how converging technologies will shape our future and explores ethical leadership in a rapidly changing world. Participants are empowered with critical insight, tools and connections to think exponentially and develop a framework for a better tomorrow. The program is industry- and technology-agnostic, intended for senior leaders and unique thinkers in private and public sectors with the desire to transform their industries and create positive impact at scale. Our alumni cite these as their most valuable outcomes:

  • A stronger understanding of what the future looks like, how emerging technologies work, and how and when they will impact the market
  • Access to tools and frameworks that will help them enact change within their organizations
  • Meaningful connections with leaders of the same caliber from varied backgrounds, industries and countries
  • A foot in the door to Silicon Valley expertise, innovation and culture
  • Stronger understanding of how to use their position to create positive change in the world.

Singularity University’s global network is an ideal platform for this initiative, as it’s a diverse multi-ethnic group of technologists, scientists, entrepreneurs, government, NGO, corporate and SME people.

While Singularity is known for its prowess in the arena of emerging technologies, the organisation’s mission is to educate and inspire people to help solve humanity’s hardest problems and this Convid 19 coronavirus is definitely one of those hard problems.

Screenshot 2020-03-21 at 09.18.22

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Web-conferencing and conduct risk

Posted on March 21, 2020 by henry tapper

The fun has just begun…

conference call bingo

Lingo bingo has been around 25 years, I first played it when I was going through a painful strategic review with Bain back in the 1990s. Those – other than Bain, in the meeting room (remember them?) would be distributed photo-copied bingo cards with the management consultant’s jargon – we even had passwords to disguise cries of “house”.

Today’s version is played out in “isolation” but relies on our same anarchic instinct for impact. The capacity to get things wrong with mute and video buttons delights our sense of fun. The new breed of conference facilities all have “record” facilities and it is only a matter of time when someone suffers a wardrobe malfunction while in their jim jams while being videod.

I don’t think that the GDPR people ever quite got to grips with this stuff, just what do you do with an accidentally recorded video-conference?

Playful fun on corporate hardware.

This sophisticated kit is falling into our hands at precisely a time when those hands are idle.

I was watching BBC news last night and see a plague doctor crash a #COVID19 report

 

 

The deliberate sabotage of the most serious stuff is why we have conduct risk policies and why staff love to break them.

I look forward to tales of deliberate misbehaviour where playful employees make “full disclosure” in intimate ways.

Zoom, hang-outs and Skype for business are all at Siri’s beck and call, tempting the mischievous staff members to off-site hi-jinks.

The trouble is that we really don’t understand terms like privacy and decency in this context. The conduct risk manual has yet to catch up and what looms is another 3-6 months of home-working.

The incidence of ludeness and rudeness on the web will of course become a key HR metric and I look forward to earnest conferences when pixillated videos are run for the prurient delight of HR leaders. “What the butler saw” is alive and well – and a key past-time of the IT department.

Conduct risk – which is greatly to be frowned upon – is of course key to corporate culture. Without it , there would be very little to gossip about.

While I do not condone any of this hanky-panky,  I suspect it will keep a lot of people going over the next six months. Try putting that in your conduct risk framework.

Screenshot 2020-03-21 at 07.12.53

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Pubs or jobs?

Posted on March 21, 2020 by henry tapper

Thanks Al, that tweet has the authentic voice of some who has put his life on the line for his country. Let’s not forget the millions who died for us, before pitying our constraints.

Jobs

Rishi Sunak is turning out to be a bright star in this. While Johnson looked grim about closing things down, Sunak looked determined to keep us out of the misery that would befall those who could have been left not just with no job but no home.

Step forward Britannia Hotels sacked and evicted their hotel staff, hours before Sunak’s lifeline.

Fortunately, there is an opportunity for Britannia Hotels to reinstate their staff and have 80% of their wages covered. No doubt some bean counter in the Cairngorms is working out how to charge his staff rent and get the tax-payer to pay for the accommodation too.

The best bet many low-paid people have is to rely on the decency of the British people and on journalists like Andrew Neil for exposing employers who protect profit before people.

But not a lifeline for all

It’s fair to say that those who are self-employed are now at the back of the grant queue. Some will argue that this is by their own choice. That doesn’t wash for me – I’m with Frances Coppola, we need to do something radical about the compensation we give to those who cannot pay themselves.

The package that Sunak has put together – especially for small businesses, is magnificent. So long as it can be delivered , it will allow firms such as mine to weather the storm and come out the other side , where we will be able to generate the growth to pay back the debt that we will take on over the next twelve months.

But with real time delivery of information

On the subject of delivery, I was pleased to find this email in my box this morning.

Screenshot 2020-03-21 at 06.15.14

to get to live links – press the link above this picture

This is precisely the behaviour from HMRC that we had hope for , earlier this week. We are now getting firm timelines and proper pathways toward this money. It is up to businesses such as mine to follow the rules , not over-claim and do what is best for our staff and shareholders.

Lifestyle

This morning , I will not be going to the Golden Lane Leisure Centre for a swim, I’m signing up to home exercise so beware residents of Friar Street as seismic tremors may be experienced as I attempt star jumps and burpees.

Screenshot 2020-03-21 at 06.26.23

That link doesn’t work either – cheeky!

Reasons to be cheerful 1-2-3

So this morning I’m waking up to the prospect of (1) a viable business, (2) less alcohol and (3) a new fitness regime.

We are not ones for bragging about being British, but for once, I think we can be proud of our Government. The wake up call of the Imperial College report has been listened to. Sure we should have been manufacturing respirators earlier, sure we haven’t fixed it for the self-employed and sure there are going to be horror stories in our hospitals over the next six months.

But the steps we have taken this week will flatten the curve and I am determined to solder on – self-isolating in WeWork (nowork).

 

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Mothball or keep going?

Posted on March 20, 2020 by henry tapper

mothball

Many small businesses are faced with a stark choice. Should they go into lockdown and effectively mothball what they have – for later reuse? Or should they move on and find a way to deliver some or all of their financial plan, one way or another.

I’m sad for businesses that depend on social interaction and can see no way to continue through the months ahead. It is horrible to see people being sent home with no work to do and no way to find a job. As has been noted by many, home-working is only an option if you have something you can do at home.

I was thinking of this video as I walked to my WeWork office yesterday morning

Set against this – the resourcefulness of people to find a way

Keeping us going

Not all of us can adapt our business models to survive. Most small businesses do not have sufficient cashflow free, to continue trading at a loss for long.

People have to find out about their entitlements in strange ways!

The small business rate relief grant

It’s good that the Government has announced a grant to keep the smallest businesses going. The same goes for the extended grants to the hospitality and leisure industry.
Screenshot 2020-03-20 at 07.20.11

I learned about this from a screenshot from a colleague’s phone, shared on an email. I use this as an example both of the resourcefulness we are employing to share our lives, and as a plea to Government to make the path to this money – easy and digital. We cannot do this by post and we can’t be queuing  up at Government offices.

Even in this dark hour – data sharing can help us learn!

While on the subject of technology,  I should point out that for those of us who are keeping going, how we go about it can be of interest to those who are planning us out of this misery.

Smartphones aren’t just good for messaging, they can be used to help Government trace the virus’ spread

So as we keep going, we can help by sharing what we do. Data helps today and tomorrow!  (Note to the Open Finance consultation).

More ways to keep things going

The Government has promised small businesses they will fund the costs of Statutory Sick P ay for employers with workforces of 250 people or fewer for up to 14 days.

Banks will also be offering loans to small and medium sized businesses under the governments Coronavirus Business Interruption Loan scheme.

You can find out more about the help available to businesses on the Gov.uk website.

Many businesses , including us , have both corporation tax and PAYE bills to HMRC falling due next week. IF you are struggling to pay your tax bill because of coronavirus, you can call the HMRC Coronavirus Helpline on 0800 015 559.

If your business is struggling from the impact of coronavirus, then you can call Business Debt line on 0800 197 6026.

Find out more about what help might be available for your business on the Business Debtline website.
In Northern Ireland you should visit the Advice NI Business Debt Service.

Help with business overheads

It is important that both tenants and landlords know where they stand. I work in a shared office space which we are calling “no-work”. No one is working there, not even the we-work staff, who are working from home.

That means 400 businesses who are paying for space, desks or just the right to roam the communal areas. For the Citibanks and ITMs (and the Green Finance Initiative opposite us), cashflow may not be an issue. However three to six months paying for a space you cannot occupy is disastrous.

Landlords and tenants should be working together to establish ways forward. It should be remembered that many landlords are as hard-pressed as their tenants.

agewage wework

However – putting matters in the hands of lawyers helps no-one (but the lawyers).

Planning your cashflow

Considerable amounts of my time is spent re-jigging cashflows to take into account changes in costs and revenues resulting from the outbreak. I am sure I am not alone.

I don’t blame any business for packing it in – or mothballing till such a time as things get better.

But I firmly believe that prudent planning, a review of costs, negotiating with creditors and picking up any money that is on the table, can make the difference between sinking and swimming.

Take time to do your cashflow planning and you may be pleasantly surprised.

Don’t lose momentum

But most of our businesses have momentum behind them and we should remember we have agility and resilience that many larger companies have lost (we were all young once).

When I come out fighting, I do so with both hands! I am coming out fighting now and I will be talking with our customers, suppliers and partners over the next few days with the confidence of someone who has a plan.

I wish every small business owner luck and encourage you to be brave! And sometimes the bravest thing is to admit you cannot carry on – admitting that – isn’t cowardice – it’s a different kind of bravery.

If we are to lose our businesses (and I’ve no intention of letting that happen) then we should do so with pride.

Agewage logo

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Can MaPS be our national wealth service?

Posted on March 20, 2020 by henry tapper

There were two very good comments on my blog on MAPS’ recent webinar. My thrust was that MAPS is not behaving as it should and that it should be acting as the financial arm of our NHS – with acute care available today and support for chronic conditions going forward. 

I print both here – expanding Ian’s as it is effectively a link to his vlog/blog. Both add to my thinking.

The first comment is from Howard Gannaway who is one of Britain’s leading financial planners and someone  , though he disagrees with my blog, that I have an enormous amount of time for.

Howard Gannaway

Thanks for highlighting this, Henry, but I fear your observations are indicative of coming late to the party. MAPS is not a johnny-come-lately outfit. It is the latest incarnation of a movement that has been building since the year 2000, when David Blunkett convened the Financial Literacy Advisory Group (AdFLAG), drawing in a really wide spectrum of organisations, including educationists, third sector organisations, policy groups and the private sector. The FSA went on to be the flagbearer for this group and devised the first Financial Capability Strategy after one of the most detailed pieces of social research this country has ever seen.

Over the years since then, the number of people and organisations has grown and grown. The FSA’s role was handed on to the Money Advice Service, which in turn morphed into the current Money and Pensions Service. It is not a London-centric operation. They have officers across the UK and the organisations that they engage with are similarly widespread.

You warn against MAPS merely taking credit for what the private sector does but, in recent years, it has largely been the work of MAS/MAPS that has fired up the interest of the private sector in looking at the financial capability of its workforces. All this has been done against a backdrop of experimentation and evaluation that would put many academic organisations to shame. Private sector companies have participated in evaluation of their financial education programmes that has rated them less than stellar but they have still been brave enough to post these results online – keep coming back for more.

Is MAPS perfect? Certainly not. They have their flaws and challenges like the rest of us. Successive governments have decided that the campaign for greater financial wellbeing and capability should not be a megalithic NHS-type operation but is best pursued through the vast network of national and local organisations from all sectors that have been largely marshalled together by MAS/MAPS. Your financial NHS is never going to happen in the UK. It’s not our way and I suspect it’s not really your way.

The campaigns over the years to change the relationship of the public with their money is like the classic image of getting an oil tanker to change direction. It is a long haul and I for one am glad that the Money and Pensions Service is in it for the long haul.

The second comment is from Aries’ Ian Neale who also picks up on my wish to see MaPS as a financial NHS.

Ian’s video is excellent but if you would prefer to read the transcript – it is here.

I think our country needs a National Wealth Service. That’s right, ‘Wealth’. I’m going to tell you why! Before the Second World War, many people could not afford to go to the doctor or the dentist.

To avoid this, my own grandmother had all her teeth replaced by false teeth. The need for that kind of radical ‘preventative medicine’ was removed by the creation of the National Health Service in July 1948.

If there is a national consensus about anything these days, it’s that the NHS must be preserved. No politician will attack the principle that healthcare should be freely available on the basis of need, not ability to pay. Aneurin Bevan, the health minister in the post-War government, had a hard fight against strong opposition from the British Medical Association.

They objected to the idea that doctors would be ordered around by bureaucrats, seeing the NHS as a threat to their professional freedom. Of course, private medical practice has continued to thrive alongside the NHS. You can still choose to ‘go private’, if you have insurance or the means to pay. But we are agreed that physical and mental well-being is the province of the NHS. When it comes to financial well-being though, we’re largely on our own.

True, there is guidance available if you know where to look for it, and the advent of the internet has helped. We’ve all had the experience, though, of feeling more confused after reading about options we hadn’t even imagined before we started looking. And as we all know, guidance is about what you could do: what people really need to know is what they should do, ie they need financial advice.

That costs money, and the truth is that people aren’t willing to pay for advice: partly because they don’t trust financial advisers.

Aries Insight provides concise, accurate and readily accessible guidance on every aspect of pensions legislation.

Over 130 pension providers, administrators and consultants across the industry rely on Aries comprehensive technical support to keep up to date and remain legally compliant. http://www.ariesinsight.co.uk

 

Posted in advice gap, age wage, pensions | Tagged , , , | 1 Comment

USS : FINANCIAL DIFFICULTIES – OR OPPORTUNITIES?

Posted on March 20, 2020 by henry tapper

 

 

jon spain

This article is by Jon Spain

Jon Spain is one of Britain’s foremost actuarial thinkers. You don’t have to  be an actuary to enjoy this piece – indeed it might help for non-actuaries to peer behind the actuarial covers – as Jon allows you to! I’m grateful to Jon for sharing his thoughts with me – he’s referencing my blog

That USS have reported themselves to the Pensions Regulator was quite startling. As I understand it, under its own assumptions, they have “technically breached” one of their funding covenants due to plunging equity markets. Is this really such bad news?

So far, I have seen alternatives suggested, namely “higher funding”, “derisking to safe assets”, “discontinuing the scheme” and “Government intervention”. Below, I suggest alternative 5.

A crucial point is that, while market values at some future time will be relevant, current market values have no predictive power (Fama, 1965). When and how far the markets will recover is impossible to say. However, just because markets are low at present does not mean that they will remain low. The perception of a problem is being driven by the concept that “financial economics” has any relevance to long-term entities such as DB pension schemes. There is an abundant lack of evidence for that and it is being challenged elsewhere. Worryingly, “path dependence” is totally ignored; it really matters as opposed to just one year at a time.

The discounting principle has been known for over 2 millennia. Converting future cashflows to the present only consistently works out in reality if the discount rate is the inverse of the investment return. As the future is unknowable, there can be no uniquely correct discount rate. There will be one set of outcomes but nobody, not even an actuary, knows what that set will be. Using the evidence available is necessary and there must be room for valid differences of opinion. Equity risk premia are realistic and bonds may fail. While the USS approach may appear “prudent”, that can only be defined relative to a best estimate. So far as is public, no best estimate exercise has been undertaken so that any prudence present is impossible to define.

The real problem is that risk quantification is very poorly captured by scalars.  This is especially the case when liquidity problems can’t be identified in advance. The huge concentration on risk, without reward recognition, is, in my view, unbalanced. In the real world, risks are only taken because of potential rewards (see Maurice Ewing interview, “The Actuary”, October 2018), not a new idea.

Indeed, as far back as 1952, Redington wrote that avoiding losses is the same as avoiding profits. Single numbers are not appropriate results for representing many future uncertainties, especially when we don’t even say what the result means (mean? median? mode? specified percentile?). In reality, scalars are grossly inadequate for indicating uncertainty of many possible outcomes so that discounting is inappropriate. Instead, we should be looking at multi-dimensional results with confidence intervals but we cannot do that with a deterministic approach. Instead of using discount rates alone, actuaries should show the uncertainty to the sponsors and trustees, using robustly supported stochastic projections. Let’s have more simulations rather than utterly misleading scalars – and much less dissimulation.

Indeed, there is a UK actuarial professionalism problem. This arises under the TAS regime in force since July2017, to which little attention appears to have been paid. Under paragraph [3.2] of the Framework Reliability Objective definition, transparency of assumptions is required together with communication of any inherent uncertainty. Under TAS 300 (pensions), communications shall explain comparison between discount rates used (or proposed) against expected assets return according to stated strategy. How can scalar results comply with those?

A recent technical paper (“O’Brien”) was presented on 09 March 2020, a week after TPR issued its consultation on “clearer DB funding standards”. Together with the current USS furore, a cynic might think that the paper was deliberately designed to bully UK pension actuaries even further into agreeing that the TPR guidance makes sense. Three years ago, the UK actuarial profession had the opportunity to explain why the current system is unfit for purpose. That chance was wasted and we are now faced with an even worse version.

So, let me propose a fifth alternative, namely “formal long-termism”, which has two strands. First, instead of using discount rates alone, actuaries should show the uncertainty to the sponsors and trustees, using robustly supported stochastic projections. We should recognise that the financials are more significant than the demographics. Using realistic best estimates seems likely to show that the position is nothing like as dire (see discrate.com). Secondly, this must present a superb buying opportunity for USS, improving the long-term financial position.

USS8

Posted in actuaries, pensions | Tagged , , , , , , , , | 1 Comment

Is MaPS creating a UK Financial Wellbeing Movement?

Posted on March 19, 2020 by henry tapper

I think the question needs to be asked as MaPS’s seminar entitled”Creating a UK Financial Wellbeing Movement” presumed that the 170 people who joined its webinar were as one with MaPS’ vision – launched on 21 January 2020 which can be read here: https://maps.org.uk/wellbeing

The Money and Pensions Service tells us it has

“spent the last 12 months working with partners across the UK to develop a national strategy on financial wellbeing: creating a roadmap for how different individuals and organisations can work together over the next decade to help millions make the most of their money and pensions”.

They  tell us that

MaPS is  now looking at the strategy’s priority areas in detail, creating specific delivery plans, and setting milestones for our ten-year journey towards better financial wellbeing. We are forming a movement bringing together individuals and organisations who want to put financial wellbeing at the heart of their purpose.

and promises that their webinar would dive into the detail of the strategy: identifying how we will all work over the next decade to bring benefits for individuals, their communities and wider society.

Why MaPS matters to me

MaPS is taking the resource for this work from the pensions industry and ultimately from  the savers and borrowers whose behaviours it is hoping to influence.

So this strategy is the property not just of MaPS and its “arms length” owner – the DWP, but each and every one of us.

My comments are from me as a particular stakeholder in MaPS as I want to plug into its strategies, especially the problems we are facing with personal debt, our lack of planning for retirement income and for the issues we have with declining health in old age.

I am not clear from this webinar, that the structure MaPS are putting in place achieves the aims it is setting out for itself and I think it’s worth laying down my challenge now, rather than complaining in 2030 – when I’ll be 69 – when it will be too late.

MaPS make it clear that it is not London centric but will be active accross the UK

Screenshot 2020-03-18 at 10.15.04

I would like to see evidence of MaPs’ footprint beyond its Holborn Circus HQ. It looks very London centric to me.

Screenshot 2020-03-18 at 10.45.15

The delivery of the activation phase from launch to 2020 is subject to the current situation with Coronavirus. I would question how this can be delivered.

 

Screenshot 2020-03-18 at 10.42.18

The delivery of the mobilisation and activation of the strategy depends on the engagement of a “wide range of organisations and sectors”. What are they and how can they activate the strategy. The challenge is to evidence the engagement of third parties – especially connected third parties (eg beyond Government) .

Screenshot 2020-03-18 at 10.40.46

If these are the ten year goals of the Financial Wellbeing project then we need to understand what part of the achievement of these goals is attributable to MaPS and what to private organisations. What has to happen is that MaPS – rather than taking the credit for the private sector’s efforts, supports those efforts by incentivising them. By this I mean making MaPS resource available to those who help people save, borrow and plan for the future. My challenge to MaPs is to show how it will be providing (rather than just marshalling) the resource needed to hit these targets

Screenshot 2020-03-18 at 10.18.27

I rather doubt the current wellbeing score is “in date”, I suspect it is now lower than the future wellbeing score -which is the point – future wellbeing is harder to attain but more durable.

Screenshot 2020-03-18 at 10.19.11

this complicated model ignores the impermanence of wellbeing – resilience is not the same thing as wellbeing – it is what we are currently calling on. The depths of our resilience are being tested – resilience is not part of this model (and needs to be).

Screenshot 2020-03-18 at 10.20.22

I should point out at this point that the 170 of us who wanted to feedback had no opportunity to do so as the “hands up” sign was not responded to, the audience was muted and (on my browser at least) the capacity to use the question box illustrated , only worked if you could find a turn-on switch on the GotoWeb dashboard.

Screenshot 2020-03-18 at 10.20.58

As an example, I was unable to ask what an index could do to enable “others” to monitor their customers or beneficiaries – can MaPS explain?

Screenshot 2020-03-18 at 10.21.27

This slide shows what an outlier poor mental health is. It properly illustrates how important resilience is, I fear that the mental health issues prompted by the current pandemic and the lockdown – are going to be an immediate issue for MAPS. Jus how much resource can MAPS put towards a public imagine their future wellbeing slipping through their fingers?

Screenshot 2020-03-18 at 10.23.21

The income shocks currently being experienced by the UK population are substantial and it will be interesting to see if – once we have weathered this storm, we become  more cautious and set more money aside. My experience with the pension freedoms is that people are reluctant to entrust their money to long term products (like annuities) where they don’t have access to their cash. Is the current crisis going to increase the value of liquidity rathe than the prudence of insurance? What is the need for saving?

Screenshot 2020-03-18 at 10.24.31

Which is my point. A savings buffer is often at the expense of insurance.

Screenshot 2020-03-18 at 10.25.51

This slide begs another question. Did MaPS really need to spend a year working this out?

Screenshot 2020-03-18 at 10.27.04

The “key question” is immediately answered , 17% of us borrow to pay for essentials

Screenshot 2020-03-18 at 10.27.43

These findings are marginally more interesting but there’s nothing here that should surprise us!Screenshot 2020-03-18 at 10.27.56

This slide is of use, if we are identifying those with mental health problems as the worst borrowers, we should be very worried about plans to lend such people money to get them through the Coronavirus crisis. indeed , we should be doubly worried about putting people further into debt at such a time of stress. 

So how do we solve problems?

I am afraid that much of the solution to these problems involve financial education in schools and in the family home. My worry is that we give up on the current generation and try to find a perfectly  behaved future generation.

Screenshot 2020-03-18 at 10.37.21

Screenshot 2020-03-18 at 10.36.22

This is fine so far as it goes but does little to solve the issues of today’s workers.

Screenshot 2020-03-18 at 10.36.04

But I find phrases like “meaningful financial education” hard to get my head around.

Screenshot 2020-03-18 at 10.35.21

Similarly we know that those in later life are have financial issues, but is this where MaPS can make most difference? How can a money and pension service help those who are in physical and cognitive decline. Are they not in the same position as children, increasingly dependent on those of working age?

Screenshot 2020-03-18 at 10.34.50

Guidance makes a difference to those who are trying to turn pots into pensions, but the numbers not taking up the free guidance MAPS offers , suggests that the majority of people are neither taking advice or guidance. How can MaPS work best with the private sector to change that?

Screenshot 2020-03-18 at 10.33.44

What do working age people need to know to plan for their retirement? Someone who has saved £100,000 by January may now have £65,000. Drawdown plans are liable to massive sequential risk in the current client. What can people do in their thirties and fourties to plan for the future other than to save as much as they reasonably can?

If people could have foreseen the Coronavirus, would they have put more into pensions?

Screenshot 2020-03-18 at 10.31.35

Debt is something that millions are going to find themselves in and through no fault of their own. Redundancy looms large for many of us as businesses fail. What is MaPS doing to help?

I will stop there.

I spend a lot of time in hospitals and doctor’s surgeries. I see the NHS dealing with people who are frightened by their mental and physical frailty and I see how they manage that fear.

We need to do the same, managing the root cause of much of the mental anxiety that fills the surgeries.

At this time of crisis , we need to be deploying our resources to meet the immediate needs of our customers and MaPS should be no different

As you will gather from my comments, I find the MaPS strategy too abstract and insufficiently grounded. I would like MaPS operating like a financial NHS and not as a think-tank and co-ordinator of other’s activities.

I wouldn’t agree that MaPS is creating a UK Wellbeing Movement, at best they are revealing and encouraging what we have in place

MaPS says it is open to challenge and I lay down this challenge.

 Can MaPS earn our respect (and our money) ?

Posted in age wage, pensions | Tagged , , , , , , , , | 2 Comments

The state of USS is the state of us.

Posted on March 19, 2020 by henry tapper

In normal times, USS reporting itself to the Pensions Regulator for being under-funded would be considered a major news story. But what Jo Cumbo reported as happening  yesterday is not headline news, it is a sideshow to what is being called #uklockdown.

This week, undergraduates at Cambridge University were told they would not be able to return to study next term. For final year students, their time at university is over. They can at least console themselves, they will not be victims of the ongoing battle between teachers and their employers over pensions and conditions.

This is a “technical breach” it does not mean that USS cannot pay its pensioners, it means that according to its own assumptions it will not be able to pay pensions in the future  without recourse for more money from employers and members.

Screenshot 2020-03-19 at 05.50.13

Markets have continued to plunge since March 17th and there is no obvious floor where they will land.

Screenshot 2020-03-19 at 05.50.48

The formal valuation at the end of this month will be bad news, USS is heavily invested in equities as it is an open pension scheme with long-term liabilities.

What alternatives are there?

Alternative one – higher funding

The outlook for UK university enrolments in the autumn of 2020 is grim. John Ralfe is right to ask his question

Neither employers or staff will be particularly impresses by a cash call in the midst of #COVAD19

Alternative two – “de-risk” to “safe” assets

Screenshot 2020-03-19 at 06.06.02

But would USS be better supported if it were invested in bonds? 

Even traditional safe havens are in crisis

There does not appear to be a safe haven other than cash. Even if a decision was taken to disinvest, the market would attempt to ambush any sale of assets – with spreads going widening like the gaping jaws of the blue whale.

Alternative three – “stop kicking the can down the road”

There is an argument that the Trustees could trigger an insolvency event and press for the scheme to go into the PPR assessment period. I’m not quite sure how this go down with the general public who see no evidence that universities are insolvent.

But if employers refuse to cough up and the covenant breach persists and actually deepens, then we are in uncharted  waters.  The Government has leaned on landlords not to kick out tenants in default, on banks not to evict those with mortgage arrears and presumably some deus-ex-machina  intervention can happen here. These are not normal times.

There will be those who will want March 31st to be the point when the trustees call time on the scheme and close future accrual but I think it more likely that – to use John Ralfe’s phrase, they’ll continue to kick the can down the road.

Alternative four – Government intervention

It looks possible that the USS covenant breach is the tip of an iceberg that – were it to melt, would swamp all around it – even the PPF. The level of support needed to prop up the ailing funded defined benefit pension system on a mark to market basis – would require a hit to UK Plc’s balance sheet which – in the context of existing interventions – could seriously reduce confidence in the UK’s capacity to pay its way.

If we are to apply the principles of financial economics to the current state of the DB market, we really are in a bad place. But in no worse a place than anyone relying on their DC pension to support them in retirement.

This chart shows why open collective pension schemes invest in real assets. It is why the vast majority of people with individual DC plans are invested heavily in equities. It shows that cans sometimes have to be kicked down the road.

CDC lifecycle

The state of USS is the state of us.

From one perspective, USS is a monster – £100bn of liabilities with considerably less in assets.

From another it is just one example of a problem that we all have right now, our funded pensions are valued “mark to market” as dust.

If we are having to sell today, we are in huge trouble, if not – we can only stick with our strategy and ride out the storm.

There is no “deus ex machina” that can solve this current economic crisis, we can only flatten the curve by not rushing for the door at once.

Here is a post from a steelworker who is looking at his portfolio. He faces the same question as Bill Galvin, the USS trustees and the universities and their teachers.

I’m in Royal London and getting obliterated what’s everyone’s thoughts, stick or twist??

USS is us

Posted in accountants, actuaries, advice gap, age wage, pensions | Tagged , , , , | 3 Comments

A radically simple solution to dashboard delivery.

Posted on March 18, 2020 by henry tapper

Screenshot 2020-03-18 at 07.03.33

Pension Bee has produced two important papers in the past week. The first is its response to the FCA’s call for input on Open Finance

The second is yesterday’s public  call to action to bring open pensions as part of the open  finance initiative.

Pension Bee identify  twelve pension providers who stand in relation to pensions as the “CMA9” stood in relation to banks. With their co-operation 80% of hidden pension data could be opened up to those saving for their retirement.

These providers are

  • Aviva (including Friends Life, Friends Provident)
  • Scottish Widows (including Zurich workplace, Clerical Medical)
  • Legal & General
  • Standard Life
  • Royal London (including Scottish Life)
  • Aegon (including BlackRock)
  • Prudential 
  • Fidelity
  • Phoenix Life (including Abbey Life) 
  • Nest – regulated by The Pensions Regulator
  • People’s Pension  – regulated by The Pensions Regulator
  • NOW Pensions – regulated by The Pensions Regulator

(We might reduce this to 11 if we consider Standard Life as part of the Phoenix Group)

Pension Bee refer to these 12 providers as the “Directed 12” for reasons that will become apparent as you read on.

The CMA9 and the Directed12

The CMA9 are the nine largest banks in the UK, as determined by the Competition and Markets Authority (CMA) as part of the Open Banking initiative. The CMA is an independent department of the UK government, whose aim is to promote market competition and fairness and reduce any harmful monopolies.

When the Government decided to intervene to make banking more open, they used the CMA to create data standards that have led to our being able to pass money between us a lot more easily and to our benefit. Open banking is in its infancy, but has been successful because of its adoption by these large banks.

I am quite sure that Pension Bee are drawing a parallel between the CMA9 and the Pensions12.

Not “lost” but not “owned”.

Pension Bee’s  key insight is that its data tells it most pensions are not lost to their owners.The vast majority of savers know who their provider is.

In fact, Pension Bee’s customers know the name of their provider for 70% of the pensions they transfer (based on nearly 250,000 records). But knowing who provides your pension is not the same as knowing your pension.

In order to receive information on that pension, savers are usually required to sign paper forms, sending their valuable information all around the postal system. It can take several months for a saver to receive a reply to their request for basic information. Consumers cannot have “ownership”, as the government asks them to, if they cannot access basic information like balances, charges, performance and investments easily online.

The dashboard finds but won’t grant ownership

I’m quoting her from Pension Bee’s response to the FCA’s call for input on Open Finance

That pensions can become “lost” is a concept well-recognised in the pensions industry.

Lost pensions are estimated by the ABI to be a £20 billion problem. In recognition of this problem, the dashboard’s main priority in the short to medium term is to reunite owners with ‘lost’ pensions.

These pensions could be held with one of 40,000 possible schemes, with wildly differing levels of data preparedness and access to resources. The dashboard or more accurately, the ‘pensions finder service’, will likely stay focused on achieving maximum coverage, which will undoubtedly result in minimal levels of information being shared with consumers.

It will take many years to achieve even this.

If the pensions dashboard is charged with providing people with ownership of their pensions, it will not open this decade.

Open pensions can’t find pensions but can grant ownership

Pension Bee propose (and AgeWage seconds) that the  twelve providers be compelled by the FCA to open up pension data via open source APIs.

This is the only way to allow the transformative potential of open finance to be realised early enough to create happier, more prosperous retirements for a generation.

These 12 providers become the Directed 12 as the 9 Banks became the CMA9. Open banking becomes open pensions with the help of the open finance initiative.

We don’t need a dashboard or open pensions – we need both NOW!

The pensions dashboard should more properly known as the pension finder service. If it does no more than find the £20bn of lost pensions that the ABI and PPI confirm are currently lost, it will have done a great thing.

But the delivery of the dashboard is being delayed again and again because it is trying to do too much, it is trying to be everything to everyone and is doing nothing.

Pension Bee’s suggestion is radical and it’s simple. It allows the pension dashboard to crack on without any further arguments about what is on the dashboard (just telling us where our money is).

Open pensions then allows savers access to Pension Bee’s estimated 80% of data which can be accessed online in real time , because it arrives though open source APIs (digital gateways).

No doubt there will be many providers not on this list , who will want to , and be able to , adopt APIs very quickly. I’m thinking of Smart Pensions, Hargreaves Lansdown and Pension Bee but also many of the smaller master trusts and some of the larger occupational DC schemes.

There will be a long tail of occupational DC schemes and a few FCA regulated SIPPs , who will not be joining the queue any time soon. They will have their work cut out complying with the dashboards requirement that they provide access to membership inquiries.

Meanwhile, those providers inside the Directed 12 and those who want to join them, will need to sign up to a data template that will meet the needs of those who want ownership of their pensions. This data template (distinct from the standard for the dashboard) will enable people to see their funds, fund values, contribution histories and cost and charges on their account. In short it will allow them to see the value they are getting and the money they are paying for their investments.

It may provide more, it may give access to the individual holdings within the funds so that people can determine how responsible the investment strategy, it might even give people the chance to influence how their fund is managed.

We need a pension finding data standard and an open pensions data standard

What this boils down to is two data standards, a simple one to find our pensions and a much bigger one to find out about our pensions.

The genius of Pension Bee’s proposal is that it makes both possible quickly without compromising the aims of Government for pension ownership.

Like every great idea, it is radically simple. It is the key that unlocks the door and I hope that both the FCA and the DWP, who are the policy leads for open finance and the dashboard, adopt the suggested approach.

If they don’t, I could be writing the same blog in five year’s time.

Screenshot 2020-03-18 at 07.03.33

 

Posted in age wage, pensions | Tagged , , , , , , , , | Leave a comment

Lighthouse, the unions and BSPS

Posted on March 17, 2020 by henry tapper

unions

There is a story untold about Lighthouse’s relationship with the BSPS trade unions. It is one that reveals some alarming conflicts within the Union movement, specifically in the “affinity agreements” that gave union members access to free advice

Screenshot 2020-03-16 at 12.12.55

This clear offer of a benefit to the Unite member, does not mention any profit share to Unite on introductions. Similarly, Tim Sharp’s letter to Frank Field  in response to the Work and Pension Select Committee’s questions , does not reveal any payments to the unions from Lighthouse.

So what exactly was the nature of these affinity partnerships that were so popular with the unions? In August 2017, around the time when the British Steel Time to Choose was happening, FT Advisor reported 

Lighthouse has 19 “affinity relationships” with a number of employee organisations representing more than 6m members.

These include Unison, Unite, BA Clubs, Fostertalk and the Royal College of Nursing.

The popularity of these deals suggests that there was substantial motivation for employee organisations to sign up . Until it is clear what that motivation was, suspicion will continue that there were substantial introductory fees involved.

So what went wrong for Lighthouse at BSPS?

Screenshot 2020-03-17 at 06.34.46

Quilter (formerly Old Mutual, formerly Skandia) have recently purchased Lighthouse for £40m. For a firm operating 400 advisers this is a small consideration and suggests that it knew that there were some “warts” in the deal.

The first 30 warts are a group of steelworkers for whom Quilter has made a provision of £9m as recompense for poor advice.  Readers may wonder how provision can run at £300,000 per client but this is quite possible.

The BBC reported on one steelworker (Richard Bevan) who claimed shortly after transferring, that he’d been short-changed by £200,000. Richard didn’t use Lighthouse but I know of steelworkers in Scunthorpe who did and had a similar grievance.

The issue is highly technical but is summed up in Bevan’s testimony to the BBC,

He said he was advised to leave the scheme even after he had been written to by the BSPS warning him that a revaluation was under way that could mean he had much more in his savings pot than previously thought.

The reason that Bevan lost so much was because he took his money out before the revaluation happened. This is what New Model Adviser refer to when reporting on the Lighthouse 30. Except the technical reason for the revaluation wasn’t that £500m had been put into the scheme but that the scheme moved from an equity to a bond funding basis.

This meant the scheme discount rates changed and they more or less doubled the transfer values for younger members like Richard Bevan and the Lighthouse 30.

The £500m injection into the scheme meant that the scheme actuary could recommend  a value adjuster on the transfers be partially lifted, this wasn’t the tigger for the change in discount rates.

That Lighthouse proceeded to transfer out members who were in the same situation as Richard Bevan beggars belief. Not only did they do it in the full knowledge of an impending hike in transfer values, but they did it in front of the unions who they had been introduced by.

So “doing the right thing for the Lighthouse 30” may mean using up every penny of the £9m already set aside, but there are 300 of these transfers and Paul Feeney, Quilter’s CEO is saying that the remaining 270 are all to be investigated – even those that got the higher transfer value.

Why such largesse from Quilter?

While it is unlikely that the larger group will be as expensive to deal with as the first thirty, it looks like the next 270 will cost at least as much as (and probably more than) the price Quilter paid  in the first place

This suggests that the cut-price £40m Quilter paid for Lighthouse was in full knowledge of the cost of recompense.

But why is Quilter not asking questions of the introducers in all this? And why are the unions so quiet about the deal?

Back in 2017, IFAs queried why Lighthouse was taking 3% of the transfer value and a 1% pa management fee on the money transferred.

 

Screenshot 2020-03-16 at 13.56.52

One remarked that he’d expect union members to be getting a substantial discount over what appeared to be Lighthouse’s standard rate at the time.

The same might be said of Paul Feeney’s largesse. Why is Quilter on the hook for it all? Is there something more valuable than the cost of restitution that needs not be disturbed?

Screenshot 2020-03-16 at 14.01.53

What were the unions doing?

300 transfers at an average transfer value of £400,000 represents a lot or money flowing out of the scheme. If the unions who introduced Lighthouse had any kind of quality control over the advice that was given, they surely would have been concerned by what was happening.

Did the unions get duped, did they turn a blind eye or were they actively in on it?

None of the above sounds good news for the unions involved which may explain why they have taken a backseat in the redress for members , led by Al Rush and Phillipa Hann.

We now know that Active Wealth Management, were transferring on an industrial scale thanks to access to the workplace created by their introducer, Celtic Wealth Management. But the 300 transfers advised on by Lighthouse seem to have come about by the same route. While it would be wrong to compare Celtic Wealth with Community and Unite, it’s hard to absolve the unions of responsibility for what happened.

The price of affinity?

“Affinity” worries me. There is nothing wrong with unions being paid for introductions so long as it’s over the counter. But this looks like there were under the counter transactions going on and sooner or later the price Lighthouse paid for the deal cut with the unions will be revealed. When it is , then it will be the worse for the unions .

It would be best if transparency prevailed and the unions fessed up to their commercial interest in all this money moving.

The alternative will be a gradual disclosure which could become messy. For the ongoing relationship between Quilter- Lighthouse and the various affinity arrangements in place , to prosper, it would be best to clean this mess up.

As Andy Agethangelou would say “transparency is the best disinfectant”.

 

Posted in pensions | 3 Comments

From helping your clients to helping yourself.

Posted on March 17, 2020 by henry tapper

Screenshot 2020-03-17 at 06.26.14

The severity of the falls in stock market put in jeopardy the revenues of asset based businesses. Put simply, if the markets fall 50%, so do revenues. What were profitable business models become unprofitable and sooner or later costs catch up on cashflows and businesses have to change or crumble.

What might have started as a correction for clients , is clearly now an existential threat to asset managers of all kinds, but most especially businesses that rely solely on revenues from assets under management or advice.

Messages from governments are stark, we are in this for the long haul. Sir Patrick Vallance over the weekend, Boris Johnson last night and Donald Trump overnight – all pointing to a detoriating picture that points inevitably to recession.

It is not just people who need to be in lockdown, so do businesses. Put simply – we all need a plan B.

We cannot look to our clients for help

To suppose that we can manage this situation by putting up prices is daft. We really are in this together. Clients whose assets fall below trigger points , should not be required to pay more, though I fear that many wealthy clients will lose their right to cheap management and find they are protecting their wealth managers rather than their wealth.

Businesses where tiered fees work in reverse need to manage disclosures very carefully. Many wealth managers will be writing to clients to tell them (as MIFID II requires) that they have breached a 20% loss, the double punishment of higher fees is unlikely to do down well.

Those rewarded by “ad valorem” fees are at least in the fortunate position of controlling their revenues, unlike those who must chase fees. Fee collection becomes considerably more tricky in a falling market.  Those of us in financial service must expect an increase in uncollected invoices, and a lengthening of the debtor’s register.

We must remember that however bad it is for us, it is considerably worse for many of our clients.

Managing costs

Many of the costs we incur , from season tickets to commercial rents are unavoidable. Variable costs, such as bonuses may be discretionary, but many in the financial services sector are formulaic and have already accrued.

The hard truths of a recession are that people lose jobs ,  businesses go under if they don’t.

Headcount , premises and remuneration are not guaranteed to rise and Plan B may need us to take some tough decisions on all three.

Resilience

I give myself some credit for having enjoyed over 35 years in financial services. The 1987 crash, 9/11, 2008 and now 2020 are all milestones.

As I make my way around a deserted City today, I will see people – as I did yesterday, giving space to others on pavements.  This act of consideration was also an act of self-preservation.

This is how we must go forward. We must be considerate to our clients but we must conserve our capacity to deliver to them when things get better again.

In our planning, we can demonstrate to our clients the value of the plan, if not plan A, maybe plan B.

There is a fine line between the bravery of soldiering on regardless and being agile to change. What has happened over the past quarter, but especially over the past three weeks has been a genuine game-changer for many business plans.

We now must re-group and meet the challenges of the next few months accepting that things aren’t turning out quite the way we thought!

Screenshot 2020-03-15 at 06.42.07

Posted in Consolation, coronavirus, pensions | Tagged , , , , | 5 Comments

Pension Bee talks, LGIM listens

Posted on March 16, 2020 by henry tapper

The Guardian announces this morning that Pension Bee’s campaign to get access to an LGIM fund that divests from companies profiting from fossil fuels.

Screenshot 2020-03-16 at 07.27.48

Getting the mighty LGIM. Britain’s biggest fund manager, to respond to customer pressure is no mean feat for Pension Bee, a firm that was – till recently – considered a start-up.

I’m interested in how LGIM are positioning itself in this, it shows a responsiveness to customer needs – where the customers are private individuals saving for their futures with an independent provider – good for LGIM

Veronica Humble, who’s in charge of LGIM’s pension saving strategy had this to say this morning

“Our investment philosophy is not divestment, but active ownership and engagement across all funds, and ESG tilting across our Future World range. However, we do see clear demand for more innovative exclusionary funds as well”.

Pension Bee wrote to LGIM last year after being inundated with questions from its own customers about the fact that Shell was among the top 10 holdings in one of the investment firm’s ethically focused Future World funds. PensionBee is  one of the fund’s top five owners, with more than £60m invested.

The move should give encouragement to earlier stage start-ups such as Tumelo and AgeWage , who are equally committed to changing things from the bottom up.

We can take heart in Pension Bee’s words – reported in the Guardian

“We hope this is just the start of all savers using their investments to transform the world they live in – for the better of the planet, society and their retirement.”

The full announcement from Pension Bee follows

`Leading online pension provider, PensionBee has confirmed plans to launch a fossil fuel free fund in partnership with Legal & General. 

The new fossil fuel free plan will launch later this year and follows a survey conducted by PensionBee which showed that over a third (34%) of customers in their responsible ‘Future World’ plan think that the time for engagement with oil companies is over. They want to completely exclude oil from their pensions, even if that means a potential reduction in the profitability of their pension, although many are convinced that oil production is a dying and long-term unprofitable business.

The decision to launch a fossil fuel free fund follows a public letter written to Legal & General from PensionBee’s Chief Executive, Romi Savova, last year, questioning the ongoing inclusion of Shell in their climate-conscious Future World fund.

The survey results show a growing divide between those who want to continue to engage with oil companies and those who no longer believe in the effectiveness of that engagement; oil production is actually increasing and proposed offsetting measures impossible to monitor. There is also a view that these stocks will become stranded assets.

Whilst PensionBee continues to advocate for the ‘engagement with consequences’ approach of its ‘Future World’ fund, it is clear that there is increasingly strong demand for pension products that give customers the choice to divest from oil.

PensionBee’s fossil fuel free plan will launch later this year in partnership with Legal & General. Those who wish to be kept updated with its development can join a waitlist here.

 

Bee
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Coronavirus – 5 reasons to stay calm

Posted on March 15, 2020 by henry tapper

Screenshot 2020-03-15 at 06.42.07

My family (and other readers) are not feeling calm about Coronavirus. They are anxious and this is contributing to a secondary – mental hardship. This blog is not written from a medical perspective , but I hope it helps those who are anxious, not to be.

  1. You are not being complacent – by not being anxious. As regards this virus we- the general public- have  very simple responsibilities.

2.  Financially, you will get over it. You currently feel like you’ve lost money and will lose more. If you cashed in your pension or your stocks and shares ISA- you’d take a thumping loss. The only way you will realise that loss is by cashing in now .

You will probably lose the value of your holiday if you weren’t insured, get over it, you chose not to be insured.

You may be laid off, you will be poorer for that but the financial community and the Government are putting in plans that means that Coronavirus is unlikely to be a financial catastrophe. Remember, we live with these risks anyway. Keep calm and carry on.

3.  You may be lucky enough to already have Coronavirus.  Did you wake up with a ticklish throat or find yourself feeling hot and bothered? Everyone is self-checking and worrying at every cough and sneeze. Remember, colds are business as usual. Do not let yourself become a victim of hypochondria.  If you have Coronavirus, you are in a strong position, there are only 10-15,000 people like you in the UK and you are first in the queue for good health care. People getting Coronavirus in June may wish they’d had it in March.

4. You haven’t had Coronavirus and are worried about June. The Government is looking to flatten (catten) the curve so that the NHS can cope even at peak times.

As recent blogs have shown, this Government has a clever strategy and Britain is known for being good at handling Pandemics.

If you want to understand this strategy better, I suggest you read Dr Souxie Wiles excellent article in full.

5. One thing is certain – you will die. When I was walking around Edinburgh’s Scottish Museum of Art, I came accross a medieval depiction of the crucifixion with a momento mori at the bottom of the cross. A momento mori is a reminder that we are going to die (this one was a rotting corpse).

Coronavirus is a momento mori and if it has woken you up to the fact that you are going to die then good. Preparing for death, whether it be through purchasing life insurance or saying your prayers, is a good thing to do.

 

momento

Here are five things that should give you comfort

  1. 80% of people in this country are likely to get Coronavirus – you are not alone
  2. Yes , this virus is going to cost you, but not enough to make you ill or kill you.
  3. If you get it now – lucky you.
  4. If you get it later, you will be in a queue , but it won’t seem so weird.
  5. You are going to die, use this as a wake up call .

 

 

Screenshot 2020-03-15 at 06.52.49

Catten the curve and keep smiling

 

Posted in coronavirus, pensions | Tagged , , , , | 1 Comment

Invest to change the world! #plsainvest20

Posted on March 14, 2020 by henry tapper

Screenshot 2020-03-09 at 06.27.47

 

Investment has a PR problem. We do not aspire to be investors (no matter what Sid said). Indeed we (as in those who don’t normally go to investment conferences) think investment people arrogant, aloof and often downright crooked. A handfull of people who prey on gullibility speak more for investment than the PLSA.

I went to one session which focussed on “engagement”, it was in the DC stream but the speakers – who included Jupiter’s Edward Bonham-Carter never mentioned getting the people saving for retirement involved. There remains a legacy belief that members save, trustees invest and that ordinary folk should sit back and enjoy the ride.

At another session, where cost and charges were under discussion, we were shown new ways of getting data delivered to our doorstep. The CTI template is I am sure very useful, but the discussion left me uncomfortable –

Translating data provided to trustees into information that is meaningful for members is a tough job. Well it is till some genius comes along and makes sense of it all like this!

Screenshot 2020-03-14 at 08.14.51

Too much inter-mediation?

For pension savers, there are at least five stages of intermediation between them and their investment.

Their money comes from payroll or their bank via a remotely triggered message. We rarely physically determine the timing of our investment (or of selling out of the market). People who sent instructions to sell when the FTSE was at 7000, may not have have traded till it was below 6000. Pension Savers have little control over the price they get for their money. Compare this will online banking or gaming.

Between money coming from bank or payroll and it being invested it may be passed through the hands of platform managers, IFAs and investment consultants, before being passed from fund to fund. Eventually it will purchase units but not before a lot of brokers and traders have taken spreads the size of which are totally beyond the control of the saver.

This dispiriting journey means that ordinary people have neither control or interest in the way they are invested. They are imprisoned behind walls of intermediation that make their investments a stranger to them. On line portals tell them their money is there, but people struggle to get to it.

Can data set us free?

Listening to Edward Bonham-Carter , it occurred to me that he may never have considered Jupiter’s funds , subject to any kind of scrutiny – let alone accountability – to what he called it’s ‘beneficiaries”.

The word “beneficiaries” is telling, it comes from a world where Latin is a second language – where “paternalism” and “ad valorems” have still their place. Savers are served by trustees who are served by fund managers who are served by great thinkers like Edward Bonham Carter.

Edward

Edward Bonham-Carter

But while this approach works well for “wealth management” where Ed might well be a dinner party guest, it is absolutely hopeless in getting ordinary people interested in investment. Listening to him was like looking at the “cattening the curve” diagram without the cats.

You may think that I am arguing way for fund managers to talk to savers and you may be right, but not in the way you may think I’m going.

Let me give an example; Tumelo is a firm that takes data from a fund that tells them what the fund’s invested in. It then “cattens” the data (my word) so that it becomes useful to ordinary people.

tumelo long

The Tumelo app makes investment information interesting

How Tumelo goes about making investment interesting is by showing people that by exercising their fingers they can make a difference to how their investments work for the planet, society and good governance. Aggregating lots of individual votes into one clear message , can make a difference to the asset owner’s vote on issues as various as executive pay to the management of an investment’s carbon footprint.

It could be argued that Agewage is doing much the same when it comes to value for money. We take data and help savers take decisions by engaging them with score. Infact Tumelo and AgeWage could work together to a common purpose.

Data can set us free to change the world – and if fund managers won’t listen – to change fund managers.

Open finance means better governance

We are about to see another round of IGC reports that nobody will read (except me). Savers into workplace pensions will remain as distant from ideas like sustainable investing and getting value for money, as they have been for the last five years of reports.

I am sorry to say that reporting mechanisms like AgeWage have been studiously avoided by most Independent Governance Committees. I suspect Tumelo will be no more on IGC’s minds than they’ll be on the minds of the Trustees of the conference I’ve just attended.

But GDPR has meant that if people want data that is held by others on their behalf, they have a right to it in machine-readable format. That means that the data talked about in this article is available to savers and their representatives on demand.

The question is whether the IGCs , trustees and all the intermediaries that come between savers and their money will make it easy for Tumelos and AgeWages to help, or not.

The open finance initiative is designed to get data flowing, data that can turn dry data into living data like those cats enlivened the graph on the spread of Coronavirus.

Turning us on to investment

The transfer of pension risk away from employers and trustees and directly to savers, has not been mirrored by a transfer of data and useful information.

The cost and charges disclosures are pretty well meaningless to ordinary savers. Some savers don’t even know their money is invested , let alone where it is invested.

Small wonder then that benevolent paternalism still reigns within institutional investment circles.

But the capacity of ordinary people to use data to understand things is changing. It’s changing  because people have the hardware to see things in a way that suits, the software that makes data real and access to data through initiatives like open finance.

The sooner pentechs like AgeWage and Tumelo get together with institutional people like Edward Bonham-Carter the better. For this to happen the gulf between asset managers and fintechs is gong to have to be bridged. Hopefully blogs like mine will help that happen.

Posted in dc pensions, ESG, pensions, trustee | Tagged , , | 1 Comment

Progress in uncertain times #PLSAinvest20

Posted on March 14, 2020 by henry tapper

Democracy 1 – Digital 0

democracy

The PLSA’s investment conference made it to its end without drama and with considerable dignity.

Emma Douglas’ question took on a new meaning as it turned out many “delegates” never got north of the border and “attended” the conference “remotely”

It may be that is we have “remote-controlled” Government over the next six months if Government bans physical meetings of more than 50 folks. Emma and her team were – bravely- in the hall and the conference was the better for it.

 

Some delegates made it to Scotland but never made it to the hall.  They could be found having fringe meetings in the coffee shops and restaurants of West Lothian, presumably under instructions not to mingle with the hoi-poloi.

Some speakers tried, with varying degrees of success to deliver content remotely. This ranged from the disastrous (the battery failure of the laptop supporting the stream) to the dismal (Gregg McClymont trying to pay attention while his infant charges harried him).

Perversely – the Coronavirus was the making of this event

My normal objection to conferences is that they are dominated by the commercial agenda of suppliers and never gets to grips with what we are supplying pensions for.

The event succeeded because it didn’t focus on commercial issues  but on how pension investment interacts with the environment , society and what it contributes to good governance. I found this extremely refreshing.

Despite the atrium of the event being decked with banners proclaiming the virtues of “defensive equities” “diversified growth” and such other fund management tropes, the conference spoke a language I could understand.

This may also be as a result of the very low consultant head- count.

Progressive content

The program was serious but not sententious. The answers to the problems the conference was addressing will not come from the delegates in the room but from innovation, not least in the construction of trustee boards. The panel on diversity on the Friday morning suggests that innovation is on its way and that the male pale hegemony may be on its way out.  The good grace with which this was accepted by the largely grey male pale delegates was encouraging.

As reported yesterday, Guy Opperman’s approach was full on and shows the Government is likely to intervene to make change happen. Whether this be on measuring the scheme investment’s carbon footprint or displaying people’s data on pension dashboards, there is intent within the DWP. Opperman’s anger is clearly born out of frustration at the rate of change.

There was also a recognition that data drives this innovation.

What was missing was the technology to show how. FinTechs, or more rightly “pentechs” had no voice. It would have been good to hear from Tumelo in the climate debate, from Pension Bee in one of the DC streams and the conference failed to engage with the FCA’s Open Finance initiative. I understand the PLSA intends to have a technology conference in November, but technology drives everything we do and should be integrated into both the investment and benefits conferences

In uncertain times..

Coming back on the train, I wondered whether I could justify three days out when the world was spinning randomly. At 8am on Thursday I was sitting in Scottish Widows reception when the FTSE opened in a see of red.

It struck me that having a meeting to discuss how we can get savers to pay attention to their pension, was good news. The following day, my trip to visit Aegon was curtailed by the mass evacuation of its office for health reasons. The meeting went ahead – having travelled 400 miles – it went ahead by phone! Sadly, I suspect that will be the way of it , these next few months

Being at the conference gave me  the chance to talk with people I would not normally meet . It also gave me chance to people I know well and speak to them in a different environment. “Networking” seemed a facile word , when I look back at some of the conversations I’ve been inolved in

Opperman’s speech was as good a Ministerial speech as I have heard. The debate following his speech was the single highlight of the conference and  I can endorse this tweet

There are people who feel it was irresponsible to have had this conference at a time of Coronavirus. Had it been scheduled a week later, it would not have happened. If it had not happened, a lot of good would not have happened.

Thanks to the PLSA for getting this conference right. Thanks to the many excellent speakers and let’s hope that by the time we get to the autumn, the PLSA will be able to reassemble with a better understanding of the outcome of the pandemic.

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COVID-19 – an actuary’s view

Posted on March 13, 2020 by henry tapper

Screenshot 2020-03-13 at 09.18.53

This blog displays part of an article by Matthew Edwards of Willis Towers Watson. You can read the full original through the link in the tweet below. Thanks To Matthew and WTW

Why I read Stuart Macdonald’s tweets is because they allow me to plan ahead

As the world grapples with the growing COVID-19 (coronavirus) threat, a useful reference point is the Spanish Flu of 1918. Given what we now know about COVID-19, are we looking at something of similar severity to the Spanish Flu, or materially less severe, or perhaps worse?

Up until now, the Spanish Flu has been generally regarded as a “worst case” reference point in pandemic modelling: This is as bad as it could get.

The thinking would be that healthcare is so much more advanced now, and we are not recovering from four years of strategic war as was the case then. These positive factors should more than compensate for the (then unimaginable) extent of international air travel and globalization of trade. But perhaps that rationale no longer holds, and we could be heading for something similar.

Plausible mortality impacts

An actuary’s immediate reaction to COVID-19 is, of course, to model it. But even now, with more than two months of data, there are considerable obstacles to any plausible modelling using the typical pandemic modelling methods (e.g. the ‘SIR’ approach of splitting into the states of susceptible, infected, recovering, with age/gender-specific transition rates) and this article does not attempt any such modelling.

Most pandemic models involve a “spread” assumption, R0, which represents how many individuals an infected person will transmit the virus to (in an otherwise perfectly susceptible population). An R0 parameter of one, for instance, equates to a stable state; a value greater than one (at the start of an outbreak) implies growth in infections, with the potential for exponential growth in the absence of interventions. Normal influenza spread implies a parameter of two to three whereas measles is one of the most contagious viruses with an R0 of 12 to 16.

At the moment, even this fundamental element is uncertain by a wide range. Various publications so far have it ranging from 1.4 to over six, while even the World Health Organization’s (WHO’s) suggested range allows almost 100% variation (from 1.4 to 2.5). In addition, as a further complication, the effective rate of reproduction will differ between countries and also vary over time as people shift their routines to avoid infection (hopefully decreasing as people and Governments become more aware of the problems).

Then we have the problem of mortality, the case fatality rate (CFR), which measures the mortality of infected cases. Overall estimates are around 2%, but here there is wide variation between the experience in Wuhan (above 5%) and outside that area (of the order of 0.7%). Reporting and data issues add further uncertainty; even determining the number of cases is challenging, especially given the asymptomatic cases whose number cannot accurately be measured.

These figures compare with the following reference points:

 
Experience CFR
COVID-19 (Coronavirus) Circa 2%?
Spanish Flu 2%
Major flu pandemics (1957, 1968) 1%
Typical flu season 0.1%

The overall CFR in any country is likely to be heavily influenced by the availability of appropriate healthcare resources. However, the age variability seen so far is likely to be similar across countries.

The Chinese experience showed mortality rates varying broadly and exponentially by age, from circa 0.2% for ages up to 40 increasing to 4% for the 60 to 69 age band, 8% for the next decade of age, and roughly doubling again to 15% for anyone 80 or older. (This concentration of deaths at higher ages is supported by observation of the ages of reported European fatalities.)

So what sort of impact is plausible? To paint a very broad picture, if we assume a CFR in the 0.5% to 1.0% range (in line with the ‘outside Hubei’ COVID-19 figures to date, and the 1957/68 pandemics), this could lead to, as a plausible order-of-magnitude conjecture, a doubling of mortality in a country such as the U.K. – that is, an overall doubling of population mortality, not a doubling of mortality for infected cases. This would be a bad outcome (and is not a ‘best estimate’ prediction), but it is plausible.

Moreover, the above broad-brush perspective deliberately overlooks various likely and material indirect impacts. The likely surge in patient volumes at healthcare facilities related to a sustained COVID-19 outbreak in any country could mean a corresponding squeeze on access to care (and hence, increased mortality) for patients already suffering from other serious conditions in secondary care. There will be an equivalent but less severe effect at the primary care level. Quarantine and self-isolation will also have a detrimental effect on those suffering from chronic conditions at home. The healthcare workforce will itself be depleted by absences. Furthermore, supplies of medicine taken for granted will potentially be adversely affected by production supply chain issues.

There is one material mitigating point from an insurance perspective, if not from that of the individuals affected: the coronavirus will disproportionately affect the less healthy (in particular, people already with chronic conditions), and hence the mortality impact does not consist entirely of ‘new’ deaths but will include a material proportion of ‘accelerated’ deaths (hence leading to correspondingly reduced mortality in later years).

Posted in advice gap, age wage, pensions | Tagged , , , | 1 Comment

Is Opperman getting it done? #PLSAinvest20

Posted on March 13, 2020 by henry tapper

PLSA 2020

 

Three months is a long time in politics. At the beginning of December Guy Opperman was part of a minority Government seemingly on the ropes. Three months  later, he is part of a Government with a majority of 80 , a path to Brexit secured and a Pension Schemes Bill likely to be on the statute books by the summer recess.

The Guy Opperman we saw yesterday was transformed from the Guy Opperman of late last year. He has truly got his mojo back and he was brooking no opposition, indeed brooking no conversation as he laid down the law at the PLSA’s investment conference in Edinburgh, I bumped into him early in the morning as he swung through the press room , no time for Cheltenham chit-chat he was straight into a meeting with Richard Butcher and others on climate change.

That meeting went on behind closed doors but Butcher later reported to delegates that Guy Opperman was an “angry man”. Regular readers of this blog will not be surprised, the PLSA’s  initial response to what they saw as Government interference on investment strategy has been documented on these pages and would not have met with ministerial approval.

Though the PLSA has softened its position since, clearly Opperman was in no mood for conciliation. We didn’t have long to wait for his speech to the Conference which was the highlight of a pretty epic day. Speaking as markets tumbled, he laid out his agenda with forthright energy that suggests that he has every intention of becoming Britain’s longest running pension minister. Not the usual 5 furlong dash, more a ride round Aintree.

So what was new?

Apart from the style, Opperman’s was a speech in the new “getting things done” style. This is good news because much of what he wants done is long overdue and showing little sign of getting done without  a substantial ministerial kick up the jacksey.

It’s worth reminding ourselves just what the Government has promised to get done (scores mine)

The Pension Dashboard – 2/5

We are expecting shortly a consultation on just what this data should be.  I hope that the approach suggested by Romi Savova and others with an open finance mentality, will be for a simple template that gets a minimum viable product done. The consultation needs to be as forthright as the Minister yesterday; the public are brooking no further delays, we want a way to find pensions and we want it within months.

The mealy mouthed protestations of MAPS at the Work and Pensions Select Committee yesterday that they could commit to no timetable will undoubtedly be of interest to the Pensions Minister. If he had taken questions yesterday, I’d have asked him if he thought we were getting value for money from the general levy – especially that part hypothecated to pay for MAPS. 14 months after the relaunch of the dashboard – Government is not getting it done.

Simplified pension statements 4/5

It may seem an easy win but it’s not. Opperman is providing support for the voluntary adoption of simplified pension statements and setting the right tone. He could do with listening a little to those who are having to face headwinds, but overall the Government are doing a good job – and Opperman is driving change not reacting to it

Reporting on the carbon footprint of a scheme. 5/5

Occasionally Government get it right and Opperman’s DWP are getting it absolutely right in their bid to get schemes to report to consistently about the adoption of strategies that help in meeting Britain’s emission targets and more generally, adoption of ESG principles.

Opperman left his audience in no doubt that the implementation of the strategy was in the hands of trustees but that if they didn’t follow the direction of travel of the country as a whole, he would use the Pensions Regulator’s powers to make sure that “things got done”

 

The Pensions Schemes Bill 4/5

The Pensions Bill is a big beast and it’s getting done. It doesn’t carry all before it , but it will provide us with important tools for the future. CDC and the pensions dashboard are the most obvious, climate change reporting – probably the most far reaching and the extra powers for tPR the unwanted appendix.

The Minister came under pressure as to why he didn’t include DB consolidation, judging by the new guidelines set out by tPR, it looks increasingly unpleasant to manage DB schemes without substantial support from the sponsor, most trustees will have to follow tPR’s rules which gives them little discretion. Increasingly, the option to consolidate will become attractive, rather than the last resort.

The problem with giving tPR new powers , without the option the option to walk away, will mean that many trustees are simply executors of the Living Will – written for them in Brighton.

Auto-enrolment 1/5

If Opperman is screwing up, it is in his failure to follow through on auto-enrolment. Frankly he is milking the good work of his predecessors and failing in his self-appointed duty as Britain’s first minister of financial inclusion.

He could and should be fighting the fight with the Treasury on behalf of the 1.7m auto-enrolled , who are not getting the incentives to reward their participation.

He could and should be doing more to include the self-employed in auto-enrolment. The “no shit-sherlock” findings of recent trials which discovered that the self-employed will not be nudged into pension savings by Government messaging should tell him all he needs to know about sidecars and other gimmicks. Stick with meaningful nudges like an opt-out of contributions made as part of the tax-system.

The take up of pension credits is too small and the shift to universal credit is not being properly explained.

He should also drop immediately the ludicrous suggestion that infrastructure and private equity should be included in the defaults of workplace pensions, with performance fees being paid over and outside the cap.

Overall score 16/25 (64% and A-)

I like Guy Opperman and I think I’d like him a little bit more if he did a bit more listening and didn’t quite so carried away with the sound of his own voice.

He’s now an accomplished pension minister – he knows his brief. He’s not as deep a thinker as Webb or Altmann , but he’s dynamic and effective and he’s doing just what a “getting it done government should be doing.

So here are my three messages to Guy Opperman, having thought a bit about what he said yesterday

  1. Stop milking auto-enrolment and get the financial inclusion trail back on the road. the people who are losing out don’t have a voice and the Minister of Financial Inclusion should be that voice.
  2. Sort out MAPS and get them doing proper work. Empower Chris Currie and the implementation group to get on with it
  3. Keep pushing on climate change and don’t get distracted by calls to get illiquids into workplace pensions, save the planet – not fund managers.

 

 

 

 

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PLSA investment conference- by leaves we live.

Posted on March 12, 2020 by henry tapper

 

Screenshot 2020-03-12 at 07.44.55

Geddes’ and the City of Edinburgh

“By leaves we live” is the dictum given to Edinburgh by Patrick Geddes, one of those chaps I’d have loved to have met. I came accross him on my way to the PLSA conference , walking the Royal Mile from my AirbnB. According to the National Library of Scotland (also on my route), Geddes aim was ‘to see life whole’, and to achieve a better understanding of human beings in their natural, built, and social environments.

‘How many people think twice about a leaf? Yet the leaf is the chief product and phenomenon of Life: this is a green world, with animals comparatively few and small, and all dependent upon the leaves.’

Ezra Pound followed this up with another dictum “learn of the green world what can be thy place, pull down thy vanity”.

The Vanity of Human Wishes were clearly on display yesterday. In the face of the Coronavirus, the Governor of the Bank of England cut interest rates, the Chancellor of the Exchequer doled out £30bn and the delegates at #PLSAinvest20 assiduously scrubbed their hands.

This was not a day to fight each other. Stephen Timms and the Work and Pensions Select Committee meekly accepted MAPS’ blandishments about further delays to the dashboard. The great plan to reform tax relief has been shelved in favour of a reshaping of the Annual Allowance and its taper. The net pay anomaly will be investigated with a call for evidence to come, but everything, even the oil war between Russia and Saudi Arabia, played second fiddle to Coronavirus.

Lived risk

It seems that half the conference is absent. One speaker who I’d travelled 400 miles to see, spoke on a webcast from an office 400 yards from mine in London. Many delegates aren’t here and if we struggle through to the end of the program, it will be as much an achievement as the fulfilment of Cheltenham’s racing festival.

We will look back at this event and wondered how it went ahead. Whether we do so with pride or with horror will depend on how events unfurl.

But there is a very real sense up here of being part of an enterprise. for once we are living the risk.

By leaves we live

For leaves read “people”, pensions are about people’s lives and older people are living in particular fear right now.

We have a responsibility to ourselves and to those around us, especially older folk, to keep the risk of assembling together to a minimum/

We will hear today discussions about the impact pension investing can make on the green world and whether you think of leaves, metaphorically or not, we interact with out planet in ways we can control.

Behaving responsibly to investors, to our planet , society or in business governance is the mark of a civilised and well run pensions industry. I was quite proud yesterday, to see how, when faced with the challenges of the day, people rose to them.

Geddes has been dead 90 years but his monument is much of the town planning of Edinburgh.

Another of his dictums was “learning by doing”, I am sure that in “getting things done”, the Chancellor will learn much too. Let’s hope that MAPS get things done too.

You can watch the Work and Pensions Select Committee’s conversation with MAPS here.

 

 

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Sobering advice to founders and CEOs

Posted on March 11, 2020 by henry tapper

Screenshot 2020-03-10 at 21.40.26

Anyone thinking running a small business at a time like this is fun, is deluded. It is not fun- it is scary. Not only can Coronavirus take our your livelihood , but it can take out those who rely on you for work. It can also destroy the shareholder value you’ve spent years building up. Thanks to Heather Hopkins who has pointed me in the direction of this sage advice to people like me , at a time like this.

If you don’t think this applies to you, you take no responsibility for your actions

 

 

responsible

 

 

Here is a note that we sent to Sequoia founders and CEOs today to provide guidance on how to ensure the health of their business while dealing with potential business consequences of the spreading effects of the coronavirus.

Dear Founders & CEOs,

Coronavirus is the black swan of 2020. Some of you (and some of us) have already been personally impacted by the virus. We know the stress you are under and are here to help. With lives at risk, we hope that conditions improve as quickly as possible. In the interim, we should brace ourselves for turbulence and have a prepared mindset for the scenarios that may play out.

All of you have been inundated by suggestions for precautions to take around COVID-19 to protect the health and welfare of you, your employees, and your families. Like many, we have studied the available information and would be happy to share our point of view — please let us know if that is of interest. This note is about something else: ensuring the health of your business while dealing with potential business consequences of the spreading effects of the virus.

Unfortunately, because of Sequoia’s presence in many regions around the world, we are gaining first-hand knowledge of coronavirus’ effects on global business. As with all crises, there are some businesses that stand to benefit. However, many companies in frontline countries are facing challenges as a result of the virus outbreak, including:

  • Drop in business activity. Some companies have seen their growth rates drop sharply between December and February. Several companies that were on track are now at risk of missing their Q1–2020 plans as the effects of the virus ripple wider.
  • Supply chain disruptions. The unprecedented lockdown in China is directly impacting global supply chains. Hardware, direct-to-consumer, and retailing companies may need to find alternative suppliers. Pure software companies are less exposed to supply chain disruptions, but remain at risk due to cascading economic effects.
  • Curtailment of travel and canceled meetings. Many companies have banned all “non-essential” travel and some have banned all international travel. While travel companies are directly impacted, all companies that depend on in-person meetings to conduct sales, business development, or partnership discussions are being affected.

It will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing. Some of you may experience softening demand; some of you may face supply challenges. While The Fed and other central banks can cut interest rates, monetary policy may prove a blunt tool in alleviating the economic ramifications of a global health crisis.

We suggest you question every assumption about your business, including:

  1. Cash runway. Do you really have as much runway as you think? Could you withstand a few poor quarters if the economy sputters? Have you made contingency plans? Where could you trim expenses without fundamentally hurting the business? Ask these questions now to avoid potentially painful future consequences.
  2. Fundraising. Private financings could soften significantly, as happened in 2001 and 2009. What would you do if fundraising on attractive terms proves difficult in 2020 and 2021? Could you turn a challenging situation into an opportunity to set yourself up for enduring success? Many of the most iconic companies were forged and shaped during difficult times. We partnered with Cisco shortly after Black Monday in 1987. Google and PayPal soldiered through the aftermath of the dot-com bust. More recently, Airbnb, Square, and Stripe were founded in the midst of the Global Financial Crisis. Constraints focus the mind and provide fertile ground for creativity.
  3. Sales forecasts. Even if you don’t see any direct or immediate exposure for your company, anticipate that your customers may revise their spending habits. Deals that seemed certain may not close. The key is to not be caught flat-footed.
  4. Marketing. With softening sales, you might find that your customer lifetime values have declined, in turn suggesting the need to rein in customer acquisition spending to maintain consistent returns on marketing spending. With greater economic and fundraising uncertainty, you might even want to consider raising the bar on ROI for marketing spend.
  5. Headcount. Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.
  6. Capital spending. Until you have charted a course to financial independence, examine whether your capital spending plans are sensible in a more uncertain environment. Perhaps there is no reason to change plans and, for all you know, changing circumstances may even present opportunities to accelerate. But these are decisions that should be deliberate.

Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive “are not the strongest or the most intelligent, but the most adaptable to change.”

A distinctive feature of enduring companies is the way their leaders react to moments like these. Your employees are all aware of COVID-19 and are wondering how you will react and what it means for them. False optimism can easily lead you astray and prevent you from making contingency plans or taking bold action. Avoid this trap by being clinically realistic and acting decisively as circumstances change. Demonstrate the leadership your team needs during this stressful time.

Here is some perspective from our partner Alfred Lin, who lived through another black swan moment as an operating executive:

“I was serving as the COO/CFO of Zappos when I was summoned to Sequoia’s office for the infamous R.I.P. Good Times presentation in 2008, prior to the financial crisis. We didn’t know then, just like we don’t know now, how long or how sharp or shallow of a downturn we will face. What I can confirm is that the presentation made our team and our business stronger. Zappos emerged from the financial crisis ready to seize on opportunities after our competitors had been battered and bruised.”

Stay healthy, keep your company healthy, and put a dent in the world.

Best,

Team Sequoia

responsible 2

You can read the original of this blog here 

Posted in pensions | 1 Comment

Resilience.

Posted on March 10, 2020 by henry tapper

I am sure Holly’s graphic shouldn’t be taken as financial advice , though some will try to catch a falling knife.

We have no way knowing if the bottom of this stock market slump will see the FTS fall below 6000, 5000 or 4000. Those brave enough to invest in stocks and shares ISAs or top up their pensions using default funds before April 6th will hope that they are treated to a decent price for their money, but we swim in shark-infested waters.

At times like this we are called on to be resilient. If you’ve been through of these sharp falls (the first I can remember was in October 1987, you should be resilient. You will know that the market will come back and the only mistake you can make is to miss the rebound.

What’s different this time?

Well this time there is a huge lot more money in the market belonging to “Sid”, the amateur investor. This is not just because of the move to DC, the impact of auto-enrolment but also because around £70bn has been voluntarily transferred from defined benefits pension schemes into personal pensions. And the money is now in the market and is , on a “mark to market” basis, down a fair way.

Screenshot 2020-03-10 at 06.04.45

FTSE 100

What’s different is not the speed or the scale of the fall in the stock market, but that most of the people whose pensions are now dependent on these markets, have never been here before.

It is now that we will test the abstract notions of “financial capability”, “vulnerability” and “capacity for loss”. I believe that under MIFID II, those responsible for managing other people’s money, have a responsibility for reporting losses of 20% or more.

How do you tell a steelworker that his pension has just been cut by 20%, that he’s looking at a 20% pay-cut for the rest of his life?

Of course you don’t. Because if you are managing people’s money, you think about staying in the market , of rebounds and of buying opportunities (hat-tip to Holly).

We don’t know what it’s like..

I’m about to go up to Edinburgh and meet money managers at the PLSA’s investment conference. We will be discussing risk and reward in abstract ways but we won’t be discussing the impact of the impact of these events on the people who de-risked defined benefit pensions and took the risk of the market impact of an energy war and a pandemic onto their personal balance sheets.

When we discuss “mark to market”, we wont’ be doing so in terms of household economics. Instead we’ll be looking at triggers, of market opportunities. Those who have seen their schemes decimated by the take up of CETVs may be thanking their actuaries that not only did that gilts +  investment strategy make the scheme super-resilient, but it rid it of a good chunk of unwanted liabilities.

Some of those unwanted liabilities are now nursing six figure losses, many transfer value may be – on a “mark to market” basis, down more than £100,000 since this time last month.

What are we doing about our new customers?

As an advocate of CDC, I have been lectured about the need for “responsible messaging”. Can I now ask those who lectured me, what responsible messaging they are giving to the people who are reliant on the markets to pay their pensions?

Holly’s approach may not be regulatorily  correct, but at least it speaks the language of the new “investor”.

Last week, I sat in the offices of the wealth management unit of one of Europe’s largest insurance. The head of department was telling me that he oversaw funds that were making a great deal of money out of the “coronavirus opportunity”. I am sure he is right and that there will be winners.

But those winners will need counter-parties and I don’t expect that those cashing out of the market right now will be smart investors recognising “the first cut is the deepest”. I suspect that many funds will be liquidating assets to meet redemptions from people who don’t want to play the game any more, whatever the cost of quitting at half-time may be.

This may be an extreme case, but it highlights a fear many ordinary people have, that the markets are rigged against them. The trouble is that they are now in those markets and no longer protected by collective pensions.

Resilience – a key concept in investment.

Investment is not about taking risk off the table, it’s about keeping risk on the table. Investors are keen to keep capital in the market so that companies can be productive and the wealth of nations grow. Pensioners need risk to stay on the table because they live a long time.

Pension schemes have chosen to de-risk and their exposure to risk (including ironically the paying of pensions, is massively reduced since the last time I went to a PLSA investment conference (2004)

But in its title, the PLSA now says it is representing not just pensions, but lifetime savings too. Put in steel-men’s language, that means it should be representing not just the BSPS pensioners, but those who opted-out and took their money.

The vast majority of risk is now in retail not institutional funds. These funds are managed by wealth managers not investment consultants. Liabilities are discussed by financial planners, not actuaries.

Resilience is the key at times like this. Now is the time we stress-test. I wonder how many of those 150,000 former members of DB schemes who are now being asked for resilience, will be represented at the PLSA investment conference.

port talbot steel workers

Posted in advice gap, age wage, Blogging, BSPS, Consolation, defined ambition, pensions | Tagged , , , | 3 Comments

This General Levy hike is a tax on the poorest savers – are they getting VFM?

Posted on March 9, 2020 by henry tapper

PLSA levy

The PLSA are on the money here. The General Levy will end up being paid for by ordinary savers of large workplace pensions .

NEST has 7.5m of them, Peoples Pension has 4.5m  NOW has 2m of them , Smart has 0.5m of them. The 10% increase in the General Levy will stop these organisations introducing innovation and bringing down charges.

Darren Philp of Smart Pensions is quoted in Professional Pensions  stating

“AE schemes should not be seen as the cash cow paying for increased regulatory costs,” he said.

“Short term, sticking plaster solutions are not what’s needed when it comes to the future of the levy – the promised review needs to look fundamentally at the costs of regulation and where those costs fall.”

“To fill a black hole of its own creation, the DWP is hitting hardest at those providers that are in the vanguard of delivering AE and this levy increase has a disproportionate impact on those providers serving low to moderate earners.”

“We need proper scrutiny of regulatory expenditure and a revised levy formula that is fairer across the industry.”

The People’s Pension (TPP) agreed AE savers “disproportionate” share of the levy payment made a full funding reform crucial.

The AE provider said:

“As the levy is calculated per member, AE master trusts – whose members are likely to have lower earnings and multiple smaller pension pots – are left paying a disproportionate share of the charge compared to the assets they hold.

“Just ten master trusts will pay 25% of the total general next year, despite only holding 2% of the assets across occupational pensions.

The 10% increase in the General Levy is to pay for the Pensions Regulator (TPR), the activities of The Pensions Ombudsman (TPO) and part of the activities of the Money and Pensions Service (MaPS).

This is an awkward week for the third of those bodies which is up in front of the freshly reformed Work and Pensions Select Committee with the excellent Stephen Timms in the Chair.

Screenshot 2020-03-09 at 07.04.33

The WPSC will be asking questions about the pensions dashboard’s progress on Wednesday morning. I hope that they will also ask MaPS what value the public is getting for its money.

My views are plainly stated on this blog. MaPS is not – in my opinion – doing enough work. It is spending too much time strategising and too little time focussing on getting the data standards the dashboard needs as its foundation – in place.

If we are to pay for tPR, the Pensions Ombudsman and for a portion of MaPS out of this greatly increased levy, we should expect more action and less waffle.

Screenshot 2020-03-09 at 07.03.40

 

Posted in age wage, pensions | Tagged , , , , | 1 Comment

“Where risk-managers become risk-takers” #PLSAinvest20

Posted on March 9, 2020 by henry tapper

Screenshot 2020-03-09 at 06.14.33

A week ago I received this mail from the PLSA.

We have received a number of inquiries as to the steps the PLSA is taking to mitigate the risk posed by the coronavirus at our up-coming Investment Conference in Edinburgh.

Please note that there are no current plans to cancel the conference. We are, however, very much aware that the coronavirus situation is evolving. We are monitoring, and will continue to monitor, the UK and global situation, and will act upon any official advice from the UK Government.

Your health is of primary importance to us so please be assured that we, and the Edinburgh International Conference Centre (EICC), are acting upon all official UK Government advice received in order to ensure your safety, to act responsibly and to help minimise the spread of the coronavirus.

We ask that you please act responsibly when attending the conference and follow the UK Government advice regarding travel. You can keep up to date by visiting GOV.UK and the National Health Service.  We will of course also keep you updated on any developments with regard to the conference.

Screenshot 2020-03-09 at 06.27.47

Why am I going to this conference?

The PLSA was still the NAPF when I last went to an investment conference. It will be interesting to see whether things have improved, back then all the conversation was about how to buy-out pension schemes – one of my colleagues called it the disinvestment conference.

I am going this year because I can afford to go, I have a press pass from the PLSA which allows me to report on key issues using this blog as a platform for longer pieces and using  the micro-blogging site.

I can stay in an airbnb for less than I was paying for a bedroom back in 2005 when I last went. The train is fast , comfortable and cheap. I can combine my trip with business meetings with the people in Scottish insurance companies who don’t come south.

And I’m going with fear of infection and a determination to behave as responsibly as I can. I’ve had diseased lungs for the past four months and as a 59 year old, I am more “at risk” than a risk.

A personal and corporate risk assessment

I run my own company and I am the largest shareholder.  I have 500 other shareholders and I know that my health is on the risk register.

Every person who attends the conference is taking risks, not just personal, but corporate.

The irony is that this is a conference about mitigating corporate and private risks. The conference is about making sure that pensions are paid to people’s expectations.

But the risk to the PLSA is existential. Cancel the conference at this point and the PLSA’s financial position could be severely impacted.

If attendees pull out , they lose their substantial delegate fees. Those who get a free pass, have to pay £370 + VAT to the PLSA if they cancel now.

The risks no-one could foresee

Those invested in the market know that the FTSE will continue to fall, the FTSE 100  short- term future is around 6,000. The market is only pricing in so much of the risk that could come from a nation in lock-down. But we know that we have time to see the market recover, we are not crystallising those losses.

But if you go to Edinburgh and the conference is contagious, the risks of coronavirus are crystallised – crystallised in your  impact on the organisation you work for.

Disease does not spare the fund manager , investment consultant or trustee because he or she is aware of the risk. We all have to behave responsibly as for once, we are taking more personal risk than the people we invest money for.

None of us, when we signed up for this conference could have foreseen these risks and we now know the price of not- going.

I’m still going to Edinburgh – are you?

If I was attending under the instruction of the organisation I was working for, I would question why.  Should my employer be putting me in peril?

But I’m going as a business owner and on a promise to the PLSA, who made the ticket available to me so that I could report the conference.

The best I can do is to follow the PLSA’s, the conference organisation’s and the Government’s advice.

Every other person at that conference will be taking risks being there they could not have foreseen when booking.

It would be safer to stay at home, but sometimes you have to take risk. I hope that  that will be a theme of the conference.

Screenshot 2020-03-09 at 06.14.33

Posted in pensions | Leave a comment

Are employers able to “know their workplace pension”?

Posted on March 8, 2020 by henry tapper
Pension image

The Government wants employers to get to know their workplace pension

Are employers the provider’s clients?

In financial services, the client is the entity that takes the decisions on where the money goes. Whether we define “money” as “pension contributions” or “fees paid”, the employer is seen as the client. It has the means to pay.

Are the rights of an “employer as client” properly defined?

Occasionally, the employer sets up a trust board as an arms length decision making board but the trust board is co-dependent on the employer for its future funding.

The role of single employer trust boards has been mightily diminished these past twenty years. The shift from  defined benefit pension to defined contributions has reduced the need for employer trusts. Many employers chose to set up their new DC plans as group personal pensions and latterly, many trusts have wound themselves up and the savings of members have been absorbed into DC master trusts. DB schemes are now being bought out by insurance companies and it looks like many will be absorbed into DB master trusts when legislation permits.

Increasingly pension providers are looking through the trust structure and treating the employer as the real client.

Some of the largest employers in the land have no pension  trustee board of their own to oversee the investment of money into staff pensions. BT, who send £450m a year to their workplace pension use a group self invested personal pension. Vodafone and Fujitsu have recently given up on trusteeship and now participate in a master trust. Tesco – though it still manages its staff money, is a participant in a master trust and has no trustee board to oversee future contributions.

Employers recognise themselves as “clients” having made the decision where to send future contributions and master trusts and insurers running their GPP see them as clients too.

But other than having the right to redirect the future contributions to another workplace pension, the rights of an employer to exercise governance, are ill-defined.

What are employer’s legal duties where it doesn’t own a trust?

The employer is only obliged by the Pensions Act 2004 to pay contributions on time. The employer also has no responsibility regarding investment decisions.

These responsibilities were extended by the 2008 Act which creates a statutory duty on employers to ensure that all eligible jobholders are auto-enrolled into a qualifying scheme, into which a minimum level of contributions must be made, and which has a default investment fund.

According to written evidence supplied by the Association of Pension Lawyers to parliament in 2012

Where employers undertake responsibility for certain functions they are doing this by way of best practice and not because of any legal requirement to do so. Unlike trustees, employers are not subject to a knowledge and understanding requirement and so are not required to possess the same level of knowledge and understanding of the law relating to pensions, investment and funding. Employers are not able to exercise discretion over the fund’s assets.

The final point is open to challenge, some employers are asset managers in their own right and self-manage their staff’s funds, even when they are not trustees – Tesco is an example.

The APL go on to point out that employers doing more than meet their statutory duties are creating extra risk for shareholders. The APL suggested that employers should be allowed to act in a “safe harbour” to ensure the investment of contributions was in suitable funds but the Government has never acted on this suggestion.

The Pensions Regulator’s powers over employer behaviour are limited

We are responsible for maximising compliance with the employer automatic enrolment duties and employment safeguards in the Pensions Act 2008 Act, as well as protecting the benefits of members of work-based pension schemes.

Instead of requiring employers to set up governance structures, tPR has focussed on making qualifying workplace pensions fit for purpose. The Mastertrust Authorisation Framework was put in place so that the 1m new small employers that staged auto-enrolment between 2012-18 can feel their worker’s money is protected.

Meanwhile, the FCA have, following a damning report about insurers from the OFT, put in place Independent Governance Committees to provide oversight of contract-based workplace pensions (GPPs , stakeholder plans and GSIPPs).

The onus has therefore shifted away from employers being responsible for the outcomes of pension schemes to their being responsible for inputs. Provided employers choose qualifying workplace pension schemes, they have no legal obligation to make sure those pensions work.

Pension inage 2

Only where the employer has in place a trust board, has it an obligation, which is why so many employers are packing in running their own trusts for workplace pensions.

How do employers assess “Value for money”?

Despite not being responsible for outcomes, employers have both a commercial interest and a duty of care to ensure the money they send to GPPs and master trusts provides value for money.

Employers who don’t have their own trusts find it hard to determine whether they are getting value for money and are dependent on annual statements from IGCs and the Trustees of Master trusts on whether their staff are getting value for money.

The FCA considers value for money as a three legged stool with performance, charges and the user-experience being the three legs.

For employers there is a fourth leg, being the capacity of the provider to administer contributions in a way that keeps the employer compliant with its duties under auto-enrolment (value) and doesn’t cost them (money) in the management time involved with pension management. For most employers , value for money assessments start and stop there and most employers who change providers do so because of the cost of working with the provider.

However, many large employers see pensions as more than compliance and concern themselves with measuring the outcomes their staff are getting. The larger the employer , the greater the resource that is generally devoted to this subject. The very largest employers (like Tesco) actually spend money on the investment of their staff’s money and measure the results of that investment in terms of member outcomes.

There are commercial and fiduciary reasons for this. If Provider A can produce the same outcomes for members for a 6% employer contribution, as Provider B does for an 8% contribution, then Provider B is only 75% as effecient. The employer can use past performance over time to establish whether staff are getting value for participating in the employer’s scheme.

Employers who can measure performance can also see where things are going wrong and express concern to providers (and even IGCs) where problems happen. For instance they may be able to spot areas where there appear to be freak results and investigate whether these are the result of staff taking unusual investment decisions or whether it’s because of failures in record keeping at the provider’s end.

It is in the interests of larger employers to do so as they consider they have a duty of care to their staff (financial wellbeing) and because they want to maximise the economic value of the money they are paying to third parties.

Data privacy for workers – a right in law!

Under old-fashioned trusts, trustees were able to see what was going on and manage problems personally, they could see who was investing what and might even intervene where necessary.

But with contract based plans, and where employers are only participating in commercial master trusts, they have no right to see individualised data. Only where a staff member makes a data request and shares data with the employer, can the employer see what has happened to a staff member’s pot. This is not just GDPR, it is because the contract is between the individual and the provider or the member and the trust.

This is generally accepted as the downside for employers of outsourcing governance and is expected. As far as I know, employers do not put pressure on providers to break confidences and if they did, the provider would need to whistleblow.

But do employers have the right to assess their pension’s VFM?

Where problems are arising is when employers make general data requests on behalf of all staff so they can make their own value for money assessments.

This means getting large data sets analysed by consultants (AgeWage for the moment but more may follow). A legal argument can be used to deny employers access to this data on the basis that it is not the employer’s data but the policyholder’s data or the trustee’s. The employer is neither the policyholder or has its own trustee representative.

Employers are arguing that they are asking for anonymised data on staff and that as “the client” they have a commercial and fiduciary interest in what has happened to the money they’ve sent to the provider.

There are many instances where information on the management of member records is shared by providers (many providers operate service level agreements with employers to ensure the employer can measure VFM in administration).

Providers are increasingly sharing generalised data on employee behaviour (percentage use of default, numbers of employees using the provider web portal and son on).

But data which allows employers to check the internal rate of return of staff using the provider’s scheme involves providing contribution histories and pot values (NAVs) and this data is not normally considered something that employer’s would want.

So there aren’t systems in place to provide this data and in any event , a provider can say “no” and suggest to the “client” that the request is unreasonable.

Clarification needed – consultation coming!

The FCA are likely to issue shortly a consultation on “value for money”. I hope it will consider VFM from the employer’s point of view.

If the employers is considered a client by the provider, then this suggests the client has rights and this has long been recognised.  Pension Governance Committees are usual for larger employers and have long been considered best practice.

For employers who set such committees up, it is natural that they should consider whether staff are getting value for money. They can also consider how the scheme is run to ensure the employer is getting value. If they think the value is poor they can renegotiate terms or replace the provider.

If they make a request of their provider as a participating employer in a master trust or a GPP can they expect to get the data request honoured?

In AgeWage’s view – employers have a reasonable expectation of being able to see anonymised data relating to the performance of the pots of individual members and to be able to assess from this information whether there’s value for their member’s money.

Screenshot 2020-03-08 at 07.33.52

An example of AgeWage reporting on a group of individual pots

But we’re pretty sure they don’t have a right to it.

In our view , the question of what is a “reasonable request” is one that needs answering. Technology is changing and data analysis is delivering value in ways no one can predict.

While employers do not have a right, where they can demonstrate that they have a capacity to make use of the data available to assess value for money,  it seems both churlish and counter-productive to good relationship management , for providers to deny the request.

The capacity of third parties to analyse anonymised data is increasing too. The Open Finance initiative is designed to make data-sharing easier and more productive.

It makes sense for these issues to be part of the forthcoming consultation and we will be arguing these points to the FCA when the consultation is announced.

Posted in advice gap, age wage, pensions | Tagged , , , , , , , | 2 Comments

Are you prepared for “work from home”?

Posted on March 6, 2020 by henry tapper

Transparency in the workforce

I’ve asked the question in a specific way. “Work from home” is going to become a reality for most office workers over the coming months as we struggle to contain or delay Coronavirus.

It is likely that many offices will not be able to function normally if there is a confirmed case of coronavirus amongst its staff. In shared workplaces, it may not even be your work colleagues who trigger an office closure. Already in London we see a number of offices closed to work with workers asked to “work from home”.

We added coronavirus to our risk register two weeks ago (thanks to a risk officer who made me think of what a Plan B for our start up would be. Have you sat down with your bosses or your staff and worked out what should happen if you had to leave your work space.

We’ve identified three key metrics “accountability, trust and efficiency”  for working out if we could manage remotely. Are each of us accountable to the business for our output, can we trust each other to do our bit and do we have the tools to work effeciently.

Putting aside the obvious benefits of collaboration in a single workplace, their seems relatively little downside in having to work from a number of locations and there could be some savings in time travelled which could lead to an easier and maybe more productive working day – in the short-term.

This will inevitably lead to people questioning the value of physical collaboration and there I am already getting approaches from consultants keen to sell me “transparency solutions” which appear to involve giving me means to spy on my staff.

I laugh at this abuse of “transparency” though I can see why “accountability” needs to be reinforced by vigilance where a workforce’s productivity cannot be trusted.

Can technology cope?

I’m speaking with someone on zoom this morning who I could meet in Edinburgh next week. I thought “why wait?”

Only a few year ago a video-conference call meant booking a room and spending half the allotted time fiddling with technology you didn’t understand. Now most meetings are phone to phone with the option to link to a larger screen without a wire in sight.

For many people, broadband speeds are as high or higher at home than at work and the cost of connectivity is minimal. While issues of security are still there, for most people – who work in an office – remote working is no longer challenging from a technology perspective.

But the capacity to separate work and office life is another matter. Many people find their efficiency working from home drops because they cannot separate themselves from the distractions of home-life. This does not seem to be entirely generational, I have friends and relatives in their twenties who want to work from a work environment. But I acknowledge that the trend is towards home-working and it’s driven by those coming into the workforce.

I’ve found co-working inspirational because it takes me out of the solipsism of age. I am confronted on a daily basis by the energy , vitality and competence of those less than half my age. Bringing what is formally known as “diversity” into my work life, makes me think outside myself – it reduces the risk of AgeWage becoming focussed on the needs of a white- 59 year old- male.

And I don’t think you can replicate knowing “the other” by watching youtube videos.

Technology helps for business as usual and while it may help machines learn, it doesn’t help us learn the fundamental life-lessons we need to understand each other personally.

Face to face meetings help us learn in 3D.

Are we prepared for work from home?

Already we are seeing empty offices around us in WeWork Moor Place. I have to consider the evacuation of our space as a real possibility if coronavirus is linked to our building and obviously I need to work on a worst case scenario that one or more of our small team catches the virus and we have to self-quarantine.

There is an argument that we stop co-working now and that’s what’s happening at Chevron , HSBC, Deloitte, S&P and no doubt many more offices.

Some bankers are being told they can expense taxis to work rather than go on the tube (we use corporate Santander bike keys!).

I think Coronavirus will accelerate an acceptance of home-working as an alternative to office work and drive firms further down the road to co-working with the flexibility it brings.

Will it mark the end of the City or the West End or Canary Wharf as business hubs? I think it will take more than a virus to do that, but I think it will change our attitude to routines which could make going to work a less regular activity.

I speak as a Londoner and suspect that London is probably different (we don’t have a car or car-parking culture).

I’d be very interested to hear from others – especially non-Londoners – as to how they are preparing for the chance Coronavirus will impact their working arrangements.

For me, the chance is increasingly becoming a likelihood.

Workie

What’s workie up to?

 

Posted in age wage, coronavirus, pensions | Tagged , , | 4 Comments

Coming to terms with the new virus

Posted on March 4, 2020 by henry tapper

Hands

 

There was an awkward moment at the end of my appointment with my NHS consultant  yesterday morning. As we rose to part both instinctively stuck out our hands and then with a forced laugh withdrew and fist-pumped.

We had spent most of the meeting talking about measures the NHS would like to see in place which were – to use the consultant’s phrase – two weeks ahead of the Government. In the development of planning for the spread of coronavirus in the UK, two weeks is a long time. Yesterday we heard

  • Boris Johnson warned that more than 6 million Britons could be off sick during the peak of the coronavirus.
  • The Prime Minister also said that the armed forces were ‘ready to back-fill as and when’ during a pandemic and that the police would prioritise serious crime.
  • Bank of England Governor Mark Carney told MPs that the economic shock of coronavirus would ‘ultimately be temporary’ and would not be as bad as the 2008 financial crisis.
  • The US Federal Reserve cut its benchmark interest rate by 0.5 per cent to ward off a slowdown caused by coronavirus.
  • The American equity markets responded by falling 3%
  • Labour demanded that all workers who are forced to self-isolate as a result of the outbreak be entitled to sick pay.

But my consultant urged me

  • not to work in a shared workspace
  • not to run today’s Pentech seminar
  • not to travel in a train to Scotland for the PLSA event

and was shocked that the pensions industry was meeting in conference at all.

We are now having to make personal choices which affect others.

I eat in a communal kitchen where food lies unprotected, I hear the sneezes and coughs of my co-workers as they go about their business and I am beginning to feel frightened , as a 59 should.

The consultant told me had earlier seen an elderly patient who told him she was excited to be going to the opera. He had forbidden her, telling her that at 75 , the consequences of her trip could be fatal. Fatal not just for her but for her husband.

The queen wore gloves as she dished out gongs.

Washing our hands thoroughly and not touching our faces are key to remaining personally safe and keeping other safe. We are in this together.

All this seemed improbable to me till yesterday, my meeting with a senior consultant changed that.

What should we do?

If my event were next week, I might well cancel it. WeWork might themselves have forced me to. The PLSA event is going ahead but I doubt it would when the Government restrictions catch up with NHS guidelines.

Our calendars are full of meetings, conferences and social events which may or may not happen.

While most of the 6 million of us who contract this virus will find it no more than a sharp flu-like cold, the mortality predictions for older people, especially those with chronic or acute conditions are severe. The 1% mortality prediction is only an average

Screenshot 2020-03-04 at 05.39.55

Of course you can see this chart as comforting or distressing depending on your age or whether you are a life or pensions actuary.

But this could well be the chart that dominates our personal and professional lives over the next year and it’s time for us to be brave and talk about what this means.

And if you are already suffering a condition, you should be aware of the increased risk to you

Screenshot 2020-03-04 at 06.07.09

This is clearly no more a Chinese problem

Screenshot 2020-03-04 at 06.06.18

 

If I was a trustee of an occupational pension scheme, I’d be asking for a mortality review today.

 

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Who will patrol the investment pathways?

Posted on March 3, 2020 by henry tapper

 

Screenshot-2020-03-03-at-09.07.31

Four different paths

Investment pathways are the big idea to help those getting to 55 and with pension freedom in sight. From August, people will be presented with four paths for their money. One takes them to a point when they can cash out their pension, another to an annuity, another allows them to draw an income and a final one lets the money build up and be passed on to the next generation.

Four paths and the job of patrolling them has been given to IGCs and to 60 new GAAs who will be patrolling the beat for the policyholders of SIPPs and insurers who aren’t offering workplace pensions.

There is guidance laid down by the FCA about what patrolling means, but if I’m encouraging an image of Dixon of Dock Green on his beat, then I’m probably talking to the right generation and instilling my idea of what the IGCs and GAAs should be doing

Dixon

Dixon

Thinking among IGCs I’ve been speaking to has generally been confused. Most IGCs think they have a responsibility to test the pathways themselves while one (David Hare) thinks the job is to test the working to make sure that the process which led to the pathways construction was robust.

As usual, I tend to side with David, if only because the job of providers is to provide and for governors is to govern and when governors start sticking their oar in. then accountabilities get confused, incompetent provision can come from a good process but that is not the IGC’s fault. If providers get lucky by getting it right after sticking their fingers in the air, the IGC should still “call them out” for not having a process.

How effective is the Bobby on the beat

The FCA say they will measure the IGCs

“The rules will require IGCs to include in their published annual reports their opinion on the adequacy and quality of the firm’s policies on these issues for the products that IGCs oversee, any concerns that IGCs have raised, and how providers have responded”

As the IGCs are paid to do their job, the FCA and the provider should expect a good job to be done. This summer the FCA are going to be reporting on the effectiveness of IGCs so I expect the 2020 reports to be particularly good. Each year there are less and less reports to read as insurers consolidate.

I learned last night that Old Mutual’s IGC will be swallowed this year by ReAssure. ReAssure are being swallowed by Phoenix who are the blue whale hoovering up millions of legacy policies like plancton. David Hare heads the Phoenix IGC and is probably the most important person in IGC-land.

I may call him Dixon

Evidence at the scheme of the crime

I found this crumpled page on twitter (I think it is the work of PC Mackay and DC Cumbo.

charges

If the cost of managing a pathway is in this range, I think Dixon has some work to do.

 

dixon 2.jpeg

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What will Isio mean for pensions?

Posted on March 2, 2020 by henry tapper

Screenshot 2020-03-02 at 08.20.08

Over the weekend I saw a number of my pension contacts leaving KPMG and joining Isio. I couldn’t work out what Isio was until the FT ran an article about this new consultancy launching today. If I was in the consultancy loop I no doubt would have heard earlier, but I’m not  (and glad not to be) as I can comment with an “open pen”.

Isio has spun out of KPMG. The transaction allow KPMG to continue to invest in its “core services” of audit, tax, deals advisory and consulting. It means that pension schemes has a new player from whom to buy services.

This looks like good news for pension schemes.

KPMG’s pension proposition had become so constrained by conflicts that it must have been a demoralising place to work at. KPMG couldn’t pitch for work against the independent consultants for fear of falling foul of its internal rules on conflicts with audit clients and there were plenty of good people leaving (such as David Fairs who’s now head of policy at tPR).

Meanwhile, the choice of consultant for projects and ongoing work was diminished by KPMG’s inability to pitch. Now Isio should be pitching for work against the big three (WTW, Mercer and Aon) and against the smaller firms like LCP, Barnett Waddingham, XPS and First Actuarial.

The sooner PWC and EY and Deloitte follow suit, the better.

Who’s owning Isio?

According to the FT – Exponent.

Exponent, the former owner of meat-free food brand Quorn and whisky producer Loch Lomond Distillery, acquired the division from KPMG for in excess of £200m. Isio will advise clients on the management of pension assets worth more than £90bn.

Of course it would have been great if KPMG’s senior team had majority control of the business and that we could announce a new LLP with private equity backing, Since First Actuarial bought out in 2004 we’ve seen little entrepreneurial activity in the pension space. This is the worst for pensions.  I’m glad to hear from Isio that while Exponent has acquired a majority stake in Isio, the 20 Isio partners (former KPMG Pensions Partners) will also take a share of the business.

Who’s joining?

My linked in , shows 31 people at Isio  trading under the joyful banner

“Pensions are complicated – we’re not”

It’s nice to see a new face to pensions and amongst those 31 people are a number I know and like.

It’s not easy building a brand without a web presence- this is what Isio is up against on its first day of trading!

Screenshot 2020-03-02 at 08.31.04

Good luck to Isio, be brave and be bold, like your strap-line!

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Lead generation; little value for a lot of money.

Posted on March 1, 2020 by henry tapper
Screenshot 2020-03-01 at 10.22.34

How all comparison sites ought to work

Most internet comparison pages are misleading and should be taken down

We have a problem with internet lead generation which has been investigated by Laura Purkess and promoted by Jack Gilbert. Here is the twitter thread (note these are screenshots – if you want to read Laura’s article, use this link.

Screenshot 2020-03-01 at 09.27.01

The new introducers are not only on-line but largely robots, providing pseudo- directories which turn out to be no more than a “data capture” for selected clients

Screenshot 2020-03-01 at 09.29.01

One of the lead generators I’ve investigated on this blog have actually been owned by a regulated  IFA and was used to generate interest in a decidedly unsavoury offshore investment product.

Screenshot 2020-03-01 at 09.29.29

Since the lead generators are operating outside the “regulatory perimetre” and aren’t considered financial promotions, they are subject to the strictures of advertising standards. The FCA can’t do anything but if the lead generators are mis-leading, then they should be reported to ASA which has been regulating internet ads since 1995

Screenshot 2020-03-01 at 09.29.52

These sites are not like Money Savings Expert

We need to be clear, what these pseudo- comparison sites that appear on the web are doing is not in anybody’s interest but the lead generator and their clients that you alight on their advertisements.

The sites that they put up are no more than data captures designed to monetise your interest , they do not do , what Martin Lewis and others do and provide genuine content and forums that allow people to make their own minds up as to what to do next.

Indeed , Money Savings Expert explicitly states what it is earning when it passes you on to one of its partners and is regulated by the FCA as a lead introducer. It’s disclosure on how the site is funded is a model of its kind and informs this debate as no other document I have read.

I constantly refer to this document when thinking of how to provide the AgeWage service and am concluding that Martin Lewis’s system of * disclosures is the best to follow. The asterisk tells the customer that following a link with an asterisk will make MSE money.

They are not creating value and costing a lot of money

Lead generation costs IFAs a lot of money, indeed it costs all financial services companies that use it, a lot of money.

It is making lead generators a lot of money and that money is pretty well risk-free. Well it is so long as the lead generators stay on the right side of the law. I have visited organisations that generate leads the right way and use web-pages and they are thriving with high customer satisfaction ratings both from consumers and those paying for the leads.

Typically these companies work on a revenue share basis and aren’t paid by the lead generated. Typically the good organisations are transparent in their finances and the corporate customers they work with.

Money SuperMarket is one such company and the best , the commercial comparison sites which MSE often links to, are also excellent in offering people access to simple financial products which are easy to compare.

But the model for these sites is limited in ambition. There is no pension aisle in the money super market and for good reason. The product – a retirement plan- is too complex for the model.

There is a gap in the market for a simple way for individuals to become savvy buyers of retirement services. Over the summer I hope to spend time looking at how that gap could be filled.

We must find a way to help ordinary people find value for money from their pension savings and a way to help them convert pension pots into retirement plans.

PF-MLewis_2117863b

The man who wrote the book on this

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Putting two fingers up to DWP may end badly for TPR.

Posted on February 28, 2020 by henry tapper
Screenshot 2020-02-28 at 08.34.57

Insubordination or proper regulation?

 

Earlier this month, UKSIF published what is looking a very influential report on how trust based DC schemes  are facing up to the issues of climate change and wider ESG considerations.

It didn’t mince its words

Pension scheme trustees’ policies on ESG factors like climate change are vague and non-committal, and many have not even published their policies – despite their legal obligation to do so

Our findings indicate large scale non-compliance among trustees, who have mostly failed to publish their SIPs as the ESG regulations require.

Our findings indicate that two thirds of trustees have not complied with the requirement to publish their policies. Among those who have published their SIPs, policies are mostly vague and trustees commit to few concrete actions.

However, some schemes are starting to think more carefully about ESG policies, and a few leaders have devoted time and resource to developing a sophisticated understanding of financially material ESG risks.

The Pensions Regulator (TPR) must urgently conduct a thematic review, investigating the state of compliance with the regulations, and the government should look at a new way of ensuring the publication of schemes’ policies to help smaller schemes overcome the practical difficulties.

From 1st October 2020, trustees will have to publish statements detailing how they have implemented the policies in their SIP. TPR should issue guidance requesting that trustees report on what specific actions have taken place to implement their policies. We believe one of the most effective things trustees can do is to incorporate ESG considerations into the selection and retention of investment managers, but trustees need good advice to do this.

TPR can help them do this by giving them advice and guidance when tendering for advisers. TPR should also provide more guidance to trustees on how they can interrogate their investment manager’s approach to ESG issues…

The report goes on to detail exactly what Trustees can do.

DWP follows up

Close on the heals of the publication of this report, the DWP amended the Pension Schemes Bill to allow tPR to do what UKSIF were asking for.  Its Director Pete Searle wrote to tPR’s CEO asking for the adaptation report tPR was producing for DEFRA to cover  the following points

  • financial risks and opportunities from climate change that impact the Regulator and trust-based occupational pension schemes
  • how the Regulator and those running pension schemes are responding to and managing the financial risks and opportunities associated with climate change
  • the Regulator’s policy and regulatory approach to adapting to climate change

The letter was published on the Government website – a clear hint to tPR that the DWP and its pension minister meant business.

TPR responded with the  two fingered salute

TPR’s CEO has now written back as follows (and has published the letter).

We will contact schemes where there are failings and this is the approach we may take in the light of the UKSIF report1. and we will consider enforcement action where appropriate2. Where schemes appear unwilling or unable to comply with these types of governance requirements we will encourage3 them to consolidate into larger schemes such as master trusts, where governance will be more effective.”

  1.  “this is the approach we may take …”  do tPR think it’s down to them which breaches they follow up? This suggests that trustees are best keeping their heads down and doing nothing.
  2. “we will consider enforcement action where appropriate” why might tPR consider enforcement action inappropriate?
  3. “We will encourage them to consolidate into larger schemes such as master trusts”. So what happens if trustees in breach choose to carry on regardless. What power has the Pensions Regulator got left?  Where does this leave DB schemes who don’t have the same consolidation opportunities?

This paragraph says two things to me

  1. TPR are saying this Pension Schemes Bill amendment will only apply to DC. Presumably it is worried about the impact of activism against investments with high carbon footprints (which may tip the schemes of the likes of Shell and Centrica into the PPF).  I suspect “employer covenant issues are rather more important to tPR than the state of the planet.
  2. TPR are saying that they’d like to take a “Sergeant Wilson” approach to DC, implicitly blaming those further up the line while giving the troops every opportunity to do nothing.

 

What will DWP do next?

I don’t expect DWP , let alone the Pensions Minister, to take this snub well. For all the placatory language of Charles Counsell’s letter, tPR are quite blatantly failing to toe the party line.

While tPR accept the DWP’s request to incorporate DWP’s suggestions into its adaptation report, it makes it clear it is going to the PLSA’s annual conference with an ear out for what large schemes will say about the amendment.

Consultation on the guidance led by DWP, which is based on the framework of the Taskforce on Climate-related Financial Disclosures (TCFD), will clearly be critical given the tabled amendment to make disclosure mandatory for larger pension schemes.

TPR and PLSA to act against the Government?

I get the feeling that the forthcoming consultation on just how far tPR goes in the monitoring of pension trustees around ESG, is going to be fiery.

It looks to me that tPR is siding with schemes against rigorous enforcement and cosying up to tPR for a bit of shelter.

If I was Guy Opperman I would be absolutely livid and I’d telling Charles Counsell and David Fairs this is simply not good enough. The recent decision of the Government not to pursue the third Heathrow runway is an ominous portent for tPR as to how this might turn out if Guy Opperman escalates.

One way or another the PLSA’s investment conference is likely to be a lively affair and I’m taking a couple of days off from AgeWage to report on it! I’ll keep you posted.

David Fairs

Further stuff on this…

You can read more about the reaction of UKSIF to tPR’s dilatory response in the FT. Thanks to Angus Peters for doing the reporting and confirming the positions of the key players in this debate.

For those who are interested in the views of ordinary people, I’d suggest you lobby the PLSA to ensure that it’s proposed “innovative” consultation on this issue includes survey’s of the views of savers and pensioners in the schemes that form its membership. More on my blog here

Posted in pensions | 2 Comments

If you’re in the market – you stay there.

Posted on February 28, 2020 by henry tapper

Yesterday afternoon I walked into the office of an asset manager whose funds are used in the “wealth sector”. The meeting didn’t take very long, the poor fellow was counting the seconds till he could get back to his screens as markets tumbled. Frankly the interests of the investors using his funds were secondary in our conversation to those of the intermediaries whose portfolios were in free-fall.

I tried asking about whether he thought the actual owners of these portfolios were the investors but the immediacy of the crisis facing him did not brook niceties.  His customer was the person buying his fund and that was the wealth manager.

The wealth manager has a different problem. He has to explain why the portfolio he carefully put together has bombed, not for any of the reasons he could have predicted last year, but because someone caught a bug off an animal he was purchasing in a market in a district of China no-one had ever heard of.

For this a client with a £1m personal pension, may have lost more than £100,000 in the past week. There is some explaining to do, but no doubt the problem is not the wealth manager’s either, it is simply a “market correction”.

People don’t get markets – not when it’s their own money

Yesterday Al Rush and the steelworkers from Teeside to Port Talbot visited parliament to complain about the poor advice they had received, the unfortunate exposure they had to markets and the failures of regulators and trustees to stop them swapping rights to a pension for rights to a fund.

Many of these people will have lost more in a week than they earn in a year. Rather than let the trustees of the New BSPS pension scheme worry about the marketing correction, they have to do that worrying. You can understand why steelworkers “transferred out” by watching this video (curated by Al Rush).

But the advisers who told them they would be better off on their own are powerless to prevent their portfolios falling in value by 10%+ in a a couple of days.

And this is where it gets nasty, because what the steelworkers heard was  a promise that they would be better off on their own than with the BSPS Trustees and a promise to a steelworker is as good as a guarantee.

What are we getting paid for?

Although I do not manage money, I feel complicit , just as Holly Mackay does. Writing a column in the FT , Holly asks herself why she pays £30 for a bottle of Sip-smith gin when she could pay £11 for Morrison’s own brand.

She gets letters from people who invest their portfolios through advisers

Compared to other professions, this feels steep. Let’s say a barrister costs £2,000 a day. For your £28,000 bill you get 14 days of focus, largely undivided attention on you and utterly bespoke treatment.

Was our reader getting that level of care? I doubt it.

Was he paying massively over the odds? No.

Was it value for him? I can’t answer that.

The well-heeled investment industry loves to tell an audience in complacent self-satisfied tones that a fool knows the price of everything and the value of nothing. The problem is that pension customers today are unable to calculate even the basic price of anything, let alone get on to considering value.

We’re being kept one rung below fools, and without devoting hours of your life to finding out the figures, it’s very hard for consumers to shop around.  As an industry, we have to start by making charges clear to people upfront and publishing on websites what they will pay for the services they receive — and in tangible pounds and pence amounts, not “basis points” or percentages with 20 pages of small print.

And here the grim reality hits home for the steel men. They were buying Sipsmith gin not Morrison’s own brand. But they shouldn’t have been buying gin at all. They drank Brains in the rugby club bar and had no need to be paying upwards of £10,000 pa for the management of their pensions. But the 2.5% pa I found many were paying (before transaction costs) on an average CETV of £400,000 meant that they were paying the best part of £1000 per month for what they were getting from the scheme for nothing.

And whereas the scheme was protecting them at times like this, the financial adviser is powerless. How many steel men’s transferred pots  have been protected from the market downfall? For all the money paid to advisers, I would suggest very few.

The gin-sipping clients of Headline Money feel “rinsed”, as do the steel men now cared for by Al Rush.

The grim irony of the timing

At the very time when the steelworkers were assembling in the cafe of Methodist Central Hall before meeting MP’s, the market was opening to a further 4% fall. Today it will open to another big fall, predicted by the far-east markets which are tanking.

The FTSE has sunk through 7,000 and there is no obvious floor in sight, could it sink through 6,000 or further? Are bonds immune? Is there a safe haven and is there any way to get to it? Should you be cutting your losses now or riding the storm? These are the questions that those dependent on their portfolios have to ask and there is simply no good answer to any. We will know in a couple of weeks, perhaps a couple of months, but like the poor chap who I met in his City office, right now he has nothing to say that can give his clients much comfort.

The grim irony of all this will not be lost on the steel men who may have misplaced their trust but who are certainly not stupid.

Can Mickey Clark give some advice?

To the chap in his City office or the wealth manager in Surrey or South Wales, to the gin-sippers and the beer-drainers.

Mickey Clark retired today. He had his last show on Wake up to Money this morning. He leaves at the end of the worst week of the financial crisis and you can hear him chuckling through it here

Mickey has been through a few of the crisis’ we are currently experiencing and he doesn’t even have to mention current events  to advise us how to cope with them.

Mickey just keeps smiling, working and helping us deal with the twin imposters as one.

Mickey Clark has never charged for his advice but it’s worth a few bob, a lot more than some of the advice dished out by some advisers.

All we can do is to sit tight and wait, and it may be a long wait, but if you are in the market , you stay there.

mickey

“you can’t call the bottom of the market”

Posted in advice gap, age wage, pensions | Tagged , , , , | 1 Comment

Do we long-term care?

Posted on February 27, 2020 by henry tapper

Older people find it easier to deal with death than with the implications of detoriating mental and physical age.

This is an issue that effects most of us in some way

Screenshot 2020-02-27 at 05.33.53

Walking back to the City from Irwin Mitchell’s seminar on the “Elderly Care Crisis; a tipping point”, I talked with someone who’s parents had prioritised investing in funeral plans but had made no provision for power of attorney. To their daughter this was no help to her, she could meet their funeral expenses but would find it much harder to manage their affairs if they couldn’t.

Screenshot 2020-02-27 at 05.34.06

Be Brave

This is just one example of the strain that a lack of planning  can create on families. It is understandable from a behavioural point of view that we prefer the finality of death to the uncertainty of living with decreasing capacity, but we must be brave and take on these problems before they overwhelm us.

What goes for families, goes for Government, we have been kicking the can down the road since the Dilnott Commission in 2011, the demographic challenges of an ageing population will ultimately make a chronic issue acute.

But there are things individual, families and Government can do to plan ahead to ensure that we do not eventually have an elderly care crisis. Irwin Michell argue that we will reach a tipping point by 2029 and that unless we start taking action now, we may leave it too late.

They are calling on us to be brave and start taking decisions to avert future problems taking six steps now.

  1. Review and reform the care funding system
  2. Raise the eligibility criteria for support in paying for care
  3. Help informal carers looking after elderly people
  4. Enforce controls to plan and allocate land for retirement, care and nursing homes
  5. Educate workers on the importance of pension savings
  6. Raise awareness of the need for financial planning

A brave seminar focusing on what we can do

I was struck by the honesty displayed by delegates at yesterday’s event. The issues that we are dealing with in old age range from incontinence to dementia and many elderly people lose their dignity in lonely isolation.

The consequences for those who care for them are also severe. The emotional and financial cost of leaving work to care can be as great as the cost to a family of long-term nursing whether brought in or offered in residential homes.

Too often events like this simply pass the buck to Government but those presenting (and chair Ros Altmann) focussed the conversation back to what people can do regardless of Government,

With the average cost of funding long term care estimated at £96,000 , only 10% of households can afford to pay for nursing fees out of income.

There is no painless solution but planning can spread the pain and make it manageable. The kind of steps people can take, typically with professional help include;

  • Managing your assets and making sure they’re protected for your future
  • Getting the most out of your pension so it continues to grow and doesn’t run out
  • Maximising your savings by making the right investments
  • Downsizing your property and making the process as easy as possible
  • Structuring your retirement plan so you can pay for elderly care if you need it
  • Handing over a family business and its assets to the right people or groups
  • Any tax relief you could benefit from and making sure your plan is tax efficient.
  • Understanding your benefit entitlements and maximising them

Insuring against future uncertainty

When I started selling insurance, I was told that a pension was an insurance against living too long. Nowadays , the emphasis has changed and many people think of pensions as part of wealth planning.

I have seen too many cases of the planned inheritance dissipating as families find as much as £2000 per week to care for elderly parents.

These costs are insurable and today I will be finding out more about the immediate care annuity, a product offered by Aviva, Just Retirement and now Legal & General.

I’m told that the vast majority of these annuities are bought by those who have power of attorney on behalf of those in care and those who ultimately pay for that care. By insuring against the worst case scenario all parties can be comfortable that those in care are able to stay in care without feeling guilty and that the anxiety on families and carers created by care bills is reduced.

I cite this as one financial product. There are others. Lifetime mortgages are a way of unlocking the value of a home without it having to revert to an insurer of be sold. As Irwin Mitchell partner Jeremy Raj put it yesterday

“we cannot underestimate the emotional value of the family home”

Insurances are designed to make insurers money but make our lives easier. I am not suggesting that financial products like pensions, care annuities or lifetime mortgages are a substitute for love and dedicated care, but they are at least a way for us to plan against uncertainty.

Do we long-term care?

I think we do. We are all scared of growing old and “losing it”. It is harder to think about than death and the consequences of death (which are easier to plan for).

We do care about “long term care” but we are often not brave enough to do anything about it. Talking with your parents and other elderly loved one about planning ahead, about a lasting power of attorney is a tough conversation -everyone has to be brave.

Taking steps to meet future bills whether they relate to properties, businesses or insurances needs the kind of plain-speaking we get from Martin or Paul Lewis. We need to be brave enough to give and take advice.

I think it best to take advice, particularly from a Solla accredited financial adviser, 

You can find an adviser near you by following this link

If you do not want to take financial advice , see a good solicitor. I think I have seen enough of what Irwin Mitchell have been saying to say they are a good solicitor but there are many like them  up and down the country. Most local practices has at least one specialist in these issues.

If we don’t set aside to plan for our and our future dependents now, the cost may be too high tomorrow.

Please “long term” care.

Screenshot 2020-02-27 at 06.33.21

Posted in actuaries, advice gap, age wage, annuity, Consolation, pensions | Tagged , , , , , , , | 4 Comments

Let’s not slide back into the swamp!

Posted on February 25, 2020 by henry tapper
Grendel

Grendel emerging from the swamp

After what they must consider a “decent period”, the insurers and the bankers have reappeared from the slimy depths like Grendel out to wreak revenge on consumers protected too long by Europe.

The insurance and pensions industry is calling for a review of the rules covering financial advice, arguing that Brexit presents an opportunity to move away from EU standards.

We learn from today’s FT that the Association of British Insurers considers EU guidelines around what constitutes “advice” are far too restrictive and it has demanded a full review of the UK watchdog’s Handbook of rules and guidance.

Many life insurers want Britain to move away from Solvency II, the bloc’s capital rules.

A world where we’re told to invest in under-capitalised products by advisers working in banking and insurance call centres sounds like back to the 70s. It is not what we spent the last fifty years campaigning for.

Grendel’s Mother

Even more fearsome than Grendel was Grendel’s mother. If we can continue the parallel – step forward Norman Blackwell, Chairman of Lloyds Banking Group who is given space in the Financial Times to snort his acrid breath over its opinion column

Blackwell argues that where there are sound commercial reasons (eg benefits for his shareholders) Britain should “diverge from equivalence” to European regulations and do as the shareholders like.

The UK already has concerns about the impact of the Mifid II rules on reporting trades on London’s global competitiveness, and will be wary of future EU legislation that moves the bloc away from standards in other jurisdictions. The EU is equally nervous that Britain could relax regulations to help its companies gain competitive advantage over EU rivals.

London, the article implies, can gain competitive advantage if it can compete in non-Eu governed markets unconstrained by the shackles of consumer protections, transparency and solvency margins.

Beowulf

Those familiar with Anglo-Saxon folklore will remember that both Grendel and Grendel’s mum are slain by Beowulf who saves his kingdom from their existential threat.

This morning I will be at a congregation of people dedicated to doing just that. It is timely that Gina and Alan Miller are launching the True and Fair Campaign’s investigative report  Asleep at the Wheel .

We’re told it analyses the scandals and regulatory failures over the last four years. That it looks at the way in which major scandals have gone unchecked on the watch of senior regulators, and raises serious questions about rewarding failure.

Let’s hope that Alan and Gina, and those that support them , can math Beowulf and slay the monsters of the slimy deep.

beowulf.jpg

Beowulf slays Grendel

 

Posted in Bankers, Big Government, Brexit, pensions | Tagged , , , , , , , , | 1 Comment

Jennifer Davidson asks whether stock-lending’s responsible investment?

Posted on February 25, 2020 by henry tapper

Someone told me yesterday that successful people read and failures watch TV. I read this article with the TV on in the background, I can’t remember what was on but the article grabbed me and it grabbed me again when I found it had been written by a young consultant from LCP called Jennifer Davidson. Well done LCP for finding gifted young people and for dragging people like me away from television!

Jennifer Davidson.jpeg

Jennifer Davidson of LCP

Elon Musk was probably happy: an announcement had just come out of Japan that would go on to spark much debate in investment circles. On 3 December 2019, Japan’s GPIF announced it was completely suspending stock lending in a move prompted by its concerns about responsible stewardship. The first question you might ask is: who, or what, is Japan’s GPIF, and why does anyone care? Well, you may be surprised to hear that the world’s largest single asset owner is not the Norwegian or Abu Dhabi sovereign wealth funds, but the Japanese government’s Pension Investment Fund (GPIF) with over $1.3 trillion in assets. As such, Japan’s GPIF has enormous influence on the investment market.

When they say something (which doesn’t happen often), the market listens. This move prompted three big questions for many other investors: • What is stock-lending and what are the risks? • Why did the GPIF stop? • What, if anything, should you do in response? Stock lenders are usually long-term holders that rarely trade the shares they hold, such as index-tracking funds. If you are invested in an index-tracking fund, it is likely that your fund routinely lends stock in order to generate income from the borrower fees, like in the case of Japan’s GPIF. This additional cash for just holding stocks is one benefit of stock lending

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To really understand what the announcement means, you need to understand who is on the other side of stock lending. Why would someone want to borrow a stock?

The major use of stock lending is by short sellers, whose objective is to profit from a decreased stock price. How does that work?

The short seller borrows a stock (for a small fee) from the stock lender and immediately sells it at the current market price. If the stock declines in value over time, the short seller buys back the stock (at a lower price than they sold it for) and returns the borrowed stock, claiming the difference as profit.

Short selling divides opinion like little else in finance, but more on that later. Back to Japan: Japan’s GPIF cited stewardship concerns as the main reason for its suspension of stock lending. This is because asset managers are unable to exercise their voting rights on stocks which have been borrowed (the person doing the borrowing has the rights instead), and there is limited transparency of the borrowers’ voting intentions.

So the asset owner who is lending the stock cannot be sure of how these stock votes are being used, and whether they are being used in line with their views for example on climate change.

Because of these issues, GPIF will no longer lend stocks until lending schemes (who facilitate transactions between borrowers and lenders) improve their processes and allow GPIF to ensure its investments reflect its responsible investment policies. Should asset owners allow stock lending?

This is a contentious point and is inextricably linked to your philosophical position on short selling. This question will inevitably divide any group of investment professionals and can usually be relied upon for lively dinner-party conversation! Let’s look at the two different viewpoints. Many believe the existence of short-sellers is essential for accurate market pricing, to prevent overpricing caused by a market rush, and to aid liquidity. This would support the continued practice of stock lending.

From a profit perspective, the Financial Times estimates that GPIF earns revenues of about 2.5 basis points (0.025%) from lending. This sounds small, but on the GPIF’s huge asset base that is hundreds of millions of dollars per year. This additional income should not be overlooked: in some cases, the profits that fund managers have made by stock-lending has allowed them to reduce and even eliminate management fees (Fidelity recently launched a zero-fee index fund).

Taking the other view, some are vehemently against stock lending, and the short-selling it enables (such as Elon Musk, whose company Tesla has been a popular target for short-sellers) as they believe short-sellers intentionally drive down prices and are therefore profiting from the depreciation of a company’s shares. Furthermore, as borrowers gain voting rights for the stocks they hold, this enables ’empty voting’, where investors borrow shares purely with the intention of influencing a company’s democratic decisions, without necessarily having the company’s best interests in mind.

The passive investor Managers of index-tracking funds are passive investors. They do not perform in-depth analysis of each company in order to value its stock. The manager instead relies on other market participants for pricing based on supply and demand. As a passive investor you want the market to be as efficient as possible. Restricting access to certain types of investor (such as reducing the ability to borrow and short stocks) could, in the extreme, be harmful to an investor in a passive fund because it could lead to inaccurate valuations, and, by extension, investment returns.

If you are concerned about the stewardship impact of your passive fund holdings, you can ask your manager to provide information on the fund’s stock lending, and who it lends to. But it is also important to consider the whole picture including the positive influence of lending to short sellers, particularly the market influence through price discovery and market efficiency.

Many believe the existence of short-sellers is essential for accurate market pricing, to prevent overpricing caused by a market rush, and to aid liquidity.

This would support the continued practice of stock lending. From a profit perspective, the Financial Times estimates that GPIF earns revenues of about 2.5 basis points (0.025%) from lending. This sounds small, but on the GPIF’s huge asset base that is hundreds of millions of dollars per year.

This additional income should not be overlooked: in some cases, the profits that fund managers have made by stock-lending has allowed them to reduce and even eliminate management fees (Fidelity recently launched a zero-fee index fund).

Taking the other view, some are vehemently against stock lending, and the short-selling it enables (such as Elon Musk, whose company Tesla has been a popular target for short-sellers) as they believe short-sellers intentionally drive down prices and are therefore profiting from the depreciation of a company’s shares.

Furthermore, as borrowers gain voting rights for the stocks they hold, this enables ’empty voting’, where investors borrow shares purely with the intention of influencing a company’s democratic decisions, without necessarily having the company’s best interests in mind.

The passive investor Managers of index-tracking funds are passive investors. They do not perform in-depth analysis of each company in order to value its stock. The manager instead relies on other market participants for pricing based on supply and demand. As a passive investor you want the market to be as efficient as possible. Restricting access to certain types of investor (such as reducing the ability to borrow and short stocks) could, in the extreme, be harmful to an investor in a passive fund because it could lead to inaccurate valuations, and, by extension, investment returns.

If you are concerned about the stewardship impact of your passive fund holdings, you can ask your manager to provide information on the fund’s stock lending, and who it lends to. But it is also important to consider the whole picture including the positive influence of lending to short sellers, particularly the market influence through price discovery and market efficiency.

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This article first appeared in LCP Vista Winter 2020

Postscript from the Plowman

Not all passive managers stock-lend , L&G has always been wary of it and I’ve worried in the past that stock lending fees are used to reinforce manager margins. Transparency is all and this article made me think of stock-lending in a more positive light.

If you enjoyed this article , you might want to read  this blog which asks whether passive managers are actually doing the stewardship they claim they do. Jennifer’s contention is that you can check the quality of the stewardship of your manager by asking them about their voting (especially on lent stock).  I worry that we do not always get straight answers to such straight questions.

If you have a view on this , either comment on this blog of write to henry@agewage.com.

Posted in advice gap, age wage, pensions | Tagged , , , , , | 2 Comments

8.5m Nest members behind bid to buck-up Barclays

Posted on February 24, 2020 by henry tapper

 

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A large customer base in common

You may not know it, but you could just have become a stakeholder in how Barclays finances companies and in the process become a climate change activist.

Share Action has co-ordinated a group of organisations , including NEST to come up with a “clear and robust” plan to phase out investment in fossil-fuel companies that don’t contribute to the Paris Accord to reduce global emissions.  Others in the group are the Church of England Pension Board and Eden Tree Investment Management.

This is precisely the kind of activism envisaged by the DWP when inserting its amendment into the Pension Schemes Bill and expected  to be enforced by the Pensions Regulator as Big Government swings behind “Shareholder Activism”.

It’s been a long time coming…

Share Action (and other firms such as Minerva and PIRC) have been marshalling votes to get better governance into our boardrooms for some time, but this case seems to me a landmark. Barclays rank the 6th largest financier “fossil-fuel” companies,  and Europe’s biggest.

While other European banks have been tightening their lending policies and forcing change, Barclays “carries on regardless” of the changing state of the planet.

Share Action says there is gathering momentum behind the shareholder resolution and have good reason to be proud to be at its head.

But change is going to come.

What is interesting is NEST’s claim to be Britain’s largest pension fund. It isn’t by assets but it is by membership, NEST reckon by the end of the decade that one in three of Britain’s  workforce will have a NEST pension pot. When NEST votes, it votes the money of ordinary people, many of whom are Barclays customers.

Now it is up to NEST to explain to its members why it’s worth NEST spending time and money stopping Barclays exploiting what might be considered a commercial advantage it has over its rivals. I hope that Mark Fawcett as CIO and his dedicated team of ESG specialists will start talking to its membership of its voting behaviour.

There are two good reasons for this.

1. Many of its members haven’t a clue what NEST is doing with their money and need to become acclimatised to it being invested.

2. When they’ve got over the shock of being investors, it’s good to explain that they are responsible investors and that while in the short -term , missing out on some return from high interest pay fossil fuel companies, may mean less money in their pots, this will be compensated by the longer-term boost to their savings of being invested in (or lending to)  companies with a sustainable future

Aligning our interests

I support the DWP’s interventions to speed up the change in Pension Fund activism. This needs to be driven , for now,  by firms like Share Action, fund managers life Eden Tree and Trustees like the Church of England’s. But most of all, it needs to have the support of the members of our pension schemes. The pension pots of members in NEST, NOW, People’s Pension, Smart and the other workplace pensions are small, but the numbers are huge, they are what allow NEST to call  itself Britain’s largest pension fund.

Our interests are best served by reducing emissions and having a cleaner planet. Our interests are served by the behaviour of schemes like NEST which will eventually become the largest scheme in the country by assets as well as members.

If Barclay’s management doesn’t see a freight -train coming at it , it will find itself forcibly changed or even removed by activists representing not just NEST but its own customer-base.

NEST is not going off on one , it’s aligning our interests with our investments. Share Action is making it happen and it looks as if there are already 130 institutional shareholders who will be joining in.

This is why we need legislative change

The DWP’s amendment is far-sighted. It aims to provide tPR with the powers to ensure trustees have strategies and set targets to reduce carbon footprints of pension funds in companies that can make or break the Paris Accord.

There is a total alignment of interests between all in the investment food chain – even Barclays. In the long-term Barclays will suffer from lagging as it is today.

There are many, the PLSA included, who struggle to see how Government interventions can help. In a perfect world they would be right, markets would do the right thing by themselves.

But we don’t live in a perfect world and – left to their own devices – Barclays management would continue to hit self- created KPIs based on doing the wrong thing. In the short-term this would be profitable but in even five years time, the current lending policy looks unsustainable.

We do not live in a perfect world, Barclays are being stupid and the DWP will give the necessary kick up the jacksey to the many fund managers, fiduciaries and management boards – who currently think they can get away with it.

Practice what you preach.

When I park my Santander Cycle outside WeWork this morning, I will pick my way past six litre charabancs that have ferried in executives to talk to managers at Schroders and LGIM about how they intend to reduce their carbon footprint.

I will watch the “movers and shakers” being driven back to corporate HQs (usually within our low emission zone) and no doubt they will think they had a constructive meeting.

Not all executives arrive in the City by bus (Adrian Boulding read this blog on a zero-emissions bus)

 

I will know that the limo-taking executives have really cottoned on to the sustainability message when I see them getting off busses, emerging from tube stations or parking their cycles up in the rack!

Boris bike

 

If you want to know more…

If you would like to know more about how investors can reduce the impact of climate change, follow this link  – sent me by the brilliant Julia Dreblow

Posted in pensions | Tagged , , , , , , | 2 Comments

Have the Treasury got a pension plan – or just a jerky knee?

Posted on February 21, 2020 by henry tapper

You might not like the thought of paying tax on your pension contributions, but it’s coming

 

jerky

They’ve done it once and they could do it again. The Treasury could change pension saving as radically as they changed pension spending. The temptation for a new Chancellor to showboat at the budget on March 11th is something that’s worrying Ros Altmann in her latest blog on pension tax reform

Perhaps out of political loyalty, Altmann looks back not to George Osborne’s pension freedoms but to Gordon Brown’s abolition of dividend tax credits in 1997, as the bete noire of Treasury behaviour. The comparison is of two new Chancellors arriving with a recently achieved thumping majority from the electorate.

Although I think Ros is wrong in her solution, I think her right to be cautious. People have no idea about how pensions tax relief works and can be bamboozled into thinking that a £10bn raid on pensions (as flagged in the Times and other papers) is somehow good for us.

True the Government needs a kicker if its going to stick to its fiscal guidelines, but taking £10bn a year out of pensions amounts to a 20-25% cut in the Government’s incentive to save. Like Ros Altmann, I don’t think this is a plan, I think it’s a jerk of the knee.

So what is at stake?

Well we know from the Office of National Statistics where the £40bn , pensions lose HMT in tax and national insurance revenues, goes.

It goes in income tax foregone, national insurance foregone and investment taxes foregone and income tax and national insurance are the big two.

We also know from work done by various bodies that about half of the money foregone benefits about 10% of savers – the 10% who pay the most tax.

What is at stake is not just the £10bn pa that might be lost from pensions by moving to a mooted 20% flat rate incentive but a collapse in saving amongst the savings classes – the 10%. Ros Altmann is not the only one who thinks that a radical change from tax relief to flat-rate tax incentives could destroy pensions, there are deep-thinkers like WTW’d David Robbins, who are also advising caution.

The “keep calm and carry on” school of thought is based on there being no consensus for change and no proper discussion about the impact of change either on public finances or on savings rate as a whole or on whether change would result in a fairer system

In as much as I agree that we are “in the dark”, I side with those like Altmann and Robbins, who warn against fundamental change in this budget. There is too much at stake for us to repeat the “hit and hope” strategy of pension freedoms (or of the Brown tax raid)

But change is going to come

I remain a radical when it comes to tax reform. I think the current system is a subsidy for those who have spare cash to save and too little an incentive for those to whom saving not spending is a tough choice.

I certainly think we need to rid ourselves of the complexity of two tax-relief systems so that everybody who doesn’t pay tax gets the 25% bonus of those who do.

I don’t think that it’s right that top rate tax- payers get 82% (and tax -experts will tell you that -because of the taper they don’t).

I am also unclear just who is benefitting from the lost revenues the ONS relate to national insurance but i suspect that relatively few higher rate tax payers are actually contributing at all to pensions. The 13.8% corporate NI rate makes it stupid for companies to pay people salary which goes on pensions when they can pay the pension contribution instead of the salary and shave 13.8% (and 2% from the staff member).

If you cost of losing national insurance and tax revenues together, you can see the subsidy for top rate taxpayers is close to 60%.

This goes way beyond incentivising. This is why change is going to come.

Merryn Somerset Webb, fresh from a week on the ski-slopes thinking about these things agrees.

…. the current system with its lifetime allowance of over £1m seems ridiculously generous.

And scrapping the higher rate tax relief system — as it is rumoured the next Budget will address — isn’t spiteful, self defeating, an act of fiscal hooliganism or part of a war on wealth.

It is just a way to prevent the better off effectively hypothecating their own tax revenues back to themselves.

Think of it less an unkindness than a rational response to a rising level of state pension entitlement and a need to deploy tax revenue elsewhere — or in my dream world, to find a way to cut taxes. It isn’t entirely straightforward — this kind of change is hard to implement in the public sector in particular.

But unless we dump the relief system altogether (perhaps in favour of a much higher state pension) or shift to a pure Isa-style system for pensions, it is definitely coming.

 

Plan or jerky-knee?

We’ve only got to wait a couple of weeks to answer this question. The Treasury will, I hope prove they have a plan – if it’s only to pledge to radical reform in the Autumn budget or perhaps the spring 2021 budget. If they have a plan that is pre-baked from the 2015 consultation, then I think it should be consulted on and not shoved into the 2020 Finance Act.

Even if the plan is good – it will be considered knee-jerk if we are bounced into reform as we were bounced into pension freedoms. Osborne may think he got away with his “rabbit” but he’s not having to deal with the problems it left an unprepared public.

Jerky-knee isn’t good, plans are. Ros Altmann is right to urge caution and the Treasury would be wise to listen to her.

I am a radical, but I am a cautious radical in this.

PENSION PLAN

We need one

Posted in age wage, pensions, Treasury | Tagged , , , | 2 Comments

Polarised or bi-polar? DB transfers today.

Posted on February 20, 2020 by henry tapper
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Smith and Rush – voices of reason in a disturbed world.

Back in November, I reported on Ruston Smith’s initiative at Tesco to provide his colleagues with help finding the right type of adviser. AgeWage had been helping Ruston promote this to other firms earlier in the year and I’m glad to see a report from Jo Cumbo on how all this is taking shape.

Screenshot 2020-02-20 at 05.43.51Of course it shouldn’t have to be like this

The conduct of IFA’s is part of the scrutiny of the Financial Conduct Authority who have powers to stop rogue advisers practicing. The FCA are effectively protecting the Financial Services Compensation Scheme which is funded (amongst others) by IFAs. There should be checks and balances in place so that Tescos and large employers with DB schemes, do not have to spend money on extra protection.

But it is like this because we have not resolved the philosophical conundrum of giving people “freedom and choice” with their retirement money and protecting them from being “their own worst enemy.”

Say it quietly but many of the people who shout loudly about stopping transfers for others, have or are taking transfers for themselves.

If you  had a DB transfer pot – what would you do?

I’m quoting again from Dunstan Thomas’ recent research.

One in 10 (10 per cent) of those with DB pensions recorded a pension value in excess of £700,000, whereas just two per cent of those with DC pensions had a value over that same threshold.

Despite (or perhaps because of) generous DB valuations over recent years, demand for DB to DC transfers amongst Gen Xers remains strong: nearly two thirds (63 per cent) of those still in DB policies are considering whole or partial DB to DC pensions transfers in order to access some of these savings from the age of 55.

Merryn Somerset Webb’s famous proclamation that as a grown-up FT journalist she’d take a DB transfer if she had one is either famous or infamous depending on which camp you sit in.

And people aren’t stupid. Every time a major employer reports bad news and their share price slumps, pension departments see a spike of transfer requests from former employees (and even the odd active employee) finding their way to the door. The higher your pension , the higher your loss if your scheme goes into the PPF and once the PPF assessment starts, it is too late to get your money out.

People who know, do their own covenant assessments on the sponsors of the schemes they are in. Ironically they are doing precisely what people like Stephen Soper, who heads PWC’s pension risk team, are telling trustees to do and if they take the CETV because their covenant assessment tells them the risk of staying in the scheme is too great, they are taking precisely the decision that led to over £3bn leaving the British Steel Pension Scheme during Time to Choose.

So when is a good transfer a bad transfer?

Perhaps the person I’d most like to ask this question of would be Stephen. Stephen was at one time the director of The Pensions Regulator’s DB team, when he left for PWC , one of his first jobs was to act for Tata in setting up the Regulatory Apportionment Agreement that created the steelworkers “Time to Choose”.

He is now quoted in the FT as organising a way to protect members from choosing the wrong way

“I have recently met with several FTSE 100 and indeed some non-public entities as well who, motivated by the British Steel situation and the FCA’s recent findings of extensive mis-selling, are keen to find ways to ensure their members receive good advice as they enter retirement,”

At least some good has come of the debacle in Teeside and Port Talbot when steelworkers were forced to make choices with little or help at all.

The Regulator has still to intervene by implementing a ban on contingent charging . The  insurance market is refusing or “loading” insurance on many advisers actively facilitating DB transfers. The impact of Professional indemnity Insurance on the availability of advice is documented here.

Whether the insurance market is doing the regulation or regulators driving the insurance market is a matter for debate.

It would be nice to draw a line in the sand but…

Next Thursday, bus-loads of former BSPS members who took their transfers and are now claiming compensation for the poor advice they got, will arrive at Westminster to explain how the FSCS scheme is failing to help them. They are being organised by Al Rush who has spent over two years actually clearing up the mess.

The steelworkers heard yesterday that one of the advisers at the most notorious of the advisers (Active Wealth Management) has finally been stopped trading by the FCA.

Al is quoted in Professional Adviser

“This is a damning indictment on many levels, and exposes in harsh and unblinking focus the disgraceful behaviour [steelworkers] were exposed to.

“I hope that this ruling strikes fear into the hearts of others who seek to benefit from their industrialised processes which subordinate the needs, wishes and feelings of decent hard working steelworkers to their own selfish requirements.”

Deeney

Andrew Deeney , MD of Fortuna

But the ruling against Andrew Deeney and Fortuna has happened in 2020. Since 1992, Linked In shows Deeney having worked for 10 different financial advisors including Allied Dunbar and St James Place. He worked for various parts of Darren Reynolds Active group between 2014 and then bought Darren Reynolds’ clients for £5,000 to become MD of Fortuna.

As far as I can see, he has been authorised by the FCA and its predecessors on each occasion.

Fortuna is now appealing against various determinations by the FCA including that he oversaw the inappropriate sales of high risk bonds and continued charging Darren Reynolds’ clients fees for which no service was offered.

Is it any wonder that Professional Adviser are backing a  campaign to protect financial advisers from the consequences of such behaviour – the inevitable hike in FSCS levies that will follow?

Polarised or bi-polar?

In  polarised positions, two parties look at one problem and take radically different views. I think it’s fair to say that Merryn and the FCA’s stated views on pension transfers are polarised.

Bi-polar behaviour  shows people swinging from one position to another, seemingly irrationally. For many people who may benefit professionally from transfers (including the sponsors of DB schemes), the needle swings between supporting and decrying pension transfers. The £3.2bn that left BSPS through CETVs made BSPS2 the stronger, but the FCA claim that £20bn that has left DB to DC has made people’s retirement planning weaker.

I am not saying that people like Stephen Soper are showing signs of schizophrenia. Stephen is a calm  and deeply serious. But he is having to ride two horse at the same time. Firms like PWC have promoted de-risking through the promotion of enhanced Transfer Values (ETVs) and have stood back and watched as advisers who have executed these plans have had their permissions taken away.

Now he is overseeing the actions of those people who in another environment  he would have sort employment for – doing much the same thing. His firm which benefited from setting up the  BSPS RAA – is now set to benefit from clearing up its fall-out.

This can’t be good for the moral or mental health of practitioners, regulators and most of all the bus-load of BSPS casualties arriving in Westminster next Thursday.

This leaves FSCS, who’s every claim is a battle ground between those requiring justice and those unwilling to pay for it.

It leaves the FCA who are charged with making advice available, but have to shut down firms like Fortuna.

And we see firms like Tesco, trying to do the right things by members but risking being seen to “promote transfers” by some and “restrict advisers: by others.

Ruston Smith is of course in the thick of it. Thankfully he’s pretty level headed and will keep a sense of humour where everyone else is losing their’s!

Posted in advice gap, age wage, pensions | Tagged , , , , , | 2 Comments

It’s not the customers who needs to change – it’s the advice they get.

Posted on February 19, 2020 by henry tapper

 

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If you don’t take advice – you’re not alone!

Just eight per cent of the 2,011 39-54-year olds captured in the nationwide ‘Generation X Retirement Prospects’ study commissioned by pensions specialist fintech company Dunstan Thomas, have consulted an Independent Financial Adviser in the last 12 months.

These findings accord with AgeWage’s research and that of the FCA (who have reported a small increase in the use of financial advisers since we published their “94%” number.

agewage advice

That 92% of people approaching the seismic changes in their work and finances, don’t seek professional help, is a worry.

The statistic prompts two questions “Where do they get help” and “is that help good enough”.

In this blog I pick up on the things that Dunstan Thomas find matter to Generation X; there are things which should matter to them – such as retirement planning – which they are not finding help with.

My conclusion is that it is not GenX that needs to change, but the support we give them.

Often we need to give support to people without intervening in their lives. Remote digital support is what many of the 92% seem to prefer.

robo advice 4

 

Saving blind

Nearly half (48 per cent) of female and over a third (34 per cent) of male Gen Xers had never heard of Pension Freedoms before responding to the survey. A further 30 per cent had heard of it but knew nothing about it at all.

Put another way, at least two thirds of savers are saving blind. What is worse, they are confused by saving and investing and don’t know which of the two they are doing.

The survey asked 51-54 year olds what their pension intentions were

54 per cent had no plans to touch the pension for the next five years

Dunstan Thomas comments “these need to ensure their savings are properly invested for growth rather than left in cash as many are today”.

The opportunity cost of not investing over a five year period is obvious. Unless (like Paul Lewis) you have a conviction for a nil-risk, negligible return cash strategy , you need to know what your pension is doing (get to know your pension).

But do we really need a financial adviser to get to know our pensions – should pensions really be that hard? I was looking at L&G’s recent proto-type for their investment pathway guidance and felt that 92% of their customers would be better off for it!

Screenshot 2020-02-17 at 10.04.19

 

The challenge facing MAPS

This may be from a framing bias in the research, but what is odd is that the Money and Pensions Service plays no part in the study. Despite the Money Advisce Service and The Pensions Advisory Service having been around for more than a decade (and Pensions Wise getting on 5 years), these “arms length bodies” have not been embraced by the general public as their port in a storm.

Nearly half (44 per cent) don’t consult anyone at all! A fifth (21 per cent) of Gen Xers source supporting financial information from online financial comparison sites like MoneySupermarket.com; while 13 per cent rely on the national media’s personal finance pages; and the same percentage go to friends and family for more information.

For MAPS to be relevant, it is going to have to become a touchstone for much more than pensions and debt, it will need to reach the parts MoneySupermarket doesn’t reach.

Influence over advice

It would seem that most people are taking decisions influenced by people they trust. These influencers are few and far between in pensions.

There are now about 30 “go to” spokespeople for the popular press including Ros Altmann, John Ralfe and SteveWebb. Since Michelle Cracknell left TPAS, there has been no consumer champion within Government. Government has withdrawn from influencing consumer decision making – increasingly hiding behind “guidance” and information as risk-mitigators.

This has left an opportunity for IFAs to become influential on pensions and investment just as Martin Lewis is influential on savings and debt.

But this is not happening.

An information vacuum on pensions

The absence of an authoritative advisory service (as the Pensions Advisory Service set out to be), means that Gen Xers are being starved of the information they need to become their own pension experts.

Dunstan Thomas’ survey paints a grim picture for Gen X

“The closure of large swathes of the DB market; AE coming too late for older Gen Xers; together with changing working practices and demographics; and lower levels of access to financial advice post-RDR, are all major factors influencing Gen Xers’ retirement saving levels.

The result: only about five per cent of 39-54-year olds are on track to fully fund even moderate retirement lifestyles and 25 per cent of them stated they had no savings or investments at all.”

Contrasting with much greater clarity on non-pension savings

As I mentioned in my previous blog on the Dunstan Thomas survey, the much more radical finding is that most people are much clearer about their other retirement plans, than they are about their pensions .

Average additional (non-pensions) savings for the three-quarters of Gen Xers that have savings are £71,591 each; 39-54 year olds with total household income exceeding £5,000 per month have average non-pension savings and investments amounting to £223,000.

A tenth (11 per cent) of high-income households bringing in more than £5,000 a month after tax have at least one Buy-to-Let property to their name. Three per cent of those with household monthly take home pay exceeding £4,000 per month hold Peer-to-Peer Lending-linked investments and 17 per cent of that same income group hold Stock and Shares ISAs.

42 per cent anticipating receiving an inheritance before they retire, nearly one in ten (nine per cent) will ‘not be able to retire at all’ until they receive that inheritance. A further third (34 per cent) think that their inheritance is ‘a fairly important factor’ in supporting their retirement income and only 12 per cent felt it was insignificant.

And work is much more a feature of retirement than “retirement” would suggest. Over half (53 per cent) of Gen Xers think they will ‘probably’ take a part-time paid job in semi-retirement and more than a quarter (27 per cent) have decided they will ‘definitely’ do so if they can secure paid part-time work.

Larger numbers of people are prepared to work part-time to make ends meet in lower income groups – a third (33 per cent) of those with a total household take home pay of under £2,000 per month are ‘definitely planning to take part-time employment’ when their core job finishes.

Who needs financial advice?

For most people “financial advice” in a regulated sense, is pretty low in importance.

What people need is help understanding where to get work in retirement, how to look after their parents (and guard their inheritance) and how to manage their income from their house(s).

The Dunstan Thomas survey is telling us that Gen Xers are influenced by what they read and watch. They look out for people like Martin Lewis and Ros Altmann as touchstones and follow what they say, much more than regulated advisers.

My personal view is that the Independent Financial Advisor no longer speaks to the common man, but to the 8% who are wealthy enough to need their technical skills.

But there is a large market of people at or approaching retirement who see their pension pots as a small part of their retirement plan and are looking for help establishing a retirement plan which meets their and their family’s lifestyle needs.

This kind of assistance can be funded by fees paid where referrals are made (including fees for introductions to advisors). But the assistance must be “free” at the point of delivery and needs to be accessible via the kind of technology that best suits the customer.

It is not the customer that needs to change – it is the nature of the advice.

pay advice

We want to  pin down what we are going to do

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Our right to dream of a fairer deal for older people.

Posted on February 16, 2020 by henry tapper
Screenshot 2020-02-16 at 08.14.34

My Mum – approaching her 10th decade

It’s been another brutal week in politics. I’m glad that the pensions team in place at the start of it – remain in place at the end of it.  I’m pleased  that Guy Opperman remains our pensions minister. As my old friend Bill Whitehead used to say ” March’s real budget is at Cheltenham”

This blog is  directed towards people who think that the private sector has no wider goals than the maximisation of profit. It’s also a thank you to my Mum and Dad who provide me with the energy to keep at it – I am 58 and have 30 years more work to do – to match them!

Guy Opperman now sets out with the prospect of becoming Britain’s longest serving pensions minister.  I hope that he and his team get to read from me and others, that we can have a fairer, more inclusive deal for those in later life, by working together – private and public sector as one.

Aligning pensions with our environmental goals

Last week also saw an amendment to the budget, announced by Teresa Coffey that puts pensions at the heart of the Government’s  ambitions to curb the impact of climate change.

I don’t think the Pension Schemes Bill amendment an “unwelcome innovation”. If we are to be at the centre of the agenda, we need to be working with Government to ensure the £2tr of assets we control contribute to the UK’s climate change targets. I hope that others will say the same at the PLSA’s investment conference next Month in Edinburgh. We should remember that only a few months later, the world will meet in Glasgow for #COP26.

It is for the PLSA to back down on its objections to the amendment and for Government to ensure it is working with the pensions industry on this – not against it.

Aligning state benefits with our social goals.

There is consensus between all parties that the societal impact of pension policy must be to provide everyone with a reasonable income in retirement. During the week we heard good news about the state of our National Insurance Fund which I hope will lead to the extension of the “triple lock” on state pension increases – at least until the end of this parliamentary term.

There are still hard issues to address. They include the issues of the WASPI women which await the verdict of the Parliamentary Ombudsman. The current surplus in the National Insurance Fund could only cover around 10% of the cost of Labour’s election proposals, a full retro-fitted solution would cover a lot more than £87bn. I don’t see the WASPI issue as done – because there is no effective opposition. The wider issue is (as John cogently puts it) – what #WASPI solution do we support.

There are other issues arising from the Cridland report, mortality – happily – continues to improve (eg we are living longer) and we need to address not just the issues of when we draw our pensions , but the availability of work for those who haven’t saved enough to stop working.

And we need to keep looking at how the pensions we are entitled to, interact with benefits under pension credit. We cannot have cliff edges where people fall off benefits because they were unaware of the consequences of their financial decisions.

If our social goals are to be fair to everyone in later age, we need to find new ways to deliver the guidance to those who don’t participate in the benefits of private pensions.

I was careful there to neither use “inclusion” or “exclusion”. We need to treat later life poverty in an apolitical way , accepting that much of it is self-induced but accepting that deprivation in old age is unacceptable to us.

Getting our later life health issues funded

We cannot go on for ever, believing that taxation can meet the rising cost to the NHS and local authorities of the detoriating health of older people.

We put too great a burden on those who come behind if we do. The Baby Boomers are a bulge in population and also in prosperity. We need to accept that we need to meet our own bills when we can. I support a system of pre-funded care and I think insurers such as Legal and General , who are looking at immediate care annuities are on the money.

We need to start thinking much earlier how we protect our children from us becoming a burden on us as well as finding ways of capping the costs of long term care for those already in the final stages of their lives.

I look to Government to work with the private sector on solutions to this. There is plenty of t work being done by academics, charities and by the NHS DOHand DWP, but we need to see a national plan emerge.

Bringing private pensions to the party

The vast majority of private pensions wealth is concentrated in the hands of a relatively small part of the population. If you exclude the great unfunded pension schemes run by government, second pillar pensions in this country (whether DB or DC) are a “rich man’s game”.

But they still account for more than £2trillion pounds of money currently invested , mostly in the UK. As mentioned above, this money is some extent social capital and a large part of it can be accounted for as “tax-forsaken”. This is why the Government has every right to intervene in its management.

Government has also got every right to determine how the £40bn of tax and national insurance it forsakes each year, is distributed. It is not a subsidy for the pensions industry, nor is it there to preserve the current status quo.

Where the tax-system creaks (as it does with the Annual Allowance and its taper) then some maintenance wok is in order. But if, once peaking behind the immediate symptom , the diagnosis is that there is a more fundamental issue with pension tax relief, then more radical surgery will be required.

Less subsidy – more incentive

There is an argument that we need to reduce the £40bn subsidy to pension savings. I think that argument ties in with the need to redirect money towards sorting out the issues we have with long-term care. I would support a reduction in pension tax-relief if it meant we dealt properly with the cost of social and medical care for the elderly.

There is another argument , which is no less pressing, that the money we allocate to incentivising those who need to save is actually subsidising the saving of those who don’t.

I would support moves to a flat rate TET system (with proper incentives) or a full TEE system (with proper transition). I do not think the current EET system is sustainable. Though it looks good in principle (David Robbins), in practice it is delivering 50% of the cost of pension tax-relief to 10% of people who need it most. The current system needs radical change.

A right to dream

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My Dad – a trustworthy GP and local politician

I have found myself – without really meaning to – writing my own manifesto for change. I have a right to dream and – as one of the lucky ones who is well pensioned – I feel I have a responsibility to those who aren’t. This is my father in me.

I also have the means to pursue a dream of delivering the support to those of my age, so they make the right decisions on how to organise their later life finances. This is what I intend to do with AgeWage.

That right to dream of making a difference is something that I hold dear and it’s something I discuss with my small team and the wider team of advisers who help AgeWage. I hope that very soon we will be able to put some of our grand ideas into action and I will be writing a lot more about this in the next few weeks

 

 

 

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Guy Opperman stays our pension minister

Posted on February 14, 2020 by henry tapper

This is not me lobbying  , this is me speaking as I find it.

It is good for pensions in general but specifically for the pensions dashboard, CDC and for ESG in our schemes.

And he’s a horse-loving amateur jockey to boot!

Screenshot 2020-02-14 at 08.23.06

 

 

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Robin Hood , the Sheriff and the King

Posted on February 14, 2020 by henry tapper

treasury

Just as we thought we were set for some uninterrupted Government, the Chancellor and the Prime Minister fall out within a month of a much delayed budget.

Just how much of the prepared budget belonged to Sajid Javid and how much to Dominic Cummings we’ll never know. What we do know is that the new budget will be delivered by Rishi Sunak who knows a bit about funds, comes from the charmed world of elite public schools and helped to save his village pub as a crowd-funder.

I have no idea of what is going on and whether this will delay whatever was going to be announced in the budget. But I’m with Jo Cumbo in thinking that the resignation will make it less rather than more likely that we will have radical tax reform (which may be why the FT is writing an article a day demanding it).

Claer Barrett’s opinion piece,   which appears in today’s FT, hopes the re-shuffle will buy more time for the consequences of “radical” tax reform to sink in. The trouble is that you can’t save £10m in tax-reform without it hurting someone and – as this blog has said again and again- flat-rate tax relief is not going to happen. It will have to a flat rate incentive paid mitigate the pain of TEE but a flat rate incentive is “TEE with a bung” unless it’s “TET with a bung”.

Claer quotes our old mate Will Aitken explaining why simply reducing tax relief for the higher rate tax-payers will lead to an exodus to non-contributory salary sacrifice arrangements which will lose HMT even more revenue (as they’ll not be collecting a lot of NI or income tax). It was only the prospect (presumably leadked to the FT of the bung being set at 20% rather than 30 or 33% – when this all got rather alarming!

Is this the Osborne funk (pt II)?

Famously, George Osborne ducked radical reform of pension tax-relief in 2016, not to scare back-benchers. Cummings and Johnson can’t have the same fears today but perhaps they are feeling some “uptown funk” and perhaps Javid was a little too much like the genuine reformer (who’s Dad drove a bus).

But this speculation will be sorted out by March 11th , when we’ll find out whether the Wickamist alternative is prepared to see through reform or not.

Those who argue he will have to find the money from some way will consider the £10bn plan a tax-raid.  Those who think Javid was genuinely trying to move the system from subsidy to the rich to incentive to the poor, will think Javid a latter-day Robin Hood.

We will wait to see if we get radical reform – or a consultation leading to radical reform in the second 2020 budget in the autumn) . If we get neither and we get some tinkering with the taper and mealy mouthed promise on the net-pay issue, we will be able to characterise Cummings as the Sheriff of Nottingham and Boris Johnson as King John.

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Are you a Betamax or VHS Trustee?

Posted on February 14, 2020 by henry tapper

It’s been an interesting week for pension trustees. It began with an announcement from the Pensions Regulator that it was not going to require schemes to employ a pension trustee, continued with the amendment of the Pension Schemes Bill that could require trustees to be mandated to display the carbon footprint of a scheme (and change things if it isn’t progressing in the right direction) and ends with the announcement that they will have not one but two professional accreditation services to sign up to.

On this final point there is an obvious question, one asked by the editor in chief of Professional Pensions

Why two?

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As I understand it, the Association of Professional Pension Trustees which has heretonow been seen as part of the PMI is now divorcing  the PMI.  The relationship is still advertised on the PMI website but I understand we will not be seeing the two organisations as one for long. By the time you press this link – it may be broken

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My understanding that the cause of the schism was the APPT’s wish to offer accreditation bundled with a membership of the APPT while the PMI saw accreditation as a standalone service. In short, the answer to Jonathan’s question is that we have two accreditation regimes because the APPT and PMI have fallen out with each other over the commercials.

Unfortunate timing

It is unfortunate for trustees who are seeking to deem themselves more professional, that this should happen at this time . The job of pension trusteeship is highly valued by the Pensions Regulator and by those who manage pension schemes. In many cases , the professional trustee is instrumental to the scheme’s existence. This is the case with DB (where the existential threat is the loss of the employer covenant) and in DC where the threat is the failure to gain or the capacity to lose master trust authorisation.

I am not interested in , and in no position to, apportion blame or praise to either the PMI or APPT, but at a time when we are looking to consolidate, the creation of two rival accreditations is particularly unfortunate.

Like London busses, actuarial institutes, darts federations and of course video formats, two isn’t better than one and time will consolidate.

For now, we have to accept that a choice of accreditation is better than no accreditation but on Valentine’s Day, I’m sorry to report that the PMI and APPT appear to have fallen out of love with each other.

ILoveYouPerfectChange_Logo_Color

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Triple lock? – easy!

Posted on February 13, 2020 by henry tapper

With a deft tweet , former Pensions Minister Steve Webb wakes us up to a startling economic revelation.

Trevor Llanwarne’s grim warning

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Trevor Llanwarne

In the last quinquennial review of the fund , the previous Government Actuary warned that by 2020 we might have to unwind the triple lock.

The triple-lock turbocharges state pension increases so that we can gradually align our state pension with the kind of benefits people expect from a first world country

Trevor Llanwarne (the then Government Actuary) warned that  the National Insurance Fund might not get further hand-outs from the Treasury to meet state pension obligations. He implied that we would have to start thinking of auto-enrolment as a way-out of re-rating our state pension to something we could be proud of.

You can read all about this in blogs I wrote at the time.

Martin Clarke’s brighter vision

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Martin Clarke

Martin Clarke presents an altogether brighter view of the future in his report to parliament on the current state of the fund.

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You don’t have to be a Government Actuary to see that things have taken a much rosier turn than anyone expected in 2015.

So what has happened?

Well the last 5 years have been good years for work and pensions, good years (unsurprisingly) for the Department of Work and Pensions.

Far from going back to the Treasury for more money, the Treasury (GAD) are now telling the DWP that the outlook for the next five years is set fair.Screenshot 2020-02-13 at 08.59.43

Gloomsters can point to darker clouds on the horizon after 2025 as we continue to feel the impact of higher numbers in retirement and lower numbers in work, but we are in the happy position of building up a positive (notional) balance on the national insurance fund, which should go a long way to improving the lot of those who most rely on the state pension – those on low retirement incomes.

What has happened to effect this happy turnaround is that we have had full employment and reasonable wage growth,  receipts of national insurance have boomed accordingly.

The projections forward show that we will have more than 6 months coverage from reserves to meet any shortfall in fallow years to come.

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I don’t want to overdo this but..

Predictions of the demise of the triple-lock are premature. We will get a state pension which looks a credit to our benefit system, assuming we hold our nerve and we don’t listen to the gloomsters and naysayers (I am conscious that I should be wearing a blond wig in saying this).

Sorry Steve but you have to fall in line with the Government Actuary right now!

We have moved on – thanks Karen!

I look forward to Martin Clarke’s first quinquennial with relish and hope that it can paint a rather happier picture than the one we created for ourselves in 2015.

A happier prospect for those retiring.

For as long as I have been studying announcements on the state of our future pension finances, I have been assailed by gloom and doom.

Thanks Martin Clarke for your upbeat assessment of our current position, your cautiously optimistic view of the next five years and your relatively relaxed view of what follows.

I don’t want rose-tinted spectacles but neither do I want a blindfold! This reports opens our eyes to a much happier picture of public pension finances than we could ever have imagined five or ten years ago.

We should be very happy.

martin clarke 5

Martin Clarke

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London’s calling to #PASA2020

Posted on February 12, 2020 by henry tapper

I can’t remember walking out of a pensions conference and into a punk gig but that’s what yesterday felt like when I left the PASA conference and walked into the Museum of London.

I was 17 when the album came out and my girlfriend bought me it for my 18th birthday.

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I loved the picture of Paul Simenon smashing his bass on the cover. I didn’t think I’d ever see the bass.

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You can remix songs on the album, you can read Joe Strummer’s notebooks (London Calling was first Called “the Iceage is coming”

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There are Penny Junor photos of the band – wherever you look.

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and you get to see the clothes the band wore

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It’s like being in their changing room

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For anyone lucky enough to see the band at that time , this exhibition will bring back memories.  I welled up as I stood here

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Thanks Joe, Mick, Paul and Topper. Thanks to the people who curated this and to the Museum of London.

And thanks to Kim, Lesley, Margaret and the other good people of PASA for running their event next to this great exhibition.

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It wouldn’t be right not to have the songs on this blog; here’s the whole four sides, slap on your cans, settle down and emerge in an hour a better person.

The exhibition is on till April 19th 2020.

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Now it’s a Pension “Green” Bill

Posted on February 12, 2020 by henry tapper

Green pensions

 

The Government has introduced  radical new amendments to the Pension Schemes Bill  which allows it to force effective governance and disclosure of climate risk by occupational pensions schemes.

What’s “radical” is that these amendments give the DWP the power to lay regulations that change the way pension schemes invest.

I am told that while there is no immediate change to requirements, the DWP expect by this summer to be consulting on detailed  regulations which will include requirements proportionate to the size of scheme and proposed timings for compliance.

This will be highly controversial and has clearly been trailed to the pensions lobby. Writing in the FT , a couple of hours after the amendments were published, Jo Cumbo could report the PLSA  (representing schemes with 20m members) as commenting.

“We fully support initiatives that help pension schemes with assessing climate change risks,

However, parts of these new amendments appear to go significantly beyond current requirement for schemes to disclose what they are doing on scheme investment around climate change and would give unprecedented new powers to government bodies to interfere and request changes to private sector schemes’ investment strategies. If that’s the case it would set a dangerous precedent and be wholly inappropriate.”

This is no time for the PLSA to be arguing legal precedents. As I have been writing for three years, trustees and IGCs have been mealy-mouthed on their responsibilities towards the planet, preferring to hide behind legal niceties than take action as active shareholders.

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My initial impression is that this is an over-reaction from the PLSA, this is not an amendment that gives Government anything like the powers the PLSA suggest.

But clearly the Government has had enough of this shambolic procrastination and is giving itself the powers to enforce change.

Everything about these amendments suggests they have no doubt that they will get popular support for them, support they hope to be recognised by parliament.

It is a dramatic intervention

Here are the amendments, as clipped from the parliamentary website. You can read all the amendments in the bill for yourselves here

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The Bill suggests regulations that would require each scheme to have its own carbon footprint (4.1 (3) b and c).

It suggests that trustees will have to adjust their investment strategy if the assessment of the scheme’s contribution to climate risk is below target.

It implies a radical overhaul of the mandates set out to fund and asset managers to ensure trustee and manager compliance.

This is why the Bill’s amendments are controversial and this is why they need popular support.

Why this matters

Britain is to a large degree owned by its pension funds. Our companies, the money they borrow, the properties they rent and the infrastructure they use are part of our pension portfolios. Whether these are owned in funds that determine our outcomes (DC pension funds) or funds where employers take the risk (DB pension funds) is secondary.

Of more importance is that if Britain is to play a part in the global plan laid down in the Paris accord, it is going to have to manage itself better. In recent blogs, especially my blog about the lack of “passive activism“, I contend that fund managers have been allowed to pay lip-service to ESG. Rather than embracing the principles of sustainability, many managers have green- washed and they’ve been allowed to by trustees and IGCs who frankly haven’t been doing their job

Recently UKSIF -the UK Sustainable Investment and Finance Association (UKSIF), found that only one-third of trustees had complied with the new rules on trustees to disclose their ESG strategy. These rules are well short of what the DWP is proposing.

So far, the fiduciaries and managers that organisations like the PLSA and ABI represent have moved too slowly for Britain to have any chance of playing the part in decreasing global warming, we have promised.

The interests of Britain and more importantly the planet are well served by these amendments. I am surprised and delighted to see them in the Bill and hope that they will be in the forthcoming Pension Schemes Act.

If these amendments are enacted – the Act should be known not as the Pension Scheme Act but the “Green Pensions Act”

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A good day for master trusts

Posted on February 10, 2020 by henry tapper

master trust3

Small DC schemes, bumped off the road.

The FT run a scoop this morning, predicting that today the Pensions Regulator will withdraw its proposals to require small DC plans to be run by “professional trustees” and urging  that most of the 8000 single occupational trust based DC plans merge with larger schemes.

The consultation response, due out today

This is a rare and happy case of the Pensions Regulator listening to the market. TPR’s original idea was to fly in professional trustees to run small occupational DC plans but it has now worked out that there are too few of these trustees to go round. In my experience there are very few pension professionals capable of governing DC plans which are a very different beast to manage than the Defined benefit schemes which are what PTs do properly.

Employers who wish to maintain self-determination in their DC plans will find that increasingly hard. Opportunities to self-manage investment strategies as participating employers within master trusts depend on the scale you bring to the trust; Tescos yes, the Frying tonight fish and chip shop- no. Similarly insurers are increasingly wary of advised defaults within their GPPs.  The proliferation of “best ideas” defaults that seemed such a good idea twenty years ago is now being reversed as advisers withdraw and IGCs and GAAs question the value that advised default investment strategies bring to members.

A good day for master trusts.

While the bulk of the 29,000 occupational DC schemes overseen by tPR are there for the interests of the owners of owner managed businesses (and are unlikely to be impacted by this), there are sufficient members and assets in the rump of single occupational DC plans to make an appreciable difference to commercial master trusts.

The smaller plans like Creative’s, Salvus and the Nations Pension are driven by entrepreneurial business people who will drive change through at the bottom end of the market. The larger consultancy owned mastertrusts  –  offered by Mercer, Aon and Willis Towers Watson (and to a degree Capita) will pitch to the larger occupational pension schemes.

All of the above have the advantage of being owned by consultancies, giving them access to employers who have traditionally engaged the parent for advisory and governance services.

They will compete against the stand alone master trusts which don’t offer vertically integrated investment propositions but are supported by strong parents. Smart (now largely owned by asset managers), NOW (Cardano), Nest (tax-payer) and People’s (the not for profits insurer B&CE) and BluSky (owned by Unite and JIB) are the key players in this section of the mastertrust market.

Finally there are the insurers, Aviva, Scottish Widows, L&G , Phoenix Standard Life and Aegon, all of whom have their own master trusts designed to compete against the consultancy and stand alone models.

This is a very strong part of the market and – since the authorisation process has been completed, it represents tPR’s new best hope of ridding itself of one of its most intractable problems (the single employer DC plan).

Will workplace GPPs be winners?

I think it unlikely that GPPs will pick up much of the fall-out from the dismantling of these 8000 DC plans.

There is little appetite among employers to pay benefit consultants to set up individual plans instead of trust based schemes, especially where a zero cost, zero risk alternative is readily available through the master trust market.

There are a few specialist providers such as Hargreaves Lansdown and Royal London who have value propositions that may appeal, but these require either high levels of conviction in self selection (Hargreaves Lansdown) or a wish to engage workplace advice (Royal London). Most insurers seem content to ride both horses with the master trust being the first string.

I don’t see GPPs winning out of this, this is a big win for master trusts.

A bad day for trustees?

I am sorry to see the concept of trusteeship undermined but I do not see professional trustees (whether corporate or individual) as solving the appalling standards of administration, communication and investment to be found in many of the schemes the Pension Regulator’s targeting.

Too often it’s been assumed that the skills of DB and DC trustees are interchangeable but they’re not. I’ve met a lot of professional trustees who purport to be targeting DC appointments who have neither experience or competence. DC trustee boards are usually ineffectual and simply divert employer resources away from the proper sponsorship of the DC plan (diluting the contribution rate).

There aren’t going to be many DC trustees going forward leaving many trustees looking to create a portfolio career having to find opportunities as fund NEDs , IGC members or sticking with what most know best – DB.

The FT also report that TPR have given up on

“their plans to force schemes to report the steps they had taken to improve the diversity of trustee boards after concerns were raised in its consultation that the measure could put off experienced and qualified individuals for applying for trustee roles”.

Precisely.

Actually today’s announcement will consolidate trusteeship as  well as consolidating DC plans. The Pensions Regulator appears to be accepting that trusteeship is a sinecure for the lifetime pension professional. The door is being gently closed on efforts to bring though new blood, occupational pension trusteeship will increasingly become a club that requires a long CV.

Where the big-stick approach is probably right.

I sympathise with the protests of Ros Altmann as made in the FT

“It is very disappointing that the regulator does not feel it is vital for pension schemes to have at least one professional trustee on its board. There are so many schemes whose standards of governance are lower than should be acceptable and just having a non-binding industry best practice standard will not ensure those who most need to improve will actually adopt the best practice,”

I don’t think tPR disagrees, the challenge for tPR is to be suffeciently brutal on failing DC schemes that they make it their business to fold as quickly as possible. The challenge for them in their closing days will be to select the right master trust for their members and ensure a smooth and effecient winding up of the trust.

It is not professional trustees that have had their day, it is the majority of DC trustee boards. The shame is that in losing these boards, we lose many good member nominated and corporate appointed trustees. These will be missed, sadly they are too few and too dispersed to amount to a reason to persist with the majority of the schemes they govern.

 

master trust 2

Comes from scale

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2020 Lady Lucy boating schedule

Posted on February 9, 2020 by henry tapper

Henley

Once again, Lady Lucy is out on the river for most of the summer. I have two types of tickets.

Everyone can come to the weekend events (including extended trips on bank holidays). You and your family, friends and pets can come out on any of the days marked as free on the general boating schedule which can be found here.

Lady Lucy 2020 boating schedule

 

I am also doing all five days of Henley again. Wednesday is taken by my friend Mr James Biggs who organises his own party. The rest of the week can be booked here

 

Lady Lucy at Henley – 2020

There is a waiting list for all days so put your name down if the event is shown as full.

This great video shows you how the boat looks when on the river.

I very much hope to see you this summer, please contact me if you have any questions.

lady lucy latest

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Getting Smarter about how we retire

Posted on February 9, 2020 by henry tapper

It’s important to get innovation into the workplace pensions we rely on. Smart has now got around half a million of us saving into its pension scheme and you can read more at http://www.smart.co/innovation .

Of course innovation for innovation’s sake is just smartypants showing-off . But where providers are looking to make it easier for take tough choices like what to do with our money when we retire, there’s a lot a firm like Smart can do.

AgeWage has been working with Smart on how Smart’s savers can understand their investments and get smart with how they manage their later life finances.

Levelling up

New firms like Pension Bee and Smart, can help more established firms like State Street and Legal and General – which own stakes in them. These partnerships are obvious.

Not so obvious is the capacity of these newcomers to show the wider market the art of the possible. I was very disappointed to see last week, the FCA accepting it isn’t currently possible to tell people how much they are paying for their pension management. I had a couple of providers phoning me up telling me I was wrong and the FCA was right.

But I notice that not all providers felt they couldn’t comply and Pension Bee said they could have told their policyholders the cost of all their funds. We shouldn’t let “can’t” dictate to “can”. This goes for the pension dashboard too.

It’s not just the new kids – ask Phoenix!

Phoenix who own Standard Life and a host of legacy pension books are (with the assimilation of ReAssure) holding more of our pension pots than any other life company in the UK.

Last autumn I spoke with their customer services Director , David Woolletts about Phoenix’s plans to improve things for savers. These include trying to find all policyholder’s emails and migrating old books of business from companies like Abbey Life onto new platforms managed by Diligentia (the Tata owned NEST record keeper).

This is how we migrate to a position where we can all see our data on request in real time and make decisions on how we manage our later life finances with the help of the devices we do everything else with.

Getting Smarter

We need to work with and get behind the kind of initiatives advertised here by Smart and promoted by Phoenix and many others. I have had similar conversations with Jackie Lieper at Scottish Widows and Peter Jackson at L&G. Aviva has its digital garage and I have meetings planned with Aegon. Many of the smaller master trusts like Salvus and Bluesky have been hugely supportive of AgeWage’s drive to understand the nation’s savings pots.

We are getting smarter and we will get to a point where real time information , passing through APIs will become the new normal.  I have written recently that I hope to see a race to the top on this kind of connectivity and I see plenty of evidence that pension providers are getting there.

Of course there will be those who lag and I worry particularly about the consultancies who do not have the resource or the incentive to operate open pensions as third party administrators.

We are getting smarter – but sometimes  too slowly!

 

Posted in advice gap, age wage, pensions | Tagged , , , , , | Leave a comment

Are passive managers giving value for our money?

Posted on February 9, 2020 by henry tapper

Screenshot 2020-02-09 at 07.32.18

These “big three” collectively vote 25% of the shares of the SP500

In the debate about what we get for the money we pay to fund managers , we tend to think of passive managers, not as managers – but as funds.

We can of course get access to indices by buying ETFs which reduce the cost of getting a market return to the package of derivatives within the ETF. But most of us buy passive funds , run by passive fund managers who charge us many times the cost of the derivative for something that ostensibly does the same thing. I’ve long wondered “what do passive managers actually do?”. I work accross the road from Legal and General, Britain’s largest fund manager and often nip in to their reception to read their papers.

When I chat with my friends there , they get very earnest about stewardship and explain to me that what a passive fund manager actually does is act as our steward – ensuring that the companies whose debt and equity we invest in , do what they say they do “on the packet”.

I have listened to these arguments respectfully , I was once lectured by Alastair Ross-Goobey for questioning whether this stewardship actually happened or whether his company (Hermes) just enjoyed a lot of good lunches with corporate managers. The lecture was very old school, it really wasn’t my place to question what he was doing.

My deference to passive managers appears to have been misplaced. I spent time yesterday (when I could have been watching the rugby) reading a very long paper

As the article is 118 pages long , I can’t publish it all on here, but you can download it from this link

Screenshot 2020-02-09 at 06.40.26

The article supports a view expressed in the Financial Times earlier this month that the Big Three passive managers are routinely ignoring the voting instructions of their proxies and missing out on chances to govern well. That article comes out or research by Share Action for charities voting their funds.

Here is the “abstract” that gives you a flavour of what goes on in the next 100 pages

Index funds own an increasingly large proportion of American public companies. The stewardship decisions of index fund managers— how they monitor, vote, and engage with their portfolio companies— can be expected to have a profound impact on the governance and performance of public companies and the economy.

Understanding index fund stewardship, and how policymaking can improve it, is thus
critical for corporate law scholarship. In this Article we contribute to such understanding by providing a comprehensive theoretical, empirical, and policy analysis of index fund stewardship.

We begin by putting forward an agency-costs theory of index fund incentives. Stewardship decisions by index funds depend not just on the interests of index fund investors but also on the incentives of index fund managers. Our agency-costs analysis shows that index fund managers have strong incentives to

(i) underinvest in stewardship and
(ii) defer excessively to the preferences and positions of corporate managers.

We then provide an empirical analysis of the full range of stewardship activities that index funds do and do not undertake, focusing on the three largest index fund managers, which we collectively refer to as the “Big Three.”

We analyze four dimensions of the Big Three’s stewardship activities:

  1. the limited personnel time they devote to stewardship regarding most of their portfolio companies;
  2. the small minority of portfolio companies with which they have any private
    communications;
  3. their focus on divergences from governance principles
  4. and their limited attention to other issues that could be significant for their investors; and their pro-management voting patterns.

We also empirically investigate five ways in which the Big Three could fail to undertake adequate stewardship: the limited attention they pay to financial underperformance; their lack of involvement in the selection of directors and lack of attention to important director characteristics; their failure to take actions that would bring about governance changes that are desirable according to their own governance principles; their decision to stay on the sidelines regarding corporate governance reforms; and their avoidance of involvement in consequential securities litigation.

We show that this body of evidence is, on the whole, consistent with the incentive problems that our agency costs framework identifies.
Finally, we put forward a set of reforms that policymakers should consider in order to address the incentives of index fund managers to underinvest in stewardship, their incentives to be excessively deferential to corporate managers, and the continuing rise of index investing.

We also discuss how our analysis should reorient important ongoing debates regarding common ownership and hedge fund activism.
The policy measures we put forward, and the beneficial role of hedge fund activism, can partly but not fully address the incentive problems that we analyze and document. These problems are expected to remain a significant aspect of the corporate governance landscape and should be the subject of close attention by policymakers, market
participants, and scholars.

So what  do we get from studying the “Big Three” American passive managers?

Well – they don’t seem to be investing much in stewardship at all

Screenshot 2020-02-09 at 06.26.27

In the most extreme case of SSGA (State Street Global Investors) require each stewardship person to steward over 1000 companies,

Allocating $300,000 to pay each of these stewards, the total cost of running stewardship is a tiny fraction of revenues generated

Screenshot 2020-02-09 at 06.26.43

and relative to the $bn invested in companies you can see huge variances between the best (BlackRock) and Vanguard and SSGA who vie with each other for the wooden spoon.

Screenshot 2020-02-09 at 06.27.44

Whether you are looking at these big three beasts through the lens of human resource, financial resource of investment as a percentage of funds under stewardship, we do not appear to get a lot of value for our money.

These numbers may explain why the stewardship of the big three appears to be failing in its objectives (and why I was right to ask the question of Alastair Ross-Goobey).

So what about the UK?

In the UK , the big three American managers are supplemented by Legal and General and a few smaller players (much of the passive fund management for NEST is done by UBS).

The passive funds themselves now have governance boards and those who invest in the passive funds, amongst them the workplace pensions, have their governance boards and the FCA and tP{R are charged with governing the governors.

So why has there never been anything in any of the governance papers I have read, that has asked whether we are getting value for the money we pay for passive FUND MANAGEMENT?

I use the capitals, because I want to know the answer to the question I put to Alastair Ross-Goobey 25 years ago

“What do passive fund managers do all day?”

I am not a trustee, and so long as I keep on asking questions like that, I am unlikely to be one ever.

It seems to me that passive managers in the big three US firms don’t do much stewardship. Which is odd and disappointing. To quote Bebchuk and Hirst

In a recent empirical study, The Specter of the Giant Three, we document that the Big Three collectively vote about 25% of the shares in all S&P 500 companies that each holds a position of 5% or more in a large number of companies;

 and that the proportion of equities held by index funds has risen dramatically over the past two decades and can be expected to continue growing strongly.

 Furthermore, extrapolating from past trends, we estimate in that article that the average proportion of shares in S&P 500 companies voted by the Big Three could reach as much as 40% within two decades and that the Big Three could thus evolve into what we term the “Giant Three.”

Over to our fiduciaries.

The work done by Bebchuk and Hurst was originally published in November 2018, since when much has happened in corporate governance, most importantly the explosion of interest amongst the public in ESG.

By way of example, Pension Bee, one of Britain’s progressive pension providers has decided to conduct a major governance review on their managers _ L&G, SSgA and BlackRock, to ensure that they are getting value for their policyholders.

I hope that the article by Bebchuk and Hurst will be informing them as they try to get better value for their policyholder’s money. I hope that People’s Pension will be asking SSgA about the amount of money spent on their 4.5m members’ savings, to get better value from their savers. I hope that NEST and NOW and Smart are doing the same.

I hope that the IGCs, busy preparing their April reports , will be considering this year, what stewardship is actually going on in the funds they offer to those in workplace pensions and – this year – to those spending the money from their workplace pension pots.

And I hope that the FCA, DWP and tPR teams who are working on VFM regulation (especially as it touches ESG) will be asking the passive managers just what is going on at the passive managers. I’d like to think that Chris Woollard , as he moves from running the competitions and markets division of the FCA, to running the FCA itself, will be ensuring that it is not just the active managers who are kept under beady scrutiny.

Thanks to Emmy Labovitch

I was cursing Emmy yesterday, for destroying my enjoyment of the rugby and the boxing in the evening. She’d sent me the document and I couldn’t help read it. It is written in horrible American legalese, the sentences are long and complex and the arguments tortuous, but if you get a chance to read it for yourself- do.

Emmy keeps me honest, as good fiduciaries should, the PPF and many other British institutions are better off for her. This blog’s for you Emmy!

You can download the article – from this link

Or you can look at an abbreviated version of the paper via this slideshow

Posted in advice gap, age wage, FCA, pensions | 3 Comments

Treasury flies a pension kite on a stormy weekend

Posted on February 8, 2020 by henry tapper

For as long as I’ve been advising on pensions, the weeks running up to the budget have been filled with rumours of draconian reductions in the subsidies available to the rich to featherbed their retirement.

This FT story has the Chancellor restricting tax relief to 20%, which has been discussed ad infinitum on social media but which is easier to talk about than do.

The only way you can do this is to take away tax relief altogether and replace it with a flat rate incentive, which – while it feels like the same thing, is quite different. There are implications for national insurance which is almost as big a tax for employers as corporation tax.

Many employers already operate non contributory schemes and many more  operate salary sacrifice schemes which allow staff to choose to swap salary for pension to reduce national insurance. If the Chancellor isn’t very careful, he risks driving all fully-witted employers towards salary sacrifice.

The mechanisms around paying pensions are complicated and I doubt that there is sufficient resource within the Treasury to properly model the cost of the mooted switch to a flat rate contribution of 20% by March. Get this wrong and Sajid Javid and the Treasury risk a humiliating climb down , akin to that suffered by his predecessor over social care.

So why the FT story?

The FT do not fly kites, my sources tell me that there is a working party in the Treasury who are working on reforms to the pension incentive system that costs close to £40bn a year. But you’d expect that. There is clearly not enough in the piggy bank to pay for the extravagant promises of the Conservative manifesto without breaking the tight rules set on borrowing, the only alternative to borrowing more, is taxing more and squeezing pension tax reliefs is the easiest policy to justify in terms of social equality. 50% of that £40bn goes to the 10% highest earners.

The alternative to taxing us more on contributions is to tax investment growth or reduce the twin perks at retirement – the 25% tax free cash sum and the break that allows us to get pension income free of national insurance payments. I suspect that there’s sufficient financial planning  based on the tax free sum for it be considered an entitlement. It is hard to take away what is considered an entitlement using a cliff edge. Anything other than a cliff-edge cut would see the immediate cashing out of remaining tax-free cash accross the board, leading to chaos and justified accusations of financial vandalism.

Extending the scope of national insurance to cover pensions in payment looks a more likely means of recovering some of that £40bn.

Rather than consider the FT story as idle speculation on a quiet Friday, I’d see it as the first stage in the softening up of the FT readership to a consultation process that will result in an announcement in the autumn budget. There is presumably enough juice left in the plans that were ditched in 2016 when the Daily Mail told George Osborne he wouldn’t have a back-bench to support him if he pressed ahead.

This is not the FT flying a kite, but the Treasury. It’s going to be a stormy weekend, let’s see how that kite survives it!

Posted in age wage, pensions, Politics, Treasury, welfare | Tagged , , , | 3 Comments

If we can do it for baked beans… we can do it for pensions

Posted on February 7, 2020 by henry tapper

Screenshot 2020-02-07 at 06.58.31

Not so long ago, the then pensions minister likened choosing a workplace pension to choosing baked beans. There are many brands of beans on the shelf at different prices. Shoppers buy not on money, but value for money. They have high-level information about calories and ingredients and more detailed information about additives. They also have memory of previous purchases and how they played with family/customers.

“Choosing pensions , whether we are employers or individuals should be no harder than choosing our brand of baked beans”  – I think that sums up Steve Webb’s argument.

In practice it is very difficult to make meaningful comparisons between the value we get from our different pension pots and it’s pretty tough for employers to work out whether the workplace pension they chose when staging auto-enrolment is doing what it said on the packet.

I am told this was the message of Edwin Schooling Latter when talking on behalf of the FCA at Just Retirement’s. (Sadly I was presenting elsewhere and got to the conference late).

Why can’t we know what we are buying?

This was also a week when the FCA delayed the disclosure of the “additives” on the pension can of beans.  For more details, read earlier blogs

Of course not everyone reads about the emulsifiers on a baked bean can, for me it is enough to know that information is available to me. But many do, and people notice if this information isn’t there.

The pensions equivalent of “additives” are the costs we pay for the management of assets, the hidden ingredients that can be as damaging to our wealth as nutritional additives are to our health.

And what about experience?

We will buy baked beans many times but we make meaningful purchasing decisions on pensions only once or twice in a lifetime. Our experience of our pension is controlled by the marketing of the pension provider, not by the good the pension did us.

Schooling-Latter’s point was, as I understand it. that we should have a way of comparing experience of a pension pot in a reasonable way.

By the end of today, my little start up will have explored the experience of 1 million pension pots, establishing the internal rate of return achieved on each and comparing this to a benchmark we have established with Morningstar.

We know which workplace pensions have delivered good outcomes and which are yet to do so. We don’t have detailed information on why , but from the conversations we are having with fiduciaries, providers and employers, we are beginning to understand what has worked over the past twenty years and what hasn’t.

With the co-operation of legacy providers, we hope to explore the ocean depths and do similar work on pension data going back to 1980 (we have a little- not enough).

We hope , through this work, to help first fiduciaries and then savers understand what has happened to their savings. How the savings have been influenced by the growth strategies of providers and how de-risking has contributed to or taken away from saver’s outcomes. We will also be able to see the impact not just of overt charges (AMCs and so on) but of the additional costs of the additives.

Finding out how your savers have done.

We are dedicated to confidentiality, if you are managing or have fiduciary duties over a book of people’s savings, we will analyse that book on an anonymous basis and we will only share your data with you.

The big data set we are creating, based on 1m + ratings, is expected to swell beyond 5 million by the end of the year, we will share this big data with Big Government because we want people like Edwin Schooling Latter that the private sector can help and partly because we want to counter the negativity of many in influence who think that allowing people to see what they are buying – might do them harm.

We do not have to have a list of additives and their contribution to performance listed in large print on the label (the label would indeed need be too big). But we can find ways of letting this information be shared at point of sale in a conspicuous way.

PS20/02 fails to find that way, I blame myself. I should have responded vigorously to the consultation with an AgeWage solution that I am now clear about. All is not too late and if IGCs, trustees, providers and employers want to know how AgeWage can report to them on the impact of cost and charges , you need only mail me at henry@agewage.com and we will analyse your data for free and deliver you an AgeWage report showing you what has actually happened with your savers.

I will also show you how we intend to develop our service to help the savers understand their workplace savings and compare them with savings in other pension pots.

If we can do it for baked beans – we can do it for pensions

AgeWage evolve 2

 

 

 

 

 

 

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“State of the Pension” address

Posted on February 6, 2020 by henry tapper

CIPP

After doing a 30 minute address to to CIPP in 10 minutes, I’ve been called back to do another one – only this time I’m first on – which means I could gab on for ages and make sure no one got a coffee break.

You can see my slides here.

I’ve tried to keep things simple this morning and talk about what I know, which is what people are talking about. I’m dividing my talk into three Technology, Investment and Tax.

The state of the pension idea sadly didn’t make it into my slides. I thought Trump was really good the way he presented rubbish. Other orators have pulled off the same trick, it seldom ends well.

My state of the pension address is aimed at an audience of payroll experts who do the heavy lifting for pensions. I don’t want to paint a picture of pensions in crisis (they aren’t) but of pensions in change.

I wrote down Technology – Investment – Tax as the three things that need to change. If it takes some seaside humour to remember a talk, I’ll stoop that low.

Technology -Supporting the tough decisions at retirement

The big shift which the actuaries are picking up on is actually 40 years old this year. If you count the accession of Margaret Thatcher in 1979 as the start of market liberalism, then we have been dumping risk on ourselves for four decades.

The climax of this process was the announcement by George Osborne that no-one would have to buy a pension (annuity) again. Instead we have the opportunity to do our own AgeWage with the help of Pensions Wise, a diminishing band of IFAs (wealth managers) and some half-baked technology that could come out of the oven a pension dashboard.

When I bought my first wi-fi, I was told that my “system” was only as good as the weakest link. Our pension system’s weakest link is the support given to those with DC pots as they convert them to retirement plans.

One great change that is going to happen if we are to convert saving success (auto-enrolment) into pensions success will be the successful introduction of investment pathways. I do not think there is sufficient support for ordinary people in the “strait of Hormuz” between the calm savings waters of the Persian Gulf and the Indian Ocean of later life.

The only solution I can see to the job of engaging and supporting people through this process is through new technology. We should not consider ourselves suffeciently financially adept to work out what to do by reading up or by talking to Pensions Wise, we need to be able to see what happens to our finances using tools we can download from the cloud onto the founts of all wisdom, our phones , tablets, lap and desktops.

The dashboard can find us our pensions but we need tools to shape our pension pots into retirement plans.

Investment – getting people involved with what our money does.

We cannot become a nation of Warren Buffett, but we can learn from our own sages. Martin Lewis doesn’t do investment but he can show us how it differs from saving

We are  all investors. When we discover this we are like the poet that doesn’t know it, like the fool in the French comedy who delights in discovering he is speaking “prose”.

We invest our pensions but we know not where, or how or why. When we wake up to the fact that our money could be doing good or bad, we are anxious it does good. When we stop to think what the cost of doing good might be , we’re not so sure. When we discover that our investment can do good and help us retire, we start thinking like investors. Hopefully more of us will act like investors, that’s what gets things changed.

Taxation – wrong money – wrong people – wrong time

Another great change that needs to happen is to the pension taxation system. I admire David Robbins’ defence of the purity of EET but he is alone in offering an intellectual apology for the current system. For most of us the current pension taxation system is practically bust, delivering the wrong money to the wrong people at the wrong time

There is  practical reason to leave pension taxation alone; that is that changing it will cause huge transitional problems which the nation will not like. Those paying higher rate tax  will absolutely hate change.

We have one of those windows to make change happen, right now. The alignment of a new strong Government, a new start on Europe and a clean sheet of paper makes radical change to the pension taxation system more likely than at any time in the last decade.

The State of Pension – restoring or creating confidence

Payroll people have every right to be sick of pensions. They have had to do the heavy lifting on auto-enrolment and they’ve had precious little thanks for it. It’s payroll who deliver the key messages to people on their pensions – they make and signal the deductions that keep us saving and investing.

They are becoming – faut de mieux – the “go to” people in organisations  for information on the workplace pensions chosen by employers. They can deliver the messages on investment – if only we let them.

But for now, we are still telling those who manage our pensions that they cannot talk about pensions – that in telling people where to go for information, they are offering advice. While we should be empowering payroll to be our advocates , we are cowering them into compliance with regulatory “project fear”.

The way we restore confidence in pensions is not by droning on about judicial disputes like Mcleod and Sargent, or the case of WASPI, this is just noice. We don’t empower people by going on about GMP equalisation , de-risking . governance diversification and all the other things pension people like to talk about between themselves.

What we need to do is to make pensions relevant to the way we live our lives today.

  1. We need to make technology work for pensions – so that people have ways to get information about their savings and how to spend them
  2. We need to turn savers into investors by helping them understand what happens to their money
  3. We need to find a way to make pension taxation an incentive to save rather than a subsidy to savers.

Payroll can unlock workplace pensions to millions of new savers. Payroll do technology that pension people don’t. Payroll know how workers think and interact with them every day; if given the chance they can explain how investing works. Finally, payroll are the collectors of our taxes, working with HMRC using Real Time Information.

Winning the hearts and minds of payroll to be pension ambassadors is high on my wish-list when I think how to restore or create confidence in pensions.

CIPP

Posted in advice gap, age wage, Martin Lewis, Payroll, pensions | Tagged , , , , , | Leave a comment

Workplace GPPs, incompetence not governance drives policy.

Posted on February 5, 2020 by henry tapper

The argument in a nutshell nutshell

The FCA has decided to relax rules that would have made the management of workplace group personal pensions very difficult. These GPPs are run by insurers and a few GSIPP operators (Hargreaves Lansdown most prominently). They had argued that their products weren’t meant for this kind of disclosure and the FCA listened and agreed.

Screenshot 2020-02-04 at 10.44.19

I actually agree with the argument that the GPP and GSIPP operators are putting forward. However I disagree with the relaxation of disclosure requirements. It is not disclosure that is wrong, it is the product. It is not disclosure that should change, it is the product.

Why so many funds?

The tend towards unlimited fund choice goes back to the early 1990s when the concept of open architecture first took hold. Actuaries worked out that you could make as much money out of a product reinsuring someone else’s fund and offering it at your price on your platform as manufacturing the fund yourself. Organisations such as Skandia realised that insurers were better as fund distributors than asset managers and sold the public what we might now called “platform as a service”.

The regulators looked kindly on this, not digging too deeply into the commercials , but seeing unlimited choice accross from broad range of asset managers as a “good thing” for consumers.

The reality was quite different. The underlying funds were loosely wrapped by insurers but execution could be awful. The performance gap between the underlying fund and the insurer’s (reinsured) version could be 1% pa or more. The crimes against the consumer were manifold

  • Extra fees for the wrapper
  • Poor execution (most purchases were arranged over a fax machine)
  • Contributions kept in suspense accounts
  • Liquidity held in the wrapper (rather than the fund)

These problems could be magnified when the consumer was presented with a fund of funds where contributions could trickle through a variety of structures , each with dilution levies that sucked the lifeblood out of any performance gains.

These open architecture platforms soon became a racket and gave rise to a new , cleaner form of open architecture offered by technology focussed platforms such as FNZ, Transact and Cofunds which sped up transactions , cut down on costs and reduced the need for reinsurance.  These new light-touch platforms were adopted by SIPP providers like AJ Bell and Hargreaves Lansdown which quickly improved standards all round.

Well not quite “all round”. So long as advisers could be paid commission, the old style GPPs were valuable – at least to those who sold them. There became an art for insurers in paying advisers through complicated charging structures that meant insurers remained attractive – even when their products weren’t. The most artful of these structures was the ‘active member discount” which was basically a tax on people who changed jobs.

When the commission gravy train hit the buffers at the end of 2012, commission continued to be paid on products sold prior to the introduction of RDR and it wasn’t until 2014 that the charge cap and the abolition of the heinous “active member discount” saw workplace pensions become “safe havens”.

By then , advisers had all put disappeared from the workplace. Without commission on new sales, advisers stopped selling or advising on GPPs. The huge fund ranges which had been set up to give advisors something to talk to policyholders about, remained and do so to this day. They are an obscene relic to three decades of mis-management which has had everything to do with volumes and margin and nothing to do with value for money.

Insurers an SIPP providers will now try to bury the bad news about legacy funds in IGC reports (which they’ll do their best to make sure no one will read). Even if people do read them, there’s no certainty the IGCs will present the information. Read the 2019 OMW IGC report as testament.

Why people like me , Ros Altmann and Jo Cumbo are angry

The workplace providers who lobbied against proper disclosure on these funds are being lazy. These outlying legacy funds serve no useful purpose, like the Rump Parliament they are hanging around for no good reason, I am reminded of Oliver Cromwell’s speech

Ye sordid prostitutes have you not defil’d this sacred place, and turn’d the Lord’s temple into a den of thieves, by your immoral principles and wicked practices? Ye are grown intolerably odious to the whole nation; you were deputed here by the people to get grievances redress’d, are yourselves gone! So! Take away that shining bauble there, and lock up the doors.

In the name of God, go!”

That is the speech that the FCA should have made to the insurers and SIPP providers, replacing MPs with “non-disclosed funds”.

To my friend Tom McPhail who is trying to quietly usher us away from the scene of the crime,

I would be Cromwell

“Is there a single virtue now remaining amongst you? Is there one vice you do not possess? Ye have no more religion than my horse; gold is your God; which of you have not barter’d your conscience for bribes? Is there a man amongst you that has the least care for the good of the Commonwealth?”

For Tom knows that if a precedent can be set in this Policy Statement that allows platform providers to plead “too hard, too heavy” here, they can plead this elsewhere.

We are angry because platforms and fund managers are given a licence here to duck disclosures elsewhere. If they have licence, so do advisers operating DFMs and so 15 years hard work getting to MIFID II and PRIIPS is undermined. If this is the shape of post Brexit regulation to come, then I will have none of it – nor I suspect will Ros or Jo.

Between them , the IGCs and the FCA could have done for the GPP fund legacy what they did for exit charges. Instead the FCA has let incompetence and laziness drive regulatory policy and it’s a damned shame.

 

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Pension incentives – a foundation for change.

Posted on February 4, 2020 by henry tapper

At the time of posting, Tom has already had a mammoth response

Screenshot 2020-02-04 at 06.09.00

If you are reading this on Tuesday Am 4th Feb, you can add your views but the numbers look consistent whenever I’ve looked. People think the taxpayer should be incentivising not subsidising saving.

Thanks to Tom for getting us this insight, it is of course what the Treasury were thinking when they launched their last consultation on tax relief – subtitled “an incentive to save”.

There may be a wide variety of reasons people prefer “incentive” to s”subsidy” but I suspect they can mostly be put in the “leg-up not hand-out” bucket.

Time for a concerted voice?

Since the general election, it’s felt like we’ve come out of a Narnian hibernation. Everyone is expressing the need for reform that has pent up in three and a half years of policy winter and the will for change is emerging on blogs and other social media rather than from Government.

It seems  we are ready to debate, though not yet ready to get behind one remedy for what we consider a broken system.

I hope that what will emerge out of this noise will be someone authoritative who will take personal responsibility for bringing consensus.

This will mean establishing, as Tom is doing, the basic principles. If we can agree that saving is an incentive, then that can be a touchstone. Similarly if we can agree (as Darren Philp was arguing) that the Government should have outcomes in mind , then we can think of the behavioural impact of changes on different savers and target the right outcomes.

Retirement saving does not happen in a vacuum, the impact of greater saving has to be viewed in the context of our benefits system, the cost of meeting the health needs of an ageing population and the wealth tied up in non income generating assets such as our houses.

Finally, we need to understand the impact of change not just on those in retirement (increasing) , but on those still working (decreasing). How can we best distribute the cost of retirement savings incentives? What levers are best pulled, and what released?

Let us go back to the 2015 consultation.

It is within the power of Government to create a system of savings incentives targets a certain set of outcomes , at a pre-agreed cost which is spread between various interested groups fairly.

But for this to happen we need the consensus to be created independent of the vested interests of the pensions industry.

If this debate is conducted properly , it will be conducted by people who can genuinely be thought independent, people who the public can trust and who parliament will respect.

Such people exist and they are people who are making themselves known on social media. They are talking amongst themselves because they know now is a time for change.

I very much hope that an independent consensus will emerge as a result of these experts doing the hard work needed to address the big questions being raised.

No one comes to the table without some baggage, but it is the job of leaders to ensure the cleanliness of the process so that whatever emerges from these discussions has value.

I think that the Government Consultation on savings incentives in 2015/16 is the starting point, that the questions asked in that document are still relevant five years on and that all that has changed since then, is the successful completion of auto-enrolment and enhancements in technology that give HMRC improved powers of implementation.

The long-term trends towards freedom of choice and away from collective solutions persist. The absence of support for those making life-changing choices about how they want their savings paid to them remains an issue.

Above all, the fundamental issue, identified by Tom remains. The tax system is currently subsidising saving for those who have money to save, it is not incentivising saving for the needy. We are actually excluding 1.7m of the needy from incentives through the net-pay anomaly while 50% of the cost of tax-relief , goes to 10% who need incentives least.

Pension incentives – a foundation for change

I had long thought that the answers would come from Government and that the voices of those outside of Westminster would not get heard.

My opinion is changing as I understand that Government does not have the resource to find those answers by itself and that there remain institutions set up and maintained by the private sector that can help resolve what appear intractable problems.

Of course there are conflicts (as mentioned) but there are ways of driving through conflicts where the will for change exceeds the inertia to retain. The case for reform of the current pension tax-relief system was well made by Tom McPhail in a letter he published and is republished here.

So strong is the case for reform, that I see it as inevitable. The exact shape of reform is down to Government to legislate , but the foundations for the Government’s decisions can be established by the people who are governed.

I suggest that now is the time to have a people’s cabinet – dedicated to establishing the foundations of tax-reform – speaking to Government as all great campaigning movements do, with respect and with authority.

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“A pension at 15?” – maybe not!

Posted on February 3, 2020 by henry tapper

It’s fun keeping my brain attuned to other people’s pension problems for the Times. I’m glad I did this one with my friend Ros Altmann. Thanks to David Byers for this cerebral nutrition!

 

Tina Foxall, 51, a school exam invigilator from the West Midlands, wants to start investing £50 a month for her son, who is 15.

She has been so dismayed by the appalling interest rates on offer from high street savings accounts that she is considering ignoring them completely and simply starting a pension for him instead, but is not sure how to do it.

“Starting to save for him in a pension would give him an amazing start in life,” she says.

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Illustration ELISSA FLYNN

“But I don’t know how you start a pension for a child. What would be the most tax-efficient way of doing this?”

Tina would also like to know about any competitive tax-efficient savings accounts that she might have missed.

She is not willing to take great risks with her investment and would like anything she pays into to be covered by the Financial Services Compensation Scheme (FSCS) although she is interested in hearing about stock market options. She also wants an account that he could not touch until he is at least 18.

Our experts recommend
With any pension, the money that you put in is boosted by the government. A Junior Sipp works exactly like a self-invested personal pension (Sipp). The holder, who must be under 18, can benefit from tax relief of 20 per cent on contributions. Parents or legal guardians can pay in up to £2,880 a year, which will be topped up by £720 from the government to a total contribution level of £3,600, says Henry Tapper, the founder of Age Wage, a pensions advisory service.

He believes that a pension may not be the most effective way to invest for a 15-year-old, given that he will be able to get the money only when he is 55. If Tina would like him to have access to it at 18, Tapper suggests a government-backed Junior Isa. The best rate is from Coventry Building Society, at 3.6 per cent — the ninth consecutive year that Coventry has topped the tables.

Junior Isas, just like the adult versions, are tax-free savings vehicles. Parents, grandparents and friends can put a total of £4,368 into a Junior Isa for a child each year.

As with adult Isas, the money can be invested in cash or stocks and shares, or both. You can hold only one of each type at any one time — one cash Junior Isa and one stocks and shares Junior Isa — but you can switch your account to a new company as often as you like. If an authorised investment company goes into default and is unable to pay claims against it, the FSCS will cover up to £50,000 of your investment. It will protect up to £85,000 held in a regulated savings account.

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Tina Foxall wants to invest £50 a month for her son

Baroness Altmann, a former pensions minister who is now a consultant, suggests that Tina could pay into a Lifetime Isa for her son once he turns 18. The government-backed products aim to encourage people under the age of 40 to save for a first home or retirement by offering a 25 per cent bonus (up to £1,000 a year) on anything saved. If you use the money before you are 60 for anything other than a first home worth up to £450,000, you have to pay a penalty that more than cancels out your bonus.

“A Lifetime Isa would gain an extra £12.50 for every £50 invested monthly — but the minimum age is 18,” she says.

There are also some relatively competitive interest rates elsewhere in the junior savings market. Halifax’s kids’ savers account pays 4.5 per cent, fixed for a year, on deposits of between £10 and £100 a month, but doesn’t allow withdrawals.

“Most children’s savings accounts have an upper age limit of 15, so if Tina wants to go for this option, she needs to open the account before his 16th birthday,” says Rebecca O’Connor from Royal London, an insurer.

“The rates on these accounts usually last a year before reducing down to less than 1 per cent. So she should then move the money to whichever is the highest paying account on the market to maximise interest payments.”

For an ultra-safe alternative, Baroness Altmann suggests Premium Bonds. “They pay no interest, but monthly prize draws give the chance to win £25 to £1 million,” she says. “Premium Bonds are completely guaranteed by the government, so they can be cashed in with confidence in the future. She can buy them online through the NS&I website, by phone or by post.”

 

Taken from The Times – Portfolio

 

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From Blackfriars to Port Talbot

Posted on February 2, 2020 by henry tapper

St Pauls today

My favorite John Ralfe article is called “don’t cash in your final salary pension” and it contains this passage.

If you are wealthy enough — to the extent that there is no risk of running out of enough money before you and your spouse die, no matter what — then the pension guarantees are worth little and it may be sensible to cash in.

But most people are not so wealthy and their pension is a large part of their overall retirement wealth, so those guarantees are very valuable.

Despite eye-watering multiples for cashing in, do not think now is a clever time to take the money and invest in equities. The higher expected return of equities versus bonds is just the reward for the risk of holding equities. It is not a guaranteed “free lunch” or a “loyalty bonus” for long-term investors.”

John wrote his article shortly after Merryn Somerset Webb had written “If I had a final salary pension, I’d cash it in” and distinguished FT columnist Martin Woolfe had told us he’d done just that.

How can we reconcile our leading financial paper on the one hand advocating pension liberation and on the other filing report after report on the dangerous consequences?How can Jo Cumbo and Merryn Somerset Webb be colleagues?

Transfer windows

Last Friday was Brexit day, it was also #transferdeadlineday, the last day football clubs can transfer players in the “January window”.

Merryn’s article, written in 2016, argued that the opportunity for what John called “eye-watering multiples for cashing in” could be “the last gift you’ll ever get from the bond bull market”. As it turns out , the bond market continues to give us 40+ times multiples (a £10,000 pa pension often gives a transfer value of £400,000 or more) but the incidence of people transferring is falling fast.

The window for transferring is closing but not because the bond market is running out of steam, but because insurance companies are refusing cover (at economic rates) to financial advisors who want to advise on these transfers.

Insurers see the incidence of claims as too high and this is based on evidence of future claims they will be getting from the FCA and actual claims being upheld through FSCS.

The FT reported on the latest FCA statements on pension transfers and I reminded the FCA that in 2016 they had brought this issues to their public’s notice.

Jo Cumbo was upset by this , thinking I was accusing the FT of hypocrisy.

and again

For the upset, Jo – sorry.

Should the FT be charged with double standards?  OF COURSE NOT

It was not just Merry and Martin who were raising awareness, Ros Altmann did too. Ros’ position was clear and precisely the position that John Ralfe was advocating

If you are wealthy enough — to the extent that there is no risk of running out of enough money before you and your spouse die, no matter what — then the pension guarantees are worth little and it may be sensible to cash in.

Minutes after I had juxtaposed Merryn and Jo’s articles, I was speaking at the Institute and Faculty of Actuary’s Great Risk Transfer Debate to a hall full of actuaries some of whom had taken CETVs themselves.

I made it clear in my closing remarks that it was quite possible to support both Merryn and Jo’s positions for precisely the reasons laid out by John Ralfe.

Could I really accuse Ros Altmann, who has done more than anyone in Britain to publicise the need to protect the financially vulnerable, of deliberately provoking the practices the FT are now stopping?

Ros is quoted in Jo’s article in the FT this week

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Almann’s position is consistent and so is Cumbo’s. What I told the actuaries was that they had every right to take on risk if they could manage that risk. However , where risk is transferred without proper explanation and due regard to the consequences, the risk transfer is BAD.

Horses for courses

I know of steelworkers, (Rich Caddy is an example), who knew the risk they were taking and are explicit in praising their adviser for allowing them the right to their money. The level of financial capability evidenced on the Facebook pages of the steelworkers is increasing and clearly some who took transfers are growing into the task of managing their money.

There are similarly people (like me) , quite capable of managing a CETV who chose not to. I prefer not to worry about the markets but to get paid a regular income and there are many like me.

“Financial Capability” is not the only measurement of suitability. Many successful entrepreneurs are deeply cautious retirement planners because they take their risks elsewhere. They may be brilliant in business but cautious on the home front. This is how I understand Paul Lewis’ decision to keep his retirement funds in cash.

The opportunity cost of not “investing” are enormous, but so is the deep satisfaction of knowing the money will be there, year after year. For me, it is another reason to stay healthy!

Rich Caddy and I are friends, but our behaviours are different. Rich has had a steady job in the steel-works and will have a retirement where he will play the markets, for me , it’s the other way around (without the steel works).

 

From Blackfriars to Port Talbot

Jo’s offices are a few yards from St Paul’s and a couple of hundred yards from where I’m writing this blog.

Port Talbot is a long way away from the City of London but Jo managed to make the steelworker’s pension decisions real to those in pensions.

Merryn and Jo represent two ends of the spectrum of this debate. Merryn advocates financial freedom for those who can handle it and Jo writes about the impact of dumping risk on those who have no means to handle it.

Society is not equal, we need Merryn and Jo, we need John Ralfe and Ros Altmann too.

Most of all, we need a proper understanding of this great risk transfer that has seen £80 bn flow from collective pensions  to the personal management of individual citizens.

Thankfully , the IFOA are on the case and I hope that the debate they have started will lead to a better understanding of how we can travel from Blackfriars to Port Talbot and back again!

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My ethics are my own

Posted on February 1, 2020 by henry tapper

Screenshot 2020-02-01 at 08.56.08

I appear to be under fire on twitter for claiming I am investing ethically by purchasing units in the LGIM FutureWorld fund.

I am aware that this fund is not strictly an ethical fund and that my investment isn’t an “ethical investment” according to the definitions dished out by the FCA and reinforced by trade bodies such as the Investment Association and the PLSA.

But as the LGIM Future World fund meets my criteria for ethical investment and my ethics are my own , I will stay with it.  I don’t think “ethical” should go the way of “advice” and become the property of  regulated experts.

I suspect that the controversy over this fund begins because Pension Bee, that offer FutureWorld on their fund platform, have written to LGIM , asking for an explanation as to why the fund invests in Shell.

Shell have responded to the open letter from Pension Bee with their open letter back. I like the transparency ,

Can we invest money ourselves to meet our ethics?

For most of us , this is unlikely. It is possible to purchase a licence to Morningstar’s Sustainalytics. 

It is possible to subscribe to various feeds such as Sarah Wilson’s Minerva,  Julia Dreblow’s  SRI services   orAlan McDougall and Tom Powdrill’s PIRC

With all this research to hand , you could build your own portfolio of stocks and/or funds and claim to be executing your ideas self-suffeciently.

However most of us will need to take advice from an expert if we are to really crack this. It would appear that IFAs like David Penny and Al Cunningham are now expert enough on what is ethical investment, to put themselves forward for this on twitter and I thoroughly recommend them

They do not have any divine rights on “good and evil” so you will have to work out with them how far you want ethics to guide you in your stock or fund selection and to what extent you are going to “outsource execution” to these fine fellows.

For those who want their investments fine-tuned, there is nothing better than an high class IFA like Al or David Penny.

But for the ordinary investor like me….

I have gone another route , a collective route. I have looked at a few funds which claim to do what I want to them and I have selected FutureWorld because I get it at a very good rate, it is convenient for me to use and because the fund managers are round the corner from where I work and I can have a coffee with them from time to time.

Do people know what they want?

When I became an IFA back in the early 1980s , I found that it was easy to sell the Friends Provident Stewardship Fund because the people I talked with were often Methodist Ministers. They were attracted to this fund for obvious reasons.

35 years later, people are still choosing funds out of conviction. I was pleased to see the results of Pension Bee’s research of 2000 of their policyholders. A sample of the findings were posted on Twitter

 

 

What these tweets tell me is that many people have strong ethical convictions that drive what they want from their investments.

If Pension Bee are to be believed, their conviction is not being matched by the courage of fund managers which appears to be lacking.

I hope that Pension Bee will find a way to offer funds to their investors that meet their investors expectations so that they do not have to consult with experts.

Because the vast majority of people who invest with Pensions Bee or (like me) in Legal and General Workplace Pensions, rely on Pension Bee and L&G to present them with funds that do what they want.

This is why we have fund governance

While I have found LGIM excellent at providing the fund choices I want, I have (of late) found L&G’s platform governance deficient and I’ve said so both to its executive and to its IGC.

Pension Bee appear to be doing what L&G and their IGC is not doing , which is talking to its savers about what they want.

I may find out in the past few months this has changed, and I look forward to reading the IGC’s Chair’s Statement in April to prove me wrong. But right now I think I prefer Pension Bee’s approach to fund governance and if they offer me better fund governance than L&G, I may move to Pension Bee for LGIM fund management in future.

My ethics are my own, and so is my money!

 

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What are those actuaries up to now?

Posted on February 1, 2020 by henry tapper

Screenshot 2020-02-01 at 05.58.54

“The Great Risk Transfer” baffled the journalists who were conspicuous by their absence at this breakfast meeting.

Pension Age reported “IFoA to investigate transferring of risk onto consumers” as if the actuaries were campaigning  for Which?

Professional Pensions reported the “IFoA launches investigation into DC”

IPE, while accurately reporting the title “UK actuarial body to dig into ‘the great risk transfer’, thought actuaries were excavating “the trend for financial planning risk to be transferred from institutions to individuals”.

Infact , the actuaries have been troubled for some time by the prevailing trend to individualise risk taking. To my shame I had been ignoring correspondence fro them, thinking it was promotional material when in fact it was asking for my opinion.

Here is an extract from a letter last year

The Presidential team here at the Institute and Faculty of Actuaries (IFoA) recently identified that there appears to be an ongoing trend for the transfer of various risks from governments and institutions to individuals, a trend which lies behind a range of relevant issues for the actuarial profession, such as:

  •         Pension accumulation – the shift from DB to DC provision and transfer of investment risk

  • Pension decumulation – the Freedom and Choice agenda and transfer of longevity risk

  • General insurance – the granular pricing of products leading to a reduction in pooling

  • Social care – lack of protection against the risk of catastrophic care costs

  • Investment – prevalence of non-advised decision-making leaving individuals exposed

Like the journalists, I was missing the point. The IfOA were not just investigating the symptoms, they were after the cause. The big question is

Why are we dumping risk on individuals which we used to shoulder collectively?

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Myra Harrison gave us a political insight

In a captivating video, Myra Harrison gave us a perspective from down under, putting the question in a political context. She identified five prevailing trends

DB/DC; As individuals we need to take a greater responsibility for capital accumulation

Long term care; Governments are looking to offload responsibility for social and medical care of the elderly onto the elderly and their families

Gig economy; employers are moving away from security of employment , offering short-term contracts or work under self-employment

Back to work; an expectation that those out of work have responsibility to find work , rather than have work found for them

Privatisation ; an acceptance that the private sector has an increasing role to play in healthcare

Harrison characterised this trend as a “rejection of structural explanations for behavioural explanations”, the new social contract was being driven by market liberalism.

For Harrison, this trend started in the late eighties and continues to this day, I was sitting next to one of the architects of CDC, he looked depressed.

Is big data “Mitigating risk” or “leading us down the garden path”?

There were further presentations on promoting numeracy and on what Pensions Wise was doing nudging people towards better outcomes. Unfortunately the numeracy presentation was undermined by the answer to one of the exam questions being wrong (if you are presenting to actuaries get your maths right) and the MAPS presentation was spoiled by the granular information being unreadably small. As with so much that has come out of MAPS, we were denied the detail.

Much better were the presentations from the floor which told us what was being discussed at each table. These reverted to the practical issues confronting actuaries today (see above) but also covered concerns that big data could be abused, nudging us to harm. Actuaries voiced concern that much insurance purchasing was through inadequate web-based searches and that regulation was not keeping up.

One actuary went so far as to claim that “greed” was short-circuiting the proper use of information.

What are these actuaries up to now?

Between now and the end of April, these actuaries are going to be setting down their concerns and what we can do to mitigate the risks they see in this long-term trend towards “the democratisation of risk”.

Having been absolutely hopeless in responding to calls to help shape the agenda, I will try to do better and both promote their efforts and add my (non-actuarial) tuppence worth.

I think the people who turned up on a January Friday morning to discuss this topic are heroes and the best hope that society has of getting some top-class thinking on a subject that is so big, the journalists can’t get their head round it, so obvious that we wonder why we’ve never thought before in this joined up way.

Whether you are an actuary or not, you are invited to add your thoughts to their call for evidence

ACCESSIBLE VIA THIS LINK

(I’ve done mine and it only takes a few minutes)

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More argy-bargy in pension’s tax-trenches

Posted on January 31, 2020 by henry tapper

Darren

 

Blessed are the peacemakers, until they wade into a debate on tax-relief. The saintly Darren Philp , maybe picking up from comments from ex DWP govt actuary Andy Young, tried to change the debate.

To summarise his argument, he suggests we start with a given objective, perhaps to get everyone to the retirement living wage (PLSA one) and work backwards to the solution that gets us nearest that. This is along the lines of papers from Demos in the 1990s on compulsion which tried to define the minimum people should live on in older  age to be self-sufficient. At the time Demos was talking about compulsory savings, now we are talking about savings incentives (we live in a kinder age).

I had thought that Darren’s placatory paper would soothe the savage brow of commentators such as David Robbins, Stuart Fowler and of course John Ralfe. Infact it inflamed the debate to bush-fire ferocity.

I was initially fooled by the ambiguity of David’s syntax into thinking he didn’t like the tax treatment of pensions, but then spotted that 1/X which takes you to ten microblog thread explaining why

What then happens is ugly and only for die-hard aficionados of this debate. John Ralfe comes in with a two-footed tackle , Robbins retaliates and about 50 tweets later, the debate ends when Robbins throws a bucket of cold water in JR’s face

What  David and John fell out about (and why it matters)

To make the argument clear I am going to have to use my words not David’s and I apologise in advance if I have read him wrong.

David has spotted that John’s argument for flat rate incentives of 30% on all pension contributions are in fact giving with one hand, after the other hand has taken away all the tax-relief in the first place.

What happens is that you find yourself paying anything between 0 and 45% more in tax on all the money going into your pension whoever pays it. That isn’t an incentive , it’s a tax grab and John is actually describing the T in TEE.

The incentive is that the taxman will then pay back this money into your pension at a flat-rate of 30% meaning that  (unless everyone’s salaries are jiggled about) you actually get 30% more into your pension than you did before.

But of course everyone’s salaries would have to be jiggled about because people would object to having reduced take homes.

David is saying that this would be a “Sales pitch” played on the British public designed to dress mutton up as lamb.

David is of a view that you either stick with what we’ve got (his favoured option) or move to a full TEE system (which so far only I have advocated).

It is of course extremely unkind on John to suggest he has anything in common with Ros Altmann and David should be censored for pressing the nuclear button.

What David is doing, is showing what John’s approach actually does. It gives the Treasury a lever to regulate the loss to the revenue from pension incentives by allowing it to raise or lower the 30% figure. 35% makes us all happy, 25% makes us sad.

And of course HMRC still get their pound of flesh when we retire (at least 75% of it.

What John is describing could be a transitional arrangement to TET, David’s summary point

So John Ralfe is much closer to TEE than he’d like us to think..

If anyone has read my blogs on all this, they’ll know I am much closer to John (and Ros’) position than John would like to think. Paying flat rate incentives is just a way of making TET acceptable and to get to TEE, you just reduce the incentive and give more tax at the back end.

Where Ros Altmann falls out with me, is that I don’t have such a problem with this as she does. She tells me that this would mean the end of pensions with everyone cashing out day one, I say that the money comes out tax free – but only if it comes out as a pension.

Where I differ from David Robbins  (and where I agree with just about everyone else) is that I don’t think the current EET (with NI relief on the T) is just or sustainable. It is not directing all this lost tax-revenue at those who need incentivising but at those who don’t.

Which leads me back to the start of the conversation and the pacific Darren Philp. Surely he is right to take up Andy Young’s challenge to Tom McPhail

As Darren says, there is no easy – publicly acceptable – answer to the issues around pension tax-relief. I like Darren’s approach and think the best way for the Treasury would be to model what would happen using EET, TEE and John’s incentivised TET with the benchmark being getting everyone to say 75% of the Retirement Living Wage.

If Gareth Morgan is right and 50% of deemed pension income comes from the tax system, then the model is going to have to be comprehensive and include all the costs of later life, including the impact of not charging NI,  the components of UC, the State Pension and of course the strain on the NHS and social care of an ageing demographic.

I’m not one to sympathise with the Treasury, but that’s a pretty big model!

 

 

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Pension transfers- actuaries have nothing to crow about.

Posted on January 29, 2020 by henry tapper

Crow

I am cross that an established firm of actuaries get on the front page of the FT for kicking IFAs for their advice on pension transfers

Mark van den Berghen, principal and senior consulting actuary at Buck, a consulting firm that lodged the FOI last year, said: “This latest information from the FCA is alarming and should worry all involved — providers, advisers, and scheme members.”

I get crosser still when Buck’s MD, sees this observation as a cause for celebration on linked in.

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I have read Buck’s research which falls into the “no shit Sherlock” bucket.

Buck’s FOI request shows that the current system may be producing outcomes that are unlikely to be in the best interests of the majority scheme members. With many of these members switching from DB schemes to DC schemes, it’s likely they will be exposing themselves to investment and longevity risks which could impact their standard of living in retirement.

Actuaries know about investment and longevity risks and they are at their best when they explain these things to us , as Stuart Macdonald has been doing on twitter this week

Actuaries are at their worst when they hold their nose over the behaviour of others , when that behaviour was as a consequence of failings in the system which result from actuarial assumptions being applied and not explained.

Such is the case with Pension Transfers.

If you go to  http://www.finalsalarytransfer.com  , a site run by Tideway Investments, you can input your defined benefit pension and find out the likely range or transfer values.

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You might well ask why something so simple as a pension of £10,000 a year might attract such a wide variety of transfer values. Clicking on the left hand box gives you a partial explanation.

Transfer values are individually calculated by your scheme’s actuaries and values will vary from person to person and scheme to scheme, so we have given a range within which most transfer values should fall. As a guide to where you might be in the range:

  • The nearer you are to retirement the higher up the range you should be

  • The more generous the annual increases to your pension in deferment and in payment and the larger the widow/er’s benefit, the higher up the range you should be

  • If you are in a funded state-backed scheme, your transfer value will likely be lower down the range

  • If your scheme has a large deficit, your transfer value could be significantly lower

  • If you are in an unfunded state scheme, you will not be offered a transfer value.

Actually, the biggest factor driving the transfer value is the discount rate used to establish how much money the actuary needs to set aside to meet the future promise. That discount rate can vary from the gilt rate to the return on equities and – because of the way compounding interest works, can mean that a scheme that invests in equities gives low transfer values and one which invests in gilts, gives high transfer values.

When a scheme moves from an equity to a gilt based investment strategy (when it goes defensive and “de-risks”, transfer values shoot up. This is what happened at the British Steel Pension Scheme in March 2017. Some steelworkers found their transfer value almost doubling – and they didn’t get why.

People who had taken transfer values at the lower rate, started moaning that their mates with the same benefit, were getting more than they were. The confusion that ensued snowballed into a crisis in Port Talbot and in Teeside.

Around this time I started writing articles on how transfer values worked, this led to Al Rush asking me to explain things at a workshop run by my actuarial colleagues at First Actuarial. What started as a meeting in a hotel ended up being the first Great British Transfer Debate in an aircraft hanger outside Peterborough.

At this even, my then colleague Alan Smith, explained how transfer values worked and to this day, this is the only such lecture I have heard being offered by the actuarial profession to IFAs .

The failure of the actuarial profession

As the Great Pension Transfer Debate was going on, I was trying to talk to the BSPS trustees about the trouble that I and others (including Al Rush and John Ralfe) could see coming. We had been invited onto the pages of the steelworkers Facebook pages where we found steelworkers trying to make sense of what was going on. At first it looked likely that BSPS would go into the PPF, then a deal was done that would allow a second BSPS to emerge and workers were asked to choose between going into the PPF or BSPS2.

But most workers were much more interested in news that they had a third option, news that came their way from IFAs who were explaining this option, often in a very bad way.

Here is a little poll carried out by one steel man on the Facebook page , in October 2017 – around the time their “Time to Choose” period began.

poll bsps

Unfortunately, my proposal to the Trustees of BSPS were rejected. They were  that a transfer helpline be established and that resources be pumped into explaining transfer values and why they might not be the best thing for members to take,

Instead, BSPS, following a tendering process, set up a guidance helpline which could not deal with pension transfer issues. Ironically, the firm appointed to provide this guidance has now been stopped by the FCA from giving the transfer advice it was best known for. The tendering process was established and run by a firm of actuaries.

Speaking to the then Chair of BSPS, some months on from Time to Choose, I asked why it hadn’t occurred to the Trustees that so many members were minded to transfer, he pointed to his years of running the scheme where transfers were unheard of.

Why are defined benefit transfers so high?

I have written blogs on this many times and it always come back to the same thing. It is because most defined pension schemes have de-risked to a point where the discount rates have fallen to a level where the transfer values are often a multiple of 40 times the pension forsaken.

The Trustees supposedly choose the investment strategy but they are often strong-armed into de-risking as a result of zealous actuaries and zealous regulators who see their jobs of maintaining scheme solvency as the big thing. This is why BSPS de-risked.

So the reason why DB transfers are so high is because of the advice of actuaries and the reason why Mercer now estimate £80bn has transferred out of DB schemes in the last 5 years is because IFAs have advised that the money can go. Undoubtedly the FCA are right and a lot of that money shouldn’t have gone- for a whole load of reasons.

But in all this, I do not see where Buck Consultants or almost any of their rivals were actively involved advising members or their advisers or indeed the trustees and the sponsoring employers of what was going on.

Actuaries not doing their job

Yesterday I published a blog by a couple of IFAs which contained the following statement.

Our experience of large actuarial firms has been that they purported to advise the rank and file of the say 2700 employees of the large Lincoln company that they provided pensions to. The problem was that they failed to communicate with, let alone understand, the individual members and only ever consulted with the top management of that company

This is what happened at BSPS and what has happened to countless DB schemes which have collectively shed £80bn.

For actuaries to point fingers at IFAs from ivory towers is wrong and it makes me mad. For them to congratulate each other on getting onto the front page of the FT for pointing to the open stable door, beggars belief.

They had the power to guard that door and they and the trustees could and should have done more to protect those members who took transfer values against their interests, from doing so.

Sure the FCA could have done more by micro-managing the process, sure the Pensions Regulator should have understood the consequences of de-risking at member level and sure a lot of IFAs were greedy and opportunistic.

I worked for a firm of actuaries and even First Actuarial could have done more.  Actuaries simply failed at their job – which is to get people’s pensions paid.

Actuaries have nothing to crow about when it comes to what we have seen happen. They should accept their share of the blame and be contrite, they should not seek to promote themselves, as Buck are doing, on the back of a “wise after the event” report.

crow 2

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Will IGC’s be stung into action by the Bee?

Posted on January 28, 2020 by henry tapper

Bee

 

I’m pleased to see that research conducted by PensionBee,  has revealed a rapidly emerging mainstream consensus among 2000 of their customers regarding where – and how – they want their money invested.

Screenshot 2020-01-28 at 05.51.39

Over 80% of those surveyed want  transparency about which companies their pensions are invested in, along with information about their business activities. More than half of respondents across all age groups would prefer to balance making money with creating positive social outcomes, while a further 16% of all respondents would get behind entirely removing companies that focus solely on profit at the expense of social outcomes.

  • 61% of consumers would like to see an active screening approach towards tobacco companies, with more than half of those (35% in total) favouring outright removal. This is consistent across all age groups and particularly pronounced among women (74% vs. 57% of men).

 

  • 63% of consumers advocate for investing in an ‘engage with consequences’ approach when it comes to oil companies, with 15% favouring outright removal and 21% opting for a do-nothing approach.

  • 61% of consumers want providers to remove companies investing in banned weapons from their pensions. This is consistent across age groups, but the preference is higher amongst women (82% vs. 53% for men).

  • 65% of consumers would like pension providers to engage on their behalf, both privately (33%) and through public voting (32%) while a further 12% advocated for a straight removal of companies based on ethical concerns.

In addition to revealing an overall desire among savers for a more transparent approach to pensions investments, the findings also indicate that younger savers are more inclined to take decisive action, with 44% of savers aged 30 and under favouring outright removal of companies that are accused of breaking international laws (vs. 35% of those over the age of 50). The data also indicates that women are more prone to making ethics-driven decisions, as evidenced by 82% of female respondents opting to remove all companies that make banned weapons.

 

How is the pensions industry doing so far?

Auto Enrolment has led to a £400 billion boom in pension saving, with 13.3 million UK employees now actively invested in a workplace pension. An estimated 90% of these savers have automatically invested in a “default” fund selected by their employer.

Share Actions’s research has shown that pension providers and trustees have paid scant attention to the environmental, social and governance preferences of their members, including climate change and international conventions on human rights.

PensionBee’s research shows a growing gap between the views of modern pension savers and mainstream default pension products.

It’s a shame that the Government ditched a mandatory requirement for trustees to survey pension savers on their investment values . Judging by Pension Bee’s survey, it  removed a critical catalyst for change.

thumbs down

At least one company’s listening!

It looks like Pension Bee aren’t just going to put this research on the shelf. CEO Romi Savova clearly’s in no mood to sit on her hands

Pension investments have the ability to transform the world we live in while generating healthy returns for savers. We are ready to kickstart the necessary change and will be considering appropriate actions for our investment plans following these survey results.”

and Pension Bee’s Clare Reilly continues in the same vein

Our customers have made their voice clear: pension savers should benefit financially and socially from their investments. We do not want government reforms for environmental and social concerns to be reflected in pensions to become a tick-box exercise

Screenshot 2020-01-28 at 05.51.39

A message to trustee -IGC and GAA chairs

Last year’s round of reports saw plenty of talk and pretty little action on responsible investment.

You should be requiring the platform , fund and asset managers you oversee to be clear about their intentions to adapt to the new world we are living in.

At the same time you should be doing what Pension Bee have done, and talk to savers about what they want

Where there are options to upgrade to a more responsible approach, these  should be tested  to see whether adopting them would have a positive, negative or neutral impact on saver’s outcomes.

You should be reporting back to your savers on options for developing defaults.

I know , from talking to progressive providers, that much of this is being done, but there is still much to do.

My analysis of this year’s IGC reports will focus on whether these conversations are being had and what will be done in 2020, to ensure that by April 2021, responsible investing will be embedded in all workplace pension defaults.

Screenshot 2020-01-28 at 05.51.39

Posted in age wage, pensions | Tagged , , , | 1 Comment

Regulator fines Regulator

Posted on January 27, 2020 by henry tapper

robin

Robin Ellison

Robin Ellison has too refined a mind and too fine a writing style, for his thoughts to be left languishing on Linked in. Not since the days of John Quarrell has there been such a dissenting voice, speaking against  the  scope-creep of regulation.

This beautiful article mocks our masters with Robin’s usual gentle irreverence. He is beyond hoping for change and yet must return to his theme another time. 

Schadenfreude has a bad name; it is not usually gracious to delight in another’s misfortune.

But a broadcast on BBC Radio 4 January 26 2020 (Something understood) on the topic suggests that there are times when it is acceptable, and now might just be one of them.

The FCA is having a bad time at the moment; it has lost its chief executive, it has been ordered to pay for an error on its register which caused serious loss to an IFA, and now it needs to write to 160,000 people about their DB pension transfers because around 80% of the advice given was sub-optimal (ie ‘bad’) (FCA on pension transfers)

But worse, much worse than this, was the £2,000 fine it has had to pay to The Pensions Regulator because its Chairman’s Statement on its pension fund was also sub-optimal. The size of the fine is relevant – it is the highest that can be imposed. For trivial breaches the minimum £500 is the norm; £2,000 suggests the breach was very serious indeed.

Of course, the FCA could always appeal – and they would almost certainly be successful. A judge in the First-tier Tribunal at the end of 2018 suggested that the legislation empowering TPR to impose fines was probably invalid. The decision for some reason is not on the usual case-law websites but I’m happy to make copies available on request (see Moore Stephens Master Trust v The Pensions Regulator [2019] 050 PBLR (018), 14 December 2018).

The sight of one regulator fining another regulator is in some ways delicious to observe. But it also makes the point that there is now no reputational cost to a fine. If even regulators are fined, fines are simply a normal incident of running a pension scheme.

How much better it would have been if one regulator had had a coffee with another regulator or pension trustee chairman and suggested that next year the statement should be better, and explained what it thought what the fault was.

This sanction is simply grandstanding, and brings regulation into disrepute. The FCA is entitled to whinge, but it also is guilty itself of grandstanding; it has issued a ‘Dear CEO’ letter complaining that firms are giving unsuitable advice, not preventing consumers from falling victim to pension and investment scams, not encouraging their clients to claim from the ombudsman and charging excessive fees.

What has the FCA been doing since 1986? It may be that consumers would be better off to relinquish trust in the regulator to protect them, and take out a subscription to Which? instead. It would be cheaper and more effective.

Meanwhile just to continue the note on pensions and the arts: Mick Herron (a friend) has just published ‘The Catch’ in the States, one in a very successful series of thrillers. The hero, of course, is a part-time pensions administrator. Pensions and spies have a long-standing connection, remember Bruce Willis falling in love with his pensions administrator in the Red and Red 2 movies? What is is about pensions administrators that makes them so attractive?

Finally, back to the FCA. It has set out a list of complaints against the asset management industry (Siobhan Riding, City watchdog targets asset managers, FT, 23 January 2020) following the Woodford imbroglio and concentrating on liquidity mismatches. It is inevitable that regulators fight the last war, but an article in the same issue of the FT (Joe Rennison, Meet the new bond kings, FT Big Read, January 23 2020) explains how computerised portfolio trading fixes liquidity issues. Problem solved.

Screenshot 2020-01-27 at 06.11.35

Posted in age wage, FCA, pensions | Tagged , , , , | 2 Comments

FCA’s stick is out, let’s see some carrot!

Posted on January 26, 2020 by henry tapper

carrot stick horse

What’s happening at the FCA

In January, the FCA have published a series of letters making it clear where its focus will be in a new “post Brexit” decade. The timing is important as the FCA is not only facing change as we decouple from European supervision but facing the challenge of changing CEO. We now know that Chris Woollard will be interim CEO following the imminent departure of Andrew Bailey, we do not know if that appointment will be permanent but Chris represents continuity with the past and as head of the Competition and Markets division has had influence over almost all aspects of the FCA. His appointment has been greeted well.

There have been three Dear CEO letters,

  1. To the general insurance market; this is a reminder about the risks of bad conduct and seems aimed at the culture in general insurance firms. From my experience this has a lot to do with alcohol and the old school tie.
  2. To financial advisers; this is the strongest statement yet on behaviour around DB transfers. The FCA seems to have worked out that going forward, PI insurers will do its dirty work for them, the question is about the past. Many advisory firms face an uncertain future over advice given on transfers and this letter will be giving them little comfort.
  3. To asset managers ; this blog has noted that the asset management industry has got away quite lightly following the damning 2017 Asset Management Market Review. This third letter makes it clear that the FCA is still on the case and lists a number of areas in which asset managers are failing.

I suspect that these letters are designed to be read not just by authorised firms , but by European Regulators keen that Britain does not decouple too far and allow Britain to become a regulatory back-door for poor practice,

I’m pleased to read these letters , they are strongly worded but even in tone. They are timely and are clearly being read.

Taking on vested interests

I was particularly pleased to read the Asset Management Portfolio Letter

Asset Managers have privately considered themselves too important to the UK economy to be much concerned with regulators, let alone local regulators. This letter talks about key risks of harm that Asset Managers pose to their customers or the markets in which they operate.

Harm comes as a result of failings in five areas

  1. Overall standards of governance, particularly at the level of the regulated entity, generally fall below our expectations.
  2. Funds offered to retail investors in the UK do not consistently deliver good value
  3. Asset Managers fail  to identify and manage conflicts of interest.
  4. They have made inadequate investment in technology
  5. (Lack of) operational resilience has led to deficient systems which could cause harm to market integrity or loss of sensitive data.

And this is just for starters.

Moving on to specifics, the FCA (clearly with Woodford in mind focus on failings in liquidity management.

They find weaknesses in the implementation of new governance structures and point to the Senior Managers Certification Regime (SMCR) as a way of delivering high standards of governance (not a compliance tick-box exercise);

They are demanding that these governance structures complete value assessments on the funds they oversee to weed out funds which charge for what they are not giving (closet trackers)

They are looking at the role of Authorised Corporate Directors (ACDs) ,such as Link (which oversaw Woodford) and Gallium (which has overseen entities like the Vega algorithm and Strand Capital (well known to British Steel transferees). It is especially interested in the conflicts of interest that arise when an ACD

“cannot oversee the fund properly because, for example, it is concerned to avoid a loss of revenue from the investment manager if it were to offer more assertive challenge”

The letter also tells asset managers to get on with transitioning away from Libor benchmarks and to invest in the systems that allow proper reporting on items such as MIFID II. We hope that the 2020 IGC reports will not contain another round of remonstrances concerning the non-availability of data from fund managers on what funds were actually costing saving money into them.

Put together , this is as powerful statement of intent as we have seen since the publication of the AMMR and this bodes well for greater transparency in future.

It has to be noted however that there is little in this letter that wasn’t in the AMMR and we are over two years on. Now is the time to name and shame the managers that are doing harm to the public and doing harm to asset management.

Why we should be behind this strong approach

There is a very real fear that as we leave Europe, the FCA drops its gloves and allows the consumer to get it between the eyes. Britain cannot become an offshore back-door to bad practice. There are plenty of asset managers who see “regulatory arbitrage” as part of their business model and we cannot become a “soft touch”.

The shift towards greater transparency is all about data management. If asset managers feel they can continue to play tiny violins over Mifid II reporting , then not only will they hold up the work of trustees and IGCs in protecting consumers, they will give a cue to those managing pension funds to join the string section.

The pensions dashboard is a prime example of a consumer driven project which is being held up because of lack of investment in systems. Harm is happening and third party administrators and in-house admin teams should not be able to point to deficiencies elsewhere as precedent for their own failing.

The average margin of asset managers was stated as 36% by the FCA in its AMMR, there is ample money in the asset management industry to pay for an overhaul of systems to deliver. Where asset managers lead, we hope others will follow. We live in an era of open banking, we want open finance and the FCA can demand the asset management gets on with it.

2019 was a year of scandal for retail asset managers. Woodford showed how easy it could be for a “name” manager to run a multi-billion pound asset management business without proper regard to solvency, the ACD was hopeless as have been other retail ACDs. These failures suggest failings in independent governance in these funds and deficiencies among platforms in understanding what they were offering (indeed promoting) to retail customers.

The FCA’s approach is impressive but…

Taken together , these three letters are impressive. But they depend , to be effective on the FCA enforcing the remedies in its many initiatives.

These cannot be enforced in isolation, they need a willingness on the part of general insurance, financial advisers and asset managers to want to comply and to whistle-blow on bad behaviour.

The FCA must work with the good to eliminate the bad and encourage those who are doing good things by holding them up as an example.

Sticks work,  carrots work too!

carrot and stick

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Open pensions; – the opportunity …and the threat.

Posted on January 25, 2020 by henry tapper

Screenshot 2020-01-25 at 06.10.42

Darren Philp’s a passionate guy and you should read his piece in Professional Pensions on how we should allow the Pension Dashboard to be part of the open finance initiative.

He even has a Mary Poppins moment

Apps and aggregators,

tools and calculators…

can all help people more effectively manage their lifetime finances.

We need to embrace this way of thinking otherwise we risk becoming irrelevant.

Darren is pictured (above) in the games room at Smart pensions, I’ve been there myself. Behind him are the great 19th Century mansions of the West London elite (and the coachman’s mews) he’s facing a wall of Smart tech that represents Smart’s engagement with the Open Finance technology.

It is not just Smart, there are plenty of financial technology firms that are finding ways to be relevant

Pension Bee has shown how by ceaselessly championing the customer’s right to their data, they can build a business based on the principles of the dashboard. Data aggregation leads to pots of money flowing into the Pensions Bee Sipp.

Penfold recently raised £2m from the market to deliver digitally pensions for the self-employed

Software as a service providers like Abaka and MoneyHub are delivering new ways for leviathans HSBC and Mercer , to become relevant to their customers. Andy Cheseldine, who’s chair of both Smart and HSBC master trust, joke about how we – technologically challenged as we are, are inextricably bound up in this Fintech revolution.

The enterprise platforms that began with FNZ and Transact and have developed to Embark and Diligentia are enabling the sharing of data by migrating books of poorly hed and managed data to new open-source enviornments.

There are new players in the advisory space , Open Money , Nutmeg, Wealth Wizards and Multiply AI are developing nudge technologies that guide people towards suitable products. This is surely the direction of travel for investment pathways.

PensionSync have led the way in linking payroll to pension providers making “data transfer by spreadsheet” a dirty phrased.

And from the depths of academic thinking, voices as various as Con Keating, Iain Clacher and Chris Sier are looking at applications of the blockchain in the administration of pensions – using smart contracts.

The free-flow of data

Data is the new money; I sat in a juice bar last night and watched the people ahead of me pay for their drinks, I was one of the few people who used a card, most were paying with their phones.

For a large part of the population, money seldom touches their wallets, many don’t have wallets or purses, the advances in fast payments mean that a swipe of the phone can transfer money in PayPal into a flat white, without any visualisation of the three one pound coins my Mum would have found at the bottom of her handbag.

It is this world that Darren is pointing too and it is the people I was watching that Darren is referring to when he writes

Open banking has started to revolutionise how we manage our finances. This will only continue as providers of financial services realise that they risk being quickly overtaken if they are not delivering what people want and need.

People want to see the value of their accounts on phones and they want to spend the money they have in their accounts as they like.

The idea of pension freedom is ultimately, people capacity to spend from their pension account and budget based on their spending patterns using the tools that are available to us on open banking apps like  Starling, Revolut and Monzo. MoneyHub is a classic example of how people can regulate their spending to ensure that they remain solvent.

It is small wonder that MoneyHub is partnering Mercer in delivering an app to those who have money in Mercer administered DC plans. MoneyHub is managing the slow adoption of API technology which, once the pension dashboard becomes a reality, will become the norm.

Here is Darren again

Those in the industry that are trying to unnecessarily lock down the content of the dashboard, or who are arguing for only a single dashboard, are outdated and behind the times. It is time we really start delivering for the current and, importantly, the next generation of savers, otherwise we risk pensions becoming increasingly irrelevant.

When will open data go mainstream for pensions?

Darren isn’t a lone voice. Emma Douglas, who runs L&G’s DC pension business (and is also a NED at Smart) is also to be found writing in the pages of Professional Pensions.

Screenshot 2020-01-25 at 07.02.02…the mass of data stored by pension providers is often fragmented and split across multiple formats. However, developing tech can help scheme managers to bring different data sources together, analyse data and predict future trends, ultimately helping them to run schemes more efficiently. Legal & General, for example, has moved 2.4 billion rows of data since starting its own project to create a cloud-based digital platform for pensions – and this only covers a third of our book of business.

It is encouraging that Phoenix are also looking to migrate the multiple formats of their data onto the Diligentia Platform, making it possible to plug and play apps from a single data source. Surely this is the way forward for the pensions dashboard. Phoenix will, on the acquisition of ReAsssure, own the majority of the UK’s pension back-book, including L&G’s.

You can now see your Scottish Widows pension on your Lloyds Bank statement and see aggregated data on your banking app. Scottish Widows are already aggregating to their parent and pioneering the technology that can link them to the dashboard

Super aggregators like L&G, Scottish Widows and Phoenix will speed up the pace at which we can move towards a pensions dashboard. I sense that those at the top of Phoenix, including new CEO, Andy Briggs, get it. I know that Nigel Wilson gets it and I have a good insight into what is happening in the upper reaches of Lloyds Banking Group – they get open finance too

Who will be at the back?

We have seen with the adoption of ESG (and to an extent open-banking) , how quickly an esoteric idea can go mainstream. I suspect that we are already witnessing the start of open pensions on an industrial scale.

Firms like Smart, Pension Bee, Multiply AI, Open Money, MoneyHub, Abaka, Wealth Wizards, Nutmeg and indeed AgeWage are in the van and will hopefully be rewarded for pioneering.

L&G , Phoenix and Scottish Widows are mobilising their data and won’t be far away. Aviva has its digital garage in Hoxton and where others go, the likes of Royal London m Aegon and Prudential will follow.

But there is a third article on data in Professional Pensions that hints that there are many pension providers at the back. Guy Opperman, the Pensions Minister warns

Screenshot 2020-01-25 at 07.02.32 “Schemes can’t just wait for legislation, they need to improve their data quality now so that it is ready. [The] dashboard will help savers, therefore it’s in everyone’s interest that pension schemes are getting accurate, up-to-date information in place to help ensure the new services work well.”

Behind the progressive few, is a vast hinterland of pension administrators who are not thinking of the future, they are thinking of their short-term financial futures and not investing in the new technologies that can free up their data.

The genii is out of the bottle. Up and down Britain, fintechs are opening up finance and opening up pensions. Digital Dashboards are not the exclusive property of MAPS but available to anyone who has a phone, a tablet or  a laptop or a PC.

If you are not making your data available to data aggregators, it is not they but you who will be looking foolish

You  will increasingly be isolated from progressive providers. Apps like MoneyHub and AgeWage will show data only partially available on their dashboards. People will get fed up with the laggards that can’t show data.

Screenshot 2020-01-25 at 07.07.44

An AgeWage dashboard (incomplete)

People will want better than to see incomplete information with whited out areas on their apps , waiting laggard administrators to respond to data requests , weeks in arrears of those who offer on-line access.

People will take commercial decisions on the basis of expediency and move money away from pension providers who do not offer them the benefits of open pensions.

They want to see their dashboards, complete in real time and till we get to this point, pensions will continue to be the poor relation of open banking , indeed open finance/

Screenshot 2020-01-25 at 07.07.19

How we’d like people to see their pensions, with complete relevant information

Thanks to Professional Pensions

It’s a journalistic coup on behalf of Professional Pensions to bring together three articles that show a prevailing zeitgeist.

Those of us who are campaigning for better access to data salute and thank you!

Posted in advice gap, age wage, open pensions, pensions | Tagged , , , , , | Leave a comment

Retirement’s also about debt

Posted on January 24, 2020 by henry tapper

If you look at the Trustee board for StepChange, Britain’s largest charity dealing with the impact of debt, you will see three people familiar to the pension community

Sue Lewis (right) – now a trustee of People’s Pension and formerly of the FCA’s consumer panel

Helen Dean(center) – CEO of NEST

Lesley Titcomb (left) – formerly CEO of The Pensions Regulator.

It is very good that pensions people are doing this work and a reminder to me that retirement for many people, is very much about dealing with debt.

Any blog that is about retirement, should remember that getting old doesn’t stop you getting into debt. For me, as I build AgeWage, StepChange is a reminder that dealing with debt are as much a part of the AgeWage as managing savings.

Problem debt and the social security system

Adam Butler and Josie Waner of Stepchange have written an excellent report on how social security payments , made through the Universal Credit system, are not helping those in extreme poverty.

The headline statement in the report has been reported in the Guardian

Like the pension taxation system, Universal credit seems to have been devised to rob from the poor to feed the rich.

Screenshot 2020-01-24 at 07.34.01

These are shocking statistics and Adam and Josie’s report pins the cause of much of their client’s pain on Universal Credit.

In particular it is the wait for Universal Credit to arrive that causes the most hardship.

Screenshot 2020-01-24 at 07.56.48

And the report tells us that the newly introduced early payment loans are simply spreading the pain .adding to a list of deductions that the DWP can make from Universal Credit.

Screenshot 2020-01-24 at 08.00.03

Including everyone?

Not only does Universal Credit make life harder for those out of work, it makes it bloody for those in work.

Gareth Morgan – who does more than anyone I know in the private sector , to help us understand the complexities of social security has written passionately about how Universal Credit unfairly taxes the poorest.

Here is Gareth’s blog on the fate of the £300 Christmas bonus given to staff at Greggs https://benefitsinthefuture.com/greggs-300-bonus-or-booby-prize/ .

I post it again (in full), to remind me (and I hope you) that when we think about saving for retirement, we can forget there are those who can’t save and for those, the prospect of meeting debt, not spending savings, is their prospect for later age.

Greggs £300, bonus or booby prize? – By Gareth Morgan

Greggs, the well-known bakers, have been in the news this week because they are giving their staff a bonus because of good financial results. It’s always good seeing employers rewarding staff, and Greggs already have a generous profit-sharing scheme.

They’ve basically just handed £7m back to the govt.

I have two questions about this. The first, widely shared as can be seen from a number of comments to the tweet above, is ‘how much will people actually get in their pocket?‘.

This is the same question, in many ways, as my post a few days ago about the increase in the National Living Wage; https://benefitsinthefuture.com/national-living-wage-cui-bono/ . It’s the problem of what is called Marginal Deduction Rate, or perhaps more accurately, the effective marginal tax rate. That is the amount of money taken away from the extra earnings or bonus by such things as tax, National Insurance (NI), reduction in state benefits, reduction in local benefits, and the loss of other means-tested entitlements, such as free prescriptions because of low income.

This can be a very complex calculation. It also depends a great deal upon individual circumstances. There are some relatively straightforward parts of such a calculation; for example, a 20% deduction for income tax where somebody’s earnings are above the personal allowance level and a similar assessment for NI. It gets more complicated when looking at Universal Credit which depends not only upon what’s left after tax and NI but upon the personal details which are used to assess the benefit, where some people will have different amounts of earnings that are disregarded, so that the extra may have more, or less, effect. Some people may find that the extra leaves them with less benefit, while others may find that they lose their entitlement altogether, and might have done so with even a smaller increase. The causal chain continues with local benefits, such as Council Tax Reduction, dependent upon the Universal Credit result and low income or ‘passported‘ entitlements following on again.

Universal Credit, in particular, is affected by this kind of bonus payment, because it uses when the payment is made in its calculation and doesn’t spread the impact over a year. That magnifies the problem for many people.

Unlike my figures for the National Living Wage note, where I was looking at the government’s assumptions for people in full-time work, Greggs staff may have a wide range of hours of work and pay scales. Some of them may have earnings above the tax or NI thresholds, while others may not. Some may be claiming Universal Credit, while others may not, etc. etc. The value of the bonus to different people will be worth different amounts.

What I have tried to do, is to break down the effects of tax, NI and benefits in a way which might offer some illustrations of the results.

First, what happens to people whose existing overall earnings, averaged over a year, will be above or below the tax and NI thresholds. I’m using the 2019/2020 figures throughout.

Earnings below the tax and national insurance thresholds. Less than £165.55 a week, (£8,632 a year). Earnings between the tax and national insurance thresholds. More than £165.55 a week, (£8,632 a year) but less than £239.07 a week (£12,500 a year) Earnings above both thresholds. More than £239.07 a week (£12,500 a year)
No deduction NI deducted at 12% NI deducted at 12% and tax deducted at 20%.
Bonus £300 £300 £300
After deduction £300 £264 £204

I am, of course, ignoring the more complicated, but very real, cases where the bonus takes people’s earnings above threshold values, so there is a part deduction, and where people are taxed at different rates for various reasons. I’m also not taking any account of pension contributions here.

If people are not receiving, or entitled to, any benefits then that will be the end result for those people. That often applies to people with higher earnings, or partners with higher earnings. Many Greggs staff, as pointed out in the tweet above, will be claiming benefits and increasingly that benefit will be Universal Credit. That introduces another stage and another serious problem.

As pointed out earlier, Universal Credit, unlike the legacy Working Tax Credit it’s replacing, looks at earnings, including bonuses, when they are paid and not averaged over a year. That means that the bonus paid this month reduces the Universal Credit paid next month.

Universal Credit, unlike other legacy benefits such as Job Seekers Allowance, does allow people to keep some of the extra earnings, including bonuses, that they get. It lets them keep 37% of the extra. The government claws back the other 63%. That gives the following result.

Earnings below the tax and national insurance thresholds. Earnings between the tax and national insurance thresholds. Earnings above both thresholds.
Bonus £300 £300 £300
After deduction £300 £264 £204
Universal Credit Reduction £189 £166.32 £128.52
Worker £111 £97.68 £75,48

The reduction figures apply to those people who don’t have any disregarded earnings for Universal Credit, called Work Allowances, or whose earnings are already higher than those allowances. If people’s earnings are below those work allowance figures, and they have children or disabilities, then some of the net bonus will also be disregarded.

It’s striking though that roughly two-thirds to three-quarters of the bonus, for those people on income support, is being taken by the government.

Whatever the amounts that are taken into account, they will affect the Universal Credit the following month. They will be added to the existing earnings to recalculate entitlement. Universal Credit already has problems with the way it assesses monthly earnings figures. People paid weekly, as is common with low paid or part-time employment, will find that sometimes five paydays taken into account and sometimes four, with very serious effects ( see https://benefitsinthefuture.com/universal-credit-and-patterns-of-earning/ ).

Universal Credit is not a high-paying benefit; benefit caps, rent caps, limits on the number of children supported, sanctions as well as the freeze on the level of benefits for the last four years have driven down the real level of support. That means that often it does not take a big increase in earnings to stop entitlement altogether.

If that happens then people must claim the benefit again in the following month, using a shortened process. If they don’t, or aren’t able to for some reason, then their benefit won’t restart.

If they’re also claiming Council Tax Reduction then that will be reduced as well and, because for most local authorities it’s linked to Universal Credit, if Universal Credit stops then Council Tax Reduction can be thrown into confusion. It’s not possible to illustrate the effects of the bonus as there are different rules across the country.

Greggs generosity to their employees might seem, in practice, to be generosity to the government. Not only is the bulk of this bonus money likely to end up in the pockets of central or local government but Greggs will be paying an additional 13.8%, or £41.40 by way of extra Employers National Insurance contributions, although there will be a corporation tax offset to take into account.

So, to my second question, is there a better way to reward employees?

While a bonus is probably administratively simpler, because it doesn’t require much individual consideration, there are other alternatives that might be more welcome, once the real value of the bonus is taken into account. Additional holiday entitlement or pension contributions spring to mind. A bonus sacrifice into their workplace pension would save most National Insurance, for example. Pension contributions are disregarded completely from Universal Credit.

While the bonus clearly isn’t a booby prize, it’s still depressing that a government which talks non-stop about work incentives and encouraging people to work longer and earn more, still insists on grabbing as much as they can of any increase that people get.

Gareth

The gimlet-eyed Gareth Morgan

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Looking at it Robin Powell’s way

Posted on January 24, 2020 by henry tapper

I’ve long admired the journalist Robin Powell for his clear insights. Lately he’s taken to writing little stories to illustrate the points he is making. He has written a series of pieces , the rest of which you can find at the bottom of this blog.

Here’s one to give you a taste…

TEBI-Look-at-it-this-way
Investors can often find themselves tempted to second-guess their own approach, and tweak their investments in response to ever-changing market news. This blog illustrates the often-overlooked importance of patience within the investing process.

 

Two children decided to compete to see who could grow the most luxurious garden. Both Peter and Paula prepared the ground, laid down the seeds and watered the soil. Three years later, Peter’s garden had barely grown, while Paula’s flourished.

What was the difference? Peter was impatient. Coming back the next week after planting the seeds he was disappointed there was little movement. He decided to dig it all up and start again. Paula added water and fertiliser and waited.

This cycle continued over the years. Peter decided at one point there was not enough sun, so chopped down an overhanging tree. The soil dried up under the full sun and baked hard. Paula decided to leave well enough alone with her garden.

 

 

The difference in approach between these two aspiring gardeners is evident every day in the share market. Many investors, having assembled their portfolios, insist on fiddling. They respond to news, second-guess themselves and churn their holdings.

The Peters of the investment world chase past returns, pick up on investment fashions and are impatient for quick results. The Paulas leave their asset to grow, knowing that compounding will do much of their work for them.

Of course, this isn’t to say the second group of investors are totally passive. They come back every six months or so and do some pruning in the form of rebalancing. They water, weed and fertilise the investment garden with new cash as it comes to hand.

But the more successful gardeners are systematic in their approach. They focus on the basic elements and what is within their control. For the most part, they let nature take its course. And they exercise discipline along the way.

Look At It This Way is a series of monthly articles where we demystify the complexities of investing through illustrative metaphors. Take a look at the previous entries:

Shift your focus away from passing showers

It’s not over till its over

What is the “all-roads vehicle” of investing?

What we mean by sunk costs

Ask the audience

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“What do people want?” – a question for IGCs

Posted on January 23, 2020 by henry tapper

what people want

 

The saddest statement I heard last year was from an adviser who told a room

“we have given up reporting on outcomes, outcomes always disappoint”.

It is not just IFA’s who don’t like to report on the outcomes of our saving and investment. Over the five years I have been analysing IGC chair statements, I have only seen one (the Prudential) which has addressed the very simple question

“are we providing value for our policyholder’s money”

Instead, they pursue ever more extravagant frameworks which break down the concept of value for money into categories such as administration, engagement, security of assets and many more. This is like reporting on a car in terms of its carburettor and exhaust systems, rather than on whether it is a pleasure to own.

The function of a workplace pension scheme is to take money earned in the workplace and return it to savers at the end of their working careers. Ultimately, these workplace schemes are judged by savers on whether they achieved that function well or badly.

The problem people have is that they have no way of knowing what has happened to their money , nor how it has grown while in the charge of others. But people – when given that information on their savings , become very interested. To use the word that IGC’s like to use, they become “engaged”.

We don’t engage with carburettors and exhaust systems

Confident car manufacturers allow people to test drive their cars, they allow journalists to rate the car for a range of things that allow people to assess the value they get for their money. They are prepared to submit their products to close scrutiny, knowing that the verdict may be damning.

This transparent approach doesn’t extend to financial services and especially pensions. The thought of telling his clients about “outputs”, was too much for the adviser and the task of telling savers about the outputs of their investments seems to overwhelm IGCs (and equally trustees).

Instead, they produce reports that talk about nuts and bolts, carburettors and exhausts, but don’t assess the main function of a workplace pension at all.

In 2017, the majority of IGCs commissioned NMG to tell them what people wanted to know. NMG presented people with choices about comms and engagement and administration and security and all of these things were considered important but not as important as one thing – the amount of money at the end of the savings period. What people wanted to know was how much they would get from their pension saving.

So what about charges?

People do want to know how much has been taken out of their pension schemes to pay for the scheme’s management. But they don’t need this information as a matter of course, it’s the kind of thing you ask if you are “looking into something” and for the most part, they’ll want to know the detailed information is available, they would like a headline pounds shillings and pence number on what they’ve paid.

I know that I paid £1190 last year for L&G to manage my  pension and I know i incurred some extra costs for transactions that amounted to around £100 in total, I could work this out by looking at my online statement and studying the numbers at the back of the IGC report.

You might think that was a lot to pay (and I’d agree), but I think I got value for that money too, mainly because I know a great deal of that money went on paying people at L&G to make sure my money was invested in a responsible way. When I looked into things, I was pleasantly surprised.

What people want.

In five years of thinking about VFM, I’ve boiled down the question “what do people want” to two things. They want to know what they are going to get and they want to know what they’re paying to get it. That converts in pension speak to outcomes and charges,

People – when presented with two numbers – one the value of their pot and two , what they’ve paid for its management , have one further simple question

“is that good?”

That is the question that IGCs need to answer, and so far (with the exception of the Prudential) none of them have answerer it. Because none of them have a benchmark for what good might be.

What people want is either a benchmark return (the Prudential CPI +4% for example) or a “relative benchmark” – “how have other people like me done?”

The AgeWage score is simply answering that question, it tells people , in a single number , how you have done relative to how other people just like you, have done elsewhere.

Is that good? I think it is very good. I think it tells the truth in an transparent way and I hope that some IGCs will, as they prepare their 2019/20 reports, snd me a mail. It generally takes me two weeks to issue a report to IGCs on how people have done using our scoring system.

For Trustees – the same.

For employers – the same

And if you are an ordinary saver in a workplace pension or if you have your money in a SIPP or an old-fashioned personal pension , I would like to hear from you too. Because we are hoping to conduct a trial of these scores for individuals with the FCA – later this year and are looking for guineau pigs!

what people want 2

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What is MAPS actually going to do over the next 10 years?

Posted on January 22, 2020 by henry tapper

Screenshot 2020-01-22 at 08.09.51

A great high level vision – but who’ll do the work?

I haven’t got a lot to say about MAPS’ UK Strategy for Financial Wellbeing – published yesterday.  Having read it , I’m not sure how it is going to help me as a person, business owner as part of British society. It is a statement of intent to improve the financial wellness of the British population but beyond setting the agenda for change, I struggle to find much in the strategy document that helps us understand how change will come about.

I feel a little disappointed.  I would have liked to have felt more comfortable knowing the part that Pension Wise and the Pension Dashboard would play in improving things. On Pension Wise there is nothing (but an acknowledgement that it contributed to what MAPS “listened to”). The Dashboard gets mentioned but in a “hypothetical” set of suggestions.

The big picture for pensions

MAPS reckons that about 45% (23.6m)  of the working population feel it is ready to retire. Over the next 10 years it wants this to increase to 28.6m and it’s going to do another Wellness survey in 2030 to see if this worked out.

Screenshot 2020-01-22 at 07.28.13

I suspect this will be one of those surveys that will allow Government to blame the private sector if nothing changes and take all the glory for itself , if it does.  Frankly there is too little accountability on MAPS for creating change for this goal to justify MAPS being at the heart of things for 10 more years.

The little picture for pensions

Screenshot 2020-01-22 at 07.27.01

This is something we can all sign up to, but how is this going to happen?

Screenshot 2020-01-22 at 07.39.11

What is conspicuously missing from this statement is the role of Pension Wise as the instrument of change. The emphasis on MAPS’ function seems to have changed from delivering guidance to influencing how others deliver guidance.

I am suspicious about this, it seems that MAPS rather than being a resource, is becoming an extension of the regulatory perimetre of the FCA (and the unmentioned Pension Regulator).

I confess to being totally baffled by why people would use life events like “parental leave” or “divorce” to use the pensions dashboard. The obvious point at which the pensions dashboard becomes relevant is at retirement, the obvious questions are “where’s my money gone?” and “how’s it done?”

While MAPS has been “listening” organisations like the PLSA have been delivering standards such as the Retirement Living Wage initiative. The TTF recently set up a meeting with UKAS to look at how standards for Value for Money could work. I hope that MAPS will respond better to the TTF initiative in 2020 than it did in 2019.

I can think of no other instance where a Government body has been given what amounts to a year off, to “blue sky” and come back with so little by way of positive suggestions.

So what will MAPS actually do?

Apart from trying to control how the dashboard will be used and acting as an extension of the FCA’s interference in product design, the answer seems to be about influence.

As if we didn’t have enough noise from the think-tanks , MAPS wants to join in. Its “Activation Period” will see MAPS becoming a convenor for all the people who like talking about pensions. A sort of off-line twitter if you will.

Screenshot 2020-01-22 at 07.52.02

How this adds up to getting 5m more people capable of turning pension pots into retirement plans is not clear. Simply telling people to work harder is easy enough, doing the work is a lot more painful. MAPS doesn’t seem accountable in any way for the delivery of the 5m extra engaged pension savers, nice work if you can get it.

If I was going to market with this as a business plan, I would be sent away to come back with something that had a much clearer focus on delivery.

MAPS is setting out to take a great deal of public money from the levy in order to set up a think tank, oversee the delivery of the dashboard and to work with “industry” to make it more effective.

This is normally the function of consultants and we have quite enough of them,

Where is the leader?

Screenshot 2020-01-22 at 08.00.55

This document is being delivered three months behind schedule by an acting CEO , replacing the previous CEO who left in the middle of last year after 6 months in post.

The dashboard , which was supposed to be doing stuff by now, looks like it won’t be doing stuff till 2021 at the earliest.

Meanwhile TPAS and Pensions Wise, the two strike forces of MAPS’ pension strategy, are barely mentioned and instead we have an amorphous set of “hypothetical suggestions” which seem to tread on the toes of other arms length bodies, regulators and Government itself.

My question is simple – can we expect better of the next decade, or are we resigned to paying for this?

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Are you saving or investing?

Posted on January 22, 2020 by henry tapper

Martin Lewis is bang on the money, we save with the expectation of certain outcomes and we invest , speculating on getting more than from saving, with the potential for less.

If you think this is motherhood and apple pie, watch the rest of the program. Most people confuse the two, which is part of the problem with scamming and certainly something for the FCA and insurers to worry about as they prepare for investment pathways, (some of which are more like savings pathways

Savings pathways?

The investment pathways (4 of them) are laid out in 3.2 of the FCA’s PS19/21

Option 1: I have no plans to touch my money in the next 5 years

Option 2: I plan to use my money to set up a guaranteed income (annuity) within the next 5 years

Option 3: I plan to start taking my money as a long-term income within the next 5 years d

Option 4: I plan to take out all my money within the next 5 years

Option one focusses on investment, while two , three and four point towards more certain outcomes and might aim to provide “de-risked” outcomes. Options two and four are more to do with savings and might be called savings pathways.

Is CDC a savings pathway?

Supposing the Government gives CDC the go ahead, the likeliest development of the concept (in the view of many) is not to replace DC as a way of investing for the future , but to provide a super-pathway for people who don’t want to select one of the four pathways above.

You might like to call it an investment super pathway, as your underlying assets are invested and can go down as well as up, but being “collective” this risk is spread accross a large number of people and (to a degree) over time. This provides an income that sits somewhere between option two and three of the FCA’s investment pathway.

Aon and others have – in their work with people at retirement – found that around 60% of people, when asked what they want at retirement  – described something that looks like an annuity – but which is neither called “annuity”, nor based on “annuity rates”.

We will get investment pathways – will we get a CDC savings  pathway?

To answer this question, it’s worth reminding ourselves of the warnings that Martin Lewis gives on savings. He reminds us that the rates we get on our savings aren’t generally fixed and will vary. Fixed rate deals run out and people cannot have certainty for ever.  (Of course that’s what an annuity gives you,)

The unique feature of an annuity is that it is a super-savings product as it insures the rate you get against the reserves of an insurance company. You don’t get that kind of promise from banks.

Nor would you get that kind of promise from a CDC savings pathway, the rate you would get determines the wage you get in retirement and we all know that our wages can go down as well as up and don’t always keep up with inflation.

We don’t think of our wage as speculative, we don’t ask our bosses for a guarantee that our wages won’t go down, we accept that in work, as in everything else, shit happens.

The key to CDC – is its appeal to the saver in us

If you watch Martin Lewis’ Money Show, you see people he talks to, who instinctively get saving (Martin founded Money Saving Expert).

They are ordinary people who may like a flutter but wouldn’t “put the house on it”. They probably reflect the views of those who don’t take financial advice, use investment platforms and they are people who get disturbed about the idea of putting their retirement into an investment pathway where their savings are at risk.

The key to CDC will be whether it can convince these people that CDC schemes provide a wage in retirement that feels like its based on “savings” , not “investment” but gives an income that is rather more like what they’d expect from an investment.

CDC aims to appeal to the saver in us, but to hold out the hope of investment linked returns, based on us doing this together. This communal endeavour is something that has been around in the UK a long time. It is what David Pitt-Watson bases his arguments for CDC on. It is why CDC has been championed by the unions as a better way of doing DC.

Ironically, CDC was first introduced by a Liberal (SteveWebb) and reintroduced by a Tory pension minister (Guy Opperman). It has the support of the Labour party, politically it is a highly popular way forward. Politicians think that CDC is a popular policy waiting to happen, it appeals to the saver in us.

But….

I think at the heart of the professional discomfort with CDC is this confusion people have between the certainty of saving and the speculation of investment.

We know that people, when faced with choices they don’t understand, generally go for certainty (even if that leads to being scammed). Is CDC just another such scam or can those (like Royal Mail) prepared to give it a chance, convince the general public that this “collective” thing – actually works?

Can CDC be sustained over time, accross political changes – as the state pension has lasted? Can CDC survive the inevitable financial crashes that will beset it over the next ten decades and still be a force in 2120?

These questions cannot be answered on a blog, they can only be tested in real life. Royal Mail are giving it a go and the reaction of the postal workers to CDC – as opposed to investment pathways has been encouraging.

Those postal workers have the right not to go down the CDC route , take their savings to a SIPP and invest them. They may prefer cash in their bank account or even an annuity to the communal endeavour of the CDC plan.

Am I a saver or investor?

Of course I am both, I need to save for the things I need to spend money on right now and I need to invest for the things I need to spend money on in years to come.

Most people get this and most people, when they come to think of their pensions, accept that their money is invested and stick with “the default investment option”. Of those who opt-out, some may feel that investment is not for them but I suspect most simply don’t want to or can’t save.

Yesterday MAPS launched its blueprint to get more of us saving and helping 5m people to take retirement decisions. I think it’s an admirable vision. It looks as is MAPS is going to rely for the delivery of that vision, very much on the private sector (talk of Pension Wise is minimal).

If we are going to see pension pots turned into retirement plans, we are going to have to help people take those decisions outside of MAPS. That means putting more reliance on insurers and SIPP providers to offer investment pathways, more reliance on advisers to help people through the more difficult pathways and a huge effort on behalf of occupational schemes (most of all the master trusts) to help people through the “strait of Hormuz”.

Martin Lewis is not a pension expert, he’s about savings. Perhaps we should come a little towards him and start talking the language of savers, the language his viewing public understands best.

I am an investor in my head and a saver in my heart!

PF-MLewis_2117863b

 

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Treating savers as investors.

Posted on January 21, 2020 by henry tapper

tcf

Considering the importance that pension providers place on winning new business, it isn’t surprising they find keeping it so unglamorous,

The banner headlines that get reported internally and externally are new business wins, they are what excite the executive and shareholders, but the new business opportunities arise because of deficiencies in the service, the breaking of promises at point of sale and the failure of providers to engage the people who really matter, those saving or investing for retirement.

I speak as one who spent many years selling Eagle Star and Zurich and I suspect our success was based on the failure of rivals (especially the Equitable Life). The Equitable failed to meet the promises they made (their service was second to none), but many other providers in those days were prepared to put out the flags to win business and had no concept of customer servicing as an extension of “sales”.

For this reason, many established players were reduced to closure, I think of the great names of the time , including RSA, Prudential, Threadneedle, Schroders and Invesco, all of whom ceased writing new business when the cost of sale could not be justified by the profitability of the existing client banks.

What has changed?

We are down to a handful of insurers competing in the workplace for new mandates, the master trusts are hoovering up new business, typically on a service led proposition that appeals to employers because it is payroll rather than investment led.

The arrival of auto-enrolment has shifted the value proposition towards “ease of use” and away from “investment performance” to a point where the dial may have swung too far. I suspect that many of the reward managers who are seeing millions a month disappearing to a workplace pension, are beginning to wonder what value they are getting for their money.

My suspicion is based on several requests I have had to collect data on behalf of employer governance committees by large organisations struggling to get the performance data they want to make a value for money assessment for themselves.

This coupled with inadequate reporting to those staff saving or investing for the future, means they struggle to report on the progress of this line of corporate expenditure to their boards. This is a problem for the Reward function.

It is a symptom of a chronic problem; pension providers – of all shades – under invest in ongoing service which leads to employers getting disillusioned by  the service on offer, re-tendering and ultimately moving providers. This process is fatal, as witnessed by the casualty rate of pension providers in the last 20 years.

Not enough has changed!

Treating these customers fairly (TCF)

We are now nearly two years on from the launch of GDPR and we are aware of the difference between compliant and non-compliant data. However, we are still finding data requests made by individuals being turned down on a variety of spurious reasons and we’re finding that employers are not being given access to anonymised data on the plans  that they sponsor , on the basis that it “isn’t their data”.

Whether the plan is trust or contract based, employers do not have a right to see personal data. However, if they are to have confidence in the provider’s ongoing capacity to deliver, they have a right to know how savers and investors are doing.

Treating savers as investors – part of TCF

I am particularly keen that those who are saving for their financial futures are made aware that they are actually “invested”. This distinction isn’t always clear to savers. If you aren’t clear of the distinction, watch last night’s edition of Martin Lewis’ TV show where he makes it absolutely clear – saving is where you get a promised return and investing is where you take a risk and get what the market gives you.

If, as surveys show, many people saving into workplace pension , do not consider themselves investors, then those people who are sponsoring these schemes have a right to be concerned about the performance of people’s investments.

Because if something goes wrong, as went wrong with the Equitable and to some extent , some recent absolute return funds , then it is the employer who is on the front-line of staff complaints.

The data requests I see being denied some of Britain’s largest employers are requests to see how individual pension pots have performed and the employers I am talking to want to see how they have performed relative to other invested pots, and how they have performed relative to cash (the risk free rate).

They want to see whether it is worth their employees investing with the provider they have chosen and whether it is worth them investing at all. These are reasonable questions for non-pension experts to ask and questions that providers should be able to answer. If they cannot answer these questions, then there is no point in governance.

Employers are the proxy for their staff in asking this question , they are part of TCF.

And what should employers tell their staff?

In an ideal world, an employer would be able to point staff to an IGC or Trustee chair statement and give that as evidence of the value the saver got for their money.

But that isn’t happening and we need to ask why. While the IGC does a behind the scenes job for the saver, it doesn’t have front line duties like employers. Employers don’t use IGC reports because they don’t talk to their workforce, they are too general, too high up “the ladder of abstraction”.

Some employers want to share value for money reports with their staff and (in my experience), they would rather tell staff “how it is”, than let them continue under the illusion that they are carrying no investment risk.

Because they know what good governance looks like – good governance is about telling it like it is, especially to the people taking the risk.

So we at AgeWage are going further, and suggesting that value for money reporting should not stop at the employer governance committee. We think that employers should be asking their trustees and the providers themselves , to make full disclosure of how their staff’s savings or  investments have done.

They need to make the distinction between savings and investments , as Martin Lewis does and – where employees are taking investment risk, they need to make them aware that this is what they are doing.

They need to make sure their staff know what is going on with their pension savings or investments in good times and in bad.

 

tcf

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Three little pots went to market

Posted on January 20, 2020 by henry tapper

piggie

The point of this blog is to show

1. One way of avoiding the damaging impact of the MPAA on future saving

2. The depth of knowledge needed to make good at retirement decisions (especially where there is no adviser

3. To advertise the availability of TPAS to provide guidance (a service I’m hoping  to offer  through AgeWage).

The problem’s becoming “pension non grata”,

If you’re in your fifties and have been saving into pensions all you life, you may have a number of pension pots and you may want to give yourself a bit of financial relief by taking some money now and taking your income now.

But if you do this the wrong way, and many are doing just this, you run the risk of nobbling your capacity to save for the rest of your life – by triggering the money purchase annual allowance which caps tax-relief on all pension contributions at £4,000.

I wrote about this problem yesterday, because I feel that the tax-rules are so complicated that they need to get some explanation and because I think the rules around MPAA are so obscure that many people may have triggered the MPAA, not reported doing so and are in danger of HMRC catching up with them.

I would be grateful to hear from people in pensions administration about how much MPAA disclosure is going on and whether they are finding ways to police matters for the HMRC. The people I’ve spoken to so far consider this a tax elephant roaming the room.

Either the elephant is sent off (and we are let off), or the room could get very messy.

Ways round the problem (aka “bodged jobs”)

“Bodged jobs” – or “partial mitigation” as lawyers call them are based on special circumstances that can allow you to take your pension pot (s) without triggering the MPAA.

The simplest is to stick  to cashing in small  (£10,000 or less) pots. What I had forgotten is that you can do this up to three times – where the pension pot is a “contract-based pension” (one where you have a policy with an insurer or account with a SIPP- they included personal and stakeholder pensions).

Weirdly, if you have small pension pots (<£10k) from occupational pensions, then there is no limit to the number of small pots you can cash in without triggering the MPAA.

I had no idea how this rule came about , but writing on my blog yesterday, Ros Altmann explained that the idea came from the Treasury.

Don’t forget there is the three pots rule – and if people are using this rule to withdraw fully three small pension funds worth below £10,000 each will not trigger the MPAA and may be a reasonable decision, especially as people may use the money to recycle back into pensions and get another load of tax relief and tax free cash.

I pointed this loophole out to the Treasury in 2015, but they seemed to believe they could live with the tax leakage – but obviously they didn’t want this widely known so that not too many people use this advantage..

I am constantly amazed that many people still don’t know about this rule. But, that means drawing inferences from the number of pots that are fully withdrawn, without knowing whether they are valued at less than £10,000, means we cannot know the true impact of pension freedoms on other pension savers for whom withdrawing their entire pension savings would, of course, be really bad news.

I wonder whether the data exist by size of pot?

The three pot rule (and the even crazier small pot exemption for occupational pension schemes mean that those who want to bus their pensions and really get into “recycling (see Ros’ comments), can do so by creating lots of small pots.

I am not advocating this kind of behaviour as it is a bodged job, but if you are a “recyclist” you may already be splitting up big pension pots into satellite pension pots to cash out, so you can continue to enjoy a £40,000 annual allowance, funded in part by the proceeds of the small pots.

Clever? Bloody stupid if you ask me, but a tax-specialist will tell you this kind of thing works and is the kind of way rich people can get double tax-relief on the same money.

I wouldn’t go so far as to imply that “somebody in the Treasury” was dishing out tips in (Nigel Farage’s)  pub, but if he or she did, this is a beauty.

Three little pots went to market

Big picture stuff now.

The tax rules that had to be put place to combat abuse of the 2006 pension simplifications and the 2015 pension freedoms, are now so complicated that they only really benefit pension advisers and those rich enough to afford to employ them. Simple and free they are not.

The three pots rule, is only one of the ways to bodge freedoms to make pension saving a branch of tax avoidance. There is all kind of stuff you can do around the AA and LTA, and if you are worried you are paying more than £40k pa or have pensions worth more than £1m, you should stop reading this blog and go talk to John Mather (introductions on request). John will tell  you the rules – he won’t give you advice – he’s an upmarket version of TPAS).

Personal pensions were designed to be simple enough to be used by ordinary people without the need for advice. Occupational pensions were designed for the same purpose.

That I am having to spend more time worrying about not giving you  advice, than writing these words shows how big and bad the piggies UX has got.

piggie

TPAS to the rescue

As I’ve mentioned earlier, I am actively considering how the “three little piggy user experience” can be transformed into small pot pathways for those with cashflow issues in their fifties. It’s the kind of help I’d like Agewage to give people (digitally).

But most people will want someone to talk them through the kind of problems I’ve been referring to in this blog (and yesterday’s blog)

TPAS cares about your problems and has people who are paid to give you detailed guidance on what you can and cannot do on issues such as “trivial commutation, MPAA avoidance and the three pot rule”

So once again, if you are worried…

…to read all the hideous detail, including your responsibilities to tell everyone what you’ve done, here are the rules courtesy of the Prudential’s tech team.

If you are lucky enough to have someone at work who looks after pensions, speak to them and ask whether you will have a problem going forward (or possibly with non-disclosure).

In any event, it is worth giving TPAS (part of the Money and Pensions Service) a ring, to make sure you are doing the right thing. You  can get to them in working hours on

0800 011 3797

Posted in advice gap, age wage, Big Government, pensions | Tagged , , , , , , , , | 3 Comments

Dip into your pension at 55 and you could be “pension non grata”.

Posted on January 19, 2020 by henry tapper

cyber-prisoner

Banged up in the pension -gulag

Most people know they can draw the money in their pension pot from 55, and because they can – they do.

Very few sustainable drawdown plans are established by people in their fifties and very few annuities. 55% of annuities were taken out by people over 65. Only a few people under 65 swap their pension for an annuity and they shouldn’t have to worry for you!

The people who this article is for are the 72% of pension savers (around half a million of us) who access their plans for cash – not to pay themselves a wage in retirement. These are the people using “pension freedom” and generally they are “drawing down”.

When we look at what is actually meant by “drawdown” for those under 65 we find it looks rather like “fully withdrawing cash”, and very often all that is initially being withdrawn is the tax-free cash

Although the FCA data doesn’t tell us the proportion of people cashing in their pension plans at 55, they have this data elsewhere. The more detailed Retirement Outcomes review published in 2017 focussed on the behaviours of younger retirees.

Accessing pension pots early has become ‘the new norm’. Almost three quarters (72%) of pots that have been accessed are by consumers under 65. Most are choosing to take lump sums rather than a regular income. Over half (53%) of pots accessed have been fully withdrawn. However the fully withdrawn pots are mostly small with 90% below £30,000, and 94% of consumers making full withdrawals had other sources of retirement income in addition to the state pension.

This article looks at those people who have dipped into their pension and are at risk of making themselves “pension non-grata”, they are the people who carry on working after they’ve raided their pension savings pot and stay saving to  SIPPs and workplace pensions.

Very few of us stop working at 55, but many of us risk wrecking our financial planning for want of properly understanding pension taxation. This article shows why.

We are looking at work and pensions the wrong way round

The key findings of the Turner report included the insight that we will need to work longer.

The people crystallising their pensions in their fifties, are not just cutting short the accumulation of savings in tax-priviledged, low-charging default investments, they are cutting off the oxygen line to future saving.

The Money Purchase Annual Allowance will prevent them ever again saving more than £4000 pa into a pension , without punitive taxation.

But our fifties and sixties are years when we generally stay in work, stay in workplace pensions and have high disposable income as liabilities for families decreased. Statistics from the ONS suggest falling levels of unemployment and economic inactivity for those in the 55- 75 age group.

These twenty years could well be the most economically active years of our lives but they are being lost to meaningful pension contributions by those who thought that taking some cash out of their pension in their mid fifties was ok – especially if it was tax-free cash.

That cash mayn’t be so “tax-free” after all

Let’s think of this from your point of view . You have the average pension pot of £40,000 and you’re having your 55th birthday.

You crystallise some money  ( £10,000) out of your pension pot today . You’re told this doesn’t impact your take home pay and doesn’t create  a tax-bill at the end of the year -(its your tax-free cash).

Oh- and  you take a couple of thousand on top under flexi-access drawdown – you are told you will pay tax on that.

But you may not have been told that now you are “pension non-grata”. By taking that £2,000 (it would be the same if it was £2), you have triggered the money purchase annual allowance and that could be a nightmare to you, for the rest of your working life.

Let’s see how this works out as your case study

You are on £50,000 pa and you are in a pension scheme where 10% of your pay goes into a workplace pension. Because you’ve triggered the MPAA,  you now  have to tell payroll that you can only get tax-relief on the first £4000 of your contribution, the other £1000 gets no tax-relief and that any private savings you are making into pensions will also lose their tax relief.

To repeat; – the moment you paid yourself under flexi-access drawdown that £2000, you triggered the MPAA and “crystallised” your pension and a potential tax-nightmare.

Indeed, if you are saving privately it is your duty to stop or tell them to give you no tax relief. Failure to do so will incur a fine (90 days after crystallisation ) of £300 and a massive penalty of £60 a day for each further day of non payment.

And the impact of this restriction  is not just for this year, you are going to be caught by this Money Purchase Annual Allowance, every year for the rest of your life.

Taking that £15,000 has effectively neutered your savings productivity for ever and cut you off from the oxygen not just of higher rate relief but any relief , for all but the first £4,000 you and your employer  put in your pot each year.

And you weren’t thinking of retiring anyway!

You were told your pension was like a bank account, you had the freedom of having your money when you liked, but no one told you the rules – read the rules from the link at the end of this piece and you’ll see why – they are complicated;

You cannot run back to your pension provider with the £12,000 and say have it back, because £8,000 of that will be hurt by the MPAA and it won’t make a blind bit of difference to HMRC to whom you are  “pension non grata“.

£50,000 pa isn’t that high an income for someone at the peak of their career and 10% isn’t that high a pension contribution. Imagine the impact on someone earning twice that with a “catch-up” pension contribution of £20,000 a year. Imagine the impact of taking money from your pension and finding that your contribution has been tax-restricted by 90%. The annual allowance shrinks when you take £10,000 or more out of your pot from £40,000 to £4,000.

For all the people who thought their retirement planning could be caught up in the last 10-20 years of their lives, crystallising your pension in your fifties makes you “pension non-grata”.

Yet another unworkable tax?

We are getting used to hearing about pension taxes causing problems , for everyone from highly paid doctors to people on minimum wage caught by the “net pay anomaly”

We don’t have statistics on the number of people who have been caught by the MPAA. Steve Webb tried to get them but was told by HMRC they had no idea of the amount of non-compliance.

Despite the real time information system being in place in large parts of the tax-system, pensions appear to be living in a digital stone age.

In response to Steve Webb’s freedom of information (FOI) request  HMRC confessed that while it has access to information within the scope of the request, it ‘would exceed the FOI act cost limit’ to find out and it was therefore ‘not obliged’ to comply.

HMRC said it would breach the limit because it would need to extract all of the information and go through each individual case to identify an exact figure.

If this tax is working, we don’t know how and nor- it seems – do HMRC!

The new norm?

If , as the FCA observed in the Retirement Outcomes Review, “accessing pension pots early has become ‘the new norm’. then almost three quarters of us savers , have cut ourselves off from  tax-incentives for future savings.

I know that many of us will not be thinking of saving £4000 per annum ourselves, but if we are in a workplace pension scheme, we have to include the employer’s contribution as well. That means that many of those 72% of people who have crystallised their pensions will be running foul of HMRC – that might even be you.

The “New Norm” may include the biggest pension tax mess yet, but then again it might not – who knows – it’s all so incredibly complicated.

If this is what you want from pensions , fine. You are probably a tax-expert, a financial adviser or both. But if you are reading this as a non-pension person, you may well be saying to yourself – if this is freedom, I’d rather be locked up!

cyber-prisoner

Pension non-grata

What to do if you’re worried

If you want to read all the hideous detail, including your responsibilities to tell everyone what you’ve done, here are the rules courtesy of the Prudential’s tech team.

If you are lucky enough to have someone at work who looks after pensions, speak to them and ask whether you will have a problem going forward (or possibly with non-disclosure).

In any event, it is worth giving TPAS (part of the Money and Pensions Service) a ring, to make sure you are doing the right thing. You  can get to them in working hours on

0800 011 3797

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Who cares about old company pension pots?

Posted on January 18, 2020 by henry tapper

not workplace pensions

In this article I look at the legacy of old company pension schemes, set up by employers for staff as an alternative to defined benefit schemes. In a report in 2018, the Pensions Regulator looked at these schemes and found that most of the problems were with small schemes which had little or no value to employers. I call these schemes company pensions, most pre-date the arrival of auto-enrolment in 2012 and the workplace pensions that dominate the market today.

Do employers have proper choice when choosing a pension for their staff?

We are now two years on from the end of the auto-enrolment staging period , it is getting on for eight years since staging began and, other than the loss of a few minor contenders, the make-up of those offering services to employers is much as it was when Smart entered the market in 2015.

NOW Pensions wobbled, Salvus and Carey went to the wire on authorisation and Legal & General radically restricted its market by not taking small employers. But only SuperTrust had to withdraw its application for authorisation. Contrary to expectations – there remains a wide range of providers competing for the 10.5m new members from 1m new employers, as well for those schemes set up in advance of auto-enrolment by mature employers.

Employers can now choose from 37 authorised master trusts which have more than £36bn  in assets under management between them, 16 million memberships, and total financial reserves of £524m.

They can choose from 5 insurers, Aviva, L&G, Aegon, Standard Life, Royal London and Scottish Widows who offer Group Personal Pensions as workplace pensions and there remain a handful of SIPP providers , most notably Hargreaves Lansdown, who offer SIPPs to employers under auto-enrolment.

There is a proper choice for employers choosing workplace pensions today

A market increasingly dominated by master trusts.

The trend towards consolidation continues. The master trusts that did not apply for authorisation are being absorbed into larger master trusts.

HSBC has been authorised as a master trust but has yet to state its intentions for new business. It is generally assumed it will seed with the HSBC staff scheme and there’s considerable speculation as to where it will predate. HSBC may well disrupt the existing order but has yet to show its hand.

Master trusts have the capacity to absorb new business through bulk transfer where deals can be signed off by employers and trustees without the consent of the transferred members. Groups of Personal Pensions (GPP’s) cannot transfer pots from one provider to another without member consent. Setting up a new GPP involves setting up a new policy for each member of staff, for consolidation to happen, each pot needs to transfer at the individual policyholder’s consent.

When it comes to consolidation (which is the commercial driver for change) it is the master-trusts and not the GPPs which are on the front row of the grid. The last time that HSBC made a predatory play was as a personal pension provider – some fifteen years ago – times have changed.

… for most employers with a failing scheme, master trusts will be the obvious answer

How are master trusts competing?

There are large numbers of workplace pension schemes which look inefficient and ripe for consolidation. The competition for consolidation is driven by consultancy owned master trusts, primarily those of Aon, Willis Towers Watson and Mercer, but followed by a range of others – including Salvus, Creative , Atlas and Nations owned by Goddard Perry,  CBS, Capita and XPS respectively.

These schemes are today building their business plans around expansion. They see the low hanging fruit as the 41,000 occupational pension schemes established as DC plans and maintained by employers under their own trusts.

For the workforces of large employers like Tesco, competition is fierce. But for the fat and long tail of legacy DC schemes (including GPPs), I already see the likelihood  of market failure

My worry is once again about the consultants (and to some degree the insurers) . They compete for these schemes like whales compete for plancton, they open up their mouths and the schemes swim in , primarily because the employers have used the consultancies as advisers or have no adviser and are in the hands of the insurers.

Insurers are keen to compete with their master trusts. Aviva, Scottish Widows, Legal and General and Aegon all have master trusts and HSBC will join them.

NEST, People’s Pension , Smart and NOW are potentially competitive in this plancton hoover-up. However they don’t have the pre-existing relationships of the consultants and insurers and may struggle to repeat in the hoover-up what they achieved during the staging of auto-enrolment – when they had most of the market to themselves.

The big four, are either suffering from indigestion – from a surfeit of new business in the past eight years, or (in the case of Smart) looking abroad.

Competition for old DC company pensions is more likely to come from younger entrants than the big four

How far does competition go?

What I haven’t seen develop in the UK is a utility that puts the employer in control of the purchasing decision.

If an employer wants to tender the scheme it has established (occupational or GPP), it is pretty well bound to use a consultant. But most consultants would rather compete as providers of master trusts than as the organisers of tenders. Those few consultants who are independent of master trusts (Hymans Robertson, LCP, First Actuarial and the accountancy practices) are likely to prosper where competitive tendering is going on. But much of the acquisition of “plancton” is not going through the competitive tendering process. DC schemes are simply passing into the mouths of consultants like Krill.

I suspect that the mistakes of fiduciary managers in the DB space are being repeated and very much hope that tPR and FCA will have a look at what is going on – especially where schemes are unloved, employers uninterested and the money of members is a secondary consideration.

In such cases – the secondary market for failing DC schemes may  not always be competitive.

What needs to change?

The Pensions Regulator recognises that many occupational pension schemes are unfit to meet today’s challenges. Many are overly-expensive, poorly governed and badly managed. They are struggling to deliver value for money to members, to comply with rules for tougher disclosures and worst of all, they often have poor data controls meaning many members may not have accurate records. These problems will come out when these schemes are mandated to participate in the digital data-sharing with the pensions dashboard

For such employers to be in control, three things need to happen

  1. Employers need to recognise (or be told) that the schemes they set up , are their responsibility
  2. Where employers aren’t prepared to sponsor their own scheme they need to access a secondary market of providers  which enables employers to tender their schemes to the benefit of members.
  3. Someone needs to set up such a tendering facility on-line for the benefit of employers, members and competition.
  4. For orphaned schemes (where the employer is no more), tPR needs to become the tenderer and should use this service.

Access to a competitive secondary market for employers wishing to dispose of their DC pension schemes is limited.

Lessons to be learned

Millions of us have pension pots in schemes run by former employers. These schemes are hard to find and harder to get information on. Many of these schemes are ripe for change and they will be absorbed into master-trusts.

Members will have very little say in the matter and there is insufficient impulsion on employers to get a good deal for our money. This is a recipe for poor practice and it is easy to see competition failing as it did with fiduciary management.

The FCA and tPR should look into the market and in particular the tendering process for schemes where the employer is reluctant to pay fees.

There is a market opportunity for the industry to set up a tendering utility for the disposal of failing DC schemes into viable authorised master trusts.

not workplace pensions

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Steve Webb, LCP and Royal London

Posted on January 15, 2020 by henry tapper

 

Silent witness

Most people who know Steve Webb now knows he works for Royal London, but many people who know that won’t know Lane Clark and Peacock. Why does Britain’s longest serving pensions minister find his CV so varied? Where is the continuity?

It’s cheeky of me to assume Sir Steve’s motivation, but i think he is following what he sees as goodness, and goodness knows there’s not a lot of it about. There aren’t many people I know in pensions that exude goodness, Phil Loney, the former CEO of Royal London was one of them. Steve and Phil are both Christians and though they do not evangelise at work, they are clearly driven by the same conviction.

I do not know of any strong Christian conviction at LCP , but of all the pension consultancies , it has a culture of kindness. Bob Scott and others see to that. LCP is very successful and like Royal London, makes sure its staff are properly rewarded, there is a strong inclusiveness about their culture. They were the first and to my knowledge only pension consultancy to give an employee the chance to change gender. LCP don’t just tolerate diversity, they promote it.

LCP are progressive not just in what they say and what they do. They are silent witness to the values that I know Steve and Phil stick to.

This is why I am not surprised to see Steve Webb joining Lane Clark and Peacock and why I am happy he has.

Though my first loyalties are to my former employer , First Actuarial, a rival in some ways to LCP, LCP is a firm I like to see prosper and this marriage of a good man and a good firm can only be good for pensions.

Steve-Webb-MP-006

 

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Answering customer’s questions means knowing what those questions are

Posted on January 15, 2020 by henry tapper

Henry Tapper

In this blog I talk about the failings of the financial services industry – the pensions industry in particular – to answer the questions people have. I look at this at three levels – at big data level – through the lens of a pensions dashboard, at the employer level, through the frustrations they can find getting data about their workplace pensions and at the personal level, getting the data we need to work out if we’re getting value for our money.

 

Big data talk

I was in conversation last night with Gavin Littlejohn, who’s well know in open finance circles as the Founder of the Financial Data and Technology Association. He’s created a global network of organisations participating in the open sharing of data in banking and he’s one of the drivers behind the FCA’s open finance initiative, about which I’ve written lots.

Gavin’s take on the pension dashboard is simple. It is not going well.

Rumours were confirmed that yet another senior figure involved in the delivery of the dashboard has been sacked. The scope of the dashboard is now reduced to pretty much finding pensions and even that limited ambition is not expected to deliver anything until 2022 and nothing substantial till at least 2025. My worst fears are being realised and there is not much that worthy souls like Chris Currie and Guy Opperman can do about it.

The public have simple questions ; they want to know who is managing their pension pots, what their pots are worth, how their savings have done and what their options are going forward.

Meanwhile the insurance industry seems to thing our questions are

  • what will our pension pots be worth when the schemes mature
  • what will they buy us in terms of an insurance annuity
  • how much must I save to be alright
  • where do I sign to pay more

Meanwhile in a basement room in Clerkenwell

While I had dinner with Gavin, I had lunch with Andy Angethangelou and a symposium of pension communicators and their clients keen to work out how to be more transparent.

My answer was simple, talk to people about what they want to talk about and give them facts. Do not talk to people about what you want to talk about and speculate.

The pensions dashboard is a case in point. people want answers to their questions not to be told what they should be thinking by the ABI.

Andy likes to show a chart which sees Financial services languishing at 58% on the Edelmann Trust Index and Technology prevailing at the other end of his scale with 78% of people trusting the data they get , generated by machines.

The lesson is pretty simple, the dashboard should be communicating facts delivered by technology, not marketing delivered by insurers.

Answering the question

On numerous occasions over the past nine months, I have seen individuals ,trustees, employers and even IGCs asking for data and being denied it. My favorite response was from one data controller who suggested that the client was asking the wrong question. The question that the individual should have been asking is how much more she should be paying , not what had happened to her money she started investing nearly 20 years ago.

Past performance may not be a guide to the future but it is a good guide to the past, and most of us want answers as to what has happened to our money and whether decisions taken on our behalf worked out.

I fear that people have been cowered into believing that knowing past performance is not only irrelevant but actually damaging to them.

Most shockingly of all, there is a school of thought amongst insurers running GPPs that the people who appointed them and pay the money to them (the sponsoring employers) are not entitled to know how the money they’ve collected and sent, has done.

Their questions are repulsed with statements that include

  • It’s not your data – even though the data they are asking for is anonymised
  • It’s not your business – even though the employer has set up a governance committee

It is within employer’s call to sack providers and appoint  another provider to run its workplace pension.

It can justify doing so by telling impacted staff that the incumbent provider does not want to share the data which can enable it (the employer) to independently assess performance. In short it can tell its staff the insurer will not answer the question.

A simple lesson in communication

I had a conversation earlier this week with Ros Altmann and congratulated her on her idea for a birthday card which fell on the mat in a brightly coloured envelope and gave the recipient a birthday surprise, a meaningful simplified pension statement.

I expressed admiration for the idea but expressed scepticism that insurers would change their systems to issue statements to delight the customer rather than the scheme/plan renewal date. Ros sadly agreed, such a move was unlikely to happen.

Organising what we say to people around when they want to hear from us is not something that is in most pension communicator’s DNA, people get what we want to tell them when we want to tell it.

“Knowing what those questions are…”

The gap between what people want from a dashboard and what insurers want to tell them is wide. People want access to data and their money, insurers want more of their money and are prepared to sit on the data people ask for.

The simplified pension statement should include a statement in “pounds, shillings and pence” of how much has been charged them for managing their money. As Ruston Smith of Tesco says, “people – when they get a shopping bill itemising what they’ve bought, expect the cost of those items to appear at the bottom”.

Unbelievably, most simplified pension statements don’t contain this information and the Government is still having to consult on whether they should. The answer given by the pension industry to that consultation will be interesting. The consensus so far is that if we told people the cost of saving, they’d stop saving. I doubt people stop shopping at Tesco when they see their shopping bill, unless they can see they could buy the same items cheaper elsewhere. The dashboard has an answer for that too.

Value for money

The pensions industry has convinced itself, the regulators and the sponsors of the workplace pensions they manage, that it is too hard to give people an assessment of the value they’ve provided for the money invested and instead of answering that question, they’ve chosen to answer another question.

The question they have chosen is “do we think we have provided value for money?”. They have set up IGCs which are packed with experts and those IGCs have agreed with the providers (on every occasion but one – pace Virgin Money)  that value for money has been given.

The bar for “value for money” has been set so low that everyone has jumped over it. That is because the question has been answered by the people setting the question!

When individuals were asked how they measured the value they got for their money, they replied that it should be measure on the outcome in their pension pot. (NMG 2017).

Once again the question people ask and the answer they get are quite different.

We will only get to a the answer to people’s legitimate question “how have I done” when we tell them how they have done. That doesn’t mean delivering a factsheet with gross and net performance figures but it means delivering the return that person got on their money and even more importantly, the return they got relative to the average return, so they can see if they have done well or badly.

That is their value for money figure and it happens to be their AgeWage score. Frankly until we start answering the questions people have with facts not speculation, with history not speculation and with total honesty, we aren’t being much help.

AgeWage evolve 2

 

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Let the Lady speak for me (on Brexit)

Posted on January 14, 2020 by henry tapper

Ros altmann pic
I was a silent remainer. I have been a Liberal most of my life, voted Liberal in #GE2019 and am proud to know Ros Altmann and Gina Miller as friends.

Yesterday I bowed in front of the Throne in the House of Lords, Ros Altmann beside me and saw this great place of parliamentary democracy for the first time.

Last night, shedelivered this short but powerful speech wishing the Lords not to stand in the way of Brexit. It was the right response. She quoted Martin Luther-King

“We must accept finite disappointment and live with infinite hope”

She spoke for me too.

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Retirement plans meet people’s needs (not what we want to sell them)

Posted on January 14, 2020 by henry tapper

 

Gareth Morgan

This is a blog about Gareth Morgan, Greggs and about how we meet the needs of all people in retirement, not just the sufficient

Here is Gareth’s blog – AgeWage will be integrating Gareth’s analytics into our work on retirement plans. If  you are a provider , consultant or reward strategist, we hope you do too!

Greggs £300 – Bonus or Booby Prize?

by  on January 11, 2020

ferretlogo

Greggs, the well-known bakers, have been in the news this week because they are giving their staff a bonus because of good financial results. It’s always good seeing employers rewarding staff, and Greggs already have a generous profit-sharing scheme.

 

They’ve basically just handed £7m back to the govt.

I have two questions about this. The first, widely shared as can be seen from a number of comments to the tweet above, is ‘how much will people actually get in their pocket?‘.

This is the same question, in many ways, as my post a few days ago about the increase in the National Living Wage; https://benefitsinthefuture.com/national-living-wage-cui-bono/ . It’s the problem of what is called Marginal Deduction Rate, or perhaps more accurately, the effective marginal tax rate. That is the amount of money taken away from the extra earnings or bonus by such things as tax, National Insurance (NI), reduction in state benefits, reduction in local benefits, and the loss of other means-tested entitlements, such as free prescriptions because of low income.

This can be a very complex calculation. It also depends a great deal upon individual circumstances. There are some relatively straightforward parts of such a calculation; for example, a 20% deduction for income tax where somebody’s earnings are above the personal allowance level and a similar assessment for NI. It gets more complicated when looking at Universal Credit which depends not only upon what’s left after tax and NI but upon the personal details which are used to assess the benefit, where some people will have different amounts of earnings that are disregarded, so that the extra may have more, or less, effect. Some people may find that the extra leaves them with less benefit, while others may find that they lose their entitlement altogether, and might have done so with even a smaller increase. The causal chain continues with local benefits, such as Council Tax Reduction, dependent upon the Universal Credit result and low income or ‘passported‘ entitlements following on again.

Universal Credit, in particular, is affected by this kind of bonus payment, because it uses “when the payment is made” in its calculation and doesn’t spread the impact over a year. That magnifies the problem for many people.

Unlike my figures for the National Living Wage note, where I was looking at the government’s assumptions for people in full-time work, Greggs staff may have a wide range of hours of work and pay scales. Some of them may have earnings above the tax or NI thresholds, while others may not. Some may be claiming Universal Credit, while others may not, etc. etc. The value of the bonus to different people will be worth different amounts.

What I have tried to do, is to break down the effects of tax, NI and benefits in a way which might offer some illustrations of the results.

First, what happens to people whose existing overall earnings, averaged over a year, will be above or below the tax and NI thresholds. I’m using the 2019/2020 figures throughout.

Earnings below the tax and national insurance thresholds. Less than £165.55 a week, (£8,632 a year). Earnings between the tax and national insurance thresholds. More than £165.55 a week, (£8,632 a year) but less than £239.07 a week (£12,500 a year) Earnings above both thresholds. More than £239.07 a week (£12,500 a year)
No deduction NI deducted at 12% NI deducted at 12% and tax deducted at 20%.
Bonus £300 £300 £300
After deduction £300 £264 £204

I am, of course, ignoring the more complicated, but very real, cases where the bonus takes people’s earnings above threshold values, so there is a part deduction, and where people are taxed at different rates for various reasons. I’m also not taking any account of pension contributions here.

If people are not receiving, or entitled to, any benefits then that will be the end result for those people. That often applies to people with higher earnings, or partners with higher earnings. Many Greggs staff, as pointed out in the tweet above, will be claiming benefits and increasingly that benefit will be Universal Credit. That introduces another stage and another serious problem.

As pointed out earlier, Universal Credit, unlike the legacy Working Tax Credit it’s replacing, looks at earnings, including bonuses, when they are paid and not averaged over a year. That means that the bonus paid this month reduces the Universal Credit paid next month.

Universal Credit, unlike other legacy benefits such as Job Seekers Allowance, does allow people to keep some of the extra earnings, including bonuses, that they get. It lets them keep 37% of the extra. The government claws back the other 63%. That gives the following result.

Earnings below the tax and national insurance thresholds. Earnings between the tax and national insurance thresholds. Earnings above both thresholds.
Bonus £300 £300 £300
After deduction £300 £264 £204
Universal Credit Reduction £189 £166.32 £128.52
Worker £111 £97.68 £75,48

The reduction figures apply to those people who don’t have any disregarded earnings for Universal Credit, called Work Allowances, or whose earnings are already higher than those allowances. If people’s earnings are below those work allowance figures, and they have children or disabilities, then some of the net bonus will also be disregarded.

It’s striking though that roughly two-thirds to three-quarters of the bonus, for those people on income support, is being taken by the government.

Whatever the amounts that are taken into account, they will affect the Universal Credit the following month. They will be added to the existing earnings to recalculate entitlement. Universal Credit already has problems with the way it assesses monthly earnings figures. People paid weekly, as is common with low paid or part-time employment, will find that sometimes five paydays taken into account and sometimes four, with very serious effects ( see https://benefitsinthefuture.com/universal-credit-and-patterns-of-earning/ ).

Universal Credit is not a high-paying benefit; benefit caps, rent caps, limits on the number of children supported, sanctions as well as the freeze on the level of benefits for the last four years have driven down the real level of support. That means that often it does not take a big increase in earnings to stop entitlement altogether.

If that happens then people must claim the benefit again in the following month, using a shortened process. If they don’t, or aren’t able to for some reason, then their benefit won’t restart.

If they’re also claiming Council Tax Reduction then that will be reduced as well and, because for most local authorities it’s linked to Universal Credit, if Universal Credit stops then Council Tax Reduction can be thrown into confusion. It’s not possible to illustrate the effects of the bonus as there are different rules across the country.

Greggs generosity to their employees might seem, in practice, to be generosity to the government. Not only is the bulk of this bonus money likely to end up in the pockets of central or local government but Greggs will be paying an additional 13.8%, or £41.40 by way of extra Employers National Insurance contributions, although there will be a corporation tax offset to take into account.

So, to my second question, is there a better way to reward employees?

While a bonus is probably administratively simpler, because it doesn’t require much individual consideration, there are other alternatives that might be more welcome, once the real value of the bonus is taken into account. Additional holiday entitlement or pension contributions spring to mind. A bonus sacrifice into their workplace pension would save most National Insurance, for example. Pension contributions are disregarded completely from Universal Credit.ferret 2

While the bonus clearly isn’t a booby prize, it’s still depressing that a government which talks non-stop about work incentives and encouraging people to work longer and earn more, still insists on grabbing as much as they can of any increase that people get.

Retirement plans should focus on what people need…

My retirement plan is to stay healthy, wealthy and wise. It involves me finding the right balance of work, play and support from my financial investments. If I was not as lucky as I am, it might include further support from the state. Pensions play a part, my property might play a part and my businesses may still be supporting me into my later years.

To stay healthy I am changing my nutrition, cutting down on alcohol and participating in a range of fitness activities including travelling around London on Santander Bikes.

As we revise the AgeWage business plan for the next five years, I am coming under pressure to focus on the “monetisables”.  I am clear that there are a number of financial products that lie at the end of user journeys which could make us profitable immediately. All we need to do is to drive out profit and AgeWage could become a leading lead-generator for the financial services industry. 

It’s not going to happen! We are in the business of helping people turn pension pots into retirement plans and that means offering services to people that reward them rather than us.

Yesterday I visited my old friend Ben Jupp, with whom I and Steve Bee worked in the mid nineties. 25 years later Ben is a Director of Social Finance, an organistion that spends money on integrating not for profit services like the NHS into the retirement plans of the UK population. I will be writing a lot more about this because occupational health should be about the NHS as well as BUPA and Axa PPP.

I also read a fine piece of writing by my friend Gareth (the Ferret) Morgan, probably Britain’s greatest expert on how the package of benefits collectively known as Universal Credit (UC) integrate with our private finances. While I have a lot of respect for organisations such as AgeUK, who provide help from charitable status, I find in Gareth’s entrepreneurial zeal , a spirit that chimes with what I am doing at AgeWage.

It is right that Gareth’s Ferret Systems gets the commercial reward it deserves and the reason for including this blog of Gareth’s on mine, is to encourage readers who take decisions on reward , to think of how the reward they offer plays out, not just to executives but to those in the workforce on low pay.

Greggs-UC-e1578754210850

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Hey teachers, leave the kids to learn

Posted on January 12, 2020 by henry tapper

kings cambridge

I’m not writing as a pensions expert or actuary (I’m neither). I’m writing as a parent of a 22 year old completing the Cambridge Geography Tripos. He , and his contemporaries are facing considerable disruption to the teaching they’ve paid for.

I don”t know any students who aren’t supporting their teacher’s right to a decent pension at a fair price and I don’t see bleating about VFM for the student loan they are extending. Students have been tolerant of the poor deal they have got and I’m proud of my son for his tolerance.

But there comes a time when someone has to stand up and say enough is enough and that should not be the students but people like me – so here goes.

The hard line of the UCU’s Left is now the dominant force of the University College Union’s policy making. This doesn’t give moderates much room for manoeuvre. UCU left’s positions appear to include demanding the USS executive resigns or is sacked. This is not how to resolve  the dispute. Nor is its vilification of the JEP for not demanding Bill Galvin’s head upon a platter. I am far from happy about the influence of militant left-wingers on the UCU

But the JEP, ably led by Joanne Segars, has produced a strongly worded report that should be giving the UCU confidence. The UCU has in Jo O’Grady a powerful leader. The cards are stacking up in their favour, why risk further unnecessary action by adopting such a confrontational approach. The answer appears to be a return to 1967.

And time is the UCU’s friend,  USS are still suffeciently invested in real assets for it to have benefited from the recent market upswing. Future valuations may look a lot more rosey, especially if the current Government adopts an inflationary economic strategy that drives down USS liabilities.

But surely the clinching argument for some peace and quiet is the progress that has already been made by the UCU in winning the intellectual argument. As an open scheme there is no rationale for the proposed de-risking strategy that has caused so much strife.

CDC lifecycle

I can, as a former First Actuarial employee, point to the absolute good sense of exploiting the sweet spot that USS is and will remain in.

USS should remain invested in real assets, teachers should remain teaching and the long-suffering students should be allowed to complete this year without further disruption.

Cambridge colleges

 

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Pension tax-relief – a fact based argument for change.

Posted on January 12, 2020 by henry tapper

Screenshot 2020-01-12 at 08.26.34.png

 

The change I am suggesting would turn pension taxation on its head, it would mean pension contributions would be taxed at more than 60% for high earners but that the lowest earners would be exempt from pension taxation.  Pension providers would need to pay attention to their low-earners who would become more valuable to them, providers whose models were focussed on wealth management would suffer from these proposals. Read to the end to understand why I see such change as needed.

In recent articles, I , Ros Altmann and Jo Cumbo have been grappling with pension tax reform. There are three solutions to the issues.

The first is to deny there is a problem , or at least to put off accepting we need to tackle the problem (this sounds familiar in the context of climate change).

The second is to look at a partial solution, the solution favoured by unlikely bedfellows in John Ralfe and Ros Altmann, here the key is to limit tax relief to a flat incentive.

The third is what I propose which is a phased transition from the current system where contributions get incentivised to a system where pensions are paid tax free.

In this blog, I look at the available numbers, published by the Government – that show us – on an accounting basis, how the amount that Government loses in tax relief exceeds the amount it rakes in from taxing pension saving by £35.4 bn (2017). Ros Altmann estimates that the real cost today has gone up since then to around £50bn, but I’ll stick with the lower estimate, as detailed below.

Screenshot 2020-01-11 at 16.07.31

The table has been converted to a graph which shows where the £35.4 bn is lost

Screenshot 2020-01-11 at 16.36.53

DB funding costs best part of £18bn,

The graph shows that the biggest cost by far, is the £18bn a year lost in tax revenues from employers with occupational pension schemes. This may seem odd to those who see pensions through the lens of auto-enrolment where employers pay 3% of a band of earnings and employees 5%. But in 2017 the rate was still 1+1. and more importantly, the weight of pension contributions is still with DB schemes. The deficit contributions to keep DB going are enormous, the ONS estimated that the 360 largest DB plans paid £13.5bn in special contributions in 2018 (and they paid ongoing contributions and the PPF levy on top).

DC costs to the pension system are smaller but growing

But we should also be aware that ongoing contributions to Defined benefit schemes dwarf what’s going into workplace DC plans.

Screenshot 2020-01-12 at 06.36.23.png

Look out for the yellow and blue blocks on the right to shoot up as the 2018 and 2019 numbers come in, that’s when the real cost of auto-enrolment to the Treasury arrives.

Lates estimates from the Treasury suggest the  cost of income tax relief for registered pension schemes in 2019/2020 will be  £20.4bn, (“income” covers personal income and corporation tax). Most of this increase is expected to come from DC

Why national insurance is so important

People and employers pay national insurance on salary and bonuses but not on pensions in payment.  Employers do not pay national insurance on contributions to pensions. Although national insurance is not a headline grabber (like income and corporation tax) it forms a big part of the £35.4bn gap between what Govt. gives up and what it grabs back

 

 

The figures in Table 6 at the top , need no graph, in terms of “give and grab”, the Government gives up £16bn in national insurance and grabs nothing back. National Insurance makes up nearly half of the gap between give and grab.

Although Table 6 is the last complete figures , we do have provisional data. The latest data from the tax office reveals national insurance relief for employer pension contributions will amount to £18.7bn, higher than the 2018/19 figure of £17.4bn, and the 2014/15 figure of  £13.8bn figure.

So what can Government do?

On the face of it, the ongoing cost of funding DB and the cost to the exchequer of lost NI revenues are the two biggest ticket items,  The DC costs are yet to feed through.

The current plan is to cap the amount of contributions that those with high net disposable incomes can make and punitively tax breaches . This is through the annual allowance, the taper and to some extent the money purchase annual allowance.  Coupled with a cap on the value of lifetime pensions benefits this has produced an increased “grab” from the wealthy illustrated below.

 

 

Screenshot 2020-01-11 at 16.43.25

But these breaches aren’t really netting much in “grab” compared with the “give” elsewhere.

What the Government has to do is to find a way to stop giving away so much upfront and boost the impact of the “give” by not grabbing back in retirement.

The reason for this is that 50% of the benefit of the current “give” is going to 10% of the population and the 90% of the rest of us , are sharing in only half that £35.4bn giveaway.

The beneficiaries of that big employer spend are those still getting DB accrual and those benefiting from DB pensions that increase each year. There is an argument that DB pensions should be liable to national insurance by way of “grab” . I don’t see such a measure as being popular, but it may be a short-term fix to keep the show on the road and pay for removing the annual allowance taper. These tinkerings are not the long-term solution

Making DB accrual benefit low-earners most.

What  needs to happen is that we need to gradually remove all the perks of accruing DB (both in the private and public sector) and charge those who are in receipt of DB accrual the cost of both the income tax and national insurance give , in exchange for paying this accrual tax free at retirement. This can be done , not by increasing payroll taxes but by offsetting the upfront tax and NI reliefs by a promise that this part of the DB accrual will be paid tax free – effectively a tax-exempt pension.

Why this works is that it redistributes the incentives to stay in to those who pay small amounts of tax and NI and takes away from those who are the big winners today, those 10% of top earners who are scooping the pool.

Preventing DC becoming a national insurance arbitrage.

As for DC, we have to be aware that most DC contributions will ultimately be paid by employers

Screenshot 2020-01-11 at 16.39.36

Employers are cottoning on to salary sacrifice/exchange and can see that they can boost pension contributions by up to a quarter by simply paying employee contributions in lieu of salary.

This graph shows how fast the switch is happening and when the vast new cohort of employers (1m +) who have recently set up workplace plans, cotton on to this, the amount of personal contributions will fall further.

If Government chooses to cap tax- relief on personal contributions to the lower rate , they will see that blue line accelerate towards zero as employer contributions protect all employees from income tax (as well as NI).

This is why a flat-rate solutions as proposed by most pension experts is flawed.

As with DB, the solution is to treat pension contributions as tax- able and liable to national insurance as if they were a benefit in kind. In the short- term, contributions could carry on getting tax-relief but would be “docked” by providers who would send the tax and national insurance  on  to HMRC.

This could mean that a higher rate tax-payer would only get around 39 p invested for £1 received by the provider. (45% income tax + 2% employee national insurance and 13.8% employer national insurance would be returned).

By contrast, 100% of the contributions for those on the lowest earnings (below both tax and national insurance thresholds would be invested.

Both the highest and lowest earners would see 100% of their savings available to them in retirement tax free, but the lower earner would benefit to the tune of 61p in the pound over his or her wealthy colleagues.

Impact on pension savings

The impact of my proposals will be extremely unpopular with most people reading this blog, who will benefit from the status quo and could stomach a flat rate incentive system.

Not only will it dramatically reduce pensions for the rich but it will slash revenue projections for many pension providers that depend for their profitability on an ad-valorem fee on wealth. Put simply , it will turn round the pensions value propositions from rich to poor, from wealth management to social insurance.

One test of this Government will be to see whether they will actually sort out pension tax relief as dramatically as  I propose. I propose that if they do, they look at incentivising people to convert their pension pots into pensions by providing tax-breaks to CDC schemes to manage people’s pensions as an alternative  to annuity, drawdown or simply cashing out the pot and putting the money in the bank.

The incentives for CDC provision could be equally geared to benefit those with small transfers so that the Government can make CDC viable for everybody, with the option for the wealthy to go their own way without imperilling the CDC scheme. As I have mentioned earlier, the first national CDC scheme could be seeded by the PPF and run by the PPF’s outstanding investment and operational teams.

I believe that in the long-term, my proposals will strengthen the UK pension system and return it to its former state of being the envy of the world. It will make pensions more inclusive and more relevant. Instead of being a “tax-wrapper” , the DC pension pot will become measurable by the CDC pension it can buy. DB pensions accrual will be valued for whom it is valuable and will increasingly be swapped for a CDC benefit based on a defined contribution.

Those who these proposals would benefit, won’t realise at first just how much they will get from this change. Those 1.7m people caught in the net-pay rip-off , don’t know how they are being ripped-off and have no voice. Those caught by the taper are the other way round, they have a loud voice and get their way.

But – with proper promotion, I believe these proposals will receive popular support. It will take a lot of time, energy and bravery to see these proposals through and the people who have most to lose from these proposals are going to be a huge barrier to change.

Those who will see the value of their future DB accrual , their future DC savings reduced, will not like my proposals. They will argue that it will destroy confidence in the pension system and many will opt-out and prefer to be paid salary in lieu.

Impact on employers

But employers will not be impacted by my proposals and will be under no obligation to feather-bed these cuts in top-earners pensions. As this system would be imposed on a national basis, the high-earners wanting out would need to find a country where they could get better. As far as I am aware, no country is currently giving away more in tax relief to the wealthy than Britain, so they will be hard pushed.

Employers will not be taxed  on their DB funding (or indeed on special contributions), they will not be impacted by the administration of the tax rebating which will fall to pension administrators not payroll.

My proposals should be welcomed by employers and their trade bodies , the CBI and the FSB alike.

Impact on the Health Service

My proposals will generate a substantial reduction in the cost of pension tax relief. It will especially negate the cost of tax-free cash (all future accrual or savings to pensions will be tax-free). The money saved can be recycled to encouraging the use of CDC pensions and to help pay for the cost of long-term care of our fast dementing  and physically detoriating elderly. This proposal will go some way towards increasing the £230bn a year we spend on the NHS.

 

 

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Time to stop dissing Robo-Advice?

Posted on January 10, 2020 by henry tapper

science 2

In a brilliant article , which you may be quick enough to access via this link, the FT’s Damian Fantano explores what is going on with robo-advice – or what robo-advisers like to call “putting the AI into financial advice”.

My take, and the thrust of this article, is that we can already see in the new ways of doing things, a way to navigate what seems complicated – so that it becomes simple.

What “artificial intelligence” is supposed to do is to lead you from screen to screen with the deftest of nudges to a leading question, that question leads to you making a financial decision.

There is nothing new about the “user journey”. TS Eliot explores one at the beginning of the Lovesong of J Alred Prufrock

Let us go, through certain half-deserted streets,
….
Streets that follow like a tedious argument
Of insidious intent
To lead you to an overwhelming question …
Clearly tired of beating around the bush, Prufrock blurts out
Oh, do not ask, “What is it?”
Let us go and make our visit.
What Robo- Advice should do – is allow ordinary people who do not want to see a financial advisor in person to get on with it.

People know what’s going on…

In its call for input on RDR and FAMR in May last year, the FCA sounded confident

There was a statistically significant increase in the number of people taking regulated financial advice since 2017, with an additional 1.3m people taking advice. There was also a significant increase in the use of guidance services, and automated-advice services, to help with financial planning decisions.

In the detail of their findings it’s clear people are confident too

Of people who have not taken regulated financial advice in the last 12 months, but whose circumstances suggest there may be a need for advice (defined as people who have at least £10,000 in savings and/or investments):

– the most frequent reason (50% of responses) was that they did not feel they had a need to use an adviser during this time

– a further 37% said they felt able to decide what to do with their own money (significantly higher than the 28% who said the same in 2017)

– less than 1% said they had not been able to find an adviser,

2% they did not know how to find an adviser

and 5% said they had doubts about whether they could find an adviser suitable for them

Is lack of advice really the problem?

On the face of it – there doesn’t sound like a huge unsatisfied market here. People are making their way through the streets and taking on the “overwhelming questions” with their own resources.

The answer to that question is that it depends where you look. If you read the FT you are looking in the right place, you generally have more than £10,000 in “savings and investments” and the people who consult the AI – advisers featured in the article are financial journalists who are very aware of what is going on.

This is Damian Fanato’s personal experience

Screenshot 2020-01-10 at 06.56.10.png

AI Advisers or Robo lead-generators?

Buried in that user journey are a number of “monetisable”  opportunities for the advisers to make money via referrals, on top of the £2 per month licence fee to get more of the same.

The inference is that robo-advice was little more than a shop-window for Alexander Hall.  No doubt, proprietary solutions are also available where there is “wealth” on offer, as the robo- adviser – Eva – is a “wealth-wizard”.

There is a difficulty here and it’s about the audience. The FT is talking to its own and as such it is allowing us to smugly dismiss Eva as a financial tour guide. Damian suspects that Eva wasn’t ever going to arrange a mortgage herself and that when it comes to the “overwhelming question” , we are not in the world of driverless – underwriting.

This is not always the case, artificial intelligence is being employed in insurance and much of the rate-setting on the price comparison sites recognises good and bad risk with reference to big-data and even the applicant’s behaviour. Sinister as it sounds, getting cheap life-cover like maximising your annuity, is all about knowing the right answers.

It’s time to stop this dissing

We lead busy lives and the advantage of a trusted robot, may at present by little more than Siri, Alexa or Eva’s capacity to navigate us to the right articles or (in Eva’s case) adviser.

Robo-advice may excite in the 50% of FCA responders, a recognition that it might be worth paying a little more attention to their financial planning and maybe take Eva’s advice and trot off to a mortgage broker.

But I suspect that it is considerably more helpful for the 37% of people who said they knew what they were doing, to get a second opinion. For the small remnant who couldn’t find an adviser, some might find Eva invaluable.

And not all of us are FT readers. The knowing tone of the case study suggests that Keith Richards  of the Personal Finance Society  is preaching to the converted (here he is quoted in the article)

“Given the communication skills and empathy needed to fulfil the entire role of a professional financial adviser, it is unlikely that AI will be able to replicate this any time soon, understanding [a client’s] goals for themselves and their wider family; how their finances fit in with their career; educating them about their investments and helping them understand how they are going to manage different risks.”

For the richer more sophisticated FT reader, this is undoubtedly right, but this empathic advisory service is something that Eva could develop, given a chance to get to know her users.

I suspect that the lifetime advantage of having Eva , in your phone , could become every bit as valuable as the empathic adviser, because Eva has certain key advantages.

Eva does not take holidays and so long as you have battery , she is on hand to help. She is cheap at £2pm and the more you ask her, the better she gets to know you. If Eva really is an AI tool, she will not just become trusted, but more trustworthy, as you get to know her.

Having read through the article, I’m getting to the point where I would like to have Eva in my pocket, and if I’m proved wrong after a couple of months, she has cost me what I pay for most of my interesting conversations – a cup of coffee.

So I’m not dissing Eva, or robo advice – I am asking the question – “how do I meet Eva?”

How do I meet Eva?

It would appear my best chance of meeting Eva for free is by joining  a firm like Unilever, who make her available to their staff – presumably as an employee benefit. I may be able to find Eva by myself (I do know some of the good people at Wealth Wizards) and I’ve even got a link to visit myEva

And I’m sure that I can get hold of other versions of Eva at Multiply.ai, or one of the firms using the Abaka platform

If J Alfred Prufrock was alive today, I am sure he is the inquisitive cove who’d be asking overwhelming questions with artificial intelligence. I felt like this – which is why I started AgeWage.

agewage evolve 1

 

I am quite sure that vast numbers of people  today navigating  the  treacherous waters  at retirement will look for whatever online friend they can.

There is an urgent need for Eva, or those like it. Our customers are impatient and like Prufrock, they want to get on with it.

Oh, do not ask, “What is it?”
Let us go and make our visit.

agewage advice

 

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Will open finance transform financial services?

Posted on January 9, 2020 by henry tapper

open finance

 

In case we had any doubt what the answer should be, the Financial Conduct Authority asked for “proposals on how open finance could transform financial services”. There were other words for ‘how’ such as whether or if, but how was chosen.

I will go a stage further than the regulator and transform that ‘could’ to ‘will’ – open finance will transform financial services.

Open finance is defined by the FCA as “the sharing of data that provides new ways for customers and businesses to make the most of their money”. The most obvious manifestation of open finance is the proposed pensions dashboard, a concept that assumes that we will be able to find, compare and aggregate our savings, turning pension pots into a retirement plan.

The success of open banking has already inspired first-movers. Abaka, the open finance platform, recently announced a successful $6.2m (£4.7m) funding round. Other open finance ventures such as PensionBee, AgeWage and Multiply AI have similarly received substantial funding.Screenshot 2020-01-09 at 07.33.13.png

The key to unlocking data is the mandating of those holding data to make it available on demand in machine-readable format. This will require the adoption of data standards and the use of application programming interfaces by all who manage pension data.

Supply side takes first steps

This process of standardisation is already under way. Last year, customers of Lloyds Bank with Scottish Widows policies started seeing pensions on their bank statements.

A further manifestation is the simplified pension statement being proposed by the Department for Work and Pensions after work from Ruston Smith. The DWP’s consultation paper on how we get standardisation ties in with work on cost and charges disclosure, which itself has been greatly simplified by the FCA.

But this momentum on the supply side is in advance of, rather than because of, consumer demand. The public’s apathy towards pensions is reinforced by each pension information pack stuck in the letterbox. This doormat debris is generally returned to sender – marked “gone-away”.

While progressive providers like Phoenix aspire to universal digital contact with policyholders, most occupational pension administrators know no more of members than the members know of them. Pensions are strangers to our phones.

There is no effective pension-finding service and – in its absence – the DWP estimates that by 2050, Britain could find itself with 50m abandoned pension pots. Last year the Pensions Policy Institute calculated £20bn of pension savings had gone unclaimed. The public’s expectations from their pensions are so low that this appalling state of affairs is allowed to continue without outcry.

open finance 2

Open pensions gather little enthusiasmThe financial services industry knows very well the consequences of depriving its customers of information. Payment protection insurance has been to the banks what pensions mis-selling was to the insurers. Having swallowed such bitter pills, you would have thought lessons would have been learned that full upfront disclosure is a risk mitigator.

Despite this, there is little enthusiasm among pension administrators for open pensions. PensionBee’s Robin Hood Index has shown that even a customer’s letter of authority can be routinely ignored by providers who care more for internal protocols than meeting customer requests.

For many administrators, empowering consumers with data means a mailbag of complaints about data quality, and a threat to revenues when service-level agreements are breached.

But returning to my optimistic theme, I see change. The various barriers put in the way of data requests, including calls for independent financial advisers, ‘wet’ signatures, and even proof of identity will be swept away when the dashboard standards are implemented.

When they are, I suggest people will start regarding their pension pots as every bit as real as their money in the bank or under the mattress. When people take back ownership of their money, they will probably ask questions about how that money has been managed, costs and charges extracted, and whether the value has been worth the money.

Behind the FCA’s open finance agenda is an assumption that financial services will need to “come clean” and be held accountable. Whenever it happens, open finance will open a window to sunlight, and sunlight is the best disinfectant.

This article was first published in Pensions Expert.

Thanks to Maria and  Angus

Screenshot 2020-01-09 at 07.35.55.png

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Ros is right – birthday card’s get read – and so does she.

Posted on January 8, 2020 by henry tapper

Plenty of us have been thinking about how to make that annual statement that we get about our pensions stick in our minds, so that we understand what we have. One person speaks to and for the nation on pensions and she is Ros Altmann.

Maybe I have Ros Altmann on the brain, which is no bad thing if your job is to find ways to reach ordinary people who don’t care for pensions.

Those thinking I’m a signed up member of the Baroness’ fan club need to appreciate I don’t always think she’s right, but when she’s wrong, she’s wrong in a constructive way!

And when she’s right, she’s big-time right, as she is in this amazing article in This is Money.  Those who know Hank Williams, will know his songs are right in a Ros Altmann kind of way.

She’s written an article in This is Money about birthday cards. The idea is simple, if we sent personalised simple pension statements as a birthday card, they would get read. And we know she is absolutely right;

This is what happens when someone with a powerful emotional intelligence is a genuine pensions expert and likes people.

Screenshot 2020-01-08 at 06.18.35.png

Birthday cards get read

Walk into any stationers and the array of colourful cards reminding you to have a happy birthday is the first thing you see.

Writing on his Genesys blog, Paul Richer talks to those in the travel business

Asked which channels or routes to market deliver the best ROI for your business, respondents put Facebook Advertising in first place followed by Google Adwords.  What was surprising was that in third place was Direct Mail, slightly ahead of Email.  Now, I have always thought of Direct Mail as one of the more expensive marketing channels.  Compared to the almost zero cost of email distribution, there are the significant costs of print and postage.  However, if successful marketing is about cutting through the noise then direct mail has characteristics that make it stand out compared to conventional digital channels:

  • A piece of direct mail has innate visibility.  It needs to be picked up off the door mat so it will definitely be seen.

  • Direct mail does not need to compete for attention alongside your competitors calls to action. Your message is more than just a listing or one of many adverts on Google.

  • It has staying power.  Provided it is compelling enough not to be immediately put in the trash, it can sit around for days, providing many opportunities to attract attention.

To translate this into the language we use in our own homes. birthday cards get noticed on the doormat, get stuck on the mantlepiece and get read and they stay in our faces many days after the birthday’s finished.

Why Altmann is head and shoulders the best ambassador pensions has

I recently wrote a response to the DWP’s consultation on standardised pension statements.

I was so busy with my ideas about “Open Finance” that I didn’t stop to listen, as Paul Richer listened, to the people he was writing to. I dissed the DWP’s ideas of sending statements in coloured envelopes and missed the opportunity that Ros intuitively spotted to link a pension statement to that great notification of maturity and longevity – the birthday card.

Ros Altmann is not writing here to the DWP, or pensions experts but to the people who get pension statements, and she does so with ideas and words that mean something to the readers of the popular press, of whom she is the financial doyenne.

She uses ideas that sniffy people like me pass by, and all too often , we walk away from the simple brilliant idea of the birthday card pension statement, because we’re off chasing fairies on Instagram or Tic-Toc.

That is why this bold, brilliant woman is Britain’s number one pension personality.

Ros Altmann refreshes the hearts actuaries cannot reach.

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And you may ask yourself – my God – what have I done?

Posted on January 6, 2020 by henry tapper

Greta-Thunberg-Hulu.jpg

Letting the days go by

If you listen to the news, you may be carrying a heavy load to work today. The US has just committed  what Europe considers a reckless assassination of the most popular person in Iran, bushfires rage in Australia and we’re rolling over our local issue -Brexit and our global issue – a sick planet,  into another year of grief.

But we are also working into something new and fresh. This is the first proper working day of the new decade, the day when most of us return to our offices wearing what we got for Christmas and a couple of pounds extra round the waste. It may not feel like we’ve had a holiday, but we are probably as fresh now as we’ll be all year! Fresh to kill it at work.

For those who observe the twelve days of Christmas, like us, the decorations are still up, working in the twenties is a novel experience. Many of us will be thinking back to their first working day of 2010,  has much really changed?

Water flowing underground

I hope that if you’re reading you can complete this sentence

I’m going to work because….

Whether it be to put food on the table or to save the planet, the purpose of your going to work is why you do it, and love doing it . And if you have no purpose – then you won’t enjoy your days this week.

I’ve thought a lot about my purpose over the past decade. While you spend most of your career building towards its fulfilment, I – like many of us – reached the top of my mountain and found there wasn’t a lot to see. I had the wrong goals. Rather than slink off into half-hearted retirement , cadging a few quid here and there with an inconsequential portfolio career, I did that full-on thing and started first Pension PlayPen and now AgeWage.

I no longer define success in terms of what I can do for myself (a good part of my career I was either self-employed or sole trader) or what I can do for my career. I have earned enough and saved enough to be independent and achieve something that I can look back on with a real sense of pride.

My reason for working in the twenties, a decade I never thought I’d be working in, is to deliver on those things that I thought I’d be doing when I started as a financial adviser early  in 1983. I thought then that i could use the privildge I had of a good university education and a stable upbringing to help people make better decisions with their money and that is what I’m doing, hopefully on a larger scale today.

Into the blue again?

If your reading this- thanks. I’m thinking of you, on your way into work, reading these words on a tiny screen on your phone, you may be asking yourself “what the hell am I doing with my life?”

If you can’t answer that question, I suggest you get off at the next station, cross the track and take the next train home.

But you won’t do that – because something inside you will remind you that there is a much worse alternative to going to work, and that is not going to work – on this day.

You can kick that question down the road, day after day, but until you answer it properly, you will be a slave to work.

After the money’s gone

This is the season when we will be assailed by recruitment companies looking to capitalise on our work insecurity. Many of us will be promised a new and happier life in a new job by people who really seem to care about your “wellness”.

Let me share with you, the benefit of being 58, you will not get better inside because you work for a new company, you will get better because you want to go to work because you know why you are going to work. And that does not mean you have to change jobs.

You may find your purpose and determine that you must change jobs to achieve it, but simply changing jobs to get a pay-rise or more holiday or a shorter commute is not going to change the big things.

Back in 1983, I was asking – “what do I want to do with my twenties?” , 37 years later I’m asking what do I want to do in the twenties and – weirdly it is the same thing. That at least tells me I have has some kind of focus in my life.

But when I look back – so much of that time could and should have been better spent.

Go on linked in – look at your CV and then ask yourself again – “why am I going to work in the twenties?”

Once in a Lifetime.

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Boomers are farmers.

Posted on January 5, 2020 by henry tapper

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Fontmell – in North Dorset

I grew up in a rural area of Dorset where the farmers were considered rich but acted poor. The farmers explained that though they might own the land, they could only extract from it the income that came from dairy and arable products they could sell. The farms were generally in the family and  – even when the land was not owned but rented from the County Council, it was not seen as a realisable asset.

That was how I learned about how businesses worked. You were successful on the basis of your husbandry, the land remained much the same.

Of course the land wasn’t all the same. Some of the most valuable land in the area of North Dorset I grew up in , is the \Gore Farm and Springhead Estate, which was farmed by Henry, Gardniner –  Rolf Gardiner and then his son – the conductor – John Elliot Gardiner – organically.

Rolf Gardiner founded the Soil Association which has been improving our land for sixy years.

The Gardiner’s land has not seen pesticides since the war.  John was known as “uphill gardener” for farming the wrong way but that was some time ago, people now see the family as visionary. The land is valuable because what it produces is pure and sells at a premium.

I hope that farms such as the Gardiners continue to generate good income and do not get “realised” for short term gain. The rural heritage of North Dorset is valuable to the nation as well as the local community. The downs around Fontmell are owned by the National Trust and support the most delicate eco-system of orchids, butterflies as well as magnificent vistas of Melbury , Wind Green and in the distance Hod and Hambledon.

They are a great treasure, enjoyed for free by people like these.

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On Fontmell Down

 

How we value our wealth

I give North Dorset – and in particular Springhead – as an example of wealth which is shared by family , community and nation. It is not realisable wealth, such is much of the wealth of this nation. Recently there have been attempts to analyse how our wealth is owned. This chart is from the Office of National Statistics and has caused some comment on social media.

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The chief source of wealth for the older generations in property and pensions. The former is inheritable, the latter less so (and in the case of DB – not at all).

But what this chart does not show is entitlement. I don’t mean by this the entitlement to roam on Fontmell Down (which has no economic value) but our general entitlement to the State Pension, which is based not on what you’ve earned but on how long you’ve  been available for work.

The economic value of the State Pension is probably around £270,000, based on the cost of purchasing an annuity as its replacement. One of the reasons that the boomers are so OK is that they did not have to pay so much for their parents pensions and are about to get supported by their kids to an unprecedented degree. Indeed , if you add in the cost of healthcare, today’s boomer (represented by the blue line) is entitling itself to a further claim on their children that eats into the inheritable wealth transfer. I fully expect to see housing wealth paying for the NHS and social care for the rest of my life.

The taxation of excess inheritable wealth is tiny. Although Inheritance tax receipts hit a record £5.4bn in 2018/19, (up from £5.2bn the previous tax year, they are still only expected to reach £10bn per year by 2030. These are tiny amounts compared to the wealth of the nation.

The boomers are so “ok” because they are getting a free ride , not just on pension and healthcare but on the property transfer. The question is whether they have earned this free ride or simply bestowed it upon themselves by means of grants from the public purse.

The sustainable model I grew up with

My childhood economic model saw most people working and taxation looking after those who couldn’t work , through sickness or age.

It saw property as both the platform for earning (my Dad was a doctor and worked from home as much as surgery or hospital) and as a source of income for the farmers.

This is not as feudal as it seems, farmers went bust and farms were sold, people bought and sold houses, but there was a solidity about this rural society and it’s still there today.

The economic stability of the society I’ve grown up in , in post-war Britain, has been entirely based on work and on the income it produces to citizens and – through taxation- to the exchequer.

It is entirely right that the IFS and others question whether we are living within our means or living on someone else’s. It is absolutely right that we do not over spend as we could on state pensions. It is right that we have a grand economic model which is explainable to people like me. It is absolutely right that we have people like Veronica Humble and Stuart McDonald chew the numbers in public.

Valuing what we’ve got.

John Ralfe , as usual, asks the critical question,

I take it , he’s asking whether we should be showing the economic value of a pension in payment to the pensioner, or annuitant, in the same way we show the cash balance of a DC account.

Would it be helpful for an estimate of the residual value of your state pension be available to pensioners? It might be a very good idea for it to be accessible on your pensions dashboard, if only to make you wake up to the genorosity of your children for paying it. The same might be said for public sector pensions and for corporate DB pensions in payment.

We massively under value the pensions we have and over-value the economic value of the property we own. We over value DC and under value DB and it’s usually for the same reason, we confuse wealth with income.

Farmers always feel poor

It was (and still is) a standing joke that farmers always moan about how little income of they get. I suspect that they are partly to blame, they know their assets rarely return them the income they see ripped out of the investments made by those in private equity.

That is because of the sustainable husbandry they pursue, if they wanted to get rich they’d sell land for golf-course, industrial units or housing.  Many farmers do.

But many, like the Gardiner family, have found the long term social impact of good husbandry pays dividends over time.

We can see the impact of poor husbandry in the current state of the planet, but I’m pleased to hear that thanks to Britain’s efforts to reforest-ate, we are now returning to the levels of woodland we last saw in Medieval times.

Farmers are the guardians of this heritage and we owe the good ones a big debt of thanks.

So do pensioners

Like farmers, pensioners enjoy wealth which they cannot access, especially if it’s the wealth of the nation paid to them through pay as you go schemes.

Those who have their wealth in DC pensions , are now able to use their money as they like. They can choose to invest in Australian coal-ming or in sustainable housing in Salford. They are like farmers.

The wealth of pensioners is in the time they have to do things like walk the downs at Fontmell or to ride the 50 Breezer round Poole Harbour – they enjoy and should value their time, they have earned it and they have earned the right to healthcare, free at the point of delivery.

But pensioners, and those – like me- who are about to be pensioners, must take the responsibility to leave the planet as they found it.

And we must not be too greedy in their demands on their children. We must be prepared to pay more taxes on our wealth if it turns out we are getting too much of the pie. We have to accept that being an “OK-boomer” is not acceptable, if we show no husbandry.

In short, this is a message to my generation – to act as farmers and not spoil the heritage we leave our children.

 

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“Pentech” lessons from Japan

Posted on January 4, 2020 by henry tapper

 

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Last year’s stories about Japanese pensioner’s focussed on their propensity to shoplift , get caught and end up in jail (which they favoured over living solitary lives at home).

This blog looks at the problems of financial exclusion faced by Japan’s elderly and the people who look after their money. I’m grateful for much of the content to this excellent article by Mitsuro Obe, which deals with the issues in more depth 

Japan has the oldest demographic in the world. Its over 75’s hold over 50% of Japan’s private wealth (a percentage expected to increase to 60% in ten years). 

The situation is one that poses interesting questions . Only 28% of Japanese personal financial assets are held by people under 55, in Japan the mainstream market is actually the ageing market

Japanese savings have traditionally been held and managed by its banks , these banks are  nervous that their most vulnerable customers are both their most valuable and their greatest risk.

Japan’s Financial Services Agency predicts that $2 trillion in personal financial assets, or over 10% of the nation’s total, will be in the hands of people with dementia by 2030.

Unsurprisingly , 78% of the cases dealt with by the Japanese police involving personal scamming, related to the over 65s. 

So far, Japanese financial technology  has been employed mainly to protect the elderly. One bank  is developing an app whose end goal is to identify early signs of cognitive decline by analysing spending patterns using open banking data. The app will also send out alerts to family members if it detects unusual spending, in order to protect them from fraud.

Where there are families to manage the situation, such software is helpful, but the deeper problem lies with the elderly who live alone and without family.

Vast amounts of capital has poured into creating payment systems and financial products for millennial users, but the sector as a whole has often neglected their parents and grandparents — who, in reality, own far more assets.

There are thought to be two reasons for this. Firstly, there is an enduring belief that the over 65s don’t “do tech” . Secondly, the Japanese banking sector clinging to its branch banking network . Ironically, the branch network becomes increasingly  inaccessible as customers age.

The issue is creating frustration amongst Japanese Fintechs. I hear this frustration echoed in the UK. But I side with one Japanese commentator whose opinion is

“If you’re a Fintech and people can’t use your product because they don’t understand it, it’s not their problem, it’s your problem, because your solution is not good enough”.

The problem  is not unique to Japan, just more acute.  Older people are always the main clients of financial services because they are the ones with money. If they become unable to transact, it means the industry loses its most important customer base.

In the UK , most pensioners don’t use financial advisers. As in Japan, it’s isolation from good support that gives the fraudster the opportunity

Advisers often talk of “succession” in terms of giving customers more of the same. In practice, customer’s needs change with age – shouldn’t we be thinking of succession in our ageing customer’s terms?

One Japanese friend likened banks’ response to ageing customers as boiling a frog. The water warms so slowly that the frog never knows it’s in trouble – and then the frog is dead. 

Conversations I have in the UK with Fintechs like Multiply AI and Abaka, focus on how to use technology to engage the millennials.  This is of course the easiest group to engage with, but it may not be the most urgent.

The fastest growing Facebook demographic is grandparents, where elderly people see the need – as in speaking to their grandchildren, they become technologically adept. The challenge of the financial services industry is to find ways to get elderly clients to feel that need.

Whether the purpose of technology turns out to be fraud protection, or – more positively – to enable older people to cope with the issues of later life – we need to find better products that they can use.

By way of example, my Mum has learned to text only after she got her mobile provider to find her a large key phone.

At 87 she is now sure of what she is doing and finding ways to my children’s hearts with the sweetest of messaging. Pentech needs large keys!

Empowering their old to manage their finances using technology, may not solve the problems of the “pensioner crime wave”, which appears to be more about loneliness than penury.

But it may go some way to including older people into the society they feel excluded from. There are easier ways to find other people than prison, and technology can help there too.

mum - window

My Mum

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Some home-truths about our pensions.

Posted on January 4, 2020 by henry tapper

henry agewage

When asked “have you got a pension”, most people now say yes. That’s because most people (not all) who are in workplace pensions see the amount paid into a savings account as a payroll deduction that says “pension”. There are some who get pensions and some who don’t even know they’ve got one, but most people think of their pension as the thing that clips their income so that they’ll be alright later on.

All the tra-lah-lah about investment strategies, tax-efficiency and investment pathways is for the pension experts, most people just do the equation, “I save so I can spend”.

This apathy is why auto-enrolment has been successful and this apathy could also be the “savings revolution’s” undoing.

Because the amount that comes out of an auto-enrolment pension is no more than a top-up on the real deal, the State Pension.

The economics of advice

Were I to walk into a financial  adviser’s office with  pension statements totalling £100,000, I – a 58 year old male would expect to find out I could get a guaranteed pension of around £3,500 pa , around £70 pw.  I could improve the tax- efficiency of this income by deeming that 25% of it be paid tax-free (under UFPLS) or I might take a 25% cut in the income and bank £25,000 tax-free.

Even after getting this far, I would have probably exhausted my adviser’s patience. To get a recommendation of what I should do, the adviser would have to do the full data capture , working out my net worth (assets and liabilities) , my state of health, my role within my family and most problematic of all “my attitude to risk”.

The provision of a definitive course of action would come after discussing the various options available to me, but one option that should become very clear, very quickly is that there is no magic money tree that can allow me to retire at 58 on anything like a retirement living wage- not from my “pension”.

Any good adviser should , early in the conversation , explain that simply getting to the point where the adviser has to tell you that, will cost him at least £1000 in time and  overhead.

The economics of advice mean that an adviser looking to do his job properly will turn to me as a prospective client and tell me that I cannot afford the advice and that the best advice is to find another way.

The other way – hand to mouth

For most people, the services of a qualified financial planner and/or wealth manager are beyond their means.

There are  people who execute a financial plan knowing exactly what they are doing. For example,  ff they know  they want a guaranteed annuity , they can go to a good annuity broker and get fitted up with the right annuity, the cost of which will be paid for from within the annuity rate.

But the people who want to exchange their pension savings for an income for life are a small minority.  Most people want the freedom to spend their savings as they want. We know that what most people do is to take from their pension pot what they can – tax-free, and leave the rest till later

At no point do most people start asking questions about investment strategies, or drawdown rates, or life expectancy, or the cost of long-term care, or any of the other issues that people like me write about. Most people are busy doing the day to day equations about how to balance the books and wind down from work and go on holiday and buy the Christmas presents and so on.

This other way is “hand to mouth” and it’s what you get when you don’t do financial planning.

There is a problem with hand to mouth

IFAs aren’t wrong in saying that financial planning is vital. Leaving retirement to your pension pot is not the same as having a financial plan. You will find that even if you have £100,000 in savings, that money will be burned away pretty quick

Charlotte Richards, writing in Money Marketing, tells us that in 2016, 40 per cent of Australians had exhausted their pension savings by age 75, that Americans draw  on average 8 per cent each year and manage to make their savings last for 17 years.

Spending your pension savings in 17 years isn’t a problem, so long as you have a plan B. The problem is that if you are doing things hand to mouth, plan B’s amount to Mr Micawber’s “something will turn up” and Mr Micawber ended in debtor’s gaol.

Five home truths about pensions

  1. The State pension would cost you and your partner around £300,000 each to buy,
  2. Your pension savings are unlikely to match the state pension and are not your retirement plan
  3. Unless you have £250,000 or more “liquid”, you’ll be lucky to find a  good financial advisor to manage your retirement plan
  4. Unless you know what you’re doing, you will run out of money in old age
  5. Currently their is nothing for it but to keep working, keep saving and hope that something you like better than an annuity comes along.

Why I like Charlotte Richards’ article (which you can read here) is that it tells us what we’ve long suspected. That there is no silver-bullet investment solution. She tells me that

The Lang Cat found that more than 70 per cent of adviser firms do not change their investment models to suit clients drawing income in their retirement.

I don’t think this is because advisers are lazy, or stupid but I think this is because they just don’t have to worry about their client’s cashflow planning. Most IFAs deal with the people who are so wealthy, they worry about things like higher rate tax when breaching their lifetime allowance and inheritance tax when they die with too much left over.

The sixth home truth

There is a sixth home truth, which isn’t for ordinary people but for the very clever people in the DWP, Treasury, FCA and tPR.

That truth is that – so far, Government has done nothing to help ordinary people define the ambition of their financial futures when reaching the time when they want to wind down.

For most people  hand to mouth future beckons. It’s a future with no certainty of income, beyond their entitlement to the state pension, no retirement plan, no plan to face the uncertainties of failing health. The home truths are that we are currently on our own.

The Government support mechanisms in place (MAPS) are inadequate, the choices from pension freedoms too complex and  for most people there is no obvious plan B to “hand to mouth”.

For all the talk of dashboards and financial inclusion, we are really no further to replacing annuities as the default pension mechanism, than we were in 2014 when George Osborne told us we never need buy them again.

Three things we need in the next decade

  1. We need to free up financial information so that people can create retirement plans with the help of technology.
  2. We need to loosen the stranglehold on “advice” and encourage people to act  on what their data tells them
  3. We need collective pensions that provide people with a wage in retirement and a degree of certainty in the face of the imponderables of growing really old.

agewage advice

 

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AI – can it help us retire?

Posted on January 3, 2020 by henry tapper

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We have known throughout human time that their is wisdom in crowds. Hunters followed paths created by their ancestors , ignoring the paths that didn’t help and focussing on those that did. We have ways of developing things from arrowheads to computer chips by learning from previous ways of doing things.

It’s the same in finance. To take an example, theory tells me what the average person has invested in for his or her retirement. I can construct a fictional fund and create a fictional unit-price track, I can compare the progress of my investments with this fictional track and see if I have done better or worse than the fictional average.

But if I repeated that process, not just with my data , but with the data of say 5 million others, I would find that the fictional price track might not be the average, in fact I could create a “non-fictional price track” which would be the average daily experience of all who are investing for retirement.

This is an example of artificial intelligence at work. We start with real intelligence and test it against reality and then end up with a bigger broader , more accurate construct, that is really fit for purpose. “Artificial” does not do this intelligence justice, this intelligence is based on the wisdom of the crowd,

The pathways we tread

I’ve been looking at a technology platform called Abaka. They’re the people who’ve trade- marked the phrase Artificial Financial Intelligence that you see at the top of this blog.

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Which is comforting reading if you are looking to take ideas to market without the money to build your own platform.pigs

What a technology platform does, is replace the human voice with the intelligence of a crowd of people who have come before you. Now you may think that crowd wise or you may think them foolish. “Herding” is a most dangerous behaviour (ask the Genezarine swine who collectively through themselves off a cliff into the sea.

 

“In and with” confidence

But normally we tread the trodden path because people like us do.

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And the point about conversational AI is a good one, provided we trust the bot we’re sharing with, we talk with them in and with confidence

And we’re prepared to get pushed around by a bot,

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So long as the bot’s talking our language

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And so long as it’s a nudge not a barge

Incidentally – all these images are nicked off Abaka’s website

But back to pathways

As many readers will have experienced, the Lady Lucy plies her way throughout the spring, summer and autumn, up to Sonning. It passes Wargrave as it does where the river loops almost into a giant horseshoe.

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For sure, were this 2520, that horseshoe would be no more and the river would go straight from Shiplake lock – down river to Marsh lock, but for now we enjoy the meander.

Sometimes it makes sense to go with the flow, sometimes, when we have a map to hand , we choose to go the direct route. Artificial intelligence can tell us what the quickest route will be, but human intelligence may over- ride – that loop is a wonderful boating experience!

That is why a conversation with a bot is instructive but not definitive. Many of us will choose the less effecient but more enjoyable way and many will choose to be guided by the hand of a human.

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Hope for me yet!

This interaction between the effecient and the suitable pathway is what AgeWage will be testing over the coming months.

I’m impressed that Abaka have recently raised $6.2m from the market to deliver the platform to people like me. And I’m really pleased that they are thinking like me about how we can bring AI to the rescue of people who need to turn pension pots into retirement plans.

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Ok  – so this is not the language of the common man, but this is stuff that ordinary people need to make the difficult choices and avoid the perils of the Strait of Hormuz.

And there’s enough in this to leave a revenue stream that makes the enterprise viable.

Because if all this kit doesn’t amount to a definitive course of action , imprinted in the user’s financial DNA, then it won’t have worked.

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An API (officially an “application program interface” is the kit that brings data together.

In the vast flow of the Lower Thames is the water from all the tributaries from the upper and middle Thames which have been integrated by the Daddy river .

When you use an App that works, it is like the Thames, it brings all the little streams of information and of knowledge to it so that you can eventually get to Reading, or Windsor or London or even the English Channel.

I know all the little rivers. There’s the Ferret and his system to work out what we can get from universal credit. There’s Retirement Line with their expertise in getting us the best annuity rate and there’s a local expert like Pension Bee that can bring your pensions together with the help of the bee-keepers. There are many undiscovered streams and culverts which  can integrate to a central flow , and data and water have a lot in common!

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Which I guess means that small but bright organisations like AgeWage , can plug into bigger and more developed organisations like Abaka and deliver the kind of dashboards on the kind of apps , that get people excited about their pensions.

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We know what front ends look like, they’re what make people buy and they have to be as glamorous and sexy as Harrods’ shop window.

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Artificial intelligence is about turning the eye-grab into getting things done. AI only adds value if it “imprints into the user’s DNA” a desire to take action so strong that something gets done.

Of course that “something” could be good or bad. But if we trust our intelligence to deliver pathways that are based on well-trodden ways, we can set AI to work for us as Google Maps works for us, as Siri works for us.

I sat with my doctor in the week before Christmas and we discussed aspects of my health: four times my doctor asked his phone the questions he could not answer himself. Each time he chose the credible answer presented by Siri and each time I asked myself why I needed the doctor.

That doctor gets paid a lot of money, I don’t begrudge him a penny!

 

Posted in advice gap, artificial intelligence, Bankers, blockchain, doctors, pensions | 1 Comment

The impact of the Australian bushfires

Posted on January 3, 2020 by henry tapper

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If anything good comes out of the Australian bushfires, it will be an understanding of their impact on our planet . There are still those in Australia who claim that the bushfires could have happened at any time, but the voices of reason, the voices of science, are being heard.

For an independent commentary on matters Australian, I tune into Radio Cumbo -Jo’s twitter feed as she is in the country over Christmas and promotes an independent view that I trust.

The rest of this blog is given over to Bodie Ashton, an Australian micro-blogger who in gobbets of 280 characters, leads us down a pathway of understanding.

This kind of journalism comes not from a Bloomberg or an FT, but from a mild-mannered guy who has caught the mood in the way of Greta Thunberg

People are listening to him rather than their Prime Minister

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Retirement Plans are never set in stone

Posted on January 2, 2020 by henry tapper

John

Thanks to John Mather for pointing me to a great thought-piece by Mike Bloomberg  

If you don’t want to press the link – here it is

Every December 31st, a time-honored tradition brings Americans of all backgrounds and faiths together: making New Year’s resolutions that won’t last. It happens in business and government all the time, too – and on a much larger scale.

Business owners and managers often think they need a long-term plan, sometimes because a consultant told them that. And politicians often set goals for many years or even decades after they’re gone from public office – without detailing interim targets that the public can hold them accountable for achieving.

It’s easy to make long-term resolutions, and there’s a certain escapism that comes with it. Why roll up your sleeves and get down to work when you could be mapping out an exciting plan for incredible levels of future success? It’s tempting to let your mind fast-forward to the finish line, but projecting to step one hundred can limit your ability to execute step one. Successful athletes don’t focus on winning the championship – or even on winning the first game. They focus on preparation.

Issues like climate change and gun violence can’t wait for decades-long timetables. We need leaders who will attack the problems facing our nation as soon as they can, however they can. I refuse to wait for the perfect solution before making a move. The hardest challenges require action that begins today, not tomorrow—forget long term.

That’s not to say there’s no value in thinking ahead. My advice is to conduct the following exercise:

Think logically and deliberately about what you’d like to do. Work out all the steps of the process – the entire what, when, where, why, and how. When you know it cold, write it out on a piece of paper. The act of writing forces you to confront questions you hadn’t before. Address those things that you forgot, ignored, underestimated, or glossed over in your mind. Make sure your written description follows, from beginning to end, a logical, complete, doable path.

Then tear up the paper – and get to work.

It’s a good exercise in planning while also being a good reminder about what matters most. Real life doesn’t follow big, carefully laid plans. Setbacks happen. Surprises arise. Small opportunities lead to unforeseen bigger ones. Conditions and opportunities change in ways we can’t anticipate – and that can change the direction of our work, and how we define success. You’ll inevitably face problems different from the ones you anticipated. Sometimes you’ll have to zig when the business plan says zag. Plans are only as useful as your willingness to toss them aside.

A reporter once asked me what I thought Bloomberg had failed at, as opposed to the successes that have allowed us to grow. I gave it some thought, then answered: “Nothing. But what we accomplished wasn’t always what we set out to do.” A failure leads to a new insight or idea that leads to new products and customers. We’re flexible and adaptable. If we had stuck to a rigid plan, we might not be as big or as successful today.

Don’t let planning get in the way of doing. I once saw the classic cart-before-the-horse error during a presentation by a potential Bloomberg competitor. His slides had great-looking mock-ups of the company’s future shipping department, showing conveyor belts shipping out thousands of the units. The problem? They hadn’t yet built the first unit. And they never did.

I’ve always focused on what’s next, not what’s way down the road. And I have always believed in playing as many hands as possible, as intelligently as I can – and working like crazy today, and getting up and doing it again tomorrow.

People have a lousy record of predicting the future, and they aren’t much better at planning it out. By all means, set high goals and dream big. But then get down to work, and as the months and years pass, be ready to change course. The path to success is not a straight line, and the destination may be a place you haven’t imagined. The best resolution is to get started on the journey now – and to charge ahead with deliberate speed.

I’m in the business of turning Pension Pots into Retirement Plans. I guess the point John’s making in sending me this – is that whatever you start out trying to do, you’ll end up doing a whole load of stuff as well, and maybe instead of.

What we can be sure of though, is that without a plan in the first place, you won’t have the platform on which to build.

I urge all my readers to think hard at this moment about what their plan is for a happy retirement, and what they intend to do – to make the planet fit for it.

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Have we created a stigma about “not getting pensions”?

Posted on January 2, 2020 by henry tapper

andy-haldane.jpg

Andy Haldane – pension ignoramus?

Everyone’s favorite pension quote is Andy Haldane’s admission he was not “able to make the remotest sense of pensions“. If the chief economist of the Bank of England is baffled, then the stigma of our not “getting pensions” is a little easier to bear.

Another economist has tried to make sense of pensions.

Allison Schrager is an American economist who writes stuff that I can understand. If I can understand it, so can you! She challenges our received ideas .

This blogpost challenges the assumption that there was a golden age of retirement which has left us with a $400tr shortfall in assets to meet future expectations. Her argument is that we’ve extrapolated the retirement income enjoyed in previous decades by those few enjoying DB lifetime incomes, to everyone. We’re making people feel bad about not having what they could never have expected.

She argues that economists have  created an expectation of universal comfort in retirement that isn’t met by American DC plans, Chilean DC plans – and by extension UK DC plans. This is small wonder (she explains), the cost of securing a full replacement ratio is beyond Government – let alone employers and least of all ordinary citizens.

People making their own way home

According to Schrager’s numbers, the average American with a retirement plan heads out of work with $300,000 pouched in retirement savings, which is higher than in the UK but likely to be rather less effective in paying the post-retirement bills than over here. Schrager estimates the  average American has $183,000 more in later-life medical bills than can be covered by their Medicare system.

But not all Americans have a retirement plan and accross the board, the average American only has $20,000 in retirement savings in 2016, happily  up from $9,000 25 years before but pitifully low to meet expectations of retiring  on a comparable standard of living – people had in work. Taken together, the low level of savings and the higher costs of healthcare, make for an unappealing cocktail for the average American. While they may not be rioting as they have been in Chile, or striking as they are in France, the citizens of western democracies like US, UK and even Australia, should be thinking of the future without the expectations of a 2/3 replacement ratio.

That is Schrager’s point and it is interesting to consider whether the social consequences of removing DB from the UK pensions system will be as benign as Schrager says they have been in the US. It’s a variation (for non DB beneficiaries) of “if you ain’t got nothing, you ain’t got nothing to lose”.

There remains, however, an expectation created by “experts” that the three pillar OECD pension system will provide by now, a retirement plan for most of us. That expectation is not being met and people are having to make their “own way home”.

Adapt and go

When I look at how people adapt to a post-work environment, I see a lot more going on , than “meets the eye”. What meets the eye is the bald statistic that the average Brit reaches retirement with combined retirement savings of around £35,000. If this was all we had to live on, then we wouldn’t get close to the Retirement Living Wage, promoted by the PLSA.

Which is why modern-day retirement plans are a lot more sophisticated than some economists tend to thing (I’m excluding Schrager from that slur – and a few others!)

What most people do when they get to retirement is to work out how much work they can afford not to do , not assume they are stopping work. Most people go down in days worked and use pension savings to take up the slack.

Some people do some longer term cashflow modelling, tying to work out how things will change when their state pensions cut in. Some are sophisticated enough to work out what they can get from the state from “Universal Credit” and others start thinking how they can convert liabilities (like housing) into income producing assets.

Getting it wrong

In short, people look for ways to turn the disappointment on learning that their pension savings aren’t going to be enough, to relief at working out out alternatives. Listen to the stories of those who are scammed out of their retirement savings and almost all of them involve them trying to resolve the shortfall issue.

This process of adaption makes people vulnerable, sometimes they feel able to take financial decisions that impact the rest of their lives , with  little proper support, the scammer can provide the fake support at a time of vulnerability. We liken the period of adaption to navigating the strait of Hormuz.

Relatively few people get it horribly wrong, which makes the cases of those who do, good reading for those who don’t (witness the current string of pension scam articles in the Daily Mail).

However the numbers of people getting it wrong, looks to be dwarfed by the number of people not getting it very right.

Not getting it very right

One of the most bizarre aspects of “austerity” has been the low take up of benefits.

Screenshot 2020-01-02 at 07.51.44.png

Of the various income-related benefits on offer , pension credit is the least claimed.

Screenshot 2020-01-02 at 07.52.33

This may not amount to a scam, simply a matter of people not getting to know their entitlements. But the onus on promoting the entitlements varies depending on to whom you talk. To those who believe in self- sufficiency, low take up is an example of poor research, to those who consider benefit provision, the responsibility of the state, the problem is with Government.

Either way the problem exists and it’s a problem that no-one is talking much about.

The stigma of not knowing enough….

Returning to Allison Schrager’s argument, I suspect that for many middle class people living in Britain today, the chief emotion they have when thinking about the future is guilt.

People are always getting embarrassed by their ignorance about pensions and I suspect they are much more ignorant about benefits. People are also scared or embarrassed to ask. When my father died, my mother – who was entitled to half his pension, waited a year – to a point where she had no more money – before asking me what she should do. The matter was sorted in  a few minutes via a phone call, a backdated payment was made and she now gets her dues.

And yet many pension benefits like my Mum’s are never paid. We know from the PPI that there are around £20bn of unclaimed DC assets and I would be surprised if there weren’t unclaimed DB liabilities amounting to the same. It is not just the Government that is “getting away with it”.

But the question of “onus” remains. It it incumbent on those with promises of money to pay, to find beneficiaries or is it the other way round? Lost pensions or pensioners that can’t be found?

Comes from the stigma of not having enough

I am of the view that the financial services industry has created an expectation that people will be looked after by the retirement savings plans they join and that people do not understand why this expectation is not met at retirement. In truth, it was the expectation that was wrong and what is compounding the problem is the inability of these financial services companies to come clean.

People are therefore feeling bad about themselves for not saving enough and ending up feeling too guilty and embarrassed to claim their income benefits (wherever they arise).

We are in danger of shaming a generation into feeling they are financial failures.  The point that Allison Schrager is a good one, but it needs to be extended.

Not only were the expectations given our generation wrong, but these expectations are still being promoted. Hutton’s famous formulation, “save harder, work longer or expect less” missed one further instruction “ask for help”.

The stigma of asking for help, with pensions, benefits, lifetime mortgages and healthcare results in poor decision making and unnecessary hardship.

Have we created a stigma about asking for help on pensions?

 

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Welcome to the roaring twenties

Posted on January 1, 2020 by henry tapper

Screenshot 2020-01-01 at 06.50.41

OLAFUR ELIASSON’S LITTLE SUN IN LONDON’S TATE

There’s a lot of mind-casting going on, us thinking  how things things have changed since 2010. But my mind is casting back further, back to the 1920s, the roaring twenties – where Britain emerged from a terrible four years of war and austerity and decided to live again. Put aside that this wasted decade hit the buffers and resulted in a second calamity, I am thinking of my great grandparents and grandparents waking up on the morning of 1920, to a new decade, certain that it would be better than the last.

And I imagine they did so with the optimism of survivors and the hope for something better. the 1920’s kicked off in the great metropolitan areas on London, NewYork, Paris and Berlin. They were known in France as the “crazy years”, where social, artistic and cultural dynamism spread out from the cities and created a “Zeitgeist” defined by jazz, fashion  and technological advance.

I hope that we will manage the 2020’s with similar energy, though being the sober pension specialist that I am, I would like to think it left a better legacy than its historic forebear. The roaring twenties  were brought to an end by the Wall Street Crash of 1929, it would take 90 years for the world to be brought to its knees again by the financial system. 

The decade we have just outlived , lived in the shadow of the Financial Crisis of 2008-9 and paid for that crisis through austerity. We may not have had a war, but we’ve been through a bruising battle for Brexit , concluded by a resounding vote that the referendum of 2016 – should end referendum (unless you are Scotch).

Thinking back not just over decades but accross a century into a previous millenium, allows us some perspective but is a luxury we only allow ourselves at certain times.

Waking up on new year’s morning January 1st 2020 , I felt the need to take advantage of a free day on the south coast of our amazing island.

It gives me an opportunity to think forward , as some of those proto-flappers must have done, to imagine the world in January 2120. It will be a world without me I suspect, though there may be younger readers who can aspire to outlive this century and maybe live well into the next.

What will our planet look like then?

We have a hellish vision of what it could be – in Australia. A lightening fork ignites the countryside into bush-fires, people shelter on the beach as their world is engulfed in flame. Their wold is  no longer hospitable to them, they are vulnerable to natural calamity that has overtaken them.

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Australia at the end of 2019

The fires that roar in New South Wales and Victoria could define the roaring twenties for us.

Driving back to London earlier this week, I listened to Radio 4’s today program with guest edits from Greta Thunberg. You can still listen to her father’s caring explanation of how he is living his life for his daughter, the touching bond in her conversation with David Attenborough and her interview with Michal Husain.

Put in the historical context, Greta describes the same lunacy in our complacency to the climate crisis as we ascribe to the political complacency that led to their being two world wars in the first five decades of the 1900s.

The lesson that we can learn from those decades is that mankind has the capacity to inflict self-harm upon itself in unimaginable ways. The trenches of Flanders and the death camps of Nazi Germany, stand witness to that.

For those of us who think we have progressed through our grasp of technology, beyond  such harm, let’s look at the way part of our world is aflame, part melting, part under threat of imminent flood.

As Greta tells us, we need to change the conversation.

Over the past six months I have been visiting and re-visiting Olafur Eliasson’s magnificent website and his equally fine exhibition at Tate Modern.

It inspired me, as did Greta’s Radio 4 today program, to at least write this blog. It made me question why I was driving a car when I could have been on the train and it prompted me to think through a number of personal actions that form my new year’s resolution.

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GO AND SEE OLAFUR’S STUNNING EXPERIENCE – ON TILL JANUARY 5TH

I do not claim to be an activist, I am more like Greta’s Mum and Dad, but I think that by not doing things, by being inactive, I can at least stop making matter’s worse.

I am finding that by thinking about my activities of daily living , I am seeing opportunities to reduce the net carbon footprint in everything I do.

I was pretty shocked to find that London Transport’s “responsible” strategy to getting people to the fireworks on the Embankment last night, was to close all the Santander bicycle racks. The sooner we make central London car-free, the better.

Greta’s Dad is not proud of his daughter…”Pride ” is the wrong word- he says, though he says he is proud for himself that he listened to her.

My son is studying Geography. He passed his driving test four years ago but has never driven a car on his own. He is part of a generation that we can support and not hinder. If my son chooses to devote himself as Greta has, I would not stand in his way. My pride can come from  listening.

Mark Carney asks – what’s your plan?

Also featured on Greta’s radio 4 edit was Mark Carney, talking of the need for all asset owners to have a plan for how they are going to first stop things getting worse and then start rolling back the harm we have done.

He warned that stocks dependent on the use of Fossil Fuels may become worthless in a short time. There can be no clearer message to those who invest on our behalfs.

I was pleased to see Guy Opperman write in the Telegraph in support of Carney. Opperman is our pensions minister and he can influence the debate. Even in my little way, I can keep the conversation going and in my new year’s resolution, I have my plan.

“Something has to change” – says Carney, I know what has to change in my life – do you?

Posted in age wage, climate change, pensions | Tagged , , , , | 2 Comments

An inflation-busting “pay-rise” for low earners – but “who pays?”

Posted on December 31, 2019 by henry tapper

minimum wage

The Government’s announced that for pay periods starting  on or after 1st April 2020 the National Living Wage (NLW) will increase by 6.2% – four times the rate of inflation. The NLW (for over 25 year olds) will increase  from £8.21 to £8.72.

The Low Pay Commission estimate that nearly 3 million workers are set to benefit from the increases to the NLW and Minimum Wage rates for younger workers.

This is a rare and welcome case of a Government keeping its promises. The rise means Government is on track to meet its current target for the NLW to reach 60% of median earnings by 2020. With Britain pretty well at full-employment, it means that pressure on businesses to improve pay and conditions for those who historically have had little bargaining power, will increase.

The new rate will mean  an increase of £930 over the year for a full-time worker on the NLW. The £930 increase in annual earnings compares the gross annual earnings of a person working 35 hours per week on the new NLW rate from April (£8.72) versus the 2018/19 NLW rate (£8.21).

However, closer investigation suggests that the cost of this measure is going to be spread in unexpected ways. It is clear employer are paying but who is  benefiting and what help will small employers get for compliance.

Pay rise or stealth tax?

Thanks to Gareth Morgan for this further information.

The NLW may be £930 headline a year for  full time work, but it’s £631 after tax and NI on current rates. The NPW is only worth £233 if you’re getting Universal Credit though as it reduces the benefit.

In case the Ferret’s precision analysis needs unravelling, let’s look at the pay rise from the employer’s point of view.

Employing someone for 35 hours on minimum wage? The wage bill goes up £930 a year in April.  The employee on Universal Credit will get £233. The other £697 goes straight to the government in tax, NI and lower benefits. Add to this £128 employer NI if no Employment Allowance applies.

So, the measure supposedly aimed at helping the lowest paid gives them £233 and the government £825.

In many cases , it is not the Government paying for this increase, it’s everyone but. In cases such as this, NPW is little more than a corporate and personal stealth tax.

And it takes more than pay rises to alleviate workplace poverty

The mention of Universal  credit for those in work is no idle detail, According to research by the IFS , increased in-work relative poverty rate in Britain over the last 25 years, which has risen by almost 5 percentage points from 13% to 18%.

The IFS analysis shows that those in work on low incomes face higher housing costs, lower in-work benefits and a widening gap between their and standard of living and those of higher earners and even pensioners (who have caught up on incomes over the past ten years.

But a pay rise nonetheless

Never the less –  this “pay rise”  will be a welcome relief to all on low incomes, including  the working poor.

Not only do those on NLW benefit, but so do those younger earners on the New Minimum Wage (NMW)

The NMW extends the headline rise. It will rise across all age groups, including

  • A 6.5% increase from £7.70 to £8.20 for 21-24 year olds
  • A 4.9% increase from £6.15 to £6.45 for 18-20 year olds
  • A 4.6% increase from £4.35 to £4.55 for Under 18s
  • A 6.4% increase from £3.90 to £4.15 for Apprentices

The Accommodation Offset impacts those who have “live-in” jobs and restricts employers from getting round paying proper wages by over-charging for lodging.

Screenshot 2019-12-31 at 07.28.30

The increased rates were recommended by the Low Pay Commission, an independent body that advises the government about the NLW and the NMW

These increases are greatly to be welcomed – provided they are paid for in a progressive way

What does this mean for pensions?

With the auto-enrolment earnings threshold set to stay at £10,000 , it means that there will be another tranche of savers in 2020. Many will find the extra £930 pa they get means they’re earning more than the £192 p.w. or £833 p.m. that triggers them saving 5% of pensionable earnings into a workplace savings plan.

For most of them, the cost will be cushioned by a Government incentive that saves them 25% of the pension cost, but – until Government adopts the “oven-baked” solution handed it by the Net Pay Action Group, pension inequality from a payroll lottery will remain.

We now hope that the Government will get round to implementing the long promised reforms to auto-enrolment into  workplace pensions, promised in the 2017 review. These changes in the minimum wage should make these changes easier (and are not a substitute). In case Government needs reminding…

We want pension saving to be the norm when most individuals start work. We therefore want young people from age 18 to benefit from automatic enrolment and our ambition is to lower the age criteria from 22 to 18.

Our ambition is to change the framework for automatic enrolment so that pension contributions are calculated from the first pound earned, rather than from a lower earnings limit of £5,876 (in 2017/18). As part of the proposals in this review, we would also remove the ‘entitled workers’ category

This wage rise should not be paid for by  compromising planned pension contribution increases – nor should it be used as an excuse not to sort out the net pay issue.

More to come

The Government has accepted the Low Pay Commission’s recommendations after they consulted stakeholders such as unions, businesses and academics, before recommending the NLW and NMW rates to the Government.

In September the Chancellor pledged to increase the NLW towards a new target of two-thirds of median earnings by 2024, provided economic conditions allow, which, on current forecasts, would make it around £10.50 per hour.

Since 2016, the lowest paid will have wage increases of  £3,680.This £3,680 increase in annual earnings compares the gross annual earnings of a person working 35 hours per week on the new NLW rate from April (£8.72) versus the 2015/16 minimum wage rate (£6.70).

According to Treasury forecasts the living wage is set to increase to £10.50 by 2024, fulfilling a pledge from the Tories for the lowest paid to be on at least 60% of average earnings.

And there’ll be more for younger workers. The Chancellor has also announced  plans to expand the reach of the NLW to cover workers aged 23 and over from April 2021, and to those aged 21 and over within five years. This is expected to benefit around 4 million low paid workers. But…

Who pays?

The majority of the cost of these rises will fall on employers and they will fall hardest on small businesses for whom wages form a high part of their overhead.

Many of these businesses do not have the capacity to put up prices or draw on reserves and are vulnerable to this squeeze on margins. Without the promised fall in corporation tax, many SME’s will be having to adjust their profit projections for 2020/21 and face an uncertain future.

To some extent, the Government is easing the load and the tax-payer is helping out. Increases to the National Insurance Bands and the lower rate income threshold means that more of these increases will stay in the hands of low-earners making working a lot more lucrative than claiming benefits.That is no doubt the sub-plot to the Government’s policy.

With the squeeze on benefits for the low-paid still in place (the price the poor are paying for the financial crisis), they have little choice but to work. The worry is that poverty being reported by the ONS, the IFS and a host of independent research has persisted amongst those who are being moved into work.

Let’s hope that the people who pay for this increase in real wages aren’t those who can’t work, who continue to see their benefits frozen or cut.

Who will benefit?

Britain is booming , but it’s booming for some people more than others.

The TUC research suggest that there are disproportionally more women  and “black, asian and minority ethnics” (BAME) on the living wage.

Screenshot 2019-12-31 at 06.26.53

The low and low and middle earners that should benefit most from the NLW 6% pay-rise are groups of earners who have yet to be properly integrated into working life and yet to participate in workplace pensions.

We shouldn’t underestimate the high rates of employment in this country and the economic and social benefits they bring. They are a genuine policy success of Governments over the past ten years.

But amongst the very poorest, those who have nothing but benefits to claim, the proportion of women and BAME is still very high. Real poverty exists in Britain and it is not at acceptable levels.

In my view, the increase in NLW by 6% is to be welcomed , wherever you sit on the political spectrum. But it needs to be paid for by those who can afford it – not by those who can’t.

Britain is booming, those of us who earn most , have the means to meet the cost of this pay-rise.

This pay rise for low earners , should not be funded by those who cannot earn.

 

Posted in accountants, age wage, pensions | Tagged , , , , , , | 5 Comments

2019 was not a year to hedge your bets

Posted on December 29, 2019 by henry tapper

dont-blame-information-overload-for-your-tiny-attention-span-blame-yourself0

As the decade closes , it’s a time to look back as well as forward. For the vast majority of us, our financial health depends on valuations of assets the price of which we cannot directly control. We may build an extension on our house but we are making a lifestyle decision and the utility of that investment is less in the realisable gain on the property as in the space it gives us and our family.

As regards the investments within our pension pots, ISA pots or general savings accounts, we are entirely dependent on how the markets fared and we do not control those markets.

If we look at how the markets have performed in recent times (I’m looking at Morningstar sector averages) we see what we would expect, that riskier assets have produced better returns, and that more pedestrian assets have returned less.

This is particularly the case in 2019 when the gap between the average return on shares and cash has been enormous.  Not to put too fine a point on it, if you weren’t in equities over the past five years, you have missed out.

Some will already be interpreting this blog as advice to invest over one , three and five years in shares. Which it isn’t. It is however pointing to a reality which many DC trustees, pension providers and IGCs will have to face – when reporting to members.

That reality is this.

Diversified strategies that intend to smooth the returns delivered to savers have fared considerably worse than simpler strategies investing purely in shares. Disinvestment into cash from anything has been a disastrous strategy over the past five years and all kinds of de-risking – whether through diversification or disinvesting , have reduced savers’ outcomes.

For all the talk of volatile markets, returns for equity investors have been consistently higher than for bond investors and just about anything that aimed to provide a cash- plus type of return is providing pretty sickly outcomes.

While the leverage supplied by Liability Driven Investment  , (where the bond return is magnified by what is essentially borrowing), has worked out for huge investors like the PPF, the private saver has not got as much out of saving into corporate or government bonds as by investing purely in shares , absolute return and money market funds have produced very little real return and when Morningstar measure blended portfolios, the lower the  allocation to real assets , the lower the return.

And yet if you are over 50, the chances are your pension savings were moving in 2019 away from equities into lower returning investment strategies. And if I were to show you the impact of that by way of AgeWage scores, you would see your scores reducing over the year, because the average pension pot in the UK (the benchmark) has been investing predominately in equities and has not been “de-risking”.

 

De-risking carries its own risks

One of the arguments against giving people information on how their pension pot has done, both in absolute and relative returns, is that it gives rise to discontent.

If the result of measuring a saver against other savers is to show that the saver has fared less well , then there is a risk that saver is going to turn round to the person who made decisions on his or her behalf and ask “why?”

Collectively, the cohort of defaulted pension  savers between 50 and 65 will almost all have paid dearly last year for de-risking.

For some, that price may have been worth paying, if you were cashing out your pension, that your pension had been moved into a money market fund, may have reduced the chances of you being caught by a short term drop in the market.

But these cases are exceptional. Most of us have paid twice for de-risking, firstly in the cost of moving from fund to fund (through the hidden spreads of the “single swinging price”) and secondly through the under-performance of bonds and other diversifiers – especially cash.

This year, de-risking has been a risky strategy for pension savers and few have benefited in terms of what their pot is worth at the end of this year.

Most people over 50 would have been better off outside a lifestyle strategy.

We need to seriously review how lifestyle works

In 2020 , we will see a new kind of life styling with multiple options available to savers – known as investment pathways. These pathways could take you to a number of destinations, including “cash-out”, “annuity purchase”, “drawdown” or just rolling on as an investor with no plan for the pension pot.

Working out how these investment pathways work is the easy bit, but the saver needs to start thinking , well before exercising his or her choice, which pathway to take and how fast to walk along it. In technical terms , we all need to tell our pension provider when we want our money and how we want it paid.

I am very far from clear how people will go about making those choices. Ideally it would be face to face with an adviser who is genuinely independent. In practice it may be a decision taken by an algorithm based on what little your provider knows about you.

But there is a big problem in this, and it brings me back to where this blog started. We are taking decisions on other people’s money – blind. We do not know what most people want to do (neither do they), we don’t know how the market is going to treat them and we have no idea what the consequences of those decisions might be on the people we are trying to help.

2019 was not a year to hedge your bets.

People who stayed invested in shares last year did well and those who de-risked, lost out.

Old Mutual run a sentiment indicator for financial advisors who want to know the views of the fund managers.

This is how they saw the world in January 2019

Screenshot 2019-12-29 at 08.15.20.png

 

and this is now they see the world now

indicator_800

and this is what has actually happened

Screenshot 2019-12-29 at 08.12.26

 

If you want to, you can see which managers had a lucky crystal ball and which didn’t.

In 2020, we may see things turn the other way round. but there is no more certainty that you will be better off de-risking than there is consensus among the managers as to whether the equity bull run will continue.

But one thing we do know, there is no point in cashing-out on a long-term strategy to hedge against supposed short term volatility.

Pay attention to your pension

I would advise any DC saver over the age of 50 to find out what is likely to be happening to their pension pot next year and to ask the question, “how have I done so far”/

I can help you with the second question – just mail henry@agewage.com and we’ll get you an AgeWage score showing how you’ve done against the ordinary saver.

But I can’t help you with the first question, because the only person who knows what you are likely to be doing with your money over the next decade – is you.

Pay attention to your pension!

agewage advice

Posted in advice gap, age wage, pensions | Tagged , , , , , , | Leave a comment

Let’s kick the dogs out of the manger!

Posted on December 28, 2019 by henry tapper

This may be the most “on the money” tweet I’ve read in 2019. I’ve included it in the Pension PlayPen input to the FCA’s Open Finance initiative. I’m going to expand on its implications here.

One of the risks that the FCA identifies is “closed loops” where data is exchanged between a small group of data managers in something that could be deemed a data cartel. I fight shy of calling it a cartel as I get lawyers from industry bodies dropping me notes, but that’s where the risk from closed information loops takes us.

A dashboard for the providers, by the providers  ensures we see what providers want to see. We are told that this cannot happen because the Government has entrusted the Money and Pension Service with the job of setting up and running a dashboard implementation committee. This committee exists, though what can do right now is anybody’s guess.

Screenshot 2019-12-28 at 06.00.16

The implementation committee

This implementation committee is supposed to deliver the Government’s vision of a pension dashboard “ecosystem.

Screenshot 2019-12-28 at 06.04.14

it forms part of the pension dashboard governance ecosystem

Screenshot 2019-12-28 at 06.04.53

And all this has arisen out of four years of consultations, consultation responses, prototypes, launches and now a Pension Bill. The upshot of all this is that we may have legislation to mandate data managers holding our pension data to make that data available to the dashboard “ecosystem” by 2025.

When two sevens clash

When Joseph Hill had a vision of an impending apocalypse in 1977, the result was Culture’s album When Two Sevens Clash. The apocalypse never happened but 1997 – the year of the “punkie reggae party” – changed the direction of pop music till today.

two sevens clash.jpg

I predict that  2020 will be the year that the two competing visions – for a closed loop and for open pensions – clash.

And on that implementation team are those for a controlled close loop and those who want to see open pensions and they will clash as well.

Let’s empower payroll

As with the DWP’s other  data sharing initiative, the simple pension statement, the dashboard is at risk of being bogged down in yesterday’s thinking.

The “big idea” for delivering single pension statements is to provide them in distinctively coloured envelopes. The big idea for the government Dashboard, is to embed it in an ecosystem so complete that nothing can possibly go wrong.

Meanwhile people are retiring and doing so with incomplete information. People have no way of finding pensions other than through google and some hand cranked search engine on the DWP’s website. The PPI estimate that £20bn of our pension savings lies unclaimed.

Pension pots proliferate, the DWP estimates  by 2050 there will be 50 million abandoned pots, unless some way is found for us to find them and bring them together.

Support is minimal, depending on what survey you read, between 80 and 94% of us won’t pay for financial advice, Pension Wise reaches only  10% of its target audience and most of them are already advised. For most people, advice on what to do with the pension pots comes from friends and family  and from the world wide web.

In this denuded landscape, we should look for help where it is available.  Alan Chaplin is right to look at solutions that can deliver information today, rather than wait for another year of wrangling from the open pensions and closed loop factions.

Payslips are more read than a Government Pensions Dashboard will ever be. If payslips are allowed to deliver the basics of pensions then they will be in people’s line of site every pay period. Here, thanks to Robert is a vision of the future that is happening today.

Screenshot 2019-12-28 at 06.33.52.png

 

dog in manger.jpeg

 

Posted in advice gap, age wage, pension playpen, pensions | Tagged , , , , | Leave a comment

A progressive way to talk about pensions

Posted on December 27, 2019 by henry tapper

payroll strikes back

A progressive approach to workplace pensions

Yesterday I talked about the importance of reporting, both to and from employers. Employers want to understand how their workplace pension is working and savers want to know how their money is doing.

The purpose of this reporting is to maximise the efficiency with which money saved is converted into money paid in later life. For employers , the question is who provides the saving apparatus, the questions for savers are how much to save and where the money goes.

There needs to be choice for employers and  savers and that means competition for those savings. The primary market has formed and we now know the winners and losers. We now need a secondary market which gives fresh choice, rewarding providers who innovate and taking money from providers who sit on other people’s money.

To make sure we have a properly functioning secondary market in which workplace pension providers can compete. Behind competition is a recognition that it drives innovation , increases efficiency and passes cost savings and value creation on to the end users- Britain’s savers.

There is an alternative school of thought that sees competition as bad for savers, that the cost of switching investments or even providers makes it better to have a stable market built around a handful of providers with the Government’s great intervention – NEST – as the default for employers great and small.

I am firmly for a functioning secondary market and I think that workplace pensions should engage participating employers and savers with progress – in all senses of the word,

The Trust based occupational pension scheme is the standard route for most employers to organise participation in workplace pensions. This is because of multi-employer master trust structures which have been the big growth area of pension provision resulting from the introduction of auto-enrolment.

In practice , we have the  market for small employers  dominated by four master trusts – Smart, People’s , Now and NEST with a number of commercial and not for profit master trusts  biting at their heels. There are still (after the dust settles on authorisation) 38 choices in the market. The 39th choice for employers is to set up a new occupational pension scheme exclusively for their staff. In practice, setting up an occupational DC scheme from scratch is almost as rare as setting up an occupational DB scheme.

The 40th choice is to set up a group personal pension, either with an insurer, or – more rarely – with a SIPP provider like True Potential or Hargreaves Lansdowne. Here there is no formal fiduciary structure for staff who have to access their information either through an employer governance committee (where the employer can be bothered) or from the provider and the provider’s independent governance committee.

How do providers get their messages accross?

Auto-enrolment has brought a great deal of change to the way businesses great and small organise the destination of the moneys they pay on their account and on account of their staff.

But the mechanism for communicating about the progress of workplace pensions in meeting their proper function (helping to provide security in retirement) has not changed.

The DWP are consulting on what paper statements should tell people as if nothing much had happened in the past two decades. Re-reading the DWP’s consultation on simplified statements, I think it could have been published in 1999 and made as much sense as it does today.  And the simplified statement makes a lot of sense.

The statement itself should be timeless.  DC “pensions” , at least for those not spending their savings, are simply pots of money being managed by other people which grow fast because of Government savings incentives. Statements should be simple because there is not a lot to say.

Once we have accepted that the message is simple and should be confined to things people really want to know, we should ask the second question – how do we make this message “clear, vivid and real” and this is where we are currently hitting the buffers.

We simply aren’t asking the question, “what do workers read?”

How do people read things?

One simple answer is that people tend to read stuff that impacts on their pay. They read their payslip and letters that tell them of pay-rises and changes in their benefits. Where the communication is material to their standard of living, people will read it.

People read utility and tax bills and letters from the DVLA because if they don’t, they will be cut-off or at worst, prosecuted. They also read letters which tell them about things they may have won, occasionally they may read marketing literature from trusted sources and they will read pension statements that arrive in the post – but only if they think there’s a point.

But mostly we ignore paper. Mostly we concentrate on those things that make it through the spam-filters in their inboxes and they read direct messages on their chosen social media.

Learning what our staff read is one thing, learning how they read them is another.

The critical success factors

I follow the simple mantra of Quietroom , communications should be clear, vivid and real.

Clear – we know the pension statements can be real and thanks to Ruston Smith and others, we now have a clear template which can communicate the important facts.

Vivid – means producing powerful feelings or strong images in the mind. People need to be presented with the facts, not only clearly, but in a way that touches their emotions

Real – this I think the hardest of the three, these statements have to be statements of fact, not imagined or supposed.

But there is a fourth dimension which is as important as time was to Einstein. We need to get these clear, vivid and real communications in people’s lines of sight when it suits people and how it suits people.

Pensions are a part of pay

And that means making sure we deliver pension messages in the workplace as a part of pay. The people who communicate pay are the payroll people, whether in-house or in outsourced payroll bureau.

The key to payroll communication are the templates provided by our leading payroll software suppliers. These include Sage, Iris, Quickbooks, Xero. A full digital list of payroll software suppliers is supplied here.

Almost all the companies listed are capable of and prefer to supply payslips digitally. Many can provide them through messaging systems other than email, but company emails are now the main way of delivering payroll information.

We might well ask the question why company payrolls are not the main way of delivering payroll information. I suspect there is a simple answer to this. Nobody ever asked payroll whether they would do the job.

Alan is right, getting payroll to participate in workplace pensions through the dashboard , is a matter for Open Finance and I hope to contribute to the FCA’s call for input by following up on this tweet.

 

So why doesn’t electronic payroll delivery, mean electronic pension delivery?

The question begs a much more important question for workplace pension providers. Between 2012 and 2018, payroll invested heavily in making themselves payroll compliant. In 2016 the CIPP asked its members how employers and payroll companies were getting on with auto-enrolment. These were the key findings

Typical costs incurred due to automatic enrolment were several thousand pounds, with one respondent stating they had implemented a new HR and payroll system costing £290,000

● More than nine in ten payroll agents (92%) anticipate that their clients will need some level of advice and help with necessary actions for automatic enrolment

● More than half of agents (52%) believe the biggest challenge facing their clients in regard to automatic enrolment is that clients do not realise that it applies to them

● Three quarters of agents believe that their clients are not prepared to pay the necessary fees for services relating to automatic enrolment

And yet payroll complied with auto-enrolment – to a very large part because of payroll software companies upgrading their products, providing support and creating awareness.

Why do workplace pension providers not learn their lesson?

If you want a job done, give it to payroll. Payroll software companies  are commercial and will find ways to charge for the job. One way or other the cost will be absorbed or passed on to employers or providers.

If pension providers can integrate their communications with what payroll send, their chance of getting their stuff read increases dramatically.

If pension providers can convince themselves and payroll that what comes out of payroll as a pension deduction goes to providing a wage in later age, then combined payroll and pension statements may become a reality.

The lesson is being missed, pension contributions are deferred pay

This very important statement is at the heart of the problem and the solution. We have come to think of pensions as part of wealth management and the pension agenda has been hi-jacked by fund and asset managers to the point that the concept of “pensions as pay” has been almost forgotten.

In muddling this message, we have broken a critical mental link between work and pensions, downgrading pensions to a kind of expensive “perk” – an employee benefit.

Our first and primary reason for going to work is to earn a living and a part of this is to earn the right to stop working and rely on an income being paid to us from our savings.

Payroll has transformed its communications  into clear, vivid and real payslips which get read electronically by the vast majority of people on payroll.

The challenge for pensions people is to make friends with the people in payroll , learn their lessons and use their route to market.

Payroll 10payroll tyranny4Payroll 10

Posted in Payroll, Pension Freedoms, pensions | Tagged , , | 2 Comments

My dream of a “future world of later-life content” – happy Christmas

Posted on December 25, 2019 by henry tapper

happy Christmas

Christmas is a time for dreaming, walking in the air and ding donging merrily on high.

So my Christmas day blog describes a dream that could become reality, only if the world turns out a special way.

And maybe it will. I went 5 times to see Olafur Eliasson’s exhibition at the Tate. He talks about the possibility of looking back at this *soon to be gone* decade as the years when we put the brakes on climate changed and the next as the decade we put that train into reverse.

So it could be with pensions. For the first two decades of this millenium, we saw the new dawn of second pillar defined benefit pensions fade from corporate life. Pensions became liabilities , not the hope for the future that we’d built in the late twentieth century.

Now we celebrate 2019 being the year of the insurance buy-out, that net collective pension deficits are only £71bn and that we have 10.5m new savers into DC pensions pots, which may never pay a pension.

My vision for pensions may seem as unrealistic as Olafur’s for climate change but- as Olafur points out in every room of his Tate Modern “In real life” exhibition, “real life” doesn’t have to be the way it was, it can be shaped by our actions.

Which is what I mean by wishing us a  “happy Christmas and a happy new year!”

In real life

Yesterday my pension pot for the first time reached a target I had set it in 2000

I have saved hard throughout my life and have not “de-risked”, I am 100% invested in growth assets, my primary investment fund is the LGIM FutureWorld fund that invests for environmental, social and governance “good”.

I have also a very good DB plan, I’m an #OKboomer and I’m proud that I have made the most of my career so I can have a long and happy retirement. Many people – like my son Olly, could do as well as me, if they put their money where my mouth is and saved as hard as me and with my conviction. I am damned proud of myself.

But I am in the top 1% of retirement savers. My savings are real life but they are not (yet) a pension. They become a pension when I buy an annuity or concert to flexi- drawdown or use UFPLS . I doubt that 1% of the population will understand this paragraph and that is why we need a better way to turn our pension pots into a retirement plan

Yesterday I hinted at what is to come…

In yesterday’s blog, I hinted at a way of using the PPF to make my dream of a “future world of later-life content” come true.

Here is some more detail.

At present , the PPF invests , not in real assets , but in various abstractions called derivatives which take positions to take advantage of shifts in the valuation of Government and Corporate debt. Almost half of the £32bn in the PPF is invested in derivative contracts. This gives rise to a question from one of my readers

Henry, is the whole thing not a bit self-fulfilling and self-congratulatory – one leg of government (PPF) relies upon a derivative strategy that benefits another leg of government (HMT), the net effect being to ensure the compression of gilt yields and continued access to cheap borrowings. That’s more than convenient. Then the comparative impact of this endless supply of cheap debt (otherwise known as future taxation), artificially increase the prices of any assets with a yield, and sets unsustainably low hurdle rates, denying the economy access to growth.

My response is “yes”, the PPF is currently restricting rather than creating growth in the economy and for it to move from lifeboat to sovereign wealth fund, it will have to make a change in the way it looks at itself, as fundamental as the way that Olafur Eliasson has changed the way I look at climate change.

What I am dreaming of is a PPF which is strong and confident enough to move beyond the limited ambition it has set itself (to be sufficient by 2030 and move towards a vision of itself as the lifeboat that carrie ordinary savers to a “future world of later life content”.

I dream of a PPF which allows not just distressed DB schemes but distressed DC pension pots to be absorbed. A PPF where people approaching their retirement can exchange their pension pot for a wage for life paid from the public fund  , backed by the £6bn reserves the PPF has already built up and funded for the future – as all state pensions are – by our future money.

I do not suppose that these pensions should be guaranteed. As Con Keating points out in another comment on yesterday’s blog

The PPF is already CDC in nature – it can cut benefits

We must get used , in a future world of later life content, that our retirement income is subject to market forces, just as our past income was. I have never relied on my wage for future security in work, for I know my next month’s income could be my last, my next bonus dependent on many matters beyond my control, the existence of my company, now I am back being my own boss, dependent on my health and aptitude.

Living with conditional indexation and the 2% chance of nominal cut in my pension income is not a fearsome prospect to me and i don’t believe the risks of a properly maintained CDC plan, risks that many could not embrace- if the alternatives created equal or greater risks.

The PPF could offer a “transfer-in” CDC scheme to compete against drawdown, cash-out , annuities and commercial CDC and do so as a genuinely public service on a genuinely not-for-profit basis and it could do so within the next five years.

My dream of a future-world of later life contentment

IF you are reading this on Christmas day, happy Christmas, if post Christmas I wish you a a happy year and if in 2020 , I wish you a prosperous new decade.

The PPF is a diamond in a coal mine, that rare thing, a properly run funded pension run by the Government for the people.

I believe it is lacking in ambition and that its success should make it aspire to more, I think it should aspire to solve the issues that people have with their DC pension pots.

I think it suited to morphing into a dc as well as a db lifeboat and of offering people scheme pensions in return for their pension pots.

Who shares my dream?

 

nest future retirment

Posted in pensions | 2 Comments

The PPF could grow up a (C)DC lifeboat

Posted on December 24, 2019 by henry tapper

Good job PPF

PPF CEO and Chair

One of the enduring features of the last ten years is Andy Young texting me “this is all getting too much, I think I’m going to retire”.

Among the many things that Andy has created – he is a great procreator – is the PPF. Thankfully Andy has seen his baby grow from a twinkle in the DWP’s eye to a robust teenager which will be 15 in April.

Andy is married to Sara who is the Chief Customer Officer of the PPF. She is his boss and the kind of boss I’d be happy to work for. She actually works for Oliver Morley who is the CEO and the PPF is a happy child.

The PPF has around 250,000 members. You can see the schemes it looks after here.

In its last 2018/19 report , the PPF showed just how fast it was growing up

Screenshot 2019-12-24 at 06.07.17

It’s school reports show it’s doing what is asked of it

Screenshot 2019-12-24 at 06.08.27

and this against a background of falling gilt yields which have catapulted liabilities ahead of assets

Screenshot 2019-12-24 at 05.59.01

The PPF has grown strong by hedging its liabilities using a derivative strategy which accounts for around 45% of its assets, the “return seeking assets are in bonds and a small amount of equities”.

This baby-food has been nutritious and has kept the young child healthy despite the economic headwinds it faced in its early years (it was only 2 in 2008).

The economic climate impacting Britain’s DB schemes is still unhelpful and – despite a brief period in positive territory in 2018, Britain’s DB schemes are still an unhealthy lot.

Screenshot 2019-12-24 at 05.57.51

But every month, the PPF publishes its numbers, telling us how the rest of the class are doing and reporting on the financial health of our funded DB plans

Screenshot 2019-12-24 at 05.47.10

Published November 30th 2019

 

Britain’s other pension success story

We are getting used to being told what a great success story auto-enrolment has been. But the PPF could equally deserve that title. While auto-enrolment is still a toddler, the PPF is proving year after year, its critics wrong.

There are many (including me) that it is over-fed by levies and could easily become lazy and obese from over indulgence. This pie chart does not show it sufficient.

Screenshot 2019-12-24 at 06.06.31

from the 2018-19 report

That 23% subsidy from “the levy” has been at the expense of the solvency of the rest of the funded defined benefit sector.

However , there will become a time when the PPF will be off its parents hands and ready for its adult role. The thought back in 2005 was that the PPF would be sufficient by 2030, When Oliver Morley took over in 2018 he told the FT that the PPF should easily meet its target and might even start to give back money to the remaining DB schemes not in its care. As I wrote five years ago, the PPF is a great British success story.

What will the PPF grow up to be?

I look forward to the day when the PPF can get to adulthood, reduce its levy to nothing and start working out what it’s going to do beyond paying a dividend to its funders.

I have some ideas about that , that I haven’t talked about on this blog for a long time. My hope is to find some new Andy Young , with that man’s insane energy , vision and charisma , who will turn round to Government and convince them that the PPF is the natural home of the CDC pension.

If you’ve read this far, you won’t be shocked by my optimism. I am optimistic that in decades to come, the PPF will pay DC savers scheme pensions at a rate above the prevailing annuity rate and that these scheme pensions will be available as the destination of an investment pathway.

I won’t go into the detail here, you may want to try to think through the mechanism (if you are an aspiring Andy Young).  But if we are to see the PPF for what it could be, then it has to have a place for all pension savers.

lifeboat2

a lifeboat for us all

The PPF could grow to be a CDC lifeboat over time.

 

andrew-young-3

Andy Young , father of the PPF and a whole lot more!

Posted in CDC, pensions, Public sector pensions, responsible investing | Tagged , , , , | 13 Comments

Let’s play nicely!

Posted on December 22, 2019 by henry tapper

 

play nicely 2

Playing nicely

This is a most unusual blog as it starts with an apology – an apology to John Ralfe . It is also an apology to any of the people who were offended by my early morning rant at John.

I lost my temper with John for comments he made about my former colleagues Derek Benstead and Hilary Salt, bogging your frustration is not the way to sort things out.

As regular readers will know, I frequently quote John where his views and mine are the same. His position on WASPI is one I have adopted, I am sure there will be many areas in 2020 where I will quote John again.

For the record I was not drunk – infact I’ve dunk since I found my lungs were clotted last month, nor will I for the foreseeable.

I was pissed in another way, and I allowed my deep affection for Derek and Hilary to get in the way of my better judgement.  I should not fight fire with fire and the blog serves no useful purpose by publication.

You may ask why keep it up, there is a simple answer, over 1000 people get my blog by email and once those mails fly, there’s no retracting them. There is a more complex answer and that is that while the blog does me no good, it does at least explain the anger.

play nicely

Sorry John!

 

An introduction to John’s dystopia.

Since I’ve left First Actuarial I have had less to do with John Ralfe. John has moved on and even the famous @Ralfebot , John’s amanuensis and doppleganger has had a quieter time. John has not however stopped his trolling and this Sunday morning I bring you new hope that in 2020, this extraordinary man will continue to light up our lives.

To understand the dystopia, you must understand it’s root cause

I will try to keep this blog non-technical but will start with an explanation of John’s primary motivation , the exegesis of the “open scheme heresy”.

I give you by way of example,  this  microblog on my friends Derek and Hilary

CDC lifecycle

The work of the charlatans

Derek and Hilary’s  are not “dishonest charlatans”. They have a different view to John’s  but that neither makes them dishonest or a charlatan.

A charlatan (also called a swindler or mountebank) is a person practicing quackery or some similar confidence trick or deception in order to obtain money, fame or other advantages via some form of pretense or deception

John cannot should not call people dishonest or charlatans without good reason. Both are actuaries and abide by the actuarial code of ethics. An attack on their honesty and professionalism is a serious matter.

2020 – let’s hope we have a more peaceful year

Many sound views and excellent insights that John does have, are often lost on people who take  his vulgarity seriously. This is a quote from my recent blog on WASPI

Screenshot 2019-12-22 at 15.07.40.png

Ralfebot’s genius is to confuse parody and the real thing to the point that nothing that John says is worth taking seriously.

But this is a minor issue, the sheer delight  John Ralfe’s twitter account has brought me over the years is a blessing. The genius of his mindset is – to me at least – undiminished by it being warped. Amidst all the nonsense there is enough in what he says, to make him an essential read and I wish John and his Bot a very happy Christmas.

I am aware that these six hundred words will be considered twaddle , because -after all – we are all idiots – save the master.

 

Posted in #WASPI, Blogging, leadership, pensions | Tagged , , , , | 1 Comment

AgeWage responds to FCA’s call for input to it’s Open Finance initiative

Posted on December 21, 2019 by henry tapper

open finance 2

1.”You have asked what action can we take to help ensure the potential of open banking is maximised”.

AgeWage was set up to help people make sense of their retirement saving and to convert “pension pots” into a retirement plan. We need you to help savers get access to their data – specifically their contribution histories and the current value of their pots (Net Asset Values or NAVs). The ecosystem that makes open banking work, could make open pensions work. You can intervene to unblock the pipes that make it hard for our users to get the information they need to make decisions and make it easier for us to act as their agents.

2. “You’ve asked for our views on what open banking teaches us about the potential development of open finance.”

We have learned from open banking the power of dashboards that offer consumers the chance to see data in a helpful way. We see people who start small , building a fuller financial picture of their saving and spending and in doing so learning how to spend, save and borrow in a more sensible way.

These lessons can be applied to retirement where people need to save for the future, organise the spending of their savings and sometimes raise capital against assets such as their house, in order to enjoy their later years and protect against extreme old age and a deterioration in health.

 

3. ‘You have defined Open Finance as the re-use of people’s financial data for their benefit’.
Open finance is based on the principle that the data supplied by and created on behalf of financial services customers are owned and controlled by those customers. Re-use of these data by other providers takes place in a safe and ethical environment with informed consumer consent”.

We agree with this definition. Consent is essential and those using other people’s benefits need regulation. Within these constraints open finance is a progressive way to make financial services work better for consumers. Defining open finances in terms of consumer rights is helpful.

 

4.“You’ve asked if we agree with your assessment of the potential benefits of open finance and whether there are others?”
You define the benefits of open finance in terms of consumers and service providers. We would add a third stakeholder, the trustee or IGC who stands as a consumer champion and needs access to data that tells them what individuals or groups of individuals are getting by way of value for their money. Employers are increasingly taking an interest in how the workplace pensions they are sponsoring , are working for their staff. Open finance can provide bottom up governance that explains concepts like value for money in terms that consumers can understand. We could define this additional benefit of open finance as “fiduciary reporting”.

5.You ask what we can do the maximise these (4) benefits. We think that pensions should fully participate in open pensions.

The Call for Input mentions the Pensions Dashboard and this will be the primary driver for a change to “open pensions” but there is a danger that the dashboard could become a closed loop in which a small amount of what consumers need is made available and the prescriptions of Government actually prevent rather than encourage innovation. The delays in implementing pension dashboards have resulted from arguments over the involvement of “for profit” organisations, as this document suggests, the interests of consumers and businesses can both be served by removing the impediments to free-flow of data. Open Finance has a role to play in demonstrating to all pension dashboard stakeholders , the maximum benefits that they can bring.

 

6: You ask if there is a natural sequence by which open finance would or should develop by sector?

We have asked this question when thinking of dashboards and have concluded that a gradual approach is better than a big reveal. In the pension ecosystem there is data that is dashboard ready and data that still sits on microfiche or paper. We recently analysed the data of a bank which had archived its pre 2015 pension data. They were suffeciently exercised by the work we did on recent accessible data that they have commissioned the de-archivisation of earlier data. We use this as an example of how a gradual approach works, the trustees told us we would not have got any data if we had insisted on getting everything up front. We support mandation on holders of pension data to share data – but we don’t want mandation to force those who can go now to wait.

 

7.You ask if we agree with your assessment of the potential risks arising from open finance and whether there are others?

Over the summer we invited 120 of our investors to test a value for money scoring system we have developed. We were surprised by two things; firstly we were unable to get simple information (contribution histories and NAVs) from providers; we had to tell nearly a third of our investors why they couldn’t get the information they’d requested and there was considerable frustration among this group. We fear we may have put them off sorting their pensions because open finance didn’t work. Secondly we found that telling people what had really gone on with their money had alarming impact on our saving investors. One was so pleased with the value they were getting from their workplace pension that they said they were considering moving their defined benefit pension to it. Another saver, who had been investing in a cash fund for fourteen years threatened to sue his trustee because his fund had performed the average return for someone with his contribution history. On the back of these kinds of reaction, we’ve decided to apply to enter the FCA Sandbox and better understand whether the support we need to provide to our open finance metrics needs further levels of authorisation. We consider that unsupported information carries risks of its own.

 

8. “You asked if we consider the current regulatory framework adequate to capture these risks?”

We don’t know; our conversation with Direct Support and Sandbox managers suggests that open pensions will present challenges to the regulators that they are yet to face. I was involved in trying to avert mis-selling in Port Talbot to BSPS members after having tried to warn trustees of the dangers their Time to Choose project were creating. The agility of the regulators to meet this challenge was tested and I expect that lessons are being learned where they fell short. The Sandbox looks to us like an opportunity for both the FCA and those participating in open finance projects, to presage the risks.

9. “You asked what barriers established firms face in providing access to customer data and what barriers TPPs face in accessing that data today?”

We have submitted to Guy Opperman, the minister for pensions and financial inclusion a report on all the barriers we , as a TPP, faced in getting data from providers. These included a refusal to deal with AgeWage for not being on the FCA register, not accepting Letter of Authority submitted with e-signatures, not passing the data to us in machine readable format or simply refusing to acknowledge customers requests. We are not alone in this, we know of other organisations who report similar barriers. As mentioned earlier, we are also aware that much personal data which may have been accessible at one stage has been archived and isn’t “available” today. We have also had discussions with providers who tell us whole books of DC business are not digitised at all. Some of these problems are easy to overcome but most aren’t.

 

10. You asked do we think the right incentives exist for open finance to develop, or would FCA rules, or any other changes be necessary?

On some issues – such as e-signatures – there is legal guidance in place (in that case from the Law Commission) but in others providers seem to be interpreting FCA guidance in different ways (for instance whether we as a TPP need to be FCA authorised). Some providers have different interpretations from department to department. It seems to us there is a need for the FCA to clarify what the legal obligations are on data providers in dealing with consumer requests and with TPPs. The incentive to meet these obligations is their compliance imperative to comply with the law and with regulatory guidance.

Beyond the incentive to stay compliant, there is a commercial imperative to participate. We have found providers who feel they will be net winners as aggregators and others who see TPPs as taking money away from them. The latter are disincentivised and the former incentivised. Without a regulatory intervention, we expect that those who see themselves losing will continue to put up barriers to open finance. We see similar issues with third party administrators (TPAs) of dc pensions who see the transfer of pots from their management as a threat to their revenues (as they are paid by the record). We have seen many TPAs refuse to co-operate in data sharing, most notably the Origo transfer hub, where is was not in their commercial interest to do so. This was despite it being in the interests of Trustees and members of their occupational schemes , for data to be shared. We call this “dog in the manger”.

11. “You asked if we have views on the feasibility of different types of firms opening up access to customer data to third parties?”

Our view is that for open finance to work , it must be overseen by regulators with the capacity to intervene and that those interventions should be consistent. In the world of pensions, there are two regulators – FCA and tPR. We see those firms whose services are regulated by the FCA objecting to different treatment being shown to tPR regulated firms. We need joined up and consistent policies that put all data providers behave consistently.

12. “You asked what costs would be involved in opening up data access and that you are interested in views on the desirability and feasibility of developing APIs”.

For firms like ours, developing APIs to access our database is very quick, simple and cheap. But our experience working with Pensionsync in creating APIs for the sharing of data as part of auto-enrolment showed that accessing insurer’s databases can be a long and time consuming business with no certainty of success. This is not necessarily the insurer’s fault, APIs were never a consideration when their databases were created and the technical architecture used in the 1980s and 1990s is typically incompatible with Open Pensions. Our view is that many of these databases will struggle to integrate to dashboards and other data interrogators.

 

13. “You asked if we have views on how the market may develop if some but not all firms opened up to third party access?”

We are sanguine about some non participants. Consumers – when searching for financial products are used to hearing that some providers could not quote on-line and recognise that sometimes it won’t be possible to have perfect information. Many pensions offer a defined benefit or are hybrid where the benefit is a guaranteed annuity or a with-profits pot value that may need manual calculation. Many legacy pension contracts are not set up to provide on-line values and will never do. But this is not a reason for abandoning open finance – 90% solutions still work.

14.”You asked what functions and common standards are needed to support open finance and how should they be delivered.”
We are encouraged by the work of the OBIE and see much of it as replicable in other areas (such as pensions). We know several members of the Open Finance Advisory Body and are very encouraged by their analysis of what standards need to be in place; specifically- the technology architecture (eg open APIs)
• operating principles, processes and practice
• security protocols
• certain areas of user experience design
• service level agreements for performance
• liability models
• dispute resolution
• consent management and data rights
• authentication and identity management
To these we would add the need for training of those who run the customer interfaces at data providers who have been inculcated by a culture that says “compute says no”. We don’t just need standards, we need training to ensure they are met and maintained.

15. “You asked if we support the BEIS smart data initiative”

We do.

We favour introducing individual Smart Data initiatives across all “regulated markets”, i.e. utilities, communications, rail, and financial services. These initiatives would essentially be separate from one another and subject to specific rules, albeit with a high degree of coordination . We see this each initiative as mutually supportive and supporting public confidence in GDPR and data protection in general.

 

16.”You asked to what extent should the standards and infrastructure developed by the OBIE be leveraged to support open finance?”

We don’t feel well equipped to speak in detail but see that the OBIE infrastructure and standards are transferable to open finance and indeed open pensions. We support the principle of TPPs being FCA registered, which is one of the reasons we have applied for FCA registration.

 

17.”You’ve asked if we agree that GDPR alone may not provide a sufficient framework for the development of open finance.”

We do not see GDPR in itself as capable of enabling Open Finance to deliver on its potential. We need more detailed intervention from regulators (for pensions both the FCA and tPR). These interventions are needed both to free up data and to ensure that consumers are protected from potential abuse from those interpreting data and using it for commercial purposes.

 

18.”You asked what other rights and protections are needed and if the open banking framework the right starting point.”

We think the open banking framework is the right starting point for establishing the consumer rights and protections needed to establish and run pension dashboards and other initiatives needed by people saving for and creating adequate personal retirement plans . There are a number of particular risks faced by the long term investor, notably the risks of being scammed by unscrupulous investment managers who recognise that long-term investments can easily become Ponzis.

 

19. “You asked what are the specific ethical issues you need to consider as part of open finance”.

We are mindful of recent scandals relating to the selling on of personal data to those who can exploit it for commercial gain. While much of this commercial activity is acceptable, risks from identity theft are all too real. The privacy of data is a matter for each individual but those who are managing data must be aware of decency levels and abide by the general principle of treating customers fairly.

 

20.”You asked whether we have views on whether the draft principles for open finance will achieve your aim of an effective and interoperable ecosystem”.

We believe that the FCA get help create an effective and interoperable ecosystem for open finance. Our confidence is based on the platform that has been created by open banking and on the capacity of parts of the industry we work in to adopt open standards when required to. We are thinking of the way in which payroll and providers have developed interoperability to manage the challenges of auto-enrolling 10.5m workers through over 1m employers.

For Open Finance to take off, there need to be clearly laid out problems which open finance can be used to solve. We can see the problems that need solving in our niche in the larger market, we suppose that other sectors such as general insurance, mortgages and consumer credit will find their problems too.

For all the sectors who could use open finance to work together, the general set of principles will be helpful. But we the need granularity in regulations that go beyond general principles and ensure that initiative such as the pensions dashboards can flourish. That granularity needs joined up regulation.

 

21.”You asked how should these set of principles be developed and whether we have views on the role the FCA should play”.

We have found this call for input very helpful in developing our strategy. The development of these principles need to incorporate the input from all respondents. The FCA have the resources to do this properly and your proven ability to work with organisations such as the CMA and BEIS gives us confidence that Open Finance could be an example of truly joined up government. We want to see initiatives such as digital identities incorporated into the pensions dashboard and the FC can be the interface between cabinet office and the pensions community.

 

22.”You asked if we have views on whether any elements of the FCA’s regulatory framework may constrain the development of open finance”.

As we have mentioned, we have seen examples where the FCA’s regulatory framework haven’t worked to the consumer’s interest. We give as an example the handling of DB pension transfers where we feel the FCA were too ready to listen to intermediaries and did not listen to trustees , employers and consumer advocates.

Another example where the regulatory regime comes up short is in engaging with collective pension schemes. We think that initiatives from other parts of Government, such as the DWP’s work on CDC, have not been properly embraced by the FCA’s policy teams and this has given rise to an “us and them” perception of regulators. We think that pension initiatives like CDC should be better embraced by the FCA. We say the same things to tPR about FCA initiatives like Open Finance. It is natural for financial services to work in silos, it is a broad industry, but we need more regulators who take a holistic view of consumer issues.

open finance

You can read more about AgeWage’s position on Open Finance by following this link

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Do we have to be told to save our planet?

Posted on December 21, 2019 by henry tapper

planet

Do we have to be told?

Share Action’s Master Trust survey starts with the question “IS REGULATION ENOUGH?” and through the 26 pages of Lauren Peacock’s survey that remains the key question.

But there are secondary questions…

Can we trust our trustees , should they delegate to asset managers, should asset managers exercise their voting rights or pass them on, what does “stewardship mean in practice?

Ultimately, what choices do we have as investors in how our money is managed?

It’s helpful to establish what we’re studying here and the report helpfully does just that.

What is responsible investement?

Responsible investment (RI) is an approach to investment, which takes into account environmental, social, and governance (ESG) risks. It is characterised not only by addressing these risks in investment strategy, but also by activities such as actively engaging with investee companies on their ESG practices and seeking to steward them over the long-term.

I guess my house view is  “If you have to be told this stuff, then something is wrong” and what I found in Lauren’s report is that despite all the noise, more’s wrong than right.

Do we have to be told? I suppose we do.

What’s wrong?

The report divided the 16 master trusts studied into four groups

Screenshot 2019-12-21 at 06.18.20.png

In judging the development of RI within these propositions, Peacock doesn’t use a heavy hand, but it’s hard not to feel amazed that NOW pensions with its strong Scandinavian heritage , its segregated investment fund and its relative seniority, should lag younger , less well-funded rivals.

It is good to see NEST leading the way, we have paid for it to do so with a  subsidised loan from the tax-payer and we appear to be getting value for that money. NEST and NOW bookend a number of commercially funded master-trusts that have moved at different speeds.

From my independent research, I find few surprises. I am really pleased to see Smart at the front of the pack as frankly their initial investment proposition  in 2016 was rubbish.

I’m not surprised to see Legal and General leading the insurers (alongside People’s Pension – who have an insurer behind them). People’s appointment of Nico Aspinall as CIO is clearly bearing fruit.

I am surprised to see so many lagging insurers in the “Building phase”. I will be looking particularly closely at their Chair’s statements and the IGC statements to better understand whether the lag is occurring.

It’s good to see two consultancy driven master trusts – Atlas (Capita) and  Lifesight (WTW) reflect well on the capacity of the ESG consultancy units that sit behind. Mercer and Aon will clearly be concerned not to be in the van.

What’s wrong is that we have such dispersion and the rest of the report makes it clear that if regulation is working, it’s not working hard enough.

A lack of conviction

Peacock makes it clear that even those within the financial industry taking climate change seriously, appear to view it predominantly in terms of how it poses risks to, and opportunities for, maximising their investment returns.

By framing the problem of climate purely in risk terms and not considering impact, market participants focus their efforts on resilience, instead of working on mitigation.

In terms of the exam question, we should think of responsible investment as a means of rewarding the planet , not just ourselves. This might sound  impossibly altruistic but it is precisely what surveys from Ignition House and Investec are showing. People, especially younger people, are prepared to pay for responsible investment in terms of increased risk of reduced returns.

For trustees this represents what seems an impossible dilemma: are they here to maximise pensions (at least pension pots) or are they here to make our “future-world’ a better place. This week’s events in Australia suggest that that continent may not be habitable in the lifetimes of many younger savers.

bushfire.jpeg

I suspect that the debate about whether adopting ESG policies adds to investment returns has done more harm than good. If people are prepared to pay to reduce climate risks and improve society and the governance of business, then whether that payment leads to improved performance is secondary. What matters is that ESG gets done.

There appears to be a lack of conviction both among the trustees and the providers about what is the responsible investment strategy.

To the report’s method

The report limited its scope to the largest 16 master trusts by assets (with Smart replacing BlueSky by dint of its large membership). Some notable AE master trusts aren’t represented – Salvus, BlueSky and Creative could have, and I hope they will next year.

The report took trustee boards seriously, pointing out that unlike IGCs (who now have a duty of oversite), trustees are actually asset owners and have a duty to implement.

The scoring of providers put double points on providers who published policies and marked down providers with policies that only emerged after investigation. Share Action clearly see the promotion of ESG as critical to responsible investment and I support this. It does mean that many who lagged will feel they can move up the leader-board if they adopt a more transparent approach in 2020.

But only if people take Share Action’s work seriously – which is what this blog is doing.

And it’s findings

Once the report moved out of “exec summary mode”, it became a lot more clinical in its findings.

  1. It found the weakest-scorers were following the lead of others – and delegating strategy that should have sat with them (trustees as “asset owners”)
  2. It found that many master trustees were not exercising stewardship directly but delegating to others
  3. It found that most providers were not engaging Government on policy but engaging with regulation. Rather than driving regulation, they were reacting to it.
  4. Half of the group had adopted “tilts” in their asset allocation to in time for the publication of the survey.

Screenshot 2019-12-21 at 07.01.45.png

“Time” was an important word in the survey. Peacock pointed out that by the time that some trustees get round to adopting ESG tilts, any leadership advantage will have been lost. It implicitly criticises strategies that await evidence of financial advantage as leaving members exposed to under performing assets.

The report ends on the front foot with a call to action

What we need to see next is action and hopefully the implementation policies, which schemes have to produce next year, will show this. Rather than delegating, asset owners have an opportunity to embrace responsible investment and secure future sustainable returns as well as create a better world for their members to retire into. Trustees need to be responsible for setting the tone, and integrity of all stewardship undertaken on their behalf.

But I will give the defining statement of this report to Atlas Master Trust

“It isn’t possible to ignore the fact that investing in the global economy necessarily contributes to the environmental threats that our planet faces – global warming, deforestation and desertification, pollution, species extinction, extreme weather patterns and rapid exhaustion of natural resources”

Do we have to be told?

We are going to save this planet when we want to, not when we’re told to and until the trustees – who own the assets of these trusts become aware of their responsibilities, no amount of regulation will be enough.

planet 2

Posted in ESG, pensions, social media, trustee | Tagged , , , , , , , | 1 Comment

The day the PPF turned day-glo

Posted on December 20, 2019 by henry tapper

It’s not often that the phrase “lost in translation” is more than a glib cliche , but yesterday’s *fake news* on the impending catastrophe from the ECJ ruling on the PPF has given if fresh currency!

The breaking news was preceded by this seemingly prescient warning the day before.

Screenshot 2019-12-20 at 06.01.28.png

Pride of place in the *fake news* hall of fame goes to Sky News who not only printed a fake story, but printed the  comment of Eddy Truell, for whom the potential demise of the Pension Protection Fund meant his consolidation vehicle was back in business.

Screenshot 2019-12-20 at 06.01.54

While Ed saw the moment of Superfund’s greatness flicker, the trade press (with notable exceptions such as the FT) piled in behind. The story could be summed up as

“The PPF was holed below the waterline as the EC judgement demanded it pay benefits to all its members at 100% of the levels promised by the originating schemes.”.

Then the awful truth dawned.

 

The British press had been sold a dummy and had put through their own net. The story SKY and they had printed – and which Eddy had gloried in – was a load of tosh – lost in translation from the original pronouncement (in German).

I suspect a lot of journalists were not as honest as James and that the twitter cutting room is littered with deleted tweets with #pensions hashtags.

*Fake news* of fatality, wake up to reality

It turned out that the EC was only requiring the PPF (and other lifeboats) to top people up to a minimum “poverty” level of £10,000 pa. The number of PPF members who won’t have outside income (state pension) sufficient to get to the poverty level is very small and while this and the Hampshire ruling , will make the job of super-pouting PPF ops supremo Sara Protheroe a little more exacting, the net impact on PPF solvency will be a lot closer to £0m.

News of the death of PPF has been somewhat exaggerated.

News from the source please!

This PPF story is  a salutary lesson for journalists relying on newsfeeds for their story. Check your primary sources – journos… or risk ignominy!

So it’s Christmas and we’ll all have forgotten this in the new year. But had the PPF been a stock, it could have seen some pretty violent trading yesterday. There would have been big  winners and losers and you can be sure that the losers would not have been as forgiving  as Mike Harrison !

And for those unfamiliar with the oeuvre of Poly Styrene and X Ray Spex, here (without adverts) is her top of the pops performance of the original “The day the world turned day-glo”.

Posted in pensions, punk | Tagged , , , | 4 Comments

Open finance opens doors (to pension dashboards)

Posted on December 18, 2019 by henry tapper

open finance 2

Pension Dashboards got a much needed shot in the arm from the FCA yesterday , with the publication of a “Call for input” on Open Finance from the FCA yesterday.

The document sets out a route-map to better financial services through the unlocking of data currently held and not shared by market participants.

Screenshot 2019-12-18 at 06.00.48.png

In short, the FCA’s Competition and Markets division (headed by Christopher Woollard sees this sharing of data as a step forward for the consumer and ultimately the financial services providers who participate.

There are of course risks and these are outline in the document; chiefly

  • Mis-use of data
  • Homogenisation of products
  • Cartel like behaviour by providers
  • Operational cost (passed to consumer)
  • Frictionless decision making leads to bad decisions.

The FCA looking at these opportunities and risks are asking four key questions

  1. Incentives – Will open finance develop without intervention? Crucially, do the incentives exist for established firms to provide access?

  2. Feasibility and cost – Can all firms develop and offer the access needed to support open finance? What are the costs and barriers involved?

  3. Interoperability and cohesion – What common standards are required for open finance to develop?

  4. Underpinned by clear data rights – Is an adequate framework of data rights in place? If not, what would it be, and how would it be provided?

The FCA clearly see Open Finance as an extension of Open Banking where there was Government intervention (through the CMA, where most banks were able to participated in data sharing, where the CMA were able to create and implement common data standards and where the rights of consumers were underpinned by the Data Protection Act and GDPR.

You sense that the FCA’s questions are rhetorical, the call for input an affirmation of what is bleedingly obvious.

And yet…

Screenshot 2019-12-18 at 06.28.53.png

Shortly before parliament broke, AgeWage wrote to Guy Opperman, the once and former pension minister explaining how difficult it had been for it to help a group of around 150 investors get their contribution histories and current fund value for their pension pots.

Several large organisations including the Government’s own pension scheme – NEST and the largest occupational scheme in the country – USS, refused to honour the letters of authority given them by their members. The members did not get their data and did not get an AgeWage score.

True 90% of participants did eventually get the information they’d requested but it often took over 6 weeks to get information that – under Open Finance – would be available at the click of a mouse.

The acceptance of digital signatures, despite being a pre-requisite of handling personal data (according to the Law Commission) was often refused.

Providers often considered the provision of data acceptable only if the party authorised to receive the data was FCA regulated.

Some providers simply were unable to satisfy data requests as contribution histories had been archived or were held on microfiche or even paper.

Our experience is reflected in the FCA’s Call for Input.

The barriers to open finance are manifested in our report, the scale of the challenge that the FCA is posing to the financial services industry is mammoth. “Mammoth” is an accurate characterisation of some of the financial behemoths we spoke to, if they do not evolve, they may face the mammoth’s fate.

The nitty gritty

The FCA paper is not just about high level strategy. It has created an Open Finance working group which has identified what needs to be created for Open Finance to be properly rolled out. technology architecture (eg open APIs)

  • operating principles, processes and practice
  • security protocols
  • certain areas of user experience design
  • service level agreements for performance
  • liability models
  • dispute resolution
  • consent management and data rights
  • authentication and identity management

This is pretty well a blue-print for the development of a pensions dashboard and it’s good to know that some of the FCA Open Finance team also sit influential in the Pension Dashboard’s implementation

Open investments and open pensions

The document considers how open finance can help the long-term saver, whether in or outside a pension wrapper.

Here’s the business case for investments

Screenshot 2019-12-18 at 06.54.29

and here’s the business case for pensions

Screenshot 2019-12-18 at 06.54.53

Next steps

The FCA’s call for input is an impatient document. The document outlines at length the work of the Open Banking Implementation Entity (OBIE) and explains how Open Banking has already

  • developed API standards and security protocols
  • developed Customer Experience Guidelines for TPPs. These are minimum standards for certain elements of the customer journey which are key to use, adoption and competition
  • maintained the Directory – a ‘whitelist’ of participants able to participate in the open banking ecosystem. This is underpinned by the FCA Register, since all TPPs must be FCA regulated

The document also talks of the progress that is being made towards establishing digital identities which will unlock so much of the interoperability of a pensions dashboard

The FCA sees its immediate function as facilitating change and lays out the principles under which it will work

  • Developing and agreeing the principles set out below and driving their adoption.
  • Supporting and recognising other relevant industry codes of conduct.
  • Providing an industry forum to help identify opportunities and risks for open finance.
  • Supporting the development of a common API standard.
  •  Identify regulatory and commercial barriers to open finance through our crosscutting policy work. For example, our evaluation of the Retail Distribution Review and the Financial Advice Market Review is exploring how the market can meet consumer needs for advice and wider forms of financial support. This is likely to be of interest to a wide range of firms wishing to provide new forms of support services.
  • Considering its existing regulatory framework and how it currently supports open finance. For example, different sectors have particular rules which will need to be met by all firms which provide financial advice. We would be interested in views as to whether the FCA’s regulatory framework might constrain the development of open finance. •
  • Making new rules.

open finance

Posted in age wage, London, open finance, pensions | Tagged , , , , , , , , | 1 Comment

5 pension policy priorities for parliament.

Posted on December 16, 2019 by henry tapper

how-is-public-policy-affecting-peoples-ability-to-make-ends-meet-1-638

and that question includes people in later life

This blog is about pension policy

For nearly four years , public policy has been blighted by the continuing crisis of how and when we would leave the European Union. The December election has created certainty that we will leave in January and , though 2020 will continue to be overcast by negotiations over trade agreements, we can at least expect politicians to focus again on the great social issues.

For people facing retirement there are two principle issues, health and finances.

Our changing demographic means we will have in the next decade , more strain on the NHS – principally due to demand from those who are 60 and above. The strain on the NHS is acutest at this time of the year and we are all aware that A and E waiting times are deteriorating, waiting lists extending and morale in the medical profession reducing.

People reaching their sixties are facing an uncertain future, despite numerous consultations, the Government has yet to establish a policy that properly addresses the chronic problems of those who can no longer look after themselves and become dependent either on the NHS or on residential or social care.

This lack of policy is in part a by-product of the Brexit paralysis, but there is a more fundamental issue – there is not enough growth in our economy and in tax revenues to meet the increased financial demands of people growing old.  Money is going to have to be found from somewhere.

Writing in the Times, Jim Coney points to the large Government majority as an opportunity to take on the second great policy casualty of Brexit. This is the appalling value for money that the tax-payer is getting from incentivising people to save. The VFM is appalling is that the majority of the £40bn  dished out each year in pensions tax-relief is benefiting the wealthy and very little of it is providing social insurance against people living too long and becoming a burden on the state.

Two problems , the cost of growing old and the failure to target tax incentives at that cost.

One opportunity – a stonking majority and Brexit already “oven-ready”. Forget keeping back-benchers happy, forget the lack of manifesto promises, the Government is now in the remarkable position of being able to do something positive about our growing old.

So here are the six things this Government could do right now.

  1. See the Pensions Bill through the Queen’s Speech and onto the statute book , providing us with the legislation for a CDC system, mandating participation in pension dashboards and granting tPR a limited increase in powers.
  2. Provide a “throw money at it” -fix (within 30 days) as a sticking plaster to the AA taper
  3. Fix the Net Pay anomaly by adopting the over-ready solution worked out by the net pay anomaly group.
  4. Consult immediately on the financial issues surrounding long-term care
  5. Dig out the remedies to the problems set out in the 2015 consultation on tax-relief- mothballed in 2016
  6. Read , inwardly digest and learn from the Parliamentary Ombudsman’s finding on the WASPI problem.

With such a large majority , it could be easy for Government to kick the problems of later life into the long grass. It’s been done before. It’s vital that the pension community does not let this happen.

 

Posted in pensions | 3 Comments

12/12/19 #OKboomer v #snowflakegeneration

Posted on December 15, 2019 by henry tapper

Screenshot 2019-12-15 at 07.42.33.png

The most coherent research I have seen coming out of the voting patterns of last Thursday is this.

While support for Liberals is consistent over ages, the vote for the binary propositions of conservative and labour governments is highly dependent on age.

The old chestnut

“If a man is not a socialist by the time he is 20, he has no heart. If he is not a conservative by the time he is 40, he has no brain.”

appears to have  truth in it, at least  in identifying changing voting trends.

Ashcroft polls also suggest that people voted Conservative for management reasons – getting Brexit done and managing the country, while those who voted for other parties did so out of and for conviction.

Pragmatism v conviction?

Pension people will discover in this , elements of the lifestyle matrix established by many pension schemes which will invest youngsters in illiquid assets invested for the long-term but “de-risk people into short term investments in bonds or even cash as they get older.

But is this a case of people getting wiser as they get older, or are they simply conserving the gains of their youth and depriving the next generation of jobs and wealth and pensions?

Is risk aversion  the same as conservatism and did this election witness an extreme example of intergenerational conflict?

So why did young voters care so much about the NHS?

Screenshot 2019-12-15 at 07.01.08.png

The NHS is overwhelmingly the most important issue for Labour voters (74%) who we have identified as typically younger people. But younger people do not use the NHS. The support for the NHS by Labour voters appears to be for idealistic not pragmatic reasons.

We know that the users of the NHS today, are older people, yet the NHS seems a lot less important (41%) to them , than to the youngsters.

I wonder whether my generation of boomers will be as generous back.

Lesson for pensions – for youngsters emotion matters

Franklin Templeton’s recent report “The Power of Emotions – responsible investment for Generation DC” – is the latest in a fast-lengthening line of arguments for commercialising the green pound held in the pay-packets of the under 35s. (you can access the paper here)

It may sound despicable to those fearful of green-washing,  but financial services companies need to grab the millennial and  make them theirs and the big asset managers have worked out that responsible investment is tomorrow’s meal-ticket.

They should be looking at the results of the election as validation for their adopting RI strategies, at least for the growth phase of workplace defaults. But I suspect that we have more to learn from #okboomer than to throw a few crumbs.

Lessons for pensions- seniority matters more

We are often have to take binary decisions in business. For me there are choices such as whether to satisfy the conviction of younger people and engage through responsible investment, alternatively appeal to the conservative needs of people my own age who are concerned about losing money through scams or their own poor decision making.

These choices are biased by the fact that older people have more in the way of money and therefore pay more attention to the ideas that I am selling. In political terms, the grey voter appears to have been more effective in achieving its result than the young one.

There is a lesson for business one and it’s not very pleasant. While you may be able to get by selling plastic sandals on Instagram (or RI to millennials) , it’s a lot easier to get rich selling financial products to people over fifty.

And here is where I doff my cap to Pension Bee and Multiply AI, Fintechs that target the millennials. In business terms , they are swimming against the tide, they  do however have the estuary to themselves!

The wealth management industry is sipping cocktails by the heated pool.

Is “responsibility” going to work both ways?

There are a number of ways of looking at voting patterns and Ashford Polls looks at a good few. They include voting on single issues (such as Brexit), voting by personality (or lack of it) and voting tactically out of hate for a particular party.

But none of the patterns seems as conclusive as the pattern we started with.

Screenshot 2019-12-15 at 06.18.25

The Conservatives won because the old people made more difference in terms of votes cast and in particular in seats won. Never has the phrase “we are an ageing society” – been so graphically and frighteningly depicted,

The question is whether my generation will exercise the power we have responsibly, or whether we will plunder our nation’s wealth and exclude future generations from our prosperity.

If we do , we will deserve the message on the hoodie.

Screenshot 2019-12-15 at 07.42.18

Posted in age wage, leadership, pensions, Politics, Popcorn Pensions | Tagged , , , , , , | Leave a comment

Let’s get USS done!

Posted on December 14, 2019 by henry tapper

What does the Trustee do?

Ask a 7 year old what a Trustee does and a 7 year old would say “do trust”. 

This is the verdict of chapter 7 of the second Joint Expert Panel on the Trustee of the USS pension scheme.

Screenshot 2019-12-14 at 06.38.14

The press statement from the Joint Expert Panel is available here and the full report is available here

Before diving into the intricacies of dual discount rates and risk budgets, it’s worth asking ourselves why many students last term went without lectures or tutorials or any kind of teaching, why they got nothing for the money they borrowed or spent to be taught.

The breakdown in trust has resulted in the kind of feuding which the general public has rejected in favour of getting things done and I think it time that someone listened and acted on the Joint Expert Panel’s recommendations. If the current trustees and the stakeholders (USS executive, employers and unions) cannot come to an agreement, I would like the JEP to be backed by the Pensions Regulator to take control.

The USS should be run as a mutual and the views of all parties – including the JEP, should be taken into account.

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It has come to something when the Trustee of the USS is recommended to come to the table to discuss getting things done through mediation. This suggests a failure of trust that would amaze the 7 year old.

The USS Trustee no longer “does trust”.

What has happened?

I have hinted at parallels with the breakdown in the political process which resulted in us having to have a third general election within five years.

What has happened at USS is that instead of mutual endeavour to provide university teaching staff with promised pensions, we have two sides who have adopted quite different views on how those promises be met.

USS wants to adopt an approach which makes the possibility of a shortfall in funding impossible by adopting a conservative investment approach and demanding more in contributions from stakeholders. This approach has been adopted by the Trustees.

Members, represented by  the teacher’s union (UCU) want lower contributions and a less conservative investment proposition, resulting in lower contributions for members and employers.

The JEP appears to be siding with the members in recommending alternative investment strategies that would result in higher discount rates and lower contributions. It claims that these strategies would meet the approval of the Pensions Regulator which acts as a referee in what has become a fiscal boxing match.

This is all that has happened in the last three years. Like Brexit, the resolution of the problem has become bogged down to the point that force majeure is now required to get things done

Let’s get USS done

The answer to the problems created by the USS dispute cannot be resolved by the Trustee, which has lost the trust of its members. If this happened it cannot – as any 7 year old would confirm – be called a Trustee. The Trustee has to go and be replaced by an independently appointed body,  the JEP. Indeed the JEP should be employed to moderate the dispute and (with the blessing of TPR), impose a solution to the issues surrounding the forthcoming valuation.

I cannot see any useful purpose to be served by keeping the current Trustee which has lost all credibility with its members and is – in the second JEP report, being severely criticised for its governance failures.

Implicitly, the report is saying as much and it is also asking stark questions of the USS executive too. It is hard to see how the current USS executive can continue in their posts if the implications of the second JEP report are taken on board.

A proper adoption of risk-sharing – a price UCU will have to pay

Getting USS done is going to mean an acceptance from the UCU too, acceptance that ultimately risk-sharing means more than a grudging acceptance that members will have to pay more. To me “risk-sharing” means accepting in adopting a more aggressive investment strategy, some of the benefits of that strategy become conditional on it working.

The JEP second report looks at this kind of risk sharing (p 66)

It has been suggested that to reach a point where levels of risk and contribution rates are acceptable to all parties, it could be necessary to allow flexibility in benefits. A range of possible alternative means by which active members could share the risk could be explored, recognising that contribution levels may already be deterring some potential members from joining.

(thanks Mike Otsuka for pointing this out).

This kind of risk-sharing is practiced by most people in their pension saving and ultimately it leads to fixed contributions and variable benefits.

The paradigm shift away from a guaranteed to a best endeavour approach need not be adopted overnight, it may happen over a valuation cycle or over multiple valuation cycles. It is the long-term solution to the problem.

Again an analogy with the current political situation is helpful. When Labour finally accepts that it has lost the trust of many of its core supporters, it will accept that the ground on which its principles are built has shifted. I suspect the same has happened in pensions.

The principle that a pension scheme produces a guaranteed benefit has shifted with common practice. Those who argue against ideas such as conditional indexation or even reductions in nominal pay-outs now look as out of kilter with popular thinking as the leaders of the Labour party.

The adoption of mutuality

The old governance model which involves trustees acting for members has broken down at USS. Trustees are now seen as supporting the USS executive and this idea of “them and us” has broken the concept of mutual endeavour to the point that young people are not getting the education they have paid for – because of strikes.

Both sides need to come together and change their positions. This is what the JEP is calling for. If both sides cannot back down, they need to walk away and we need a JEP imposed solution – with the blessing of the referee – TPR.

It is not enough for the UCU to dig in its heels, it must accept that for the USS scheme to be run as the UCU want it to be run, there must be more risk-sharing and that – if the more aggressive strategy doesn’t work, the cost of failure must be born not just in higher contributions but lower benefits,

Risk-sharing is at the heart of mutuality. The breakdown in trust is two way and poor as the performance of the USS executive and Trustee has been, UCU must bear its part in the blame for a generation of students not getting the teaching they’ve paid for.

 

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UK workers plan to retire (when it suits them) SHOCK!!!

Posted on December 12, 2019 by henry tapper

 

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We’re not as dumb as experts make out. The average Brit has a fairly clear idea about cashflow and recent research from Canada Life shows that for the man or woman on the Clapham Omnibus, the concepts of retirement are only broadly coincidental with “retirement ages”.

This from Pension Age (as I don’t have Andrew Tully’s press release)

The average UK working adult plans to start taking benefits from their private pension from age 62, according to new research from Canada Life.

The research has shown that despite not expecting to receive their state pension until age 67, the average UK worker plans to retire from work at 64, using private pension savings as a stopgap.

The report also stipulated that “age has a significant role to play”, with adults under 55 seeming more ambitious in terms of their financial goals.

Those under 55 on average planned to access their private pension at 62, and subsequently retire at 63. Respondents over 55 meanwhile stated that they planned to wait until 63 to access their savings, and wait a further four years until age 67 to retire from work.

Commenting on the findings, Canada Life technical director, Andrew Tully, said: “Working till you drop clearly doesn’t appeal to the average UK worker who has plans to slow down in their early 60s, typically retiring from work three years before their expected state pension age.

“This ambition is helped by an expectation that they will begin to access their private pensions before they retire, at age 62. This creates a clear financial planning issue and people need to take positive steps early to mind the pension’s gap. Whether that be saving more, moderating their ambitions or considering working longer.

“Product choice can also play a role as a solution which ensures flexibility, for example a lower income while working, increasing as you move towards state pension and then dropping again can prove beneficial from a tax planning perspective.

“As people approach retirement, it’s clear from our research the financial reality kicks in. If you are looking to retire on your terms a regulated financial adviser will be best placed to help you build a plan to meet your goals.”

Working things out for yourself

If you can find a financial adviser who can help you turn your pension pots into a retirement plan, you should use him or her.

But speak first to Pension Wise who will give you your options on the phone, on a web-chat or face to face. You can speak to Pension Wise for free and all you need to do is book an appointment for a forty minute session. Use this link.

Thinking ahead is a good thing to do. Turning your pension pots into part of your retirement plan can be hard work – but rewarding.

If you want to find out what AgeWage is planning to do to help thousands of people in 2020 , drop me a line on henry@agewage.com. I respond to all genuine emails!

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In defence of professional indemnity insurance

Posted on December 10, 2019 by henry tapper

insurance

 

Insurance markets do not lie, they reflect perceived risk. The cost of professional indemnity insurance for IFAs is rocketing (I know – I’ve been quoted). This is as a result of increased perceived risk of claims against insurance from those who consider they have been ill-advised to transfer and ill advised as to what to transfer to.

IFAs may consider such premium hikes punitive and to some extent they are. The collective failure to police the behaviour of the advisers against whom claims are now being made is now being punished by insurers who feel let down by the “professions”.

Keith Richards has written in Money Marketing suggesting that PI could be provided through the Government levy, effectively extending FSCS cover.

This is a sound way of insuring the public sector but a lousy way to deliver the competition that the PFS prizes. In a competitive market, advisers should be competing on the basis of their track record, those who have a poor track record find themselves at a competitive disadvantage. That is what underwriting does – insurance markets do not lie.

A levy which spreads the cost of insurance beyond those who are insured is asking for the king of behaviours that insurers are keen to stop. It effectively creates moral hazard, reduces competition and encourages the sloppy behaviour that caused the PI problem in the first place

If IFAs are serious about being part of a profession, they need to arrange their own professional indemnity insurance and ensure that the underwriting properly reflects risk.

What is the “pension transfer market”?

The article by Keith Richards makes the following statement

“Sadly, reports show that more firms are exiting the pension transfers market”.

Again I am confused by what the PFS is referring to. If IFAs form a profession, then the last way they should be talking about advice about DB transfers is in terms of a “market”.

If the PFS are representing vertically integrated wealth managers, then a “transfer market” makes some sense in terms of competition for new business.

My understanding is that PFS stands for advice rather than wealth management but it is unclear from the language of the article whether PFS is lobbying for better advice or more wealth to advise on. IF the main source of wealth to fuel the competition that the PFS desire, comes from DB transfers, I think the PFS are hopelessly compromised.

There should be no market for DB pension transfer advice.

Professional indemnity insurance is the market regulator

I have said that PI will catch up with IFAs since I spent time with the steelworkers.

Two years on from “Time to Choose”, it has.

The insurance market is reactive not proactive, the FCA needed to be proactive and they were found lacking. PI is the second line of defence and it is an effective one.

To dismantle that line and replace it with what is effectively social insurance, is to transfer risks that should be born by individual IFA firms onto the industry as a whole.

Since the costs of levies are inevitably passed on to customers, the impact of reducing PI and increasing the levy would be to spread the cost of mis-selling to all customers in the interests of protecting firms which otherwise would have gone-under.

I don’t see this as competitive or in the interests of the general consumer. I simply see it as special pleading from a very profitable part of the financial community.

insurance2

 

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Compassion comes hard

Posted on December 10, 2019 by henry tapper

I shuddered when I watched Johnson’s reaction to an unpleasant photo. Johnson refused to look at it and I know just how he feels. We all have shoved the letter from HMRC under the table, not opened the email you dreaded, refused to take in the bottom line of the spreadsheet.

We are of course lying to ourselves, creating a reality for ourselves which is unique to us, cutting ourselves off from the realities of others.

Which is not what leaders do – or certainly should do.

Mankind can only stand a little reality and Johnson fails in leadership by hiding the journalists phone in his pocket, he is showing a characteristic in ourselves we do not admire.

This is what general elections do to leaders, they tire them to the point where they are seen naked. Johnson recovered enough to struggle on, but yesterday had one of those “thick of it” moments which are salutary and chastening – that is why I shuddered.

How we treat our future selves.

Our promises to ourselves can only be kept if we face today’s tough decisions. That doesn’t mean a token trip to the gym in January or a month off the booze, it means strong and determined action to change our current lifestyles to meet our future promises.

That’s what some of the people we watched last week on Channel 5 seemed capable of and it’s what we know we are capable of too. We have it within ourselves to meet the challenge of our future selves and change our ways.

Many of us won’t – for some the choices are gone.

The homeless who live around me bear witness to the failure of our society to catch those who don’t make it. Witness my Scottish friend never fails to say “hi” to me from his bed on the pavement outside the Grange Hotel St Pauls. He knows and I know he is dying. I cannot give him enough for the hostel he needs, because whatever I give him, goes on stella and fags, that is his pathway.

Yesterday, I went for a diagnosis of why I have pulmonary embolisms, the blood tests alone cost £1500. As I got off my bike coming back from the hospital he was there, we chatted  for a couple of minutes, I  looked death in his eyes and thought what that £1500 could do – for that man and  for Jack Williment- Barr.

I will be diagnosed, I will recover and I will go on to live and work another 30 years, as my Dad did. Many will not get the treatment I have got and will die early and vicious deaths – as I fear my friend will – this winter. As Jack Williment-Barr might do too.

Compassion as your BAU

It is easy for politicians to put on shows of compassion to order. I watched Johnson’s face at the vigil for another Jack , a few days back.

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Pietas?

But compassion needs to be your business as usual, it needs to inform all that you do, if you are to lead a country.

Compassion in leadership

I will respect Johnson as a leader when he faces his crucial moments when he is confronted by reality, and – rather than putting the phone in his pocket – weeps openly or privately for Jack Williment-Barr.

That emotion needs to come from the heart – not from the political playbook.

There is no strength in bluster, there is mighty strength in compassion.

The lessons of Christianity are of pity, compassion, forgiveness and above all love.

Without these qualities are leaders are nothing but hot air. There is something very wrong in having privildge and abusing it, Johnson yesterday was found wanting

Johnson failed yesterday as a leader, he showed himself not up to the challenge of reality. But we should not throw rocks at him, we should recognise we are just like him at our worst.

We can show we can be better in leadership than him, by governing our own lives with greater honesty , guts and determination, in these little matters of compassion.

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Compassion – not learned here

 

 

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FCA fears Woodford “contagion”

Posted on December 9, 2019 by henry tapper

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Then went the devils out of the man, and entered into the swine: and the herd ran violently down a steep place into the lake, and were choked.  Luke 8:33

The City regulator is investigating funds worth more than £15bn that have holdings in Neil Woodford’s collapsed investment vehicle as it seeks to prevent the liquidity crisis surrounding the fallen stockpicker from spiralling.

The Financial Conduct Authority is closely monitoring multi-manager funds with holdings in Equity Income — Mr Woodford’s flagship vehicle that was suspended in June — over fears that investors in these products are vulnerable to contagion spreading from the failed fund. – FT 08/12/19

The question for me , is not what multi-managers have done with Woodford’s Equity Income Fund as what they are doing at all.

The idea of an investment fund is to pass direct control of an investment portfolio to an asset manager who can obtain economies of scale by managing your money in the same way as he/she does others.

At some point , a further level of intermediation was introduced because, it was felt, people needed to have a wider diversification of investments than could be achieved by one asset manager. Instead of appointing multiple asset managers to one fund, it was thought better to have multiple funds under a single umbrella, managed by a super-fund manager.

Multi-managers are not managing your money any more, they are simply managing the people managing your money and it is very likely that in this complex pyramid , there are more than just the two layers. I have heard of hierarchies of funds with eight layers and I have heard the multi-managers within that hierarchy boast of the complexity of what is on offer.

There are three immediate questions behind my big question (what do multi-managers do)

  1. How are they managing the proliferation of costs from employing so many people?
  2. How are they managing governance (voting rights for instance)?
  3. Who is ultimately accountable for outcomes?

Cost proliferation

Over the weekend we learned that leading US universities endowments struggle to beat tracker funds.   It turns out that the decade of great returns enjoyed by equity funds have been enjoyed by Private Equity and public stocks alike. Ludovic Phalippou,. Professor of finance at Oxford university pithily explains why private equity – held by endowments – has underperformed.

“QE has also favoured private equity big time, but unlike Vanguard, they captured it all in fees,”

I do not get the maths, pay five people to do one person’s job and your outcomes are reduced.

Governance

The further you are from the voting rights, the harder it is to influence the the management of your assets. It’s common sense. If you have fully outsourced your voting rights through multi-management, you are relying on others to vote your shares and if those “others” aren’t exercising their rights, there is not much you can do about it.

The layering of fund management described above makes it harder to see what is going on at the coal-face. There is an issue of agency with all outsourcing of asset management , but that issue proliferates as layers of fund management proliferate.

Accountability

It is often said that the only free lunch available to investors is diversification. This phrase could be rephrased , the only free lunches are those enjoyed by asset managers within a multi-manager hierarchy.

A multi-manager hierarchy can quickly become a club. Clubs are great for members but they tend to be exclusive and some would say that multi-manager funds have the capacity to exclude the asset owners.

There is also a natural bias within clubs to protect those within the club and this is presumably why the FCA feel they need to get involved with multi-manager funds which have exposure to Woodford’s Equity Income Fund.

The idea that such funds may, as a result of write-downs in the value of their Woodford Holdings, fall off the perch of the league tables they sit in, is a marketing concern.

The idea that multi-manager funds might themselves become suffeciently illiquid to be gated poses an existential risk to such funds.

Multi-managers do nothing except diversify and the judgement call of any investor is whether the diversification of management justifies the costs of proliferation, the weakening of governance and the lack of accountability.

Since  multi-manager’s can only be judged on their  capacity to deliver out-performance, confidence among investors is especially important. The contagion that the FCA should be worried about is only too obvious.

Then went the devils out of the man, and entered into the swine: and the herd ran violently down a steep place into the lake, and were choked.  Luke 8:33

pigs 2

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The nations wealth is in pensions but not in DC pots

Posted on December 8, 2019 by henry tapper

Private pension wealth is the largest component of household wealth, marginally bigger than total property wealth, and its value has increased by more than that of property wealth too. This reflects a slight cooling in the housing market, while the valuation of pension assets has been pushed up by rising longevity and continued low interest rates (affecting defined-benefit schemes), and more people being auto-enrolled into workplace pensions.

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— Toby Nangle (@toby_n) December 7, 2019

Which adds up to a pension landscape that few in wealth management will recognised

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Further reading

Thanks to the ONS and the Resolution Foundation’s study “who owns all the pie?”

The ONS total wealth and assets survey (2019) can be read from here

 

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Tory pension bung for Clinicians

Posted on December 8, 2019 by henry tapper

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Here is the statement from the Secretary of State for Health and Social Care – Matt Hancock.  

I have agreed to support this proposal from NHS England and NHS Improvement for reasons of urgent operational necessity.

The scheme involves employers making binding contractual commitments to be given to every affected NHS clinician so as to ensure that this commitment is honoured. Full details of the terms of the payment arrangements are set out in letters that are being sent to each affected clinician by their employer including the terms and conditions of the offer.

This contractual commitment contains the provision that in order for it to be operative, the affected clinician must make a Scheme Pays election in relation to the tax charge for 2019/20 only relating to accrual in the NHS Pension Scheme excluding 2019/20 additional voluntary contributions (AVCs) that is accepted by the NHS Business Service Authority.

These binding contractual commitments will provide for payment to be made when the clinician takes their pension, at which point the employer (or its successor) will be liable for the payment. NHS England has undertaken to provide funding to the employer (or its successor) in respect of those liabilities as the payments are made.

There are long-standing precedents for how the liabilities of NHS bodies are met and the government will act in accordance with these.

Should the NHS trust or foundation trust employing the clinician cease to exist, there are statutory provisions to ensure its liabilities, including commitments to staff, would be transferred to one or more existing NHS bodies, or the Secretary of State. The Secretary of State ultimately takes responsibility for the liabilities of NHS bodies including NHS England and NHS Improvement.

Legislative changes to NHS structures by successive governments have previously made provision for the liabilities of organisations that cease to exist to transfer to successor bodies or the Secretary of State. The commitment to make these payments will be contractually binding and if either (a) there is no employer or other NHS body to make this payment at the time the clinician retires or at any later time when a payment falls to be made, or (b) any NHS body to whom these liabilities are transferred does not have sufficient assets to make the payment, the Secretary of State undertakes responsibility for making the payment, or securing that it is made.

Therefore, these payments will be honoured even if the NHS body no longer exists in the future. In order to provide the same level of assurance to clinicians who are TUPE transferred outside the NHS, NHS England undertakes to ensure that the financial responsibility for meeting any employer’s liabilities in relation to this commitment is transferred or remains with an NHS body as part of a future transfer process.

Clinicians are therefore now immediately able to take on additional shifts or sessions without worrying about an annual allowance charge on their pensions.

Matt Hancock, Secretary of State for Health and Social Care

Reactions

It’s good that clinicians (and doctors in future) will be able to earn without fear of penal pension taxation, but this is not a long-term fix to the problem. This blog has constantly complained about the repeated failure of Government to act on recent consultations on pension tax incentives. This crisis is a result of this failure.

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Politically, we are now in a climate of “zero trust” and this statement, though made by an active secretary of state, is being classed as a political promise.

We cannot use tax-payers money to pay-off one group of voters at the expense of another. The doctors have a very real grievance (as this blog has promoted for some years). The timing of the first proposed solution to a problem we have known about since 2017 is less than a week away from an election.

Pensions last a lifetime and pension liabilities stretch indefinitely into the future. Responsible Governments legislate for permanence , not for votes.

The NHS pension scheme is unfunded and is paid by the tax-payer as we go; so you can insert “tax-payers” for “assets” – but you get the idea

 

If you would like to see details of the offer and the frequently asked questions on subjects such as AVCs, added years, scope and timeframes – read here

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Can we really afford to retire?

Posted on December 6, 2019 by henry tapper

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Gavin and Louise looking at holidays

That’s the question Michael Buerk has been asking those tuning into the second episode of Channel 5’s documentary on our retirement planning.

1.5m of us are working beyond the retirement age with 90% reliant on state benefits alone. One in five of us have no pension at all.

Gavin and Louise have no plans to be working beyond 60. Gavin would like to retire at 55 having been in the army since 1989. This would mean them retiring together.

They are “seizing the day” but they haven’t ever sat down to work out what their dream would cost.

Louise has £22,000 in a pension pot and a buy-to-let income of £400 pm. Gavin has a military pension of £12,000 a year and a lump sum to come.

They are hoping to spend 3 months a year travelling abroad. Having been taken to the travel agent it turns out one holiday in a lifetime in New Zealand would cost them £15,000. They want to spend £10,000 pa but their pension planning tells them their combined holiday budget would be £2,500 – one dream holiday every six years.

You can’t buy a sausage with a brick (the rent trap)

Nearly 4 million Brits plan to sell their properties to fund their retirement. But they will still need to find somewhere to live.

Denni and Graham moved into rented accommodation , having sold their property to buy a salon. They are trapped in the “rent-trap” meaning they are working for their landlord, not their retirement.

Renters are stuck paying more for their rent on falling (real) incomes. The number of older people in the private rented sector has doubled in the last ten years and the vast majority of them are people on low incomes renting in the private sector.

“Once the kids leave home”

For retiring sergeant- major Gavin White, what’s critical is getting another job when he leaves the army or face a drop in income of £17,500.

Far from retiring when the kids leave home, he is looking at living on subsistence levels – not exploring the joys of the new found freedom .

For Gavin and Louise to retire at 55 and 60 , they could also consider down-sizing.

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Felicity explains it how it is

At least Gavin and Louise have the option to compromise on the dream.

Juggling as a single parent

Single mother 44 Clare Craig splits her time three ways. There’s no money to save for a pension , no money for a holiday and she can’t see beyond the life she’s not properly living on now.

Two thirds of the people who rely on the state pension in retirement are women and most are single.

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Clare has no option to save

The retirement outcomes of single parents are half the comparables of those who spent an equivalent time in a stable relationship.

Can you afford your retirement- now?

Just over half a million of us are approaching their retirement age this year.

Ivor is one such fellow, at 59 he is still working the clubs on ever diminishing earnings. He’s washed-out by his own admission – what can he do but retire? But he’s too scared to do anything else , because he has nothing to fall back on.

For Gavin White, the option of earning after he leaves the army is now the only option if his and Louise’s comfortable retirement is to happen. Hostile environments not luxury holidays – it’s not what they wanted.

Carol May is a 64 year old cookery teacher who has worked out that there won’t be a time when she won’t go to work. Nowadays she works three days a week which exhausts her- she’s a Waspi Woman.

With 40 years national insurance behind her, she only have a roof over her head thanks to charity. She relies on food-banks.

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Carol is back at work at 64

The problem is partiularly acute to women like Carol – relying on benefits and low-paid work. It’s harder to find and keep a good job as they grow older

 

Big ideas – need big plans

Felicity Hannah points out that for people like Gavin and Louise, it’s not enough to just save for retirement, they need to plan for their retirement.

They don’t just need a pension pot – but a retirement plan – in financial terms an AgeWage.

Gavin and Louise have used the program to create a ten year plan which involves working longer and saving in a purposeful way so retirement expectations are met.

The grim message of the program was that Gavin and Louise appeared to be the only couple over two episodes who had done just this.

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A crisis created by a lack of planning?

So was this two part documentary worth it?

There’s a lot of talk on social media about it focussing on doom and gloom. But in the gloom the gold gathers the light about it.

I found the program has given me a kick up the backside to get back to what I should be doing – “converting pension pots into retirement plans”. So I’ll give the last word to Felicity Hannah

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“Britain’s great pension crisis” – beware or despair?

Posted on December 5, 2019 by henry tapper

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Going out after the watershed, Channel 5’s two part exploration of how fit we are to retire, sits awkwardly between the Yorkshire Vet and Chris Tarrant’s Extreme Railways, not the kind of TV you’d watch unless you’re into Michael Buerk and Felicity Hannah.

I’m a fan of episode one and , though I’m crusty enough to have difficulty with catch-up, I’ll be watching episode two when I get in from the Rewards awards tonight

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Last night we saw Aron Ling and Rachael Newton  sandwiched between Michael and Felicity work out that they haven’t saved enough to realise their dream of a gite in France and were on course for two weeks in a caravan overlooking the north sea.

They also found they would need to hand back two thirds of their week Lidl run , were they living on their post retirement AgeWage.

And they discovered that their posh steak supper at the local bistro would be downgraded to an open fish and chip supper.

All of which made them think, and it made me think too, as this couple were old enough to know better and clearly didn’t. He’s a fireman who in the public service would be looking forward to a proper pension , but he works for Norwich airport and has £60,000 in a Scottish Widows workplace pension.

A crisis of expectation

This wasn’t a program about investments or dashboards or guarantees or anything else of the paraphernalia we call “the pension industry”, it was about money saved and money to be spent.

Put simply, the couple thought they were doing ok with £60,000 put away and Felicity kept delivering envelopes that told them otherwise. Here were two working people with a reasonably affluent lifestyle and a house worth £180,000 who had a “pot but no plan”.

There wasn’t a financial planner in sight, but as Felicity kept banging on that financial planning was what this couple needed. There but for the grace of God go I and I bet a high proportion of those who stayed tuned in after the Yorkshire Vet were making some mental calculations about whether they were any different.

The harsh reality of this program was not sensational, it was horribly familiar. People are enjoying the fruits of today and complaining they cannot give up their current lifestyle for the fruits of tomorrow.

And it didn’t stop with lifestyle , one of the stories was a lot darker

 

 

A problem easier to illustrate than solve

We know from the election just how expensive it is to put pensions right on a national basis. The cost of restituting a part of the “stolen” WASPI pension is estimated at £58,000,000,000. The DWP estimate the cost of full restitution to be three times that. The cost of meeting the expectations of everyone like  Aron and Rachael could run into trillions (there are two hundred £50 billions in a trillion).

That’s how short we are of meeting our collective expectation of an age in later age. It will take a massive lifestyle shift akin to giving up smoking and drinking to adjust to a world where we are effectively saving for the retirement we dream of. While this blog focusses on the minutiae, (scam-avoidance, ending rip-off charges  and providing people with proper income choices in later life) , the big picture was on Channel 5 last night. It didn’t make for comfortable viewing for Nic

And the program didn’t stop at confronting people’s unreasonable post-retirement expectations. The sections that looked at the cost of care focussed on the post-retirement finances on a lucid lady who was losing both the love of her life and her life savings.

More questions than answers and Joe – the optimist was frustrated by the lack of magic money trees. Is it any wonder that successive Governments have been kicking these cans down the road? We can barely afford the front-line NHS, we are nowhere near affording to meet the 400 pensioners a week who sell their houses to meet their later life care costs. Opinion on social media (among my lot) was divided – but more positive than negative

 

 

The obligatory scandal slot.

Pension programs cannot get by without talking about the perils of investment and this one was no different. A couple of retired civil servants had placed the proceeds of their savings with a Forex specialist who had gone bust and now owed them their dream home in the south of Europe. They had tried to hedge their currency exposure with the wrong people and the story told us about the vulnerability we all have in the strait of Hormuz. Our tankers are laden with oil and there are pirates about. There should be protection but there not always is. My friend Joe got hot extremely hot under the collar about this,

The program walked the fine line between fear and hope, need and greed. I thought it walked the line.

 

Beware or despair?

As with so many crisis – including our nearest and dearest BREXIT, the impending catastrophe rarely turns out to be quite as bad as we thought and it is usually averted by pre-planning. The ads to the program included a cheery salesman from an equity release broker telling us that we could buy our sausages with bricks. On a day when M&G closed its mega-property fund for lack of liquidity, I was a little sceptical

There was a section of the program when Aron and Rachael discussed their business planning for later life. It was clear they were simply unaware of what the future held. This program stress-tested their dreams and found them falling well short of the £250,000 minimum savings threshold they’d need to stop working.

The truth is in short supply but there was plenty of it in this program.

The big question is whether this truth makes us aware – or despair.

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Are women saving as they’d want?

Posted on December 4, 2019 by henry tapper

Mumsnet

 

I’m in the unusual position of being in a long term partnership with a lady who earns more than me and knows a lot more about pensions than I do.

I wish it wasn’t so unusual but the sad fact is that there is a wide pensioner pay gap , just as there is a gap in earned income between men and women. For most households, women are likely to have the weaker finances.

By the time a woman is aged 65 to 69, her average pension wealth is £35,700, roughly a fifth of that of a man her age, according to a study at the end of 2018 conducted by the Chartered Institute of Insurance (CII).

Emma Maslin is a money coach asks an important questions on her blog

After having children, I had a career break. When I returned to work, for childcare reasons, I took a different role with a significantly lower salary. Then I worked part-time, with an even lower salary.

Finding myself in an unsatisfying role for which I was overqualified, I started my own business. This gave me back a sense of purpose, but took away access to an employer pension scheme with its top-up contributions.

The motherhood penalty, the flexible working sacrifice and the pitfalls of opting for a self-employed life — my pension pot has been hit by them all. How about yours, or those of the women in your life?

What worries me is that many  women I know are financially ill-prepared for retirement and feel guilty that they have let themselves or – worse – their families down.

They pay the motherhood penalty twice- firstly by losing out on personal security and secondly by societal pressure which suggests they have been financially feckless.

The situation women find themselves with regards saving are mirrored by state pension entitlements. Reforms to state pension entitlement should over the long term largely remove the state pension as a source of future inequality but in the short-term, as the WASPI women point out, women’s finances will get worse before they get better.

So what can women do for themselves?

Women do not earn considerably less than men until they reach Mum’s age

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It’s clear from this chart that women are in the strongest position to save for themselves when they are young and that as they move into their forties, both their earnings and spending power decreases dramatically.

And – due to the power of compounding interest an average earner in a good-quality defined contribution pension scheme could miss out on £100,000 in employer contributions and tax relief by leaving pension saving until they’re 40 (source Barnett Waddingham actuaries).

Put simply , the savings women make when they are younger are the ones that count most when they retire.

Many younger women I talk with are both ready to save and happy to save for their futures but lack motivation to do so as they prefer investments which they can control and have obvious positive social impact.

Historically, the assumption has been that an investment for social good won’t perform as well as one that invests with little regards to Environmental, Social and Governance considerations.

This assumption is being smashed by recent reality. The market no longer favours “sinful stocks” and is increasingly investing in the equity and debt of organisations with a low carbon footprint, strong social purpose and responsible governance.

What is more, it is now possible to invest in funds which are specifically targeting investments that  score strongly on ESG. Technology is increasingly allowing women to see through the fund wrapper and look at the underlying investments in the funds they invest in.

The weight of money flowing towards these funds is creating momentum in their favour and many of these transparently run ESG funds are out-performing more traditionally invested counter parts.

These funds are now readily available in most workplace pensions that women can invest into. We expect shortly to see them as the “standard” fund into which you are invested if you do not make a choice.

These standard funds (often known-unfortunately- as “default” funds) are expected to be selected to meet the needs of investors and increasingly research is suggesting that investors, especially younger women are demanding their money is invested responsibly.

So what am I , a 58 year old man, telling my young female friends?

Firstly, all women, but especially younger women , should stay in the workplace pension schemes into which you are enrolled

Secondly, if you are like Emma Maslin you start your own business or choose to be self-employed, you may find yourself without a workplace pension. If this is the case you should consider setting up a pension with the Government pension scheme called NEST.  This is an option for all businesses and the self-employed.

Thirdly , you should consider making extra contributions into your pension scheme. If you are in a relationship you should discuss with your partner, the importance for you of building up financial security and insist on your right to do so. For too long, young women have been told they will be looked after- too often they aren’t.

Finally, if you are one of the young women I have been meeting, then you should be investigating the ESG friendly investment options offered by your workplace pension.

Fortunately, the senior positions in reward, human resources and (for the larger employers) pension departments are likely to be on your side. “Engagement” is the buzzword and asking those who run your workplace pensions for information should be met with happy smiles!

If you cannot get help from your employer, you should get help from the helpdesk of the workplace pension provider your employer has contracted with . For those without a workplace pension, large schemes like NEST are well resourced to answer your questions,

As a final point, it’s worth thinking about the pension package when you change jobs. The current minimum pension contributions from employers under auto-enrolment are none too generous. Make sure that if you are negotiating your pay , that you include pensions in your package.

Look out for yourselves – you cannot rely on anyone else to do that for you.

 

 

 

 

 

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Regulation 2.0 (and how to pay for it).

Posted on December 4, 2019 by henry tapper

 

tPR

I am on something called the Pension Regulator’s Stakeholder group which means I’m supposed to champion tPR .I get meetings with MAPS (which always get cancelled at short notice) because I represent something out there called “innovation”.

But in truth I am no champion of tPR and think MAPS as innovative as a plastic bag polluting the beach.

If Government wants its “arms length bodies” to get properly funded, those bodies had better show themselves worth funding first by publishing a clear business plan into which the private sector can choose to invest (or not).

The DWP has just completed a consultation on how its arms length bodies, tPR, the Pensions Ombudsman and MAPS are funded (the general levy)

The problem is that these arms length bodies have decided to become a whole lot more expensive.

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Nobody has put forward a good argument for why we should throw a whole load more money at this problem , the solution is – it appears – to find the best way to transfer money from member’s pots to civil servants’ pockets.

The stock response from Government is that the “pensions world has changed”, but the link between increased expenditure and change is not clear. At least in the case of MAPS, there is no business plan to back up the assertion that more money is needed.

I’m grateful to Ian Neale and Aries Insight for pointing out

When the “Single Financial Guidance Body” was announced nearly three years ago, the Government declared that it expected levies overall would not increase – and might even decrease “as the efficiencies generated from merging the three current services into a SFGB begin to materialise”.

Ian  thought then that this was optimistic and predicted steadily increasing levies. The Government stated then it had no plans to widen the funding base.

The government proposed four options to increase the levy, favouring an option, which would see a rise of 10 per cent in 2019-20 rates on April 1 2020, with further increases from April 2021 “informed” by a wider review of the fee.

Other options included a phased increase over three years of 45, 125 and 245 per cent, respectively, or over 10 years starting in 2020 or 2021.

These staggering increases will be born on a headcount basis, meaning that rich schemes like USS with high per member funding will pay little , while schemes like Smart, People’s, NOW and NEST will be landed with huge levies based on huge membership but with precious little in assets over which to recharge the extra costs.

Put in terms which ordinary people will understand, those who have least will pay most, while the schemes that have most will pay least.

That is not a recipe for fairness. Since MAPS, the biggest drain on the levy has failed to publish its magnum opus for 2019 – its business plan, I am siding with the big master trusts in their very real objections to paying more for something that is delivering less.

Conspicuous failure at MAPS

I won’t comment on the Pensions Ombudsman as I have too little to do with it , to make any kind of judgement.

As regards tPR, it has had some success, the master trust authorisation process went well and it continues to bask in the glory of auto-enrolment implementation (which it did well). It has adopted a pragmatic approach to DB regulation which looks strategically sound, forcing small schemes into a one size fits all strategy (unless they pay to be different) and focussing on managing the risks of large scheme failure. However tPR is inefficient in its work, lacking in outside accountability and anything but transparant in its publication of impacts and forecasts.

But it is MAPS that should worry the DWP and all in pensions. It is the amalgamation of TPAS, MAS and the various bits of Pensions Wise which fell outside these two. It is currently leaderless , having lost its CEO a few months into the job. It has failed to deliver the one thing it promised to deliver – a business plan. It is haemorrhaging staff and the quality of its delivery on pensions (since the departure of Michelle Cracknell) has fallen off a cliff.

“MAPS has a death-wish” as one former DWP minister told me. It is asking to be funded by the pension poor but it is doing little for the pensions poor except spend their money.

My advice to DWP

I will be watching Britain’s Great Pension Crisis with Michael Buerk and Felicity Hannah which airs Wednesday December 4 and 5 at 9:15pm on Channel 5.

My advice to DWP is that it does the same and that while watching, it asks whether it is really doing what it can to help those most in need.

We have a half-built system of universal benefits that needs every penny it can get. We have crazy plans to spend every penny (we don’t have) righting the wrongs of pension miscommunication in the past. And we are considering denuding the pension pots of the poor to pay for arms length bodies who are simply not worth the money.

Darren Philp of Smart  speaks better than I can, as he is policy Director at Smart and at the coal face.

“While we understand the need for levy financing to meet expenditure in the short and long term, we cannot support the proposals outlined in this consultation paper, which present knee-jerk solutions to a long-term and structural financing problem with the general levy.”

Gregg McClymont of Peoples speaks to the same point.

“The per member structure made sense in a world of long-term employment, where a smaller proportion of the workforce had access to workplace pension saving. But auto-enrolment is a small pot-creation machine, because it’s, rightfully, brought in a new group of people with lower earnings who move from job to job much more frequently.

“It’s completely unfair that these savers carry the heaviest regulatory burden, with master trusts paying the highest cost.”

These quotes are taken from an excellent article by Maria Espadinha of Pensions Week which you can read here

 

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Why investment reporting has to change.

Posted on December 3, 2019 by henry tapper

 

 

I remember when I used to provide market intelligence to Eagle Star feeding back the confusion we were creating amongst trustees and sophisticated members and policyholders who were trying to find out how funds were performing.

Every time that Eagle Star set up a new “product” – it set up a new fund series. Sometimes the only thing that changed was the way that charges were taken, but the people monitoring the funds had to check which fund series they were in and try to make sense of whether the reporting was gross or net of charges, whether they were in for a bid/offer spread if they sold – or a single swinging price and of course most of the time the mix of funds people were in was constantly changing as their investments followed a lifestyle strategy.

Even in the late 1990s I knew that the amount of money that our customers would get from their retirement saving depended on a lot more than the markets and the skill of the managers. I talked with people like Caroline Moore about the impact of transitioning (when one fund is exchanged for another) and Malcolm Kemp about tracking error (how for instance holding some cash in a fund could change the performance).

During this time it became obvious to me that whether I got value for my money was down to a lot of factors about which I had no control and that my retirement really was in the lap of the Gods (or so investment gurus seemed to me at the time).

Has anything changed?

Today I speak to a lot of people who are those “Gods”. I speak to the CIOs of large pension schemes , Trustees, IGC members and people running employer governance groups. The first complaint I hear is how hard it is to get accurate, consistent and relevant information on the performance of individual pots from the people charged with giving that information.

It was ever thus!

The reality is that they still have to rely on performance reporting that has changed little since the early 1980s when I started advising. People simply don’t get the information to know whether the bets other people have taken on their behalf have paid off, whether the costs of management have ripped into their pots or whether they have been treated fairly and profited from the markets.

Most of those who took decisions on our pots are not here to account for those decisions (Caroline and Malcolm are exceptions) but even if they were, would we be able to see where they had gone right or wrong? Even if we are super-consumers and act as trustees or sit on IGCs , we can’t see the impact of implementing a transition on a saver’s pot, we can only hope that the sequential risks that the transition involved worked in a saver’s failure.

Nothing has changed and nothing is changing. The saver takes the risk, the provider the decisions and the saver has no line of site.

Outcomes based reporting

Recently, I have come to the conclusion that the only thing that allows us to properly understand the value people have got for the money saved into their pension pot is by measuring outcomes.

I won’t bore you with the details of the AgeWage algorithm but will say that by the end of 2019, it will have been employed over 1,000,000 times to give over 1,000,000 AgeWage scores which will have been shared with insurance companies, master trusts and the trustees of large occupational DC plans.

And whether the score is 100 or 1 (and we’ve had both), the story behind the score will be different.  Helping to understand those stories is the most important feedback that a provider can give a fiduciary or a fiduciary can give a saver. Not only does it tell the plain unvarnished truth but it gives the person taking the risk a narrative about the money which is engaging and a learning experience.

Getting away from these long and slightly cliched expressions, it gives punters something to get hold of.

I think that outcomes based reporting is the only way to report on DC. Individuals take the risk, individuals deserve the reports, what they do once they are engaged is critical, but if they never engage, we know that what they do is strip our cash and leave their money to rot. That is not what anyone wants to happen.

Why Investment Reporting has to change.

For 35 years I have seen people being short-changed when it comes to reporting on how their savings have done. In that time we have become so accustomed to not being given reporting on our money that we have given up.

Today, everyone from the regulators down believe that we cannot provide a common measure of value for money (saved).  This despite the methodology of producing individual Internal Rates of Return and benchmarked IRRs is now readily available.

It seems inevitable, however hard it is to stomach, that change will come and that providers will be judged – not by their IGC and Trustee’s complex VFM reports, but by the outcomes that savers experience. Of course these outcomes are more than just the size of the pot and individuals will measure the value of their relationship with a provider by soft factors too, but the critical measure – as was shown by the NMG VFM surveys of 2017, is money in – money out.

Investment reporting must start with outcomes and build backwards. It can no longer rely on constructing fabulous statements to do with value for money depending on reporting that means nothing to the ordinary saver,

agewage evolve 1

 

Posted in advice gap, age wage, pensions | Tagged , , , , , , | 1 Comment

How well do we support the victims of pension scams?

Posted on December 1, 2019 by henry tapper

 

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Beat the Banks linked in persona

The mark of a decent society is as much about how we treat the victims as the perpetrators of crime.

On Friday (while a horrific crime was very publicly  happening nearby), 40 of us were thinking of games to help people prevent themselves becoming victims of financial scams.

We didn’t talk about the victims of scams – perhaps we should have.

The victims of scams are known to be at risk of being scammed again. They are among the people who appear on one of the 15 known lists of the vulnerable , known to be available on the dark web. They are people who are extremely valuable to scammers as they are most likely to be scammed again.

  • I am worried that a new breed of pension scammer may be emerging, and they may be targeting those who are already scammed using pension claims companies.
  • I am worried that these companies are forming alliances – sometimes with legitimate firms and seeking safety in associations
  • I am worried that people are getting confused and that scammers can exploit that confusion and leave victims to the mercy of HMRC and the courts
  • I am relieved that at last , a Judge has recognised the victim’s confusion and separated it from collusion

Where next for the scammers?

Take a look at google and you will find that the pension scammers are currently keeping a very low profile. This may be because currently the FCA is putting the heat on social media platforms to keep financial scammers away.

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The rise of the pension claim company

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Beat the Banks is avoiding the google prescription because it claims to be on the side of the scam victims. When I first read the “Free Pension Review” headline, I thought this would lead to a warning to scam victims not to fall for one – or at least to be aware that reviews are the start of the journey that leads to perdition.

This was not the case. Entering into www.beatthebanks.co.uk I met screen pages which seemed to have been scraped from the sites of the scammers themselves.

Potential customers are presented with no information about who Beat the Banks are, but get instead a series of data captures designed from which they may get a call back.

If you want an example of how confusing data capture is, look at the small print of “Cash my pension”

Cash my pension do not offer financial advice and are in fact a marketing company working on behalf of FCA regulated companies in the UK who pay Cash my pension is for their marketing services.

Cash my pension and Beatthebanks are differing organisations but they both pop up on the first page of a google search for Pension Scams.

Data capture is  the way that many people start getting scammed and anyone in the situation of the two unfortunates above are potentially giving their names to the operators of the lists of the scammed circulating the dark web.

Some pension claims companies worry me.

An “Alliance of Claims Companies”

Beat the Banks, along with a host of other claims management firms – is a member of a the Alliance of Claims Companies, indeed the executive committee includes Mike Begg , who is according to this now hidden page, Beat the Banks’ Managing Director.

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The Alliance of Claims Companies appears to have been set up to keep claims companies honest. Specifically it has set up a compliance service to enable Claims Management Companies in business after they need permissions from the FCA (since January 2019)

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I’m interested in why Beatthebanks has no mention of the FCA on its website, why it has dropped the page explaining “how it works”, why there are no mentions of anyone responsible for the service on its website and why there is a data capture on every page.

I’m interested in what expertise BeattheBanks has, since it shows only one employee on LinkedIn (not Mike Begg) and appears to be a trading name for PPI reclaims (Scotland) Ltd.

If anyone from the ACC or Beatthebanks can answer these questions , please get in touch with me henry@agewage.com

The Alliance of claims companies worries me.

Treating the scammed fairly

If anybody wants to know the story of Sue Flood they can read it in full here. She is just one of many victims of loan-back frauds that proliferated at the turn of the last decade, fighting off HMRC who are pursuing the victims of back tax for defrauding HMRC and applying 55% tax penalties on monies withdrawn early.

I have sat in court and seen the confusion that victims have about what has happened to them. This is with the benefit of years of regret for being ripped off. I have seen eminent lawyers use aggressive language towards victims as if they were the perpetrators and I have seen the impact of this ongoing aggression on the victims lives.

The attitude of the justice system towards those confused into being scammed – worries me.

Thank goodness for Judge Christopher McNall

Last week Judge McNall delivered a verdict that should come as comfort to victims like Sue Flood.

He ruled that Elizabeth Hughes had been defrauding herself without her knowing it.

The tribunal heard that Fast Pensions had contacted Ms Hughes about the pension transfer in July 2012 and subsequently moved the whole amount of £31,267 from her occupational pension to a pension held with Fast Pension.

Around the same time in 2012, Miss Hughes took out a loan to finance the completion of her PhD, which she believed to be a separate and unrelated transaction.

However, this £10,000 loan was arranged through Blu Funding, which was connected to Fast Pensions and has also now been closed down.

Because the loan was secured by Blu Funding, the tax authority pursued Ms Hughes for 55 per cent tax on the loan she had taken out.

This is because to HMRC the loan had come from the pension and should therefore be treated as an unauthorised payment from her pension scheme.

But Judge Christopher McNall accepted that Ms Hughes was unaware that these two events could be linked.

1.Note on Fast Pensons  This is the  FSCS summary of the Fast Pensions scam.  My summary of what went on is here (credits to Angie Brooks).     Angie’s contextual blog is here

Those who have followed my blogs will know  that scamming is mainly about confusing the victims into thinking they are doing the right thing.

These victims put their trust in scammers and are then asked to put their trust in claims companies (who use the same techniques).

These victims then find themselves on lists of vulnerable people and find themselves targeted again and again by the same scammers.

Judge McNall’s verdict at last creates a legal precedent for those , like Sue, who have been bamboozled into schemes they know nothing about and are now being accused of being complicit with the people who scammed them.

Does this ring any bells?

Thank goodness for Judge Christopher McNall.

We must support the victims – not persecute them

There are a number of issues arising out of these blog which I will sum up in a few bullets.

  1. It seems to me that Claim Management Companies are operating outside any authority – including the FCA

  2. It seems they are able to advertise on google and elsewhere with little scrutiny of what they are saying on their sites

  3. Many of the sites advertised on the ACA advertise they are still accepting PPI claims (after the deadline)

  4. Most of the websites I have looked at show no human beings on the site.

  5. Most of the sites are primarily aimed at data capture

  6. The educational elements of the sites (especially around pensions) are crude

  7. I have found no reference to Government agencies such as MAS or TPAS or tPR or FCA as a source of additional support.

In short, the claims management sites I have visited (Beatthebanks being typical) aren’t providing much support and are leaving victims of scams open to more scamming if they succumb to the data capture.

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from Red Hawk legal  why not from beatthebanks?

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If you would like to get involved in combatting pension scams you can sign up to The Transparency Task Forces’ Symposium next Tuesday (December 3rd)

Follow this link to book a place;

https://www.transparencytaskforce.org/upcoming-events/london-3rd-december-2019

Posted in advice gap, age wage, pensions | Tagged , , , | Leave a comment

How Scam man and Robbin’ won the world’s first Scamathon

Posted on November 30, 2019 by henry tapper

 

Scams are a worry, and not just to those who’ve been scammed.

At the world’s first Scamathon , Pension Bee’s new NED, Michelle Cracknell told us it could happen to any of us – indeed it had happened to her.

Walking down Cheapside this morning (in a disconsolate mood), she’d been stopped by a young lady selling makeover days. Michelle knew she shouldn’t but she did. Not only did she sign up but she did that half-knowing she was being dumb. Not only did she guiltily hand over her credit card details but she took a “free-pack” for a friend. I’ve got Michelle down as pretty savvy, resilient and firm.

She doesn’t take any nonsense from me. So why did she fall prey to a scammer on the day?

For Michelle it was down to the peculiar circumstances of that day, and though the damage won’t last her a lifetime, she understood “vulnerability” in personal not abstract terms.

Personal not abstract

I got a lot out of my day in Stratford and it was all about understanding vulnerability , not in an abstract but a personal sense. I don’t now think of others as vulnerable , but of the vulnerability in me of which I sense two types. First the type Michelle talked of, the insecurity that can grip us on an occasional basis that leaves us open to deceit; secondly, the cockiness that make us feel invincible, and can lead us and others into calamity. Which is why it was so very good to spend the day in teams.

I am sure my team was nothing special , but it felt special to me – spending time with Joe from Quietroom, Alana from Smart Pensions , Sophie “the brains” from Nutmeg and the boss – Lucy from Pension Bee. At one point I felt quite lost facing their youthful energy, Sophie told me not to be so stupid, they needed my experience as much as I needed their innovation.

But to see these two  problems of vulnerability through a variety of eyes, as the team allowed me to, helped our team – and I’m very pleased to say we came up with a winning solution. Not that all the solutions we saw weren’t bloody brilliant.

Together we came up with four quite different answers to a simple question, “how do you get people to simulate being scammed, in a game”.

Gaming scams.

The idea of the game comes from the University of Bournemouth who have done some of the best research on financial scams.

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The picture is of a society increasingly at risk of being scammed as scammers get smarter and we lose our cognitive faculties.

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BU at Glasto

Bournemouth University had taken a game of “Scams and Ladders” to Glastonbury Festival in 2017. The board was on show at the event yesterday.

Scams and ladders

but I can’t find any details on the web – so you’ll have to make do with the AgeWage version , which I promise we came up with entirely independently (though it looks remarkably similar)!

agewage snakes and ladders

The AgeWage version of the scams and ladders game

I’m afraid that it’s going to take something a little more engaging and relevant than this game for anti-scam game-ware to go viral.

ScamMan and Robbin’ – going viral?

I can’t say that the six hours or so we spent sorting out the kind of three minute game you could play off your SMPI statement (if you got it digitally).

Details of the game are top-secret and have been passed to the coders. You will be hearing more from Pension Bee on this shortly, but trust Romi Savova to spot and publish the genesis of our dark secret

Thanks to Romi, Rachel and all the Pension Bee team for setting this up, thank the judges, Margaret Snowden, Stephanie Hawthorne and Michelle Cracknell and thank Barclays for the use of their Hear East facility and to all the observers like Phil Castle and Oliver Payne, who came to find out.

Posted in pensions | Tagged , , , , , | 4 Comments

Yes advice is really valuable and so’s good guidance!

Posted on November 29, 2019 by henry tapper

 

throne

I had some time yesterday to read up on two documents about advice and guidance. The first was an article by John Lappin in Corporate Adviser, explaining the need in the workplace for more help for people navigating the dangerous waters as they try to move from saving to spending their savings.

The second is a report produced by the International Longevity Centre and presented yesterday to the PFS conference by Steve Webb. This report , demonstrates in financial terms how much better the average person would have been taking advice over the first two decades of the millenium – than going it alone. The answer is on average £47k and the report shows that the less affluent would have been disproportionately better off than the affluent – by taking advice.

Some people, including my friend John Mather who put me on to this report, will be surprised that I agree with both John Lappin and with the ILC

Here are the results of the ILC report itself

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The aggregated finding are in the bottom three rows and I have no doubt that the key conclusions are right.

  • Receiving professional financial advice between 2001 and 2006 resulted in a total boost to wealth (in pensions and financial assets) of £47,706 in 2014/16.

  • The benefits of financial advice are potentially greater for those we term “just getting by” than for those we consider “affluent”: the former would have seen a a 24% boost to their pension wealth compared to 11% for more affluent groups (those most likely to be advised).

  • Evidence also suggests that fostering an ongoing relationship with a financial advisor leads to better financial outcomes. Those who reported receiving advice at both time points in our analysis had nearly 50% higher average pension wealth than those only advised at the start

Which begs the question , why isn’t advice more generally available to the less affluent. The answer to that question is dealt with John Lappin’s article.

Steve Bee, making a welcome return to talking about financial services (since his firm’s acquisition) is clear that the employer has a key role – especially when they can put mobile technology into play

The best place for employees to find out this stuff is through their employer. Whether they’re actively involved or not, they still need to be the hub. I always thought the Money Advice Service in the early days should have been planted on every pension scheme’s website.

“Employers can do a load of this stuff because everyone’s got a computer in their pocket these days. You can make financial capability tools, simple ones, and even quite complicated ones available to everybody. It’s the next step for pension schemes.” Bee points out that the larger schemes have always done this sort of communication.

Tom McPhail believes the FCA and tPR can help too.

“I think it is now about finding a regulatory framework that enables firms to do more of the guidance stuff. There is a guidance gap not an advice gap.”

Synthesis

You might be slightly confused at this point by the differences in approach of those who see the benefit of advice and those arguing for guidance in the workplace.

I am here to provide some Kantian synthesis in typically cod fashion.

The problem with advice is delivery, it is not deliverable in bulk for all the reasons we know

  1. over-engineered fact-finds
  2. cost of regulation
  3. advisory business models
  4. lack of human resource

We also know that guidance is potentially deliverable in bulk for all the reasons we know

  1. mass distributors (employers, insurers and trustees)
  2. workplace pensions
  3. technology
  4. lighter touch legislation

The synthesis is simple. Guidance is the ante-chamber for Advice. Many could benefit from guidance and choose to enter the temple of the holy of holies – where sits the IFA on his gilded throne.

throne 3

But even those who do not enter into the inner sanctum will get the benefits of guidance, leading them to take exactly the decisions that the ILC see as making all the difference.

 

throne 4

Alternative thrones are available

 

 

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Let’s call time on the 8%pa anchor (the lure of the mini-bond)

Posted on November 28, 2019 by henry tapper

Screenshot 2019-11-28 at 06.55.41

8’s – not a magic number

Mini-bonds –  who needs them – who loves them? Why do they exist?

They exist to line the pockets of people who find easy money in our yearning for 8% interest on our money. Where does this desire come from? It comes from the days when UK Government bonds carried a yield of 5%. Today yields are less than 1% but people are still “anchored” in their way of thinking , they still think that with a bit of ingenuity, a return of 8 or 9% is achievable – and what is more dangerous, they feel entitled to it.

So when someone without a moral compass comes along and tells them that they can invest in a bond that yields 8 or 9% , which can sit in an ISA , they want to believe. Which makes convincing people it can be done an awful lot easier.

The collapse of London Capital & Finance (LC&F), in January this year, was one of the grislier events in financial services during 2019.

The Tunbridge Wells-based firm had issued unregulated “mini-bonds” worth £237m to 11,600 investors lured in by the promise of 8% interest rates. Those investors are likely to have lost most of their money.

8’s – not a magic number.

LC&F – An existential threat to your career at the FCA?

This time last year, Andrew Bailey, the big boss at the FCA was being lined up to be the next Governor of the Bank of England, he’s still second favourite behind Minouche Shafiq (at 14/5) but LC&F happening on his watch – did him no favours.

This might explain why the FCA are being unusually pro-active in banning the promotion of similar mini-bonds in the first-quarter ISA selling season.

I am being tad harsh on the FCA here as their hands are tied (to an extent) by what they call their “regulatory perimetre”. They cannot regulate what sits within the mini-bond and call out the kind of chicanery going on at LC&F which invested in no-hope companies like London Oil & Gas which was leaking money back to the people running LC&F.  That relationship is now the subject of a fraud inquiry.

The FCA can regulate the financial promotions used to get ordinary people to see speculative investments as the equivalent of that building society account we held in the “good old days.

Which is what the FCA should do and are doing. Why I remain sceptical that the FCA has turned a corner, is that there are still too many financial promotions that pop on our devices , that tell us financial impossibilities.

LC&F

 

It’s the way you sell’em

Were I to issue a mini-bond backed by AgeWage, my own company  you would rightly point to the real chance that AgeWage will not be around in thee years, there being no secondary market for the shares and for our company only having recently received its first trading revenue. But I could point to my company having a market cap of just under £4m.

You would be right on all accounts, though the claims of many min-bonds are based on the same speculation that gets crowd-funders to invest through platforms like Seedrs and Crowdcube in businesses like mine.

The difference is about promotion, as Frank almost says

Frank.jpeg

“it’s the way you sell’em”

The problem is with us – not them!

There have been successful mini-bonds , launched by organisations like John Lewis and a number of sports clubs.

If people invest for as a supporter, as a charitable giver or even to support the aims of an organisation such as John Lewis, mini-bonds can attract the kind of crowd-sourced capital that does good things. I’ve written on this blog about the social value of Zopa for the same reason

If you look carefully at this promotion fo LC&F, it is positioned against Zopa.

LC&F

But while Zopa explains the nature of its business and the risks attached to that 4%, L&CF never did.

Instead it used that magic anchor of 8% to make plausible it’s financial impossibility

If we are ever to rid ourselves of the menace of  8% promises, we are going to have to get people to think long and hard about why they still cling to the 8% dream.

We have to get people thinking about that simple but difficult idea of the “real return”, the return on our money that beats cash. Cash returns right now are not giving real returns, nor was 8% if interest rates were at 10% and inflation higher than that.

The world has moved on, but many of us are still anchored in a world of 8% returns. It’s nostalgic, unrealistic and very dangerous.

What the FCA need to be doing , as part of their duties, is promoting financial realism, helping people to understand that a risk-free return of 8% is a financial impossibility and that achieving a return of 1 or 2% in today’s climate, is not failure.

The problem is with us – without our behavioural bias’ , the crooks cannot win.

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What hope should WASPI take from political promises?

Posted on November 24, 2019 by henry tapper

A very complex issue

This is not a blog about the rights or wrongs of WASPI, it is simply a statement about party political promises to women in  the UK , born in the nineteen fifties. Their case is made well in the article behind this link.

I’m concerned that many women are being given false hope about pension recompense by Parties who can promise much prior to an election, and deliver little after one.

If you want to properly understand the complexity for and against WASPI , I would recommend the Government’s own 63 page briefing paper “State Pension Age Briefing for women born in the 1950’s”.

If you haven’t time for that and want a simple timeline of how we got to where we are now , here it is

Screenshot 2019-11-24 at 09.57.26.png

What is going on in politics?

Both the LibDem and Labour manifestos are clear that if they are in power in the next term, they will seek to recompense  women born in the 1950s for pension payments

The Liberal promise they will

“Ensure that the women born in the 1950s are properly compensated for the failure of government to properly notify them of changes to the state pension age, in line with the recommendations of the parliamentary ombudsman?”

Labour’s manifesto  promise is noisier and  less specific to the ombudsman’s recommendations.

Under the Tories, 400,000 pensioners  have been pushed into poverty and a generation of women born in the 1950s have had their pension age changed without fair notification.

This betrayal left millions of women with no time to make alternative plans– with sometimes devastating personal consequences.

Labour recognises this injustice, and will work with these women to design
a system of recompense for the losses and insecurity they have suffered.

We will ensure that such an injustice can never happen again by legislating
to prevent accrued rights to the state pension from being changed.

Either way, women born in the 1950s have a reasonable hope of recompense under a Liberal and Labour Government but no guarantee of what (despite John Mcdonnell’s statements to the Guardian- see below).

Since I began this much enlarged blog , the Conservatives have published  their   manifesto. It makes no  commitment to the  WASPI  women but we can suppose that this assessment of the situation by Conservative MP Maria Caulfield, represents the house view. Writing on her Facebook page she says

The Parliamentary and Health Services Ombudsman (PHSO) has contacted me to say it has selected six complaints about the state pension age that will act as lead cases to set a precedent for thousands of others.

The six cases were selected for a preliminary enquiry, which the PHSO said would determine whether or not to investigate the claims further and which could potentially force the Government to intervene and support all women affected by the changes to their pension age.

These cases were brought to the Independent Case Examiner (ICE), the second stage in the Department for Work and Pensions’ two-tier complaints process, by women unhappy about the recent increase to their state pension age.

The PHSO has now decided to step in and deal with this issue, as progress on handling the complaints proved slow.

The PHSO has used a broad generic scope obtained from the six cases for the purpose of their investigation and if they find in favour could have positive implications for all affected.

Manifesto promises – trumped by the need for votes?

There has been plenty of talk in the media (including the BBC) about Labour promising full recompense to WASPI women. It turns out to be true.

When I originally wrote this blog, I took the Labour manifesto at its word – that it would work with affected women towards an acceptable resolution. I had assumed it would be guided by the Parliamentary Ombudsman.

But that promise has been trumped by John McDonnell’s statement overnight.

Screenshot 2019-11-24 at 08.41.27.png

As you will see from the numbers below £58bn is almost double the net savings to the DWP of the changes introduced in 2011 and maybe three times the impact of the 2011 changes on women (men are bearing much of the brunt).

Labour is pledging to pay all women born in the 1950s for any pension income they may have lost when the men’s and women’s state pension age was equalised – in stages beginning in 2010 – following an act of Parliament in 1995.

“All women” includes  the Rothschild women

I agree with John Ralfe  who says the money would be far better targeted at those who were hit when the timeframe to equalise the gap was accelerated in 2011 – a far smaller cohort.

John argues that it would be sensible to means-test the funding, so it can go to those who suffered hardship when the changes were put in place. I agree with that as well

But Labour’s policy is all-encompassing.

Thanks to Suzy Albright for this chart that shows who will be Labour’s biggest winners.

Labour proposal

The party says that, as all women paid in, all women should get out and as “a one-off historical redress for a historical wrong… the state will be expected to find the money”.

Not only is this pledge unfunded (see previous blog), but it amounts to the kind of electoral bribe that brings the parliamentary system into disrepute.

Scottish Grannies will be cheering!

When you look at the geographic distribution of the 3.7m women affected , you can see that they are not evenly distributed, they are very over represented in Scotland, where Labour were wiped in 2016.

The compensation is based on misinformation to women between 1993 when Kenneth Clarke first announced the intention to equalise state pension ages till the implementation of the 2011 Pensions Act. Earlier this year the High Court ruled that women had not been misinformed.

Flying in the face of the law

This precipitative proposal from Labour is not in its manifesto, pre-empts the Parliamentary Ombudsman’s findings and is based on a premise that in October was dismissed by the High Court. The court ruling is behind this link.

Jack Dromey, shadow pensions minister , responded to the High Court ruling , stated that his party would continue to support the WASPI women, but (as the manifesto has it) by talking with them not over-ruling the law.

As Jo Cumbo points out, John McDonnell chooses to over rule this verdict and the law.

I cannot see the point of having a High Court or a Parliamentary Ombudsman, if politicians decide to make it up as they go along – regardless of the institutes of Government they are supposed to respect. WE HAVE BEEN HERE BEFORE as Boris Johnson will know very well.

Should WASPI women really trust this promise or its bearer?

Shouldn’t we focus redress on the 2011 changes?

The briefing on WASPI issued to MPS shows just how complicated and expensive full restitution would be.

Let’s start by using the briefing’s estimates of the number of women affected. It’s important to remember that though women have suffered more, men too are suffering.

Screenshot 2019-11-24 at 07.15.02

From this you can see that the dark green bar (women) have been affected since 2016 but that the numbers impacted increase sharply over the term of the next parliament so that by the end of the term over 3.7m women will be impacted.

Screenshot 2019-11-24 at 07.16.28

Now let’s look at the savings the DWP are making over the next parliamentary term and we can see that women and men get less spent on them , but that women are most impacted by the changes, especially if we look backwards.

In terms of numbers, the savings look like this

Screenshot 2019-11-24 at 07.17.10

The total nest savings of the 2011 changes amount to just over £30bn but the pension changes save the DWP £34bn, the majority over the term of the next parliament.

The £58bn is rather hgher than the DWP’s savings and women are only partly the losers.

Women will bear well over half of the cuts in benefits and the revenue will benefit from women staying in the workforce longer (through increased income tax and national insurance receipts).

Does Labour know what it is talking about on pensions?

While the Liberal’s statement is responsible and grounded, the Labour proposals are simply misinformed.

£58bn is more than this country can afford , it is based on a politicised view of history and will put most of the money in the hands of people who do not need it. If we redress all women, we will need to redress all men and wind back the program of a regressive state pension age which until now, seemed to have had cross-bench consent.

Just what Labour means by designing a system of recompense is unclear and for all the sound and fury , it may signify nothing.

A failure of Government perhaps.

From this brief  look at the numbers , people should be clear that women have had less given and more taken by the state and that Government knew all about this in 2011.

The general population of people moving into retirement around now, clearly weren’t as aware as they could have been of the changes in state pensions age, but this information was open to all parties and (other than a minor amendment).

Whatever the shortfalls in awareness, the opposition parties seem to have been quiet on what is now being called a “betrayal” by Labour and a “failure of Government” by Liberals.

The changes were first muted in 1993, enacted in 1995 and extended in 2011. This period included period when conservatives were in power, Labour were in power and a period when Liberals and Conservatives jointly governed.

The matter is therefore not so much party-political but a matter of good or bad government, which is why it is now in the hands of the parliamentary ombudsman.

But why not leave that to the Parliamentary Ombudsman?

I would warn WASPI against the hope of getting  “recompense for the losses and insecurity they have suffered”.

There is nothing in the Labour Party manifesto stating how much this recompense would be or from where the money would be found. Like the cap on increases of state pension ages beyond 66 (for men and women), there is no mention of the impact of the promise on the public purse.

I would not put my trust in un costed promise, especially when the Labour party have costed so much else. I would expect no more from the Liberals than support for the Parliamentary Ombudsman.

The simple conclusion we can draw is that all parties should wait to hear from the Parliamentary Ombudsman and I would be surprised if any went beyond its recommendations. The new plan put forward by John McDonnell smacks of political expediency (vote grabbing) and is not to be trusted.

There is no “victimless” £58bn giveaway

£58bn could better be spent saving our climate for future generations. Labour’s giveaway is a wealth transfer to the baby boomers.

Expect it to fall badly with millennials

The best that the WASPI women can get out of these manifesto promises is that there is political will among what are likely to be minority or opposition parties, to press for whatever the Ombudsman offers. As for the Conservatives, Guido is bang on the money, if you’ve got it – you’ll keep it

As Maria Caulfield puts it manifestos “have positive implications for all affected”.

WASPI

Posted in #WASPI, advice gap, age wage, pensions | Tagged , , , | 1 Comment

So what do pension people want from politicians?

Posted on November 23, 2019 by henry tapper

I’ve started so I’ll finish, I will post my views on the Conservative manifesto from a pensions perspective, when it gets published. But as I didn’t have to waste many words on the Liberal policy pleasantary  afterthought, I’d look into what it is that pensions people feel are our priorities.

Professional Pensions do a spot-check on their readership called Pension Buzz which has just asked this question

Screenshot 2019-11-23 at 06.14.43

What we don’t want…

This is educational for everyone. Maybe Professional Pensions’ readers are no longer involved in DB plans and have given up on the issue, but it is surprising that DB funding was considered a political priority by only one in twenty five readers and that the issue of DB consolidation didn’t appear in the top 8. The White Paper on DB is clearly not on the top of pension professionals reading lists.

It is not surprising that CDC is not a high priority, no-one has yet articulated a compelling case for expanding CDC beyond Royal Mail ( I don’t count my blogs as a major contribution to the debate – sadly).

It is surprising that the future of advice and guidance is not a priority, especially with the mess that MAPS finds itself in. The Pensions Dashboard is perhaps the proxy, but the difficult choices that people retiring “with freedom” today , are facing, is clearly not seen as a political issue.

What we do want….

What is good, is that the net pay anomaly is now in the top-four issues that we’d like addressed. It sits below the question of contribution rates, widening the scope of AE and the future of the triple-lock as the one new entrant into our consciousness.

I suspect that it is the one area of pension taxation that we all feel as one about and – despite the feeble support of the PLSA, PMI and co, it is becoming a popular issue, at least in our bubble.

We want fairness, we want what we do to be sustainable and not be dragged down by scandal and we see the net pay anomaly as something that threatens the gains made in the past eight years through auto-enrolment.

We also want to see our Pension Bill back

Screenshot 2019-11-23 at 06.15.54

I’d call that a ringing endorsement for pension dashboards and a quiet acceptance that CDC is right for Royal Mail, I don’t hear much clamour for increasing tPR’s powers but it’s clear that we want some means to improve pensions – our pensions bill.

If I had seen a stronger clamour for action on DB consolidation, I might have interpreted some of the “No’s” and “Don’t knows” as wanting an expanded pensions bill, but I suspect there is a hardcore of opposition to change that we see everywhere, and a large number of people who are interested in pensions but not the politics of pensions (which is fair enough).

What will we get?

From Labour we got 1970s pensions as part of a 1970s manifesto. Pension pledges that addressed the needs of the 4% who find the future of DB critically important.

From the Liberals we got the 2016 manifesto promises without the review of tax-relief and with no engagement with the nitty-gritty. Frankly we got nothing.

From the Conservatives we will – I assume – get some kind of continuity, which will please the 63% of us who want to see the Pensions Bill back and progress towards dashboards, CDC and the ongoing agenda to widen the scope and funding of AE workplace pensions.

While I have little time for much the Conservatives are doing elsewhere, they are at least a party which is living in today’s world and paying some attention to the problems of ordinary savers. In Guy Opperman, they have had a pensions minister who has been wholely committed to his job. He is not universally popular within his department (as Webb was) but he is at least getting the job done.

The Conservative agenda may not yet have been published, but it looks closest aligned to the readership of Professional Pensions, and – as much as we can take that readership as a proxy for pension professionals, we have to put our weight behind the Tories – at least as far a pensions go.

Posted in advice gap, age wage, pensions | Tagged , , , , , , , | Leave a comment

Why are pensions Labour’s sacred cow?

Posted on November 22, 2019 by henry tapper
sacred cow.jpeg

?

Yesterday the Labour Party published a radical manifesto designed , among other things, to address inequality in British society by redistributing from those who have to those who haven’t.

Hardly an area of British life would be untouched by this manifesto. If it  was adopted after a Labour majority, we would see radical changes in matters as diverse as public ownership, tuition fees and funding of the NHS.

The 83bn GDP cost of improving services to the general public will be met from extra taxes on high earners and business.

And yet the 40bn GDP cost of pension tax relief has not been put under any threat of change.  Why are pensions Labour’s sacred cow?

The sacred cow is public sector pensions

To understand Labour’s failure to get to terms with the inequality of pension tax relief distribution , you need to think people not policy. The Labour party’s policy is dominated by unions – Unison, the public sector union and Unite. 

These unions, not only dominates union pension policy, they control Labour policy and they are  driven by an almost messianic commitment to preserve public sector pensions whether funded or unfunded.

Any radical policy that undermines the principal of member rights to a defined benefit is  squashed by Unison and by the Labour party’s powerful union lobby.

sacred cow

?

Of course we can have radical pension policies which reinforce public sector pensions.

The manifesto pledge to freeze increases in the State Retirement Age at 66, should be paid for by some kind of levy on public and private pensions but appears to be uncosted and so a pass-on to future generations

Similarly , improvements to benefits to pensioners

What then for the private sector?

While public sector pensions, state pensions and pensioner benefits are preserved or improved, the private sector are set to be squeezed by pension policy.

What for the sponsors of workplace pensions?

In sharp contrast to the protectionism in the rest of the document, private sector workplace pensions seem set for more reform with the focus being on the costs to employers of workplace pension contributions.

There are cryptic references in the costings section of the manifesto to a 10 per cent contribution rate assumed on wages – P 11.

Hourly rates have been adjusted to factor in 10% pension contributions for staff 

While these proposals are sketched in to policy, the big proposal is to set up an independent Pensions’ Commission – modelled on the Low Pay Commission – to recommend target levels for workplace pension.

One can only assume that 10 per cent is the imputed future employer contribution rate for auto-enrolled pensions.

What for the ordinary saver?

There is nothing in the manifesto of comfort to DC savers who appear to be “off -radar”.

The only reference to consumer protections is against ‘rip-off auto enrolment schemes’. Workplace pensions have just gone through the master trust authorisation process and are under intense scrutiny when GPPs. Where are these rip-off AE schemes?

It is as if the Labour party knows nothing about what is actually happening to the vast majority of UK retirement savers.

This is precisely what you would expect from a pension policy team – so dominated by unions and so under-represented by anyone from the private sector. There is nothing here for the ordinary person who does not have the good fortune to be in a union-dominated collective pension scheme.

In short, the private sector gets the stick, the public sector gets the carrot.

And it’s very short on detail…

There are a few passing nods to the detail of pensions policy. Labour supports CDC – so long as they are for  “Royal Mail and similar schemes” …. similar schemes?

Labour supports a single (state controlled) dashboard.  Labour will continue to push for transparency on cost and charges.

But when it comes to less fashionable policy items, such as the fate of the 1.7m employees, enrolled into workplace pensions but getting none of the promised 25 per cent rebate on their pension contributions – nothing. This doesn’t even make it into the remit of the Pensions Commission.

It is as is anything that might upset the status quo on public sector pensions [where most of the net pay scandal is going on, is out of bounds.

I am sorry to say it, but the Labour party appears to be feather bedding their own  and excluding  anyone who isn’t in the Union pension corral from the fun.

And what is left…?

Left in if you are in the public sector, left out if you aren’t – the politics of the left show little sympathy for pension funds.

The PLSA have thrown their hands up in horror over the impact on DB funding of Labour’s privatisation plans. DC pension growth could be stunted by the planned taxes on dividends and it looks like pensions will become an employer tax under a future Labour Government.

What is left out – of this manifesto – is any attempt to get to grips with the glaring inequality  of the distribution of pensions tax relief

2/3rds of tax relief paid out by Govt goes to higher rates taxpayers, despite only representing 1/4 of the people claiming it

What is the left but a way of correcting such inequalities?

And what is left of Labour’s pension policy without a strategy to correct this issue?

I would argue that the Labour Party’s pension manifesto is a sop to the unions, an affront to the private sector and that it presents a bill to future generations so that the cosy status quo that prevails today, can persist.

It reinforces the very real inequalities between public sector and private sector pensions and does nothing to address the fundamental unfairness of pension taxation.

farmer and the cowboy

Enter a caption

 

Appendix

 

What the Labour manifesto says on pensions


People work hard for most of their lives
and deserve a decent retirement free of
financial stress and insecurity.
Under the Tories, 400,000 pensioners
have been pushed into poverty and
a generation of women born in the
1950s have had their pension age
changed without fair notification.
This betrayal left millions of women
with no time to make alternative plans
– with sometimes devastating personal
consequences.


Labour recognises this injustice, and
will work with these women to design
a system of recompense for the losses
and insecurity they have suffered.
We will ensure that such an injustice
can never happen again by legislating
to prevent accrued rights to the state
pension from being changed.


The Conservatives have repeatedly
raised the state pension age despite
overseeing a decline in life expectancy.
Labour will abandon the Tories’ plans
to raise the State Pension Age, leaving
it at 66. We will review retirement ages
for physically arduous and stressful
occupations, including shift workers,
in the public and private sectors.


We will maintain the ‘triple lock’ and
guarantee the Winter Fuel Payment,
free TV licences and free bus passes
as universal benefits.


Thanks to automatic enrolment,
which was introduced by the last
Labour government, record numbers
of employees are now in workplace
pension schemes. But too many
people are still not saving enough
for a comfortable retirement.


We will stop people being auto-enrolled
into rip-off schemes and seek to
widen and expand access for more
low-income and self-employed workers.


We will establish an independent
Pensions’ Commission, modelled on the
Low Pay Commission, to recommend
target levels for workplace pensions.
We will create a single, comprehensive
and publicly run pensions dashboard
that is fully transparent, including
information about costs and charges.
We will legislate to allow the CWU/Royal Mail agreement for a collective
pension scheme to proceed and allow
similar schemes.


Labour has listened to the NUM and
in government will end the injustice of
the state taking 50% of the surplus in
the Mineworkers’ Pension Scheme and
introduce new sharing arrangements
so that 10% goes to government and
90% stays with scheme members.

 

 


This new sharing arrangement will
also apply to the British Coal Staff
Superannuation Scheme.
We will ensure that the pensions of UK
citizens living overseas rise in line with
pensions in Britain.

Pensions in the costings document which accompanies  the manifesto

Restore pension credit for mixed aged couples

WP Research and Analysis briefing ‘Mixed age couples: benefit impacts of ending access to Pension Credit and pension age Housing Benefit’ (updated April 2019) gives the estimated saving from implementing this policy as:

Screenshot 2019-11-22 at 07.48.10

Screenshot 2019-11-22 at 07.48.25
This figure was estimated by the House of Commons Library by taking the total expenditure on frozen pensions in 2018-19 and applying the Office of Budget Responsibility’s annual ‘triple lock’ uprating forecast to each of the following years.

Calculations are based on DWP Benefit Expenditure and Caseload Tables, DWP Stat-Xplore State Pension dataset and the OBR Economic and Fiscal Outlook March 2019.

Posted in pensions | 9 Comments

Phoney NIC “giveaways” that penalise the poor

Posted on November 21, 2019 by henry tapper

johnson derisk

Boris Johnson had better not sell me a reduction in my national insurance contributions as an incentive to the poor.

His jump the gun announcement ahead of the manifesto was made up as it went along with all the wrong numbers. But worse – much worse – is the intent of Johnson and his party to fool us into thinking this is an “incentive’ for the poor. The proposals won’t help the self-employed or the elderly

and it will benefit the likes of Tory membership card holding me, much more than the hard-working families that Johnson is sucking up to

So let’s not pretend that this is going to target those who need extra money in their purses. This is going to benefit the people who have the internet bank accounts and are prospering.

Here is the IFS’ Xu summing the proposed giveaway up

‘If the intention is to help the lowest-paid, raising the NICs threshold is an extremely blunt instrument. Less than 10% of the total gains from raising NICs thresholds accrue to the poorest fifth of working households. The government could target low-earning families much more effectively by raising in-work benefits, which would deliver far higher benefits to the lowest-paid for a fraction of the cost.’

 

Or pay them back their overpaid pension contributions

The fate of 1.7m pension savers who are currently paying 25% too much in pension contributions is being ignored.

If Boris Johnson really wanted to help those at the bottom end of the income scale , he would alleviate the burden of them having to pay 5 rather than 4 per cent minimum contribution levels to stay in a workplace pension.

Labour little better

And shamefully , it is not just the Conservatives who are ignoring the “net-pay pension  rip-off”.

Instead , Labour is pledging various pension commissions to look into matters. They will no doubt find, what this bog has telling them for four years, that the poor are getting a bad deal out of net- pay pensions and no-one cares.

The cost of sorting the net pay anomaly grows, no doubt by the time we get around to trying to do so, we will find that the backdated payment of the promised incentive has become a fiscal obstacle.

Each month that goes past means another month of those who can’t afford to- paying too much into their pensions and as time goes by, the likelihood of this being put on a proper footing grows less.

The Liberals have also toned down the tone of their pensions manifesto, abandoning reform of pension taxation altogether,

Since Conservatives -Labour and Liberals  all seem to be in pre-election giveaway mode, it is source of cross-party shame that this ludicrous situation is allowed to persist.

 

 

Posted in pensions | 2 Comments

So how did our pension taxes do?

Posted on November 20, 2019 by henry tapper

Screenshot 2019-11-20 at 07.25.47.png

The irate Tristan Hawthone

Tristan Hawthorne is right to rail against the IFS (and the BBC) for lumping pension contributions into the “taxes” box on our payslip. Here’s the offending statement which appeared on the BBC website

The taxes that many of us are most aware of are income tax and National Insurance contributions (NICs).

These are the sums of money on a payslip that never reach our bank account, along with pension contributions or student loan repayments.

Together, they account for the majority of revenue collected in the UK.

Here’s that  tax “grab in a graph”

Screenshot 2019-11-20 at 06.27.16.png

numbers without pensions and student loans

And here’s Tristan’s vivid riposte

“For those of us in the benefits industry this is misleading at best and at worst worryingly inaccurate”.

One of my preoccupations is trying to find ways of getting ordinary people to think about the abstract concept of saving for retirement, putting money away for a rainy day and I wonder whether the idea of a “voluntary tax” isn’t such a bad one.

Obviously the reason we don’t like paying taxes is that it leaves us less to manage on when we pay our bills, but put the word “tax” in the title of a blog, and a lot of people will press the link, because we get “tax”. We understand the link between the amount we pay in tax and the level of public service we get.

When I pay 20% VAT on my burger, I accept that that is an amount that will go towards mending the roads that the burger van will drive to deliver tomorrow’s burger. There is a performance target that I expect for my money and that is to have my burger delivered on time (make up your personal targets in your own time).

With pensions it’s a little different

But with pensions it is a little different. We sort of know that our national insurance is buying us rights to benefits if something goes wrong and an income in later life which should keep us off the streets. We kind of know – if we’re in a defined benefit scheme that our pension deduction buys us a share of our final or average salary at some date in the future.

Where things come apart is when we mix up saving into a pension pot with a tax, because pension pots are – as Tristan says – just a kind of very inaccessible bank account and the amount in that account is determined not by some unseen actuary in the sky, but by how you did.

This is why Tristan goes off on one.

Since pension freedoms came in, DC can pretty much act like an ISA, except with different tax treatment, once you are age 55.

You can access as much or as little as you want, as an income or as a lump sum. It is literally your money, in a segregated investment account. While very few people would ever do so or would be advised to do so, you could place all that money into cash at age 55 and it would almost act like a bank account.

So again, it is deeply misleading to the point of inaccurate to claim that pension contributions never reach your bank account. In the case of DC it is almost a bank account in the first place!

Now let’s be clear about this, people generally do see a payslip deduction as a “tax” , Paul Johnson who wrote the paragraph that offended Tristan is right about that.

People do get to spend their pension savings – either tax-free or after tax, and they buy real things.

People get workplace pensions as a voluntary tax-grab and they kind of know that that money comes back to them.

What they don’t know, and this is where the pensions industry makes its money, is what happens in the middle.

Paul Lewis’ wealth or pension tax

Paul Lewis talks about pension taxation not in terms of what the Government takes (it takes very little of the money as it grows) but in terms of the taxes the private sector take on your money.

This kind of pension tax is levied through very small charges which add up to an amount that can erode your pension “bank balance” by up to a third. You might think it impossible that a 1% pa charge on your savings can lead to a pension tax on your final balance of 30% but that is what the maths says and the maths doesn’t lie.

But simply looking at the cost of pension pot management in terms of cost is stupid, all that tax on your savings pays for something, just as VAT and national insurance and income tax pay for something.

They pay for the value you get out of all this pension saving.

The value you get from pension saving is a reward for putting the money away for a long time and not touching. It’s a reward for patience and it’s given you by the people who benefit from your money. In economics terms it’s what you get from patient capital.

We have a right to know what this reward is and whether the people who have managed our pot have given our fair shares. We have a right to know how our savings have done, and if we want to use the phrase Tristan hates, we have a right to know how our pension tax has done.

But we don’t get the right to know how our savings have done

While pension providers have become very expert in taking money off us via payroll taxes, and are increasingly good at giving back to us using pension freedoms, what happens in the middle remains a mystery.

We don’t know what happens to our money and we don’t know how our savings are rewarded , we don’t even know how much we are paying third parties to look after our money.

Which is shocking!

Instead we get a whole lot of paper we don’t read with graphs and tables that describe what has happened to funds and strategies, none of which is directly applicable to us.

We simply don’t get a statement on how our money had done and certainly not a meaningful statement on how we’ve done compared to everyone else.

When I look at that chart (scroll up) at the top of this blog, I see that about 35% of my money is paid to the Government to look after me. Reading that, I’m saying – so what.

I want to know what that 35% means compared to other countries, other Government tax-grabs. Fortunately, those numbers are to hand

Screenshot 2019-11-20 at 07.04.54.png

Which makes me feel a little more comfortable, so long as I am an average citizen. Then I ask myself what being an average citizen mean and I discover that actually the average person on £28,000 a year is doing very well against the average person abroad but that the rich person is doing about average

Screenshot 2019-11-20 at 07.08.17.png

I hope that like me, you find these charts compelling. They would be even more compelling if I could put in my and my partner’s income and compare ourselves individually.

But we recognise that working out the value we get from our tax is a lot harder than working out the tax we pay. So economists and tax-payers call it a day about now. Because we know that we will never quite know whether we are getting individual value for money and are prepared to accept we are part of a collective set up.

Why DC is different

But back to the bank account and Tristan. Tristan is fundamentally right. Taxing people to build up a private pension pot is just a way of paying people later and is quite different from paying into one big pot from which Defined Benefit pensions are paid out.

DC is different because we get to see the fruits of our savings as a bank account as we go along and as a spendable bank account from aged 55.

Whereas we can’t really get granular about how our taxes have done and demand “hypothecation” of our taxes paid, we can get super-granular about this pension tax into our DC pot.

We can and should be able to see where our money is going, what it did (good and ill) and what reward we got for waiting for it to come back to us. We should also be able to find out how much of our money was paid to the people who looked after it for us.

We should not have this information passed to us in an abstract way – as “performance”, that is the old lazy way of governance – founded in DB reporting. We should instead have this information given to us as a score telling us -as Experian tells us- how we’re doing relative to everyone else.

Which is what AgeWage is doing, and is why AgeWage is going to be so important to us in the years ahead.

agewage evolve 1

 

Note

My word press functionality isn’t working properly this morning  – forgive the unusual headers and other formatting anomalies

 

Posted in pensions | 2 Comments

On our front door – the trial of Manita Khuller.

Posted on November 19, 2019 by henry tapper

Manita Khuller represented herself in court yesterday taking on  on FNB International, which she claims is responsible for the loss of a £170,000 pension pot.

She is up against lawyers Carey Olsen , originators of the Carey SIPP who are representing FNB International Trustees , a part of South African giant First Rand, which has fingers in a number of British pies, including challenger bank Aldermore, which it bought to get a slice of the £350m of tax-payers money from an RBS sinking fund.

The Trustee Investment was into an offshore bond wrapper offered by Royal Skandia, now part of Old Mutual International, another organisation with a South African heritage and a history of fronting failed investment funds.

Manita Khuller is a single Mum,

manita khuller

She was advised to transfer CETVs from her UK DB Plans when today’s protections weren’t in place (2011) .

Her CETVs were invested into the Plaiderie QROPS advised by Professional Portfolio International in Bangkok, where she was living for a short time.

The destination of her money had provenance, the trustees of Plaiderie are FNB International – part of  First Rand .

First Rand is a household name in South Africa, Guernsey a financial services hub governed by the Guernsey Financial Services Commission with strong links to the FCA.  If she didn’t have enough protection , the bond wrapper was supplied by Royal Skandia which had been bought by Old Mutual in 2006 (and became fully integrated in 2014).

In short, she was being sold a very superior product that had everything about it to trust.

Except that is, the investments.

Manita is an ordinary investor with a ‘moderate’ appetite for risk. But more than half of her pension money – around £170,000 – was put into LM Managed Performance Fund, run by Australian-based LM Investment Management. This company is now in administration, its licence revoked.

It was a risky fund, unregistered with the Australian regulator and invested in a few residential properties on the Gold Coast.

Some advisers had issued warnings about the health of the fund before it collapsed in 2013, dismantling the finances of 4,500 people with more than £200 million invested.

When this fund collapsed, Manita decided to look into her other holdings.

What followed was the discovery that her pension pot, worth more than £300,000, had been split between three high-risk, unregistered funds designed for sophisticated or professional investors.

A quarter of her money had been invested in the Mansion Student Accommodation fund, where her money remains frozen as the fund is being liquidated.

Speaking to the This is Money Manita commented

‘No one with a moderate or low tolerance to investment risk should have had their money put into such funds.’

Then she found out her adviser, Professional Portfolio International (PPI), was not licensed in Thailand

The human cost of the story is told in an excellent article by Laura Shannon in the Mail on Sunday,

But there is another casualty in this, which is the reputation of pension investment which once again takes a battering. We are left wondering

  1. How she lost two guaranteed DB pensions with strong employer covenants
  2. Why PPI continues to operate throughout Asia under MD Eric Jordan
  3. Why Old Mutual and Skandia have yet again been found wrapping dodgy investments
  4. How a South African and now UK bank is owning  a Guernsey Trust in the first place
  5. What Geoff Gavey, Alan Glen and co were doing at FNB international to claim “trusteeship”.

On our front door

Guernsey is a front door to Britain, OMI and First Rand are all very much part of the UK financial services ecosystem.

Manita Khuller is left, fighting her case against the one part of the chain of entities that has let her down – FNB International.

But the others cited above have contributed in different ways to her impoverishment. It seems almost impossible that over a sum so small to these financial behemoths as £170,000, the Royal Court of Guernsey will be sitting over what is in effect a test case.

For Manita, the prospect of losing the case means financial penury, but for FNB and others there is the financial backing of the South African financial services industry and indeed rich parents such as Quilter and First Rand.

This money originated in UK DB pension schemes and has only travelled in trust to Guernsey, but it has been lost through what have every semblance to investment scams.

None of the people directly involved in her story have ceased trading and she now faces the full weight of what the Channel Islands can throw at an investor.

Though she is bringing the case, she will no doubt be put in the dock for “not knowing better”.  It would be nice to think that people now do know better (though there is little evidence for this).

I think it is a disgrace that Manita Khuller is having to go through this. Even more a disgrace that she’s going through it alone . I hope that some of the people I know, involved in the various organisations listed above, will come to their senses and recognise simple concepts such as “fiduciary duties” and the need to “treat customers fairly”.

Thankfully Manita has well-wishers, among them one who sent me details of her predicament. I wish her well.

 

Posted in advice gap, age wage, pensions | Tagged , , , , , , , , | 5 Comments

“Evolution not revolution” as important for what it omits as what it says.

Posted on November 16, 2019 by henry tapper

I finished reading “Evolution not revolution – five years of freedom” sensing something had been missing. That something has just come to me.

No mention of MaPS, TPAS or Pensions Wise.

In its 62 pages , this excellent document does not mention MaPS, TPAS or Pensions Wise. It talks a lot about regulators but it does not mention these “arm’s length bodies a single time.

This is frankly rather more worrying for MaPS than for the “investment firms and selected other industry participants”. A year ago it would have been unthinkable for TPAS not to have contributed to this work. It is a matter of deep regret that in such a short time our public sector guidance function has been so dislocated and downgraded.

The same can be said of the other great pensions publication of 2019, the PLSA’s Retirement Living Standards. It would appear that MaPS has retreated into purdah , not just for the period of the election , but for the first year of its existence. This is deeply regrettable. As Evolution not Revolution points out , the level of  engagement with pension choices in the target group for Pensions Wise and TPAS – the fifty year old +, is poor and the advantage of getting engagement very great.

Unless Ignition House are being selective with the publication of the vox-pops, I haven’t heard a single member of the public refer to MaPS, TPAS or Pensions Wise either.

If the private sector has abandoned MaPS , they are not alone. In my conversation with the FCA chair Charles Randell last summer, I sensed that he saw the future for guidance and advice in the private sector’s grasp. A former pensions minister wrote to me yesterday of MaPS as follows…”That organisation seems to have a death wish.”

This is not me making a cheap political point. It is me bewailing the waste of public money on MaPS, for the value it is currently giving. The cost of MaPS , TPAS and Pensions Wise is currently met by the financial services providers and passed on to savers through the costs they pay for pension management. We are getting poor value for money from MaPS, who are currently out of the pensions loop.

I hope that the pensions minister we have with a new Government will address this issue. MaPS must be accountable to someone, and it’s accountable first to the pensions minister.

No mention of the dashboard either

The pensions dashboard does get a brief mention in Evolution not Revolution but is dismissed for being tomorrow’s tool. This fiercely practical document is looking at what can be done now and accepts that the five year time horizon that most savers and providers are working to, cannot include something that is unlikely to deliver in that period.

Nor mention of collective decumulation

To my sadness, the concept of CDC as a default retirement option to put alongside annuities, drawdown and cash-out, hardly merits a mention. I suspect that this is in part for the stated reasons in the document – that collective decumulation does not cater for the nuances of individual circumstances, but mainly because no proper work has been done to look at CDC as a product that could be adapted for this post pension freedoms world.

The longer that CDC is focussed on the specific issues of Royal Mail, the less relevant it will seem to savers and providers. It is beholden on those who call themselves Friends of CDC to think about how CDC could be made relevant and I urge those like Con Keating, David Pitt-Watson and Kevin Westbroom to reconsider their thinking in the light of this excellent work.

Public and private pension agendas should be as one

Evolution not revolution is a work funded and created by the private sector that informs on public pension policy.

It  presents a very complicated picture of savers sleep-walking into retirement.

It shows how providers have delivered the pension freedoms so far and points out what’s getting in the way of further progress.

It looks at what savers want and finds they want certainty about their savings while gaming their liabilities – health and longevity

Finally it asks penetrating questions about where next for retirement investing.

The breadth and intelligence of its research compliment the work the FCA has been doing on retirement decision making. As I said in yesterday’s blog, the report is neither as rosy or complacent as its title.

But – like the PLSA’s Retirement Standards report, it shows that the private sector is capable of responding to a change in demand intelligently and responsibly.

With the exception of NEST, who participated in the research but did not sponsor the document, the public sector had no part in Evolution not revolution. That is the document’s strength and its weakness

It is the stronger for being able to speak its mind and not the Government’s and it is the weaker because so little of this document concerns itself with what should be the Government’s pension agenda.

To prove my point by exception , there is a paragraph on page 42 where we see how a dashboard might be used to bring state and private pensions together around the PLSA’s retirement targets

Perhaps more worryingly, overall 17% of our survey respondents had no idea how much they would need, rising to 24% amongst the 55-59 year olds.

Members taking part in the depth discussions felt that spending some time thinking about income needs was very useful in framing their future decisions, and that the PLSA’s Retirement Living Standards would provide a very valuable rule of thumb for them to work out their own situation

Consider somebody retiring today. A household with two adults qualifying for the full State Pension will receive nearly £17,600 a year. They would therefore need an extra £2,400 or so of income to meet their basic needs. If they don’t have any final salary pensions or employment income, then it might make sense for them to buy an annuity with their DC savings. Assuming a current annuity rate of around 2.2% for an inflation-linked annuity from age 66 (yes, it really is that low), they would need £112,000.

The document goes on to explore other options than conventional annuities, but this is precisely the framing of the financials that ordinary people need to engage with the tough choices in the strait of Hormuz,

Revolution not evolution

As I wrote yesterday, I don’t think that evolution is enough. The derivation of revolution is from the Latin “to turn around” and the concept of linear development in “evolution”, supposes that we have made progress in pension provision over the past years.

We have of course democratised savings through auto-enrolment and improved the state pension through the triple lock and simplification. But we have lost our private sector DB accrual and with the Freedoms, lost annuities as the default decumulator.

Though we have a much greater challenge in meeting individual needs, I don’t think we should dispense with the tools of the past. The merits of collective DB pensions can be adapted to a DC world and their guarantees inherited through a revitalised annuity market.

Meanwhile , the benefits of digitisation can be brought to pensions through the provision of data at the swipe of a finger. APIs can bring our pension information together – whether the feed be from the state pension , a SIPP or a workplace plan. We will be able to locate , explore and aggregate our pension pots into a retirement plan, underpinned by pensions from state and second tier DB.

These great advances are still to come and depend on the private and public sectors working together. This means both evolving through this new technology and revolving to ideas which seem unfashionable today but worked yesterday.

Evolution not revolution, would be best “evolution and revolution”. Resolution will come from the synthesis of the two.

Tree.jpeg

My view when finishing this morning’s blog

Posted in age wage, dc pensions, defined ambition, defined aspiration, pensions | Tagged , , , , , , , , | 4 Comments

“Five years of freedom” – is evolution enough?

Posted on November 15, 2019 by henry tapper

Screenshot 2019-11-15 at 10.02.44.png

The Defined Contribution Investment Forum have commissioned an excellent body of research from Richard Parkin and Ignition House. The result is a packed report running to over 60 pages that provides a new insight on the problems individuals are facing taking decisions at retirement.

My only objection to the report is its title. In the past , DCIF have been firm advocates for radical change , a recent report was entitled “ADAPT OR DIE – THE PENSIONS INDUSTRY NEEDS TO FUNDAMENTALLY RETHINK THE WAY IT COMMUNICATES”

By contrast “Five years of freedom – EVOLUTION NOT REVOLUTION” – doesn’t do justice to the bafflement of the various people who had been interviewed for the project. The digital version of the report – is now on the web. But as I wrote this earlier, you’ll have to make do with my tweets from the report’s launch yesterday.

Five thoughts

1. Pensions used to encourage people to live longer…

2.People are having to game their later life income – their AgeWage.

and they’re realistic about the chances they are taking

 

3.People want the freedom to get others to do it for them

4.It’s buy now – pay later

5. And what happens if your bet doesn’t pay off?

These aren’t comfortable messages for policy makers and they shouldn’t be comfortable messages for the commercial pension providers and the trustees of the not for profits.

 

Is Evolution enough?

The Pension Freedoms are revolutionary. They have turned pension planning into wealth management and made a lot of people with inadequate financial resources a false sense of comfort. When confronted with the scrutiny of Ignition House’s interviewers, several of those interviewed cracked, admitting they had no idea what they were doing or what they were to do. I nearly cried when one man of my age put his hands up and told the camera he hadn’t done any planning.

You could see the fear that gripped him and for him – and those like him – the need for help is urgent and acute. Telling him that – five years into the pension freedoms – advice and guidance is evolving , isn’t enough. The study found – as the FCA has found – that the best plan for most without one, is to scrape out whatever tax free cash is available and wait till a better idea came along.

For such people, even the proposed solutions being put forward by providers look inadequate. Two thirds of providers now offer advice as part of the service

But at what price?

Advice cost

What is the revolutionary conclusion?

When Jeanette Weir of Ignition House was asked what her key insight was from the research she had conducted, she said she was shocked by the ignorance of the people she talked to.

This is reflected by the title of the first chapter of the report “sleep-walking into retirement”. I think this would have made a better title for the report than the one chosen.

I have yet to read the report in detail, but have a day off today so I will. I doubt that by this time tomorrow , my opinion will have changed.

DC plans are not currently fit for the purpose of converting people’s retirement savings into a retirement plan. That may be partly because the pots are too small, but there are plenty of six figure pots that remain invested – often in unsuitable life-styled investment strategies, because of lack of product innovation.

There is no default option into which people can transfer their money and get paid an income, other than an annuity. For many “annuity” is still the right answer but for the majority of people who want more for their savings than insurers can guarantee, we need some kind of wage for life solution where the income lasts as long as the saver.

My revolutionary conclusion is that the current choices are not enough, we need a pension option which keeps people invested in real assets and provides mortality pooling. Brilliant as this report is – it points towards there being no evolutionary answer to the pension freedoms.

The inevitable conclusion from reading this report is that – at least from retirement – CDC is the inevitable solution – revolutionary as it is.

target-pensions

Posted in advice gap, age wage, CDC, pensions | Tagged , , , , , , , , | 3 Comments

MAPS frustrate

Posted on November 14, 2019 by henry tapper

 

It’s been a frustrating year for the Money and Pensions Service – MAPS and for businesses that hoped to work with it.

When John Govett was revealed as its new CEO this time last year, I wrote confidently of the Government’s opportunity to build on the success of TPAS and offer ordinary people the help they needed to make the difficult retirement decisions in the Strait of Hormuz.

John Govett was a disappointment; he retreated “for family reasons” from the responsibilities he’d taken up only a few months before and since then Caroline Siarkiewicz has been interim CEO while Chairman Hector finds someone big enough to fill her predecessor’s boots. 

Since the appointment of a new CEO is the matter for the Pensions Minister, it will not be till after the election that we will hear who takes MAPS forward.

I met Caroline yesterday afternoon for a meeting I’d long anticipated. Sadly the meeting was delayed , truncated and relocated from MAPS’ swanky HQ to a local coffee shop but it did at least get me back to where I was in Q1 with Govett.

We expect the publication of MAPS strategic plan – which has been a year in the making – and should be published this month. I sensed that there was some flexibility in Caroline’s expectations of what this month means.

I was proved right only an hour after publishing

Screenshot 2019-11-14 at 10.16.54.png

The current hiatus , caused by there being no permanent leader and no strategic plan is worsened by MAPS having now pensions policy person . Indeed – TPAS’ capacity to educate and stimulate has diminished – its social media output is a trickle and though Pensions Wise is getting a consistent TV campaign the P in MAPS is getting smaller, perhaps they should rebrand MApS.

I cannot find MAPS on Instagram. MAS has some presence on Facebook, This is the last tweet MAPS produced. I admit to not having the eyesight to read it – I guess the tweet is a blind spot…

Whatever MAPS is up to- it’s not getting it’s message out there.

We are only five days from MAPS “money and lets talk pensions week” – I’m glad that the Renfrewshire knew about it, I certainly didn’t

Google MAPS – where’s the MAP?

I wanted to get an idea of how prominent MAPS is in the world of search engine optimisation.

Google “MAPS” and this is what you get.

Screenshot 2019-11-14 at 06.50.32.png

MAPS isn’t on the map, even on the google map and when you want to google the “money and pensios service”, you get this guy.

Caroline 5

I have the greatest respect for the Renfrewshire Affordable Credit Alliance. They have trumped MAPS to become the acceptable face of Talk Money Week. Crazy guy – crazy image – it’s an Instagram classic.

MAPS’ frustrated – frustrated by MAPS

I left my meeting with Caroline as frustrated as she must be. My offer to work with MAPS was greeted with the suggestion that we might begin to do so when we stopped being a start up – presumably some time after MAPS gets going again after its year off.

If anything sums up MAPS, it’s this image, clipped from a presentation earlier this year, that looks at MAPS’ own governance structure. MAPS may see this as an example of sound governance – I see it as hopelessly overloaded with committees – strangled by bureaucracy

Screenshot 2019-11-14 at 07.08.29.png

It must be very frustrating for MAPS to have to look at an organisation such as AgeWage which is trying to help it achieve its aim in terms of risk. It must be very disheartening working in a place which has become such a backwater that this article will probably be the most socialised content it gets in November.

Still more frustrating because the person who made TPAS famous has been made about as welcome in MAPS as I was.

Are MAPS really in listening mode?

Everywhere I look , I see opportunities for MAPS to make its mark. When I finish this blog I will be nipping over Blackfriars Bridge to hear how I can hook my organisation up to the Mum and Gransnet.

Screenshot 2019-11-14 at 06.30.17.png

 

When I’ve met with Mum and Gransnet I asked them how they worked with MAPS. To my amazement – no one in the room had ever heard of MAPS– though they’d heard of TPAS  – some time ago.

Between them Mum and Gransnet host the eyes and ears of over 10m Brits a month, most of them are the Es, D’s and C’s who MAPS needs to reach out to.

One person in the room mentioned that MAPS was probably targeting the A’s and B’s, which is why their paths didn’t cross.

I’d have shared this information with the old TPAS and they would have pressed the invite yourself button and come.

But I didn’t feel it appropriate to suggest to Caroline she came with me to Ogilvy this morning. It would probably have required a risk-assessment for the nearly-new MAPS to decide if this was a suitable input to their information gathering.

MAPS and the dashboard – when I’m 64

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MAPS – the Pensions Minister announced – is to be the home of the pension dashboard. The pensions industry welcomed that – the then-new MAPS was being tasked with delivering version one of said dashboard by the end of this year.

We are reaching the end of the year and the expectation has slipped by at least a year. The dashboard steering group is only just getting its feet under the table and the Pensions Bill that would start the mandation of data to the dashboard didn’t make the wash-up.

Whatever emerges in 2020 as dashboard legislation – will not become effective till I’m well into my sixties. When I started planning for the dashboard I was 54- I am 58 now and I don’t expect to see the dashboard fully operative till I am 64.

Frustrated and frustrating

Becalmed and rudderless, MAPS is a bulky containership aground in the gates of the harbour. Until Hector Sants  gets the tugs out , it will continue to block progress.

I feel sorry for Caroline and all aboard who are doing so little with so much resource. We need a strong pensions guidance service in the UK and MAPS should be it.

Let’s hope that as we move towards the end of 2019, we aren’t saying the same things about MAPS in a year’s time.

MAPS

Posted in advice gap, age wage, DWP, pensions | Tagged , , | Leave a comment

Why we can celebrate 74 years of peace

Posted on November 10, 2019 by henry tapper

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Nobody wins wars, the only good thing that can come our of wars is peace and that is what we have  had  for 74 years. That should be celebrated as the lasting memorial of those who gave of themselves in those 30 mad years between 1914 and 1945.

Aight

Those of my generation knew of the war from parents who were children and grandparents who were adult – many of whom fought. Those who have chosen to serve in our armed forces have fought and many died but we have had no men conscripted since 1960.

I was born into the world at 10.58 on 11th November 1961, my father was present at my birth, my mother is excused if she broke the silence. My gratitude is to those who have kept peace on these shores in the intervening 58 years.

Yesterday I watched the men and women of the armed forces at the Lord Mayor’s show and applauded them. I was able to return home to a wonderful weekend of sport , time with my family and an opportunity to remember at 11 am today. We are enjoying the peace they gave us.

In the early hours of this morning I watched two men celebrate peace

 

Why we can celebrate peace.

We can celebrate peace today because we fought for tolerance and achieved a lasting settlement. That settlement has seen people come to our shores first from the Commonwealth, then from Europe and – where they seek refuge – from around the world.

Our nation is part of a global economy which frowns when we assert intolerance. Last week British debt was downgraded by Moodys because world markets see us as better together

We are now an integrated society as we were not in the last century. The diversity we have achieved and are achieving accross sexes, race and creed means that we are less divided inside of Britain and linked to other countries through family work and religion.

I am proud when I worship at my church that the flags of every country where Methodism flourishes are flown from the gallery and people from every country sit beside me in the pews.

We can celebrate peace because those from India and Africa, Germany and Japan are no longer strangers.

Let this peace last

We have given peace a chance and it has been a success. We are a better nation for being a peaceful nation and though many places around the world are still at war, the world is a better place for its great institutions of peace, the UN especially.

Today we can celebrate 74 years of peace and tomorrow I can celebrate 58 years where I did not need to fight as others did for me.

My profound gratitude goes to those who went before and those who serve so that I can live the rest of my life   شاء   in peace.

poppies 1

Posted in pensions, religion | Tagged , | 1 Comment

“Peace of mind” – the new commodity

Posted on November 9, 2019 by henry tapper

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“Peace of mind” is the new commodity that can be sold by anyone, anytime, anywhere – especially if  you are a financial adviser. It’s the talisman of “financial well-being”.

Mercer Money has been designed to support better financial decision making and help improve people’s lives today while giving them peace of mind that their future needs are met.  Corporate Adviser – Mercer launches Financial Well-being Platform

IFAs have an endless stream of customers lining up to get some peace of mind from knowing what they’ve got, The cost of these financial placebos is a wealth tax equivalent to around 25% of the expected growth on a portfolio, which – since it’s taken out of the investment, means that the outcomes are under-performing of necessity.  Henrytapper.com IFAs are living the life of Woodford.

It doesn’t much matter if you are a one man vertically integrated wealth manager or the mighty mercer, you can peddle “peace of mind”.

A trouble shared?

peace-of-mind

Whether with a wealth manager or the Mercer app we are being asked to share our financial and life goals with third parties

As  Chris Budd puts it on the Ovation website

we encourage our clients to accumulate life with their money, not the other way around

This kind of openness is not for all, especially when the third party is your boss.

Screenshot 2019-11-09 at 07.50.08.png

What is on sale here is a kind of hand-holding that I’ve seen people like Chris Budd, Al Rush and Charlie Goodman carrying out quite brilliantly. It is undoubtedly worth it and I’ve no doubt that the good people at Mercer thoroughly believe in their product.

 

But outcomes matter more..

Show me the value

I’m going to be within two years of being 60 tomorrow and my financial wellbeing is dependent on the outcomes of the money I’ve saved, the defined benefits I’ve accrued and my capacity to carry on working.

The outcomes of my saving matter to me more than mentoring, counselling and goal-setting.

Show me the money.

The money I have now  has been  diminished by the various commissions and fees paid to all the people over the years who I’ve employed to help me to the eve of my 58th year and do you know what, I am not of the view that I got much value for all this advice I paid for or the advice delivered me in the workplace by well-meaning bosses.

To all those who want to sell me “peace of mind”, I can share a piece of my mind. Please don’t patronise me – let me be – and show me the money that I have and how  I can use it to get myself a wage in later age.

I have no idea about the overall cost of all the advisers who’ve had a bit of my later life , even less – of the value I’ve got for this money. It would be great if someone would show me this money.

In one word – I want “accountability”

Will Robbins and Charlie Goodman and I sat down in Citywire’s Vauxhall Walk offices to discuss whether you can really sell “peace of mind” as a financial commodity.

After 50 minutes of passionate debate, I was asked by Will to give one word that would convince me that peace of mind could be sold as it is being sold – as a financial commodity.

That word was on my lips from the moment the discussion started.

If you are prepared to be accountable for my peace of mind – today and tomorrow – you can sell me your capacity to deliver it.

And if you are using “peace of mind” as a hook on which you sell me your services , I demand some evidence that my happy today will translate into a financially secure tomorrow.

Right now – I remain deeply sceptical.

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

So what’s this “tough new regulatory environment” for DB pensions?

Posted on November 9, 2019 by henry tapper

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That’s tough

 

Next week I’m on holiday – but I’m not – because I’m doing loads of meetings and moderating a session at the DG DB pensions conference.

What you have to do when you moderate these things is get all the people together on the phone and find out what they want to talk about. Which is what I was doing yesterday, in between doing my day job and messing around with Citywire.

It’s been a whole month since I was working with First Actuarial so I can now call myself an ex-consultant and DB something that I get not advise on.

Tough?

The purpose of the session I have been asked to moderate is to determine how trusters are responding to the “tough new regulatory environment” which apparently has been put in place by the Pensions Regulator.

Tough new regulatory environment?

Social Purpose

From what I could get off the call, the Pensions Regulator is keen that the Trillion pounds plus in funded DB plans is put to work for good. This means that it helps global and local goals to improve our environment, sustain our planet and reinforces good governance.

If it is tough for trustees and the people they employ to raise their game in these areas then they need to explain why. Frankly it is a challenge that any trustee should relish.

Funding

The same could be said for the sustainability of a scheme’s capacity to pay the pensions promised to its members.  DB schemes don’t have the capacity to flex their liabilities, but they can improve the means they have to meet their liabilities by sensibly matching what they have to pay to what they have to pay it with.

If it is tough for trustees, with all the help they get from extra contributions from sponsors and the advice from actuaries on liabilities and advisers on their investments they they need to explain why. Frankly it’s a challenge they have known about for decades and if they find it too tough, they have  no business doing the job. The Pensions Regulator appears to be taking a “shape up or shape out” approach, not before time.

If we see consolidation , it will start with the collapse of trustee boards into sole trusteeship, move on to the pooling of funds and finish with the pooling of liabilities. What little diversity of approach left in DB trusteeship will disappear as schemes conform to the rules of the endgame.

The choices around consolidation will be about how and when , not about whether . The Pensions Regulator has come to bury schemes, not to praise them.

Conflicts

What little has come out of the Competition and Market Authority’s review of DB relates to conflicts between those advising on and those managing schemes. These conflicts when they are the same people and this practice is known as fiduciary management or what other IFAs know as vertical integration.

These conflicts are well known and aren’t going away as the consultants have collared most of the available resource and are determined to eat as much of the pie as they can. The Pension Regulator is trying to manage the conflicts and the consultants are running rings around them as they did the CMA.

Frankly – this is a battle lost and the Pensions Regulator might as well accept that in the sorry state that DB is now in, they’d be better off leaving the consultants to fight over the scraps like hungry hyenas.

Strategy

The tough new regulatory environment  also requires trustees to work out what their long term strategic goals are.

If it hasn’t become apparent from the rest of this blog, I do not have much truck for this “toughness” word. “Tough” can properly be applied to the world that millions of Britains live in where pensions get paid from 66+ by the state alongside universal credit. Tough globally includes countries where living to 66 is an achievement in itself. Tough is seeing your house and land underwater through rising see levels or to live somewhere where it doesn’t rain any more.

Frankly, “tough” doesn’t really come into it.

Trustees are charged with paying the pensions promised to their members till the final day when they are due or to discharge their obligations by handing the scheme over to a third part – whoever that may be.

The long term strategic goals of a scheme may include reducing reliance on a sponsor and improving funding to a point where the scheme can be sufficient. Or it could include running the scheme as an entity intending to stay open indefinitely, as the local government pension schemes intend.

These aren’t really tough choices, they are just choices and frankly they are made for trustees by the circumstances in which trustees operate.If the sponsor of your scheme is no longer willing or able to meet the obligations you set it, then you really don’t have much choice about what happens next.

 

This tough new regulatory environment?

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I can think of no other area of commerce so cushioned from the tough realities of daily living than DB trusteeship. It exists in a pampered world in which the conference I’ll be attending will be a part.

The Pensions Regulator’s motto “clearer, quicker, tougher” is relative , not to the world in which we live, but previous regulatory regimes.

It is tougher for the Pensions Regulator, many regulators are being asked to take a 30 per cent pay cut – that is tough. It is a PPF style hair-cut which they must either accept or move on.

But for trustees, I don’t see this new world as tougher, nor even less comfortable.

The pain has yet to come and for most – is still some years away.

If you are a DB pension trustee and would like to go to the The DB Strategic Investment Forum – Wednesday 13th November 2019 – The Waldorf Hilton – London

Register here

 

 

Posted in de-risking, flood, Henry Tapper blog, pensions | Tagged , , , | Leave a comment

“Degree-educated” most at risk from pension scams….

Posted on November 8, 2019 by henry tapper

hackathon

Higher-educated savers are more at risk of losing their pension to fraudsters than those without the qualification.  That’s what a survey of nearly 2000 people told the FCA and TPR

10% of those without a degree said they would accept such an approach, a lower proportion than those with the qualification. Some 14% of people with a degree told regulators they would accept a review from a company they did not know.

Fraudsters often target those with larger pension pots, but also find a route to their victims by offering “free pension reviews“. It would seem that a higher education is no protection from the alacrity of scammers.

Targeting mass-affluent sophisticates

The new breed of scammers appeal to higher-educated middle class Britain because they are the ones with the biggest pension pots.

And because it’s people like me who appreciate the advantages of a technology-based service. it’s those who think themselves more sophisticated, who can be most vulnerable.

Writing on her blog, Romi Savova explains

Recent analysis from The Financial Conduct Authority and The Pensions Regulator found that over five million people across the UK (42%), could be at risk of getting scammed and the average loss is £82,000 per victim.

Most of these people are normal consumers, simply seeking to make the most of their money in a confusing pensions world. They are therefore susceptible to tactics that – to an industry insider – generally sound too good to be true. 

At the same time, most preventative action in the industry, while generally well-intentioned, has focused on extensive paper communications, images of desolate pensioners and generally the types of things that most consumers would discard in the category of “that doesn’t apply to me” and “it all seems confusing”.

Meanwhile, scammers are known to be helpful, accessible and relatable. It is no wonder that confirmation bias leads people to make financial decisions that can cost them dearly. Timing is also key.

Warning people about scams at the point of transfer is often too late. It is important to raise the level of awareness of pension scams before a consumer is even approached.

Pentechs get ready!

If you are interested in technology and work in retirement planning – you’re a pentech and you should be blocking out 29th November in your diary for the ….

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One way to raise awareness of pension scams is to devise a simple, interactive, shareable online game that can alert consumers to suspicious tactics before they are happening. If we can use technology to solve some of the biggest pension challenges we face as a society, we should also be able to come together as a sector to try and solve a problem that impacts us all: pension scams.

So it is with great hope and anticipation that we announce a Pension Scams Hackathon on 29 November 2019, where some of the most well-known companies in the PenTech space will team up to create the winning concept for a pension scams game, inspired by the “Scams and Ladders” board game.

Screenshot 2019-11-08 at 06.35.30.pngBarclays has kindly agreed to host us at Plexal, the innovation centre in the Olympic Park.  Pension Bee has invited a broad representation from the pensions industry to judge our efforts, including Michelle Cracknell CBE, Margaret Snowdon OBE (President of the Pensions Administration Standards Association), Dominic Lindley (Member of the Financial Services Consumer Panel and Member of the Pensions Dashboard Industry Delivery Group) and Stephanie Baxter (Deputy Personal Finance Editor at The Telegraph), each of whom brings a unique perspective to the challenge at hand.

Want to be involved?

While the concept for the game will be developed on the day, the technology powering it and its full user experience will be built by our friends at JMAN Group, to be launched to the public in early 2020. If you would like to participate in the hackathon or if you would simply like to support our initiative, please get in touch.

This event is all about uniting behind that which makes us strong: our focus on consumers, our belief in technology and our spirit for change.

We  look forward to seeing what we can achieve!

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Register on this link

Stop press*** Stop press***Stop press*** Stop Press

And while we’re on the subject of Romi Savova

Many congratulations to Romi on this, which places her not just as our leading Pentech , but as one of Britain’s leading young entrepreneurs. A working Mum with two young kids shows that there’s no ceiling to talent, application and a thirst to make positive social impact.

 

Posted in advice gap, age wage, pensions | Tagged , , , | Leave a comment

DWP – should the top topple when the spinning stops?

Posted on November 6, 2019 by henry tapper

Screenshot 2019-11-06 at 06.56.21

I can’t remember another occasion when a Government department was stopped from lying to the people it serves by a Government agency. But that is what happened yesterday.

The fact is that the Advertising Standards Agency has banned four of the DWP’s six newspaper ads and the accompanying web page from appearing again in the form complained about.

Six ads for the Department for Work and Pensions (DWP) appeared in the Metro and on the Mail Online and Metro Online websites from May to “set the record straight” about the benefit.

The ASA said it had told the DWP to ensure it had “adequate evidence to substantiate the claims in its advertising” as well as presenting “significant conditions” to its claims clearly.

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Few of us would associate the happy smiling faces of the pair above as the beneficiaries of universal credit. It is not a bad thing that the Government presents the payment of benefits with  positive images, but when the substance of the advertisement turns out to be misleading, the images become those of actors and we begin to doubt the intentions of those who commissioned them.

What are the accusations upheld by the  ASA?

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Specifically

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The ASA said it considered that readers would interpret the wording “move into work faster” to refer to secure ongoing employment, but in fact the 2017 study the claim was based on had included “people who had worked for only a few hours on one occasion during the relevant period”.

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The ASA thought this misleading, saying it was not always made clear enough in the adverts the advance was a loan to be repaid within 12 months, or that the advance payments were not necessarily available immediately.

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The ASA said this was misleading as it omitted significant restrictions placed on the right to alternative payment arrangements, which are in fact available to about one in 10 claimants.

Why would a Government department lie like this?

Lying and spinning are the same thing, if the impact is to create a false impression. This advert lands on television viewers in three ways

  1. To recipients of Universal Credit, it is designed to quell discontent
  2. To voters at  forthcoming general elections, it’s designed to support the incumbent Government
  3. To tax-payers , it’s designed to show how UC is providing all of us with value for money.

Lying to society’s most vulnerable

The political point is time-bound but important, points (1) and (3) are more fundamental. Government has a responsibility to look after those who are jobless, homeless and penniless and that is what Universal Credit was set up to do. It is clearly unpopular because it restricts payments as part of the Government’s ongoing austerity program.

What the complainants against the adverts are saying is that the Government’s claims for UC are untrue and these complainants aren’t UC beneficiaries but their representatives.

The organisations that submitted complaints included the Disability Rights Consortium, the Motor Neurone Disease Association and the anti-poverty charity Zacchaeus 2000 Trust (Z2K).

In a properly functioning society , these organisations should be working with the DWP not seeking to stop it telling lies.

Lying to the tax-payer

I pay my taxes without demur because I know they put the homeless in homes, the jobless in jobs and the penniless in pennies

I do not expect to hear that a Government department charged with spending my money is lying to the people who are in such a predicament that they cannot be secure over a house, a job or the money to pay for life’s essentials.

That the DWP is also the department on which we depend for later life benefits like the state pension and the apparatus supporting workplace pensions makes it worse. It calls into question the probity of DPW quangos such as the Money and Pensions Service and Pensions Wise and it asks us to question why this department is being held responsible for delivering a pension dashboard.

It is a department with “form” for poor communication, but whatever the failings in communication over changes in state pension age, the DWP has never before been pulled up for deliberately misleading the people it is supposed to be helping.

When the top topples….

top topples.jpeg

Regular contributor to this blog – Gareth “the ferret” Morgan spends his life advising on benefits, he has called UC for presentational shortcomings on this blog before.

I expect he will comment on this ASA verdict. Gareth is one of the very few people in financial services who understands how UC works and calls Government when it doesn’t.

I am sure that he will be asking himself the question in the headline of this blog, just who is responsible for the shambles that has led to the DWP being found to be lying to its most vulnerable stakeholders?

My reading of the situation may be wrong and Gareth is better placed than I to comment. But I cannot help thinking that these adverts are the product of a department under pressure from within Government to make a better fist of promoting UC, under pressure from complainants to keep destitution from the door of the needy and under pressure from politicians to pretend that for the poor, austerity is over.

The DWP simply cannot do all these things without it seem – lying.

And here we come to leadership.

 

We have had a staggering 15 different people acting as Secretary of State at the DWP in the first 19 years of this millenium. They have been split between the two major parties and the revolving door suggests that no one wishes to take ownership of the DWP for any length of time.

The only minister with security of tenure was Ian Duncan Smith who was SOS for nearly a third of this period. He was of course the architect of UC and he is still in Government.

Is Therese Coffey going to be toppled now that the top has toppled? She is more interested in winning a general election and seeing through her vision of Brexit. She will not be held responsible for the ASA decision.

Infact nobody will. The decision will be swept under the carpet as a careless bit of Government – joining the omni-shambles that Universal Credit has become. Other departments will make “thick of it” comparisons and DWP civil servants will have internal inquests.

They will no doubt stick to the party line so far.

We are disappointed with this decision and have responded to the Advertising Standards Authority.

We consulted at length with the ASA as we created the adverts, which have explained to hundreds of thousands of people how universal credit is helping more than 2.5 million people across the country.”

Why should we believe them?

 

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Posted in advice gap, DWP, pensions | Tagged , , , , | 6 Comments

DC Governance turned upside down

Posted on November 4, 2019 by henry tapper

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Everyone acknowledges that defined contribution pensions turns the risk register on its head. Instead of sponsors taking the risk of poor performance, poor information and poor governance, these risks are now taken by savers.

So why doesn’t scheme governance reflect this?

When I look at scheme reporting, whether for multiple employers of a a single sponsor, the format and intent of the reporting doesn’t differ much from the way we have traditionally reported on DB schemes.

In a very abstract sense, DC governance should bypass the sponsor altogether and be focussed entirely on helping savers manage their risks, understand the success or failure of the investment strategies employed and deliver individual metrics meaningful for each saver alone.

This is the reality of individual DC, whether it is delivered through a scheme or a group or personal pension plans, the “pot” is what the member relates to. It is the outcomes that members experience that matters.

A pragmatic approach includes employers

At an abstract level, we might want to do away with scheme of plan level reporting – we can’t. The sponsor – the employer still considers it owns responsibility for what happens within the plan, if only for old fashioned reasons. Employers have infact discharged their duty by choosing a qualifying workplace pensions and are not (in terms of regulatory compliance) on the hook if the chosen provider messes up.

However , in terms of reputation , a workplace pension can create havoc. NOW pensions – in their pre-Cardano days, caused acute embarrassment to employers through poor administration – compounded with a positioning in some league tables that exposed employers to criticism for choosing them. A failure by NOW pensions to address internal problems quickly enough and to come clean with employers lead to many employers moving qualifying schemes.

There are two key areas of risk for employers, performance and data quality. If providers cannot evidence that they are keeping member records properly or that individual pots are showing value for the money invested in them, then employers should consider the basis of their relationship of their supplier.

Providers have to be accountable both to savers and employers

I recently attended an event where the pension manager of a DC scheme with a large employer told a session that DC value for money assessments were an exercise to satisfy trustees and the employer and had no relevance to members. This brutally honest statement demonstrates the failings of current DC governance which simply replicates the DB pecking order.

It does not acknowledge that whatever happens at scheme level, is only an aggregation of what is happening at saver level and it is what the plan participants are getting that matters (not just to the savers but ultimately to the sponsor). If the plan participants are getting shoddy record keeping and poor returns on their money then the impact ultimately fall on the saver.

Employers only have skin in the game so much as poor outcomes can sour labour relations and make HR and Reward decisions on issues like early retirement, a lot harder.

DC Governance turned on its head

At first site , this row of metrics may look to be reinforcing the traditional model

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The pink box tells a trustee/IGC/employer that the average value for money score for the participants in the dataset was 52. That’s slightly better than average.

The average return savers got from the pots in the dataset was 7.66% and the average return from the benchmark, was slightly higher at 7.7%, as the benchmark contained no lag for charges , the dataset (net of charges) showed saver experience slightly better than average.

We are finding that these high level metrics encourage those with governance responsibilities to dig deeper and start filtering groups of savers to see who the winners are , who are not doing so well and what kind of things are influencing both value for money and absolute performance (the internal rate of return of the pot).

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We have analysed over 300,000 pots and new data sets are coming in every week, each pot is measured against a benchmark fund into which contributions are theoretically invested to discover the value for money AgeWage score.

The employer/IGC/trustee/provider is then able to generate reports that shows pot performance at any level of granularity he or she chooses (including individual pot analytics).

So, for the first time, fiduciaries will be able to look at things from the savers point of view.

This is what we mean by governance turned on its head.

Where is this going?

We hope , once people have got used to this new way of reporting, that we will be able to report to savers individually. We are still discussing with providers, fiduciaries and the regulators how this can be done in a way that doesn’t disturb people in the wrong way.

Engagement is one thing, but getting people all worked up about their pension could lead to them taking rash decisions with a lifetime of regret.

agewage evolve 1

All the same, wouldn’t you rather know what has happened to your pension pot than not? Is it really fair that you have to take all the risk and “they” get all the information?

Ultimately, we need balance. Most people are interested in their retirement money and our initial testing suggests that people get AgeWage scores and want to dig further to find out how they could improve them. Once people get into one pension pot, they want us to get scores for other pots and to see all the pots in one place (a dashboard).

This is taking governance into new areas, creating the opportunity for people to self-govern – using the super-governance of employers, providers and fiduciaries to open the door,

If you are interested in this form of governance and would like a demonstration, please contact me henry@agewage.com or call me on 07785 377768.

 

Posted in advice gap, age wage, cardano, corporate governance, dc pensions, FCA, Financial Conduct Authority, pensions | 1 Comment

Could workplace defaults give best value for money?

Posted on November 2, 2019 by henry tapper

Workie

The results from our first 100 retirement savers are in and our test group averaged 54/100 on their outcomes.

Some of the people who did best are in workplace pensions , including a friend from Port Talbot who has got 78 VFM on his Tata Steel Aviva workplace pension. I managed 63 on my LGIM  fund and many of the other higher scores are from people who had the good fortune to be in a workplace pension default managed by a household name.

Results so far suggest that putting your money in cash has consistently delivered the worst value for your money while the more esoteric strategies we’ve discussed, have seldom scored above 50. The results are extremely predictable, well diversified , well executed low cost funds have consistently provided better outcomes for people than DIY alternatives.

my passive funds

 

Building governance from the bottom up.

Pension consultants like to measure governance at what they call “scheme” or “plan” level. That means measuring what is going on by aggregating all the little pots and treating people’s experience by looking at one big pot.

The problem with this is that it is not the scheme that is taking the risk, but the individuals within the scheme and telling people they are getting value for money at “scheme level”, isn’t helpful if their pot has underperformed.

This big data approach also misses the granularity you get by treating the scheme as a collection of small pots. By looking at a scheme from “pot up”, rather than “scheme down” you start putting members first.

For most people, the capacity to invest the amount they need to fund for their retirement in a risk free way, is simply not there. Cash is a terrible long-term bet, no matter how attractive it may be from day to day.

We need to take risk with our savings, if we are to meet our retirement goals, because we don’t have the money not to.

Trusting in defaults

For much of my career as a consultant I was distrustful of defaults. I had started selling pensions to people using what were then called managed funds, went on to become three-way managed then multi-asset and more recently diversified growth funds.

The main characteristics of the funds I sold in the 1980s were that they charged active fees to track the index, paid little attention to good execution (incurring horrible transaction costs) and were so big that they were never able to capture value in an agile way. These funds, especially the Allied Dunbar Managed Fund, lagged the market.

The Allied Dunbar Managed Fund made me distrustful of defaults.

Instead I was taught that in investment matters – small could be beautiful so I went through a phase of my career insisting that by using best buy funds, from lists created by fund- pickers, I could give my clients greater value for money. It turned out that I was simply following another herd and doing no more than I’d done earlier with managed funds.

So I decided at last, that picking funds was not something that I was any good at. I might as well leave the management of my own money to the people who I trust and I trust the asset managers who convince me that they are (to a certain extent) on my side.

What I look for in my default manager

Having worked in financial services all of my life, I’ve got to know some fund experts who really do know a lot about getting value for customer’s money. Men and women who are characterised by having high integrity, low egos and intelligence and experience that is both intuitive and learned.

When I meet one of these people, I listen.

One of the people who I listen to is John Roe, who runs the multi-asset funds of LGIM, he doesn’t run my fund but he used to and he manages a lot of money for friends of mine.

Over the weekend I will be thinking and writing about a presentation that John did at the PLSA conference a couple of weeks ago. He did it with Emma Douglas, who’s someone I have worked with – and who dominates the intuitive end of my spectrum of good. John is at the other end of that spectrum, he is a learned man who’s thinking I admire.

Both Emma and John work for one fund manager – it doesn’t matter that it happens to be LGIM, there are plenty of other good workplace pensions that benefit from great management (I mentioned Aviva at the top of this blog).

Where I find the very best thinking and the intuitive capacity to meet customer needs is currently in the management of workplace pensions. I would include the team Mark Fawcett has assembled at NEST in that category, I think the work that Nico Aspinall is doing at People’s Pension as another.

It is not for nothing that these people are working in workplace pensions, they choose to manage money for people like me that do not pretend to know better than they do, but they manage the money as if they were me, in other words they think about my value for money.

How the investment of money in a fund matters.

As I started out saying, most pension governance is at scheme level. The outcomes for individual members are of secondary importance and so long as those who do the governance satisfy their internal processes and can demonstrate they have exercised their duty – the job is done.

I asked a question at another session of the PLSA conference. The question was “what tips do the governance experts in this room have for explaining value for money to members”. I was surprised by the response from a senior governance expert who explained that her value for money work was not for her members but to satisfy herself and other fiduciaries that value had been achieved.

For the 100 or so people who have got AgeWage value for money reports on the pension pots they own, value for money is all about their experience, their investment, the costs and charges they are paying and what they can expect to see when they ask for their money back.

Of all the things that influence the value we get for our money, the return on the money invested is by far the  most important. The investment of our money matters hugely.

And it’s more than just return

When I talk with John Roe and others, I want to know from them what kind of investments my money is funding. Am I helping the world I live in become a better place or is my money adding to the problems?

The people who run our workplace pension funds are charged not just with delivering us a good retirement in financial terms, but to make the world we retire into – a decent place.

Which is why ESG is more than just a box to tick, it is the at the very heart of a fund manager’s job.

Could workplace pension defaults give best value for money?

We live – whether we like it or not – in a world where we must take on the risks of investing for our retirement. But we do not choose our workplace pension provider, or the fund or the fund manager – that is all done by others and we default into the choice that others make.

The fiduciary obligation on those who take those decisions for us is immense. It is relieved to a degree by good regulation – the construction of the master trust authorisation framework, the constraints that operate around contract based workplace pensions and the work of trustees and IGCs should mean that employers and members are protected from bad decision making.

Defaults are everything, over 99% of NEST’s 7.5 m pots are invested in defaults. The results from our initial work at AgeWage, suggests that using these defaults will deliver value for money but we have only just started.

One thing I am sure about, unless we start measuring the performance of the workplace pensions at the level of the individual saver, we will not really understand what ordinary people think of value for money. For ordinary people, the scheme or plan is a concept that means little to them and scheme or plan governance is achingly abstract.

People want to know what value they are getting for their money, AgeWage sets out to do that and the results so far are very encouraging, the people who are doing least are doing best and the people who are trying hardest to beat the market , seem to be coming off second best.

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Posted in advice gap, age wage, pensions | Tagged , , , , | 3 Comments

SABS in the back – the minister’s last hurrah!

Posted on November 1, 2019 by henry tapper

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The prototype statement – needs updating from 2018!

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Simpler annual pension statements (SABS) got a well-needed boost this morning when the DWP launched a consultation into their adoption.

This looks like being just about the latest Government consultation of this parliament and it could be the swan-song for our current pensions minister.

Then again, it could be the presage of his second term as minister – which would be no bad thing. Whether in a majority Government or as part of the coalition, Guy Opperman is the most obvious candidate to take this forward into a future pensions bill (cough cough).

First – commendations.

Well done Ruston Smith for making the statement happen – and for getting a set of standard assumptions into the market.

Well done Quietroom for keeping it simple. This statement could easily have gone the way of statements past but it’s still on two pages and still (mostly) the document we looked at in 2017.

Well done Eversheds Sutherlands for providing the supporting legals that kept the process honest.

Second – recommendations

The key recommendation of the consultation is that the distribution of SABS is through workplace pensions and specifically the workplace pensions used for auto-enrolment.

The Government are in a total pickle about definitions and the best they would best to simplify the scope of the statements to “DC workplace pensions used for auto-enrolment”. I think we all know that DB members don’t get DC statements and that people who have personal pensions (including SIPPs ) have complexity as part of the deal. If they want simple statements – they can consolidate to simplicity.

So I think that simple statements being trialled in workplace pensions is a good thing.

The second most important recommendation is that these SABS just use one basis for assumptions. This will cause all kinds of problems immediately as these assumptions may result in people’s projected pots and pensions going down.

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It will also annoy actuarial practices who have great fun (and make much money) justifying a range of assumptions. Simplification can’t come a moment too soon – chapeau to Ruston Smith.

The third most important recommendation is that (for now), these statements don’t tell people how much is coming out of their pensions. This I don’t support.

Here is the frankly feeble paragraph in the consultation which has probably taken a thousand hours of drafting and should take five seconds deleting.

Finally, we are seeking views on the benefits, risks, practicalities and timing of including approximate member-level charges and transaction costs on the annual benefit statement itself, to make it easier for members to identify what they’ve actually paid. Government supports the fundamental principle that as investors in variable return long-term savings products where the effect of costs and charges on members’ savings can be significant, members have a right to the information in a proportionate way. 

There is nothing – NOTHING – stopping the line that was in previous versions of the statement – telling us how much we paid for our pension – being put back in.

Screenshot 2019-11-01 at 11.33.07.png

spot the difference

All the user-testing told Government that this was absolutely what people wanted to see on their statement. The argument that people might take money away if they felt they didn’t get value from its management is bizarre. So what if they do? If people are so energised by seeing that a max of 0.75% of their fund is being spent on costs of running the money and charges from the pension provider, let people find a home for their savings they consider better value for money.

People who have taken the trouble to open the statement, read its contents and taken action about what they read are precisely the kind of people we want more of. To suggest that scammers will use the cost of workplace pensions to save them money with ludicrous alternatives is to underestimate the British public.

Third – expectations of adoption

What are we to make of the progress of this consultation into pensions BAU?

The DWP are not exactly forcing this down the pensions industry’s throat

Achieving change 13.

We would welcome your views on:

a. the advantages/disadvantages of reliance on the voluntary adoption of a simpler statement template; design principles; or descriptors

b. where responsibility for maintaining a template; design principles or descriptors for voluntary use should lie: with government or industry.

c. The advantages/disadvantages of mandating an approach through statutory guidance.

 

Unless this approach is mandated – we are no further forward. We can already adopt this approach voluntarily.

By stopping short of recommending the mandating of this approach through statutory guidance, the DWP has not moved the cheese.

The expectation , arising from this consultation , is that the DWP either mandate SABS or leaves it to the industry to adopt piecemeal. Having gone to the trouble of identifying the target market for SABS – DC workplace pensions – it seems absurd for us to go through this consultation without making compulsion the expected outcome.

The obvious conclusion to a consultation on simplification is that we will get universal adoption, if we don’t – we simply have what we have today, which is not why we have consultations on the future.

Let’s hope that the only statement in the consultation which talks of action, leads to a swift second round of consultation and early adoption.

Subject to responses, we will work closely with the FCA and others in developing regulation and statutory guidance for consultation. Where we have consulted on assumptions here, we do not propose to do so again as part of the next stage of the consultation

I will be responding with the intent that Government bring this on

I want simpler more engaging statements, have thought SABS the way forward for the past two and a half years and hope that this consultation will deliver conclusive support for mandatory use in the target market at the earliest possible opportunity.

opperman prospect

hello to the future or the last hurrah?

 

 

 

Posted in advice gap, pensions | Tagged , , , , , | 2 Comments

Are IFAs missing the wood for the trees?

Posted on November 1, 2019 by henry tapper

For those (like me) with weak eyesight, here’s that financial plan a bit bigger

Screenshot 2019-11-01 at 05.55.26.png

Dr Bannerjee’s financial priorities were not to maximise the fiscal gain over the taxman but to give him and his wife the financial security he wanted for the rest of his life.

He chose for his retirement plan started rather earlier than his scheme retirement age.

Dr Bannerjee was pressed by third party IFAs to explain what he meant by this criticism.

For Dr Bannerjee , his IFA was missing the wood for the trees. This is a criticism that could be laid at many professionals who are too close to their specialist subjects – tax and tax-law only  being cases in point.

A number of IFA’s press Dr Bannerjee for the planning he has done and he answers them all with considerable patience

As I have noted in some of the arguments that have raged over solutions to client case histories on this blog, objections from IFAs tend to focus on people like me lacking the professional qualifications to give guidance and Drs like Ben Bannerjee taking decisions for themselves.

Dr Bannerjee seems to have had the insight to spot his advisor’s fallibility, contextualise it and then build his plan on the platform of the advice he paid for, without taking that advice.

In my view, far from ignoring the advice, Dr Bannerjee has used the technical input he has got as a platform for the decisions that only he and his wife could take.

This is , incidentally, an example where fees can and should be charged unconditionally. The IFA has, as far as I can see, no role to play in the implementation of the post-retirement  strategy and there is therefore no risk of product bias creating a conflict.

The choices that comes from years of sensible decision making

Reading the part of the thread involving Dr Bannerjee, it became clear that he was in a position to take decisions in his mid fifties so that he could enjoy the lifestyle he wanted for his and his family. He was in this position mainly because he had worked hard and taken advantage of all the pension offers available to him. Not only had he been in the NHS Pension Scheme but he’d bought added years. He had been a model of prudence.

And being a part of a collective pension arrangement

Dr Bannerjee is not alone. We still have tens of millions of our population who have retirement choices open to them because they worked long periods in jobs where the pay was pensionable and the pension provides them with these kind of choices.

As with the state pension, the security that comes from simply participating in these great schemes (whether private or public) is a huge comfort to people of my generation.

It dwarfs the importance of private savings and the decisions we take on how we shape our retirement plans , still relegate our SIPPs , workplace pensions and ISA portfolios to the marginality of “additional voluntary contributions”.

While the immediate tax advice that pension professionals can bring is important, the primary considerations that drove Dr Banerjee ‘s thinking pertained to insurance, insuring that he and his wife were sufficient to the very end.

Security sits uneasily in financial models

I am uncomfortable about the way professional advisers have assumed that their expertise should be at the centre of retirement decision making. People’s retirements are their business and factors such as security are subjective and personal. This is particularly the cased for many women who , because of the pension gender gap, depend for their financial security on their partners.

Understanding the complicated nuances that the complex dependencies that people have both on their pensions and their families takes skills that go way beyond the technical and often they require a professional adviser to give clients space to take their own decisions. It also takes IFAs to accept that while those decisions may be sub-optimal in terms of tax or likely longevity or investment returns, those decisions are right for the client.

And very often, being part of a collective pension provides an emotional support – not least from fellow pensioners, that is lost to private markets. I enjoy being a Zurich pensioner for this reason.

Lessons for me (and perhaps for advisers).

Studying the amazing thread and all the commentary gives me an insight into the things that go on when we are thinking of winding down from work, or advising people of their options.

I am concluding that advice is a platform for people to construct retirement plans but that those plans have to come from the people making them, and not from financial mentors.

Most people end up – as Jo Cumbo feared she’d end up, with a pension pot but no retirement plan. Jo had the good sense to speak with an adviser early in her journey towards retirement and I’m sure she’s worked out what she wants and how she goes about things.

Most of us need guidance at the very least, Pensions Wise can kick that process off, signposts such as the PLSA’s Retirement Living Standards, can give direction, but ultimately what we do is very much our own business and as less and less people have the choices that Ben Bannerjee has today, more and more of us , are going to have to get through the woods ourselves.

Which is why I caution advisers from challenging people like Ben Bannerjee. These people, who can see the wood in their terms, should not be challenged for the plans they have adopted. Advisers should be learning how such people have created their retirement plan, not chopping down the trees.

Wood.jpeg

For all that – most doctors take advice and rightly so

 

Posted in advice gap, NHS, Pension Freedoms, pensions | Tagged , , , , , , | 2 Comments

Halloween stuff – “Superstition ain’t the way”.

Posted on October 31, 2019 by henry tapper

Sun Pension Pot

Six out of ten Americans hold “new age” beliefs and I doubt it’s much different in the UK. I have never- NEVER – heard a financial services firm openly prey on our superstition, but irrational behaviour underpins most of our decision making, my mates who structured CDOs – talked of their craft as  alchemy and – if our Prime Minister is to believe, he will reincarnate tonight from a ditch near Downing Street.

It being Halloween, it is a good time to celebrate the irrational and perhaps we can refer to my favourite image of a pension pot – supplied by the Sun – to remind my super-rational colleagues that most people regard their retirement savings as at best mysterious and at worst a witches brew.

Pension potty

So why are we so mystified. Read the head lines above and see what matters to the Sun.

  1. Avoiding high charges
  2. Avoiding being scammers
  3. Seeing all their money in one place

Mr Money and I did some work on this last year and yes it was around Halloween and yes it picked up on people’s fear of the irrational.

But – and this is what us rational masters of the pensions universe – fail to understand.,,, people see the pension experts as the vampires, and it’s their blood we’re sucking.

Superstitious -or suspicious?

People are in love with the supernatural, halloween is a bonanza for retailers and tonight I will be partying with the best of my colleagues at WeWorks with my wizard hat.

Tonight we celebrate the unknown forces of darkness, the other.

Today on the other hand I will be explaining to my friendly investors their AgeWage scores- which they got this week. Those who have scored well have been keen to publicise their investment genius.

While those who have found their pots have got less than 50/100 on the AgeWage scoring scale have been darkly muttering at me, like I was Gandolph.

AgeWage evolve 2

Actually – our scores are super-rational, they don’t pretend to predict the future, but they tell people about the past. They are the evidence of the costs and charges , the risk and reward and the skill or ineptitude of managers. They are the evidence of the impact of switching funds or sticking with the default. They are the evidence of decisions to use a workplace pension or switching to a SIPP.

In short, we empty the pot to show whether the witches brew is a retirement elixir or the contents of a fetid swamp.

For the superstitious, a pension can be entrusted to the alchemic powers of active management. For the suspicious, a pension must prove itself by its outcomes.

I’m on the side of suspicion and I’m for evidence- based investing, for accountability from those who manage and profit from my money. I am done with superstition and will promote transparency  going forward.

If you want me to test your pension pot and give it an AgeWage score – contact me at henry@agewage.com and we’ll tell you how you’re really doing.

When you believe in things – that you don’t understand

Then you suffer – superstition ain’t the way.

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Brexit? Time may be the healer yet.

Posted on October 29, 2019 by henry tapper

Brexit2

A parliament united by what it doesn’t want

Boris Johnson has finally admitted he has abandoned his “do or die” on October 31st Brexit policy, after MPs voted for the Benn Act to secure an extension to the Article 50 process from the EU and avoid a disastrous No Deal.

The Lib Dems and SNP  have tried to pass a People’s Vote in this Parliament, even as recently as last week when Labour refused to support the Liberal amendment to the Queen’s Speech.

But with Parliament gridlocked, and with Conservative MPs, a substantial minority of Labour MPs, and a handful of independent Conservatives currently blocking a People’s Vote as a means of stopping Brexit in this parliament, a General Election seems  the only other alternative route.

The Lib Dems, Conservatives, and SNP only seem united in  waning to sort Brexit by electing a new parliament where  a majority  can emerge to revoke article 50 , hold a People’s Vote or finally leave.

So it looks likely that everyone will agree to hold an election, even Labour who have announced they’d agree to a 12th December date.

Politicians have found some unity in recognising that dysfunctionality cannot persist forever.

What Europe wants

To date , most of us have assumed that what Europe wants is bad for Britain. The idea that what Europe wants is what is best for Britain and Europe is considered naive. Consequently, negotiations with Europe have been confrontational.

Europe clearly doesn’t want Britain to leave, in fact it still clings to a hope that Britain might stay following either a referendum or shake up in Government.

The French prime minister is the only slight dissenting voice in the European consensus. He clearly wants to move on and has rather recklessly contemplated a “no deal” to that end.

The extension of the deadline has been modified to allow us to get out earlier than the end of January, but no one seems to think this likely.

I’m not hearing many British people saying this, but Europe’s united approach and consistent wish to engage in a negotiated solution is in sharp approach to disunited Britain.

 

Will people change their minds?

The hope is that by rolling the dice with a general election, the British people will create a decisive government where a majority view can be created.

But this is an extremely odd way of doing things. The British electoral system can create massive swings based on the votes of a few voters.

A second referendum would at least test the views of the people on the central matter in hand – the reason that people want a general election.

But there is no certainty that any Government would be able to find a consensus to implement leave if the second referendum confirmed the first. It would of course be easier to remain – which is what Europe wants us to do.

The risk of remaining is the alienation it would bring of large parts of the electorate that voted leave not on intellectual but on emotional grounds.

While I think it likely that you could change the minds of the small number of leave voters who saw it as good for Britain in a cerebral way, the vast majority of voters , take big decisions which they cannot get their heads round, on an emotional basis.

I don’t think that enough people will reason for remain to counter those people who believe in Brexit.

This cartoon from four years ago is horribly prescient.

brexit2

 

We are stuck and that is bad

Where we are right now is “stuck”. We have just binned a hundred million campaign telling us to prepare for Thursday – 31st October. Those who did will now have to prepare for something else, though we don’t know what.

We are united in not wanting to be in this place, but we are in this place and the best we can do is to work our way out of the hole we have dug ourselves.

Conventional wisdom says that when you are in a hole, you should stop digging.

We are now so exhausted by all this  that we have lost all perspective on the matter in hand. I really think the best thing for our country would be to take a breather, a moratorium and ask for a further extension, perhaps for a year so that whatever we do, we do with a degree of national unity.

Because I sense that the decisions that will be taken in this current malignant atmosphere will be decisions that will not command any consensus. The purpose of the original referendum has been to clear things up, in fact it’s made things a lot worse. I can see no point in repeating the referendum, changing Government or crashing out of Europe in the current climate.

 

Time may be the healer yet

As we used to do at school, when there was a fight, we should all leave the playground, go back to class and sort this matter out when heads are cleared.

Perhaps the most difficult decision is the best decision . In this case, the most difficult decision is to put the decision off a year. That’s what I’d do if I had a way of doing it.

brexit3

Posted in pensions | 2 Comments

How dashboardS manage “the invulnerable tide”.

Posted on October 25, 2019 by henry tapper

 

quote-cuchulain-stirred-stared-on-the-horses-of-the-sea-and-heard-the-cars-of-battle-and-his-william-butler-yeats-39-67-08.jpg

I mentioned in yesterday’s blog that the Government can no more prevent the proliferation of dashboards as Canute could have controlled the waves of the sea.

A better analogy than Canute is Cuchulain, the mad Irish Warrior who died fighting the sea with his broadsword

Spake thus: ‘Cuchulain will dwell there and brood
For three days more in dreadful quietude,
And then arise, and raving slay us all.
Chaunt in his ear delusions magical,
That he may fight the horses of the sea.’
The Druids took them to their mystery,
And chaunted for three days.
Cuchulain stirred,
Stared on the horses of the sea, and heard
The cars of battle and his own name cried;
And fought with the invulnerable tide.

The invulnerable tide

And that “invulnerable tide” is with us today. It is driven by people who have money in pensions and want to find out where it is, how it’s done and how they can best spend it.

So far these people have had to go to financial advisers and pay them money to find them pensions. Many will already have paid other financial advisers to set the pensions up and most are fed up with the hassle they have to go to, simply to find out what they already own.

That tide is coming in and the longer we delay the establishment of a portal that gives them access to their information, the more likely we are to be flooded by this demand.

Uncontrolled, the demand for information will be satisfied not just by financial advisers but by those pseudo advisers offering people “free financial review” the people the Government warns us about.

The Government monopoly will not satisfy demand

If the Government builds a portal through which we can see all our pensions on a single dashboard, then people will find ways to capture that information by means of a process of data scraping , so that they can replicate that portal on a dashboard of their own.

This is how scammers will behave and it will lead to bad consequences, it will lead to money flowing to the wrong places, either through funds or directly to the scammers. It will lead to money flowing offshore into the kind of monstrous investments that get closed down every week only to reappear in yet more outlandish fashion offering us an  8 percent return on our money.

The reason that this will happen is that the Government dashboard will not be able to manage the secondary needs of people once they have found their pensions.Those need include working out what has happened to their money and taking decisions about the future.

The alternative to a single dashboard is multiple dashboards that get their information from the Government portal in a controlled and regulated fashion. And these regulated dashboards will help people answer the questions that cannot be answered by the Government because the Government neither wants to , nor is able to – advise people what to do next. This demand can no more be satisfied by the dashboard than it can by Pensions Wise.

Eliminating the grey zone

It wasn’t until reading a blog by Romi Savova that the penny on this dropped. Romi has recently joined the industry steering group and is  one of the people tasked with getting the dashboard in place.

In this blog, Romi talks of  a grey zone (the term was invented by Primo Levi for the blurring of victim and accomplice in Nazi death camps). The grey one Romi refers to is one where information is available but can be used to harm and self-harm – as we see in most poor financial decision making today. She concludes

The consumer owns their data and they will wish to share it. It is important that sharing is only permissible with trusted, authorised and regulated third parties. It is a myth that delaying so-called “commercial dashboards” will prevent the free flow of data. On the contrary, if we fail to consider, define and communicate data sharing protocols and expectations with consumers, any scammer will be legally allowed to scrape the data. Scammers thrive in the grey zone.

The view Romi has, and it’s one that I am beginning to better understand, is that a Government Dashboard has a role in finding pensions and that the Government has a role in defining how and to whom this data be shared.

Necessarily people will look to third parties to help them organise, analyse and understand their data and these third parties cannot be the Government – they must be commercial for there is no appetite within or without Government for a state controlled financial advisory service.

What will be delivered when.

In terms of tech delivery , there is always a minimum viable product and I see the Government’s dashboard as just that. It should be delivered by the end of 2020 and Chris Curry and his team should set a hard deadline for that – otherwise we will not get this thing over the line by 2024.

I think the minimum viable product is a pension finding service which is what the Government portal could and should do and I think that the protocols for finding pensions should be in place by the end of 2020. If your database is not capable of identifying who you hold data on and if you cannot link this to another database via an API, then there is something wrong.

I think that concurrently to the creation of the data finding service will be an authorisation process so that in the course of 2020, FCA authorised firms can apply to act as agents for customers who want to access data from the Government dashboard with the help of that authorised firm.

That firm need not access data by scraping, but by direct access to the data that is already available to the Government dashboard. In short , commercial organisations – authorised by the FCA, should be allowed to find people’s pensions to and through the Government portal, which acts as an authoriser – rather than a regulator.

What happens on the commercial dashboards?

There is a separate discussion to be had as to how information that appears on these commercial dashboards is presented. Romi’s view is that we should use the simplified pension statements pioneered by Ruston Smith with the help of Quietroom. I’m pleased to see she is fighting for this information to include the amount we are paying for our money to be managed as part of this simple statement.

There may be other things that might appear. I would like to see the AgeWage score we are pioneering appear as a matter of course. If AgeWage gets authorised, we may well ask to be authorised to run a dashboard, find pensions , help people with how their pensions are done and help people aggregate to the best pension for them.

But that is for the future.

The Bill is passed, let planning now begin.

What has blighted progress in innovating pensions has been uncertainty. We are familiar with the uncertainty of an unfulfilled plan in politics, and Brexit has undoubtedly impeded the progress of pension innovation – not least through the absence of legislation

I am pleased that I am writing on the right side of the reading of the Pension Bill and have this good news to communicate this morning. With so much going on – we should at least be thankful for this.

 

If you’ve enjoyed the references to Cuchulain, you can hear the poem’s author, WB Yeats – read these lines and more.

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A genuine parliamentary “pensions debate” – something to be welcomed.

Posted on October 24, 2019 by henry tapper

cropped-target-pensions.png

I have not had time to follow the parliamentary debate on the Pensions Bill but I’m grateful for Jo Cumbo’s tweets and will pick up on them. Firstly, it is good that we have a House of Lords with people in it – Ros Altmann, David Willetts, Jeannie Drake and Brian McKenzie who care enough about complex issues like CDC and the Pension Dashboard to debate them.

The Pensions Dashboard

I am on the opposite side of the debate from Jennie here but understand where she – and friends of mine like Gregg McClymont – are coming from. Nationalising the pension dashboard as part of the Money and Pensions Service will be a noble public venture and like MAPS and the combined pension forecast, it will render the pensions dashboard a part of the pensions infrastructure. The Combined Pension Forecast was five years in the failing, MAPS looks like it could out-sprint the CPF , becoming obsolete before it has even published its strategy.

That Said both Jeannie and Brian Mckenzie recognise that there is little trust in the pensions industry not to screw up dashboards.

We have a thriving tech sector in this country. We are world leaders at Fintech and we could be a world leader at Pentech if Government would give the likes of Will Lovegrove, Romi Savova and Sam Seaton the chance. Guy Opperman has given Chris Curry every opportunity to deliver a Pentech dashboard and after four years of miserable failure in the hands of the DWP, it is time they were allowed to get on with it. Which is why I say to Jeannie – and Gregg –

“you’ve had your chance to deliver a dashboard and failed- move on.

That said, Jeannie’s challenge is the right challenge, we need the kind of independent oversite of the dashboard, we had for open pensions. That oversite should not come from a Governance committee packed with the pensions “home guard” but from outside. “Home guard” sounds harsh but the  PLSA conference showed me, there is little understanding of the big dashboard risks within the pension community. Those risks are to do with meeting customer expectations on the big things like finding pensions, not worrying about the minutiae like actuarial assumptions within projections. The rules for Open Banking were created by the CMA, the rules for the standards governing data transfer in the dashboard should equally come from an expert and independent source.

 

CDC and intergenerational fairness

David Willetts – like Jeannie Drake – hit on the key issue with the Royal Mail’s version of CDC.

Again we have a senior politician getting to the nub of the matter and again the answer to the question he is raising lies in the rules – governance – of the road.

You cannot legislate fairness, fair treatment of the various groups of people passing through CDC is a matter for trustees to devise and implement and I am quite sure that there will be groups of CDC pensioners and savers who will argue that they are losers.

The Royal Mail scheme is as ambitious as CDC will get. It aims to create a single scheme that allows postmen to build up a target level of pension and for that pension to be paid to them and their families for so long as they are on the planet to receive it.

If Royal Mail can get it right, other schemes may find it easier, especially if they restrict the scope of the scheme to the provision of scheme pensions from the purchase of a DC pot or pots at retirement.

As with the Pensions Dashboard, the pensions industry has jumped ahead of itself, worrying about this implication or that, when what is needed right now is a private sector initiative to get off the ground so that others can innovate around it. As with the dashboard, the amount spent on the initial project will be recovered later from adoption by commercial entities – I have no doubt that the multi-employer DC master trusts are already licking their lips.

We should not be worried that CDC falls into the wrong hands, any more than we are worried that the dashboard falls into the wrong hands. The progress of internet banking – the precursor to open-banking, suggests that what is needed for both the dashboard and CDC to work, is for us all to feel more comfortable about our pensions being fungible – interchangeable.

The idea of fungibility

What the dashboard should do for people is to allow them to interchange their pension pots for a wage in later life that suits them. So rather than them feeling they have money with various people, they feel they have control of their money and how it is spent. The pensions dashboard should put people back in control of their later life financial affairs allowing them to create a financial plan with full information on choices.

While the Pensions Dashboard organises our later life financial resources, CDC should become a way of interchanging investment pots into a wage for life.

Both the pensions dashboard and CDC share this transformative capacity, they change what was hard into what could be easy. This is the idea of financial fungibility. The idea is the interchange of a single resource – money – from one state to another – can be beneficial to  its owner without detriment to society.

Welcoming the dashboard, CDC and this debate.

In something so transformative as the dashboard and CDC, there are bound to be fears, fears of detriment to savers and detriment to one generation caused by over-payments to another.

The rules governing the dashboard and CDC need to be put in place by parliament and that is what is happening in the Pensions Bill.

Debate on that bill needs to be had , not just in the House of Commons and the House of Lords, but wherever there is interest.

Sadly there is too little real debate going on, which is why I am writing this blog. I have my position, I am pro the private sector being involved in dashboards and pro the commercialisation of CDC. But in both cases, I want this to happen in a controlled way and not in the way we have seen the pension freedoms implemented.

It is frustrating that it is taking so long to get legislation in place but we have to respect there are other priorities in Government and stand in the queue. However pensions are now at the front of that queue and we are ready to see buttons pushed so that we have a pensions act in 2020 with CDC and a pensions dashboard in it.

target pensions

On target for CDC and a pensions dashboard

 

 

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

Learning how to buy pensions.

Posted on October 20, 2019 by henry tapper

Screenshot 2019-10-20 at 08.32.01

Mark Ormston who works for Retirement Line has written an excellent blog on linkedin. This is my version of his blog.

Are people taking sub-optimal annuity decisions?

The figures in the circles are  taken from the FCA Retirement income data report for the period April 2018 to March 2019 –  and come as no surprise to Mark and his team.

Mark asks

“Why is the take up of these valuable annuity options so poor?”

His conclusion is

“Simple – Cost”.

Screenshot 2019-10-20 at 08.32.38

Is this mis-buying or could we be “selling” better?

Financial Advisers – who are little involved in annuities – will point out that many people buy inadvisedly and that they’d be better off buying through them. Most annuities are actually bought off the page – or at least via Google and that may be because of product bias amongst IFAs or it may be because people who buy annuities are the kind of people who try to disinter-mediate.

These are typically independently minded people with a decent level of “financial capability”.

I don’t think that anyone is setting out to misinform the public, but after thinking about Mark’s blog, I think there are aspects of retirement decision-making which could and should be revisited. That’s what this blog attempts to do.

 

Solving the “what if I die too soon” problem

Many people who investigate annuities are put off by the thought that they are disinheriting their family with the annuity purchase. This is a particular worry for people who worry about dying soon after buying the annuity. It is possible to insure against losing the purchase price of the annuity by buying “value protection”.

Mark has done some sums.  His numbers are based on a healthy 65-year-old male with a £100,000 pot.  Here’s his conclusion

Screenshot 2019-10-20 at 09.41.18.png

Remember, this person has an entitlement to 25% of that £100,000 can be taken as tax free cash so what Mark is suggesting is that by buying value protection , the consumer is insuring that the full value of the annuity is paid out if the annuitant lives and the balance between what has been paid so far and the annuity is returned to the family as an inheritable lump sum.

This is an entirely new way (to me) of thinking about the annuity as both a protection against living too long and an insurance against dying too soon.

Solving the escalation problem

Mark tells us  there ‘s plenty of consumer interest in the more expensive annuity options, especially in escalating payments, an option that’s  frequently quoted and usually dismissed when its impact is understood. Anyone who’s been involved in programmes offering pension increase exchange (PIE) will know how ready people are to swap indexation for jam today.

Can we afford not to escalate?

I speak as someone who did not take the tax-free cash on offer when I drew my pension. The main reason I didn’t was that I was being asked to swap 3% escalating income for cash at an extortionate exchange rate.

Mark points out that the typical conversation he has with people assumes that tax-free cash is sacred

Q.    ‘Would you like to take out 25% of your pension savings free?’

A.      ‘Oh – Yes please’

As a result, the tax-free cash is taken out of the equation and we all buy  level annuities.

But reinvesting tax-free cash in the annuity purchase could have partially restored the escalation to the annuity  and Mark’s point is that this conversation is not being had. For many people who are looking for a real wage in retirement, tax-free cash is simply not what is needed.

I know that advisers will pick up on the fact that pensions annuities are taxed and that there are ways of getting the tax-free element of the pot paid out through drawdown.  I know  that there are plenty of ways to generate tax-free income from ISAs , but the point Mark is making is that if a client is coming to him for income, he may not need a cash lump sum at all.

Many people are being talked into a course of action that is just not what the customer ordered. Customers who live long , may well regret their escalation, when the cash is gone.

Protecting your partner

The third of the three issues the FCA have highlighted is that most annuities are purchased on a single life basis. The numbers of married couples in retirement suggests that many spouses are not protected from living longer than the person buying the annuity.

In almost every case there is likely to be enough money in the tax-free cash to make sure that the annuity is paid out for as long as is needed by the surviving spouse (eg till the second death.

In all three cases, tax-free cash can be used to overcome the problems normally associated with annuities.

Let’s learn how to buy pensions!

I’m grateful to Retirement Line and particularly Mark Ormston. Every time I speak with Mark I get a fresh insight into the retirement decisions he sees people taking and he teaches me new ways at looking at old problems.

Of course there are some fundamental issues with annuities which will put many people off them, chiefly their cost at a time of depressed interest and gilt rates. While this can be partially mitigated through the purchase of fixed-term annuities, an annuity is not right for people comfortable with market risk. But there are many people who want the certainty that annuities bring and I don’t think the simple messages in Mark’s blog are being properly disseminated.

Retirement Line aren’t financial advisers (though the firm is authorised by the FCA). They offer complimentary conversations to those people have with financial advisers. Many people who speak to financial advisers go on to speak with Retirement Line and get both perspectives.

I am learning and I think many advisers could learn a lot from Mark and his team. I think that many occupational pension scheme trustees should be speaking with them too!

Retirement Line.jpg

 

 

 

 

 

 

Posted in advice gap, age wage, annuity, pensions | Tagged , , , , | 2 Comments

Those chants don’t seem so funny now – a depressing day for Yeovil fans.

Posted on October 20, 2019 by henry tapper

Leyton Orient v Yeovil Town 191215
A glover living in Brentford (the old ground in the distance)

Yesterday’s was the first Saturday afternoon I’ve spent at home since March. I had thought to go to Haringey to watch Yeovil against Haringey in the preliminary round of the FA Cup but thought against it as my son is away at College and my partner has toothache and could do with my company.

We are an apolitical household, my partner and I have radically different views on Brexit and so while we were aware of developments, I did not go marching.

Instead, we watched the racing and I watched the twitter feed. After a poor first half we got a penalty and I awaited with impatience the result. After a lengthy delay, we scored. It was to be the last good news I was to hear about that game.

Shortly afterwards, the club feed gave the first bad news

The detail came from following the #YTFC. Two bottles had been thrown onto the pitch, the goal keeper had been spat at, obscenities had been thrown and there was talk of rascist chants directed at the Borough goalkeeper.

After a delay, the match was announced to be abandoned and the players came back on the pitch

Later that evening the Borough manager made a statement explaining why he took his players off the pitch.

Talking to Radio 5 he said not just the goalkeeper but his number 6 were subject to racial abuse and that the team were in no state to play the rest of the game.

Yeovil Town issued a club statement.  The Avon and Somerset police have called for video evidence.

The impact on Yeovil supporters has been shock and deep shame that the traditions of a family club with fans who pride themselves on their behaviour will be tarnished by this.

Last week, immediately after a home match, we’d had another horrible shock when we learned that one of our great fans, Martin Baker, had been found dead in his flat, we now know he died of a massive heart attack. Martin had run the unofficial club news site “Ciderspace”.  Martin grew up in Shaftesbury and knew my family well, but he knew everyone well – this match had been dedicated to him and the non league football paper had written this tribute to Martin. 

Like all Yeovil fans I am upset for the club , players and true fans – of whom Martin was as true as any. Yeovil is a small community. It is not a greatly loved place, it has many problems – high teenage pregnancies , low levels of ethnic diversity and average incomes well below the national average. The football club had been a great source of pride for generations. In 2013 it had been promoted to the Championship and the following season Leicester, Burnley and other top flight clubs visited Huish Park to play league fixtures.

Yeovil have since fallen into National League Division one. Yeovil Fans have stuck by the club and this season have seen an upturn in fortunes under a new manager and with new owners. We have a brilliant woman’s team and a growing youth set-up.

Recent problems

Despite this resurgence, Yeovil has been in the news for the wrong reasons lately. A few weeks ago in what was jokingly called “Ball-boy gate”, one of the ball-boys got sent off by the ref in a home game for wasting time. The club marched all the ball boys off in solidarity and the ref was left to get the ball out of the stands himself – later in the game.

This seemed like innocent fun at the time but there were already more sinister tones. Though I didn’t hear it – being on the other side of the ground, Bromley fans suggested that some of our fans were less than sympathetic when the Bromley goalkeeper got injured. There were further rumours of bad behaviour at an away game at Hartlepool and now this.

I feel responsible for our club , though I don’t go to many matches. I suspect that all the more loyal fans feel responsible for the behaviour of their fellow fans. We all feel guilty that this bad thing has been visited on Haringey Borough by us. Indeed our most famous fan, Pat Custard, singled out Haringey Borough for its hospitality, this was their day – more than ours, they are in a lower league and this was their big game.

I was pleased to see our manager’s arms around Borough’s goalkeeper and the two teams mixing without rancour after the incidents.

Screenshot 2019-10-20 at 18.49.01.png

Yeovil Town apologises and I put my apology to what has happened. And of course what has been alleged to have happened has national resonance as it occurred in the same week as our national team got abuse in Bulgaria.

Our fans will now be put in special measures. When we go to any game, we will  be barracked by opposition fans for what happened yesterday. We will not be able to wear our scarves and shirts with the pride we once did. Obviously we all want the hooligans to be banged to rights but we shouldn’t isolate them as the sole problem. In as much as we  let this happen  no-one can claim to be blameless.

And our own fans have made it very clear they have every sympathy for the Haringey players

But we need to see balance in reporting and await the results of the various inquiries, before judgement on the club is delivered. I found this article provided that balance at this early stage.

I understand that several of our fans met with their Borough counterparts after the game and that all was well between them

 

Our team itself is very diverse, and players want to come to Yeovil because we have a reputation for treating people as people. Here’s the forward line of our squad.

Screenshot 2019-10-20 at 08.15.59.png

The behaviour of the few has dishonoured  the memory of Martin and the heritage of the club which will now be remembered for the wrong things. Many will argue that this is a massive over-reaction resulting from social media, whatever the findings of the police inquiry the damage has been done.

Just like pension scamming, a few rotten apples pollute  the whole barrel. There is no way that Yeovil can undo what is done – if found guilty of hate crimes and of bottle throwing, the  culprits  must be banned and we all must bear their shame.

If we are found complicit in racism , Yeovil should voluntarily resign from the FA Cup  and we should adopt Haringey Borough as our team for the rest of their time in the tournament. But I say “if” as it’s still far from clear what actually did occur.

We can’t keep hate-chanting; even calling the keeper a fat bastard (which it seems we were doing) isn’t funny – it’s rubbish behaviour.  Any kind of bottle throwing and spitting is football violence. Things will not get better until we stop thinking this stuff – even done by others – is funny.

I have stood in Thatchers when  gypsy chants have been sung, I’ve hear the Adams Family song, the abuse of northern fans, even the chants against Weymouth. I’ve heard homophobia on our terraces in Brighton away matches . All this seemed innocent fun at the time – it doesn’t now.

Appendix; post of Dave Coates on the @RedmenTV twitter feed

Excuse the long post, but did anyone see the tweet from TheRedMenTV about our current situation? If not, take a look at my retweet from tonight (Tuesday).

Basically, the snippet of a wider debate they posted calls for us to be chucked out of the FA Cup.

Below a message I sent them in response….

Good evening,

I just viewed your recent @TheRedmenTV Twitter post where your host calls for Yeovil Town to be kicked out of the FA Cup following the allegations of racism made against a supporter at Saturday’s FA Cup tie at Haringey Borough.

I will begin by saying I recognise these snippets posted on social media are there to get a reaction from people and make people watching the full video; I did and I recognise there was a bit of debate about the rights and wrongs of this what was being proposed.

However, as a Yeovil Town supporter who attended the match on Saturday I want to tell you about my experience before, during and after the incident and what comments like your ‘snippet’ have contributed to.

Having left my home in Lancashire at 7.15am on Saturday to get to Haringey, I was one of the first to arrive at the ground and visited the club bar where I was actually greeted by the Haringey chairman.

He expressed his hope that Yeovil would bring more supporters to give his club a well-deserved pay day, we spoke, wished each other well and my conversations and those of other Yeovil fans with staff and supporters of Haringey was nothing but friendly and good spirited.

The match itself was fairly uneventful until the 63rd minute when a penalty was awarded in Yeovil Town’s favour and there was, what appeared from where I was standing, to be an exchange of words with Haringey keeper, Valery Douglas Pajetat.

The keeper squirted water towards fans behind the goal and the situation quickly got out of hand, a plastic bottle was thrown on to the pitch and it quickly became apparent things had escalated.

At this point, both myself and more than 20 Yeovil fans around me immediately confronted our own ‘fans’ calling for whoever had thrown the bottle (this was as much as we knew at this point) to be ejected from the ground and urging stewards to act to do this.

The situation appeared to settle and the keeper faced the penalty which was scored, at which point another bottle was thrown on the pitch, and further words were exchanged which led to the Haringey team walking off, followed soon after by the players of Yeovil Town.

By the time the penalty was scored, there were stewards wearing body cameras dealing with the perpetrators involved in the verbal exchanges, and would have picked up anything said at this time – useful evidence in an investigation, I would imagine.

You have obviously read the headlines since then, the vast majority of which has acted as judge, jury and executioner before either a police or FA investigation had begun (let alone been concluded) and judged Yeovil Town supporters as ‘racist’.

My evidence of this? Supporters being abused as they left the ground, including insults being hurled at buses filled with people who applauded the announcement that the game would not continue, and subsequently hearing from countless fellow supporters that they have received messages and had comments about their club’s ‘racist supporters’ over the weekend and during the week that followed.

I experienced this myself from people and it all came before any type of investigation had been completed.

I now know people who have supported Yeovil Town for generations who are afraid to attend future matches for fear of being the subject of further abuse for being ‘racist fans’ and this has been driven by a rush to judgement of so many parts of the media which led to commentary like that you chose to post.

I now have genuine concerns my friends could be targeted for retribution when attending the re-arranged fixture next Tuesday night. How can it be right that people are made to feel like that? If Yeovil supporters are abused, what role will posts like yours have played in this?

You will have read that two people have been arrested on the allegations of racially aggravated common assault and (as I send this message) no charges have been made public against them; and yet you published a statement which has reached a judgement already.

If these people are found guilty of the allegations against them on the basis of evidence, you will not find a single Yeovil Town supporter who will disagree that they should receive bans and criminal charges brought against them.

But what about the stain on the name of thousands of other innocent people who did nothing more than support the same team as them? What about the reputation of a club with no history of any type of crowd trouble, least of all racist behaviour? I am afraid that statements like that you have made have left both of these things tarnished beyond repair.

If ever there was a supporter of a football club who understood the concept of trial by media and the need to look beyond the headlines, I would have thought it would be Liverpool.

Because one idiot threw someone in a fountain in Barcelona, are all Liverpool fans in agreement this type of behaviour is acceptable? Of course not, it is one idiot. The response of Yeovil supporters at the game and subsequently makes me quite sure there are none amongst us who believe racism has any place in our society, let alone football.

If there was a supporter of a football club who understood the idea of legal process and the concept of innocent until proven guilty, I would have thought it would have been Liverpool.

For this reason, I felt compelled to contact you to convey my deep disappointment at how you, like so many other parts of the media, have tarnished the good name of a club with no history of this type of behaviour, contributed to a situation where people feel afraid to attend a football match, and all before an investigation has run its course.

I hope you take this message in the spirit it is intended, from one football lover to another.

 

Posted in pensions | 3 Comments

That was the week (that was)

Posted on October 19, 2019 by henry tapper

gnome

This week has seen a Pensions Bill make it into the Queen’s Speech, the Pensions Regulator’s Stakeholder Conference (Monday) , the Owen James Meeting of Minds (Tuesday) and the PLSA conference (Wednesday to Friday).

And then there’s the minor political and sporting events rolling out this weekend.

It was an enervating week for me that included a trip to Media City in Salford to talk on radio 4’s you and yours program (you can listen here). It was a real privildge to see the PLSA event with a press pass and I had insights into the worlds of TPR and of senior IFAs which I have hardly earned.

But being close to the action is not the same as being part of the action I realised when talking with Chris Curry just what being part of the action means. Look at this picture and you get an idea of the part Chris has had to play this week.

Chris

Chris is the bloke with blond mop next to Pensions Minister Guy Opperman, Terry Pullinger sits on the other side (a key player in  CDC’s inclusion in the Bill).

Neither Terry or Guy made it to Manchester but Chris did and he carried the torch for the Pensions Dashboard. To me – he was the star of the PLSA, not just carrying the Pension Minister’s message but acting a stabilising influence in a number of sessions where frustrations with the (lack of) progress made on the dashboard so far, could have made news for the wrong reasons.

It wasn’t just Guy Opperman who had to miss the PLSA, so did Laura Kuenssberg (replaced by Nick Robinson) and we saw nothing of the main CDC protagonists – including Shadow Minister Jack Dromey. The reason for absentees was of course Brexit, though the impending industrial action at Royal Mail may have made it and CWU’s absence equally political.

So what were the key debates?

The PLSA were never going to cover all aspects of what’s going on in pensions today. The Conference pretty well ignored CDC and its implications for both DB and DC pensions – maybe that is a debate for next year but I felt it was an opportunity lost.

The FCA’s key pension issues surrounding the provision of advice and guidance, how we measure and communicate value for money and the implementation of investment pathways never got into a session. There was an informal discussion of VFM with PLSA luminaries which included a statement from a senior pensions director that the Trustee Chair’s VFM statement was an exercise in Governance and of no importance to members.

As regards pension taxation, I heard a lot of whingeing about rich people’s problems (AA, MPAA and LTA limits) but the issue of 1.7m savers paying 25% too much in pension contributions barely got a look-in. I found myself violently agreeing with Australian Martin Farhy who described the sidecar as a distraction. If we really care about the cost of pension savings for the low-paid, we need to get them the incentives they’ve been promised. The lack of interest in this topic at this conference was shameful.

Similarly, the issues of cost- transparency was given little prominence. The one session on the PLSA’s CTI initiative competed with three others. The handing over of the baton to the PLSA’s CTI team seems to be yesterday’s news. The concept of transparency was  much lower down the debating priorities than I would have expected. There was nothing in this conference from the CMA and it was as if the asset management market study had never happened.

Relative to a decade ago, when I last attended , the number of debates on the funding, governance and investment of DB plans , was well down. They were replaced by an exploration of the social purpose of pensions. For me – the key speech of the week was from Nigel Wilson on the Power of Pensions to fulfil social purpose.  The debates on engagement tended to focus on responsible investment and this is where views were most polarised. An early trustee event on “the parameter of trustee investment duties” saw trustees refusing to co-operate with the ESG agenda, one pension manager in a debate on DC default design told the audience that young people were only interested in financial advantage and had no truck for ESG.  This debate continued throughout the conference and climaxed in a head on twitter feud between Iona Bain and Rebecca Jones on precisely the same point.

Paul Lewis joined in

Clearly the issues of individuals choosing to engage with pensions were of interest but there was little consensus as to how we were to achieve it.

 

What solutions were on offer?

If the key debates were around engagement, so were the proposed solutions.

PLSA is at its best when conducting research and delivering standards, the standards aren’t always worthwhile (see the degeneration of PQM) but many have stood the test of time and become embedded into pensions culture. I hope that the CTI standards will be part of the way we do things.

So the New Retirement Living Standards that I reported on yesterday should be this conference’s lasting legacy.

The standards should succeed but they will need delivery. Over the three days of the conference, I attended a number of sessions on technology. They were all pretty ropey. With the exception of Smart’s Martin Freeman, I did not hear anyone talk of Fintech in a meaningful way. Frankly the PLSA and the occupational world lag – and this is a big worry for the pensions dashboard. The Exhibition was – in terms of technology on show – a big disappointment.

Ideas using the new technologies brought to us by the distributive ledger were thin on the ground and data was consistently referred to as a threat to progress not part of it. Margaret Snowden claimed it would take £25m to clean data ready for the dashboard, I suspect that this is a spectacular low-ball.

Until pension schemes can be proud of their data and its management, the fully inclusive dashboard looks a long way away.

In Summary

The PLSA conference showed me an occupational industry divided as I have not seen it before. I saw little common purpose and a lot of self-examination. The PLSA has woken up to the change in its role but it has yet to find its new identity.

It is groping its way towards its new purpose and that is surely as the standard setter for issues such as target incomes, cost measurement and the governance of ESG. The PLSA should be where we go to understand value for money and the FCA and other Government agencies such as MAPS and GAD should be part of next year’s program.

The PLSA are not going to drive forward Fintech as Pentech.  That is for entrepreneurs, some of whom are happily on the pensions dashboard. But Sam Seaton, Will Lovegrove and Romi Savova were not at this Conference. They should have been.

This has been a week when I have seen pensions through many people’s eyes and I hope that as time goes by, the two major initiatives that took a step forward this week – CDC and the Pensions Dashboard, will help bring those worlds together.

Screenshot 2019-09-17 at 06.23.48

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Thumbs up for PLSA’s Retirement Living Standards

Posted on October 18, 2019 by henry tapper

Screenshot 2019-10-18 at 07.33.07

It’s a shame that the timing of the PLSA’s big reveal coincided with the announcement of the  Brexit agreement. It hasn’t got much airplay and frankly- even the PLSA annual conference seemed a little underwhelmed.

The PLSA have launched a lot of initiatives over the years, few have worked.

I’m going to stick my neck out and say that the retirement living wages produced by the PLSA research team in conjunction with Loughborough University are useful and should be adopted by everyone in pensions.

This one works for me – but see for yourself.

So what’s it all about?

The PLSA has identified a problem, the average person has nothing to target as a retirement income ( Agewage).

Screenshot 2019-10-18 at 07.45.09.png

 

Plucking numbers out of thin air, which is what has happened up to now, is no way to get consensus on what is needed. What’s needed is a solid -evidenced based – set of numbers that we can all get behind.

What the PLSA have done is solve this problem by teaming up with the people who set the National Living Wage and repeat the research that got us where we are with that. The numbers are based on research on what ordinary people think they need as a minimum to get by, to be moderately well off and to be comfortable – in later life.

You can see the gentlemen behind this if you click on the picture above ,  he’s lurking below the screen.  He and his colleagues did a good job explaining to us how the detail worked. I probed about why the shopping basket for basic and moderate lifestyles came from Tesco and why – for the comfortable, the cost of goods was measured by a shop at Sainsburys.

The research shows that the super discounters – Aldi and Lidl – are not suffeciently available to form part of our national shopping cost benchmark. Similar questions solicited similar answers when assessing the types of booze and food we bought.

The thinking behind these three categories of lifestyle is carefully articulated using words that occurred in conversations with the ordinary people who participated in the research.

I was very taken with the kinds of leisure activities people said they wanted to engage in , in later life

You can read for yourselves the detailed analysis by going to the website created for geeks like me , for whom this research matters, it’s a surprisingly interesting place to nose about in! Here’s the link.

And it wasn’t just me who was impressed by this concrete research

Immediately the simplicity of the approach sparked questions..

One of my (ha ha) fellow journalists, Rebecca Jones, asked sensible questions about the exclusion of housing costs from the retirement living standards. The assumption that these would be reduced by the end of mortgage or the availability of housing benefits , doesn’t quite work for me. Most elderly people I know complain about the cost of maintenance of the properties they own or the need to meet the rent because they don’t want to or can’t claim benefits.

So I can see the numbers sparking debate and engagement just as any simplified and universal benchmarks will do. These living standards need to be personalised but they act as a starting point and we heard later in the day that Aviva and others are already integrating these numbers into their planning.

I will certainly be looking to do the same for customers interested in creating a retirement plan , trying to work out what they want as a wage in later age.

You can judge for yourself whether the marketing collateral created to get the message out works. I hate it and am absolutely sick of these animations, but judge for yourselves! You might want to feedback on this blog as the comments box is turned off on YouTube

Posted in advice gap, age wage, pensions | Tagged , , , , | 2 Comments

Democratising pensions in Manchester

Posted on October 17, 2019 by henry tapper

Diverse accross the ages

The pictures above are from the library supplied journalists by the PLSA, they are what the PLSA would like you to think they are about, and yesterday’s sessions really were about youth.

But young is as young did and as we drifted away from the hall I noted that the numbers of young people heading for the PLSA’s CEO dinner or the various watering holes in MI , I realised that these were the people I was drinking with the last time I came to this event ten years ago.

The NAPF/PLSA has always been  and still is crusty and male and rather pale and it was only in the press room that I found most people were young enough to think of pensions as something in the future.

In the best session of the day, hosted by Emma Douglas and John Roe of LGIM, tables were asked what millennials and below were interested in. One table told us that millennials were only interested in profiting themselves and had no interest in environmental and social issues. This may seem extreme but it represented a stream of reactionary thought within the conference which I heard again and again in the wine bars and pubs I drifted through in the evening.

Young is as young does and there is still a divide between the progressive programming of PLSA’s conference and the regressive attitudes of many of the delegates and that divide will not be bridged any time soon.

steph 7

Diverse in location

I listened with care to the speech given by Nigel Wilson (pictured above). He, like his fellow Geordie, Helen Dean,  is in exile in London and he spoke feelingly of how Newcastle , Leeds , Manchester and in Steph McGovern’s case Middlesborough, were powering ahead through Brexit while the capital seemed bogged down remaining.

For as long as I’ve been coming to them, NAPF/PLSA conference have been held out of London. But I have never enjoyed the Edinburgh events which seem to attract the investment fraternity, I love to sit with people from the RPMI from Darlington and get a fresh perspective from parts of Britain London could learn from.

Pensions are about the whole of the UK and not just London and Edinburgh and the PLSA has got this.

Diverse in gender

I was very critical earlier in the week of the way the IFA event I attended was run for men with all the speaking being done by men.

At some point yesterday I asked whether people agreed with the majority of questions being asked anonymously through the conference app. It was gently explained to me that this was to give a voice to the people who had not asked questions in the past.

That is an indicator of how far the PLSA has moved since I have been away. There may still be a preponderance of crusty old men in the hall, but there are enough people like Jane there to make a difference.

Diverse in sexuality

and in case I was in any doubt that we weren’t in the heartland of LGBT, I got these wonderful tweets in the middle of the Steph McGovern session – which made my day!

and again

A live conference or a “live feed”?

Back in the day, the PLSA conference was covered by the nation’s media. Today, the Pensions Minister will be streamed into the conference from Westminster.

To be fair to the pensions minister, he’ll be presenting our Pensions Bill to the House. Good for Guy Opperman for making the Bill happen. Ironically many of us will be checking  Cumbotweets” as part of our day.

 

Hopefully we’ll be checking from the auditoriums and not in the press room while glancing at the live feed (as I noticed some of the press now prefer to do)

There is nothing like “being there” as Bella Jo points out and it’s sad that people travel to Manchester to watch an event as they could on their desktop, the only way to understand what is going on , is to be there live and I bet Guy Opperman is livid he is stuck in Westminster.

Talking of being live, I will be live on You and Yours this lunchtime talking about the damage lead generators can do to people’s pensions (and to the reputation of pensions).

winifred.jpegI’m keen to point out that the reason I’m in the BBC’s Salford studios is because I want to be live in Manchester discussing the good that pensions can do. I will be talking with a female presenter , Winifred Robinson (pictured) and the research has been through another young female – Beatrice Pickup.

We need to be pushing out this live message that pension saving is good news for everyone in Britain, wherever they come from, whatever their gender, sexual orientation, location or age. The PLSA can still do this and I’m really pleased it is recognising that to do this it needs to reach beyond its conferences to the BellaJo’s and the wider public.

Democratising pensions means making pensions something that everyone is interested in discussing and that’s what I hope we will do today and tomorrow.

 

 

 

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The north east rises #PLSAannual19

Posted on October 16, 2019 by henry tapper

Screenshot 2019-10-16 at 07.43.41

I’d come expecting what I’d left behind in 2005, a diet of DB . By the end of
day one I’ve only been to one session aimed at institutional investors and that was on lifetime mortgages, something I’ll be taking a keen interest in a few years when I fail to pay off my interest only loan from HSBC.

Instead I’ve heard from John Roe and Emma Douglas on what’s happening in DC and how LGIM are diversifying defaults with illiquid assets. I’ve heard from Helen Dean and others on how workplace pensions are developing and how they’ll interact with the dashboard. I’ve heard from Steph McGovern on how pensions might become interesting to ordinary people and Nigel Wilson (CEO of L&G) on how pensions could power Britain’s economy in a post Brexit world.

In short I’ve had a good and interesting time and it’s hardly felt like the PLSA at all. Infact I’ll go further than that and suggest that if I have another day as good as this, I might like starting to like the PLSA again.

I sat with the Darlington girls from RPMI through the afternoon. Dean, Wilson and McGovern talked in a strange tongue of places like Redcar , Sunderland , Middlesborough and of course Newcastle. Helen Dean is Vera glammed up and she sat beside me for Steph’s session. I have never felt so utterly overwhelmed by female emotional intelligence and what with the Darlington girls , I felt proper put in my place!

Having done time in a field hotel in Hampshire earlier in the week, I felt divested of the entitlement that befell me and invested with a freedom that comes from people saying what they think and putting people not profit first. Thank goodness for that.

I will be reporting more on the various sessions tomorrow morning but this interim report is by way of renewing my press pass for tomorrow. Sadly Guy Opperman is being kept in Westminster for voting purposes and won’t be delivering the keynote. Perhaps I can run a book on who should do the session instead. On the basis of today we should get Gazza along.

I am writing from the press room at the conference surrounded by real journalists like Maggie and john and I feel really priviledged. If you don’t get my credentials – here they are again!

Screenshot 2019-10-16 at 07.43.41

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IFAs are living the life of Woodford

Posted on October 15, 2019 by henry tapper

woodford life.jpg

Having spent nearly 24 hours somewhere in a field hotel in Hampshire, I am seriously worried about the complacency of IFAs. Indulged beyond measure, flattered by the fund managers that pay their bills seem oblivious to the conflicts of interests they court .

An accountant I spoke to over lunch discussed what could dent the complacency that was obvious everywhere I looked. Around one in ten of the guests were women, I don’t think I  spoke to anyone under the age of 50, there was little diversity of nationality or race, this is a club and- from what I could see – an exclusive one.

The trick in selling to this club is to remind them- slide after powerpoint slide – of  how wonderful the club is and how much value it brings to the 6% of the population it serves.

The most extraordinary example of this grievous sycophancy came in the form of research presented by Dimensional, I don’t have the digital slides so you’ll have to make do with photos.

It’s not just the advisers that need stroking, it’s the clients. These results are from the entire survey conducted by Dimensional but it’s possible to break down the clients of advisers between those who are fans (promotors) and those who are more sceptical (detractors).

One of the IFAs in the room thought being totally unaccountable for outcomes a good thing on the basis that “outcomes always disappointed”. In doing so , he neatly turned logic on its head so that the failure of the IFA to meet the client’s expectations became a failure of the client to expect the worst.

But who cares? IFAs have an endless stream of customers lining up to get some peace of mind from knowing what they’ve got, The cost of these financial placebos is a wealth tax equivalent to around 25% of the expected growth on a portfolio, which – since it’s taken out of the investment, means that the outcomes are under-performing of necessity.

Small wonder , those who don’t rate their IFAs are pointing to the state of their finances rather than their “financial wellness”.

And what needed to be said – and was said – was that the highest net promoter scores in financial scores have related to SJP.

A state of torpid complacency

I had thought that the PLSA (which I am visiting next) marked the extremity of self-indulgence but I’m now not so sure.

The ongoing love-fest between asset managers and their distributors – the IFAs – which went on pretty well 24/7 was quite perplexing. I really thought RDR , the retirement outcomes review, the asset management study, CP19/25 and all the other FCA remonstrances would have knocked some sense of pride and integrity into these jamborees, but this is not the case.

It is small wonder that IFAs are so smug and so arrogant on social media. They are fed lies by the packetful – lies are like their pork scratchings, they guzzle them without even noticing they’re being fattened up.

I do actually think that IFAs have overtaken the PLSA crowd for lassitude , indolence and myopia and that is saying something.

But tomorrow is another day and I have still to see the baying institutional hounds in Manchester.

More of this in a few hours time. Now for a read of Robin Powell’s dissection of Woodford, on the day when Link turned against him.

Woodford.jpeg

 

And here’s a golden Oldie that reminds us how it all began!

 

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Big week for politics – big week for pensions

Posted on October 14, 2019 by henry tapper

 

Guy Opperman – DWP

Things will come to a head this week. For Guy Opperman today will either be the day his Pensions Bill will make it into the Queens Speech or his first term in office will be remembered as “close but no cigar”.

For Boris Johnson this is either the week he gets Brexit over the line or the week he metaphorically dies in a ditch.

Deadlines are like that, they focus the mind and build to an almost unbearable crisis.

Three little ducks…

Three little ducks went swimming one day, over the fields and far away, mother duck went “quack, quack, quack” but only two little ducks came back.

Originally we thought that the pensions bill would enable CDC for the Royal Mail, consolidation for small DB plans and the pensions dashboard for the people.

Rumours have it that “DB consolidation”, the output of the DB white paper, might be dropped, we will have to wait and see.

If we have a pensions bill without a dashboard and a way forward for Royal Mail, I’ll be surprised – and I’ll be disappointed. But as the Pensions Minister pointed out to me recently, decisions of exclusion and inclusion are made beyond his pay grade.

One lame duck

I don’t express my views on Brexit on this blog, but for the process that we’ll follow to implementation or delay, I’m lost – emotionally and for words.

It seems that political expediency is taking over, the process of attrition now means that we are moving towards something that will cause argument whatever it is. If we have a no-deal Brexit, it will be challenged in the court, if we leave with a deal that “betrays” the Northern Irish, we will have Irish trouble and if we delay – as still seems most likely, we will see a large part of the country in uproar.

Here are today’s odds for when Betfair thinks we are most likely to leave, next year remains favorite but not by as much as last week and the odds for a deferral beyond 2022 have lengthened.

Screenshot 2019-10-14 at 06.52.40.png

Britain is one lame duck, hardly able to swim and certainly unable to fly.

Meanwhile we get on with it

While all this politics goes on, I have a busy week getting to know what is going on in the pensions industry – not that I’m going to see much industry either at A Meeting of Minds Winning Advisers where  I’m moderating the pension sessions tomorrow or at the PLSA annual conference from Wednesday to Friday where I am independently blogging thanks to the PLSA’s enlightened views on journalism.

This meeting of minds event is “aimed at the Owner/MD of top 70-400 financial advisory firms in the country, who typically have £150M – £200M funds under management and between 4 and 20 RIs.  They represent independently spirited firms prospering post RDR”. I am really interested in IFA views not just on how they can continue to prosper, but as to the challenges they see themselves facing.

As for the PLSA, it’s been over 10 years since I last attended and I’m excited to spend two and a half days with a quite different set of people, see how they are prospering and how they face the challenges to come.

Politics and pensions

If we have a pensions bill, and I suspect we will, it will change the landscape. CDC will re-open the possibility of collective pensions organised under trust, the dashboard will present IFAs with ways of talking to people at retirement without the cost of assembling a dashboard of their own. Both CDC and dashboards involve innovations that may help those facing the difficult choices at retirement while in the pensions equivalent of the straits of Hormuz.

 

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The best audience I will have all year – thanks CIPP!

Posted on October 11, 2019 by henry tapper

Screenshot 2019-10-11 at 05.45.27.png

 

Take a look at the audience above and you will see what I saw when I arrived to speak- not a single empty chair , everyone paying attention and a great gender mix. The Chartered Institute of Payroll Professionals has a right to be proud of itself and of its membership.

Shaun Tetley, a payroll professional from Portsmouth CC organised and compered, EY hosted and the only issue was the number of questions which caused the event to over-run.

I decided – being the awkward pension person squeezed between TPR and HMRC to give the audience a choice – 15 minutes of action or 30 minutes of boredom. Since the latter option meant a truncated lunch-break, the 15 minutes of action was selected.

When you get a really great audience, it is so easy to present, people are listening and you can interact with questions to the audience that get responses, jokes that get laughs and an energy that drives you on. Thank goodness for the people pictured above!

Here are my slides

I was – given the audience imposed time constraints, happy to focus on the topical issues that mattered to the audience.

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I wasn’t surprised that key to payroll were the issues over tax (the AA taper and doctors) and the net pay anomaly.

The next big issue (this being payroll in the public sector) was my thoughts on the various legal cases outstanding for women’s, judges and firemen’s pensions

Finally we talked about the pending legislation that could make a difference to payroll in the years to come.

As I travelled through these topics, I realised that I could have presented this deck last year with the same “wait and see” messaging. In truth – “not having a Pensions Bill 2018” could become “not having a Pensions Bill 2019” and I might be presenting these same slides in 2020!

Although I didn’t get to hear other presentations, I suspect from the audience’s nodding heads that they had got the message that Big Bad Brexit has eaten progress towards social improvements in many areas of payroll beyond pensions.

Payroll – we owe you!

I can’t say that public sector payroll professionals are AgeWage’s target market, but that really isn’t the point. Payroll provides the platform for pensions to work and if we don’t give back for all that payroll does for us, it’s because we like to bite the hand that feeds. Just because it suits us- doesn’t make it right.

Payroll we owe you and I owe you thanks for letting me talk about the things that matter to me. There are over 1m payroll driven workplace pension participating employers in Britain and they and the workplace pension providers need to say thanks too. Payroll is to pensions what water is to agriculture – rarely appreciated but desperately missed when it’s not there.

Payroll gives value for our money – do pensions?

Screenshot 2019-10-11 at 06.19.44.png

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Boring Money – Extinction Rebellion and Responsible Asset Owners – we cannot go on the way we are.

Posted on October 9, 2019 by henry tapper

Screenshot 2019-10-09 at 07.50.18

Yesterday I was lucky to see the best of institutional and retail financial services.

In Church House, the seat of the Church of England, I saw institutional investors and asset owners renounce green-washing and embrace responsible – impactful -investment with religious zeal.

In County Hall , once the seat of London’s Government, I heard Boring Money’s stellar array of speakers talk of new ways to turn us back on to saving for our futures.

And between them – and best of all – I saw London at one with Extinction Rebellion who danced sang and chanted as I made my way back and forth accross the Thames.

What of course united all three experiences was the universal realisation that something has to change, and that the way we manage our money is part of that change.

I’d like to thank Adrienne Lawlor and Holly McKay for making their conferences highlights of the Autumn, and I’d like to thank all those who are protesting for making it absolutely clear that we cannot go on the way we are.

boring esg

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Extinction , Boredom or Symposium?

Posted on October 8, 2019 by henry tapper

Frivolity of fidelity, mindless or mindful – which will it be?

I am faced this morning with stark choice. Do I cycle on the north side of the river to join responsible asset owners and Adrienne Lawlor working out how to do their bit to save the planet.

Or do I stay on the south side and join Holly McKay and the Boring Money team, working out how to extract maximum rents from the wealth of Britain’s middle classes?

My heart is with Adrienne , my head with Holly. Commerce is about wealth transfer and I’m keen to see how the likes of this lot make so much money. There must be value there somewhere.

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I’m pleased that a refund policy is available – but I am reporting on the event so it will only be time spent that I can claim back and I’m sure I will have a good time.

The other side of the river

Those prepared to brave Extinction Rebellion in Westminster can make their way to Church House and listen to the great and the good opine on the great social , environmental and governance challenges we face. They will be sponsored by another bunch of financial worthies

Screenshot 2019-10-08 at 06.13.31.png

I haven’t deliberately faded the logos, that’s just the way they appear on Adrienne’s website.

This conference seems to be about a bunch who’ve made it – proving they’ve still got some sense of decency.

Fortunately I have my super-decent COO – Rahul – ready to do some research with the worthies and swap conference with me as we try to make sense of the competing claims for moral and commercial hegemony from these different crowds and sponsors.

Bridging two worlds

I am minded to spend my day whizzing over Lambeth Bridge, waving from my Santander bike at Extinction Rebellion as I try to make up my mind whether money does any good or is just as boring as Holly claims it is.

And somewhere in between these two extremes – I have to speak to my co-workers in WeWork Fore St about the importance to their budding businesses of complying with auto-enrolment and getting value for money from the pension contributions they are making to their staff.

Quite what the average WeWork co-worker would make of either conference, I don’t know. I suspect they would have more in common with the protestors on Lambeth Bridge than either the retail or institutional money men and women.

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Pensions lunch and learn?

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Why innovation in financial services is so tough

Posted on October 7, 2019 by henry tapper

tough 2

 

Today I will be discussing with my team at AgeWage innovation. We are submitting an application for an innovation grant to Innovate UK and we have to determine whether we deserve tax-payers money to take our business forward.

To make that determination we have to work out what is innovative about what we do. I’ve spent the weekend puzzling over why we find it tough to provide people with the information they need to work out if they are getting value for money from their savings and do something about getting themselves a financial plan- an AgeWage for their later life.

The answer lies not in what we are doing, but in what we are not doing. We are not taking a charge on other people’s money and that is what is both innovative and tough to achieve.

Charging other people’s money powers financial services.

At whatever level of the financial services value chain, we see “ad valorem” fees. Ad Valorem is Latin for “to the value” and this phrase has been cruelly distorted so that “value” refers not to the value of service offered but to the value of money on offer. So a 1% fee on £1m is valued at 100 times a 1% fee on £10,000 though the value of the service to the owner of the money may be the same.

So businesses in financial services are valued on the assets under management or advice, rather than on the ongoing value being delivered to customers. This cruel inversion of “value and money” means that it is universally accepted that the wealthier the client , the more valuable he or she is. Meanwhile the vulnerable client – vulnerable because every penny counts, is considered unvaluable (I have just looked up “unvaluable”- it is not invaluable – it is a rarely used word most often associated with obsolescence.

Unvaluable is good

In my – and AgeWage’s world, unvaluable is good. You may not be able to make money out the non-existent wealth of the mass of people who do not hold value to the financial services industry, but we had better not ignore them. The 10.5m new savers brought to the party over the past seven years are unvaluable right now but they represent a powerful lobby in the future and will need help. It is hard to see them wanting to pay the fees levied on the wealthy, that would imply charges on their assets of 10% + pa.

To find a way to treat these customers fairly, to find them ways to find their pension pots, bring their pots together and help them spend their pots as a wage for life, we are going to have to get a whole lot smarter. We are going to have to innovate.

How do you innovate to include the unvaluable?

If you follow my logic , you can understand why financial services in this country is focussed on serving the wealthy 20% and ignoring the 80% unvaluable.

Indeed this is how you run a wealth management adviser,  a SIPP, a  funds platform, a discretionary fund – it’s also how you organise the distribution of institutional funds, you focus on wealth and supply to it and you leave the rest to NEST.

NEST ought to be innovative as it services the unvaluable but it does so with the help of Government money by way of a loan till it has sufficient money to be profitable on the assets it takes a charge over. So NEST – despite looking innovative, is actually reinforcing the classic model, taking money from one big pot and being supported in the mean time from the public purse.

There is an argument that says that NEST’s revenue model is presenting a cross subsidy from rich to poor, the big pots generate fees to subsidise the small pots. To some extent I buy this argument, a flat AMC – which is what NEST will move to once it has paid back its debt some time around 2040 will allow it to ditch the contribution charge. But NEST needs the public leg up it is getting till it gets to this happy position and that is why it has to have recourse to over £1bn of public money in the meantime.

tough

Which brings me on to why AgeWage needs such recourse too!

I am not looking for a substantial grant but I do need money to build AgeWage. That money has so far come from my pocket and from the pockets of our 500 investors. We will need to raise more money from the market and if we do not raise money from Innovate UK, we will accelerate slower.

Time is of the essence, the decisions being taken by people retiring today do not fill me with happiness. We know that many people are needlessly cashing out their pensions and drawing down on their bank accounts, others are reinvesting in the wrong kind of funds – many of which will fail. We can see these investments by looking at the numbers published by the ONS and FCA. It is important that we get good quality information to people so they understand value for money, take better decisions and live richer more fulfilled retirements on the back of greater financial securities.

We are five years into pension freedom and we still have not found a way to properly help people – other than the wealthy – with their at retirement decision making.

Data management not money management

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AgeWage is a genuinely different financial services company because it works to a different model. It sells information into the financial services eco-system and is rewarded for the use it makes of data – not of other people’s money.

Data processing is what AgeWage does, it is at the heart of its manufacturing capability and it gets paid for the results of that data processing. We are paid for the fruits of our algorithm , our ingenuity and our understanding of what the market wants and needs.

But we are very far from being successful, we are only just taking our first revenues and we will not be profitable for some time to come. We need the financial support of the taxpayer every bit as much as NEST and we need the support of organisations such as NEST as well.

If we are ever to move away from the traditional “ad valorem” model that takes a charge on wealth, we are going to have consider data as a commodity as valuable as money. This is accepted in other parts of the fintech world but not yet in the part I serve. I will need to go through the tough task of getting data processing valued, a process that I know my friend Will Lovegrove has trod.

Will’s PensionSync has done much to make auto-enrolment work and he should be applauded. He is currently enjoying some respite from his work as an entrepreneur , thought leader and data scientist.  I willingly sit at his feet and learn.

Tough on our customers too

Just how hard it is to run a data processing business in a world dominated by money managers is evidenced by the time it takes AgeWage to get the data from the insurers, SIPP managers and occupational pension schemes which hold both our data and our money.

This is the challenge for the pensions dashboard too.

But people demand to know who has their money, how it has done and they want to know how they can have their money back under their control so ultimately they can spend it on themselves and their families.

It it really tough on savers reaching retirement today that they find it so hard to get the data they want processed, into our hands so we can convert it into AgeWage scores.

Showing how hard it is , is part of the proof of our concept. Things will only change when we find ways to move information around the pensions eco system using the dashboard functionality to kick this off but developing a world of open pension data standards subsequently. These standards should start with a simple data request that is universally accepted under an e-signature.

We apologise to our customers for the time it is taking to assemble their AgeWage dashboards – but it should be the providers who should really be apologising!

With one or two notable exceptions the financial services industry, the pensions savings industry especially, is not ready to move to a data rather than an asset management model. Data is static, unavailable and still considered the property of pension administration teams.

Changing that will be the start of breaking down the hegemony of wealth and democratising financial services for the masses who have little or no control of their savings and little or no access to the guidance and advice they need to manage their finances in later life.

tough 3

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A pensions dashboard really would help

Posted on October 6, 2019 by henry tapper
dashboard.jpg

 

With a Queens Speech and a pensions bill only a week away, it’s timely of the Times to publish research from Ipsos Mori on the plight of UK retirement savers trying to keep track of their savings.

This piece is by Kate Palmer, one of a number of young female journalists explaining pension problems properly.  Her point is that it’s not just those in their 50s and 60s who lose track of their savings, it’s all of us.

A quarter of workers say they have lost the paperwork for private pensions they have saved into at previous jobs, and 13% say they have forgotten how to log in to old workplace schemes online, according to a survey of British adults by Ipsos Mori.

The number of lost private pensions surged to 13.6m last year, according to the Office for National Statistics — a 17% annual increase. These so-called “preserved pensions” are usually held with former employers.

A quarter of the 1,102 workers surveyed by Ipsos Mori said they found it difficult to keep track of their various pensions because they had changed jobs so many times, while 21% said that they encountered problems in keeping up to date after moving house.

Some 8% of savers said they had no interest in their pensions.

A government project in development, the pensions dashboard, is intended to help savers keep track of all their pensions in one place online. However, it has been delayed by technical issues and the all-consuming preparations for Brexit.

Pension providers have complained about delays to the dashboard’s launch, which was originally planned for this year, saying that they do not know what information they might need to share and who will be responsible for keeping people’s data safe.

The Department for Work and Pensions (DWP), which is in charge of the project, has already warned firms that it will have to ask them to share data voluntarily, because it has not yet created rules that will mandate providers to share it in time for the launch. The DWP is still setting out a timetable for the project. It said it intends to introduce the dashboard at the “earliest possible opportunity”.

Younger savers are most likely to support the long-awaited scheme, according to Ipsos Mori’s research. Nearly nine in 10 workers aged 18-34 said a single online system where they could see all of their work pensions in one place would be useful, compared with two-thirds of savers overall.

In general, younger workers are more likely than older generations to shun the idea of a “job for life” and may have many different pension pots — and more accounts to lose track of — by the time they retire.

“The number of people with multiple pensions is only going to grow,” said Joanna Crossfield of Ipsos Mori. “A dashboard is clearly seen as a way to make keeping track of these easier.”

She added: “People already find pensions complicated and overwhelming. A dashboard must help to address this rather than add to it.”

Talking on Friday with the dashboard/s new principal, Chris Curry,  I sense a new pragmatism about dashboard delivery. There is no doubt the public don’t just want- they expect – a dashboard soon, but – as Kate and Ipsos point out, it is the capacity of the pensions dashboard to help us track down lost pensions that is what we most want and anticipate.

While I can understand why many pension providers are nervous about publicly displaying  personal  data – I can see no argument for any provider not to subscribe to a national pension finding service that links us to our pensions history.

I for one, are fervently hoping that we have a Queens Speech , with a pensions dashboard in it, that makes the nation’s hope a reality.

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Do employers have a responsibility for pension outcomes?

Posted on October 3, 2019 by henry tapper

Have to – Need to – Good to

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The employer’s view of workplace pension governance

 

At AgeWage we define “responsibility” in three ways, – “have to” – “need to” and “good to”.  Employers do not have to assist members in getting the most out of their workplace pension, they may feel they need to – if only to get shot of them – and a few employers feel a moral impulsion that it would be good to help staff as best they can.

So employers have no responsibility for staff’s welfare post retirement and most employers shy away from taking it. More than 1m employers offer workplace pensions in the UK and those that take the workplace pension seriously is – according to research by Pension PlayPen, around 15% of that number. But this hardcore of employers see pensions as part of a reward strategy, rather than just compliance with pension law.

AgeWage was formed to meet the needs of employers who want to know the value they are getting for the money they are putting into pensions. We do not – as our sister company Pension PlayPen does, look at subjective elements of workplace pensions – the payroll interface, at retirement service or scheme governance ((important as these are). We focus instead on the value of each member of staff’s pot relative to the contributions paid and the timing of those contributions. Once we have measured the member’s internal rate of return we compare it with a benchmark , created in association with the ratings agency – Morningstar to give each staff member’s pot a score.

Employers can see the scores of staff (usually anonymised) and see average scores for their scheme. This management information enables them to assess whether the scheme is working better or worse than average with quantitative measures that cannot be challenged by providers. We have found many reward departments need to do this measure how their reward strategy is doing and this scoring system is preferred to the opinion of a consultant. The scores are factual

If employers think it “good to”, they can allow members access to their individual scores . There is of course a risk to this, some employees will find their plans have delivered low scores. Typically this will be because they have chosen their own investment strategy which has underperformed the average but sometimes this may be down to bad luck- the timing of a lump sum investment such as a transfer, or bonus sacrifice that was invested on the wrong day.

We appreciate that many employers will feel that the transparency that the AgeWage scoring system offers – is too much of a risk and may not offer staff access to their own scores but we believe that progressive employers will not just offer staff scores but offer the support needed to explain them. AgeWage is planning to deliver this support service as the next stage in its development.

Providing outcome based reporting to employers is still in its infancy, but as workplace pensions grown in value, so do their importance to staff’s financial planning. So AgeWage has a great future ahead of it!

 

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What are deferred annuities and why do they matter?

Posted on October 2, 2019 by henry tapper

 

Cooper and Cumbo – Aussie dream team

 

It takes skill to write so much in so few words – congratulations Jo Cumbo -thanks to Jeremy Cooper for the numbers. There is nothing to beat some Aussie straight talking and with the ashes lost to us for another years it’s good to see you putting something back!

Three reasons why deferred annuities matter in the UK

The tweet tells us what a deferred annuity looks like but why might it matter? Here are some simple suggestions.

  1. Peace of mind

Most of us have DC pots but few of us know how long they’ll last us if we go down the drawdown or UFPLS routes. A deferred annuity is a “backstop” – a word we all understand through politics.

In the best scenario where we are living longer than we expected, the worst scenario, our money running out before we do , is avoided, the deferred annuity is a pure insurance against us living too long and knowing the cost of that insurance when we are in a position to pay the premium is very helpful. For many – purchasing deferred annuities could provide peace of mind,

      2. Understanding difficult choices

The second reason why deferred annuities are helpful is that they help us understand the choice architecture we’re presented with at retirement. The binary choice of annuity v drawdown will not be supplemented by a third choice – say CDC – within the “time to choose” of the current cohort approaching decision time. Even

For most of us, the opportunity of having this risk covered involves buying an immediate annuity today, sadly the deferred annuity market in the UK isn’t well formed, there are only one or two insurers offering rates , but demand may grow. Even if a deferred annuity isn’t purchased, a rate for it is helpful for those trying to make decisions about the future.

Whether those decisions are taken with an adviser or not, deferred annuities can help us make the right decisions.

  3. Building certainty into drawdown choices

I am not the first to point out that deferred annuities could be packaged into drawdown products to provide an alternative to pooling mortality risk.

Though I prefer the pooling of CDC, I understand the arguments put forward by organisations such as Alliance Bernstein and Salvus for a hybrid DC plan which depended on an insurance company guarantee paid for out of tax free cash or a reduced drawdown.

A pragmatic solution of a Faustian pact with insurers?

It is interesting that what Jeremy Cooper chose to talk with Jo Cumbo about was the difficult issue of longevity. The Australian Super system’s weakness is that it confuses wealth with retirement security. A wealthy Australian in his sixties can die in a ditch in their nineties and their Government knows it. Ultimately the only insurance older Australians can rely on is social security and this implies an intergenerational transfer from young to old that is precisely what critics of collective DC plans find so unacceptable.

The deferred annuity system is not so accurate as pooling within a CDC scheme , it has weaknesses – insurers need to reserve and provide a margin for their shareholder. The opportunity cost of investment lost would be considerable and – as mentioned- there would need to be a lot more insurers prepared to offer rates before a deferred annuity system got traction.

But if we are ever to progress financial security for those worried by annuities and drawdown, if we are to take informed choices on how to use conventional products and if we are find new hybrid products which can be brought to market without new legislation, then deferred annuities may be the best answer.

New choices for the Pension Plowman

This is one of the first blogs I have written since leaving First Actuarial on October 1st. I have not written about alternatives to CDC before now, out of a sense of solidarity with my previous employer and CDC remains my preferred solution for those who cannot choose or do not want to choose how they provide themselves with a wage for life.

However, I do now feel I have greater scope to look at other alternatives and intend to do so. If any of my Australian readers can provide me with more information on how the Australian market for deferred annuities is developing – I would be very interested to read it!

jeremy cooper 2

Oo Jeremy Cooper

Posted in advice gap, age wage, annuity, pensions | Tagged , , , , , , , | 4 Comments

Prudential’s seal-clubbers still at large

Posted on October 1, 2019 by henry tapper

seal clubbing

Back in 2011 I wrote about seal culling.

Seal culling;- the practice among financial institutions of providing sub-standard products to existing customers rather than treating them fairly and ensuring they are made properly aware of alternatives.

Have you been culled? To answer that question you need to have a degree of awareness of what you’ve bought and in retrospect, the reason you bought a sub-standard product.

If you are a pensioner, you may well have bought an annuity from an insurance company. You may have bought wisely, used the Open Market Option or better still considered all the retirement income options available to you.

More likely, you didn’t and if you took the annuity offered as the default option from the insurer who ran your pension plan, you may have been that seal.

I’m not ambulance chasing here, though I hear the sirens getting closer. The more that insurers and their trade body the ABI get angry when I mention these things, the more I fear a seal cull  has occurred.

Yesterday, the FCA caught up with the Prudential (Standard Life were collared earlier in the year).

People who were mugged, clubbed and culled in the first decade of the millenium are perhaps going to get compensated for being financially mistreated by institutions that knew better and chose not to treat their customers fairly.

man from pru

The man from the Pru- now happily retired?

FCA fines Prudential £23,875,000 for failures relating to non-advised annuities sales

But as Alan Hughes of Foot Ansty, points out,

Most of the ‘relevant period’ during which the breaches took place was before the Senior Insurance Managers Regime came into effect, which may be why there is no indication of action against individuals. If the same conduct were to take place now, the senior managers would perhaps be having very uncomfortable conversations with the enforcement team…

The people who we knew then were at it, are gone and it is the Pru’s shareholders who pick up the tab today. The fine is less than 10% of the estimated redress.

#Prumotivation

The Prudential was found by the FCA to have created the wrong culture within its organisation

Prior to 2013, the risks created by a lack of appropriate systems and controls were increased by sales-linked incentives for call handlers and their managers which meant that call handlers might put their own financial interests ahead of ensuring fair customer outcomes. Call handlers were incentivised by the possibility of earning an additional 37% on top of their base salary and winning prizes such as spa breaks or weekend holidays.

The Prudential still boast of their motivational skills today

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A long time coming

The fine and redress should be no surprise, the Prudential knew this was coming and there was provision in this year’s accounts. The cost of restitution will not be cheap, nothing guaranteed is – except perhaps the behaviour of the seal-clubbers whose actions have sold a generation of retirees short and left annuities with a bad name.

Shame on the Prudential and shame on Standard Life who picked up a similar fine for similar practices earlier in the year. You knew what you were doing and you made anyone who pointed out your practices at the time, feel very unwelcome.

 

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TPR moves on climate change

Posted on October 1, 2019 by henry tapper

Keeping the world fit for its inhabitants is not something for other people to do, it is our job – all of our jobs. So it is entirely proper for the Pensions Regulator to make the sustainability of our planet’s eco-system part of their regulatory function.

I was sceptical about tPR’s commitment to this until I heard this excellent presentation at Minerva Manifest’s excellent workshop on ESG. The workshop came days before an important report on the changing attitudes of investment managers to Environmental Social and Governance issues.

There is currently a disconnect between what asset owners (you and me) want – (a cleaner planet) and what we do with our money. We simply don’t realise the power of our money to do good and allow it to sit in investment funds with no clear guidance to our managers about how we want it invested and how those investments be governed.

But when it is put to us that we have the power to vote the shares we own, at least by choosing the people who manage our money, many of us get very excited. Just watch this video to see.

 

Hopefully, it will not be long before we see investing as part of our business as usual social responsibility, like putting the glass in the glass box and the plastic in the plastic tub.

But to get us there we need politicians and regulators to make it happen. So please read through the presentation and have a think about it!

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Should DC investment strategy be driven by pot size?

Posted on September 28, 2019 by henry tapper

The FCA’s latest market data was published last week and it’s highlighted trends that I’ve been identifying on this blog for a few months.

  • Just over 645,000 pension plans were accessed to buy an annuity, move into drawdown or take a first cash withdrawal in 2018/19.
  • 4 in 10 of all the pension pots accessed had a value of less than £10,000.
  • Over 350,000 pension pots were fully withdrawn at the first time of access; 90% of which were less than £30,000 in value.
  • 48% of plans were accessed without regulated advice or guidance being taken by the plan holder. 37% of plans were accessed by plan holders who took regulated advice and 15% by plan holders who did not take advice but received Pension Wise guidance.
  • 40% of regular withdrawals were withdrawn at an annual rate of 8% or more of the pot value.
  • Pension providers covered by our data return received 57,000 defined benefit (DB) to defined contribution (DC) pension transfers.

These are the highlights but there will be great interest is in the detail.

Look at those big blue lines – they represent people cashing out  8% or more of their plans. In practice this is not pension planning but short-term cashflow management since this level of income is unlikely to be sustainable for life.

It confirms that for most small savings pots, the conventional investment strategy known as life styling is unsuitable, perhaps we should accept the conclusion of the graph, that it is only when pots are larger than £100,000 that the majority of people try converting “pots to pension”.

How long before lifestyle designs are driven by pot size?

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Even more importantly – with investment pathways less than six months from introduction, shouldn’t we be recognising that advice is also driven by pot size.

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I am not convinced by the bar chart above, especially with regards the impact of Pensions Wise – which appears inflated. I’m also unsure how the annuity market is analysed. In my experience, most annuities aren’t bought with advice but the expertise available from annuity brokers make these purchases “informed”.  Compared to the “fully withdrawn” box, I suspect that those purchasing annuities are making informed choices which while not “advised” are likely to be less problematic.

A much better correlation between pot and the take up of advice can be garnered from this chart

Screenshot 2019-09-28 at 06.57.46

If we take drawdown as a proxy for “advised”, we can see that advice becomes popular only when there is sufficient money in the pot to warrant of pay for it. As we know, most advisers are suffeciently busy to focus on “wealth”, normally associated with assets of more than £250,000, while pension wealth can be spread over several pots, it’s clear that pension (as opposed to cashflow) management , is the privildge of the better off.

The FCA are surely right to look at investment decision making through two key lens’.

The first is the lens of decisions taken

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The vast majority of pots are being cashed out because they are not being considered pensionable. This is the social issues

 

The second relates to the value of assets which go from pots into their various buckets.

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By contrast – economic consideration would suggest that drawdown is the most relevant of the investment strategies.

The socio-economic argument may be to focus investment pathways on cashflow strategies (eg meeting immediate financial needs) for  those on low incomes (encouraging sound financial management). For those with larger pots, the pension strategies of drawdown , annuities and UFPLS are most relevant.

I suspect such a blatant segmentation around savings levels will be considered discriminatory but I would regards it as realistic. The FCA have landed on the key metric.

 

Pot size may well be the best determinant of investment strategy

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Pension news, for NOW, Widows and the Dashboard!

Posted on September 26, 2019 by henry tapper

NOW

 

Restoring confidence

I’ve been pleased by a lot of pensions news this week, including the master trust authorisation of the Scottish Widows (formerly Zurich) master trust and – more importantly NOW’s master trust. The latter is especially gratifying as the millions of members , thousands of employers and hundreds of NOW staff depended on this news for future certainty. Well done to NOW and to new owners Cardano for turning this situation around.

Good news for choice

The retention of all the major master trusts through the authorisation process is important for the reputation of workplace pensions and for choice and competition. Had we no choice we would of course not need a pensions dashboard, we must remember the original conception for auto-enrolment was for a singe provider – NEST. While NEST is a great success, it is challenged not just by other master trusts but by contract based plans from a variety of insurers and the odd SIPP provider.

Choice means variety and that presents us with the challenge of seeing our various pension pots  (both workplace and non-workplace) in one place. That is what the pensions dashboard is designed to do and that is what it will do – in time.

Dash back in the dashboard

It is taking too long to bring the dashboard to the people but when we see positive steps, we should applaud them. The appointment of Chris Curry as the Principle of this group was a positive step and the announcement yesterday of the dashboard ten – the steering group that will oversee the development of the dashboard is another positive step. I am really pleased to see that the Government has gone beyond the obvious representatives (ABI, PLSA, PASA and included people whose businesses are or have been based on the new technologies that underpin open banking . Step forward Romi Savova of Pension Bee, Samantha Seaton (MoneyHub)  and Will Lovegrove (formerly Pensionsync).

The full list of those on the group – plus biographies is available here.

Screenshot 2019-09-26 at 06.31.52

A proper steering group

There is nobody on this list that will not add value and it’s great to see people like Andrew Lowe and Dominic Lindley included as practitioners working for firms active in third party communications and employee communications. Yvonne Braun represents the insurers, Kim and Nigel occupational pension schemes standards while Dominic Lindley and Paddy Greene are championing the consumer.

This is a thoughtful, inclusive and bold list that I hope will speed up the delivery of the dashboard. If this is the first product of Chris Curry’s tenure, then it bodes well for the future.

In a separate blog, I have published the thoughts of Romi Savova on what should happen next. On these matters I take my lead from Romi and her team. Her contribution so far has been outstanding, her clear thinking and progressive approach to the delivery of technology will be particularly welcome going forward. She understands the problems of finding pensions better than anyone.

Will Lovegrove and Sam Seaton’s skill sets will be especially felt in part two of dashboard development when we move beyond finding pensions to integrating the pensions eco system so that we can see not just what we’ve got but how it’s doing.

A note on my recent blog on scamming the regulator

I know that some readers have tried to find this recent blog and found it is now password protected. I have been approached by the CEO of one of the companies mentioned who has asked me to take it down. I am currently not in a position to fight legal battles but I stand fore square behind the blog . If you would like to read it, then please explain why by dropping me a line on henry@agewage.com and I will provide the password

 

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We can have venturous investment within the pension charge cap

Posted on September 25, 2019 by henry tapper

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Schiehallion from Kinloch Rannoch

I’m a big fan of the British Business Bank (BBB) which helps start-ups like AgeWage organise the money to get them up and running and helps them grow.

I’m also a fan of their idea of making workplace pension work as hard as we do, by allowing them to invest in businesses like AgeWage.

The FT reports this morning that a cap on workplace pension charges should be adjusted to unlock the potential of “significantly” higher returns for younger savers from investing in riskier start ups.

Quietroom, Ignition House and Agewage research suggests that young people would be only too pleased to see their workplace savings invested for social purpose and they’re keen to know just how their money is working for them. Recent research in the UK by Investec and in Holland by ING  suggests that people would be prepared to accept lower returns to invest for good.

So I’m comfortable  with the report’s proposal to test the current 0.75% charge cap on workplace pension defaults  to account for carried interest, if this could accomodate investment in venture capital.

But I’m not so sure that this means scrapping the 0.75% cap and giving VC managers freedom to charge what they like. Savers can have their VC within a 0.75% framework and do not need to accept the pricing structures traditionally offered by venture capitalists.

The way venture capital (VC) managers want to take their fees is on a performance basis where they take a 2% charge on money invested and then 20% of any returns above an 8% hurdle rate.

The analysis in the BBB’s report which suggests a breach of the cap is possible assumes no fee reform whatsoever on the part of the VC manager.

It suggests they will continue charging a 2% base fee and 20% of all returns above a hurdle rate of 8%. It also assumes that a controversial structure known as “catch-up” will persist. This gives the VC manager 100% of all returns above the hurdle rate until the manager has gained 20% of all the returns.

This may sound a little confusing. So by way of example:

  • Gross returns 6% – manager gets 2% scheme gets 4% [below the hurdle]
  • Gross returns 8% – manager gets 2%, scheme gets 6% [right on the hurdle]
  • Gross returns 10% – manager gets 4% scheme gets 6% [manager has taken additional 2% to ensure they get 20% of all gross returns]
  • Gross returns 12% – managers gets 4.4%, scheme get 7.6%
  • And so on.

So returns need to be 13-15% before scheme even gets something comparable to target returns for listed equities, and significantly higher to get something comparable to small cap equities (which deliver higher returns, but at higher risk).

If the venture capitalists think they can simply shoe-horn their products into workplace pensions at current margins, they should know they’ll face considerable opposition from consumerists.

A better way?

As an alternative,  the report quotes the Baillie Gifford Schiehallion fund, which charges 0.75-0.85% with no catch up and no performance fee.

If the cost of running a workplace pension platform is taken to be 0.15%, then accommodating this expensive product into workplace pension defaults at the BBB recommended allocation  of 5% over a savings lifetime could be easily accomodate within the 0.75% cap with no risk of breaching the cap through performance fees.

The problem for workplace pension managers is that their current budget for investment fees is so low that even a modest 5% allocation will eat into margins to a level that might upset shareholders and the financial projections given to the FCA/tPR within the fund’s business plan. I think it unlikely that most workplace pensions could absorb this extra investment cost without pushing up headline prices

Is there scope for a “pass on” in terms of increased fees? Almost certainly yes. The fund costs of both NEST and NOW are currently 0.3%, People’s Pension offers an all-in cost of 0.5% and many of the insurers offer group personal pensions competitive with these prices , there is certainly headroom to offer defaults within the cap by putting up prices.

Is it fair that people pay more for more- on any money-worth scale the answer is yes! The BBB (which is Government backed) say in their report that

“Given the historical outperformance of VC/GE [growth equity] investments, there is significant potential for defined contribution (pension) schemes to improve outcomes for their members by investing in the asset class”

and quantify the potential upside of the proposed 5% allocation as an improvement in member outcomes of 7-12%.

But of course those 7-12% savings could easily be eroded by fees which transfer the investment risk from the VC manager to the member.

If we are to have VC in our workplace pension funds, and – like Mick McAteer, I think we should, then it is going to have to be on terms that are fair to both investment manager and member. The traditional 2 and 20 structure modelled in the report is not a structure that should have any place in a workplace pension. The simple charging structure offered by Schiehallion is much more suitable to the simplified world of workplace pensions.

So reform not only can happen – reform is happening and it is now up to workplace pension providers to manage the fees they have to absorb down and to communicate with trustees , IGCs and ultimately employers and members, why headline prices have to go up to accomodate a true increase in value for money.

There is absolutely no need to change the charge cap to accomodate a 5% allocation to VC, there is an absolute need to change the way that VC managers think about risk and margin.

Thanks for help from my friends on the pricing research in the middle of this blog. Thanks to the Scottish Highlands and Schiehallion for a lifetime of holidays!

Posted in advice gap, age wage, pensions, workplace pensions | Tagged , , , | 1 Comment

The politics of CDC

Posted on September 23, 2019 by henry tapper

Jack Dromey

This morning I should be attending the CDC fringe meeting at Brighton’s Grand Hotel which forms part of the Labour Party Conference. If I can’t – I send my apologies to Royal Mail, CWU and the Shadow Pensions Minister – Jack Dromey who is chairing the event.

CDC is hardly top of the political agenda but it remains one of two matters in the Pension Bill that should be laid before parliament on October fourteenth – the other being the Pension Dashboard.

That it has made it this far is principally down to a deal struck between Royal Mail and CWU which averted a damaging pension strike and has led to some commentators heralding a third way for Britain’s workplace pensions. I think that third way is a cul-de -sac but that CDC is critical if we are to resolve the puzzle of our wanting to freedom to spend our retirement money as we want and our deep-rooted insecurity when faced with losing income in later life.

Why CDC isn’t proving popular with unions

The original concept of a CDC pension assumed that savers would build up rights to a collective DC fund which would be returned to them as a wage for life once they reached the tipping point known as retirement.

Such an idea works well where there are stable workforces that work together, save together and retire in an organised well. Royal Mail is one such workforce but it is unusual in Britain today. Increasingly workforces are fragmented , job turnover high and the concept of retirement is less rigid. Many of us will never see a retirement date.

Where the labour conditions persist to encourage collective provision, defined benefits also persist. Local Government provides our largest ongoing funded DB plans but the scale of provision is dwarfed by the promises to teachers, doctors, nurses, firemen and other public servants that have no fund but rely on the ongoing support of the public. The only large private sector DB schemes still accruing are quasi public – USS and Saul.

Understandably, members and their representatives of these large schemes see CDC not as a help but as a threat to the guarantees that sit within their pensions. Until they are prepared to give up their guarantee of a pension for a guarantee of a contribution, there will be no appetite for CDC from the members of occupational DB plans. Without the support of both unions and employers – it is hard to see CDC being established as a DB substitute.

The lukewarm reception amongst unions to CDC is based on a perception of CDC as being a trojan horse by which employers walk away from all responsibility for member outcomes. I think the unions are right to think this way.

Why CDC isn’t popular with employers

There is little appetite amongst employers to establish CDC as a means of upgrading DC plans along the lines of Royal Mail. Employers will not take on any risk of being perceived as insuring their staff’s longevity by way of a wage for life and – try as we might – those who advocate CDC cannot wipe out the concern employers have that it is they and not their pension scheme who will be the insurer of last resort – if CDC goes wrong.

It is fruitless arguing to employers that CDC is a DC upgrade when there is no pressure from employees to have anything better than what they currently get – DC workplace savings schemes.

No matter how progressive you are as an employer, you would only follow Royal Mail if there was considerable support for CDC from unions and staff. More precisely, CDC is only likely to be delivered though workplace under the threat of industrial action. There are not enough employers and workforces like Royal Mail to make the large scale introduction of CDC as a workplace pension , a reality anytime soon.

Why CDC will only happen when people have had enough.

I predict that the current choices available to ordinary people at retirement are insufficient and will grow increasingly unpopular. Annuities, Drawdown and Cash-Out are all problematic in the way that drawing a scheme pension wasn’t.

CDC’s main virtue is that it is a painless, hassle free way of getting paid a wage in retirement and depends not on IFAs or financial acumen but on rules that – properly followed- should lead to better incomes than can be drawn from any of the options currently available.

CDC’s future  is as the back end of DC plans – especially master trusts which bring together large numbers of savers through many participating employers. These master trusts need not act as individual DC savings plans while people are working, they can be converted into DC pot spending plans, when those people stop working.

Put simply, CDC has the potential to be the default at retirement choice for people with money in a DC savings pot.

When people collectively throw up their arms in frustration and point to the paucity of choice in the “freedom of choice” world – created by George Osborne, then it is time that their collective voice is heard . listened to and answered.

CDC and the political agenda

Any politician with a progressive political agenda should be looking at CDC. Royal Mail has opened the door but not to employers. It has opened the door to the large commercial providers that run workplace pension schemes – including its own provider- NEST.

These providers have currently come up with no coherent way of helping people at retirement and still rely on referrals to Pension Wise to dump the problem of what to do with the savings on someone else.

These providers are beginning to see CDC as a commercial opportunity to manage people’s in retirement savings for longer – indeed for ever.

The political agenda for CDC lies in linking supply (these master trusts) with demand- the increasing frustration people are having with converting their pension pots into lifetime income.

Unions would be much better off thinking of CDC as solving individual problems than worrying it might corrode DB.

The Labour Party should this morning be discussing how it can mobilise the silent majority of those retiring today behind the ideas of collectivism inherent in CDC.

There is no reason why political support for CDC as a way of spending DC should not achieve cross party support. The Liberals supported CDC in their previous manifesto and Guy Opperman has given it the green light through getting CDC into the Pension Bill.

But for CDC to become popular, it must be explained to the public as solving a problem. The problem CDC solves is not ” DC workplace pensions” where the saving is going fine, nor DB pensions where the issues of affordability will only be muddied by CDC.

The problem CDC solves is how ordinary people can convert their DC savings pot into a pension. CDC may not be the perfect pension , but it is better as a mass market default than cash, annuity or drawdown.

Once that message has been heard, listened and acted upon, CDC can stand at the heart of the pensions agenda. Till it does, I fear CDC will continue to be discussed at fringe events.

Jack Dromey

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Is your pension due an upgrade?

Posted on September 22, 2019 by henry tapper

upgrade

In the relentless pursuit of new business, insurance companies and other financial institutions involved in the commercial marketing of pensions , have focussed on the new customer or the existing customer increasing his or her savings. It’s not hard to understand why, everyone from the CEO down is rewarded either directly by the shareholders or by performance-bonus structures on growth.

Past wonder-products meanwhile languish, often sold to consolidators such as Phoenix and ReAsssure or managed in separate units, quarantined from the latest developments and labelled “legacy”.

The reality of product management today is very different from the promise of product management made to savers in the fifty years since pension savings products became mass market in the early seventies.

We have become used to upgrading legacy products. For instance if you have a hotmail account – you can upgrade to Outlook easily and for free.

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This article looks at what has happened and what could happen, and asks just how easy it is to upgrade your pension to one fit for today’s purposes

Shouldn’t all customers be treated the same?

The idea of upgrades is to make available to loyal customers the best service provided by the organisation they purchased from. All customers should get the same value for money or “moneys-worth”.

Not all legacy products offer customers poor moneys-worth. If you got lucky, your policy might offer you valuable features guaranteed by the original policy conditions. These might include a guaranteed annuity rate and loyalty bonuses. At the other extreme, the product may deteriorate rapidly if you cease making payments or draw your money before the end of the contractual term.

These legal conditions do not however govern the provision of advice on the product. Despite insurers agreeing to pay commissions – which could be as much as everything paid into the policy in its first year- to financial advisers who recommended and help set up the product- the insurer had no responsibility for the service offered by that “adviser” who typically was never seen after the original sale.

The cost of using these advisers did not fall to the marketing departments of insurers but was passed on to the customer. So products that were bought with advice had the cost of the advice paid for from the policy, the impact of which is experienced today. Many insurance companies offered the product on commission free terms – provided the adviser was prepared to forsake his commission and we can see the impact of the enhancement in today’s pot value by comparing the returns achieved on the commission free and the commission loaded policies over time.

Research we are doing at AgeWage shows that this impact is huge and can account for more than half the total value of a pension pot.

Insurers will argue that legally the advice was paid to agents who were not under the employ of the insurer and that any claim against non-production of a promised service is against the individual advisor or the advisory firm that employed them but this could well be challenged in a court of law. Many of the commission agreements with advisers placed no obligation on the adviser to maintain contact with its customer, the insurer was simply paying a sales incentive and charging it to the customer.

The issue for customers is whether this was ever fair, or whether they were vulnerable to purchasing poorly because they were fooled that the insurer and agent were on their side. As many of these sales are twenty or thirty years, I doubt that the customer’s issue will ever be tested in a court of law, but that does not mean that the issue isn’t very real.

The rates of return we at AgeWage are discovering from these legacy products are so far below the returns that would have been achieved from an investment in an index that many outcomes are little more than a return of contributions paid.

Quite clearly, the returns for past policyholders are not comparable with those of customers in modern products such as the workplace pensions used for auto-enrolment. All customers are not being treated fairly and the issue for the FCA and tPR is how to ensure that this inequality is reduced and ultimately eliminated.

Ways of reducing inequalities

The first and most radical way of addressing the problems of legacy pensions and their outcomes is to get the shareholder to make good. Solutions could include the reduction of exit penalties – where the policyholder can walk away from legacy terms at minimal cost. This already is in place for those over 55 but could be extended to all policies.

The second is to identify policyholders who have been particularly badly treated and offer them a policy enhancement from a fund set up by the insurers and others with books of customers impacted by legacy charges. There might be a case for the fund to be seeded from the orphan assets of those insurers (eg the unclaimed pots of those who have “gone away”. This would not of course restrict the right of the gone-aways to their pension pots – if they come back for them.

The final and most radical solution would be for the Government to enforce a retrospective enhancement on all policies with a reduction in yield of above a set figure (say two percent per year). This would require a lot of work from the insurers to identify policyholders affected and a very major dent in shareholder profits – akin to the cost of PPI to the banks.

Is your pension due an upgrade?

The four hundred billion pounds worth of legacy pensions are going away. They are shrinking as people cash in pension pots , transfer them to aggregators who draw down from them or swap them for annuities. This is happening now and will continue to happen for the next twenty or so years as the hump of the old pre-RDR personal pensions and other legacy products reach maturity.

The sleeping dogs – including many of the people I advised – have often been lied to. They are now paying the price of the deceit of insurers, advisory firms and advisers who abandoned clients but continued to claim trail commission and did not pay back the initial commissions that promised ongoing advice.

I do not see Government enforcing an uplift in policies impacted, so long as insurers continue what many have started, and do something to upgrade the experience of those who have not been treated well.

So we at AgeWage will continue to explain to legacy customers with low AgeWage scores just why their scores are low and make it clear – where options to upgrade exist – what those options are.

We will not suggest people cash-out or even move pots to another pension provider until the internal options have been properly explored.

But if legacy providers whether ReAssure and Phoenix , or others insurers like Zurich and Prudential do not invest in upgrades for existing customers, we will have no problem explaining to those who use the AgeWage service, that other avenues are open to them.

Your pension may well be due an upgrade – and your retirement lifestyle with it.

 

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Lady Lucy – the pensioner; on the Thames

Posted on September 19, 2019 by henry tapper

Lady Lucy is a pensioner, she was built in 1946 by Osborne’s of Littlehampton and she has spent most of her life on the Thames.

This summer, Kim Kaveh of Professional Pensions interviewed me aboard the boat and on the banks of the river Thames.

If you have access to the Professional Pensions website, you can read Kim’s account of the day here!

 

Tapper Thames v3.jpg

 

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How to find that lost pension!

Posted on September 18, 2019 by henry tapper

peoples

 

The DWP tell us that we’ll have lost 50m pension pots by 2050, unless we do better at tracking them down than we’re doing at the moment! There’s £20,000,000,000 of lost money in the pension system at the moment so let’s get finding! The dashboard ‘s going to help but – why wait for the dashboard!

Here are some handy tips from our friends at People’s Pension about how we can find our pensions today.

How to find a lost pension

How are pensions lost?

People Pension’s  research found that 1 in 5 people have lost track of a pension and 3 in 5 adults don’t know where all their pension savings details are.

So, why are people losing track of their pension pots?

Not sure who you’ve got pension savings with?

  • You may have changed jobs several times by the time you retire, so you could find yourself having to look for all your lost pension savings when you need it the most.
  • You may have moved house, misplaced the details and no longer receiving annual pension statements from your provider(s).
  • Pension scheme information can become lost as many people now choose to go paperless, so there’s emails to keep track of as well as paperwork.

How to trace lost pension savings

Finding the details of a lost workplace pension can be a little easier than finding the details of a personal pension. Often your employer, or former employer (if they are still in existence), should have the details of their pension provider.

It can often be a little bit more difficult finding the details of a lost personal pension. A good place to start would be to contact the pension provider that you set up the personal pension with.

Next steps

  • Start at home – dig out as much paperwork as you can and see if you can find the details of any pensions you have forgotten about.
  • Take a look at any previous employment contract and old payslips and check if there were any pension contribution deductions. If so, and you haven’t taken a refund, you could have a pension you’ve forgotten about.
  • Contact your previous employers and ask for the details of their pension schemes. They’ll be able to give you the pension provider’s contact details, so you can contact them directly to find out if you were a member of a pension scheme.
  • And you can use the Companies House website – they hold the names of all closed and existing companies registered in the UK.

If you are still having difficulty finding the details of a lost pension, you can use the government’s online pension tracing service.

Visit their website www.gov.uk/find-lost-pension or call them on 0845 6002 537.

Check if your pension contributions were refunded

In the past when leaving an employer, you could have had a refund of your pension contributions after only being in a pension for a short time.

So, it’s important to consider whether your pension is actually lost, or if your pension contributions could have already been refunded.

There are several key dates to help you check whether this applies to you:

  • If you left your employer before 1975: it’s almost certain that you’d have had a refund of your pension contributions. If you did not pay into the pension scheme, then the chances are you will not be entitled to anything – the only exception will be if you worked there for a considerable amount of time, usually over 15 years.
  • If you left your employer between April 1975 and April 1988: you may have a pension if you were over the age of 26 and had completed over 5 years’ service. If not, it’s almost certain that you’d have received a refund of your pension contributions.
  • If you left your employer after 1988: you may be entitled to a pension, as long as you completed over two years’ service for your employer. If you left before completing two years, it’s almost certain that you’d have received a refund of your pension contributions.

If in any doubt you should contact any previous employer(s) for absolute clarification.

Take a look at the steps below if you think you have a lost pension and don’t think you’ve received a refund.

Once you’ve found a lost pension provider’s details

You’ll need to contact them to give them as many details about yourself, so they can trace your lost pension savings quickly and easily. They’ll need:

  • your name (current and previous, if different) date of birth and National Insurance number
  • your address (current and where you resided when you think you had the lost pension)
  • the date you joined and left the pension scheme (if known).

And if it’s a workplace pension:

  • the name of the company you worked for
  • the address of the company you worked for (in case your company had multiple branches/outlets)
  • the date you began working for the company and the date you left the company.

Find out as much information as you can

It’s important to find out as much information as possible about any pension scheme you may be part of. For example, you should ask:

  • what’s the current value of the pension pot, and the estimated value on your expected retirement date?
  • are there any management charges, and if so, how much?
  • is there a nominated beneficiary?
  • is it a defined benefit scheme or a defined contribution scheme?
  • would there be any charges if I wanted to transfer the pension pot to another provider?
  • are there any pension guarantees included e.g. Guaranteed Annuity Rates?
Defined benefit schemes (DB) These are also known as final salary schemes, or Career Average Revalued Earnings (sometimes known as CARE schemes) – your pension is based upon the number of years worked and your salary at retirement age, giving you a guaranteed income every year from your retirement. Check out our jargon buster for more information about defined benefit pensions.
Defined contribution schemes (DC) These are based on contributions into a pension pot where you and/or your employer add money into it (like The People’s Pension) and can be accessed at any time after the age of 55 (proposed increase to age 57 from 2028). Check out our jargon buster for more information about defined contribution pensions.

Once you have the full details about your lost pension savings, you may wish to get advice.  You could choose to leave it as it is until you reach retirement age or, if you have other pensions, you could consider combining them into one pot –  making it easier to manage and keep track of.

Posted in pensions | 1 Comment

The Con Keating take on value for money

Posted on September 18, 2019 by henry tapper

Towards a Value for Money metric

con-keatingguest

The Work and Pensions committee’s paper “Pensions Costs and Transparency”, as well as the Editor of Professional Pensions have called for a commonly agreed definition of value for money for DC funds. Clearly costs and fees are only a part, often small, of this.

The fund management industry and many pension managers have been keen to stress that the financial performance of a member’s savings is only part of the overall value to the member. There is more than a grain of truth in this, but it obfuscates the fact that it is the amount of the members’ savings which are consumed and enjoyed in retirement. This is, and must be the paramount concern.

Value for money is at heart a cost-benefit or input-output comparison; it is retrospective. In the case of DC funds, the inputs are the contributions made and their timings, and the output is the market value of the fund at measurement date. This delivers the actual performance as an internal rate of return (IRR). 

An IRR is a risk-experienced average return. It has experienced the good and bad times of market behaviour over the period of saving. This renders otiose the confused and confusing discussions of risk management, and the role of risk in the risk return equation.

This requires a little explanation. One of the few things we know about risk is that it means more (bad) things may happen than will. The essence of good active fund management is the identification and avoidance or mitigation of those bad events which will occur from among those which may. Passive investment is acceptance or tolerance of what comes to pass.

The IRR of a pension fund reflects the strategies followed by the funds in which it was invested. This might be the passive ‘non-strategy’, or cyclical rotation, or market-timing, or even life-styling. Each had their own ex-ante risk exposures, but the IRR explicitly captures all of those risks which eventuated. It also captures the costs associated with risk avoidance and mitigation of those events which did not occur.

The arguments that a value for money metric for an investment should reflect the ex-ante risk-preferences of the investor/fund manager are a canard. There is no need for a plethora of comparator benchmarks.

However, to be really useful, the IRR of a member’s savings does need a comparator, a benchmark or counterfactual. This may be peer-relative, the IRRs of contributions invested in other funds or strategies or it may try to capture the wider and more general universe of possibilities, the average allocation of DC savings to different classes of funds. This is a broad index, capturing the products, management styles and asset allocations actually used by DC savers. 

A benchmark index of fund averages has been created by Morningstar and Agewage for this purpose. Over the period from 1980 to date, it has averaged 80% equity and 20% fixed income. The constituents of these broad categories, equity and debt have changed over time, and doubtless will continue to do so in future.

The contributions of a member may be applied to this benchmark, and an ‘as if’ IRR derived. Comparison of the IRR achieved and this benchmark ‘as if’ IRR indicates the (relative) value for money achieved. It may be presented as a return, a score or even the historic probability of achieving that outcome.

Costs and fees have not entered the picture here. They were what they were. We might augment the analysis forensically and consider what the IIR might have been had these deductions been different, or perform many other analyses, but those are separate matters from what value for money was achieved, and their application is practically limited to prospective situations.

Similarly, we may augment the basic value for money analysis with additional qualitative disclosures, such as service quality. 

However, the basic value for money metric is simple and clear, and most relevant to the pension saver.

 

con-keating-230x230

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Get to gnome your pension.

Posted on September 17, 2019 by henry tapper

I’m very pleased that my friends at the DWP have asked me to promote their new social media campaign designed for us to get to know our pensions.

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These clever people have sent me a link that allows me to click on these fine gnomes to reveal a gallimaufry of treats for a pensionholic like me.

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These gnomes had first appeared on my phone when I was searching for state pension forecasts for the burghers of Peterborough on Sunday. Then someone turned up with one of those pop-up banners with the gnomes staring gnomically over Cathedral Square. Then the pensions minister turned up without a red hat or a fishing rod but with plenty of enthusiasm for all things digital.

I’m afraid I rained on Mr Opperman’s parade a little by informing him that well over half of the pension providers AgeWage is helping people to get to gnome, are not willing to allow us to analyse our investor’s data. Which makes getting to gnome their pensions a little hard for us.

So –

Dear insurers– let’s be clear – you do not have to have a registered financial adviser to make a data request about your pension.

Dear pension administrators, you are required to honour a data requests and provide your customers with data in machine readable format (not paper or PDF)

Dear trustees, your administrators cannot demand copies of driving licences, passports and birth certificates in exchange for passing members details of their contributions.

and

Dear Minister– these insurers, administrators and trustees are standing in the way of the digital pensions dashboard by refusing to recognise electronic signatures and requiring wet signatures, with letters of authority sent to them by the Royal Mail.

Gnome fun finding your pensions!

One of the great gnomic sports laid on by the pension industry is the game of “find the pension”. The DWP estimates that unless we get a bit better at it, we will have 50m abandoned pension pots by 2050. Today over £20bn is lost to members and policyholders (according to the PPI).

We are awaiting the pension finder service that is at the heart of the pensions dashboard and we are awaiting a pensions dashboard – actually we are awaiting the pensions bill which enables the Government to set up a pensions dashboard and – I fear – there is a distinct possibility that we won’t get a pensions bill anytime soon (even though the DWP have told the FT that the only bill they want in the Queens Speech (ETA October 14th) is the pensions bill  (with the dashboard in it. I asked the Minister about this and he rolled his eyes.

So it’s back to pension hunting and there’s a whole industry of  pension sleuths including ourselves, Pension Bee, Pensions Link (Euraplan), Profile Pension not to mention the Government’s own services through MAPS and the DWP. Google Find my pension and off you go (though you’ll find many of lead generators among the good guys – and the odd scammer too). Like I say, it’s like navigating the straits of Hormuz!

Will the retirement I get be the retirement I want?

This is a good question. I suspect that my retirement will be a lot happier once I’ve set up AgeWage and got it dishing our value for money scores to millions of burghers in the UK.

In this I suspect I am going to be a cog in the DWP’s Gnome your Pension service and I’m looking forward to chatting to my friends in Caxton House about this – this morning. I am not proud, I think these gnomes are rather good and I have enjoyed spending the early hours of this morning messing around on this site.

Yourpension.gov.uk is offered under the Open Government Licence, which means I can employ these gnomes on Agewage.com to help us all out. Which I seriously think I will do.

There are conditions which you can read here    but…..

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and that sounds like a very sensible way to go about things!

Get to gnome your pension

Short of giving us a proper pension finder service and a dashboard to go with it, this new website is the best the DWP could do – just now – to help us get to gnome our pensions.

I am sure there are better pension calculators than MAS’ and I don’t thoroughly trust my state pension forecast (which I suspect is overestimating my NI payment history). I can throw stones at the Mid Life MOT. and the one to one pension “advice” I can get from Pension Wise.

But now is not the time to carp at what we haven’t got – or complain that the Government still confuse advice and guidance in their own videos. This is not a time to require people to take financial advice.

Instead this is the time to help ourselves and others get to gnome our pensions, which I intend to do!

agewage evolve 1

Posted in advice gap, age wage, Dashboard, dc pensions, DWP, pensions | Tagged , , , | 2 Comments

Pensions – Awareness is all!

Posted on September 15, 2019 by henry tapper

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Welcome to September 15th – Pension Awareness Day.

I’m travelling up to Peterborough to join Jonathan Bland, Biggsy and other geeks who have been travelling around the country this past week, bigging up pensions.

The Pension Geeks are a well established feature of the pension landscape and though their bus may not be as big as previous years , it is perfectly formed.

And this year it’s the girls who have been centre stage

I’m looking forward to answering some incisive questions of the Peterborough burghers.

and it’s great to see the Geeks working alongside the Scottish Widows RV

Pension Wise and CAB are in on it

 

and this is about public and private sectors

If ever there was a time to get to grips with your pension, the time is now! #PAD19 #pensions pic.twitter.com/B2cCIltUw7
— Pension Awareness Day (@PensionDay) September 14, 2019
So if you are in the Peterborough area today. I hope you will pop over to the Cathedral and have a chat!

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The financing of DC

Posted on September 14, 2019 by henry tapper

John Ralfe
Boulding
Henry Tapper

As anticipated (in blogging), yesterday’s article on CDC attracted some vitriol, not just from my friend Con Keating, but from the inter-web of things.

John’s rather extreme reaction came over the top of a slightly more measured response from Sam Pickard

I think it worth saying at this point that the statements objected to came from Adrian Boulding, which is important as he knows rather more about the financing of DC than me (and I suspect John and Sam).

DC financing

But let me explain what I mean about the “financing of DC”. To start a DC plan – all you used to need was a licence from HMRC and away you went. If you wanted to run an authorised personal pension, you need to set up with the FCA and you are subject to the various solvency requirements laid down by that Regulator and probably the PRA too.

To bring DC workplace pensions in line with these solvency requirements, the DWP have insisted that commercial occupational pension plans are also tested for solvency and this forms part of the master trust authorisation regime. Non commercial DC plans – set up by employers for their staff, are not subject to these solvency requirements but they are still monitored to ensure they are properly supported by their sponsor- the employer.

So all DC plans, whether personal or occupational – whether privately funded or funded by employers as workplace pensions, are in some way tested for solvency and need to show they are sufficient. Hopefully gone are the days of the rogue DC plan set up to scam members out of their savings, which set out to be financed out of the savings with no regard to anything but commercial gain for the provider. These plans soon found themselves anything but sufficient and are typically in special measures under the expensive stewardship of professional insolvency trustees.

What is common to modern DC plans is that they need to have credible business plans which pass the scrutiny of external auditors and the solvency requirements of regulators.

To meet these solvency requirements, all commercial DC plans need to set aside reserves against which they can draw when things go wrong.  Things go wrong with DC – errors are made, money spent that should not be spent – and this is when the reserves may be drawn on. When they are drawn on, the reserves must be replenished by the provider of the plan- and this can either be done by recourse to the provider’s reserves, by cash calls to the shareholder or by the issue of debt.

The only way that the providers of DC services can be repaid this amount is from the ongoing charges levied by the scheme, or on scheme wind-up, at which point the residual reserve is repaid to the provider, following the payment of outstanding debts to everyone else and – most importantly – the payment in full of member’s pension pots to other pensions or to the member.

So it is clear that most of our DC plans is subject to financing. The majority of DC plans are loss making in their early years and this means that DC plan providers have to wait for the repayment of the money they have sunk into the scheme. The most famous example of a DC scheme borrowing money to finance this debt is NEST- which is enjoying a subsidised loan from the Government which is anticipated to reach £1.2bn by 2026. This loan will be repaid from the fees generated by the scheme and  NEST hopes to pay it off by around 2040. This does not make NEST a DB scheme.

NEST is not a disgrace

 

CDC?

The financing of CDC should be no different than the financing of DC – CDC is a subset of DC.  So far, we have only thought about CDC in the context of Royal Mail, which intends a sponsored CDC scheme where all costs are picked up by RM including those of running the scheme and meeting the defined contribution level. In such a situation , there is no need for a reserve and my understanding is that RM has decided to run the scheme distributing 100% of the smoothed return over time to members.

This is fine and not what Adrian was commenting on.

But for schemes like NEST and NOW and People’s pension, which may in time want to pay scheme pensions to members on a collective basis, the situation is rather different. There is no sponsor behind the payment of scheme pensions, the defined contribution only creates an obligation on the employer to pay while the member is in service, not when he or she is retired, so necessarily there will have to be some form of protection for members to ensure that the income in retirement is stable.

There are stabilising mechanisms in place which include conditional indexation (where pension increases may be held back in years of financial stress) but what Adrian was talking about are the occassional years of extreme stress – such as 2008/9 and I think he is right to consider how a commercial CDC scheme might meet its obligations were it only running scheme pensions as an option for members – rather than as part of an integrated accumulation/decumulation program.

 

Optional CDC?

I may have jumped ahead of my readers here, but I firmly believe the way that CDC will develop beyond the fully sponsored model to be offered by Royal Mail, is as a retirement income option available to people looking to spend their retirement savings. I see maser trusts like NOW and NEST and Smart and Salvus and Peoples paying scheme pensions from a collective pool that insures the risks of some living longer and some dying sooner. I see this pool managed sufficiently with those joining the pool replacing those who die.  I see people choosing a CDC pension over an annuity or drawdown where a middle way is preferred.

I don’t see anyone having to opt for CDC but I suspect that when presented with the option of a wage for life, Aon’s estimate of 62% saying “yes” wouldn’t be far out. I think that optional CDC might be popular with 6 out of ten cats.

 

Financing optional CDC

And if that is the case, we need to start thinking of how we could set such optional CDC schemes up and how they would be financed. Which is why I welcome Adrian’s thinking. Adrian has of course worked with NOW on getting it straight to be a workplace pension beyond November this year when its authorisation extension runs out.

He knows the financing requirements on master trusts backwards and he’s now thinking about the financing requirements of CDC. He is not shameful for doing so, he is not a disgrace and what he’s thinking is certainly not #bollocks.

 

 

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“CDC could solve freedoms issue”-Boulding

Posted on September 13, 2019 by henry tapper

Scanning the depressing progression of fake news on my linked in timeline, my eye was caught by a very odd post indeed.

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There’s a lot going on here and I decided to probe the link to what Adrian is saying. 

What Adrian was actually saying was that “CDCs could solve freedoms issue“. Ironically we had a “fake headline” but “real news”!

 

REAL GOOD NEWS!

As regular readers know, I am a fan of CDC and – should I live so long – will  transfer my retirement savings into a CDC scheme run by NEST or Peoples Pension or Smart, or Salvus or one of Adrian’ Boulding’s other employers – NOW pensions.

Why?

Quoting Adrian

“without sound budgeting, even the largest lottery winners can end up penniless”.

I do not want to spend my retirement savings too soon, or not at all – I want my retirement savings to last as long as I do and I’m prepared to join others in a collective arrangement to make that happen.

So it is great to see someone with a much bigger brain than mine recognising that CDC need not be about employers trying to wriggle out of DB obligations , but about solving a very real retirement problem that is besetting a high proportion of people winding down from work right now.

We know all is not well with pension freedoms when the latest Financial Conduct Authority Data Bulletin, published in September 2018, tells us that more than half (51 per cent) of all pension pots accessed for the first time between October 2017 and March 2018 were fully cashed in.

And most of the resulting savings end up in personal bank or building society accounts offering low interest rates. How will the ex-holders of the 757,927 pensions so far fully cashed in since pension freedoms fare 15 years from now, particularly those who seized control over seemingly life-changing amounts of money from large defined benefit pots?

An opportunity to put things right

We know that a high proportion (the FCA estimate around half) of the transfers out of Defined Benefit pension schemes in the period since April 2015 should not have gone ahead. There are two reasons for this.

1,   The first relates to the sum on offer – the CETV – was inadequate to meet the expectations of those transferring. I heard yesterday from a retired steel-worker that of the 8,000 BSPS CETV transfers – over 450 were transferred in the months leading up to March 2017. Transfers made pre March 2017 were typically only 60% of the value after March when a new discount rate was applied. What this means is that these people missed out on around £150,000 a person – compared to what they would have got – if they had waited.

I put it to anyone who is thinking straight that these 450 people were not acting in their best interest. Infact they were being advised against their interest.  How could transferring away from a collective pension scheme at 60% of the market value  have been in their interest?

2, The second was that there was no suitable alternative proposed  to the pension given up.

I have know doubt that many of the 200,000 or so people who have transferred  out over £60bn of money are amongst those who have either fully cashed in their pot or stripped out the tax free cash and are seeing the rest of their money exposed to the markets and plundered by high costs and charges.

The solutions I saw proposed to steelworkers ranged from an investment into a with profits fund (typically Prufund) to a speculative punt on Active Wealth’s Vega Algortihm.

The steelworkers I spoke to had no understanding of the products used to take their money and did not have the financial capability to manage the complex decisions they were needing to take around the management of their pot.

Putting things right

If 100,000 of the 200,000 people who transferred shouldn’t have – what can be done for them?

They cannot go back into the schemes from which they came. I don’t think there is appetite for doing that again.

But they can be accommodated in wage for life CDC schemes run as sections of master trusts under the oversite of experts managing pensions in an effecient way.

This can only happen if we have the legislation put in place for Royal Mail and that that legislation offers the opportunity for second movers like NOW and Peoples and Smart , Salvus and NEST.

Because whatever reservation people may have about CDC, it has to be a better solution for those 100,000 people who have pension pots rather than pensions – and shouldn’t have.

I totally agree with this statement from Adrian’s article

The benefits of CDCs are evident: members get a clear picture of what pension to expect, with regular payouts from their scheme. And unlike traditional final salary pension schemes, those payouts are not affected if your employer goes under. Furthermore, you cannot over-draw on your pot unlike income drawdown policy holders.

The first priority is to deliver on the agreement reached between management and unions at Royal Mail. As soon as the Royal Mail CDC scheme is operational and the threat of a postal strike over pensions is averted, the government will be able to open up the exciting new world of CDC schemes to other players.

Better budgeting

Adrian is brilliant in linking the concept of a “wage for life” to the societal problems identified by the Government’s own research

Knowing precisely how much we have coming in means we slowly get better at managing our costs in line with virtually static monthly incomes. So, we should not be as alarmed as many were with the 2016 Money Advice Service research study that found that 16.8m people of working age in the UK had less than £100 of accessible savings.

If you think a little deeper about that statistic, it suggests that the majority of workers have a finely-honed ability to manage their spending accurately between pay cheques. Watch a parent out shopping with their kids and you will see it in action as they say, ‘Ask me again when I’ve been paid and maybe you can have that’.

So, what we need to deliver to many of the 16.8m captured by the MAS research is a monthly retirement income that is predictable and will last their whole lifetime.

Collective investments

Adrian is also right to focus on the long term advantages to society of having one great big pot with an infinite time horizon – the vision for a CDC investment strategy

CDC lifecycle

The yellow box gives us the opportunity to invest CDC for the long-term

in the sort of real assets that long-term pension funds should hold, like infrastructure projects for improving roads, bridges, schools or railways, as well as in equities and property development.

The trustees managing the CDC fund will share out the spoils in a collective manner, organising the cross subsidy between those who live long and those who die early, spreading costs over both large and small pots, and smoothing out the short-term ups and downs of market prices.

The normal commercial dynamics do not apply in schemes managed by trustees. While a purely profit-driven approach pressures the managers into offering the customer a little less and charging them a little more for it, trustees have a duty to protect the members’ interest and to ensure that the scheme managers are properly following the trust deed and rules. I have sat in many trustee meetings and seen them spend money on members, when a purely commercial approach would have been to cut back.

Financial Backing

I had originally conceived of what Adrian calls a “later life replacement income” and I call a wage for life scheme, as a standalone entity. But Adrian is smart enough to cotton onto the fact that master trusts with authorisation have a financial strength to gestate CDC as part of a wider savings and spending strategy.

The importance of having a ‘capital adequacy’ buffer becomes apparent when what yesterday’s economists thought was a temporary market downturn turns out to be a permanent correction. In these cases, CDC scheme trustees could find that they have reduced payments too late – as happened in Holland. In this instance, the balance can either be paid for from the capital buffer or from future new entrants.

But with a financial backer fresh capital can be raised, averting this scenario from playing out in tough times like we saw back in 2008-09. Of course, capital buffers have to be paid for, so the reward mechanism for the scheme funder can be built into the rules and honestly managed by the trustees.

Purists will hate it  – (and I look forward to a call from Con Keating later this morning) but Adrian is right. For us to have CDC schemes , there needs to be infrastructure and sufficient resilience within the scheme to ensure that pensions are paid, Sometimes a CDC scheme may indeed need resource to external backing and that backing will need to be repaid.

However, I do not see the handing over of the management of CDC schemes to commercial organisations (as opposed to pure mutuals) as disastrous. As with so many parts of our society, a pure mutual (such as Royal Mail) could run alongside a commercial master trust – both aiming to provide those who prefer collective wage for life solutions to annuities or drawdown , with a third option.

Adrian suggests that people should make such choices with the help of advisers and I am sure that that would be the best way for many people. But 94% of us are not currently paying for advice and I suspect that most of the people who would use CDC would do so as a continuation option from the workplace pension they were already in.

The questions I hope people will be asking of their workplace pension provider in future will be about the at retirement options they offer – I consider a wage for life scheme pension offer (using CDC) will prove very attractive,

CDC solving the freedoms issue

I am very glad to have found in Adrian Boulding, someone who shares my vision for CDC as a wage for life solution for people who cannot make up their minds. I am one of those people who wants a simple solution and I know there are many like me

Screenshot 2019-09-11 at 05.59.30

The wait and sees and the DIY managers

Those who are DIY-ing drawdown and those waiting to see if something better comes along are the principal market for CDC as a wage for life. I think we represent about 50% of those approaching retirement , suggesting that CDC could become very big very quickly.

But to do so, it needs people with the vision of Adrian Boulding , Kevin Westbroom and Hilary Salt to be joined by many more who are prepared to knuckle down and make this happen.

We need CDC to pass into law and I’m heartened to hear that we are likely to have a Queen’s Speech where the Pensions Bill (containing CDC legislation) will be set before the house on October 14th.

 

Posted in actuaries, age wage, CDC, pensions | Tagged , , , , , , | 2 Comments

Annuities – don’t knock ’em!

Posted on September 12, 2019 by henry tapper

The upshot of Jo Cumbo’s conversation with Nathan Long of Hargreaves Lansdown is this table.

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I am not sure of Hargreaves Lansdown’s agenda but I don’t suspect Hargreaves Lansdown (despite still being one of Britain’s largest annuity brokers) are quite the fan of annuities they once were).

The case for buying annuities well

This article sets out to explain how a few top annuity brokers maintain a standard of service that makes annuity purchase both easy and profitable. I will hesitate before saying pleasurable – though the trust pilot scores suggest that people do feel they get a good deal when purchasing well.

I have long thought that annuities offered value for money and continue to do so today. Even in the early years of this decade, when I blogged about people being trapped by stunted annuity rates, it was not the annuity providers that I was complaining about, but the impact of quantitive easing.

I first met Mike Orzag, WTW’s head of research, when he was conducting research into the UK annuity market in the late 1990s. He came to Eagle Star to look at our (not particularly competitive) annuity book. He concluded – as an independent expert – that annuities were amongst the best value financial products available to the UK consumer with low margins, effecient processes and marketing which did what it said on the packet.

The paper Mike , his brother Peter and Mamta Murthi produced in July 2000 can be read from this link.  It found that for a typical 65-year old male, annuitization typically involved a reduction in yield of the order of 1 percent. There are very few financial products that can offer that efficiency.

When I was discussing annuity margins with Legal and General in 2013 as part of research for Channel 4, I found that the insurer’s margin was 6-7%. This compares with the typical margin for fund managers of 36% – as discovered by FCA in 2017.

Annuities are not a rip-off product and they never have been. I would contest that the problems with annuities come about from bad purchasing  induced  by poor salesmanship.

I use the word “salesmanship” deliberately (I did not say advisedly). Annuities are not an advised product, people like David Slater (Retirement Line)  and Billy Burrows (Annuity Direct), the heroes of annuities – are business people who sell a broking service to the public in a straightforward way. They are the people to whom I would go to get the right annuity at the best rate for me.

Annuities expert, William Burrows, recently joined Justin King  on a podcast k to chat about his specialist subject and why reconsidering an annuity in later life could be a good idea.

You can listen on Justin’s website by clicking here or on iTunes by clicking here. It’s one of the best explanation of what annuities are about – I’ve heard recently.

With people like Billy about – why do things go wrong?

The problems have occurred when annuity broking is not sold – when instead, people are offered annuities without the care about enhancement and annuity type that the best annuity brokers typically display.

Yes brokers take commission but it is fully declared and customers can choose to walk away and execute with another broker of directly if they feel they can get a better deal. Clearly not all brokers are the same and Sam Brodbeck has written feelingly of poor customer experiences with one well known “name” – here is his Telegraph article

But high commissions are negotiable and most annuity brokers use what they call “decency levels” to cap commissions where they don’t represent value for money. Retirement Line are one such broker.

Retirement Line are rightly proud to have the highest trust pilot score of the 96 Financial Services companies that use their ratings (9.8/10).

It’s the way you sell ’em

Sadly, some of our largest insurers, most notably Prudential and Standard Life have not shown this care for the customer and have been caught by the FCA offering a shoddy service.

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The FCA are on top of this and are doing a good job making sure that people know they have an annuity option as they get to retirement.

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The four options people choose from  at retirement

The FCA has produced a technical paper (CP19/27) that has the intent of reinforcing the importance of people shopping around to get the best rate on the market. I spoke to Retirement Line about this and – as ever – their response was focussed on the customer rather than their business needs. This from Retirement Line’s CEO – David Slater.

Retirement Line wholeheartedly agree with the annuity information prompts as outlined within FCAs PS19/1 and the proposed amendment within CP19/27.

The proposed amendment in CP19/27 will ensure any consumers who refuse to supply potentially sensitive health and lifestyle information will still benefit from seeing a ‘market leading quote’ – This should be the highest ‘like for like’ quote available on the open market.

Retirement Line also supports the FCAs concerns that too many consumers have failed to shop around for the best annuity rates and as a result, have potentially missed out in securing higher standard or enhanced annuity income for the remainder of their lives.

Although Retirement Line agree with the proposed amendment, they feel it is important that the FCA reviews the text supplied on the information prompts taking into account a consumer could refuse to answer health and lifestyle questions for multiple reasons some examples being:

  • security concerns
  • a lack of supporting explanation
  • complexity and length of the health form leading to its abandonment

Whatever the reason for refusal, it does not necessarily mean that the consumer does not have any health or lifestyle factors which could result in an enhanced annuity quotation and higher annuity income. A consumer could receive an enhanced annuity rate through simply supplying their BMI, occupation and weekly alcohol intake.

As a result, Retirement Line have proposed that the FCA considers reinstating the ‘Did you know?’ text box on the relevant information prompts. The ‘Did you know’ text box clearly explained the benefits of supplying health and lifestyle to consumers.

This may sound arcane – but to me it demonstrates the care annuity brokers take to maximise engagement in what matters. It’s more than putting “annuity” into google – though that works too!

Annuities – well sold – are good buys

There is nothing sexy in annuities. The most exciting thing that’s happened to the annuity market this month is the arrival of Scottish Widows as a provider of standard (as well as enhanced) annuities.

The market has actually expanded rather than contracted this month (in contrast to the general trend identified in the article promoted at the top of this blog).

Annuity sales have slightly recovered since 2016 and while they are nowhere near at the pre 2015 levels, they are stable. Many people are buying fixed term annuities, waiting and seeing what is going to happen to rates (which everyone thinks can only go up).

I should add that there is absolutely no guarantee that annuity rates will go up. But if they remain depressed, then it will be because the deposit rate – the other source of risk free return, is also depressed.

Annuities remain a good value product, there are annuity brokers in the UK – Retirement Line being my favourite, that offer consumers a good deal in terms of service. Annuities themselves are well priced and (apart from oddities like Purchased Life and Deferred annuities), there is a competitive market for them.

Annuity salesmen like Burrows and Slater are honest and proud about what they do. They may sound a little cheesy (like Frank below) but there is nothing wrong with promoting what you do with old fashioned vim.

Clearly rates are low right now, but that should not stop people investigating their annuity options – if they want secure income that lasts as long as they do.

carson.jpeg

It’s the way you sell ’em

Posted in annuity, pensions | Tagged , , , | 4 Comments

A proper discussion on how long we live

Posted on September 11, 2019 by henry tapper

This is such a good discussion on how we measure life expectancy that I don’t want to spoil it by blogging all over it. That’s not just because it contains my colleague Hilary Salt’s contribution, good as it is. It’s also because of the clarity of explanations of what is going on right now – the stalling (not falling) in the improvements in life expectancy.

Are we hitting a biological ceiling or is there potential to by-pass avoidable mortality?

Why was 2015 such a bad year for life expectancy in the UK and Europe?  Why was 2014 a good year?

Is there another societal shift in the pipeline – to match the general stopping in smoking?Are there more wonder-drugs like statins around the corner?

Why does where you live make such a difference to where you live? What’s so great about Camden and so rubbish about Glasgow – when it comes to living longer?

And why is the gap between women living in Camden and in Glasgow widening?  Is it coincidental to the period of austerity we have gone through?

Listen to this excellent piece and decide for yourself. As one of the Scottish people interviewed pointed out

We don’t listen to this – we live it.

payroll 11

Posted in actuaries, advice gap, pensions | Tagged , , | 3 Comments

5 good reasons we have SJP

Posted on September 10, 2019 by henry tapper

SJP

As readers of the Times know,  James Coney has been exposing St James’s Place as a high pressure sales outfit that rewards its “advisers” with diamond cufflinks, overseas conventions and a lot of money for bringing client’s money under SJP management.

We need to be aware of what SJP is and how it works, but we don’t need to close it down of even force it to provide a different service than it does.

There is nothing particularly shocking about the revelations, what Coney is doing, which he does brilliantly ,is excite our admiration for SJP’s chutzpah and our outrage that we let this kind of thing go on , on our doorstop. For every Times reader knows an SJP adviser, SJP – like Rotary or a Livery Company  – is a club for the successful.

Golf club

Reason one – a rich person’s club

We have SJP because it is a rich person’s club – which allows us to aspire to the lifestyle of Polo ponies and diamond cufflinks and private jets and chartered cruise ships. If SJP didn’t exist, it would be replaced by another place serving the same purpose. Indeed SJP is simply a remake of the Hambro Life/Allied Dunbar aspirational model. As a Hambro/Dunbar man of the eighties I recognise SJP for what it is – a rich person’s club.

sJP polo 2

Reason two – a competitive arena

For the sales people who are the blue-bloods of  SJP’s business model, competition is fierce. They play against each other for peer-group recognition. The conventions are away to flaunt individual success and to maintain a hierarchy of achievement. Everyone in SJP will know their level of attainment and recognise that they are only as good as their last month. Conversely, those on the way up can aspire to the recognition of peers, which eggs them on.

SJP Golf 2

Reason three; clients love this

Rational thinking would lead rational investors to run a mile. But SJP clients are not investing rationally, they are in part – investing in the dreams of their advisers. They want a bit of the gold dust to sprinkle onto them and SJP salespeople have the sense to include rather than exclude their clients. If your advisor isn’t driving a Porsche, he can’t be much good!

Reason four; the 80/20 rule

Pareto’s 80/20 rule teaches salespeople they make 80% of their money from 20% of their clients, ditch the 80% of clients who make you 20% of your money and you do a whole lot better.

This kind of client cull or cleansing means that SJP do not end up servicing what the FCA call vulnerable clients (people who can’t afford to have their savings denuded by SJP’s rapacious charging structure).

So by and large, the only people who pay for the conventions/cufflinks/Porsches are those who can afford to and they are buying lifestyle, not financial management.

Although it sounds heretical, SJP employs a progressive business model which rewards the big punters and spits out the vulnerable.

eighty twenty.jpeg

Reason five – the pyramid

SJP is a collection of sales pyramids within an overarching pyramid which is SJP itself. Each individual pyramid- or partnership – is an ecosystem which as it grows, allows the founding partner to live on the earnings of others. SJP partners quickly find that their day to day financial needs are taken care of by the recurring fees that arise from having brought money to SJP management and that leaves SJP partners to indulge in vanity projects such as entrepreneur clubs where they can teach their clients to be entrepreneurs like them.

And of course this creates a much larger eco-system of entrepreneurship which is gently milked by the SJP management for the benefit of shareholders. The shareholders have seen their investments rise and rise for the five reasons outlined in this blog. They should not be worried by the Times publicity – it reinforces what everyone likes about SJP.

pyramid.jpeg

A pyramid structure does not have to be a Ponzi, it can be stable and sustainable.

Dark clouds ahead?

I wouldn’t bet on it. SJP are smart – look how they have managed the Woodford debacle – teflon. SJP flirt with DB transfers and use a contingent charging model but they can point to their 80/20 model to show the FCA that the people who transfer with them know exactly what they are doing.

As a result of the publicity from the Times, we hear that SJP’s CEO has instigated a review of the incentives on offer to the salesforce. He says he is doing this because times have changed. Well they have, but the incentives look exactly like they did back when I was going on those conventions 35 years ago! The reason nothing changes is that the model is perfect, there may be a little tinkering but SJP are not going to break up a good thing.

And as for the Regulators, are they really concerned? What have they got to be concerned about. The SJP customers are consenting adults, they are not (by and large) vulnerable and SJP’s 80/20 philosophy means that their system is self-cleansing.

Nobody loses money at SJP that they can’t afford to lose and so long as the client/partner relationship is maintained, clients are part of the success story.

SJP is a brilliant wealth-tax which clients willingly pay for the privileges of membership of the club. The club is staffed by people who share the values of their clients and SJP provides a super pyramid which keeps everything in place and rewards the shareholders. I sense that this is what Paul Lewis is picking up on in this recent article in the FT

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SJP are not alone in levying a wealth tax toll and in so doing, we get a strong and stable business that is relatively little trouble to the FCA.

So I don’t see dark clouds ahead for SJP. It will not sink into the mess that Allied Dunbar sank into so long as it keeps on doing what it is doing. Would I be an SJP customer? Not in a million years, nor would most of the people who read this blog. But that is not the point.

SJP polo

Posted in advice gap, pensions | Tagged , , , , , | 8 Comments

Amber Dudd – anyone for Coffey?

Posted on September 8, 2019 by henry tapper

I cannot work out what the point of Amber Rudd’s resignation is.

Rudd knows Johnson well, from what I’ve observed, Johnson is all over her in his slightly predatory way. They are often pictured as Tory pin-ups.

Rudd knew exactly what was coming when she accepted her position in Johnson’s cabinet and if she didn’t – she’s a lightweight.

Her job was to stand up for her department for which she is Secretary of State and to moderate the populist behaviour of her prime minister.

She has decided not to do that, preferring to make a political statement.

She should have made that statement earlier.

Where does this leave pensions?

By resigning the whip, Rudd effectively resigns from being Secretary of State for Work and Pensions in future Governments. What she says in her letter about her department, suggest she valued it.

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small print from Amber Rudd’s resignation letter

But she has deserted it.

What replaces her is anybody’s guess.  In the gallery of Tory thugs left supporting Johnson, there aren’t many I would want to associate myself with, for me it’s “what” not “who”.

Thankfully we haven’t seen Esther McVey back. She’d have  put the kybosh on any impetus behind the dashboard. Certainly the progressive pensions bill looks as far away as ever. Johnson will have to appoint something to the role – let’s hope it’s short-lived.

Coffey anyone?

Since starting this blog – I discover we now have Therese Coffey as our new DWP SOS. She is the 7th conservative to occupy this role since 2016-suggesting the importance placed on welfare by the party in recent times.

We know a little about Therese Coffey in pensions, she seems to have spent most of her political career in the whip’s office , she’s a former FD and she likes listening to Muse.

What little we know of her suggests Coffey is not my cup of tea.

Her best known intervention involving pensioners isn’t encouraging. In 2014 Coffey’s authored a paper for the Free Enterprise Group recommending pensioners should be forced to pay National Insurance

This puts her firmly in the “tough on pensioners – tough on benefit scroungers” camp of fellow scouser Esther McVey.  Thankfully her policy proposal has so far gone no further than that, national insurance is paid on earnings, not pensions.

But she seems also of the – “don’t let pensions get in the way of a free-market economy school of thought”

I see nothing in her wider career to date that suggests she is progressive.

Coffey is the first unfortunate consequence of Amber Dudd’s resignation. I hope she is a caretaker and lasts as long as this Government. If that is the case – let’s look at alternatives.

De-caffeinated alternatives

If we look to the Labour benches, Margaret Greenwood currently holds the DWP shadow brief and she’s supported by Jack Dromey, Guy Opperman’s counterpart.  Short of campaigning for a higher take up of pension credit, Margaret hasn’t said much about pensions but Jack has a keen handle on the major issues and works well with Guy Opperman.

The Liberals have put up Tim Farron as their pension spokesperson- a  very decent man. As far as anyone can make out, Archie Kirkwood speaks for the party on pensions – from the Lords, Stephen Lloyd doesn’t do much speaking for pensions anymore but has been on the Work and Pensions Select Committee. Since Steve Webb’s departure, Liberal pension policy has taken a back seat (in a very small car).

And then there is the SNP, whose DWP spokesperson is Neil Gray With due respect to Mr Gray, the pensions spokesperson is Mhairi Black who is so brilliantly outspoken as to be both the SNPs spokesperson on pensions and on youth affairs.

Pensions has cross-party interest and (I suspect) the pension policies proposed by Government command common (cross-party) support. What we are sadly short of – as of today – is a single person who could promote the pensions agenda. Rudd has proved a Dudd.

Party conferences are upon us.

The party conferences are upon us and no doubt will be jumpy affairs. The lobby people I speak to are struggling to find politicians within the Lib-dems to turn up to pension events but see plenty of interest in Labour ranks, what goes on at the Tory conference is anybody’s guess but Rudd’s resignation looks like making DWP related sessions a matter for political contention rather than thought leadership.

I hope that in the limited window that BREXIT will allow, the great issues surrounding pensions, pension credit take-up, collectivisation (in DC), support of pension freedoms, the dashboard and the future of the DB legacy, will get some attention. But I fear that Rudd’s departure will mean that any proper debate on how the DPW will spend the money will be replaced by further upheaval.

If , as seems very likely, the party conferences are used to forge the manifestos for a general election, then not only is Amber Rudd’s dereliction of her post, harmful to debate, but harmful to the promotion of progressive pensions policies in the general election to come.

Rudd’s another dud

It really is a great shame that politicians who talk about the honour of taking a Cabinet position, have so little regard for the importance of keeping promises. Amber Rudd took on the role of DWP Secretary of State in November 2018

Iain Duncan Smith led the DWP from 2010 until 2016, spanning the whole five-year coalition government of the Conservative and Liberal Democrat parties.

He was replaced by Stephen Crabb, who lasted just four months before being removed in the wake of the 2016 EU membership referendum.

Damian Green then led the department for 11 months before being transferred to the Cabinet Office in June 2017.

David Gauke lasted seven months in the role before being replaced by McVey in January.

Esther McVey lasted ten months and quit because we weren’t Brexiting fast enough.

With the exception of IDS, who had no interest in pensions (and a bloody good pensions minister) , there has been no consistent leadership of the DWP in the past ten years. One commentator described the role as as stable as a shed in a hurricane, he was right.

As can be seen from this chart as supplied by Professional Pensions.

Screenshot 2019-09-08 at 09.25.19

I expected more of Rudd and frankly I am disappointed that she appears to be more interested in political positioning than doing the job she set out to do with great authority. and which she kept when she knew just what was coming.

Rudd Tisa

Rudd in November – full of sound and fury…

Posted in pensions | 10 Comments

“What’s the best way to use my two pensions?”

Posted on September 8, 2019 by henry tapper

MArtin wray

I’ve done another of those Portfolio Theories things from the Times. I was  billed a pensions expert, which suggests I’m something that Steve Webb and Ros Altmann aren’t. My apologies to the two real pension experts in the article!

My 150 words got a bit cramped, so – on my blog – I’ll give you what I submitted which you can find at the bottom!

As for Martin, he and his dog look to be train lovers, which suggests he knows how to enjoy himself, the most important advice I can give him is to get on with having a good time! Article below – original in today’s Sunday Times.

 

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Martin Wray, 56, from Berkshire, works in the sales department of a pharmaceuticals company, but is looking to retire in June next year.

He earns £63,000 a year and has two company pensions. One is a defined-contribution pension from the company where he has been for four and a half years, to which he has been adding voluntary contributions when he can. The pension will be worth about £186,000 when he retires.

The other pension is a final-salary scheme from his previous employer, another pharmaceuticals company, where he worked for 25 years. He has been told that if he draws on this pension from the age of 57 he will be able to take an annual sum of £22,500 for life and a lump sum of £149,000. However, if he waits until he is 62 to claim he will get an annual sum of £32,500 and a lump sum of £215,000.

Martin is financially comfortable. He has no mortgage, his wife is retired on her own final-salary pension, and his children are grown up.

“I think I will have a good standard of living when I retire, but the different advice I’ve received is confusing,” he says. “Should I take my second pension when I retire or wait a few years?”

He says he is also concerned that if he waits to access his final-salary pension he could breach the lifetime pension allowance and face tax implications.

THE EXPERTS
Steve Webb, director of policy at Royal London, an insurer

“If Martin takes his final-salary pension early, he will lose £10,000 a year for the rest of his life and get a reduced tax-free lump sum. Assuming he is in good health, this could be poor value, especially as he has no need for the money now.

“He could put his defined-contribution pot into a drawdown investment policy and take a quarter tax-free upfront. This would support his lifestyle for a year or more, and he could use income from the rest of the pot to support him until he is ready to take his defined-benefit pension. Any income under the annual personal allowance of £12,500 is tax-free.

“Although his pension pots could bring him close to the Lifetime Pension Allowance (LTA), which is £1.05 million, the only implication of going slightly over would be a tax bill on any excess. This is not a good reason to lock into a much lower pension now.”

Ros Altmann, a former pensions minister 
“If Martin is retiring at 57 because of ill health, then taking both pensions would give him financial security. If his health is excellent, that may not be the best option.

“He needs to be mindful of the 55 per cent tax charge if he exceeds the LTA. There are good reasons to start the final-salary income next year. He will have an extra five years of guaranteed income, although he will have to pay tax on this, and taking £22,500 at 57, rather than £32,500 at 62, helps keep him under the LTA limit. That is because of the way the tax system assesses the value of a final salary pension: multiplying the income by 20, plus any tax-free lump sum. So taking it next year gives a value of £599,000 [£22,500 x 20 is £450,000, plus a tax-free sum of £149,000].

“Adding in the £186,000 defined-contribution pot gives £785,000, well below the LTA. However, if he waits until 62, the final-salary pension value would be £865,000 [£32,500 x 20, plus a £215,000 lump sum]. Adding the £186,000 would breach the LTA.

“So Martin might consider taking the final-salary pension next year, but keeping the other pension, which he could still add to, gaining extra tax relief to build a larger fund. The defined-contribution pension can be passed on free of inheritance tax too.

“However, he and his wife could live for 30 or 40 years. Their final-salary pensions won’t cover additional costs if one or both move into a care home. Building up extra savings for care is something most people forget about, but may be another reason to keep the defined-contribution pension intact.”

Henry Tapper, pensions adviser
“Martin will get a 30 per cent pay cut if he takes his gold-plated pension at 57 — ouch. He should wait until 62. As for his other pension pot, next year he could cash out £46,500 tax-free, and get about £28,141 a year for five years with the remaining £139,500. This is the safety-first option.

He may prefer to stay invested and draw down up to £40,000 a year until 62, a quarter of which would be tax-free. This may mean he exhausts his £186,000 by 62, but he will have the prospect of cash and a lifetime income from his second pension.”

 

Martin says
“Thanks so much. This has given me reassurance that my thought processes are right. I hope the advice helps others too.”

Exclusive!

Henry’s submitted response below

Martin, you’ll get an immediate 30% pay-cut if you take that gold-plated scheme at 57 – ouch! Take your DB pension at 62!

As for your pension pot:- next year you could cash out £46,500 tax-free. Retirement Line can find today a flat £x for five years with your remaining £139,500. This is safety first.

You may prefer to stay invested and draw-down up to £40,000pa till 62. Under the Pension Freedom UFLMP option you’d get a quarter paid tax-free. More risk but perhaps more profit!

You may find you’ve exhausted your £186,000 by 62 but now you’ve the prospect of a cash, and a lifetime income from pension #2! In the mean-time you’ve had an easy-to-budget-with “bridging pension”.

If you want more pension at 62 you might look at what your scheme offers for taking less cash.

You’ve got state pension kicking in at 67 and you really don’t have a problem with the Lifetime Allowance.

Posted in advice gap, pensions | Tagged , , | 4 Comments

What would BREXIT mean to workplace pensions?

Posted on September 6, 2019 by henry tapper

Brexit pensions.jpg

Sage advice from Holly

 

Europe has a great deal of influence on UK pensions; the influence includes fund reporting, funding requirements, reserving against risk and even competition between service providers.

This can have very strange results. The reason that NEST has such a complicated charging structure is because the EC would not allow NEST to use tax-payer money to create commercial advantage, the EC required NEST to levy a 1.8% charge on regular contributions. Because NEST was allowed to split the charge – others followed, including NOW which has a £1.50 monthly charge on the investments. It was Europe wot dunnit!

The influence of Europe is felt in the money that life companies need to set aside to meet liability over runs. The EC’s Solvency II regulations impact life companies directly but they have also had an impact on workplace master trusts that now have to set money by against their possible failure.

And it is felt by fund managers who now have to report costs against the MIFID and PRIIPS standards.

Would Britain leaving the European Community mean that we would abandon these regulations as Brussels red-taper? Most pension experts think this highly unlikely. Many of our largest pension schemes – though locally regulated – form part of a global pension strategy and aspire to be Pan-European. It is unlikely that a firm like Unilever or Shell would argue for one level of member protection in Holland and another for the UK,. You can take Britain out of Europe but you can’t stop corporates from operating both here and there.

Then there are the pension funds, both the large portfolios that back our defined benefit schemes and the retail funds into which you and I can invest our private and workplace money. Many of these funds are set up in Dublin and Luxemburg, they need to comply with European standards like MIFID II if they are to be used in Europe. It is highly unlikely that a UK Regulator would allow lower standards to exist in the UK. Consumer organisations are already looking for areas of “consumer detriment” arising from the exploitation of BREXIT.

Finally there is the very obvious but – often overlooked – fact that much as we moan about new regulations, we are very reluctant to give up legislation that works. I am not writing as a partisan Remainer or Brexiteer, but it seems patently obvious, from the lack of kickback from consumers, that the majority of EU legislation as it touches pensions, is considered benign.

I go to pension conferences in Europe and there is general admiration for aspects of our pension system – especially the parts that are workplace centric. Auto-enrolment is being copied in a number of EU jurisdictions and our funded Defined Benefit pension system is still the envy of many countries who aspire to the level of security it provides many of us in later age. The fertilisation of ideas (such as the development of CDC) is unlikely to stop – even if we have a hard Brexit.

This is not to argue that BREXIT has not got the potential to harm the British pension system. We are still highly dependent – for the wages we get when we stop working – on the dividends and capital growth received from UK investments. Overseas investments are subject to currency considerations which while they could work for good or ill of a pension fund, are likely to increase as we divorce ourselves from our largest trading agreement.

But in general, the pensions industry has shown itself, to date,unconcerned about BREXIT. As with the country in general, people in pensions are split between those who see BREXIT as a good thing (like my partner – who is Pensions Director at one of our largest banks) and violent remainers. Gina Miller is almost as immersed in pension fund management as she is in keeping us in Europe. She is joined by other strong women, including Baroness Altmann.

While it is unlike me to remain on the fence, I am genuinely undecided whether BREXIT will bring pensions harm or good. One thing I am sure of, it will not change the fundamental need of people in the UK and Europe to secure for themselves financial security in later life. It remains the case – whether we are in or out of Europe, that we will still need pensions.

This article first appeared in CIPP magazine

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The language that we use

Posted on September 4, 2019 by henry tapper

I am worried by the language that we are using in AgeWage. We are not being profane, or blasphemous, but we are not making ourselves understood , to each other , our investors and our future customers. We have not found a consistent set of words to explain what we are up to and I suspect we are not alone. There is a need for standardisation of terms used, so that people know what we are talking about.

So here is our first attempt at an AgeWage dictionary; I hope that people who love words – like Quietroom – will help us build and refine this dictionary and I hope that pension experts will challenge our words and definitions.

So here is the (dynamic) AgeWage dictionary

AgeWage– the wage we pay ourselves from our savings and get from pension(s)

Pension – an amount paid to us by formula (scheme pensions, state pension , annuities)

Savings – the amount we save

Pension savings – the amount we save for later age

Later age– the time we are relying on savings to get paid, rather than work

Work – what we do to get paid (unpaid work is different)

Unpaid work– what we do which isn’t paid

Member – someone who benefits from  a pension scheme

Scheme Pension– a regular amount paid to us by formula from a Pension Scheme

Pension Scheme – an arrangement to pay money to us by a formula (a defined benefit) or as a scheme pensio pot

Annuity – a pension we buy with our savings

Drawdown – cash taken from a pot as an agewage

Lifetime annuity – a pension which pays as long as we live

Fixed term annuity – a pension that pays for a set number of years

Scheme pension pot – the amount saved in a pension scheme that does not offer a scheme pension.

Dashboard – something where you can see whats going on

Pension Dashboard- somewhere you can see what is going on with your pensions and pension pots

Defined benefit– a formula that tells us the pension we get

Formula – an agreed calculation which determines how much is paid into your pot or the pension you get in later age

Value – what we get from our savings

State pension – the AgeWage you get from the state

Money – what we save

Value for money – the amount we get from the money we save

AgeWage score – a measure of the value we get from the money we save

Pot – the value of our savings

Pension Pot – the value of our savings for our Later Age (really this should be a later age pot)

Lump sum an extraordinary payment from the scheme which can be taxed or tax-free

Tax relief at source – money that’s paid back into your pension by the taxman

Payroll tax-relief – (aka “net-pay”) tax paid back into your paycheque by the taxman

National insurance rebates; money paid into your pension by the national insurance people

GDPR – General Data Protection Regulation

DPA – Data protection act

Cash – money that’s not in a pot

Plan- the apparatus around a pension pot which forms a contract with the provider

Policy – the legal word for a plan

Policyholder – someone who owns a policy (aka plan)

Plan Provider – the organisation that offers a contract for a plan

Employer – an organisation  which sponsors a plan or a scheme

Workplace – where we work

Workplace pension – a pension scheme that we join where we work (short for a workplace pension scheme)

Scheme Provider – the commercial organisation behind a pension scheme

Trustees – people who make sure the pension scheme is properly managed

Trust – a group of trustees that manage a pension scheme for an employer

Sponsor- somebody (usually an employer) who pays into a pot or agrees to fund the payment of a pensions

Master trust – a group of trustees that manage a pension scheme for many employers

Independent Governance Committee– people who make sure our plans are properly managed

Fund – a place to invest savings

Platform – a way of arranging funds that savers can choose

Assets – what our savings buy – whether in a fund or not

Data – information in digital format

Contribution – money paid into a plan

Contribution history – the data about all the contributions paid

Data set – all the data we hold for a person , organisation or as AgeWage

Adviser – someone who helps a member or policyholder with their AgeWage

Advice – help given to someone which is regulated by the FCA

FCA – the Financial Conduct Authority –  supervises advisers and insurance companies

TPR – the Pensions Regulator – supervises pension schemes

Guidance – help you get which isn’t advice.

Lifetime mortgage – a product that turns equity in your house into later life cash or an agewage

Equity release – the process of liquidating money from your residential property.

If you’ve bothered reading this, please drop any suggestions into the comments box or tell me where we’re going wrong by mailing henry@agewage.com

It’s really important we develop a language which is consistent and helpful to ordinary people. It’s not about “jargon busting”, it’s about using words that make sense both inside the world of pensions and out!

Agewage logo

Posted in advice gap, age wage, pensions | 7 Comments

LEBC – the demise of “de-risking”?

Posted on September 3, 2019 by henry tapper

Jack McVitie (RIP)

Yesterday LEBC  resigned its permissions to offer regulated advice on the transfer of safeguarded rights within a pension scheme (DB transfers).

It also decided to stop advising on Flexible Retirement Options such as Pension Increase Exchange and Enhanced Transfer Values.  This means that they will not only not be tendering for new schemes, but existing projects will go uncompleted.

This is a major change in direction for one of Britain’s senior corporate pensions advisers and suggests an intervention by the FCA.

We learnt of this through Hannah Godfrey

and NMA were quick to follow up on the implications for the industry

We should be in no doubt that the regulatory climate has changed.

Awkward regulation

Unlike individual CETVs which are initiated by members, the work LEBC was involved with resulted from discussions between trustees ,sponsors and their institutional  advisers – typically the pension consultancies of large accountancy firms and the corporate arms of the actuarial consultancies. The advice to set up these ETVs and FROs did not come from directly regulated firms but from firms working under the permissions granted by the Institute and Faculty of Actuaries. Firms as various as Aon, Mercer, Willis Towers Watson and my own First Actuarial.

The work was carried out with the full knowledge of the Pensions Regulator and there has been free interchange between the Regulator and these firms in terms of senior personnel. David Fairs, ex KPMG is now head of policy at tPR, Steven Soper, now at PWC was Executive head of DB at tPR.

It was convenient all round that the actuarial practices had firms such as JLT, Origen and LEBC to do the de-risking and I expect a roaring silence from them over what appears to be a firm “no” from the FCA on what was firmly “yes” from tPR.

LEBC are caught in the middle and I feel for their head of Retirement Advisory Nick Flynn and their CEO Jack McVitie.

What does this mean for schemes and their advisers?

LEBC were generally considered within the industry to be the go to company for individual advice forming part of corporate de-risking programs. They offered services to employers and members not only got the benefit of LEBC’s advice, but had the bill picked up either directly or indirectly by their bosses.

Trustees were comfortable with all this as the funding position of their schemes (especially on a buy-out basis) was improved. This did not of course mean that the scheme was improved -the scheme shrank and its social purpose diminished, but trustees are taught now that their first duty is to tPR , who’s first duty is to the PPF and the fact that the scheme was set up to pay pensions (not (c) ETVs or PIEs) is forgotten.

The days of de-risking through offering members what Steve Webb used to call “sexycash” seem to have entered a crepuscular darkness.  I have predicted that this would end badly and it has.

The problem is that tPRs agenda has stopped being about people’s pensions and become about  pension schemes. Instead of worrying how to get people their pensions, tPR now has to worry about the politics of solvency. Meanwhile the FCA have intervened and look likely to intervene a great deal more.

Until recently, pension schemes and their advisers did not have to worry about the FCA, but that is changing fast. The CMA has recommended that investment consultants become FCA regulated, many schemes now report DB transfer activity to the FCA and now some schemes will be caught  in the middle of a de-risking exercise, without a key part of the advisory chain.

The message for schemes and their advisers (and I include my own firm in this)  is that the FCA aren’t coming – they’ve arrived.

How will this go down in Brighton?

The Pensions Regulator is in Brighton and the FCA are in the east end of London.  They are only 70 miles apart physically, but the policy agenda looks wider than that.

I would be very surprised if, in the current climate, any more tenders for ETV and FRO “exercises” are issued this year. Since the funding plans of many of tPR’s schemes depend on further de-risking, the FCA appear to be throwing a spanner in tPR’s works.

I do not think that this intervention will go down well in Brighton.

How has this gone down with IFAs?

The IFAs who’ve been noisy on twitter pick up on LEBC offering too much for too little

Ironically, LEBC did not charge for advice on a contingent basis and no doubt this will be picked up by the IFA lobbying groups who can now point to an example where fixed fees led to bad outcomes.

In short the IFAs who act as pension transfer specialists are dancing up and down with glee.

How does this go down with the consumer?

I have not heard any consumers complaining about the way they were dealt with by LEBC, my professional experience suggests that customers were only too pleased to have LEBC’s services offered by their employer and that LEBC carried out their work to a very high standard.

But I do not know what has carried on between the FCA and LEBC , we have only the cold comment of LEBC’s backers, B.P Marsh

As part of its market-wide review of the DB transfer market, the FCA has undertaken a review of LEBC focused on the division of the business that provides DB pension transfer advice. Following this, LEBC has agreed voluntarily to cease the provision of DB pension transfer advice and projects, forthwith.

“In line with its successful long-term investment strategy, B.P. Marsh will continue to support LEBC as it evolves its business, which provides a range of financial solutions, for the benefit of its customers, staff and shareholders.”

LEBC will move on , and so will the industry, the days of de-risking through FROs and ETVs look over and ironically – it was not the Pensions Regulator but the FCA that called time.

Some consumers may wish that LEBC had called earlier.

CETV

 

Posted in pensions | Tagged , , , , | 5 Comments

Is there wisdom in saving?

Posted on September 2, 2019 by henry tapper

Save

Thanks to Dave Thompson who sent me this random picture, presumably with a hope of an answer! I suspect its a teaser for Pensions Awareness Day – which is now just a fortnight away!

Well here goes Dave, I’m going to do some big picture philosophical stuff and ask some fundamental questions

“Who says I should save?”

“Should” suggests you have some kind of duty. In places like Australia, saving into a pension pot is compulsory, in others – like the UK where we have auto-enrolment- it is business as usual and in others – like America , it is a personal thing.

“Why do we Britains save?”

In 1998, I worked with Ben Jupp on a paper called “Reasonable Force”. It looked at the level of compulsion that the Government should apply to a nation recalcitrant in its savings habits. Ben argued then for a “target  lifetime income” that went beyond the level of the Basic State Pension and was achieved through compulsory savings. His arguments were founded on political thinking.

Over a hundred years ago John Stuart Mill argued that ‘the only purpose for which power can be rightfully exercised over any other member of a civilised community, gainst his will, is to prevent harm to others. His own good, either physical or moral, is not sufficient warrant.”

This idea of saving to stop ourselves being a harm to others suggests that in Britain at least, we are engaged in a social enterprise that is designed to get everyone to a minimum level of personal solvency in retirement. That I suspect is what we think auto-enrolment is about.

We don’t like compulsory saving, we have – since the early days of company pensions – had a savings opt-out. The pension freedom is the freedom to spend our savings as we like. We are a liberal society that likes defaults but defends the rights of individuals to do what they like (even if that leads to self harm).

Is there wisdom in saving for the future?

As Victoria Derbyshire told her radio listeners, it’s easier for people to spend on retirement than save for it. We like a plan that has a purpose and for most of us, the purpose of saving for the future is as insurance rather than greed. We do not save to be rich – we spend on the future so that we are not poor.

Infact we are behaving as John Stuart Mill would have us behave, collectively agreeing not to be a burden on each other.

What is “enough”?

Ben Jupp wrote Reasonable Force at a time when the state pension was (in real terms) about 2/3 of the value it is today. He was – in 1998, writing at a time when our housing stock was a relatively low part of British wealth when we expected both inflation and markets to be measured in double digits. We also expected to be paying 10% + as mortgage interest.

What is interesting is that the details of Jupp’s solution-are based on very different financial conditions than we have today.

The State Pensions has moved a long way from the 10% of “male” average earnings. It is now three times that.  

Practically, it suggests that:  a target minimum income for pensioners should be 40 per cent of expected average male earnings, which currently would amount to £160 per week; 

to achieve this level a basic state pension of 10 per cent of average male earnings should be guaranteed by the government, leaving individuals to fund a target minimum additional pension of 30 per cent of average full-time male earnings;

it is reasonable to require those with over half average male lifetime earnings to save the amount required to reach this target; 

a compulsion rate of 11 per cent of current earnings should ensure that people earning over half average male lifetime earnings contribute enough to fund the target minimum pension; 

once people had saved enough to ensure the target minimum pension they could stop paying into their fund if they wished; some people would reach the target in their forties, some in their fifties, some in their sixties, a few never at all without government help;  to ensure low levels of contribution avoidance the government will have to win people’s hearts and minds about the need to save more and the need for a minimal compulsory system.

But the answer from today’s experts remains very similar to Ben’s. Here is the answer that Scottish Widows have come up with. For 11% read 12% – plus ca change.

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Savings system need popular support

Looking back, the idea of compulsory saving Jupp was recommending, was unworkable. It ignored the idea of “net disposable income” which we know to be lower for those in the mid-career than at outset or at the end of work. It came before “nudge” and the behavioural work that suggests that an opt-out coupled with re-enrolment is more likely to win popular support than the minimal compulsory system he suggested.

The success of auto-enrolment is that it commands popular support, its weakness is that it has yet to convince us that we are either saving enough – or that we know how to spend what we save as a replacement income.

These weaknesses need to be addressed as people will not go on saving for ever – without knowing how they are doing.

We need to know how we are doing

British savers are not stupid, they know what they don’t know and are anxious to remedy their ignorance.

I shy away from phrases like “financial education” which have a patronising feel to them. We don’t need education – we need information on which we can take informed decisions.

That means understanding how we have done, how we are doing and what we need to do. These are the “how much should I be saving” questions.

A pensions dashboard is needed. Not necessarily a national dashboard, but an individual dashboard which can be downloaded from the App Store and populated with real-time information from databases that keep records on what we have saved.

That is all we need – the data that tells us what we’ve got. But that is what is missing right now and the longer that we put off dealing with the problem of aggregating that data – the more likely people are to get frustrated.

Wisdom in saving?

There is wisdom in saving, but if we are wise enough to save, we need to be rewarded. Right now we are saving into what many of us consider to be black boxes to which we have no keys.

There is currently £21bn of lost pensions savings floating around in asset pools managed by organisations who have lost contact with their customers. The DWP estimate that by 2050 there will be 50 million lost pension pots.

People will – if they cannot find their money – cannot find out what they’ve saved and cannot spend their savings – very quickly question the wisdom of saving.

That is the number one pensions challenge facing Government and it’s one I am far from convinced – we are properly facing.

how much.jpeg

You can support Dave and the Scottish Widows team as they make their way around the country on the Scottish Widows pensions bus

You can also support the Pensions Geeks who are also on the road!

Posted in advice gap, age wage, pensions | Tagged , , , , , , | 1 Comment

Kids should not borrow- parents should not lend.

Posted on September 1, 2019 by henry tapper

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Nice advert – but what happens to Mum and Dad’s equity?

Last week Legal & General ran a press release that suggested that rather than the  Bank of Mum and Dad bailing out children from their pensions, parents should consider releasing equity from their homes by using LifeTime mortgages. You can see I was a little quizzical from the title of my blog. As I said on the BBC, banks don’t give money away, they lend it.

Bank of Mum and Dad now a top 10 mortgage lender?

This weekend, The Times picks up the story and looks at what happens when what started up as a leg-up , ends up as a knee in the groin – at least as far as parents are concerned.

It happens

Annie’s comments are well made. I spent a Sunday in August talking with one of the guests on Lady Lucy who was eastern European and  had come to the UK to work in the NHS 20 years ago. She had left her husband and brought her young son with her.

She was keen her son had a house and decided to save like FIRE from her wages. She opted out of the NHS pension scheme and managed to buy a property where she and her son lived. She put the property in her son’s name and the son fell in love. He married a lady who did not like living with her mother in law, especially when children arrived.

Now the son, who works in the City has turfed the mother out and is selling the house. The mother is resigned to getting nothing back, she gave unconditionally and now faces an uncertain future on a nurse’s wage – with little prospect of a pension and with little security of tenancy.

I wished I could have offered her these wise words from Iona Bain;

Of course there are safeguards.

If parents want to behave like banks they should agree safeguards to ensure that they can get their money back. It’s not what Iona and I were discussing but it is one way of doing things.

Annie has sensible suggestions

The trouble is we grossly overestimate the power of our houses to sort out our problems and underestimate the cost of looking after ourselves in later lives.

The greatest safeguard you have is to stay close to your children, but even if they show unconditional love – parents are having to compete with the harsh realities facing young families and the even harsher truths of human behaviour.

So what of giving to your children.

Annie is right, parents should only give what they don’t want back. But if you give unconditionally, you cannot give thoughtlessly and you can’t rely on your children to show the genorosity to you, you showed to them.

The Times article talks of the costs of securing a legally binding agreement with your child(ren).  A declaration or deed of trust costs between £1500 and £10,000 and that’s the price you pay not to get into later life litigation. Remember that son or daughter in law may not remain so for ever, the most vexatious disputes are between parents and those who came and went from the family.

And of course as soon as you involve lawyers, you get into destructive debates about tax.

And we could go a very long way down that path before finding it is a cul-de-sac.

The simple solution was worked out some time ago and articulated by Polonius in Hamlet. When it comes to retirement

“Neither a borrower or a lender be”

I’ll leave the last word, not to that old bore Polonius but to Annie Shaw

The debate on giving the money we borrow to help our kids borrow more, has a long-way to run.

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

No one should ever have to buy a poor annuity again.

Posted on September 1, 2019 by henry tapper

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I’ve just read an article that could best be described as smug. It’s written by a lawyer in the financial regulation team of Foot Anstey – Alan Hughes. I don’t know Alan but I know his firm and have a high regard for it. But I think the article needs to be challenged.

The article deals with the minutiae of an FCA judgement against Standard Life and in particular breaches Standard committed of its duty to treat customers fairly and failings in its internal controls. Specifically this related to the selling of Standard Life annuities to the exclusion of the open market and with little or no regard to the enhancements in rate that customers might have got had the Standard Life salespeople cared a little.

Beyond these two breaches of FCA principles, the article draws a conclusion

Finally, it is worth bearing in mind this fine related to non-advised sales of annuities to customers approaching retirement and who may have been eligible for an enhanced annuity. If there was ever a situation which clearly demonstrated the value of advice it must be this.

This is what I want to challenge

Over the past three months I have become interested in annuities and have written several blogs about how we can get value from them. In this I have been helped by my conversations with annuity brokers, in particular Retirement Line but also Hub.

I have found that both these organisations offer an extremely professional service. Retirement Line in particular is regarded by its customer as exceptional and is rated #1 out of 96 financial services firms rated by Trust Pilot

Screenshot 2019-08-31 at 08.18.13

I have found that though the annuity broking service is unadvised , it benefits customers by not just offering enhanced annuities , but guiding customers to their best enhancement. The “our in this slide refers to Retirement Line.

Screenshot 2019-08-31 at 20.00.43

I learned that when a customer is asked how much beer they drink, not all beers have the same impact on longevity – or annuity rates

Screenshot 2019-08-31 at 20.01.29

and I learned that missing certain conditions can have a huge impact on your retirement income.

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I did not learn these things from regulated advisers, but from Retirement Line and Hub.

I also found out that there is a massive problem in Britain about annuity awareness

Screenshot 2019-08-31 at 20.01.54

and I found that most regulated advisers are neither recommending annuities , nor do they have the competencies that give Retirement Line and Hub #1 and #2 place in the annuity broking market (respectively).

What little the public knows about annuities is coming from annuity brokers who offer great service and show massive integrity in their dealings with me and those who they speak to – who like me are finding ourselves awestruck by their competence.

And I am amazed by the hostility of financial advisers not just to annuities, but to me promoting annuity solutions  in the Times and through this blog.

Why don’t financial advisers like annuities?

I was an IFA and I know why I didn’t like annuities- I felt deeply out of my depth arranging them. Indeed, when I started selling insurance with Hambro Life I was required to pass all annuity requirements to a specialist broker because I didn’t have the capacity to do a decent job for the customer.

Back in the day when everyone had to buy an annuity from their 226 or personal pension many people had guaranteed annuity rates, enhanced annuities were a twinkle in the underwriter’s eye and the open market was in practice restricted to those annuity providers with the best expense accounts.

For this reason, the behaviour of Standard Life (and the Prudential) is part of an ignoble tradition and most IFAs think that annuity brokers are no better than the cowboys at the insurance companies.

 

So IFAs feel out of their depth selling annuities, are worried that annuity salesmen are cowboys and thirdly they feel they hold the keys to unlocking retirement income through drawdown.

I hate to say it, but IFAs have got annuities all wrong

IFAs can use annuities as part of their retirement income portfolios without having to be experts in execution

There are some great annuity brokers in the UK but they don’t tend to be IFAs.

Annuities are brilliant as part of a retirement solution – as I talked about in a recent blog.

Will we ever have to buy an annuity again?

There’s been a lot of talk about the decline in annuity sales. I’m hoping that what we are seeing is an end to the poor practices we’ve seen in the past from the likes of Standard Life and the Prudential.

In my experience, the annuity broking market in the UK is one of the most competent I have come accross and firms like Retirement Line and Hub are setting standards other aspire to. This is reflected in customer Trust Pilot ratings.

Infact annuity sales are holding up remarkably well. If you exclude from new drawdown numbers the drawdown cases where all that is taken is tax-free cash (zero income) you can see that the numbers of people buying annuities is not appreciably less than the number of people “in” drawdown

Screenshot 2019-08-31 at 20.38.40.png

But only a tiny part of the annuity sales are through IFAs while the vast majority of proper drawdown sales are through IFAS.

Foot Ansty are telling IFAs to take control of the annuity space but they are wrong.

IFAs are neither competent to broke annuities , nor do they have the capacity to. They can however see where an annuity is appropriate and should be referring annuity business to firms like Retirement Line and Hub who know what they’re doing.

George Osborne was wrong but he was nearly right. Here’s what he should have said

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Posted in advice gap, age wage, annuity, pensions | Tagged , , , , , | 7 Comments

What price certainty? (Boring blog on annuities and drawdown)

Posted on August 31, 2019 by henry tapper
price of certainty.jpeg

In financial matters, certainty comes at a price. Is it a price that I’m prepared to pay?

I’ve been putting myself in the shoes of a friend who is around the same age as me (57) and is hoping to put his feet up and quite literally STOP WORKING. Knowing this person, not working will mean working as hard as ever but she does not want to have to charge others for what she likes to do for free and besides she has a healthy financial outlook.

She’s married to a man who is independently wealthy and she’s worked for most of her life in a job which was pensions. She has what she feels is the certainty of a defined benefit pension of £22,400 today or £32,000 if she waits for it to start till she is 62 and she has around £186,000 in a personal pension.

Shocked by the actuarial reduction!

Although the actuarial reduction on her DB plan is only 5% pa, my friend considers this a rip off! I’ve explained that her £22,400 could be revalued up towards £32,000 if there is plenty of inflation in the next five years, she’s having none of that “if”! She wants the certainty of a pension for life and has worked out that she’s likely to live a long time. So she has dismissed the idea of taking her actuarially reduced pension today.

I’m not sure she’s right but she is taking a view on her durability and as she pointed out to me “I need a financial incentive to stay on the planet – my pension is the only one I’ll have!”

Bridging the pension gap

The problem with waiting till she’s 62 is bridging the gap between now and then. She asked me whether she could get a certain pension just for those five years and I asked my helpful friends at Retirement Line.

If she wants a certain pension these are her options.

Tax Free Cash £46,500   Fund Value – £139,500   
TermIncomeGuaranteed    Maturity Amount
8 years (to age 65)£18,058.44 pa£0
13 years (to age 70)£11,543.52 pa£0
18 years (to age 75)£8,846.16 PA£0
5 Years (if he waits to age 62)£22,500£29,529.00
5 Years (if he waits to age 62)£28,141.44£0
   
   
   
FV – £186,000  
TermIncomeGMA
8 years (to age 65)£24,171.36£0
13 years (to age 70)£15,446.88£0
18 years (to age 75)£11,840.52£0
5 Years (if he waits to age 62)£22,500£78,372.00
5 Years (if he waits to age 62)£37,643.04£0

We’ve discussed all the greyed out options which have been discarded. What my friend is interested in is that she can have an income of getting on for £38,000 pa certain or just over £28,000 with the flexibility to dive into £46,500 for special purposes.

What appeals to her about a fixed term annuity (which I’ve told her will earn Retirement Line £1,500)  is that she will get a monthly deposit in her bank account and that she can get on doing what she wants to do knowing that she is independent of her husband’s income. These simple emotional pleasures mean a lot to her

The opportunity cost of certainty

We have also looked at two types of income drawdown, one would involve investing all her £186,000 and taking an income. Here she can take advantage of a tax break from UFLMPS which she really likes (she refers to UFLMPS as FLUMPS).

Under FLUMPS she can set an income level for herself and have it paid to her 75% taxed and 25% tax-free, I’ve explained she’s taking her tax-free cash as she goes along.

I’ve explained that even if she put all her money in cash , she is more likely (even with added charges) to do better than with a fixed annuity for the whole sum (the £37,600 one).  This is just down to tax.

We’ve discussed how much risk she’d be happy to dial-up to get herself more income and the answer’s “not much!”.

So for her, the opportunity cost of certainty is not very high at all and she’s now weighing up whether she wants her tax free cash up front and a fixed term annuity of £28,141 or an UFLMS drawdown with money held in income paying deposits.

Benchmarking against certainty

I’m not a financial planner, I’m certainly not an investment expert and the lady will – if she goes the UFLMPS route, implement with the help of a financial adviser. Retirement Line will implement if she buys an annuity and they’ve been upfront with my friend that the £1500 commission will only be paid on execution of her annuity – there will be no fees for the help we’ve got from them.

We’ve put together a simple spreadsheet which allows her to work out how much income she could drawdown ( net and gross) and we’ve factored in the extra costs of product and advice (which are integrated in the annuity rate).

See you in five years time!

I’ll leave her to decision. I’ve told her to come back and talk to me in five years time about how much of the tax-free cash she needs to take from her final salary pension . That £32,500 comes with a big fat tax-free- cash sum of £215,000.

Having objected to her actuarial early retirement factors, she may well choke at the conversion factors on her tax-free cash. When she compares the cost of buying an annuity with the lost pension from taking cash, I suspect she’s going to think twice of taking the cash (tax-free or not).

And of course – there’s also the little issue of valuing her pension for the purposes of the lifetime allowance – but that’s the least of my friend’s worries!

The value of using the risk free pension rate.

I’m getting used to getting my friends at Retirement Line to give me quotes. They are happy doing this work – I tell them they’ll get a thank you on this blog – and this is it!

If we don’t know what certainty we can purchase with our money, how can we measure the risk and reward of moving away from that benchmark?

I think that an absolute pre-requisite in terms of financial decision making but I wonder how many people have entered into drawdown arrangements without ever having looked at the annuity alternative?

I also wonder how many people have taken their tax-free cash and are sitting on the remainder of their pension pot wondering what do do next. These are the people who should be phoning up Retirement Line – not just me!

And of course , this risk free pension rating service can be used for more than quotes. Retirement Line tell me well over half the annuities they set up get an enhanced rate from one of the1500 factors that make us less than perfect – in terms of our life-expectancy.

Screenshot 2019-08-31 at 08.18.13
Posted in advice gap, age wage, pensions | Tagged , , , , , | 2 Comments

Dashboard? – we’re dash-less and bored!

Posted on August 30, 2019 by henry tapper

open .png

What the public want

 

The title was my summation of a discussion of dashboard progress over the past four years.

We’d been talking about what the general public want and had landed on precisely the model illustrated at the top of the blog.

It came at the end of a workshop on how we will get people to manage their later finances last night.

If I had three topics I would not want to discuss at a workshop right now they would be (in no particular order)

  1. HS2
  2. BREXIT
  3. Pension Dashboard

But as I can’t do anything about numbers 1 and 2, I’ll confine by comments to this dash-less,  dash-bored.

Becalmed

The chief achievement of the ever-listening MAPS this year, seems to have been semantic. We will not have a “non-commercial dashboard”, ladies and gentleman, we will have instead a “MAPS dashboard”.

Where this means that MAPS are thinking commercially I doubt. Right now they seem to be spending their time looking for a new CEO. Since inception, MAPS have been in listening mode which means they haven’t been doing much.

Angela Pober has been brought in  to head the Industry Delivery Group (IDG).

Cap Gemini has been brought in to produce the business plan

and

Chris Curry has been brought in (for two days a week) to be the IDB principal.

At each gently puff of wind, Anthony Rafferty and Origo have tried to excite us that we are seeing a change in the weather, but it is hard to see the Pensions Dashboard as anything but becalmed. 

There is no-one at MAPS who appears to be at the wheel – becalmed and moored.

Where is the impetus to come from?

Anthony Rafferty, Origo’s CEO has sent me the Q&A Origo produced this time last year , with the following conclusions.

1. The Pensions Dashboard Architecture IS Open Pensions; 
2. There is a significant opportunity to learn from the Open Banking approach to governance and some of the technology approach; 
3. A foundation of Open Banking would not work for the pensions industry due to the differing characteristics we have in terms of scale, complexity, cost-control and consumer experience; 
4. The UK Pensions Dashboard initiative is one of enormous ambition and has a real social purpose. We really do need to get the architecture right and make sure it is fit for purpose. With appropriate governance, we can then increment the data architecture to meet emerging requirements for Open Pensions as and when they occur; 
5. Open Banking will be interested in the Pensions Dashboard architecture as this evolves and is finalised. The use of a federated digital identity scheme and the techniques to enable secure attribute sharing to allow the consumer to control who has access to their data will be particularly relevant; 
6. Under an appropriate governance regime, the proposed Pensions Dashboard architecture will support an innovative Open Pensions landscape where the consumer is at the heart of the solution and their privacy and consent central to the design. This will eventually enable an Open Pensions architecture that is more sophisticated than currently exists for Open Banking;

 

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So where is the delivery?

What started simple ends complex

If you read Origo’s 6 statements you move from 1 Simple to 6 Complex – just look at the length of the text. It’s always like that with the Pensions Dashboard. If it could just focus on getting a quick start, we could get on with things, but oh no! We need a huge complex machine with enough governance to sink a battleship.

Those I know , who sit on the FCA’s Open Pensions Group agrees that the Origo is best placed to deliver a pension finder service (a simple first step) but that Origo’s Hub approach is no replacement for the point to point interactivity found in open banking (what follows).

So people like Romi Savova of Pension Bee do not confuse Open Pensions with Origo’s approach to the pensions dashboard.

What Origo is building is infrastructure for a Government led project. What Open Banking standards delivered released banks to build a web of connectivity that avoided the delays we are seeing happening at the Pension Dashboard. The Origo Hub demands an Industry Delivery Group, Open Banking was based on a simple set of rules or standards – agreed through the CMA- that has enabled FinTechs to get on with it.

So long as we keep building infrastructure and focussing on governance, we will see the Pensions Dashboard becalmed and moored in the same place it was three years ago

 

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The Proof of Concept moored and becalmed since September  14th 2016

 

It looks clunk and it is clunky. It arrived on 14th September 2016 and has sat there ever since, an unchallenged model – at least by those who control the dashboard’s delivery.

The #TellRick initiative – now three years old – did not catch on. Why should it – Sid’s well retired by now!

The Open Banking Implementation Entity

While the Data Feed Engine has been becalmed and moored for 3 years, open banking has happened.

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Look at the last item in the bottom right hand corner – Nesta’s Open Up challenge. My FinTech was asked to join that challenge, we couldn’t because though on every one of the challenge metrics we would have been approved, because we worked with pensions data rather than banking data – we had to exclude ourselves.

The OBIE has done for banking what the Treasury envisioned for pensions back in 2016.

open

What open banking’s given us

  1. It’s put consumers in control of their finances
  2. It has been secure
  3. Our banking transactions , costs and charges are now obvious to us
  4. We see things in real time
  5. At the heart of it all – we’ve come to trust our banks a little bit more,

Read again the 6 reasons why pensions refuse to adopt the simple principles of open banking.

The pensions industry said it couldn’t be done, the CMA and the banking industry did it.

Posted in age wage, Bankers, customer service, Dashboard, dc pensions, pensions | Tagged , , , , , | 4 Comments

Why do DB transfer values make me sick?

Posted on August 29, 2019 by henry tapper

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One of the things ordinary people find hardest to work out is why their share of a defined benefit scheme can go up when stock markets go down. This happened last month where the stock market fell.

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FTSE100 in August 2019

But in August, the 10 year Government Bond yield fell yet again

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10 year bond yield (FT)

Most people understand a transfer value to be a “share of the fund” and most people think that pension funds invest in company’s shares. Both thoughts are a little askew.

Firstly , defined benefit pension funds do not pay out a share of the fund, they pay the estimated cost of meeting the promise made to you, based on the actuary’s estimate of the liability (your pension) and of the cost to the fund to pay it.

Most pension funds are now largely invested in “risk-free investments “, by “risk-free” experts mean investments which aren’t impacted by market conditions – in terms of meeting liabilities, pensions funds regard an investment in Government Bonds as risk free.

So a stock market in free-fall no longer impacts pension funds that much. Our transfer values are immune from crashes in equities. Infact transfer values can benefit from market crashes – as money is swiped into gilts, pushing down gilt yields and increasing the price at which gilts need be purchased.

The transfer value represents the amount of cash that would be needed to pay the pension (it’s often called the cash-equivalent transfer value) and when gilt yields fall, the amount of cash needed to pay the pension rises. That’s because the gilts which are yielding less are more expensive to buy.

I know it sounds crazy, but last month your DC pension probably dumped in value but (if you had one) , your DB pension went up (in terms of its transfer value).

Does this make sense?

We are in a world of extremes. Politically we are in the middle of a trade war between the USA and China and a political struggle between Britain and Europe. These big (macro) events are know as “geo-political” tensions and they cause markets to put tin-hats on. Shares are sold off and money invested in risk-free assets, markets seek the strongest currencies (the pound is not one of them) and the fundamental state of economies is ignored for fear of how these economies will change if things go badly wrong.

Does this make sense? Markets are a law unto themselves, they cannot be controlled by central bankers and politicians, though such people’s actions can influence markets in the short term.

In short, you are – in terms of your pensions, in the hands of irrational forces that defy your prediction.

People who were advised last year to transfer may now be wishing they’d hung on a year. Over the past year, the FTSE 100 has fallen 6% , but according to pension consultancy XPS

The continuing fall in gilt yields has pushed transfer values to new record highs, around 10% higher than they were this time last year. Although there is a lot of uncertainty around the future of the financial markets, an increase in transfer values will mean we are likely to see a lot of members investigating their options.

Why do I feel a little queasy?

I feel a little sick of speculation about DB transfer values; I’m not the only one. Recent FCA papers warn that many transfers are wrongly advised, there is insufficient reason for people to be transferring to warrant the loss of guarantees inherent in the pension given up.

And yet there is still a view among those who advise pension fund that the payment of transfer values actually helps a pension scheme. There is something in that final sentence that makes me feel sick

…we are likely to see a lot of members investigating their options.

I am not in any way accusing the statement’s author , XPS’ Mark Barlow of encouraging transfers, but anyone who has read this article will realise that the temptation to go for a transfer today is higher than it’s ever been – transfer values are at record levels.

The reason for these high values is – as Barlow also says, because scheme liabilities are valued using the return expected from the scheme’s fund and that return trends towards the return (or yield) on Government Bonds (gilts).

This is an entirely artificial situation, created by the mania to match liabilities with risk-free assets. It is the by-product of financial economics which uses theory and ignores practice. The theory is that schemes dump risk, the practice is that risk is dumped on members. That is why I feel queasy.

Enhancing Transfer Values with no capacity to transfer

And the worst of it is this. If you do as a DB member with a CETV, investigate the option to transfer, you will find it increasingly hard to get financial advice.

Financial advisers who can give advice on transfers (about one in three regulated) are often subject to quotas imposed by Professional Indemnity Insurers, many firms with capacity to advise have withdrawn from doing so and some firms have been stopped from doing so by the FCA.

The member tempted to investigate options is now facing a frustrating task. Though he and she may see good news in the CETV increase, they may face more obstacles than ever in taking money.

For the first time, I sense that actuaries are waking up to the consequences of the de-risking they have watched happen (and often advised to happen). Mark Barlow’s statement this month ends

“Trustees and sponsors should ensure that members considering long term irreversible decisions are being provided with sufficient education and support to enable them to make the right decision for their circumstances and financial futures. We would also recommend schemes consider how the substantial changes in market conditions have affected the funding strategy and whether, in light of this, the transfer value basis remains appropriate.”

This is a coded way of saying that the consequences of de-risking may not be as great as we thought. That pension schemes have a social purpose and that at the moment, the way they offer transfer values is causing moral hazard – it’s encouraging the very behaviours that the FCA are trying to prevent.

Actuaries only follow rules when they increase transfer values at times like this, but the transfer value basis – fair as it seems to actuaries – may not be fair to members. Dangling carrots and then locking the carrot away, is no way of managing people’s retirement planning.

An awkward state of affairs.

I think the current state of affairs is best described as awkward. There is no easy way to talk to members about what to do. The head says sieze the opportunity – but the heart says stay where you are. The head says use the contingent charge, but the heart says, enjoy your pension. I could easily turn these formulations round, for some the heart yearns for freedom and the head says no.

And for those who took transfers – the £60bn of us, between 2016 and today, those transfer payments may not be looking quite as healthy as we they did earlier this summer.

Screenshot 2019-08-29 at 05.58.48

How resilient do we feel looking at this chart?

I feel queasy, I feel awkward, so I think does Mark Barlow and so do many actuaries who value pension schemes.

The question is just how sick do you have to feel, before you get off the boat.

Posted in actuaries, advice gap, BSPS, FCA, pensions | Tagged , , , , , , , | 8 Comments

Bank of Mum and Dad now a top 10 mortgage lender?

Posted on August 27, 2019 by henry tapper

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This bold claim is made on behalf of Mums and Dads throughout the land by Legal and General and the Centre for Economic and Business Research (CEBR)

New data also shows that many people could be accepting a more uncertain retirement after financially supporting family members to buy a home. These latest findings follow earlier research from Legal & General which showed that this year the average BoMaD contribution has risen by more than £6,000, to £24,100.

The rise means that the Bank of Mum and Dad is now the equivalent of a top 10 UK mortgage lender, gifting a total of £6.3bn in 2019. Equivalent because lending and gifting aren’t quite the same thing!

I’m going to be on BBC Radio this morning debating with Iona Bain whether this is fake news or whether L&G have discovered what every Mum and Dad knows, that when it comes to our kids – financial judgement flies out of the window!

BoMaD  bonkers!

If we are to measure the Bank of Mum and Dad by any normal standards, then it is a bonkers institution. Nearly a fifth of over-55s (19%) are  gifting money because they feel they have a responsibility to help. But 26% of BoMaD lenders are not confident they have enough money to last their retirement after providing support

Despite this, BoMaD lenders are increasingly using equity release to help family with deposits and fund retirement

Thousands of over-55s are generously gifting money as part of the Bank of Mum and Dad (BoMaD), using savings and even pensions to help their family onto the housing ladder

Apparently this  new research shows that when it comes to gifting money, the Bank of Mum and Dad is drawing on a wide range of sources to financially support other family members with a deposit.

Although more than half are using cash (53%), 9% are cashing in lump sums from their pension savings, 7% are using their pension drawdown and 6% are drawing on their annuity income to help support their loved ones’ homeownership ambitions.

But despite this generosity, digging ever deeper into their retirement savings is leading some over-55s into a more uncertain retirement.

Over a quarter (26%) of BoMaD lenders are not confident they have enough money to last retirement after helping their loved ones and 15% have had to accept a lower standard of living. A small number (6%) are even choosing to postpone their retirement.

If BoMaD had been regulated by the Prudential Regulatory Authority, it would have been closed down long ago! BoMaD is a bonkers lending institution!

It’s all about the boomer’s obsession with property

The research apparently shows that parents and grandparents across the UK are overwhelmingly in favour of supporting their loved ones to buy a home.

More than half (56%) of BoMaD lenders who have or would consider helping family to purchase property said they are willing to because ‘it was a nice thing to do’. Almost another fifth (19%) said they feel it’s their personal responsibility to help out.

Bottom line, we are passing on to a next generation , our obsession with home ownership. Whether the decades-long boom in property prices will continue for generations to come is an open-question.  The assumption is that it will and any such assumption is dangerous.

I think a much stronger driver among our kids is  the state of Britain’s rental market which is at best shabby and at worst so set against the tenant as to make property ownership a must win. The comments about personal responsibility may be born out of guilt as well as parental love!

And here comes the advert

Currently equity release is some way down the pecking order for boomers. The “research” suggests that this is changing. The sceptic in me thinks that this may be where research turns into advertorial!

However, the Bank of Mum and Dad research has also revealed that consumers are increasingly considering other solutions that can help them to support family members but also pay for the retirement they want to lead.

Unlocking housing wealth with equity release is becoming more popular with the over-55s and many are now using the money to help with a deposit.

16% of BoMaD lenders have or would release equity and use that money to financially support their children or grandchildren. This makes it the third most popular source of funds for the Bank of Mum and Dad.

But BoMaD lenders are using these funds to help with their own retirement ambitions too.

More than a quarter (26%) would or have used their housing wealth to fund home renovations and nearly three in every five (58%) parents and grandparents are using it to free up cash to stay in their own home. Across the over-55s surveyed who haven’t released property equity already, well over a quarter (29%) said they would consider drawing equity from their home with a lifetime mortgage.

The real lender is not BoMaD but Legal and General 

Chris Knight, Chief Executive, Legal & General Retail Retirement said:

“There are a vast range of considerations today’s retirees face when it comes to planning their finances, from whether they can afford to help their children buy a home, to setting aside funds for any future care needs they may have. Parents and grandparents across the UK want to see their loved ones settled in homes of their own and are giving generously as part of the Bank of Mum and Dad. Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement, especially if they don’t get the right advice.

With these pressures, it makes sense that the financial services industry should help provide solutions to suit a range of circumstances.

Housing wealth has the potential to play a hugely transformative role for both Britain’s retirees and the next generation of homeowners. There is around £1 trillion of property equity owned by the over-55s. Not only could this wealth be transferred across the generations to provide a ‘living inheritance’ for children, but it could also give many retirees the financial freedom they need to enjoy the colourful retirement they really want.”

And if you want to buy a sausage with your bricks – seek professional advice

As usual the message is mixed.  We can borrow from ourselves, but we should do so with expert help. L&G is already protecting itself from the next potential mis-selling boom. As with pension transfers, financial advisers are being used as a “litigatory condom”.

While the Bank of Mum and Dad plays a positive role in helping thousands of people onto the housing ladder, Legal & General also wants to encourage more over-55s to seek professional advice before using their retirement savings to help loved ones. This year’s research shows the situation is improving.

Last year, just 12% of BoMaD lenders said they had sought professional advice from a mortgage broker, while nearly a third (31%) this year had or would seek advice. However, nearly half of all BoMaD lenders (44%) still hadn’t taken (or would not take) any advice at all before gifting money.

Legal & General believes that by supporting more consumers to take advice, they will be in a much better position to make informed decisions about their retirement income and financially supporting the homeownership ambitions of their family.

“The litigation condom”

As usual, it is ultimately our fault if we buy equity release products without paying an adviser to take the blame

“Thousands are still dependant on the Bank of Mum and Dad to take their first or next step on Britain’s housing ladder. The generosity of parents and grandparents is inspiring, but many are making big financial decisions without adequate planning or professional advice.

Legal and General finish with a message to the Equity Release Council, the Council of Mortgage Lenders and presumably the FCA

As an industry, it is crucial that we provide the products and solutions people need in later life, as well as encourage them to seek the support of advisers who can help them navigate this increasingly complex landscape.

I think this is fair enough, advisers are critical to managing the complexity that the pension industry has created.

But in this bonkers world where we cannot take simple decisions like gifting money to our kids without “taking professional advice”, haven’t we lost the plot?

Should it really be that hard for ordinary people to pass the keys to the kids, or the kids to look after their parents in later life?

I expect there are many families, particularly those with strong links to family systems that originate from countries without the welfare backstops we have in Britain, for whom the litigation condom is entirely irrelevent.

They will bypass the need for financial intermediation and the need for complex financial products such as equity release (and pensions)/

For many ordinary people, being a Mum and Dad is about creating the inter-generational solidarity that allows families to by-pass the financial services industry and remain self-reliant.

Ultimately we don’t need a Bank of Mum and Dad, we are all  Mums and Dads!

Posted in advice gap, age wage, pensions | 4 Comments

Stoking it up on the river

Posted on August 26, 2019 by henry tapper

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The heat was intense but there was enough wind from the passing of the boat to keep the guests.

 

The plugs were in as we sailed along, Ben Stokes and Jack Leitch were pulling British cricket back to a high we hadn’t experienced since – last month’s world cup final.

The boat passed smoothly through Hurley lock, Hambledon Lock, Marsh Lock and Shiplake Lock and into the weir pool at Sonning where (as usual) we didn’t spot Goerge Clooney.

We lunched on the bank at Shiplake and very wonderful the lunch was. Home made Falafels and Bhajis, crisp salads, Pimms and juices.

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Thanks to Rai and apologies to Raj and his party. We had a double booking.

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

Why does product bias exist among advisers?

Posted on August 25, 2019 by henry tapper

Paul bradshaw.jpeg

One of the dilemmas that IFAs face is that they need to get paid for what they do. If all they had to do was act in their client’s best interest – “put the customer first”, they would advise pro bono. But advisers have to be paid and how they are paid becomes part of the advisory process.

I am well aware that some advisers charge fees directly to the client, and some take their fees from the products they advise on (provided the product provides the option to pay the IFA that way).

Here is where the problems start. Some products do not pay advisers and some don’t. In the world of master trusts Salvus MasterTrust does, People’s, NOW and NEST don’t. Royal London, Aviva and L&G all run workplace GPPs that pay adviser fees.

Are we to criticise the IFA for choosing to use workplace pensions that pay them or are we to criticise those workplace pensions that don’t offer a facility for the adviser to get paid?

It seems to me that there is a cost for the provider in offering this facility that can only be justified internally as a distribution cost. NEST does not get much advised business because it does not pay advisers. The cost of administering Royal London’s adviser charge is justified because Royal London get a huge amount of IFA introduced business.

How isn’t this product bias?

So why does product bias exist?

Firstly because of customer behaviours. People are not inclined to pay IFAs out of their own pockets. Since Mark Weinberg opened Abbey Life in 1972 people have been paying advisers for the advice they buy out of the product.  This form of payment is now in the adviser’s and customer’s DNA – it is what we do. We do not write cheques to IFAs.

The reason for the product paying is that it is a whole lot easier. It is easier for an insurance company to pay commissions (or today the adviser charge) than for an IFA to collect the money – there is minimal credit risk (so long as the agreement is properly structured) and IFAs are relived of the onerous task of managing an aged debtors list.

It is also a whole lot easier to pay fees without VAT being added. Private individuals have got used to paying for advice without VAT – because it relates to an insurance product. Since VAT is irrecoverable by an individual, the creation of a VAT invoice by an IFA is effectively 25% more expensive to pay.

I accept that an invoice can be raised without a demand for VAT – but this is only where there is no clear link to the execution to an insurance or investment product – for instance a cashflow forecast, taxation advice is vat-able. This is why providers are always biased towards the execution of a vat-able service, it reduces the advisory bill by 25%.

Finally, is it a whole lot easier to pay for something out of a tax free pot. Adviser fees paid out of a pension pot are effectively EEE – that is the contributions are Exempt, they’ve grown in a tax-Exempt fund and there is no tax to the client when the payment leaves their pension account – the third Exemption

The VAT invoice on the other hand is paid for out of taxed money, money that sits in the client’s bank account.

I am not blaming the IFA for using the most effecient way fora client to get paid. But if the FCA think that the RDR has abolished product bias, then they must think again. The IFA solution set is partially defined by the means of payment offered by providers.

All that adviser fees are – that commission isn’t – is more transparent. The client signs a form to allow the fee to be paid, but if the form isn’t signed , the execution of the advised strategy is not completed. There is no win to the client in not signing the form, no way of cheating the IFA out of a commission other than finding a way to execute only  or at a reduced fee with another IFA.

I do not hear this as a problem for IFAs, IFAs might as well be being paid a commission, for the little pushback on adviser charges.

Introducer fees

Getting paid for financial advice is a matter for regulated advisers, but you can get paid for referring people to financial advisers, annuity brokers and certain products.

Introductory fees are available on all kinds of regulated products including annuities,  equity release, certain protection products and SIPPs.

These fees are paid to unregulated introducers as well as regulated advisers. They are typically business to business fees so VAT is recoverable and the fees are subject to corporation – not income tax,

These introductory fees inevitably reduce the capacity of individuals to negotiate fees downward but the organisations who pay them, typically offer non-negotiable charging structures so there is no question of dual pricing. There is not what the Americans call a “load- no load” dilemma where the no-load product is cheaper because it was purchased directly (rather than through an intermediary).

Value for money on fees

Unfortunately I have concluded that the worst value for money for the consumer is to pay fees directly to IFAs. To the consumer the commission or advisory fee is better.

This means that NEST and other master trusts that do not offer adviser fees are excluding themselves from the workplace market. We found in Port Talbot that even though an adviser could get paid by Aviva for transferring money into the Tata Workplace Pension, there were much greater rewards for transferring into other pots where ongoing fees could be taken from the fund both for advice and for managing the money.

This product bias is explicitly mentioned in the FCA’s recent consultation on contingent charging (CP19/25) and has been brought up in other investigations by the Work and Pensions Select Committee – most noticeably on Transparency.

So long as advisers can show that their fees are offering better value for money when charged contingent on the product provider paying them out of a fund, then provider bias will persist.

As for introductory fees, comparison websites are quite explicit. They will show – albeit greyed out- the providers that do not pay introductory fees and people still use their introductions to get the best product that the website can get paid on.

I do not think this is necessarily value for money from the price comparison website, but I know why I buy that way, it’s because it’s easier to do , and in certain situations , I will pay extra for convenience and good service. Buying a protection policy online (for instance) can be anything from a nightmare to a pleasure.

My general rule is that cutting out the middle man is generally a good thing, Middle men need to demonstrate they are value for money and worth the additional cost of using them. Most middle men rely on inertia rather than good service but this is not always the case.

Why does product bias exist?

Advisers and introducers are biased to products that suit their commercial model. The B2B model used by advisers selling to corporations has different dynamics in terms of  buying practices than the retail model used by IFAs.

These differences are typically created by the complexities of the tax system which drives buying behaviours. To some extent it is down to ways we treat our own and other people’s (shareholders) money. We purchase in an emotional way and are subject to our own behavioural bias’ which widen the divisions between retail and individual.

So product bias is integrated into the advisory process and no amount of legislation on advisers can eliminate it. There would have to be a wholesale reform of the taxation system and a requirement on those advised to pay the fees separately from the product for this to happen.

The call for a ban on contingent charging for DB transfers (where there is clear evidence of product bias) is necessary to protect vulnerable people from making bad financial decisions on the income they’ll relay on for the rest of their lives. It is a special case because of the clear damage that is being done to people’s financial prospects.

But it is only the beginning of a wider argument on product bias (and it will be an argument and not a conversation). We have to work out whether we want independent advice or restricted advice and so long as we are prepared to accept the current product bias, most IFAs must accept that they aren’t really independent – but restricted advisers.

Whole of Market?

Paul Bradshaw once challenged me to give an instance of whole of market advice. I spent many months trying to do so but I never did. I never got the lunch he promised me for showing him advice that was truly independent. I had forgotten one thing, for advice to be truly independent – the adviser cannot be paid!

Lady lucy bank h 076

Thanks to this swan – and the Kingfisher which evaded my camera this morning

Posted in advice gap, age wage, pensions | 12 Comments

When naming and shaming had to stop

Posted on August 23, 2019 by henry tapper

name and shame

It now is clear there are not one but two firms that have been hit with a  £350,000 fine through escalating penalties from the Pensions Regulator and both relate to the non-payment of monies into staff pension accounts. These are breaches of auto-enrolment regulations, basically fines relating to payroll practice and the illegal retention of deferred wages. In one instance we know the fine resulted from an attempted theft from staff of £100,000.

In the past, employers like Dunelm and Swindon Town FC, who flouted the rules were named and shamed, but that has now stopped.

The question of naming and shaming is contentious and was picked up in an FT article from Jo Cumbo

“Maintaining a shroud of secrecy around one firm which has been fined while naming and shaming others doesn’t really make sense,” said Tom Selby, senior analyst with AJ Bell, an investment platform. “Ultimately the firm will have to file accounts with Companies House and so, one way or another, this information will become public.”

This is true and no doubt the executive of the employer (with over 2000 staff), knows that their anonymity is temporary. The regulator said it did not consider it “appropriate or proportionate” to name the business, clearly it feels it is in the interests of staff not to be transparent at this time.

Protecting confidence

This may be one of those rare cases, where transparency needs to be tempered with pragmatism. What amounted to  attempted theft of staff pension contributions seems to have arisen from incompetence rather than criminal intent and the remedy put in place may already have resulted in the incompetents being sacked and a new regime arriving – intent on restoring confidence in pensions.

If this is the case, then some time to restore order is sensible. We have to question how much of all this, the impacted staff know, and whether they have been properly compensated for any losses incurred in the late payment of contributions.

But with those who staff who’ve been impacted, having access to their contribution records, it seems unlikely that they don’t know what’s gone on. That we know nothing from them, suggests that sleeping dogs are best left to lie.

name and shame 2

The worry of AE compliance

TPR also report that between April and June this year tPR issued 23,000 fines and that from the spot checks it has been running, 75% of the companies investigated had AE breaches.

There are around 1.4 million employers in the UK who have auto-enrolled staff but if the quarterly run rate is creeping towards 25,000, then this suggests we may be seeing 1 in 10 companies in line for a fine.

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Source- tPR compliance and enforcement – April-June 2019

The shift in tPR’s position is clear, we are moving from education to enforcement, the trend in non-compliance is clearly up and we are going to have to keep a keen eye on these quarterly bulletins.

The worry of AE compliance is that the public loses confidence in pensions through non-compliance over the payment of contributions. The employer is key to keeping AE on the road which may explain the less aggressive approach being taken in the two instances at the top of this blog.

When naming and shaming has to stop

With 23,000 employers in breach last quarter and over 300,000 having been issued some kind of compliance notice, the list of those potentially in breach would be a long one.

Naming and shaming the 24,000 employers who have been issued escalating penalty notices is no longer practical. There are some flagrant abusers who are still named and shamed (Dunnes Stores), but for the most part – the penalties paid by employers are now part of business as usual.

It seems that a fair war-chest is being built up in Her Majesty’s Treasury from all these fines. Perhaps they might consider returning money to Napier House, tPR’s Brighton HQ.

Now may be a good time to use that money to good effect. An analysis of the detriment created by the 300,000+ breaches to date should result in a better understanding of when employees are being short-paid and when the breach is of a technical nature with little harm to staff pension contributions.

This analysis should lead to the isolation of breaches which have no material impact and recommendations to amend secondary legislation to cut these breaches out.

We know that AE compliance is complex, we have known from the start. But AE has worked despite of the complexity. That AE is working doesn’t mean that it can’t be improved and the cost of tPR’s compliance and enforcement looks considerable.

TPR are being pragmatic in not naming and shaming employers in serious breach where anonymity is best preserved. Let’s hope that that pragmatism is evident throughout the compliance regime so that we can see the number of breaches falling.

If 75% of spot checks result in the identification of a breach, it may not be employers who are at fault – so much as the rules.

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

Value for money? Let the saver decide

Posted on August 21, 2019 by henry tapper

 

Earlier this year AgeWage ran a series of snap polls which proved popular enough!

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We have spent the past six months asking people what they want to know about their workplace pensions and they tell us that once they’ve found them and found out what they’re worth, what they want to know is whether they’ve had value for their money. This blog looks at how the value for money assessment has evolved since the OFT demanded IGCs be set up to tell people the VFM they were getting.

It’s not gone well has it?

People outside of pensions think that people in pensions are making a meal of value for money.

If you look at the various definitions of value for money or “moneys worth” used in this blog- you’ll see they are very simple – and can be universally applied.

If you look around the practical ways value for money is assessed, you find examples which simplify complicated things into formulae that people understand.

This is what’s behind Frank Field’s frustration when he complains in a recent paper on transparency that

We repeatedly heard in evidence that there is no clear definition of what good value for money means for pension schemes. Perceptions of value for money will vary depending on the perspective being considered and attitudes to risk, return, costs and other factors

He ends up calling for an

“agreed definition of what is meant by value for money in the pensions industry. Although individual schemes will need to vary their value for money goals, without agreed definitions it is not possible to make effective comparisons”.

In practical terms he questions whether what we do at the moment works and he calls for an immediate review of Value For Money practices

The review should assess whether or not this requirement leads to better scheme focus on achieving value for money and better communication to scheme members about value for money.

So let’s look at how VFM is being used elsewhere. I’ve been looking around and the first thing I’ve notices is that…

VFM is a lot simpler than pension people think

The way that people estimate value for money is by a simple analysis of inputs and outputs. Take football, you want to know who is delivering value for money, take goals v salary

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Actually, best value for money last season came from two south coast heroes, Callum Wilson – who’s goals cost Bournemouth around £148,000 and Brighton’s Glenn Murray who only cost £122,000 a goal.

Purists may point to a host of other factors, but this is what matters for Talksport listeners……..

Now let’s move on to how Government does Value For Money assessments for what it buys

Government procurement may look complicated

Comparing outputs and inputs

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But in practice, it’s very simple.

A local authority sets up a new programme to reduce litter dropping. One of its early steps is to agree with stakeholders a set of outcomes for the programme. The effectiveness of the programme is to be judged on the extent to which it reaches its outcomes in a year.

In this case, the programme achieves 97% of its outcomes and councillors declare they have ‘come within a whisker of winning the battle against litter’. The programme was effective.

However, the programme cost more than expected and overspent its budget by 25 per cent. This was because the programme managers allowed costs to over-run in their drive to meet the outcome. The programme was not economical.

The cost over-run prompts a review of the service. This concludes that, outcome for outcome, it was more expensive than similar programmes in neighbouring areas. The programme was not efficient.

If programme objectives had been exceeded sufficiently, the programme may have been cost-effective despite the overspend. However, programme managers could still be criticised for exceeding the budget.

The most disadvantaged parts of the area were also those with the biggest litter problems and these neighbourhoods improved more, from a lower base, than wealthier places. The programme was equitable.

 

So how have pensions people got in such a mess?

The idea of using value for money assessments in pensions to ensure people are protected from rip-offs has been around a long-time. The Stakeholder Price Cap was introduced so that the money we paid for our pension management was capped at 1% of the amount under management. These early price cap set the tone for VFM debating and by the time the Office of Fair Trading reported on rip-off workplace pensions in 2014, this idea for VFM had  already taken root.

Here are some slides delivered by Sandy Trust to the Institute and Faculty of Actuaries.

Sandy starts by saying that VFM is in the eye of the beholder, quoting trip advisor.

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but concludes it can’t be as simple as all that…Screenshot 2019-08-21 at 06.03.59

It is at this point that the member’s view of VFM is replaced by that of various Government organisations (office of Fair Trading, National Audit Office, Financial Conduct Authority and The Pensions Regulator).

The conclusion is that VFM in pensions (especially pension savings schemes) is already out of control, it cannot make its mind up whose perspective it’s measuring, it’s complex , it’s expensive to measure and there is little clarity of approach.

In short it presents an opportunity to actuaries to “help customers and in so doing help themselves”. 

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Sadly value for money has not helped savers – though it is helping actuaries 

We now are in a position that every DC  trust and contract based work place pension must report on value for money in its own way, through the formulae of IGCs, GAAs and Trustees with the help of their advisers – typically the actuaries who sat in the room listening to Sandy.

Far from simplifying pensions , VFM has become one of the most complicated areas of pensions.

  • Some providers use returns based formulae such as CPI +3% (Adopted by the Prudential)
  • Some providers use a balanced scorecard, assessing each aspect of the workplace pension either using numbers or the “red orange green” or RAG rating system.
  • Others seem to have abandoned all objective reasoning and adopted a “let’s give our lot a tick for VFM and go down the pub approach.

It’s time we listened – not to ourselves – not to Government – but to the savers

In 2017, in a rare moment of unity, the heads of the various IGCs clubbed together and got a project underway led by NMG. The report produced what its co-ordinators – Sackers – described as

some interesting and unexpected insights into how members perceive value for money when it comes to pensions.

The overwhelming insight – that dwarfed all others was that for ordinary people

Perceptions of what value for money means focus around ‘good returns’:  In the online survey this was the top rated attribute; the workshops revealed this is much broader than investment returns but is perceived by members as achieving a good outcome at retirement.

This isn’t complicated at all. It goes back to the simple examples we looked at earlier.

  1. Goals for money
  2. Litter for money
  3. Holiday for money

So why not “money for money”? 

What members said they wanted as their VFM measure was very simple. They wanted to know the amount that they got at retirement compared with the amount saved.

The pensions industry has refused to address that simple request

“Value for member”

Instead of a simple way of calculating the amount of money out for the amount of money in , we have decided once again that members cannot have what they want, they must now have a new metric called “value for member”.

This is a clever ruse that perverts the simple idea of “money in – money out” and returns us to an abstruse formula that no”member” or any other kind of saver, will either understand or be interested in. Value for member requires trustees to

assess the extent to which those charges and transaction costs represent good value for members. Trustees are required to detail the level of charges and transaction costs under their scheme and explain the outcome of their good value assessment in a new Chair’s annual governance statement.

We are back in the cul-de-sac we explored earlier with the OFT/NAO/FCA/TPR/IFOA alphabet soup. This time we can add in the PLSA, who in conjunction with the Investment Association have come up with this new way for actuaries and others to make money – at the expense of value for money.

Why we can’t have what savers want?

Savers have had precious little say in what they consider value for money from the pension saving schemes they choose to join or choose not to opt-out of.

Instead of what they want, they get what the OFT/NAO/FCA/TPR/IFOA/PLSA/IA think they want. Which is exactly what the pensions industry wants but nothing to do with what savers said they wanted (when asked).

What savers want is to know how their savings have done. They want an answer that is simple, ideally simple enough to be expressed in a score or ranking.

They want to understand that score or ranking  as how they’ve done relative to the average person and that is all they want.

They do not want a detailed attribution analysis that looks at costs and charges, risk and return, details the quality of comms, at retirement options and a host of other “features” of the pension plan.

They want a simple way of assessing their pension savings and how it’s done.

Why can’t we give them it?

AgeWage evolve 2

 

Posted in pensions | 4 Comments

Judge rules that people matter (shock)

Posted on August 20, 2019 by henry tapper

Adrian is right, Andrew is barking up the wrong tree!

man from pru

The man from the Pru

The issue here is not “what does this mean for the bulk annuity market, but what does this mean for ordinary consumers for whom the question “who pays my pension” is fundamental.

Imagine that you found that you hadn’t got a state pension but a Capita pension. To most people, this would be a downgrade, even if Capita were no more than the administrator and the financial muscle of the State stood behind each payment. This is pretty well the argument that Judge Snowden used for turning down the Pru/Rothesay deal. Here’s the reporting from the FT 

…the judge on Friday blocked the process, known as a Part VII transfer, arguing that Rothesay did not have the same heritage or diversification as the 171-year-old Prudential. Annuities are pension products that often last for decades.

Mr Justice Snowden said that when buying them, customers might have chosen Prudential because of “its age, its established reputation and the financial support which it would be likely to receive from the accumulated resources of the wider Prudential group”.

Rothesay, he said, was “a relatively new entrant without an established reputation in the business”. He added that, although its capital strength was as strong as that of Prudential at the moment, Rothesay “does not have the same capital management policies or backing of a large group with the resources . . . to support a business that carries its name”.

It’s important that the High Court have ruled against the regulators and independent experts and asserted the right of ordinary pensioners to have their money paid to them for the rest of their lives by the organisation they chose to pay the pension.

There are wider implications

prudence 2

The ruling is important for legacy pensions of all kinds. At present, the “books” of business that comprise of our money, are bought and sold on the capital markets with little thought for the people who will benefit from the various policies.

Similarly, rights in occupational pension schemes can be bought and sold by insurers through buy-outs and  buy-ins. Moves are afoot to shift the ownership of money in occupational pensions from trust to trust as consolidators eye the weak employer market for the sponsorship of our pensions. “Weak employer market” is my euphemism for “employers don’t want to know”, which is pretty well how the Judge saw the attitude of the Prudential.

It is odd, that when so much is spent getting the lifetime interest of consumers in a product, insurers and employers are so keen to jettison the lifelong link that comes with paying someone a pension. As a Zurich pensioner, I get a reminder of Zurich every pay period and a very positive one.

Let’s hope that – as a result of this ruling – people’s reactions to the corporate decisions being taken at buy-out and consolidation, are given more consideration.

When do customers start and stop being strategic?

Why is it that an insurer like the Prudential – regards its customer interface for a product such as Prufund or the M&G funds platform as strategic?

Why is that an annuity book – comprising the customers who chose Prudential in years gone by, ceases to be strategic?

People are important, but it seems that the lifetime promise made by an insurer to treat them as such, is dependent not on the promise made but by the strategic value of that promise and that’s what Judge Snowden has said is wrong.

Advisers who urge consolidation onto the whizzy platforms can sometimes neglect the importance of the strategic value clients place on familiarity, financial strength and permanence.

And these values are particularly important when clients want the security of a wage for life annuity. If we see our clients as strategically important to our businesses, we should be listening to what is strategically important to them – not to us.

How does the ruling fall?

Most of the Prudential annuity holders will never know about the judgement, they will continue to get money arriving in their bank account from the Pru, and get Pru communications about their annuities. As annuitants get older, they get less financially capable to deal with change- we know this through a number of studies. The continuity of payments is a good thing for older people.

But what is better is that the judgement calls into question the Prudential’s own values towards their customers and insists that it is subjective value that underpins people’s confidence in the Pru.

..its age, its established reputation and the financial support which it would be likely to receive from the accumulated resources of the wider Prudential group”.

This is absolutely right. Older people may not have the financial capability they may once have, but they have an awareness of security that is based on familiarity (among other things).

Rothesay is not a familiar name, Rothesay does not say “prudence”, Rothesay is an unknown quantity that annuitants need no longer to worry about.

No doubt many will worry that people are in Prudential annuities for the wrong reasons (they did not shop around) but that is not the point, the right reason for most people about the Prudential , is that they see the Pru as a lifelong financial servant (the provider of a financial service that lasts as long as they do.

The ruling falls well – even if it’s footfall is fainter than the man from the Pru’s.

man from pru 2

Posted in pensions | Tagged , , , , , | 5 Comments

Provider’s mixed messaging on CETVs

Posted on August 17, 2019 by henry tapper

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A troop of CEOs have paraded accross New Model Adviser in the past week, all claiming that banning contingent charging would stop advisers working in the mass market.

Quilter’s Andy Thompson speaks out here

Simply Biz’ Matt Timmins speaks out here

SJP’s Andrew Croft speaks out here

More from Quilter and Royal London here

Meanwhile Prudential research suggests that half of financial advisers report that they would do less DB transfer business if contingent charging was banned.

Considering the FCA’s contention that around half of the advice given on DB transfers is flawed and that a high proportion of the recommendations to transfer should not have happened, the FCA must feel satisfied that their proposals are on the money.

Who benefits from transfers?

While the CEOs have been speaking to IFAs via the trade press, explaining how supportive they are of IFAs spreading the transfer love, they have also been speaking to analysts about the drop in new business from the slowdown in CETV transfers they’ve been receiving this year. It is – it seems – something that was not expected to happen.

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As we all know, the reason the flow of CETVs is slowing is because  professional indemnity insurers are restricting the numbers of CETVs , forcing IFAs to ration advice. Did the retail divisions of these providers ever think the levels of CETVs they received sustainable?

The ban on contingent charging will simply restrict the numbers of CETVs recommended, it would have little to no impact on the broadening of ongoing financial planning. The vast majority of CETV money is now with insurers or in DFMs and generating ongoing fees which benefit insurers, DFMs and financial advisers but were never designed for the mass market clients  that SJP, Royal London, Quilter and SimplyBiz believe would be excluded.

  The FCA and workplace pension schemes (WPS)

In a bizarre twist of logic, one independent adviser is now accusing workplace pension schemes from excluding them using them.

From the conversation I am reading, the problem is around the FCA’s insistence that these cheaper products are considered in IFA’s recommendations and that IFAs will have to explain why they have not chosen what on the face of it look cheaper solutions to the ongoing management of money. This is reckoned an irrelevance by another IFA

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Where exactly the customer stands in all this is unclear,

Workplace schemes are hidden

Another adviser rightly points out that at the time of BSPS’ Time to Choose, steelworkers – who by and large were in WPS were not offered them.

He is right.  I wrote about this at the time and you can see from what I wrote then that it wasn’t just the IFAs who were avoiding WPS, the insurers and the employers were scared silly of their products being used too!  Please read the article below.

Has Tata the courage of its conviction? (the workplace pension that dare not speak its name)

At the time – Michelle Cracknell called out the scandal of the unused Tata and GreyBull workplace pensions. It has taken nearly two years for the FCA to swing round its guns but now it has.

The questions that need to be answered by these CEOs

  1. Why did you take CETVs onto your platforms without question?
  2. Why did you not promote WPS alternatives – when you had them?
  3. Are you reviewing the suitability of your  products recommended?
  4. Will you consider restricting charges on those products to WPS default levels?

If you cannot answer these questions, then I wonder whether your commitment to mass-market advice is anything more than a sham. Contingent charging looks like backdoor commission and your arguments for “broader advice” sound like volume and margin preservation to me.

Margins and volumes preserved by vulnerable customers who should not be in your products.

I am unconvinced that in a low return environment where the yield on an annuity is around 2.5% nominal, charges of 2.0% pa + on drawdown (let alone accumulation) can ever be in the client’s best interest. But what I see reported to me by those who have transferred and the IFAs and solicitors who are trying to sort out the problems of 2016-18 is that such charges are common.

It would be better if – instead of arguing for more of the same – insurers, SIPP managers and IFA compliance services faced up to the reality of the situation which is that billions of pounds is in the wrong kind of policies, in the wrong kind of funds with the wrong kind of fees.

Posted in advice gap, age wage, pensions | 5 Comments

Lipstick on a pig – the sorry state of “robo-advice”

Posted on August 17, 2019 by henry tapper

lipstick-on-a-pig

On 11th  and 17th of September, those turning up for the FT Adviser Financial Advice Forum in London and Birmingham respectively, will be entertained by a panel session.

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The conference promised to bring  the views of industry and regulatory experts on the latest challenges facing advisers, and how they can be overcome.

I had been invited and accepted because I do challenge the advisory community to raise its game.

I’m cross because I was originally on the “interactive panel” and appear to have been dropped (though I have not been informed of this by the FT).

I’m sad because this confirms what I have long suspected, that Robo-advice is being treated as nothing more than lipstick on the wealth management pig.

If you look at the three propositions on offer from WealthSimple, MoneyFarm and Holland Hann & Willis, you will find the same core model. Technology front end- wealth management back end.

All that technology is being used for – is to reduce the cost of acquisition of other people’s money. And the money that is being acquired forms part of the current wealth pool that is all that IFAs seem capable of feeding from.

Disruptors excluded

The FT seem to have excluded me from this cosy threesome because I might just point this out. They are right to do so, though why they ever thought I wouldn’t challenge the robo-advisory lip-stickery I do not know.

Every iteration of the Nutmeg model revolves around funding from a pool of assets attracted by an expensive UX (user experience for the uninitiated). But no matter how bright the lipstick, there is still a big fat wealth-management pig sitting behind – ready to chew up the twenty and fifty pound notes.

Meanwhile, the genuine innovators, whose models reach out beyond a replication of Nutmeg  are nowhere to be seen.

AgeWage – which was originally been invited has been dropped – no reason given

Pension Bee – who have produced the first genuine mass-market SIPP – are nowhere to be seen. Open Money – doing much the same.

My FutureNow -which only this week cut an important deal with L&G to be an independent aggregator and Zippen which should follow, are outside the tent.

And there are many more in incubation..

Financial advisors – cover your ears

Robo-advisers are not embracing new technologies to extend the scope of their advice, they are doing so to become more competitive in the existing wealth pool.

Meanwhile for the 94% of us who are not paying for advice, these new players are an irrelevance.

Organisations like the four mentioned above, who are looking to reach out to the millions of  savers who do not currently have access to the support they need to make complicated decisions are excluded.

I can only conclude that the tent is closed to all but the regulated advisers and that includes the 94% of us who are no closer to getting advice than we were “pre-Nutmeg”.

Financial advisers – (cover your ears) –  you don’t really matter to most of the UK population and that isn’t going to change so long as you zip up your tent.

Opening up the tent

Eventually, the FCA, MAPS and tPR will find a way to broaden the scope of advice beyond those with the wealth to pay for it.

But that day is some way off.

The  innovators are excluded from the FT Financial Advice Forum  

But it is only a matter of time before the tent is opened up. I will keep up the pressure and so will those who genuinely want open pensions and open dashboards providing ordinary people with the information they need to take decisions.

And AgeWage will never exclude financial advisers from joining in our work.

pigs

 

Posted in advice gap, age wage, pensions | Tagged , , | 4 Comments

It’s not pensions that are scary – it’s “search”!

Posted on August 16, 2019 by henry tapper

Every day, thousands of people worry where their pensions, how much they’re worth and what they can do to get their money back. Pensions are scary but they are not as scary as what you find when you search the web! The story Iona’s quoted on appeared on Yahoo Finance, but we don’t have to look far to find that Yahoo finance are promoting “advertorial” that isn’t much better.

 

Before you think that I’m knocking search, I should point out that this blog would be a pretty boring place without google and yahoo that allow me access to an understanding of what to do (as well as what not to do).

 

This of course is both the value and problem of search.

Who’s googling pensions?

I’ll lay a pound to a dollar (not much of a bet these days), that a high proportion of those googling “pensions” are finding their way to the kind of dubious propositions the FCA are so worrying about. That’s because those with the wrong intentions are very good at SEO (search engine optimisation). Googling final salary schemes does not take you to a website that tells you how final salary pensions schemes work, it takes you here

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Four ads designed to help you get out of final salary pensions.

And the people who are searching are almost certainly going to end up with the wrong kind of advice , charged at the wrong end of the spectrum in a contingent way.

This is where the problem starts and where the FCA should be focussing its efforts (if it wants to reduce the number of people transferring when it thinks they shouldn’t.

This is not cold calling

The traditional boiler-room scam, initiated by a cold-call is dead. It died before the cold-calling ban came into effect. Most bad advice originates from “search” not a cold-call.

If you go to the websites behind the ads, there is nothing actionable to be found. Lead generation for IFAs is perfectly legal.

Darren Reynolds generated a good proportion of his leads – not from chicken dinners – but from the Money Advice Service’s search an IFA facility which disastrously through up Active Wealth Management if you input your location as Port Talbot.

MAS were not actively promoting scamming – but they promoted scamming nonetheless and the FCA can no more prosecute Google or Yahoo than they can MAPS.

This is OUR responsibility

Some scammers may read these blogs, but for the most part they’re read by trustees, employers and other fiduciaries who feel they have either a duty of care or a regulatory responsibility to protect members.

Let me be straight with you.   YOU – ME – WE’RE FAILING

We should be taking personal culpability that people are googling Final salary pensions to get out of them, that they’re finding mini-bonds when looking for income.

We should not be leaving it to our staff/members/policyholders to find complex solutions to their financial futures using web-search, we should be making it perfectly clear what their next steps should be and they should not include finding a pig in a poke on the web.

The pensions map is like the Straits of Hormuz, people, like oil tankers , are forced into a tight situation when they come up to retirement, and like fully laden tankers- they are full of money and at their most vulnerable.

We should not be relying on more legislation to stop the scammers, we should be taking personal responsibility.

Over the course of this week , 23 of Britain’s largest employers and/or reps of their pension schemes visited WeWork More Place and discussed how to help people who fall into these categories.

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the things people want from their pension pots

We are about providing simple things for employers/providers/fiduciaries to do when you meet people with these wants.

Ruston Smith is helping people find good IFAS

AgeWage is helping people find good annuities

Quietroom is helping  people find the right words

We are all trying to help the majority of people who are totally lost and in danger of asking google or yahoo for “next steps”.

We are running two more of these events at the end of the month. If you have people who are asking for things from their pension pots, you can help them.

Simply sign up here

 

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The first 100 people to find this blog

 

 

 

Posted in advice gap, age wage, pensions | Tagged , , , | Leave a comment

Absolutely true (as I visited the Royal Mail)

Posted on August 16, 2019 by henry tapper

 

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How the Royal Mail pension schemes are run

Whether it be through its Final Salary Scheme (RMPP), the interim Cash Balance arrangement or its DC trust, Royal Mail Pension Trustees have consistently over-delivered to their organisation and the members of the various Royal Mail pension schemes.

This has been overlooked but is rather important.

Under the excellent investment management of Ian McKnight, the funding costs of the promises made to postal workers have been stabilised and look in future to be negative (at times plans have been in surplus with attendant savings to the ultimate sponsors (including the Government).

Ian has worked with Ben Piggott, who is in charge of the DC arrangements looking at innovative solutions to the shortcomings of insured DC defaults, though these have been stymied by permitted links regulations (liquidity based) , hopefully they will bear fruit in the investment strategy of the imminent CDC plan – which McKnight expects to be “punchy”.

Further innovation comes from Tim Spriddell, a consultant to the Trustees who is so embedded in Royal Mail communications that I can speak of him as the architect of the member’s communications. I love the RMDCP video- made with Quietroom

With Mark Rugman and Michael Mayall providing the link to Royal Mail’s member benefit administration, Richard Law-Deeks can be very proud of the team of whom he is chief executive.

The Royal Mail’s pension executive is a fine example of how pensions should be run – and I cannot say that for all the executives I have visited recently.

 

How the Royal Mail pension schemes are governed

The management of the Royal Mail pension schemes is down to the executive, but strategic decisions and oversight is up to the Trustees.

You can read about the Trustees of the DB plan here. Joanne Matthews, Mark Ashworth and others represent the  independent ones and Phil Browne and others from the Royal Mail fill the rest of the places other than Graeme Cunningham and Lionel Sampson of Unite and CWU respectively. Though this plan is no longer accruing new benefits, it underpins the pensions of most postal workers and is of vital importance. The executive and trustees need to work properly together, I get the impression they do.

The (new) Chair of the Trustees of the DC plan (RMDCP) is Venetia Trayhurn.  

Victoria spent time at the Financial Ombudsman Service and we had a good conversation about protecting member’s interests when she came to a recent AgeWage workshop. She works as a professional trustee for LawDeb but gave up her time to come to a workshop we gave this week about helping members with their difficult retirement choices.

Other trustees include Jon Millidge, formerly the company HRD and instrumental in negotiating the proposed CDC plan with Terry Pullinger and the CWU. Though the DC plan is likely to be superseded by the CDC arrangement , you can see by the attention paid to its communication, that it is anything but a poor relation.

 

What does this mean for members?

Postal workers at Royal Mail are properly pensioned and – provided the Government don’t renege on promises, will continue to be offered build up of a  wage for life pension into the future.

My recent visit to their Pension’s Office in Ironmonger Lane in the City of London and meetings with their trustees, teaches me that this is an organistion where sponsor, trustees and pensions executive are working together with the member’s interests at heart.

I love writing this blog, because it lightens my heart that there are places in Britain where pensions excellence persists, and Royal Mail is one of those places.

They are setting the gold standard against which others can be judged and we should be grateful that they do.

What this means for the members of the various Royal Mail pension arrangements, is they can work with the comfort that when they stop working, their pensions will last as long as they do.

Oh and don’t confuse the Royal and Daily Mail!

Posted in CDC, pensions, Royal Mail | Leave a comment

Help for Trustees, Sponsors and Members with AVC plans

Posted on August 15, 2019 by henry tapper

AgeWage evolve 2

I’ve divided this blog into two- the first bit’s for the people who have charge of defined benefit schemes and relates to the DC savings plans that members can use to supplement their pensions (AVCs).

The second bit’s for the members, but it will probably be helpful for those in charge – who may be members – and may have the job of explaining these complicated things in simple terms.

I recently had to make decisions on the AVCs I paid, and much of this relates to my personal experiences. I was lucky, I had plenty of help.

I am not a tax expert and I don’t know my way around all the arcane rules that govern AVCs ( the older the more complicated) but there are people who do , who are there to help you and this article is here to help those people who might otherwise google – stick to the true and trusted sources – your scheme administrators, your trustees and the Government helplines that really are impartial/

This bit’s for trustees and DB sponsors

Back in the day when corporate benefits structures were about defined benefit pension schemes, additional voluntary contributions were considered very important.

To those who have paid them, they still are.

But the focus has shifted and nowadays the AVC schemes set up in the last quarter of last century are consigned to the legacy cupboard.

Trustees have got better things to worry about, like keeping tPR and the sponsor happy.

But the money in these AVC schemes with the likes of Prudential, Standard Life, Aegon, Aviva and the Equitable Life is still the trustee’s responsibility, they own the policies not the members and they have a fiduciary duty to ensure these schemes are giving value for money. Increasingly the DWP – through tPR – is looking at value for money as the primary concern of trustees looking after DC benefits.

In its recent investigation of transparency, the DWP’s Work and Pensions Committee called for a definition of value for money that could be applied across all DC pension pots. We have given a lot of thought to what that definition should be.

What “value for money” means to members

The two things that concern someone saving into a DC pot (AVC or otherwise) are money-in and money-out. Money goes into the pots by way of regular and special contributions, in the case of AVCs from payroll. Money comes out of AVCs into annuities, as cash (sometimes tax-free) or into personal pensions which are used for drawdown.

Value for Money is a measure of what happens between “in and out” and is best measured as the internal rate of return achieved uniquely by each contributor. Each contribution history is unique as is the output – the net asset value – or in the case of with-profits investments, the plan value.

But simply giving a member his or her internal rate of return (IRR) is meaningless unless it is compared to a benchmark. If benchmarked, the IRR can show whether the AVC has done better or worse than average, what the value for money has been.

Creating the benchmark and a VFM score

Until now, no organisation has created a meaningful benchmark, against which to measure the internal rate of return of AVCs for VFM purposes.

Which is where AgeWage comes in. We have co-created a benchmark with Morningstar , the rating agency. We have used indices going back to 1997 and fund-baskets before then, to create a daily price track representing the fluctuations of a typical DC pension fund going back to 1980. Investing a contribution history into this price track creates an alternative IRR, being what the average AVC saver would have got.

We are able to calibrate the difference between “achieved and average” to create a score out of 100 – with 100 being outstanding and 0 being dire.

Better still, the universe of data we have already built up makes this score comparable to the VFM members may have got from other pension contributions, for instance into workplace or stakeholder pensions, even DC pensions in payment.

What AgeWage scores mean to trustees

Trustees running DC schemes (which we take to include DC AVC plans), have a fiduciary duty to get value for their members contributions (money)

Their care on this matter is likely to be scrutinised by tPR. 

Trustees are vulnerable to criticism and even censure – if they have no regard to member’s voluntary contributions.

But more important than “compliance” with regulation, we believe that the reputation of trustees as upholding member’s interests is of critical importance, especially where those trustees are under pressure to add value

This bit’s for members

I’m surprised by how little attention is paid to helping members of DB plans with their AVC pot. I’m quoting here from a guide given us by the Prudential.

Currently, from age 55, you have a number of options to choose from when you decide to take the money in your AVC pot. You may need to move your AVC pot to another pension to access some of these options or to access them when you prefer.

  • Take flexible cash or incomeYou can do this by moving your money into a drawdown plan. In most cases you can take up to 25% of your money tax-free, you’ll need to do this at the start. You can then dip in and out when you like or take a regular income. This may be subject to income tax.

  • Get a guaranteed income for life
    You can buy an annuity – it pays you an income (a bit like a salary) and is guaranteed for life. These payments may be subject to income tax. In most cases you can take 25% of the money in cash, tax-free. You’ll need to do this at the start and you need to take the rest as income.

  • Cash in your pot all at once
    You can take your AVC pot as a single lump sum. Normally the first 25% is tax-free but the rest may be subject to income tax.

  • Take your cash in stages
    You can leave the money in your AVC pot and take out cash lump sums whenever you need to – until it’s all gone or you decide to do something else. You decide when and how much to take out. Every time you take money from your AVC pot, the first 25% is usually tax-free and the rest may be subject to income tax.

  • Leave your pot where it is
    You don’t normally have to start taking money from your pot when you turn 55. It’s not a deadline to act.

  • Take more than one optionYou don’t have to choose one option – you can take a combination of some or all of them over time.

Now tax is the hard bit. You can of course take tax free cash from your defined benefit plan – but this means you have to swap pension for cash- like you do when you take a pension transfer. The exchange rate between cash and pension is down to what the trustees (advised by their actuaries) choose to offer you. Some may be generous and only charge you a pound of lifetime income to get £30 cash, some can be stingy and charge you a pound of lifetime pension to get £15 cash. It’s all down to what actuaries call commutation factors.

If you have a really generous set of trustees, they will let you use your AVC pot to fund your tax free cash meaning you don’t have to “commute” cash for pension. This is almost always a good thing to do.

The “almost” bit refers to AVCs which can be exchanged for an annuity at a preferential rate – what is known as a “guaranteed annuity rate” or GAR. If you see any mention of such things in your AVC literature you should check out what the GAR deal is with your pension manager or with the insurance company who offers the AVC (there should be contact details on the communication.

So what about this 25% tax-free cash option?

If you can’t swap your AVCs for tax free cash, (because the scheme rules don’t) allow, you can usually take your AVCs as a lump sum or transfer to a personal pension. In either case you should be able to get a quarter of your AVCs as tax free cash.

But you need to check with your scheme to make sure that you don’t fall foul of one of many very complicated bits of tax legislation that surrounds these old style pensions.

Where can I get help (that doesn’t cost an arm and a leg)

I don’t mean to sound biased but I strongly suggest that if you have any doubts about tax, you speak first to your scheme and see if they have advisers who can help you. Most do and most will allow you to understand the complexities of the situation using advice that is paid for – not by you – but by the trustees (and ultimately by your employer).

You can also get help from the Pensions Advisory Service that is now part of the Money and Pensions Service (MAPS).

Their  pension helplines are open from 9am to 5pm, Monday to Friday.

They are available on webchat from 9am to 6:20pm.

Theye are closed on public holidays.

Pensions Helpline: 0800 011 3797
Overseas helpline: +44207 932 5780

Helpline for Self Employed: 0345 602 7021

Posted in pensions | 5 Comments

Navigating pension’s Straits of Hormuz

Posted on August 14, 2019 by henry tapper

Screenshot 2019-08-14 at 06.44.53.png

The contested space between the Persian Gulf and the Gulf of Oman

We met last night in a crowded room in Moorgate WeWork. We were an eclectic mix of pensions directors, chairs of trustees , annuity experts Retirement Line,  Ruston Smith, Vincent Franklin and me.

You can see the slides here

Unfortunately slideshare won’t show the embedded video from Quietroom which you can watch below. I know lots of us have seen the horse in the orchard before but it’s worth reminding ourselves how simple the choice architecture can be made.

The premise of the evening was that moving from the controlled world of workplace pensions to what comes in retirement is the financial equivalent of passing through the Straits of Hormuz

Check out the map at the top of the blog and see where you think the pensions equivalent of the Straits of Hormuz are on the Quietroom/DGP map of the pension world.

Screenshot 2019-08-14 at 06.45.16.png

The contested space between the workplace and retirement

 

Vincent Franklin’s analogy brought to mind brigands from Somalia and state sponsored raids from Iraq. It is easy to draw parallels to the ravages on people’s pension pots from scammers and the Treasury

Perhaps the most important point of the evening was made by Boots’ Julie Richards who pointed out that while the £20,000 saved by one of her staff might not sound much to pensions professionals, it was possibly the most significant savings achievement to that person.

Denying that person the right to that money on their terms was an insult to that achievement. But not helping them understand the perils of being scammed by brigands or losing out to the taxman, a failure in personnel management.

Treating all pension pots as equally important

Julie’s comment set the tone for the evening. Whether you have £20,000 or £2m in your pension pot, that money is important to you and deserves the same attention from pensions professionals. We cannot go on supporting the wealthy and ignoring the savings of those with smaller pots.

The meeting focussed on the needs of four groups of savers whose plans could be characterised by one of these statements

Screenshot 2019-08-04 at 09.05.28

For those people who wanted access to an IFA, help was at hand as Ruston Smith talked us through an important initiative he is pioneering at Tesco where IFAs he introduces to his staff will be required to abide by a code of conduct and be subject to due diligence by a significant third party. You can see Ruston’s ideas embedded in the presentation above.

For those who want to wait and see, we discussed the support that can be offered from MAPS and particularly Pensions Wise but also from the pensions departments of the leading companies around the table.

For those wishing to do their own drawdown, we discussed the investment pathways due to be implemented next spring as part of the FCA’s Retirement Outcome Review

While for those people wishing to buy an annuity, a range of options were outlined by Retirement Line, including the deferral of decisions using Fixed Annuities.

The point was that this was not about wealth at work, it was about everyone.

We’re all in the same boat

I came away from the presentation inspired by the enthusiasm of organisations as divers as Tescos, Royal Mail, ITV, Boots and BT. All professed to having different ways of helping their staff through the perils faced as they chose retirement options but all were in the same boat.

We can surely do more to help our staff, whether we are mega -employers like these – or we run one of the million SMEs (like Quietroom , Retirement Line and AgeWage) that have staged auto-enrolment.

The role of the employer in outlining the options available to staff in a clear and concise way is what employers can do. They may not feel up to doing the guidance themselves but they need to know the resource that is to hand.

same boat.jpeg

You can come to future workshops

If you have staff who are coming up to retirement and you’d like to find out how you can help them navigate the pension straits of Hormuz then there are still spaces available on 28th and 29th August. There’s one space for tonight (Wednesday 14th August).

You can sign up to one of these days using this invite

Invite to AgeWage summer workshops

Posted in advice gap, age wage, pensions | Tagged , , , , | Leave a comment

Convince or collapse – the options for small DB schemes in the next decade.

Posted on August 13, 2019 by henry tapper

 

two ugly.jpeg

 

We stand on the cusp of the third decade of the 21st century. That decade is likely to see small DB schemes collapse into consolidators or stand firm with renewed conviction. I wonder if I will still be writing blogs in the summer of 2029 to review this statement, I suspect that most current trustees of DB plans will not be around to read them – if I am.

Yesterday I paid my first visit to Vestry House in Laurence Poutney Hill, the offices of Disruptive Capital and its nascent Pension SuperFund. Whether this DB consolidator succeeds or fails is itself a matter of conviction, it looks as if Edmund Truell has dug in his heels and it will be hard to dislodge him. But if he fails, there are others – such as Laurence Churchill’s Clara, that will step up to the plate.

The Treasury are giving support to the insurers who fall under their regulation (FCA and PRA).

The DWP have decided that consolidation will happen their way and though the Pensions Regulator is dragging its feet, the pensions industry generally expect the non-insured consolidators to get licensed by the end of this year

Two ugly sisters

TPR has adopted an attitude of tending small schemes through a fast track process which is the pensions equivalent of the Liverpool care pathway. A gentle decline into insurance – “go gently into that good night”. This is not pleasing the consolidators who wish they’d listen to their paymasters at the DWP.

Insurance companies have lobbied hard against the DB consolidators, claiming they are simply exploiting loopholes in regulation to underwrite buy-outs without the requirements of Solvency II. They have the Treasury’s support.

In the face of considerable opposition, the Pensions Superfund has hit back with a report commissioned from Redington proving against a number of (to me) incomprehensible measures, that the asset allocation of consolidators (modelled on the PPF) provides better outcomes in all weathers than those of insurance lifeboat funds.

This is not a fight that I want to get into, not least because of the twitter storm going on after I pointed out the availability of life annuities in the Times. Redington’s analytics have always been suffeciently arcane to prove any point, insurers are hardly charities;- who is there to love?

Insurers and consolidators are the two ugly sisters. They will be going to the ball long after Cinders has had her pumpkin night out.

Faith in small schemes waivers

Small DB schemes have to face a harsh choice. Either they go back to their sponsors and members and argue for their continued existence – with conviction- or they collapse into consolidators. I don’t see the Liverpool pathway as much of an option – though it will keep diverse pension administrators, accountants, lawyers, fund salesmen, platforms and most of all professional trustees in a job at least till the summer of 2029.

But the job of the employers who sponsor these schemes is not to act as surrogates to the Ugly Sisters, but to produce things, or do charitable things or to provide services and the cashflow calls of the pension schemes are unsustainable, the blight on business strategy unmanageable, the impact on productivity dismal.

We can’t let small DB schemes blight corporate and charitable strategy, these schemes must either shape up or shape out. This is not Edmund Truell talking – it’s me – and I work for an actuarial consultancy that is supported by small schemes.

The residual value of small schemes

Small DB schemes can and do add value to companies, but not when they put themselves on the pathway, then they only act as a succubus.

My point is illustrated by this graph – devised by my friend Derek Benstead so that even I could explain the value of keeping a pension scheme open

life cycle open

There is no great benefit in closing your own scheme, you might as well collapse it into whatever the ugly sisters are offering. You’ll pay a price for off-loading it, but it’s far from clear to me that insurance companies are worth the extra price that solvency II creates, they are the non-profit option and at the non-insured consolidators are holding out some hope of with-profits increments if they are proved right.

Your choice as a Trustee is probably dictated by the pockets of your sponsors, they will in the next ten years be looking at what the ugly sisters have to offer and they will ultimately be making the call.

The value of small schemes is int the conviction of their trustees and the aspiration they can create with sponsors. I can’t see schemes re-opening, I can see schemes resisting closure and I see those schemes that struggle on doing so on a radically more effecient basis.

The proper management of open schemes will increasingly involve modern systems of record keeping – the adoption of digital communication with members, low cost asset management using platforms to drive down costs and e-payment of pensioners.  Trustees who do not employ efficiencies available through new technologies will perish.

The value of small schemes lies in their capacity to adapt to tomorrow’s world, while preserving yesterday’s promises.

How many DB schemes will survive?

I doubt that more than 1000 of the 7000 remaining DB schemes in this country will be around for me to blog about in 10 years time.

I believe that consolidators and insurers – the two ugly sisters of the pensions world, will convince sponsors who remain unconvinced by their schemes, to pack it in. The ongoing costs of keeping schemes open will ensure this is the case. The PPF will remain the lifeboat – the third ugly sister – though she waits in the wings.

This is a harsh prediction and I hope I am proved wrong. The prediction is a challenge for trustees (especially independent trustees). It is also a challenge for consultancies and other professional firms.

We are approaching the third decade of the 21st century and it is a decade that makes or breaks DB schemes. The ugly sisters have already arrived at the ball, will Cinders?

cinders

 

Posted in CDC, dc pensions, de-risking, defined ambition, defined aspiration, pensions | Tagged , , , , , | 2 Comments

Why the door’s slammed shut on open pensions.

Posted on August 9, 2019 by henry tapper

Screenshot 2019-08-09 at 06.35.20.png

During the week, AgeWage was invited to compete in the  Nesta Open Up Challenge. Nesta is funded by the UK lottery – they are an agency of change sponsored by the likes of you and me;

As any entrepreneurial start-up would, we were excited by the prospect of a £1.5m prize fund to unlock the power of open banking for UK consumers. It’s hard not to want to be involved with an organisation with this claim

Nesta is an innovation foundation. For us, innovation means turning bold ideas into reality. It also means changing lives for the better

My aim for AgeWage is to provide all of Britain’s pension savers with a simple number telling them how their pension has done – in terms of value for the money  contributed.

So when I read that the eligibility for this award focusses on organisations that

Must target a total potential market of at least hundreds of thousands, ideally millions of consumers.

I felt in the right ball park.

But then the bad news; organisations that enter

Must use the Open Banking Implementation Entity (“OBIE”) API endpoints and conform to the OBIE Read/Write standards (“the Standards”) to programmatically access digital bank account data and/or payments functionality, even if in practice the Product does so indirectly by using the AISP or PISP capability of an authorised Technology Service Provider (“TSP’). Evidence of usage of OBIE API endpoints and conformance to the Standards may be sought by the judges as a condition of acceptance onto Open Up 2020.

and that was when our application ended.

Open pensions are as far away as ever

Our summer at AgeWage has been spent helping our investors apply for and receive the data they need to get AgeWage to provide them scores.

We struggle with bulk uploads of data from insurers and third party administrators that never arrive.

We are told we cannot process data because

the data provider

  • won’t accept e-signatures
  • won’t accept emailed letters of authority
  • won’t accept AgeWage as a data processor
  • won’t identify a customer without a policy number

I could go on.

We cannot operate effeciently unless we can exchange data in a free way. But there is no freeway for data requests because we do not have open pensions.

The idea of a free flow of information between customer and data provider is not entertained; despite the pensions dashboard being supposedly delivered this year.

Using scams as an excuse is not good enough

It is true that there are scammers who would like to steal money – after stealing data and pensions administrators, like banking administrators are right to be vigilant. But that does not mean that pension providers should put the up the shutters against innovation.

The data protection act of 2017 gave individuals the right to have data held by others about them , returned on request in digitally useable format.

That does not mean in a PDF or embedded into a word document. It means in a format where the data can be extracted and used for purposes the data owner has in mind.

Which might just include finding out how their pension has done compared to the average pension – by way of an AgeWage score.

Scammers are not to be used as an excuse for providing this information.

The sooner pension providers  think of open pensions the better

Earlier in the year I made a fuss about the pension dashboard and the exclusivity being given to Origo in the design of its functionality. I wanted (and want) pension information to be freely available on request through the use of the same data standards that have made open banking a reality.

There are of course limits to the success of open banking, but we are living with the happy results. I get a text message every day of money in and out of my account – on my phone – my watch – my laptop – where I want it.

My money is now more accessible, more manageable and better governed than ever before. That’s because there is absolute transparency between First Direct’s systems and what I see at 6 am every morning.

This kind of transparency was achieved because of the determination of the CMA to force banks to out customer data using secure protocols called the CMA 9.

It is now expected of anyone wanting to compete for money from Nesta, that they subscribe to these standards.

I cannot subscribe to these standards , because – much as I would like to adopt them – there is no counter party. And there is no aspiration amongst pension people (other than with a few Pen-techs like Pension Bee), to see this change.

Until there is this aspiration, the pensions dashboard will continue to dawdle along at an unsatisfactory pace and the public will become increasingly disillusioned.

The old way of doing pensions, where you worked a lifetime and then got told what you were getting at retirement is gone. That was the world of SERPS and DB pensions

Instead we have a world where we have to take decisions on what we’ve got, which – by the time we get to the end of our working lives, will include many pension pots.  People need to get the information they need to take decisions for the future and organise themselves. They simply don’t want 400 sheets of paper – they want a single sheet of numbers – so they can make sense of their information.

Lengthy wake up packs are precisely what people don’t want. Wake up packs present information in the way we want it digested, but it gives people financial indigestion.

We have to move to clear digestible financial information available at the swipe of a phone , using proper security protocols. We must move to open pensions and the organisations that must make this happen start with Government and work right down to AgeWage.

This starts with Government and ends with AgeWage

Whether the energy for change starts at DWP, BEIS or HMT – we need a new commitment to open pensions for currently the door is slammed shut.

We need the pensions dashboard released from MAPS and put in the hands of the technology entrepreneurs that disrupted banking to give us open banking. Those entrepreneurs are all around us, they are waiting to work on pensions given half a chance.

We need the ABI and its technology partner Origo- to open itself to change and not seek to colonise the infrastructure of the pensions dashboard.

We need insurers, third party administrators and the in-house teams that manage occupational pensions to work towards a solution that applications like AgeWage can adopt.

So that we can hold our heads up high and say that pensions is no longer the technology laggard, but fully participating in challenges that Nesta and others set us!

Posted in advice gap, age wage, Pension Freedoms, pensions, Start ups, Technology | Tagged , , , , , , , , | Leave a comment

When advice sits behind a paywall.,,,

Posted on August 8, 2019 by henry tapper

Performance

One of the many pleasures of it being summer is that I have time to contribute to newspapers. I searched myself on the Times website and found out I’ve been contributing to their articles at a rate of one a month for the last year. So maybe I’m selling myself short – perhaps Im a “regular contributor”

Though obviously no rival to (ahem) John Ralfe!

Advice behind a paywall.

Yesterday I was able to comment in the Times on an FCA press release and was quoted on page 12. If you have a paper copy, my comments sit beneath pictures of Mick Jagger and Keith Richards.

If you don’t  I’m afraid, that like financial advice, my  digital comments sit behind a paywall!

Five million pension savers are in danger of losing their savings to scams that guarantee high returns, regulators warn.

The Financial Conduct Authority (FCA) and the Pensions Regulator say that savers have been too willing to be taken in by the promise of exotic investments and too many discuss their pensions with unsolicited callers, even though cold-calling about pensions has been illegal since January.

Their findings in a report today have been criticised by pensions experts who believe that the FCA has been too timid to protect savers since the introduction of freedoms in 2015 that let people access their pension pots from the age of 55 without having to buy an annuity.

“The government is scared of scammers but who opened the door to the chicken run?” asked Henry Tapper, the founder of AgeWage, a pensions rating system.

“When George Osborne [then the chancellor] promised us no one would need to buy an annuity again, he invited every fox in the land to a lifetime of chicken dinners.

“This research should have been conducted before we got pension freedoms, not four years after.”

It sounds like the FCA are getting fed up with us behaving like muppets , but why should we be anything but confused. The FCA don’t make it easy for us to know the difference between advice, guidance and scams. When I perused the notes to editors on the press release I discovered I could still contact TPAS

6. The Pensions Advisory Service provides free independent and impartial information and guidance. 

and better still I can get free independent advice from Pensions Wise

7. If people aged 50 or over require free independent advice, they can contact the government-backed Pension Wise service. To book a free appointment, visit www.pensionwise.gov.uk/en.

But we can’t get free independent advice from Pension Wise, unless it’s to go and see an independent financial adviser (who aren’t free). TPAS is now subsumed into the Money and Pension Service which has been neutered of its “Advisory” title.

The Government does not make financial advice – independent or otherwise , available to ordinary people and it should not be suggesting to journalists that it does. If we define advice as “the provision of a definitive course of action” , then advice sits behind a paywall.

paywall big.jpg

Bypassing the paywall

Most people  take financial decisions about their retirement benefits without guidance or advice. Only about 10% of people who are eligible , use Pension Wise and they are the kind of people who will be amenable to taking advice. Estimates vary, but the FCA have told us that only about 6% of us pay for financial advice on an ongoing basis.

This rather clumsy diagram shows how AgeWage research suggests people divide up when taking decisions about their pension savings.

Screenshot 2019-08-04 at 09.05.28

Which type of decision maker are you?

‘Im not asking you to answer this as a pensions professional but as an ordinary member of the public with the prospect of a diminishing income from work.

I am genuinely interested in how people are behaving, as – I know – are the authorities.

One of the reasons is that over the next four weeks, I’m going to be managing some workshops for employers and trustees whose staff and members are having to take difficult choices without much of what the FCA call “choice architecture”.

Just organising the choices people have into a simple diagram, helps me to think about the problem.

Do you agree with the four choices I’ve identified?

Let me explain a little

Most people know enough about pension freedoms to remember that they include “never having to buy an annuity again”. As “buying an annuity” was the only choice most people had, this was a big shift in choice architecture in 2014 when it was announced and remains the first thing most people will think of when they think about their pension savings.

But if not an annuity – what?

The simple answer is that you can choose

  1. to have all your money at once – today – so long as you are 55 or older
  2. to have your money in stages, known as drawdown
  3. to leave your money to your inheritors.

My diagram has a box for two out of three choices of these choices , but it also has a box for annuities. I’ve not put a box there for people who want all their money at once because I think such people are special needs. Most people who take all their money at once are muppets. According to my muppetometer, they are 100% muppet (though there are times when you have to be 100% muppet for tax purposes because the end justifies the means (you just have to have the money.

muppetometer

So why do I include annuities in the choices?

Simple, because loads of people still buy annuities and they do so by searching for annuities on google. Retirement Line – who are annuity brokers – don’t get their inquiries from pension providers but from google.

This is a breakdown of the annuity choices actually made by people in 2018  – as delivered to Frank Field by the FCA

Screenshot 2019-08-05 at 06.38.00

IFAs will occasionally recommend an annuity – but it’s the exception that proves the rule, the vast majority of annuities are purchased through independent brokers like Retirement line and LEBC or the broking arms of the insurance companies – JUST Retirement (Hub), Standard Life, LV= and Sun Life Assurance.

I would be surprised if 1% of IFA inquiries on annuity choices result in the IFA recommending an annuity. The numbers I see show that the vast majority of annuity decisions are taken through annuity brokers who are not financial advisers (LEBC being an exception

What the table does not show is the number of people not visiting Pension Wise, not taking financial advice and not taking a decision that e

The truth is we do not take decisions at retirement in a holistic way. We buy through google, through our pension provider and I am afraid to say, we buy with the help of scammers. At retirement is a mess (and I’m sorry that this section of the blog reflects that).

When advice sits behind a paywall..

The FCA have run out of people to blame. They have blamed financial advisers over transfers.  They have blamed insurers over annuities. They have blamed everyone for non-advised drawdown.

Now the FCA have moved on to blaming the general public for not fighting off the foxes. The foxes are in the chicken coup because George Osborne opened the coup door and invited them in.

I am with Jo Cumbo.

People need access to proper help with their pension choices

What I will be telling the employers and trustees at the AgeWage summer workshops  over the rest of the summer is this.

If employers and trustees want to protect their staff and members from poor at retirement decision making they are going to have to do more than install a token IFA to advise staff.

They are going to have to help not just the people who would not normally take and pay for financial advice, but those who don’t and won’t.

That means signposting not just Pensions Wise, but the other options, the non-advised options available from their  workplace pension providers, annuities available through reputable brokers and especially the option to do nothing.

Doing nothing when the scammers call, is the best option of all,

If you want to follow up on the ideas in this blog…

If you represent an employer or trustee board and are interested in the ideas in this article, join me, Retirement Line and Quietroom at one of our summer seminars, some are sold out but we still have space at the end of the month.

You can find out dates, locations  and availability here.

AgeWage summer seminars.

Posted in advice gap, age wage, pensions | Tagged , , , | 5 Comments

Mr Field – you want a common measure for value for money? I’ve got one!

Posted on August 6, 2019 by henry tapper

In the Work and Pension Select Committee’s report on pension transparency, one demand has caught the imagination of the pension community

Screenshot 2019-08-06 at 06.14.48.png

You can read Kim Kaveh’s excellent article here.

Professional Pensions ran the question on its Pension Buzz survey and asked its readership what the single definition should be . This is what I wrote.

“Value is what you get out, Money is what you put in and value for money is what happens in between”

The more you think about it, the truer that simple statement is – and the more universal.

VFM  to most of Britain’s millions of consumers does not lie in the user experience of the product, nor the variety of fund choices, nor in the range of at retirement choices. It lies in the simple equation – “money in v money out”.

Will the pension industry adopt such a transparent approach?

Frank Field said that he thought the pensions industry incapable of adopting a transparent approach to what it does.  Pension Age asked the great and good of our industry if we were, of course the great and good said Field was wrong.

Screenshot 2019-08-06 at 06.22.51.png

To quote David Rowley

The Work and Pensions Committee has called on the government to compel all pension schemes to show how they are providing value for money, as it is ‘unconvinced’ the industry can rise to the challenge itself.

So just what is the big idea?

My idea is very simple; Every person or business saving money for retirement can benchmark its savings history by submitting a data file to me containing their contribution history and the current value of their pension pot (the NAV). In practice, they can delegate authority for me to get this information for them.

I will, with the help of a co-operative pensions administration community, get the information requested in digital format and will provide the following information

  1. The money you have put in
  2. The value you can get out
  3. What’s happened in the middle

The third bit’s the tricky bit, as I have to compare the value of your pot with the theoretical value of your pot if you’d been invested in the average or “benchmark” fund. I and my genius friends have created this benchmark fund with the help of Morningstar who set it up and who maintain it.

What we’ll tell you about what’s happened in the middle is

  1. The rate of return all your contributions have received after charges
  2. The rate of return your contributions would have got if invested in the average fund
  3. The score you have achieved (out of 100) when we compare your Value for Money with everybody else’s.

This is the big idea and this is how you will get the score.

AgeWage evolve 2

The proof of concept

I have now convinced myself and my colleagues on the AgeWage advisory board that we can collect sufficient data to measure this number, thanks to brilliant organisations like Evolve, Royal Bank of Scotland and Scottish Widows for helping with bulk data. Thanks to Royal London for pioneering an easy way to get individuals their VFM score. Thanks to the FCA and DWP and tPR for being supportive and thanks to the other providers who are getting there!

The real proof of concept for me is whether the organisations that need to show consistent value for money metrics, will agree to use our VFM standard.

The Work and Pensions Committee has called on the government to compel all pension schemes to show how they are providing value for money, as it is ‘unconvinced’ the industry can rise to the challenge itself.

Like Frank Field, I think it unlikely that they will adopt a single VFM standard. I think they will continue to consider the feature of the products they have created more important than the outcomes of those products . I think they will continue to score on a Red , Orange and Green basis, the various aspect of the UX they think important while ignoring what ordinary people want to know – the value they’ve got for their money.

People will put up objections that my approach is too simple.

They will say I should be including volatility measures.

They will say that a simple system of scoring will encourage people to take bad decisions.

They will get angry with my scoring system, many already have. That is because it is too simple to meet their complicated needs. As one CIO told me, if pensions were as simple as you make them, I’d be out of a job.

E=.jpeg

Hard things can be made simple, but they will always prove controversial when they are.

I asked Frank’s question on twitter yesterday

If Scott – or anyone else can find a common measure for value for money which people can understand and find genuinely useful, I am happy to move to it.

However, in the five years I have spent trying to find a common measure to VFM, I have found nothing better than the measure I am using – creating the AgeWage score.

agewage evolve 1

If you would like to be part of my proof of concept and have at least one DC pot I can measure for VFM, drop me an email on henry@agewage.com. It may take me a couple of weeks to get the data, but I promise me and my team will do our best!

The Professional Pensions Buzz survey this week
Posted in advice gap, pensions | Tagged , , , , , , , , | 9 Comments

What WPS is ACTUALLY saying about pension transparency

Posted on August 5, 2019 by henry tapper

Frank Field

The headlines are about “rip-off” pension charges, but the WPS Select Committee’s report is a wide-ranging  investigation into the transparency of the pensions industry and not a sensationalist attack on charges. It sets out its stall in the pre-amble.

There should be no cause for the complacency about the pensions industry’s performance on transparency …We are not convinced that any part of the industry scores above half marks on transparency.  Frank Field – Chair of Work and Pensions Select Committee- August 5th 2009

This blog is my understanding of what is being said, including a few comments of mine on the sense of  the paper. I am broadly supportive of WPS in this , though the weight of bureaucracy that would be created by some of the proposals on dashboards and guidance seems unworkable to me.

Workplace Pensions

The first section of the  WPS report focusses on Workplace Pensions and  hones in  on 5 areas where transparency is weak

1, It comes down hard on charging workplace pensions which do not have simple charging structures. Pension Bee’s comments are noted and  NOW is singled out for its flat fee and  its impact on “dormant pots”.

We recommend that DWP review the level and scope of the charge cap, as well as permitted charging structures, in 2020. The review should consider preventing flat fee charging structures being applied to dormant pension pots and revisit measures to proactively consolidate smaller pots.

2. It has no truck with Charlotte Clark’s  argument that getting  value for money from DB schemes is not a consideration for regulators.

Better scrutiny of value for money in defined benefit schemes will either justify or avoid the need for the often difficult decisions being taken about the future of pension schemes.

The FT have publicised figures today showing that despite “cut-throat competition” between asset managers, the amount of money DB schemes are paying for their asset management is not reducing. Whether they are getting more value for the “value add” services like LDI , CDI etc. is not clear. That question according to WPS- needs to be asked.

3. IGC’s are criticised for providing insufficient information for members to understand the value for money they’re getting

In the light of the concerns which are being expressed about the work of some Independent Governance Committees, the FCA must not postpone this (IGC review) any further.

4. To help institutional purchasers of funds,  theW&P Select demand the mandatory adoption of the  CTI templates bequeathed them by the IDWG.

48.We recommend that the Government bring forward legislation to make the disclosure templates mandatory for both defined contribution and defined benefit schemes.

49.We recommend that, to avoid poor quality and untimely data, the disclosure templates are supported by an independent verification process. Compliance should be overseen by the relevant regulators, who should be given any additional powers they might need to tackle non-compliance.

50.We recommend that schemes should be supported to collect additional information if the template does not fully cover their individual scheme needs. This information should be available for scheme members as part of the wider information provided on value for money including information on exit charges and any other costs associated with transfer of their pot. The FCA should explore the creation of a public register of asset managers’ compliance records with reasonable data requests.

5. On value for money, WPS notes

There is no agreed definition of what is meant by value for money in the pensions industry. Although individual schemes will need to vary their value for money goals, without agreed definitions it is not possible to make effective comparisons.

This is critical to the whole transparence debate

We recommend that the Government reviews the initial impact of requiring occupational defined contribution schemes to publish their assessment of value for members in 2020. The review should assess whether or not this requirement leads to better scheme focus on achieving value for money and better communication to scheme members about value for money.

Investments

The second part of the report is on investment strategies on which it has relatively little to say. There is the mandatory hat-tip to the Pensions Minister for fine words on impact and infrastructure investing but the only substantive recommendation is to bring IGCs in line with Trustees on mandatory ESG reporting.

We recommend that the FCA should introduce requirements for contract-based schemes, corresponding to those introduced for trust-based schemes, to report on environmental, social and governance factors as proposed in the FCA’s consultation on Independent Governance Committees: extension of remit.

Transparency for individuals

The third and longest section of the report deals with protecting ordinary savers (mainly from themselves- but also from IFAs and scammers (who are often treated as the same).

It rightly focusses on the decisions those with pension pots have to take at retirement.

It starts with what the State can do to help us take decisions

Pensions Dashboard

The report is pretty timid in its ambitions for the Pensions Dashboard

We recommend that by the end of 2019 the Government publish a timetable for the rollout of a non-commercial pensions dashboard. This should include key milestones, such as the date for pension providers to include their data on the pensions dashboard, as well as target timescales for phases beyond the initial launch—for example, longer term plans to enable consumers to make value for money comparisons through the pensions dashboard.

With consent, authorised providers of financial services should be able to include an individual’s pensions dashboard data within their own applications.

90.We recommend that the pensions dashboard should feature retirement income targets to ensure the information is meaningful to its users.

Bearing in mind we have been at this for four years, a rather more authoritative tone would have been welcomed. All the dashboard targets laid out at the start of this year look like being missed and this cannot be blamed on BREXIT.

The W&P Select seemed to have a blindspot here, it is precisely because everything is being driven by the need for a single non-commercial dashboard , that nothing is happening. 

Advice and Guidance

The report is worried that advice and guidance could be a barrier to people taking timely decisions on their own, citing a theoretical example of someone trying to get some money from their pension pot (crystallisation) only to be told they’ll have to wait 5 weeks for a pensions wise appointment before the request could be granted.

But the report has a touching confidence in the ability of Pensions Wise and MAPS to act as a front-line in the war against self-harm and concludes

We recommend that individuals should only be able to opt-out of guidance through an active decision communicated to an impartial body, such as the Money and Pensions Service. This should not be a process which needs to be repeated for every pension pot an individual has.

99.We recommend that for any transaction to be deemed valid, the relevant upfront costs and any further charges should be detailed on the front page of the product and the investor should be required to specifically sign that they are aware of those charges and have agreed to them. This should be the case for exiting a scheme as well as for investment into a new or additional scheme. Investors should also be given a 14-day cooling-off period where transactions can be reversed without detriment to the investor.

Frankly – I cannot see these measures doing much to protect consumers, they look a bureaucratic nightmare. There is a lot more that can be done in this area digitally.

Non-advised, non-guided.

The FCA have provided WPS with a table of the percentages of people taking advice and guidance when trying to get their money back. It makes for interesting reading.

Screenshot 2019-08-05 at 06.38.00

Only when someone wants to buy an annuity , does Pensions Wise show more influence than advisers, but apart from “drawdown” – which is the adviser’s stock in trade”, no spending strategy is well advised or guided. There is a missing box which contains the people who are doing nothing, these people are either very savvy (waiting for something better to come along) or totally bemused.

WPS calls on MAPS to come up with some new ideas for the non-advised, non guided

We recommend that the new Money and Pensions Service should outline in its forthcoming strategy how it will increase usage of Pension Wise.

If they want a hint- they could read again the previous section of the report (the bureaucratic nightmare).

Investment Pathways

Early in the report , WPS extol the good sense of introducing a charge cap on Workplace Pensions. It now makes firm recommendations that the cap should be extended to decumulation of all pension savings

We recommended in our Pensions Freedoms report a 0.75% charge cap on default decumulation pathways. The FCA told us that it would prefer to see if market-consistent tools work and, if those fail, introduce a charge cap. This conversation is a near repeat of those our predecessor Committee had with the FCA about schemes used for automatic enrolment savings, which are now the subject of a charge cap. The FCA would send a simpler message to the industry by setting a charge cap now for investment pathways—rather than issuing vague threats to the industry.

It is good on the need for value for money comparisons between the options in the FCA table above.

113.We recommend that the FCA implement a robust monitoring programme for the effectiveness of the investment pathways, including value for money comparisons with other available products, in partnership with any other DWP monitoring work of the pension freedoms.

It recommends triage – though whether this is the FCA’s job or a DWP legislative requirement (as talked of for opt-out guidance) it isn’t clear.

114.We recommend that the FCA clearly set out how people who have passively built up saving through automatic enrolment will be supported to make and carry out an informed choice from the available decumulation products and not solely directed to drawdown products.

It sees the charge capping of investment pathways offered to those in non-advised drawdown as a trojan horse to all decumulation strategies (echoing the comply and explain language of the recent FCA PS19/21/

115.We recommend that a 0.75% charge cap should be set on decumulation products available through FCA decumulation pathways from the outset.

Independent financial advisers – mis-selling and scams

The conflation of IFAs and mis-selling and scams will annoy IFAs (rightly so). the report barely touches on the mis-selling of pension transfers  but it mentions its concerns about the SIPP solutions employed for BSPS members and grumbles that the availability of the good quality financial advice it notes comes from IFAs is scarce.

Anyone listening to the Wake up to Money article on this report this morning will have heard Chris Ralfe of SJP referring  to his company “like many other  independent financial advisers”. So long as senior representatives of insurance companies continue to regard their sales forces as IFAs, the confusion between types of advice will continue. IFAs , restricted advisers and scammers are not “as one combined”.

Many Independent Financial Advisers provide good value for money for pension customers. However, the number of people paying for good value advice is low. People who are not able to access good advice need guidance and effective protection from pension scams, which can have life changing impacts. Scams not only harm the individual but cause wider damage to the industry by discouraging potential savers. Scams are not a necessary consequence of the pension freedoms.

122.We were concerned to learn that the FCA’s dedicated scams team only consisted of approximately 10 people out of 3,700 FCA staff. We recommend that the FCA review whether it dedicates sufficient resource to combat active pension scams, prevent new pension scams and protect individuals.

123.We recommend that the Financial Conduct Authority’s list of unauthorised firms be expanded into a widely publicised database. This database should be regularly updated by the range of governmental organisations involved in pension scams and act as a co-ordinated early warning system

As this appears to be the section of the report that the press is picking up on, I think we should remember it is but a fraction of a much wider investigation.

LAST BUT NOT LEAST – A word about the net-pay scandal

It looks like an add-on and doesn’t sit comfortably in the report, but I’m pleased that the fate of the 1m+ pension savers not getting their promised Government incentives to save – are recognised.

In 2019/20, those with earnings below the personal allowance and contributing at statutory automatic enrolment rates will see a difference of around £65 per year between net pay and relief at source tax relief arrangements. Over a lifetime of pension saving this will be a significant amount to many people and a significant proportion of their pension savings built up through automatic enrolment.

The Government says that it would cost too much to put this right. In doing so, it risks damaging faith in the system, by perpetuating arrangements which cause individuals to lose significant sums through decisions they did not make. 

41.We recommend that the Government resolve the discrepancy between net pay and relief at source tax relief arrangements as a matter of urgency. 

Note to HMT – kick arse at HMRC!

Verdict

How influential WPS is – is hard to gauge.  It has certainly been influential with tPR over DB deficitis and its support of CDC and work on pension transfers have clearly shaped policy.

This report is wide-ranging and contains many good insights. It makes strong recommendations – especially when dealing with quantitative data.

When it comes to supporting members and staff on their difficult decisions at retirement it is less good, stuck in a rut of 20th century thinking which ignores the digital revolution we are going through.

I am really pleased we have this report and will draw from it in future blogs. What is important is that it doesn’t get swept under the table by a Government pre-occupied with everything else!

Posted in advice gap, age wage, auto-enrolment, pensions | Tagged , , , , , , | 1 Comment

Auto enrolment isn’t SERPS

Posted on August 3, 2019 by henry tapper

workplace pensions

The original AE workplace pension

Many years ago I was involved with  the Kingfisher Retirement Trust, a bare COMP that just about competed with SERPS for value because it offered employees lower national insurance and the semblance of a pension.

Kingfisher (now B&G) offered a final salary scheme which you could opt into, about 5% of staff did – they were white collar and understood the difference between the KRT (a non contributory DC scheme funded by rebates and a 1% employer contribution and a sixtieth plan.

KRT was auto-enrolled and had a huge take-up. Unfortunately most of the people in it, had no idea that by being in it , they lost out on service in SERPS/S2P for an uncertain pension pot run first by Aviva and latterly by Eagle star.

One union called it the worst scheme in Britain, but -being auto-enrolled , it had massive take-up and had hardly any opt-outs.

Complete with member confusion

KRT worked on paternalism, there was a trust behind it and the employer believed that members were better in an insured with-profits fund than in the state pension. For a time the contracted out rebate made this kind of “bare-comp”feasible, but over time the rebates fell – frankly the plan fell into disrepute and has since been replaced.

What worried me at the time was that so many members thought that KRT was a company pension – which for them meant a plan that gave them a wage for life based on service. This view persisted because so little information on the plan got to members. There were for instance unit-linked investment options – but of the 100,000 + members, hardly a handful used them.

Members weren’t so much confused, but bemused. They had no idea what they were in and only got to find their hopes of a wage for life were false, when they got to scheme retirement age. I may be a little harsh on the trustees here, but knowing one or two, I think they’d share my characterisation of KRT as “not what it seemed”.

Are member’s confused by today’s master trusts?

The excellent Ray Chinn – who is a customer champion at NEST, reported that a high proportion of NEST members thought that NEST- being a Government pension, would give them a Government pension.

This is a cosy enough place to be for NEST, it is unlikely that many members will opt-out and they can carry on building up their investment pot, with the problems of explaining the misconception left to the next generations of NEST trustees and management.

NEST is not the kind of organisation that likes to disturb its members – it famously runs a low-risk default for youngsters because it thinks young people, discovering their investment pot has gone down, might get put off saving. It’s the kind of wonky thinking born out of a deep-rooted grounding in state sponsored defined benefit schemes where members take no risk.

The golden rule of this kind of thinking is to let sleeping dogs lie, which is precisely why Adrian Boulding and NOW’s disruptive 20 year charge projection table has created a furore.

Here’s Adrian reigniting the blue touch paper after Darren Philp of Smart went to press over his table

Of course Adrian Boulding is not impetuous, he knew just what he was doing and he did it well. He asked us to think about what we were choosing as workplace pension for our staff.

I am hoping that staff in workplace pensions will start asking where their money is going because many of them don’t give the investment of the money a second thought. This is clear from this vox-pop from Quietroom, from work done by Investec and by Ignition House

We can’t let people sleep-walk into retirement

Some time ago – we took the decision to scrap the state second pension (aka SERPS). We did so because we wanted people to own their own investments, data and retirement choices.

We decided to go the funded pension route, and what’s more, we decided that there should be multiple pension providers competing for our money.

But there is a strong group of pension experts who do not share my belief that we should tell people that

a) their money is invested

b) how their money is invested

c) how these investments are doing

These people are left of centre paternalists who see the success of workplace pensions as dependent on people being kept in the dark, asleep to what is happening to their money and blind to the performance of the investments (both in terms of returns and ESG factors).

These people are like the Trustees of KRT, they are not evil or in anyway malicious, they just think the interests of ordinary people are not best served by telling them what’s going on.

It’s well worth tapping through to the rest of the thread. Gregg and I are friends but we hold radically differing views on the need for engagement.

I think that Gregg would ultimately like to return to the days of SERPS. That wouldn’t be such a bad thing in an abstract world where theories dominated. I was nearly sacked for being quoted by Barbara Castle as saying that all private pensions aspired to the efficiency of SERPS.

But the world has moved on and Gregg is now working for a workplace pension scheme which has well over 4m members, each with an individual pot. It is a much better scheme than KRT but it is still a DC plan which depends on member contributions. Those contributions are currently too low to possibly match the benefit of a company pension scheme as KRT members understood “company scheme”. Contributions are high enough to make People’s give ordinary people more than SERPS, but people have the opportunity to use People’s to get themselves a great deal in retirement.

To do that, they need to feel that People’s pension is worth investing in. I urge People’s to start promoting the great things it is doing with its default and the excellent outcomes that arise from its low charging structure and sensible investment options.

 

workplace pension 5

Posted in advice gap, age wage, pensions | 3 Comments

Without contingent charging – will IFA’s get paid?

Posted on August 2, 2019 by henry tapper

contingenet charging

I don’t think enough attention is getting paid to credit risk in the debate on contingent charging.

Clients of IFAs sign up to Terms of Business that typically offer a means of remuneration for the IFA from the money that the IFA is advising on. Where there is no money, such as in the purchase of life insurance, or other protection products , there is a commission payable by the insurer. Either way, there is certainty of getting paid which is why IFAs like their creditors to be funds and insurers rather than their clients.

This is not always the case. IFAs who have wealthy clients find they are used to writing cheques and paying VAT on professional services. So contingent charging is less needed in certain circles. However, given the choice of paying VAT on the service or not, I know which I would choose.

So the system reverts to contingent charging as the line of least resistance. IFAs do not want to spend a lot of time chasing creditors, insurers and the operators of fund platforms make good creditors who pay on time and are easily chased when they don’t.

So what if we move to fee charging for all?

The argument that is given for retaining contingent charging is that it promotes advice to a much wider range of potential clients. In practice, advisers would not do business with clients who potentially didn’t pay their bills.

Direct fees are not only more transparent, they are more expensive (as they are typically loaded with VAT) and they are paid for out of taxed income, rather than out of a tax-exempt fund (pension) or a loaded premium of a life policy.  Direct fees are painful and they don’t always get paid.

There is a side of me that says “welcome to the real world” till I realise that actuarial consultancies (like most large law firms) don’t have private client departments – other than for the super-wealthy.

The problem is not so simple as it appears. IFAs are necessarily dealing with private clients and we have around 25,000 of them in the UK. Without contingent charging, I imagine it wouldn’t just be the breadth of advice that would suffer, it would be the number of advisers – capacity.

Alternatives

This has been the central problem of the RDR and it isn’t going away. The FCA recognise that there are hardship cases where advice is needed and can’t be paid for up front – hence the carve outs in CP19/25. Al Rush has argued for them and I agree.

The question is where do you draw the line.

At what point do you accept that independent financial advice is a luxury item beyond the means of most people (who will have to make do with DIY management – unadvised drawdown- the purchase of commission paying products like equity-release and annuities?

I don’t have a problem with an advisory market that targets IFA as a premium service that is bloody expensive but worth it.

I don’t have a problem with the idea of an annuity broker like Retirement Line who declares its commissions upfront.

I do have a problem with the idea of “free advice” that is “mutton dressed as lamb” product selling.

If this sounds regressive – perhaps it is.

The fable that IFA should be available to all is both unrealistic and actually harmful. That’s because of the credit risk of running a mass market fee-based service and the perils of contingent charging.

Much better to split out IFA as a fee charging service that requires VAT to be paid on the fees and for the fees to be paid out of taxed income.

Anything else is not IFA  – it is advice that is product dependent.

The improvement in standards of IFA since the RDR is self-evident. There is now a mass-affluent market which it can serve on the basis of charging fees without tax subsidy.

If that means that some of the business plans of IFAs – predicated on serving another part of the market using contingent charging have to be withdrawn – so be it. They were rubbish business plans which carried the potential for consumer detriment and therefore regulatory and political risk

For years IFAs have ignored the regulatory risks of contingent charging.

Now those risks are being exposed, many networks will suffer, some small advisers will go out of business. The numbers of IFAs will reduce as will turnover. Profits will also reduce.

All of this is necessary because the IFA has to move onto a more sustainable remuneration model if he or she is to be considered as a provider of a professional service rather than a product salesman.

For confident IFAs like David Penney, an upfront fee charging model is no problem

But most IFAs and IFA networks cannot be confident of a high fee recovery rate. The credit risk of unpaid invoices looks immense and taking the step beyond contingent charging too daunting.

The pain of taking that step cannot be underestimated and that is why contingent charging is the issue it is.

IFAs will only get paid by direct fees, if they are considered worth it. Most IFAs are worth it, contingent charging has had its day and so have the financial advisers  who can’t live without it.

Posted in pensions | 3 Comments

Bosses + trustees talk “pension choices” too!

Posted on July 31, 2019 by henry tapper

agewage advice

This blog looks at what the FCA is planning to do to regulate the way unadvised drawdown plans are presented to customers. This follows the publication on a further policy paper from the FCA – CP 19/21

The point of the blog is to explain that the choice architecture discussed by the FCA can be talked about by non FCA regulated people – the employers with workplace pensions and the trustees of occupational pensions – including the multi-employer ones,

These people are often outside the FCA’s line of sight!

What’s new?

The FCA have made three simple changes to the proposals in their Retirement Outcomes Review – changes that are intended to help people who don’t  take advice when drawing down from their pension pot (or pots)

The FCA plans to

  • introduce ‘investment pathways’ for consumers entering drawdown without taking advice
  • ensure that consumers entering drawdown only invest mainly in cash if they take an active decision to do so
  • require firms to send annual information on all the costs and charges paid over the previous year to consumers who have accessed their pension

According to the FCA, around 30% of consumers who enter drawdown, do so unadvised.

It proposes that such people are given a range of investment pathways which might include continuing with the current investment strategy and drawing nothing, preparing to buy an annuity , or drawing the money from the pension pot into a bank account (drawdown). The investment pathways are collectively know by the FCA as “the choice architecture”.

The Retirement Outcomes Review found

  1. Many consumers, particularly when focused on taking their tax-free cash, take the ‘path of least resistance’ and enter drawdown with their existing provider.
  2. Around 1 in 3 consumers who had gone into drawdown recently were unaware of where their money was invested.
  3. Some providers were ‘defaulting’ consumers into cash or cash-like assets. Overall 33% of non-advised drawdown consumers were wholly holding cash.
  4. A consumer drawing down their pot over 20 years could increase their expected annual income by 37% by investing in a mix of assets rather than just cash.
  5. Evidence suggests drawdown providers could improve investment outcomes for consumers by offering more structured options and making the decision simpler to navigate.
  6. Charges for non-advised consumers vary considerably from 0.4% to 1.6% between providers. Average charges are higher than in accumulation, and can be complex and hard to compare.

Some simple thoughts

When I sit outside the FCA’s bubble and consider things as an employer and on behalf of trustees, I am asking myself the following questions.

What is wrong with non-advised drawdown?

The problems with non-advised drawdown are listed – but not everyone who chooses non-advised drawdown does so as “the line of least resistance”, for many people it can be a smart decision. I’ll explain why..

The paper was published on the same day as the pile-driver of a report into adviser behaviour over transfers (CP19/25).

The costs of advised drawdown established in CP19/25 are considerably higher than the 0.4- 1.6% quoted here

Total ongoing advice charges of 0.5% to 1% will reduce an average transferred pension pot of £350,000 by £145 to £290 each month in the period immediately after transferring. Similarly, ongoing product charges of 1% to 1.5% will reduce it by a further £290 to £440 each month. So the total deductions on a transfer value of £350,000 would range from £435 to £730 each month. A DB scheme with that size of transfer value might have a current income value of £1,000-£1,200 each month, so the charges represent between 44% and 61% of the current level of that value.

It would seem from the FCA figures that not only is the cost of non-advised drawdown cheaper because it doesn’t include adviser charges but because the cost of the drawdown product itself are cheaper 0,4% – 1.5% pa for unadvised and 1% to 1.5% for advised.

While the pensions industry gasps at the stupidity of people DIY’ing their drawdown , I suspect there are many in the FCA who see such people as quite smart. They are at least doing something to combat the 44-61% income cut – occasioned by entering into advised drawdown.

I don’t think there is anything wrong with DIY if it can substantially increase your retirement income. For some people unadvised drawdown is more than the line of least resistance – it is an active choice which is right for them.

What is wrong with talking with an annuity broker?

Annuities provide a certainty that drawdown don’t – and they provide a genuine insurance against you living too long.

If you go to an IFA, you are unlikely to get much help buying an annuity.

As Eugen says, IFAs are not set up to broke annuities, if you are looking at your retirement options in retirement in a holistic way, you are going to have to shop around and find yourself an annuity broker.

If you rely on the line of least resistance and buy the first annuity that comes your way (one from your provider) you may end up like the people who are currently seeking redress from Standard Life. Annuity shoppers need to shop around.

In my work for AgeWage, I have done research on annuity brokers and recommend you talk with Retirement Line

Could something better come along?

If we get a Pensions Bill this year, then it will contain the legislation to enact CDC for Royal Mail and an open door for other types of CDC – including decumulation only CDC which would allow you to swap your pension pot for a scheme pension.

This could provide a halfway house between an annuity and a drawdown policy with more income than the annuity and more certainty than drawdown. If you were to look at that glass half empty, you might say “less security than an annuity and less income than from drawdown” and I’d expect CDC to fit into the choices people have in future years as a further option (not a default).

I’m also asking….Is my choice architecture broken?

What the paper doesn’t cover is who is delivering the choices (other than the provider of the pension pot). In the wide-world, many of the people approached for help on these choices are employers who are generally told they should not offer advice but should refer people to Pensions Wise or tell them to see a financial adviser. I know and like Pensions Wise but many people who go to Pensions Wise just go back to their boss with a statement like “they told me to seek regulated advice from an independent financial adviser, which doesn’t get the monkey off the employer’s back.

I am coming to the conclusion that the stock phrase “you should seek regulated advice from an independent financial adviser” is of limited value. It’s fine for the top 10% of people who have the money to pay for advice and the need for a very sophisticated approach.

But I don’t think that seeing a regulated  financial adviser tells you the whole story. An IFA may give you a long income and expenditure questionnaire to fill out to help him do his cashflow modelling, he may give you a huge underwriting questionnaire that he can send to an annuity broker, but he is unlikely to talk to you about the advantages of either unadvised drawdown or of buying an annuity or of holding on till something better comes along.

If you are going to an IFA for help with your retirement choices, you will be offered advised drawdown as your default option and you will find it hard to get advice on much else. Even if you go and pay your adviser to get all the choices, you may not get them. IFA’s aren’t always providing the full choice architecture that people actually need,

I think people need to have a different type of choice architecture that lists what is around now – advised drawdown, non-advised drawdown- but also what may be round the corner – CDC and the options that may emerge by waiting to take decisions.

After all, while the cost of delay to starting saving is obvious enough, the cost of delaying your starting spending your pension savings is a lot less clear.

We’re discussing all this at a series of workshops over August

If you are in charge of helping members of an occupational pension scheme or your staff in a group personal pensions with these tough choices at retirement, you might like to come to one of our four seminars in WeWork More Place on 13th, 14th , 28th and 29th August.  Places are limited so if you are a consultant or adviser, we may not be able to fit you in, but please apply anyway and we can have a chat.

Along with AgeWage, you’ll get to hear about Choice Architecture from Quietroom and about Annuity Broking from Retirement Line. The sessions are 90 minutes long and we’re calling them workshops because we want all the participants to do some hard work establishing how they can adapt the choices they offer their staff to the changing world created by pension freedoms.

We will of course be talking about unadvised drawdown as part of this , by which time I expect to have had some deeper thoughts on CP19/21

 

If you are interested in the choices offered by employers and trustees, you can sign up for our seminars via this link

Sign up to AgeWage’s summer workshops

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Posted in advice gap, age wage, pensions | Tagged , , , , | 3 Comments

Do we have to wait for the car crash, before we mend the road? CP19/25

Posted on July 31, 2019 by henry tapper

It is now too late to ask whether there is about to be another mis-selling scandal. That question was asked to two years ago on this blog when I accused Tideway of sluicing through transfers using contingent charging. Tideway complained to my bosses at First Actuarial and we agreed that rather than damage my company, I would withdraw my comments.

Throughout the summer of 2017 I persisted in raising the issue of high volumes of transfers conducted under a contingent charge price model that gave customers what they wanted now at a price paid much later. I pointed out that contingent charging provides advisers with the opportunity to take money from a tax-exempt fund and saves them charging the client (unrecoverable VAT).

When the Port Talbot factory gating happened in the autumn of 2017, it became clear that it wasn’t just FT readers who were swapping pensions for wealth management, it was steelworkers who , by and large, had no idea what they were doing.

Since then I have been working with people from Al Rush’s Chive operation, with Trustees and managers of occupational pensions schemes and with the regulators to explain that the problem is an epidemic and that it will not stop until there are interventions from the regulators.

Now – 18 months later – the intervention has come , but the damage has been done. The broken vase lies in pieces on the hall floor. The car has hit the pot-hole and is in the hedge.

The cost of compensation is based not just on the wrong that has been done at the point of transfer, but from the ongoing fees charged by advisers and wealth managers above and beyond the cost of maintaining the CETVs in simple workplace pensions.

The weakness of an evidence based regulatory approach

Well put Jo! But there is more to say about the evidence. The FCA used as evidence the information they were passed by IFAs which may have been incomplete and wasn’t timely. They are still talking of transfers in 2017 running at £20bn. TPR published figures for the year that suggested £12bn – based on the patchy returns they got from occupational DB schemes.  This month, TPR revised its estimate of transfers for 2017 from £12bn to £34bn – in line with the MQ5 ONS statistics.

The weakness of the evidence based approach is that if you rely on your own MI and your own MI relies on reporting from the people you are regulating, you’ll have to wait a long time to hear the truth.

The fact is that the evidence that I saw, occupational schemes saw, Frank Field and WPS saw and Jo Cumbo saw, was not acted on in a timely way.

“The cost of delay”, a phrase that every IFA is familiar with, is around £2bn a year, a cost that will be born accross the industry making IFAs more expensive and making the business of converting workplace pensions to a wage for life – yet more hard.

What is the evidence of contingent charging priming the pump?

We have to read to page 60 of CP 19/25 to discover the clear correlation between contingent charging and transfer value completions. There’s a simple correlation, the more the money flowing into private management, the higher the levels of completion

Screenshot 2019-07-31 at 06.38.14

The FCA are clear in their minds, transfer advice is being influenced by the financial reward to advisory firms of taking the money

Screenshot 2019-07-31 at 06.38.25

So when , a few pages later, the FCA complete their analysis, there is no hesitancy in their conclusions

Screenshot 2019-07-31 at 06.34.17

These numbers are truly shocking and what is equally shocking is the amount that the FCA believe is being taken out of consumer’s pockets through the use of contingent charging.

which adds up to a massive £445m a year in revenues to IFAs created by the adoption of the contingent charge

The damage this does financial advice

Financial advisers will no doubt turn on me and accuse me of making matters worse. I don’t think I can make matters worse. The FCA’s CP19/25 simply tells the story this blog has been telling for the past 30 months.

I warned financial advisers of the damage they were doing and financial advisers (Tideway especially) tried to get me sacked from my job.  I warned how fractional scamming would destroy the wealth pots of Port Talbot steel men and Gallium threatened me and Al Rush with legal action.

The IFA trade bodies have failed to take a lead and call for the ban of contingent charging and the PLSA, PMI and most of all tPR, have stood on the sidelines wringing their hands but not getting involved.  The £60bn that has left occupational pension schemes in the past three years has – after all – been £60bn less in liabilities on the corporate sponsor’s balance sheets. IFAs are – in a very macabre sense – protecting the PPF.

In all this – who has been standing up for the consumer? Michelle Cracknell did – but since she departed TPAS, MAPS has been silent.

Frank Field has and does, but nobody seems to be listening to him

TPR is about as relevant as a dead haddock.

As for the trustees (and advisors) to occupational DB schemes, they have been quite hopeless. I will not forget being dismissed from Willis Towers Watson’s offices in June 2017 for daring to tell the BSPS trustees they had a crisis of confidence among their members that was resulting in mass desertion from BSPS. To this day I have not had a single word of response to our recommendation they establish a transfer helpline.

In short, the £2bn a year compensation bill that is coming our way is down to a collective failure to take responsibility for the heinous behaviour of  a high number of IFAs who have behaved very badly indeed.

 

Posted in advice gap, age wage, BSPS, dc pensions, de-risking, pensions | Tagged , , | 4 Comments

Get rich slow – especially if you’re Greg and Amber

Posted on July 30, 2019 by henry tapper

Greg and Amber

Congratulations Amber, Greg (and Jayden)

In a shameless attempt to attract younger readers to this boring blog, I publish this picture of 16-34s favourite, Greg and Amber. Love Island winners, they’ve dominated the twittersphere for 8 weeks with 4.3m viewers plugging in to ITV2 every week.

Greg and Amber are now set for a lifetime of endorsements for hair products, tattoos and money generation for every other body image under the sun (or sunlamp).

It’s also been a good weekend for the get rich quick brigade with Fornitely star Jaden Ashman pledging to spend the £900,000 he won on a house for his parents.

Back in my day you made it rich quick by being in the Bay City Rollers and I remember teenyboppers up and down the land scaring parents by pretending they would put popularity before pension , success before sobriety and try to get rich quick.

Now I’m writing a blog with the words of Laura Lambie of Investec ringing in my ears as she sounds off on Wake Up to Money about Jayden being a dangerous example for young kids.

Oh my goodness – how I’d like to be Jayden or Greg or Amber!

But I’m not, I’m a boring 57 year old in receipt of a pension with a substantial pension pot that went up 2% yesterday because of Boris’ plans to sink the pound   take us out of Brexit.

If you’ve saved all your life and saved hard and worked for employers who help you save you accumulate a lot of money, so the 2% rise in my Legal and General pension fund is worth about £10,000 to me, which is not as much as Jayden and Greg and Amber won, but so long as I stay calm and invest in sensible things that do good for the planet,  I am going to be alright.

My advice to Jayden and Amber and Gregg – for their own sanity – is get rich slow. Do not forget to put money into a pension fund and make sure that the pension fund you put money into is invested for the future – with an eye to keeping this planet’s land  green and ocean’s blue.

Jayden, don’t put all your money in a house for your parents, put some in a pension for yourself.

Gregg and Amber, make sure your savings don’t run out before your good looks.

Be kind to yourselves – all three of you – for no-one will be kinder.

A cautionary tale – look after yourselves.

A friend of mine emigrated 25 years ago with a young son from Moldova, she was a nurse but chose not to join the NHS pension scheme so that she could save for a deposit for her house.

By the time she could buy the property , her son was old enough to be on the deeds and she made him the house’s owner. He has married , has kids and a good job in the City. He is selling the house but none of the money will revert to his mother who is living in rented accommodation after spending some time living in her car.

She has finally joined the NHS pension scheme but has missed a lifetime of saving which could have set her up in later life. Such is the risk of putting others before yourself.

Greg, Amber and Jayden, do not give it all away, put money in your pension for the future, the taxman will look kindly on you and provided you use a sensible pension scheme ( a workplace pension or a copper-bottomed SIPP) you will not go far wrong. If you are reading this – call me at henry@agewage.com – I’ll tell you it how it is.

Do not let yourself be beguiled by sentiment – look after yourselves so you don’t become a burden on others as you get older.

Youth’s a stuff will not endure

Laura Lambie, is right to warn the rest of us of relying on Amber , Greg and Jayden’s good fortune. But it takes more talent and application to win Love Island or come second in Fortnite than winning the lottery.

There will always be people who rely on winning the lottery for everything and they are playing a dangerous game, there are many aspirant Jaydens Gregs and Ambers who will get over it and get on with living a normal life.

There will be some who become beauty school drop-outs or nerdy Fortniters wasting away in their bedrooms, but not many. The casualties of Love Island will be few and far between – for the most part it gives the under 34s a laugh and (dare I say it) the over 34s a memory of what life once was like.

What’s to come is still unsure ; so come kiss me sweet and twenty.. youth’s a stuff will not endure.

Posted in pensions | Tagged , , , | 1 Comment

Why it’s good Rudd/Opperman stayed put.

Posted on July 29, 2019 by henry tapper

 

Opperman - back.jpeg

Contrary to all the rumours – Guy Opperman and Amber Rudd are still in position and Britain has some unexpected continuity in its pension policy making. I was asked last week to comment to a group of civil servants on whether I was happy with the leadership we were getting and I replied I was. I am not sure that was the answer that the group were expecting but it is genuine.

Opperman and Rudd can at least claim they have not done too much wrong. This is a rather weak statement , but Opperman has at least avoided the banana-skins.

 

A qualified welcome

I say this in a qualified way. Guy Opperman cannot be thought of as creative, the policies he has adopted have been winners (auto-enrolment) and he has stayed clear of taking on challenges (net pay anomaly, Pensions credit). He has supported the dashboard , but getting on for 9 months after its relaunch we have yet to see tangible evidence of progress.

The much trumpeted amalgamation of TPAS and MAS into MAPS (formerly SFGB) has run aground with the unexplained departure of its CEO, still tweeting about local issues (other than pensions). No new CEO has been announced and its chair Hector Saintz seems to be ruling that particular roost. It’s hard to get excited by an organisation in “listening mode” with such internal disruption.

When it comes to giving the public better pensions information, we are told that 3% of state pension forecasts delivered digitally are materially wrong. The problem seems to relate to years of underpayment of NI for those in contracted out occupational pensions. Most of these people are close enough to retirement for this to be a material issue.

A Treasury branch line?

It’s hard not to feel that the price for continuity has been paid by a dilution of the DWP’s ministerial influence. Opperman took his post as an “under-secretary” of State, a downgraded role. Now we hear Amber Rudd’s role includes being minister for equality. As if sorting out work and pensions wasn’t enough.

We heard last week from Amber Rudd , relying to Nigel Mills on issues arising from Standard Life’s £31m fine for stitching up savers with small DC pots

It seems that the DWP have cottoned on to the problem that the Treasury’s FCA has been failing to solve for the past fiver years . The FAMR has not found ways to help those with small DC pots to get advice – what makes us think the DWP will be any different?

Last week, Lloyds Banking Group’s main union Accord, accused LBG of selling advice to its customers but denying it to its own staff. Demands on employers to do more to solve the consumer issues arising from Pension Freedoms are growing.  Has the DWP got a credible policy (beyond “encouraging Mid-Life MOT’s”, to tackle the growing problem of people retiring without access to substantive help with their pension options?

The DWP must be collective and creative

The fact is that the scope of DWP’s regulator – TPR – is limited to fining employers over auto-enrolment breaches and the trustees of occupational pensions for breaches of institutional rules. There is simply no D2C element in DWP’s control.  At best the DWP is an advisor to the Treasury, at worst – it is a branch-line where unwanted engines and rolling stock are sent to work out their days.

If Rudd and Opperman are to prove themselves in the pensions space, they have got to prove themselves as more than the Treasury’s poodles and the champions of legacy pension policies.

That means coming up with meaningful mass market solutions. By meaningful, I mean CDC and not a sexy but frivolous extension to Pensions Wise that is branded  “mid-life MOT”.

Time to return to the dashboard?

The only opportunities that DWP have to make a real contribution to the UX of pensions are in the provision of mass market spending plans (CDC) and the means to see and manage multiple pension pots and rights on a digital dashboard.

The problems that beset the pensions dashboard are well known. The Government wants to have a 21st century product but are frightened of the consequences of adopting open pensions.  They are – they say – laying the foundations of a strong and stable dashboard by appointing their own to manage the project within MAPS.

Last week the dashboard issued requests from the wider industry to person the pension dashboard steering group. Why this has taken so long I don’t know, what we can be pretty sure of is that it will be a consensual group that will deliver more strong governance and lots of prescription around what the dashboard cannot do.

This will have the impact of centralising the dashboard around the ABI’s agenda , ensuring that the dashboard serves as a consolidator for what we have – rather than as a means to what we could have.

There are plenty of people outside the usual suspects who could put themselves forward to create a dashboard that really worked, but whether they have the appetite to risk once again being ignored in favour of a conservative consensus. Without wider Governmental support the dashboard project remains for me – a pipe dream. It has much more the look of Universal Credit than Auto-enrolment.

So why am I happy?

I am happy in a resigned way. Losing Amber Rudd and Guy Opperman would have lost us our Pension Bill and with it, the chance of developing collective DC pensions which I see as the way out of the problems pension freedoms are bringing us.

It would also mean starting again with the Pensions Dashboard which undoubtedly would be subject to yet another review from an incoming ministerial team.

As for the third plank of the Pensions Bill, legislation to help DB pensions consolidate, I am not so concerned. If it has to be sacrificed in return for legislation on CDC and the Dashboard, so be it.

The Pensions Bill remains the one tangible outcome of Guy Opperman’s tenure so far. If you take the time to go through the claims in the DWP’s video, it is hard to see beyond the Dashboard and CDC as areas where Government can make a genuine difference

https://www.ftadviser.com/pensions/2019/07/25/rudd-mulls-advice-options-for-savers-with-small-pensions/

Other matters , such as the requirement for Trustees to make statements about their policy on ESG are little more than inclusion of pensions in a societal shift. Meaningful work is being done in the DWP regarding pension disclosures , but I sense these will need the FCA’s adoption to move the dial on how we see “Value for Money”

The dashboard and CDC are the big-ticket items and without Opperman and Rudd at the helm, both would have been subject to further delays.

errors

 

Posted in pensions | 1 Comment

The tawdry state of DC cost disclosure

Posted on July 27, 2019 by henry tapper

 

Romi Savova
Boulding
Darren

NOW pensions, perhaps tired of being labelled the pariah of master trusts has come out fighting with the following table which shows in certain circumstances, their charging structure provides good outcomes, investment returns being even.

Screenshot 2019-07-27 at 08.31.09

Because of the peculiar nature of NOW’s charging structure, the impact of the £1.50pm policy charge dilutes over time while the impact of higher percentage of fund management charges (AMC), increase over time. NOW’s costs are front end loaded, hurting those who only make a few contributions, those with higher AMCs are back end loaded and hurt people who keep their contributions going and build up a hefty fund.

The problem with this analysis is that it ignores the fact that people move jobs on average 10 times over a career and that those with 20 years paying monthly contributions to one provider are minimal compared to those with lots of small pots.

Adrian Boulding, who was brought up in the days when life companies used to report profits based on 20 year persistency assumptions, knows only too well that the 20 year career expectation is a tad rosy (for all but L&G actuaries!).

So why is he trying to pull this stunt?

I suspect it’s because NOW are in the final phase of getting their Master Trust Authorisation after which it will be the Dutch Cardano, not the Danish ATP who will own NOW.

So it’s time to get on the boxing gloves and show that NOW are still the combative and disruptive force they were when they started out some eight years ago.

And of course, one of the great features of master trust advertising is that NEST aren’t really able to do it so everybody else can say what they like about NEST without fear of getting much more than a metaphorical upper cut from the (sadly departed Debbie Gupta).

NOW are proving that old habits die hard and happily misquote NEST as having a 1.8% additional charge not just on regular contributions (See above) but on transfers in. The table below is looks at a single contribution or transfer-in of £28,000 (equal to one year’s earnings) from another pension plan:

Screenshot 2019-07-27 at 08.31.28

Adrian Boulding tells me that he had spotted this mistake and re-cast the numbers but that’s not what this looks like to me. This looks like NOW simply rolling forward their numbers with a £1.50 pm management charge while NEST has a £504 deduction (1.8%) at outset. Unsurprisingly this gives NOW an edge which is totally fictitious.

So in good old -fashioned disruptive style , NOW are peddling fake news which I suggest would be picked up by the advertising standards authority if pension fund disclosures were taken seriously by anyone.

Of course no one takes this stuff seriously – why should we?

The article evinced plenty of huffing and puffing from Smart’s anonymous spokesperson and from Pension Bee’s feisty CEO Romi Savova. John Greenwood managed to collect the bitching into a single article (though disappointingly he did not get the thoughts of NEST on the misrepresentation of their single premium charging structure. You can read the knockabout stuff here.

Romi’s indignation spilled over onto Twitter

Where is People’s in all this?

People’s Pension , which used to be relied on for getting involved in a charges punch up refused to share data with NOW pensions. They have a new charging structure that Adrian Boulding couldn’t quote but which would have made People’s look quite competitive in the second table.  Like People’s, Pension Bee’s charging structure rewards larger balances; to quote Adrian

“Romi halves her bee sting on funds over £100k”

It’s becoming quite a feature of People’s – they are isolationist and grumpy, I say they should lighten up – especially that poe-faced curmudgeon Gregg McClymont who should stop reading from the gospel according to Saint “Not For Profit”.

So what of slippage?

While all this slap-stick’s been going on, we’ve failed to address my earlier question, why does nobody take any of this seriously.

One answer is that simply comparing pension plans on the basis of overt charges is bonkers. It’s not like we’re even talking total cost , there are all the costs within funds that never get displayed in any of Adrian’s boxes but eat away at outcomes in exactly the same way.

The reason no-one quotes slippage in tables like this , is that it leads into the other component of value for money – value. If you’re going to quote the cost of investing, you need to quote the value of investing and now you start getting into deep water (especially if you are NOW). You are now not swimming in the lifeguard section but in open water.

We don’t have slippage because NOW are not happy getting out of their depth.

The tawdry state of cost disclosure

Bottom line, this cost disclosure stuff is old school and pointless. People are fed up with meaningless numbers thrown at them. They want to know how their pots have done, not this abstract projection stuff.

So long as we duck reporting on people’s actual investments and persist in fooling around with 20 year projections, people are going to carry on rolling their eyes and thinking “same old, same old”.

We need to have individual reporting on people’s own pots and that’s only going to happen when NOW, Peoples, Pension Bee, NEST , Smart and others start telling people what’s actually happened to the money that they last saw as a deduction on their payslip.

Quoting costs without reference to outcomes is like buying butter without bread.

So let’s get serious for a minute and start focussing on what really matters, the members and policyholders of the schemes we invest in and manage.

AgeWage evolve 2

 

Posted in advice gap, age wage, auto-enrolment, pensions | 3 Comments

Happy being part of the crowd!

Posted on July 26, 2019 by henry tapper

Ask-the-Audience-1200x848

Are you an A or a B (when it comes to investment)

Robin Powell – the evidence based investor – has produced a very simple explanation of why the valuations of stocks are 90% right. You can read it here. It’s based on the ask the audience responses to who want to be a millionaire where – following the wisdom of the crowd gives you a 90% chance of being right. I dare say there are better ways of arguing for investing in passive funds but there are few that are as easily understandable.

I also came accross an advert for some thought leadership from Schroders this morning which looked like this

Screenshot 2019-07-26 at 08.52.53

Not being a UK investment Professional, I pressed the link to the article with a degree of trepidation.

What the article told me, and told me very well- is that valuations of stocks can be wrong and that Schroders currently think that growth stocks are over-valued and value stocks are under-valued.

So if you think that you can control how your money is managed – you should be investing in the author’s fund – Kevin Murphys Schroder Equity Value Fund.

I work directly opposite Schroder and may have watch Kevin work out in its fine qym or pig-out in its fine staff restaurant. He is paid a lot of money because when 90% of people believe something that is wrong, he is able to put his hand up and say – “no it’s not like that at all – you should be investing in my value fund”.

But of course he can only say this to UK investment professionals because if he said that to the likes of you and me we might end up taking his advice and getting him and Schroders into a great deal of trouble.

I hope that in lifting the lid on Kevin’s article I have not started a landslide of money into value stocks and out of growth stocks. I take comfort that this is extremely unlikely.

That’s because 90% of people not only go with the flow and invest in defaults – but in doing so invest accross the market in both value and growth stocks – and a lot else besides. They trust the market valuations as 90% right and aren’t prepared to entrust their money to individual strategies like Kevin’s.

Here is another statistic.

agewage advice

The statistic is from the FCA – actually it should be 94% of people aren’t paying for advice as a lot of people take advice but don’t pay for it (but we used the FCA’s words).

Now I’m prepared to accept that the 6% of people who pay for advice , get value for their money and end up listening to UK investment professional persuaded by arguments from Kevin Murphy and end up investing in funds that beat the market.

That seems the deal we sign up to with wealth management and I’ve no problem with people paying wealth managers to find funds that fall into the category of the 10% of ideas that are right when everyone is looking the other way.

Well done the wealthy but…

What I find hard is convincing myself that everyone should be taking advice – or at least guidance that points them to advice.

Part of the reason for this is that most financial advisers tell me they can only manage around 100 clients at any one time, that means that with a working population of 40m – we’d need around 400,000 advisers – which about 380,000 more than we have today.

A second reason is that if you took that many people out of the working population, Britain’s GDP would reduce making the investments we make less valuable

And a third reason is that if everyone went chasing after the 10% opportunity, that 10% opportunity would soon be exhausted and we’d spoil things for the wealthy who are currently enjoying the exclusivity of being contrarian – paying for advice and going into funds that do the opposite of what everyone else is thinking.

But the best reason is that I really am quite happy having my money managed in my L&G workplace pension according to what they see as best for people like me!

I hate to say it but for 90 – 94% o us

We’re happy just the way we are!

The really good news for rich people is that poor people are showing absolutely no inclination to become contrarian investors and buy into funds like Mr Murphy.

They are quite happy not to read his article because they are not UK Investment Professionals. They are quite happy having their money invested in default funds by people who they hope know a little more about money than they do.

I know – I’m one of them. I’m one of the B’s.

Ask-the-Audience-1200x848.jpg

And I don’t feel bad about it at all.

Posted in advice gap, pensions | Tagged , , , , | 2 Comments

Scary news day!

Posted on July 25, 2019 by henry tapper
steve webb

old photo – Steve Webb

Scary news day!

Yesterday (Weds 24th) saw the arrival of Boris Blimp in his West End townhouse and the announcement that nothing much has changed at the top of the DWP- except the SOS’ brief – which now includes equality for women.

We have yet to hear whether the Gove-loving Guy Opperman will survive the cut but Amber’s news suggests that work and pensions are not top of the PM’s priorities so maybe he’ll be spared.

 

The shock of old fake news.

stables

Who’s got the unicorn now?

Weds 24th July 2019 also saw the publication of tPR’s estimates of pension transfers from DB schemes, via an FOI from former pension minister Sir Steve Webb.

Here’s Royal London’s deeply embargoed press release

Royal London asked the Pensions Regulator to update previous estimates of the volume of DB transfers and the latest figure suggests that 210,000 transfers worth £34 billion were reported to TPR in 2018/19.

The following table shows estimates for each of the last three years based on FOI replies:

Reporting year Number of transfers Value of transfers
2016/17 80,000 £12 bn (est)
2017/18 100,000 £14 bn
2018/19 210,000 £34 bn
Total 390,000 £60 bn

 

Sources: 2017/18 and 2018/19 figures confirmed in new FOI supplied to Royal London.  2016/17 volume figure from FOI on TPR website.  Value figure for 2016/17 estimated on basis of average transfer value of approx. £150k across 2017/18 and 2018/19 data.

Commenting, Steve Webb, Director of Policy at Royal London said: 

“These figures show the continuing huge interest in using pension freedoms to access pension rights in a more flexible way.  Although the volume of transfers has probably passed its peak, large numbers of people are still interested in seeing whether reshaping their pension benefits would be in their interests.  It remains the case that staying in a DB scheme will be the right answer for most people, but there may be individual reasons why a different combination of pensions would give a better outcome.  In such cases it is vital that there continues to be a supply of impartial and expert financial advice for those considering making such a big decision”.

If I was as rushed to get stories out as our pensions trade press, I’d have done what they did and print tPR’s version of the truth as gospel (fully endorsed by the FOI).

However, there is a  flaw in tPR’s methodology. They collect numbers annually in arrears – making all the numbers a year late.

If you want to know what really happened, you need to consult the ONS table 4.3 which gives you the cashflows out of DB schemes to other schemes in real time.

You’ll see from this cut of data, that the numbers quoted by tPR for 2018-19 actually happened in 2017-18;This image has an empty alt attribute; its file name is Screenshot-2019-07-25-at-07.41.02.png

 

The numbers are shocking – but it’s the shock of the old (4.3) that should be the news – not that it’s new news (the ONS numbers are published quarterly in arrears which is as close to real time as you can get).

The last ever cut of numbers for the MQ5 4.3 table was in March this year and this shows the numbers being continued through to the end of Q4 2018. We hope to get new and improved numbers in due course

Transfers for the four quarters of 2018 look like this

Screenshot 2019-07-25 at 06.49.34

What is new is the sharp drop off in the run rate of transfers from Q1 (£10.5m) to Q5 (£6.3bn). If this drop off is being continued in 2019 then far from supporting Steve Webb’s assertion about interest in pension freedoms, pension transfer levels may be returning to historical norms (reverting to mean as I’m supposed to say).

These numbers do not appear in TPR’s report but will no doubt be reported as 2019/20.

As Fred Norris, who compiles the ONS statistics , laconically puts it in his commentary

Transfers to other pension schemes in 2017 (£37 billion) and 2018 (£33 billion) were at the highest levels since the start of this series in 1984. This follows a generally higher level of transfers to other schemes in recent years and may be due in part to pension reforms introduced in 2015.

Note the use of the phrase “may be due in part”. The pension freedoms may have something to do with it , but I suspect that the bulk of the 2017 and 2018 bulge was down to the super-effective efforts of IFAs.

From the IFAs I have spoken to recently, transfer activity is being stifled by restrictions from PI insurers who are effectively giving IFAs “quotas”. That- combined with the departure and withdrawal of some of the most active IFAs in this market, makes the supply side a lot smaller. I suspect there may be some drop off in demand too – perhaps because of the monstrous bulge in transfer activity in 2017-2018 (and Q1 2019).

I maintain  that the transfer volumes are driven not so much by demand for pension freedoms but by the capacity and desire of IFAs to promote and fulfil pension transfers.

The problem with historical reporting

TPR is not alone in reporting DB transfer numbers in the wrong year and in incomplete amounts.

The FCA still stick by their figure for 2017-18 of £20bn transfers, a number compiled from IFA returns and well below the ONS numbers.  The ONS numbers do – it is true – include some Occ DC transfers out, but these are small beer, the real news is that both TPR and FCA have been under-reporting the scale of DB transfers.

The people who know the scale of the transfers are the recipients of the money . 2017 and 2018 have been golden years for single premium pension payments into DC accounts with the big players like – Prudential, Royal London, Old Mutual, Zurich and the platforms with their various SIPP partners.

I could have written an alternative commentary to Steve Webb’s which could have thanked IFAs for the new business and thanked tPR and FCA for under-reporting the scale of activity until the money was fully on the fund platforms of the DC providers.

The problem with historical reporting is that it allows the insurers to shut the stable door after the horse has bolted. The horse is now standing in the paddocks of the insurers and SIPP providers.

Scary news day – the shock of the old

I don’t know if the Royal London PR team deliberately timed the announcement of old and to a degree – fake news to coincide with the arrival of Boris Blimp in his Westminster Town House, but it appears to have scooped the news pool.

I hope that one or two of the less time -constrained journalists in the national papers, will look at these numbers for what they are – which is a reflection of how behind the times TPR is, in understanding the data.

ONS was the source for this data and we await a new source now that MQ5 has packed it in. For the moment we are left reading MQ5’s obituary

As initially announced in September 2018, this is the final MQ5 statistical bulletin in its current form.

Over the next two years, changes to Office for National Statistics (ONS) surveys that cover the financial sector will be necessary as part of the Enhanced Financial Accounts (EFA) initiative whereby the ONS, in partnership with the Bank of England, plans to improve the quality, coverage and granularity of UK financial statistics. This will be achieved by using new data from commercial, regulatory and administrative sources and reducing the burden and compliance on businesses that return our surveys.

This work entails wide-ranging redesign (and in some instances replacement) of the existing surveys that currently provide the data presented in this publication, making continued production of the MQ5 in its current form unviable. Therefore, the MQ5 will now cease and the ONS apologises for any inconvenience this may cause to users of this publication. However, this work should ensure that improved statistics relating to the investment activities of the UK financial sector, can be produced within the next two to three years.

The scariest news today is that we are currently in the dark about what is happening in 2019. Goodness only knows what is going on in and outside the stables.

stables

Where’s the unicorn heading?

 

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

Who’s accountable for Standard Life mis-selling? – Answer; we all are.

Posted on July 24, 2019 by henry tapper

responsible

In case you missed it, Standard Life was fined £30m for allowing its staff to abuse the trust of its customers and sell them annuities that paid them a lower pension than they could get elsewhere.

The fine would have been £40m but through a plea-bargain, Standard Life got 25% off.

You might think that Standard Life could treat their captive customers how they liked and that “caveat emptor” applied but you would be wrong.

The FCA operates under the principle that insurers treat their customers fairly and by denying their customers the benefit of open market and enhanced annuities, Standard Life failed.

This was not a “cock-up”. This went on  between 1 July 2008 and 31 May 2016, it was a systemic feature of the Standard Life business model.

Those who campaigned to get these sharp practices banned have long memories and undiminished passion.

But who will be accountable for this crass behaviour?

No one will be blamed

Since 2016 Standard life has passed through an intermediary stage as Standard Life Aberdeen before becoming a part of the Phoenix Group. The head of its workplace pension division became a non-executive Director of Phoenix before being appointed last month as CEO of Royal London

The head honcho – Alan Nish is now on the audit committee of HSBC bank where he’s also a non-executive director.

Other senior executives of Standard Life hold equally important roles in the insurance sector and the degree of personal accountability for what has happened appears to be zero.

The last person standing is current Standard Life CEO, Susan McInnes  . Susan is not a Standard Life person, she has worked at Phoenix Group for ten years but only took on her role with Standard late last year. She is playing a straight bat as she should.

No single person will be fingered for the way that Standard life preyed on customers with limited financial capability and a trust in the Standard Life brand. The bill will be picked up by Phoenix shareholders and the affair could be swept under the carpet as something that “wouldn’t happen today”.

I think we have to pragmatically accept this and make sure this does not happen again.

Let’s take a step back – this was an abuse or trust.

Standard Life aren’t any old insurance company. Although Standard Life Assurance only set up shop in 2005, Standard Life as a mutual traces its roots back to 1825 as it proudly boasts to those who are part of its advisory network – 1825.

Screenshot 2019-07-24 at 08.21.11

As with Equitable Life, the probity of Standard Life was based on its mutual roots and its longevity. As with Equitable Life, this probity is being tarnished by its behaviour around post retirement options. The annuity problems at Equitable were different than those at Standard Life but when push comes to shove, the customer was mis-sold at both.

Standard Life abused the trust that it had created over nearly 200 years.

We cannot say this wouldn’t happen again today. We are responsible for making sure it doesn’t and that means taking a look at what happened and learning lessons.

Any difference between Equitable and Standard Life?

The main difference in accountability between Equitable and Standard Life was that the former’s management team managed the flack and took it themselves. I don’t say this exonerates Roy Ransom and his team, but at least they faced their music.

I don’t see any of the Standard Life team who were at the wheel between 2008 and 2016, being called to account for the way the company set up, managed and profited from the sale of Standard Life annuities and this worries me.

But it doesn’t worry me as much as the thought that annuities and other at retirement products are still being mis-sold today.

Very different for some

Not all at the coal-face can walk away from the problems they create.

For  UK regulated financial advisers, the option to walk away from the advice they have given -for instance on pension transfers – is not available. They can rightly ask why this is not the case for executives of insurance companies.

And the annuity brokers who were cut out of the chance to offer whole of market annuity advice can only watch on.

Insurers, advisers and brokers all have a part to play in promoting good decisions at retirement. We should be working with Pensions Wise and MAPS to ensure that vulnerable people go to places where they are treated fairly.

I know the Equitable whistle-blowers – they were heroes, those who blew the whistle on Standard Life must have been brave too.

I don’t think we can expect the FCA to be able to spot every rogue advisor in the UK (and abroad). It is up to those of us who are involved in helping people taking decisions at retirement to make sure they don’t end up in the hands of Equitable or Standard Life style practices.

Could this happen again?

As I have said on this blog before, I  am deeply uncomfortable about the way some occupational pension schemes offer no guidance to members approaching retirement.

There are good annuity brokers out there, Retirement Line and the Hub being two.

But Trustees and large employers who run their own occupational trusts are reluctant to point their staff to such brokers, worried about the implications to them of signposting a “wrong option”.

But as long as they aren’t signposting the open market option and offering a link or a phone number to a reputable annuity broker, they run the risk of staff falling into the hands of scammers – or perhaps other direct sales forces who may be behaving like Standard Life (dd).

So yes – absolutely – this could happen again.

How you can protect your members and staff from poor annuity purchasing

Part of the problem at Standard Life was down to a failure of employers with Standard Life Workplace Pensions to properly flag the value of the open market option and of getting a medically underwitten annuity.

If you are involved with an occupational pension scheme which has a DC section (including DC AVCs) or a workplace GPP you are welcome to come to one of four summer seminars I am running in WeWork Moorgate

We  will be addressing this issue and introducing Retirement Line as a straightforward way of ensuring the problems which happened at Standard Life, don’t happen to your staff/members.

You can sign up to one of these seminars which are on 13th, 14th of August and 28th and 29th of August using this link SIGN UP HERE

Most people don’t take financial advice and many who buy annuities still do so without the expertise displayed by Retirement Lined and other reputable brokers.

We cannot pretend that the problems at Standard Life won’t reoccur. So long as we have vulnerable people with limited financial capability, we will have people ripped off at retirement.

So it is up to the people who run the reward, HR, pension and general management functions that operate workplace pensions to step up to the plate and make sure that what happened at Standard Life for 8 years – does not happen again.

Come to my seminar on how we can take responsibility – click here

responsible 2

Posted in pensions | 3 Comments

The impact of NDAs on pension outcomes

Posted on July 23, 2019 by henry tapper

confidential.jpg

NDAs (non disclosure agreements), have been much in the news in the past week.

The government says it will crack down on the use of workplace “gagging clauses” to cover up allegations of harassment, discrimination and assault.

Many businesses use non-disclosure agreements (NDAs) to protect commercially-sensitive information. But employers have been accused in high profile cases of using the clauses to silence victims of workplace abuse.

The proposed new laws will ban NDAs that stop people disclosing information to the police, doctors or lawyers.

Are NDAs in pensions being used to protect commercially sensitive information or to gag whistleblowers who have uncovered unpleasant truths about those who issue and enforce them?

Transparency – the best disinfectant?

Today I’m going to an event organised by the Transparency TaskForce looking at the “remedies” to be applied by the Competition and Markets Authority to fix what was considered a cracked market in pensions investment consultancy.

Working, as I do, for a pensions consultancy (First Actuarial) , I must declare an interest. We don’t want to be out of work as a result of these remedies, we hope that we won’t be out of margin – my feeling is that smaller consultancies that are not dependent on fund picking and vertically integrated fiduciary management have less to lose (and much to gain) from larger consultancies who have dominated the market for as long as I can remember.

Time will tell on that: but if the CMA can present a level playing field which encourages new thinking and disrupts complacency, the result should be better outcomes – especially in DB investment management.

What questions should I ask?

I am on a panel at some stage of the day and will be asking questions of those more expert than me in these matters.

I’m interested in DB and DC asset manager margins

The market dynamics for DB and DC are quite different. DC is not dominated by consultants and margin pressure comes from the insurance platforms (and from NEST) . Where trustees and consultants dominate in DC, it is the sponsor who picks up the bill (many large occupational DC schemes pick up asset management charges).

Investment consultants have encouraged active management and have not exerted such margin pressure in DB, I have never seen evidence of the impact on DB deficits of active management underperformance (net of all costs) but evidence elsewhere (from the likes of TEBI- the evidence based investor – Robin Powell)  suggests that it has contributed to increased pressure on funding.

My experience of working with consultants on DC (when with an insurer) was that they did not exert margin pressure on us. I don’t think that there has been high margin pressure on DB asset managers (see comments below).

With regards data sharing?

The consultant’s job is to provide Trustees with advice on what to do. I think this advice should be evidence based. Funded pensions in this country have been going long enough for us to understand what works and what doesn’t.

TEBI’s approach is to build up a database of evidence based on outcomes. This is what will happen if AgeWage scores develop as I hope. Over time we will see whether the outcomes within DC are influenced by the type of asset management employed.

While thinking about what I’d ask this morning, I solicited comments from friends who know much more about DB costs than I do. Here’s one of the responses I got

The Investment Association’s standard Investment Management Agreement has a confidentiality clause which essentially prevents schemes from sharing info on charges except in very limited circumstances. My assumption is that these clauses are enforceable, and are not trumped by UK/EU law. 

This is something that’s informed my own pet theory about asset management profitability. The FCA published some data as part of their interim report on AMMS which suggested, with caveats, that the rate of profit to asset managers in DB was about 38-42% and in DC was about 11%. My hunch has always been that the prevalence of mandates with NDAs in DB is the driver of this, in comparison with commoditised pooled fund  investment which is pretty much ubiquitous in DC. Alternatively one might argue that it’s the fact that active management is holding out in DB, whereas in DC it’s commoditised passive/rules-based. Or it might be a bit of both.

Another correspondent added….

The IMA clause does not preclude the client, or the clients designated representative, from getting the data. It does preclude wider sharing.

NDAs are not exclusive to DB;  NEST has signed NDAs with managers that it employs and NDAs govern the disclosure of underlying asset management costs at other workplace pensions.

As these costs are ultimately picked up in charges that DC members pay, it is critical that they are kept as low as possible. I do not think that signing NDAs is the best way for DC Trustees to ensure competitive rates.

That said, the much lower DC margins of asset managers suggest that when negotiating directly, DC platforms are getting a better deal.

Are consultants complicit over DB margins?

But large workplace pension schemes fight their own battles (and pretty successfully).  I am more worried about the comments about DB margins.

Why do they remain so much higher than DC margins. Could it be that this is where the broken market identified by the CMA – manifests itself.

Are consultants to blame and is the use of NDAs part of the problem?

With regards “value assessments”?

The issue is exacerbated by the latest move to divorce value from the value for money equation by introducing “value assessments”. Another correspondent writes

This (value assessments) automatically diverts the attention of clients from anything to do with money or cost and perpetuates the continued misapprehension (that costs don’t matter).

My concern is that investment consultants not only permit these NDAs to survive in IMAs but perpetuate the practice because they have no wish to be accountable for outcomes. They are much more comfortable with “value assessments” than “value for money assessments” because of NDAs.  NDAs combined with Value assessments kick the benchmarking of outcomes down the road and render consultants less rather than more accountable

These outcomes are of course a result of advice given by consultants on asset allocation, style and choice of fund manager. The impact of charges on the outcomes is material and should- in the interests of competition  be disclosed.

Although the IA clause may not allow benchmarking ,of charges, it does not stop third parties comparing outcomes. My Pentech “AgeWage” scores people’s DC outcomes against a benchmark established and maintained by a trusted third party, we hope that trustees and IGCs will set the ball rolling, comparing DC member outcomes to average outcomes.

If evidence suggests that active managers are producing better outcomes , we would expect to see this reflected in AgeWage scores. Outcomes based scoring takes into account all paid costs and charges as they are reflected in – “outcomes”!

It would be possible to simulate the impact of replacing a passive manager for an active manager (with the same platform cost) and I’d hope that more of such work is done. It would be particularly interesting this back-testing being done by fiduciary managers on the active management they employ within their fiduciary management agreements.

Will consultants put themselves under NDAs when buying asset management as fiduciary managers?

Will consultants assess their value for money – not just their value?

Will the CMA allow consultants to continue to be unaccountable for outcomes – especially under Fiduciary Management?

Consultants need to be asking tough questions not concealing information.

I would suggest that they would be better off being open and transparent about the costs they are paying for the management of the money they hold under fiduciary agreements, that means refusing to sign up to NDAs  and ‘most favoured nation” assurances and putting “value for money” as the focus of accountability.

I’ll finish with some stats from Annexe 8 of the FCA’s Asset Management Market Study (now 3 years old)

Screenshot 2019-07-23 at 09.12.53.png

I do not think enough has been done to address the disparity in margins between the two institutional products examined – DC is working for owners , DB for asset managers. My question to the CMA will focus on this.

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How are our retirement savings actually doing?

Posted on July 22, 2019 by henry tapper

 

performance 2

How we are discouraged to ask the question

 

As indicated in the picture above, pension providers treat inquiries about past performance as carcinogenic. They do not go out of the way to tell us the value we’ve got for our money.

I wonder how many people could answer the question, “how are my savings actually doing?” in a meaningful way?

How would you answer?

  • Could you tell me the rate of return on your savings since you started making them?
  • Could you tell me whether one of your pots was working harder for you than another?
  • Even if you did , would you be able to explain why?

I think very few of us could answer those questions with any great certainty, we simply don’t get the management information we need to understand what has happened to our money.

So what do we get?

The first piece of information most of us get when asking for information is a warning that whatever we get is not going to be very useful

Past performance is no guide to the future.

This bit of wisdom is usually followed by exhortations to go talk with an expert, an IFA preferably.

Despite the Lloyds Banking Group advert telling us it is good to talk about money, there are very few people who you can talk to about your retirement savings, This is because the past is no guide to the future and any “retail” conversation runs the risk of your counter- party being deemed to be giving advice.

So what most people get when asking their provider how their pension is done is a series of numbers which they are told are no guide to the future and an instruction to talk these through with somebody who would  rather not (other than for a substantial fee).

What we get

I decided to have a quick go at finding out how my NEST pension is doing – so googled

“How is my NEST pension doing?”

I did get an answer;

Screenshot 2019-07-22 at 06.45.59

So I decided to press the link, discouragingly it took me to this page

Screenshot 2019-07-22 at 06.45.16

Being interested in me, none of these navigation options looked very interesting so I tried again and did manage to get to this message

Screenshot 2019-07-22 at 06.47.32

None the wiser – I had another go and finally – after several minutes, I found the information about how my fund was doing

Screenshot 2019-07-22 at 06.48.58

Nest has 7.5m members, I wonder how many of them could work out that they are 99% invested in a fund illustrated by the NEST 2040 investment fund. Being one of the priviledged few, I pressed on

Screenshot 2019-07-22 at 06.49.39

and finally honed in on what I was after

Screenshot 2019-07-22 at 06.49.50

From this chart I could see that NEST had done rather well over all the periods they had chosen to illustrate performance.

  • But what did this mean to me?
  • Were these figures including the 0.3% performance charge?
  • How could I work out how I was doing?

Sadly, I have no positive answers to any of these three questions. The chart seems to be telling me that I’m doing better than a benchmark of CPI +3%  and from reading through the rubric in the previous screenshots, I could see that there wasn’t a lot of risk being taken, but was there anything in all this that related to me? Even though I am an expert, I found nothing on NEST’s website to answer the question “how am I doing?”

What we get – apart from the error messages – is too high up the ladder of abstraction to make any sense to the saver at all. It is as if NEST thinks that its 7.5m savers have a financial interpreter out there. We haven’t.

Another way of telling people how they’ve done.

I currently have on my desktop, 11 requests for information signed by AgeWage investors , keen for NEST to tell them how their NEST pension is doing.

If NEST are comfortable for AgeWage to receive the information that these 11 people have asked me to have, I will get from NEST the current value of their NEST pension and a contribution history telling me when NEST got money from the person, their employer and from the Government  (which chips in with a tax-rebate).

From this data I will be able to tell that person three things

  1. How their pension pot has done  (technically known as their internal rate of return)
  2. How it would have done – if invested in the average fund (As defined by AgeWage and Morningstar)
  3. How the two returns compare, based as a single number (known as the AgeWage score)

agewage evolve 1

Advantages and disadvantages of this approach

I see the following advantages in this approach

  1. It tells people how they’ve done based on factual information
  2. It is easy to understand because it is simple
  3. It is the starting point to thinking about other things.

I see the following disadvantages

  1. It might show a low score which would make the saver sad or even angry
  2. Past performance being no guide – this number could be dangerous
  3. It requires the pension provider to do some work

Having been beavering away asking providers to give me the information , I am (unsurprisingly) getting a fair bit of pushback

  • I am not an IFA – so for some insurers I can’t be acting as agent for the person I’m doing this work for.
  • I have not got my data consent signed with a wet signature
  • The pension provider is not currently providing this service to its members

Of course we are pushing back on these objections and will get the information in the end (and in digital format as required by DPA 17).

On the other hand, several large institutions, keen for us to analyse the data of the members and policyholders whose money they are managing, are being very forthcoming and supplying us with large amount of (anonymised) data.

The big questions for AgeWage are

  1. Can we win the hearts and minds of Government to sanction this approach
  2. Can we get pension providers and their fiduciaries using big data sets to find out if they’re giving value for money
  3. Can we get ordinary people interested enough in how their pension pot is doing to go on and ask other questions
    1. Where’s my money invested?
    2. Should I be doing anything now in preparation for the future?

I don’t know the answers to these questions, but in proving the AgeWage concept, I’ve got to feel that the answer to all three questions has to be “yes”.

 

How are our retirement savings actually doing?

Our research tells us that people are really interested in the value of their pension pot and would like to know how it has done since they started saving.

People currently asking this question of NEST (and most pension providers) get a lot of risk warnings and then a lot of information that isn’t very easy to digest.

AgeWage wants to simplify the answer to this question so people can see if they are getting value for money (whether the person asking is a fiduciary or the owner of the pot).

If you would like AgeWage to give you an AgeWage score, you can do so as part of our pilot. All you have to do is drop an email to henry@agewage.com and I will get you a data consent form by return.

Thanks for reading this far, if you want to speak with me about this, I’d be happy to.

Performance

Oh – and AgeWage won’t charge you a penny !

Posted in advice gap, age wage, pensions | Leave a comment

Is Direct Investment the way forward for pension savers?

Posted on July 20, 2019 by henry tapper

 

It’s a third of a century since Sid spread the word about the bargain of buying British Gas shares.  The dream of a shareholding democracy flickered, spluttered and was finally snuffed out by funds.

Nowadays – direct investment in the shares of British and overseas companies is restricted to a few sophisticated investors who know what they’re doing, not the mass-market pre-occupation of the silent majority. There was a time – but the time when most of us owned shares directly is long gone.

Sid did well

Sid was born out of the privatisation of British Gas, Telecom and a number of other large state owned enterprises – which were thought would be more enterprising under private owners. So it turned out to be and by 2011 the Guardian was telling Sid and others

“Investors have actually done very well out of this, making 12 times their original stake if they have held onto their shares over the years,” he said. “A lot of people know they have the shares, but may not realise their worth. When people are trying to make ends meet, they might want to look out their certificates.”

Following later demergers and mergers, someone who bought shares in the initial privatisation could now hold shares in three companies, Centrica, BG and National Grid.

Not only could Sid see the Centrica vans and watch as the National Grid pipes were dug in, but he could sell his shares with clear instructions and pricing. The Guardian told its readers

SimplyStockbroking would charge investors £8 to sell shares through a nominee account, or 1.25% of the value of the stock (minimum £12, maximum £40) for those in certificate form.

The process should take about 10 days from the point of applying to sell the shares to getting money in your bank account.

But Sid never got involved in pensions.

If Sid had been investing a decade later, he could got his personal pension to buy his shares or he could have invested them into  his PEP (the forerunner of our ISA).  That might have saved him a little tax and helped him resist the temptation to sell his shares for a quick buck.

But the kind of personal pensions being sold (by people like me) in the early 1980s were not for Sid. If Sid wanted a pension , he joined a big company and made sure he hung around long enough (five years back then) to make sure he got a promise that would be paying him a monthly income today.

Sid went viral because of that postman, he’d probably be getting a Royal Mail pension today. The postman did not have to think about investing for his retirement then (and thanks to CDC should not have to think about it today). But Sid probably does.

Sid’s pension today

Sid – the ordinary bloke – is now in a workplace pension. Unless he works for the Government, that pension’s building him up a pension pot and is invested in funds.

Sid doesn’t know what the pot is invested in, it could be Centrica or National Grid. Infact Sid has probably never given his investment a moment’s thought. Like some of  these people.

These people generally haven’t been told where their money is going. If they could do some research they might find out their money was invested in funds but just what their funds invested in would be a mystery. Instead of getting a clear instruction – as the Guardian was giving – of how to turn funds into money, people are generally unaware of how they get their money out of a pension.

Poor old Sid. 33 years ago he was buying and selling shares and today he is being auto-enrolled into funds he doesn’t know anything about.

“Funds” have got some explaining to do.

I read during the week an article in one of the trade papers which had a video of fund managers telling each other that the Woodford thing was a lot of fuss and bother over nothing. It made me smile to see their complacency.

I don’t think the public are complacent about funds, I think they are beginning to ask some questions about these funds – which don’t tell them where their money is invested and make it hard for them to get their money back/

The people who manage these funds need to be very careful. Not only are people a lot more interested in where their money is invested (see video) , but they are not at all pleased to hear they may not be able to get their money out of these funds as easily as they supposed.

Were they to be given all the facts about the money taken out of their funds to pay management fees , they’d be even more fed up. The biggest howl of anguish over Woodford is at the news of how much Woodford is taking out of the fund to pay for his services. When they see the amounts going out of the fund, they object.

Woodford may be an exception, but to the general public, he is the one fund manager that everyone’s heard of and he represents fund managers much more than Mr Cummings at the Investment Association.

We live in a sophisticated technological world

Whether fund managers like it or not, people are going to carry on asking awkward questions about where money is invested and how much it’s costing. They are going to want to get rather better answers than they are getting at the moment. They are going to want to see their investments as Sid did and to be able to get their money back as Sid did.

They are going to want to be able to use their phones to find this information out and they will want to use their phones to change things if change be needed.

We live in a sophisticated technological world where  – should fund managers not step up to the mark – those people who understand what users want – will give them it.

Direct investment – avoiding funds – may be just what people want.

Sid

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Preparing for getting old

Posted on July 18, 2019 by henry tapper

 

I am glad that I took some time out to listen to  and discuss with some great women what it means to get old. The occasion was the Pension Policy Institute’s launch of Living Through Later Life which you can read from this link. It was also good to talk with David Yeandle about growing old with MS. The first lesson I learned from the afternoon was that it is best to talk about these things. As the ads affirm, it’s good to talk about money and how it supports us as we become increasingly frail. And it’s good to find the right words to talk about the process that has us move from independent living, through cogitative and physical decline into dependence. We agreed that “Frailty” is a better word than decline.

 

Screenshot 2019-07-18 at 06.06.24

Women to the fore

It was over an hour into the seminar/workshop that we heard our first male voice and that only a question to the all female panel.

The event was chaired by Michelle Cracknell and the opening talk was given by Lynn Wilkinson of the PPI and featured the experience of Anna Brain . 

Anna cared for her father who was unexpectedly siezed by a stroke and became immediately dependent and her mother who became frail through Alzheimers. Anna cared for them through to death.

Once we’d digested the account of Anna’s parents final years it became clear that being prepared for what the future brings makes it much easier for those needing care and for the carer(s).

This may sound trite, but it is not discussed and it took the panel session that followed to get us fully involved. By the end almost everyone in the room seemed to have their hands up.

This was largely due to the panellists , Liz Robinson of DWP, Teresa Frietz of MAS and Tish Hanifan of Solas.

As well as the panel, the session featured Jane Voss of Age UK who shared their work

Panel at PPI.jpg

We were left with some things to think about

key takeaways.jpg

You’ll need to read the report to get the granularity behind these headlines/

For me, the issue is to get people thinking about their finances in a way that helps them prolong independence but insures against frailty.

Thinking of later life in terms of health makes planning retirement financing a lot easier. As usual, PPI have done us a service by making something obscure and difficult – relatively easy.

If you feel you are getting old, or have clients who feel that way, then you could do a lot worse than read the report and think about what it says.

Thinking about getting old is hard and preparing for it harder still. But it is what retirement planning is about and the more we practice , the better we will get

Thanks PPI

Posted in advice gap, pensions | 2 Comments

“Your pay-rise is a pension rise”

Posted on July 17, 2019 by henry tapper

 

I often “wake up to money” but not to this! In a discussion about when we last got a pay-rise, one listener mailed in that her boss told her

“your pay-rise is a pension rise”

It’s the first time I’ve heard of an employee being told that their pay-rise is in pension contributions and it woke me up good and proper.

third world matters 2

There are two worlds of pensions, those who are just getting by and those who worry about things like CPI and RPI – GMP equalisation and the like.

uss3

Those two worlds crossed for me yesterday afternoon when I answered a question on twitter which I shouldn’t have

To me – powers to enforce contributions are all about individuals missing out when due money from employers (or Government) on auto-enrolment. They aren’t getting their promised pay. So I answered the question.

How I wished I hadn’t! I had imposed on an argument about DB funding between Mike (the Bazooka) Otsuka and John (Ralfebot) Ralfe on DB funding!

Smack

Whack

 

Because of course the one thing you don’t do is dumb down a good argument between two pensions experts by introducing things so mundane as auto-enrolment.

John was keen to deliver the coup de grace

Screenshot 2019-07-17 at 06.02.58

There are two worlds out there! There is the world of 30% + contributions going into USS and other well funded DB schemes and there is the world where a pay rise is a pension rise from 2 to 3% of AE band earnings.

Nothing could so define the difference between those two worlds as the contempt shown me for inferring that these two worlds were infact one world, that the university teacher and the contractor who cleaned the lecture theatre were equal in the eyes of God!

Third world pension problems

I sometimes wonder about the humanity of pension experts and whether they leave it behind when they go to work.

I quite often here actuaries talking between themselves using phrases like “it’s only DC” when talking of third world problems like auto-enrolment.

They consider people who survive in retirement on the meagre scraps thrown to them from the rich man’s table, as beneath their consideration.

That 40% of those eligible for pension credits don’t pick up the pay rise on offer to them, doesn’t get a mention in their Olympian discourses.

That 2m people aren’t getting the pay rise they were promised by the Government because they were put in the wrong kind of pension scheme, doesn’t worry the pension experts one jot.

But the third world matters.

We are all equal in the eyes of God and the Pensions Regulator is right to put compliance with auto-enrolment at the top of its priorities.

The days of considering workplace pensions as “only DC” should be over and it is time for the pension experts to wake up and smell the coffee.

There are millions of people in this country who are not getting the right amount paid into their pensions and they are not all in the USS DB pension plan.

If the only pay rise you get is a pension rise of 1% of your AE band earnings, you need all the care you can get.

The pensions third world matters!

third world

Posted in advice gap, age wage, pensions | Tagged , , , , , , | 2 Comments

Pensions for all -not just the public sector

Posted on July 16, 2019 by henry tapper

hilary-salt-170x170

Hilary Salt

Although I’m pleased that pension promises to the Firemen and Judges are to be extended to all public sector employees, I’m sorry for the millions of private sector employees now in DC savings plans whose reasonable expectations were for a wage for life from a DB scheme.

It remains odd that the public sector – which is supported by the wealth generated by the private sector, should have its pension system reinforced, while pension promises are withdrawn at will elsewhere.

It leads me to think that such inequality is in the long-term – unsustainable.

A best-estimates pension or a guaranteed pension

I have worked with Hilary Salt now for the best part of 10 years. I remember when joining First Actuarial, her spelling out a vision of a levelling up of pension promises so everyone could have a reasonable expectation of security in retirement from a replacement wage from their lifetime saving.

Many people talk of such things, few have made it happen. I firmly believe that had Hilary not stuck to her guns, the CDC scheme that looks likely to arrive at Royal Mail in the next couple of years, would never have been broked between staff and employer.

CDC is of course a DC plan , but its outcomes are pensions and not a pot from which a pension can be bought. For 140,000 Royal Mail workers, the outcome of their pension saving will be a wage in retirement which should meet their expectations from previous arrangements.

While the CDC scheme for the Royal Mail is a risk-sharing arrangement with the employer’s liability being capped at a percentage of salary, there is no cap on the Government’s liability to public sector pensions. The McCloud judgement will add £4bn to public sector pensions debt.

Though this extra debt is serviceable, it’s announcement comes at a time when we are holding our breath over the impact of Brexit and is bound to cause resentment amongst those who feel that they have suffered enough at the hands of politicians. I mean of course those who manage and work for private sector enterprise.

The lack of flexibility within public pensions means that pensions are now seen as part of the problem not the solution.

I hope that in the long-term, an exchange of promises – from guaranteed funding to best estimate funding in the public sector, from pension pot to best estimate pension in the private sector- will prevail.

hilary-salt

A lifetime’s achievement from public sector pensions

The grant of a pension, whether it be guaranteed or conditional on the affordability of the promise, should be universal for UK employees. I think it should be a condition of employment and should be something which the self-employed should be able to opt in to as well.

A pension is the reward for a lifetime of work and its achievement a principal outcome of our labour.

It will be a lifetime’s achievement to  make this happen and I hope that there are young visionaries – of the intellectual stature and with the moral compass of Hilary Salt who will see this through.

Public Sector pensions can be linked to the capacity of the state to pay them and be part of a deal with the private sector that does not cast the burden of affordability on the tax-payer. Public sector pensions should be linked to the capacity of the state to pay and the decision on what should be paid , should be created from a consensus between private and public sector.

At present , the private sector have little or no say in public sector grants – other than through their limited capacity to elect politicians.

It would be a lifetime achievement to create the conditions where a more equitable second-pillar pension settlement could be implemented.  I do not see it happening at any time soon, but it is a work in progress for the young visionary I hope is out there!

A lifetime achievement from private sector pensions

I am optimistic that private sector pensions can be reinstated, as part of a DC system which benefits from lower investment costs (disinter mediated) , cheaper and more accurate administration (using distributive ledgers) and better engagement (digital communications).

When I say “reinstated”, I mean that for all people who are currently saving into DC, there can be a promise of a best estimates pension at the end of their saving – calculated using actuarial assumptions on collective mortality and implemented through the pooling of risks in the collective vehicles we are beginning to understand – CDC.

Critics will dismiss this as “waffle”, I admit I am not a mathematician and there are no numbers in this article to back up what I say. But my argument that the private sector can pay pensions rather than pension pots is based on my understanding of people’s risk appetite. I know people and I think that people will accept the risk of a market based pension solution in preference to a market based pension pot.

I do not mean that we should do away with tax-free cash which seems to me the acceptable compromise  for most people to the binary decision of pot or pension. People can have both, but the majority of a pension pot should be applied to the provision of a wage for life.

An end to the pensions of envy

My hope is that – within my lifetime (if not my working lifetime), we will see a new pensions settlement which will allow public sector pensions to become more flexible and enable public sector reward to meet the needs of a changing public sector workforce, I don’t mean by this a dumbing down of pensions, I mean a more constructive approach to risk-sharing than is seen in the McCloud judgement.

Inevitably, McCloud will reinforce the arguments agains “pensions apartheid” where the private sector envy the public sector and ultimately refuse to pay the price of public sector guarantees.

There will be more McCloud judgements, more pension strain on the UK balance sheet and more of our taxes going to pay public sector pensions. Our P&L cannot withstand ongoing stress without the elasticity of tax-payer support snapping.

Fungible and sustainable pensions – that’s what we want!

Hilary Salt  talks of the fungibility of pensions, I wrote about the fungibility of CDC five years ago. Re-reading that article I understand how a CDC scheme can survive in a way that a guaranteed DB pension cannot. Fungibility is the key to the sustainability of a private sector pension system – and it can best be achieved through best-estimate funding with a DC contribution basis.

CDC lifecycle

 

Posted in CDC, First Actuarial, pensions | Tagged , , , , | Leave a comment

Are DC trustees worth the money?

Posted on July 15, 2019 by henry tapper

 

Pension-Fund-Trustee-Meeting

Is this how the public sees the DC Trustee’s role?

It seems churlish to take up your Monday morning with matters of pensions governance, what with the cheers at Lords, Silverstone and Wimbledon sill ringing round the country but I will!

My blog yesterday set out the case for cutting out DC trustees from the pensions body politic. I compared them to the appendix in the human body that does little good and occasionally does a lot of harm. We all know about the  acute harm “trustees gone wrong” can do , but they are few and far between, but I’d like to focus on the chronic weakness of DC Trusts and why we have to ask the same question of trustees as we do of other parts of the pension schemes

Are DC Trustees worth the money?

What do DC Trustees cost?

I don’t know, and I wonder if anyone has actually done a proper estimate of the cost of running a DC board. It will of course vary according to scheme size, but the simple logistical costs surrounding convening four meetings a year are substantial. Consultants, investment managers, lawyers even actuaries, attend DC meetings. Most are on hourly rates , most claim travel expenses and that’s just the start of it.

Increasingly trustees are expected to be reimbursed as professionals – independent of the scheme. This is right and proper, there can often be savings by having professionals on the board, where those professionals reduce the need for external consultants. But all too often the paid trustees result in ever more consultancy and I say this as a consultant.

How is the cost met?

The answer is that it’s met by the scheme sponsor, by the employer, unless the trust board is acting for multiple employers, in which case the cost of the governance is spread and so diluted that it becomes a part of scheme expenses and loaded into the annual management charge – in which case trustee expenses are met by the member.

It would be wrong to leave it there. The cost of running an own occupation DC scheme where the employer sets up , manages and pays for the trust board, is ultimately met from a pensions budget. Were this money not spent on governance, it would be available to boost employer pension contributions. It would be naive to think that ultimately there is a difference, the cost is always met by the member and the member should be asking, is the cost worth it?

Why don’t members query trustee VFM?

The short answer is that that question has never been asked (to my memory). There is no accountability amongst DC trustees to the people they serve. When a Chair writes a statement on value for money, he or she does not have to assess the trustee and the trustee retinue. The emphasis is on what members are getting for their investments.

But maybe this is wrong. If members knew that contributions from the employer are reduced to meet the costs of the trustees, they would legitimately ask whether the trustees were worth it. They might also ask why the scheme they were in needed its own trustees and why it might not be part of a multi-employer scheme where the work was done once for hundreds of sponsors.

We neither know the costs of trustees or the impact of those costs on scheme funding rates. Since the common mantra amongst trustees, sponsors and consultants is that we need to get more money going into pensions, wouldn’t an examination of the money lost to fiduciary management, be factored into the equation?

Members should be questioning what the cost of having their own trustees is and what that means in terms or reduced outcomes when they come to take their pot.

What is the value of DC trustees?

I expected push back on my assertion that DC trustees add about as much value as the human appendix.

I would expect trustees to be supported by Ian and his fellow consultants, they are part of the fiduciary ecosystem – paid for by sponsors out of trustee budgets or directly by sponsors as trustee support.

What the Pensions Regulator is consulting about, albeit in a rather pussy-footing way, is whether we are maximising the value of trustees.

My blog of yesterday was not an attack on individual trustees, who are individually very good, but on the collective value they give to DC savers. I use the word “savers”deliberately, trustees have all but given up on helping people to spend their savings.

As regards investments, the cartoon at the top of this blog suggests the public’s awareness of what DC trustees do with regards investment decisions. In my experience they put themselves in the hands of their platform managers and consultants, the amount of conviction-based trustee decision making on investments is woeful- as witnessed by their collective failure to adapt defaults to a modern world where responsible investment is the member’s primary requirement.

Nor are Trustees the champions of the user experience as their trade bodies might have us believe.

Trustees, who should be at the forefront , lag at the back when it comes to helping people move their money around. Four of the five named DC providers operate exclusively through occupational pension schemes, the fifth – NOW Pensions, employs JLT- now a part of Mercer. 

Screenshot 2019-07-15 at 07.35.36.png

By refusing to join Origo, the consultancy TPAs are putting their customers at the back of the queue, they are also at the back of the queue for pension dashboard adoption. Far from being a the cutting edge, trustees are presiding over administration which is decidedly 20th century.

My conclusion yesterday is my conclusion today. That trustees are by and large busy doing nothing.  By “nothing”, I mean nothing that couldn’t be better done by switching to a master trust or abandoning members to insurance company group personal pensions and the protection of IGCs.

DC trustees may not be adding enough value to justify the expense of maintaining them, at least not in the numbers of DC trust boards that survive.

Even modern master trusts are not exempt from scrutiny – I take NOW as an example of a Trustee Board that has had to take account of itself and move with the times. 

Compare and contrast the shape of their trustee boards 18 months ago and today.

This change did not happen organically, it happened at the Pensions Regulator’s demand. 

NOW Trustees

The NOW trustee board in October 2017

I think there are very real accountability questions for NOW pensions and I hope that  Joanne Segars  will work with her new board to get NOW back on track.

The new Trustee Board (below) is there because of Government intervention. I suspect that such interventions will become increasingly common.

Trustees cannot be allowed to fail their members – and that is what is happening in many schemes today.

Screenshot 2019-07-15 at 06.56.09.png

NOW Trustee Board July 2019

What is the benchmark for value and money?

As the FCA  keep telling us, there has to be something to compare trustee costs and value to. In the case of single employer occupational trusts there are two benchmarks, one is the work of master trust boards and the other the work of insurance company IGCs. While neither are doing exactly the job of a single employer trust, there are enough similarities for tPR ,DWP and FCA to make some meaningful comparisons.

I mention these Government organisations because they seem to me the only independent arbiters of the questions raised in this blog. Expecting trustees to determine for themselves the value they offer for the money they cost is unfeasible. It is unfeasible for consultants or the PMI or the PLSA or AMNT to opine independently.

This is where Government needs to exercise its role as an independent champion for the consumer and if they can’t work out what the VFM of trust boards is , then they should get the OFT and even the CMA in.

We need greater accountability and proper VFM benchmarking of our DC trustees.

A very specific inquiry

I do not want to conflate here the roles of DB and DC trustees. DB trustees have a quite different role to DC trustees. They are responsible for the funding of scheme promises.

DC trustees have no responsibility for the outcomes of DC pensions which is the existential threat they face. They simply have no proper role.

I believe that in challenging DC Trustees as I want them challenged, we will see them having to find a new role. It could be that they want to take on the challenge of helping members provide themselves with a Wage for Life, in which case they should be pushing to upgrade the scheme to CDC. It could be that they hand over their responsibility to a multi-employer mastertrust of GPP (and its IGC).

Either way, doing nothing is not an option. In an ideal world DC administration should be part of the blockchain, DC investments should be managed as NEST manages them. In an ideal world, DC members should have control over their money with the ease and precision they get from internet banking. There are examples of good practice in all areas, but by and large DC schemes are lagging and lagging badly.

In my view, DC Trustees are holding the member’s user experience back. That is the argument that I will be presenting to the Pensions Regulator in my response to its consultation and I look forward to pursuing this conversation with anyone who choose to challenge that view!

This is a very specific inquiry. I would like to feel comfortable by the end of this year, that it gets a very specific answer.

Are DC trustees worth the money?

Now certainly thought so back in 2013

 

Posted in advice gap, age wage, pensions, trustee | Tagged , , , | 2 Comments

The DC Trust – a pension appendix

Posted on July 14, 2019 by henry tapper

appendix 3

The appendix

Nobody knows exactly why we have an appendix, but removing it isn’t harmful. Appendicitis typically starts with a pain in the middle of your tummy (abdomen) that may come and go. (NHS inform).

I feel much the same about most DC trust boards. We have DC trusts because occupational pension schemes are governed by trust law, but just what DC trustees do remains a mystery to most of their members and – I suspect – to the Pensions Regulator.

Once a year , they are required the chair is required to write a statement telling us what is being done to get us value for money, ensure our money is managed with due regard to Environmental, Social and Governance considerations.  But with the exception of exceptional trustees (Rene Poisson at JP Morgan springs to mind), hardly anyone could name the people who act as fiduciaries for their money.

Like the appendix to the large intestine, DC trusts are legacy items that in time will wither away, their passing unlamented as their removal  painless.

The action is elsewhere

My investigation into the location of the appendix also brings up interesting parallels.

It’s connected to the large intestine, where stools (faeces) are formed

No one is saying that the appendix produces faeces, but it’s proximity to the large intestine suggests that it might once have power over the output of our tummy.

If DC trustees could give their members advice, they might still stop people taking crappy decisions.

If DC trustees were allowed by their sponsors to offer help in spending money, they might be more than pension’s equivalent of  “a small, thin pouch about 5-10cm (2-4 inches) long”.

But the action is elsewhere.

People who want a pension from their DC pension scheme can no longer get one from the scheme, they have to buy an annuity.

Instead of bringing retiring members together and offering them the opportunity to pool mortality, DC trustees have given up on what they call “decumulation” altogether.

As for helping members understand their value for money, DC trustees are paralysed by the “risk” that if they told members how they’d actually done, some members might not be happy and blame the sponsor or even the trustees for not doing their job properly.

And while trustees “embrace” in principle, the idea of ESG, only a handful have actively changed their default fund to ensure members get its benefit. Indeed many trustees still talk of ESG as a risk rather than a means of risk reduction.

The action is elsewhereTaps FCA

 

Inept and out of touch

Inept and out of touch, most DC trustees have little to do but turn up at trade shows and sit through worthy presentations by consultants and fund managers selling them services that they purchase to get further invites and (if they are lucky) a golf day or two.

The actual decision making within our large DC schemes is being taken by the manufacturers – the fund managers and the providers of investment admin and communication platforms that the trustees meekly purchase and oversee.

So as I contemplate responding to the Pensions Regulator’s latest consultation on DC trustees, I wonder whether to tell them what I think , or what the pensions industry wants them to think?

To tell tPR what I think would risk the wrath not just of the trustees, but of all the mouths that suck at the trustees underbelly.

piglets

To tell tPR what the industry want tPR to hear , would provide me with a cosy job and perhaps a few DC trust position of mine own. I could feather my retirement nest by being paid for being at best ineffective and at worst inept.

What would you choose if you were 57 ?

Reform or removal?

IMHO, 95% of DC trusts are useless and the 5% that are useful are multi-employer. Occasionally DC trustees go bad, like appendices, and have to be cut out and replaced by firms like Dalriada and Pi who specialise in recovery work – sadly usually at the member’s expense.

The concept of an occupational DC scheme for the staff of a single employer is an anachronism. It’s a hangover from a time when DB schemes really were part of the company’s ecosystem and not a risk to be managed out. DC trusts have long since lost any meaning and – save for rare schemes like HSBC’s staff scheme- have demonstrated zero appetite to evolve to the changing needs of today’s member.

So I thoroughly support the process of consolidation that is seeing employers participating in multi-employer occupational DC trustees or just hand things over to insurers with fiduciary management coming from IGCs.

I don’t see much point in the Pensions Regulator’s consultation other than it informs on action that is happening elsewhere (the much more cogent work going on in DWP and at the FCA). The Pensions Regulator should stick to the task of facilitating consolidation , removing (not reforming) DC trusts.

Appendix 2

 

 

Posted in pensions | Tagged , , , , , | 2 Comments

Time to tackle pensions tax

Posted on July 12, 2019 by henry tapper

Screenshot 2019-07-11 at 11.32.15.png

Pension taxation isn’t working. It is benefiting those who find it easy to save and not incentivising those who don’t. It is causing doctors to work below their peak capacity and demanding up to 25% more in contributions from our 2m lowest earning savers.

It is creating confusion amongst those moving from saving to the spending phases of their retirement savings. Pension taxation is – as Liz Truss says- “too complex and could do with simplifying”.

Some might say she is kicking the can down the road when she says it is a job for the next Prime Minister. I take that comment to mean that finally reforming pension taxation should be a priority for an incoming leader and something to be dealt with before the next general election. That puts reform at the top of the political agenda (as Jo comments).

A group of us, Chaired by Baroness Ros Altmann, is determined to help the cause of pension tax reform. Reform cannot come too soon, not just for the higher earning doctors but to millions who pay pension contributions but are denied their promised incentives.

More than just doctors

Yesterday I went back to the last pension tax consultation which began in July 2015 and petered out in the run up to the Brexit referendum early the next year.

You can read the consultation here

It’s entitled “Strengthening the incentive to save” and is quite clear about what the incentive to save for those auto-enrolling will be.

1.24 Average contribution rates will rise as the minimum contribution levels under automatic enrolment increase to 8% in 2018 (of which the individual will pay 4%, the employer will pay 3%, and the government will add tax relief of 1%).
However, it is still important that the right incentives are in place to support individuals to take responsibility for making sufficient contributions to their pension to meet their expectations. That is why the government is considering how it can go further to ensure that individuals are supported to save.

The Treasury’s policy intent is clear. The Government will put in 1% if the employee puts in 4% and the employer 3%. There is an intent to go further but no commitment.

Rather than see through the policy, two things have happened
  1. The date of the move to 8% of band earnings was delayed to early 2019
  2. Up to 2m low earners are not getting the promised 1% and are thus paying 25% too much by way of contributions (5% and not 4%).

Instead of doing more, they have done considerably less than they promised. I suspect there are reasons for the Treasury’s failure to deliver , but that those reasons aren’t “good”.

The Treasury’s estimates of the number of new savers by now proves to have undershot actuality by 15-20% (10.5m rather than 9m). AE has been more of a success in terms of inclusion than anyone dared think. But greater pension savings lead to lower Treasury revenues which is why the Annual Allowance and Lifetime allowance have been brought in. There is an explicit link in the 2015 paper.

The lifetime and annual allowances were introduced at ‘A-day’ in 2006. They were originally set at £1.5 million (the lifetime allowance) and £215,000 (the annual allowance), and were designed to ration the  amount of tax-privileged saving an individual could make into a pension. By 2010-11 they had risen to £1.8 million and £255,000 respectively.

Over the course of the last Parliament, both limits were gradually reduced in order to manage the growing cost of pensions tax relief. The annual allowance is now £40,000 and the lifetime allowance is £1.25 million. However, it was announced at Budget 2015 that the lifetime allowance would be reduced to £1 million in April 2016, and then uprated by the Consumer Prices Index from April 2018.

Complexities such as the Money Purchase allowance (stopping recycling) and the Annual Allowance Taper (a kind of pension super-tax) are additional to the core AA and LTA legislation outlined above.

Not to put too fine a point on it, the Treasury underestimated demand for tax-relief and appear to be balancing the books by not paying it (to those who need help most).

Pension taxation policy intent is to take from the haves and give to the have nots. We know from the state of today’s NHS waiting list that the taxation of the well off has succeeded not just in reducing Doctor’s pensions, but in their willingness to practice.

We also know that the money that they are paying to the Treasury through Scheme Pays or directly (via self assessment) is not going as it should to incentivise the lowest earning into saving. Instead the low earners are paying more than they anyone else to save (as a proportion of their net disposable income).

Impact on saving

In February, This is Money ran an article on the high-opt out rates among young low-earning NHS staff .

Why are NHS staff quitting generous pensions at an alarming rate 

The research it drew on concluded that young staff were being asked to pay too much for a benefit they didn’t understand.

There are .. fears many NHS staff feel unable to afford the pension contributions.

Nearly a quarter of a million active members have opted out in the past three years, a Freedom of Information request by the Health Service Journal found.

NHS workers aged 26-35 are most likely to leave the scheme, with some 30,000 doing so in 2017.

The research focusses on the affordability of saving

A typical nurse on £25,000 a year currently has to pay a contribution of 7.1 per cent before tax relief so saves £1,420 by opting out of NHS Pensions, according to Royal London figures.

This suggests to me that there is a point at which pension contributions become too expensive and that the assumption that 2m low earners will continue to pay 5% rather than 4% for their pension contributions is a dodgy one.

For low paid NHS workers , auto-enrolled into the NHS pension schemes without tax-relief , the cost of not getting the basic rate tax incentive is 1.42%, which is a lot of pay if you weren’t getting pay increases.

The Government should not be complacent, there is a point at which savers can save no more and it’s not just consultants who have reached it.

So it’s time to tackle pensions tax

The 2015 consultation points out that “Over two thirds of pensions tax relief currently goes to higher and additional rate taxpayers”.

It also hints at an emerging problem which has grown since 2015 with the phasing of auto-enrolment contributions.

Increases in the Personal Allowance in recent years have also led to a decrease in the share of pensions tax relief which goes to those with an income below £19,999.

I suspect that the Treasury knew even then that the squeeze would come both at the top (AA and LTA) and at the bottom (through the failure of net pay to pay the promised tax incentive to lower earners.

Let nobody think this will be painless.

The group of people who stand to lose most from change are those who benefit most from the current system. They are the mass affluent who don’t get hit by the AA and LTA and get the bulk of the “two thirds of pension tax relief”.

Restricting their lucky status by moving towards a flat rate of relief or even TEE would be extremely painful. It was too painful for Osborne and Cameron in 2016 and it may be too much for a minority Government in 2020-21.

But this bullet must be bitten if the pension system is to retain fiscal credibility. We cannot go on as we are and it’s clear that the Government know it. Liz Truss is not the only person who wishes to take up the Doctor’s grievances, future prime ministers are saying the same/

It’s a shame they aren’t saying the same for the have nots, who are being so badly failed today.

net pay

Posted in advice gap, age wage, pensions | Tagged , , , , | 2 Comments

Drivel is Drivel – whoever says it

Posted on July 11, 2019 by henry tapper

I read articles by Jack Bogle and Warren Buffet and John Kay and Terry Smith because I like to understand how money can be managed on my behalf better. I like to improve my understanding.

And occasionally I read drivel.

I have just read the most stupid article on asset management. You can read it here.

Its author describes himself as

A leading professional trustee who knows stuff and gets stuff done in pensions, investment and governance.

That is indeed the case.

The author, Richard Butcher has been chair of the PLSA, a member of the IDWG, he’s a Governor of the PPI and Managing Director of Pitmans Trustees Ltd.

He is undoubtedly a very influential man and gets a lot done;- and yet he trots out total drivel.

Drivel

Here is the central thesis of the article. The author suggests we are walking the plank

I’ve drawn this picture to help to describe the plank.

The blue line shows the shape of the normal economic cycle. The economy and market – albeit on a slightly different time frame and in a more volatile manner – falls, bottoms out, grows, peaks, falls and so on, ad infinitum.

The red line shows what has happened to the economy and market recently. It has continued to grow. We are on a plank.

Now, as sure as eggs are eggs, we will fall off the end of the plank at some point. There’s just no telling when.

Why is this relevant to the active v passive debate? Because of the rule of thumb in the Pensions Insight blog . Passive funds tend to do better in rising markets, active funds better in falling markets. The conditions for passive funds have been benign for an unusual length of time.

There is no evidence for this sweeping statement. It is purely based on the personal prejudice of the author.

And there is no evidence to confirm that passive funds produce better outcomes than passive funds in rising markets or that active funds produce better outcomes in falling markets.

But this cod logic comes up with a conclusion

So yes – over recent past passive funds in general have probably done better than active. The argument, however, will swing at the point we fall of the plank. (sic)

Probably? Has the author looked at the evidence?

About the only consistent data there is , is that the more you allow a fund manager to take money out of your fund to manage it, the less there is likely to be when you want your money back.

The evidence based investor Robin Powell, has assembled a massive archive of evidence that demonstrates conclusively that active management does not deliver good outcomes.

Here is his most recent article on the subject and here is a comment from a former active manager who is convinced by the evidence

Screenshot 2019-07-11 at 06.51.48.png

Which is why most fiduciaries do not take risks with other people’s money and stick with passive strategies.

Where we can employ asset management is to improve governance , asset managers can improve governance without trading stocks – and they do. If asset managers stuck with ensuring the assets they managed – were managed better – then they would be worth their salt.

Many passive managers – like LGIM and Hermes do just this.

The plank

But this is not what Richard Butcher is talking about when he offers us his very general rule of thumb;- that in a rising market passive funds will do better whereas in a falling market active funds will prevail.

He calls on fellow trustees to

“be agnostic in the debate. Their strategy should be based on investment objectives rather then (sic) personal prejudice. One challenge for trustees, however, is to find dispassionate advisors”.

Even when we are walking the plank?

In a short article the author displays his personal prejudices, calls for dispassionate behaviour and tells us we could be walking the plank (without an active management safety net). Trustees should be both agnostic and evangelical, starting with passive and ending goodness knows where.

All other things being equal, which they rarely are, trustees should be agnostic on the philosophy but evangelical on costs. In other words, passive is the proper starting point.

Whatever principle survives this bizarre conflation of  arguments is finally exposed as secondary to the whims of sponsors.

” in a defined benefit world, it is the employer who bears the costs of our (trustee) decisions. This means that they should have a say, assuming their covenant is up to it, on investment approach. We may decide on balance to go passive, but if they want us to go active, for whatever reason, and they are willing to pay for it, we should go active.

I do not normally  read drivel , I read this only because a friend sent me the article with the following comment

How does he get away with writing such shit?!?! The guy understands nothing. In any given day, wherever the cycle, soaring returns, bumping along or plunges, there is a benchmark return. There are passive traders in the market and active traders. The passive traders return the benchmark minus low fees. The active traders in aggregate return the benchmark minus higher fees. The end.

Whether the markets are rising or falling, in aggregate active returns less than passive. Why is this so hard for people to understand?

I think we just need to take a deep breath and recall that this jerk is being paid £1000/day by pension scheme members to be lazy, stupid and wrong. And he is the chair of the trustees’ trade body.

The answer is that Richard Butcher gets away with it because no-one calls this drivel- drivel.

Richard is a first class operator but he is not a strategist. He should stick to the knitting and not design the patterns.

buffet

 

Posted in pensions | Tagged , , , , , | 9 Comments

The value you get for your pension money

Posted on July 10, 2019 by henry tapper

Ruston Smith – Tesco
Richard Butcher

Independent help for all pension savers

I started yesterday in the swanky new film studio under the FT’s Bracken House. It had to be built on stilts and sound and vibration sealed as the district line runs right below it. As you sit on your sofa, cameras wheel past you driven by an unseen hand.

All this to explain to subscribers to FT Ignite , why IGCs and DC Trustees do matter and that they can make a difference. I look forward to sharing whatever comes out of the session- though I may be constrained. My key point was that IGCs and Trustees are responsible for protecting members from harm (however inflicted).

We talked of Fidelity’s default workplace pension fund that has  transaction charges that more than double the AMC. We talked about Woodford and the role of the Hargreaves Lansdown IGC in protecting workplace pension savers.

And we talked about value for money scoring for pension savers.

From zero to hero – the Hargreaves Lansdown IGC report

Trouble at stables

Hercules 2

I wasn’t anticipating continuing this discussion later in the day but with typical candour, Richard Butcher shared with us his frustration with having to make value for money disclosures.

We know that Richard doesn’t think cost disclosure worthwhile, from the laissez-faire attitude he adopted in his IGC Chair’s statement for Old Mutual. The pendulum has swung and 70 pages of disclosure later, Richard may feel he’s proved his own point.

Legal & General threw the kitchen sink at the problem in their 2019 IGC Chair statement. Where Trustees or workplace pension provider offer 200+ choices for members, they necessarily burden those tasked with fund governance with 200 times the data and 200 times the trouble.

As most workplace pensions are unadvised, the IGC or Trustee is the only independent source of expertise the policyholder/member has.

The message to those managing the fund platforms must be simple. If you want to offer every fund under the sun, there is a price to pay for it in extra governance and that means paying Richard Butcher and others to clean the Augean Stables

Hercules

Should we ban fund platforms from the workplace?

It’s easy to argue that we should simply ban fund platforms from workplace pensions and go back to a small but well governed range of core funds with an intensively governed default. This would be regressive,

Hargreaves Lansdown’s workplace pension platform (Corporate Vantage) is well regarded by employers that use it. It would be interesting to know how many policyholders accessed the Woodford World Equity Fund through the corporate plan but (judging by policyholder behaviour elsewhere) I doubt many. In any case, pension savers have less need of liquidity than most.

The IGC may want to have a conversation with Hargreaves Lansdown about red flags, and if they can’t get assurances that HL is managing the risks on the platform, then the IGC should be thinking very carefully about what funds to expose vulnerable policyholders to.

This is a question that the FCA may well be addressing as part of its IGC review which is kicking off this summer. I do not think that we should be throwing the baby out with the bathwater but I do think that employers who select a spectacular fund platform for a workplace pension, need to justify that decision. IGCs have an important role to play in discussions with employers who have not taken advice on their choice of workplace pension and are offering wider fund choice.

Why RAG is just bull!

I cannot agree with Richard Butcher’s assertion that members can be given a series of traffic lights based on the Trustee or IGC’s opinion.

 

I am with Ian McQuade – people need to know the value for their money, not a pronouncement from Olympus!

While Richard Butcher’s approach ticks all the boxes for the provider, it offers the saver nothing but “save more”.

People need to know what they are paying for and what they are getting for it. In the crudest sense, they need the equivalent of a till receipt.

A better way

Ruston Smith and I see eye to eye on most things, but especially on the need for simple statements that policyholders and members can read, digest and act on.

The Ruston Smith simplified pension statement, co-designed by Quietroom, shows what can be done on a single sheet of paper.

Ironically it is currently banned from showing the cost of pension management in pounds shillings and pence terms by (amongst others) the FCA. Apparently telling people the price of what they’ve bought might stop them buying again.

Ruston can’t provide a till receipt and instead has to pack the statement with words. The two pager has still a long way to go to the simplicity of a Tesco till receipt!

Simplifying pensions

We all think that value for money is very hard to explain. By “we”, I mean pensions experts. But for the ordinary person it is a very simple concept, he or she gives you the money and the amount you give them back shows your value.

agewage evolve 1

An aligned approach is the one I am pioneering at AgeWage which shows people how their money has done in a single score.

It works by analysing all the money that has gone into a pension savings account and compares that with the money is available to come out (contributions and net asset value).

Such a comparison can tell people the return or interest they’ve got on their savings. But that number is meaningless unless it can be compared with how the average person has done.

The AgeWage score is simply an expression of this comparison. By reinvesting contributions in the average fund we can compare one return against another and score people’s outcomes with a single number.

Why scoring outcomes is the way forward

This simple way of scoring outcomes is the only way I have found to give people what they crave, an accurate, un opinionated measure of how their pension saving has actually done. It is a way of giving people the value they’ve had for their money.

It is not the end of the story, infact it could be the beginning.  For many savers, it may be the only number – other than the amount in their pension pot, that seems clear vivid and real to them.

But there is in AGE an acronym that we’re adopting which allows us to take people further down the road to pension enlightenment!

A – assist- we need help with VFM

G- guide – we need a path and guide

E- equip – we need to tool-up for later age

If we can give people a proper view of their past saving and how it’s done, we can at least get some  to the next stage – a path and a guide. We might even equip them to take hard decisions on how to turn their savings into an AgeWage – an income for life.

Scoring outcomes is what Richard Butcher should be doing, not delivering a 70 page appendix to his Trustee Chair Statement.

Adopting AgeWage scoring is what Ruston Smith and Quiet room could do, to show members how the value they’ve got for their money , compares with the average.

Employing AgeWage to provide the guidance and equipment going forward, may be a next step for Trustees and IGCs, though I suspect we will have to do an awful lot of scoring before we get that far!

Finally an offer

If you’d like to have your pension pot (s) analysed by AgeWage and be given your own AgeWage score (or scores), you just need to mail me henry@agewage.com.

If you have already done this – I will be writing to you today (Weds 10th July).

We can’t promise we can get you a score as not all providers will co-operate, but we think it highly likely, given some patience from you, that we’ll get your score to you by the end of August!

Getting scores online is what we aspire to – but you have to start somewhere and this is where we start!

AgeWage evolve 2

 

 

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Giving doctors a break

Posted on July 9, 2019 by henry tapper

NHS choice

“82% of consultants say they are are or are planning  cutting down on work” – Dr Tony Goldstone

You can listen here to Dr Goldstone explain the issues facing doctors who find themselves on the cliff edge of taxation and all too often trigger unnecessary bills – ensnared by the complications of the annual allowance taper.

His comments on some doctors facing tax bills of up to £80,000 and having to re-mortgage to pay them have fallen on the incredulous ears of pension experts.

Liz Truss speaking in parliament (see video below) was “in no doubt that the pension taxation system is too complicated”. But Doctors , patients and the NHS have not got time to go through the series of consultations that would lead to a permanent solution.

It really doesn’t matter how the big bill is explained, the matter has now reached that point where the BBC, Sky News, the Guardian and the FT all ran the same story on the same day. In a world where the story is in the sentiment, the sentiment is clearly on the side of the doctors.

One of the many compensations for spending three days on an NHS ward was that I met quite a few consultants who wanted to have a chat about their affairs.

The consensus view was that no matter how much doctors cared for their patients, they cared for their families and their private time as well. The economic interest of the medical profession is not served by working for nothing, The tax-rules are wrong and the taper is causing the problem- not the doctors.

A failure of taxation policy which must now be admitted.

Whatever our feelings about high earning doctors (and I am not one to begrudge doctors high earnings), we cannot call what they are doing “industrial action”. It is “inaction” – it is not industrial – it is “social” behaviour. Doctor’s are choosing to spend their time differently to the way they were because they are so discouraged to work weekends/

As Prospect point out – this is not an affordability issue for Government

The matter was debated in parliament (to know great effect by the look of this video) The question is tabled at 16.22

Which leads to three questions

  1. When will the Government sort this out?
  2. If they sort out the doctors, why not those on low earnings who don’t get promised pension savings incentives?
  3. And when will they do something about the 40% of potential claimants not getting their pension credits?

We will soon have a new DWP, Treasury and DHSC team

Let’s hope that a new Government will do more than wring its hands over Brexit and start governing in Britain again.

The lack of action on these pensions issues over the past few years has been scandalous.

A new Chancellor and Secretaries of State at DWP and the Department of Health have an immediate agenda , to cut hospital waiting lists, make pension saving worthwhile for low-earners and to alleviate poverty for those in later years.

The answers to these issues may require a redistribution of pension tax-relief (as proposed in 2015). The ideas under consideration then should be picked up, dusted down and implemented without more ado.

This is clearly now a political issue.

But can our politicians get their heads around the problems they created?

Johnson

Doh

Posted in advice gap, age wage, pensions | Tagged , , , , , | 2 Comments

Cyber-power; is Facebook our new Government?

Posted on July 8, 2019 by henry tapper

cloud server platforms

When your bobbing up and down on the Thames in a wooden boat for a few days, it’s difficult to imagine how tech platforms are changing the world, but returning to terra- firma and reading “the Fracturing of the Global Economic Consensus” by Rana Farooha, I got a significant wake up call.

The article ends where I begin.

As one participant replied when I asked if he thought Facebook chief operating officer Sheryl Sandberg could still run for US president one day: “Why should she? She’s already leading Facebook.”

The capacity of technology platforms to take on aspects of Government is spelt out.

A few digitally savvy participants saw Libra (Facebook’s cryptocurrency) as only a first step into areas where governments (at least in the west) haven’t been able to effect change. Facebook could, conceivably, provide online education, or become an employment platform for legions of workers in a new global gig economy.

and the article talks of territories,  quite the opposite of cyber terrorism.

One participant, pointing out that liberal democratic governments simply can’t move fast enough to keep pace with technology, wondered whether “technology platforms might be the new Westphalian states”.

The rise of cyber-power

The ability to talk to and influence the population is something that liberal democracies have aspired to and achieved over the last 200 years. But they are now having to compete with Facebook, Linked in and Twitter as authoritative.

Indeed these platforms have forced Government to use them. Trump is a slave to twitter not the other way round.

And these platforms are American looking at  a regional breakdown of the equity market share of tech platforms — 70 per cent in the US, 27 per cent in Asia, and 3 per cent in Europe.

In terms of geo-politics, China has still a lot of catching up to do, but America’s geo-political advantage only translates into economic power if the US treasury can properly tax what its stock exchanges support.

The real power of the tech-platforms is with the likes of Sheryl Sandberg.

What does this mean to you and me?

As I look at politicians trying to be popular, I see populism destroying the aura of Government. If I walk into a Government department or even parliament and see an eminent politician, that eminence is usually tarnished by their participation on social media platforms.

Western Politicians are in hoc to social media and exposed to ridicule when they try to be popular on it. By comparison the Chinese political system (control and command) gives no such freedoms and may never embrace the social media platforms, watching how it is devaluing politics and politicians in the West.

I wonder whether in ten years time, I will be looking back at the article in the FT (and my reaction to it) and thinking “prescient”. Or will we see the rise of social media in the West as a bubble that burst – returning politics and economics to what many of my generation consider “business as usual”.

Oddly, this means a lot to me and you. Instead of being observers we are in the thick of it. What we say, observe and regurgitate shapes the prevailing consensus. If we chose to stop using social media, all cyber-power could be turned off.

Is that going to happen? I struggle to think of how it could.

 

Meanwhile – back on the water

unicorn.jpg

Not all unicorns are “cyber”

 

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HR and the decline of empathy

Posted on July 7, 2019 by henry tapper

Empathy.jpg

I wrote to my HR department to tell them I had had some emergency treatment. What I got back surprised me, an admission that they knew nothing about it – contractual sickness terms  –  and a sign off that reads

Please let me know if I can do anything else to help at this stage and I hope you are soon back at work.

From “Welfare” to “well being”.

It was not that long ago that “staff welfare” was the #1 priority of HR departments, now they seem to be a risk mitigation function ensuring companies cannot be sued by employees with an eye to the main chance.

Compliance with IS 9000 is a KPI for our company so when staff “fare badly” , they become part of the risk-register. In this blog I argue that process cannot has to put staff welfare – nor corporate risk mitigation as its focus.

Staff welfare or “well-being” as it’s now been rebranded, is a very simple concept that does not require a 900 page staff handbook and a battalion of lawyers. It starts  in sympathy. As sympathy is no longer in the HR lexicon let me remind myself what it means

“feelings of pity and sorrow for someone else’s misfortune”.

You can express sympathy but not be believed, to be believed you have to show “empathy”. Empathy can be defined as

“ the capacity to understand or feel what another person is experiencing from within their frame of reference, that is, the capacity to place oneself in another’s position”

It is not enough to have sympathetic thoughts, there needs to be more, you need to see and feel things from someone else’s point of view.

When we commoditise welfare – we get to well-being, a “measurable” that turns HR into a branch of risk management. Welfare is more than can be achieved through process; HR due process is an abstract notion linked to productivity and compliance.

what-is-iso-9000

The real problem with HR as risk mitigation

Sympathy is easy, you can cut and paste it from any HR manual, but empathy is hard, it’s dead hard – because it means trying to understand where someone is coming from.

The compliance approach to HR assumes that staff are always coming at an issue with a wish to escalate for personal self-gain. If the assumption is that behind each mail or letter there is an ambulance chaser then the chance to see things from your staff’s point of view goes out the window. The mail I got from HR read like a legal disclaimer and I guess that it did a good job of protecting the company’s position.

But it made me feel mad! I’m already back at work- I never left work. I love First Actuarial , I don’t want to bend the rules! I’m a Director, I have duties to my company!

I didn’t need a lecture but I got one

“You’ll appreciate that under such circumstance we will offer as much support as is possible but our contractual sickness terms apply to all employees”

The real problem with “HR as risk mitigation” is it makes  worried and scared people even more worried and scared. It puts up the barriers turning sympathy into hollow words. Empathy has no chance – this is all about them and nothing about you.

Personnel means people

I didn’t want a lecture, I wanted a cuddle. I wanted someone in my company to give me sympathy (with empathy).

And I am sure up and down the country, people are reading this and asking the same question. Whatever happened to staff welfare, to the personnel officer to the  “get well soon card” or similar.

Nowadays, that empathic sympathy comes through social media where people feel free to issue an emotional response to situations without fear of litigation.  Thanks to all – most especially to Gareth and Andrew for the kind gift!

It is a shame that companies feel unable to do staff welfare but I fear that is what has happened,

Personnel used to mean people- now people are a commodity – a human resource employed to maximise profit. Yet the companies in Britain that have survived longest, have done so because they look after their people.

I think of Bournville, Port Sunlight and I think of WeWork – these are places where the basic principles of looking after each other emanate from work.

Personnel means people and can still mean people. I know our HR people they are great. But they shouldn’t forget that for all their accreditations, they are about staff welfare and there are times that even ISO 9000 falls short.

 

empathy.jpeg

Posted in NHS, pensions | Tagged , , , , | 8 Comments

They shall not grow old!

Posted on July 6, 2019 by henry tapper

nigel and sheila.jpg

Yesterday I wrote about how 40% of those who could claim pensions credit don’t. Today I’m writing about Nigel and Sheila, my boating friends who have a related problem. Nigel is 75 in a fortnight, has been deferring his defined benefit pension but has been told that whether he likes it or not, he gets his pension from his 75th birthday.

A little bit about Nigel (and his remarkable wife Sheila). Nigel is curator of wood for the Victoria and Albert Museum, he is still working and Sheila tells me that when he gets home after a full day, his first thought is to walk the dog and second to mow the lawn. Nigel is a remarkably fit man despite having been ravaged by cancer earlier in what most of us would call his later years.

Nigel and Sheila have a large family with whom they share their boat, they are never without a smile on their face (even when Sheila had a boating accident and broke bones she never moaned).

Well-being

It’s an overworked phrase. Nigel and Sheila have it and they people who spend time with them – see it rub off on them.

I don’t know how to advise Nigel regarding his pension. I am quite sure that he sees this influx of unnecessary money as a nuisance but I’ve tried to convince him that there will come a time when even he will look for a wage in retirement.

He doesn’t seem to comprehend the idea of stopping work, explaining to me that that would be like a death sentence.

Let’s celebrate getting older

In a week when the prospect of getting older looked a little dim, Nigel and Sheila are my role models and mentors!

I think we can look up to older people in this way (there is less than 20 years between us but it seems like a generation).

Nigel was born at the end of the war, he is a child of that post-war austerity (like another friend Bernie Rhodes). The resilience of that generation is something I’d like to inherit.

Let’s celebrate getting older and learn to love the older life – however young we are!

Nigel and sheila 2.jpg

Posted in age wage, pensions | 3 Comments

#NESTinsight19 – worth it!

Posted on July 5, 2019 by henry tapper

The world’s most pampered think tank?

Released from the bondage of the catheter, yesterday I made the short way from Tapper towers to the offices of JP Morgan for a day with NEST Insight.

NESTinsight is a think tank, this might conjure up a vision of a lonely platonist in hist tower but it’s not quite that spartan. NEST Insight’s conference was supported not just by JP Morgan but by Vanguard, Invesco and its research by LGIM. I was getting gratitude fatigue well before the end of Will Sandbrook’s opening address.

There is a serious point here, good as it is that NEST Insight is not making further inroads into NEST’s £1,200,000,000 taxpayer loan, we’ve got to remember that it is blowing the research budgets, not just of the financial services companies sponsoring, but of a lot of other research projects that do not have NEST’s glamour. Be careful what you spend guys.

This is highly hypocritical of me as I spent whatever time off I had wolfing down the posh nosh, making up for three days of hospital food (thanks JP).

Universal pension credits?

The “context” of the event was given us by Will Sandbrook but while he spoke news broke of a rather alarming statistic which rather put the valiant efforts of NEST to get us to save more in the shade.

The reality of life in Britain today is that only 6 out of 10 people so poor as to need a top up to their state pension – are claiming. There were noises off about the pride of the working class not wishing to pick up means tested benefits, that’s Orwellian bollocks. Four out of ten people don’t claim pension benefits because they don’t know they can or they don’t know how to.

If the Government really want to help alleviate poverty in older age, they need to concentrate on the here and now, not just the future. We may become sufficient in time – thanks to Sidecars and behavioural economics but there are desperately poor people in Britain right now who should be auto-enrolled into pension credits.

Perhaps a bit of NEST Insight’s budget could be spent working out why – in the 21st century- with RTI and universal credit – we cannot get the right money into the right hands at the right time

Universal pension credits – my arse!

Enough moaning!

The rest of the gig was good. I particularly enjoyed the lunchtime session with Madeline Quinlan (despite me calling her out for telling us we should be “making the self-employed save”.

The work NEST is doing with IPSE and the DWP to work out what is the solution to Matthew Taylor’s problem is going down the right paths. I wish it was going quicker but this is a big big project and the thorough research looks proper to me.

I’m hoping that this research will be in the public domain before too long. It is vital that we get the self-employed back interested in pensions (though not at the expense of them losing their entrepreneurial instincts!

Good to see women to the fore.

There were some good panel sessions and for the first time in my memory – a four member panel without a man in sight.

 

You’ll have to follow my tweets for details of this and other sessions.

A good day and – despite my moans – a worthy day

We need the kind of thinking that the programme gave us, we need to think about behaviour and triggers and how to change things in a big way with small nudges.

We need to challenge NEST Insight, which is prone to being too much in the industry’s pocket. We need to challenge the DWP for getting flabby – thinking NEST Insight is doing its job.

Most of all, we don’t need to be complacent. Those 10.5m savers, 7m of whom have got NEST accounts are looking for decent outcomes. It’s one thing to save, it’s another to be financially capable of managing a wage in retirement.

If people can’t even get as far as picking up their pension credits, we know we have a lot more to do- by way of defaults – than we are doing today.

Posted in pensions | 2 Comments

We don’t know how lucky we are!

Posted on July 4, 2019 by henry tapper

Wonky tapper.jpg

I have just come out of hospital. I was admitted on Monday afternoon, had a three hour operation under general anaesthetic on Tuesday morning and left at Wednesday lunchtime.

Had I not had the services of the NHS, I could very well be dead –  many have died from haematomas that made it impossible for them to pass water. Many still will.

I live close to Guys and St Thomas’ , have the mobility and confidence to get myself to the right outpatients and the determination to be seen. I am very lucky indeed.

Our health service is no small thing

The last time I was in hospital was in 1982, I had a bruised kidney and urinary problems then (not connected).

In the intervening years I have always known that a free public utility was awaiting me , were anything to go wrong.

Of course things have gone wrong for many of my friends, many have been through the NHS emergency procedures and have been nursed back to health through NHS care. A few have died with dignity.

Our health service is no small thing, it is a treasure we have created for ourselves, something we share with those who are visitors to this country and a source of comfort to immigrants.

In my ward  in beds beside me was a young Pakistani and an elderly Indian gentleman. We were looked after by students and nurses who’s origins were from Nigeria, Ghana, Sierra Leone, Ireland and even the UK!

My consultant is of Sri Lankan extraction. Our great London teaching hospitals are an expression of our commonwealth, we share with the world.

The comfort of friendship

Much is made of social media as a destructive force, but little of its power to bring people together. On Wednesday morning, as I was preparing to leave, I was visited by a consultant knew of me only through the conversations I have had on twitter with doctors (AA and the Taper).

Thanks to all the people who picked up on my tweet about being ill. It made it a lot easier – took away worry and made me think about you and not me.

Thanks to my brothers Albert and Gregory, to my son Olly – who visited me. Thanks most to Stella my partner who is my rock.

We don’t know how lucky we are

The reason that life expectancy has increased in this country has been clear enough to me over the past three days. There is a system of care which starts with the NHS and extends through our family and friends to our wider social circles. We support each other.

We have all this because we are lucky enough to live in the first decades of the 21st century where technology brings us together.

My mother, who could not get up from Dorset, spoke to me as I came out of the operating theatre, she called on a hospital landline from her landline in Shaftesbury. I was able to tell her the good news that there was no tumour under the haematoma and that I most probably did not have cancer.

It may not have been the most conventional of modern day communications, but – thanks to some nurses who really did care – it happened when she was worrying most.

And that is the real point of this blog. There are people in our National Health Service who are dedicated to alleviating pain, giving comfort to the worried and getting patients back from the perils of physical and mental failure.

Alastair Santhouse, a psychiatrist physician, chose to visit a patient rather than have a coffee break, he is just one of the many people who I am thanking.

It is because of these great people, that we can do the things we do, in commerce, in the arts and in public life. Our whole society sits on a platform of confidence in our health built by the NHS and the people who work in it.

We don’t know how lucky we are.

 

Posted in age wage, NHS, Personality | Tagged , , | 12 Comments

Family offices and Social Impact.

Posted on July 1, 2019 by henry tapper

Screenshot 2019-07-01 at 06.06.58.png

Sometimes you get the key insights from the most obscure sources. Here is the statement that concludes an article posted on Linked in by Tony “Property investment” Miller who runs a Mayfair property boutique called Huriya (and is a member of the Pension Play Pen).

This is how the article starts

Some of the world’s richest people may take their money away from private bankers and wealth managers unless they offer more impact investments and philanthropy deals, according to family offices and foundations.

This is how the article ends

Yet the issue is a complex one for relationship managers, whose salaries and bonuses are often linked to the size of a client’s portfolio and its return on investment. While impact investments in theory eventually pay a profit, they’re often risky and can have lower returns.

The idea that impact investments are risky and can have lower returns is a common theme throughout financial services. The idea of philanthropy being profitable has become unfashionable. I was thinking about this question with regards the endowment of Trinity College Cambridge.

What I suspect Family Offices and Wealth Managers fear most about impact investment is that it is philanthropic and that they cannot pivot to philanthropy after decades espousing “greed is good”.

Philanthropy gifts, investing loans. However philanthropy can be a gift with reservation, that the gift is for a social purpose. Whereas social impact investing comes with a single reservation – liquidity – the investor can always ask for the money back.

Liquidity is the third (unspoken) issue that the wealthy may have with impact investing, it involves losing total control of wealth, which I suspect is what is meant by “risky”.

If (as predicted by Mark Carney and others  in this article in the FT) liquidity comes under pressure in funds, I would be surprised if Family Offices became sources of “patient capital”

Screenshot 2019-07-01 at 07.05.23

Philanthropy – Wealth diminishment?

I suspect that social impact investment is attractive to high-end wealth managers as it keeps family money in-house rather than see it flies off to philanthropic institutions, which explains this “peer group” advice

“To the extent that your clients want to do philanthropy, you should be helping them.”

Impact investing (the article stops short of talking of ESG- see below), is also a means of hooking the next generation of investors

“If we don’t get it right, we won’t be able to engage our clients in future,”

There could of course be a third reason for wealth managers to do the right thing, namely “to do the right thing”, though this might be a little too radical to a group of people who think that doing the right thing includes owning private planes, private yachts and expensive automobiles (just for starters).

Nothing philanthropic about wealth management

Wealth managers have seen the threat of philanthropy emerge with a new generation. They have recognised that social impact investment keeps wealth under their management and they are looking to minimise disruption by perpetuating the myth that investing for good is “often risky and can have lower returns”.

I find the high-end of wealth management enlightening as it is transparent.  Huriya is the arabic word for freedom, specifically

Screenshot 2019-07-01 at 06.08.19

this kind of freedom is flatly opposed to external governance and gives licence to any kind or environmental or social misbehaviour.

One can only wonder how Sustainable and Responsible Investment fits into a “Huriya” framework.

Appendix

For completeness , here is the whole of the article

Some of the world’s richest people may take their money away from private bankers and wealth managers unless they offer more impact investments and philanthropy deals, according to family offices and foundations.

RS Group Chair Annie Chen, whose Hong Kong-based family office is dedicated to impact investments, said at the Asian Venture Philanthropy Network conference in Singapore Wednesday that despite many banks promising to offer more deals that do good, front-line bankers and relationship managers often failed to do so.

Her comments come as private bankers prepare for the transition of wealth away from older family members and toward next-generation investors who have expressed a desire to change the world for the better as well as make money. More than one-third of wealth clients surveyed by Ernst & Young LLP in a report last month said they’re planning to switch financial service providers within the next three years because they’re dissatisfied.

“I’d urge you to really step up your game besides the pronouncements that you make at the likes of the World Economic Forum, and give a budget to your different branches, different regions so that your front-line people — the wealth relationship managers — actually get educated about sustainable investing,” Chen said.

William + Flora Hewlett Foundation President Larry Kramer echoed her sentiments. The $9.9 billion foundations was established by the co-founder of Hewlett Packard Corp. and it awarded about $408 million of grants in 2017.

“A big part of our climate work is beginning to focus on getting banks — retail and investment banks — to change exactly that,” he said on the sidelines of the conference. “To the extent that your clients want to do philanthropy, you should be helping them.”

Read more: Harvard Course Helps Rich Millennials Do Good (and Make Money)

Standard Chartered Plc’s global head of private banking and wealth management Didier von Daeniken said the inability of front-line staff to offer better information was “the biggest headache for us.” High-net-worth individuals will have almost $70 trillion in net investable assets by 2021, according to E&Y.

“If we don’t get it right, we won’t be able to engage our clients in future,” he said.

Von Daeniken said Standard Chartered is training about 50 bankers, or around 15% of the private banking and wealth management team’s front-line sales force, to be experts in the field of impact investing. The bank’s assets under management in impact investing are still small, but growing at more than 10% a year, he said.

Yet the issue is a complex one for relationship managers, whose salaries and bonuses are often linked to the size of a client’s portfolio and its return on investment. While impact investments in theory eventually pay a profit, they’re often risky and can have lower returns.

Posted in advice gap, age wage, ESG, pensions | Tagged , , , | 1 Comment

Why do we need funds?

Posted on June 30, 2019 by henry tapper

James Coney, formerly of the Daily Mail and now of the Times is a campaigning journalist who says it as he sees it- and that’s refreshingly transparent

He is asking in an article the question that’s in the title of this blog. His starting point is this statement.

Open-ended investments, more commonly known as funds, are in the middle of an existential crisis. Right now, low-cost trackers and investment trusts look like much better products because funds seem fundamentally flawed in their design

James ends his recent piece in the Times

The IA (Investment Association) is boldly plotting a way towards better transparency, but I don’t really think its members are on board.

It must start from the principle that investors are entitled to have full details of what assets are being held — not what extra information they should be allowed to have.

It is, after all, our money — not theirs.

James is kicking off from the problems investors are experiencing with the Woodford Equity Income fund.

But he seems to be questioning what it is that we’re getting from funds that justifies the assumption we should use them.

Funds – the great feeder

I had this conversation with a couple of gents from an insurance company who were asking me what bits of financial services we could do without.

I said “funds” and they blanched.

Funds are indispensable to the financial services industry but not – it would seem – to its customers. Funds are a source of income for fund managers, asset managers, custodians, lawyers, accountants, brokers, ACDs, traders and platforms. I think I could write a lengthy blog just on the retinue of flunkies who feed on funds

When you think what a fund is – (a collection of investments offering people easy ways to get your money in and out of investments) – it really shouldn’t be so hard.

Take funds out of the equation and a whole bunch of people would need to find new ways to get fed.

Is there an alternative?

It is extremely hard for investors to avoid funds but there are ways. People can invest directly into the stock market, or they can buy shares that passively replicate the stock market (ETFs) or offer investment through a shareholder trust (investment trusts). These alternatives are frowned upon by fund managers and it is easy to understand why,

I am not convinced by the transparency of investment trusts and ETFs any more than I am by most funds. But they do at least present a challenge to the fund management industry.

What I hope for is wholesale reform of the funds industry that will allow us to properly understand what we are investing in. This should not be as hard as all that, but as we have seen with Woodford, a list of holdings can be bait for hedge fund managers to prey upon funds that are in the process of changing these investments.

People like Dr Chris Sier, who has pressed for better standards of reporting, are now actually enforcing better reporting. But ordinary people are still a way away from properly understanding what happens with their money.

The alternative to not knowing – is knowing. People have a right to know where there money is invested and if we had the courage to tell them, those people who manage funds might get a pleasant surprise.

The alternative

We shouldn’t do away with funds, but we need to start thinking of funds as things that help investors rather than things that pay the people who run them.

As James Coney points out

Investment firms dish out information like gruel in a poorhouse and we’re made to feel grateful for what little we get. Don’t dare ask for more.

The point is this, telling people what is going on is not bad news for fund managers, unless they have something to hide. The good fund managers do not hide and already Chris Sier’s ClearGlass organisation is listing managers who do a good job.

Many Independent Governance Committees report that they are still having trouble getting the information they need to discover if funds are giving value for money.

Organisations like AgeWage are able to show people the value they get for their money, bypassing all the complex reporting and just comparing money in and money out.

Both ClearGlass and AgeWage have been criticised by making the complex simple. But the truth is always simple.

The alternative is simplicity and it comes through transparency.

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Farewell to the Pension Play Pen lunch

Posted on June 28, 2019 by henry tapper

 

After nearly 12 years of monthly lunches, I have decided to discontinue the Pension Play Pension Lunch. There will be no lunch on Monday July 1st so please do not go to the Counting House.

12 years is a long time. It was Robert Gardner who suggested we had a monthly dining club and the first lunches were held upstairs in the Dining Room of the City University Club.

We switched to the Counting House later that in 2007 and they have been terrific hosts ever since. I’d like to thank the various managers and army of waiting staff who’ve looked after us over the years.

Recently we’ve seen a fall in numbers and though the discussions have been no less vigorous, I must admit to my becoming a little jaded.

So I’ve decided to knock the lunches on the head for the summer and consider whether we may launch new AgeWage lunches in the autumn! I’d like a new venue, perhaps the WeWork I work in in Moorgate. Any ideas to henry@agewage.com.

My biggest thanks are to you, the loyal Pension PlayPen lunchers who’ve been such a pleasure to each other and to me.

We will meet again!

 

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The trouble with conformity – USS latest

Posted on June 28, 2019 by henry tapper

Dissent

 

The dissenting voice has long been upheld in British Universities. Minority opinions are valued as an antidote to received wisdom which all too often degenerates into herd-like conformity. So I worry when I read the justification that the USS are giving for their current stance on risk.

“The trustee’s fundamental belief is that risk is multifaceted, and requires a wide perspective, and broad tools to manage it appropriately. This approach to the valuation has been carefully constructed, and robustly built based on independent advice from our scheme actuary and covenant adviser. It has been subject to independent review by a third party actuarial firm, and by TPR. None of these reviews has suggested there is scope to take the level of risk in the funding arrangements that is proposed by recent commentary”.

The “recent commentary” in question is from Dr Sam Marsh and it criticises the Trustees’ position for being overly focussed on today and insufficiently focussed on the longer term. Marsh’s position is characterised like this

In effect, Dr Marsh’s approach takes the JEP’s proposals to ‘smooth’ contributions over two valuation cycles, and extends that to 20 years. It is not surprising that when this is done, current contribution levels are (in aggregate) ultimately adequate.

Taking a long-term view on funding as a basis for today’s snapshot valuation may not be “multi-faceted”, but it has one serious ally to commend it, common sense.

The USS has to take a long-term view as it is designed to run for hundreds of years through all kinds of economic conditions. The current conditions give us the lowest gilt yields on record and in any common-sensical view of history, would be seen as anomalous.

Projecting current conditions inexorably into the future is taking “short-termism” to an extreme.

Sam Marsh and Jane Hutton

Sam Marsh is not a trustee of USS, Jane Hutton is – albeit a suspended trustee, (charged with a kind of treason). Her treason, to point out that the consequences of following the strategy proposed by the USS risk management team would be to push contributions up making the scheme unviable for some employers and leading to new calls to close the scheme to future accrual.

Since the information that Jane Hutton- one of Britain’s leading statisticians, has been denied her, she is unable to carry out her job as a trustees (as nominated by the members). Sam Marsh has picked up where Jane Hutton cannot follow

The two of them are not wreckers, they are simply trying to make it clear to the members of USS that there is an alternative to the USS view of the world (multi-facteted as it is) and that view is based on common sense.

Common sense says that people will continue to want to go to Universities and British Universities in particular.

Common sense says that University teachers want to be paid a wage in retirement from a defined benefit scheme rather than something else.

Common sense tells us that the current dispute is being won by the likes of Marsh and Hutton and from the member’s union who say there is scope for the USS to take a long term view, invest for growth and adopt a discount rate that reflects the strength of the British University system (as confirmed by various covenant assessments).

So I am very much on the side of Jane Hutton and Sam Marsh and not on the side of actuarial (and regulatory) conformity.

Trouble brewing

While the USS stonewalls, there is increasing questioning coming from other third parties – specifically from Frank Field who is questioning not just what is going on with Jane Hutton, but why the Pensions Regulator appears to have been dilatory in its dealings

Screenshot 2019-06-28 at 06.33.47.png

The letter is part of a wider inquiry from the Work and Pensions Select Committee into just what the Pensions Regulator is up to.

The trouble with conformity

The trouble with conformity is that – unless challenged – it produces received wisdom which may not be wisdom at all. Received wisdom is that privately funded pensions should not provide guarantees and so USS should close to new members and cease future accrual for existing members.

The Pensions Regulator, charged with keeping DB schemes out of the PPF seems to be complicit in the USS’ current strategy – which will likely lead to closure of the scheme.

The USS has recently been rebuked by TPR for overstating the explicit support of tPR for its strategy and of putting words in the regulator’s mouth. Nonetheless, the question Field asks, suggests that the relationship between tPR and USS is at best “cosy”.

The trouble with conformity is that it breeds arrogance, arrogance that with their actuaries and their regulator on their side, USS is invulnerable and can do as it likes.

But the behaviour of Jane Hutton and the work of Sam Marsh are showing how very vulnerable USS can look – and with them, those parties who presume that the USS are too big – too advised and too well paid – to be wrong.

Posted in pensions, USS | Tagged , , , , , | 1 Comment

Darren Cooke – outstanding contribution

Posted on June 27, 2019 by henry tapper

For those not at the Money Market Awards, here is the speech I gave in praise of Darren Cooke who rightly won recognition for his work and his spirit. Thanks Darren

Darren.jpg

Outstanding contribution to the profession

This year’s award will not be controversial. Nobody would deny our winner this accolade – he is universally regarded with respect and affection by his peers and his clients

Our winner worked at HSBC for 18 years – leaving when his division announced a plan to go restricted. He started with network Positive Solutions but went directly authorised in 2016.

He says the suggestion by networks, that small firms cannot afford to remain independent amounts to scaremongering.

With typical directness he has been on the record saying

‘Most networks are run by life insurance businesses that are trying to create a route to market for their products. It is cheaper to remain independent”

He calls his firm Red Circle  ‘His  idea’s “your finances are important, so red circle them”… the circle also represents the concept of holistic planning and provides a memorable image for the branding

Our winner uses the Institute of Financial Planning’s six-step process as the framework for his advice.

his  chartered financial planning qualification proves his technical ability , but for him being  certified is about applying that ability with soft skills and the ability to understand the client.

Today he is most famous as the architect of the cold-calling ban which finally came into force on January 9th .

It means that for all but FCA regulated advisers, no one can cold-call on pensions in this country without risking a fine of up to £500,000.

The ban has been implemented on all live, unsolicited direct marketing calls relating to pensions.

The ban is already protecting those vulnerable people whose pensions are at risk from fraud.

It will protect many more whose savings are growing under auto-enrolment.

Our winner is making a material difference in the battle to restore confidence in pensions.

Britain owes our winner a debt of thanks.

But it’s also his personal qualities and business skills for which we acknowledge him tonight

Here’s Victor Sacks

He is a wonderful guy. An attentive listener who has all the qualifications, but ensures his clients are not blinded by them. A straight talking no nonsense man, I’m delighted to call a friend.

And here’s his client Angela Richardson

he made the whole exercise understandable, financially advantageous and organised.all I had to do was sign on the dotted line. I would highly recommend him to anyone seeking financial advice.

I am sure that there is no-one in this room who does not know who I am talking about.

Ladies and Gentleman, the winner of this year’s award for outstanding contribution to the profession is Darren Cooke.

BAyfield.jpg

And thanks to the Editor and Compere!

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One life – one retirement – two regulators

Posted on June 26, 2019 by henry tapper

Screenshot 2019-06-26 at 06.05.10.png

Quietroom and DG’s Pension Map

Yesterday’s Pension and Benefits UK conference kicked off with consecutive speech’s from TPR CEO Charles Counsell and the FCA’s Edwyn Schooling Latter.

Counsell delivered a staid and unambitious rehearsal of tPR’s agenda and frankly I was bored. Schooling Latter spoke to an agenda that most in the room seemed unfamiliar with. He left without taking questions and the FCA were nowhere to be seen at the Exhibition. We need more of Schooling Latter, he was good.

Making sense of the pensions regulator

I am trying to create a ratiocination between the regulator’s approaches. It is hard to do so, the FCA is approach pensions from the point of view of the consumer while tPR looks at life through the lens of sponsor and trustee.

Referring to Quietroom’s map of the pension world, the Pensions Regulator is increasingly about how we build up money while the FCA is responsible for outcomes.

Outcomes are managed on the right of the diagram while the savings phase is to the left. While the FCA has skin in the game in saving (GPPs and Stakeholder plans) it is primarily concerned with what happens after workplace pensions give out.  While the Pensions Regulator oversees scheme pensions (and we hope CDC) , it is primarily about workplace pensions and auto-enrolment.

Actually the role of trustee and employer is becoming less important over time as pensions either level up or dumb down to a consistent contribution schedule and DB schemes are put to bed through the uniform funding code proposed by tPR. The scope for innovation in the accumulation phase is limited and tPR and its world of occupational trustees is little more than a compliance function of the DWP.

This explains why I found Counsell’s speech boring.

Making sense of the FCA

While tPR baton down the hatches, the FCA innovate. The FCA has an innovation unit, a sandbox and a pensions policy team that is looking to do new things better.

Later in the day, I biked down to Stratford through Victoria and the Olympic parks, you know you are nearing the FCA as you pass West Ham United’s Olympic stadium and the white swan pedillos that meander beneath the FCA’s offices. You can approach the FCA through the Westfield shopping centre but try a Boris Bike instead – the FCA has its own Boris Bike stand.

The three big deals on pensions for the FCA are

  1. Stopping the flow of DB transfers
  2. Sorting out the choice architecture at retirement
  3. Ensuring we get value for money.

I met with Pritheeva Rasaratnam and Cosmo Gibson (of the value for money team). Pritheeva is head of pensions and funds policy and our discussion focussed on the needs of ordinary people to get to grips with their pension pots and do the best they could by them.

We used Quietroom’s map to understand where we were coming from and how the consumer related to the various stages of their retirement savings journey. It was – to coin a phrase – clear vivid and real.

One life – one retirement – one pensions map.

Not for the first time, I thought yesterday having two regulators very unhelpful.

For all the rhetoric about working “ever more closely”, the two regulators see things so differently , behave so differently and are so physically dislocated that they might as well be on either sides of the moon.

What is worse, the pensions world is similarly bifurcated. I tried to follow reaction to Schooling Latter’s excellent speech on twitter

Screenshot 2019-06-26 at 06.46.43

The occupational pensions crowd aren’t that interested in the FCA,  I suspect they aren’t that interested in pension outcomes either.

But the members of the occupational pensions schemes are very interested in their outcomes. They are much more interested about what they can get out of their pensions than all the issues surrounding scheme administration, member communication and financial education.

  1. They want to know where there money is invested
  2. They want to know they are getting value for their money
  3. They want their money paid back to them fast and easily.

The Pensions Regulator seems to have lost sight of these fundamentals in its earnest pursuit of compliance to its various employer and trustee codes.

It is only by putting the people who own the money – the people who get paid the money- as the focus of the map, that a one-world map of pensions makes sense.

Exactly the same can be said of pensions regulation and – judging by what I saw yesterday, it is TPR and not the FCA – who have most to do.

 

 

 

 

Posted in advice gap, annuity, pensions | Tagged , , , | 1 Comment

Lady Godiva , Neil Woodford and Peeping Tom

Posted on June 25, 2019 by henry tapper

 

I have taken to reading some of the commentary about what’s going on with this chap Neil Woodford because it’s generally guff and makes me laugh.

This blog makes me laugh (and cry) out loud. It’s entitled “Benefits of Segregated Mandates”

I print it in its entirety

The past few weeks have brought into sharp focus some of the benefits of managing money using segregated mandates for those that have the necessary scale. Alongside this is a need for oversight of governance not just the investment approach. And, research agencies need to do more to assess governance and liquidity.

Over drinks with an industry mate the other night, he referred to the benefits of segs as the 3 Ps: prescription, price and portability. SJP and Openwork client money isn’t locked in Woodford’s fund. Both firms swapped the manager and both restricted holdings in unlisted securities.

While segs come out looking good over the past couple of weeks they only work with the right governance and oversight. This requires scale, the right culture and the right people.

I hear from a lot of largish financial advice firms that they plan to introduce segregated mandates. There can be enormous benefits but it’s not a decision to be taken lightly. There are a lot of mouths to feed – the ACD, custodian, fund admin, depository, etc.

Scale is needed not just to negotiate on price but also to put in place the necessary oversight. Scale alone isn’t enough. There needs to be a culture that allows people to question decisions and the right people in place to ask the tough questions. Firms managing money using segs need people around the table with legal, investment and regulatory experience to provide the necessary oversight.

What about the customer

The people around that table need to have a keen focus on the reason they are all there. They have a regulatory responsibility to the customer. They also have a moral obligation. We think that too often the customer is forgotten.

Failure of research and ratings agencies?

As for firms not using segs, we need to push research and ratings agencies to evaluate and highlight the governance of funds not just investment approach and performance.

A lot of advisers hold Woodford in models they manage for clients. They will be looking to rebalance those models at the end of the quarter. A few weeks ago it would have looked sensible to hold Woodford. Heck, it had a Morningstar bronze rating in May! Who knew how illiquid an equity fund could be?!

This is exactly why the research and ratings agencies need to shine a light on governance. Advisers rely on third party research to short-list funds. Stress testing portfolios for liquidity seems like a good idea. Ratings can’t be just about investment performance.

I don’t know which of the people at Next Wealth wrote this. I know Clive Waller and Heather Hopkins and deserve like Peeping Tom – to be struck blind.

It needs to be said, this piece is guff of the first order.

Why?

I am laughing at the thought that St James Place and Openwork can be seen to be coming out of the last few weeks “looking good”,

The only perspective which allows us to see SJP as looking good, is one that benchmarks SJP’s next few weeks with those of Hargreaves Lansdown and other platforms awaiting the write downs to come and the dismal drop in price of Woodford Equity Fund units when they return to the market.

It may be that SJP’s customers are not so badly off as those directly investing in Woodford but that does not make SJP look good. SJP fund with “Woodford Inside” actually underperformed just about every other comparable fund, and underperformed Woodford’s Equity Fund too.

SJP may argue that because they didn’t include the Guernsey illiquids in their segregated mandate, they haven’t benefited from fictitious valuations on non-tradeable stocks (as WEI has).

It may be that when the gate is opened , SJP customers will win a prize for tallest dwarf but that is not in itself a cause for celebration. The customers have still had a bad time because Woodford was inside their funds and they have paid Woodford handsomely  for delivering nothing at all.

In terms of “value for money”, SJP’s employment of Woodford looks a total wash-out. SJP are not of course on the hook for Woodford, they may have got Woodford on the cheap (you get your own price in a segregated mandate), but the customers paid the going rate for SJP funds and all the price negotiation mentioned above benefited the SJP shareholders rather more than its policyholders.

The firms who offer “seg” mandate “need” plenty of lawyers, ACDs, fund admins, custodians and depositaries, or so the article tells us. But do the customers benefit from this army of flunkies who push up the total cost of management? It is almost impossible to work out from looking at SJP funds why they perform so badly , but the suspicion is that the yield drag from the “mouths to feed” is a major part of it.

In short, SJP’s fund governance failings over Woodford are every bit as heinous as everybody else’s and for the fund industry to pretend that “seg” mandates have ended up protecting customers is preposterous.

Segregated mandates are a vanity play of the first order

There is nothing new in segregated mandates. Defined Benefit schemes have been dishing them out to fund managers (under the advice of consultants) for donkey years.

They give trustees the illusion of better governance but in reality they provide jobs for the boys and very little added value for the people picking up the tab – the customers.

Of course the funds industry loves “seg”, it gives everyone something to do and allows fund marketing people to peddle the twaddle above.

Would the world be a lesser place for the loss of segregated funds – no!

Does the world need a fund universe full of actively managed pooled funds – no!

The entire funds industry exists for the benefit of those who serve it and not for the customer at all.

Most of the properly managed DB schemes find better ways to get exposure to markets than by dishing out segregated mandates, the biggest manage assets directly, the smartest go for cheap well governed Beta through passive pooled funds.

Wiping all these silly – self obsessed – institutional segregated mandates would be a step in the right direction

Wiping all these silly – self obsessed – wealth management DFMs would be another step in the right direction.

Retail or institutional , they could all be absorbed into LGIM, BlackRock and Vanguard’s maw and exchange their pokey cottage industry governance with some proper stuff that really managed the money for good.

I have said enough

I am going to be a judge on one of these industry award things run by Clive Waller. I expect he’ll be asking why I was ever allowed to darken the judging panel’s door.

The answer is of course that in the court of Godiva, I am the peeping Tom.

Godiva

May I be struck blind.

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New research shows BSPS transfers driven by fear not greed.

Posted on June 24, 2019 by henry tapper

tpr 4

 

I have on my google drive a piece of research conducted by one of my friends – a steelworker himself – who was one of the main pillars of support for steelworkers faced with the hard choice of whether to have benefits paid as a CETV, from the PPF or from a new version of the British Steel Pension Scheme.

You can now read more about this on Maria Espadinha’s excellent article – many steelworkers spent less than 2 hours with an adviser.

It’s not my research to share so I won’t be overly specific. The research has garnered a response from 176 steel men who transferred over the BSPS “Time to Choose” campaign.

What is different about this work is that it is not focussed on Port Talbot but represents the dispersal of deferred BSPS members accross the country. So there are large numbers of respondents from Teeside, many from the Welsh borders and quite a few from South Yorkshire. The rest are scattered around the country and indeed the globe. So the research is representative of decisions taken across the deferred membership of BSPS.

I very much hope that the researcher will share the research with the FCA and with the wider public.

The second point to make is that the vast majority of people responding did transfer and that most of them are happy to have done so. There are a fair few who are unhappy and fewer who “may be” happy.

The research asked about  the amount of time spent with an adviser over the decision. Again there is a wide dispersal of answers with a seemingly even split between spending less than two hours  and those spending two to four hours, a handful spent more than four hours. The results do not suggest that advisory were piling it high and selling it expensive.

Similarly the research does not show a wholesale use of “vertically integrated” solutions. We can see from the data gathered – where the money ended up – and the vast majority ended up with insurers and not in SIPPs.

Fear not greed

Finally we can see why people transferred and the vast majority of answers remain because people had “no confidence in the British pension scheme“.

This final point is the one that should be most worrying to the Pensions Regulator. Although most of the flack for what happened at Port Talbot has been directed at the FCA, the root cause of the problem was not advisers, or even the pension freedoms. For the majority of the people in this survey, the problem was the ability of the British Steel Pension Scheme to pay its pensions.

Why was confidence in the scheme so low?

It is hard to avoid the conclusion that something went badly wrong in the promotion of BSPS2 (New BSPS) to the deferred membership.

That 8,000 deferred members transferred away from a solvent scheme well over £3bn , suggests that the benefit of staying in the pension scheme were undersold. If the Pensions Regulator thinks that the decisions taken by members on transfer are outside its scope, they should think again.

One of the pillars that TPR is built on is “protecting member interests”. Quite clearly, a high proportion of the members of BSPS felt no confidence in the scheme they were in and continue to feel that way , two years later.

TPR can point to a lack of confidence in the sponsor – TATA- but that is to surrender the point of the Regulatory Apportionment Agreement, which was designed to protect members if New BSPS succeeded or if it failed. The PPF benefits bought by taking no choice or if New BSPS collapses, are still much better than the annuities that can be purchased from CETVs.

It is only if steel workers genuinely wanted to manage their pension rights from a drawdown policy, that CETV made any sense at all. And yet, many of the deferred members voted against the strong steer from the Trustees and the Regulator to stay put.

Why was confidence in the scheme so low? The answer is blindingly obvious, no-one was listening to the deferred members (except financial advisors).

Advisors to blame?

Clearly what went on in South Wales was a disaster and the research shows a higher number of people unhappy with the transfer decision they took – living in South Wales, than  satisfaction levels elsewhere.

But the research does not show as high a level of dissatisfaction with the advice offered as I would have expected.

People have a right to a CETV if in a funded pension scheme and people have a right to shape their retirement income as they choose. We should not forget that many of the people who transferred remain happy with the choice they took.

Nevertheless, the problems with advice may be for the future, the research shows that only a handful of steel workers transferred having paid a fixed fee, the vast majority did not have to find the cash for the advice, it was found for them from the transfer value. There is a chance that in five years time, were this survey to be repeated, the damage done by high adviser charges would materially change satisfaction levels in advice. However, the evidence that I have before me does not suggest the majority of those advised feel they got a bad deal

That said….

The question TPR should be asking, is whether it should allow itself to feel exonerated by the failings in advice in a minority of cases and I think the answer is “no“.

Managing public sentiment isn’t easy but…

For me the Pensions Regulator has still a lesson to be leaned from BSPS. It is evident in the research I am looking at.

People can be easily spooked to transfer away from occupational schemes and be frightened by the idea of the PPF. It is easy to do this because of high transfer values boosted by the de-risking that the Pensions Regulator’s current funding regime is encouraging.

The consequences of low levels of perceived support for occupational DB schemes is a continued flight to advisers who are happy to offer easy to pay for advice to take CETVs in a painless way.

Isn’t it time that tPR and the FCA did something not just to change the behaviours of advisers, but to encourage people to want to stay?

By which I mean some positive intervention by tPR to promote the benefits of a scheme pension.

Sadly, I see this as low down the list of tPR’s priorities, much much lower that its obsession with self -sufficiency and recent variants thereof.

So long as we have high transfer values, low barriers to transfer and low confidence in defined benefits, we will have high ongoing levels of transfers.

It is within the FCA’s gift to put an end to contingent charging, but it is in the Pension Regulator’s gift to allow schemes to remain invested in growth assets so maintaining reasonable discount rates and avoiding high transfer values.

tpr 4

 

 

Posted in BSPS, pensions | Tagged , , , | 5 Comments

The advisers who went away

Posted on June 23, 2019 by henry tapper

port talbot steel workers

Laura makes a good point and it’s one that goes to the heart of the retail distribution review.

Money paid to financial advisers should be for advice. Where an adviser charges ongoing fees for advice, there must be ongoing advice.

Currently, the mechanism for paying for advice is for the client to request that the advisory fee is no longer paid, but this is a mechanism that relies on the client being aware of the process and self confident enough to turn the fees off.

Why we need lawyers to get involved is that, as with PPI, most people don’t understand the process and even when they can see what to do, are nervous about doing it.

To put it bluntly, ordinary people are out of their depth.

Hitting the nail on the head.

I don’t know Laura Robinson or her firm – Thrings , but she clearly understands things from her client’s point of view and is refreshingly blunt in her views.

The only reason most of the Port Talbot steel men met with an adviser was to get the IFA to take on the responsibilities of the Trustees.

I refer back to this poll done by steel workers by steel workers in September 2017. “Take their pot and let their IFA manage it”

poll bsps anon

Most steel men I spoke to at the time thought of IFAs as some kind of independent trustees – they knew only the trustee model as all the wealth they had ever had was managed in BSPS by trustees.

There is an important point to be made here. BSPS Trustees were a free service that steel-workers took for granted. They simply weren’t prepared for the fees of wealth-management because many of them had no experience of paying professional fees.

It is sad that their only experience of paying fees may be  to advisers who have gone away.

Advisers – good and bad.

The wealth management model is good for people who understand wealth. These are people who have solicitors, accountants or at least know how professional fees work.

The wealth management model is absolutely wrong for people who don’t understand professional fees , don’t know how professional practices work and who are daunted by challenging their advisers when they realise they aren’t getting value for money.

Despite this , many financial advisers continue to extract large fees from these vulnerable people and they can do so through a frictionless process known as “contingent charging”.

Contingent charging works just like PPI but on a massively larger scale. It is a buy now – pay later scheme where the cost of the service isn’t felt by the customer till the money in the pension pot starts running out.

Contingent charging preys on the lack of knowledge, experience and confidence among blue-collar workers and others who may have money but have no experience of “wealth”.

We cannot regulate to stop financial advisers taking advantage of contingent charging (or indeed ongoing adviser charging). We can legislate to stop contingent charging and we should do – the FCA could write this into their secondary legislation now – though I fear it is way too late.

As for advisor charging, I think the onus is on the advisor to justify the fee , not for the client to estimate if they are getting value for money. I do not think that the majority of adviser fees are easy to turn off.  Turning off fees depends on the capacity of clients to understand what they have bought and as Laura’s tweets demonstrate – most of her clients just don’t have the competence , expertise and confidence to contradict the advice of advisers – which is to pay for advice.

IFAs are asking to be treated as professionals

Most IFAs I know are every bit as professional as lawyers and accountants. Indeed many lawyers, as Laura points out, have swapped advice for ambulance chasing and turned themselves into the kind of transaction-based  pariahs that the worst IFAs are being accused of.

Some vulnerable clients may lose as much to dodgy legal practices as dodgy IFAs.

And this is where we have to take a step back and ask just what is going on. We have a system of occupational pension schemes where those who work for certain companies get rewarded with a wage for life.

This system is disrupted by IFAs who take money through contingent fees on the basis they will do what Trustees did – which – in the steelworkers mind – is manage the pension pot.

And then it all falls apart when the steelworkers find that their IFAs are nothing like the trustees, that their is no highly experienced CIO managing their money, no actuary ensuring there is enough in the pot, nobody – nobody at all – acting in their interest.

This is why the FCA are so concerned

The fundamental problem at the heart of the transfer problem is that almost half of the people who are transferring (FCA number) should not be exchanging the fiduciary promises of their occupational pension scheme for the open market.

I’ll leave the last word of this blog to Stefan, who is a former steelworker and someone who has done more than most to protect his colleagues from financial harm.

BSPS Missing

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FCA plan to get tough on poor transfer advice

Posted on June 20, 2019 by henry tapper

cumbo cetv2

Two unexpected  things happened yesterday; SJP’s candidate for the “fireside chat” with the FCA – went sick (with no replacement offered) and the FCA published their market- wide data results for defined benefit transfers.

Together this meant my fireside chat with Debbie Gupta turned into a tete a tete and a very illuminating one at that. That was because Debbie Gupta is a straight talking person who answers the  questions put to her and says it like it is. She is constrained in what she can say (which is why we did not talk about Woodford, or ACDs or the failings of individual SIPPs , but she was prepared to talk about the data results and she did promise that they would prompt action by the FCA.

There are many, including me, who reckon that you don’t have to wait two years to decide whether there is evidence enough to consider DB transfers a problem.

The FT solicited a comment from Frank Field who’d read the data results

“Today the FCA tells itself, again, that only about half of DB pension transfer advice meets its own standards” “The alarm is ringing, people are still losing their life savings: It’s time to wake up. More of the same kind of regulation just won’t cut it.”

During our fireside chat I asked Debbie whether she thought that market forces would turn the transfer tap off. Interestingly the FCA do not accept that the rate of transfers has fallen recently (as evidenced by the results of leading life companies who have benefited from the flows). You don’t have to probe hard to find why, most IFAs are now a lot more cautious about taking on CETV inquiries and many are on quotas from their PI insurers which give them limited scope to do more than a basic triage service.

Since the FCA are not accepting that the transfer market is dynamic and changing, I went on to ask what kind of intervention would follow. I asked Debbie straight whether the FCA would ban contingent charging. She would not be drawn.

Back at the ranch, Megan Butler, executive director of supervision, wholesale and specialists at the FCA , was telling the FT the same thing

“We have said repeatedly that, when advising on DB transfers, advisers should start from the position that a transfer is not suitable,”  “It is deeply concerning and disappointing to see that transfers are still being recommended at the levels we have seen.”

£83bn and counting

The £82.8bn that has transferred via advisers from DB to DC is from data submitted by IFAs – 99% of IFAs submitted data and the number relates to transfers completed since April 2015. There may be some pipeline, some non-advised transfers (where the CETV was less than £30k) and there may be some under-reporting. This may explain the gap between what advisers report to the FCA and the higher figures of what is reported to the Office of National Statistics.

Frankly, what matters is that the FCA reckon half of these transfers shouldn’t have happened (against an expected “poor advice” rate of 10%.But because the data published yesterday does not include a longitudinal breakdown (which I suspect would show a slowdown in transfers), it is hard to understand Megan’s comment in bold (above).

And because we don’t know whether the 50% (bad) number applies equally to 2018/19 transfers to 2017/18 transfers, the FCA will have to do more counting.

Reviewing decisions

CETV

Meanwhile, the problems for those who transferred out back in 2015 are beginning to see a track record on their investments. The gains made when the markets were hot, are being eroded now the market is not (hot). If adviser fees , active management fees and platform fees are dragging back performance on pots already diminished by the contingent charge, the returns on the CETV itself may be looking pretty dismal.

By April of next year we will start to see five year track records on post freedom transfers and I’d like to see internal rates of return based on the CETV, not the amount post the contingent charge.

Since October of last year, IFA clients have been presented with a bar chart with two bars. The lower bar is the cash equivalent transfer value (CETV) on offer. The higher bar is  a capital sum – the amount which, invested in a risk free way up to retirement, would generate a pot large enough to buy an annuity which matches the DB pension foregone. The idea is that this  enables a client to see graphically how much of the ‘value’ of their pension they are giving up.

If this method were to be used by the FCA to sample the progress of invested pots since transfer against the defined benefit foregone, I think some of the numbers would be looking pretty scary (especially if compared with the pre- contingent charge CETV calculation.

While I appreciate that the performance tracks are short and that many people transferred for reasons other than investment, the bottom line is that the outcomes of these transfers are likely to be less security, lower pensions and increasing anxiety for a high proportion of the 162,000 people who have transferred since 2015 will be experiencing low returns, lower pension expectations and heightened anxiety.

Taking action

We are continuing to see the FCA sporadically getting tough on bad advisers

But as yet we have seen no coherent move to identify, name and shame advisers who have consistently over-advised for transfer.

I sense from talking with Debbie , that this is only a matter of time.

The current sporadic action on those who have over-advised is not much of a deterrent to those still over-advising.  If the FCA want to cut off the oxygen to the CETV transfer market they must ban contingent charging which is a clear conflict of interest and consider further interventions with regards the destination of CETV monies.

One further question I asked Debbie Gupta was whether she knew the percentage of the £83bn that went into the defaults of the workplace pensions that those transferring were saving into. These default funds are capped on charges, need no advisory charges and are designed for the needs of ordinary people.

Instead of using workplace pensions, the vast majority of CETV money has been invested into Self Invested (non-workplace) pensions where charges are higher and advice necessary.

I question whether the people in this poll taken from September 2017 and conducted on the BSPS members Facebook page, knew just what “letting their IFA manage” their pot actually meant.

poll bsps anon

Posted in advice gap, age wage, pensions | Tagged , , , | 1 Comment

How proactive do we want the FCA?

Posted on June 19, 2019 by henry tapper

Screenshot 2019-06-19 at 06.15.53

We get the regulators we deserve. It’s no use us whingeing that we have a reactive regulator if we demand a free market without interventions. But when there is evidence of malfeasance, we demand our regulators are quick off the mark and decisive when they get involved.

This afternoon I will be chairing what Horizon’s Lifetime Savings and Investment are calling a “fireside chat” between two chums, Debbie and Ian, both of whom I know and (like)  well.

Since the third bullet point is deliberately open, I hope that both Debbie and Ian will extend the conversation beyond the issues of DB to DC transfers and touch upon some of the problems with Neil Woodford and his crumbling empire.

As far as I am aware, this session will not be under the Chatham House Rule , but even if it is, I expect both participants will be guarded, the FCA have announced they are launching an inquiry about what has happened with Woodford so Debbie may be able to say nothing at all. Ian may be similarly constrained but…

On the wider issue of proactivity, we are inevitably drawn, when talking of DB to DC transfers to the events at Port Talbot in 2017, the aftermath of which is rumbling on today. I have an ever-diluted story to tell of those days. Diluted because what is happening today is playing out between the regulators, the steel men, the lawyers and Al Rush.

What is important is a statement made on Moneybox last Saturday by a steel man who pointed out he will have to live with the consequence of his decision for ever. The consequences of getting it wrong do not dilute for the customer, they distill.

Knee-jerk or knee-deep?

The FCA found itself knee-deep in the brown-stuff over Port Talbot. I was in the Committee Room when Frank Field lambasted the under-prepared FCA and Megan Butler has since shown a resilience to see through justice for those who have been wronged which I find admirable.

But the question remains, could the FCA have acted faster and – if they had – would many steel men now be looking forward to a lifetime income rather than a lifetime worrying about their wealth management?

To a very great degree this comes down to whistleblowing from the general public and from advisers who are conscious of what is going on.

This is the poll that was published on the Time to Choose Facebook pages run by the steel men through 2017.  The poll was taken days before Al Rush and I went down to Port Talbot the first time. We shared this poll with the Trustees , with the Regulators and – via this blog – with the general public.  I have blocked out the name of the person who posted the poll though he is now a friend.

Just then, nobody took it very seriously.

poll bsps anon

Pension Freedoms have little to do with it.

In 2017, many were blaming the decisions that steel-workers were making on the siren call of pension freedom. I didn’t, that’s because none of the steel men I spoke to had the slightest clue what would happen to their money other than “an IFA would manage it”.

Steel men simply wanted the likes of Darren Reynolds to pay them their pension rather than Tata Steel (who they saw as having taken over the stewardship of their pensions from the Trustees).

There was no question in their minds that they weren’t going to get a better pension having it away from Tata.

This then is the question for Ian Price and SJP. Because SJP did take money out of Port Talbot and only stopped doing so when the full extent of the contagion had emerged.

I’ve no doubt that SJP behaved responsibly at the micro level, but at the macro level, do the big financial organisations like SJP, Aviva and L&G – all of whom had peripheral involvement at Port Talbot – need to step up and say stop? Or is there job to let the FCA do that for them?

The same question arises for the investment platforms that are involved, in whatever way, with Neil Woodford’s fund management.

I fear that many people – including providers and regulators, have hidden behind the excuse that pension freedoms changed everything. It was not the pension freedoms that caused the problems at Port Talbot, no-one talked about them; it was the breakdown in trust exploited by IFAs who have subsequently proved untrustworthy themselves.

A fireside “chat”.

Sometimes, writing a blog, helps me prepare for an event to come and this is one such occasion. I hope that some of the people attending the debate today (and even Debbie and Ian) may have the chance to read my thoughts.

I enter the chat with no clear answer to the question “How proactive do we want our regulator to be?”. I hope that after forty minutes which I hope to be a rigorous debate,  I will have a clearer position.

If I am able to report on what was said and by whom, I will. If not, I suggest that you get yourselves tickets for future Horizon events as they look very good to me!

 

Fireside chat

FDR – top fireside chatter

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

For the 2m pension excluded.

Posted on June 18, 2019 by henry tapper

Reform the payment of pension tax relief to ensure that no low earners miss out

We call on Government to ensure no low earners miss out on the tax top up on their pension contributions. We estimate that this issue hurts the living standards of nearly 2 million pension savers. Government should act to ensure low earners in all types of pension schemes receive pension tax relief

 

Petition

 

SIGN HERE

 

At 10,000 signatures…

At 10,000 signatures, government will respond to this petition

At 100,000 signatures…

At 100,000 signatures, this petition will be considered for debate in Parliament

 

  • Created byAdrian Charles Boulding
  • Deadline14 December 2019All petitions run for 6 months

 

adrian

Adrian Boulding

Posted in pensions | 1 Comment

The Four Trillion pound lifeboat for (some) British Pensioners.

Posted on June 18, 2019 by henry tapper

Screenshot 2019-06-18 at 06.16.24

I was in Westminster last night for drinks on the terrace watching politicians lining up to tell their in-jokes about the Conservative party leadership contest. The jokes weren’t very funny and even if they were, I couldn’t tell you them as the jokers wanted drinks to be under the Chatham House Rule.

The Four Trillion pound lifeboat for British Pensioners

By contrast, we were here to discuss a very serious issue, the changing role of property in later life financial plans. I’ve just read the Equity Release Council’s excellent study called “Beyond bricks and mortar” and I recommend that you do too.

Property accounts for 35p in every £1 of household wealth – rising to 61p for non pension assets. That makes bricks and mortar, the biggest source of finance for those aged 75 or over.

65% of property wealth is held by the over 55-s , a massive 11%  increase since 2008. A third of over 65 households have more than £250,000 of personal wealth in property.

Screenshot 2019-06-18 at 05.45.40

The chart shows that net UK property wealth passed £4 trillion for the first time in 2018 – that’s nearly £79,000 for every household. Mortgage debt is falling as loan to value on our property plummets . We are paying off our mortgages and directly investing in property like never before and this investment has exceeded new mortgage debt every year since the financial crisis in 2008.

Can property stave off a pension crisis for future generations?

It would seem that people’s attitudes to their property are also changing. On the one hand we are seeing our property as useful to us as we grow older

Screenshot 2019-06-18 at 05.45.02

But we’re also seeing something new

Screenshot 2019-06-18 at 05.45.20

Less than 10% of people feel borrowing against a property in later life would be a stigma to them. Only a third of us feel we won’t have need to access income from property and nearly half of us recognise releasing money from property to supplement pensions is becoming more common.

We can no longer ignore what middle England is telling us, our property is though of as part of our pension – and people expect to pay for their breakfast sausages with the bricks from their dwellings.

You can buy a sausage with a brick

For those included in the great home ownership bonanza,  supply of lifetime mortgages is starting to meet demand. This is paradoxically because of pensions. The surge in bulk-buy outs by insurers of UK Defined Benefit Schemes, coupled with the maturity of many deferred annuity savings plans, means that annuities are being purchased at a greater rate.

Insurance companies are having to take not just the longevity risk but also the investment risk and they are looking for return seeking assets – just like everybody else. They have no interest in tying themselves into long-term gilt yields that offer them a return less than inflation. They are very interested in lifetime mortgages against our residential housing stocks which last as long as the home owners.

These mortgages exactly match the shape of the liabilities – people’s income needs in later life. Not only do they mean people can get the top-up income they need to enjoy their retirement, they mean that insurers can prosper in a competitive buy-out market.

Sausages all round.

Am I painting too rosy a picture?

I don’t think I am. The people at the top of the Equity Release Tree aren’t the snake-oil salesmen of yesteryear. They’re the serious politicians who may not be in parliament , but are still pulling strings. People like Chris Pond who chairs the Council’s Standards Committee and David Burrows, Chairman of the Council itself. Add to these a hugely enthusiastic and energetic CEO  in Jim Boyd and you have a trade body I’d be proud to be a part of.

To ordinary people in this country , property is the first thing they think of when they consider financial security in later life

Screenshot 2019-06-18 at 06.19.03.png

So while the politicians laugh and joke about the mess they’re making of this country, these people are quietly getting on with the great work of solving the need for an AgeWage.

A message to the Minister for Financial Inclusion

But I am painting too rosy a picture for those who do not know housing security, for those whose weekly shop starts with a trip to the food bank, for those for whom 10 years of austerity has not led to rising housing wealth but ever greater poverty.

For these people there is no help from Equity Release and precious little help from Government as they struggle to save for a pension.

Yesterday also saw the launch of a very important petition.

We call on Government to ensure no low earners miss out on the tax top up on their pension contributions. We estimate that this issue hurts the living standards of nearly 2 million pension savers. Government should act to ensure low earners in all types of pension schemes receive pension tax relief

I would be interested to know how  many of the nearly  2m pension savers not getting the promised Government incentive to save, will have access to lifetime mortgages.

If we want to be financially inclusive, we’d better think about the 2m who don’t get the housing breaks, as well as those lucky ones who do.

Posted in advice gap, age wage, pensions | Tagged , , , | 1 Comment

The good in gating.

Posted on June 17, 2019 by henry tapper

icarus 3

 

The wonder of the gating of the Woodford Equity Income Fund is that it happened in peacetime. There is no financial storm, the crisis is as random of the fall of Icarus in Breughel’s famous painting.

There’s no doubt that Woodford is right to gate, it’s the only way to protect the remaining investors from the markets, hopefully the fund can find sufficient liquidity to salvage itself (and Woodford).

The alignment of interests between fund manager and unit holders is important. No doubt there are lawyers sharpening their knives but unit holders have a lot more to lose by fighting their manager than by co-operating.

Now, another star manager – Nick  Train , is warning that the risks of underperformance could happen to his fund – Lindsell Train.  I suspect speaking out now is as much a  ploy to encourage his investors to stay than to encourage investors – overly dependent on his fund’s outperformance – to turn down the dial. Nonetheless, it’s good to hear a fund manager in something other than “asset-grabbing” mode.

The link between manager and investor is important and it’s that link which got broken with Woodford. Terry Smith still holds his investors in the palm of his hand and Nick Train is obviously looking to emulate.

That link is severed by intermediation and this may be the longer-term message of the Woodford crisis. The big losers of this – in terms of loss of shareholder value are Hargreaves Lansdown and other funds which took responsibility for the promotion of Woodford. I suspect that there are many heads rolling – and not just there.

The problem of platforms is not just that they disintermediate the relationship between investor and owner but that they become both dating agencies and divorce lawyers. Effectively they are a kind of marriage guidance service in the meantime.

It’s a strange kind of service that introduces, manages and fires and it’s small wonder that Terry Smith has been very shy of getting too close to the platforms.

The good in gating

What is good for investors is not necessarily good for platforms. Although SJP did not directly offer Woodford Funds , they did offer Woodford as a manager and when the gat came down, Woodford left the building. Hargreaves similarly stopped recommending WEI only when it was gated.

By implication , HL and SHP and Openwork and even Kent CC are kicking off against the protection of remaining members. They can only see the negative PR in gating, not the good it does.

Which really begs the question – are these platforms really acting for the member or their shareholders- which is precisely where I’d be starting my inquiry if I was the FCA.

Risk should be taken- where there’s a risk budget.

Robin Powell and other evidence-based investors have for some time been pointing to the risks of active managers losing liquidity. A friend of mine said just this to Neil Woodford a couple of years back.

Will investors in future accept that active equity funds can be as vulnerable to redemptions as any other? I expect they will not, that they will see Woodford as a “one-off” and demonise the manager for his conviction. Meanwhile will other active managers cease investing for any purpose than to make money? Will we  see a flight to closet tracking?

The appointment of Columbia Threadneedle, a house that has long spoken out against star managers, may be a sign of things to come.

But if it is , and we see active management becoming another branch of risk management, then where will we be able to take risks?

The wake up call for investors is precisely articulated by Nick Train when warning against dependency on his returns. Risk needs to be embraced but only when there is a risk budget.

The illiquidity premium

Longer term investors should be prepared for occassional gating, indeed they should welcome it. It is what gives them the illiquidity premium.

If Woodford was promoting his funds as being relatively illiquid, then occassional gating should be part of the risk warnings- I am aware that the T’s and C’s of the fund mentioned this option.

But investors don’t read the T’s and C’s of funds they invest in and that’s the problem. It takes a Terry Smith or a Neil Train to tell them how it is and I hope that is what happens over the next few months.

Far from running scared of gating, fund managers should promote their capacity to gate – to protect short-term investors.  If gating frightens off short-term investors and speculators – that is a good thing; so long as everyone knows the rules of the game

 

Posted in advice gap, age wage, pensions | Tagged , , , , , , | 1 Comment

TPR’s impatience with USS’ fibs

Posted on June 15, 2019 by henry tapper
USS 2

A previous phoney deficit

Phoney deficits

The Pensions Regulator’s patience with USS and its Trustees is running short.

The FT has got hold of an email from TPR which rebukes USS for overstating its deficit and misrepresenting the views of TPR on discount rates. (you can read the FT article on this link – thanks FT)

The deficit has been presented at various levels- including the £10bn quoted above – part of the 2017 valuation pack. The scheme published a consultation document in January outlining how the plan had a (revised) deficit of £3.6bn , but even that is now showing much too high.

In its January consultation document, the USS set out its approach to valuing the scheme, including the liabilities, and said the regulator

“prefers measuring discount rates relative to gilts”.

But the regulator said in its email to Jeff Rowney, USS head of funding strategy, that this statement by the scheme was “incorrect” as the watchdog had no preferred approach to setting discount rates.

The impact of phoney deficits

The impact of USS’ actions – has been to set the Trustees on a path that requires it demand unsustainable contribution rates to the scheme to meet a notional deficit.

The implications of TPR’s intervention are that the deficit arising from USS’ valuation is too high, that the deficit contributions are unnecessary and that by overstating the deficit, USS and the Trustees are undermining confidence in USS.

We have seen just where this leads. Last year it led to a strike, this year it is leading to Trinity College walking away from the scheme apparently fearing it could be the last man standing.

Just why USS is intent on being the architect of its own demise is unclear. It’s firmest supporter is not the USS, but the University and College Union who have this to say

“This latest revelation will do nothing to calm the frustration felt by many members . . . It is essential that members’ trust in the scheme is restored and maintained.”

Hero Jane Hutton

Jane Hutton

The fearless Jane Hutton stood up to USS and whistle blew to the Joint Expert Panel (an independent group set up to moderate the dispute). To quote Jo Cumbo in the FT

She highlighted a discrepancy between the regulator’s published position on discount rates and how the watchdog’s views were presented in the USS consultation document.

The regulator’s January email to Mr Rowney (funding officer for USS)  was copied to David Eastwood, chair of the USS trustee board and Bill Galvin, group chief executive of the scheme and a former chief executive of the watchdog.

But the email was only shared with the entire USS trustee board in May after Prof Hutton sought confirmation from the regulator about its position on discount rates. In the email, the regulator did not insist that the USS correct the wording in the consultation document, but asked the scheme to “consider doing so”.

The document was not altered.

The regulator is separately probing claims by Prof Hutton that she was obstructed by the USS trustee board from establishing whether the scheme exaggerated the extent of the plan’s deficit in the 2017 valuation. The USS estimated the deficit at £7.5bn at that time.

Now threat of more strikes

The Trinity College bursa has written an open letter to the College’s dons, which includes this statement.

As a responsible employer and as a charity, the Trustees have a duty to protect the College from risks and mitigate those as far as possible. By removing the LES [last employer standing] risk, the Trustees have helped ensure the College’s continued long-term existence as an academic institution and charity….

You can read the  open letter to the fellows of Trinity College Cambridge on Mike Osuka’s blog  though Mike wants me to point out that the blog is not the open letter!

The perceived threat to Trinity College is based on insecurity created by overblown deficits. Even the Pensions Regulator, a most conservative body, has had enough.

There is talk of Cambridge fellows boycotting teaching Trinity students next term

The UCU is now threatening to take fellows back on strike unless there is a change in position at the USS to fall in line with the proposals made to it by the JEP – the independent moderator.

The students will once again suffer. There is no doubt in my mind – and I speak as a parent of a son who has suffered a year of disruption at Cambridge – that the USS are causing unnecessary problems which are leading to disastrous consequences.

It is quite possible that Trinity’s action could prove contagious and that the USS gets what it has warned against, a scheme unable to be supported by its sponsor. If this happens then the USS will be the architect of its own demise.

Who suffers?

It strikes me that while university teachers suffer, students suffer and the tax-payer suffers, USS is not suffering at all. Salaries at USS continue to be paid at very high levels. USS staff continue to parade around as industry authorities and certain elements of the pensions industry continue to hold them up as upholding the principles of prudence, caution and of financial economics.

There doesn’t seem much suffering going on at USS.

The asymmetry of suffering in all this is only too obvious, as is the asymmetry of information.

There is something deeply wrong with a system that allows USS and its Trustees to behave as they do without sanction, whilst all around them pay a high price for their less than transparant behaviour and their promotion of a deficit which is quite obviously a fib.

Team Fib

Porky

Posted in pensions | Tagged , | 2 Comments

What does SJP “sacking” Woodford mean?

Posted on June 7, 2019 by henry tapper

The relationship between Neil Woodford and SJP is over, SJP sacked Woodford as a manager – that is clear. Since 40% of the funds Woodford managed were for SJP, that makes for a difficult business problem for Woodford, he will have to adjust his business. I am told, by IFA friends on twitter that SJP were not investing in a pooled fund – run by Woodford, but in what is called a segregated mandate, where SJP has the right to hire and fire the managers of the assets but does not have to liquidate the funds if they do so.

This is comforting , the replacement managers of the SJP funds do not have to sell anything till the time is right, and then they only “have” to sell , if there is an imperative to do so. It is becoming clear that the FCA, the Bank of England (through Mark Carney) and SJP (through their own fund governance) feel that something went wrong, but that is all we know.

There is speculation as to how much change the appointment of a new manager will bring.

As with football teams, a change of manager can bring wholesale change or a little bit of tinkering .

But what I had not appreciated, and here I am just showing ignorance, is that not just the customers but the SJP advisers have very little control over who is managing the money, that is a matter for SJP’s fund governance team and advisors.

Which explains Al Cunningham’s comment at the top of this blog. Where Hargreaves Lansdown clients are responsible for deciding on whether or not to own Woodford funds, SJP clients give discretionary control to St James Place as to who manages their money. Quite different models indeed.

So SJP sacking Woodford means more for Woodford than for SJP and its clients

I’m happy to stand corrected on this. I am learning as I go, but this I would say in my defence. It is very far from clear from the press reports about the implications of the change in SJP’s managers and while I am sure SJP are communicating to their clients, they are not communicating to direct investors in Woodford funds (through Hargreaves and elsewhere).

I remain critical of SJP on its fund governance and in particular on the timing of the sacking which happened only once Woodford had to gate his fund because other investors had voted with their feet.

If SJP owned 40% of assets under Woodford management, how had it not dealt with the problems of illiquidity earlier? It is in the nature of segregated mandates that the entity awarding the job mandates how the fund is managed and has the responsibility to ensure that job is being properly carried out.

That SJP only took action once the gate had slammed following the withdrawal of £260m by a Government body, suggests that  SJP were bounced into action.  This I find really surprising as it does not suggest an orderly investment governance process.

Woodford did not become a bad manager overnight, I am told by those who know him that he has been aware of the risks of holding high amounts of illiquid stocks in funds that may need illiquidity and he has lived with this risk for some years. I assume that when Woodford was appointed by SJP they knew of this risk too and that particular controls should have been in place to guard against the problems of the past few months.

I cannot avoid the conclusion that not only has SJP let itself and its clients down, but it has failed all Woodford clients, first by not managing its mandate better and secondly by not sticking with its manager when the going got tough.

Too much transparency?

In a very cute series of tweets , Matthew Bird points out that Woodford was a victim of being too public about what he was investing in.

Now this really is an issue for the Regulator. As I have been writing over the past two weeks, the best way of getting engagement is to tell people where the money is invested.

But if in demonstrating that (an admirable feature of Woodford’s and Terry Smith’s management style), the fund’s investments are shorted by the market, then a number of problems arise

  1. Companies become wary of being quoted of the publicity
  2. Managers become wary of transparency
  3. Investors are returned to darkness and to all the shady dealings that opacity can bring

If what the FCA concludes is that fund managers cannot be transparent about what they hold for fear of short-selling then we have a quite different regulatory issue.

Problems with the fund management model

I find myself reluctantly returning to the position of Robin Powell, the evidence based investor. Chasing returns by changing managers, changing asset allocation , changing investments is a mugs game. Here is Matthew Bird again

Which brings us back to John Kay who asks fundamental questions about the fund management model and finds no answers.

It seems to me that being a top fund manager is about as thankless a task as being a top football manager. You will have your moment in the sun but you are unlikely to avoid sunburn, for every Alex Ferguson of Bill Shankly there are 20 once-loved football managers with reputations in tatters. Today’s Klopp is tomorrow’s Morinho.

For an interesting (if speculative) view of the reasons for SJP and Woodford’s falling out, read Matthew Vincent’s article in the FT Lombard column

If anything, Mr Woodford’s relationship with St James’s Place had to end because the duo had become fundamentally incompatible: St James’s Place an ever more conservative City type, but Woodford still the maverick. Their mistake was to stay with each other for so long.

Learning from experience

Well I’m learning as I go on this – thanks to Al Cunningham , Matthew Bird and several others for setting me right and helping me out (even on the little things like names)

The article has been edited slightly! But the thrust remains the same.

  • Employing conviction-based fund managers who buy and hold is a good thing
  • Transparency of holdings is a good thing.

If Woodford broke the terms of his mandate with SJP, he deserved censure and ultimately sacking. Strong governance of segregated mandates is a good thing and pooled funds need even greater fiduciary oversite. But there is no evidence that he did.

If I am learning about how managers are employed, I can be expected to be pulled up and corrected by good people like Al and Matthew, I learn from being corrected and I hope that those who read my blogs learn from my mistakes too.

What is a bad thing is that many investors are being mucked about and losing considerable amounts of money to the short-sellers because of the collapse in confidence in Neil Woodford and for that – I have to hold those who employed him partially responsible.

If we award managers mandates as long-term investors and sack them when the going gets tough, there have to be good reasons and so far we have not seen those good reasons from SJP. It’s left to Matthew Vincent to speculate that perhaps SJP were asking Woodford to do the wrong job.

Fund analyst Brian Dennehy points out that, in the last month, WEIF was down 8.10 per cent but the supposedly more liquid blue-chip SJP UK High Income was down 8.83 per cent. As a result, the return for SJP clients has been -3.16 per cent since July 2014, while for WEIF investors it has been -1.42 per cent.

The FCA clearly want to look deeper into this and they are right to do so. We need to have confidence not just in the managers, but in those who employ them. What is clear from learning about SJP , is that it is they, not their advisers or their clients – who call the shots. If Woodford only managed to his mandate, the buck stops with the FCA,

SJP.jpeg

Posted in FCA, governance, pensions | Tagged , , , , , , , | 10 Comments

Getting youngsters saving more

Posted on June 5, 2019 by henry tapper

inclusive

Telling youngsters to save more is a waste of time

It’s been a sad 48 hours on twitter watching the wolf pack turn on Paul Claireaux for his cappuccino blog – where Paul postulates that a youngster could have a markedly better retirement for giving up a cappuccino a day and saving the money into a pension pot.

There are many other versions of this argument – it used to be done with packets of fags and NEST are trying it with their sidecar. All are versions on  nudge with a sexy theme disguising a fairly tame idea – “save what you don’t miss”.

Unfortunately people do miss their coffee and fags and low-paid people don’t always stay in the sidecar saving employment. Anyway, the amounts saved rarely amount to enough in practice and the grand plan depends on things that don’t often happen – continuity, perseverance and the right set of financial assumptions.

Oh and if we can’t be bothered to give low-earning people the promised incentives to save, who are we to preach the value of saving anyway?

My problem with financial education is that it’s usually those that have the money teaching those that haven’t how to be like them – and young people don’t necessarily see people like me as role models. Even if they do, the last thing youngsters would admire in a baby boomer was his or her pension.  Financial education is at heart paternalism and youngsters don’t take kindly to that.

There are literally hundreds of tweets on my timeline arguing about cappuccino pensions. What a waste of time – when that time could be spent on getting a better futures

Spending on a better future

The paternalism of financial education usually manifests itself in a demand for self-denial called “saving”. Telling people to save doesn’t go down well but showing people how to spend does – it is the basis of advertising and behaviourally it is a much more effective way of going about things. Spending on a better future begs the question – spending on what?

By a strange coincidence, I am doing three presentations today , which will all incorporate this message. This morning I’m talking with a high street bank on how to get millennials saving more, at lunchtime I’m talking with the Equity Release Council about helping older people spend their savings and this afternoon I’m talking with payroll people about promoting workplace pensions.

In all three talks I plan to focus on spending not saving and on making use of assets like pension pots and houses and work income to spend on a better future.

We all renters

We live on borrowed time, our lease of life expires not when we choose but when we are chosen. Many young people are renting and have no plan to buy, they own less and less, subscribe to more and more. Ownership is not even an aspiration for many millennials.

For younger people, the future seems out of their hands and they are determined to take control. We see this in their determination to reduce emissions and decelerate global warming. And if we ask people about their savings , they want to know where their money is invested and to take control of investment decisions. Once more – watch this video.

In a world where we cannot or don’t want to own, we can at least steward.  The planet is ours to save, let’s spend on a better future.

Turning savers into spenders , spenders into stewards

Our time would be better spent showing people how their savings are invested and giving them the chance to make positive decisions on how their money is spent.

I mean by spent – invested, but people need to understand what is happening to their money after it leaves their bank account, their payslip – even their bricks and mortar.

Giving people a clear picture of what happens to their money is critical to keeping their interest.

Instead of issuing people with annual statements full of financial jargon and compliance warnings, we could be reporting on how money has been spent. The only fund manager I have known who does this is Terry Smith – and look how successful Fundsmith is.


And of course, when we have turned savers into spenders and spenders into stewards, we have changed the nature of saving for the better.

We do not need wealth , we need to pay the rent

This blog challenges the conventional view of pensions as wealth and replaces it with a view of pensions as a way of paying the rent. This is the new reality for many youngsters.

We should stop confusing the need to pay the rent with ownership, stop suggesting that we can dive into our pension savings to put down deposits on houses.  We need pensions to pay the rent – not to amass housing equity,

We need to stop thinking of pensions as a means of becoming wealthy and start thinking about our responsibility to each other not to become a burden in later age. Investing in our retirements should be a deeply satisfying – socially responsible behaviour.

Appealing to the responsible instincts of young people is much more likely to win their hearts than appealing to their greed.

If we are to get people to take pensions seriously, especially young people, we need to forget  about swapping pensions for home ownership.  We need instead to get people using the collective power of our pension pots to do good things. This starts one person at a time.

So when I talk today to that big high street bank, and the equity release council and to the payroll  community, I’ll be talking about this paradigm shift that is needed to get people saving more. I hope to meet some of you during the day!

inclusive

 

 

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Millennial fightback

Posted on June 4, 2019 by henry tapper

The greatest current threat to motor manufacturers is that people no longer want to drive. The second biggest threat is that people no longer want to own a car. That’s the message that comes loud and clear from an article in the FT that features the Volvo car stand with no cars on it.

Screenshot 2019-06-04 at 05.43.43

I have to admit a reluctance to get in my car myself, my personal mileage was below 5000 miles last year and I keep my car out of nostalgia and for the personal number plate S4 HEN – which tells me who I’m owned by!

Car’s are not alone – what about houses?

The value of owning a record collection, of philately , of wine cellars – all seem to have dropped. People who I talk to who are under 35 no longer value themselves in terms of what they own. I suspect that we are returning to a different set of values that may be rather less materialistic and (dare I say it) more spiritual.

I suspect that houses are also way down on value. Owning property is certainly not a priority for my son (who was bullied into getting a driving licence but who has never used it – other than as identification).

Is this behaviour a result of pragmatism, or does it continue a trend we are seeing?

If young people fall out of love with home ownership, what will this mean to the value of older people’s housing stock? Will the equity on which so many of us rely for financial security prove illusory?

A house is only worth what someone is prepared to pay for it and as we age, there is a very real chance that ownership rates amongst older people will fall. The lack of income arising from pensions will inevitably place greater reliance on equity release and the lifetime mortgages which pass property from self ownership to the ownership of lenders.

Milennial fightback

There is only one way for millennials and that is to take control. Historically that has been through securing ownership of cars, houses and possessions.

I don’t see the urge to control today among younger people who are quite happy to stream services and use them on demand.

Instead of owning, millennials are investing heavily in themselves. They are taking jobs that are interesting and rewarding in themselves, not just a means to get a mortgage.

They are buying into training and taking an inordinate interest in their personal finances. Bloggers like Iona Bain – of young money – are the new Martin Lewis’ but they are talking to a new generation more interested in how their money is invested than what to buy with their savings.

I am dubbing this “millennial fightback” as it is their way of dealing with the impossibility of competing with the baby boomers on the baby boomers terms.

A car stand with no cars

The motor industry is first to feel the wave of change. The shift towards car- leasing or in the most extreme – Zip car – is illustrative of a new way of dealing with ownership – that moves from the balance sheet to profit and loss. Kids no longer want a balance sheet weighed down by personal possessions which they see as liabilities as much as assets.

This has profound implications for the savings industry too.

We must recognise it is not the valuation of an asset that is most important to a young person but its utility under ownership.

People are already moving away from conventional measures of worth (the valuation) to a different measure “the value of their money”. If you start valuing your money by what it is doing , then your interest is in the investment itself – what it does – not what other people will pay for it. People are interested in cars as a service , not as objects and property and even savings  may follow.

How this plays in pensions

There seem to me to be two competing views of pensions . Those who see pensions as part of wealth are owners. Those who see pensions as a means of doing things, are renters.

We do not of course own ourselves freehold, our lives are on leases which expire when we do. Younger people do not even take for granted ownership of the planet which they see as under existential threat, they may possess a blighted planet when their parents are gone.

This sense of possession rather than ownership could mean a reversion to a view of a pension as something that does something rather than as a balance sheet item.

Currently the  “pensions are wealth”  brigade dominate the agenda and have pretty well excluded the idea of pension as a utility.

But that is likely to change over generations. The question for pension providers today is how to ride both horses in mid-stream.

horses stream

Posted in actuaries, advice gap, pensions | Tagged , , , , , , , | 7 Comments

Pension PlayPen lunch – “are we better off out?”

Posted on June 2, 2019 by henry tapper

Pension Play Pen lunch – Monday June 3rd 2019

Brexit and Trexit

Brexit and Trexit are in the news, we all know about Brexit – some know about Trinity College Cambridge’s unilateral departure from USS (Tr-exit). Is Trinity College better off out….. and is Britain?

Does collectivism have a role in today’s world?

Should the strong shoulder the weak?

Who picks up the bill if they do?

Is the bill worth worrying about?

The Pension Play Pen meets as it has met the first business Monday of the month for the past 10 years. We will this week be downstairs at the back (not upstairs) in the Counting House and we will be meeting at 12pm, eating at 12.30 and breaking at 1.30 for a more formal conversation.

All are welcome, the cost will be c £15 shared between us and I look forward to seeing you in the Counting House at Monday lunchtime.

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We all love disruptors till we feel disrupted!

Posted on May 31, 2019 by henry tapper

disruption

Yesterday I wrote a blog in favour of annuities and Britain’s favourite annuity broker – Retirement Line. My argument was that some of the best retirement income ideas and one of our best brokers are unknown.

What a hullaballoo ensued! My blog was unbalanced

My blog said nothing new

 

My blog was an advert

I was monetising my blog

 

My blog wasn’t worthy of my blog

My blog was deeply misleading

 

Just what is wrong with Retirement Line, Annuity Broking and advertising a service?

I get the feeling that Retirement Line are eating someone’s lunch and that I’ve just walked into an advisory war-zone.

I’ve no idea why my post should be reckoned deeply misleading, I do believe there is a strong case for fixed term annuities as I reckon annuity rates are likely to go up, not just when we see QE unwind but because mortality assumptions are changing in the direction of better annuity rates.

I appreciate that fixed term annuities carry certain risks which are advertised in the link to the MAS guide which you can follow here. If anyone thinks that annuity rates will go down , they can lock into lifetime annuities today. They would do well to use the open market option offered by Retirement Line and to make sure they get any enhancements available to them.

That I didn’t know about Fixed Term Annuities, suggests that most people don’t know about them. Most people don’t know much about annuities at all, which is a shame as they suit a lot of people who want a wage for life.

Research from Aon and from Tilney BestInvest suggests that annuities remain the best way for many people to turn their pension pot into a pension income.

What is wrong with adverts?

My blog is a series of adverts. I advertise Pension PlayPen, AgeWage, First Actuarial , FABI, CDC  and annuities.

Some of these earn me money (AgeWage, First Actuarial) some lose me money (Pension PlayPen) and the remainder are advertised out of my conviction.

People want conviction. If along the way, my conviction gets in the way of your business model then so be it. We are unlikely to work together!

If my blog did not have the courage of my conviction, no one would read it. I will continue to promote ideas and businesses that I support and Retirement Line is a business I support. I may well speak with them about my pension pot if I cannot see a way to exchanging it for a CDC pension.

What is wrong with adverts?

Feeling disrupted?

If you are one of the people who feel angry about my blog, ask yourself why.

Screenshot 2019-05-31 at 07.13.05.png

If you feel I have been disingenuous, as Brian Gannon did, then you can say so in the comments on my blog. I don’t edit those comments or take them down – unless they are spam

But the passion of your response is probably born out of insecurity with your current views or those of your business and you should ask yourself whether you’re angry about my being misleading – or my being challenging.

CDC and Annuities are linked in several of the responses I’ve got and I suspect that both are seen as a threat to advised drawdown. I don’t think that advised drawdown is under threat, there is high demand for it and low levels of supply. At the moment, advisers can make a good living out of it with relatively little challenge. It is not a particularly competitive market and the FCA knows it.

CDC and Annuities have the potential to challenge advised drawdown and the margins it is paying fund managers, platform providers and advisors.

If annuities  are offered to ordinary people by Retirement Line then that is good. Retirement Line tell me they refer many inquiries on to advisers for help on drawdown , equity release and other advised products.

Rather than feeling angry about Retirement Line and the ideas in my blog, advisers should be beating a path to Fletton and join the increasing number of intermediaries working with David Slater & Co.

Posted in pensions | 1 Comment

Risk-taking , ground-breaking academics in our universities

Posted on May 28, 2019 by henry tapper

Jo Grady

I have been impressed by the way academics , through their unions, took on university employers and the received wisdom of the pension industry and refused to let their defined benefit scheme close to future accrual.

I’m pleased that one of the leading lights in their demand to keep USS open was last week elected to General Secretary of the UCU – the university staff union. Congratulations to Jo Grady.

Screenshot 2019-05-28 at 06.07.41.png

As her twitter header reminds us, the USS dispute has asked fundamental questions not just about pensions but about affordability and groupthink..

Jo’s points are central to the arguments that Hilary Salt and Derek Benstead have been putting forward to UCU. Hilary was quite explicit at the First Actuarial conference in challenging the Pension Regulator’s position on self -sufficiency (since modified to partial dependency). Pension Schemes do not have to behave as if they were insurance companies, unlike insurance companies , they can call upon a sponsor – in the case of USS a sponsor with a history going back 600 years.

Risk can be taken collectively

One of the sadnesses of the University dispute over pensions was that it broke the mutual bonds between trustees, employers and members. Since the dispute we learn that one of the Trustees – Professor Hutton – had to whistleblow to get information from the scheme which she feels would have allowed her to push back against the reckless conservatism of scheme funding.

Now we learn that one employer, Trinity College Cambridge, is seeking to break from USS because it feels too tied by the obligations of mutuality. This too is very sad.

When those who have greatest strength (strength not earned but endowed) , choose to compete rather than collaborate, we see the beginnings of the end of Britain’s academic greatness.

The capacity for risk, that is inherent in our university system, depends on established institutions such as Trinity, enabling new risk-takers to come through. If we lose the solidarity of the pension consensus, we lose much else besides.

Jo Grady 2

A return to good order?

Much has changed in  University pensions, the JEP reported that the information that Professor Jan Hutton had asked for, would – had it been disclosed – confirmed that the USS position on de-risking was unnecessary, that funding of USS need not have increased to the proposed levels, that the scheme was affordable and that the teachers had reason to strike.

Despite the employers (generally) accepting the JEP position, the USS continues to follow the accepted wisdom – espoused in the Pensions Regulators current strategy, that schemes should seek to  be funded independently of employer’s future contributions.

This may work for the PPF – where there is no economic interest in disconnected employer paying levies – but it does not work for the USS, where the bond between employer and staff is to a high degree – through the pension scheme. The principal of deferred pay assumes just that – ongoing employer contributions to USS.

It may be too late to restore the principles behind pensions as deferred pay to the provision of  private sector DB , but it is not too late to save further value destruction in the name of “de-risking”. Indeed there is much to be gained by reintroducing the concept of risk-sharing into pensions – rather than dumping all risk on individuals.

Without the tremendous determination of the UCU, Jo Grady to the fore, the buds of risk-sharing we see in the adoption of CDC by the DWP, would have been frozen.

Jo Grady 3

Better off together

This country funds universities through taxation and  student grants. Universities are able to pursue greater outreach by their entrepreneurial activities – including funding many start-ups that are going on to drive our long-term economic growth. Whether in science, the arts , engineering or economics, we rely on our academics to drive progressive thinking – to be a force for good and to encourage risk-taking.

Without risk taking, the great experiments on which our society is built, would not have happened. Without universities , the science that has driven Britain’s pre-eminence would not have happened. We need to pay our thought leaders to lead and we do not have to make them the CIOs of their self-invested personal pensions.

University academics are no more ready to manage their later life finances than postmen. They are built for better things.

We have trustees a plenty who can manage schemes that give them scheme pensions or “wages for life”.

This is not to discourage those in USS or Royal Mail who want to become pensions experts. Sam Marsh, Mike Otsuka, Denis Leech, Jane Hatton – indeed Jo Grady are all quite capable of managing USS as Member Nominated Trustees. They undoubtedly could run their own pensions but choose not to. They realise they are better off together

Jo Ogrady 4

As an entrepreneur – I do not need or want to manage my own pension

There are some who argue that their business is their pension, they are taking a great risk relying on their entrepreneurial activities to fund their later life. They are entitled to take that risk – but I am not with them.

I use my endeavours as a businessman to create for myself an income for life and I know that when I have achieved what I want to do with AgeWage, I will be able to move on to a different kind of living – I will call it retirement. Whether I ever get to the point where I fully retire- I doubt – when my father gave up work – he gave up the ghost and I may be like him.

But my father had an NHS pension and I have a Zurich pension and it keeps me going, helping me so I don’t have to drawdown on shareholders funds to meet my financial needs. I am also grateful for the work and pay I get from First Actuarial (including their pension contributions).

To a great degree, the USS are not just struggling for academic staff but for us all. We want to be free – free of financial worries in retirement – for most of us that means having a properly funded pension. Jo Grady and others are holding the red-line for their scheme and raising the bar for the rest of us,

better off together.png

 

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Retail platforms – a boat worth missing?

Posted on May 26, 2019 by henry tapper

I hadn’t realised until yesterday that the FCA has a SIPP and Platform team in the Retail Investment supervision department.

For most of us , the idea that we are buying into a platform when we save into a pension is counter intuitive. Most of us don’t stop to think where our money is going , let alone embrace the concept of an investment platform.

I remember at Port Talbot, watching the eyes of steel men glaze over as advisers talked to them of the merits of the various platforms they were being offered – platforms mean different things to different people but if you work in a steelworks – it has a particular meaning which does not translate into money matters.

How platforms changed retail

Clive Waller has been dubbed Mr Platform (as John Moret is called Mr Sipp), both get their names from understanding early in their gestation, that the Self invested personal pension and the platforms they provide, could radically redefine the retail financial services market.

When Ian Taylor and Transact started offering advisers the opportunity to put together their own funds using Transact’s platform technology, the IFA moved from distributor to manufacturer and vertical integration had begun. Now a few other entrepreneurs have followed and there are rival platforms to Transact – Novia, Nucleus, Cofunds, AJ Bell and a few insurers who have bought into the technology. Platforms are immensely powerful making their founding entrepreneurs every rich.

Add to that list a Kiwi – Adrian Durham – who brought FNZ to these shores and you get a reasonably complete picture of the platforms that IFAs use to make a living and build embedded value in their businesses.

Any IFA reading this will smile and ask me to tell them something that they don’t know. Anyone other than an IFA, will marvel that platforms and the SIPP tax wrappers that come with them – are important enough to merit a department of the FCA.

Platforms may not have changed the world but they have changed the dynamics of the funds industry.

Institutional platforms miss the boat

I noticed that Professional Pensions ran an investment platform award at last week’s shindig in Park Lane. Mobius won the award, a company that most people have never heard of. I was head of sales for a time for its previous incarnation (Investment Solutions) and since I’ve left it’s stopped pretending it can sell funds of funds to investment consultants and learned from retail platforms to empower consultants to do that for themselves.

Mobius is allowing institutional advisors to offer vertically integrated products to their clients and to benefit from those products precisely as the retail platforms did. The difference is that rather than being a pure funds platform, Mobius is an insurance platform and the funds it offers come wrapped (reinsured) by Mobius and have to obey the permitted links rules pertaining to insurance companies.

These rules prevent the insurer offering inappropriate investments to its policyholders. Permitted links are currently under review by the FCA. 

The review has been prompted by protests from insurers and advisers that insurance platforms cannot provide the flexibility to advisers available from retail platforms and in particular cannot offer what is referred to as “patient capital”.  The issues are to do with illiquidity, particularly the illiquidity of property and other forms of infrastructure investment.

Institutional platforms like Mobius have not been able to be as racy as their retail cousins because they use reinsurance wrappers which require them to abide by permitted links regulations.

Meanwhile the non- insured institutional platforms offered by custodian banks, have failed to pick up on the prevailing trend toward vertical integration and have missed the boat.

 A boat that may have been worth missing

Many of the SIPPs and platforms that they use, are now polluted with toxic assets like Dolphin Trust (that I discussed yesterday).

Allowing advisers to shove rubbish into your SIPP and on to your platform is a risky business. SIPPs have argued in the past that they cannot be responsible for what regulated advisers choose for their clients and that they don’t have a supervisory role.

Because the platforms don’t reinsure funds – the permitted links rules don’t apply and there is little or no friction.  This has led to many funds and vertically integrated funds of funds appearing on reputable platforms , going belly up and leaving the platform, the SIPP and the adviser with a lot of explaining to do.

Typically the adviser walks away and either sets up abroad or phoenixes into another entity in the UK leaving the SIPP manager and the platform holding the baby.

It is the FCA’s job to find somebody accountable for what is happening and that is proving very difficult.

It is extremely difficult to recover the money that is lost from a fund failure and often the cost of recovery wipes out any gain to the investor from the recovery process. That is why retail investors have direct access to compensation from the Financial Services Compensation Scheme (FSCS).

But FSCS – like the PPF – needs protecting, There are only so many claims that can be passed on to other advisers , platforms and SIPPs before the costs of claim make the whole shebang unviable.

Permitted links may have saved insurance platforms from the agonies that retail SIPPs and platforms are waking up to. The custodial banks that refused to play, may feel the boat  was worth missing.

Hargreaves Lansdown and St James’ place

In different ways , these two organisations have redefined the way that retail platforms can operate successfully.

Both have unashamedly targeted “wealth” and kept a tight ship. To follow the conceit, their boat had pretty exclusive passenger lists and their crews make sure that those who are onboard are well vetted.

Hargreaves Lansdown has offered an execution only service that appeals to experienced investors who don’t want to use advisers while St James Place offers an advised service where the cost of advice is born by the platform and passed back to investors through higher fees.

Both models are highly popular, both companies have high levels of confidence among their customers, but their boats depend on exclusivity.

A boat for all?

I sense when talking to regulators , that they would like to see the kind of model that works for Hargreaves, SJP and for the wealth managers who use platforms responsibly, available to everyone.

We are beginning to see mass market products emerging. Pension Bee could be called a “boat for all”.  Surprisingly – the workplace pensions have yet to realise their position as mass market pension providers and are failing to build the level of trust and engagement that the Pension Bee-keepers are creating with their SIPP- holders.

Organisations like Smart Pensions are getting there and it’s easy to see NEST and People’s providing a Pension Bee type service in time. The large insurers are generally caught between offering a direct service or relying on advisers. Some – such as Royal London, have decided to work with advisers exclusively, others -such as Quilter – are looking to follow the route pioneered by Allied Dunbar and now operated by SJP, the adviser platform.

All of these models are looking to provide a boat for all but none have yet found the way to meet people’s desire for a wage for life. Retail pension products remain anything but pension providers.

The future is in “Customer need”

I remain obdurately of the opinion that the boat for all is a boat that treats everyone as one and offers benefits collectively through some form or other of CDC.

I don’t see CDC as an institutional produce -even though its first UK incarnation – Royal Mail – will be an institutionally sponsored and devised product.

I think that the trust based pension structures – the master-trusts – are ideally suited to using the technology of platforms to deliver a simple one size fits all collective pension which still allows people the option to opt out into the flexibilities of SIPP platforms.

Indeed – the ongoing dynamic for pensions may be between a choice between the simplicity of a wage for life and the complexity of the DIY SIPP.

I mentioned this to the FCA’s Charles Randell when I met him last month and I’ll talk of this again when I meet the FCA’s pension team in June.

I believe that there is a middle ground that brings collectives and retail platforms together and it can be best defined today by “Customer Need”.

We need platforms, tax wrappers, advisers and regulators that recognise that customers need the choice not just of SIPPs but of not having to take any choice at all. CDC offers that other choice,

Posted in advice gap, pensions | Tagged , , , , , , , | 2 Comments

Grand designs from Dolphin Trust

Posted on May 25, 2019 by henry tapper

 

 

If you want to invest in Dolphin Trust , you can watch a video advertising Canisius Careee, one of Dophin Trust’s investments. These are “real pictures”.

It’s property backed – it’s German – you get a first charge  and the bloke doing the voiceover sounds like someone you’d have a drink with – what could possible go wrong?

Screenshot 2019-05-25 at 07.12.07

Remember – these are “real pictures’ (even if the video is 2 years old).

The reality is rather different

The true narrative behind the Dolphin Trust scam is brilliantly told on Radio Four’s You and Yours program.

Listen to the program here

You can follow the sad stories of the victims through this BBC article by Shari Vahl.

It’s a narrative that – told by an unregulated investment salesman- proved irresistible to thousands of people with savings and pensions.

I know who these salesmen are, some are in my Pension Play Pen linked in group and one or two are actually connected to me on linked in. They are integrated into the financial advisory community but they are not regulated.

Here are some more of  the people who have been selling Dolphin Trust

There’s Tim Blogg (@tractorboy on twitter)

There’s James Hall

There’s William Butterwick

and in Ireland , there’s Cormac Smith

Then there’s the man who’s responsible for producing financial accounts for Dolphin International- Tom O’Connell.  The problem is there are no recent accounts

And of course there’s (ex) CEO Charles Smethurst , the man who promised to send a million dollars every day to Singapore to pay back the Singapore investors.

This is the video used to explain what Dolphin was about to Far Eastern Investors

Here’s Charles being interviewed in 2012 about Dolphin. Explaining how secure Dolphin is to investors. It includes at minute 6 a detailed explanation of the exit strategy.

Where there’s no financial capability – there’s Dolphin Trust

You can of course find out more about Dolphin Trust and its nefarious behaviour by visiting Angie Brooks’ pension life site.. Angie has been campaigning about the risks of investing in Dolphin (now German Property Group) for some time.

In September 2016 she wrote about  the exposure of the Trafalgar Multi Asset Fund

After the disasters of failed pension schemes Capita Oak, Henley and Westminster (aggregate of £20 million lost to over 500 victims through investments in Store First store pods – wound up by the Insolvency Service), there are now concerns about the suspended Trafalgar Multi Asset Fund of £20 million.  The board of directors have published the below report and are investigating how this fund came to be mostly invested in one asset: Dolphin property development loans.

In fact, Dolphin was one of the assets of Stephen Ward’s London Quantum scam which is now in the hands of Dalriada Trustees (appointed by the Pensions Regulator).  Dalriada stated a year ago that Dolphin was not a suitable investment for a pension scheme and yet the investment manager of Trafalgar has invested most of the fund in Dolphin.

The unlicensed adviser to the victims was also the investment manager of the Trafalgar fund.  The advisory firm, Global Partners Limited – which then changed its name to The Pension Reporter – was an agent of a firm called Joseph Oliver and was not licensed to give pension or investment advice.

It seems that certain vulnerable people are condemned to suffer scams such as Dolphin because no-one is prepared to shut down firms like Dolphin and stop the salesmen selling this rubbish from doing so.

Dolphin Trust is not new news, but the You and Yours expose makes doing something about the sales ecosystem that still exists in the UK , that much more possible.

In the couple of hours that I’ve been looking at Dolphin Trust, I’ve noted that Dolphin Trust was recommended by Darren Reynolds and Andrew Deeney of Active Wealth Management to people he was advising on BSPS benefits

Andrew is now at Fortuna Wealth Management having left Active behind him. Darren Reynolds has not been heard of since trying to explain the charges on the pension solution he sold to those transferring out of BSPS.

I’ve noted that Dolphin Trust was also linked to FCA regulated advisers Gerrard Associates, which like Active Wealth Management – used its regulatory status to scam the vulnerable.

Last weekend I said in the Times that it is time the FCA and tPR got on the front foot and stopped the ongoing sales of unregulated investments and the kind of fractional scamming sold by Active Wealth Management under the cover of legitimate SIPPs.

I will say it again, as Baroness Altmann said on You and Yours. It is not enough for the FCA to know what’s going on, it’s got to stop what’s going on and that means making it clear that those who have sold these funds in the past, don’t sell funds in the future. That means just about everyone mentioned in this blog (though I exclude Ros, Angie and the presenters of You and yours!)

Of course this isn’t an inclusive list and yes there are probably hundreds of other salespeople both in the UK and abroad who’ve sold Dolphin Trust and would sell similar as long as it had a 20% sales commission sticker on it.

And if you go back to the top of this blog, you’ll find the people who are still promoting Dolphin Trust on the web and – guess what – they all live in this country and can be contacted using the links supplied.

Posted in advice gap, pensions | Tagged , , , , | 5 Comments

British Steel – workplace pensions go missing

Posted on May 22, 2019 by henry tapper

BSPS 6

Maria Espadinha’s  excellent article in the FT’s Advisor clarifies to financial advisers that were Greybull to go into administration, there would be no impact on the new BSPS.  It’s a timely reminder as there will undoubtedly be increased vulnerability amongst traumatised British Steel workers in Teeside and Scunthorpe.

The Facebook page that members of the new BSPS use to talk with each other , post her article to clarify the position for pensioners and deferred members of the scheme. The scheme does not depend on Greybull’s money and therefore it is business as usual for BSPS. As ever, it is Stefan Zait who provides the information.

Such articles keep the lead generators stay away from these sites.

British Steel’s Workplace Pension

The FT article ends with sombre words from Paul Stocks

“there may be a little relief that their DB pensions are no longer at risk from British Steel’s potential failure, for the majority this will be scant comfort given that their livelihoods (and those of families, friends and neighbours) are on the line.”

With the jobs come pensions , not the defined benefit accrual of yesteryear but a healthy contribution into a Legal and General workplace pension that covers the staff in the Teeside and Scunthorpe plants.

It is a good plan with very low charges and a high contribution rate (relative to auto-enrolment minima).

The plan , like Tata’s equivalent (which is with Aviva), is little discussed but it too is under threat from the very probable collapse of Greybull. The plan was funded to offer some continuity with what came before. But if Greybull’s business does get taken over, it is only too likely that what will replace the current contribution rate, will be something a lot less generous.

It is in the nature of modern pension policy that the minimum viable product is set at the bare bones auto-enrolment rate.  Let’s hope that Greybull survives, but if it doesn’t, let’s hope that the jobs of the British Steel workers are preserved – with salaries and pensions unreduced.

Putting staff last

We have now reached a point in corporate management where pensions are considered as “costs” rather than “benefits”. The business of private equity firms such as Greybull is to reduce costs, part of the attraction of British Steel to them was that it came without the long-tail pension liabilities that stayed with Tata.

The sorrow is that even with their pension-lite staff liabilities Greybull has not been able to turn British Steel into a viable business.

As with Monarch Airlines , Comet and Ryland Snooker Halls (all funded by Greybull Capital) the debt that has been pumped into British Steel has been created by the Greybull management and it looks very likely that that debt will be the first credit in line , if British Steel crashes.

As this article in the Guardian points out, the financiers  of Greybull are unlikely to have suffered if British Steel goes under.

The people who will suffer as Paul Stocks reminds us – are the staff.

Workplace pensions matter too

There is currently protection for defined benefit promises through the PPF, but there is no protection to employees for the loss of future defined contributions into workplace pensions.

The implied contract between employer and staff to meet pension contributions lasts only as long as the employer chooses to fund both salary and pension.

While the funds which have been built up to date are safe, the future pensions that they buy are now under threat as the jobs that fund the pensions are axed.

It would seem that at British Steel, the future of the British Steel workplace pension is so small a matter as to not be mentioned in any article I have read on the impending closure.

But the workplace pension does matter, it comes with the job and the funding of the workplace pension reflects the importance historically that pensions played to steel workers.

A pension is a pension

If you are a British Steel worker, you will probably not be thinking about your workplace pension right now. You will hopefully be consoled by Maria’s article that your rights under new BSPS are secure. But your rights to future contributions into your workplace pension are under threat and those rights are part of your remuneration package.

While the eyes of the world have been on the defined benefits within BSPS, you have been building up a personal pension with Legal and General which supplements your state pensions and any DB rights you have.

I wrote at the beginning of last year that both Tata and Greybull have under-promoted their workplace pensions and you can see why.

They did not want these workplace pensions connected in any way with BSPS transfers. They succeeded,  the Tata and Greybull workplace plans were treated as irrelevant then so that they  can now be sidelined. That’s what’s happening.

I have pointed out  on this blog that Aviva and Legal and General – their management and their IGCs stood to one side and did not promote their workplace pensions to Tata and British Steel staff (respectively). I have complained that these excellent plans, capable of taking transfers, were ignored by IFAs and by the FCA and tPR. Had these plans been promoted , rather than some of the SIPPs into which steelworker’s “wealth” were invested, many of the problems that are emerging today would have been avoided.

Where was the protection for staff interests from the employers? Why did the plan providers stand back and where were the Regulators? Who was protecting your BSPS pension then and who is protecting your workplace pension now?

You deserve protection and so do your pension contributions. If your defined benefits were at risk (and there is every chance that Tata Steel will come under pressure following the break up of Thyssen Krupp’s partnership) then the Pensions Regulator and the Work and Pensions Select Committee will swing into action.

But a pension is a pension and who is fighting for you and your workplace pension?

Government – British Steel worker’s workplace pensions matter too!

BSPS Missing

Missing

Posted in advice gap, BSPS, pensions | Tagged , , , , , , | 6 Comments

MPs call the conflicts of contingent charging

Posted on May 20, 2019 by henry tapper

This is good news. The pressure on the FCA to ban contingent charging for pension advice must continue. Because it opens the door on wider issues which I will explore in this blog.

You can read Frank Field’s letter to the FCA’s CEO , Andrew Bailey here (someone should tell him the FCA has moved!). Field is urging the FCA to look at compromise solutions, I agree. There are people who need help on DB pensions who cannot afford that help and there may be ways to accomodate these special needs into a framework that stopped the use of contingent charging in the generality.

Why hasn’t the FCA acted so far?

It seems the FCA are running scared of investigating the links between firms that charge for pension transfers on a “no transfer no fee” basis and the provision of bad advice

I am genuinely surprised to read this.

The FCA has called the industry for evidence of the damage that contingent charging has or hasn’t done, but it has its own data from its own investigations. What is holding the FCA back?

Isn’t it time that the FCA took the issues surrounding contingent charging more seriously?

The issues are conflicts of interest between an advisor’s business model and its client’s needs.

Take the lid off the contingent charge powder keg and any spark will ignite not just pension transfers but the wider issues arising from vertical integration.

This is what I suspect holds the FCA back.

Financial planning as lead generation

There is a conflict of interest between the needs of wealth managers (wealth to manage) and the work of financial planners (protection against living too long, dying too soon or losing an income).

Since the big bucks are in wealth management, financial planners (including those offering financial well-being in the workplace) are becoming little more than lead generators for wealth managers.

If every solution to the financial planning involves using an allied wealth management solution, it is not hard to see how financial advice gets distorted.

This is at the root of the contingent charge problem.

It is not just that contingent charges take the friction out of  the charging and collection of fees for transfer advice. They also liberate the wealth stored in DB plans for the benefit of wealth managers.

It is hardly surprising that the contingent charging model was created and deployed by Tideway, a wealth manager.  For Tideway, DB transfers are the basis of the wealth management business. Much the same can be said of St James Place and Quilter. Take away contingent charging and the whole funds eco-system is starved of the oxygen of new business.

The Treasury angle

The wealth management lobby is a powerful one. It influences the Treasury, The Work and Pensions Committee, has the interests of the public’s financial futures at heart. The Treasury has to balance the books.

This is another conflict, but a more fundamental one.

The impact of pension transfers in the short term is to bring forward revenues for the Treasury at the expense of the long term financial futures of ordinary people who otherwise would have had a defined benefit pension scheme.

The wealth management industry, including advisers, platform managers, fund managers, asset managers and the host of those who charge to the funds, is what the UK financial services industry is.

It needs constant feeding and the best source of its nutrition is the trillions locked up in occupational pension schemes (especially the DB ones).

This could be why the FCA are dragging their feet

Thankfully we have a parliamentary democracy that isn’t going to let this lie.

Well done Nick Smith.

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The long term solution is collective

If we are to break this cycle of conflicted lead generation , we will have to take on the demands of wealth management and create an effective lobby for collective pension provision.

DB pension plans are an effective way of delivering a wage for life. They are unaffordable to some employers and so we need to look at other ways to deliver effective pension planning. CDC is one other way.

De-risking DB plans by promoting DB transfers – as happened in 2017 through the irresponsible behaviour not just of advisers, but of trustees, journalists and (through the absence of action) regulators – is not a good way to deliver pension outcomes.

The wealth advisory model has its place, but its place is not Port Talbot.

Nor is wealth management the answer for most of the £36bn that left occupational schemes in 2017.

The tap that was turned on was marked “contingent charging” and that tap is still open. Though transfers are less common today, it is not because of a change of sentiment among wealth managers, it is because the cost for their lead generators has risen due to PI premiums. Many Pension Transfer Specialists can no longer generate leads for their wealth managers because of the cost of Professional Indemnity Insurance.

This is a crazy way to regulate the flows of assets.

The FCA belatedly are looking into advisory practices and I would be very surprised if any of the 30 firms that they are investigating conducted transfers using upfront fees.

Sadly, for those who have paid for poor advice out of their funds, the findings of this review may prove too little too late. For those advisers who have not been caught up in the contagion of conflicts, there is little to feel good about. They will have to pay higher fees to fund compensation through FSCS and the reputation of their (good) work will be tarnished.

Contingent charging should be banned and the murky world where wealth managers use financial planners as lead generators should be investigated.

Above all we must promote the power of collective pension schemes to deliver good outcomes to ordinary people and stop pretending that liberating these pensions into wealth management solutions is the answer for ordinary people.

port talbot 4

 

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AgeWage is closing its investment round (but you’ve still got a week to invest)

Posted on May 18, 2019 by henry tapper

www.seedrs.com/agewage

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We’ll be closing our investment round with Seedrs on Friday 24th May. As I write, that gives readers a week to invest. You invest by clicking the link above, if you want to invest more than £5,000, drop henry@agewage.com a line and I will send you a full prospectus (you can also download the prospectus together with other supporting documents from Seedrs).

We are of course over-funded to the tune of 157%, a tremendous vote of confidence from the 427 people who’ve invested via the platform and to the larger investors who’ve come to us directly.

I’d particularly like to thank John Roe, who has – in the latter stages of the campaign stepped up to be our lead investor. John, as a private individual is responsible for nearly one third of the money we have raised in this round. He manages my pension and many billions of investments for people like me who invest in Legal and General Multi-Asset funds.

Proving the concept

In an abstract way, we have already proved that people are prepared to invest in an idea which though not fulfilled – is now reckoned to be worth over £3.5m.

But I am under no illusion, turning a good idea into a minimum viable product that can influence people to take better pension decisions is a major undertaking in itself.

The first thing to do is to build around us founders, a group of talented diverse people who share our entrepreneurial zeal. Thanks to the success of the round, I have found several high calibre people who will be working at AgeWage.

We have moved from camping out on the sofas of the 7th floor of WeWorks in Moorgate to our own office.

office for agewage.jpg

We promise to spend the money we’ve raised carefully and we will not be awarding any founders bonuses for the success of the round, every penny is to be spent on delivering the proof of concept.

That POC is simple, to demonstrate we can produce accurate scores from bulk data and to prove that those scores positively engage people with their pensions.

There is much more beyond the MVP. We want to help people take action to bring pensions together , to invest more responsibly and ultimately to turn pots to wages in older age.

We will also be seeking every penny worth of grants available in the UK (and still from Europe). We would rather not lean on our shareholders for further development, though a further round of funding will follow later in the year as we build our digital support service through phone and web apps.

If you are an investor

We don’t take our investors for granted, whether you invested in pre-seed or in this round, you will not just be kept informed but invited to participate. Next week, as part of our POC we will be opening our doors to investors who want their pots analysed for value for money.

If you would like to share your pension details with us, then we will issue data access requests to your providers so we can compare your investment value (NAV) with what you would have got if you had contributed to the AgeWage index. We will give you scores.

We want our investors to be first in the queue of people we help.

 

Doing not talking

I look forward to the next few months as a time to do rather than talk. For years I have heard my friends and colleagues moan about the lack of support for people as they save and spend their pension pots.

Now you have given us the chance to do something about it and to do so on an industrial scale.

Thanks to our investors, big and small, AgeWage is in a position to work with Royal London and many other pension providers to improve engagement, decision making and ultimately the age wages of millions of people.

If you are not yet an investor, here again is the link- if you are and you want to top up, the link is still open to you.

www.seedrs.com/agewage

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No meat in the pie! Investment pathways

Posted on May 14, 2019 by henry tapper

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So what do we think?

Yesterday’s pension play pen lunch brought together a small but enthusiastic group of us to discuss whether the FCA’s planned in retirement investment pathways, would bridge the advice gap identified by FAMR and the Retirement Outcomes Review.

If that sounds pretty technical, then it wasn’t, having over ordered pies and fish and chips this was a chance for bellies to be filled and conviviality overflowed. Thank goodness there is still a place in the City where we can discuss serious issues in a relaxed and harmonious way! These lunches happen the first business Monday of the month, May was odd in that the lunch fell on the 13th. Lunches are advertised on social media and they always happen in the partners room at the back of the Counting House pub in Cornhill.

Pension playpen logo

No meat in this pie

John Quinlivan referred us to a paper delivered by Willis Towers Watson in November last year. You can download the paper from this link, but to give you a flavour, here is how it starts

Something is missing from the defined contribution (DC) system.

If DC is meant to be a retirement system, then it should provide income that supports participants throughout retirement. However, retirement systems do not come into existence fully formed; they begin with fairly simple design features and evolve over time.

In its earliest days, the DC system was a savings (or accumulation) system, primarily a supplement to the defined benefit system. Managing the payout phase was not a priority. Several decades on, the system has matured. The absence of this feature cannot be overlooked any longer.

And this is how the paper ends

the DC system of today has work to do.

The bit in the middle explores various options for “managing the payout phase” without landing on any one as a way forward. The working group that produced the paper was formed by Roger Urwin who I remember grappling with the problem of turning individual pots into what we used to call “scheme pensions”.

The paper comes to the same conclusion – that only through pooling can this be done. Oddly the paper does not discuss pooling longevity risk in the way collective DC does it. Instead it discusses three ways to help individuals take the complex decisions needed to turn a pension pot into a wage in retirement

In summary, demand for lifetime income solutions has been anaemic in the past. It could be strengthened through a more explicit focus on longevity tail insurance, through thoughtful choice architecture, and through the application of new technologies.

The meat in today’s pie is a little gristly for me. Long-tail insurance is only happening in annuities, choice architecture can be delivered by new technology but in a world where the employer no-longer wants to play a part, there is a missing link, WTW don’t do retail.

Is there need for a non-advised solution ?

WTW do have a product that they have built that could deliver much of what is missing in DC (and annuities could do the rest). I am not sure however whether LifeSight – WTW’s mastertrust, has a retail offering. If it has – it has kept it pretty quiet.

The fact is that most master trusts have been built around the needs of employers to stage auto-enrolment or to consolidate failing legacy DC plans on a B2B basis. WTW’s solution is no different, even if it has the capacity to offer disconnected individuals a way to get their money back.

The insurer’s have similarly isolated their workplace pension offerings and do not advertise the capacity of workplace pensions to spend your savings. The assumption is that if you have a pot worth spending, you’ll have a financial adviser guiding you into a SIPP drawdown program.

But most of the “claims” from workplace pensions are far too small for advisers to worry about, advisers will only get involved if the workplace pension can be subsumed into the adviser’s vertically integrated solution. For WTW’s Lifesight (sitting on an LGIM fund platform, read a wealth management solution sitting on Transact). Both solutions are placing advisers at the heart of the solution

If you are running successful businesses, the problems of those who don’t have access to Lifesight or the specialist skills of wealth managers, there remains a gap – an advice gap. There is a need for a non-advised solution which is what the FCA want to encourage with the yet to be fully revealed in retirement “investment pathways”.

The risk of Implied outcomes

I was left scratching my head as to why a non-advised solution to the retirement outcomes review isn’t emerging.

Short of Royal Mail’s CDC proposal, the thinking around choice architecture, technology and long-tail insurance is pretty much the same as what it was in Roger Urwin’s heyday 20 years ago.

The new fund platforms have given life to the wealth management industry and allowed consultants such as WTW to provide solutions for the workplace. But we have yet to see the emergence of a genuinely mass-market pot aggregator capable of giving us our money back in an orderly way.

I suspect that this is down to fear, fear of the implied outcome of offering people “pensions” and of people not quite getting what they thought they were going to get.

The implied outcome of a pension plan is – to most people- an income that lasts as long as you do.

Whatever solution the FCA finally end up with, it won’t be collective as a CDC is collective. It will have to rely on annuitisation and individuals pressing buttons well into their senior years,

If the outcomes of their pensions aren’t what they implied at outset, elderly people (and their families) are going to be disappointed and will point the finger of blame at someone.

This is the risk of an investment pathway that implies it is sorting out the pension problem. It is only addressing one aspect – the choice architecture. It is not dealing with the issues of people living longer and it certainly doesn’t address people’s natural assumption that their workplace pension provides a wage for life.

In a recent survey of its membership, NEST found that an alarmingly high proportion of its members believed that because NEST is the Government pension it would provide them with a Government or State Pension.

There was meat in the Pension PlayPen pies but there was no meat in the debate, because despite our talking for nearly 90 minutes we were still no nearer answering the question we had posed ourselves.

“Will investment pathways bridge the advice gap in retirement?”. I leave it to Anthony Morrow – who couldn’t get the meeting to sum up the mood of the meeting as we broke.

 

Posted in advice gap, pensions | Tagged , , , , | 1 Comment

How glorious to be English!

Posted on May 12, 2019 by henry tapper

marlow 3

 

I am sitting aboard Lady Lucy in the millpond at Hurley awaiting today’s guests. The sun is shining and there is only the slightest of breeze. Coots are nest-building and swans glide past me hoping that I will feed them from the bread bin.

The sound of water comes from below me and from Radio 3 which is this week celebrating along British rivers

marlow

I am thinking about football and the events which will unfurl today. Will Manchester City succumb to nerves and fluff their lines? Will Wolves spoil the scouse party?

Despite all the brouhaha about Brexit, Britain is quite the place to be.

Marlow 2

If you’d like to spend a day on the river aboard Lady Lucy, you can book yourself and friends and family on any of the days on the dropdown,

It is absolutely free.

Just follow this link

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So what the f**k is pentech?

Posted on May 11, 2019 by henry tapper

Pentech.jpg

People often ask me what the f*ck is “Pentech”. Well they don’t really – I ask myself that and then imagine that everyone is asking the same question.

But as people continue to follow and maybe read my blog, I have to assume that what troubles me – troubles them- I mean you!

We have fin-tech – which covers a multitude of techs, including insure-tech, reg-tech and even prop-tech. But Pen-tech hasn’t really made it into the tech family (yet).

I have often wondered why we find the idea of a pension dashboard so odd. After all, we were close to having combined pension forecasts 15 years ago and the idea of populating a few fields with data from different sources is not that advanced. But the pensions dashboard remains a kind of technological nirvana, so near and yet so far.

As I’ve noted before, the worry people have with technology is that you can’t really fiddle it. If you ask your data a question, you get a straight answer – a “straight through” answer. Which rather reduces your capacity to explain why something unpleasant is about to happen, like a realisation that all in the pensions garden is not rosy.

Pentech is slow to be adopted in some quarters because it can expose to common view the venality of some pension practices but much much worse, it can give people ideas that many pension providers would rather they didn’t have. If for instance you can, with a keystroke summon up a number that tells you what you own, what you’re paying someone to manage what you own and how successful that management has been…..you are not far from soliciting a second keystroke -“delete” . We are nearly deleted if we give people the pension technology they require. Pentech is a dis-intermediator and intermediaries do not vote for existential risk.

Pentech not only dis-intermediates, it also exposes whoppers. For instance it can show you that the data held on you is rubbish, This is very likely to be the case, because a lot of data is not static, we move house, change names and of course change jobs. Pentech puts us back in touch with our data (the pension finder service) but what we discover is often corrupt, data may have been badly input or not input or it can (occasionally) go wrong. The find/replace button is a scary one.

Pentech is – to those who see the word risk as bad news- bad news. It creates risks, risks of people finding out what is really going on , finding out that their data is dodgy, risks that people may decide to delete you from the management of their money.

All of this is behind why pensions has been slow to adopt technology, while other areas of financial services have been steaming ahead and getting their “tech-titles”.

To a techy, pensions really aren’t any different.

The business of getting data, and representing it to people so it tells them meaningful things is the same whether you are working out  a loan, a life insurance policy or a wage for life. There are assumptions in all financial services that underpin projections into the future but other than those assumptions, the only variables are the data inputs, the rest is a matter of fact.

Where pentech is so difficult is not in the representation of the data, but in controlling the reaction to that data. Give someone a number representing the amount they paid you to have their pension managed last year and they could fire/delete you. Tell someone how much money they have and they might ask it back.

Pentech is a very simple but a dangerous thing because it takes pensions off their pedestal and simplifies them, to a point where they can become meaningful to people.

Pentech is the way we unlock the gates of engagement, but to allow people to walk straight through, we need to be brave – a lot braver than we are today.

We need to be brave

I want to restore confidence in pensions – that’s what Pension PlayPen does and it’s what AgeWage will do. I want to restore confidence by dis-intermediating and I want to be brave enough to allow the 90% of people who don’t take advice, to make their own minds up on what they want to do.

I want pentech to open the doors for people to do just that.

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First Actuarial’s client conference in tweets

Posted on May 10, 2019 by henry tapper

RSA.jpg

The Royal Society of Arts Clubhouse

First Actuarial had its first client conference yesterday, if you weren’t there, it’s probably  because you aren’t a client. Make sure that doesn’t happen again next year!

Here’s what you got/missed

At the heart of what we are about is a quite different attitude to risk

Hilary Salt contribution on risk was the central contribution of the conference

The Regulator spoke through David Fairs,

David Fairs.jpg

David Fairs

though the new funding regime has yet to be fully announced , we heard about their nuanced position. “Limited Dependency” is the new “Self Sufficiency” Not everyone in the room saw this as doing much to halt the decline in DB accrual. David had published his thoughts in a blog released earlier in the day.

Spookily, the Pensions Regulator also published its new funding framework soon after. I said it was an awesome day

Getting technical

Duncan Buchanan and Wendy Hancock talked us through GMP Equalisations by comparing Jeremy Corbyn and Theresa May’s entitlements.

Points were made plainly

There was a lighter side to this technical discussion

Thinking harder

The technical session was challenging, what followed after the break was inspirational.

We heard from UCU’s Sam Marsh on how ordinary members had taken back some control of their pension scheme with the help of independent actuaries.

As Sam was speaking, the USS published its new proposals for the 2018 USS valuation (spookier still)

Sam made it clear that it was Hilary Salt and Derek Benstead’s pioneering report on USS finances that empowered him to push back against scheme closure

And he made it clear that “de-risking” in the coinage of pensions is anything but


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Dignity in retirement

Terry Pullinger was typically plain speaking , talking of the need to provide his members and the wider community of working people with the dignity of a proper wage in retirement.

Member power, channelled through unions and MNTs has made a huge difference to our pensions landscape and I was proud that First Actuarial have been at the heart of positive change.

Pension reform comes from right and left

Baroness Ros Altmann brought the conference to a close, talking of her role from Myners to today, in championing those deprived of proper pensions by pensions injustice.

She got some tough questions from the audience , some of who considered it was the unions not here who had created a proper Financial Assistance Scheme. Her retort was clinical “where were the unions when we took a Labour Government to court?”

By coincidence, delegates not at the party were able to watch the first screening of ITV’s documentary that very night

On a less serious note, she revealed that by happy coincidence she will be on holiday in Spain on June 1st. The audience was asked

“has anyone got a spare for the Baronness?”

Celebrating a proper pension consultancy

It’s been fifteen years since nine actuaries set up First Actuarial. It is now in the top ten pension consultancies in the country.

First Actuarial came of age yesterday and the mood of celebration was maintained deep into the night as clients and consultants partied in the RSA Clubhouse basement.

It was a great day, made better by the RSA and best by the massive audience of trustees , and employers who celebrated with us!

Thanks to the people who made this happen- especially Mark Riches, Kate Vickerstaff, Tim Jones and Lisa Orange. Thanks to Mobius, Locktons, Aviva and PIRC for livening up our coffee breaks- most of all thanks to our guests who were FABI !

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Mark Riches

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Buy and Suppress the pensions dashboard

Posted on May 8, 2019 by henry tapper

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Asmund Paulsen

I designed, launched and sold the first – and still only – Norwegian pension dashboard some 15 yrs ago.  “norskpensjon.no” is the pension dashboard service that the Norwegian pension providers, after we gained traction with it, insisted that they should own. It is (therefore) now still – some 10 years later – no more than our initial “minimum viable product”. We avoided “buy & kill”, but got “buy & surpress” …

These are the words of Norwegian pensions champion Asmund Paulsen.

I hope they will not prove prophetic for the UK pension dashboards but I fear that we are already seeing the degeneracy of the Norwegian model.

 

Today I will talk to a group of insurers about the pensions dashboard. It will not be an easy session as I don’t intend to pull any punches.

We are now 6 months on from the latest relaunch of the pensions dashboard and – other than a tame response to a tame consultation – nothing much has happened. This despite the protestations of the chief protagonists, the ABI, the DWP, MAPS and Origo that we would see a dashboard this year. The chances of that are fading as fast as Brexit and what we get is likely to be as unsatisfactory.

Nothing will happen without bravery

If I could characterise the one quality that the pensions dashboard project is missing – it is bravery.

Here I mean the bravery to speak out against the conventional wisdom of “buy and suppress”.

Those outside the tent, and I think back to previous iterations of the project, have been consulted and mollified, but they have been excluded. When they have questioned what is going on within the tent they have been pushed away.

The pensions dashboard is like a royal court , the courtiers bow and scrape to the Pensions Minister while carving up the kingdom between themselves.

There are only two strategies that the established pension providers are pursuing.

The first is to maintain the status quo and see as little disruption to their legacy books as possible. This enables them to maintain their embedded value, on which their share  solvency depends.

The second is to increase new business flows through pensions “project fear”. Project fear in this context means telling people that without radically increasing the contributions they commit to pensions, they will be bereft in retirement. The purpose of pensions project fear is to increase the value of the pension providers to the market, principally (but not exclusively) to shareholders.

It is the solvency of insurers (and now master trusts) that is at stake and it is the boost to future profitability of these same institutions that excites them. The dashboard could be the key to making workplace pensions profitable – a whole lot sooner.

There is no one who is prepared to call this, the court is a powerful persuader to silence.

Hiding behind poor data

We are moving towards transparency in financial services, that is what open banking gives us.

But the pensions dashboard will not be adopting the principles of open banking , laid out by the CMA. Instead it will be run – like the Norwegian dashboard – by those who own the data as a closed shop. We will not be getting open pensions any time soon.

The reason, we are told, that we cannot have open pensions , where dashboards can use the technical architecture of APIs and authentication, each to their own, is practicality.

Those who wish for a centralised system of management argue that having multiple dashboards finding their own data , will increase costs, increase risk and open the doors to scammers.  They also argue that it would expose those organisations who own dirty data , for what they are – poor record keepers,

Transparency being the best disinfectant, I would argue that the best way to clean up a problem is to shed light on it, not to keep it hid.

But this is not the view of the court, who argue that we should wait until the data is clean, before it is mandated that we can see it on a dashboard.

The minimum viable product

This phrase is much used by start-ups to mean the least they can build to prove their concept. We have already had a couple of rounds proving the concept of dashboards and they have taken us three years to complete.

It would seem that we are now to have another minimum viable product, produced within the Money and Pension Service which is called “the pensions dashboard”. The Government expects other dashboards to be built as satellites to their minimum viable product.

But nothing will compete with the minimum viable product which will be controlled by a steering group appointed by Government and a Governance Committee appointed by Government and anyone outside those groups will be outside the tent.

The Government Dashboard alongside the quangos that are growing up as part of the pensions court will so atrophy innovation that the pensions dashboard will join Pensions Wise and very like the Money and Pensions Service, as white elephants.

Meanwhile life goes on

I will be happy to be proved wrong. I would very much like a dashboard to restore confidence in pensions. But I see no sign of it being used to do the things people want to do

  1. Work out the value of their pension pots for the money they’ve saved
  2. Find a way to bring pots together to make them easy to spend
  3. Find ways to ensure their money lasts as long as they do
  4. Establish whether their money is being managed in a responsible way

The ABI and PLSA are so fearful of giving people the information they need that last year they blocked an initiative to show people what – in pounds, shilling and pence – they were paying for their pension pot. The monetary figure was excluded from the single pension statement produced by Ruston Smith and Quietroom and it remains excluded.

Insurers, when given the choice will not disclose to their disadvantage and – when unsure of the consequences – will refuse to take the risk

That is why there is a very real risk that the dashboard will remain on the drawing board for a good time yet and when launched – move little beyond the minimum viable product.

A braver way?

I believe there is a better way to run pensions, a way that allows people to see what they are buying into by looking at what they’ve bought. I don’t think finding pensions is that hard and that modern technology should allow people to ask questions of their various pension providers and get answers in real time.

This “better way” is already emerging in other areas of life- indeed in other areas of financial services.

Pensions would like to think of itself as a special case, but it isn’t. It is part of the retirement eco-system that includes houses, inheritances, business interests and other forms of savings. People are looking to take back control of their retirement finances and are getting lifestyle answers delivered to them through digital technology.

But they are not getting this with pensions.

The pension dashboard continues to be an embarrassment and until someone is brave enough not to be “silent in court” we will go on praising it as a great initiative while suppressing innovation.

Asmund Paulsen is  likely to be proved prophetic, unless we face some uncomfortable truths and start behaving with a little more bravery.

Posted in Dashboard, pensions | Tagged , , , , , , | 1 Comment

Why we must guard against ESG profiteering.

Posted on May 4, 2019 by henry tapper

profiteering

There is a great wave of enthusiasm amongst the investment community for responsible investments, the three factors underpinning it, Environmental, Social and Governance came into almost every discussion at this week ‘s Public and Private Pensions Summit.

But with such waves of enthusiasm, there must be eddies of caution. ESG is essential if we are to encourage good behaviour in the organisations into which we invest, but we must not allow the keys to ESG to be handed to an elite group of specialists who can hold us to ransom to unlock its secrets. Nor can we allow fake green to paint over the real thing.

 

The price of ESG

I am not suggesting that this is happening, but the chances are that profiteering from ESG will happen and that as I write the more unscrupulous fund managers are dreaming up ways to compensate for margin erosion by the “beta brigade” by fixing the price of ESG at the wrong level.

If you don’t believe that ESG has a price, look at the pricing differential between LGIM’s Futureworld Mutli Assset Fund and the LGIM Multi Asset Fund. The latter is considerably cheaper and this is explained by it not having the tilts and screens of the former. The difference in price is the current price of ESG. I am prepared to pay that price for now, I invest in the FutureWorld versions of L&G’s funds because

  1. I believe that they will bring me better performance
  2. I see them carrying less risk
  3. I like the idea of my money being invested responsibly.

But the price I am paying for Future World is twice what I could be paying for the global equity equivalent. I am hoping that the price differential will fall over time as the upfront R and D costs in setting up the fund are diluted and the ongoing management charge converges with those of non ESG funds. Indeed I’d like to think that in five years time that the idea of a non-ESG fund won’t exist. After all – who wants to invest irresponsibly.

The impact of the price differential

One impact of differential pricing is that it makes it very hard for workplace pension providers to make the ESG fund the default.

Put simply, no matter how much the IGC reports clamour for green defaults, so long as a price differential remains, those running the fund platforms which drive long-term profit for workplace pensions will go for the cheapest version.

They have only three choices

  1. Stick with the cheap and not so cheerful default
  2. Upgrade to the ESG version and absorb the margin hit
  3. Upgrade to the ESG version and pass on the extra cost as a price hike.

Of the three options (1) is the obvious winner for now. It is not until the clamour for ESG defaults becomes deafening that (2) and (3) come into play. Exactly the same issues occur for trustees as for IGCs, no matter how they might want ESG in the default, until there is a compelling business case for it, it ain’t going to happen.

What we can do

Personally I have little sympathy for fund managers who complain about margin erosion. I work in a WeWork that looks into Schroders and I see the corporate gym, the workers canteen and the pleasant balconies on which fund managers can soak up the sun. It does not look like that fund manager is suffering a lot of margin pressure to me.

I suspect that a lot of the costs of ESG can be absorbed out of the fat margins identified in the FCA’s Asset Management review and the CMA’s subsequent market study. After all, most people would assume that when they gave their money to someone to invest, they would get a degree of stewardship that as the bare minimum , would be called “responsible”.

It’s a bit like buying a car and discovering that the brakes are extras. ESG is not the equivalent of leather seats (though you’d expect leather seats for the price we pay for most active management).

What we can do is complain, complain to IGCs , to Trustees , to the FCA and tPR and write to Government (the DWP and Treasury) and ask why ESG is not standard.

We don’t have to pay more for something we should have always have been getting and if we are getting more than we expected, then we should politely ask fund managers whether they might take a little less.

ESG profiteering

The more fund managers I hear explaining how much they are now doing to keep our funds responsibly invested, the more I question what they have been doing the rest of my days. I don’t think that the concepts of climate change, sustainability and good governance began in Paris in 2015. I seem to remember that most of the ideas behind ESG were being discussed when I was at primary school in the early 1970s. Wasn’t the world about to run out of fuel by now?

What is happening today is that there is a crisis created by our complacency over the intervening years and that is leading to everyone wanting to do ESG now. And so , instead of getting on with it and fixing things which were broke, we see fund managers passing on the bill to the customers.

I am not sure that we should be picking up this bill. I think it is the bill for repairing a research system that should have been in place 20 years ago.

So instead of ramping up prices so we can have our funds invested responsibly, perhaps we should be asking for a fund management rebate for not having our funds invested responsibly over the past forty years.

A little radical? Well maybe- but let’s not accept price hikes as a gimme. ESG profiteering is going to be a big theme of the value for money debate and this is the first salvo on my blog of a theme you will hear a lot more of!

profiteering 2

 

 

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Our pensions need you!

Posted on May 2, 2019 by henry tapper

DWP line

 

I got some fierce feedback on yesterday’s blog where I moaned at the lack of progress in helping people convert DC pension pots to a wage for life/salary in retirement/agewage.

Here’s Richard Chilton

There is an implicit assumption in much of this that DC pension funds are the main source of money in retirement. For very many people, they aren’t. They are often just the icing on the cake. There are DB pensions, the state pension, income from property and inherited money or money from downsizing a home. It is difficult to understand the significance of taking some DC money without understanding the overall financial situation.

Richard continues

People taking pension money are also not always retiring. They can be taking it to invest in a way not available within a pension fund.

I sat as a judge yesterday morning for the Money Marketing “best retirement adviser” award and had a number of excellent conversations with top IFAs. Retirement Planning is – for those lucky enough to have such advisers, the art of financial well-being.

In their recent book “A salary in retirement”, Richard Dyson and Evans estimated the value of the state pension to be over £280,000. This beats by a factor of 9 , the value of the average DC pot. If your state pension is worth 9 times your DC pension , then Richard Chilton and Brian G are right, all that workplace DC pensions are – are icing on the cake.

Your workplace pension isn’t the half of it!

But statistics are bald and don’t take us half way there. I had 10 pension pots (mostly workplace derived) and apart from the one with a GAR, they are all now in one pot, managed by LGIM through a Legal and General workplace pension.

There are many like me, what sociologists like to call mass affluent, people who do not become clients of high quality IFAs and need self-help books like Dyson and Evans’. AgeWage will be built around their needs.

But if all financial services aspires to – is to help the “haves”, then it will be failing in any kind of social purpose. If we are serious about democratising the savings culture through auto-enrolment, we must have an expectation that the average working person will – as they have in Australia – come to regard their retirement savings as a key personal asset. As much an asset to be cherished as their house and the inheritance.

This sense of ownership is sadly lacking and it’s what the AgeWage score is trying to do. The score aims to make the money we have saved tangible to the savers. In time, we can hope that workplace pensions will become as important to people’s later life finances as the state pension (and not from dumbing down the state pension). We have to plan on success .

Proper help for the mass of us

Richard Chilton is one of the good buys, he’s a pension expert who gives of his time to help people understand their  pension freedoms. There are many like him helping people through Citizens Advice Bureaux and the Money and Pension Service (MAPS). Pension Wise relies on people like Richard.

I hope that they can find ways to be more effective over time as I see much of their experience could be better deployed if they were released from the shackles of guidance and allowed to help people make better decisions as advisers.

The Citizen’s Advice Bureau, the Money Advice Service and The Pensions Advice Service must now be re-risked and de-risked into the guidance model.

MAPS says it is in “listening ” mode , the FCA are consulting on whether to extend their consultation on the impact of FAMR and the Retirement Outcomes Review. Everywhere Government is deliberating on how to help people who have very real financial problems in retirement and only a handful of IFAs and guides (like Richard Chilton) to talk with.

The silent majority (a phrase made famous by Bernard Levin) do not shout the odds over the lack of support they are getting on retirement planning. They don’t because they are silent.

But that doesn’t make their plight any less real. Each year that ticks by without Government biting the bullet and investing in new product (CDC) and new advisory support (the potential for MAPS) , the worse the impact of pension freedoms will become.

The private sector will fill this gap

The entrepreneur in me has seen this opportunity and is determined to meet it. I nearly said “exploit” it, but that is the wrong word.

I believe that the small pots that Brian and Richard talk of, are getting bigger and more numerous. I see people taking more interest in their pension saving and I see a growing need for mass market advice which I hope (in part) to meet.

AgeWage is the platform on which I hope to build this service. Three months ago it was a pipe dream, now it is a business with a £3.5m valuation validated by over 400 investors with getting on for £450,000 in inward investment.

We are already receiving help from insurers and trustees so that are scores can be in production by the autumn, plans to help consumers directly are well advanced. If you would like to join us, you can do , by investing as little as £11.50 (net) for a share in AgeWage.

Press this link to do so and help me put your money where my mouth is.

WWW. SEEDRS.COM/AGEWAGE

Posted in advice gap, age wage, pensions | Tagged , , , | 1 Comment

What’s normal?

Posted on April 28, 2019 by henry tapper

workplace pension dispersion

normal’s that line in the middle

When we allow money to be taken out of our salaries , we don’t really know what to expect.

That’s why the FCA want the independent governance committees that oversee workplace pension providers, to tell us what value for money is and whether we got it. The DWP are doing the same thing for workplace pensions run by trustees.

The idea is that we will be able to log onto a website and see if we’re getting what we should from our investments – and the administration and communication of our pensions savings plan. In future we may  be able to see whether we are likely to get value for money from our pensions spending plan – better known as “drawdown”.

So far we haven’t done too well and that’s because analysis of “value for money” has focussed on abstract ideas like investment performance, service level agreements and “member engagement”. All of these things are measurable but they don’t mean much to ordinary people who secretly want to know how they did and whether they got value for their money. Some of the things that IGCs focus on like “engagement” depend on whether their’s anything to engage with.

I can define value for money simply.

I have been thinking about little else than this question. Here is the answer I have come up with. See if you think it holds water.

I start at looking at all the contributions that you’ve made into your pension over the years and compare it with what you’ve got in your pot (known as the net asset value or NAV). I can tell you the interest you’ve got on your money – this is known as the internal rate of return (IRR)

Then I can look at the interest you would have got if you’d invested the same money at the same time, into an average fund.

If you have got more than you’d have got from the average fund, you’ve got value for your money and if you’ve got less, than you have not got value for money.

It really is as simple as that. The AgeWage score I talk about simply tells you how much you’ve beaten or lost to the normal score. The normal score is 50 and you can get up to 100 or as little as 1.

I’m pleased to say that this idea has proved very popular on our crowdfunding platform and we are now going to go into production, starting with a period of testing our normal fund to make sure it really is normal

Screenshot 2019-04-24 at 06.43.22

So what is normal?

Surprisingly, there is very little academic research into how your money has been invested since pension savings plans (DC pensions) started. We are taking the start point of pension savings plans as 1980, that’s because most of the people who started saving before then will now be spending their savings!

Our normal fund has a price at which your money is invested for every day of the last forty years. The price is decided by looking at how a basket of actual funds grew or fell day by day. As time went by, most of our money became invested “passively”. Our normal fund is increasingly priced by looking at how the indices rather than the basket of funds have done.

If we get the price of our normal fund approximately right, we will be call it normal.

How we test whether the prices of our normal fund are right is by using “big data”. What we mean by that is that we are taking tens of thousands of our contribution histories and seeing whether the outcomes (the NAVs) beat the outcomes from the normal fund.

When we get it right , we’ll be able to see the same number of your AgeWage scores beating normal as losing to normal. We’ll even be able to see whether the losses and gains are of equal measure.

When we can show that 50,000 contribution histories cluster around the normal score symmetrically, we’ll have cracked value for money. We will know what normal looks like and be able to tell you whether you’ve done better or worse than normal.

 

workplace pension dispersion

normal’s that line in the middle

Posted in advice gap, pensions | Tagged , , , | 4 Comments

Port Talbot steelworks – our Notre Dame

Posted on April 26, 2019 by henry tapper

port talbot 4

I was woken this morning by radio news of an explosion in the Port Talbot works. My heart sank as my mind turned to people I have met and the livelihoods that depend on these works

It seems that the incident was caused by a train , that there have been no fatalities and only a couple of minor injuries have been reported.

The safety procedures seem to have worked – a testament to how far workers protection has improved in recent years.  18 years ago a blast at the Corus plant killed three workers.

The cost to productivity and the fragile recovery of the steelworks towards sustainability will emerge over time.

 

 The works , the town and pensions

The Port Talbot steelworks are iconic. The link between the town and its major employer is obvious even as you drive past on the M4.

The blast is felt in India (at least on social media)

The link between the works, the town and pensions is well known. It was here that some of the most egregious advice was given to financially vulnerable steel men and the words “Port Talbot” have resonance in pensions circles.

Wales’ Notre Dame?

 Port Talbot means so much to us.

Port Talbot is relevant to the UK, to India and it has brought the issues that this country faces over pensions into a sharp focus.

We understand that the financial futures of many steel men are linked to the productivity of the works. We want the works to do well because we want the steel men to get good pensions. The town, its people and its future prosperity are so tied up with the works that Port Talbot is to me and to many others a way of understanding what workplace pensions can be about.

Which is why today’s blast seems relevant to me as a pensions person.

And what is of enormous value is that the NewBSPS scheme is pretty well sufficient from problems such as these and that past benefits, whether they are paid from the PPF or from NewBSPS are secure.

We hope that the blasts heard and felt by the people of Port Talbot and nearby towns will not lead to lay-offs and that the works will return to full production soon.

A nation holds its breath, and those who have been involved in the steel men’s “Time to Choose” hold our breath too.

Port Talbot has made pensions relevant for us, we are deeply engaged with the livelihoods of its people and hope that this blast will not endanger the covenant of work and pension accrual, the plant provides.

Port talbot sun 2

Sun rising at port Talbot

Posted in pensions | 1 Comment

Contingent charging – a conflict too far

Posted on April 22, 2019 by henry tapper

Screenshot 2019-04-22 at 06.57.40

 

BSPS was always going to cause collateral damage. The aftershocks of the £3bn that left the scheme during “Time to Choose” are now being felt by financial advisers as the testimonies in this article show.

The advisers are talking of their struggle to get professional indemnity insurance to continue offering advice on whether to take a cash equivalent transfer value from a DB Scheme.

One adviser, commenting on Darren Cooke’s testimony writes.

This is the biggest threat to small firms since I’ve been in this business. I think lots of companies will be for sale this year which will drive business sale prices down. Some might just have to close the firm down and see if they get another firm to take on their clients. The Regulator should have seen this coming, it was an easy way for unscrupulous firms to make a quick buck and clear to see.

The comment is insightful on a number of levels. Firstly it shows how vulnerable IFA businesses are to reputational issues such as the PR from Port Talbot. Then it shows how dependent many IFAs have become on the revenue streams from transfer business and finally it demonstrates how reliant IFAs are on the FCA to maintain standards among them.

Underpinning the comment is the dilemma at the heart any business model, to what extent do you compromise on long-term value to receive short term profit. This conflict can be expressed in many ways but let’s focus on the matter in hand, that around half of the transfers that happened over the last three years , were not satisfactorily advised on – according to the FCA.

In the short term, grabbing assets into a vertically integrated advisory model at £400k a pop is a win- win -win. The adviser gets a fee  for implementation which is paid for from a tax-exempt fund without VAT and with zero impact on the client’s bank balance.

The adviser gets ongoing advisory revenues on the money and possible a split of the management fees if the firm are involved in managing the funds. These fees too are from a tax exempt fund and not liable to VAT. They are not – under contingent charging , met from the client’s bank account, they are a charge on retirement income.

It is quite possible to earn 2% upfront (£8,000) and 2% pa on the £400,000 – the average CETV from BSPS. These fees are payable to retirement and – should the client choose to drawdown on an advisory contract using the IFA’s fund management service, they become part of the advisory firm’s embedded value.

What is happening is that the retirement funds of clients are funding the retirement of advisers.

This is the conflict that many IFAs face and it is only now, as FOS limits ramp up and PI shoots through the roof that the impact of those conflicts is being felt.

When will IFAs admit defeat?

It is all very well blaming the FCA for not seeing this coming. But the conflicts created by contingent charging on transfers were clear to see from day one.

Even now IFAs cannot admit defeat, that is because so much of the embedded value of their businesses is dependent on the recurring income on money transferred from DB plans and the positive cashflows of easy transfer fees, still sitting on the P/L.

Many IFAs are now caught on the horns of a dilemma, they have built businesses which are now so expensive to insure that the embedded value is falling and so are cashflows.

But admitting that contingent charging was wrong in the first place is a much wider issue. Many of the insurers and SIPP providers who provide the wrappers and platforms to which DB wealth has now transferred, are also in danger.

 

When will contingent charging be banned?

This is such a sensitive issue, that most providers won’t even talk about it. The IGC reports published this month make no mention of transfers. There are shareholders who should be asking questions about how much of the recent revenue successes of quoted firms such as Quilter, SJP, Prudential, Royal London and Aviva are DB transfer related.

Some insurers – such as Aviva have openly stated that contingent charging should be banned.  

But the general public comment from advisers and product providers is that contingent chugging should stay.   Steve Webb has out strongly against banning contingent charges. The matter has been discussed by Paul Lewis. The matter has been debated in parliament.

I suspect that the only thing that will stop the talking and get a ban in place would be a change of Government. There is too much of this Government in the wealth management industry (Rees-Mogg down) for the FCA to ban contingent charging. The FCA is conflicted too.

So contingent charging will continue to be justified as the way to bridge the advice gap where the cash-poor can become cash rich by spending vast sums dismantling their pensions- largely for the benefit of those who advise them.

The FCA will continue to consult.

I will continue to bang on about this and those reading this blog will continue to feel uncomfortable that I do.

Contingent charging is the root of all transfer evil. If the IFAs really want the FCA to lead, they should admit defeat, but they won’t – they’ll hang on in hope that somehow things will get better.

They won’t.

 

Posted in advice gap, BSPS, pensions | 2 Comments

St James Place GAA Chair Statement- a must read

Posted on April 14, 2019 by henry tapper

There aren’t many employers or policyholders that SJP run workplace pensions for, but though they are few, they merit a mini-IGC – known as a Governance Advisory Arrangement (GAA).

GAA SJP 2.PNG

 

The SJP GAA Chair Statement is an excellent document that looks at value for money within policies used by SJP customers as workplace pensions.

It is a must read because it brings an institutional perspective to a retail issue – that of vertical integrated advice and product management.

This is the second time I have read this report and for a second time, I am highly impressed.

 

 

 

Given that ‘value for money’ inevitably assesses all the benefits received in the context of the charges levied, the GAA’s opinion is that the value for money varies from good to poor. When considering the earlier series of plans, policyholders with large funds and Series 3 policy holders which are more than 10 years into their contracts may receive good value for money. Policyholders with smaller funds and other Series 3 policyholders with less than 10 years in their contracts receive lower value for money. Smaller funds represent a large portion of the early series of plans. Series 4 policyholders pay different and simpler charges with, overall, a similar level of value for money. Series 4 policyholders represent the majority of policyholders

Policy charges are easily assessable, but the investment strategies pursued by SJP advisers are varied – tailored to the needs of each customer. The only exception is the SJP staff scheme which is invested in SJP funds and administered by SJP/

So the GAA are right to point out that without better reporting it cannot do its job.

However, the GAA was not able to conclude that St. James’s Place reviewed the outcomes for policyholders individually or in aggregate in a way which fed back into the oversight of the model portfolios. This was particularly pertinent for the SJP staff scheme where there is no advice.

The Chair’s Statement carefully picks its way through these difficulties. The tone of the report is formal – the report is there to be read by professionals , this is not a populist report. It’s tone is perfect and gets a green.

Value for Money Assessment

Although SJP are not as other providers , the GAA looks to assess value for money and concludes that while some policyholders are getting value for money, some most definitely are not.

It is not very easy to see who is winning and who is losing, not least because SJP don’t seem particularly interested in opining on what good looks like.

When the IGC inquires about the transaction costs within the workplace pension investment strategies – they come up with some startling results.

As the majority of SJP funds employ active management these costs are higher than other providers generally. The highest disclosed at June 2018 being Alternative Assets at 1.08%. High costs like this can erode members fund values over time, although the GAA note that the picture is mixed with the lowest transaction cost disclosed being minus 0.38% for the Absolute Return fund.

Since the dispersion of results is twice the workplace pension charges cap, you’d have thought this would have solicited some urgent comments from SJP. This does not turn out to be the case.

SJP have not commented on whether the transaction costs are in line with expectations; this is something we will look at further next year.

The “money aspect of the VFM assessment looks extremely toppy. If transaction charges of more than 1% are added in, then they begin to look excessive. The negative slippage on the Absolute Return Fund is worth of some kind of statement, if only of congratulation!  I wonder how on top of these costs , SJP advisers are.

Although I think the VFM assessment methodology fine, I am disappointed not to see more analysis of outcomes.  The best way for this to be done is to analyse the Internal Rate of Return of individual policies and benchmark them against each other. That would at least get to the bottom of what is working and what isn’t.

I’m giving the GAA an amber for its VFM assessment. What is there is good, but there is too little here for the VFM assessment to be meaningful.

 

Effective

SJP is a quoted company with over £100bn under management. It is genuinely surprising that it does not want to adopt a full scale IGC (something I’ve said in previous years).

As far as I know, the GAA is the only governance mechanism that can ask the difficult questions about charges, costs and value – from inside the tent. Certainly it is the only one to publish its findings.

The next steps section of the report makes it clear that the GAA are not going about their work  quietly

 

In the next year the GAA will:

 

  • Further assess the extent to which St. James’s Place governance monitors policyholders’ portfolios effectively.
  • Review the process by which SJP Partners tailor the investments for each policyholder.
  • Further consider policyholder feedback methodology.
  • Assess the future consideration of charging structure.
  • Assess the extent of Environmental, Social and Governance investment considerations.
  • Assess the extent of any actions taken around transaction cost analysis.
  • Assess the investment review process for any exceptions.

For a mini IGC, the SJP IGC is not pulling its punches, I give it a green for that, it is doing  an effective, if under publicised job

 

In conclusion – this is a must read

 

I am really pleased that the GAA have again written an authoritative statement of what SJP are up to as a workplace pension provider.

In doing so , they provide valuable insights into the vertically integrated structures that SJP employs.

This is a must read for people who want to understand how over £100bn of the nation’s wealth is managed. Like it or not, SJP sets the pace and the benchmark for other such firms.

This statement is of great value.

 

 

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Are IGCs and Trustees worth it?

Posted on April 14, 2019 by henry tapper

 

 

 

insurers

The best test of the value of an IGC or an occupational trust board is to imagine how things would work without one. Before 2015, insurers ran workplace pensions for multiple employers using the bald trust of a GPP operational interfaces that were what the employer saw. For bigger employers, insurers bespoke communications and can offer an employer specific default fund but no one acted purely for the member. The IGC was supposed to change that.

The occupational pension scheme now comes in two guises – single employer and multi-employer. Unlike a GPP, an occupational pension can provide defined benefits and will be able to provide semi-defined benefits under CDC.  The trustees do the same job whether they oversee a single or multi-employer scheme though the level of scrutiny they are under from regulators varies according to the level of guarantees in the benefit and whether the trust is set up by a single employer , or more commercially for multiple employers.

It’s my view that IGCs and Trustees are as effective as they have to be. If no-one takes any notice of them, they lapse into irrelevance – which is frankly what’s happened to most occupational DC trusts, some master trusts and even one or two IGCs.

I believe that without these fiduciaries, the workplace pensions we invest our money into , would be run for the benefit of anyone but members. Left to their own devices, consultants, platform providers and fund managers would so erode the value of our money that the money we have to purchase a pension at retirement – would be severely reduced.

Proof of this  is what happened before modern governance and regulatory supervision arrived.

The work I have done in 2019

Over the past three weeks, I have read, re-read and reported on the IGC reports produced by the providers of workplace pensions in the UK. These reports do not cover all the pensions we invest in, there is a substantial group of providers who do not have IGCs, it includes SJP (which has a mini- IGC) and many SIPPs that do not operate in the workplace. These products are supposedly “advised”, though the FCA is concerned that many of them have many participants who have lost or sacked their advisers and have very little protection from malfeasance.

I have read these reports with an eye to three things

  1. Engagement – is the report readable and is its tone engaging
  2. Value for Money – “is the report properly assessing the value you are getting for your money?”
  3. Effectiveness – does the report show the IGC robustly pressing for better for policyholders.

I have scored each factor red , green or amber and tried to remain consistent with the work I’ve done in previous years and can present my findings for the fourth time in the table below. I am happy to share the table with anyone who wants the spreadsheet – which includes URLs for every report still on the web. henry@agewage.com – (no firewall).

IGCs 2019 bright +.PNG

 

2019 trends

Transaction costs – a mixed picture

2019 was supposed to be the year when we saw how much we really paid for fund management- not just the fees to the managers, but the cost of the management itself.

In some reports we did. L&G showed that you can get cost data from external managers (though their report did give us the kitchen sink). Others managed to give us edited highlights which worked rather better. Fidelity showed a before and after table – which demonstrated how the Fidelity default reduced in cost after discovering last year that members were paying more in transaction costs than to the fund manager. Some reports gave up on getting these costs – which was disappointing. The most bizarre reports were those who discovered high transition charges but wouldn’t tell policyholders which funds had them!

ESG – a start but only a startESG

The reports all had something to say on ESG, but we have yet to see the fruits of this engagement. While some IGCs (L&G and Aviva in particular) have focussed on ESG in prior years, this year every report ticked the box  – and many only ticked the box.

I look forward to a time when we don’t have to talk of responsible investing as an alternative form of fund management but look at ESG as an integral part of the value managers bring. Only when ESG is part of the VFM assessment – will it be fully integrated.

Too many of the reports still talk of the risks of adopting ESG, not enough of the risk of ignoring it.

The wider context

The terms of reference for IGCs were set out in 2015, since then we have seen huge changes in the pension landscape.

One example is the extent to which DB rights have been exchanged for DC rights through CETVs. Very little of the billions transferred found its way into workplace pension. Part of the reason for this was that financial advisers prefer to use vertically integrated self invested personal pensions. Part of the reason has been a reluctance from employers and providers to promote the workplace pension over more expensive alternatives.

I am disappointed that IGCs have not extended their terms of reference to consider how these plans could be promoted to people transferring. This goes as much for master trusts as workplace GPPs.  There is a job to be done to compare the available workplace pension with the promoted advised solution and perhaps this is something the FCA will look into. It would be better if the IGCs (and occupational trustees) , got on the front foot.

Port talbot

Reactive or proactive?

The best IGCs are proactive, looking for new and better ways to assess value for money and improve outcomes. They look at best practice in communication.

But I sense most IGCs are more interested in meeting the requirements of the FCA, rather than going beyond.

It would be good to see IGCs looking at workplace pensions capacity to help people spend their pensions (rather than rely on transfers to specialist drawdown products, annuities or “cash-out” to bank accounts.

It would be interesting to hear the thoughts of IGCs on the opportunity and threats to their policyholder from CDC.

The FCA have said they are looking to extend the scope of IGCs to cover decumulation and non-workplace pensions, it would be good to see IGCs pushing to do more for policyholders and encouraging the FCA to give them greater responsibility.

 

In conclusion

It has been a great pleasure reading this year’s crop of IGC Chair Statements. During the year I’ve got to meet most of the Chairs and they know how keen I am to help continuous improvement of both the Statements and the work that goes on throughout the year.

To be relevant, IGCs have to be read. It is too much to be expected that the become general reading for policyholders, but there is no reason why IGCs shouldn’t be more in their faces.

Thanks for reading this, please promote the work of IGCs and interact with yours. They are the best way ordinary people have of improving value for money for their workplace pensions.

The same can be said of occupational trustees, who I hope to put under similar scrutiny in months to come.

IGCs 2019 bright

 

 

 

Posted in age wage, CDC, pensions | Tagged , , , , | Leave a comment

The Government’s pension stealth tax

Posted on April 11, 2019 by henry tapper

virgin stagecoach.jpg

What are we to make of the disenfranchisement of Stagecoach from rail contracts?

I am extremely concerned by this statement , reported in the Financial Times

 Stagecoach said its recent bids had been non-compliant “principally in respect of pensions risk”. Mr Griffiths and others in the industry said the Pensions Regulator had been suggesting train operators would need to make increased contributions to the railway pension scheme in case the government did not fully fund it. Stagecoach said the gap could be £5bn to £6bn across the sector.

This should be read together with a second statement to be found in the FT report.

 Franchise tenders expected the winner to bear “full long-term funding risk” for pensions, Stagecoach said, which it declined to. While other bidders accepted this condition, Mr Griffiths said the gap “could be very significant over the long term, that was why it was an unacceptable risk and chance to expose our shareholders to”.

On the face of it, Stagecoach are refusing to take a risk transfer from Government to the private sector of obligations to the Railways Pension Fund.

I can quite understand why Griffiths and his partner Richard Branson are crying foul. The Government are moving the goalposts – or rather making the franchisees profit-goals a whole lot smaller. That’s not fair on shareholders and it won’t be fair on passengers, who will get the pass on.

Subsequently the FT have published a second article that hints that t pension clauses in franchisee tender documents is at the Pensions Regulator’s instigation aimed  to protect the PPF from another Carillion and members of the Railway Pension Fund from a weakened covenant.

The article also points out that no-one knows the current state of the Railway Pension Fund’s funding. I was struck by one reader’s comment

Unless the client (franchisee) is is able to separate out controllable risks and ring-fence and pool those, such as pensions, that are uncontrollable they’ll end up awarding contracts to the most cavalier or those with the deepest pockets rather than those best placed to deliver the service.

One  question is why other bidders are prepared to take this risk, another is why members of pension funds which previously had a gilt-edged covenant should be asked to accept a covenant from a rail franchisee in the first place.

A job on the railways came with a state backed pension which was understood by everyone. This point is well made by Mick Cash, general secretary of the RMT railway workers’ union, who warned that his members’ pensions

“are not there to be used as bargaining chips in a row between the train companies and the government”.

Same with schools and universities

Having allowed membership of the teacher’s pension scheme on benign contribution terms, Government is now turning up the heat by requiring schools and universities to pay a whole lot more to participate in the teacher’s pension scheme. For those footing the bill today, it’s a stealth tax on students and parents tomorrow.

This is fine so long as this was always baked into assumptions but it wasn’t and the increased costs are not budgeted for and will become a stealth tax paid by students and parents.

Sympathy for those enjoying higher and private education may be less than for railway workers but the same issue applies. The Government is the insurer of last resort for millions of pensions and the deal between the pensioner and the Government is based on there being a state promise backing the retirement promise.

I don’t get the policy statement that backs up this change in the Treasury’s pension strategy. I don’t see any of these changes in the way the private sector is being to take on public sector pension obligations as a matter of public debate.

I have no particular candle to burn for Stagecoach, other rail franchisees , private schools or universities, but I don’t see why people’s pensions and livelihoods can be put at risk so that the public purse is protected from making good on public pension promises.

Stop me if I am missing something, but I sense that there is something not quite right in all this . I feel like Martin Freeman

Posted in pensions | Tagged , , | 1 Comment

L&G’s IGC returns to form

Posted on April 7, 2019 by henry tapper

 

L&amp;G IGC 3

 

The L&G IGC Chair report for 2019 and can be accessed from this link from it’s much improved IGC web-page.

Last year I though L&G produced a real stinker of a report and said so.

L&G have my money and many of the employers sourcing workplace pensions through  Pension PlayPen were guided to L&G. I hold the management of L&G in high regard .through their investment company (LGIM) , they’ve innovated, leading the promotion of ESG or what is more commonly known as  “responsible investment”.

L&G are credited with convincing Government not to refer the insurance companies operating workplace pensions to the Competition and Markets Authority. Through its policy and pensions teams , it proposed IGCs in the first place. So the performance of the L&G IGC in speaking straight to members, in offering a transparent view to the value for money they are getting and in effectively lobbying for members and for employers, is of particular importance.

I make no apologies about being very critical of the IGC in 2018, I thought they had taken their feet off the pedal and had produced a lazy report indicative of a lazy year’s work.

Getting back on track

From the moment I started reading the report, I felt something had changed. Here is the focussed and well written statement of the IGC’s responsibilities

Our responsibility to you

We’re committed to protecting your pension. We use our combined knowledge, experience and skills to make sure you’re getting a good deal from your scheme.

This includes (but isn’t limited to) checking that:

• your scheme is good value for money, and the costs and charges are reasonable

• the default funds (the ones you will invest in if you don’t choose something for yourself) are suitable

• the range of self-select investment choices can reasonably be expected to deliver the returns people are looking for to suit their own circumstances and timelines

• you can easily access your savings when you retire, and there are flexible options for taking your money

• you receive clear and regular communications about your pension • you can easily access help and information when you need it, and that customer service is efficient and accurate

We measure how well Legal & General perform across these areas, offer impartial advice when they need an external view and suggestions on how they can improve where needed.

And if they don’t deliver, we have the powers to hold them to account to the regulator, the Financial Conduct Authority

Tone of the report

I enjoyed reading this year’s report which spoke to me in a way that I understood and in a language which was generally accessible. There are times when any IGC report gets technical (the Appendices on funds) but provided these are appendices, I am comfortable.

There is one area where I think future reports can get bett. The chair’s statement is prone to hyperbole.

We’ve continued to be impressed by the quality of people in each and every area of Legal & General that the IGC works with.

(on the sale of the legay book to Reassure) All aspects of the transfer will be reviewed by an independent expert, with oversight from regulators.

We always want to make sure default funds are delivering the best they can for members.

These cases are taken at random but they suggest an imprecision of analysis; faults are found within L&G’s admin which must be down to individual failings – not all the people can be good. If the IGC know in advance that all aspects of the transfer will be reviewed, then their oversight is superfluous and the assertion that the IGC is always on top of defaults is tendentious, it is not for the IGC to be making that claim , it is for the IGC to demonstrate to members that that is what it does. “We’ll be the judge of that!”

My reason for raising these points is to improve the quality of the conversation with members, the IGC does not have to prove itself or justify the activities of L&G in this hyperbolic way. The still small voice is better.

But these are minor areas for improvement, overall I think this report has the right tone and I’m giving it a green for the way it talks to its savers.

Value for money assessment

The IGC are still struggling to get to grips with VFM. They are looking for it in the wrong places and haven’t worked out what really matters to members. In part this is because they don’t understand the dynamics of auto-enrolment and in part because they miss the importance of outcomes over the member experience.

Ironically , L&G are producing excellent member outcomes for the money received , but they are failing many of their stakeholders – especially small employers.

IGC failing small employers

L&G are one of the most widely used workplace pension providers in the UK, this is because they set up many large auto-enrolment schemes in 2012-13 and continued to be active in the mid to small scheme market well into the staging process. They took on relationships with the Federation of Small Businesses (FSB) and promised exceptional service to employers through payroll integrators ITM and PensionSync.

But since 2016 , I have charted a steep decline in its service offered to employers who are required to comply with regulations on auto-enrolment. Many employers complain of not being able to speak with L&G, of sharp increases in the cost of using the link with ITM and third parties (typically IFAs and accountants) complain that their reputations are being tarnished for recommending L&G in the first place.

L&G’s value for money assessment does not take into account the employer’s experience but it should, especially when the employer is spending as much money sorting out payroll issues as it is in contributing (something I’ve heard more than once).

The IGC seem quite divorced from a central dynamic in workplace pensions , that costs to employers of dealing with them, are costs to members. Money that is spent on workplace pensions that does not reach the member’s pot, is bad value for money.

The Chair Statement completely ignores the train-wreck that L&G’s workplace pension has become to many of its participating employers and this continues , despite my , and many other’s protestations. I brought this up at the IGC member’s meeting this year and was reproved for doing so, I bring it up again now as it remains the biggest failing of the IGC.

Anyone reading this statement on administration who has been involved in the problems of the past 3 years, will wince.

Screenshot 2019-04-07 at 08.39.23.png

The IGC must listen to small employers who have complaints about L&G’s support to them. They cannot pretend it is out of scope. They need to make this a priority.

IGC doing good work for members

I am sorry to have to carry on about employer support when I can see so much improving on the member’s side. Last year I was angry with the Chair’s report for delivering adverts from the communication and ESG teams. This year I am pleased to see the promise of those adverts fulfilled.

I am pleased to see policyholders like me getting more value for money and recognise that the insistence within the IGC’s VFM scoring system on good communications has driven this forward

At present the IGC weights all VFM factors equally. They say they will review this in 2019-20 and I hope they will. All external studies, including the NMG report commissioned in 2017 which looked at what savers valued, conclude that people want good outcomes and the experience along the way is secondary to them.

I am also pleased to see the IGC demanding and getting proper reporting on performance but ask that a summary of the fund tables which includes information on Future World – would be helpful as well.

There’s no doubt that L&G’s IGC are well intentioned and that they are working hard towards delivering better value for money for members, but they really need to work out what they mean by “Administration” , include employer interfaces in that and work harder on the promotion of outcomes based VFM metrics.

There is no reason why they shouldn’t, L&G really is providing excellent outcomes for members- I should know.

I seriously considered giving the IGC a red for ducking the employer admin issues but have given them an amber instead. 

I will revert to red next year if the IGC doesn’t take L&G to task and force it to treat its employers fairly.

 

How effective is the L&G IGC?

I was concerned to read this statement in the costs and charges section of the report

We asked Legal & General to make sure that initial unit charges for Mature Savings members were no more than 1% a year. We were pleased when they did this for active members. But we were disappointed when they decided not to limit these initial unit charges for members who are no longer active.

What this amounts to is an active member discount, something that is illegal for post 2012 workplace pensions (the ones we auto-enrol into). The IGC have not got the legal power to force L&G to treat all mature savers the way, but they have ways of putting pressure on them. One of these is to refer L&G to the FCA.

Whether they do so, depends on whether they feel paid up members of the Mature Savings Group deserve to pay more. If this group of savers are “no longer active ” (contributing?) – it is probably not their fault.

Their employer has most probably closed the scheme or closed as an employer. Why should members be paying more  because of this. Doesn’t this look like L&G charging members to recover costs and is punishing them for what is not their fault really treating customers fairly?

Here is an example of too much weight being loaded into the one word “disappointed”. The report leaves “disappointed” hanging, but I want to see more.

When we read later the rationale for not pressing on this, I am left “disappointed”.

Legal & General considered this (treating active and deferred members the same) but decided against it on the grounds that it wouldn’t be fair to other members of the with-profits fund…

We disagreed with their decision. But as their rationale was not unreasonable, and we recognised that they must consider other factors outside our remit, we decided that we should accept the decision and bring the matter to a close.

I don’t see why the costs of treating customers fairly should be born by the with-profits fund, L&G is a PLC with shareholders who have the capacity to meet these costs from shareholder returns.  What “factors are outside” the IGC’s remit, when it comes to treating savers fairly?

I am not sure that the IGC has pushed as hard as it should have here.

I’m not sure that it’s being totally straight with us about other areas in which it is making claims for itself

Later in the same section we read

We’ve been asking for the drawdown administration charges applied to the members in the WorkSave Pension Plan to be removed and were pleased that Legal & General agreed to do this.

I’m really pleased to see this but I have never read anything in previous IGC reports that was openly critical of L&G’s drawdown charges. I have been very vocal on this matter both to L&G and to the IGC and I’m really pleased that L&G have stopped charging me to have my money back.

For me to be sure that the IGC are really acting in my interests and of fellow savers, I’d like to see something rather stronger than “disappointment” and some transparent criticism of L&G in the report.

However….

In 2018 a lot has gone right for policyholders and the IGC should be credited with having an effective year.

  1. The default fund range is better (including a more responsibly invested version of the default)
  2. The back catalogue of self-select funds has been rationalised
  3. Costs have fallen
  4. The investment administration system has been improved
  5. Oversight of the transition costs resulting from fund restructuring has been effective
  6. Communications are better (especially through the web portal)

The IGC seem involved in all these areas and this report is so much more focussed than last year’s that I am giving it green for effectiveness , with an urgent request to continue the path back to righteousness!

One feels the benign influence of Daniel Godfrey is telling and the keen intelligence and no-nonsense approach to governance of Joanne Segars will hopefully continue this improvement.

In conclusion

The steep decline in the authority and quality of Chair’s reports following the departure of Paul Trickett has been arrested. This report sees the IGC moving back into the black and out of my red-zone.

But it still misses the point on VFM (employers are critical and they are being failed).

It still shows areas where it is ineffective and there are times when the report over-states the mark.

I am an L&G saver and care particularly for fellow savers as I have championed L&G over the years. The inclusion of Joanne Segars on the board is great. The improvement in the Chair report is good and if 2019-20 continues to see the IGC tackling L&G on service and on treating “mature savers” fairly, then they will get a bigger thumbs up this time next year.

 

 

 

Posted in pensions | 2 Comments

Scottish Widows IGC report – a most interesting read.

Posted on April 2, 2019 by henry tapper

scottish widows

The Scottish Widows 2019 IGC report has been published and is available here

In the past few years, Scottish Widows has moved from a quiet backwater in the tidal flow of Lloyds Banking Group to very much centre stream. I have heard anecdotally that Scottish Widows is expected to bring in £50bn of new business in the short term and that the banking group now considers the management of pension and other wealth core to the growth of the group as a whole.

This is the context in which LBG bought Zurich’s DC business (effectively the  Eagle Star /Zurich Assurance corporate book) from Zurich and outsourced the administration of its legacy book to Diligentia.  Scottish Widows is now competitive in most areas of corporate pensions and supported by a wide range of advisers as a workplace pension provider. This is a very different proposition to the one that Babloo Ramamurthy and the remarkably stable Scottish Widows IGC, reported on in 2015.

Sensibly, the IGC has approached its 2019 reporting by looking at the new Zurich Book, the outsourced legacy book and the core workplace business book as separate, How fair it is to have three classes of customer is the elephant in the room. Making this assessment is a challenge that the IGC faces going forward and one it is clearly gearing itself up for. The 2019 report is an interim statement of intent, I sense there is plenty for the IGC to do going forward.

Tone of the report

As I have come to expect, this report is measured, accurate and consistent. If it errs , it is a little boring, it does not purposefully engage the reader as it could, it talks to the reader , but from some distance.

Take this example of reporting on the customer experience.

In general, service performance times continue to see a downward trend since the beginning of 2018, with an average reduction of 20% in customer journey times.

What a customer journey time amounts too and what is meant by service performance times is unclear. These do not sound the words of an IGC but of a Scottish Widows internal report.

I’d urge the writers of the detailed areas of the IGC report (and it does feel as if there are more than one), to focus more on the reader as a lay person and not a pension professional!

Similarly, the report could do with being de-cluttered of wordy titles like this

The experience customers have when interacting with Scottish Widows about their workplace pensions.

Ordinary people don’t interact , they deal or ask. Nobody interacts “about” and “experience” is a rather grim word to describe “what it’s like”.

The stiff formal tone of language is at odds with one of the key aims of the IGC, to get better engagement.

So  I am giving this report an amber for tone, it’s very well written but written for the wrong people, I’d urge the IGC to spend some time with a professional communication team , considering how the tone could better engage ordinary members.

Value for money

The report uses a conventional value for money assessment, described in this picture

Screenshot 2019-04-02 at 06.18.34

This has the virtue of simplicity, but it doesn’t quite tell members the value they are getting for their money, so there is a lot of general comment about fund performance , administration levels and capacity to administer for employers and engage members , but not a lot about individual outcomes.

The IGC clearly haven’t drunk the Kool-Aid on digital engagement.

Scottish Widows has also developed a digital site for employees. Uptake here, however, has been slower, with only 72,000 employees from a potential population of 1,400,000 having registered for the service so far

likewise, they are pressing to know why IFAs don’t like Scottish Widows.

Adviser net promoter scores remain stable, but at a lower level than we would like to see. Scottish Widows is constructing a survey to understand what is causing this and will share its findings with the IGC.

I’d urge the IGC to talk to advisers first-hand , and to do so outside the Corporate Adviser Conference it attended. The damage poor administration and support levels delivered to workplace pensions and their advisers between 2012 and 2016 will take time to repair.

The overall picture, the IGC paints of the three books of business is demonstrated like this

Screenshot 2019-04-02 at 06.17.43

The report is critical of the administration standards in its (formerly Zurich’s) Cheltenham office

I suspect the scoring of the Zurich UK book has yet to be developed and that these scores will be marked up in next year’s report,

The positive picture reflects the research I receive from my company on Scottish Widows performance, it has picked up and the poor returns for Scottish Widows funds in 2018 reflect the aggressive exposure to UK equities rather than mis-management of the funds. This approach has served investors well in the medium term but it is not consistent with the default strategy of the Zurich workplace book and there’s clearly a job of work ahead.

Similarly, there’s a job of work to get the engagement projects initiated in Edinburgh, rolled out for the Zurich customers. My understanding was that the long term aim of Scottish Widows was to use the fund platform offered by Zurich as its principal new business offering. Reading the IGC report , this doesn’t seem to be ready to roll just yet.

I am impressed by the value for money assessment from the IGC, it offers people a meaningful insight into the respective books and is helpful to advisers and indeed to Scottish Widows, in working out what should be done both with legacy and the choices between “modern Scottish Widows” and “Zurich UK”. In the context of what is going on strategically at LBG, the IGC is proving itself very relevant. I give the report a green for its value for money assessment, I hope that next year it will be able to focus more on member outcomes.

Effective?

Scottish Widows have gone a long way to clean up the mess it had created in its legacy book and its “modern” workplace pensions. I suspect that the IGC had a good deal to do with that . I have praised the IGC in the past for urging Scottish Widows to play an effective part in getting people engaged with pensions, this report highlights initiatives it has encouraged such as the Pensions Bus. Scottish Widows are a force for good in many areas of pension development and again, I think this partly down to the IGC.

I’m also pleased to see that the research Scottish Widows co-commissioned on responsible investment is prominently positioned in the report and discussed at length. This is the one thing that younger members seem really interested in.

I’m not sure about the research itself and I suspect neither is the IGC. The framing of the questions asked to the 2000 people questioned ( a proportion of which were Scottish Widows policyholders) suggests that people were confused by what they were asked.

For example, the IGC reports

“When customers were asked if there was appetite to take ‘some’ investment risk to pursue ESG principles, a majority of customers were resistant”.

I would be resistant to having to take more risk from my investments to have them managed responsibly, My understanding is that responsible investment reduces rather than increases risk. The question could have been asked better.

I hope that the IGC do not take the research to Scottish Widows, without thinking hard about the quality of the research. I fear that if they follow the conclusions of the research, they may be repeating established prejudices inherent in the research questions.

This is not to negate the value of what the IGC has done. I continue to give the IGC a green for its (overall) effective lobbying of Scottish Widows on behalf of members.

Conclusion

This is a good report, it could be bettered with a little re-writing and it could have done without quite so many charts in the appendix. But I welcome proper reporting on transaction costs which is comprehensive, well laid out and useful.

The IGC is clearly effective and working well, it is a success story and deserves wider promotion. I hope that in 2019 , Scottish Widows finds ways to promote the IGC report to all its members, especially to the 72,000 who have signed up to its online service.

Posted in pensions | Tagged , , , , | 1 Comment

AgeWage goes public!

Posted on March 25, 2019 by henry tapper

www.seedrs.com/agewage

We started on Wednesday, nervously wondering if we could raise £200,000 from the crowd by the end of May.

We did not count on the support of those we know but we should have done.

This morning we have pushed  to “open”  the link to the AgeWage funding page and it will show that we have all but hit our target in our pre-launch test. As I write we have raised over £188,000.

 


Last night, I hastily gathered the clan and we agreed that we will press on, raising more than we initially targeted to make our Seedrs campaign a key part in the EIS rise.

And the great thing is that we now have 90 investors who have told us we are worth it. Those who do not know us, will take heart from that. We have – thanks to you – achieved the momentum to make this a momentous fund-raising round.

The rules remain the same for large investors

If you are looking to invest a five figure sum, you may wish to invest directly via our Investment Memorandum which you can request from the site or request from me directly (as several did this weekend). For larger sums, a direct investment can have advantages but these are now diminished as we will be paying Seedrs on all monies received (whether to Seedrs or to us).

So thanks to the direct investors who between them have invested £135,000.

Smaller investors are so welcome

You have the right to remain anonymous if you invest with Seedrs and many of you have chosen that route, avoiding becoming the target for third party marketing.

But – gratifyingly, most of you have told us who you are and your names are visible to new and existing investors. We are incredibly proud that you put your trust in us, and doubly proud that you are happy to stand up and champion.

I am so happy that we have this growing community to work for.

agewage snakes and ladders

Every single investor, no matter how small, is valuable to us. You will be the people who will make us stick to the task, you will be in the forefront of our minds. You are also going to be responsible for maintaining AgeWage’s place on the Seedrs’ pecking order which investors visit, We want to be and stay in the top two rows, you make that happen.

What happens next

We’ve had a lot of people concerned that when they go to http://www.seedrs.com they don’t see AgeWage there. That’s because we are hidden.

What happens next is we jump out of our hutch and appear on the Seedrs homepage, hopefully in a very prominent position. Just when this morning this happens, but it will.

And we’ll go on raising money till we have enough (w don’t want to dilute our shareholdings more than necessary but there is a great deal we can do which needs more than £200k!

So get investing and enjoy!

www.seedrs.com/agewage

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AgeWage goes public tomorrow – this is why you should invest today!

Posted on March 24, 2019 by henry tapper

we need you

agewage snip

www.seedrs.com/agewage

Today is the last day before we go public with our crowdfunding. Since Wednesday we have been in private mode and so far 60 investors have invested around £140,000. We have promised today of a further £25,000 meaning that AgeWage will go to the crowd over 80% funded with a strong investor base.

This is unusual and a very good sign of things to come. Once we go live, we can fund for a total of 60 days, assuming we are as successful with the general public as we have been with those who know us, we could be a sensation.

www.seedrs.com/agewage

But let’s not get ahead of ourselves. Raising money is one thing, delivering to our investors is another. We are working hard on what we can do and when. We don’t want to be another start up – full of promise – that spent the money without purpose and never delivered its social purpose or a return on its funder’s investment.

Moving into production – the next step

Currently our management team includes me , Chris Sier, Ritesh Singhania and Andy Walker.  We intend to expand this team once we are certain of our finances so that we have the capacity to deliver. We will bring in new people with the skills in marketing to ensure our app has an awesome journey and we’ll build the modelling that people need to get to the financial decisions they need to take.

Our commercial team will build the relationships with partners to ensure we analyse millions of contribution histories and deliver the follow up to our app users.

And we’re going to invest heavily in people who can provide the support you need when you have questions.

Behind the scenes, our technology team in Bangalore will be coding our ideas into applications.

A message for larger investors

But there is never a day when we can afford to take our foot off the gas.  Our message is “don’t delay – invest today”.

If you have several thousand to invest, ask me for our Investment Memorandum which allows you to invest directly onto the AgeWage share register. Today is the last day when we can receive your money without us having to pay a fee to Seedrs, so if you are thinking of investing a five figure sum, do it today.

www.seedrs.com/agewage

A message for small investors

Our reason for crowdfunding is to broaden our investor base and have a wide number of champions for AgeWage.  So every new investor is greeted with whoops and hollas in our WeWork office. If you want to get involved, we encourage you to!

Here is how Penny Cogher, a top pension lawyer who invested with us yesterday got in touch

I’m in…yhanks Henry. I think it’s an interesting idea and I’d be happy to get involved
That’s perfect.
We really don’t worry about the size of your investment, we worry if you aren’t investing.  £16.50 is all it takes and you get £3.95 of that back!

A message to all investors – getting your money back!

We think for the long-term but we know that you are investing with a view to getting your money back!

As I’ve just pointed out, everyone gets 30% of their investment back once we’ve closed the round (probably the back end of May). You should also know that you can get more of your investment back if we don’t succeed. You can write off your initial investment against future tax bills if we fail. So only around half of your money is really “at risk”, that’s because you’re investing in an EIS.

But the other half of the money is at risk and at risk of growing very fast indeed. What happens once we close the round is we build out and get a proof of concept that will allow us to raise more money. While this money will dilute your shareholding, it will also mean your shares will be valued at a great deal more.

If we meet our financial projections, the target is that we create proper liquidity for you from three years out. Seedrs offers a secondary market in shares (a bit like betting in running if you know what I mean). But the really big returns will come from the sale of the business, either to a trade-buyer or to the management team. We could also float on the stock market.

Whatever your reason to invest – we hope you do!

We really don’t mind how little or how much, we want you as an investor! We’d love to have 100 investors by the end of today and we’d love to be 100% funded. These things are possible if you work hard for them and we’ve worked hard for AgeWage.

So press this link and get your money down – please!

www.seedrs.com/agewage

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Thanks to you – AgeWage smashed day one!

Posted on March 21, 2019 by henry tapper

agewage wework

Smashed it.

Thanks to everyone who invested in AgeWage yesterday. We have smashed all expectations. In what is down as a 66 day campaign we raised well over half our funding target in the first 12 hours. Collectively you invested nearly £105,000 in amounts ranging from thousands to the minimum investment of £16.50

To remind you, here is the link to our crowdfunding page on Seedrs

 https://www.seedrs.com/agewage

For those of you who want to know what AgeWage about, here’s our pitchbook

If you want our business plan, a comprehensive series of spreadsheets , then please mail me on henry@agewage.com.  We require an NDA which I can quickly turn around.

Here are the great things!

Our landlords – WeWork got wind of AgeWage crowdfunding, saw our numbers and came to my desk with a bottle of Prosecco! This is the kindest of things

Here are a few of the messages I received yesterday.

I’m in. I love this idea, there’s a real market need as currently no basis for comparative rating of pension funds. This “power” needs to be within the mandate of the member.

Good luck, and if I can help, let me know.
Henry. Thanks for the opportunity, I’ve just invested a further (just over) £4,000 which I’m sure you will steward carefully, good luck.
It’s very exciting that you have raised so much so quickly! Very well done!

Building on this.

The most exciting part of all of this is that we really haven’t started yet. We are in private mode, only the people who read my blog and are connected with me on social media are seeing all this.

We don’t go out to the wider public till next Monday!

When we do, we have an opportunity to be pretty well at target, meaning that we will be considered a success by the algorithm of the CrowdFunding platform of Seedrs.

 

The way that algorithm works takes into account not just the amount of money invested but the number of people who are investing. Currently we have relatively few investors compared with how much we’ve raised.

So if you think you have to invest thousands to be a shareholder – think again! In the world of crowdfunding, your £16.50 is very important.

And once we’ve got your tax back – that £16.50 shrinks!

This business is eligible for EIS relief – providing qualifying investors with income tax relief of 30% of their investment and certain other tax reliefs. Tax treatment depends on individual circumstances and is subject to change in future. Click to learn more.

But as a minimum (and do read the small print) you should see your £16.50 (or multiples thereof) shrink to £11.55 and – if you pay a lot of tax – forget about CGT when it works and write off your losses against tax, if it doesn’t.

Seedrs provide a handy tax calculator which you can access here.

Tax is complicated but Seedrs make getting your tax back a simple business.

What I want you to do – please!

It’s a lot easier to go to some private equity house for your money, or get a rich sugar daddy type sponsor. Getting money through crowd-funding is a ball-ache with a lot of due diligence to even get to the Seedrs platform.

As far as we know, no organisation like AgeWage has gone this route and we’re proud to be the first.

But it wouldn’t be the same without you.

Can you, when you have finished reading this , press the link and buy at least one share?

http://www.seedrs.com/agewage

And then tell your friends!

agewage evolve 1

 

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AgeWage needs you!

Posted on March 20, 2019 by henry tapper

 

we need you.pngagewage snip

 

I , together with Chris Sier and a group of business minded pension experts am raising money for AgeWage.

You can help us achieve our goal of raising £200,000, ideally by April 5th (the financial year end).

All you have to do is click this link

www.seedrs.com/agewage

 

As far as we are aware, pensions is virgin territory for the big crowd-funding platforms.

It’s a big step for our start up to be the first pension app to get its funding from the people that will be its customers and to be sure of success, we need the pump to be primed by you!

For as little as £16.50 you can buy a share in our company and seed the great things we plan to do.

Here they are

  • We will work with life companies, their IGCs – with master trusts and large DC company pensions and we will provide millions of people with an AgeWage score.agewage evolve 1
  • The scores will tell you how much value you’ve got for the money you’ve investedAgeWage evolve 2
  • When we’ve shown you how you’ve done, we’ll guide you to the choices you have aheadagewage evolve 3
  • We’ll make it clear how those choices will work for you.

Agewage evolve 4

  • We’ll equip you to make those choices and help you to a better AgeWage.

AgeWage is not here for the 6% of Britains who take financial advice.

We will actively promote the value of advice but we will not compete to be your advisor.

Instead we will provide you , through the AgeWage app with a way to understand what you’ve done, how you’re doing and what to do next.

I think you will agree that this is a bold and important business.

We are grateful to  the FT who have written about what we are doing.

We are grateful to our first round investors who have got us this far.

And now we are asking, humbly – for your money, whether £16.50 or £150,000.

Of course we’re going to make this easy for you, you’ll be investing into an EIS and that means that there are substantial tax-breaks. This business is eligible for EIS relief – providing qualifying investors with income tax relief of 30% of their investment and certain other tax reliefs. Tax treatment depends on individual circumstances and is subject to change in future. Click to learn more.

So if you’re wanting to help us and be a part of the democratization of pension know-how press the link!

www.seedrs.com/agewage

 

 

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Why can’t we talk about money without paying for advice?

Posted on March 16, 2019 by henry tapper

 

Screenshot 2019-03-16 at 06.27.49

Iona Bain has been travelling around Britain finding out what young people are doing to get help with their finances. She has documented her findings in a great FT article

Shunned by traditional advisers, younger investors use apps and digital platforms

Her travels take her to the usual suspects – Nutmeg, Multiply and MoneyBox though – like any grand tour – there are sites that are missed – MoneyHub, E-vestor and PensionBee (for three). The article is not supposed to be a directory.

I have a few complimentary copies of the article I can share to those who do not subscribe to the FT – mail henry@agewage.com if you want one.

The A-word and how it’s been

Advice has become a commodity and an expensive one. It’s the caviar to the cod’s roe of guidance, it’s so precious that it is only given to those who can pay for it, through a clip on their wealth. Advice is what millenials want and can’t get – because they aren’t (yet) wealthy.

If you are wanting to pay for a financial adviser, and plenty of us should, then follow the advice in this blog by Paul Lewis. But remember, the fact that you clicked the link makes you a rare (and probably privileged) breed.

At times Iona’s article hints that IFAs are being short-sighted, not focussing on a cradle to grave advisory service. But it concludes that IFAs can afford to wait till the wealth has cascaded before engaging with the young. Advice is a minority sport – like fox-hunting – there will always be demand from the entitled.

But if it’s true, (as suggested by recent research from Drewberry) , that only 6% of people want to pay for advice from a clip on their liquid assets, why does the Ad Valorem model (which collects advisory fees as a clip on liquid assets, prove so popular?

Iona Bain’s article cleverly avoids answering these questions. Instead she feeds back using twitter, the responses to the article.

The harsh conclusion is not that people don’t just want an end to valorem charging, they want an end to advisory-charging. That is a much greater issue for regulators, than protecting the livelihoods of IFAs – who are proving more than capable of looking after themselves.

The Burn-Out generation

My son – who is a generation younger than Iona, seldom answers my inane senior questions verbally.

olly

Olly Tapper

He sends me a link to the answer on one of around ten messaging systems he employs (and I slavishly sign up to). These include Slack, Whatsapp, Facebook Messenger, Twitter DM as well as  and SMS. He has reluctantly signed into LinkedIn (the old folks home) and even messages me on that. E-mail is a work app, but only one of many

The answer to just about everything is downloadable and app management is now essential to avoid  “errand paralysis” . 

In a great article on Buzzfeed (linked above),Anne Petersen points out that Iona’s  is the “burn-out generation” where existence is reduced to “to do”lists organised digitally but never quite completed.

Reading the article – I realised that what has changed is dependency, young people are now dependent on the ready availability of answers to questions from the web.

What they are not getting is ready answers to their financial questions, and especially their questions about pensions. Ask social media what to do with your financial problem and you get referred to a financial adviser.

lottie

Lottie Meggitt

I heard the same frustration from another Millennial – Lottie Meggitt – at a recent pensions event.  She more or less accused my generation of not handing down to hers the keys to the secrets we hide in our black boxes.

This ever-present fear that millennials have of not being able to manage for themselves is exacerbated by a financial advisory industry that refuses to play ball. Lottie and Iona’s frustration is not just with the complexity, but with their inability to cut through it. We are in danger of burning-out their patience.

I get this – though I am not sure I am the answer

Actually that’s not true, I am quite sure that I can be part of the answer, though I need Iona and Lottie and Olly to deliver it.

The best that my generation can do is to pass down answers to their questions which they can deliver intelligibly to those around them.

Attempts by baby-boomers to deliver solutions to millenials are doomed to failure. We can only follow.

The first thing we must learn is that the vast majority of financial advice  should be and remain free. The calamity of putting advice behind a firewall and charging for it is that we have alienated more than 9  in 10 people for asking for it.

“I can’t give you advice” is one of the great lies. Anyone can give advice, the question is whether it is worth listening to, not worth paying for. What financial advisers have done is created a means to monetise advice which I and my generation whole-heartedly endorse. We are in fact trying to make ourselves relevant, but we are lying when we do so.

“I can give you advice, but I don’t have time”, would be a more honest answer.

“I can give you advice – follow this link” is the answer my son gives me.

Will the  market find an answer?

Financial services has been slow to answer the need people have to get their questions answered digitally. It’s just not created the way to deliver the answers which are out there.

But the answers to our questions can be found , if only we know how to frame those questions and have confidence in the search process itself.

The encouragement for the market is that the opportunity is out there. The investment of time and energy in delivering the digital advisory services needed requires patient capital and a confidence among investors and entrepreneurs that where trust is gained, reward will follow.

The question is not how but when. I suspect the answer to this question lies with the Regulators. I have the opportunity to speak in a few weeks with the Chair of the FCA and I will be putting this issue at the top of my agenda.

I think it is critical that Government moves with the times and understands the issues raised in Iona’s article. We need to allow people to get straight answers to their questions without the complications of products and product related fees.

We need advice to become free again and for its delivery to be trusted. Pensions Experts  should not be afraid of the A-word but aspire to be trusted advisers (if only through the digital delivery mechanisms created by younger generations).

The answer to the questions raised by the Financial Advice Market Review and by the Retirement Outcomes consultations will not be found in the past but in the present. The questions are being asked by the millenials – which is why Iona’s article is so valuable.

Iona Bain

Iona Bain

 

 

 

Posted in advice gap, age wage, pensions | Tagged , , , , , , | 10 Comments

Why we cannot ignore the NHS Pension Scheme.

Posted on March 6, 2019 by henry tapper

doctor writes

Nobody writes about the NHS pension scheme and you don’t see it featuring in PLSA and other pension events.

That is because it generates precious little profit for the private sector. So here is a brief description (thanks Wiki).

The NHS Pension Scheme is a pension scheme for people who work for the English NHS and NHS Wales. It is administered by the NHS Business Services Authority, a special health authority of the Department of Health of the United Kingdom. The NHS Pension Scheme was created in 1948.

The NHS Pension Scheme is made up of the 1995/2008 Scheme and the 2015 Scheme. From 1 April 2015 all new joiners, without previous scheme membership, join the 2015 Scheme automatically. Members prior to 1 April 2015 retain rights to remain in the 1995 or 2008 section of the existing scheme.

The NHS Pension Scheme has 1.35 million members and 650,000 members actively contributing.

The benefits and conditions vary according to the type of worker and the dates of their service; from 2008 the “Normal Retirement Age” changed from 60 years to 65 years while the proportion of pay upon which a pension is based was increased. The benefits are index-linked and guaranteed. They are based on final salary (members who joined before 1 April 2008) or average salary (members who joined after 1 April 2008) and years of membership of the scheme. There are no administration costs. Members can increase their contributions if they wish to get larger benefits (within certain limits).

As of 2016, the tiered employee contribution rates start at a 5% rate increasing in 7 steps to 14.5% on income above £111,337.

If the NHS pension scheme was funded, it would be the largest funded pension in Britain, it might even rival the mighty CALPRS in the States to be the largest funded pension in the world. But it isn’t funded and therefore doesn’t trouble the  asset management scorecard.

To the lay-reader, a pension scheme that serves 1.35m of the UK population would deserve considerable attention – but the UK pension industry has but one master – the fund management industry.

Which is why  bottom-up engagement is more likely than top-down debate. It is why the most vigorous discussions on the NHS scheme (and by extension all state sponsored unfunded pensions) are on social media.

Pension problems for doctors is a problem for the NHS

We should not confuse the apathy of the pension (fund management) industry toward the NHS pension scheme with its potential consequences for the nation’s health service and the nation’s health.  As Nitin Arora points out in his blog (published alongside this), the issues Doctors have need immediate address.

The problem the NHS has is that we have most consultants working ~20% more than full time, with anything over 10PA being non-pensionable; and lots of departments rely on consultants doing extra lists.This is not conducive to efficient tax planning for individuals.

When people realise that their extra 20k of income results in a 12k tax bill, and potentially 3-5k of ‘scheme pays’ they may elect to stop doing this extra work.

Nitin call for action is deliberately targeted at people who care about the health service, whether within or without.

We as custodians of the NHS need to look at the bigger picture, and alert the government to the impending crisis. The taper, AA and LTA together, are going to drive an already demoralised workforce to cut working time. At this time of an overstretched health service, and staff shortages, this would be a disaster.

Why the NHS is not the USS

There is no crisis of funding at the NHS Pension Scheme, there is no question that the NHS pension scheme will close for future accrual, there are no arguments to be found about self-sufficiency. This is because the balance between  Government funding (via taxation) and member contributions is maintained by the Government Actuary without the usual hullabaloo around investment strategy.

The business of the NHS pension scheme is in providing pensions and this singular intent is recognised by its members, I am not aware of any substantial challenge to the Scheme (though clearly there is an issue around the provision of support for members in the decisions they now have to take.

The issues around the NHS pension scheme relate to tax. The suspicion is that the already burdensome membership cost to higher earning members is increased further by progressive taxation . We are used to the pension system robbing the poor to pay the rich – (the regressive alternative), but with the taxation of high-earners pension increases running at as much as 67.5%, there are now serious reasons for Doctors do the “hokey” – the member’s phrase for going “in-out” of the scheme as tax liabilities dictate.

The main difference between USS and NHS is that the NHS is making membership untenable for members while UUK argues that USS membership is untenable to employers.

Giving members a voice.

What I find interesting about the eruption of interest in the NHS Pension Scheme – is that it is happening on twitter. Twitter also provided the platform for debate on USS and Facebook was the platform members of the British Steel Pension Scheme (BSPS) use to understand their “time to choose”.

What is interesting is the attitude of the unions to the mobilisation of their members in these self-help groups (and threads). At BSPS, there was no involvement, at USS, the UCU has been heavily involved in the debate, we have yet to see the extent to which the BMA and other NHS unions will encourage the debate on an open platform or try to confine it to in-house publications and forums.

In my view, social media has become the forum where pension policymakers have most to learn. If I was HMRC or the Treasury (especially GAD) , I would be exploring the different views expressed on the threads that Nitin Arora and others have created.

We have yet to explore the full functionality of social media in assessing opinion. Polls can play an important part in this and are as yet virtually unused as a way of testing the water.

What social media has is scope and – using a limited number of hashtags, social media can provide scope and immediacy to conversations that demand quick and decisive conclusions.

So I look forward to the NHS Pension Scheme debate being conducted in public, as it is today. It is far more healthy for doctors and other members to share their grievances with a wider audience, than be confined to the pages of Pulse.

Posted in pensions | 4 Comments

How to turn a pot into a pension (megablog)

Posted on February 24, 2019 by henry tapper

pot into pension.jpeg

Hello and thanks for your interest!

This mega-blog should be helpful to people who are 55 or older and have money “stuck” in pensions which they could do with to replace income from work.

“Stuck” is the right word, most of us would like our money back to spend at some point but don’t know the rules for getting at it and fear we’d make a hash of things if we did it ourselves. This blog is a self-help manual for us lot – and I hope it will be a fun read.

It may also be helpful if you are planning for the future or if you are trying to help others.

Preparation Step one – do your background reading

My first piece of advice is that when you’ve finished reading this article, you press on this link and read Factsheet 91 from Age UK. 

This goes into much more detail than I can here and deals with subjects like the integration of pensions and the benefits you can receive at working age and as pension credits

It also contains valuable advice on avoiding scams, avoiding falling foul of the Inland Revenue and the DWP’s support for those needing (long-term) social care.

Preparation Step two – Think about your need for cash in the bank

Having a rainy day fund for unexpected costs is a good thing. It’s money that can earn interest (as in the Santander 123 account) , it might be money you have in cash ISAs, the important thing is that it’s money that you can get at within a few days without having to worry about stock-markets and withdrawal penalties.

This is your “contingency” fund. You only need it to have enough in it to make you feel secure, it should not have all your savings in it. It’s a common mistake to have all your money in low or no interest accounts rather than working as hard as you do – or did!

You may have enough money in accounts or even too much. If you think you have too much in the bank, then you can start thinking of investing some of that money for the future. If you don’t have enough money in your rainy day fund, your pension may be able to help.

Preparation Step two – think about your debts.

If you have paid off your mortgage and have no debts, skip this bit. If you still have debt then the key questions are when that debt comes due and have you got the ability to meet the repayments. If you are comfortable that you can repay your debts from your income then pensions don’t come into it, but you should know that if worse comes to worse, you can take 25% of your pension pot, without having to pay any tax on it. That money can be used to clear debt.

Preparation Step three – think about your future

You are heading into holiday-time. As you get into your sixties and seventies , you are likely to work less hard and for shorter, that’s why we have pensions, to take up the slack in income and make sure we can do the things we promised ourselves we could do , later on.

You should find out what is due to you as a State Pension and you can do so by pressing this link. You can get a state pension forecast – unique to you – quickly and in a user-friendly statement. Hopefully it will be good news. The State Pension has got better for most people and is much simpler than it used to be. Plan on having a pension in today’s money of around £8000 from 66, 67 or 68 – depending on how old you are – the younger you are the longer you’ll have to wait!

You may have some DB pension owed to you by the trustees of employers you’ve worked for, if you do have , make sure you have an estimate of what is coming to you and when

When you have your state pension, you can start thinking about how you’d like to dovetail work and pensions. What you take out of your pot as a pension should be to fill in the gaps.

For heaven sake – don’t get too strung on getting a financial plan in place where every eventuality is covered. Life isn’t like that, there are bound to be surprises (good and bad). But remember you have your rainy day fund and make sure you think about the other things you own which you could sell – like shares, ISAs and even investment property.

Finally – think about your house and ask yourself if you really could realise any of the equity in it. It’s not as easy to downsize as you think, especially if you have kids and grandkids.  A lot of people think their house is their pension and you can turn bricks into sausages if you qualify for an equity release plan – you can find out about equity release by reading the Equity Release Council’s frequently asked questions.

You could also have a look at Legal and General’s LifeTime mortgage options, which show how equity release works in practice

How to turn your pot into a pension

One pot policy.

You’ll notice that the headline implies one pot. I strongly suggest that you try to bring all your pensions together into one pot and that pot is with a pension provider that you feel comfortable can help you as an individual – do what you want to do.

Don’t think this will be easy or quick, your portfolio of pension pots could run to 10 or more and many of them will have quirks in them that you need to research. Be particularly careful about guarantees, early exit penalties and loyalty bonuses. Transferring pots can be a tricky business. I will be writing more on this in weeks to come.

Do I need guarantees?

Once you’ve got your pot portfolio into one place, the first question you need to ask of yourself is how important guarantees are. If you want a guaranteed income you have to buy an annuity. George Osborne said that nobody would have to buy an annuity again but nobody’s found a way of turning a pot into a  guaranteed pension that lasts as long as you do, that isn’t called “annuity”.

There are a lot of different types of annuity and the key – if this is where your search for a pension ends up is to shop around. My advice is to go and read the stuff on this page from the Money Advice Service .

It may be that you already got guaranteed DB pensions or even guaranteed annuity rates in your DC pots, they are good news and form the platform for your pension , only ditch guarantees you already have after a lot of thought (and take advice).

Would I prefer guarantees – yes – but can I afford them!

What you’ll find when you are working your way through your options is that you are always having to make trade- offs like the one in the title of this bit.

Planning for the future is about guesses – they include guesses which are hugely important like how long you’re going to live, will you need social care as you get weaker and whether you’ll need more or less income the older you get. There are no certain answers to these questions so if you can’t afford to guarantee you have an income to meet all eventualities – at least you’ve got a lot of freedom over how you spend your pension pot.

The pension you,ll be offered from a guaranteed annuity is likely to be a lot less than you thought you’d get for your savings.  That’s why most people move on to other ways of providing a pension.

Would I like money now – or money later?

This trade off is not as simple as it seems. Of course we’d like money now but most people are cautious and save rather than spend. You can save too much and become a hoarder, not spending your money now may be something you regret in later life, when you can’t do the things you’d wished you’d done when you were younger.

But if you blow all your money in your fifties, not only will you be skint in later life , but you may well have given much of your savings to the tax-man. Getting the balance right on the shape of your pension is important. Ideally you’d have a financial advisor helping you here to do your cashflow planning (though every plan comes unstuck somewhere).

If you’d like to do some cashflow planning for your retirement, I’m afraid there is precious little software in the public domain to do so. I am looking into creating a utility for AgeWage in conjunction with some altruistic actuaries. For now we will have to make do with simple rules of thumb, which help us to set our pension from our savings,

Getting the pension rate right

Ok – so we’ve looked at the future and decided we don’t know, we’ve decided that annuities may be too expensive and we’ve decided to look at alternatives.

There is currently only one  alternative to an annuity (for your savings) and that is something called drawdown. Drawdown is a pension you pay yourself from your pension pot and you have the freedom to have it paid any way you want. Sounds good eh!

Well not so fast…

  • If you screw this up you will run out of money later in life
  • If you screw this up you could end up giving a good part of your pension (unnecessarily) to the taxman
  • If you screw this up you could unwittingly deny yourself the chance of the state paying for later life social care

Which is why paying attention to your pension is very important when you are making decisions in your fifties and sixties

The 4% rule of thumb

I think it’s useful to set out with a simple starting point. Divide the amount of money you have in your pot by 25 and you get the amount that most pension experts would consider a safe enough drawdown rate. So for every £100,000 you’ve saved, you can pay yourself £4,000 pa as extra income.

If you want more than £4000 pa then you are pushing it, you may not be able to adjust your income in future years to keep up with inflation and you could fall foul of what experts call “sequential” risk, when your pot is ravaged by a sharp decline in stock markets and does not recover.

One way of making that £4000 pa a little more palatable is to make sure it is paid to you tax-efficiently. I mentioned earlier (for those with need of cash today) that you can take up to a quarter of your pot as tax-free cash. If you need the money now, take it now. But if you don’t need the money, then keep it in your pension fund and you can drawdown the tax free cash in the early years and only take taxed income later on (when your top tax-rate may be lower).

Another way of making sure that your income is higher, is to stack your pot with contributions from cash you don’t need.

You can pay up to £40,0000 pa or your taxable income – whichever is the lower, to boost your pot. You get tax -relief on all your contributions and the money is invested in a tax-efficient fund. Stacking contributions in your pension fund in your final years of work is a good plan if you have cash in the bank not working as hard for you as it should.

Unfortunately, the amount reduces from £40,000 to £4000 as soon as you have drawn money from your pot, so hands off your pot if you are considering stacking!

4% is only a starting point

A lot of people will take a view that they can draw down at much more than 4% and get away with it. They may well be right, most of us will start drawdown before we get our state pension and drawdown at a higher rate as what experts call a “bridging pension”. Once you’ve started getting your state pension you can drawdown at a lower rate and get back on track. Other people will consider inheritances as a similar windfall in future years. Some will deliberately run down their income to avoid the threat of being means-tested out of social care benefits (though you should read the rules on deprivation in Age UK’s fact sheet).

Second rule of thumb – For heaven’s sake – stay invested.

When you start drawing down your pension , you begin a process that could last 30 years or more. It is not something that stops when you are 60 or 70 or even 80. So it makes absolute sense to be invested for the future when you start. Do not move all your pot into a cash fund, this may sound the safe thing to do , but it is the opposite, it will mean that you are stuck with virtually no growth on your savings meaning that you will run out of money later on.

Putting your money in cash is not even guaranteeing you your money back, most cash funds you can buy can go down as well as up and what is almost certain is that the cash fund will not return you the rate of inflation so in real terms , the value of your cash fund will fall. If you are planning on losing out from your investments for 30 years, then go for cash at outset, but you will probably look back and call yourself a muppet.

Third rule of thumb – keep costs down

To keep your money in a pension drawdown fund, you don’t need to be paying away a lot in fees. Remember that 1% of £100,000 is £1000, a lot of money every year. You should not be paying more than 1% each year for your drawdown pot and you should only pay advisers on top, if you feel you really need their advice.

One way of keeping your costs down is to shop around and find the best drawdown provider. There isn’t a lot of good comparative advice out there at the moment (and frankly most of the drawdown plans are far too expensive).  Probably the best place to start looking is Which? – the link’s here.  

The Which table is ok as far as it goes, but it only tells you what you will be paying for the drawdown service (the platform), you have to pay again for the funds which will at least double the platform fee.

If you want to pay an adviser, expect to pay around 1% pa for the first £100,000 of your pension savings pot (less for more). If you have a small pot, you probably won’t find an adviser who will be able to help you.

You will probably find -if you want to stay within a 1% budget that you need to go on a non-advised platform and use the support of the platform. I find Pension Bee and E-vestor the kinds of organisation geared for your needs.

It may be worth waiting for the market to improve, the big workplace pensions like NEST and People’s pension may well open up for drawdown in years to come and it’s likely that there will be more competition from existing pension providers when they do, for now the market looks weak and consumers look like they are generally getting poor value. That’s why the FCA are looking at capping the amount a drawdown manager can charge a customer in drawdown.

Fourth rule of thumb – choose your drawdown investment wisely.

I really don’t see why people who could not choose their own investment funds when saving for a pension, can suddenly be expected to make choices when spending their pot.

But because most of the large workplace pensions don’t offer a satisfactory drawdown option (yet), people are having to move to self-invested personal pensions (SIPP) to drawdown which (by definition) don’t make the investment decisions for you.

I’m sure this will change but for now, if you are investing in a SIPP, then you should look at a fund that is within your budget (I suggest 1%). Remember you have to pay platform fees and transaction costs (see the Which report) so your fund budget is unlikely to be much more than 0.4% and that will restrict you to investing in a passive fund or perhaps something called Smart Beta – which might tilt your investment towards sustainable investments or a more diversified approach than just a single stock market index. Generally speaking diversification is good so if you can get a fund that invests in shares (UK and overseas) , bonds and perhaps a little in other things (alternatives) for 0.4% – that may be your best option.

You want your investment fund to give you as smooth a ride as possible and diversification is a good way to get that smoothness.

Fifth rule of thumb – take your time

If you’ve got this far in one of my longest ever blogs, you are probably pretty interested in this subject and I suspect that’s because you have a personal interest.

I’ll declare my hand, I’m hoping that AgeWage will be able to help people like you to turn pots into pensions and I expect to draw upon the ideas in this blog when we launch the AgeWage blog later in the year.

I’m having to take my time in this – not least because I will need the buy in from the FCA and other regulators to help people with the kind of guidance they need to turn their pots into pensions.

It took me nearly 10 months just to get all my pots in one place. It is taking me as long to research my drawdown options and I’m still not sure of what to do.

 

Can I help?

As far as I know, I’m about the only person who is actually trying to set up an app for people to learn about this stuff and take practical steps to organise their affairs to convert pots into pensions.

If you found this blog helpful, please contact me on henry@agewage.com  and we may be able to set about working with each other!

great egret flying under blue sky

 

Posted in advice gap, age wage, pensions | Tagged , , , | 4 Comments

Why the pension dashboards have to be commercial

Posted on February 17, 2019 by henry tapper

 

Sun Pension Pot

The Sun;s vision of a pension pot is a witch’s brew!

Government pension projects rarely succeed and where they do succeed – it is because the public and private sectors find a way to work together. There are exceptions – the state pension and unfunded public sector schemes are pretty well 100% a Government initiative and the PPF is getting less rather than more reliant on the private sector.

But when it comes to the pension saving market – Government has not found a way to do it themselves.  The public sees pensions – as the Sun sees pensions – as a witch’s brew in a pot!

Recent initiatives have had their moments – TPAS being an example – but generally Government does not do pension guidance or advice well and there is little expectation that it will do a much better job with the dashboard between now and 2025 than it has since 2015.

The SFGB needs our support but it is a backstop

I don’t know anyone who is remotely excited by the Single Financial Guidance Body and I don’t see Pensions Wise as being much more relevant under it than it was in the hands of MAS/TPAS and CAB. The spaghetti soup of acronyms tells us just how little impression Government has made on our day to day retirement thinking.

We expect that the dashboard will be controlled from within SFGB and judging from the people who are being assembled as dashboard experts – we can be sure that it will be very much “not for profit”. This is a holding position, but the Government knows very well that once data is available to us through pension finder services – then the private sector will be very interested indeed.

Data is money – it’s as simple as that. The best that Government can hope for is a well -regulated market where data integrity is upheld and advice and guidance is monitored.

The SFGB will be powerless to stop the commercialisation of the pensions dashboards, nor should it try to.

The SFGB should encourage private sector innovation.

The Government will quickly work out that the private sector is quite capable of finding pensions for itself. If the Government wants to give a centralised contract to one pensions finder service, then people will avoid using that service and scrape their own data. That is because people want to avoid paying through the nose for data , being dependent on a single service provider which might prove unreliable and because people will want to get on with things at their pace, not that of a third party.

So – if we get a single pension finder service – procured at great time and expense , the chances are that the current pension finder services – which are little more than scraping – will simply carry on – with all the data risks that come from sharing passwords and so on.

Sooner or later, people will get tired of waiting and they will get angry with Government for not delivering. Think Crossrail.

And this will bring the SFGB to the public attention and not in a good way. It will become the scapegoat for non-delivery, even if it had no part in what came before.

Plan for the future not the past

The future is digital, it is open source and it is handheld. The deep future may be quite different but for the next five years we can see the direction of travel. It is not the direction that the Pensions Dashboard is taking, that is a direction that looks back to the first 20 years of the century (and we will be looking back by the time we get anything).

The future is represented by Pentech and the dashboard should be designed for and by people who are familiar with open source data. Government should stay well out of the way. It’s job is to ensure that the data standards are common and to root out the rotten apples, it is not to stand in the way of change.

Similarly, what the dashboards show should not be a matter for Government (other than that trading standards should apply). The old distinctions between guidance and advice need to be reviewed so that everyone can make decisions about what to do with their retirement funds with confidence.

The future is not going to be about sitting down with an adviser for two hours, it’s going to be about user journeys that make sense to ordinary people and take them to guided outcomes that are generally right. We will revert to a default culture which will replace pure collectivism with rules of thumb.

The future belongs to the brave

Necessarily, those who will be at the forefront of dashboard innovation will be entrepreneurs. It is impossible to imagine that Government, the ABI, the PLSA and the PMI are going to drive change.

The change that happens will be driven by self-interest  which is what drove Isambard Kingdom Brunel and James Watt and it’s what has made Apple and Google and Facebook change the way we do things. Government can only be responsive to change – it cannot be entrepreneurial – nor should it.

This may sound disruptive and I expect that many (including the many who packed Prospect’s office to opine on the dashboard) will see me as precisely the kind of person who shouldn’t be allowed near a commercial dashboard.

I love Origo’s vision of the commercial dashboard – it tells me just how far the pensions industry is wanting to keep this dashboard to itself!

dasboard suspects

Origo’s veiw of the world

Here is the dashboard that I put together with the Sun’s Mr Money – sorry about the lack of digitality in either image!

find a pension 3

There comes a time when people just get fed up with waiting and all the fannying around and just want to get on with finding their pensions and spending them.

That time is now.

We need commercial enterprises to help ordinary people to get their money together and get it back. We do not need more guidance from Government or governance from the Guidance Body.

Those of us in our late fifties are growing into retirement with practically no help. It is time we got it. The dashboards can help but they will only work if they are commercial.

No Government initiative is going to work on its own, Government must now allow the private sector to get on with satisfying the public’s thirst for information, guidance and advice.

Exploit is  the wrong word but meeting demand is what we are about and there is no doubt that the public demand a commercial service that helps them retire properly.

Posted in advice gap, age wage, pensions | Tagged , , , , , | Leave a comment

Should your house be on your pension dashboard?

Posted on February 17, 2019 by henry tapper

 

sausage_link

You can’t buy a sausage with a brick

James Coney, one of our best financial journalist has written a very fine article in FT Adviser on why he wants to “leave property our of pensions dashboard”.

It turns out that the Equity Release Council has been lobbying to get the un mortgaged value of your house onto your financial balance sheet, so when you see you’ve got no savings, you don’t burst into tears but nip down to your local friendly equity release specialist and liquidate your bricks and mortar.

James is against this

If there is one financial question every British person knows the answer to, it is how much their house is worth.

We are utterly obsessed with property prices. What is more, our attitude towards property has led to many people to make some very bad financial choices.

And these are just two reasons why housing wealth should not be included in the new pensions dashboard (another more obvious reason being: a property is not a pension).

It is of course impossible to stop people considering their finances in the  round. The idea that a pensions dashboard can frame our thinking on retirement planning is fanciful but that is to jump ahead of my argument.

The “bad decisions” he’s referring to are to do with over reliance on property equity and under-provision of the replacement income we need when we stop working.

The article turns on itself as it explores the relative merits of downsizing and taking a lifetime mortgage. It hints at what is a very real moral hazard, that if you are so skint in retirement that you have to mortgage your house to live properly, you are certainly not going to be able to pay the costs of long term care (other than by selling your house).

The moral hazard is that people assume the right to state care and recognise that that care is means tested. If you are planning on a state assisted later life, then you should burn your equity and your potential income. Since most equity release plans don’t ask any questions about how you spend the cash released, the opportunity for people to game the NHS and the social services funded by the DWP is obvious.

We pay far too little time thinking about how ordinary people consider housing, later life income and the threat of needing long-term care.

Self sufficiency?

The over reliance of a very large number of people on their house as their pension also misses an important historical factor. Those people who pushed their finances to the limit to buy a house and keep up the mortgage payments, often did so by not paying into a pension.

Their idea of property investment was to be independent of pensions – which many people see as a black hole into which you pour your money, never to get it back.

The tangibility of a property is pretty obvious, it is a place to live and – if rented out, is a self-sufficient asset. Property has become a free lunch – with low interest rates, high rents and a seemingly inexorable rise in property prices.

The housing shortage , which the Government continues to talk about – without building houses, keeps property prices high. The tight control of interest rates keeps away the perils of negative equity, the young are priced out of the market – but they don’t vote.

All this has the smell of a rigged and rickety market with the potential for a real fall in property prices which could have very nasty social consequences – especially for those for whom property underpins their lifestyle, retirement plans, their legacy and their long-term care insurance.

Far from offering self-sufficiency,  a property can and does give a false picture. Which is how James leaves his argument.

People who rely on housing equity or investment income from rental property to fund their pensions are playing a scary game, the risks of which are underestimated.

Or a contingent asset?

The terminology of Defined Benefit pension funding is useful here. Most people do not achieve financial self-sufficiency when they enter retirement. They have to carry on working – or they rely on their savings whether inside a pension wrapper or not.

The house is the back-stop. It acts as a “contingent asset”, something that is pledged to be used but only as a Plan B or C.

If people are having to rely on work and savings to produce income, then they are taking on a lot of risk, risks associated with health, interest rates, markets and people’s capacity to make financial plans and keep to them. There are many calls on older people’s money and most of them cannot be anticipated.

So the financial backstop of a lifetime mortgage is a tremendous advantage to someone who has not achieved self-sufficiency. It makes for a much more relaxed prospect for someone reaching the end of their working life.

Which is why I am very much for equity release, especially the responsible varieties such as Legal & General’s Lifetime mortgage. So long as property is viewed as a contingent asset and not as the answer to all life’s future property, I see it as key to the financial security of most older people.

Property equity is a contingent asset which should form an important part of financial planning for later life

Messaging and dashboards

I am concerned that the expectations of politicians and the proletariat for the dashboard are being set too high. In particular – I fear that “trust” is being commandeered by the pensions industry to justify “control”.

The current obsession with controlling the messaging will doubtless be reflected in the DWP’s consultation response due out shortly.

It is the easiest of wins for those who respond to these consultations to demand high levels of centralised governance resulting in a state dashboard and a few highly regulated portals that plug into a single pension finder service.

It is very unlikely that anyone from the pensions establishment  will have written to the DWP telling them to let the market control the messaging. Here for instance is Prospect’s report on its recent dashboard meeting with the Minister.

“All feared the potential for confusion, and some the possibility of exploitation if commercial players had too much scope to fashion the presentation or in any way edit the contents of the dashboard”.

Controlling the messaging from pension dashboards will be quite beyond Government or the pensions industry. People want access to data on their pensions and they want to take control of their savings. They will include housing in their thinking – they would be mad not to.

I hear the splashing of water around King Knut’s chair.

 

Should your house be on your pension dashboard?

The argument of this blog is this

  1. James Coney’s article is right to raise the question
  2. The interaction of housing on pension savings is perverse and underestimated
  3. People who rely on house equity to be self-sufficient in old age are usually deluded
  4. Housing equity is a good backstop or contingent asset and shouldn’t be ignored
  5. Messaging from pensions dashboards can’t be controlled (worthless power of kings)
  6. With responsible positioning housing could and should feature on dashboards.

I think, were James to read this blog – he’d ultimately come to the same conclusion , despite his title suggesting the opposite.

Posted in pensions | 3 Comments

Pension dashboard stitch-up exposed!

Posted on February 16, 2019 by henry tapper

pp dashboard.jpg

I find myself the horns of a dilemma. I violently disagree with the ABI, Origo and at least two of the big master trusts. In particular I disagree with People’s Pension, who normally I agree with and Gregg McClymont- one of my favourite people. I do not think them dishonest, but – in the pursuit of their aims- I find them saying things for what they believe the greater good – that amounts to a “stich-up”.

My beef

Like everyone, I reckon the pensions dashboard , a “once in a generation” opportunity to put people back in control and restore confidence in pensions. The dashboard could help people to find their pensions, understand their likely position in retirement and do something about making the most of what they have (including their savings rate).

However this is achieved is secondary to it being achieved, so the comments below are based on a fundamental agreement with all parties that the fundamental aims of  dashboards are good.

But I have a beef and this is it.

The major pension providers and the organisation they set up as a pensions data clearing house (Origo), want to orchestrate the finding of pensions meaning that they control the means of dashboard production. They have convinced the DWP to write a consultation where there is only one pension finder service and only one data validation service. There can be no doubt that in a procurement process, the provider of that service would be Origo, with the help of a couple of subsidiary companies.

I believe that this is a stitch up and it will lead to no good. Here are my five reasons why

  1. The DWP are in no position to determine the technical architecture of the dashboard. They do not have the skill set to call the market, the procurement process will delay implementation and what will be delivered will be subject to the same problems that have led to failed roll-out of Universal Credit. Putting the DWP in charge is a mistake. The DWP should not prescribe the technical architecture of the dashboard.
  2. There is proof of concept for a system of open sourced pension finding (rather than the single pension finder service proposed). It is called open banking and it has worked. We now have faster payments, integrated data and an altogether better banking system than we had before the implementation of the CMA 9. This is despite the protests of the big banks who adopted precisely the protectionist position the large insurers and master trusts are adopting today.
  3. There is, outside the hegemony of the biggest players a nascent “pentech” sector , it includes soon to be household names such as Smart Pensions, Pension Bee and infrastructure players such as Altus, F&TRC and Pensionsync. Data aggregators such as MoneyHub, MoneyBox and AgeWage are keen to provide better information on pensions to the 94% of us who do not pay for advice. The single pension finder service will make them reliant on a centralised , old school, approach that will prevent them innovating.
  4. The arguments for the single pension finder service and the oligopoly it would be created are based on a pensions “project fear”.  They are protectionist and self-serving. We are told that it would lead to less data security, more expense to the providers and a lack of consistency with which the data was presented. These arguments fly in the face of the actual experience we have had of open banking, they are the same arguments as the retail banks put up to prevent open banking, they were rejected by the CMA and they should be rejected by the DWP. The counter-arguments are stronger as they are evidence based (see below).
  5. The original conception of the Pensions Dashboard , back in 2016 (Treasury led) was for open pensions where the dashboard would foster innovation and best practice. It has taken three years to get nowhere listening to counter arguments from those with an interest in the status quo. The status quo is rubbish, people can’t see what they’ve bought, can’t plan for the future and the DWP’s proposed timeframes for delivery of the dashboard are so long that it is unlikely people will genuinely benefit from these dashboards for five years.

To summarise

  1. The DWP are out of their depth and should leave this to the market
  2. Open Banking shows pensions a better way
  3. There is capacity to build open pensions
  4. The arguments against open pensions are protectionist
  5. The proposed roll out of the dashboard will be too slow, we need action now.

Why I have to say this again.

All of this has been said in previous blogs and in articles in newspapers – by me, by Pension Bee and by many others. But our voice is a small one and it is drowned out by the lobbying of the ABI and friends.

Before the launch of the consultation, the Work and Pensions Select Committee were assembled to hear the voice of this lobby. Frankly that was bad Government, no ear was given to the Pentech position.

Now, with the launch of the consultation’s findings imminent, we find that senior MPs, including the Pensions Minister are being entertained by Prospect Magazine in a meeting arranged by People’s Pension.

What is more, the write up of this meeting is being publicised on social media as a genuine debate.

But reading the Prospect Article that came out of these differences I find that someone’s moved the cheese.

The differences were akin to arguing how many colours you paint the car and ignore the arguments for a choice of different engines and chassis. Whether allow people to see the data through multiple dashboards or just one is irrelevant – how people access the data is up to them. Open Pensions is not about seeing numbers on your phone.

Open Pensions is about creating a data sourcing infrastructure as consumer friendly as exists in open banking and a state sponsored app just doesn’t add up.

Where were the Pentechs?

The Pentechs were not invited to the event, the consumer groups who were have a quite different agenda and the debate allowed the ABI to pretend to Guy Opperman, Nicky Morgan and Ian Murray that there was consensus on the fundamental dashboard architecture.

Every one of the project fear arguments can and should be tested. All will be found wanting in the light of actual experience of Fintech in the financial sector.

The single pension finder service will lead to greater risk of outage of supply, greater risk of cost hikes (a sole supplier) and it will lead to the stifling of innovation. The DWP should wake up to this as the Pentech firms aren’t going away and we will not sit in a dark corner.

The chance to be good at pensions (again) on a world stage, is being missed.

And the blueprint on how open standards could improve the dashboard has been presented to Government and the pension industry.

This debate should not be held behind closed doors

These arguments were excluded from the debate, the pseudo-debate that happened was a convenient smokescreen.

There is a space for a genuine pensions debate and that’s what should happen as a result of the consultation. The lobbying of ministers and senior MPs prior to the publication of the consultation, and the presentation of the debate in the way that it has been engineered is a perversion of parliamentary process and needs to be called as such.

 

pp dashboard

Posted in age wage, Dashboard, pensions | Tagged , , , , , | 2 Comments

Now and then.

Posted on February 14, 2019 by henry tapper

now that's

It all started so well – and ended so sadly. Yesterday NOW’s owner, the Government backed Danish Pension Fund announced it was selling it’s UK master trust to Cardano, the Dutch Fiduciary Manager.

NOW were the first organisation to seriously compete with NEST as an occupational pension scheme. They made it absolutely clear where they were coming from and they set their stall out with conviction

  • Just one fund
  • A Segregated Fund unique to NOW members
  • A Trustee Board drawn from the great and good
  • Outsourced admin

The original vision we were sold at launch also included free life-cover – though that never quite happened.

I remember the launch, a grand affair just off parliament square, it was like a film premier. NOW was launched at a time when its first customers were the large employers without a pension scheme. Employers like ISS who has a workforce in six figures, cleaning trains – they were early stagers and chose NOW.

NOW’s early success was predicated on purchasing employers getting the NOW story. It was that the Danish pension system – was deemed successful because of ATP – the owners of NOW. NOW was popular with Danish owned companies, especially in the shipping sector. If there was a Danish ex-pat in charge of your employer – you got NOW.

NOW’s second phase distribution strategy was to go after large accountants with whom they did deals in return for those accountants using NOW pretty well exclusively. It wasn’t a bad distribution strategy and for a time it worked.

But after a year or two, the large employers who were NOW’s flagship customers started raising alarm bells. Money wasn’t being invested or it was being invested in the wrong place. Money wasn’t being collected or the wrong amount collected. NOW had outsourced the record keeping and contribution collection functions to third parties and had trusted that the third parties would work together. They didn’t.

What actually happened was that NOW lost control of the most important piece of the jigsaw, customer support.

Before long NOW felt it had to switch its original record-keeper, Entegria (Xafinity) . It replaced one third party with another – JLT. In doing so it created the infamous black-out where employers were completely shut-out. It was scary for employers and it freaked out the accountants who had been sold a tale of Danish efficiency and super-clean compliance.

A number of high profile clients – including the biggest by employees – ISS, walked. ISS actually replicated what they were doing with NOW with JLT.

By 2015 the Pensions Regulator was involved and what followed was three years of torrid discussions between NOW’s trustees , its management and an increasingly angry regulator. Poster-boy CEO- Morten Nilsson fell on his sword and was replaced by JLT backroom fixer – Troy Clutterbuck.  NOW ditched its middleware supplier and finally created a dedicated customer service unit in Nottingham. But the damage had been done.

From being top-rated for its vision, Pension PlayPen gradually down-graded NOW for its appalling customer service and the failure of its systems and processes. By 2017, nobody was using NOW.

Where did NOW go wrong

The original vision for NOW was grand (I mentioned its launch felt like a film premiere).

It hired the then top DC players from the occupational market and its architecture was that of the classic unbundled DC scheme of the first decade of the century. NOW’s Trustees were and are trophy. Nigel Waterson arrived from Westminster, a few votes more at Eastbourne in 2010 and he not Steve Webb would have been coalition pensions minister. John Monks was a senior Union man, other trustees had similarly luminous backgrounds in the pensions industry.

But all this glitz blind-sided NOW. They bought the Kool-Aid of the consultants, by-passed the tough job of setting up a proprietary admin system and dedicated customer support. They totally didn’t get the payroll challenge – leaving the interfaces to “middleware”.

NOW were about investment and in particular the investment approach advocated by ATP which was implemented impeccably.

The think that finally sunk NOW was not the train-wreck admin, but the failure of the investment strategy to deliver short-term returns. What happened was the BREXIT vote and NOW’s strategy was predicated on Britain remaining. NOW hedged its currency positions and failed to pick up on the huge gains that could have been made from the currency markets. Relative to its principal rivals (apart from Standard Life’s GARS – which got caught in the same trap), NOW’s investment performance was abysmal.

Had it had its intermediaries and employers on side, this might not have mattered, But they had lost both those training rooms and NOW were horribly exposed.

The final nail in the coffin was NOW’s reliance on its use of a tax-relief system that was de-rigeur for its original clients but which turned out an albatross around its neck. NOW’s members were and are a varied bunch but very many of them fall into the net-pay trap and are not getting the Government Incentives promised by HMRC – because NOW does not use Relief at Source. Worse- all the GPPs and its two principal rivals – NEST and People’s, use Relief at Source. NOW have commendably campaigned to get HMRC to give Net Pay the same advantages to the low-paid as relief at source but without success.

Although NOW has righted the ship with regards record keeping and contribution collection, it still has some fundamental problems which Cardano are inheriting. Apart from the net-pay problem, NOW has a very large of very small pots. These pots are not uneconomic to NOW because NOW charge the pot-holders £18 pa to maintain them. The trouble is that small pot holders aren’t getting much return on their investment and if the pot isn’t getting new contributions , it is gradually being eroded by the charge. Watch out for some newspaper or other discovering a bunch of NOW members whose pots are so small that they cannot meet the admin charge. Try explaining to an ordinary person that their pension provider has just eaten their pension and check the reaction.

So why did Cardano buy NOW

NOW is Britain’s third largest master trust in terms of membership with some 1.7m people having a NOW pot. Well that’s what we’re told though record keeping has never been NOW’s strong point and we can only guess how many pots are duplicates.

NOW has accumulated a decent fund – we aren’t told how much but I believe it is north of £2bn and it boosts Cardano’s assets under management by up to 10%.

No doubt Cardano have considered the risks that NOW brings with it (see above) and feels suitably indemnified to take them on.

To the 30,000 businesses that remain with NOW, the news of change of ownership will not mean much. For admin it will be BAU and investment considerations are pretty low down an employer’s priorities.

Among members, there may be a little frisson of interest, but the number of people who will understand the difference between NOW and Cardano’s investment style’s are pretty small.

Consultants may feel a little aggrieved that they have unwittingly supported what (for most of them) is a rival proposition.

For a small bunch of idealists, who genuinely believed the NOW story back in 2010, this is a sad conclusion to what could have been a great enterprise. It is very hard to be excited about NOW owned by Cardano.

So what of the future?

It will be interesting to see if Cardano change the model. They might get rid of the trophy trustees who look like white elephants in the room. They could tackle the systemic issues associated with small pots and the net-pay collection system (though this looks a tough one).

But I doubt they’ll make many changes. Troy Clutterbuck looks like staying on – his feet are well and truly under the table. Having switched administrators once, NOW will be unlikely to do so again (even though it is JLT who are blocking the move to Relief at source).

I doubt that there’s much appetite to put new employers with NOW in the immediate future and so that 30,000 employer number should stabilise.

NOW need to really deal with small pots and get involved in what their policy guru Adrian Boulding calls “prisoner exchange”. The potential practice of swapping small deferred pots with other master trusts (pot consolidation).

If it continues to run down small pots with its admin charge, it will find itself in deep water. It will similarly find the take-up of its compensation offer on net-pay unsustainable in the longer term.

Cardano are going to have to get their hands dirty on these issues and I’m not sure that they are that kind of organisation. I know Cardano well and will be asking them what their intentions are.

You shall know them by their fruit.

fruit.

 

Posted in pensions | Tagged , , , , | 2 Comments

Who are these pension delinquents?

Posted on February 11, 2019 by henry tapper

Ros Altmann

Pension delinquents

The weekend has seen a fair bit of interest in pension saving. This morning’s Wake up to Money featured Ros Altmann celebrating 10m new savers auto-enrolled into workplace pensions.

Sunday’s lead story was Amber Rudd’s threat that she and the DWP were coming for future Philip Greens.

As I was finishing yesterday’s blog damning Rudd’s sensationalism, the phone rang asking me to come over to Broadcasting House. Within an hour, I’d done a three minute spot for television and snippets of what I said were reported on stations as diverse as Radio 2 and 6.

I focussed on the balance that needs to be kept between the needs of employers to keep going and the needs of the pension scheme to meet its obligations. I also called on ordinary people to pay more attention to the defined benefits pensions they are lucky enough to be in.

It is really not helpful to scaremonger and Rudd’s “coming for you” comments were also criticised by Wake Up to Money’s Louise Cooper who questioned whether this kind of employer delinquency was top of the pensions agenda.

Sadly, it seems it is the easy target for politicians seeking to make political capital. The wrong focus means that bigger problems – such as the net-pay scandal and pot-proliferation in auto-enrolment are swept under the carpet.

The success of auto-enrolment has been about employers behaving responsibly. A shame that the big message of the weekend was about the existential threat to pensions from sponsors unknown

The 10m figure hit – a pensions good news story

Ros Altmann’s contribution was eloquent on the need to protect defined benefit members, though she ran out of time to say much on auto-enrolment.

Sadly she had to spend more time calming the waters stirred up yesterday than celebrating the 10m milestone.

One person (not me) had emailed Wake up to Money , complaining that he/she had already built up several pots under auto-enrolment but had no way of merging them. The issue could not be discussed for lack of time.

Instead Ros chose to stay “on message”, celebrating the 10 million “new savers” milestone. Considering over  a million of the new savers may not be getting promised savings incentives (owing to their being low-paid and in the wrong kind of scheme), I’d half- expected the great campaigner to seize her chance.

But perhaps Ros was right. 5.30 am is perhaps not the time to get inside people’s heads with more pension issues. 10m new savers are about to experience their big contribution hikes in just over a month’s time. They need all the encouragement they can get.

We need a lot more of Ros’ positivity and a little less employer bashing from our Secretary of State.

Delinquency from opting-out?

I usually listen to Wake Up to Money because I’ll hear something new and Ros had been billed as talking of ways to get those not saving to save into something. This conversation didn’t happen.

But it should! If people don’t save into a pension in the workplace, it’s either because they’re not eligible for auto-enrolment or because they’ve opted-out. Those who aren’t eligible include those not on PAYE – the self-employed , those who are too old – too young and those who don’t earn enough to hit the auto-enrolment threshold (£10,000 pa).

We hear very little from those who opt-out. I hope that we will hear more. Some opt-out for good reason – they may be protecting their Lifetime Allowance. Some opt-out because they simply can’t afford to pay anything into pensions , but most opt-out because they do not see the need to save. We don’t know the splits or whether there are delinquents who choose to rely on the state rather than their own efforts.

Prioritising the real delinquents

It seems odd to use the same word to describe bosses who underfund pensions and employees who ignore them. But “delinquent” is a good word as it describes both minor crimes and – in a more legal context – a  breach of duty.

Where employers are in breach of duty , we have a Pensions Regulator with the powers to enforce compliance.  Will giving them extended powers to mount criminal prosecutions against miscreants choosing to invest recklessly, or saddle pensions with debt (presumably Rudd meant “liabilities” rather than “bonds”), make any difference?

Will any prosecution ever be successfully brought which relies on the basis of Rudd’s definitions? I think it very unlikely.

Where prosecutions can and are being made (both criminal and civil) is in the areas of pension fraud and deliberate non-compliance with auto-enrolment. Here pensions delinquency is under the scrutiny of the Pensions Regulator (with varying degrees of success).

Unlike the cases of BHS and Carillon – which the DWP cite as provoking this new round of sabre-rattling, the frauds against individuals from scams and from the non-payment of auto-enrolment contributions, are very real.

As I hinted at in my comments to the BBC, the non-payment of the promised incentive to those not qualifying for pensions relief at source, may be the most real fraud to future savers and one the Government do not want to talk about.

Policing the problem we can solve

Opting-out is another form of pensions delinquency – where it is done recklessly and with intent that the saver relies on someone else (usually the tax-payer) to make things up in later life.

We should not sanction this kind of delinquency, we should try to understand it and deal with it where we can. But surely this is no more the priority than chasing after delinquent sponsors of defined benefit schemes.

Instead, we should be focussing on the areas where the Pensions Regulator can make a difference, protecting savers from scams and the non-payment of promised contributions.

And we should be focussing on the matter not discussed today – how we encourage those outside of auto-enrolment to save for their retirement.

Once again, the good work of a million new employers is being undermined by silly-talk about bosses playing fast and loose with DB pension liabilities (and assets).

The real shame about Rudd’s comments this weekend are that they deflect from the good news story of improved pension coverage and focus on the wrong problems. 

We have the pension policemen, politicians need to focus their attention on the real problems and not grandstand for votes.

Pensions Regulator

Posted in pensions | Tagged , , , , | 2 Comments

What do we mean by fiduciary care?

Posted on February 9, 2019 by henry tapper

store pod

Travelling back from Newcastle last week in a much delayed train, the passengers in my carriage were trying to get to sleep. It was tough as the carriage were illuminated by the brightest of stip lights.

Eventually some of us summoned up the energy to find the train manager who – along with the train management team appeared to be having an extended cup of tea. One of us asked if the lights good be dimmed, the management team seemed shocked and the manager asked “why”.

We did eventually get the lights dimmed and those who wanted extra light used their individual spotlights above their head.

I thanked the chap who asked the question and he replied “so much for customer care”.

This is an example of a whole train being kept awake because the train management team weren’t paying attention to the needs of their customers.

It’s a good example of a failure in fiduciary duty, in the end it was a member of the collective who changed things and took control.

An example of fiduciary failure

There’s a good discussion about fiduciary care in this linked in post by Ben Fisher.

The post is a story on BBC about a Welsh worker who’s lost his pension savings through a Storepod investment . The investor bought the pod and thought that the trustee of his SIPP would make sure that the pod was used. It wasn’t and the pod is now worthless.

He said: “I phoned Store First, and a lady said ‘Your store pods are empty.’ I said ‘What do you mean they’re empty? They can’t be.’ She told me they’d been empty for two years… Nobody had contacted me to tell me.”

The investor had assumed that his trustee would look after him but the trustee did nothing (a git like the train manager).

Store First said they were never contracted to manage, advertise or let the storage pods – that responsibility, they say, lies with the pension trustee, Berkeley Burke.

It said: “Mr McCarthy has not purchased any store pods direct – he has instead arranged for a trustee to buy them, as part of his self-invested personal pension.

“We have asked the trustee, on two separate occasions, if they would like Store First to manage their store pods.

“The trustee has not however returned the management agreements we have sent to them. That is entirely within the power of the legal owners of the store pods. Store First cannot, and would not want to, force any investor to use Store First’s services to let out their store pods.

Where is the duty of care?

The notion that the customer’s interests come first, appears not to have occurred to Berkeley Burke.

No doubt they will argue that self-investment means just that – you manage the investment for yourself.

Judging by the incredulity of the investor, this notion hadn’t occurred to him.

So there you have it, investors being told to get stuck into an investment they have to manage themselves while the provider takes no responsibility for the investment other than to provide a platform and a tax-wrapper.

Who’s is the duty, the investor, the trustee or someone else?

I suspect that the original adviser (who went out of business shortly after recommending Store First and Berkeley Burke will not have the resource to compensate, if the Financial Ombudsman finds in favour of the investor.

That responsibility will then fall to the Financial Ombudsman and the Financial Services Compensation Scheme, funded by the guys who advise and don’t go bust.

The duty of care reverts to those who care.

Restoring confidence in pensions?

Clearly people expect those who manage their money to exercise a duty of care. In a recent conference NEST told delegates that when asked, members said that by investing in the Government pension , they expected the Government to provide them with a pension.

People don’t expect to be on the hook for managing risks when they have paid others to do just that.

Whether it’s NEST  or the Berkeley Burke SIPP, people expect the people who they pay to manage their investments to manage their investments.

When this doesn’t happen, they are incredulous. Just as I was incredulous that the man who managed the lights on our train asked why at 11.45 pm people wanted the lights turned down.

I am sure that every time a complaint is raised against a railway company or a pension provider , confidence in the service is eroded just that little bit.

Which is why the customer experience matters every time.

When fiduciaries stop caring, we really will have to start managing our money ourselves.

Proper outrage.

It matters a lot that fiduciaries care, whether they are running NEST or a SIPP or simply advising.

The retail pension system, though it might appear to be every man for himself, is much more collective than at first seems. Compensation is collective and so is the perception of “care”.

I do not currently have to pay the FSCS levy or fund FOS but failures like the management of this man’s Storepods are damaging to me and my business interests.

I’m glad to see the proper outrage from those commenting  on the article.

Someone has to care!

Posted in pensions | 1 Comment

Trustees and transfers

Posted on February 9, 2019 by henry tapper
Josephine
Boulding

Jo Cumbo’s article in Pensions Expert on contingent charging takes a dim view of trustee behaviour to date.

Her idea that advice to stay in a DB scheme could be paid for by docking the original pension has got some support, importantly from Sir Steve Webb

p> 

Certainly trustees haven’t been involving themselves in offering guidance, though that could change.

Adrian Boulding’s suggestion – posted on my “planning permission” blog is as follows

I can see a case for a “pre-advice” service, costing not thousands of pounds but hundreds of pounds, that would provide an indicator as to whether full advice is likely to say either yes or no. It would just need an algorithm asking key inputs like your age and wage…….Maybe scheme trustees could offer this service.

The only bit of that , that I’d disagree with is that this kind of triage should cost hundreds of pounds. The key inputs can include a “why are you interested in transferring with a “tick one box” capture, including five or six reasons such as

  1. I don’t think I’ll live long enough to enjoy my pension
  2. I need cash now to pay my debts
  3. I think I can invest my transfer to give me more in retirement
  4. I want the flexibility to spend my money how I like
  5. I’ve been told to look at a transfer by someone.
  6. I’d rather have the money in my bank than in a pension

 

 1 and 2 ;- the needy

A few questions as to the motivation of the person making the inquiry would quickly establish where this person should go. There are some very obvious danger signs, people trying to draw cash out of pensions before 55 should certainly flash a red light. Tax-free-cash can of course be used to pay off debt but anyone thinking of mortgaging their retirement needs debt-counselling and fast. A responsible pre-advice service can sign-post the free debt counselling availably locally through citizens advice and centrally through the Money Advice Service (now part of the Single Financial Guidance Body).

Where the motivation is driven by the inquirer’s concerns over their health, it’s a different matter. Many people do not realise that were they to die before drawing their pension or as a pensioner , someone else can be nominated to receive a residual pension as a dependent. Obviously a lot of this comes down to definitions but this is an opportunity for trustees to properly promote the scheme’s capabilities before the inquirer is referred to a financial adviser. Defined benefit schemes employ administrators who’s job it is to explain these things and if the administrators can’t do that job, it may be time for the trustees to reconsider them. Trustees can and should back their administration teams to explain scheme rules.

These two categories of inquiry are “needy” and they both point to what the FCA call “vulnerability”. These kind of questions are best dealt with by people who know what they are talking about but they do not generally need financial advice. In an extreme situation, it may be that the inquirer needs medical help, the duty of care to members does not preclude referring the inquirer to a medical service.

3 and 4; the greedy

There are some confident people who believe they can do a better job with the monies allocated to pay a defined benefit than the trustees. These are the people who should be taking financial advice and they may well be those who least want to pay for it. These are precisely the people who are being failed by contingent charging.

I appreciate that many readers will consider me paternalistic or even patronising , but the reason we have trustees is to protect some people from themselves. It’s not just in Port Talbot that contingent charging unlocked the money, hundreds of thousands of people are now sitting on pension wealth unlocked from defined benefit pension schemes – with the money either sitting in cash or in equities and very much at risk of not providing an income for life with any kind of inflation protection.

I also appreciate that for many of those people, replicating the defined benefit income stream was not the point of the transfer and I can accept that some people will be quite comfortable with the depletion of their transfer value by the fall in world markets and the scant interest available to them in 2018.

But I am quite sure that a very large number of the people who transferred out considered the charges levied on their pot by the adviser, the price they paid to get their money, rather than the cost of financial advice. These are the people who we should worry about, for they are the people who consider the payment of advisory fees a kind of insurance policy against which they can claim if things go wrong.

And if things continue to go wrong with their pension policies – or worse still if they have by now transferred the money from their personal pensions into their bank accounts, then the fall in pot value and/or the tax bills on claims, may be the basis of claims to come.

The FT run another story today about the costs of drawing down cash – showing it is hard to have your money managed in an advised way for less than 2% pa.

It is hard to see how a  drawdown strategy costing 2% pa can deliver value for that money in a low-interest, low-return economic environment. Yet this is precisely what many of the personal pensions set up under contingent charging are costing and – even if markets do pick up – the cashflow projections which underpinned many of the transfer approvals I have read, have little or no chance of being met.

If the reason for transfer is that someone is backing themselves to beat the trustees, then that person should be testing that with a financial advisor and paying up front for that advice. The argument that contingent charging is more tax-effecient and maintains liquidity for the client are pure sophistry. If someone is so good with money that they can manage their pension themselves, they should have plenty of liquidity and should know that VAT is charged on professional services. IFAs who think they can avoid charging VAT by charging advice to their fund clearly do not believe they are offering a professional service.

5 and 6; the numpties

There are some people who are neither needy or greedy, they are just financial numpties. These people should not be taking financial advice, they should be taking their pension.

People who take transfer values and then cash in their pensions so they can have money in their bank accounts are numpties.

People who get persuaded to take transfers by financial advisers or friends or family are behaving like numpties. They are generally following the crowd, they are not thinking for themselves – they are neither needy or greedy – they are just being stupid.

I could have told many of the people I met in Port Talbot they were behaving like numpties and in fact Al and I did – when we heard some of the reasons given for transferring – including the arguments that they didn’t want their money with TATA, we told people straight not to be so stupid.

These people did not need to have a financial adviser do cashflow planning for them, they needed to transfer into new BSPS or occasssionally take a reduced pension from the PPF.

To be fair to the Trustees of BSPS, they had set up help for these people, but it was like building the Maginot line- the defences were in the wrong place.

Any pre-advice service needs to identify financial muppets and tell them to leave well alone.

We try to be too tender – people need telling

Amidst all the hand-wringing of the past 12 months, I have heard very little straight talking about transfers.

Hopefully you have read some straight talking on this blog and if you don’t agree with me, you can straight talk to that effect in the comments box.

I don’t agree with Phil Young who blames the transfer debacle on freedom and choice,  

I don’t agree with Quilter and SJP that contingent charging should remain to broaden the range of people who can get advice.

If there was a policy mistake, it was from the Fowler review in 1987 which allowed transfers out of DB plans in the first place. As for vertically-integrated provider arguments about financial inclusion, some of the people who are targeted for DB transfers would never have passed their IFA’s sniff-test, had they not had a big fat CETV.

These are bogus arguments that perpetuate the misery that is being occasioned by transfers out of DB schemes using contingently charged advice.

The pensions given up by steelworkers and many others were designed to provide them with a wage in retirement and a residual spouse’s pension. They also gave people the option of tax-free cash. They were entirely suitable for most people’s later life needs and they have been swapped for wealth management schemes about which most of these “new to advice”, contingently charged people – have no idea.

The people who need telling this are the FCA and TPR who are supposed to regulate advisers and trustees respectively. I tried to tell the Trustees and Advisers of BSPS but they didn’t listen. I am still trying to tell it straight

Contingently charged advice is little more than commission and should be banned immediately.

 

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

Pension Transfers need planning permission.

Posted on February 8, 2019 by henry tapper

 

cumbo cetv

Jo Cumbo

In an important contribution to the debate on how members of DB plans can pay for advice on whether to transfer out, the FT’s Jo Cumbo calls for the financial advice bill – regardless of whether the answer is “yes” or “no”, to be paid by the DB scheme.

The suggestion is very helpful;  this practice is already in place for individuals to pay tax bills arising from stealth taxes on pension accrual where individuals inadvertently breach annual allowances. Schemes are getting used to docking pensions for divorce settlements and the administrative processes needed to administer the advice payments are already in place.

Royal London’s Steve Webb has now come in alongside this suggestion.

Indeed – but if contingent charging was banned we’ve also suggested in our submission that the impact could be mitigated by allowing advice costs to be debited against DB rights, in line with your column this week in @pensions_expert https://t.co/f2uDMAXR3o

— Steve Webb (@stevewebb1) February 7, 2019

This is a rare example in pensions of a news reporter making the news!

The ironies of over-information

Most of the time, prospective pensioners walk into life-changing financial decisions surrounding their defined benefit pension schemes with little or no knowledge of the decisions they are taking. An example being the taking of tax-free cash, which is now so much the default that actuaries assume it will happen in scheme funding calculations.

Many schemes are offering commutation factors that can only be justified by the tax-free outcomes, means that schemes are getting away with poor exchange rates between cash and pension – because people don’t know the questions to ask.

So it’s ironic that the conversion factors surrounding a CETV are accorded so much scrutiny that such a cumbersome vehicle as scheme pays – is actively considered.

The reason it is, is that large parts of the DB pension system are now so fragile that they risk being eroded and falling like cliffs into DC. It needs to be pointed out that there appear to be no losers in such erosion, the advisers are making money, providers are making money and pension schemes are clearing swathes of risk from corporate balance sheets. As with most “win-win-wins”, the dictum we should be reminding ourselves of is..

“If it looks too good to be true – is probably is”.

Case study – me!

When I was 55 , I looked at taking my defined benefit as a transfer to a DC scheme. I was allowed a free transfer quote, prepared at some expense to the scheme by scheme actuaries and administrators. I looked at my CETV and was able to assess whether I would be getting value for the money on offer. I gave myself advice (which I was entitled to) and did not take the money. It wasn’t hard to see that there was a good case at the time for taking the transfer , but I didn’t.

  1. I didn’t trust myself to manage the money successfully
  2. I didn’t trust anyone else!
  3. I didn’t want to be worrying about the markets and the impact on my pension
  4. I had confidence that as a pensioner, I would get my pension paid as long as I was on the planet – and that my partner would get a residual pension too.

Because I did not pay to come to these conclusions , I saved myself around £10,000 (+vat) in advisory fees or a nasty litigious time with an IFA – if I had turned down a recommendation  to transfer on a contingent charge.

I will of course have to live with my decision to get paid a pension rather than take cash, but I am sanguine about that.

If I had taken advice and had a £10,000 charge against my pension, I would have around £25 pm docked from my pension (increasing by RPI each year) for maybe 50 years.

The consequences of eroding pensions by fractional deductions through scheme pays are every bit as serious to my long-term finances as the payment up front. I imagine that in a scheme pays, the VAT I paid would be un-recoverable ( 20% of the £10,000 I was quoted).

The danger of scheme pays

The numbers above are sobering. £10,000 paid to an adviser from a scheme or from the client’s bank account is still £10,000 and that £25 pm is the equivalent of £10,000 whichever way you cut the cake.

It is effectively paying for advice on the never-never – a kind of Hire Purchase agreement of which PPI is the latest incarnation.

The danger of this approach is that it is presented to clients as so painless as to be a “no-brainer”.

“what’s the worst that can happen, I say “no” and you’re out a fiver a week?”

If a fiver a week’s the downside and the upside is half a million pounds of accessible capital, the temptation to take unnecessary advice is obvious.

Unnecessary financial advice

I don’t think you’ll find the phrase “unnecessary financial advice” in the FCA’s COBS rulebook, you certainly won’t see it as a risk in any advisory literature. The received wisdom is that regulated financial advice is necessary.

But in my case study, I firmly believe that I did not need advice about taking my transfer, all the decision points listed above were decided upon by my emotional response to the prospect of having to manage my own money.

Most people, when presented with the stark reality that now faces people who’ve transferred, is that they would have been better off in their schemes being paid a scheme pension for the rest of their days.

They didn’t need to be charged thousands of pounds to be told that. So for most people, the scheme pays route is a total red-herring and good advisers will not lead people down that route.

The danger is that less good advisers will find the each way bet of being paid by the scheme or out of the transfer value, a bet they cannot lose. The poor adviser will be able to lean on the victimless charge argument to provide unnecessary financial advice – as damaging an insurance policy as PPI – and equally useless.

Scheme pays requires full disclosure

If we are to have a non-contingent charge transfer advisory payment based on scheme pays, it must be made crystal clear by the trustees that they will be sending the client’s adviser an amount in pounds shillings and pence terms. Trustees must also make it clear that the deduction from someone’s pension as a result of this is likely to cost the member that same amount – in today’s terms and is simply the same bill expressed another way.

Advisers who work on such a system would need to be equally clear about the impact of scheme pays.

I remain to be convinced that a system of scheme pays would stop unnecessary advice. I think we need more, applying for a transfer should be like applying for planning permission on a house.

Planning permission

I stick with  previous comments in precious blogs; that this kind of advice – advice that is paid for on the never-never, should only be entered into where there is a clear reason why a prospective client might be better off not taking the scheme pension.

My argument is that the onus should be on the adviser to prove that there is a case for the client to be asking the question about transferring in the first place.

Taking a planning decision like this should be as serious a decision as applying for planning permission on a house

The submission of that case for clearance – should be something that should be carefully considered by the adviser. It should not be a cost-free process. As with a house- planning application – it should be submitted with the risk of failure being obvious upfront.

 

cumbo cetv2

The advisory diagnosis may not always be what was hoped for,

 

Posted in pensions | 5 Comments

“Why pensions might just change your life”.

Posted on February 7, 2019 by henry tapper

cintra

This morning I’m travelling north east to Newcastle on the first train up. I’ll be delivering the graveyard slot for my friend Carsten Staehr at the Cintra Conference.

The people I’ll be talking with don’t like pensions, Carsten’s title is provocative. For the payroll and reward people who are Cintra’s clients, pensions are a pain in the neck, the most incredible mess of rules which they struggle to comply with, always worrying about fines and worse – being dished out by a distant pension’s regulator.

I guess my job is to breathe into their day something of the enthusiasm I have for helping people manage their financial affairs so they have a decent wage before and in retirement.

If pensions are supposed to help you stop work, people should be enthusiastic about them. But “thank God I’ve got a decent pension”, is a phrase seldom heard either in or outside the pension bubble that I live in.

If you get to a point in your life when you find that because you have the money, you can stop work, then your pension has changed your life – no doubt about it. And millions of ordinary people are retired today on good pensions with the prospect of an income ahead of them that lasts as long as they do.

I think we take this for granted. But it is an economic miracle that we have created a safety net for so many through the national insurance system and through workplace pensions.

Yesterday evening I sat with some great pensions people variously representing Local Government Pension Schemes, Corporate defined benefit schemes and the new style DC savings plans. It became clear early in our discussion that this meeting was going to be fruitful and that we would agree a common agenda for a conference being planned for May.

What brought us together was the phrase “better pension outcomes” which is all that we focussed on for nearly two hours. Whether we were looking for greater efficiencies for Local Government Pension Schemes , or improving the certainty of the full pay-out of corporate DB or helping people with the business of turning the pot into an income for life- we were joined together by a strong sense of purpose.

This purpose was made the more real as the people around the table clearly felt they had the power to change lives in a positive way.

I’ll be the first to admit that pensions are to most people “scary” almost unbearably complicated and an aspect of their finances that is best consigned to the bottom drawer to be properly opened late in life, People know damned well that pensions are very important and they feel guilty that they don’t feel better informed about their retirement planning.

This is the challenge that I face today, I will be talking to a group of people who see pensions – both personally and work-wise, as extremely hard work. My job is to make them easier, simpler and less scary.

I can only do this by approaching my talk with a positive state of mind. After the conference, I am having supper with two smart academics who appear baffled by their own circumstances. They told me their retirement problems and I blurted out “that seems simple enough”. I can see the wood – they can only see trees!

Like the people in the conference, my friends are looking for encouragement to do what they want (I assume to find a way to stop or cut down on work and rely more on pensions and retirement savings.

They, like most people I know (professionally and socially), feel embarrassed about asking simple questions about how they can get their money back to meet their financial needs. It is fantastic to be able to help them get better pension outcomes.

Pensions have undoubtedly made my career, last night I really got what my vocation has become and I look forward to my talk this afternoon and supper because I’ll be doing what I love.

I hope that some of the people I’ll be meeting today, will read this blog and say – yes – Henry really does enjoy helping people get better pensions. That is why I am travelling to Newcastle for the day and why I’m happy to!

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

Come join the party – the AgeWage video!

Posted on February 6, 2019 by henry tapper

I think AgeWage the most exciting thing I’ve done in my working life!

Watch our video and see if you agree!

Posted in pensions | 2 Comments

Not all recycling’s in the public interest!

Posted on February 3, 2019 by henry tapper

recycling 2

Pensioners recycling

A lot of people are confused about taking money out of their pensions and the pensions industry isn’t being very helpful in encouraging people to have their money back (funny that!).

So when I read a headline in the Financial Times announcing “UK pension freedoms open huge tax trap for over 55’s” I smelled more scare tactics from those who would rather we kept money with them than spend it on ourselves – I was right.
The tax trap in question has “caught” 980,000 over-55s who took advantage of new pension spending freedoms between 2015 and 2018, with an irreversible reduction in their annual pension tax relief allowance from £40,000 to £4,000.

In practice, very few people who are drawing down money from their pension will be saving more than £4,000 pa and you would expect that most who do – will be accessing tax advice. This is a rich man’s problem and is almost certainly dwarfed by the amounts in unclaimed tax-relief that higher rate taxpayers miss out on when contributing to personal pensions.

I was pleased to see the comments below the article were generally robust. This is typical

This is boring nanny state speak. If you are able to invest £40k but unable to figure out the implications without the help of financial advisers then time to go peacefully to higher planes in the company of grim reaper with a scythe.

Putting this problem in some context

Generally speaking, people who are investing into pensions while drawing money from pensions are doing so as a tax arbitrage and not as an insurance against old age.

Nonetheless, it is important that people who do have pension pots and are over 55 are aware that the annual allowance that they have (normally £40,000) is reduced if people are found to be recycling money they are drawing from a pension back into a pension.

As soon as you start drawing more than the tax free cash available from your pension pot, you are seen to be “recycling”.  Sometimes this recycling has  value as in this idea from Debt Camel

pension recycling

But the reason that recycling is restricted is that for the most part it serves no social purposes other than to make the rich richer.  I doubt that many of Debt Camel’s customers are worried about losing the capacity to pay £40k per annum into their pension!

We currently have over a million people missing out on their promised retirement savings incentives because of the net-pay anomaly. Let’s get back to questions of social justice.

Arguing over the annual allowance misses the bigger point

That people are not aware of the technical issues around recycling is not the big issue. What is much more important is that many people are confused about whether they can start taking their pension when they are still at work.

The simple answer is that they can and that apart from the fact that the pension may be subject to a higher rate of tax than salary, there really isn’t any reason why someone over 55 shouldn’t have access to their money.

Indeed, many employers are keen to promote the freedoms people have , so that their mature workers can give themselves options which may include part time working, consultancy or early retirement.

What is surprising is that employers who are keen to offer flexible working practices, are paying so little attention to the opportunities their staff have to structure their exit from the workplace using the retirement savings plans that these very employers have sponsored.

The use of pensions for the over 55’s is perhaps one of the least understood areas of reward strategy and it doesn’t require employers to spend a lot to get right. We recommend that employers work with their staff’s financial advisers or provide financial advisers for staff to use. There are opportunities for advisers to be paid by employers without that payment being deemed a benefit in kind.

If the budget permits, an employer can commission pension consultants to provide a program of seminars and one on ones with employees in the retirement zone (effectively anyone over 50).

An alternative strategy may be to empower those in reward to become pension champions themselves. Learning the pension ropes may appear daunting, but there are plenty of training courses that can help. The Pensions Management Institute are particularly helpful as are the CIPP and the Learn Centre.

First Actuarial, like most pension consultancies, operates a program for the over fifties. We call it  “saving enough to stop work” and it runs at big companies such as Unilever. We are encouraging staff to create their own pension dashboards where they can see all their in retirement financial resources on a single screen. Even if this is no more than a spreadsheet word table or even a hand written list, the creation of a personal balance sheet and cash flow forecast is not as hard as it sounds!

Most people are frightened by pensions, but in our opinion, this fear is increased by the scaremongers within the pensions industry who would rather have us hang on to our money, than see it spent on retirement.

saving enough to stop work.PNG

Posted in Debt, pensions | Tagged , , , , , , | 2 Comments

Al Rush has made the difference

Posted on February 2, 2019 by henry tapper

Al rush new face

Al Rush

 

I’m surprised , a little freaked out – to be on a list of candidates for Professional Adviser’s personality of the year.

You can vote for me, but I’d rather you didn’t. I’d rather you voted for Al Rush who is not just a personality but a personal hero!

And the main reason I’ve got anything to be proud of -is because that lad drove me down to South Wales a couple of Novembers ago!

Here’s something that I got on Facebook messenger that means more than winning any award. It makes being a blogger worthwhile. I won’t embarrass the sender , but if he wants to reveal himself, he can comment below!

Good evening Henry , I’ve just seen that you liked my post on FB.

The fact is, I should tell you that your blogs , and appearance at the parliamentary committee , has helped me enormously..

I’m still not out of the woods , but I just wish I’d have had your advice a couple of years ago . I equipped myself with some print offs from said blogs(apologies if there is any copyright infringement 🙂 ) , and went to an IFA and was armored, protected empowered and that so , I’m eternally at your debt for . Kind regards….

 

Thanks for making my weekend!

Putting things in perspective

I know that some of my blogs are controversial and some have just proved me wrong. But with well over one million reads, I’d like to think that people get value from what I’m saying.

So this is what I am saying

Blogs may make a little difference but Al has made all the difference!

 

Posted in advice gap, age wage, pensions | 4 Comments

Paperless pensions are nearly here!

Posted on January 31, 2019 by henry tapper

Someone said something great about me last night. It was Kevin O’Boyle, retiring head of BT Pensions. He introduced me to a millenial as “Henry Tapper” the only person my age who thinks like a millenial”.

It’s a hell of a compliment and one of an exaggeration but I do think about younger people a lot.

One of the things I’m thinking more and more is that we must start our conversations with people who are saving and spending their pensions – digitally. If you can see an invitation to like AgeWage Ltd at the top of this page, you should also see that quite a lot of people are liking it.

My guess is that what people like is not the detail of what AgeWage does but the fact that we’re  trying to talk about difficult things using tools that people like to use.

Let’s go paperless

To my great relief, First Actuarial’s payslips went paperless last year. You had to opt in to a printed payslip , which meant being near a printer. I don’t have a printer and can’t be arsed to file paper anyway, I can see any of my payslips on a file that I have a password to – sorted.

So why is it that I get my pension statements from the people I’m saving with and the pension scheme that pays me each month – in paper?

Every time I get a statement, I sigh. If L&G sent me a mail or a message with a link, I’d be able to see what I want to see on a screen. I’d be able to click through if I wanted more detail, I’d be able to hook the information up to MoneyBox or MoneyHub or to my pension dashboard. But no – I get a piece of paper without so much as a QR-code

It’s not just statements that need to be simple

We think that digital is complex, and to those who do not understand digital it is. But to consumers, a digital pension statement can be the easiest thing in the world. it can contain a video telling you how to read it, it can contain links to apps that can explain more , every data item can be clicked through to give more information.

In short, a digital statement simplifies the way we can absorb complex information so that users get to understand things the way they want.

I am not saying that people can’t request a paper statement, but the last piece of paper should get automatically should tell them that unless they ring a certain number, everything they get going forward will be paperless.

It’s not just payslips, it’s tax returns and insurance claims and smart-phone bills. We should make it our earnest aim to make the postbox a thing of the past. Digital can simplify our lives.

So what of simple pension statements?

The work that Ruston Smith, Quietroom and others have done on simplifying pension statements is quite excellent. I hope Ruston has taken heart from the call of the FCA for charges on drawdown to be explained in pounds shilling and pence terms.

The original project was stymied by a move from certain parties not to tell us what we had paid for our pensions on pension statements, – apparently a till receipt is too complicated.

Of course a till receipt isn’t complicated though people do need to have it explained to them from time to time – it’s good that people do question till receipts – sometimes they show errors – the process is called engagement and that’s exactly what we’re supposed to be encouraging people to give us.

If a simple pension statement was delivered digitally, the till receipt could be clicked through from the “this is how much your pension cost last year” button. If people wanted to query each item, then they could click on it. If the provider of the statement was a bit advanced, it could develop a bot to answer questions, they could even provide live chat within certain time constraints. Questions could be answered by fifteen second videos, the customer could be educated in a single visit to the statement.

Moving beyond simple statements

A great deal of time is being spent on making digital experiences good ones. My phone is full of apps which I use because they make life easy – apps like MoneyHub and MoneyBox challenge me to see my finances in a new and better way. They make a difference to my day to day living. I don’t pay £2.70 for a Cappucino any more, I pay £3 – 30 p of which goes to an ETF which I will cash in a couple of years for a few hundred pounds.

Similarly, if I want to find out not just the value of my pension pots , but how they’ve done, I’ll be able to use the AgeWage app. I’ll be able to ask it how responsibly my investment managers have behaved, what my options are going forward and most importantly – how I can get my hands on my money!

Simple statements can incorporate an AgeWage score and a click-through from the score does all the rest.

Pensions needs to bootstrap themselves into the digital economy.

We talk about pension communications from the perspective of a world that is no longer there. People have moved on, pensions hasn’t.  Paper statements are not part of the world I live in.

Believing that we have done enough to simplify pension statements is to allow ourselves to be blind-sided by the past.

Believing that we can get away by posting performance charts on websites as part of statutory disclosures is to totally miss the point. The information we post about the money we manage for others must be delivered on their terms and not ours.

We need to be a lot tougher on ourselves, get out of our offices and onto our phones. We need to see things as millennials do. For where millenials lead, the rest of us follow.

This “boot-strapping” is hard, it involves people doing things differently and learning from others. I hope that  that was the compliment Kevin was paying me last night.

I wish Kevin O’Boyle a long and happy retirement – properly funded by his pension

KevinOBoyle happy retirement Kevin

Posted in pensions | Tagged , , , | 2 Comments

FCA to tame the drawdown bucking bronco!

Posted on January 29, 2019 by henry tapper

 

broncoYesterday was a good news day for people concerned about retirement income. The FCA made two meaningful statements on what it intends to do to help ordinary people trying to manage their in retirement finances. The first was the publication of PS19-01 and deals with disclosures and the second was  PS19-05 which deals with investment matters.

Investment Pathways

We are seeking feedback from stakeholders on proposals to require drawdown providers to offer non-advised consumers a range of investment solutions – with carefully designed choice options – to help consumers choose investments that broadly meet their objectives. We describe these as ‘investment pathways’.

Ensuring investment in cash is an active choice

We are seeking feedback from stakeholders on proposals to require drawdown providers to ensure that consumers invest in cash only if they make an active decision to do so. We propose that these providers must also give consumers warnings about the likely impact of investing in cash on their long-term income, both when they enter drawdown (or transfer funds already in drawdown into a new product) and on an ongoing basis.

Actual charges information

We are seeking feedback from stakeholders on proposals to require firms to tell customers beginning to draw on their pension how much they had actually paid in charges over the previous year, in pounds and pence and inclusive of transaction costs.

The investment paper  , which may become rather more important ,  also concerns the role of IGCs in regulating the wild west of “post retirement strategies”.

A financial bucking bronco.

The best image to explain the current state of affairs for people trying to draw an income from their savings is the bucking bronco.

You get on the beast with no instruction manual and you ride it till it throws you off. Each time you get thrown off you do serious damages to your finances- till in the end you do serious damage to yourself.

How else to describe investments into funds whose overall charge is in excess of 2% pa , where the tenable drawdown rate (gross of charges) is no more than 5%?

How else to describe the dangers of sequential risk through individual investment into volatile funds that can trade – intra day by as much as 10%?

How else to describe the impact of advisory charges which can add 1% + to Discretionary Fund Management Agreements already costing the said 2%+.

Why the proposed extension of scope of IGCs matters

The original scope of IGCs was to oversee workplace pensions. IGCs were given a second task which was to see through the recommendations of the IPB on legacy charging.

In CP19-5 the FCA state that

After careful consideration, we still intend to extend the IGC regime to cover investment pathways.

Many of the larger providers who will offer investment pathways already have IGCs to provide independent oversight of the value for money of workplace personal pensions.

These larger firms will account for most consumers in investment pathways.

As an alternative to IGCs, we already permit Governance Advisory Arrangements (GAAs) for smaller and less complex workplace personal pension schemes. We intend to allow GAAs for providers with smaller numbers of non-advised consumers in investment pathways. We are considering further a proportionate approach for providers with smaller numbers of non-advised consumers.

Providers will not need to provide investment pathways if they require that all their consumers take advice before entering drawdown.

We intend to consult on our proposals for independent governance of investment pathways in a future consultation on IGCs, due for publication in April. This will include a more detailed response to the feedback. Our planned consultation will also include proposed new rules requiring IGCs to report on firms’ policies on environmental, social and governance considerations, member concerns, and stewardship, for the products IGCs have oversight for.

The FCA are also looking into employing IGCs and GAAs to oversee non-advised drawdown from non-workplace pensions.

Right now, the IGCs are relatively under-employed and looking for new work. The biggest area of concern to the FCA is the under-regulated in retirement market where there are no charge caps and little oversite as to whether insurance and SIPP providers products are being used in the interests of clients.

Some of our most powerful insurers and SIPP providers – most notably St James’ Place, do not even have an IGC. They are allowed to get by using a GAA – which is a bite-sized IGCs with bite-sized budgets and influence.

Extending the scope of IGCs and GAAs would seriously strengthen the IGC’s remit to cover the wild west and help tame the bucking bronco.

It seems that IGCs will not be used to assess the value for money of advisory fees – indeed the direction of travel (which will be better flagged in April) – suggests that IGCs and GAAs could have a remit to cover all non-advised drawdown. But the paper does mention that the IGCs and GAAs may be asked to oversee drawdown from non-workplace pensions. I think they should – there is precious little else to protect the 94% of the population who do not pay for financial advice.

Since the majority of the issues that negatively impact people’s drawdown strategies derive from over-charging within the product, the use of inappropriate funds and the lack of value for money from adviser charges, the job of oversite should play to IGC’s strengths.

Taming the drawdown bucking bronco

The proposals in the two documents published yesterday are worthwhile. There has been disappointment published by the Work and Pensions Select Committee and by Which that the charge cap has not been extended into post retirement products but I don’t share the view that it should be.

We need a more fundamental approach to fiduciary care than the blunt instrument of a charge cap.

I would prefer to see the IGCs and GAAs and the FCA test the value people get for the money they pay to be on that bucking bronco. If it can be proven that people can be taught to ride it and ride it as experts, then there is value. But the cost of advice cannot be so great as to ruin the ride.

If the FCA, IGCs and GAAs cannot bring the costs of drawdown down, then we may have to resort to a cap in the final resort; but the cap should be the long stop, not the wicket-keeper.

If people are left to their own devices, the measures that are proposed – the investment proposals – need to be shown to work. I do not see how these measures can provide the protection people need to get the kind of wage in retirement most people expect.

For that people will need a different kind of product, a collective product such as an annuity or CDC. These products carry different risks but – I suspect – risks that people will find easier to deal with.

The bucking bronco may be fun for a party, but it’s not what you  ride into retirement on,

Posted in advice gap, corporate governance, FCA, pensions | Tagged , , , , , , , , , | 5 Comments

The “annuity puzzle” and how to solve it.

Posted on January 25, 2019 by henry tapper

carnage

Have you noticed how TV drama focusses on dying? We’re obsessed with death. Statistically the county of Midsomer should be totally depopulated by 2050, such is the carnage wrought on its citizens. We mark each celebrity , friend who dies. Our news broadcast focus on the loss of life. Our obsession with our ending overshadows the fact that we are still living and most of us are showing no sign of dying.

We spend time in the gym, we walk the hills , we diet and we avoid toxins to avoid death. Yet we still bet on our dying sooner than later.

This fact is we do not want to insure against old age because old age is not in our imagination. Everything we are doing in this massive attempt to stay young, is in denial that we will grow old.

I am not surprised by the findings of the IFS. Paul Lewis comments

He is partly right, but the propaganda is populist, there is a pre-existing bias in our psyche towards nostalgia and we yearn for youth rather than preparing for the future.

Death is so much more glamorous than living long. Death doesn’t just sell TV drama, it stalks our imagination, a real foe against whom we fight to be rewarded with the one thing we have no plan for – a long older life! This is so curious. It is what the Institute of Fiscal Studies calls “the annuity puzzle“.

A conspiracy against annuities?

Picking up Paul’s theme about “propaganda”, and continuing my musing on murder mysteries, I’m looking for a motive.

Why has everyone from George Osborne to the Wealth Management Industry got it in for annuities?

Research from the mid nineties on (Orzag + Orzag +Mehta) shows that annuities purchased in the UK are value for money products. They are well priced , there is a competitive market and for the certainty they offer, they provide a decent income in exchange for the capital used to purchase them. The research consistently shows that annuity providers are not ripping off their customers.

When George Osborne said that nobody need ever buy an annuity again, he raised the roof of the house of commons, we all dislike a product the point of which is to fund the part of our life we don’t want to think about.  But the product is sound, it does what it says on the tin. I wrote recently about work Legal and General have done on annuities which shows again that the problem is not with annuities, but with people’s failure to engage with the reality of the future.

I think that this unstated bias against protecting ourselves against old age is built in to much of the objections to CDC. If only 12% of us are purchasing an annuity with any of the money we have at retirement, why should 100% of us choose to club together and insure ourselves against living too long? Do we want longevity protection – 88% of us clearly don’t see this as a priority.

Do we need longevity protection? Well we are likely to hear within the next few weeks more bad news about the state of long-term healthcare and the vital need for us to do some planning to afford the implications of a long demise.

If our answer to this problem is to blow our pension pots in our sixties and seventies, then DC is presenting the next generation with a massive problem. The moral hazard is obvious, we are presenting our children with a long-term care bill that can only be met from their inheritance or for a levy on the wages of those still working. Either way our children will have to pay for our healthcare – unless we make provision today.

Mortality pooling prevents inter-generational transfers.

My conclusion is that ordinary people cannot afford annuities any more than ordinary private companies can afford Defined Benefit pensions. The cost of guaranteeing the future is too great, a lower level of certainty must be admitted or people give up altogether.

The lower level of certainty I am thinking of, is of course the unguaranteed wage for life offered by a properly managed CDC plan.

If we cannot afford “proper” pensions , we cannot afford not to insure against old age either. The annuity puzzle presents this paradox but no answer.

CDC presents an answer, albeit one that depends on a belief that over time – maintaining the funding of unguaranteed pensions depends on investing in growth assets rather bonds, keeping admin and investment costs down through economies of scale and ensuring that new people arrive into the retirement pool to replace those dropping off the perch.

This is what Royal Mail are doing with a pool of around 140,000 postal workers. It is a noble experiment that will need to be emulated by other organisations if we are to call CDC anything more than an experiment.

Without such an experiment, I see little chance of individuals changing their behaviours much, people will continue to vote against annuities nine to one and we will have as a nation no plan as to how to spend the massive sums we are saving into DC workplace pensions.

carnage

 

 

 

Posted in pensions | 1 Comment

People’s pots

Posted on January 24, 2019 by henry tapper

Gregg mc

Gregg McClymont- a man of the People

Nigel Mills asks the right question, but it is not for Gregg McClymont or People’s pension to answer. This question needs to be aimed squarely at the Department of Work and Pensions and its Pensions Regulator.

We are now six and a half years into auto-enrolment. Ten million new savers have been included in the second “workplace” pillar of pensions. The vast majority of them can now say that they “have a pension”, though what they mean by that , I doubt many could explain.

As for People’s Pension, the 4m pots that they manage will be unlikely to turn into pensions – in the sense that most people understand “pension”. They are unlikely to turn into a “wage in retirement”, the pots will simply augment other sources of savings, albeit in a tax-advantaged way.

People’s have done exactly the job they have been asked to do.

It should be noted that the 4m people who have pension pots with People’s pension, are paying a very low amount for the management of their money (only 0.5% of the amount in the pot each year). Many  of the employers that People’s provide workplace pensions for, engaged with People’s at no cost and those that are now paying to sign up are paying a low amount.

People’s has had no Government loan yet it has been competing with NEST that yesterday announced another loan from the tax-payer, this time for NEST to meet its obligations under the Mastertrust Authorisation regulations.

People’s do not have this backstop, while NEST can boast they are well on their way to self-sufficiency, they will have got there with the help of up to £1.2 billion of our money lent to them on non-commercial terms.

It is in this context that the Work and Pensions Select Committee should consider statements to employers on People’s websites.

People’s are the real deal.

Employers value their staff, they are pleased to run pensions for their staff – but as I know from running Pension Play Pen since 2013, employers do not feel they have an obligation to provide better pensions, they have an obligation to comply with the rules, to stay solvent and to reward shareholders but they are not obliged to become pension experts.

Actually, those employers who contract with People’s Pension are probably already going the extra mile, People’s has regularly featured in the top three workplace pensions in Pension PlayPen ratings and – in terms of useability for employers – it is right at the top. Not even with all the money spent on it, has NEST bettered the People’s inter-operability ratings for company and multi-company payrolls.

A genuine not-for-profit

As Gregg McClymont likes to remind me, People’s are a not-for -profit organisation and do not have a shareholder to reward. They share this with Royal London and several other smaller master-trusts.

It does make a difference, not just in terms of the commercials, but in terms of the care that the organisation can focus on individual members. In my experience (and Pension PlayPen’s, People’s Pension have done the right thing for members, they have not fallen into the net-pay trap, they offer good member support and they are working towards a more sustainable investment default with the help of the relatively new CIO – Nico Aspinall.

People’s Pension should be getting a round of applause from W&P Select for achieving all this with no soft-loans and in the teeth of competition with a Government backed organisation that operates with the tax-payer’s safety net sitting below it.

It’s a commercial not-for -profit and like its parent B&CE – it always has been

 

Time to put the member first?

It’s clear that People’s are beginning to think about the peculiarities of being seen as a pension provider, without actually providing pensions. People’s don’t offer an annuity, nor does B&CE (the life insurer).

As their membership matures, helping those members to spend their money will become an increasing feature of what Peoples Pension does. It is not a wealth preservation outfit, the majority of its savers will need at the very least a top up to the state pension, at best a proper wage in retirement paid from their People’s Pot.

This will mean, at some stage, getting those 4m odd savers to take decisions. Decisions such as whether they use People’s or some other pension scheme as their big pot. People will have to have a basis to decide to move money to or from People’s pension and they will do so on the basis of their perception of who has done best for them in the past and who is likely to do best for them in the future.

That value for money estimation is not something that most people are prepared for. The decisions that lie ahead of the 4m employees who Nigel Mills is thinking about are hard and right now there is precious little advice to go round.

People’s pots

So far, to survive as a commercial not-for- profit, People’s have had to focus on the needs of their employers and not on member support.

But that strategy has to – and I’m sure – will – change.

I expect that if W&P Select to ask that question of People’s Pension in another six years, they\d get a very different answer.

Gregg bighair

Posted in pensions | 1 Comment

The Rookes report is a fine piece of work but actions speak louder than words.

Posted on January 23, 2019 by henry tapper

Caroline-Rookes-152x200

Having read Caroline Rookes’ review of the regulator’s handling of the BSPS “Time to Choose” episode , I’m  satisfied that she’s sending the right messages to the various authorities involved.

There are four authorities who have their say in the report’s press release. They include the soon to be defunct TPAS, the SFGB which is taking on TPAS’ responsibilities, the FCA and the Pensions Regulator. Lurking in the shadows are the Treasury and DWP who jointly fund these regulators and guidance agencies. To the list we could add FSCS , FOS and the Pensions Ombudsman.

This is a report from a civil servant to civil servants and it generally hits its mark.

The headlines will be about the provision of advice

Perhaps the most powerful statement by anyone involved in the Port Talbot scams was how one steel man followed the advice from the Money Advice Service to the letter and was referred to Darren Reynolds of Active Wealth (via Unbiased). As Rooks says- Unbiased isn’t unbiased and the  circle that led the FCA and MAS to point steel men to their nemesis shows just how “due process” can destroy confidence.

We all know how the bottom feeders like Active Wealth behaved, it’s been a matter of public record since the inquiry carried out by Frank Field and his Select Committee.

But there is another advisor that Rooks has stopped short of naming, who should be mentioned in this. That advisor was paid by the Trustees of BSPS to prepare its membership for the Time to Choose and the report stops short of naming it.

But everything in the report suggests that the opportunity to avert the problems of Port Talbot and elsewhere  was missed because of the failure of the Trustees to put in place the basic support that members needed when they considered their options. The support that was needed and not supplied was the provision of a transfer helpline and on the ground help to members struggling to understand the implication of unlocking the transfer treasure chest.

The headline about advice should not be about the failings of Active Wealth, but about the failings of the Trustees to prepare their members for Time to Choose.

The complacency of the Trustee’s advisors was pointed out to Caroline Rookes by me and I will continue to argue that it is the support mechanism that failed the Trustees – not the Trustees’ judgement.

In my opinion , professional consultants- whether working for the employer or trustees, have become complicit in the transfer frenzy that hit Britain in 2017 and the first part of 2018. It is hardly surprising. Senior consultants were often busy transferring out their own DB CETVs on highly advantageous terms. The prevailing opinion in the press was summed up by Merryn Somerset-Webb who told her readership in the FT that if she had a DB benefit – she’d transfer it.

Until Port Talbot, DB transfers were perceived as the prerogative of the wealthy and not something that the working man could indulge in.

Contingent Charging and the part it played

Oddly, the report barely mentions contingent charging and the part it played in the transfer of nearly 20% of the deferred BSPS members to personal pensions. It would have been a useful contribution to the W&P Select’s call for evidence, if the Rookes’ review could have estimated what percentage of CETV’s taken, resulted from advice offered on a “no transfer – no fee” basis.

My guess would be way over 90% of the 8000 transfers made.

We can only guess at what percentage of transfer reports would have been commissioned if they had been commissioned on a non-contingent basis. Those reports would have had to have been paid for out of taxed savings and not out of a tax-exempt fund, they’d have been subject to VAT and most importantly of all, they’d have been paid for in cash from a bank account owned by the transferor.

It may be contentious , but the questions surrounding contingent charging are too important to be ignored. It is a shame that the report cannot be explicit on this matter.

It’s good to see Al Rush and Chive recognised

One of the very best things to have come out of the BSPS saga has been Chive- the affiliation of pension transfer specialists committed to raising the game of advice in this area.

The report explicitly mentions Al several times which is absolutely right. When the world watched, Al took action and brought the fate of the steel men to the public’s attention. Jo Cumbo must also be praised for seeing what was going on and taking the initiative.

I doubt that there will be another BSPS and to a large degree that is down to Al and those like him who insisted on fair play for steel men who were vulnerable to the point where most should have been deemed unsuitable for taking on the burden of managing their own money. I saw at first hand Al tell people he knew they had done the wrong thing. That takes a lot of courage- but courage has never been Al’s short suit.

A fine piece of work but…

As Paul Lewis would say “the report is delivered to the resounding thud of stable doors shutting”. It is nearly two years since the RAA was agreed, 18months since the action plan for communicating to members was finalised and over a year since the end of the Time to Choose.

The big elephants remain in the room and they continue to stink the room out. Pension consultants continue to consider transfers as meretricious to a scheme’s funding position and tacitly comply with the culture that has seen over £50 billion transfer out of DB schemes in the past two years.

Financial advisers continue to argue for the practice of contingent charging (with a few honourable exceptions). The only thing that is curbing transfers at present is the price of Professional Indemnity Insurance.

The soft measures put forward by Caroline Rookes are good measures, but they need to be accompanied by tough action by the regulators. Pension Consultants advising trustees must be proactive in organising proper advice be in place from proper advisers – the report points to Chive as a way forward.

Financial advisers need to be protected from themselves. Contingent charging should be the exception not the rule. The SFGB , if it is to play a part in all this, should e commissioned to set up a review board where cases of financial hardship preventing the payment of upfront fees, can be reviewed. It would help if advisers putting such cases forward should underwrite the process on a pro-bono basis. That would ensure that cases of hardship were limited and nobody tried it on.

Action speaks louder than words

The comments from regulators that accompany the press release are longer than the press release. It would seem that regulators are falling over themselves to be involve after the fact.

All these words cannot hide the fact that the Regulators had to be woken up by Al, Jo, Frank Field and others.

Now we hear that these multiple regulators and the guidance bodies and the Government departments are working together. But the fundamental problems around advice remain unsolved – and unaddressed.

The finger of blame points at certain consultancies and IFA firms who have behaved weakly and without due regard to the long-term interests of members. I do not have to mention them, I have done so repeatedly in this blob since I first started writing about BSPS in the spring of 2017.

My words led to my personal actions and I hope that my continued calls for a ban on contingent charging and changes to the way advice is offered to trustees , will be heeded.

Action speaks louder than words.

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Will master trusts go CDC?

Posted on January 21, 2019 by henry tapper

smart

 

We have become a nation of pension savers without a clue what we are saving for

This became apparent to me and I hope the audience of a recent DC event , when a senior representative of NEST told the audience that his 7m members tell him they are saving into a Government pension scheme and expect a Government pension at the end of it

This is not the plan – at least not for now it isn’t. NEST does not pay Government pensions , nor does it pay a pension at all. It is able to return your savings to you in a number of ways – depending on your specification, but none of them include a lifetime income- for that you will have to go buy an annuity.

Last Week, Darren Philp of Smart Pension became the first person from a major master trust to explicitly support the CDC. You can read the article here.

The article stops short of suggesting Smart will go CDC, but that implication is there. The DWP consultation cites the large workplace master trusts as obvious candidates to convert to CDC and it’s not difficult to see why.

NEST has around 7m members, Peoples Pension 4m, Now around 2m and Smart just under 1m. While some people may be members of more than one, that still tots up to well over 10 million people who may well be expecting their pension plan to pay them a pension.

As importantly, these are  10m people who generally do not have financial advisers or the means to do the detailed cashflow modelling to make their money last as long as they do. Not only do these people not have a plan, the trustees don’t have a plan either. To talk of any of these master trusts as “pension plans” is to over sell their utility. Right now they are doing no more than collecting and  investing contributions in a tax free way.

Time to speak

So far, the plans put forward to help people spend their money have either been rejected or ignored. NEST proposed a solution that defaulted people into an annuity when they got too old to do drawdown, People’s have employed LV to provide a similar service, several of the smaller master trusts use the Alliance Bernstein Retirement Bridge, but none of these ideas has caught on, and NEST were told by Government that they could not implement their plan.

So it is time for someone representing the interests of these 10m + savers, to stand up and be counted and I’m glad that it was Darren who did just that.

His article takes the John and Yoko chant “all we are saying..” and asks that CDC be given a chance. No doubt it will, and that won’t be entirely thanks to Smart Pensions. However, the support of Smart Pensions to the CDC debate, shouldn’t be underestimated.

It is time we heard from other master trusts and indeed their trustees.

Is this a business or a trustee decision

Darren spoke as an employee of Smart Pensions. Master trusts are commercial entities (other than NEST which has a business plan to repay the £1,2bn it plans to borrow from the tax-payer.

The critical commercial consideration for all the master trusts is that they hang on to their big pots and lose the small pots. Pot consolidation will undoubtedly come, and will be hastened by the pensions dashboards, the big pots will either result from consolidation or from consistent saving into a single pot. We are years, perhaps decades away from master trusts having the size of pots to make them self-suffecient. For now they are eating money in the expectation that profitable big pots will come.

The critical consideration for master trust trustees, is not so much the profitability of their provider, but the welfare of those who invest with them. It is odd that to date we have not heard anything from the trustees of master trusts about CDC.

Shouldn’t master trustees be involved in the debate, shouldn’t they be sharing their thinking on how they expect their members to spend their savings in retirement and shouldn’t their be a dialogue between provider and trustees on the opportunity presented in the CDC consultation, to upgrade their “pension plan” to CDC in due course?

We save but we don’t know what we’re saving for.

I can understand why both master trust providers and their trustees are keeping their heads down. They are going through the hard work of getting master trust authorisation and are still digesting the massive slug of new business that has arrived through auto-enrolment.

Even the consultancy master trusts set up to consolidate failing individual DC plans have a lot on their plate.

But the deafening silence from the master trust community regarding CDC seems a failure of nerve.

It has been left to a few activists (the Friends of CDC) to write the articles and promote the subject. The master trusts have been silent.

That is until Darren’s article.

I hope that – assuming we get the anticipated pension bill and that CDC legislation forms part of it, more master trusts will have the courage to step forward and enter the debate.

Let’s finish with Darren

I .. think that master trusts could be key delivery vehicles for CDC in the future, especially in helping manage volatility up to, and through retirement. People just want help!

 

Posted in advice gap, CDC, pensions | Leave a comment

Let’s get back to those three pillars – promising us certain pensions.

Posted on January 20, 2019 by henry tapper

three pillars 2

There are at least three uncomplimentary ways of thinking about “pensions” in the UK . So disparate are these three that it is hard to talk (or blog) about them in the same place.

For a small number of people, pensions remain, what they were supposed to be when the OECD dreamt up their three pillars, a combination of a state floor (keeping everyone from destitution),  a second pillar sponsored by employers which offered up to a two thirds replacement as a wage for life and the option of third pillar private savings.

But this simple and sensible way of thinking about pensions has been seriously undermined – principally by the shift of second pillar pensions to second pillar savings schemes. To begin with, the move from guaranteed pensions (DB) to savings schemes (DC) was dressed up as “giving people the money to buy their own pension” , shortened to “money purchase”. But people grew tired of having to buy a pension with their savings and their frustration led to the pension freedoms, where tax barriers were removed and people could spend their savings as they pleased.

Pensions as a tax-wrapper

Even before the arrival of these “pension freedoms” , increasing numbers of the wealthier in society had cottoned on to pensions as “tax-wrappers” and dispensed with an idea that they would have to have their lifestyle circumscribed by such plebeian phrases as a “wage in retirement”.

The tax  simplification of pensions in 2006 was the spur for this new way of looking at pensions, It meant that people could put 100% of their earnings into a tax-efficient holding pen – equivalent to an offshore trust. It spawned numerous wealth management companies who offered fund platforms and discretionary fund management services.

Since tax-avoidance, rather than retirement provision, was the principal attraction, this new view of pensions was adopted by IFAs who’s traditional business model was turned over by the Retail Distribution Review in 2012. RDR meant that there was now no money in savings plans since they could no longer pay commission. RDR plus changes in tax legislation has totally changed the nature of pensions advice in the retail sector

The launch of universal retirement saving through auto-enrolment

Compulsion on employers offering PAYE to also offer and fund a pension saving scheme has brought 10m new savers to the party. After years of decline (partly due to the failure of DB pensions to adapt to a low interest rate environment), pension savings is on the increase again – through the second pillar. But it is not a very satisfactory sort of saving as it no longer offers the prospect of a wage for life in later years, merely the complexities of pension freedoms – without the wealth or advice.

While auto-enrolment proves to be a success, the ultimate aim of the second pillar system is not to create a savings culture, but to supplement the first pillar  with meaningful occupational pensions. This simply isn’t happening at the moment.

Those reaching retirement today

Most people who get to the point where either they have to or want to wind down, have three very different visions of “pensions” to consider, and as I said at the top of this blog, it’s very hard to get your head around all three.

The Government pension – the state pension pays out at a distant point but without a single state pension age.

Occupational Pensions are increasingly being switched to wealth management (where their is an IFA) or being paid by an insurance company or the PPF. The original idea that you are paid a pension by your employer is becoming less and less common. The vast majority of people in works schemes have been auto-enrolled into workplace savings plans which bear little in common with pension schemes other than that they enjoy similar tax treatment on contributions

Private saving for retirement remains in retreat. Without an entrepreneurial salesforce of financial advisors fuelled by commission, sales to the self-employed have fallen away. While employed people have auto-enrolment, the self-employed are expected to provide for themselves, and they are not doing so.

 

What of the OECD’s three pillarsthree pilars 3

The clear vision of the three pillars has been smudged by the realignment of Government incentives and the opportunism of  wealth managers, insurance companies and fund managers.

This is not a criticism of the opportunists, they are in the business of making money out of money and they have adapted to each change in Government policy with flair and aptitude.

What is currently missing in our pensions system is not opportunity – but certainty.

Ordinary people are being enrolled into plans they don’t understand without much clue of how to use the freedoms they have been given, Their legacy savings are remote and often lost to them and the vision of a two thirds of pay , final salary scheme – is no longer even a vision.

Everything seems to have changed except one important thing. People still reach their sixties and expect to be able to stop work and rely on their pension. That expectation will not be met – for most people. We know the reasons – too little in – too little out, but it’s more than that.

We are encouraging people to use the third pillar of private savings to pay themselves a wage for the rest of their life and most people haven’t got a clue how to do that.

three pillars four

There is a difference

We must get back to providing strong second pillar pensions. We know we cannot afford the guaranteed system that did for DB pensions and annuities alike. We know that people cannot manage pension freedoms with a lot of help (that generally isn’t there). We must find ways to give people back their pension – and an expectation of retirement with much greater financial security.

 

Posted in advice gap, annuity, pensions | Tagged , , | 1 Comment

A controversial consultation on pensions dashboards

Posted on January 18, 2019 by henry tapper

 

dashboard

How far to DC?

We are midst-consultation on pension dashboards and there’s public enthusiasm for the project There’s industry consensus that the Single Financial Guidance Body (SFGB) will incubate its dashboard in a controlled environment and that commercial dashboards will follow. But proposals to tender the data architecture , putting one organisation or consortium as sole pension finder – is proving controversial

The Consultation proposes following a conventional procurement process. Unsurprisingly this is  supported by the consortium that built the “dashboard-protoype” using the procurement model proposed in the consultation.

But a second proposal has emerged that would replace a single pension finder with a devolved obligation on each pension provider to build their own dashboard integration services, or cluster together around a new market of outsourced ‘integration service providers’.

Advocates of this second approach argue it would encourage innovation, create competition, be delivered faster and would not need a central procurement budget. They claim that by adopting the  accepted data architecture of open-banking. this approach would avoid another  central IT project for Government  to stumble over.

They liken this devolved approach to the way that railway companies competed and collaborated with each other to produce Britain’s rail network in the 19th century.

The dilemma the Government faces is that having proposed dashboards it is reluctant to deliver them. Keeping  the first dashboard and governance within SFGB keeps governance tight,  but does the infant SFGB want to manage the largest data integration project the UK financial services industry has ever seen?

The second proposal actually reverts to  the original vision for the dashboard (outlined by then Treasury Minister Simon Kirby) who advocated in 2016  devolving responsibility to commercial providers and “delivering a prototype within months”.

Kirby may well have approved of calls from todays “Pentechs” that providers agree sign up to open their data to whatever standards are generally agreed (in return for getting  access to that data themselves).

Pentechs want instant commercialisation, so that whatever they build, they get to use at once.

they point out that having built a prototype, it’s time for the main event. They see the vetting of pension finders as a matter for the FCA who could use the  existing Account Info Service Provider permissions. Co-ordination of these permissions could be put in the hands of the Open Banking Implementation Entity

Since the dashboard was handed to the DWP, Kirby’s proposals have been reversed into a siding. The hope is that after the consultation , the dashboard will be back on the mainline. There is some hope that this will happen Speaking at the launch of the Dashboard consultation, John Govett (CEO of SFGB) stated his intention to deliver at high speed.  The SFGB must realise that the process laid out in the consultation is quite the opposite of Kirby’s “dashboard within months”.  Procuring a single pension finder risks perpetuating recent frustrations.

The industry consensus will undoubtedly be for a conventional approach, it is the line of least resistance for providers who will not be challenged with compulsion for at least three years.

However, consumer expectations are changing, and having been promised a dashboard – they are unlikely to be patient with the speed of delivery proposed in the consultation. The political imperative is to meet the expectations of the public and avoid another IT procurement shambles.

Speaking at the TISA conference, shortly after taking her new role at the DWP, Amber Rudd told her audience that she intended this to be a genuine debate with the Government in listening mode. She will certainly get that debate.

This article first appeared in Professional Pensions and the original can be read here

For further reading on this subject , read Pension Bee’s three excellent blogs which can be found here.

Posted in advice gap, dc pensions, pensions | Leave a comment

Managing pension expectations – are we doing enough?

Posted on January 16, 2019 by henry tapper

homeless

This is one of those blogs where my focus is on big Government – or policy – rather than the little things that go into making political strategy happen.

For a long time, as long as I’ve been working, there has been an expectation that the wages we get from our pensions and investments would cover around two thirds of our salary. This was what our parents and grandparents were told and though it didn’t always work out, it was what was on offer for a lifetime’s work in public service or from a private company with a pension scheme.

So I read this tweet with the shock that comes from listening to an old friend who you’ve been ignoring a while. Andy Young is an old friend and I have been – well – ignoring what he’s been saying. But I can’t for ever- not only has he been right throughout his career as one of the Government’s senior actuaries, but he is growing older with no loss of his acuity.

Why we can’t save enough is clear. There is not enough going into our bank accounts from our wage packets to let us live the lives we’ve promised ourselves and spend enough on our retirement to meet the promise bought by our parents and grandparents.

Either we get a lot more productive while we work so that we can afford to spend more on the future, or we change our futures to meet our diminished financial resource.

“I won’t be able to afford to retire” is a common theme from working people. Unpleasant as it sounds, pushing out retirement beyond that other great misconception – retirement age – is generally accepted by the working class (by which I mean the class of people still working).

But for those who cannot work?

The problems become acute when people stop working. I was alarmed to read this news from the ever-reliable Paul Lewis.

Of course yesterday, people were looking the other way (apart from Paul) and surprisingly the Daily Mailhomeless 2

It’s no surprise to see the benefits for those below state pension age being eroded. The DWP get their money from the Treasury and the Treasury do not look kindly on anything that smacks of moral hazard. So those sleeping rough the next few (cold) nights should remember that they have no one to blame but themselves.

If you read those last two lines and thought that I’d turned into some far-right Gradgrind, then I’m a better impersonator of some of the Treasury mandarins I’ve met – than I thought!

It’s no laughing matter. If you have lost the will or capacity to work because you’ve become mentally or physically sick, learning that there is nothing coming your way by way of pension credit till you reach the state pension age is very bad news indeed. That what you had, may be taken away from you, because your partner is still to meet this arbitrary retirement age, will be doubly depressing.

Hard times?

These should not be hard times. For most of the people who read this blog – they are not hard times. This year will mark the 80th year since the outbreak of the last meaningful way this country waged. Since then we have been enjoying an extended peace dividend.

It worked for our parents and grandparents and if your are my age – it’s working for us but it doesn’t seem to be extending to the generations coming behind and the peace dividend doesn’t seem to be spread to those claiming benefits, who are seeing those benefits being eroded cut after cut.homeless 5

I am asking myself – is this the society I want to be in? Do I want to see people’s expectations for older age being managed downwards. Do I want the threat of destitution on those who have saved nothing?

The answer – and this will appall many people – is no I don’t. I would rather see more spent on benefits than less and I would rather target my tax on alleviating destitution – which I see 30 yards from my front door on cold mornings like this, than return to a Victorian value set.

Managing pension expectations?

It seems that the pension expectations of pension millionaires can be understood and campaigned for by the Treasury.

It would seem that  we still see pensions as important for some people – even if the 1.2m people who in 2019 will not get promised help with pension contributions – are to be ignored by the Treasury.

It is almost impossible to square this circle unless you believe in that Victorian value set which rewards the worthy and deplores the poor.

That is not how I want this fine country to manage pension expectations. We must look very hard at the way we are distributing the wealth of this country and make quite sure that the curse of destitution in old age does not spread.

homeless 3

Posted in advice gap, age wage, pensions, religion | Tagged , , , , , | 2 Comments

The only solution to the net-pay pension problem comes from HMRC

Posted on January 14, 2019 by henry tapper

 

HMRC

Last Thursday, there was another meeting of the group of us, determined to keep up pressure to sort the problem of net-pay pension contributions this side of auto-enrolment’s next big phasing hike in April.

Just to rehearse the problem, if you are low-paid and in a net-pay pension scheme, your pension contributions could be 25% more expensive to you than if you are in a scheme where contributions get relief at source.

More than 1m people are expected to fall into this category and it could mean you paying more than £5pm to be in your pension. That may not sound a lot is you are full time and on a typical wage paid in the financial services industry but it is a significant extra cost for those on low earnings.

The discount on pension contributions was originally branded the “Government Incentive” to those not paying tax. That changed in 2015 when Government dropped the 4 +3 +1 approach to auto-enrolment – because it recognised that many would not get  the “+1”.  One of the reasons for this was the gap that was emerging between the minimum threshold for auto-enrolment (£10,000 from April 2019) and the minimum threshold for paying income tax – (£12,500 from April 2019). If in any tax year or any pay period in that tax year, your earnings exceed the pro-rated minimum threshold for auto-enrolment – you will be enrolled.

The discount was designed to ensure that the tax-system – which gives up to 45% off pension contributions for high-earners – gave back to the poorest savers. Net pay is financial inclusion in action and it’s working very well for most low earners

For instance , the incentive is paid out to members of occupational pension schemes like NEST and People’s Pension – which operate relief at source, as well aa to contract based personal pensions run by insurance companies and SIPP providers.

But it isn’t paid to you if you are in the vast majority of occupational schemes, that – mainly for administrative reasons, can’t afford to switch from net pay to relief at source. You don’t choose your job on the basis of the pension contribution structure it offers.

So whether you get the incentive or not is now a total lottery, it all depends on what type of scheme you are in.

It’s not right that over 1m people will not be getting their incentive in 2019 and the campaign group is led by Ros Altmann and includes Adrian Boulding of NOW and a number of organisations keen to right the wrong.

Latest developments

Some enlightened employers have recognised that if they run an occupational pension scheme that discriminates against the low-paid, then not only are you running the scheme inefficiently (by not picking up the free money from HMRC),.

This Thursday we heard an excellent presentation from Tesco, who alongside their pension partner, Legal & General, have created a system that means that everyone maximises out the tax advantages of pensions available to them as individuals.tesco workers Higher earners can get their higher rate tax-relief paid to them up-front through salary sacrifice, while lower earners get their incentive through relief at source. There are complex triggers in place at payroll to make sure that those on low earnings don’t lose out from salary sacrifice (or that Tesco doesn’t accidentally pay them a nominal salary below the minimum wage.

This complex system can be put in place at Tesco because it has a workforce of 300,000 that makes it worth designing a bespoke solution. Tesco employs some of the best brains in Britain to make sure that everyone gets the right deal for them and this has meant a lot of bespoke coding of systems – especially around auto-enrolment and salary sacrifice.

Tesco’s pioneering approach could be adopted by other large employers with a large number of employees working part time and/or on minimum wages.  It means disruption and expense but Tesco reckoned that it could bear that cost rather than see unfair discrimination against its low paid staff (the majority of whom are women).

But not every employer is a Tesco

What became obvious during the presentation , is that Tesco are at the top-end of good practice, they are in the right place. Many smaller employers do not have the resource to implement the system of triggers described to us by Tesco. Complex benefit structures aren’t cheap to design or implement.

This is the reason for the title of this blog. There is no solution to the net pay problem other than for HMRC to take the bull by the horns and create the coding that gives employees the incentives they have earned in a pay coding adjustment. The group is currently putting the final proofing on a proposal that will be re-submitted to HMRC which explains how this will work.

Practical steps to help Government out of the problem

Now is a particularly good time to approach Government as HMRC has already committed to making pay-coding adjustments to Scottish people paying income tax at the Scottish rates. We argue that if HMRC can do it for the Scots, they can do it for all UK tax-payers.

It may be that HMRC can do things by halves, which would make the bill more palatable for them. A very high number of those affected by the net-pay anomaly are in Government pension schemes. These could be carved out of any settlement and dealt with by separate negotiation.

It is no good pretending this problem isn’t here. It’s a big problem today and will get a lot bigger in April. It is no good Government departments passing the buck, the DWP and Treasury both have skin in the game and should both be involved in discussions on how to fix things.

The long-term impact of the net-pay anomaly are

  1. the low paid may get priced out of auto-enrolment
  2. the low paid will remain enrolled but not be able to afford to live properly
  3. the low paid will be mobilised, either by private organisation or by some future Government to demand what they were promised and couldn’t get

Right now, the Government seem to have put this problem in the “too-hard” box and it seems that most employers running net-pay schemes have followed suit.

Well done Tesco for looking at this problem and putting in place a bespoke solution.

Come on HMRC, we are not all Tescos, you cannot rely on the private sector to get yourself out of this hole, you need to do some work on the net-pay anomaly right now.

 

tesco workers 2

Posted in accountants, pensions | Tagged , , , , , | 4 Comments

Inquiry on contingent charging for transfer advice? Bring it on!

Posted on January 8, 2019 by henry tapper

Montfort-FT-Adviser-British-Pension-Scheme-BSPS

 

The Work and Pension Select Committee is holding an inquiry into the way that pension transfer advice is charged for. This may seem an arcane subject but it’s not. As this blog has said many times, contingent charging was the lube that made the transfer market deposit up to £36.8bn into SIPPs and insured personal pensions in 2017 and over £10bn in the first quarter of 2018 alone.

The committee is calling for evidence of a link between contingent charging and the alleged mis- advice to over 50% of the estimated 200,000 people who transferred out over the past two years.

I know people who read this blog who took £1m + transfers from gold-plated de-risked DB schemes – some of which they de-risked themselves. They paid for that advice with their own money – and paid the VAT too – both of them. Why? Because they didn’t want to lock into some crappy advisory deal (one of them used that phrase), when they could manage their money better themselves.

That’s heroic stuff – those people make their money managing other people’s money, why shouldn’t they manage it themselves – one paid £10k + VAT and the other £8k +VAT – the VAT would not be recoverable.

Compare this pair with the people who transferred on average £400k from BSPS, they were not getting such good CETVs (typically 25 rather than 40 times the payment forsaken) but they paid nothing to get their money out – their fund paid it for them. They transferred out on a system called contingent charging which lubed the process and made it all “oh so easy”.

The W&P Select is calling for evidence. I can’t evidence myself. I refused to transfer my DB pension – I refused to take tax free cash – I am a Zurich Pensioner and I have no gilts!

My evidence is simple. If you can do better than a DB pension scheme, pay to have your head examined and pay the VAT – you may be right but the chances are you are deluded and a good adviser like Phil Billingham or Al Rush will tell you so.

If you have no cash but a big fat pension – like most of the people who were approached by Active Wealth, you should not be allowed to be seduced by a no win no fee transfer deal – promoted with a sausage and chips dinner. If you can’t pay the advisory charge (and the VAT) – you can’t have all your money in a CETV.

I know that Al Rush disagrees and points to special circumstances like single people with reduced life expectancy and a need for cash now. I have no doubt that there are people like this and no doubt that some have no money to pay for an upfront fee. But they are exceptional and I have no worry for exceptions to be dealt with via an exceptional process by exceptional advisers like Al.

There should be a process for quick release in dire circumstances and it’s the kind of process that could run through FOS, FSCS or even SFGB – a hardship committee could be set up.

But the exceptions cannot drive the process. Read my recent blog where I called on Government to take positive steps to reshape the transfer market.

Bring it on

I welcome this initiative by the Work and Pensions Select Committee who I know read what I write (from time to time!).

Here is their call for evidence – I will of course be sending this blog and those like it.

To help the FCA with its next steps, we want to hear from anyone who has been affected by this issue.  Have you, or someone you know, received taken advice about a defined benefit pension transfer? Did you have a good or a bad experience? Do you think this was driven by the financial adviser’s charging structure? If so, please tell us your story by Thursday 31 January 2019.

If you do not have personal experience of this issue, but have views on banning contingent charging, the Committee still wants to hear from you. In particular, relating to the following questions:

  • Does contingent charging increase the likelihood of unsuitable advice?
  • What would be the impact of a ban on contingent charging on consumers and firms and how could any negative effects be minimised?
  • Are there any alternative solutions that would remove conflicts of interest but avoid any possible negative impacts of an outright ban on contingent charging?

 

Posted in pensions | 3 Comments

One for Mum

Posted on January 4, 2019 by henry tapper

mum

My Mum doing good stuff

Although she doesn’t read my blogs, my Mum inspires many of them.

On Wednesday she had her second new knee in six months and is now an 86 year old bionic woman.

Thanks to the NHS, she has not just new knees but the incentive to go out and do what she has been doing longer than I can remember – be the rock that she is.

She lost her husband last year and she had been his rock, her social circle in Shaftesbury are in slow decline and cling to her for everything from a free taxi service to a listening ear when they are lonely. Her family adore her – for good reason – she is our rock.

The good news is that she was out of bed and walking around (just a little) yesterday. Her aim is to be ready to ramble in April – when  we expect to see her “knees up mother Tapps”.

mum - window

Cleaning her house

Another generation

The generation that preceded mine, lived through the war, my mother was evacuated to America and saw boats in her convoy perish, she was spared and saw life beyond the confines of Welwyn Garden City and Hitchen where she was born and schooled. It has always amazed me that she never talks about her years as a child away from her mother and father, except with gratitude for the family that looked after her.

We are losing that generation that lived through the war and we should not let them pass on without thanking them for the stoicism that they’ve displayed when young and the magnanimity with which they pass on the lessons that those tough times taught them

bernard

Bernard Rhodes

In May , I am going to be talking with Bernard Rhodes at First Actuarial’s client conference. Bernard, like my Mum lived through the war years – he was evacuated to the East End of London from Europe and had it even tougher. If you are a First Actuarial client – you’ll be able to hear the man who founded the Clash, talk about how the war shaped him – and punk!

 

But a generation with more to do

You do not go through the pain of integrating your 86 year old body with two new knees unless you are optimistic about your life ahead.

My mother started her new life this morning , as she does every morning – I’ve never come accross anyone so darned optimistic. I think that – like Bernard – her fortitude was born out of struggling through those early years.

My Mum’s not giving up, she’s starting over – with new knees. Today or tomorrow she will be coming home to Shaftesbury, to the house she has lived in since 1960 – to be looked after by Rupert and Gregory – my two brothers – and by Albert- my youngest brother who lives not far away.

olly and Mum

Mum and Olly

Also my son Olly – of whom my mother is most proud.

Dr Tapper

In my thoughts

Knees up Mother Tapps!

I am proud of my mother and father. I am particularly proud today of my mother. I’m also proud of my brothers for filling the vacuum in my mother’s life – after my father died.

How we look after our older friends, defines us.

I work in pensions, there is a social responsibility in what I do, to make the lives of those who like my mother – have every expectation of living to 100, to do so with the means to enjoy those later years.

At 86 – my mother is starting out again – with new knees – intent on doing good things and leading a good life. May that be a lesson to me and to anyone else who holds him or herself out as a pensions expert!

mum

At Sherborne Abbey this Christmas

Posted in pensions | 3 Comments

Sleepwalking into a dozy dashboard monopoly.

Posted on January 2, 2019 by henry tapper

sleep

The Government is minded to tender a single contract to run a pension finder service. This is a regressive strategy which we need to say NO to.

Giving control of the pension dashboard’s central piece of architecture to a single organisation or even a consortium, will not be in the public’s interest. It risks one entity controlling not just the price of the service, but what the service delivers. It risks outage of the service with no back-up and it denies potential competitors the chance to innovate.

The only reason why Government would grant a monopoly to the provider of the pension finder service were there to be no demand for competition. There is demand for competition and there are plenty of competitors to the current front-runner for the pension finder contract.

Not only is there demand for competition, potential competitors but there are clear advantages to Government in not granting a monopoly. Just as at the start of auto-enrolment – when the DWP fervently wanted NEST to be given a monopoly as the workplace pensions, so today. The reason NEST was not given a monopoly was so that insurers and master trusts and even SIPP providers could compete for workplace business and create a dynamic innovative market. That is exactly what we’ve got.

One of the glories of the UK pension system is its diversity. Public and private pension schemes still provide defined benefits. We have a vibrant market for personal savings, a well developed wealth management industry. The large insurers operate master trusts and GPPs that compete with NEST and the non-insured master trusts, many of which are run by consultants.

To suppose that a single pension finder service will harmonise the competing forces is naive. There is no such harmony today nor is there likely to be tomorrow. Despite the opportunity to do so, most third party administrators have not signed up to the Origo transfer hub, they are showing no signs of wanting to be bullied into line for a single pension finder service.

There are local sensitivities at play which make the arguments for a single pension finder service untenable.

asleep-at-the-wheel

A better way of doing things

There is an alternative approach to the pension finder service which I am promoting. I call it the “tech-sprint” approach and it allows any competitor for the job of finding pensions to set out in a race for success.  A tech-sprint would do away with the need for a central tender and would replace it by a genuine competition to get total coverage of the UK pension genome in the shortest possible time.

Let me make this a little less abstract. Let’s say that one particular data service has strong connections with insurers, then that data service provider naturally plugs into the APIs at the insurers, encouraging their adoption using its particular knowledge of that sector.

Another service provider is familiar to third party administrators and does a similar job in that sector

A third service provider works best with SIPP providers and the IFA community.

Each provider builds up expertise in its sector and is given the all important verification certificate to collect information that finds pensions and that later can deliver the more complex information that will populate dashboards.

An inquiry from a consumer may be initiated with a pension finder who is expert with insurers but may be passed on to other pension finder services. All the data is fed initially into one dashboard operated by the Single Financial Guidance Body. Once the concept has been proven , the commercial dashboards can use this diverse infrastructure in the same way.

One critical advantage of this approach is that it gives the weakest links in the dashboard project – those with the poor data and poor systems , the chance to work with pension finders who are sympathetic and can help.

Another advantage is that it keeps the threat of cartel-pricing at bay. A monopoly can too easily create a cartel (a rigged-market). It is human nature, if you’ve got a monopoly to sit back and stop pushing. Indeed my experience of these central tenders is that they are so exhausting – they leave all parties – winners and losers – disincentivise to push for better going forward.

sleep 2

An example of this was the procurement process that happened for the dashboard prototype in 2017. The winner excluded all the losers and then sat on the prototype which has gone nowhere.  We are in danger of delivering exactly the same thing again in 2019.

The pensions dashboard is exciting – it captures the public’s imagination, it’s potentially a fantastic win for everybody. But to properly deliver it needs to be adopted by all providers as quickly as possible (ok we can let SIPP and EPPs opt-out if they choose).

But the timeframes envisaged by the industry are ludicrously long. Even if SFGB’s dashboard is up and running by the end of 2019, pension finder won’t be fully functional for 2-3 years after. We all know what happens to these timelines, we’ve already seen it happen with the feasibility study, just look at the delivery of CrossRail.

Where things get delivered to time is when they are powered by private sector innovation and competition. Look how the private sector found ways to auto-enrol 10m new savers through 1m new employers.

I am not having a go at those who want a single pension finder service, I thoroughly understand where they are and where they are coming from. I’ve had good meetings with Origo and suspect that it will be top dog  where multiple pension finder services are in play. But I can’t support Origo, or any other single pension finder.

The biggest danger is that we will sleep-walk into a monopoly; which is why you’ll be hearing a lot more noise from me and my mates on this!

asleep at the wheel

Posted in pensions | Leave a comment

State of the pension blog (keep reading and I’ll keep writing).

Posted on December 31, 2018 by henry tapper

happy new year.png

 

My first blog was in January 2009.

Has there ever been such a start to the year. Freezing temperatures and frozen bank accounts. May I start my blogging career by wishing anyone who reads this a little warmth!

It was only a headline as I hadn’t learned you had to add text.

10 years on and with well over a million reads, it’s time to take a step back and work out what my blog is actually about.

The masthead says it’s the blog of the Pension PlayPen and it’s about restoring confidence in pensions. The Pension PlayPen was something I devised with Marianne Elliot (now MD of Redington) back in 2007 and was conceived as an online club for people who wanted to pay their own way in corporate entertainment.

In the meantime, the Pension PlayPen has become a means for companies to choose workplace pensions, has entered into t tripartite arrangement with Sage (along with First Actuarial) and has built into a linked in group of some 10,000 of us – interested in making pensions better.

I’m asking myself two questions, whether independently of Pension PlayPen , people have the prospect of better pensions now , than they did ten years ago. I don’t think there is anyone asking that question in academic circles – perhaps one for a PHD or maybe best left to the PPI. The second question , which is one to ask myself, is whether the blog and the activity behind it, has restored any confidence – made things any better.

What has got better?

There are a whole lot more savers today than there were at Christmas 2008 – auto-enrolment has seen to that. The current AE saving rate isn’t great- still not much more than the contributions we made to SERPS. The rate will go up in April when most of us will pay 4% – about 1m of us will bay 5% because they have low earnings and won’t get the promised tax incentives. Clearly that kind of economic injustice is acceptable in 2018, which shows that while coverage is better, the taxation on pension contributions remains the same – pretty shabby.

We have a genuine alternative to annuities for those who don’t have the money for income drawdown. A great number of the blogs I wrote in the first five years were about the fate of people who were buying into annuities at artificially depressed rates. I contributed to several radio and TV programs which insisted on calling this an annuity rip-off – it wasn’t. The large annuity providers opened their books and showed that margins on guaranteed annuities weren’t high (in fact value for money on annuities was good). The damage came from negative real yields which people were buying into as the default.

The major change in taxation did not come (as expected) on contributions, but on claim. We can now spend our retirement savings as we like and we have a strengthened Government guidance system to help us do this wisely.  The apparatus that was put in place over the period to give people help – is bing merged in the new year into the Single Financial Guidance Body. The major task for SFGB- other than integrating the disparate parts of Pension Wise – will be to deliver a pensions dashboard to people’s expectations.

The change in taxation and the introduction of auto-enrolment have both been policy successes. The delivery of the Pensions Dashboard has so far been an unmitigated disaster, though we now have a chance to turn things around.

One area where we have seen genuine improvement is in pensions governance. The Office of Fair Trading Report into workplace pensions published in 2014 painted a picture of poor governance among insurers, if they had looked harder – they’d have seen poor governance among occupational DC schemes – including master trusts.

Over the past five years we have seen a number of initiatives that have improved governance

  • The establishment of IGCs and GAAs to oversee the behaviour of insurers and the managers of SIPPs active in providing workplace pensions
  • The extension of the Master Trust Assurance Framework into what now looks like a proper governance framework for occupational DC schemes.
  • The work of the IPB in getting to grips with legacy charges
  • The consultations on cost transparency leading to the delivery of reporting templates by the IDWG
  • The CMA study into the working of investment consultants

 

What has deteriorated?

Apart from calling for an alternative to the annuity trap, a change in contributory tax relief and promoting auto-enrolment, this blog has also been concerned with the state of defined benefit pensions. I come from a DC background, I was self-employed for my first 10 years as a financial adviser and the hansom pension I get from Zurich is a fluke.

I have held since I took out my first savings policy when I was 17, that long-term saving is best. I cashed in that policy to pay for the deposit on my first flat when I was 25. When I started this year I had around £800,000 in retirement savings, around half a million in pensions- I finish the year down around £200,000 but still cheerful. Because I have the security of a DB pension in payment and the prospect of a state pension in only ten years, I am comfortable to ride out the financial storm of 2018.

I would not be so comfortable if I’d taken a transfer value, as I thought of doing before taking my pension in November 2017. I could have added to the £36.8bn transferred out of DC. DB schemes have deteriorated in the past ten years. Whether through employer sponsored “de-risking” or through member initiated transfers, much of the benefit has been exchanged for what Steve Webb used to call “sexy-cash”. I don’t think there is anything sexy about what is happening to defined benefit schemes and I see problems piling up down the road for the transfers taken in the past three years. The majority of those transfers should not have happened. There has been a sustained failure by the Regulators to get to grips with defined benefit pensions, the current plans to slice and dice benefits so that we can have super funds – looks a pretty feeble response to the demise of our once proud pensions industry.

Where there is hope is in the prospect that we may be able to convert some of our DC saving into non-guaranteed scheme pensions through a mechanism we call CDC. Though the first CDC scheme will actually replace both a DC and DB scheme (Royal Mail), I see hope for savers down the line – especially if schemes can be set up to exchange DC savings for CDC scheme pensions. While these scheme pensions won’t be as secure as annuities or defined benefit pensions, they’ll be a lot more secure than DC drawdown.

Right now the deterioration of DB schemes (other than in the public sector) has not given rise to the expected innovation for DC savers – certainly in how they spend their savings.

In conclusion

Despite attempts (thanks Aon) to turn off the Tapp, no-one has been able to shut me up  and I’m not done with blogging yet.

But I will be moving my AgeWage related blogs to my new website http://www.agewage.com – which is going to be much more about helping people with pension problems (we call it our digital TPAS).

In terms of changing the world, I’d like to think that this blog has supported what I have been doing at First Actuarial, Pension PlayPen and latterly at AgeWage. I hope that it may have nudged some policyholders and regulators into better places – especially regards the taxation of DC claims (freedoms), the impending legislative changes on CDC, the coverage of AE and the improvements in DC governance.

We can look back and see genuine improvements – the abolition of active member discounts, the adoption of the 0.75% charge cap on workplace pensions and the introduction of the RDR have all given consumers a better deal from their pension savings.

But there are still big holes in pensions policy. The central questions of the FAMR and the Retirement Outcomes Review remain unanswered. The SFGB will not fill the gap in advice that leaves 94% of us unadvised on what to do with our pension savings.

We have no answer to the disqualification of over 1m people from promised savings incentives due to the “net-pay anomaly”. We still have a system of contingent charging for transfers which results in advisers being incentivised to say “yes” to pension transfers that shouldn’t happen.

Defined Benefit schemes continue to close and to set their sights on buy-out (or the PPF) when they should be staying open. The system of best estimate based funding promoted by First Actuarial is largely ignored in favour of gilts plus valuations marking liabilities to market and creating phoney pension deficits.

In conclusion there is still much to do – and far too little done. We have an opportunity in 2019 to nail pension dashboards and deliver better information to people sorely in need of proper help in sorting out their pension arrangements.

We have the opportunity over the next ten years to stem the tide of closing defined benefit schemes and we can start re-building collective pension schemes from the money invested into DC workplace plans through auto-enrolment and properly funded  employer schemes. We can stem transfers by banning contingent charging and we can start building on the great work done by TPAS in the past ten years in providing proper mass-market pension advice.

All this is yet to come. Keep reading – and I’ll keep writing.

happy Christmas

 

Posted in pensions | 1 Comment

Affordability – is the NHS pricing people out of its pension scheme?

Posted on December 30, 2018 by henry tapper

NHS

 

Perhaps we are getting a little complacent about opt-outs?

The FT has published research showing that opt-outs from the NHS pension scheme are running at 5 times the rate of opt-outs from the Local Government Scheme. When I first read the article, I thought of a group of Harley Street consultants  I’d presented to in November, many of them had opted out of the NHS for tax reasons, they had issues with the annual allowance and lifetime allowance. Rich people’s problems don’t interest me that much -I’d talked with these people about investing in EIS, the person before me had gripped them with a presentation on how they could hang on to wealth in a divorce.

But opt-outs from rich doctors are only a part of the story.

It’s easy to sympathise with Oxleas who made an attempt to gain a competitive advantage over other NHS trusts by offering more now for less tomorrow.

Oxleas_Band-5-Nurses_recruit_jpg_713x263_crop_upscale_q85

But this is a very trappy argument. The NHS is Britain’s largest employer and the universality of its pension scheme has for generations held firm.  Allowing individual trusts to compete for labour on higher take home is deeply irresponsible if it means those on low incomes are deprived of later life benefits. The principle of pension solidarity is strong in the NHS. Oxleas didn’t run this campaign for long and for good reason.

Opting out on “affordability grounds” is bad news

There clearly is a point where people cannot afford to be a member of a pension scheme. If you want to follow the affordability argument through, here’s some data from a chap I haven’t come accross before – who’s talking a lot of sense on linked in.

He’s called Vinay Jayarami – here’s what he wrote on a post started by SteveWebb on the NHS opt-out issue.

Proof that we have an affordability problem – not just a savings problem

I read Adam Carolan‘s post “How to plan your income” on Medium. I really liked his simple yet effective approach, and felt it could help a great number of people live better futures.

It got me thinking — just how many people might such a framework apply to? So I did a bit of work.

I started with the £5,000 per month net income “straw man” Adam used. I went here to see what that might equate to in terms of pre-tax annual income. This is what I found.

So it would take a pre-tax annual income of £92,000 to create £5,000 per month in net income.

Then I asked myself, how many people in the U.K. have a pre-tax annual income of £92,000 or more? I went here to find the answer, and this is what I found.

So it turns out less than three people out of every 100 people in the U.K. have a pre-tax annual income of more than £92,000.

I do realise Adam used the £5,000 figure only as an example.

So I said, what does this look like for a median Millennial in the U.K.? I assumed a 30-year-old male, because I discovered here that a 30-year-old male is likely to earn more than a 30-year-old female. I used the median because I figured:

(1) this would make the analysis relevant to at least 50 of 100 people, instead of just 2–3 out of 100 people, and

(2) if I used the average (the “mean”) it may be skewed by people who are very high earners

Drawing from public sources of information on median income and median expenses by category, I used the Money Advice Service’s online Budget Planner and came up with this:

This confirmed my belief that for a vast majority of U.K. households, the problem isn’t just a savings problem, it is an affordability problem.

People aren’t (only) saving too little because of their behavioural habits, but for the most part they are saving too little because it turns out there simply isn’t enough left after they pay what’s due in Adam’s first bucket, “fixed costs”.

This problem cannot, in my opinion, be solved for most people by addressing the savings and budgeting side of the equation alone. Even if you look at the investing side, the problem remains, because if you cannot save, you cannot invest.

Clever approaches such as the one Adam describes (and I really like it) can help 2–3 people in a hundred (i.e. those in the top 2–3% of income) save more intelligently to provide for their future. But for the rest of us, I believe it needs a dramatically different solution.

That solution, in my opinion, requires a fundamental re-think of policy around these four key pillars:

(1) the individual or household

(2) the financial services industry

(3) the employer (in the case of those who are not self-employed), and

(4) the government

I will write about my view on this in more detail when I can. Until then, thank you to Adam Carolan for making me think.

Pricing pension contributions out

Here is Steve Webb commenting on Linked in.

Steve-Webb-MP-006

The rate of opt outs from the NHS pension scheme is a real worry – and most workers may not realise quite how much they are giving up. I strongly suspect female employees in particular are jeopardising their retirement prospects.

Steve Webb hints that the victims of high contributions are those most vulnerable – low-paid females who have traditionally opted-out of  pensions. From the FT article, I suspect that the Royal London research cannot prove the link to high female opt-outs, but it is – more than probably – here is what Jo Cumbo actually reports

Royal London, a pension provider, has calculated the opt-out, or quit, rate for the NHS scheme is about 16 per cent, based on the 245,561 people who stopped saving into it between 2015 and 2017. This compares with an opt-out rate for other schemes of 3.4 per cent for teachers, 1.45 per cent for the civil service and 0.04 per cent for the armed forces, according to data obtained by Royal London through freedom of information request

I suspect that the 7-9% contribution rate is indeed jeopardising people’s retirement prospects – especially those who are finding budgeting a problem. More bad news is on its way as the Government Actuary demands a greater contribution from NHS employers to meet what it considers a greater strain on the national exchequer.

Something has to give and if it’s not HM Treasury – it has to be the total reward of the NHS employee, more of the reward will have to be paid to pensions, less to wages.

The only way out of this is a restructuring of the benefit basis of the scheme itself, something that would take years to achieve and would require some pretty robust negotiation. I am not sure we are at this stage yet.

A wake up call

The news of increased opt-out rates from the NHS pension scheme is a wake up call. As I started this article, so I’ll finish – perhaps we are becoming a little complacent, auto-enrolment cannot nudge people into personal insolvency (“Oh dear – you’re spending more than’s coming in”).

A scheme design with a 16% opt-out rate is a failing scheme . The cause of the failure may be under-promotion, deliberate action (see Oxleas) or just a badly designed scheme.

I hope that the work done by Royal London (and the promotion by the FT) will lead to employers, unions and those who manage the scheme itself, looking at this problem with some urgency.

If they want some ideas on how to kick off that debate, they should look at the debate on social media – which is posing some fundamental questions by way of an agenda.

 

Posted in NHS, pensions | Tagged , , , | 4 Comments

Do we need to pay to get our money back?

Posted on December 29, 2018 by henry tapper

apple pay cash

Imagine going into a bank to withdraw money and being told to get advice before doing so. Imagine being told that the cost of that advice would run to many thousands of pounds. I very much doubt anyone would be prepared to pay the bank’s or an independent adviser to make regular or irregular withdrawals, If I was faced with that bill – I’d exercise my right to close the bank account down and withdraw the lot.

“Withdrawing the lot” is what a lot of people over 55 with drawdown pots are doing. They are doing so because being landed with a socking great advice bill  is what will happen to them  when they ask for their money back. In cashing in their pensions- they are usually donating money unnecessarily to HMRC.

People feel they are facing Hobson’s choice – pay an adviser or pay the taxman – many are choosing the latter. It doesn’t need to be so – people could in future chosse to be paid a pension – that’s what the Royal Mail workforce did.

It’s not just us punters who are getting confused!

This comment posted one of my recent blogs demonstrates how hopelessly mixed up pension experts are becoming over the  freedom of choice.

“You make a separate point about access to advice. This is interesting because one of they key differences between CDC and DC with drawdown is (I thought) the need for advice. The latter gives a lot of choice to the member, including the all-important draw rate and the dependent risk approach. These choices require the involvement of an an adviser (preferably the investment manager itself) in developing collaboratively and iteratively the right definition of the individual utility that the retirement plan must seek to maximise, including any constraints, time preferences and valued optionality. The whole point of CDC is that it proposes to trade off this rich customisation, and its advice requirement, for a collective definition of utility and for a single set of constraints that operate for all. If CDC itself generates a need for advice, that affects the trade off significantly.

It would be interesting to know what advice you think is necessary, at what points it arises and whether this is regulated personal advice requiring a recommendation.

The point of the last question is that we are very much interested in the concept of informing personal selection without making a recommendation. This is currently incompatible with EU regulation which, because of the cost implications, is a key obstacle to supporting personal responsibility economically for all.”

For the record, I don’t see a CDC scheme as generating any need for financial advice, people get paid a pension – simple.

For what is a CDC scheme other than a pension scheme? I’d say that a pension scheme is a way of providing pensions and that a pension is an amount of money paid regularly by the government or a private company to a person who does not work any more because they are too old or have become ill

There are no personal decisions to take about an “all important draw rate”, no “dependent risk approach”, all the things summed up the phrase “rich customisation” aren’t part of a CDC pension scheme – or any pension scheme for that matter. The collective approach is one size fits all and proud of it.

If you want “rich customisation”, I guess you’ve got to pay for it. You’ve got to pay an adviser to tell you how to get your money back – it’s not hard to see why no more than 6% of us are paying advisers to calculate the draw rate under the dependent risk approach.

apple pay three

Five reasons why advised drawdown cannot work for the mass market.

  1. There aren’t enough advisers – the RDR decimated adviser numbers when it became impossible to make a living flogging commission based products. What was left were about 25,000 advisers who want to get paid to advise – not enough to advise the millions needing help with spending their savings over the next few years
  2. The remaining advisers are typically wealth managers – the last thing that the 25k advisers want is to be advising on draw rates under the dependent risk approach. They want to be managing wealth, typically for the next generation. While most do cash-flow planning – it is typically for the wealthy.
  3. The fixed  cost of advice is prohibitive – the opportunity cost of providing “rich customisation” is enormous, advisers are making big money out of wealth management and pay large regulatory fees , payments to FSCS , software licences and the like – the fixed costs of advice make it a minority sport.
  4. The advisory business model is ad-valorem; to keep costs down, advisers charge your drawdown fund, not you. You pay out of an untaxed fund and the payment’s “VAT free” – the trouble is you need a six figure drawdown pot to pay an adviser’s retainer – the average drawdown pot is around £40,000.
  5. People don’t want advice – they want a pension. This trumps the lot, people do not want to have regular meetings with an adviser (even if they were free) because people want a simple wage in retirement that comes to them every month till they die.

Rich customisation – my arse.

The reason why more than 140,000 postal workers voted 9 to 1 to ditch their individual DC plan in favour of CDC was that they saw their job as coming with a pension. They did not buy rich customisation or the dependent risk approach.  I very much doubt any of those 140,000 postal workers wants to pay for financial advice on how to draw down the money due to them in retirement.

Even if there were advisers to help them, even if the advice was within their means and even if they had built up enough in their pots to enable the adviser to take them on under “ad-valorem”, the postal workers would rather have gone on strike.

The postal workers turned down choice and if they’d been able to understand this sentence- they’d probably have quoted it as the reason why

“These choices require the involvement of an an adviser (preferably the investment manager itself) in developing collaboratively and iteratively the right definition of the individual utility that the retirement plan must seek to maximise, including any constraints, time preferences and valued optionality”.

 

apple pay 2

Posted in CDC, pensions | Tagged , , , , | 1 Comment

Launching CDC into a bear market.

Posted on December 28, 2018 by henry tapper

bear 2

The paper below is one of two that models what happens when CDC hits bad markets. I guess this one could be likened to launching a lifeboat into a stormy sea. CDC makes headway – but it’s tough. Imagine you’d put to DC in a less robust craft….

The modelling reinforces work produced by Aon illustrated in this chart (thanks to Kevin Wesbroom)kevinw. jpg

CDC – Early Days

This note considers the early days of a CDC scheme, the first ten years. It commences with just ten active members, but rises to a total membership of 13 by year 10. Contributions of 15% of pensionable salary are paid by each member and the award is 1/60th of final salary from age 65.

In particular we are interested in the effects of poor returns arising in these early years.

The contributions made, and the value of the total members’ equitable interest based on these awards are shown in table 1.

Con CDC 1

The rate of return on these targeted pensions is 5.57%. This is the objective rate to be achieved or surpassed by the investment portfolio. Next, we choose a set of random returns for the portfolio as we are most interested in the effects of poor returns, we choose the sequence shown below in table 2:

 

Con CDC 2

This sequence has an arithmetic average return of 4.58% and volatility of 17.7%. This sequence would not usually be considered adequate to achieve the required 5.57% of the target promises. The unpromising nature of this return sequence may be further illustrated by inspection of the evolution of both the arithmetic and geometric returns over the period – table 3.

Con CDC 3

Certainly, there are grounds here for considering replacing the fund manager as throughout this period trustees were consistently making new awards at rates of return in excess of 5%.

The extent of this mismatch between award rates and investment returns may be illustrated by comparing cumulative value generated by the rate of growth required (5.57%) with that achieved by the portfolio. Table 4

Con CDC 4

However, the scheme benefits from pound cost averaging, as contributions are made in each year. Table 5 illustrates these effects. This shows the actual deficits experienced together with the internal rate of return to that point in time. The averaging effect drives the experienced rate of return up to 7.25% in year ten. The table also shows the cure period associated with a deficit value

Con cdc 5

The simple rule for cutting is that the benefits must be cut if a deficit has not been cured within a period calculated as 1/deficit, expressed in years. In this case the deficit arising in year 3, 30.6% has not been cured after three years have elapsed. This triggers a cut in the interests of all members in year six equal to the deficit at that time (19.8%). This brings the fund and portfolio back into equilibrium. This is shown as table 6.

Table 6

Con CDC 6

It is clear that the cut could be fully reinstated after year 10, and still leave the scheme in surplus. However, if this reinstatement is effected, pensioners in payment would have lost out in terms of the pensions they had received during the period when the cut was in effect.

Implementation of risk-sharing is discussed in a separate blog.

 

Posted in CDC, pensions | Tagged , , , , , | 1 Comment

4 Steps to finding a pension ; PensionBee

Posted on December 28, 2018 by henry tapper

This post’s by PensionBee. I know it’s an advert but it’s exactly what is needed right now. I wrote earlier today about how we can make pensions more interesting and fun and that’s exactly what Romi, Clare  and their  beekeepers are doing . I look forward to doing a lot of work with them in 2019.

In just over 30 years, the government estimates there’ll be around 50 million dormant pension pots, worth over £750bn. That’s a hell of a lot of money in forgotten pensions for Brits to be leaving to their pension providers! Unfortunately people don’t always know that they’re missing a pension, especially if they don’t remember to take a pension with them whenever they change jobs.

If you think you might have money scattered across different pensions, there are a few things you can do to track them down. Follow these four simple steps and avoid being one of the millions to miss out on your hard-earned money.

1. Contact your former employer(s)

The best place to start is at the very beginning. If you’re unsure if you’ve started a pension and left it behind when you’ve moved onto a new job, it could be worth contacting your former employers to enquire what pension schemes, if any, they had set up back then. To keep things simple, work through your CV, from your oldest positions to the most recent, and get in touch with the respective HR departments.

Get in touch with the respective HR departments

You should expect to be asked some questions about when you were employed and potentially your employee or payroll number which you should be able to find on any old payslips or correspondence. Your former employer won’t be able to confirm that you were part of their workplace pension scheme, but they will be able to tell you if one existed and who manages it, which will take you nicely to step 2.

2. Contact your pension provider(s)

Hopefully you’ll have found out the details of some pension providers from your old employers, or you may already know that you have an old pension with a specific provider. You can give them a call to confirm if you are a member of any pensions that they manage. It’s likely they’ll ask you for information like your date of birth and National Insurance number to confirm your identity, however additional information may be required for security purposes such as an address history.

3. Use the Pension Tracing Service

If you have an old workplace or personal pension that you’ve lost track of there’s another way you can try to track it down. The government has a free database that lists the details of companies and personal pension scheme providers. You can search the Pension Tracing Service to find the names and contact details for your pension providers. The Pension Tracing Service is available online, by telephone or by post.

4. Get a new pension and enlist the help of your new provider

Once you’ve established where your pensions are, it’s important to consider how they’re performing and if you could be doing more with your savings to increase the likelihood of a higher pension when you retire. To find out more, consider asking your pension provider the following questions about your missing pensions:

  • What’s the current value of my pension pot?
  • How are the funds being invested?
  • What charges or management fees am I paying?
  • How much income is my pension likely to pay out at my predicted retirement date?
  • Are there any penalties payable if I move my pension to a different provider?

If you aren’t satisfied with the responses, you might want to consider looking for a pension that more closely matches your savings goals and attitude to risk. Bear in mind, though, that if you’re thinking about moving a defined benefit pension worth over £30,000 you’ll need to get advice from an IFA first. If you have a public sector pension that you’ve found through a teachers pension missing service, for example, you may not be allowed to move it and should check with your current provider for more information.

PensionBee can help you locate all of your old pensions

Some pension providers will offer to help you find your missing pensions, when you choose them for your new pension. This can be a relatively straightforward way of tracing missing pensions, without you having to do very much work yourself. All you’ll need to do is provide a few details and make up for lost time by catching up on any missed pension contributions.

PensionBee can help you locate all of your old pensions and transfer them into one simple online plan when you sign up. All we need is some basic information like a pension number or provider name and we’ll start looking, keeping you updated with what we find.

The benefits of combining your old pensions

If you have old pensions with different providers it’s a good idea to consolidate them into one new plan. That way you won’t have to worry about forgetting about them in future and will have peace of mind that all of your pension money’s in one place with one clear balance. You’ll also have just one management fee to pay which could save you money overall.

And, if organising pension paperwork isn’t your strong suit, it makes sense to consider a digital pension that you can manage entirely online. In theory it’ll be harder to lose as it’ll be linked to your email address and with the most modern pensions, such as those offered by PensionBee, you can download an app straight to your phone. That means you’ll be able to see your current pot size and manage your pension contributions in just a few clicks.

Risk warning

This information should not be regarded as financial advice. As always with investments, your capital is at risk.

Posted in advice gap, pensions | 2 Comments

People don’t want to be #engaged or #educated – keep it simple and fun!

Posted on December 28, 2018 by henry tapper

educate and engage

we learn naturally- if it’s fun

I enter into the final days of the year, hoping to hear less of the e-words in 2019.

“Education” has been appropriated by the financial community as a way to endorse a value set that suits the financial community. Put in its simplest guise – financial education is “save – don’t spend”.

“Engagement” with this message has become the key purpose of everything from the zealots of financial well-being to the technocrats of the pension dashboard.

We engage to get educated and the result is supposed to be “financial well-being”. One thing you notice at Christmas is that people love to spend – especially on others, we are about to hear the debt counsellors who emerge every January to remind us of our folly. They’ll have us all  burning calories in their financial gymnasium, exercising our austericals.

Thanks to this friendly tweep – who read this blog and posted this- couldn’t agree more!

https://platform.twitter.com/widgets.js

Adult education is not something that’s done to you.

There are ways of getting money savvy that don’t involve being educated. At the First Actuarial conference in May, we’ll hear from impresario Bernard Rhodes, someone who manages his money as well as he managed The Clash and Dexy’s Midnight Runners.

Bernard reminds me that what he knows about money is what he’s taught himself. He’s keen to talk about how growing up in the East End, he prospered by getting smart. The conventional approach “engage and educate” didn’t apply to a Jewish refugee growing up in post-war Britain.

The truth is that saving is in the nation’s DNA, famously we are a nation of shopkeepers, keen to balance the books. That we have a low saving rate is because historically we have sunk our savings into meeting mortgage payments. To blame a working person for wasting their earnings not paying into pensions and ISAs, is to forget that much of the past thirty years, people scrimped and saved to have the security of their property.

Consequently we have generations at or in retirement with considerable financial security and with the means to set their families up when the time comes to pass the equity on.

These financial strategies are not taught but are learned. The financial savvy of the baby boomers has created mass affluence. We are not numpties for not saving into pensions and ISAs.

Simple is best

house-pension

If the financial strategy of the boomers seems a bit simple, then remember that it has led to mass affluence and financial security in Britain as we have never seen it before. For those who “have”, Britain is a good place to live. It is those who do not have property rights who suffer.

The simple truth is that if you don’t own a property in Britain, you have to be smart on your feet. The prospect of property ownership for many millennials is based on inheritable wealth, Thatcher’s vision of property cascading through generations. The chances of buying your own property are limited for those on low incomes. Gone the days of easy credit, no deposits  and high income to loan multiples. The entrepreneurial impulse to home ownership has been replaced by a sullen acceptance among the young that they’ll never have it so good.

In place of the home-owning dream, we are feeding people the lack-lustre dream of a well-funded workplace pension, of a security in retirement based on accumulated savings fostered in frugality. It’s not much of a vision.

Simple is best and pensions aren’t that simple, especially when you are expected to be your own actuary and investment consultant.

If simple is best – why make it so hard?

There is a mindset amongst those who rule the roost  in financial policy that doing things for yourself is dangerous. The ideas of self-managed (non-advised) drawdown and of bringing all your little pots into one big pot are disturbing regulators and policy makers.

People are warned off “rules of thumb” and pointed towards financial advisers who will show you how complicated your decisions are.

The implications are that you need to be engaged and educated to understand the complexities of your financial position. Far from enjoying your wealth (as those building extensions to their now purchased houses are doing), we are told to worry about the minutiae of financial planning.

And it’s true, unless you have your wits about you, you will get conned out of much of your savings. That’s what’s happening to over a million people caught by the “net-pay anomaly”.

Many people’s drawdown payments in December and January will unwittingly involve encasement of units at well below true value as the stock-market lurches through a period of high volatility.

Put aside the perils of those deliberately trying to scam you our of your wealth. for most people, pensions are a financial minefield which they cross without guidance or self-confidence.

If simple is best – why do we make pensions so hard.

HARDWORKING_6

Mass market strategies need to be blindingly obvious.

The reason Martin Lewis says so little about pensions is that he specialises in the blindingly obvious. What he tells people is evidenced based – uncontroversial because it’s blindingly obvious.

“Save more for tomorrow” is a mass market strategy so long as it’s evidenced by older people enjoying spending more tomorrow. But the simple pensions enjoyed by my generation and those older than me, will not be enjoyed by those saving into workplace pensions. Unless – that is – we make those workplace pensions as easy to understand and as easy to spend as the pensions that get paid to our parents and grand-parents.

The success of occupational pensions was that the concept was blindingly simple, sign up and forget about it. This simple philosophy is exactly the opposite of “engage and educate”.

Young people I speak to are resentful not just that they aren’t on the housing ladder but that they don’t see any pension at the end of the saving, just a lot of confusion and very little that is blindingly obvious.

If we are to have retirement saving for all – we need that saving to translate into something as blindingly obvious as a wage in retirement – pay for life.

94% of us aren’t taking financial advice

Ask people if they are on top of their pensions and you won’t get many saying “I leave all that to my financial adviser” – very few do. Those who do are generally well served but they are the 6%.

If you are lucky enough to be expecting a pension , or being paid a pension -whether by an insurance company or by an occupational pension scheme – then you don’t need advice.

But if you aren’t that lucky – you probably do need advice, advice that is simply not available in a cost effective manner for the average working person.

It is these average working people who are being told to engage and get educated. They don’t want to, they don’t see the point and they don’t see getting engaged and educated about pensions as any fun at all.

Why the dashboard works

The one thing that everyone agrees on – the one mass-market strategy that genuinely gets people excited is the prospect of someone finding their pensions, listing them on a dashboard and giving them the chance to do something about their fractured and broken retirement arrangements.

Believe it or not – people think of a pensions dashboard as fun. They like it because it allows them to get savvy about what they know is an important part of their lives.

The dashboard works as a concept, it is as simple an idea as ideas get – it works for the mass market – for ordinary people who don’t want to have a degree in financial planning.

Or should work….

It is quite possible that we will not listen to the enthusiasm people have for the idea of a pensions dashboard but instead impose our own ideas about engagement and education on those who use it.

People simply want to know where their pensions are, what they’re worth and how the money has been getting on since they gave it away to a pension provider.

They do not want to be bashed about the head with messaging. They don’t want to be told about replacement ratios or shortfall calculations or all that guff that’s aimed at they’re giving more of their money to pension providers.

That can come later and if they want to explore that stuff.

Right now, people have been starved of information about their savings and have no way of telling what’s happened to their money – even where it is.

Let’s focus on giving people what they want and then see how they choose to take things forward.

educate and engage 2

The pensions dashboard will work if we let people work things out for themselves, it will fail dismally if we shoe-horn them into our idea of “engage and educate”.

Above all, the pension dashboard should be fun – like its title – it should be a simple tool to manage things for themselves. They don’t need your engagement – nor your engagement neither.

educate and engage

If you want a couple of examples of making pensions easy to engage with – easy to learn about try this blog from Pension Bee or listen to Quietroom’s latest podcast

Posted in advice gap, pensions | Tagged , , , , , , | 1 Comment

We can’t reopen closed railways or pensions – but we can build anew

Posted on December 27, 2018 by henry tapper

When I wrote this blog on Boxing Day about “coping with falling markets” – I did not explicitly make the link with CDC. The chart at the bottom of John’s tweet talks about the cost of closing open collective pensions and this is what John is picking up on.

Over the Christmas period I walked along several sections of the Somerset and Dorset Light Railway, some of the track closed down by Dr Beeching in the 1960s. It was a line that carried families down from Manchester to Bournemouth on the Pines Express.Pines Express

Alan Pickering told me of travelling on to Weymouth and so to Jersey by pubic transport. Today we look to drive or fly, we have closed the rail option for good. Houses now are built where the lines were, stations converted or destroyed. It cost a lot to close the railways but the cost of getting them back as they were is too high to be considered.

I am nostalgic for the days when you could buy back your DC benefits for what was called a “scheme pension”, you either bought added years or you just swapped your DC pot for a pension , the rate of exchange being determined by trustees with the help of actuaries.

The cost of doing this is as prohibitive as reopening the lines Beeching shut. Some things are gone and no amount of nostalgia can bring them back.

But how does CDC help a saver in a falling market?

The reason why a trustee will not grant a guaranteed scheme pension for a cash input ( a transfer in) is because the grant of the guarantee is made at the expense of the scheme sponsor who will pick up the cost of the guarantee if things go wrong. This isn’t what employers are for- they provide jobs – they do not act as pseudo insurers, there are limits to the liabilities they will take on and universally employers have stopped paying scheme pensions on transfers in.

However, the same need not be said of a DC scheme, which can take transfers in without increasing the liability to the employer. In individual DC arrangements , a member currently has the choice of individual buy-out – swapping the pot for an annuity – or individual draw-down- where the individual is on the hook for managing the “nastiest problem in finance”, an income for life.

This is where CDC could help. CDC could pay scheme pensions to people transferring in DC pots. The scheme pensions would not be guaranteed by anyone, not by the scheme or a sponsor or by the member, the CDC scheme pension is prone to fall as well as rise – though by judicious management – the CDC trustees can protect members from the most heinous risks of drawdown and the scant annuities offered by insurers.

In direct answer to John’s question, CDC can continue to provide scheme pensions at times of falling market on the mutual principles on which it is set up. The mechanism for paying scheme pensions is typically the allocation of cash in to pay pensions out. Cash comes into a collective pensions from dividends, bond coupons, rents and new contributions. Cash flows out of CDC plans through the payment of cash sums (commutation) , the payment of transfer values and the payment of CDC scheme pensions.

Professor Leech is making the same point in his comment to the blog John’s reposted

The answer is that asset prices are characterised by excess volatility. Market prices – determined by the irrational exuberance of the stock market rather than economic fundamentals – are many times more volatile than the economic fundamentals such as dividends. An open pension scheme can ride out (short term) market volatility because it is the economic fundamentals in terms of investment income flows that matter.

This fundamental principle of collectivism, is what makes an open collective pension scheme so attractive. As with Dr Beeching and his railways, the problems for open collective pensions is when they become closed collective pension schemes.

life cycle open

The only time that assets would need to be realised from a CDC arrangement, was when there was insufficient coverage from cash-in to meet payments out. This is what’s known as a run on the fund.

We will not see CDC schemes taking transfers in any time soon.

The Friends of CDC are a patient lot. Some of us (Derek Benstead in particular) have been voices crying in the wilderness the best part of 20 years already.

The CDC consultation – on which many of us are working – does not allow for transfers in or the setting up of schemes specifically to pay scheme pensions from DC pots. Both John and Andrew are right.

It may be that savers like me have to wait a decade to have scheme pensions paid from our DC pots. We may never get there!

But if we do not going on pointing out that at times like this (the S&P 500 was up 5% yesterday and has fallen many times that in the first part of December), people are being ruined by drawdown. CDC pensions , paid from a CDC fund at a rate determined by trustees on advice from actuaries are a half-way house between the perils of individual drawdown and the perils of a sponsor taking pension guarantees onto a balance sheet.

We may not see transfers in , any day soon; but logic suggests that the we will see them within the next 20 years. Anyone who is following the debate about default decumulation options from DC, will understand that the alternatives aren’t much more palatable than what’s on offer today.

Keep on pushing

Despite the obstacles to achieving CDC legislation, I am hopeful that in 2019 we will see the writing of the rules that in the next decade will allow the Royal Mail to run a CDC scheme. It is a start – and a decent start- but it is not the end.

There is no end – that is the message about pensions. We do not have to close collective schemes and when we do so – we cannot reopen them. We will keep on pushing to keep those schemes open – which are open, and open new schemes to replace those that are closed.

In the meantime we will keep on pushing to make sure that DC schemes run effeciently and they they are as well funded as can be.  We do not just need need dramatic reform, we need better practice with what we have got.

A recognition that there is necessary risk in pensions

We cannot afford to run pensions on the yields we get from gilts – we can’t now – we never could. Providing pensions is not risk-free.

We need to find the correct balance between risk and reward. right now we are offering people only the binary choice of annuity and drawdown, we are not offering a balanced option.

For people to take a balanced pension, they must accept some of the risk, and market risk is part of it – but they do not have to suffer the extremes of annuity penury or the pounds cost ravaging of drawdown gone wrong.

Drawdown

(but you’re on your own!)

Posted in pensions | Tagged , , , , , | 6 Comments

Coping with falling markets

Posted on December 26, 2018 by henry tapper

coins falling

It is a blessing that the first five years of auto-enrolment have seen world stock and bond markets rise. Low interest rates have had a lot to do with it, but we’ve also been in a period of comparative peace, the global risk register has been less to the fore, there has been plenty of money in company coffers, we have all done well.

But 2018 looks like being a poor one for investors and the year is ending in as state of chassis, brought on by a realisation that the phrase “we’ve never had it so good” uses the past tense.

Falling stock markets are historically a rich person’s problem, (the problem’s none the less real for that).

But increasing numbers of those who would not normally consider themselves investors – are investors now. I’m looking forward to the Radio 4 Moneybox Special on Saturday (29th Dec), when we’ll be hearing from the people from Port Talbot who have come into “wealth” by swapping a pension for cash – will be talking about what it’s like to become an investor overnight.

I suspect that many of those who will be on the program will have been learning financial resilience in the same way they have learned to cope with the rigours of working in heavy industry. But some will be struggling with the idea that they can lose more in a week than they take home in a year.

There’s no rationale to risk tolerance.

I have stood on the lawns of Cheltenham and watch Irish farmers blow a year’s savings on a horse that should have won. Value at Risk =100% and they know it- coming back year after year – for the year when they walk away with a fortune.

I’ve sat with people who’s entire savings are in cash, for no better reason than they’ve no appetite for risk and some of these people are those best placed to take it. The FCA report that the self invested personal pension market is awash with reckless conservatism, long-term money sitting in deposit accounts, smug to have got tax-breaks but useless in any economic sense.

People are not rational in their decision making, the national lottery distributes from the poor to worthy causes that include rowing – a past time of the rich. Part of this is moral hazard, as Springsteen sang  “Mister one day when my numbers come in, I ain’t ever going to drive a used car” – my financial adviser friend- John Mather will advise me that neither the lottery of buying cars first hand – makes financial sense. That song has however summed up working class aspiration in the States for thirty years.

The impact of falling markets

£36.8 billion was turfed out of defined benefit pension schemes and exposed to market volatility in 2017, the first quarter of 2018 saw over £10 billion follow it.

It’s not a question of whether but how we cope with falling markets. My worry is that many won’t and that those least prepared for the shock of losing money will not be able to cope. But that is the middle class liberal in me. I know that people are tougher than my    bleeding heart would have them and that the steel-workers who’ll read this will have thought this through.

I’m not writing this from Tai Bach but from comfortable Shaftesbury in North Dorset. I have no reason to worry for myself and no (economic) reason to worry for others. And yet I do – some would say too much.

I know that there are many in Government who worry too. I have met them. We have promised people the freedom to do as they like but have given them a knife to catch- when markets fall.

If people are drawing down after Christmas to pay for Christmas spending, they will draw down from markets in crisis and at prices that may not reflect the under-lying assets. In short they may be forced to sell low. The impact on the cashflow plans put to them by their advisers may be calamitous as “pound -cost – ravaging” sets in.

Coping together

In my church we pray for the vulnerable. It is an entirely irrational thing to do, but we’ve always done it and always will.

Being concerned together seems to get results. Practical help arises from collective meditation and our collective articulation of the problem.

This is the way that people cope – by coming together. Ironically it is exactly how occupational pension schemes provide help – they bring people together.

That is why people like Derek Benstead, Hilary Salt and those others I work with at First Actuarial campaign for open collective pension plans. They help people to cope with periods of financial adversity.

As I look forward to 2019 and back on the past five years, I am increasingly convinced that they are right. We do not cope well on our own, we need to do things together

life cycle open

 

Posted in CDC, pensions | Tagged , , , , , , | 4 Comments

We Need Breakthrough Business Models, not Breakthrough Technology

Posted on December 25, 2018 by henry tapper

I found this article on Linked In. You can find the original here.

It makes a lot of sense – not just of why we get bubbles, but how- succesful businesses can be created out of the vacuum when a bubble bursts.

When people invest in Tech – including Fintech, they are investing in the technology – not the business model. When a business adopts the technology to deliver to a societal need – then you have a sustainable business and a sustainable business model.

Thanks to JOHN ELKINGTON AND RICHARD JOHNSON for the insight.

 

Technology doesn’t transform markets, business models do.

We Need Breakthrough Business Models, Not Breakthrough Technology

When humanity encounters a shiny new technology and senses its potential, we usually glibly assume that the world will instantaneously jump aboard and surf the resulting wave of change.

Anyone who has experienced at least one of these wave peaks knows what typically happens next: We crash into the “Trough of Disillusionment.” More than a couple of times over the decades, we have turned up at the doors of once-unstoppable businesses to find their founders sitting among the smoldering debris.

It may seem an idiotic question, but why, time and again, is the Gartner Hype Cycle–a theory of technology adoption developed by advisory firm Gartner–correct? The answer, of course, is that our species keeps falling into the same trap.

The Gartner Hype Cycle. [Images: Olga Tarkovskiy/Wiki Commons (infographic), Jolygon/iStock (pattern)]

Why do we keep getting this wrong? The answer seems clear. We favor technologies over business models, imbibing the Kool-Aid a long time before the hard slog to turn the concept into something customers will actually buy has begun.In a previous article, we explored the entrepreneurial mindset needed to solve the world’s largest, most mind-numbing problems. Those who rise to the challenge, we conclude, will claim a generous slice of future markets.

And yet, a good deal of effort is still needed to turn most emerging technologies into sustainable wealth creation engines. In our experience, anyone who still wants to kick off a discussion about long-term wealth creation by focusing on the business case for addressing the world’s biggest unmet needs is likely to find themselves paddling along well behind the next big wave, very likely missing it entirely.

By contrast, tomorrow’s market leaders are the ones already sketching a new business model on the proverbial napkin. Business models are what connects a technology’s potential with real market needs and consumer demand.

Simply put, business models eat the business case for breakfast.

Recall how solar panels took off. True, the price of photovoltaic cells had been falling exponentially since the 1970s. But it wasn’t until 2008 when the concept of “zero-money-down” solar (leased and managed rooftop solar) was introduced that we saw an equally exponential increase in the number of solar roof installations. The new model gave solar power the edge over grid energy.

To get a better grip on the implications, we have been talking to some of the world’s top change agents as part of our Project Breakthrough Initiative for the UN Global Compact. Some of the insights on breakthrough business model innovation are distilled in this video:

Here are three takeaways:

BREAKTHROUGH BUSINESS MODELS MEET UNMET NEEDS

Generally, unmet needs are unmet for a good reason: People aren’t able—or willing—to pay the market rate for a solution. That fact may be easy to overlook when you’re dealing with a few hundred people in a rural community or an urban slum, but when you’re dealing with billions of people around the world, Houston, we have an opportunity.

Clayton Christensen’s theory of disruptive innovation highlights that needs are often left unmet not because they can’t be met, but because the incumbents have been innovating at the high end of the market, chasing ever larger margins. It is the role of the disruptor, then, to meet the needs of those who have been ignored–and steal market share from the incumbent.

As digitalization proceeds at unprecedented speed and scale, the marginal cost of delivering a whole range of goods and services will plummet. This opens up a huge opportunity to create affordable solutions to huge, previously overlooked market needs.

One example is the insurance company BIMA, featured in the video. BIMA specializes in using mobile technology to bring potentially life-changing insurance to the previously uninsured, worldwide. Today the company reports that it is registering over 600,000 new customers a month.

[Image: Jolygon/iStock]

BREAKTHROUGH BUSINESS MODELS BLOW THE DOORS OFF INCUMBENTS

Big business is struggling. At the current churn rate, 50% of S&P 500 companies will cease to exist over the next 50 years. But where there are losers there are also winners.

So what will the next generation of winners look like? Will they be clones of Facebook or Uber? Maybe, but it looks increasingly likely that many of tomorrow’s business success stories will have sustainability at their core.

A recent report by the Generation Foundation (the advocacy arm of the investment firm cofounded by Al Gore) argues that sustainability has become fundamental for growth.

The two key opportunities are to make goods and services accessible to those who hitherto didn’t have access to them—and to replace resource-intensive products and services with ones that are radically more efficient.

In practice, this often requires companies to rethink where they draw their own boundaries. When we interviewed Francesco Starace, CEO of the multinational energy company Enel, he told us that they had for too long viewed energy as a stand-alone value.

But as he went on to say, “energy alone is nothing. This means we should understand what other people, and other pieces of society, need from us. That part is more difficult. You have to understand the many missing parts, that, for decades, you have ignored.”

Today, Enel is the world’s leading renewable energy producer, but it acknowledges that modern energy systems, like modern data systems, do not work best when centrally managed. So, through their Open Power approach, they are exploring the role they will play in a future where their customers produce, store, and manage their own energy.

[Image: Jolygon/iStock]

BREAKTHROUGH BUSINESS MODELS DON’T TRY TO HOG THE FUTURE

There is good reason to believe that the change we have seen over the last decade will be dwarfed by what happens next. One key feature of what’s headed our way is a shift away from ownership. As the Internet of Things grows exponentially, it will become ever easier to share resources in real time.

Rachel Botsman, a leading expert, told us, sharing-economy business models take a wide range of unused assets and unlock their value by matching “needs” with “haves,” radically boosting both efficiency and access.

And the process has only just begun. As Botsman continued to say, “in terms of impact, and in terms of different sectors realizing that this isn’t just a technology trend, but a transformation in how we utilise assets and the flow of value and trust, I literally think we’re on day one.”

The pace of change could take us all by surprise. Take transport. Think-tank RethinkX predicts that, once ride-d is combined with autonomous electric vehicles (AEVs), the costs of accessing mobility services as and when you need them will be so much lower than the costs associated with owning a car that consumer behavior will shift very quickly. Within 10 years of regulatory approval for AEVs they predict ‘transport-as-a-service will account for 95% of U.S. passenger miles.

So those hype cycle charts are great at indicating where we are on the various tech cycles. But remember that business models are they key to determining which technologies take off–and which crash and burn.

Thanks again to JOHN ELKINGTON AND RICHARD JOHNSON

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2018 – goodbye and good riddance

Posted on December 24, 2018 by henry tapper

Goodbye 2

HAPPY CHRISTMAS TO EVERYONE WHO READS THIS BLOG

2018 was a mixed year for those looking for better pensions.

On the plus side, we are finally getting auto-enrolment. The predicted increase in opt-outs didn’t happen, when member contributions tripled, we look forward to 2019 with eqanimity.

On the plus side – we now have the possibility of a queen’s speech with meaningful reform from the DB White Paper and the CDC and Pension Dashboard consultations.

On the plus side, DB schemes appear better funded, though only at the cost of massive employer contributions which might otherwise have been deployed lifting the country out of austerity.

But I will look back at this year as another wasted year.

Austerity is still here – look to the streets.

I am in Shaftesbury where I was born, my father died this year, dying in Salisbury, a town that was in virtual lock-down at the time. We live with the threat of terror around us, Gatwick is closed by a drone, a crime with a million victims and no perpetrator.

Homelessness is reported to be at record levels.

The sole Christian institution in Shaftesbury that is growing, reaches out to the community through a food bank. Even in rural north Dorset, there are signs of poverty everywhere. The old and those on benefits have less, there are less police, less ambulances, less school places per capita. The library, such as it is, has few new books.

After 8 years of austerity the fabric of rural towns like Shaftesbury continues to deteriorate. In real terms people are poorer than they were ten years ago.

2018 was supposed to be the year we turned austerity off, but what I see in Shaftesbury , I see in other British towns small and large – and I see it most of all in London, where the divide between those making money and those squeezed for money is greatest. The disgrace of Grenfell lingers on our conscience.

Instead of tackling destitution we argue about BREXIT

In the little things of pensions to the great disaster of social inequality, the conscience of our country has been turned off.

It is apparently acceptable for over 1m people to be denied a promised Government because the Treasury cannot be bothered to put in the software to pay it – I refer not to the net-pay anomaly, but to the net pay scandal.

Equally – it is apparently acceptable for people to be sleeping rough on our streets this Christmas – in greater numbers than ever.

My friend – @GlesgaBrighton has been collecting examples of the current state of the nation. Here are a few from his timeline.

and again

https://platform.twitter.com/widgets.js

and again

He catches the Zeitgeist. There is a deep unease in this country at present and it’s founded in our failure to tackle the inequality that has grown since the financial crash of 2008.

The poor have paid and are still paying for the behaviour of the rich. Meanwhile our Government is locked in an internal argument which is irrelevant to the problems of poverty.

I am a Christian – this will not do

Whether you come at this question with Christian faith – as I do, or with other religious faith – or with no faith at all (like Paul Lewis), our common sense of decency to our fellow men and women commands us to cry out against social justice and do what we can to right it.

I have tried it from all political angles, in my youth I was a Liberal Party Agent, my political hero(one) is Angela Rayner, I am a member of the Tory Party because I thought I could be most effective from within. But I realise that if I have influence it is through my blog.

Ten years old and still campaigning.

Next week, my blog will be ten years old, I have posted over 3,500 times and the blog has been read over 1m times. There are better writers to read, but I like to think that my voice has become my own and authentic.

I’ve actually found myself through my blogging. I mean by that – that when I re-read stuff I’ve written over this period of my life – I start to make sense of me.

I’m a f@*ked up idiot like everybody else – I’ve fallen from grace many times and there are many who’ve pointed that out.

But I’ve found my authentic voice and that’s important to me. I have an identity – I know who I am and people know what it is that I stand for.

Goodbye and good riddance?

2019 may well be worse than 2018, things can get worse before they get better. As I write, I see no way out of this BREXIT mess, nor do I see how we can close the food banks down and get people off the street.

In parochial terms , I see no way to reform the pensions system to make it work for those who have less till we accept we keep our promises on things like Government incentives.

I don’t see a way forward for the pension dashboard unless we rest it from the oligarchy of dasboard-istas who would centralise control around a single pension finder service controlled by the usual suspects.

I don’t see a way back to fully funded collective pensions, till people recognise that DC is not right for the mass of this population who cannot turn capital into an income for life (the process of paying a pension).

I want to say goodbye and good riddance to all this but I can’t. We can be shot of 2018, but its baggage is carried into the new year.

But it’s Christmas and it’s time to wish each other well

Those people who read this blog, and go to TTF meetings, and come to Pension PlayPen lunches are a proper community of people who do give a toss about making things better.

We may not be able to change the big things- BREXIT being the biggest – but we can attend to the little things.

goodbye 1

HAPPY CHRISTMAS TO EVERYONE WHO READS THIS BLOG!

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

Regus v WeWork – which works better?

Posted on December 23, 2018 by henry tapper

flexible working.png

I guess I’m spoiled for choice.  When I go back to work on 27th December, I can choose to go to a First Actuarial office, work in an IOD workspace, check in with Regus or use one of the two WeWork offices I have a card for.

Which will I choose? WeWork has commissioned an independent piece of research on the economic impact it has had. These are my personal thoughts which happen to coincide with the conclusions of the research.

WeWork is making a difference to the way I work and the way my businesses work.

On grounds of convenience – WeWork, situated adjacent to Boris Bike stands within 5 minutes cycle of home and 2 minutes from the gym, WeWork Moorgate and Devonshire Square do the trick

On grounds of cost – WeWork – I am currently paying around £450 pm to host meetings – get high-speed broadband and have a desk in the heart of a city. The comparable costs of setting up my own office or renting workspace from Regus are off the scale.

On grounds of service – people who arrive to meet me at WeWorks inevitably have a smile on their face, that is because WeWork staff treat me and my guests as VIPs – and they do that to all the 300 or so companies with whom I share space.

On grounds of fun – the people I work with are hugely productive. We are a boot-strapping start up and we live in WeWork not just during the day, but well into the evening and early in the morning, that’s because it’s more fun to be at work than be at home. Oh and we work week-ends to – because we can!

we work pool

Olly and Ritesh in WeWork

On grounds of pets – WeWork encourages people to bring (well-behaved) animals to work. I bring my son. Many people bring dogs, cats – tortoises and rabbits. Why not?

WeWork is an experience like no other. It allows me to share my skills with thousands of people who need to get to know AE and pensions, I get help from other start ups and a few established companies about GDPR, wrapping Christmas presents and raising money. I go to talks in the evening and lunchtime, I have breakfast with people I don’t know and I drink beer with them when I know them.

This immersive experience does not restrict me wearing a suit to work when I need to, nor doses it stop turning up in my gym kit (before not after).

I just read this article that suggests WeWork is over valued compared to other property companies (like Regus). I can’t comment on the numbers, but I have this to say. The valuations of organisations like WeWork are ultimately driven by customer experience. My experience of WeWork is good, better than Regus – much better than IOD – much much better than sitting in an old school single office environment.

On the 7th Floor of WeWork Moorgate (where I work) is Citibank. If I move to the new WeWork offices in Wilson Street , I will work alongside Microsoft developers. These large organisations see that they can attract and keep brilliant graduates by offering them a workspace that works for them.

We Work differently these days, we work from laptops and phones with data that sits not on physical servers but in the cloud. We meet people for coffee or drink beer with them.

We want to enjoy our work and feel good about our workspaces. The people I work with do just that – but they do it much more easily at WeWorks than elsewhere.

I think the valuation of WeWorks is based on people like me turning away from traditional workplaces and for replications of those workplaces (as Regus offers). People like me – and there are many 50+ workers in both our City offices – are voting with their feet.

we work.png

It’s just nice

 

Posted in pensions | 2 Comments

Railways and dashboards have a lot in common!

Posted on December 23, 2018 by henry tapper

 

rail network 2

Yesterday I wrote about the importance of delivering a dashboard competitively. To sum my argument up, I think that those prepared to supply the technology needed to find people’s pensions should not compete for the work through a Government led “procurement process” but through a tech-sprint, where they prove to themselves, to Government and to their key customers – us pension savers – they can do the job accurately and at a competitive price.

I am not arguing to sabotage the concept of a single not for profit dashboard set within the new Single Financial Guidance Body, that is a useful first step. Nor am I arguing against a governance body set up by the SFGB to establish processes and controls to minimise risks of things going wrong. I accept the SFGB as the initial home of the dashboard and governance committee. But I am going against the consultation suggestion that there is just one pension finder service.

In this blog, I explain the benefits of competition between pension finder services to consumers and set out the principles by which these services can work together to deliver us our pension information, quicker, cheaper and with greater focus on the needs of ordinary people.

Quicker

There is nothing so laborious as a Government led procurement process. Things happen consecutively, not in parallel, once appointed – the pace of development is dictated not by competition but by timelines agreed by all. Inevitably these timelines are conservative, they do not encourage entrepreneurship, things arrive late – or to deadlines which are way too slow.

Consumers are keen to find their £20bn lost money, to see all their pension pots on one screen, to get on with managing these pots to provide them with financial security in later life. Having wasted a lot of time already, they will not tolerate yet more buraucracy.

Cheaper

If anyone is under any illusion that the pension finder service will be free, then they are nuts. The cost of development and of management will be passed on to those benefiting from the dashboard. In the first place the costs will be picked up by levies on the industry, but these will be passed on to ordinary consumers. It is easy for these costs to be worked into Annual Management Charges or the hidden costs of managing pensions, but that doesn’t make them costs born by the consumer.

Transparency is the best disinfectant, if we are not to have a scandal down the line we need to be open about costs incurred.

Giving the pension finder service to a single organisation risks giving that organisation the right to set the price. If the price is set by Government, the price will either be too high or too low, if too high, the single service will plead it cannot do the work and force a change in pricing structure (see what is happening with price controls in the energy sector). Alternatively, if the price is too high, the pension finder -even if not for profit – will be as happy as Cedric the Pig.

The only way to ensure a competitive price is to put competition to work. This is why NEST is not the only workplace pension provider. Competition is thriving in workplace pensions because NEST were not given a state monopoly.

Greater focus

As I wrote in my blog “no man cometh unto the dashboard but by me“, restricting the plumbing to just one organisation assumes only one way to deliver information. It’s the pension finder’s way or do it yourself – with the pension finder able to tell providers to refer all private requests to them.

People have different needs – they want to find different things. Similarly, pension providers need different approaches. A defined benefit scheme’s administrators see dashboards in a different way to those of a self invested personal pension. The problems of providing data from a legacy insured system are quite different than from a modern database run by a recently started master trust. Different pension finder services will relate to these problems in different ways, some better than others.

In time, the dashboards will become more or less relevant to differing groups of consumers as dashboard focus on their needs and the needs of the pension administrators who supply the data. This focus needs innovation and that innovation flows from diversity and competition. It is unlikely to happen because of a single approach which is inherently generalist and unfocussed.

We can have competition and collaboration

It’s often noted that we have in Britain a very complex pension system with people having a lot of different pension pots and pension rights.

Some people think that we need a single pension finder service to bring everything together. But this is not what happens in other areas of competition. The introduction of open banking is a case in point. Banks now collaborate and compete in equal measure. The customers are well served by this, getting data more quickly, more cheaply and with much greater focus on their needs. We are already enjoying faster payments and integrated statements (Lloyds and Scottish Widows for instance).

Agreeing to work with open data standards, the retail banks have opened competition to Challenger Banks who they are now working with – and learning from. This is because the Challenger Banks are doing things quicker, cheaper and with greater focus.

When I see PensionBee and People’s Pension join Orio and the ABI, I see a willingness from those who challenge traditional ways of doing things in pensions wanting to work with traditional providers.

I want to be a part of a revolution not an evolution in pension information. We cannot move forward at the pace people want by doing things as we always have, that means repeating yesterday’s mistakes. Instead we need to move forward by working together competitively.

The way it can work

A long time ago, Britain built a rail network which we still use today. It was based on common standards (track width etc) but it spawned massive innovation both in terms of network coverage and in the delivery of “customer journeys”.

The innovators sometimes had to bite their lip and accept second best (Brunel’s broad gauge for instance), but for the most part- the innovators won through and it is they who we remember today.

The dashboard can work through a similar combination of innovation, consensus, collaboration and consensus.

I am quite sure that if we had set up in the 1830s a single rail network to deliver a rail system, most of the magnificent lines that we enjoy today would not have been built. A Government appointed railway governance body would not have accepted the challenge of a tunnel, a viaduct – of building a railway accross a bog like Rannoch Moor.

People do crazy things and often screw up. But in screwing up, they learn and do things better next time.

The way the dashboard can work is by letting people loose, by allowing them to sprint towards a target and sort each other out. By helping them to help each other so that everybody wins.

This is what we mean by open pensions.

rail network

 

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Your pension – your rights!

Posted on December 20, 2018 by henry tapper

magna carta

Governance is an interesting word.

governance
/ˈɡʌv(ə)nəns/
noun
the action or manner of governing a state, organization, etc.
“a more responsive system of governance will be required”
  • ARCHAIC
    rule; control.
    “what, shall King Henry be a pupil still, under the surly Gloucester’s governance ?”

It has morphed from “rule or control” to a “manner of governing” in an etymological fudge-slide.

One of the things that happened in 2018 which scares the life out of big corporations was the Data Protection Act. Among other things it gives ordinary people to have the data others hold on them made available to them in machine readable format.

In terms of “rule and control” , this means putting us back in charge of what is rightfully ours. That is why GDPR – for all the moaning – is fundamentally good news for the consumer.

When it comes to pensions, what DP18 and the GDPR do, is to give us the right to our data in the way we want it presented.

What the Pensions Dashboard does is make the provision of that data easy, so we can see all our data in one place at the press of a key, a swipe of our screen.

 Governance and freedom of information are uneasy bedfellows.

It is natural for those in Government to want to control and rule. It is natural that they will side with organisations that will help them control and rule. This is why the Government is reluctant to give us free access to our data.

Instead of allowing the market to get on with the solution, Government is inventing elaborate systems to rule and control the provision of our data to us – the data we have a right to under DP18.

Here is the current Governance plan

dashboard governance model

If you read the Government Consultation paper which doubles up as a feasibility study, you see that the plans for “Rule and Control” involve setting up a single dashboard with a single data transmitter – the Pension Finding Service or PFS.

In time, and only after the PFS has been allowed to dictate its terms, other dashboards will be allowed to ask for data, but those requests must be through the PFS who authorise them.

In short, the consumer gets very little say in what he or she asks for, everything is determined by the Chair of the SFGB and its constituent parts.

This is how bureaucracy stifles innovation.

How governance was rested from an oligarchy

Britain long ago recognised that giving absolute power to one entity (the monarchy) was a bad thing . Through a series of insurrections, power was rested from an absolute monarchy and distributed to the people through a process now known as democracy.

Britain’s success has always been founded on our pragmatic distribution of power and devolvement of authority to the people who do the work. So when we had an industrial revolution, it was bottom up. France and others tried to impose an industrial revolution from Government down and it didn’t work. The people didn’t buy it, industry was stifled, the entrepreneurs fled to England and prospered!

In today’s terms – the oligarchy is not so much the Government but something called the pension industry. You can see them lined up at the top of this picture.

dasboard suspects.jpg

 

At the top of the tree – owning the dashboards are the big beast providers – and the Government’s Money Advice Service (soon to be the SFGB). These are the guys who rule and control. To their right are the financial advisers who those who rule and control may allow to share in the spoils.

Nowhere in this picture is there any representation of the consumer. That is because in the technical architecture and the governance of the pension dashboard , the consumer is represented by those who rule and control.

Your pension – your rights!

If you allow this “governance model” to happen , then the pension dashboard will not be about what you want to see – your right under DPA18, it will be about what the dashboards want you to see. The dashboards will control what you see because they will control the governance and they will control the single pipe through which data requests flow – the Pension Finder Service.

Not only will they control what you see, but – as the only player – they will control the price you pay to see your data. They will have ultimate control of when the dashboard is working and when it is down for maintenance so they’ll also control opening hours.

The pensions industry would have you believe that this is “open pensions” but it is not. There may be open data standards – but they are only open to the Pension Finder Service and the organisations they sub-contract to – to do the dirtier plumbing

The big fib in all this is contained in the promotion of Open Pensions

  • The Pensions Dashboard architecture introduces a central trust anchor and authorisation server component that enables the consumer to control consent to access their data and also delegate access to third parties.

This may sound like putting the consumer in control but it isn’t. The consumer authorises  just once, but has no real choice about who are his or her agents in this. That choice is determined by others, people who know best.

The only choice that a consumer gets is the choice of having their data delivered – it is that stark – take it or leave it.

Why this matters.

There are a number of things that people want to know about their pensions.

  • The first is what they are worth
  • The second is how to get their money back
  • The third is how much they’re paying to have their money looked after
  • The fourth is what is happening with their money while it is away
  • The fifth is how their money has done in terms of interest earned.

When these questions are answered, consumers (like you and me) then may ask the question what do I do next and this may result in them concluding they would like their money back, it may even result in them wanting to put more money away.

But that is for the consumer to decide.

The current thinking of all those with whom I speak on the dashboard from the pensions industry is that we need strong governance so that people make the right decisions and those decisions will be about saving more into the pots managed by the pensions industry.

Which is why all this matters. If you want any kind of independent view of what you have got, if you want straight answers to your real questions, then you need to have a dashboard independent of the pensions industry, a dashboard run for you and not for them.

We need genuinely independent governance – genuinely independent pension finders and dashboards which play to the ordinary person – not special interest groups within the pension industry.

We need to rest “rule and control” back from the pensions industry and give it to those who are genuinely on the consumer’s side.

We have only a few weeks before the consultation ends – this is why I am writing this blog and the blog I published earlier today. 

magna carta 2

 

Posted in age wage, Dashboard, pensions | Tagged , , , , | 2 Comments

“ No man cometh unto the dashboard, but by me”.

Posted on December 20, 2018 by henry tapper

the way

This is the vision of the dashboard we sign up to – if we accept the Government consultation

 

Close inspection shows that the pension finder is infact the only game in town, it is the way , the truth and the life for pension savers.

The diagram is not the one that appears in the Pension Consultation to describe the dashboard architecture, that one’s sanitised.

Dashboard cost model

Here the architecture does not appear so brutal but it is the same.

Because the Pension Finder incorporates the identity service, no data can flow to the dashboards from the providers (down the bottom unless the request has been verified by the identity service . This is what is meant by  the interface that “authorises subsequent access”,

The biggest land grab since Lebensraum

But the grand design of the single pension finder service is seen more ambitious. According to a document I was provided by one of candidates for the pension finder service (PFS), its key features will include

  1. A single point of integration for Dashboards, Providers and other entities that are approved to participate in the Dashboard System
  2. A trust anchor for consumer and delegate authentication  , (a trust anchor is an authoritative entity for which trust is assumed and not derived- Ed) in this instance the PFS authenticates who is sending messages.
  3. A cost effective and and effecient service for orchestrating the “Find of Pensions and authorising subsequent access to the Pension data that has been found (eg for valuations) 
  4. A centralised consumer consent process for authorising access to their data for both Dashboards and delegates (e.g. Financial Advisers) who request access to the consumer data
  5. The foundation for an Industry Attribute Hub that will initially provide the “find” of Pensions and atomisation services and which would also be extended to cover other long-term savings produce and business processes where attributes need to be found and shared

Let me re-word these points to make it clear just what they imply

Those awarded the PFS contract will

  1. Be in control of the integration of all parties participating in the dashboard
  2. Control the messaging between them
  3. Have control of all data requests for values and other consumer information
  4. Control delegated authorities (note these are already defined as to Financial  Advisers)
  5. Have rights to unlimited scope creep into ISAs and anything else that the PFS wishes to annexe.

There are many more pages of bullets outlining the Proposed Approach  how the Trust Anchor would work, how delegate authorities would  be controlled and how a single PFS is “robust, flexible and future-proof”. I would share the presentation but I was only handed it in paper format.

The presentation ends with a number of diagrams that show how untenable anything but a single pension finder service is. There is even a table showing feature by feature how open pensions are incompatible with open banking’s architectural features.

It is clear that as much distance must be placed between open banking and open pensions as possible. If we were to apply the experience of open banking to the pension dashboard we would not start with a single PFS but with multiple comprehensive PFS’.

Come off it!

I don’t pretend to understand all the technology at play here, but I can see a land-grab and I know what happens when you grant a licence to control everything to one organisation.

The arguments put forward to support a monopoly are all spurious – all taken from the project fear manual and none based on the evidence of Open Banking.

A single PFS would speed things up

Remember the space race? The only way you get a race is with runners, giving one organisation a monopoly wouldn’t make for a race, it would make for a CrossRail style cock-up.

A single PFS would be more secure

The presentation suggests that a single PFS would provide the “narrowest attack vector” and that increasing the numbers of PFS would “widen the attack vector”. I have no idea why this is, it simply appears to be ripped from the “Project Fear” manual.

A single PFS would be cheaper

Multiple PFS would multiply the costs , the cost of assurance would increase as there would be multiple costs of assurance, multiple consents would increase complexity and therefore cost. Again I can see no reason why any of this should be true

A single dashboard would be more complex

This is based on there being a phased approach to the introduction of dashboards, There is also an argument about consistency – where one dashboard could produce different results than another, there is another argument that proliferation of dashboards would present issues for funding . All of these arguments come from deep within the manual of project fear but don’t stand up to any scrutiny in a digital world.

Freedom from Complete Control

If you think that giving one organisation total control over all the data that flows through the dashboard you have a different view of competition and markets to me.

Doing so risks

  • being held to fortune on delivery timescales
  • outage of the service with no back up
  • no protection over cost over-runs
  • being at one organisations mercy over what data you could get
  • having no say in the development of the dashboard.

In short we would be handing Complete Control to the Pension Finder Service. If you want to know what that feels like, you should watch this video from the Clash

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

The self-employed do themselves and the rest of us NO PENSION FAVOURS

Posted on December 19, 2018 by henry tapper

self employed 7.PNG

In addition to safeguarding the rising state pension, we will continue to support the successful expansion of auto-enrolled pensions, enabling more people to increase their retirement income with help from their employers and government; we will continue to extend auto-enrolment to small employers and make it available to the self-employed  (Conservative Manifesto 2017 – p 64)

Here are the preferences of the self-employed – the output of the study the Government commissioned on the self-employed

self-employed 4

As Jo Cumbo reports on twitter – this breaking news is not news at all

 

The reality of the report is that the Government are going to duck the thorny issue of auto-enrolment for the self-employed.

Statement of the bleeding obvious

The work done by Ipsos-Mori is good enough. It follows the well-trodden path of segmenting the self employed into various types from the “can’t get a proper job” through to the professional elite. There are plenty of useful charts which no doubt will be inserted into power points delivered by pension professionals who have no more will to change things than the Government.

I am not surprised that most self-employed see saving into a pension as not a very clever option.

 

self employed

Nor do I find it surprising to see the thinking behind these numbers

self employed 2

The question of framing comes into this. If you frame a question , as Ipsos-MORI seem to have done – so that “pension” becomes “wealth in retirement” – you get answers that respond to that framing. People who see retirement in terms of what has happened to them or their parents, will see property as a good deal.

self employed 3

But you can’t buy a sausage with a brick, something that is pretty important if you consider retirement as an extended period when you are not receiving an income from work.

An ill-defined problem

If the exam question Ipsos-MORI set out to answer was “how do we give the self-employed” what they want, then the report goes a long way to answering it.

If the exam question is re-set as; “are the self-employed doing themselves any favours” then the answer might be quite different.

And if the question is “are the self-employed doing the rest of us any favours” the answer is different again.

  • The self-employed are  major beneficiaries of the Single State Pension. Many will get the benefits coming from SERPS without paying the national insurance contributions.
  • They exist in a tax and NI advantaged bubble which those with the skill-set to exploit it – exploit. Those who know their way around – use pensions to increase their wealth
  • The poorest self-employed can’t save as they have no means to save – either financial or in terms of an auto-enrolment mechanism.
  • In the middle are those who – having gone their own way on employment – see no reason to be part of the private pension system either.

None of which makes much sense in answering the question “are they doing themselves any favours” – they are where they are.

But it makes it clear when answering the question “are the self-employed doing the rest of us any favours” – that they aren’t.

What should be done?

If the self-employed are allowed to go their own way, they will – in my opinion – become a burden on the tax-payer in years to come (and indeed today). The reliance on houses and businesses to pay replacement income in retirement seems to me – misguided. Their perception of pensions – and I’ve read the report in detail – seems often to be wrong. Their grasp of financial planning seems – overall- to be weak. On almost every count I see the majority of self-employed as doing themselves no favours – nor the employed any favours.

The Government remedy seems to be feeble in extreme. Despite the recommendation’s of Jamie Jenkins, Steve Webb and Matthew Taylor for real action on the self-employed, it seems we are left with a few nudges as Government strategy. Nudge doesn’t work as a way of getting people into pension saving unless the default position is “save”.

Doing it the other way is like trying to push a van up a hill – with the handbrake on.

self employed 6

 

 

Posted in pensions, self-employed | Tagged , , | 2 Comments

“They’ve got Charles Counsell – he’s one of their own”

Posted on December 19, 2018 by henry tapper

Counsell-Charles-2011-700x450.jpg

Charles Counsell – tPR’s new CEO

 

As a kid I always preferred home-grown, beat the expensive imported stuff.  So it seems does the Pensions Regulator – who’ve eschewed the great and the good and gone for one of their own.

Those of us who have been involved in auto-enrolment know Charles as the quiet man who made it happen.

Not one for the limelight, there is little known of Charles before he joined the Regulator in 2011. Here’s what he’s put about himself on Linked In

“Charles was appointed Chief Executive of the Money Advice Service in June 2017.

Charles spent six years prior to this as Executive Director of Automatic Enrolment at the Pensions Regulator (TPR) where he was responsible for the successful UK roll-out of this programme, working alongside DWP. In his time at TPR, the automatic enrolment programme led to over 7.5 million workers newly saving into a workplace pension from over 500,000 employers.

Charles was awarded an OBE in 2017 for services to workplace pension reform.

He has spent much of his career setting up and leading major change programmes in both the private and public sectors in the UK and overseas.

Charles is also a trustee of South Somerset Citizens Advice.”

Although Charles is from Bath (a neighbour of Steve Webb) he has a flat in Brighton and when he left tPR for the Money Advice Service, it was felt by those who knew him – that he’d be back.

A man to manage change

Like John Govett at the Single Finance Guidance Body, Charles is not a pensions geek. Indeed his qualifications are as a management (change) consultant.  He speaks feelingly of his time setting up tPR on the blog he wrote when leaving tPR to (temporarily) manage the Money Advice Service as it was subsumed into the Single Guidance Body.

It was as I was coming back to Brighton from my home in Somerset last weekend that it finally dawned on me.

This would be my last Sunday commute back to Brighton as an employee of TPR, a place I feel proud and passionate to have worked at for over 10 years.

To say TPR has changed since I started would be something of an understatement. When I first set foot in Trafalgar Place in 2005 as part of the team that would create TPR out of its predecessor organisation OPRA, there were around 200 members of staff – about a third of the people we still house in the same building complex today. After a short spell working elsewhere I returned to TPR in January 2008 to bring the Employer Compliance Regime team, who were then part of DWP, down to Brighton. Our remit? To set up and launch a programme that would give all employees access to a workplace pension. It would be called ‘automatic enrolment’.

There were six of us in a ground floor room at Napier House, faced with some enormous challenges. The first of these was to support DWP on what the legislation would actually look like. The fact that over half of the original team still work at TPR has been a real positive for the organisation, giving us a real understanding of the intricacies of AE law (I honestly believe there is nothing that Gillian McNamara does not know about workplace pensions and automatic enrolment), and a solid continuity of knowledge as the team has expanded.

The biggest challenge, once we had got our heads around the legislation, was how we were going to roll it out. We had many discussions with our stakeholders, NEST and the DWP, and were all in agreement that the implementation could not be a big bang with all employers going live at the same time…this was certainly going to be a disaster.  We would need to introduce the changes in a controlled and measured way. But how? I believe that the staging approach which was ultimately adopted, starting with the largest employers and setting the tone, was the single most important decision we made – and, even in retrospect, the right one.  Yes, it created a profile that looked like a mountain range to climb, but with careful planning and great care even the highest mountains can be climbed.

With change of the size of the AE programme there are always large risks, the biggest of which was how small employers would behave. Because of this unknown quantity, we insisted on the creation of a test group of employers – known as ‘pathfinder’, who we would monitor throughout the process to see how they fared and from which we could refine our approaches. It was from this learning that we developed our duties checker and five simple steps. This was hugely beneficial to employers.  It was also hugely beneficial for the industry – the pension providers, advisers and payroll bureau all of whom could understand how employers would react to AE and then adapt their processes.

Subsequent employers have all benefited from this, and those employers in this test group also benefited from the huge attention that was placed on them.

The fundamental building block of AE is known as ‘nudge theory’, and we’ve worked hard with the government’s behavioural insights team to make it work for our programme. It doesn’t just involve harnessing inertia – although that is a key element of AE – it’s also about getting the tone and messaging right in our letters, so employers feel like they’re doing the right thing, and that everyone else is too.

Rarely does someone leave so unassumingly. Charles is someone who puts the work first and himself second, this is his strength and he will need it.

An immediate challenge from Frank Field.

If anyone believes Charles’ current low-profile can be maintained, then they need to understand the nature of the role he is taking on.

Charles’ predecessor, Lesley Titcomb is the object of Frank Field’s opprobrium and many feel that it was Field’s implacable hostility to the Pensions Regulator that led to her resignation. As a tPR lifer, Charles is clearly going to have no easier time from the Work and Pensions Select Committee, than did Lesley.

I am not sure whether this approach is either right or fair, but it is the reality that Charles Counsell faces and the issues around DB funding and in particular the Regulator’s behaviour towards failing DB sponsors that will be most under public scrutiny.

One of our own

But tPR is not just about DB funding. To the world outside the DB bubble, the Pensions Regulator is about workplace pensions and their management through auto-enrolment.

To the 1m +  employers who participate in auto-enrolment, the Pensions Regulator is the boss.

This subtle change in pensions dynamics is missed by many who are close to DB.

To those who work in and with payroll, to the business advisors of the SMEs who drive auto-enrolment and to the workplace pensions themselves – Charles Counsell is “one of their own”.

A boring choice?

Appointing Charles Counsell as the CEO of the Pensions Regulator is a safe choice. Charles is not contentious – as Steve Webb is and would be. He is not a “new broom”, as Frank Field wanted and he’s certainly not the headline grabber.

Like John Govett at SFGB, Charles Counsell is a change management man. Someone who works from the inside to make things happen well.

Whether he can break from pupae to butterfly and promote the Pensions Regulator as Lesley Titcomb has, is his and tPR’s challenge. His appointment should give David Fairs space to get on with his agenda of policy change ,  I am sure he will need the support of those within Napier House and will get it. Charles Counsell will lead a well-functioning management team.

I expect that he will get the support of those who know how effective he has been in establishing auto-enrolment. I notice he has already garnered some support from Adrian Boulding (see comments).

But whether he will win the support of the wider pensions community – is still to be tested.

He can count on my support.

Posted in pensions, Pensions Regulator | Tagged , , | 1 Comment

“Deliver me a world without work”!

Posted on December 18, 2018 by henry tapper

In almost every conversation I have had about the purpose of a pension dashboard, up comes the word “engagement”.

Engagement has become the horse to the savings cart, “you can’t expect people to save more unless you’ve engaged them with their savings” is the usual cry of the dashboard-istas.

But all the evidence is that we engage with our pensions not when we’re saving, but when we want to spend our savings. The crudest examination of TPAS enquiries shows that most people are querying claims – not asking for help on how much to spend.

It is only in the marketing departments of the pension saving institutions that dashboards are seen as a means to get people to save more. Government happily subscribes to that myth as it gets them out of worrying about the auto-enrolment rate, the demise of properly funded DB pensions and the ongoing worries over the state’s in retirement liabilities – most particularly issues to do with long-term care.

But it simply isn’t the case that the dashboard is there to help people save more. The prospect of a pensions dashboard is appealing  because it helps us to spend our savings.

We are not helping people spend their savings

If you speak to pension pricing actuaries, they will refer to paying you back your savings as a “claim”, they will tell you about the “cost of claim” and they will look bleak.

Frankly, reducing the cost of claim, is greatly to be desired – if you are a pensions pricing actuary. The easiest way to reduce the cost of claim is to reduce claims. It is unsurprising that we are now hearing about the advantages of pensions as inheritable wealth, the cost of claim of paying a pension as a death benefit is very low, and the value of maintaining the pot under your management till death do it part – is very high. You do not need to be a behavioural economist to see that pension providers are rather keener to promote saving than spending and rather keener to promote pensions as a source of inheritable wealth than as a wage for life.

We are not helping people to spend their retirement savings because it is easier and more profitable not to.

The dashboard needs to come with a steering wheel

I will persist with my mnemonic AGE.

A is for Assist (helping people find their pension), G is for guiding people to sensible spending strategies and E is for equipping people to get their money back. The point of the dashboard – for anyone over 50 is primarily to get you retirement ready. AgeWage will get people ready for retirement, it will assist, guide and equip to spend.

People are not mugs, they know the value of compound interest, they know that they should do their saving when they are young and that is why the highest level of AE opt-out is among the over 50s, the over 50’s – who are prime customers for the dashboards are not playing catch-up with pension saving, they are thinking about making the most of what they’ve got.

To extend the metaphor, they aren’t interested in the dashboard so much as the car – they want the steering equipment and they want a financial satnav and they want it now.

It is not irresponsible to meet this need. It is deeply responsible. One of the biggest causes of pension mistrust among ordinary people is the fear that they won’t get their money back. The sooner the pensions industry stops talking about paying people their money in negative terms (claim) and starts promoting the value of what people have – the better.

Making spending easier

In case anyone hadn’t noticed, we are in an era of “faster payments”. If you want to pay someone money, you can request a same day transfer from your bank account and that money will arrive in someone else’s bank accounts that day.

But “faster payments” aren’t talked about by pension companies. When I visit pension admin centres, I am shocked to see customer’s birth certificates being used to verify a payment. We still talk of service standards to pay a claim of 10 working days – that’s no faster a payment than happened 25 years ago. Insurance companies and master trusts have spent a fortune on modelling tools to help us save more, but invested very little in making it easy to get our money.

What is more, when I read the IGC reports every April, I see very little attention being given to “claims experience”. The IGCs seem to be as blind to the problem as everyone else. When I talk to DC trustees about how they promote “claims”, they look at me blankly, I am talking about tomorrow’s problem.

But paying people back their money is not tomorrow’s problem, it’s the problem that most people have with pensions today.

We have got to make it easier for people to spend their pensions – it’s a matter of trust.

If we make it easy to spend, people will choose to save.

Mark Scantlebury and Vincent Franklin, the people who started Quietroom, tell the story of working with the Halifax through the credit crunch in 2008/9. The bank called in Quietroom to arrest the outflow of savings following the collapse of Northern Rock and Bradford and Bingley.

Quietroom turned the situation round, not by making it harder for people to take their money, but by training Halifax staff to make it easier. The perverse consequence was that people stopped trying to withdraw their savings and started trusting their bank a little more.

The pensions dashboard is likely to improve engagement and trust in pensions, but it will do so because it will make pensions accessible for people to spend. As with the Halifax, so with Pensions, a simple and open approach to helping people spend their money should result in people seeing the point of pensions.

Promoting pension spending

We’ve just come through ten years of austerity. The watchwords have all been negative “prudence”, “belt tightening” , “caution”.  Whether it be the corporate balance sheet or our pension savings account, there is plenty of cash around.

We have become so risk-averse over the past ten years, that this article is probably considered treacherous!

But I believe that now is the time to promote the pension dashboard as the way to learn to spend our pensions, not another ruse to get us to save more.

The joy of having a regular monthly income to pay the bills is mine. I have a pension, I chose to work- I don’t have to. I still save and though my savings have gone down in 2018, I still invest for the future. I can honestly say that pensions make me happy and allow me to live life the way I want to. That is because I have financial independence from work – my pension makes me self-sufficient.

We aspire to a world without work!

We save to get this self-sufficiency – we want the freedom not to have to work.

The pensions dashboard can assist, guide and equip us for a world without work – which is what most people want!

world without work.jpg

 

Posted in advice gap, age wage, Dashboard, pensions | Tagged , , , , , , , , | 1 Comment

The price of being sick in the head

Posted on December 16, 2018 by henry tapper

sick in head

 

“Sick in the head”? The phrase doesn’t quite work for Tina – a 38 year old Mum who suffered from post-natal depression and then found her life and critical illness insurances 30% more expensive than if she hadn’t declared it.  (£26 per month became £34 per month).

Tina came across as self-aware, articulate and yes – self-confident. Anyone less sick in the head you couldn’t hope to listen to. You can test my judgement by listening to Moneybox (Tina’s is the first item).

Tina’s objection was to being declared potentially sick in the head, when she had made a full recovery. The provider (s) she approached were explicit in why Tina had to pay more for her policy. Her beef was that she hadn’t been warned of the risk (and I guess that she’s now on a register of “impaired lives” – though the program didn’t explore this).

Tina made a wider point that the lack of transparency is unlikely to increase take up of life and critical cover by those with ” pre-existing mental health issues”.  I’m with her on this, people need to know whether they’re more likely to be sick again and if so – accept that they need to pay more for cover. If the answer is “no” – the solution is not to avoid the issue – but to underwrite and treat Tina as having a “clean bill of health”.

 

Tina

Tina and baby Dora

Transparency in life insurance

Increasingly the underwriting of insurance is becoming more mechanistic and less discretionary. What that means is that you should be able to test your likely premium online (as it seems Tina did). Critically, you should be able to  declare your medical history anonymously and find out which insurers are prepared to underwrite you for what you’ve declared.

JT

Johnny Timpson

Johnny Timpson, a friend of this blog, came on Moneybox, representing the insurers. He explained that this question is currently under review by the insurance industry. He pointed out that without underwriting (declaring this stuff), premiums would go up for everyone. The question is whether Tina should have been able to shop around anonymously and get the best rate for her.

It seems that price comparison sites cannot do this (yet). To repeat a statement from the program by another insurance spokesperson

“It’s better to speak to a specialist insurer or broker direct , something that price comparison websites are far less able to do”

Signposting

Where the program became contentious was over this question of signposting.

Johnny also referred people like Tina to specialist risk advisers (a type of financial adviser) who can guide people through the particular risks.

I must say, I didn’t pick up on the matter to which some very good IFAs took offence

Being sound in mind and body, Tina probably felt that she could guide herself through the minefield of applying for life and critical life-cover online.

The question is whether the fault lies with Adam Shaw as the IFAs are suggesting, or with the application process of comparison sites.

Here I have a dilemma that touches not just this debate- but the more general debate over life expectancy.

What is the price of being sick in the head?

Back in the day both Eagle Star and Allied Dunbar were owned by British and American Tobacco. Though Eagle Star’s advertised life insurance rates were generally worse than Allied Dunbar’s , smokers found they got cheaper cover from Eagle Star because Allied Dunbar applied a 30% rating (increase of premium) , if you declared you smoked. The shareholders of BAT were up in arms about smoker ratings as they implied cigarettes could harm your health. Ultimately, this was one of the reasons BAT sold on the life companies to Zurich.

In the short term, brokers may be able to navigate people who have a history of mental illness to insurers who don’t “rate” them. Because of the less strenuous underwriting, the premiums (like Eagle Stars back in the day) are likely to look more expensive – but they could turn out the cheapest (as Eagle Star’s did for smokers).

Tina, being totally recovered and feeling that her depression was a “one-off” would no doubt want to go for the lowest premium for her circumstances. She is effectively waiting for the price comparison sites to catch up to the standards of the IFAs who can apply the human judgement needed to avoid Tina’s predicament (she is now known as an impaired life to all insurers).

But in the long-term, as we understand data better, post natal depression of the type Tina suffered will get better understood – as will its signposting risks of future illness with the life-threatening properties that some mental illnesses carry.

The truth is that we don’t know the price of being sick in the head and so long as we don’t, people like Tina can insure with insurers that don’t rate them and avoid insurers who do. Or at least they could if they had the information upfront.

Insurance works the other way too

If Tina was applying for an annuity – rather than life insurance – she might find some annuity providers taking  a view on her medical history and giving her a better income for the rest of her life as an “impaired life”.

There is however a cogitative bias in our DNA which stops us telling people some aspects of our medical condition and I fear that declarations of mental conditions is right at the top of the list of undeclared conditions. That is because people are ashamed of being sick in the head.

Anyone who watched the brilliant article on mental illness in the horse racing industry, will understand how hard it is for professionals of any description to declare mental illnesses and society is doing exactly the right thing today, in getting rid of the stigma of being sick in the head.

 

Transparency works both ways too

If we are to take mental health issues seriously, we are going to have to work out the price of being sick in the head , not just today, but on our future mortality and morbidity (the chance of getting sick in the head again and the chance of it killing you).

If some mental conditions (Tina’s may be one) are acute but not chronic – those conditions can be excluded (as Tina wants). If they are indicative of a chronic (ongoing) condition, then they should not be excluded.

The minefield of impaired lives (referred to by Dennis Hall) arises from there being no certainty on this – and this arises from their being too little research on the long-term prognosis for people like Tina.

In the short-term , so long as the opportunity to arbitrage against insurers is around – then using an insurance broker is cost-effective. But I suspect that in the long-term – most people will want to compare the market using well “compare the market”.  After all, if you can get this sorted out without the heartache of discussing sensitive matters with a stranger – you probably would.

Should the price of being sick in the head include extra financial advice?

Which puts the ball in the court of the comparison sites to get their underwriting more transparent and more user-friendly. If they did, then Tina and many like her, would be able to get on with insuring their and their family’s futures  a little easier.

As with pensions, requiring people to pay advisers to tell them what to do, is more likely to exclude people from advice than anything else! 94% of us choose not to pay for financial advice – which suggests that on-line solutions are the way forward.  The price of being sick in the head need not include the cost of using an insurance broker.

transparency

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Finding our pensions

Posted on December 15, 2018 by henry tapper

find a pension 2

 

In a vigorous debate at DWP HQ, two quite different approaches to finding pensions emerged. This blog helps people to understand what the debate is about and why it matters to everyone.

It matters because there is some £20bn. lost and because much of the rest of the money in DC seems so distant from its owners – that it might as well be. Putting people back in touch with their money is what makes the pension dashboard such an attractive thing.

find a pension 4

The received idea

The Government is minded to award a contract to a firm or consortium of firms to deliver the pension finder service that is a key part of the pensions dashboard.

While the department recognises the commercial opportunities created by multiple dashboards, it believes that there should only be a single PFS which, as a matter of principle, is run on a non-profit basis and with strong governance. The industry delivery group will need to decide how best to deliver a PFS and how it can adapt to changes in approach over time.

The arguments for a single (closed) pension finder service are four

The proponents, principally the organisations who have been expecting to be awarded the contract to deliver argue that a single pension finder service would be

  1. Less expensive
  2. Less complicated
  3. More secure
  4. Less burdensome on pension providers.

All these arguments are intuitively right. When I say “intuitive” I mean they feel they are right without conscious reasoning.

Those who argue that the market will dictate the right number of pension finder services, do so from a more cerebral position.

During the meeting it became clear that the intuitive approach, attractive as it seems, has logical inconsistencies and the potential  to deliver a second rate service at a high cost.

Arguments against a single pension service

Pension Bee 8

There were a number of people in the room who were expert on the development and delivery of open banking.

There was no credible argument as to why a single pension dashboard would be more secure.

They pointed out that the pension finder service is not in itself a dashboard, it just points to where people’s pension rights exists. For a pension finder service to really work, it will have to authenticate (verify) who people are and then ask all providers whether they have pension rights for that person.
This means building what’s called a “technical architecture” that allows a message to be sent to all regulated pension providers included by compulsion from Government legislation.
This interrogation does not need any manual intervention , the request is made electronically through an API – which is a digital gateway to the data a provider holds secure. Think of the API as a password protection system which once passes gives free access to search.
The argument against a single pension service is that you do not have to restrict the number of people looking for data (pension finding) – the market will do that. But whether the search is by Pension Finder A or Pension Finder B makes no difference to the security of the system.
So long as any pension finder service adopts the protocols and data standards laid down at outset,  it is hard to see what a single pension finder service delivers in extra-security.

Less complicated

Arguments were put forward in the meeting that the number of pension providers and pension pots made pension finding very complicated. This is currently true, but that’s because there is no way to search the pension genome for people’s records. What you are actually searching for – (a combination of name, national insurance number and date of birth for instance) is very straightforward.
The hard bit is to get every data manager to adopt the API and allow the pension finder services in to have its look around. Actually, finding pensions should be very simple as long as a single data standard is adopted. So it has proved in open banking.
Again, the intuitive argument – “pensions are complicated- let’s not make them more complicated”, sounds good – but it’s not based on any rational argument. It is no more complicated having four search engines looking for data than one, it is only more complicated if they look for data in different ways.

Less expensive

Again – intuitively you’d think that building one big search engine to find pensions would be cheaper than building four or five. But again there is little logic behind this. What is expensive is the adoption of the APIs and the cleansing of the data needed to make sure pensions are findable.

And there are important arguments here in favour of a number of pension dashboards.

Firstly, granting a monopoly to one national service is precisely what Governments don’t do.  We don’t have one Gas Company, one Rail Network, one Internet Provider one Workplace Pension. If we did – the public would demand its break-up. These monopolies happen only when there is no alternative – for instance there is no alternative to one lifeboat rescue system.

It is very hard to see how granting a monopoly to one pension finding consortium can be in the long-term interest of the consumer.

It is also very probable that the one provider will for some time fail to deliver value for money. We know that things go wrong with all Information Technology and that outages occur in service, Sometimes these are planned, the pension finder service would need to go offline for maintenance and upgrades. Sometimes outages are unplanned, as happened recently to 02’s internet service, When things go wrong for a national provider , such as a single pension finder, things would go wrong in a big way,

Not only does a single service risk people having to pay more (through levies) but it risks delivering less and creating frustration.

find a pension 5

Less trouble for providers

This fourth argument – which overlaps with the argument about complexity, quickly falls away when you fully understand that what is proposed is a straight through process.
Providers will no more know they are being searched for data than I know that you have read this blog!
The trouble for providers comes when people discover mistakes in the data they see or when they can’t find the data because it is mis-recorded or because the search engine is down.
What I think is behind this concern is that providers feel more comfortable dealing with a pension finder service run by their own. It is true that a single pension finder service would be run by “the usual suspects” rather than “challengers”.
To name names, the usual suspects in the room were Origo , Equiniti and ITM and the challengers were Pension Bee, Pension Sync and Altus.
Amusingly – one of the usual suspects referred to the challengers as “any old Tom, Dick and Harry”. You can guess how this went down.

 

Mood music

Normally  consultations are pretty boring – take the CDC one. Most matters have been decided and the consultation tweaks the tail of legislation.

With the Dashboard consultation I am not so sure. The debate on a single pension finder service gets to the heart of deliver, asking questions of who the dashboard is for and what protection the consumer really has.

In the fascinating debate had between the Fintechs , I saw precisely the dialectic I had expected. On the one hand, the established players looking to  deliver as they wanted and on the other – the challengers – looking to move things on.

The mood music within the DWP is I sense changing, the Pensions Minister has been spotted in Pension Bee’s offices, the DWP are opening itself up to these debates and genuinely listening.

If I was wanting to take a bet on this , I would keep my money in my pocket. The Consultation has given the single pension finder service a big tick – based on intuition, but momentum is with the challengers  – who are mounting better arguments and delivering with greater fire-power.

The argument is far from over.

find a pension 3
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Assistance, guidance and equipment for the future – that’s what we all need!

Posted on December 14, 2018 by henry tapper

I am off to Westminster this morning to meet the new boss of the Single Finance Guidance Body. We’re not going to be talking dashboards – he’s in dashboard purdah till the consultation’s over. My agenda is AGE – Assist-Guide-Equip.

I don’t presume to think for everyone, or talk for anyone but myself, but personally I think we’re rather ignoring the role the state has and will play in helping ordinary people figure out their financial futures – especially the part of the future where money stops coming in from work and starts coming in from pensions.

We  underestimate the importance of this transition, we believe because we feel we can work for ever, that it will always be thus. But it isn’t. Many people find in their fifties that the opportunities and will to keep making money diminish. As John Cooper-Clark wrote of ageing bikers “Tyres are knackered, knackers are tired”.

Preparing for the longest holiday we’ll ever take

The realities of our older years are difficult to think about. The deterioration of mind and body is complimented by the joys of reminiscence, the peace of final years that should be devoid of stress – a time to enjoy families. While we have been mentored by parents and in the workplace, in retirement we are the mentors, the people others turn to.

It’s difficult to think about because there is no career path – all of us are on our own. Which is why a little guidance along the way is very helpful.

In my current thinking , I’m interested in how we help people into this new stage of life and particularly how we prepare them for the financial side of things.

I am sure that the majority of us will not be well-prepared, we’ll muddle through and look back and regret financial decisions we took that were not thought through. The decisions we take in our fourties, fifties and sixties about debt, savings and protecting ourselves and our families can and should last us a lifetime. That’s why I’m interested in simple concepts like the AgeWage- the replacement income we provide ourselves in our later years.

Bringing the Single Financial Guidance Body into being

We are now but a fortnight away from the arrival of a new name in financial guidance. SFGB doesn’t have any obvious resonance, it is a name not a brand – it inherits the brands of MAS and TPAS and most of the people who worked there, but it has to forge a new identity and relevance – which – it’s hoped – will make it the obvious place for us to go for assistance, guidance and to be equipped for later life.

John Govett is the new CEO, I want him to know that I’m rooting for him and for the SFGB. It’s a national resource and I want it to be known nationally. I will promote it.

At the same time, I will need it- as I needed TPAS – for myself and for the many customers of Pension PlayPen and AgeWage who need personal financial guidance and help for staff who often turn to their employers first.

John Govett has the job of making SFGB the next step for millions of us – who may start our exploration of the future tentatively – needing the kind of mentor that they’ve had all their lives – but won’t have in the future.

John has a lot of responsibility on his shoulders and he could do with support. I will be speaking with him this morning about how he can rely on mine and how I hope I can rely on his organisation.

The need for universal relevance

The Government has made some changes to the way we can organise our futures.

  1. We have a state pension that pays out a single amount from a different time. Understanding how this fundamental building block of the AgeWage works is a challenge for us and for SFGB
  2. We have new ways to spend our pension savings – PensionsWise (or whatever it will become) was set up to help us understand what pension freedoms mean and give us next steps in using them
  3. We have matters we don’t like to think of, the implications of failing health, the changes to the way we plan for this are yet to be announced but the strain on the NHS and younger generations is getting greater – the SFGB can help us here too.

I haven’t mentioned the dashboard , and I won’t in this piece any more than to say that the DWP’s current plan is that SFGB is where the dashboard will sit, at least for the first few years till commercial dashboards are unleashed on the poor unsuspecting public!

The current thinking appears to be that the Pension Dashboard becomes the first new deliverable of SFGB. This should make it universally relevant as Pension Freedoms should have made PensionWise relevant. That only 1 in 10 of us use our shot at PensionWise is a mark of failure not success. The dashboard (and PensionWise) should do better.

We need SFGB to be universally relevant, pensions and pension saving and debt management and long-term care funding should be things that all of us think about and prepare for. Of course not all of us will, but we can and should do better.

 

 

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The hidden costs of charges are pants!

Posted on December 13, 2018 by henry tapper

underpants.PNG

High charges are pants

Yesterday’s Moneybox with Lesley Curwen was a cracker. It brought together the voices of a number of investors together with the views of Michelle Cracknell, Chris Sier and Gina Miller. All were clear and interesting

But the best contribution came from Jeff Houston , Secretary of the LGPS Advisory Boardad  who cited the West Midlands Pension Fund and made the issue real. West Midlands thought it was paying £11m but discovered it was paying £90m in investment fees. It  has subsequently brought this cost down by £30m. The £30m saving is being put to work keeping the streets of Wolverhampton clean, the libraries of Dudley open.

High charges are pants, as indicated by the pant-like illustration given us on the MoneyBox website!

pants 2

In total the LGPS pays £1bn in fees (Jeff admitted even this may not be the whole iceberg),  While Jeff ruled out suing fund managers – he promised some tough conversations to come.

The council tax payers and those benefiting from the services of local authorities in the West Midland have a lot to thank those running the fund. All over Britain pension funds are waking up to the fact that they can not only know how much they’re paying for costs and charges and (where they find they are overpaying) save their fund and its sponsors money.

This seemed pretty real to me,

Making money real for ordinary savers

The work done by Chris Sier is interesting to Jeff and to those running the big DB pensions that many of us are fortunate enough to still be in.

But it doesn’t really do it for the man or woman on the street (even Chris admitted he was bored by looking at the IDWG template).

What really matters to ordinary people , as has been confirmed by many surveys, is how much money they have to spend when they reach later years. This means comparing more than the minutiae but the total impact of what people pay and what they get for their money.

The only way we can compare what we’ve had as value and paid as money is against what others are getting and paying. This is called by the industry  “benchmarking”.

We do this all the time, look at the way we shop in supermarkets, or compare costs on Money Supermarket, or consider the value of a Christmas Tree on a market stall. We need a reference point before making a buying decision.

A chap came on Moneybox who had been trying to work out the costs of his Scottish Amicable Policy but said he’d got nowhere. Michelle Cracknell rightly pointed out that if you’ve got an old policy – review it.

But Chris Sier explained that trying to work out the internal rate of return on his pension was really hard and even when he’d worked out what he’d got from his money, he had no comparator with someone else’s return.

It was again left to Jeff Houston to tell us that by publishing the costs of actual charges of each of the funds run by members of the LGPS, he was giving his members the way to compare the value they are getting for their money.

Until we can compare how we are doing with other savers using a single means of comparison, ordinary savers who take their own risks, will be at a disadvantage.

This seems pants to me!

pants 2

It can be done

Let’s go back to the idea of Chris Sier’s that we measure our pensions by how our contributions have done (using the internal rate of return of our contributions).

What if every IGC and every Trustee and every SIPP provider and every Insurer with a load of legacy pensions agreed to publish an internal rate of return on your pension pot, based on the contributions, the growth and the amounts deducted from your pension?

What if, instead of this being an abstract number – it was presented to you against the internal rate of return against a fund invested in an average way – an average asset allocation, average fund management – average costs?

Suppose that instead of presenting you with a 14 page spreadsheet or even a 14 page pension illustration, this information was presented to you on your phone as a single number between 1 and 100 with the average set at 50 and your score being above or below that?

Doesn’t that sound the kind of thing that we should be trying to do? Does that sound pants?

age wage simple

 

Posted in auto-enrolment, corporate governance, pensions, pot | Tagged , , , , , , | 4 Comments

The People of the Abyss

Posted on December 12, 2018 by henry tapper

people abyss

I went to Sherborne yesterday on a steam train. hook

 

I decided to spend the long journey home reading the People of the Abyss by Jack London – an account of London’s time with “vagrants” in London at the turn of the 20th Century. It is harrowing and desperate stuff, few of the people he lived with were likely to live long and London is constantly referring to his capacity to go back to “white clean sheets” – while vagrants had no hope of immediate or future comfort.

We still have people in the abyss of despair, living day to day to avoid death. I walk past them on the streets of the City, they bed down on my doorstep, I watch the callous behaviour we meet out to them on my TV. The problem is not abstract – it’s a real crisis every Christmas.

A couple of years back I spent a few days with today’s vagrants – who suffer a little less for Crisis at Christmas’ work.  Many of the people I saw were so outside the mainstream that they were not drawing the benefits they were entitled to. These included the state pension. The abyss is deep and for some it is hard for people to find the help to get what they are entitled to.

120 years ago , policemen used to roam London at night moving vagrants on so they could not sleep. They had to sleep during the day because they did not sleep at night. So the vagrants could not work and were excluded from hope.

We all have a responsibility for stopping people falling into the abyss. The abyss will not go away, it is the hopelessness that we call despair. Many of the people I see are in that abyss and we can only make their lives a little better by being kind to them.

But we can and must stop people giving up hope and dignity and entering into that state of hopelessness from which it is so hard to get out.

A beautiful and contemplative day

For me yesterday was beautiful, sad and tender. My mother heard that she can have a second knee operation which gives her the hope of rambling the Dorset hills again.

I sat on the other side of the aisle from a young man who was taking someone I assumed to be his grandfather out for a day on the train. It turned out the old man was just someone the young man was doing a favour to. What a fantastic act of kindness.

Reading Jack London’s “the People of the Abyss”, thinking of how my 86 year old mother will not give up hope and watching the unlikely couple across the aisle from me made me want to do my job even more.

How this touches pensions

As some of you may have read, I’ve been writing answers to readers questions in the Times. Most of the readers don’t have rich people’s problems. The one I have this week is from a lady who has £3,000 in retirement savings and is 59. I nearly wrote “only £3,000”, but that wouldn’t be right. This lady wants to start voluntary saving now.

The £100 a month she can save can be magicked to £125 by the Government incentive even if she doesn’t pay tax. She is self-employed and poor but she can invest in the NEST default which is an investment fit for a king. She can use the money she has saved in a bank account to pay off what’s left of her mortgage and boost what she can save for the future. She will have a house and a state pension in 7 years and she’ll have made the most of the little she has.

When people turn their minds to it, they can make a little go a long way. The problem is that many people like this lady, don’t have the hope to do something about their finances and get dragged into a financial abyss.

We live at a time when we talk about financial inclusion, demand people take financial advice and exclude 94% of the population from the kind of robust support they need to plan their finances. The financial exclusion practiced today is unintentional but very real.

When I wrote my response to the Times, I felt the hand of an unseen compliance officer telling me not to provide her with a definitive course of action, but if I can’t – who can?

Jack London didn’t take no for an answer, he went to the People of the Abyss and he heard what they were saying and he wrote about it and people read what he was saying.

Jack London was one brick in a road that led to a welfare state that means that the kind of horror he wrote about is much rarer than today

But people still die on the streets and they are usually old and financially excluded from what we enjoy. That can’t be right – we have to find a way to make homelessness a thing of the past. We have to help people manage their finances to include them in the benefits us lucky ones enjoy.

 

 

Posted in pensions | 2 Comments

Auto-enrolled through L&G/Ease – read this.

Posted on December 11, 2018 by henry tapper

This blog is written for employers and advisers who have used or assisted with the ITM eAsE link to L&G’s workplace savings Plan. You are where you are – here is some context and some thoughts on your position]

For many years the L&G workplace savings plan was the #1 choice for small businesses looking to offer a personal pension solution to staff through auto-enrolment.

L&G more or less wrote the book in 2012 with both their group personal pension plan and its mastertrust; employers such as Marks & Spencer, Boots and Asda signed up. More recently Tesco has joined them. Attractively priced and offering the support of an impressive investment operation (LGIM), L&G continues to service its large and medium sized customers well.

L&G pioneered the IGC, setting up before others,  funding the IGC to run annual meetings with employers and offering a degree of transparency through its chair statements that set it apart. Governance on its master trust was and is equally impressive.

The strategy of leading the charge on auto-enrolment seemed consistent from CEO Nigel Wilson down. L&G had a strong social purpose and spoke out on it. It was the first organisation to offer a credible default that  took responsible investment seriously.

I am a Legal and General investor, investing in Future World, I have been described both within L&G and without as an advocate for their way of doing things. As regards the kind of company I work for (with 300 employees and strong employer contributions), L&G is a standout operation.

But not all employers are large and loaded.

One of the deals that L&G won on the way to becoming a dominant force in UK workplace pensions was a contract with the Federation of Small businesses.  The FSB is an important trade body to smaller companies, those with less than 50 employers. These employers are often paternalistic and take their pension obligations seriously. Many small employers contracted with L&G because it was the default provider for the FSB, either with the FSB’s financial services arm or with other employers.

Because L&G remained a stand-out workplace pension, it was often the choice for smaller businesses using Pension PlayPen, the online “choose a pension” service offered by me – with analytics from First Actuarial.

But somewhere, somehow, Legal and General as a life assurance company started to change. The management of the company shifted from the pragmatic customer focus of Kingswood to the more abstract wold of Legal and General Investment Management. The IGC – once led by Paul Trickett with members from the life company who knew small businesses changed too. Now the IGC is heavily focussed on investment and so is L&G pensions management.

There was a problem with workplace pensions; the smaller employers that had arrived from the FSB and through Pension PlayPen and a number of solid IFAs, were being offered a deal that did not meet LGIM’s target margins. A decision was taken to cut costs by automating service.

Over the last three years , the direct support offered to small employers and their business advisers by L&G has turned from excellent to virtually non-existent. Instead of contracting directly with employers to provide payroll with a supported service, new customers were required to use one of two external payroll interfaces. The first Pensionsync offers a link between employers and L&G which is free to use and works well. The second – is offered at a cost by ITM and though it has had some problems, has generally done the job.

A risky strategy

I have warned – on this blog and at IGC meetings – that the dependency on external software to solve a core issue for auto-enrolment – the payroll interface – is a big business risk for both L&G and its employers.

We have now seen one of the two providers crystallise that risk. ITM – who offer the “eAsE” interface will be ramping up its prices by a huge percentage at the end of January.

This risk was anticipated by Sage and other large payroll software suppliers – wary of the consequences of a failure or change in strategic direction. They demanded a direct interface with L&G and would not endorse any middleware approach

ITM is not failing, but since its MBO last year it is changing its direction. It clearly wants to make eAsE profitable in its own right and will argue that this huge price rise is justifiable on that basis.

But it leaves small employers contracting with L&G through Ease with a problem. Here is that problem, as described to me by one IFA with a large book of clients using L&G through eAsE.

As you know, it has been a painful journey to get to this stage:

  • Tie up with ITM and PensionSync
  • Subsequently 18+ months of issues with the ITM system itself
  • For a client who left a Payroll Bureau who had an ITM license, L&G would open up their old ‘Manage my Scheme’ service to allow employers to continue to administering schemes, although it would take 6 months to setup access.
    • L&G then further removed the ability to allow an employer to use the old L&G ‘Manage my Scheme’ service for employers who left a payroll bureaux who had a license of ITM. Despite older employers who setup in the pre-ITM era being able to continue to use.
    • An employer also couldn’t switch to a PensionSync enabled solution as L&G refused to take action despite pressure from Will, Chris and the team.
    • Essentially rendering their scheme redundant.
  • Ability removed for us to speak to anyone at L&G regarding clients plans with an email helpline the only method moving forwards.
  • Final nail in the coffin, ITM revamped pricing structure, alternatively a very tight timeline to make other arrangements by 31st January.
    • Essentially if the new increased upfront payment is not made by 31st Dec, all ITM L&G schemes redundant at end of January.

Thinking aloud, three positive outcomes (or minimum expectations from L&G) would be:

  • In event of needing to transfer scheme to alternative provider
    • Assistance in form of apology letter we can provide to employers explaining the decisions they have made to help manage a smooth transition.
    • Contribution towards our and/or employer costs associated with transferring to alternative arrangements.
  • Allow ITM employers to access old Manage My Scheme service within the designated timeline or contribution towards increased ITM fees
    • Here we would require guarantees from both L&G regarding the longevity of this solution and thus over the longer term I think I would prefer the former solution.

Finally, we are (an IFA) with 200 or so L&G schemes but I suspect the changes are impacting the FSB Workplace Benefits/IFS Employee Benefits who were also sucked down the ITM route.

A test of L&G’s metal

This kind of thing happens. L&G were not aware of the action of ITM and might argue that ITM is an independent organisation whose pricing is no business of theirs. I am pleased to see that the initial response of L&G management so far has been positive. They have recognised that this is their business problem and promised action.

The positive approach adopted by the IFA above is an obvious course to follow.

This is an opportunity for the IGC to exert some control. While the cost of auto-enrolment itself – fall to the employer – when those costs become intolerable, the consequences can fall on the member. High operational costs for auto-enrolment mean less in the kitty to fund the pensions. In extreme circumstances – they can curtail the activities of the business.

The fundamental problem goes back to the decision by L&G to move from a supported to an unsupported approach to small employers. This is not the time to argue whether promises were broken, but it is a time when attention has to be made to the matter in hand.

The ITM eAsE issue needs to be addressed immediately. January is a tough month for payroll and especially for the accountants who run payroll bureaux. This is not the best time to reorganise auto-enrolment and L&G must recognise some responsibility to rectify.

EAsE was and remains an endorsed solution. If that solution is no longer tenable for employers, it is imperative L&G takes back control of the payroll interface.

To quote from LGIM’s recently published “Retirement Income Riddle”

“As an industry we have a duty of care to support people in their decisions, to ensure they get the retirement they want, need and deserve. Providers, like ourselves, need to do more to help engage consumers and guide them to making better decisions”.

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The fight for proper dashboards is just beginning.

Posted on December 10, 2018 by henry tapper

wizard.jpeg

 

The collective intake of breath that greeted the eventual publication of the Government’s feasibility study and consultation paper was palpable.

Now – a week on – perhaps we can stop congratulating each other and get on with delivering a service that people need and want.

There are two outstanding matters to be addressed

  1. There are £20bn DC assets lost and unclaimed today in Britain
  2. There are going to be 50m abandoned pension pots by 2050.

At a Governmental level , these matters spell trouble for a retirement savings system.

For pension providers it spells an increasingly expensive claims experience

For ordinary people it means frustration and delusionment with a savings system that seems keen to take their money and not to give it back.

Off to see the wizard!

This morning I am off to DWP HQ for a workshop on how the dashboards will be delivered. Except dashboards  plural won’t be available in any meaningful way for 3-4 years after the pilot dashboard is up and running – and the pilot won’t be up and running till the back end of next year at earliest. I have heard these timescales described as challenging – given that the dashboard project kicked off in 2016 – I disagree.

If you could find your pensions, the dashboard could give people a chance to do something about abandoned pots, but finding them doesn’t look particularly easy.

Although there are plenty of numbers in the consultation document – nobody really knows how many pots are out there. We know that NEST has 7.1m, Now 1.8m and People’s 4m. The IGCs typically look after 1m pots and there are around 25 of them (including the GARs which should be IGCs. That leaves the unchartered waters – the 40,000 or so DC single employer DC schemes, the £400bn of non-workplace “legacy”DC and the SIPPS which are about the one part of the system that should be getting advice.

Finding pensions is going to be tough and it can only work if data is being mined in a productive way. It’s been nearly two years since Mark Falcon of Which wrote this excellent article on how to do open banking

What is clear today is that the challenges in terms of data sharing  needed to find pensions are very similar to the challenges the banking industry was facing then,

The essential message of the paper was this

The most effective way to promote competition is to ensure independent ownership and control

This call (and many like it) led to the intervention of the Competition and Markets Authority and to the break up of cosy relationships between those in the payment business.

The Pensions Minister – in his paper – repeatedly references this work but confusingly suggests that we can learn the lessons from Faster Payments – only once we’ve made the mistakes that Open Banking avoided.

Of course Pension Ministers are wizards, they can change things – and change things for the better. I’m going to the DWP this morning to see a Pension Wizard and I’m going to point all this out.

Dashboards that can help

I’m also lining up a meeting with the new CEO of the Single Financial Guidance Body – John Govett.

He’s now got the tricky problem of having to deliver a service that people want , not the service that the financial services industry seems to think they need.

My experience with TPAS is that what most people want – when they seek guidance is assistance in finding pensions , guidance as to what to do with them and the equipment to get on and do the job.

Dashboards that can help will do all these things, but a dashboard that doesn’t help will become an albatross around the SFGB’s neck.

The consultation is sub-titled “working together with the consumer”. It is not entitled “how the pensions industry and Government can maintain the status quo for a few years more”.

I will prevail upon Mr Govett to look beyond the end of the ABI’s nose for solutions to his problems. The SFGB is a delivery mechanism, it should not be turned into a governance body. The SFGB should be looking at new solutions to old problems , not old solutions to problems that don’t exist.

To this final point, the industry consensus that dashboards are a way to increase the amount people save is totally wrong. The dashboards are a way to help ordinary people find and then spend the money they have saved. Like with TPAS, the vast majority of pension custom that the SFGB will get will be from people close enough to retirement for pensions to be real.

We do not want to be told to save more (opt-out rates for the over 50s are the highest of any cohort), we want assistance guidance and the equipment to spend our money.

So I will be telling Mr Opperman and Mr Govett the same thing. We want our dashboard and we want it now. We don’t want it delivered old skool, we want it delivered proper digital. We don’t want lectures on saving more, we want equipment to spend better.

The campaign for proper dashboards is just beginning.

Posted in Dashboard, pensions | Tagged , , , | 1 Comment

Why do people take pension choices that make them sad?

Posted on December 9, 2018 by henry tapper

drawdown 4.PNG

I’ve been reading a short report by Demos for Legal and General. L&G provide annuities and want to understand  the fall in the numbers of annuities purchased.

The retirement riddle is that the choices people are taken since the pension freedoms of 2014 aren’t making them happy, well or putting them in control.

I have to say I found some of Demos’ analysis baffling. It included “behavioural bias” – limited annuity purchases are plausible due to psychological or behavioural bias”. I’m not quite sure what this means but I’m totally sure that the following statement is incomprehensible to all but the most ardent behavioural scientist.

Hyperbolic discounting. “When people assign values to future pay-outs, the discount rate used to evaluate intertemporal choice is not fixed but varies in line with the length of the delay period, size and signs of the benefits. This effect is called hyperbolic discounting and is interpreted as ‘temporal myopia’.

I think  it’s simpler than that, I think people can see a bad deal a mile off. Investing their life savings into gilts with negative real returns is not a good way of providing a wage for life.

The report falls short in convincing us that people should be buying annuities. Given the choice of not buying an annuity, most people take that choice – whether in the UK, the US or America. Only in Switzerland are annuities popular, but that’s because they offer artificially inflated rates by a Government determined to get people to insure against old age.

“The retirement income riddle”  is still a good work

Despite some very obscure passages and a pretty dreadful introduction, the second half of the report is very good indeed. This is because it focusses not on academic research (see above) but on conversations with ordinary pensioners, some of whom are relying on an annuity and some on income drawdown,

If their research is correct, low earners do not feel as happy when they drawdown as they do when they have a secure income. The Demos people’s findings are interesting, if  a little worrying.

People on drawdown find it harder to take financial decisionslg drawdownPeople on drawdown are less happyLG drawdown3

and people in drawdown don’t feel in control

drawdown lg 3

This is worrying because of the £36.8bn which came out of DB last year – most is in drawdown.

This is worrying because 500,000 people a year are exercising their pension freedoms and very few are buying annuities (for good reason)

This is worrying because – as the report says about 20 times in its final section, there is precious little support available to people – and when it is available – it is not exactly going down a storm (only 10% of those eligible have been for their Pension Wise interview).

The report concludes on a sobering note.

As an industry we have a duty of care to support people in their decisions, to ensure they get the retirement they want, need and deserve. Providers, like ourselves, need to do more to help engage consumers and guide them to making better decisions. We hope this report, and our supporting activity with colleagues in the industry, enables this.

There is a more fundamental problem. People do not trust their provider to give them independent advice any more than they trust their annuity products.

 

Posted in advice gap, age wage, pensions | Tagged , , , | 7 Comments

Contingent charging – “commission” by another name?

Posted on December 8, 2018 by henry tapper

ifa commission

Along with Al Rush, Jo Cumbo , Michelle Cracknell – I was interviewed yesterday by the BBC Moneybox team for a Christmas special on pension transfers.

It’s always good doing these things as it forces you to say what you really think.

Yesterday I found myself talking abut the curse of contingent charging which – like Paul Lewis – I consider as commission by another name.

In this I disagree with Al Rush who uses contingent charging to help what I consider “vulnerable customers” with special needs for cash rather than income.

For Al, the opportunity to charge contingently allows him to advise people on their DB pension rights in a way that he couldn’t if he had to demand a cheque upfront.

So when I wrote a blog on this earlier in the week, I was struggling with the conflict between “financial inclusion” and “consumer protection”. Frankly 9 times out of 10, I would argue that if you haven’t got the cash to pay for advice, you don’t have the cash to take the risks of pension drawdown.

Nic Millar pulled me up on “spotless” – (of course all advice should be spotless), I should have said “proportionate”.  The FCA are rightly worried that the proportion of those who pay a contingent charge and are worried about the advice is much lower than those who pay for the advice independently. In one sense  the risks of taking a transfer should be disproportionally promoted to those paying by a contingent charge. The Transfer Value Comparator should be posted at the front of any suitability report paid for by a contingent charge.

The other relevance of the word “proportion” is to do with numbers paying for advice out of the fund. In my view, the numbers out of all proportion to the need. The need for contingent charging is a “special need”.

The FCA’s definition of a vulnerable customer is interesting

A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.

The FCA’s report on the quality of transfer advice  contains this alarming set of statistics

As part of our review of the 18 firms’ processes we reviewed the advice they gave on 154 transfers. Our suitability findings were as follows:

  • suitable: 74 (48.1%)
  • unsuitable: 45 (29.2%)
  • unclear: 35 (22.7%)

These results are little different from their findings in 2017 and compare unfavourably with their research into retirement income advice where over 90% of advice was deemed suitable.

IFAs know what they are doing and what they are doing is providing unsuitable or unclear advice over half the time.

Can we really pretend that the disproportionate incidence of poor advice is down to IFA ignorance or lack of talent? I don’t think it’s that. I think the reason that IFAs get it wrong is that they have to distort things to get paid.

This is the problem with contingent charging, it distorts good quality advisers into poor quality advisers, it is storing up problems for the future and that the FCA has yet to address this problem – is worrying. The door has been left open for the FCA to ban conditional charging – I have called for that draconian action in the past

I am now going to change my position. I think it enough for the FCA require anyone who is requiring conditional charging to be deemed a “vulnerable customer”.

This is because I agree with Andrew Warwick-Thompson

but I see the needs of Al Rush. By making contingent charging available only to those with special needs, advisers will have to make sure the advice is proportionate to the special needs of the customer, the PI insurer and the regulator. There is one final point to consider – tax.

 

Right now – contingent charging is being used as a tax-dodge for higher rate tax payers, I can hardly see “wealthy clients” who can pay their taxes, being allowed to escape them through a regulatory loop-hole.

If the fact-find reveals that a client has the means to pay for advice, then the option of a contingent charge should not be available.

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

Re-deploying our pension winners!

Posted on December 8, 2018 by henry tapper

Ros Altmann
Steve Webb

Webb for Regulator?

This rumour has sparked a twitter storm among those who think Steve Webb is conflicted in potentially exercising the powers of the Pensions Regulator on policies he initiated as pensions minister.

Personally I see any conflicts as manageable. It is after all tPR who advise the minister on policy in the first place. It’s an open secret who in tPR advised Steve when he was minister and as that person is influential in Government policy today, we might logically consider him conflicted too.

Following this path, we would have no-one talking to anyone; a state of affairs that would be quite the opposite of good Government. The pension policy successes of the past ten years have resulted from open government – the failures from the diffidence of civil-servants and politicians to get things done.

The assumption that Steve Webb should play no further part in the governance of pensions is silly, we don’t have many people of Steve’s calibre and he’d make a good pensions regulator.

I’m not sure I want him as my pensions regulator for two reasons. Firstly there are others who could do the job – probably as well and secondly Steve is doing a very good job where he is – at Royal London. But that does not mean Steve shouldn’t be considered for the job of CEO of the Pensions Regulator.

 

The good that they do

Conflicts between those in public life are most apparent when they look to monetise their experience in private life. Steve is doing just this at Royal London, Gregg McClymont at B&CE and Ros Altmann at PensionSync are all being paid not just for their experience but for their influence.

Do we object to those who have served as MPs (or in Ros’ case as an active Baroness) influencing as lobbyists? All three are very vocal, very prominent in public debate and are all getting things done. Steve’s petition, Gregg’s work on health issues for builders and Ros’ campaigning on net-pay are examples of the practical application of influence for the public good. There is a dividend in having former politicians in the private sector, they move things along.

We may feel awkward that they are leveraging their positions in Government for personal gain but I think the judgement should not be “Whether” they do this – but “how” they do this. As they are opinion formers, they need to be challenged and I have challenged them on this blog.

In the case of these three, all are quite accountable, all engage in debate  and all three have been highly effective in their work. The proof is in the pudding and the pudding tastes good.

The good they might do

There are examples of conflicts that go un-reported which worry me more. I worry when I see senior civil servants from both FCA and tPR  working within consultancies and influencing the course of policy through what can only be called “insider knowledge”. I have made these points in relation to the RAA of BSPS (as an example). There are plenty of civil servants who have served time in Brighton or Canary Wharf  who could be tempted to arbitrage against regulatory weakness for commercial gain. We should call that out.

Does this mean that we should stop figures as disparate as Rory Percival and Andrew Warwick-Thompson from doing the work they are doing – NO!

We need experience in the private sector , but we need transparency. What we can’t have is the kind of kiss and tell relationships between former regulators and those currently in the job. I don’t think there is a lot of this about because we generally have the controls with the regulators to stop it. We also have scrutiny from the media, social and otherwise.

The good they will do

Someone will take on Lesley Titcomb’s role when she leaves in the spring of 2019. There are several candidates and I doubt that many will be life-long civil servants. I expect to see people who have worked in the private sector prominent in the selection proceedure.

I am pleased that Steve is being mentioned, not least because imagining him in Lesley’s place, makes me realise that she leaves big shoes to fill. She succeeded Bill Galvin who is now CEO of USS ( a highly political role). I hope that Lesley can do more work in the public sector but would feel comfortable working with or competing against her in a commercial role.

The jobs that people like Caroline Rookes , Charles Counsell and Michelle Cracknell do is important to pensions. All three will I think be under-employed in months to come. All three will be looking at how they can make a difference without creating conflicts for themselves.

People like these don’t get to the positions they’ve enjoyed without having done good work. Their potential to do more is great. We should not be stopping them applying for roles on the basis that they are conflicted, we should be asking them how they will manage those conflicts.

We don’t have such a talent pool that we can discard the talented on the basis that they’ve done their bit. If they have a bit more to give – we should be grateful!

Steve Webb
Titcomb

Posted in Big Government, Blogging, pensions | Tagged , , , , , | 2 Comments

UK – OK! Disclosure battle won – now let’s win the peace.

Posted on December 5, 2018 by henry tapper

jap soldier 2
The PPI have produced a really excellent paper “Charges, returns and transparency in DC – what can we learn from other countries?”

The report, sponsored by Which? explores UK charges for pension schemes against those in the US, Australia, the Netherlands and Sweden.

It’s not headline grabbing stuff – but it is good to hear a Dutch pension expert praise the system of cost disclosure developed by the IDWG.  The Dutch of course got there first, but they are now acknowledging that we are using second mover advantage to learn from their mistakes. Jacqueline Lommen  explicitly linked recent work on both cost disclosure and collective DC as examples of the progress Britain is making. This may not yet be reflected in popular sentiment, but (at least in some areas) Britain is getting back on its feet.

Winning the peace

From the table above, we can see one of the difficulties with the omni charge AMC that has been the standard way of disclosing costs to savers in the UK.

Individuals get a rough idea of what they are paying from the AMC (rough because it doesn’t include transaction costs) but they’ve no idea what the omni charge AMC is paying for. Enlightened providers, such as L&G have followed the European and American models and split admin and investment costs.

In the UK – this has been seen a dangerous disclosure, NEST tell us that they cannot tell us what they are paying for outsourced fund management because they have put themselves under a voluntary NDA not to.

I have has numerous conversations with People’s Pension about how much of the 50bps they charge members goes to pay State Street (their fund managers), how much meets People’s running costs and how much is kept back by B&CE to recover the costs of setting up People’s pension nearly 10 years ago.

Since I haven’t had an answer, I am guessing that the split for People’s is 2-15- 33. If People’s want to come clean with the real numbers – I’ll be happy to publish them.

Winning the peace means building on the disclosures we have and pressing home the advantage. Not everyone will want to know what People’s or NEST are paying away to external service providers, what they are holding back to recover costs and what their internal running costs are – but people like me will keep asking. Sooner or later we will be able to benchmark the efficiency of these organisations and rate them for the sustainability of their propositions.

That’s one of the peace dividends!

How much do we pay to spend a penny?

So far, we have focussed on getting people a good deal on their savings, but have done little to disclose what people are paying in the spending phase of their DC pension.

This is worrying as many of us will need to spend our retirement pot over as many years as we saved and – while we were fully aware while we were saving – we are likely to become more vulnerable as we grow older – and mentally tired.

The idea that we pay to spend our pennies is not one that occurs to most people, but we do. There is no charge cap on that spending either and the costs of getting our money are far from easy to understand.

Without the data, it is hard for me to write with authority on this. It would be great if PPI could follow up with a similar report telling us the international comparisons between the cost of our drawdown system and the costs people pay to spend a pension penny in Sweden, USA and the Netherlands.

Not much chance of peace this morning!

I am going to make my way down to Westminster this morning, to witness the spectacle of Frank Field interrogating Colin Meech and Jonathan Lipkin at the Work and Pensions Select Committee.jap soldier

It’s likely to be a lively affair. Colin is like the Japanese soldier who will still be fighting his war- many years after the rest of us went home. Jonathan will be there to provide him with a target!

Frank will have to go some to beat the outstanding chairmanship of Laurie Edmans and the brilliance of both panel and audience in the debate that followed. Thanks to Lawrence Churchill in particular – whose insights partly inspired this blog. I cannot say more as we were under the beastly Chatham House rule.

I am however able to post this slide which shows just how far we have come since the bad old days.

and I can remember – though not repeat the brilliance of one of the best civil servants I have ever met.

 

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

Lord share their data – but not yet!

Posted on December 4, 2018 by henry tapper

botticelli-augustine (1)

Augustine’s wayward prayer – “Lord, make me holy – but not yet”, sprung to mind as I sat with the dashboardistas in Parliament yesterday.

The Government’s “Pensions Dashboards – working together for the consumer” is a pretty vague document which limps over the line – six months late – and with little for the consumer in the next five years.

What the consumer will get is pretty much what the DWP and the pensions industry wanted. There will be multiple dashboards – but not yet.

“The evidence would suggest that starting with a single, non-commercial dashboard, hosted by the SFGB, is likely to reduce the potential for confusion and help to establish consumer trust”.  (this statement – 205 – appears in bold in the printed document but not so – in the digital version)

Since the Single Financial Guidance Body has yet to start its work, I am not sure what the evidence is for the efficacy of a single, non-commercial dashboard. It’s true that in Australia, dashboard is a euphemism for a marketing device and it’s also true that European dashboards have been centralised and successful. But there is no evidence at all that a dashboard will work in the UK because it is non-commercial – or single.

Indeed – the Government’s attempts to make pension guidance digital to date – through the Money Advice Service – have been singularly unsuccessful.

The SFGB may be better, they have an influx of good blood from the highly successful TPAS and a new leader – John Govett  who see’s his purpose as to “help people transform their own lives”

John was at yesterday’s event. He told the audience he was keen to get on with it. I wish him good luck, the impact of the transition to SFGB has so far been to keep project dashboard waiting for the best part of the year – while we await his and his Chair’s arrival.

I say this in the absence of any other excuse for the appalling delays in delivering this digital project.

Giving the SFGB first shot at a dashboard is like opening a motorway with a convoy of tractors.

Confusion over open standards

There was throughout the meeting, a confusion by the extent to which Government could adopt the open standards (the pensions equivalent of the CMA9) that could give us “open pensions”.

There are sections of the document which show the same confusion. P198 states (in bold in the paper copy)

In order to harness innovation and maximise consumer engagement, an open standards approach that allows for multiple dashboards is the right way forward.

but it doesn’t have the courage of its convictions (P209)

While the department recognises the commercial opportunities created by multiple dashboards, it believes that there should be a single Pension Finder Service which is run on a non-profit basis and with strong governance.

Lord share my data – but not yet!

Governance overload

While the CMA got banks to share data through a system of APIs, the DWP has decided that pensions are too hard for that and resorts to “industry positions”.

In a section entitled “a dashboard section for everyone” there are paragraph after paragraph warning against individuals having direct access to their own data.

Again there are contradictions everywhere . In P195 we read (again in bold)

“It is important that for consumers, the provision of their basic information is free to access”

but consumers – especially those with low levels of financial literacy are not to be given access to information without the provision of that information being regulated and it coming with a dollop of guidance – if not full financial advice.

The result of all this uncertainty at the policy end is this ridiculously unwieldy governance structure which will atrophy open pensions into a monolithic bureaucracy that will MAS look agile.

dashboard governance model

And what will all this cost?

We were promised a feasibility study, but this study has no numbers. There is no attaching cost forecast, no financial justification – nothing to tell us what the cost of all this bureaucracy will be.

The Government is making great play of the £5m the Treasury has given the DWP to provide a hyperlink to the existing state pension forecast service. But finding the £20bn that has gone missing, displaying up to 50m abandoned pots and regulating the whole process as outlined in the paper is going to be a mammoth undertaking.

The cost of all this will – other than the £5m fall on the pensions industry through increased levies.

Dashboard cost model

These levies are unlikely to be paid out of margin, they will be passed on to consumers through higher charges. Another example of pensions abhorring a vacuum. Where costs are likely to fall – let’s find a new way to weigh our pension saving down with added cost.

Industry reaction

I am not sure how to best describe the feeling within the room. It was split between relief from the politicians and civil servants in the room that they had got something over the line and got people like me off their back, the PLSA, ABI , Which all of whom seem to think that what we have is a good outcome, and me, Romi Savova and Ian Mckenna, who see this as a hopeless waste of time and money – an opportunity wasted.

Thankfully there was at least one journalist in the room who was prepared to call the Emperor’s new clothes.

My conclusion

People have been given an expectation that they will be able to find their pensions and see their pension income and pots in one place. People will not want to wait for the SFGB to organise itself to deliver something in 2019.

In answer to question VI and  VII of the consultation, I very much doubt that most people would wait another five years to see the majority of their data in one place.

Question VI

Our expectation is that schemes such as Master Trusts will be able to supply data from 2019/20. Is this achievable? Are other scheme types in a position to supply data in this timeframe?

Question VII

Do you agree that 3-4 years from the introduction of the first public facing dashboards is a reasonable timeframe for the majority of eligible schemes to be supplying their data to dashboards?

My question to the Minister was this.

“When I went to the first public meeting on the Dashboard, I was 54. I am not 57. Should I be waiting till I am 62 to see my data in one place?”

In a year when we have seen the successful implementation of open banking and Faster Payments, when HMRC continues to roll out Real Time Information and is demanding we make tax digital, pensions are moving at a snail’s pace.

The ABI, PLSA and Which will be embedded into the delivery function of a dashboard. The DPW will Chair its steering group. To all intents and purposes – nothing has changed. The State is in no position to facilitate delivery – as has been proved by the last three wasted years.

Now yet another Governmental Body has been placed between people and their data, the SFGB.

Bureaucracy is killing the dashboard and with it people’s hopes to get their pensions back.

I cannot support this approach to the governance and the delivery of the dashboard. It will cost people more than it delivers, it is unwieldy, unimaginative and deeply patronising to ordinary people.

People deserve their data now – not to the timetable of the pensions industry and Government.

 

Posted in customer service, Dashboard, pensions | Tagged , , , , , | 2 Comments

Could “Dashboard-Day” be here at last?

Posted on December 3, 2018 by henry tapper

Today’s a big day out for the dashboard-istas!

Dashboard event.PNG

Over the weekend , Theresa May linked herself to the pensions dashboard using the Daily Mail to pin her colours to the mast.

It is clear that the Pensions Dashboard is going to happen – the question is whether it will provide us with open pensions or be the love-child of  pension- industry in-breeding.

A social start

It is encouraging that DWP are organising this using social media site “Eventbrite”. It suggests that whatever comes out of this morning, will at least have been launched using social tools. That it’s a private pensions event may smack of Sir Humphrey but the registration process got things off in the right direction. That I was invited  is another step in the right direction.

I will be scooting (or Boris-Biking) back from Portcullis House to Bank for a slightly delayed Pension Play Pen lunch (we shall kick off at 1pm subject to me finding a rack for the beast). Details here  Please join me for lunch if you want to get a first hand recounting of whatever in the meeting, I’m able to talk about!

Why we need open pensions.

If you read yesterday’s blog, you’ll know that the concept of the Dashboard put forward by Frank Field in his letter to Guy Opperman is the opposite of “open pensions”.

The demands for compulsory data clearance, a Government led governance body, regulatory permissions to run dashboards and worst of all a single pension finder service will be resisted – at least by me – and by all those who want to see open pensions.

We call on the Government to consider data and cash transmission between pensions as the way they did banking in 2016/17.

APIs.PNG

The system advocated by the ABI and others that seems so successfully to have lobbied the W&P Select Committee would decrease competition leading to higher prices for the consumer. We would pay dearly for a single pension finder monopoly – whoever it was given to.

If we are in any doubt as to what the lobby was, we need only read this article in Corporate Adviser. The demands come from the people at the front of the queue for the monopoly.

The cowardly justification for the atrophication of open pensions into what these people want is fear of scamming. Those who claim to be anti-scamming are quite happy to see its continuation – albeit in offshore havens such as the Isle of Man. If you don’t know what I’ m talking about , read Angie Brooks’ excellent new blog “Long Term Savings Pig” which names the names.

We heard precisely the same scare stories from the retail banks prior to the introduction of the CMA9. We were told that open banking would be a scammers charter, a year on and most of those spreading that message are trying to buy-up the challenger banks.

big-fish3

If they aren’t careful, the Starlings and Monzos and Revoluts will end up eating them.

The Queen of Open Pensions will be there.

I’m very pleased to find out that Romi Samova, the Queen Bee – will also be at the “private pension meeting”. Like me, she has no interest in keeping open pensions private, no interest in closed room roundtables and no time for procrastination.

Like me, she is shocked by the delays that have precluded firms like hers from developing the tools to help people find the £20bn in lost pensions.

Like me, she is anxious that the pot-proliferation that could see (using the DWP’s own estimates) 50 million abandoned pots by 2050.

Like me, she wants to see genuine support for the 94% of us not taking financial advice. What she is doing with her Bee-Keepers is a model for that kind of genuine support.

The exclusion of Romi Samova from the Round Table held for the Work and Pensions Select Committee is a crime against the entrepreneur, a spoke in the hub of innovation and an affront to the consumerism that Romi stands for.

Not a time to hold back

When people hear about the scale of the problem, they are shocked. Shortly before the meeting this morning, I will be on BBC radio explaining to the good people of Hereford and Worcester how it came about that one of their listeners lost his or her pension. When I quoted the PPI estimate that there is not one lost pension but £20bn of them, the program producer nearly fell off her chair!

I will not press the negative, I will point to the future and hopefully a brighter future for those of us baffled by the pension system.

To get open pensions, we need open practices. We need open meeting not closed round-tables, we need a proper consultation- as promised by Amber Rudd at the TISA conference but two weeks ago.

Most of all we need a Government not pledged to the lobby of those who want to keep pensions closed. I trust that in Guy Opperman and Amber Rudd – we have two  politicians with the consumer – not the pensions industry – in mind.

 

Have a dashboard Christmas!

12 days of dashboard

Posted in age wage, Dashboard, pensions | Tagged , , , | 2 Comments

“Out of office” for ever?

Posted on December 1, 2018 by henry tapper

out of office 2

How can I afford to go on holiday for the rest of my life?

It’s an awkward question that most of us put off till it’s too late. It’s why there’s all this talk of pension dashboards, the Government wants us to think more about retiring.

The trouble is we find it hard to get the information we need and even if we have the information, it’s hard to make sense of it. Even if we want  to make plans, we don’t get a lot of help.

94% of us don’t have a financial adviser and only about one in ten of us use the Government’s offer of free financial guidance from PensionWise. We aren’t good at getting help!

And we’re losing out, experts reckon there’s £20bn. of unclaimed pension money sloshing around our financial system. Things are getting worse, by 2050 the Government think there could be 50 million abandoned pension pots.

Something’s got to be done to help ordinary people organise their retirement money and make the most of their savings. People want to be told the truth, not the truth dressed up to suit.keep them

That’s why we started AgeWage

AgeWage is set up to help millions of savers find their pensions, organise their money and spend it. We’re not here to tell people off for not saving enough , we’re about giving people practical help with what economist called “the nastiest hardest problem in finance!

What we do is get data from the people who manage your money, we use this data to tell you useful things – how much you’ve saved, how your savings have done and how you can organise your savings for the future so you can spend them with confidence.

Depending on what interests you, we’ll answer other questions like “how much am I paying for pensions”, “how green is my pension” or “how can I bring all my pots together”

We will give you this information to your phone or – if you prefer – to your computer.

One of our advisers said the AGE stands for “assist-guide-equip”, we aim to get people “retirement ready” if that makes sense.

We won’t charge you for doing this , you pay quite enough for pensions as it is! The people who manage your money want to pay us to give you this support and the Government is supporting and helping us.

What are we doing?

We are raising quite a lot of money, a couple of million quid to be exact. We’re doing this from lot’s or ordinary people – not just from financiers. We’ll spend the money on the kind of digital things that turns Fintech into Pentech. But we’re also setting up support so you can speak with people who do know about pensions.

We’re setting up the deals with the people who look after your pension money so that you can see AgeWage scores on the stuff they send you each year.

And we’re going to spend some time in something called the FCA sandbox, where we’ll be working out how to best show you your information.

Why am I telling you about this?

We want AgeWage to become a household word which you think about when you start worrying about the future. We don’t want to sell you investments, tell you to save more or charge you hidden fees on what you’ve got.

We’d like you to know where we’re coming from and what we’re up to. If you want a piece of the action, we’ve worked out a way for you to invest in a clever way. If you fancy yourself a pension expert and have some time on your hands, perhaps you’d like to join our support team.

If you want to find out more – email henry@agewage.com

out of office

 

 

 

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Lost your pension? Play snakes and ladders – for all the DWP cares!

Posted on November 30, 2018 by henry tapper

agewage snakes and ladders

This morning I will be on local radio with five minutes to answer this question.

The question’s prompted by a listener to Hereford and Worcester Radio who is sure he/she had a pension with someone somewhere but can’t remember much more than that.

It’s a nagging doubt that many of us have that we have money with someone but have no way of finding it. I have the same problem with betting accounts, I know that I have money with Sunderlands, Bet365, Jennings and others – accounts that I set up on the train down to Cheltenham to get that free bet, accounts I used once and never again.

I am sure that professional gamblers will look at me with the contempt that many will look at the person from Hereford or Worcester – how can people be so dumb?

I have moved beyond that question. According to the Pension Policy Institute , there is £20,000,000,000 of other people’s money swilling about in pension trusts, in the troughs of life insurance companies or “managed” in  “self-invested” personal pensions. The person from Hereford or Worcester is not alone.

Finding pensions

As a bit of a joke, the Sun newspaper and I did a do-it-yourself dashboard this summer where – instead of using a professional pension finding service like Origo or Experian, you tried to do it yourself. I don’t know if the Sun ever published the article digitally, but I took a snap of our DIY dashboard pension finding service at the time. It looked like this.

the sun

Do it now!

As you can see – once you go through steps 1-7, you are on to step eight – get on with it. “Things will get more expensive the longer you leave it!”  I think when we were doing this, we expected to see the results of the DWP’s feasibility study any day, that was June – this is  the last day in November.

Funnily enough, I’ve got a meeting in my diary for 11 am on Monday 3rd December – to meet the Pensions Minister in the rather scary Portcullis House. I don’t know if it will be “off with the blogger’s head” or an announcement on something. Could it be that the DWP are actually going to be doing something about publishing the feasibility study that should have been published in March?

Should I tell the person from Hereford or Worcester not to do anything now but wait till the DWP tell us that following the publication of the feasibility study they are now going to launch a feasibility study as to whether there should be one dashboard or many – whether the job of pension finding is going to get any easier?

Or should I just say what Sun readers were being told in June, that a pensions dashboard may help in the future , but that you haven’t got time to waste watching Government fannying around sorting it out?

Don’t let your pensions get in the way of politics!

I think I’ll resist slagging-off the Pensions Minister, Portcullis House sounds the kind of place you might not find your way out of in a hurry.

Instead, I’ll suggest that the ABI and the DWP have got this all sewn up, and that you’ll be hearing from them later, once the consultation has been completed. In the meantime they can play Pension Snakes and Ladders on this natty little board we’ve designed for you.

After all £20bn is just a drop in the ocean compared to the amount of extra revenues the Treasury will make from Pension Freedoms.

Politics is much more fun than pensions, especially for politicians – so person from Hereford and Worcester – you’re just going to have to figure it our for yourself!

agewage snakes and ladders

Posted in advice gap, age wage, pensions | Tagged , , , | 3 Comments

Now that’s what I call financial advice.

Posted on November 23, 2018 by henry tapper

here comes the boys.jpg

The boys are back in town

I’m quoting Al Rush from the Facebook post he made yesterday evening following the meetings of steelworkers with MPs and Regulators yesterday.

 Al’s message to the steelmen

Sometimes, in my line of work, it can be dispiriting to work for people who are greedy to the point of unreasonableness. Sometimes, when you are putting together something for people and it comes off, it can be quietly satisfying. Yesterday eclipsed everything because not only was I in a room where we achieved the latter, but we all achieved it for people for whom the former couldn’t be more further removed.

I was, as always, struck by you being as respectful, proud and as …dignified as you always are. James, my son, said to me afterwards, “Nat (his other half) has an Uncle Mick who works at the Scunthorpe plant and they’re all exactly like him except it’s rugby not football”. And it was meant as a 100% compliment. Chris, you said to me “We’re simple men”. You’re not – you’re ‘just’ straight down the line blokes who expected to be treated as you would treat others.

What’s nice about this is that you’re now able to do the stuff I know that some of you wanted to do – give the wife a decent Xmas, get married, slip a few grand to the kids so they can buy a house, pay off the mortgage etc. It also means that you can weather the current financial buffeting a little better by not dipping into investments, and that you might be able to fund any follow up action via Philippa with a far easier mind.

It was vital that you took the fight to London because you had to be seen to be fearless in the face of adversity and yet another knockback, and you had to be seen to be willing to have the controlled aggression, endurance and the stamina twelve months on, to mount up into your car’s and trains, and head east to take the fight to them, on their home ground. It also sent a string message to the legal representatives of anyone who may be the focus of later legal action “Don’t mess with us, we want a peaceful and quiet life, but it would be fatal for you to mistake our quietness for weakness”.

This morning, Philippa has organised a conference call with Henry and me to discuss the most pressing priority – namely present a case to FSCS within the next week to justify fine tuning the discount rate. So, life goes on. And so will your case. Ultimately, I’m sure, justice will continue to prevail. For now, slip back into cruise mode, take the long view, be prepared for long periods of seeming inactivity, be prepared to step up to the plate again when needed but above all.. just enjoy a Christmas with your families and loved ones.

But, it was an honour to go into battle with you and for you, and although rifles were loaded and cocked, it was an honour to win without a shot being fired. You were superb, and Wayne’s final word on your behalf summed it up perfectly. See some of you next week. I apologise for bumping some of you back a week. Someone put this on my Facebook page yesterday – I was gobsmacked.. I can’t believe we did it all in two weeks.

I was an observer, I posted after that I was gobsmacked – I really was. Most of all I was gobsmacked that at a day’s notice, the FCA, tPR, FSCS and so many members of parliament turned up, waited and then engaged. That goes for the press too.

Here we are.PNG

The argument

FSCS has agreed to review the compensation amounts they’ve suggested to steel men. They’ve agreed to do that within seven days, which is why we are gathering evidence now.

The main lever that will change compensation is the discount rate at which the loss is calculated. The rate used at the moment is 3.7% and is the general rate used on all transfers. During the meeting – FSCS suggested there might be special reasons for using a lower rate for steelworkers, which would increase compensation for this group.

A large number of IFAs and pension experts have been tweeting on this subject and they include Al Cunningham, who was present yesterday. All the tweets were constructive and together they present a balanced view. The cost of any FSCS claim will be largely met by these IFAs, their balanced view is most important.

At the nub of the problem is the issue of guarantees lost and the risk of over-compensation. If you take the view that the loss of certainty is key to the argument, then you would go for a risk free rate of 1.7-1.8% (the gilt rate). If you take the view that this would be giving those who’ve transferred the chance to game FSCS – then you stick with 3.7%. Old arguments are resurfacing from the days of mass miss-selling redress in the nineties.

FSCS is not a generous compensator. Some Steel Men have lost over £200,000 (as much to do with adviser incompetence as greed). The maximum pay-out on existing claims is £50,000. Though claims can increase to £85,000 from April, this is only for new claims.

So the liability for the Steel Men is capped. But the wider implications are obvious. My personal view is that the £38.6 bn that flowed out of DB schemes last year – was a disaster. The FCA consistently advise that a substantial amount of this money should not have moved and as it moved – for the most part – under advice. Redress will be expensive.

Necessarily the redress will be paid for by good advisers as well as bad and for good providers as well as bad. This is partly why good IFAs are so angry.

But the deeper reason for good IFAs to be angry is written into the post of Al’s. I wish Al, Chive and the wider IFA community the best.

I wish the Steel Men proper compensation – which needs to go beyond FSCS limits. Sadly, most of the IFAs involved in the worst excesses of what happened at BSPS, will not have sufficient resources or insurance, to properly pay. This is why it is vital that FSCS pays what it can – and without demur.

I’m very encouraged by this – from Al and the Steel men’s lawyer – Phillipa Hann.

 

Posted in BSPS, pensions | Tagged , , , , , , | 4 Comments

For the ripped-off steelworkers – today’s about doing it together!

Posted on November 22, 2018 by henry tapper

ripped off

Up from Wales – the Steel men last night

This morning, around 15 Port Talbot steelworkers will make their way from Paddington to Westminster to meet MPs – keen to help them in their pension plight. They will be greeted at the Cromwell Gate by a lot of media attention. Their fight, for proper compensation from the Financial Services Compensation Scheme, their leader- Al Rush.

The story is about steel men doing things together. That’s how they’ve always done things, it was what made them such an easy target for Active Wealth – one out – all out.

The nearly 8000 people who left the British Steel Pension Scheme did not end up in the same place. Their savings are now dispersed accross a wide range of funds , a number of SIPPs with many different advisers. Though the works have stayed open, the workers are no longer in one scheme. They have come together because they share in one grievance, which they will take to parliament today.

It is a sad way for their experience of collective pensions to end.  But these are resilient people and we hope that today will bring them compensation.

There is another way

While the events in South Wales last year, showed how collective trust can be abused, events in Central London yesterday showed quite the opposite.

Royal Mail Group and  CWU – the Communications Union unveiled their anticipated Collective DC pension design to guests and advisers. great event.jpg

Note that the advisers in question worked together collectively in support of the CWU and Royal Mail- who worked together in support of the 140,000 staff at Royal Mail.

They were not giving up on a pension – or as Terry Pullinger calls it – “a wage for life”.

Collectively we need income in later life.

Much as I like Damion Stancombe, I want no part in his world view. He works for a pension consultancy- but he tells the world he is done with pensions.

Damian, if you wanted to be impressed rather than be depressed,  you should have been at the RSA clubhouse yesterday!

If you walk down Whitehall to the Cromwell Gate this morning, you will – at 9 am, see the steel men – led by Al , with a retinue of supporters (including me), entering parliament.

There may only be 15 steel men this morning, but they have come a mighty long way both physically and metaphorically. To a great extent – they have come that way because of the leadership shown by Al Rush and a few other people who have not given up on pensions.

I raise my glass to those who are coming together!

As I head off accross town in a few minutes, my thoughts are for the steel men, my hopes are for the postal workers and my determination is that I am not giving up on pensions.

Collectively, we’re not selling any post-war fantasy, we’re selling the idea of a wage for life. I am a pensions man- proud of it. I work for a pension consultancy – proud of that. I run two businesses, Pension PlayPen and AgeWage – proud of that too!

 

Posted in BSPS, pensions | Tagged , , , , | 2 Comments

Henry Tapper’s response to the DWP’s consultation on delivering collective defined contribution schemes.

Posted on November 19, 2018 by henry tapper
The Pension Plough

As this is a private response, I want to talk about how CDC could help me (and people like me – who I know are struggling with how to spend their pension pot).

I am very supportive of CDC schemes and pleased that the Government are trying to help Royal Mail establish a CDC scheme for its staff. The needs of the 140,000 postal workers are primary, but the legislation must consider the millions of UK workers, saving primarily into DC pots, for whom CDC could be equally welcome.

To illustrate the needs of these people, I will talk about my own situation- the choices I have taken to date and the decisions I am deferring in the hope that I can exchange my DC pot for a CDC pension in due course.

We need a default way to spend our retirement savings.

My response is made as a 57 year old man with a DC pot, hoping in time that this pot can be paid to me as a wage for the rest of my life. This perspective may prove helpful in the shaping of regulation as there are many like me.

During the calendar year 2018, my DC pot fell in value by 14%. On one day in December my pot fell by 3.5%. Because I have not crystallised any of my DC savings, these are paper losses. However, many of the people who I have met through helping the Port Talbot steelworkers are now reliant on their DC pots for income, many have stopped work and are using their pots – transferred from the British Steel Pension Scheme – to drawdown the income they no longer get from work. Most are too young to receive a state pension.

in 2017 – nearly £37bn was transferred from DB schemes to private pots. If people wanted to buy back the guaranteed income they have given up using current annuity rates, they would find their pots woefully short. Collective schemes are more effecient at providing pensions than individual annuities. Those who have transferred out of DB pots have given up a lifetime benefit – often without proper consideration of what they have lost.

When I reached 55, I had the chance to draw my DB pension or to take a transfer. I chose to draw my pension and did not take commutation. During the calendar year 2018, my DB pension increased according to scheme rules, I have an inflation protected wage in retirement, paid as long as I live and beyond – to my partner.

Had I taken advice that I was given and transferred my DB pension into my DC pension pot, I would be now sitting on a paper loss of a further £200,000.

I know the value of a wage in retirement. I see pensioners who have regular income from a pension.  But I also see those who have given up DB pensions and I see people who have never had a DB pension. A recent study by Demos for Legal and General shows that people with certain income in retirement are happier and better able to take financial decisions.

I expect, as I grow older – and I have a life expectancy of around 30 years – to value my pension more each year.

As for my DC pot, I will almost certainly take my tax free cash entitlement but I am expectant that at some future point, I will be able to either purchase an annuity or transfer my money into a CDC pension. I do not want the responsibility of providing myself with a wage for life from my pension savings.

From the quotations I am being shown from people who are looking to transfer, I can see that an annuity will be too expensive a way to provide me an income. Were I in a position to choose between an annuity and a scheme pension from a CDC scheme, I would almost certainly choose a wage in retirement from a CDC scheme.

I say this as a “pensions expert”, but you do not have to be a pensions expert to know that income drawdown from an invested pot is perilous and swapping pot for annuity is expensive.

Despite having pension freedoms, people are baffled by the choices they face at retirement. The options of annuity and drawdown are often replaced by “cash-out”, where people – frustrated by the complex problems they are presented with simply put their pension money in a bank account – and pay a great deal of tax in the process.

According to recent FCA surveys, only 6% of Britains are taking financial advice at retirement. I have studied the Pension Advisory Service’s inquiries and find that around a quarter of injuries contain the word advice while only one in fifty contain a request for guidance.

The message from people of my generation – those most in need of an urgent solution to the problem of how to spend our savings, is that we need to be advised of a default retirement solution

Whatever this consultation enables, it must not disable the ability of people like me to transfer in benefits in due course.

Immediate ambition of the consultation

I am very pleased with the consultation. CDC should

Provide a savings and income in retirement option within one package that is potentially attractive to those people uncomfortable making complex financial decisions at the point of retirement

and

Enable the sharing of longevity risk between members, thus providing each individual member with an element of longevity protection without the cost of accessing the insurance market

This is precisely what is needed; the consultation continues

A CDC scheme

May achieve greater scale than some non-pooled schemes and be able to invest at lower cost as a result. The recent emergence of master trusts in the individual Defined Contribution (DC) space has already shown some of the benefits of scale.

and

(A CDC scheme) may allow the trustees to adopt an investment allocation which is tilted towards a higher proportion of higher return assets over the member’s lifetime than may be usual in an individual Defined Contribution scheme, although the emergence of the draw-down market may see trends in the individual DC space follow a similar path over time.

I have some comments on the following statements regarding delivery.

Scope for discretion

In addition, given the complexity of CDC schemes compared to individual DC schemes, we feel it is appropriate for the former to be required to appoint a scheme actuary.

The judgement on “the complexity of CDC schemes” is made from an operational perspective. From the perspective of an individual, CDC schemes shouldn’t seem complex. I would prefer the language to focus on the ambition of CDC schemes. CDC schemes aim to help people to spend as well as save, this increased ambition is why CDC schemes need an actuary.

The role of an actuary should be limited to ensuring that the mechanism of the CDC scheme is working properly. Most importantly the mechanism governing the distribution of income and adjustments to it. As the consultation points out, this mechanism should not be based on actuarial discretion but clearly defined scheme rules

To help ensure this operates in an impartial way, our view is that this adjustment should be based on a mechanism set out in scheme rules, rather than trustee discretion.

These rules – as I understand it – would be based on actuarial assumptions and these assumptions can be adjusted from time to time. This is what gives a British CDC approach, the capacity to operate without buffers.

On balance, we favour a ‘best estimate’ approach with no in-built buffers which potentially dilute decisions on benefit adjustment.

A scheme actuary acts as a weather forecaster and the tone of the document is precisely right when it outlines this role as follows

Once a CDC scheme is up and running, we will expect the annual actuarial valuation process to consider emerging risks and threats, and to look at whether these risks significantly impact on the probability of projected benefits being met to an extent that calls into question the viability of the scheme

In Section 54 of the document , I find the following statement

Clearly, actuarial assessment and estimate is central to the provision of CDC benefits.

On the face of it, making a CDC scheme “rules based” and mechanistic, reduces the role of actuarial discretion. The central thrust of the communication of how CDC works must be to explain why the expertise of an actuary is still needed. The essential message is that from time to time the assumptions embedded in the rules will need to be changed, but the rules themselves are designed to endure. This is the communication challenge in essence

Scope for decumulation only schemes?

The consultation makes clear that there are relatively few employers who will consider CDC an option immediately. It offers hope to smaller employers and a little hope to the people who need a way to convert savings to an income for life

We recognise that interest in CDC provision may expand beyond the large employers that are likely to establish and sponsor the initial tranche of CDC schemes, so we will include provision in the legislation to enable us to make provision for such additional requirements as might be needed.

but…

We do not intend to permit decumulation-only CDC schemes at this stage, although this is something we may consider in future

This is unfortunately worded. It supposes that CDC schemes are inherently tied to the workplace. However – most people – as they approach retirement, see little link between their DC pot and their employer. The majority of their savings will be outside the workplace.

The consultation suggests that the Royal Mail scheme will allow “transfers in”, but only to those accruing benefits. 

But what of those postal workers who have left service and want to bring their retirement pots to Royal Mail, the reason for them not to take transfers into the CDC scheme is unclear.

Farcically, somebody like me, could take up a contract with Royal Mail, be enrolled into the CDC after a month’s service and then aggregate all my pensions to the CDC scheme. I could leave a month later.

I don’t think the paper properly explains the link between the payment of benefits and time at work. I don’t see any particular reason for a CDC scheme to demand that someone has to be actively accruing to transfer in pots from elsewhere, and I don’t see any practical reason why Royal Mail couldn’t admit people to its CDC scheme who aren’t employees of Royal Mail.

Scope for investment

Imposing a charge cap on CDC will come as a blow to some investment managers who might consider the provision of patient capital, an opportunity – not just for members – but for their firms. 

I can see the argument for an unconstrained approach to investment but I don’t think that it stacks up in the context of a scheme where members are expected to take the downside risk of non-performance, lack of liquidity and the failure of an investment.

I also see a strong argument for CDC schemes to be normalised as another workplace pension – suitable for large employers auto-enrolling their members.

I am pleased to see that the charge cap would include the cost of actuaries. Not only will this mean that actuarial fees will need to be disclosed to members, but it means that they will be subject to commercial pressure. They will be sharing a share of a limited budget and competing for that share

I am also pleased by the consultations intention to test charges accross the scheme rather than to particular parts of the scheme. While there will be some groups of members who will benefit more (from professional fees for instance) than others, the nature of a CDC scheme is to pool all risks – in this case costs are risks

We therefore intend that charge cap compliance as it applies to CDC schemes should be determined by one test applied to the whole of the scheme’s CDC benefits

Scope for transfers out

Transfer out will be worked out as a notional share of the fund

The member’s ‘best estimate’ share of the total fund would in effect be determined as part of each annual valuation, adapted by the scheme actuary to determine the transfer value

I am comfortable with this approach. The scheme would have discretion to establish some kind of money-purchase underpin (a nominal value for the share of the fund) or base the CETV on the present value of the target benefit (using the standard methodology applied in DB)

Scope for people to change their mind

What the paper doesn’t cover- but should – is the opportunity for people to transfer benefits out of a CDC scheme – when in payment. As this is not currently possible for DB in payment, the consultation may have overlooked this point. But a CDC Scheme is not a DB scheme, there are good reasons for allowing people to transfer-out in payment, though schemes rules must be written to ensure that this does not damage the fund

These are the questions the DWP are asking. Each question is answered.

Question 1

Are there other ways in which the introduction of CDC Schemes would give rise to different impacts on individuals in relation to one of the protected characteristics?

The scope of the consultation could have been wider, it could have covered opportunities for smaller employers and for individuals not in employment that has a CDC scheme. However, the paper is about delivering something in short order and people like me – who want more now – will have to wait!

I see this as fair (but unfortunate).

Question 2

Do you agree that CDC benefits should be classified in legislation as a type of money purchase benefit?

Absolutely yes! Anything else would make the risk of CDC benefits reverting to an employer’s balance sheet too great for any employer to consider it over other existing options.

Question 3

Are there any other areas where the current money purchase requirements do not fit, are inappropriate or could cause unintended consequences?

Not as far as I am aware.

Question 4

Do you agree that the initial CDC schemes should be required to meet the conditions described above?

Yes

Question 5

Is there a minimum membership size for CDC scheme below which a scheme could not be viewed as having sufficient scale to effectively pool longevity risk to the benefit of the membership?

There probably is, but we are unlikely to ever test this. I see no reason to prescribe on size, the market will do that for Government

Question 6

Do you agree with the proposed approach to TKU for CDC schemes?

Yes. CDC requires less rather than more pensions knowledge and understanding, hopefully TKU will be more based on common sense than specialist knowledge 

Question 7

Are there any additional TKU requirements that should be placed on the trustees in CDC schemes?

No

Question 8

Are there any TKU requirements that should be relaxed for the trustees of CDC schemes?  

Yes – many of the issues relating to accounting for schemes on a mark to market basis, fall away.

Question 9

Which of the 2 AE tests would be more appropriate for CDC schemes, and how might either test best be modified to better fit CDC schemes?

The DC test is more appropriate. CDC should not operate with contributions below the AE threshold. Setting the test against benefits opens the door to unintended consequences.

Question 10

What issues might arise from having no in-built capital buffers in the scheme design?

Financial economists will moan that at given times, schemes may look inadequately funded on a mark to market basis. These same economists will lambast CDC for inter-generational inequalities if buffers exist. It’s a case of not being able to please all of the people all the time.

Question 11

How can schemes best communicate with members to ensure they understand the risk that their benefits could go down as well as up, even when in payment?

By being quite transparent and making this agility the strength of the scheme – not its weakness. Think bridges.

Question 12

What additional issues may arise from using a best estimate basis for valuation, and how should those issues be addressed?

Best estimates are entirely appropriate for the valuation of proposed benefits. The arguments will be around assumptions used, but this is what pension experts do. As far as ordinary people are concerned, the best estimate approach is intuitively right.

Question 13

Should we restrict CDC scheme designs to those schemes which would be sustainable without continuing employer contributions?

No – to do so would be to lock the door on decumulation only schemes. These won’t happen right now – but shouldn’t be excluded by primary legislation.

Question 14

We would welcome feedback on how best to manage risk generally going forwards.

The PPF is probably the best model to look at!

Question 15

Does the proposed CDC scheme framework, as set out in this consultation document, address concerns about risk transfer between generations? We welcome thoughts on any other measures that could also address this.

The document does a good job on this

Question 16

We would welcome thoughts on appropriate wind up triggers and how best to manage associated risks.

If a CDC scheme is to be wound up, it should be up to the members to decide how the scheme’s assets are distributed.

Question 17

Are there any elements of the proposed regime that it is not appropriate to apply to CDC schemes?

No

Question 18

Are there any additional authorisation requirements that should be placed on CDC schemes?  

Yes – most of the DB rules and almost all the guidance on DB solvency

Question 19

Are there any other investment requirements that should be required in addition to those proposed above?

No

Question 20

Are there any other disclosure of information requirements that should be required in addition to those proposed above?

The important thing is to test membership knowledge and understanding, this is the TKU that really matters.

Question 21

Do you agree that CDC schemes should be administered under the requirements for money purchase benefits, but with added requirements to appoint a scheme actuary and carry out annual valuations?

Yes – they should be administered using rules based systems. Smart ledgers and other features of the blockchain will take over from centralised databases in time. We will watch with interest how the RM CDC trustees go about this.

Question 22

Do you agree that CDC benefits should be subject to a similar cap to the automatic enrolment charge cap? 

Yes – reluctantly.

Question 23

Do you agree with the proposal that charge cap compliance should be assessed on the value of the whole scheme’s assets?

Yes.

Question 24

What would be an appropriate approach to handling transfers out of or into CDC pension schemes?

It should be left to the schemes discretion whether to allow transfers out in retirement, but this should not be prohibited by legislation. 

Transfers could be calculated with reference to notional asset shares or with reference to targeted benefits

Question 25

Should transfers be restricted in any way – for example, to take account of the sustainability of the fund?

They should be subject to the same kind or reductions that happen in DB schemes – if being paid with reference to prospective benefits.

Posted in pensions | 1 Comment

Whitbread – you must pay up on the Government’s pension promise

Posted on November 18, 2018 by henry tapper

net pay anomaly whitbread.PNG

This blog calls on Whitbread to pay the incentive outstanding to many of their staff before the sale of Costa to Coca Cola. If Whitbread refuses to do so, the Pensions Regulator should block the sale. If Whitbread wants to claim back the money paid on behalf of HMRC – it should join the campaign to sort the net pay anomaly and do so on behalf of everyone who believes a pension promise is not for breaking.

Thanks to John Ralfe for bringing my attention to an article in today’s Sunday Times.

In case- like me – you don’t have a full subscription to the Times. I can explain. Quoting James Coney’s excellent article

The £3.9bn sale of Costa Coffee to Coca-Cola could hit baristas’ retirement savings.

The Pensions Regulator has been warned that thousands of low-paid staff at Costa owner Whitbread have lost out on hundreds of pounds in tax breaks because of the type of pension they are enrolled in.

Henry Tapper, a director of pension firm First Actuarial, believes that once Coca-Cola takes over Costa’s scheme, workers will have their losses locked in, leaving them unable to claim them back.

He believes the company and its pension trustees could face a class action by workers when they realise they have been deprived of tax breaks.

Tapper said: “At the moment, the cost of restitution for these workers is quite small. The regulator needs to intervene to ask Whitbread for a special contribution to plug the hole for its lowest-paid workers. It won’t take long for a top-quality lawyer to realise that they could put forward a class action to get compensation.”

When the Sunday Times writes an article, especially when its published in its business section, that article is read. The Sunday Times has more clout than Henry Tapper by some way! The article continues.

As part of the sale of Costa to Coca-Cola, the Pensions Regulator is monitoring what happens to the Whitbread defined-benefit scheme, which has a deficit of about £320m. Whitbread has pledged to use cash from the sale to reduce the black hole.

Defined-contribution schemes are usually waved through in takeovers because it is impossible for the funds to have a deficit. However, a problem has arisen with so-called net pay schemes, which deduct pension contributions before tax is deducted. With these, workers earning more than the auto-enrolment threshold of £10,000, but less than the £11,850 personal allowance, miss out on government tax relief top-ups because they do not pay income tax.

About 1.2m workers in the UK are thought to be affected by this loophole.

The Pensions Regulator said it provided assistance to companies to help them decide which pension to pick for employees. “It is for employers to choose a pension scheme that is suitable for their staff,” it said, “including giving consideration to tax relief.”

Whitbread said it could not comment on the Costa scheme after the sale to Coca-Cola, “as we are currently in a pensions consultation with those employees”.

There is nothing new in this story. If John had wanted to, he could have dismissed several blogs on here, most notably my blog on September 1st, Whitbread, treat your Baristas fairly

He could also have read my blog “Can a DC plan be in deficit“,  He could have read my earlier pieces on this which date back to July 2015 and specifically my piece on Whitbread’s net-pay issues which I wrote almost exactly three years ago.

The Pensions Regulator has read the blog, I have spoken with it about the blog, they have dismissed it. Which is why I am pleased that the Sunday Times has picked up on this matter.

Treating baristas fairly.

The cost to the pension pot of not getting the Government Incentive is around £34 this year, it goes up to £64 next year. Most baristas don’t know they’re being short-changed- why would they? I wonder if the pension consultation with staff concerned has picked up on this issue, I’ve never met a Costa employee who knew about it.

If you go to the Whitbread Pension website, the issue doesn’t appear as a frequently asked question. Whatever the search  term I used – I could find no mention of the issue.

tax relief 3tax relief 2

tax relief 1

Try it  yourself

Sadly Costa baristas don’t read my blog, but some of them read the Sunday Times and some of them have enough nouse to come together and demand they get the extra money paid into their pension accounts before it is too late. Costa can’t pay the money to their pensions if they are no longer in Costa’s employ.

Meanwhile, the Pensions Regulator – which has a statutory duty of care to protect the members of all pension schemes, whether the mighty Whitbread Defined Benefit plan or the humble Whitbread workplace pension – should take note.

It is not good enough to dismiss the “net pay scandal” as an anomaly. If short-changing baristas is swept under the table, the issue will reappear, as the GMP equalisation issue reappeared, several years down the line.

At a recent payroll conference, the Pensions Regulator tried to blame small employers with impacted staff, for choosing the wrong master trust. It is true that the Pensions Regulator’s website does give some guidance on this issue, but it is buried several screens deep on its website. Most employers – like most baristas- don’t have a clue there is an issue. I am pleased to say that the delegates- mainly payroll managers – were in no mood to be berated for choosing to join the wrong scheme. If tPR thinks it can divert the problem onto small employers and master trusts it should think again.

After all, the largest employer operating net pay schemes – and the employer with the biggest liability in Britain – is the UK Government.

Why action on Costa is needed now.

It is going to cost the pensions industry £15bn to sort out GMP equalisation, it will cost a whole lot more to sort out the “net pay anomaly” – unless something is done about it now.

Now is the time to do something about it. HMRC are doing something about the anomalies surrounding tax-relief for Scottish people with local income tax issues, they can do something about the net-pay anomaly now.

If they do, it will sort out the problems for those auto-enrolled into workplace pensions going forward. As for the problems of the past, for many – the damage has been done, it is very hard to see how those denied their incentives will be compensated through their pensions, this leaves companies vulnerable- as I say in my article – to class actions from impacted employees.

When there is a corporate event – and the sale of Costa by Whitbread to Coca Cola is a £3.9bn corporate event, then the problem crystallises. That is what is happening now.

Thankfully, the Sunday Times has picked up on my blog in time. Thankfully that is , for the Costa baristas, but – more importantly – for the 1.2m other low paid workers who are in net pay schemes and risk being short-changed.

These are people- to coin the phrase – “just getting by”. They are not the people who the pensions industry cares much about – as can be seen by John Ralfe’s comment. But collectively, they are powerful.

It is time that someone in pensions stuck up for the low paid and James Coney is doing that. He is aware that there are others. The Low Income Tax Reforms Group is another. You can read their solution to the net pay anomaly here. Now Pensions is another. There are many more campaigning for the poor including my friend Kate Upcraft and  the CIPP.

The PLSA are at last waking up to an issue that must be acutely embarrassing to them. Consultants are also embarrassed -we have heard virtually nothing from them on the anomaly thus far. In 2015 I warned them.

But I suspect  the tide is turning.

It only takes the Pensions Regulator to accept that the money owed to the low-paid auto-enrolled is real money.

It only takes HMRC to accept that the promise of 4+3+1 was made to everyone enrolled into workplace pensions – whether they paid tax or not. It only takes the Whitbread pension consultation to raise this issue with Whitbread with some hope of support from those who have a statutory objective to protect their pensions –

for things to change.

This blog calls on Whitbread to pay the incentive outstanding to many of their staff before the sale of Costa to Coca Cola. If Whitbread refuses to do so, the Pensions Regulator should block the sale. If Whitbread wants to claim back the money paid on behalf of HMRC – it should join the campaign to sort the net pay anomaly and do so on behalf of everyone who believes a pension promise is not for breaking.

 

Scottish tax relief

A reminder that HMRC can do it

 

Posted in auto-enrolment, Blogging, napf, Payroll, pensions, PLSA, Politics, Retirement, Ros Altmann | 4 Comments

Did I get “value for money” from my workplace pension

Posted on November 13, 2018 by henry tapper

IGC review 2018 full

The IGCs and how they are doing.

 

Am I getting value for money from my workplace pension?

is a different question to

Did I get value for money from my workplace pension?

the difference is more than one of present and past tense.

The first question requires a subjective assessment of the processes, costs, charges and utility of the workplace pension in the eyes of the expert

The second question is a matter of fact and can be answered yes or no, with reference to a benchmark of “how others have done”.

Too early to say?

Since IGCs (and latterly trustees of DC workplace plans) have had to make a value for money statement, there has been too little time to amass sufficient data to assess whether people have indeed had value.

Of the major IGCs , only Prudential have decided to test value for money by looking at the outcomes people have actually had. The vast majority of IGCs have preferred to answer the question in the present – using some kind of balanced scorecard of the value offered to members and the money they have paid for it.

This methodology has been largely discredited by the general research carried out by NMG in 2016/17 which found that ordinary people really didn’t give a hoot for any of the attributes of a workplace pension other than its capacity to deliver results at the end of the day. This suggests that outcomes based value for money assessment knock qualitative assessments into a cocked hat.

We are now getting to a point where most workplace pensions have been auto-enrolling members for at least five years, the argument that we cannot measure outcomes because we have insufficient data is becoming weaker by the day.

Do they mean me?

Most people aren’t interested in general statements about value for money. That is why there is never any comment in the press along the lines of  “XYZ IGC Chair says XYZ has delivered value for money”. You might as well say that the sun rose this morning.

People are very interested when you tell them that based on their personal outcome , they got or didn’t get value for money from their workplace pension.

When we analysed my workplace pension – which I’ve had since 2012 – this is what we found.

agewage vfm

This told me that relative to an average experience,  I had scored 76/100. This number was not based on anything but the value of my pot against the money I had paid for it. It’s only comparator was the value I would have got , for the same contribution set, had I invested in a typical way.

I can tell myself that I had  value for money  and can remember that score of 76 which I can compare with other value for money scores from my other workplace pensions.

Do they mean me? You bet they do! This is my value for money score.

The challenge to workplace pension providers.

The question “did I get value for money” , begs a personalised answer. It is not answered by a generalised answer around whether I am getting value for money, it isn’t properly answered by a “people like you got value for money” answer. People actually want to know about themselves.

We ask people to engage with their workplace pensions, but if they ask a specific question about “how they’ve done’, we give them performance charts based on metrics that have nothing to do with them (and which are generally designed for experts).

If I submitted a subject access request to Legal and General this morning, they would give me all the information I needed to give myself an AgeWage score. I can download from my website my contribution history which shows all the money that went in and all the money taken out of my policy since I started giving money to them.

If every policyholder with a Legal and General Worksave Pension did the same, I suspect that it’s robust machinery would hold up. But the same might not be said of other workplace pension providers and certainly could not be said of older pension systems.

The challenge to workplace pension providers is that every one of their policyholders or members, could – at any time – ask for all the information that it holds on them in digital format.

Indeed an IGC or Trustee could make such a request on behalf of its policyholders or members.

While it is doubtful that the Data Protection Act would make a bulk request on behalf of members legally enforceable, the duties of a Trustee or IGC Chair include making a value for money declaration to all policyholders/members.

The fact is that we are not getting individual value for money assessments not because they can’t be done, but because right now, providers are unwilling to do the work. It could be added that the IGC/Trustee chairs have yet to have seen anyone prepared to help them get this information.

Assuming that we have landed on a methodology for doing the work, assuming that telling people how they’ve done is valuable to them and assuming the regulators see individual value for money scoring as valuable, then this expression of value for money looks likely to catch on.

If it isn’t adopted by IGCs and Trustees – it may mean individual subject access requests being made on an industrial scale. This is a challenge to workplace pension providers.

Making meaningful disclosures

These words are directed at those in fiduciary control of IGCs and DC Trustee Boards (especially master trusts and the larger single occupational schemes).

GDPR and in particular the Data Protection Act 2018, give your customers rights to see their data in a digitally readable format.

Elizabeth Denham, the information commissioner, wrote an article that make this very clear. The whole article can be read here.

Let me quote three statements;-

Organisations should know what they’ve got and where it is, what they’ve done and why. Staff must have time, resources and training for creating and filing records.’

‘Organisations also need to make sure they have the appropriate technologies going forward to ensure that digital information is properly managed in the future.

That means technologies that can help to organise and search existing digitally stored data, as well as helping with disposition. Skills in digital management of records must be stepped up to meet these needs.

Simply saying it was “too hard” or “too expensive” to provide this data will not be good enough, either for the Government or for the people.

If we are to make disclosures about value for money, then they need to be specific and outcomes based. That will mean providing benchmarked statements of value for money similar to the one I’ve pictured. Either these can be provided piecemeal through individually generated subject access requests or they can be provided wholesale, through trustees and IGCs.

I would ask you , as you lead up to your next round of statements, to consider the implications of GDPR on disclosures and ask yourselves where you stand in your duties to members to properly answer the question

“Am I getting value for money?”

but also – the more difficult question

“Did I get value for money from my workplace pension?”

Posted in advice gap, age wage, pensions | Tagged , , , , , , , | Leave a comment

A day to remember #Armistice100

Posted on November 11, 2018 by henry tapper

poppies 1

It is 100 years since the Great War ended. It is a Sunday and my church will start the morning service 15 minutes only so we can stand in silence together and remember.

There is nothing good to remember about people dying in conflict. As Wilfred Owen put it, we remember

The pity of war, the pity war distilled

It is not just the Great War that ended 100 years ago today that we remember but we remember the sacrifice of all those who have died in conflict before and since, people who gave their lives for their country or were simply caught up in someone else’s war.

Today is also my birthday, I popped out of my mother’s tummy shortly after 11 am on the 11th November 1961. My father who helped in my delivery , reminded my mother that she did not respect the two minute silence.

I feel awkward linking my birthday with so awesome a collective memory as that we have today.

But I take some courage from knowing that I was one of the first children who grew up without war and without national service, without rationing, without the threat of invasion.

That we are now sufficiently confident of peace in Europe, that we can think of leaving the union , tells me that war is no longer an existential threat to people living in this country.

There are those in Yemen , Syria and many other places on the planet who cannot live this luxuriously.  That we do is in part –  because we remember. We are keeping our promise , mindful of the grim foreboding present in the phrase “lest we forget”.

poppies

This is the 57th time my birthday has been celebrated, it is a memorable day right now because of social media  as much as anything!

But today is about remembering the dead more than the living. My charmed life is built on the lasting peace that came out of the horrors of two great wars. For all our worries about global annihilation, we have not fired a nuclear weapon in anger since 1945.

This is a truly amazing thing. Proof of the inter-dependency of nation upon nation. Though we have and have had wars, we have learned that our capacity to work together out does our inclination to invade and subject.

Whether I will live to die a peaceful death remains to be seen, it is something devoutly to be wished for, it is what I will be praying for this morning.

I wish for myself and for others many more peaceful remembrance days.

poppies 1

Posted in pensions | Tagged , , , | 2 Comments

More fun and games in the crazy world of pension transfers

Posted on November 10, 2018 by henry tapper

Prudence 5

It didn’t take long for the ripples from the Lloyds Bank GMP equalisation ruling  to reach the crazy land of pension transfers.  Within a few days of the Judge Morgan’s verdict we hear that thousands of people are having their pension transfers delayed while Trustees work out what to do (or in this case – what not to do).

First some thoughts on the reports in the Financial Times (thanks Jo Cumbo)

  1. No one has yet shown me a scenario where the ruling could decrease a transfer value. I stand to be corrected on this, but the issue for the trustees is not about “claw-back”.
  2. The sums involved where someone is due more pension due to the Lloyds ruling are small. We’ve estimated the maximum capital payment at around £3,000. In the context of an average CETV of £450,000, we are not talking major adjustments.
  3. Reports that the cash payment of  “trivial” pensions are also being stalled (e.g. those so small that they can just be paid out as cash) suggests some trustees are just putting out a  blanket ban on pay-outs.

Second- some more general thoughts on trustee behaviour in these cases.

It seems right that when faced with the consequences of something they don’t understand in the first place, that those in charge slam on the breaks.

Here’s glamorous Chantal Thompson of Baker and Mackenzie

 “We understand that one firm is saying that trustees should not proceed with transfers until benefits have been equalised, albeit that there is likely to be a considerable amount of work required to equalise all GMPs under a scheme,”

It’s not clear whether the “firm” is an actuarial consultant or a firm of lawyers, either way it appears to be influential.

I thought the job of the adviser – who seems to be behind this – was to help Trustees to understand the consequences of the ruling on their scheme. It should not be hard to work out that if a transfer payment is made and there’s more to come, then more can be paid to where the first lot of money went.

In which case, a simple message sent to anyone in midst of transfer saying

“we may want to pay you some more as a result of this Lloyds thing – do you want the original amount now or do you want to wait till we’ve sorted things out to get your transfer”.

When in doubt – do nowt?

No doubt the “advice” came with a risk warning that – should transfers not be halted – there was a risk to the trustees (and pass-on risk to the sponsor).

But there’s an equal and opposite risk in this, which is the risk of putting the backs up of the members you’re trying to serve.

If you ban transfers, even for a few weeks, there will be people who don’t get their transfers paid in the six months window of a transfer value, people who may have to re-start the transfer process at great expense to all concerned.

So doing nothing is not a risk-free action at all. It just smacks of ignorance-induced panic.

Common sense needs to be applied

The word “pragmatic” used to appear in First Actuarial’s promotion of itself; we’ve rather stopped using it in favour of “common sense” and other phrases like “common decency” and ever “treating our customers fairly”.

I really don’t think that people who are currently going through the quite traumatic process of taking a pension transfer, should be made to pay for the ignorance of trustees of the impact of the Lloyds Ruling on their scheme.

The risk of under payment is small and can be dealt with in a common sense way as I’ve indicated above.

As for insurers refusing to accept transfers paid without GMP’s being equalised, this is even harder to understand. Is the thought that accepting the bulk of money today with the balance to come, too hard for an insurer to administer? What is the risk to the receiving personal pension?

I know that some pretty smart people who work in pensions read this blog and perhaps someone might like to contact me to tell me why the system is grinding to a halt? Is it the actuarial equivalent of the wrong kind of snow, or is there something that I’ve missed.

While I can understand Trustees and Personal Pension Providers being cautious, surely the solution is to take advice rather than slam on the brakes!

What of transfers past?

We know that £36.8bn flew out the DB door last year, the vast majority of the money transferred contained an allowance for GMPs given up. We also know that the Lloyds ruling could cost occupational schemes a further £15bn in increased liabilities. What we don’t know is whether the liability for those who have taken transfers (and signed away all rights) , who should have had the “windfall” of GMP equalisation included in their payment.

Nor do we know if the bulk buy out of members (where members signed away nothing), lays the onus to equalise (and meet the equalisation cost) on the people who insured the buy-out or the people who paid for the insurance (the trustees). The same could be said for other consolidations.

I don’t see anyone holding up the payment of pensions in November till the impact of this question is fully absorbed. That could be the precedent for the payment of CETVs.

So I am in the camp of Charles Cowling of JLT when he tells the FT

 “Our current view is that we should continue paying transfer values on a ‘business as usual’ basis — recognising that top-ups may be necessary at a later date once GMP equalisation is sorted,”

We need to treat people fairly. If we do, many of the problems that beset advisers – whether personal or corporate, in terms of Professional Indemnity Insurance, simply go away.

Or to put it more succinctly

Morality and prudence need to work together , not compete.

prudence 3

Posted in dc pensions, de-risking, pensions | Tagged , , | 1 Comment

First Actuarial celebrates its special day

Posted on November 9, 2018 by henry tapper

First

First Actuarial

Once a year, everyone at First Actuarial comes together in one place to work and play for a day. This is the day.

Most of us choose where we want to work and if we don’t like it, we go and work somewhere else. I’ve been at First Actuarial nine years now and I’m not going anywhere.

It’s not done to advertise your company as a good place to work on a blog. But I feel like doing just that this morning. It’s very rare that a small company can have done so much in its fourteen years , it’s not done to boast about your company’s achievements – but though I own no share of First Actuarial, I feel that it is “my company” and one that I can be proud of.

Yesterday I spent an afternoon and an evening with Allianz , my colleague Derek Benstead and other friends of CDC. I credit the CDC consultation paper that arrived this week to the deal done between Royal Mail and CWU. Not to put too fine a point of it, Hilary Salt, my boss – was at the heart of that deal. First Actuarial are making a difference.

I spent some time with Mike (the Bazooka) Otsuka. First Actuarial advise the university unions and it was with their advice that  helped the USS stay open.  First Actuarial has been a key influencer in the debate over the future of USS and by extension many other defined benefit schemes.

Each month we publish our FAB Index, which tells a very different picture about the state of pension solvency than the doom-ridden analyses of many of our competitors. Many of the schemes we advise use a best estimates approach to scheme funding and though there is plenty of prudence built into our valuations, we have moved the dial for many trustees and employers who see the advantages of long-term investing over a flightpath to buy-out.

But we are pragmatic and when employers and trustees decide that they are looking to offload their pension obligations to an insurer, we help our clients to prepare for and execute the deal. While we have strong convictions, we are not dogmatic. Our pragmatism arises from those who founded the company, all knowing what it’s like to own and run their own business.

It is this entrepreneurial spirit which is what I value most about First Actuarial. It not only allows me to work with those who own the company on business decisions but allows those Founders to share in the entrepreneurial work I do with Pension PlayPen and now AgeWage.

My job at First Actuarial is to help develop its business. I am allowed to write my own job description and execute independently. From time to time that means that we are out of step – when this happens we have frank discussions which get quickly resolved and we move on.

I cannot think of any other professional practice that is so accommodating towards their employees as First Actuarial. It really is a pleasure to work for our Founders and with nearly 300 other souls who by and large – feel as I do.

This year, by dint of others merging, us doing what we do as usual and thanks to a fair number of new clients coming to us , we are listed among the top ten consultancies in the UK. That’s quite an achievement for a firm that started from scratch in 2004. Credit to the 9 Founders who started out and who still run the shop

Why I’m writing this….

I’m not paid to write this, I write this because today is our special day and I hope that as well as my regular readers, some of my colleagues who don’t normally read my blog, will read this.

I hope that you, whether you work for First Actuarial or another organisation – or yourself – or if you don’t work – find some inspiration from these few words. It really is a great pleasure to work for First Actuarial, I’d like to think that First Actuarial feel the same about me. Can you say the same?

If you can, then you should thank your lucky stars. If you can’t then either you should set about changing the way you work, and if you can’t do that – maybe you should think about where you work!

Working for the wrong company is soul destroying, if you can’t properly say your as proud of your employment as I am of mine – do something about it!

Hilary Salt

Posted in actuaries, age wage, pensions | Tagged , | 1 Comment

The Sun says we’re pension potty

Posted on September 8, 2018 by henry tapper

sun rip off 2

What do the 10m new savers read? Not their pension illustrations – they read Sun Money – Dan Jones’ excellent financial section.

Today’s lead article is about pensions and before everyone comments “not another slagging off for the industry”, it’s about how you can avoid being ripped off.

Rip-off charges – don’t pay them

Not many people know that there is a charge cap on transfer penalties on DC pensions. There is – and it’s 1% of the fund. So long as you are 55 or  older – you can ditch your rip-off charges and get a transfer of 99% of the monies you’ve built up. I waited till I was 55 to transfer one of my pensions and saw the transfer jump from £9.000 to over £14,000.

Another of my pensions had an average of 2.5% pa charge on it, by switching the money to my low-cost workplace pension , I’ll save myself £40,000 by the time I want to take the money.

I didn’t pay an adviser a bean to get my money out of rip-off charge land and I’m proud of the good financial work I did for myself.

With the help of a proper pension dashboard and our new service AgeWage,  we hope to help millions of savers do the same!

Why I help the Sun.

The Sun did some bad things in the past – I can understand people refusing to forgive and forget. But the Sun is the newspaper that is read by the people who pension people ignore. When the Sun speaks on pensions, it matters!

So I’m really proud to have been asked to help with some Sun articles, and if Dan and Harriet ask me to help again, I’ll do everything I can to keep their articles punchy and accurate.

sun rip off

That’s me in the corner – losing my religion!

It took three weeks to write this article, every sentence, every number and every quote has been scrutinised and tested. This is journalism of the highest order.

Anyone who thinks it is easy to write about pensions with this simplicity should try it!

We need the Sun to write responsible articles, I’m delighted that they are promoting TPAS and AgeWage and First Actuarial. We should all be proud to be associated with what the Sun is doing for pensions.

If we don’t – we really are pension potty!

 

Posted in age wage, pensions | Tagged , , , , , , | Leave a comment

Are over-sixties sick at work or sick of work?

Posted on April 19, 2024 by henry tapper

Like the IFS, the Fabian Society have found that  out of all UK adults, it’s people currently in their sixties who are most at risk of  experiencing poverty.

Those at risk need to find paid work and if they can’t, they need to be treated by the state as if they were, they need to be given an alternative wage through the benefit system and they need to continue to build credits for what should be easier years ahead.

This is how the latest Fabian publication introduces the subject

People usually associate the years before state pension age with affluence, not poverty. But the UK is facing a hidden poverty crisis among 60 to 65-year-olds. A quarter of people aged 60 to 65 live in poverty – the highest poverty rate for any adult age group.

In this new research, the Fabian Society’s Sasjkia Otto looks at the roots of the problem and presents a strategy to address it.

Solving poverty ahead of the state pension age will require long-term action targeting people at every stage of working life. We need better health, better jobs, lifelong learning and careers support, more pension savings, and stronger social security for everyone of working-age.

But interventions are also needed now to support people over 55 to stay in work, to return to work quickly or to achieve higher living standards if they have little prospect of working much again. Solutions need to come at the problem from two directions: support for longer working lives, and improved financial support for those who cannot work more.

There is nothing particularly startling about this finding except the depth of the problem. More than one in three of people over 6o but below state pension age are not working and in poverty. Even among those in work 15% of one in 7 are officially “poor”.

As a 63 year old, I am conscious that work is not getting easier. I have the advantage of earning from sedentary work , I do not have to overstrain my limbs. But were I required to stack the shelf, sweep the street or cook school meals, I am not quite sure I would be able to carry out full time work.

The concern that most older people have is that the act of work could lead to incapacity. It’s not just older people who fear this, the DWP are terrified by the incidence of older people who are finding themselves unable to work

There has been some concern that the ONS numbers only take us through to 64 and not 66 (state pension age)

But more fundamentally , the post-COVID morbidity of the nation is not improving, we appear to be getting sicker.

Today Rishi Sunak indicated the Government’s policy on getting elderly workers back to work. It involves taking the responsibility for signing “fit” notes (aka sick notes) from presumably overly compassionate doctors, to less amenable professionals. We don’t know who these might be – I would suggest traffic wardens – if the aim is to be obdurate.

Making it harder to get signed off work does not make you better, but it does make the statistics better and if there is one thing that the Government might be able to do between now and the election , it is to manipulate the numbers.

Posted in pensions | 1 Comment

Steve Webb’s magic magnetic pensions!

Posted on April 19, 2024 by henry tapper

First we had “Magic (baked) beans”!

Veteran Webb watchers will know that Steve Webb loves his magic beans. Back in 2013 he told Daily Mail readers he would no more introduce a price cap on workplace pensions than on cans of baked beans. He went on to explain that employers chose workplace pensions on a lot more than price. Oh the irony!

Since then , beans have been at the heart of much pension banter and have regularly featured in discussions on anything not grounded in financial economics

Until yesterday I was sceptical about magic baked beans but I now realise they do exist.

Then we had Sexy cash

Those following recent blogs know that Steve Webb started yesterday finding me £40,000 of pension I thought had been lost to Cod and Cope. That’s “sexy cash“.

For the full dramatic story, follow this link!

A few hours later “magic magnetic pensions”!

Having conjured up a full state pension for me in the morning, Steve spent the afternoon wowing the LCP DC conference with further magic with his “magnetic pots”

Which seems to have  generally gone down well.

Bet you wish you could have been there but…

All is not lost!

To my great delight, I discover that next week’s Pension PlayPen coffee morning is to be hosted by me and features Steve Webb talking about (drumroll) “Magnetic Pensions”.

The Government’s ideas to tackle small pension pots through ‘member choice’ or a lifetime provider model have met with a barrage of criticism.

There is little or no time before the Election to legislate for these ideas. So what should the incoming government do instead to tackle this issue?

I have no idea what “magnetic pensions” are , but Steve has just found me £40k’s worth of state pension , so  I’m keen to find out whether I can attract any more loot either from the DWP or private pensions.

Pot follows member’s memorable makeover!

Amongst his many memorable phrases, Steve coined “pot follows member” and he’s always preferred workplace pensions to be chosen by employers rather than savers.

So he’s no fan of the lifetime pot.

Now he’s updated Pot follows Member to “magnetic pensions” , harnessing the allure of the putative pension dashboard.  In his imagining, employers get to keep the workplace pension of their dreams while the saver attracts past pots to it, through Steve’s magnetic personality  the power of the dashboard.

It is all laid out in this neat cut and paste PDF which you can download from the LCP website or scan on this link through the power of Slideshare!

Just like seeing Bruce Springsteen

 

 

 

 

Last summer you could watch Springsteen at Hyde Park and pay a fortune or watch him at Aston Villa’s  Villa Park. Pay less to  see him play to a proper crowd? Sounded good – I went to both!

It’s the same this summer, you can get up close with no VIP space at Sunderland’s Stadium of Light and it’s half the price of the London gig.

Now , here’s the thing – Steve Webb – a Brummie who supports the Baggies, knows a thing or too about VFM and if you’re a reader of this blog and got this far, you have earned yourself the ultimate in VFM. Pay nothing to watch Webb with a proper crowd!

Watch the pensions Bruce Springsteen perform live on the Pension PlayPen for free-

USE THIS LINK

Unlike watching Springsteen at Hyde Park , you don’t have to pay to be a VIP.  You can get up and personal to the superstar in a proper gig!

Pension PlayPen – 10.30am – Tuesday (next) April 23rd 2024.

If you weren’t at the LCP event , get down and boogie in pension’s Asbury Park!

 

Posted in pensions | Tagged , , | 1 Comment

FA and Prem rob grassroots of replays

Posted on April 19, 2024 by henry tapper

What the FA and Premier League say.

What the grassroots say

What Derek Scott says

I read that the FA plan to scrap replays from round 1 next season.

The story was illustrated in my Cumbrian newspaper feed (you-can-take-the-boy-out-of-Carlisle-but-you-can’t-take-Carlisle-United-out-of-the-man) by this from 2016:

Derek knows that this match lives in infamy for Yeovil fans, we missed  a last minute penalty to win it. Things got a little bad tempered. Thank you Derek.

17982022.jpg

 

The crafty bean counter goes on to remind me

I gather both teams finished the replay with ten and then the penalty shoot out was nine from ten.

and his compendious memory is full of FA cup  lore.

I’m reminded that Yeovil’s famous Cup victory in 1949 over Sunderland, 1-1 after 90 minutes, didn’t go to a replay as travel restrictions/rationing meant extra time was encouraged where distances were involved.  Sloping Huish also had fog that afternoon which featured in Sunderland’s excuses for their giant-killing exit.
Yet Manchester United (whom Yeovil came up against in the 5th round) had two replays to get past Bradford PA in the same 4th round.
I was brought up to think Carlisle United played in the first replay under floodlights, at Newcastle in 1955, when they lost 3-1 to Darlington.
But fact checking I find Kidderminster Harriers got there two months earlier in their 4-2 replay win over Brierley Hill Alliance.

These are the memories that survive for lower league clubs which the FA and Prem know nothing about.

What we all say.

The glory of British Football is not just in the Premier League, it is in the EFL and in the lower leagues which have give us fairy tales  like  Jamie Vardy , Kieffer Moore and Dan Burn . That give us clubs like Stockport County, Yeovil and Wrexham that refuse to die and are kept alive by fans and owners against all odds.

The pledge is for £133m to trickle down to lower league clubs, only £33m of which is new money. That is an amount that wouldn’t buy the services of many a star footballer. It is pitiful compensation for the loss of revenues for smaller clubs but worse – much worse- it is no compensation at all for fans for whom the FA cup replay is a part of the game they follow

It’s a paltry amount and while it does get through, small clubs can be helped more significantly by financial solidarity. A good example is the Football League pension scheme which is imposing an unfair burden on smaller clubs , many of which are teetering on the edge of administration

This week, my friend Phil and I are taking our little campaign to get the big clubs to help out the little clubs on pensions. Wrexham are a little club with a big ground, great support and like Yeovil, not much to shout about apart from their football team. As we all know , their’s a touch of Hollywood about them which gets them listened to. Let’s hope we get more luck than we’re getting from the Prem.

There’s always a pension angle – isn’t there? Thanks  to Derek, David Coates and Olly Bausor for keeping us smiling!

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The Pension Dashboard has a new boss

Posted on April 18, 2024 by henry tapper

Iain Patterson – the new Senior Reporting Officer at the Pension Dashboard Program

The appointment of a new Senior Reporting Officer (SRO) to the Pension Dashboard Program is long overdue. When Laura Trott announced by  a dashboard reset on March 2nd 2023,  her parliamentary statement included

Given these delays, I have initiated a reset of the Pensions Dashboards Programme in which DWP will play a full role. The new Chair of the Programme Board will develop a new plan for delivery.

Hector Sants was the original chair of MaPS and thus the PDP and Sara Weller has succeeded him. Paul Maynard has succeeded Laura Trott who succeeded Alex Burghaff who succeeded Guy Opperman, all in the space of a year.,

Oliver Morley has succeeded Caroline Siarkiewicz as CEO of MaPS. The only public point of continuity at the Pension Dashboard Program has been Chris Curry – he will remain involved as Principal and industry liaison officer, but he is no longer responsible for the PDP’s performance.

MaPS itself has moved its operation from Holborn Circus to Bedford, its executive is not in the DWP’s Caxton House in Westminster. The stage is set for the new kid on the block – Iain Patterson

Rather than rely on the PDP press release, I will quote from Iain’s linked in profile

An outstanding Digital and Technology C level Executive with a reputation for strong leadership combined with extensive board level experience and an exceptional record of success within major public and private sector organisations; leading large IT divisions, 2000 plus, on a global scale and directing some of the country’s most significant Transformation, Digital and Infrastructure initiatives.

Delivering Digital Transformation through technology, whilst maintaining operational integrity, with strong operational and commercial acumen, aware and conversant in modern and emerging technology trends.

A politically sensitive and credible ambassador at the most senior level with exceptional commercial, negotiation and communication skills and the ability to effectively manage a wide range of stakeholder relationships including Government and Industry representatives, Ministers, leading US technology suppliers, and well respected amongst the technology, system integrator and Consultancy practices on a Global Level.

And connected to Richard Smith.

Too long in the wait

My thoughts on the lack of leadership at the PDP are available at the bottom of this page, great guy that Chris Curry is, he does the job par-time.

The appointment of a genuine technologist has been long overdue. This is a technology project first , a pension project second. The pension industry will have to adapt to the needs of the pension dashboard program because people not pensions come first.;

It has been totally unfair on Chris Curry, that he has been left holding the technology brief when he is not a specialist and downright negligent of DWP to have taken a year to implement the change in executive promised last March.

Oliver Morley now has some cover and Chris can continue to be the friendly face of the dashboards but you have to ask some serious questions about prioritisation here.

What of the MaPS non-commercial pensions dashboard?

There are a number of questions outstanding on dashboards which are already five years late.

We have no confirmed dashboard available point (DAP) nor will we till we have more confidence that the staging guidelines are going to be properly complied with. It is one thing to get the big guns into place, we know from auto-enrolment that staging the long tail of smaller data suppliers is the big task. This will be one of Patterson’s task to scope.

We have had little or no news of the MaPS non commercial dashboard which seems to have been relegated to an after thought. The PDP press release announcing Patterson’s arrival states

Government has committed to facilitating the pensions industry to develop this initiative and have given specific responsibilities to the Money and Pensions Service (MaPS) which include:

  • bringing together a programme team to lead the implementation of pensions dashboards

  • appointing an industry steering group to set the strategic direction of the programme

  • beginning work to create and run a non-commercial pensions dashboard – the MaPS dashboard (my bold)

I don’t know how long it takes to build a dashboard but I suspect from this that there is plenty of work to be done at MaPS if its dashboard is to launch by the current estimate for connectivity completion (31st October 2026).

MaPS needs a pension success story

The FCA’s recent publication of MaPS Pension Wise’s decreasing influence on at retirement decision making , the delays on the pension dashboard and the decline of TPAS from industry leading to inconspicuous are symptoms of a sorry decline in pension support from the Government.

Pension Wise influence is illustrated as the orange block

Oliver Morley inherited an organisation with one misfire of a CEO and another who had ongoing health problems that prevented her functioning as it should. He comes from the PPF, possibly the best funded arms length body in Government and is now very much in the public eye.

The appointment of Iain Patterson gives him and MaPS some much needed cover, but it will not relieve MaPS of responsibility for non-delivery. So far the Pensions Dashboard Program has been a great let-down to the British public, it needs to put a better forward and let’s hope Iain Patterson’s appointment marks a stepping up in gear.

Posted in pensions | Tagged , , , | 6 Comments

Worth watching and reading- Davies, Salt and Young on fairness from State Pension

Posted on April 17, 2024 by henry tapper

There is nothing to say about yesterday’s Pension PlayPen coffee morning which isn’t better said by its protagonists and interlocutors at the time

Many people have asked for the comments, for completeness – here they are – thanks to Nichola Whitaker for curating all but those which were protected by Teams

Comments

[11:09] Brian Gannon

unfairness is not just for pensioners, throughout life there is a massive disparity and inequality in wealth, opportunities and income between those in the top decile and those in the other nine

[11:09] Jim Woodlingfield

Also slightly off topic, but always worth plugging if anyone has gaps in their NI record and won’t get the full qualifying years for state pension it could be very worthile buying back missing years – How to buy voluntary national insurance contributions (moneysavingexpert.com)

Aged 40 to 73? Urgently consider buying national insurance years

If you’re aged between 45 and 73(ish), buying extra national insurance years could massively boost your state pension. If it works for you, the returns can be huge. Learn more about who should do it,

[11:10] Derek Scott

Peter Cameron Brown (Unverified)

I wonder what proportion of those eligible actual do defer?

A recent survey suggests only 7% of those over 55 said they had used state pension deferral themselves.

[11:11] Stephen Wright (Staff)

But progressivity is seriously compromised by life expectancy. Someone on the lowest quintile is much less likely to survive long enough to benefit from the redistribution at age 65+

[11:11] Gareth Morgan

55 year olds saying that they’ve deferred?

[11:11] Alan Chaplin

Peter Cameron Brown (Unverified)

I wonder what proportion of those eligible actual do defer?

Not many – expect figures are in ONS data somewhere but an article by my firm a couple of years back reports 7.7%.

[11:11] John Mather

Surely a high % of living wage is the objective and with the right productivity per capita it could rise to 100% of the living wage

like 1

[11:13] Martin (Guest)

Watch out for potential pitfalls with VNICs though…

Voluntary National Insurance contributions and the State Pension | MoneyHelper

like 1

[11:15] Stephen Wright (Staff)

But it is not universal. The richer you are the longer your life expectancy, so the more you benefit from a universal benefit that conditions on age.

[11:16] Brian Gannon

would it be unmanageable to introduce the concept of actuarial reduction to the state pension? so with db if you retire before the NRA of the scheme you can do so if the rules allow it but with a %reduction for each year you take it early. Could this early retirement reduction not be introduced to the state pension

[11:17] Brian Gannon

after all its the opposite to the late retirement factor of 5.8% for deferring the state pension

[11:17] Derek Scott

The much-maligned Scottish Government has committed to providing a minimum income guarantee (rather than a universal basic income) by 2030.

[11:19] Peter Cameron Brown

Alan Chaplin (Unverified)

Not many – expect figures are in ONS data somewhere but an article by my firm a couple of years back reports 7.7%.

Is that perhaps an indication of the importance of universality?

[11:20] Michelle Ravenor (She/Her)

Brian Gannon (External)

would it be unmanageable to introduce the concept of actuarial reduction to the state pension? so with db if you retire before the NRA of the scheme you can do so if the rules allow it but with a %reduction for each year you take it early. Could this early retirement reduction not be introduced to …

I would imagine the risk of this is that again this would have a negative impact on the poorest/those in the poorest health who feel forced to take a reduced state pension early – and then their income is ‘spread too thin’ and causes a higher risk of poverty.

[11:20] John Mather

Means testing can be gamed so more wasted paperwork Link the success of the pension to the income (productivity) of the country otherwise, you continue to rob Peter to pay Paul

[11:20] Alan Chaplin

Brian Gannon (External)

after all its the opposite to the late retirement factor of 5.8% for deferring the state pension

yes but … if state pension is a “reasonable minimum” then paying a reduced amount early only practical if person has other income to top it up in which case just use that other income without introducing more complexity?

[11:20] Pádraig Floyd (Guest)

Brian Gannon (Unverified) (External)

in order to have a “fairer society” we need to Iook at the disparity of wealth and the distribution of wealth, pension inequality is one part of this

And the expectations of individuals to become more rational and for them to be prepared to cut their cloth according to their means.

[11:20] Brian Gannon

Michelle Ravenor (She/Her) (External)

I would imagine the risk of this is that again this would have a negative impact on the poorest/those in the poorest health who feel forced to take a reduced state pension early – and then their income is ‘spread too thin’ and causes a higher risk of poverty.

hence pension is but a part of the overall problem of poorer people having inadequate income before retirement age as well as after state pension age

like 1

[11:21] Brian Gannon

Alan Chaplin (Unverified)

yes but … if state pension is a “reasonable minimum” then paying a reduced amount early only practical if person has other income to top it up in which case just use that other income without introducing more complexity?

one of the problems is that a lot of benefits reduce on a means tested basis once you have more than £6,000, and most poor people dont have other income and are living in abject poverty before state retirement age

like 1

[11:24] Gareth Morgan

£10,000 for Pension Credit but least that doesn’t have a cut-off point.  That capital cut off makes it very difficult for under 66s to take money from DC pots.

[11:27] Nichola Whitaker

interestingly no one has raised the fact that lots of younger generations do opt out of DC pension schemes so will rely on state pension when older – but its not enough to live on given the inflation in all areas bills/food/rents etc so we have a much bigger issue coming up in years to follow if its not reviewed in line with societal changes and economical factors

like 4

[11:28] Brian Gannon

Nichola Whitaker (External)

interestingly no one has raised the fact that lots of younger generations do opt out of DC pension schemes so will rely on state pension when older – but its not enough to live on given the inflation in all areas bills/food/rents etc so we have a much bigger issue coming up in years to follow if it…

i dont think the state pension can do this job, this is about fairness of opportunity to live somewhere you can afford to live in

[11:29] Brian Gannon

thank you  to the panel and everyone for a brilliant debate, its great to hear and learn from your opinions and expertise, thanks again

like 2

[11:29] Nichola Whitaker

its a toughy Brian – theres also what rob just raised which is education of the general public on pensions as a whole which came up in the panel i was on last year on young people and pensions – education on savings now and for the retirement will reduce the problems of people ending up reliant on the state pension

like 2

[11:30] Nichola Whitaker

so many factors

[11:31] Brian Gannon

i think theres  a general lack of financial education across the board, and i hope that there will be an increase in the focus placed on educating people of all ages, not just children, to understand more about the basics of money management, budgeting, saving and investing

[11:32] Brian Gannon

they then might come to realise just how unfair society is, and get more interested in politics so that the status quo is not maintained, and we can move towards a society where there is greater equality of opportunity and more support for those unable to support themselves at a decent standard of living

[11:32] Nichola Whitaker

Brian Gannon (External)

i think theres a general lack of financial education across the board, and i hope that there will be an increase in the focus placed on educating people of all ages, not just children, to understand more about the basics of money management, budgeting, saving and investing

agree – myself and a few others were looking at ways the education sector could implement this in classes in schools  to educate on savings, pensions, mortgages, costs of living etc

like 1

[11:32] Alan Chaplin

Saw this suggestion on a general polictics post which I’ve not considered previously:

have the state pension rise at 80/85 and 90 to help people avoid the need for excess prudence.

[11:33] Robert Cochran (Guest)

Had a go at explaining state pension here but agree with speakers moreneeds to be done and it is the key element of income for most people https://www.youtube.com/watch?v=AqzB-EHYgig

like 1

 

Posted in pensions | Leave a comment

Three lessons from the FCA’s retirement income market data

Posted on April 17, 2024 by henry tapper

My analysis of this data leads me to three behavioural insights

  1. People are concerned about “net cash” – not “gross before tax”
  2. People want control and ownership
  3. People prioritise today’s cashflow needs over a wage for life

The data published yesterday is over a year stale. As a snapshot of what is happening today it has limited value but as a means of assessing trends since the introduction of pension freedoms in 2015 it is useful. It tells us about the decisions are taking with their money and importantly it tells us that a lot of decisions are being deferred. By far the biggest bar on the bar chart would be the untouched pots, the pots that are running on awaiting a reason to be “crystallised” , encashed or be subject to tax-free cash stripping (uflpls).

  1. Lesson one; People are concerned about “net cash” – not “gross before tax”

Tax is clearly a big driver and there is an important lesson to be learned here. People are reluctant to pay tax on their pension which they have been brought up to believe is tax free. We are seeing this in the outrage that the state pension may exceed the lower income tax threshold and therefore be taxable in the hands of non-tax-payer. People like the idea of the tax-free-cash sum but they don’t like the idea of tax on drawdown income and they especially don’t like the idea of being taxed on an emergency code. Note to behaviouralists , people like to know what they’re getting – cash in hand. There is nothing transparent in quoting a pension payment gross only for it turning up net of an unexplained tax-charge.

So what we continue to see is a tale of people taking pots as pensions, not by drawing income but by simply encashing the pot (the lighter blue line). There has been a slight increase in the numbers of people drawing down an income and a small increase in people encashing but less people are buying annuities and the sophisticated UFPLS market (taking tax free cash as you go) is still to take off.

 

Lesson two; People want ownership and control

Though the total number of pots accessed in 2022-3 is slightly down on the year before, the picture is the same. Small pots (les than £10k) amount to half the market and nearly 200,000 encashments. The power of tax is clear again, large pots don’t get encashed as only a muppet would pay 45% on much of the income.

Small pots get cashed out either because people don’t care, don’t pay or don’t understand about tax – and because the need for ownership -or at least an absence of debt is the over riding factor in the decision making. Much of this cashing out may be a bridge to pension (the state pension typically).

One thing I haven’t seen before is the spread of annuity purchase which was thought to be a big pots game. We are now seeing annuities purchased across the band of pot sizes, although relative numbers remain very small. My second takeaway, people want ownership and control is based on the data. Drawdown needs money, people get that, where there isn’t sufficient money, there is no market for drawdown. Is this message being drawn from the pitiful income from small pots or from providers telling people with small pots to take them?

Lesson three ; People are prioritising today’s cashflow needs over an age for life

People are not planning on lifetime incomes. Only where the pot exceeds £250,000, where advisers get involved, are pots being drawn down at sustainable levels. While there is some moderation with smaller pots the vast majority of drawdown rates are being set to produce a desired level of income, not a sustainable rate. In other words, people are either purposefully or out of ignorance planning to run their pots down faster than they run themselves down. Carpe Diem or necessity calls, people are not using drawdown to provide a pension.

This does not accord with the stated aims of a high proportion of people surveyed for what they want out of retirement

60% of people surveyed by AON about their pensions said they wanted an income that lasted as long as they did

“Our 2018 DC and Financial Wellbeing Member survey highlights that 60% of DC savers want an income for life in retirement, but their only way of achieving this is via an annuity, which according to FCA Retirement Income data (Sept 2020) only 10% purchase. This illustrates that the need is not being met”

While you shouldn’t believe everything you read in surveys, ongoing work by Ignition House and others backs up the popular view that a workplace pension should provide a pension.

There is a mismatch between experience and expectation here , which is worrying. For how much longer will people put up with workplace pensions without the pension?

Appendix

There is a lot of granularity in the second part of the survey which I am including here for completeness. I will come back to the more detailed lessons we can learn from the data , by way of how people are taking (or not taking) decisions.

 

 

Posted in age wage | Tagged , , , , , , | 1 Comment

Robin Ellison: Magnolias, VfM and brand value

Posted on April 16, 2024 by henry tapper

This blog first appeared in Professional Pension on 10th April and is reproduced with Robin’s kind permission.

The Pensions Regulator (TPR) has announced with some glee it has fined a pension fund for not demonstrating that it is value for money (Poor-value schemes are wound up as TPR takes tough action, 14 March) – the press release headline is misleading; the fine was not for providing poor value, but for not completing the box ticking. Sceptics might note that the cost of box-ticking may itself not be good value, and that paying a fine is certainly not. A fine which reduces the VfM is simply absurd.

This season has been a magnificent one for magnolia trees, which have exploded their Chinese beauty in gardens around Britain, but as we gaze upon their wonder, we might reflect on the guidance or advice given to us by The Plant Regulator. The magnolia brand is justly admired around the world, but TPR asks us to consider whether the two weeks of glory they offer are worth the (1) ten year wait while they grow to adulthood (2) space they take in the garden (3) leaves they strew on the footpaths and (4) fact that for 50 out of the 52 weeks of the year they are a monotonous green or even naked. It’s really hard to tell whether they are VfM, although plant managers (gardeners) are required to produce a study for the local council inspectorate of gardens.

Meanwhile there is a real value-for-money war taking place in the States which might cause some anguish to those of us in the UK contemplating buyout, and should pose a real concern for TPR. AT&T the telecoms company completed a buyout last year with a specialist insurer whose annual report was only 40-odd pages (although their parent insurer’s annual report was around 4,000 pages). The argument put by lawyers for members of the scheme was that the insurer was not as secure as other insurers, in other words it was value for money but suspect (the AT&T complaint is at Piercy v AT&T, 11 March). Similarly, Lockheed Martin has been sued over its pension risk transfer to the same insurer, with members alleging that the plan sponsor did not choose the safest annuity because it was owned by private equity. The insurer’s private equity ownership is criticized because it is alleged that private equity-owned insurers take on high-risk and high-yield investments to achieve higher returns than traditional insurers. These private equity-owned insurers also tend to charge lower fees than traditional insurers to take on plan liabilities. The plaintiffs’ complaint also noted that the pension transfer to Athene caused the two plans’ 31,000 beneficiaries to lose their participation in an ERISA-governed retirement plan.

The debate follows the English case brought by annuitants of the Pru (see: Re Prudential and Rothesay Life [2020]) when it sold its annuity book to Rothesay. The question for the court, though not expressed that way, was whether the member was entitled to choose to use a brand, with the subtext being that it offered worse value than other less well-known insurers. Now that smaller defined contribution (DC) schemes are being semi-compelled to merge by TPR we probably need to have a note from the regulator on the value of brand. The problem with regulators is that because they enjoy a monopoly, they struggle to understand why anyone would buy a Patek Philippe when a Swatch tells the same time – or even use a watch at all when we all have smartphones. A regulator does not have to nurture a brand or worry about good service. But the rest of us rely on trust and reputation – as do our members.

While discussing brand…

Brand was also the issue when Lidl won its legal battle with Tesco over the use of a blue square with a yellow circle inside. Given that all supermarkets make a living by quasi-copying established brands the litigation looked a little hypocritical, but it reinforced the issue of the value of a brand. What we all need to know is whether it’s OK for trustees to use an investment or buy-out brand that is more expensive. Not everything is a commodity, and trust and reputation are worth something. Meanwhile maybe all that Tesco needs to do is use an octagon in future instead of a circle although MG may have a view on that.

Trustees, risks and regulation

It’s been a busy time for navel-gazing trustees. The House of Commons Select Committee on Work and Pensions produced a report that was pretty critical of TPR’s activities and was slightly dismissive of TPR’s determination that trustees should be professionalized (Defined benefit pension schemes, 26 March). Around the same time a group called the Financial Markets Law Committee also produced a report (Pension fund trustees and fiduciary duties, 6 February 2024) which criticised TPR nostrums to invest for safety: ”The law recognises that at times there may be a range of appropriate decisions, and that sometimes (for example) a decision for an investment may be just as appropriate as a decision against.’. It follows an older DWP report (Pension trustee skills, capability and culture: a call for evidence, 11 July and November 2023). Despite all this grandstanding there is no evidence that outcome for members would be improved by requiring trustees to have more training – and considerable evidence that TPR’s own absence of training has cost members considerable sums. We need trustees to take risks, and regulators need not only to live with risk but also encourage it.

SRA, TPR and the Post Office

The operations of the Post Office, itself a kind of regulator, and the consequences of its long-standing Horizon scandal have sparked reflections about the way in which regulators enforce their will, including that of our own TPR. One of the issues has been the behaviour of Post Office solicitors continuing to prosecute when it is alleged they knew of the computer problems and that the prosecution evidence was flawed.

Solicitors are regulated by the Solicitors Regulation Authority (SRA), which has so far been silent on the episode. The SRA itself has recently been reviewed by its own regulator (a regulator of regulators, the Legal Services Board) and one of the commentators noted that while firms or individuals which have failed to follow their professional obligations should face appropriate sanctions they remained seriously concerned about the SRA ‘acting as investigator, prosecutor and judge’. Which of course TPR does. TPR would gain more authority if it changed its operations, especially given the continuingly egregious numbers of auto-enrolment fines and appeals.

Acronyms of the month

The Financial Conduct Authority (FCA) has now published a review of its retirement income advice (Thematic review of Retirement Income Advice, 20 March). Hard to know what the word ‘thematic’ adds. Anyway, giving advice on retirement is now expensive (the review does not discuss the Duke of Albany’s remark in King Lear “striving to better, oft we mar what’s well”) and the reason for the cost is partly explained by this report. Consolidation is a current meme for pension funds, but a single human seeking to consolidate their own pension arrangements, to be further encouraged once the dashboard is running, will find that to comply with FCA requirements means it now takes around 3 months or more rather than 3 days to move a pension. The reason is that it involves . . .

(1) speaking on the phone to each provider IRL,

(2) the posting IRL (eh?, with a stamp and envelope) of around 150 pages of material from the receiving provider to the ceding provider

(3) the need for the individual to complete around 20 pages of forms and

(4) the need for the individual to have a telephone chat with the ceding scheme.

. . . all repeated in the case of each arrangement, even where the Origo system is used. The FCA review sadly does not bother itself with cost or consumer expectations, but the FCA itself currently requires:

(1) the production of earlier and more frequent wake-up packs,

(2) a stronger nudge to PensionWise,

(3) the production of investment pathways

(4) retirement risk warnings and

(5) the production of cash warnings.

None of this has been costed, but it is the consumer who pays for this overkill. Meanwhile the PP Acronym Award for April is won by the FCA with the use of following terms in its report (which it calls abbreviations rather than acronyms): AR, ATR, AUM, CAR, CFL, CFM, CIP, COBS, CRP, DB, DBAAT, DC, FAD, GAR, GGR, IDD, IGA, ISA, JFPLS, KPI, MI, MIG, MVA, PCLS, PPP, PRIN, PROD, QA, RIA AT, RPPD, SIPP, SYSC, T&C, TC, and UFPLS. They forgot FFS. And we wonder why people find pensions complicated.

The FCA also wins second prize for its 166 page consultation in March on regulating pensions dashboards (CP24/4: Further consultation on the regulatory framework for pensions dashboard service firms, 27 March) which also adds AGBR, CBA, CP, CP22/25, DWP, ESG, FSMA, LRRA, MaPS, PDCOB, PDP, PDS, PERG, RAO, SYSC, GDPR UK to our required tree of knowledge. It takes a special type of person to draft this material, and they should be let go immediately.

Warnings/disclaimers and the arts

The FCA still insists that asset managers destroy acres of forest with pages of pointless disclaimers in 4-point print. Talking Pictures, the free-to-air TV station also puts disclaimers before some of the programmes from the past that it shows, noting that the sexism/racism/dishonesty reflects the mores of earlier times. But oddly there was no such disclaimer on the recent showing of a Dixon of Dock Green episode from 1954 (Pound of Flesh, about an unregulated moneylender) where the avuncular hero played by Jack Warner says to camera: ‘You know part of a copper’s job is knowing when not to interfere. When you’ve been walking the beat a few years you’ll know when to turn a blind eye and let things take their course. If I arrested every bloke who socked his wife, I’d be working overtime.’ Today, the police might still think that but at least they’d never say it. In public at least. The Matrimonial Causes Act 1878 helped victims of violence in marriage to obtain separation orders if their husband was convicted of aggravated assault, but violence was not treated as grounds for divorce until much later.

Film and pensions: how things change

The Smallest Show on Earth was a film which relates the story of an attempt (which failed) to restore an ailing cinema, where the supportive usher sets fire to a neighbouring cinema to improve its competitive position, ie create a monopoly. It bears some relationship to the creation of pension oligopolies to comply with regulatory pressures. Despite the arson, the cinema eventually closes, and Percy Quill (Peter Sellars) the projectionist gets some redundancy money. He declares ‘I shall invest my emolument in some small pension. Before I spend it in other ways.’ The owner, played by Bill Travers, responds ‘I think that’s very wise, Percy’. He couldn’t say that now of course, it being considered to be advice.

Robin Ellison is, among many other things, the chairman of the College of Lawmakers, a retired pensions lawyer, a visiting professor in pensions law and economics at Bayes Business School, City, University of London and chair of several pension funds

Read all his blogs for Professional Pensions here

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This morning; Bryn Davies, Hilary Salt and Andy Young on the state pension

Posted on April 16, 2024 by henry tapper

For free entry to this fascinating debate ,

use this link

 

The three speakers at this morning’s Pension PlayPen coffee morning have earned their right to speak about the state pension. Bryn Davies, Andrew Young and Hilary Salt bring well over 100 years of experience to bear on issues relating to the state pension . I will be asking for their views on important questions relating to the fairness of the state pension’s payment, questions that appear on social media and in conversation, not just in pension circles but with the general public, for whom the state pension is second only to the NHS as a state benefit.

First question “What does the phrase “solidarity between the generations ” mean to you?

Second question “can we have a “fair enough” state pension or are there just too many winners and losers”?

Third question “Is the triple lock unsustainable , do we need to give on it, give on the state pension age or trust that growth in GDP will see us through”.

Fourth question; what are your thoughts on means testing the state pension,

Fifth question; is there any form of segmentation you’d approve of? Better pensions for some trades, regions etc.

I know our panelists have different views. There are polarised views throughout the pension community and of course these questions are discussed in public.

Despite trade union calls for the triple lock maintained and increases in the state pension age to be reversed, the Labour party is yet to commit to any policy on the state pension. What should it be?

All three of our panellists hold left-wing views and so it will be particularly interesting to hear how they react to the equivocal behavior of the Labour leader on one of the most contentious of state pension issues

Their views are one thing, yours may be quite another. The debate will be recorded and disseminated , we want your voice heard! So please block time out of your diary and join us. My intention is to include everyone so readers of this blog will find a free link to the event at the top and bottom of this page.

Tuesday April 16th, 2024 at 10:30 am London

They will be leading a discussion on The importance of the state pension as “fair for all”

Is the state pension fair or has it been captured by the boomers?

The Pension PlayPen will discuss with the panel their various views and we expect to get rigorous arguments from the floor taking other positions.

If thesis and antithesis really does lead to synthesis, we expect that by the end of an hour, our views will be synthesised!

We have three of the greatest authorities in Britain on our panel leading this, and we hope we have you on the call as this is a recipe for a proper coffee-morning debate!

Hilary Salt has enjoyed 40 years of helping people with pensions and will soon be swelling the ranks of Britain’s pensioners. She is a Founder of First Actuarial

Andy Young has advised a number of Pension Ministers , was instrumental in the founding of the PPF and most recently has worked in the strategy team of TPR

Bryn Davies is a British trade unionist, actuary and politician who was Leader of the Inner London Education Authority in the early 1980s. He was ennobled by Jeremy Corbyn

For paying members:

PLEASE LOGIN TO PLAYPEN AND CLICK ATTENDING HERE

If you want free admittance to this event , the URL for entry is behind this link

 

 

il faut cultiver notre jardin

 

 

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