TPAS offer BSPS a dedicated helpline. Don’t leave your choice to chance!

tat 3

If you are a steelworker , you now have help on your pension options from TPAS. This is great news.

As from this morning, members of BSPS, can call experienced pension people who can discuss the scheme with the experience of TPAS counsellingtata jo

My understanding is the same as Jo Cumbo’s; the provision of this helpline is at the FCA’s request and it is no small measure a victory for Jo who has championed the cause of steelworkers who have had precious little support so far. It is in direct response to the reports coming out of Port Talbot of a “feeding frenzy”,

Too late?

We are now barely two weeks away from the end of the  Steelworker’s “time to choose”. Some will argue this is too little too late. That would be wrong.time to choose

While the deadline for getting election forms back to the BSPS administrative centres is December 11th, there is an extended deadline for elections to transfer.

The trustees have requested that if the CETV is still valid that the election to transfer is received by March 15th to allow the paperwork from the FA to be verified as accurate and complete

This reflects the time it is taking turning round transfer quotes, getting the transfer analysis completed and in establishing (where appropriate) a plan capable of receiving a transfer).

For most steelworkers who have yet to make up their mind, TVAS comes in the nick of time. For steelworkers who have made up their mind but may be getting second thoughts, TPAS is there to reassure , confirm and on rare occasions to correct understanding.

Out of touch?

Anyone who thinks that TPAS is out of touch with the needs or ordinary people has not spoken to their helpline and has certainly not met Michelle Cracknell or visited their offices.

Michelle may look the prim headmistress but she has fire in her belly. I had the good fortune to watch her wind up an audience convened to discuss Pensions by London Fraud. Her brilliant talk focussed on her wish to start a coffee shop in her Hampshire village to jump on the band-wagon. She took us through the way the shop would run – it would have no queues as we’d all pay up front in advance, it would sell choice but deliver a single coffee and it would promise a coffee that would make you thin.

I suspect that 50% of the audience thought she was serious, so plausible was her business case. Michelle knows that scammers are smart, offer great customer service and are totally unscrupulous in promising what they know they cannot deliver.

TPAS are in touch and it is not too late!

TPAS know about these choices, which is why I urge steelworkers who are unsure of what to choose, or of their choice they have made  to phone  020 7932 9522. This may have arisen out of reports from Port Talbot, but is as relevant for Scunthorpe, Redcar, Motherwell, Newport or wherever a steel worker lives today. TPAS is only a phone call away.

The choices made in the next two weeks have lifelong consequences. Don’t leave your choice to chance.


Posted in advice gap, BSPS, pensions | Tagged , , , | 1 Comment

USS pension changes would be a disaster (but they are preventable) – Dennis Leech


The changes to the USS that UUK proposed on Friday will substantially alter the nature of academic employment in the Pre-92 universities and will damage higher education irrevocably. They will mean academic salaries having to rise substantially to attract the best both internationally and from other industries to maintain standards. As such, they are a very unwise, short-sighted – and unnecessary – move by the university employers.

The academic career in a leading institution is never easy. Research is fraught with hazards. However the certainty of a pension provides a safety net that facilitates risk taking. It permits a researcher, for example, to explore an avenue of enquiry, not knowing what if anything is there to be found, but always in the knowledge that if it turns out to be a blind alley – as is often the case – then at least he or she will not be personally worse off as a result. It is a good basis for intellectual risk taking on which progress in human knowledge comes.

So why are the UUK preparing to scrap the pension scheme that has worked so well and contributed to the success of British higher education? We are told it is all getting too risky and hence too expensive. But I don’t think that is true.

Without going into technicalities, two things stand out, one political, one intellectual, as having created this fallacy. The political change was the coalition government’s withdrawal from formal involvement in the management of the scheme. Originally, when it started in 1975, there were three partners with seats on the board: the employers, the members and the government. At that time universities were mainly government financed through the University Grants Committee. The scheme had a strong covenant so could ignore any short term market volatility and invest long term in high return assets. But HEFCE withdrew in 2011, since when the institutions themselves have had to stand collectively behind the scheme. That is proving increasingly difficult given the uncertainties they are currently having to face. On the other hand, many commentators regard this particular group of well respected institutions as almost certainly sure to thrive for many years to come, and wonder what the fuss is about.

The other change that has led to this crisis has been in the mental framework used for pensions accounting in recent years. Most of the actuarial profession has undergone an epic ontological conversion from having a world view based on macroeconomics to one based on financial economics. Instead of pension schemes being able to benefit long term from economic growth by investing in productive capital, the traditional approach, they are now seen as myopic speculators in financial assets. Instead of investment return being the reward for patience, it is now seen as the reward for bearing risk; the world has become a “Random Walk Down Wall Street”; all assets are assumed to have a fixed quantum of risk which automatically and always gives a commensurate return. There is no distinction between long term and short term investment; all investment is speculation.

Financial economics has been widely adopted despite the fact that it is merely a theory without a sound basis: a pseudoscience. Many of its core ideas have been debunked by leading economists. For example the efficient markets hypothesis – that markets embody all known information – has been refuted by leading economists Joseph Stiglitz and Robert Shiller on theoretical and empirical grounds respectively.

Yet much of the finance industry including many pension scheme managers ignore the evidence. It is at the heart of the USS valuation methodology which talks about market derived asset prices, yield curves and inflation expectations being “objective”. But it is nothing more than a theory based on a particular set of assumptions.

It is a truly alarming state of affairs that such a closed belief system should be governing something as important and mundane as pensions. Yet universities themselves must ultimately take the blame. For the past twenty years or so business schools have found a ready market for financial economics courses. They have been marketed as “modern finance” embodying the latest research, with the emphasis on application of techniques rather than critically reviewing evidence, and have trained many thousands of graduates applying the ideas uncritically and confidently.

We are told there is a fixed amount of risk: the USS valuation document talks about a “risk budget”. Such a thing could only exist in the world according to financial economics. Risk depends on the context. There is a lot less risk if the scheme remains open to new members than if it may have to close. The view embodied in the USS valuation is the latter and that means market volatility poses a great risk that the pensions may not be paid and that has to be covered at great expense to the institutions. But if it remains open there is no need to regard market volatility as a problem and there is much less risk. In fact the UCU actuaries, First Actuarial, have demonstrated that the scheme could continue to invest in high return equities for the long term and all would be fine. Why are the UUK not listening?

This article first appeared in  the Times Higher Education Supplement and is reproduced with the permission of Professor Dennis Leech who is Emeritus Professor of Economics at the University of Warwick.

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We have “capitalism without the capital” – we should be patient!

Nigel Wilson

It’s budget day and Nigel Wilson has been on Wake up to Money, urging the Chancellor to encourage Britain to invest positively for its future. He tells us that Britain has “Capitalism without the Capital”, he’s right and I’m with the caller from Portsmouth who urged L&G’s CEO to become UK CFO and step into Phillip Hammond’s shoes.

I don’t seem to be agreeing with much that John Mather says at the moment but I agree with this message he sent me last night;john mather

Where are the Statesmen? Can we quadruple the return in £300bn of cash ISAs by cutting out that banks and lending directly to the smaller developer who builds homes and communities across all markets

I support John’s attempt to get ISA money flowing into housing as development capital as I support the work of L&G which is doing rather more to increase the UK housing stock than the grand words of Government (I hope I can change this paragraph after this afternoon’s budget).

What Wilson and Mather are saying is that the money we are holding to pay tomorrow’s bills can be put to better use than short term deposits or short and medium term bonds. The duration of an equity is limitless and is right for longer term investment. We have a bond and cash culture, Mather and Wilson want us to think for the longer term and (in different ways) for the good of Britain. I would be glad to see both of them in the Treasury, but they are probably doing more good where they are!

More Wilson, less  Morgan

nikkiI could do with less of Nikki Morgan, who has recently been given the role of chief secretary to the Treasury. She spoke at the TISA conference yesterday afternoon. She repeated the mantra around broadening the range of tax incentivised products to line the financial adviser’s briefcases.

She was hot on Fintech and robo-advice to fill the FAMR gap and she talked about funding long-term care . Her animus against long-term investing through pensions was barely concealed.

Steve Webb’s assertion (most recently made at the First Actuarial conference) that the Treasury hates pensions, rung truer the longer that Morgan talked.

Meanwhile, one of the great British Pension institutions, the British Steel Pension Scheme is being ransacked by financial hooligans , repeating the anti-pension message.

The short termism of the Treasury in respect to saving (pension or otherwise) is creating an epidemic of like-minded behaviour which is doing lasting harm.

My hope for Hammond

There is an opportunity in this afternoon’s budget for Phil Hammond to put the Capital back into Capitalism , to create investment in urban renewal though the building of new housing and the infrastructure to support urban dwelling.

There is plenty of capital. including the £300bn sitting in cash ISAs which could be incentivised to be put to this use. We still have a funded defined benefit pension system with more than £1tr in assets, well over half of which aren’t being invested in growth seeking assets.

My hope for Hammond is he looks at this money and gets it working. Wilson and Mather and many others will help.

My fear is that we will instead retreat into the shrivelled carcass of the austerity project and pull up the drawbridge (not just on Europe but on growth).

As Wilson said on the radio this morning, there is nothing stopping us, now is the time to look forward and avoid the timidity that has oppressed us for nearly ten years. We do not need another financial bubble, we need simple policies such as those advocated by Wilson and Mather, that put our money back to work.

But as the cartoon below shows, it will take more than a budget to move us on, we need to restore our confidence in equity, in long term savings and in pensions.


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

A day with Dalriada

brian spence



Dalriada are a firm of pension trustees who divide their business into “Regular” and “Irregular” business. Brian Spence who runs the business was prepared to talk to me about “Irregular business”. Members of, and employers participating in, the NOW master trust will be pleased to know that Dalriada consider them as “regular business” confirming what is already in the public domain, that Dalriada were invited by NOW to become trustees – and not the Pensions Regulator.

Irregular business

Not all Dalriada’s appointments are at the behest of existing trustees. The Pensions Regulator has been given the right to appoint its own trustees under Section 7 of the Pensions Act 1995 Dalriada are generally appointed to this work after a competitive tender, other firms appointed to schemes of this type are believed to include Pi Consulting and ITS.

Irregular business is typically work where Dalriada replace existing trustees in executive duties and take responsibility for the management of the pension scheme. Importantly they do not work for the Pensions Regulator or HMRC or any other public agency. However, they may get special support from public organisations and work closely with the police, action fraud and the regulators.

brian spence 3



This is because there is typically a high level of suspicion surrounding irregular schemes. The first such scheme that Dalriada took on (in 2011) were the “Ark” pension schemes. This was a pension liberation arrangement. I was shown the good and bad of the scheme management; the good surrounded the high level of asset recovery, the bad the difficulties agreeing the member’s liabilities to taxation as most payments made by the scheme prior to Dalriada’s appointment were unauthorised, illegal and potentially subject to penal tax recovery.

I was given insights into a number of other schemes, well known to those, like Angie Brooks, who have tried to stand in the path of pension scammers. These include London Quantum, a particularly egregious arrangement which managed to both misinvest and mislead simultaneously. Dalriada were keen not to use the word “fraud” in describing the various irregular schemes it acted for, but the whiff of malpractice was prevalent.

What impressed me most in our conversation, was its lack of emotion. Clearly the people in the room who had direct dealings with those who had lost their pensions had suffered considerable trauma, albeit one step removed from the financial calamity of those they were helping. I was impressed by the people I spoke to who supported victims of what are clearly gross injustices.

I was also impressed by the professionalism and deliberation of the senior managers in our meeting. They accepted that in hindsight, decisions could have been different, but I was satisfied that – despite the desperate plight of many I have dealt with who have been on the wrong side of the scams – they had been diligent in the carriage of their duties.

That said, I remain unconvinced that the British legal system is working properly for either Dalriada or the members of the schemes it acts for. I am far from convinced that HMRC are sufficiently agile to deal with the sensitivities of fraud victims.

brian spence 2


I am absolutely convinced that there is no sense in pursuing victims of liberation frauds for money. The current plans to tax such victims on the capital of loans they had unwittingly made to others is against all common justice. It is no deterrent to future scammers, who will not be inconvenienced by the financial ruin of victims. It has no practical relevance to the current scamming of members, as these are not involving liberation.


What became obvious during our meeting and has absolute relevance to today is that the best way to recover from pension scamming is not to let it happen in the first place. This is why it is so important that the FCA act on the numerous whistle blowing reports coming out of Port Talbot and not let money from BSPS flow into the hands of villains.

The speed with which the FCA are currently acting is most welcome (and in sharp contrast to the pace of restitution for the victims of scams past).

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How will the Chancellor balance the pension books?



Those who see pensions as the fat underbelly of Government spending undoubtedly include the Treasury, who are busy sifting through their options this weekend in readiness for the Chancellor’s Autumn budget on Thursday.

One of the rituals of modern life on planet pension is the soothsaying of pensions Cassandra Steve Webb who mis-predicts woe with monotonous regularity.

He was at it again at the First Actuarial Conference last week and I hope he is wrong again. But, his arguments are plausible and repeatable on this blog.

Steve’s starting point is to ask what “everyman” or “prudent-man” or Joe Public might consider a decent wage in retirement and he concludes it is the pension of a teacher not a head-teacher. Working on the conversion factor 1:20 , the lifetime allowance gives you a £50,000 pension , which is the sort of pensions a head might get for a lifetime’s service (50k x 20=£600k). But a teacher wouldn’t get a pension of more than £30,000 (30k x 20 =£600k) . Apparently, Treasury logic is that tax incentives could be cut to say £600,000 from £1,000,000 and would only offend head-teachers.

I’m not sure the former pensions minister was being entirely serious about Treasury logic here but he was clearly serious in his contention that the Treasury hates pensions and that “honey I shrunk the LTA/AA” is a credible strategy for spreadsheet Phil.

In previous year’s Cassandra has argued that higher-rate tax relief could be abolished. This always seemed a daft idea, schemes could convert to non-contributory or promote salary sacrifice and the net impact (at least on high earners) would be zero (there could be unfortunate consequences for low earners as recent blogs have shown.

But the Treasury still has one nuclear option up its sleeve, one that it seriously considered in the run up to the April 15 budget and that’s to expand the use of Scheme Pays.  Scheme Pays is a way of getting you to think you are getting tax relief buy giving you the same take home as you always got, but knicking the tax-relief back out of your pension. It is how the Chancellor gets his extra tax if you exceed the annual allowance and aren’t able to write out a cheque for the tax due.

Scheme Pays is an excellent wheeze which puts the onus on pension scheme administrators to pay our tax for us and put a lien on our future benefits.  It’s painless, devious and cynical and it’s the kind of policy that really appeals to the slick kids who run the Treasury. Whether Phillip Hammond has the Ed Balls to introduce Scheme Pays to abolish higher rate tax relief is highly unlikely.

But if he wanted to really take on the enfeebled pension industry, he could go all the way to Paul Johnson and abolish all upfront tax-relief by taking away Pension Relief at Source, stopping higher rate self-assessment claims and using scheme pays for all net pay schemes.

That last “nuclear” option would net the Treasury so much money that they could afford to pay the kind of terminal bonuses that Paul Johnson envisages (Lifetime ISA +).

What do I think?

The overall the cost of tax relief to the government went up by £3bn last year and faced with the difficulty of getting primary legislation through a hostile House of Lords, the government would need to turn to tax relief to make up shortfalls as this was not a matter voted on by the House of Lords. I reckon it unlikely, however, that the pension tax free cash would be targeted and the Chancellor would be reluctant to do much on inheritance tax.

With auto-enrolment quintupling minimum personal contributions over the next five years, Phil is going to have to prioritise pensions just to meet the present taxation promise. I’m with Steve Webb – despite his poor track record – and worry about the LTA and AA getting appreciable hair-cuts.

Cutting higher rate tax-relief is a non -runner – for avoidance reasons; the scheme pays options is a live outsider. Trimming the annual allowance and lifetime allowance is second favourite with the “do nothing – and wait till times are easier” the odds on favourite!


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A brave and timely response to UUK’s proposals


I was wondering how to react to news that the UUK (the employers of university staff) is proposing to axe future Defined Benefit accrual into the USS.

Anger or sorrow seemed the two main candidates as I flew back last night. I was certainly angry that certain people were celebrating the proposals on twitter. But I was really upset for the many people I know who work for universities. Coming on top of the problems for BSPS members and the ongoing conflict at the Royal Mail, this is a hammer blow for tens and thousands of people who signed up to certainty and will get something else.

To be precise, UUK propose the current level of employer funding (18%) be paid into a DC account and not earn members further rights to a guaranteed income for life – a pension.

My views on closing USS for future DB accrual are known. But I couldn’t help blurting them out.

why jr


Thoughts of Mike Otsuka

But this morning , turning to the thoughts of Mike Otsuka , I read a measured and sensible article that I hope will get the circulation it deserves.

Mike who’s the staff union rep (UCU) at the LSE is thinking about the strike ballot that’s been called.

A YES vote will be interpreted as a mandate for sustained and disruptive strikes, since Sally Hunt writes: “There is no point pretending that anything other than sustained strike action with the aim of hugely disrupting (and not rescheduling) lectures and classes in the New Year will make the employers listen.”

There is, however, also no point in getting our employers to listen to demands for things they are incapable of delivering. Our employers cannot deliver something the Pensions Regulator won’t accept. The Pensions Regulator has stated in a letter to USS that the level of investment risk of the valuation that USS proposed in September is at the limit of what they would find acceptable. The current level of defined benefit on salaries up to £55,550 exceeds this level of acceptable investment risk for future accruals.

In order to achieve the required majority vote of a majority turnout, UCU will need to offer a proposal for us to rally around, which is realistic about what can actually be achieved by the strikes we’re being asked to authorise. It will also need to be worth the disruption and sacrifice.

The following is both achievable and attractive: a WinRS (wage in retirement scheme — see linked slides 10–12 including notes, this post, and this slide presentation by First Actuarial’s Hilary Salt) funded in perpetuity by USS’s current growth portfolio, but with a very modest core DB promise that remains within USS’s and tPR’s level of investment risk, with all further pensions increases contingent on investment returns. If investment returns exceed a modest CPI + 1.85%, it will be possible to provide us with pensions beyond the level of our current CRB 1/75 accrual.

WinRS is something our employers can deliver, which they also have an interest in adopting. But if they initially refuse, it’s something worth going on sustained strike to achieve.

So I hope UCU proposes WinRS, or something else that is both attainable and attractive, rather than something our employers can’t deliver, such as a preservation of the DB status quo.

The final paragraph is open to question, “can’t” and “won’t” aren’t quite the same. Reading the employer’s argument, it relies on the Pension Regulator’s assessment of the employer covenant (which is quite different from that of the employer covenant specialists employed by the Trustees). EY and PWC rated the covenant as good and the Pensions Regulator thinks it’s not.

Mike is prepared to accept “won’t” as “can’t” on the basis that future accrual will continue, albeit at a modified rate. He will get some stick from that from hardliners and I’m sure he knows it. But I think Mike is being smart. There are matches you can win without contesting every set piece.

For the sake of all parties, I hope that the tone of the debate is as measured and temperate as Mike’s response and that the arguments for and against, don’t lead to the kind of disruption foreseen by UCU.

As with the Royal Mail workers, my sympathy is with USS members who are seeing their pension promises about to be broken in return for a cash settlement.

Mike’s proposal is for a different way to share the risks of funding, one that has been developed by colleagues of mine. In introducing this idea into the debate at this critical point, Mike has done a good thing and I applaud him.

I hope that he gets credit for this brave and timely statement.

Mike Otsuka

Otsuka – forever young!

Posted in advice gap, pensions, Trades Union Congress | Tagged , , , , , , | 5 Comments

Getting away from it all

Meriem 3

Ten days ago, Al Rush and I were steaming down the motorway in Al’s £850 Jaguar to Port Talbot. When we got there met some steel workers and some retired steelworkers and people who ran the rugby club and we met some IFAs.taibach

Yesterday, our conversations were the subject of a parliamentary question asking whether the Government would be sending the FCA to sort out what had been widely reported as a “feeding frenzy” for sub-standard advisers.

Christopher Woollard of the FCA had , the day before, made it clear to the DWP select committee that that was exactly what the FCA intended to do, and for all I know, IFAs are being stalked through the streets of Swansea and Bridgend as I type.

That we’ve got so far, so quickly is down to social media and to Josephine Cumbo and others who have picked up on it. I cannot think of another instance of these things working so well.


I meanwhile am in Amsterdam, chairing the inaugural Life and Pensions Conference for Europeans wanting to know what we are getting up to and vice-versa.

I try to opt-out of work and take holiday to go to these kind of things. We at First Actuarial don’t have much commercial interest in Pan European Pensions but that doesn’t mean that what Dr Olga of Dow Chemicals has to say about joining the Aon Master Trust, doesn’t touch me – or that understanding how Dow’s participation is part of a pan-European strategy , masterminded from a Belgian hub – doesn’t interest.

We heard a German robo-insurer explain that excess profits (they work to a 20% fixed margin) go to charity and not the policyholder. Apparently this reduces fraud (Germans would rather rip off a shareholder than a charity). If you want to see how an app can bring together all aspects of an insurance policy from premium to claim – get GETSAFE from the App Store from next week.LPC

Clive Bolton spoke feelingly of his time in charge at Aviva and I shared how the members of BSPS mobilised through the Facebook pages set up by Rich and Stefan.

I’m preparing now for day two and reflecting that the little insights – like the GETSAFE fraud-prevention scheme, help our understanding of the big picture – the dynamics surrounding the DB member experience (for instance).

The distance between Amsterdam and London is no more than London and York, but there is something about this town which is quite different from anything you can find in Britain.

In former days, I came to Amsterdam to enjoy the pleasures of the flesh and the coffee shops. These days, I prefer to wander the canals in the mornings and evenings and to enjoy the incredible diversity and culture of this cosmopolitan city.

Meriem 4

On my walk to work

It was fitting that I went to dinner last night with a Moroccan and Macedonian. Meriem and Annetta are organising this conference and I’d like to give them a big shout out for making such a good job of it.

Meriem 1

Thanks to all yesterday’s speakers, especially my good friend Theo. We have one more day today and this evening I am out on the town with the remarkable Sikko before a late night flight home to the cold reality of work.

I hope I can refresh myself today.Meriem 2

I hope that over the weekend I can catch up with the many  requests from steelworkers looking for good IFAs, thanks to all those good IFAs who have been in touch. There is plenty of work for you to do and you don’t have to blow your marketing budget on chicken and chips in a basket!

Posted in advice gap, pensions | Tagged , | 4 Comments

Taylor – the Full Monty or a stitch-up?


I was asked to comment on the impact of the Taylor Report on Payroll at the Reward Autumn Update. Though I had been promised a script from Matthew Taylor himself, it never turned up – maybe I was stitched up.

I feel for Taylor, when he was commissioned by the Prime Minister, she was in the first flush of her Premiership, her acceptance speech made on the steps, now confront you as you visit number 10. How distant those halcyon days must seem to her today. And how different the ground that the Taylor report fell upon. “Good Work” as the report is called – looks like “little work” for anyone.

This hasn’t stopped the pension industry from trying to make some capital and increase the scope of the auto-enrolment project. The Pension Policy Institute have published a paper that suggests that the average gig- worker is missing out on £75,000 of pension contributions (in today’s terms). This assumes he/she will be a career gig-worker – if that isn’t a contribution in terms.

The PPI report, sponsored by Zurich (by coincidence, a provider of workplace pensions) is florid in language, appealing to the instincts of a Pension Minister who has requested an extension of his title so he is now also Minister for Financial Inclusion.

Gig economy workers could boost the size of their pension pot by up to £75,000 if a form of auto-enrolment were extended to cover all workers, according to research by the Pensions Policy Institute for Zurich. The ‘Restless Worklife’ study is the first to use data from the gig economy to model applying auto-enrolment to gig workers, a key recommendation from the Taylor review, the government-commissioned study into working patterns.

The UK gig economy includes five million people, ranging from those who class themselves as self-employed through to 800,000 on zero-hour or agency contracts. Of the current UK workforce of 32 million workers, this means one in six is currently a gig worker – with no, or restricted access to workplace benefits – including pension saving – placing millions at risk of financial hardship.

Modelling by the PPI for Zurich, using a UK-wide YouGov study of more than 600 individuals currently working in the gig economy, found that a typical worker now aged 25 earning £25,000 could end up with a £75,600 lump sum at retirement. This is based on the Taylor review recommendation of enabling individuals to put aside four per cent of their income when completing tax returns. When combined with the State Pension, this would equate to an income at retirement of £13,500.

If the worker had been auto-enrolled into a workplace pension, removing the current restrictions in place on minimum earnings, they could end up with a final lump sum of £101,500 which, when added to the State Pension could give them an income per year of almost £15,000 at retirement

But is the gig-worker really excluded from the financial system by missing his date with Workie?

I suspect , judging from the stats on gig demographics I showed in my speech, that most gig-workers are purposefully outside of the financial system and quite happy to stay that way; they are the kind of people you find living on canals (people I like very much as you never know where they will turn up next).

The PPI and Zurich may think it is a good idea to collar them with increased national insurance which can be rebated into a workplace pension, but I am not so sure they yearn for that kind of financial inclusion.

I suspect that they are busy being diverse, and living a life that is far from the regulated world of payroll as you can get. Talk about forcing round pegs into square holes.

These self-employed mavericks might well regard Matthew Taylor’s report and the conclusions of the PPI and Zurich as a stitch up. My best pension instincts (I used to be head of sales for Zurich Pensions) side with the establishment, but there’s another side of me that doesn’t and on balance – I think that if we are serious about diversity, we should be happy to allow the gig economy to carry on as an alternative to mainstream fiscality.

This of course assumes that Philip Hammond does not have another go at changing the tax and NI arrangements for the self-employed. Having failed disastrously at the April budge, I think it highly unlikely that he will.

I am due to be submitting a version of this blog as an article for Reward Strategy after 22nd June and it may just be that it will end up considerably livelier than this one. For now, I can only say than the impact of Matthew Taylor’s report will be neither the Full Monty of a stitch up. To coin Michael Portillo’s one word description of the old state age pension – it is likely to be nugatory.

Here are the Zurich’s “Full Monty” recommendations

Expand auto-enrolment to the self-employed via the self-assessment tax return process. Employee contributions to be initially set at four per cent, increasing to eight per cent when appropriate to avoid triggering a mass ‘opt-out’

Commission a government review of employment and working practices for older gig workers: Gig workers – along with regular employees – will be forced to work longer before they can afford to retire. We therefore need to consider what challenges older workers face but also how we can support employers to take on an ageing gig workforce

Introduce financial incentives for gig companies to offer Income Protection. The government should consider tax or

National Insurance incentives to encourage the provision of Income Protection within the workplace

More financial education from gig companies to increase awareness among workers of existing savings and protection products

Greater innovation from the insurance industry to develop more flexible savings and protection products for workers unable to commit to paying a regular subscription.

Cut and paste and keep and check out how many spreadsheet Phil adopts next week.

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Pension Advice; it’s all about getting paid.

getting paid

I have read and listened to a lot about professional integrity.  Having been an IFA and being now a fee-based consultant, I know that the first thought you go to bed with (and wake up with) is “how am I going to get paid?”

The second thought, that nags away at you at 2pm is “will I have to pay that money back?” or even worse “will I have to pay the money back and pay compensation if things go wrong?”

This is not unique to financial advisers , it is a problem for all professional service providers whether they are advising on money or the construction of a bridge.

Getting paid requires a need

Last week, Rory Percival told a group of advisers at a Prudential function that they should produce reports each time they advise a client to stick with a defined benefit (DB) pension, as well as when they encourage them to transfer out.

“giving advice to stay is probably as risky as giving advice to transfer.  Personally, I think you should do that more formally, and write the client a letter or an email explaining that [opinion].

So let me put this through my “getting paid” test. In what circumstances will someone pay me to tell them to do nothing? Frankly, I can only see one. If your engagement letter with the client, signed prior to a decision being made makes it clear that you expect to be paid, whatever the outcome of your research, and your client signs an agreement to that effect, then you are in the business of advice.

Working with Al Rush, I see how he uses his judgement (based on experience) to give guidance to a number of people. That guidance is free. Al only takes on clients who are prepared to pay him and -let’s be frank, most people will not sign a letter to agree to pay for a recommendation to do nothing. I do not blame any adviser for refusing to advise people who will not pay – especially when there is no need for the adviser to be paid.

A very small number of professional people will pay advisers to validate a decision to stay in a final salary scheme, but frankly most – like me – are prepared to take that decision without advice.

Getting paid requires a budget

If an adviser has established a need- typically the need to take control of a pension away from trustees and self-manage the cash-equivalent. The next issue is getting paid for the advisory risk, execution and ongoing management.

As Brian Gannon points out when I asked the question , “why are workplace pensions excluded from transfer advice?”

Advisers need to be paid for the advice, and if the advice is to transfer then usually the cost of advice would be several thousand pounds. In almost every case that I have ever dealt with the member has wanted the cost of advice to be taken from the pension funds transferred.

A lot of workplace pension providers do not allow advisers to take their fee from the transferred funds. As an example, and not to single them out, but Standard Life’s good to go does not permit adviser fees, and nor do i believe does NEST.

So given most ordinary folk do not have several thousand pounds to spare they will often tell the adviser they do not want to consider schemes which do not allow for the cost of transfer advice to be paid to the adviser.

It’s all very well – people like me asking for “whole of market” solutions , but if people like me aren’t prepared to pay for advice out of taxed pounds with VAT on top, then the advice should rightly be focussed on products that are accessible within a client’s budget.

This begs a second question – why do occupational pension schemes not compete with SIPPs to pay advisers from the funds, a question I am asking operators right now.

Keeping the pay requires “value for the money”

This is why some financial advisers stay in business and others don’t. Advisers who act with professional integrity do not just have the qualifications, they live by them. Professional Integrity keeps advisers from taking money which they cannot justify in terms of labour or risk taken or skill displayed.

Much of what I and Al found on our travels displayed no integrity in the advice offered. I very much doubt that many of the advisers named to us – would withstand a thematic review from the FCA. Some of the wealth managers we heard of, are no more than lead generators for others, yet they were expecting to be paid as advisors.

We have no difficulty in talking to the regulators about this. The vulnerability of steel men to financial fraud at this “Time to Choose” requires that we do.

If you do not offer value for money, you- as an advisor – have not got a sustainable business plan. You may have a plan which allows you to run away to Spain – but you do not have a plan that will enable you to build your practice in your local community, as many good advisers do.

It’s all about getting paid.

Advice should be paid for, advice should be affordable and advice should offer value for the money paid to the advisor.

That is all there is to it. It’s all about getting paid.

When someone walked into the room we were in , in Port Talbot, the first thing I saw them do was assess us – work out what we were about. We told people we would not be paid and we would not tell them what to do. “I was on holiday, Al was giving  up his time for free”.

Our terms of business were clear “why are you here?” asked two people directly. For me the answer was to find out what was happening.

Our conclusions were that some people were getting value for money, most of the people we spoke to weren’t. There was little quality control – chicken in a basket saw to that.

I want to deal with an adviser who is commercially minded, who makes it clear he or she wants to be paid and will only deal with me on their terms. I am not alone, if it’s a take it or leave it offer, I know where I am.

Paying clients their pension

It’s all about getting paid. If you wind that back, you can see the essential choice for the steel men is

“do you want to get paid a pension, or do you want to pay yourself?”

The majority of steel men with that choice are choosing to pay themselves  – with the help of an adviser. That’s the pension freedom they have been given as a right.

That places a lifetime responsibility on the adviser. That is why advisers need to be properly paid and be accountable for the work they do.

poll bsps

Poll on Facebook – late October

A lot of money is being paid to financial advisers by the deferred  members of BSPS, the advisers are getting paid , will they make sure their clients are?


Posted in BSPS, dc pensions, de-risking, pensions | 4 Comments

L&G; a smooth operator with an open IGC


For an Independent Governance Committee to work, there must be a means for it to interact with its membership in a meaningful way. L&G – uniquely to my knowledge – offer policyholders of their workplace pension the opportunity to come to their offices and quiz the IGC Committee. Yesterday was the day, I saw the window and jumped right through!

As well as convenor Richard Atkins (who will be sorely missed), the committee that turned up were Dermot Courtier (chair), Steve Carrodus, Rachel Brougham, Daniel Godfrey and Ali Toutounchi.  Thanks!

This is an impressive turn-out and it was complemented by talks from a number of senior people from Legal and General. It was entertaining, interesting and thought provoking but best of all, it gave people who are interested in their L&G workplace pension , a chance to share views. Mine is my most valuable liquid asset and I certainly had a chance to ask my questions!

What’s good at L&G

There’s a lot to like. The introduction of the Future World fund this year (the one used in the HSBC DC default) is good news. IMO the fund could currently be overpriced (at twice the cost of their bog-standard global equity product). But we’ve been seeing clients choosing it as the default accumulation fund and 50% of my money is now managed with the various tilts and screens that distinguishes it.

We heard from the Chair about various initiatives from the IGC to hold L&G’s feet to the fire on admin, the cost of fund transactions, member communications (Dermot’s pet subject) and on default management. I was pleased to hear that action is being taken to help employers with adviser designed defaults whose advisers have “gone away”, we see quite a lot of stranded defaults in our governance work at First Actuarial and we’d like to see insurers take responsibility for them. Default investment options need to adapt to changing times and times are changing.

LGIM are doing much good on corporate governance, we heard case histories of how they’ve engaged with companies like SNAP and help exclude them from indices for governance failings. We saw diversity in action as speakers came at us with a diversity of ideas and intelligence that really engaged the audience. This is an investment organisation at the top of the class.

What’s not so good

It was worrying that, despite my meeting earlier in the year where I told them this, the IGC still don’t get that the ITM Ease and PensionSync links are really not working as they should. Employers have problems with ITM Ease and the PensionSync link is only available through a few payroll software suppliers (Star, Xero, QTAC and one or two others). L&G need to do something to raise its game re small employers. It should have a clear strategy which helps advisers place business with it on a structured basis, what is happening now is a mess that needs cleaning up. I will be following up on this with the IGC.

The problems with closing one major operational centre- Kingswood – should not be used as an excuse for L&G. The administrative platform is in need of a refresh at the very least. I have spoken to L&G about this and know there are plans, I was sorry not to get mention of these plans from L&G directly.

L&G are valiantly trying to reach out to their customers, but they clearly aren’t getting all the right people to their events. Where were Liz Robbins, Daniel Harvey and the FSB yesterday? There was insufficient input yesterday from the SME segment of AE clients.

Also in need of some investment is the member portal which looks and feels 20th century. I know that L&G are doing work on this but the Chair seemed to gloss over areas where even L&G know they are behind the times.

And as for the IGC itself, it needs some diversity. We had two good talks on corporate governance from Sacha Sadan and Dame Helena Morrissey which raised some questions that I wanted answering. Helena talked around Andy Haldane’s question;

You can hire two but have three candidates for a job, two get 80% of your questions right, one gets 20%, why would you hire the one who scores 20%?

Andy’s (and Helen’s) answer was that if the person who knew little but what little he/she knew complimented what the other two both knew, you should hire the 20% er, and leave one of the 80% ers on the bench.

From what I can see, the entire IGC is made up of 80% ers. There were plenty of 20% ers in the audience, some highly articulate and clearly IGC board material.

L&G are getting really weak at knowing small employers, they are focussing on their big trophy clients and have a big trophy client chair, I urge them to let the IGC get itself a rep who is both a member and working for a smaller company. We don’t need L&G’s workplace pension to become another exclusive club like BlackRock’s, Fidelity’s and Zurich’s.

What of the future?

I’d urge L&G and its IGC to read yesterday’s blog about guided pathways. Most members of L&G’s workplace pensions have little idea how their plans can be used to provide them with retirement income. I say this as a member of a group plan with 300 pension-savvy members but as someone who speaks with ordinary people quite a lot.

At Tata Steel, there is an L&G plan and an Aviva plan and they are simply not being considered by members for transfer purposes. If you read Brian Gannon’s excellent comments on the blog, you’ll see that IFAs are simply not connecting with these excellent products (and why). Many L&G GPPs sit alongside DB plans that are shedding members at a fast rate, some of these members should be in SIPPs and some could do with the low-cost default management offered by workplace plans.

L&G need to wake up to the needs of ordinary people who want to manage their own drawdown , they should be looking at NEST’s suggestions for guided pathways, which – in the absence of collective solutions- are the next best thing.

The IGCs should be recognising that many people (like me) in workplace pensions are in need of default disinvestment options. So far, product development in this space has been weak and L&G can and should do more to hang on to its money – not through lock-ins but through positive incentives to stay.

If L&G don’t do this, people like me with SIPP off!

Why I can’t I write this kind of blog elsewhere?

I would like to provide my feedback to the trustees and IGCs of other workplace pension operators. I don’t think many of them want it! There are a number of exceptions, I think of NEST , NOW, Aviva, Salvus, Blue Sky, Smart and People’s Pension but I also think of the many insurers and master-trust operators who are busy spending money on benchmarking exercises and missing the chance to talk to payroll operators, the owners of small businesses and the IFAs and accountants who advise them.

I fear for IGCs and for Master Trustees, they are all too often collections of people who have similar interests, similar views and have similar blind spots. The worry is they end up becoming a club and a cost centre, rather than an open community giving value.

I can’t write this blog for other workplace pension operators because L&G is the only organisation that runs the kind of open forum that gives me this chance. If you enjoyed reading this and want me to do more work in this sector, contact your IGC of trustee chair right now and ask them why they aren’t doing more of this kind of thing!


Posted in IGC, pensions | Tagged , , , , , , , , , | Leave a comment

“Transparency” needs to do some work.


I worry the work on transparency is hypothetical – that it lacks practical application – that it has no immediate value to the consumer. But then I think of the conversations I’ve been having with consumers – these past four weeks – I get it.

I will begin quoting advisers debating what the Prufund where many BSPS members are investing their transfer values.

Prufund 1

While advisers debate exactly what Prufund is – and what it can reasonably be expected to deliver – here is another discussion about what BSPS members are actually being told.

Prufund 2

There are already many former BSPS members who have confirmation they are invested in insurance funds. I am seriously concerned about this.


I know a little about Prufund. What I know I have from the Pru IGC chair- Laurence Churchill, to whom I will send a link to this blog. The point of the fund is to provide stability to people who want their long-term investment returns linked to the stock- market and not just cash or gilts. It is invested as a cautious diversified growth fund and the Prudential issue bonuses, which ordinary people think of as dividends or interest.

As such it is a reasonable home for people’s money, provided that they realise that returns are in the long-term linked to what the market offers and that they are not guaranteed. And provided that the gross return is not eroded by charges from intermediaries to a point where people could have done better sticking their money in cash.

Advisory fees

As with Prufund, there is nothing wrong with financial advisers or with paying them a fair day’s wage for a fair day’s work.

But when advisers claim that they are authorised by the regulator to take 2% of an investment that may be worth £1,000,000 for a recommendation (that’s up to £20,000 folks) then the world really has gone mad.

Advisory solutions

When you look through a window, you want to see what is inside. If you can’t see inside you have to take somebody’s word for it. With Prufund, which is a complex product , you have to take the word of an adviser.

The Prudential trust advisers to properly represent their product. I was in the room when al Rush heard that 5.5% number, we heard a number of people talking about the financial solutions they had been offered. When we probed people’s understanding, it was paper thin. They had no idea of what was the other side of the window.

People are trusting in advisers and so are the Pru. This little poll – taken by members on members is  representative of what Al and I found.poll bsps

Not only are people prepared 2% upfront to advisers (on average CETVs of £350k) but they are happy to pay full product charges and pay 1% + for the advice.

I would be happy to pay these costs if I could see they were value for my money, but none of the people we spoke to had the first idea what level of service they would be getting from their adviser , let alone what the total costs of the financial solution were.

The Regulator

No doubt the FCA will be conducting numerous thematic reviews on the advisers who are recommending these solutions at these prices. The question is whether the solutions are appropriate – not to the risk-appetite of the members but to their financial aptitude.

I know from time spent at racetracks and in betting shops, that the appetite for risk of the working man is substantial. This is why there are so many profitable bookmakers. Working men bet on dogs and horses, white collar staff bet on markets, usually to the same effect.

In my view, any thematic review needs to start not with the adviser – who will evidence all the right disclosures – but with the customers. If the customers do not understand the nature of what they are buying, disclosure has not happened, advice has not been taken.

My position is that of Al Cunningham
<blockquoteclass=”twitter-tweet” data-lang=”en”>

Put another way: unless someone can get you a GUARANTEED personal arrangement (aka an annuity) worth more than the PPF or BSPS2, think carefully about the risk and potentially lifetime commitment you’re taking on.

— Alistair Cunningham (@Cunningham_UK) November 11, 2017



I now find myself a “Transparency Ambassador” – thank you Andy. That title is meaningless unless you can translate a good idea into action.

That ordinary men are investing their most valuable financial asset – what was their wage for the rest of their life- into products they know nothing about with advisers who they know little about is not “transparency in action”.

Transparency in action is to shine a light on these practices, to broadcast them to the IGCs that run the products into which money is invested – I mean Prudential, Zurich , Royal London and Old Mutual as well as many others that have not been mentioned to me but accept CETVs. It means talking to the IGCs and GAAs of the SIPP providers including Hargreaves Lansdown and AJ Bell. It may mean talking with the Pensions Regulator and the Financial Conduct Authority. It does not mean standing by as the train crashes.

Lessons must be learned

The trauma of “Time to Choose” will lead to a period of reflection, when the lessons of the BSPS consultation with members need to be learned.

We do not know the final numbers, but even the early door statistics are frightening

I BSPS Transfer

I am not frightened that people asked for transfer requests. I am pleased, if they didn’t then they could not have made informed choices. I am not worried about the numbers of transfers made so far, the 700 mentioned and £200m is meaningless. What is happening between now and March 28th (when the last BSPS transfer request can be accepted) is that up to 40,000 people have to make decisions with an advisory population (qualified to advise on these decisions) of only a few thousand.

We saw plenty of evidence of transfer analysis being commoditised through outsourcing, we saw no evidence of members understanding what they got for their advisory fees and we saw frightening examples of misunderstanding about the products used to replace rights under BSPS and its successors.

It is absolutely right that people have a CETV and I do not censure any member for wanting to avoid BSPS2 and PPF and have pension freedoms. That is their legal right.

But it is wrong that we let  people take decisions without the help of good quality advisers – and that is what we appear to be doing.

The lesson that must be learned is that with freedom comes responsibility and we cannot require the responsibility for decision making  to be entirely on pension scheme members.


Posted in BSPS, pensions | Tagged , , , , , , | 6 Comments

Advice to WTW, Aon, Mercer and the denounced.

Sit down- shut up!

This is my advice to WTW, Mercer and Aon who are facing the Competition and Market Authority’s probe into their behaviour as investment consultants.

They are reported in the FT “denouncing the FCA’s flawed report” that got them in this pickle

Mine is advice given to rival football fans when they are facing a penalty. It is good advice.Here’s another piece of advice

When you’re in a hole – stop digging,

And here’s some advice to the victims of bullying

From the Daily Mirror for “12 ways to beat bullies“. This should be read by  anyone who comes in contact with the “big three” in “denouncing” mode.

  1. Don’t become resigned to being a victim. You CAN help yourself and get others to help you
  2. TELL a friend what is happening. It will be harder for the bully to pick on you if you have a pal with you for support.
  3. TRY to ignore the bully or say “No!” really firmly, then walk away
  4. MOST bullied people have negative body language – hunched up and looking at the floor. Try to stand straight and make eye contact
  5. IF you don’t want to do something, don’t give in to pressure. Be firm. Remember, everyone has the right to say no.
  6. SIMPLY repeat a statement again and again: “No, you can’t have my lunch money, no, you can’t have my lunch money!” The bully will get bored because they are not getting anywhere and give up
  7. MAKE your phrase short and precise: Say “It’s my pencil.” or “Go away” firmly
  8. DON’T show that you are upset or angry. Bullies love to get a reaction – it’s “fun”. Keep calm and hide your emotions – the bully might get bored and leave you alone
  9. MAKE up funny or clever replies in advance. They don’t have to be brilliant, but it helps to have an answer ready. Practise saying them at home. If the bully says: “Give me your sweets,” you could say: “OK, but my dog licked them so they don’t taste very nice.”
  10. STOP thinking like a victim. If you have been bullied for a long time, you might start to believe what the bully says – that you’re ugly, awful and no one will ever like you. This is “victim-think”.
  11. MAKE a list of all the good things you can think of about yourself. Talk to yourself in a positive way. Say: “I may not look like a film star, but I’m good at maths and have a brilliant sense of humour.”
  12. KEEP a diary about what is happening. A written record of the bullying makes it much easier to prove what has been going on.
Posted in pensions | 6 Comments

Cost and value of advice in Port Talbot


Al Rush and I drove down to Wales yesterday and spent a day in the Taibach Rugby club at the invitation of the moderators of the BSPS Facebook groups.

It was helpful to understand a little of what it’s like in Port Talbot. Al grew up there and many of the steel-workers we met knew Al from school. Thanks to the club for making us so welcome and supplying us with the bottomless cups of coffee and tea we all consumed!

It is not until you sit within a stone’s throw of the factory gates that you can understand how important the Port Talbot Steel Works is to the communities of the town – such as Taibach.

What we found

We did not meet great numbers of members, but we were busy for seven hours with small groups wanting individual help. We were not there to tell people what to do but to help them find good financial advisers as they thought about their options (including the option to transfer).

We found

  1. That those people who had met advisers had no benchmark for judging either the quality of the advice or its cost
  2. That there was general confusion about value for what was being paid for advice,  implementation and ongoing servicing.
  3. That there was confusion about whether the advisers were offering advice or simply outsourcing advice to third parties (outsourcing).


Some people we met had shopped around and got wildly carrying prices and solutions. We found little evidence of advisers suggesting anything other than transfers. The cost of advice, transaction and ongoing service was generally expressed as a percentage of the transfer value and was typically 2% of the CETV for implementation and 1% for ongoing advice (paid on top of product fees of c1%). The average transfer value of those we spoke to was £350,000.

We did not see any justification for these costs, though one gentleman who asked for a justification of a 2% up front charge was told that this was what the FCA suggested.


We did not see any evidence of cash-flow modelling by advisers. Most people we asked, found it hard to explain the basis of the adviser’s recommendation and gave as reason for transfer, it was what they wanted.

Most people had been recommended insured products, typically from Zurich, Prudential or Royal London. We found a lot of confusion – especially among those looking at using Prudential’s Prufund, more than one person we met thought it was giving a guaranteed return (of around 5%).

We found little understanding of the risks of drawdown. We did not hear one mention of annuities. While people were generally aware about the PPF, BSPS and BSPS2, we found there was little awareness of the risks of what they were transferring to and considerable trust that the financial adviser would take care.

One person we talked to, thought he had spoken to three tied representatives of Zurich, Prudential and Old Mutual. He could only articulate the advice he got in terms of the solution presented.


There appear to be three kinds of advisers operating in Port Talbot.

  1. Travelling advisers who turn up from other parts of the country, offer an incentive for meeting (chicken in a basket), conduct advice sessions and then are away.
  2. Local advisers who do not have the qualifications to advise on transfers and who outsource to specialists who provide the certificate needed for the trustees to release funds
  3. Local advisers who do the work themselves.

We met with local advisers doing the work themselves but not with the (1) and (2). Coincidentally, the FCA were reported on making a pronouncement on the state of the market that drew similar conclusions (Megan Butler as reported in New Model Adviser).

‘We often found the route cause of a lot of these issues related to the business model, the business model between the firm and sometimes the specialist transfer firm. In part some firms which had seen significant growth in their DB transfer business had defaulted to a commoditised, industrialised process, an outsourced process perhaps, not focused on the client’s individual needs,’


We did not see enough people to make any general statements, but what we saw concerned us.

The advice given by the trustees to use is not being heeded. The market for advice is forming around availability of advisers not around suitability. We found a low level of understanding of cost and value and a confusion about where the advice was coming from.

Considering the sums involved, we see a considerable transfer of value from member’s pension rights to the advisory community and on to pension providers. The concept of “independence” is not high on the agenda and most advisers talked of advisers as gateways to getting their hands on their money. There was little awareness of the contracts that members were entering into with advisers or people’s rights to move away from advisers and cancel the advisory agreements they were signing.Al

We were not there to discuss the quality of the decisions being taken, though Al did valiantly talk with members about their future cash flow requirements.

We were there to help people meet good advisers – and they did. In Al they saw how things could be done and though Al is not putting himself forward, we have now met advisers who have an approach to the problem that offered a high quality of service at a rather more reasonable price than what was generally reported from those we spoke to.

There are some 43,000 steelworkers who are eligible for a CETV from BSPS. All of them should be looking at this option and most will need to take advice on whether it is right for them, and if so- what to do next. There are rather less qualified advisers to help them.

If Steel-workers want help with signposting to good quality advisers, we can now help, though we cannot advertise these generally.

If any BSPS member wants help with finding an adviser, they should contact or Al at al If they need more help with their options , they can speak to TPAS on 0300 123 1047 or the helpline provided by BSPS.

Posted in advice gap, pensions | Tagged , , , , , , , | 6 Comments

Salary Sacrifice – a foot in the door for the poorly pensioned?

foot in the door

Everybody knows that the pension tax-relief system is heavily weighted in favour of the have’s who get big income tax incentives. It is weighted against the low waged who can get excluded from contribution incentives altogether.

Steve Webb, who thinks about these things, has announced he’d like to see even those on minimum wage, being able to participate in some of the tax and NI saving activities of those who earn more than him.

I’m not an actuary, and I’m getting some experts to run a check on these numbers (which may change when they have) but here’s the Pension Plowman’s stab at how salary sacrifice (some call it salary exchange) could work for the low paid.

An employee is  on minimum wage of £7.50 an hour working 40 hours a week. Weekly pay = £300 so annual pay is £15,600. This person will be auto-enrolled and pay basic rate tax.

The employee pays 12% employee NI on earnings above £157 a week so 12% of (£300 – £157) = £17.16 a week.

In addition the employer pays 13.8% NI on these same earnings.

If they could pay pension contributions of say £10 a week by salary sacrifice they would save £1.20 in NI (and still get tax relief) and the employer might share some of its NI saving,

So a minimum of a 12% effective uplift for the employee , simply by sharing the saving 100% of the NI saved on his/her earnings, a maximum of nearly 26% uplift if the employer savings are shared.

The minimum wage dilemma

So why don’t salary sacrifice/exchange schemes operate for those on minimum wage?

I asked the question to payroll’s answer to Martin Lewis – Kate Upcraft and this – is -what – she -said!

No problem for us to administer – we simply reduce gross pay but it’s illegal to reduce gross pay below NMW and given the amount of unpleasant and damaging publicity about NMW non compliance at the moment, including the sleep in debate I can’t see the law changing

I had to look up “sleep in debate” – I thought that this was an all-nighter at the House of Commons- but it’s about carers who sleep at their client’s house in case something happens in the night (and get paid for attendance).

Kate’s substantive point is that the Conservative Party wouldn’t risk annoying other parties by allowing people to choose how they had their minimum wage paid to them.

Salary sacrifice is not something that happens to you like auto-enrolment, it’s not done on an opt-out, you have to opt-in to salary sacrifice, and you’d only opt-in to something, if you thought it was good for you.

Earning between 12% and 26.8% uplift on your pension contributions looks like good news. I’d choose that if there were no downside. I could try and construct a downside to pension salary sacrifice -SS (as opposed to the same contributions being made with SS) but I’d be struggling.

Denying people on minimum wage the opportunity to get more paid into their pension pot seems perverse. The Labour opposition should join with Steve Webb in calling for this practice to be allowed. Kate Upcraft has no practical objections and I’m sure she’ll join with Steve Webb in campaigning for a better deal for those on the minimum wage.

So do I.

The net pay dilemma (pt 94)

When the history of HMRC and the Treasury’s pension policy comes to be written, the net-pay scandal will be writ in black type as one of its darkest hours,

How can 300,000 people be auto-enrolled into workplace pensions on a promise of a 3% contribution from the boss and a 1% top-up from the Government, only to be told that the 1% never turned up because their employer used the wrong kind of pension contribution? It makes special pleading about the wrong kind of snow look rational!

HMRC continue to pass the buck to tPR who pass it back to HMRC (this actually happened last week in front of a live audience at Reward Strategy.

Then everyone blames operators (of DC trusts) for not moving to relief at source and nothing happens. In April 2018, the minimum contributions that will not get Government incentives double, by April 2019 they will have doubled again. NOTHING is happening – NOTHING.

Salary sacrifice +NET PAY    1+1 =3 ?

I commented in John Greenwood’s “on the money” article on salary sacrifice yesterday.

John picked up the comment which appears in later editions. He writes my words better than I can – so I hope you don’t mind me quoting myself directly from Corporate Adviser!

First Actuarial director Henry Tapper says: “Many of those on low earnings are not only unable to exchange salary for pensions, but unable to get the Government Incentive – basic rate tax relief – because they are in net pay schemes.

“Salary sacrifice/exchange gets round the net pay problem as all employees are treated equally – whether RAS or net-pay, tax-payers or below the income tax threshold.

“I would suggest that if it we were to make it easier for employers to offer salary-sacrifice to the low paid, we might go a great way to solving the net-pay problem.”

I was partly thinking of the (up to) 26.8% NI kicker – which mitigates the loss of the Government Incentive.

But I was also thinking that as soon as you get people thinking about the social consequences of denying the minimum waged the right to the NI kickers, you think about the Net-Pay scandal.

Pension tax credits

I am no expert on the HMRC’s capabilities but sorting this out does not look impossible. , It strikes me that anyone who chooses to sacrifice below minimum wage is special, if only for choosing to have a notional salary below minimum wage. Can we not make that election a trigger for  special treatment that puts money into people’s wage packet by way of a tax kicker from HMRC. For every pound sacrificed , could not HMRC put 20p onto the wage? Could we call this a pension tax credit?

Once you are sacrificing salary, the differences between RAS and net-pay are irrelevant. Everyone who sacrifices salary for pension in the nil-rate band should have the Government incentive of 20p in the pound paid on top of net salary as a pension tax credit.

I hope I am not being fanciful. The double impact of an NI kicker into the pension and a pension tax credit could incentivise pension contributions to the low-paid to the kind of levels enjoyed by the high-paid.

Though a word of caution has been uttered by Thomas Coughlan in his comment on this article

This might help low earners, but it wouldn’t help really low earners. If salary below the NI primary / secondary threshold (£8,164 per annum) is reduced there is zero benefit. So, whilst eliminating the NMW barrier might help those earning between £8,164 and about £14,500 (annualised NMW), it wouldn’t help those earning less than this.

This coupled with no income tax benefit via salary exchange for those earning less than £11,500, and I’m not sure getting rid of the NMW barrier would be that beneficial. Much better for low earners to pay to relief-at-source personal pension and get 20% income tax relief.


All this is food for thought for employers operating net-pay schemes. If I were running a net-pay scheme I’d be putting the risk of a class action from low-paid employers on my risk register. That’s when they find out just how much they are losing out on at the moment (both from being denied the NI and the tax incentives that are available to others).

There seems to be some social justice here. There seems to be some commercial risk-management too. But most of all, there is an opportunity here to get the low-paid to a point where they have decent sized pension pots – a whole lot quicker.t

Whether tweaking the rules for a workplace pension is the answer, whether LISA is the answer or whether there is merit in Alan Chaplin’s suggestion , I don’t know.

Looked at the Help to Save scheme today –

Looks better than pension to me for anyone eligible… For those eligible but unable to afford maximum contributions, maybe employer can top up instead of paying pension contributions. At the end of the saving period, take the money and put into pension and get another 25% “bonus” in tax relief??

One thing’s for sure, something had better change about the way we deal with low paid worker’s pension rights and the incentives attaching.

Posted in accountants, actuaries, advice gap, pensions | Tagged , , , , , , | 15 Comments

Practical help for practical people- what we hope to do for BSPS members.

What Al Rush and I are up to

I’ll be taking up to a week off over the next fortnight – partly because I have to and partly because I relish the opportunity of scooting around the country doing what I can to put British Steel Pension Scheme (BSPS) members in touch with good advisers.

Of course this is subject to demand and as yet we haven’t seen much demand for the sessions that Al Rush and I have promised the steelworkers of Port Talbot, we’ll know by Monday whether we’ll need to use the facilities of the Taibach Rugby Football Club or whether we can manage the enquiries over the phone or using the web.

If you are a steelworker with BSPS benefits, you can sign up for a session on Wed/Thurs 8/9 here. Further sessions are planned for Scunthorpe and Redcar. Please do not sign up if you are not a BSPS member.


Thanks to the advisers who’ve been in touch over the week offering your services, I will be spending the weekend with Al , working out who to promote and how to promote your services.

To be clear, we are looking for pension advice on BSPS benefits as well as execution. I have been accused of a bias against transfer execution, partly because I chose not to execute myself.  I do subscribe to Mr Cunningham’s view, that you have to feel you have a special need to transfer, but I do not suggest that anybody should be excluded from transferring (who has that right),  As my colleague Peter Shellswell told me yesterday “we are all special”.

Nor do I fully subscribe to the view of my friend John who sent me a link to the FCA’s guidance on transfer redress (FG 17/9) with a note

Who in their right mind would take on the commercial risk in exchange for a trivial fee

The FCA are fairly brutal in their assumptions, for instance redress will mean an adviser will only be able to write off the first 0.75% of any charges taken since receipt of money (effectively rendering themselves underwriting the charge cap). The actuarial factors involved within the paper look firmly set on the side of the person getting redress. As the FCA says

The basic objective of redress is to put the customer, so far as possible, into the position they would have been in if the non-compliant or unsuitable advice had not been given or the breach had not occurred.”….

The redress calculations, detailed in the document, should reflect the features of the customer’s original DB pension scheme … this would include, for example, different tranches of pension increase rates and deferred revaluation rates.

Peter Shellswell know only too well how onerous a task it is to calculate this redress, how expensive the redress becomes and on whom the burden of redress falls.

Those who enter into advising on DB transfers and executing transfers need not be out of their right minds, but they need to properly understand that execution carries risk. We would not want to jeopardise any adviser’s livelihood by promoting them where we did not feel they were competent.


BSPS have produced a technical note for advisers which can be found here. It has a lot of useful guidance on how to think about BSPS2 as an option.


Despite some recent relaxation in the original tPR stance (which was fundamentally anti-transfer) both the FCA and tPR start from a default position which is that members are better staying in a defined benefit scheme.

Clearly members of BSPS are in a special position. BSPS2 is not as generous as the Scheme they are currently in , nor is the PPF. There are concerns about the future solvency of BSPS2 , especially where the covenant of the sponsor is seen to be weak.

There are concerns that once a member is in the PPF , he or she loses the right to a transfer value and further concerns that transfer values from BSPS 2 are likely to be lower than BSPS. There are even concerns that the recent fall  in interest rates will reduce CETVs between now and the end of Time to Choose.

There are counter arguments to all these concerns. If members go to the two BSPS group sites on Facebook – entry heavily moderated- they can see the conversations between other members. The arguments are extremely well laid out on the Time to Choose website and their is an excellent FAQ Facebook page for general use , which can be found here.

Detailed information on the BSPS scheme can be found here and specific help on the choice itself is martialled on the Time to Choose website , set up for members in the period of choice – till 11th December.

In addition, TPAS have put up some very useful information on its website, which is free for  BSPS members to use and can be found here.

Public awareness

As part of all this, I’m turning over the Pension Play Pen lunch on Monday, to a discussion of the choices facing steelworkers, people who turn up to the Counting House on Monday will be able to put themselves in the position of steelworkers and find our for themselves how tough those choices can be (details here).

There should be considerable public concern that the outcome of the current decision making is a good outcome – e.g. it delivers to the reasonable expectations of BSPS members.

I don’t think that most members can fully understand their choices without financial advice and I am not competent to give that advice myself.  However, along with my colleague Al Rush, I think we can help people to understand what good advice looks like and help people get value for money for the advice they pay for.

I hope that as a result of a few days fun work, we will see a few more messages like this

Hello Henry, I am one half of the lovely couple from scunny Al Rush referred to. I met al thru an online bike forum and have had two meetings with him to discuss my options. I feel that I have found an excellent IFA.
I have followed your comments regarding BSPS and would like to thank you for your input. It’s a minefield for us steelworkers with no knowledge of finance. I shall be at your meeting in scunthorpe.

To sum up

  • We am not anti financial advisers ,we are pro good advisers
  • We are not anti transfers ,we are pro well-informed transfers
  • We are not anti Tata, BSPS, BSPS trustees
  • We are pro the restoration of confidence in pensions
Posted in advice gap, BSPS, pensions | Tagged , , , , , , , | 7 Comments

BSPS2 is not a lame duck – people should not feed the pike.


This tweet was put on social media by John Ralfe last night. More people read my blogs than read John’s tweets and there is a good argument for letting this idiocy lie.

However, it is important that little rumours are not allowed to spread. Here is the tweet.

can I repeat, IF TSUK went bust, BSPS2 would not have enough assets to stay out of the PPF. It is just a matter of fact.

— John Ralfe (@JohnRalfe1) November 1, 2017

I know people close to the deal that has been struck by Tata, they have no reason to be kind to Tata, BSPS2 or to the RAA agreement that allowed BSPS2 to happen. When John Ralfe uses the phrase “it is just a matter of fact”, be assured, he is at his most speculative.

The generally held view, among senior people I have spoken to is that it is not BSPS2 that Tata workers should be worried about, but their jobs.

Assuming that the mega-merger with ThyssenKrupp goes ahead – and there is no reason to suppose it wouldn’t, then Tata Steel looks a strong business. It will undoubtedly restructure and this will be unpleasant, but the memorandum of understanding that has been signed, should make BSPS members sleep easy – about the pension arrangements put in place.

Steelworkers have quite enough to worry about – without needless scaremongering about what might or might not happen in “the medium term”.

A more dangerous scenario than to BSPS2 than the loss of the covenant is the loss of confidence in it, that is created by reports of its imminent demise. The scammers and low-life financial advisers who repeat that BSPS2 is just PPF deferred, could create such a loss of new members for BSPS2 that it becomes unviable to run. We are a long way from that point at the moment, but that could happen. It would mean that some of  the money that had been destined to back BSPS2 would be paid to the PPF and the rest of the £2bn buffer promised to BSPS2 members – would be lost to pensions.

This may be in the interests of jobs at Tata (or Tata ThyssenKrupp) but it is more likely to be a windfall for shareholders.

I do not know how John Ralfe can speculate that BPSP2 would be sunk by the loss of its sponsor, there are examples of schemes that have continued to trade sponsor less (Polestar and Trafalgar House). Whether the Pensions Regulator would allow this to happen is debatable but there is precedent.

But of much more importance is to look at the behaviour of Tata itself – in the past year. I can see no evidence that the Indian parent has done anything but stand behind BSPS, it has continued to fund it and has not walked away from its obligations but taken the extraordinary step of setting up BSPS2 to be self-sufficient.

Why would it go to such lengths if it did not want BSPS2 to succeed? Why would the impending merger with ThyssenKrupp be anything but good news for the BSPS2 covenant? And why is John Ralfe so keen to scare BSPS members either into transfer or the PPF?

I can find no answers to any of these questions. I can see no reason to be concerned about BSPS2, to any greater degree than any other scheme. Indeed, the high level of transfer requests already received by BSPS, has considerably de-risked BSPS2 since the buffer is not diminished by transfers into personal pensions (it is by transfers into the PPF).

It would be helpful if John would revert to his former position of encouraging people to consider their pension rights before transferring, and considering them in a sensible non-emotive way.

Chicken Licken was right to warn there was a risk of the sky falling on his head, he was wrong to suppose it was likely.


Since publishing this blog , I have received this mail from someone close to BSPS management. I quote it verbatim by way of balance.

As far as I understand it, the RAA was just about separating BSPS from Tata Steel UK. It was not about setting up a new scheme. Once the RAA was sorted out, the Trustee was able to look at setting up a new scheme. Initially, they were expecting the new scheme to have no sponsor, and were pleased when TSUK said they would sponsor the new scheme, and they got the equity stake. But the Trustee sees that sponsorship very much as back-up.
They don’t expect to need any more money from TSUK, as the new scheme will be well funded. This came up at the member meeting I was at in Corby on Tuesday– in response to the question ‘What happens to the new scheme if TSUK goes bust’, the panel replied that they would hope the new scheme could continue without a sponsor (like Kodak). This would of course need approval.

Chicken Licken was right to warn there was a risk of the sky falling on his head, he was wrong to suppose it was likely.

Posted in actuaries, advice gap, pensions | 2 Comments

Do you want to advise BSPS members in their “time to choose”?


This blog is for financial advisers, though anyone, including BSPS members, may find it useful.

Financial advisers are urgently required by these members who are in their “time to choose”.

There are two self-help groups for BSPS members. One is for all members and the other specifically for the 42,000 people in the scheme who have not drawn their pension. It is the latter group who have most need of financial advice

Along with Al Rush, Angie Brooks and John Ralfe, I have the opportunity to see the questions , hear the moans and provide input to the online self-help communities that have been created by two British Steelworkers from Teeside (who deserve a lot of praise).

Surprisingly, no-one has  creating a self-help group for advisers to  get up to speed with the issues that members are facing. There are very specific issues surrounding the scheme and its peculiarities which need to be understood if advisers are to properly understand the problem.

Depending on the response to this blog and to work I do this week, I may set up such a group. In the meantime, should you be saying “yes” to the answer posed in the title this blog, please read on and take some action.

Getting up to speed

As a first place to learn about these peculiar matters, I would recommend that you- as financial advisers – thoroughly read all the pages of this website.

If you want to really understand the scheme, you can go to BSPS scheme site, which contains the answers to almost all questions (and a good search facility).

If there is demand, we (Al Rush and I) may run an “advisers webinar” to help with the frequently asked questions you will get when advising.

We intend to provide specific help to the groups and this blog is part of that process. As I and Al  develop these plans, we will share them.


At the bottom of this page, I’ve pasted  a checklist on how to choose a financial adviser. Nobody quite knows where it came from or who wrote it. It is being used by BSPS members who are having to make tough choices about their pension benefits. (If you claim it as your work- I’ll credit you).

If you are giving advice, why don’t you check that you can properly answer each of these questions in not more than 50 words?

If you want to help BSPS members. You might want to go a step further and write your answers down and send them to me at


These are the towns where BSPS members are congregated and BSPS are meeting their members. You might like to think about towns to which you could help members.





Port Talbot
Ebbw Vale
If there are towns that you can travel to which are on this list, you might like to send me your selections.
We may need an adviser map to share with BSPS members.


So here are the questions we’d like you to think about and respond to (please no more than 50 words per answer – preferably less!)

How to Choose a Financial Adviser

Where to start.

When you decide to see a financial adviser, especially if it is your first contact with them, you should plan in advance by pulling together your relevant paperwork, thinking about your financial goals and preparing a list of questions to ask.

Your adviser will firstly want to understand which products you have, your current financial position, your goals and how you feel about taking risks with your money.

This will help them to recommend a financial plan and products that are right for you now and in the future.

Here are some questions that you might want to ask us before deciding whether to proceed:

Q1: Are you approved by the FCA?

The adviser should be regulated and approved by the FCA with pension transfer permissions.

Q2: Type of advice offered?

Financial advisers can offer ‘independent’ advice, where they can consider products and providers from the whole market or ‘restricted’ advice, which is limited to certain products, providers or both.

Your adviser has to clearly explain if they specialise in certain areas, such as shares, funds, units, insurance products or anything else, and the providers they look at.

Q3: What experience and qualifications do you have?

The FCA has increased the minimum standards of qualification that financial advisers have to meet to ensure their knowledge is up to date.

Advisers now have to be qualified at Level 4 or above of the Qualifications and Credit Framework (equivalent to the first year of a university degree). Level 6 is pension transfer exam for example.

Professional advisers also need to obtain an annual Statement of Professional Standing (SPS).

Ask to see proof of the above if you need proof.

Q4: What are your charges?

It is important to understand what fees and charges you will pay for advice and when you will be expected to pay.

Q5: Do you offer an ongoing service and how much does it cost?

This might be an annual review to check the value of your investments and consider any changes to your circumstances, checking your risk profile, make sure you are not missing tax saving opportunities, improving the tax effectiveness of your portfolio etc.

Q6: How do you assess my financial needs?

Financial questionnaire, your goals and planning etc.

Q7: How will I receive the advice?

Your adviser should send you an outline of their recommendations which is usually called a ‘suitability report’. Check this carefully to ensure it reflects the discussion you had with the adviser and that you understand why they recommended a particular plan or product.

Q8: How often should I review my investments?

You should ask the adviser how often they recommend reviewing your investments based on your circumstances.

Most experts suggest that at least once a year is sensible to ensure your investments are in line with your risk profile.

There are often budget changes that will add or remove tax allowances – it is important to review these regularly to make sure you don’t miss out.

Q9: Who will look after my advice?

Will the adviser continue to see you or another member of the firm? Points of contact if the adviser is off sick, on holidays, leaves the firm or retires.

Q10: How do I know I am getting the right advice?

Does the adviser have external compliance to check their work?

Q11: How do you assess whether a product or investment has the right level of risk for me?

Examples – risk profiling, client experience, timescales and capacity for loss.

Remember – There is no such thing as a dumb question when it comes to looking after your money or loved ones.

you 2


Posted in advice gap, BSPS, pensions | Tagged , , , , , | 9 Comments

“A decision to take a transfer cannot be reversed and should not be rushed”

time bomb 3This blog is mainly written for deferred members of the British Steel Pension Scheme, but many other people may find it interesting. There’s no doubt that what is going on in Tata-land, will go on with other employers who feel they can no longer fully-sponsor their defined benefit promises.

This blog is about transfer activity and starts with a statement taken from the BSPS Time to Choose website .

BSPS Transfer

In clear language, the British Steel Pension Scheme lays out to members the state of play in September. Since then, many more requests for transfer value quotations have been received. Best guesses are that of the 42,000 or so eligible for a transfer, most are considering their options. The sample poll which has appeared on the BSPS website, is probably skewed by members who are particularly exercised.

poll bsps

Many members will either do nothing (and see their pensions paid by the PPF) or take a decision to join the Regulatory Apportionment Arrangement (RAA) – known as BSPS2.

time to choose

There are many factors that may influence the split between these three decisions.

One is trust;

should BSPS2 be trusted to pay pensions over many years? The trustees have confirmed that they intend BSPS to start with a £2bn buffer – that’s a lot of solvency. The less people who enter BSPS2 , the higher that solvency per head. Ironically, for those who are prepared to have a scheme pension paid (on worse terms than the current BSPS), every transfer increases the security of future benefits. I should point out that the Pension Protection Fund will still cover those in BSPS2.

I cannot say this often enough, the Trustees of BSPS have shown good faith towards their members as has the management of the Scheme. While these choices are tough, they are not of the Trustees’ making – nor is the Scheme managing these choices badly. In many ways, the information appearing on the Time to Choose website, is exemplary. Members can draw their own inclusion with regards “trust” but I am saying, as an independent observer, that I have see no reason to distrust what is being said by BSPS

Another is fear;

closely aligned to “trust”, “fear” drives decision making , but usually in a perverse way. If trust is lost, fear increases and the fear is that the only certainty is in direct ownership of your pension pot. This is driving some behaviour. I worry that decisions taken out of fear will not be sound. When you transfer, you are simply handing your money to another third party, not all these third parties are reputable – some are sharks.  See Angie Brooks’ blog. angie 6

Another is certainty;

transfer values are certain, at least for three months after being issued (when they are guaranteed). The certainty of the transfer is not matched by the certainty of outcome from that transfer. Yesterday I published figures produced by the TUC showing how both the size of your pot and what it can buy, change from year to year.

Retirement year Accumulated pension fund Annual Income (£s)(2017 annuity rates) Annual Income (£s)(Historical annuity rates)
2017 £305,519 £16,804 £16,804
2016 £307,751 £16,926 £14,464
2015 £307,265 £16,900 £17,821
2014 £299,893 £16,494 £18,593
2013 £284,417 £15,643 £16,496
2012 £274,989 £15,124 £15,674
2011 £268,149 £14,748 £16,893
2010 £248,570 £13,671 £16,654
2009 £223,357 £12,285 £16,082
2008 £268,785 £14,783 £20,428
2007 £275,212 £15,137 £20,366
2006 £264,299 £14,536 £19,030
2005 £240,999 £13,255 £17,111
2004 £231,333 £12,723 £16,656
2003 £213,844 £11,761 £15,183
2002 £248,496 £13,667 £18,140
2001 £288,372 £15,860 £23,070
2000 £306,272 £16,845 £27,871

In truth you have no certainty having your own pot, you have just exchanged one set of problems for another. I met a chap last night who was an expert and claimed to enjoy managing his self invested personal pension. I wonder how many of us are like that. Not many I reckon.

Another is time;

many BSPS members eligible for a transfer think that time is running out for them. This is compounded by the delays people are experiencing getting a quote. People feel they won’t have time to make the decision and that they will indeed be rushed. To be clear, transfer values will be issued till the end of December (closing of “time to choose” and the election to transfer need not be made till the end of March.time goes on

In the new year, the rules will change, the BSPS2 basis of transfer calculation will apply, this is unlikely to be as favourable as that currently being used. The message from the Trustees is clear, you had better transfer during “Time to Choose” than after.

My message to all those waiting for transfer quotes is be patient, I would be amazed/shocked/angry if the current clip on transfers is increased or if the discount rate that drives the calculations was altered over the next two months.

Another is shock and awe;

I live in London, I am used to things costing hundreds of thousands of pounds, but when I saw my DB transfer value, I nearly fell over. It was worth more than everything else I owned – and I am well off.

shock and awe

When I saw my transfer value

We are told that the average transfer value issued in the first tranche (the 7000 mentioned above) was £285,000. Comments on social media suggests that the older steelworkers are getting quotes which are often above £500,000.

These are eye-watering amounts of money. But as I have written before, they are no more than the earnings of steelworkers in their lifetimes – taking into account inflation. It is a happy fact that many steelworkers could be in receipt of a wage in retirement (a pension) for longer than they worked.

The amounts being offered as CETVs are huge , but so is the amount of money , most of us would like to spend on ourselves and our families over the next 40 years.  It is so hard to get your head around this, so easy to take the CETV.

And another is the availability of advice

I am a blogger, I am not a financial adviser and I am not an adviser to Tata, the Scheme or the Trustees. My only intention is to be a useful commentator who can use 35 years experience selling and advising on pensions, to good use.

There is a final factor that will determine people’s behaviour and that is the availability of good advice. This I fear is in short supply. This is not a criticism of financial advisers, it is simply an observation on “supply and demand”.

Financial Advisers are not good at getting organised. There is no list of recognised advisers available from the Trustees (something I will criticise them for) and those good advisers like Al Rush , Darren Cook, Al Cunningham, Eugen Neaqu and Paul Stocks who are familiar with BSPS – have limited capacity.

Al rush - working hard

Al Rush- working hard


It is not as simple as a dating agency for not all advisers are the same – witness this message sent to me this morning

A steelworkers questions for our friends in finance.


I have an option to transfer from the British steel DB scheme to a private pension, as recommended by TPAS I visit more than one FA, here’s my dilemma…


I visit an FA who charges 3% to transfer my £500,000 pension and another who has capped fees at £5,000.


Which one offers the best value for money?


I visit two FA’s with exactly the same transfer pot and circumstances, one recommends a transfer, the other recommends I stay in the British steel pension scheme.


Which one should I trust?


One FA can manage my investment for an annual charge of .75%; the other has a flat annual charge of £800.


Which one offers the best service?


I offer both FA’s a choice of S235 or JR55 grade steels for construction towards a multi storey building.


Which one would you use?

If  advisers reading this , feel they have capacity, perhaps they can drop me a line and I may be able to put them in touch with sensible people who moderate the BSPS pages. My e-mail address is


After a lot of words I come back to the title of this blog

A decision to take a transfer cannot be reversed and should not be rushed.

If you are reading this and you are one of the 42,000 members of BSPS not drawing your pension, then you can write to me too, and I will give you simple help. You should be speaking to your helpline, calling the TPAS hotline 0300 123 1047, using the Facebook pages set up Stefan and Rich and you should be getting yourself a pension education.

Because if you don’t do this for yourself, nobody can do it for you.

Posted in accountants, advice gap, Bankers, Change, drawdown, Facebook, pensions | Tagged , , , , , , , , , | 7 Comments

Workplace savers play pensions roulette- TUC


The Trades Union Congress (TUC) exists to make the working world a better place for everyone. It brings together more than 5.6 million working people who make up their 50 member unions.  I want unions to grow and thrive, and for them to stand up for everyone.

Here they are standing up for the 9m new savers into workplace pensions and the 8m existing savers who didn’t need to be enrolled.

TUC’s new research finds market volatility can cost savers up to £5,000 in their annual pension payment

A typical worker could be £5,000 a year poorer in later life if they retire after a bad year for pension funds rather than in a good year.

Male, median earner contributing to a defined contribution pension for 40 years

Retirement year Accumulated pension fund Annual Income (£s)

(2017 annuity rates)

Annual Income (£s)

(Historical annuity rates)

2017 £305,519 £16,804 £16,804
2016 £307,751 £16,926 £14,464
2015 £307,265 £16,900 £17,821
2014 £299,893 £16,494 £18,593
2013 £284,417 £15,643 £16,496
2012 £274,989 £15,124 £15,674
2011 £268,149 £14,748 £16,893
2010 £248,570 £13,671 £16,654
2009 £223,357 £12,285 £16,082
2008 £268,785 £14,783 £20,428
2007 £275,212 £15,137 £20,366
2006 £264,299 £14,536 £19,030
2005 £240,999 £13,255 £17,111
2004 £231,333 £12,723 £16,656
2003 £213,844 £11,761 £15,183
2002 £248,496 £13,667 £18,140
2001 £288,372 £15,860 £23,070
2000 £306,272 £16,845 £27,871

Green= highest , red = lowest.

Analysis of historic investment returns by the independent Pensions Policy Institute found that a pension saver’s pot size can vary by up to 40%, and it’s just the luck of the draw.

You can ignore the middle set of figures, they simply convert capital to income at this year’s rate and unsurprisingly show that the savers whose 40 years investments did best  (2000, 2016 and 2017) would have given the best outcomes – simply based on a theoretical consistently applied annuity rate.

But life’s not like that. In the real (non-theoretical world)  the person retiring with the  biggest pot would have got the worst annuity ( and that’s before taking into account this person had to lose 16 years of inflation (between 2000 and 2016) as well as taking an absolute fall in income of 50%. Can you imagine seeing your pay fall from nearly8 £28,000 to £14,500 in the last 16 years?

The impact of investment returns on the workplace savings of women is similar. However, due to a pattern across the last 40 years of lower wages and savings for women workers, female retirees are likely to have greater reliance on the state pension. The analysis therefore focused on historic figures for median male earners.

This is how TUC General Secretary Frances O’Grady saw the numbers;-

“Someone who has saved all their working life should not have to play roulette with their pension fund. But if their retirement lands on a bad year, market volatility could leave them with a much poorer standard of living for the rest of their life.

“Every saver should be enrolled into a well-governed scheme that is able to cushion members from the worst markets can throw at them. And it is time to implement plans that were passed into law two years ago for collective pensions, which can be less volatile and more efficient than traditional schemes.”

And of course she is right.

The only way we can take pensions off the roulette board is by releasing them from the shackles of gilt returns. Back in 2000, you could buy twice as much pension for the same amount of cash, that was simply because of the returns (yields) you could get on a gilt – which were twice what you could get sixteen years later. With no market growth in the intervening period, you can see why someone’s annuity income fell by half -with no inflation proofing.

That is of course the nightmare scenario and it’s why virtually no-one in 2016 was buying an annuity, equity markets have increased by about 8% since this time in 2016 and annuity rates are picking up too. But that is not the point. Workplace pensions shouldn’t distribute such a weird dispersal of outcomes ( as Frances says).

The point of a any kind of collective pension is it can smooth these anomalies over time. People retiring in 2000 in a smoothed fund might expect less and those retiring in 2016 more. As Con Keating, writing in a blog last week points out, the redistribution in a CDC plan is between those in a generation, not between generations.

CDC is fairer, safer and more certain than DC. That is why it is the pension of the future. Obsessed as we are by freedom from pensions, we forget that what most people want is a wage in retirement that lasts the rest of their life. CDC can not only smooth market returns but it can insure within its own pool – the longevity risk.

But now I’m talking actuarial – and I’ll stop. Well done the TUC , well done Frances O’Grady and well done the Labour Movement for seeing what should be blatantly obvious.

I look to the distant horizon and CDC!


Posted in pensions | 1 Comment

So what makes you so special?


It’s a tough question in any walk of life. There is always someone who will answer that question because they are, but most of us will find ourselves out when answering it. We’re not – and if we were all special, there would be nothing special about the word.

Alistair Cunningham asks this question of his clients when they come to him with the question

“should I transfer my defined benefits into my own personal pension”

Most people want to be flattered

One of the few chants that Yeovil Town can sing with much conviction starts (and ends)

“You’re nothing special, we lose every week”

Most people like to think that winning comes naturally to them (football fans come naturally). Nonetheless they recognise that for every winner, there is a loser- it’s just not going to be them.

I see this insanity in all walks of life. It’s what drives punters to take on bookmakers, it’s why most people invest in actively managed funds. It’s why people take transfer values. People think they are special and they can do things better themselves.

A good behavioural economist – or even a charming  one (Gregg) could give me the name for the behavioural bias I am talking about. By the way, if you are bored for half an hour , read this list of cognitive bias’ and work out which you’ve been subject to (I recognise the lot).

I’m not really talking about the mis-wiring of the brain. If we had perfect behaviour we would have perfect markets and the state could run things. We have entrepreneurs because people recognise stupidity and reckon they can make a buck from it.

That essentially is why we have transfer value and why people bet against the collective pension schemes, reckoning they can do it better themselves.

Alistair Cunningham challenges his customers to explain what makes them special.

Special needs

I recognise that some people have special needs, and I’m not being patronising or rude,

My friend Nick has been given a life expectancy of two years, true that was eight years ago but he still lives every day as if it were his last – (which makes him special to me).

I know a couple who have a firm plan to spend now and live out their later years in poverty. I believe they will do this, they are crazy but brilliant.

But most of us think we are special for reasons that make no sense at all. We underestimate our capacity to survive on this planet, we think of our worst behaviours and convince ourselves we will die of them. We suppose there will be a terrorist bullet with our name on it, that Korea will drop a bomb on us, we fear the future to the point we deny we will have one.

Then we say we are special needs. We want the freedom of having money in the bank, or under the management of an IFA or there for our kids.

Most of us do not have special needs. Just consult the actuarial tables. If you make it to retirement, you are (actuarially speaking) going to live a long-time and the chances are you are nothing special – you will.

Special powers

We may not believe we have special powers, but we are only too happy to grant them to third parties. “I know this brilliant…IFA/wealth manager/stable lad etc.”

I don’t know why we do it, I might go back and consult my list of stupidities again. I’m sure there is a cognitive bias towards creating genius in your own head.

The fact is that most active managers do not beat the index over time (especially after you’ve paid them, most stable lads are having a laugh and your IFA is probably suffering from the same delusion as you, he simply trusts his mate and takes the plaudits for himself. I use the male gender as I really think that the assumption of special powers by IFAs is a male thing.

IFAs do not have special powers, if the statistics suggest that you will struggle to get a return of CPI +3 over ten years and if you think CPI is 2% then think gross return of 5% – less the 2% you pay for someone to manage your money and you are likely to get 3% pa.

Your IFA may believe he can get 8% and can show you someone who has, but he is unlikely to have special powers – nor is his mate – and you are likely to get what everybody else gets (CPI+3).  This is why actuaries build prudence into their calculations, they know that everybody suffers from irrational exuberance, they just turn down the heat (which is what I have to do with the bacon right now).

Right – bacon sorted; how about transfers?

If you, a member of the BSPS, believe that you are special and – with 95% of the cash equivalent transfer value you should have had, can beat the market. It is for one of three reasons

  1. You have special needs – or think you do
  2. You have special powers – or have a mate/IFA./stable lad with them
  3. You think we have a special market.

We’ve covered 1 and 2 and I hope I’ve asked you to ask yourselves some questions about those special powers. I’ll finish with a few words about special markets.

We are – without doubt – at the end of an unusual period in our countries economic history. Never before has a Government – let alone a collection of governments, taken such radical concerted action to reshape an economy as the past three Governments have (with quantitative easing). The low interest rates we have today are artificially low and the economic stimulus will – as with “austerity” eventually disappear.

We will return to normal (revert to mean) and we’ll see higher interest rates, lower transfer values and people will turn round to the actuaries at BSPS and say – where did all the money go. They may say that 95% should have stayed at 93%, they might even say the trustees should have blocked transfers altogether.

People around British Steel will think BSPS was special, just as I think that being a Zurich pensioner is special. We all want to think we are special and that we are in a special market.

But even if austerity and QE unravels and 2017 was seen as a high-water mark, I do not think I – or you are special enough to bet against the UK economy , let alone the world economy. That transfer value was set against the expectations of a firm of experienced actuaries and what they thought you need to meet the promise given you. True that promise is not going to be around in the same form after April 2018, but it was made to you as 95% of the cash equivalent value of your benefits.

If you think you have special needs, if you think you have special powers, if you think you have a special adviser or if you think you understand a special market, then you will take your transfer.

But if, perhaps after reading this – you doubt any of these things, and you accept that there is nothing special about BSPS – no conspiracy theory against special old you, then you will sit tight and work out whether you’d be better off in BSPS 2 or PPF.

And if you aren’t in BSPS, count yourself lucky you don’t have to make these decisions by the end of the year. I’m off to Lady Lucy for the final boating weekend of the year, I’m nothing special either, I took my pension , turned down my CETV and didn’t even take my tax-free cash!

Posted in Blogging, BSPS, pensions | Tagged , , , , , | 2 Comments

DWP now leads the way on cost disclosure



David Gauke (sponsor)

David farrar

David Farrar (author)

What’s this about?

In a first-rate document, the DWP have set out radical proposals to allow ordinary people to see and compare the costs  their trustees are paying for the investment of their pension money.

These proposals go well beyond anything previously proposed by Government and will set a pole in the sand for the FCA – who intend to consult on how people who invest their money directly (personal pensions), will get this information.

You will notice that I’m already dancing round a pin with regards “ownership”!

The DWP has authority over trustees and their occupational pension schemes (that include master trusts like NEST, NOW and People’s Pension. The Treasury has authority over the operators of group personal pension plans (Aviva, L&G, Prudential etc.).

The DWP enforce through the Pensions Regulator (tPR) and the Treasury through the Financial Conduct Authority (FCA)

The DWPs fiduciaries are called Trustees and the FCA’s Independent Governance Committee’s (IGCs)  – clear so far?

This is all about “ownership”

Ownership is one of the few ideas that Government has right now and it’s a good one. Here is what David Gauke (head of  the DWP) on ownership.

dwp 8

This is the underlying reason the Government think they can intervene (in this radical way). Gauke goes on…


I’m am sure David Gauke (MP and Secretary of State, didn’t write all this), but this is his document, he owns it and I’m attributing these words to a Government who need to be and remain accountable. These are important principles, and the principle that an individual member has a right to own information about where money is invested and at what cost is one that I intend to hold both the DWP and the Treasury to.

This principle is radical and sets the tone for all else in the document, it should not be ignored.

What is being proposed?

This is not just a disclosure about what should be disclosed, it is about how it should be disclosed. Chair’s Statements must already disclose what is readily available and the work of the Sier Committee will mean that transaction costs will now have to form part of that disclosure. Nobody reads Chair Statements as they are lost in the pile of paper dumped on members every year.

In responses to the paper the DWP were told that members showed no interest in further disclosures and that the cost of disclosure would make for worse member outcomes (higher charges. The DWP has taken such arguments into account.


They have concluded that members do want to know how much they are paying and want to have some ownership of their money. Instead of stopping with the default fund, the DWP want to extend disclosure to all funds


This will have a radical impact on scheme design. I very much doubt that schemes that offer a wide range of funds (usually on a funds platform) will be too keen on doing so if they are creating a multiple obligation on trustees. This proposal will have a radical impact on scheme design for trust based DC plans (and probably for contract-based too).

The DWP proposals will mean that fund choice proliferation will cease.

On line is the default distribution mechanism


By insisting that members of schemes have on-line access to the costs of the funds into which they are investing, DWP open up this information, not just to members, but to the wider public. Is this a charter for benchmarking? The DWP makes it clear it is.


I intend to be one such “industry participant”. I intend to report true costs of owning funds , nominal fund reporting and risk adjusted fund reporting. I intend to provide a league table of all information needed to make value for money assessments on funds and I intend to publish it in a league table. I intend that information to be generally available to employers and members in a way that makes it clear who is winning, who is losing and who should be taking action to ensure they get and continue to get value for money.


The DWP online proposal opens the door to value for money benchmarking by trustees, employers and members

The Pension PlayPen applauds David  (both sponsor and author of this paper).

The information displayed needs to be relevant to the needs of those making decisions

I am pleased to see that the DWP are not requiring the Trustees to disassemble the engine and report on the performance of the carburettor, distributor  and engine block separately. Instead they will report on the performance of the motor- bundled.


Not only is this good for trustees, it is good for members, stopping a trend towards over-supply of unnecessary information that has caused considerable damage to past disclosure. For an example of simple cost disclosure – let’s take the Quietroom SMPI


While the DWP stop short of requiring pounds shilling and pence disclosure, Quiet room’s statement of costs is surely moving towards best practice!

A step along a road

The DWP’s paper does not conclude the matters, it simply takes us a step along the way,


I see no reason why we should not have day to day reporting on our workplace pensions available on our desktop, laptop, tablet, phone or watch.

How we choose to read information is up to us, the principle has been set out – it is our information. Those who are paid to manage our money have an obligation to disclose how and where our money is invested and the cost of the management.

Last night I renewed my friendship with John Godfrey who is back from a year in number 10 and working again with Nigel Wilson. I reminded him of Nigel Wilson’s promise to me that I would be able to see Legal and General investments on Google Earth! It hasn’t happen – please make it happen John and Nigel.

David Farrar likewise, please keep David Gauke pointing in the right direction. This paper is what was wanted, needed and expected! It has delivered and I thank you for it.

Please take this as the first consultation response – it’s an A* verdict from the Pension PlayPen!




Posted in accountants, advice gap, drawdown, DWP, IGC, pensions | Tagged , , , , , | Leave a comment

The”great Pension cash-in” needs a check out.

Gareth Slee

Gareth Slee. “I didn’t feel like I had won the lottery, but it is not far off”

Jo Cumbo’s article on the “Great Pensions Cash-in” has been given promoted to the FT’s “Big Read” – so it should be. It’s a fine piece of work and it has a brilliant opening which I will quote because many readers of this blog will know just how Gareth Slee feels.


Gareth Slee cannot believe his luck.

“The money is life-changing for me,”

says the 55-year-old former steelworker who has traded in his gold-plated final salary pension for a six-figure cash sum.

“I will never have to work again. I didn’t feel like I had won the lottery, but it is not far off.”

Gareth Slee is one of more than 220,000 people in Britain who have taken the irreversible step over the past two years to opt out of schemes with secure retirement benefits and shift their money into riskier personal pensions, where cash can be used to pay down mortgages, buy new cars or spend in one go.

“I know it’s risky but I trust my adviser,”

says Mr Slee, a native of Port Talbot in Wales.

The value of money changes over time

I can remember the first time my monthly gross pay passed £1000, I ‘d been working a few years before it did and my first five yearly tax returns ( I was self-employed 1983-92) didn’t see me declaring more than £10,000  . And yet I lived in central London and got married in these years.

If somebody had handed me £100,000 in cash in 1995  and told me that I need not work again, I would have reacted like Gareth Slee. All my Christmases would have come at once. I would have gone back at work within a few months (as the FT have found many have to).

I was young, “pensioners” aren’t.  Gareth at 25 had a work expectancy equivalent to his life expectancy today.

Gareth’s transfer value reflects the risks in the promise he has from the British Steel Pension Scheme (less a 5% clip to reflect the deficit in the Scheme). It is in effect an equivalent to an offer being made to him at the start of his working life to pay all his salary up front.

If Gareth were to add up all his earnings from the late 70s till today, he might be shocked not just by the money he had earned – BUT BY THE MONEY HE HAD SPENT. If he was to do what actuaries do, and convert the amounts he earned 35 years ago into today’s pounds, Gareth would be gob-smacked

The value of money changes over time and people cannot see this. This is why Merryn Somerset Webb wrote an article in the FT “If I had a Final Salary Scheme, I’d cash it in“. Her boss, Martin Woolf, had such a scheme – and did. Gareth, Martin and Merryn are not stupid people.

Gareth is not stupid to be blinded by the “sexy-cash” (Steve Webb’s phrase) being dangled in front of him. Nor is he stupid to trust his financial adviser. If the world turns out as financial adviser’s models suggest, Gareth will happily draw-down his cash sum and possibly leave his wife with some of it when he dies. Investments will perform as planned, no major liabilities like nursing home fees will wipe out savings and Gareth will die conveniently according to his limited expectations.

There is nothing stupid in trusting a financial adviser, after all they are backed by substantial Professional Indemnity policies. Provided the adviser is around, Gareth should be ok .  For PPF read PI – so long as the liability is still insured. This is the one-way bet that professional people laugh about when comparing the income multiples of the final salary pensions they have cashed out.

“Cashing-in” or “cashed-out”

Careful readers will notice that I use a different preposition to Jo Cumbo. The “Great British Cash-Out” is different from a “Pensions Cash-In”.  In my view, people are taking cash-out of an insurance policy that was designed to protect them from the impact of inflation, of the risks of market failure and of the long-term consequences of living longer and less healthily than expected”. If people considered a CETV as an alternative to those emotive security blankets, I doubt that we would have numbers that look like this.

poll bsps

Gareth is not alone.

 Research from consultancy Willis Towers Watson says 55 per cent of pension scheme members, who are aged over 55 and who received advice paid for by their employer, decided to transfer. – FT

I am not sure whether schemes are proud of this statistic. The article points out that the transfers paid are well below the book-value of the liabilities, releasing the balance sheet of heavy oppression. Since the oppression was created by the artificial process of mark to market accounting and the impact of quantitative easing, I would be surprised if WTW considered the gains much more than “paper”.

People have “cashed-out”, but we will have to wait decades to find out if they “cashed-in”. In the meantime, many of the advisers will have retired and many of the PI policies will have lapsed. A different Government will be able to blame previous governments with the benefit of hindsight and articles like this will be yesterday’s news.

If Gareth’s money runs out, he will still have the NHS, the social security system and the “free-service” of the same ambulance chasers who are standing outside the gates of the Port Talbot steelworks.

That may not sound a great future, but it is becoming the default – implicit in BSPS’ “Time to Choose”.  

Some one needs to check out this cashing-in, for it cannot end well

Further reading

Here are the Government stats updated 25th October, on uptake of pension freedoms.

Merryn Somerset Webb – if I had a Final Salary Scheme I’d cash it in.

Josephine Cumbo-  UK retirees gambling away pension freedoms

Josephine Cumbo – Life Assurers rake in billions from Defined Benefit Transfers

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

The legitimate concerns of BSPS members

time to choose

From the little time I have spent talking online with BSPS members, I have been impressed with the matter of fact way they are dealing with the choices presented to them.

Here is a case study of the complexity faced by one member of the scheme. Whether you are reading this as a steelworker or as a pension expert, think of this.

This person was not born to be a pension expert, he has had that thrust upon him.

His grasp of the salient facts of the situation shows that he has fully engaged with what he has been sent.

It is noble that he (and so many others) have got to grips with the choices (a word of commendation for the Trustee’s communications).

A message I received overnight

(I have slightly changed the words but not the numbers)

Just to give you an example of our current dilemma in real terms (my figures).

When I became a deferred member last year I had 21 years service working a 12 hour shift pattern.

On becoming deferred I lost an entitlement to what was known as 1 for 7.  Basically for every 7 years service’ a member, I could retire a year early without loss of benefits. Although this benefit had stopped accruing,  a few years previously, I had still achieved 2 years and should have had a full company pension at 63.

When I first received my deferred benefit statement it showed an annual pension of £13,500 and CETV of £120,000.

This year my annual pension  increased to £14,000 and a CETV of £336,000 (with an 8% insufficiency reduction), Following the announcement of the RAA and cash injection, the reduction has now been reduced to 5% so my CETV has gone up to £347,000.

Here are my choices

Option 1 – remain in the BSPS and become a member of the PPF.

Here are my concerns with the PPF:

The PPF currently has 6,000 live DB schemes paying levies, 4,500 are in deficit. Is it a matter of time before the PPF folds in on itself and has to start reducing pensions payment.

I lose an immediate 10% but receive higher benefits for retiring early.

I get lower spouses benefits.


Option 2 – New BSPS

Here are my concerns with BSPS2:

I’m focussing on the 2016 accounts –

Benefits and expenses payable £676m.

Contributions received and ROI’s £321m. (£168m without contributions)

After speaking to a member of the Halcrow pension he feels like his scheme is unable to recover the deficit due to the low risk investment strategy.

Indexation capped at 2.5%

Fear that CETV’s could be reduced again at any time.

Early retirement reductions: 55 – £13,000, 60 – £17,175, 65 – £21,580


Option 3 – Transfer

I’m aged 47

Based on 3% growth at 55 I’d get £438,953

If I create own bridging pension

55 – 67: £24,378

67 – 90: £17,065 + SP £8,325 = £25,390

Additional benefit that pot carries over as inheritance.

Option to work days or part time 55 – 60 if pot has not achieved 3%.

How would you deal with organising this information?

My correspondent has not sent me the downsides of transferring ; I suspect he has read enough on my blog.

There are many things I don’t know, this gentleman’s dependants, his state of health, his current employment status and his willingness to work (part or full time) in the future.

Could I possibly advise him what to do? Of course I couldn’t.

Do I think he has made a proper analysis of his situation? I don’t know. I don’t know what choice he will make though I suspect he is leaning towards transfer.

What I do know is that he very politely pointed out to me that I was wrong in my previous blog (I should have known about the insufficiency report) and that he pointed this out with gentleness and kindness.

It strikes me that we are doing such people no favours , asking them to make choices like these. It is not – even was the “time to choose” longer – a choice that is within the financial capability of most people (whether steel workers or financial experts

Ask yourself ,

“how would you deal with organising this information so that you could take such a life-changing decision?”

Another message received this morning

As well as the message from the steel worker, I got a mail from someone who is a pension expert. He had read the results of the poll I mentioned yesterday

mini poll

and this is what he wrote…

I cannot believe so many have IFAs an if they did not have one before that so many are willing to allow them to manage their pots.


Proof that this scheme should be in the PPF.

If this goes badly I expect it to be the last such pissing around which the PPF will countenance. And if TPR wasn’t so full of deal-making ex bankers they would not allow it either.

Intermediaries and advisors taking the piss.

I didn’t change any of those words.

My five suggestions to Steel workers taking a decision

  1. Study and your statement
  2. Do not get frustrated by the Helpline, it is what it is
  3. If you can’t get what you want from the helpline – go to TPAS (free, impartial and clued up)
  4. Use the Facebook pages if you are looking for an IFA, others have been there before you
  5. Read Angie Brooks’ blog if you are considering transferring – don’t get scammed

Further reading

Which is all well and good – as long as you have your information, thousands of BSPS members haven’t  and it seems the Pensions Regulator is not too impressed.

For further reading on transfer issues, I would recommend Elliot Smith’s good article in New Model Adviser (BSPS section at back).

Posted in annuity, Bankers, BSPS, pensions | Tagged , , , , , , | 14 Comments

There are no rats and the ship is not sinking (a message for BSPS members)


Thanks to the moderators of the BSPS Facebook groups for access and to the poll’s author for permission to publish. This is a very worrying post from a BSPS member.

The poll is recent and is the only data I have seen relating to BSPS member intentions.

It tells a tale… if members act in line with this (exit) poll, something like £4bn would leave BSPS before BSPS2 arrived. As the bulk of BSPS’ assets refer to retirees and are destined for the PPF, this could leave BSPS2 looking a little unpopulated.

poll bsps


I’ve been asked for some thoughts. I have three.

  1. Firstly, even denuded of 85% of potential members, BSPS2 would remain viable and – assuming the residual sponsorship was not reduced, the solvency of the scheme should improve.
  2. Secondly, the run on BSPS1 is unlikely to mean further reduced transfer values. This is not a transfer now while stocks last situation and there is no need to panic.
  3. Thirdly, though I can feel confident about BSPS2, I cannot say the same for all the 86% of those who will transfer out. Will 83% of those who expect to be advised, have ongoing advice, that remains to be seen, will the 4% who will make their own way end up happy, well we have some evidence that they may not,


So, on balance, I have to urge extreme caution to BSPS members who are not in retirement.

Even though time seems to be conspiring against these members, there is considerable downside in taking a transfer without being sure what happens next. It is unlikely that you will fall into a bearpit, but scammers are digging them. It is more likely that you underestimate your life expectancy and the needs of your spouses. It is more likely that your investment pot will fall prey to “pounds cost ravaging” or “sequential risk” (ask your adviser). It is likely that the investment hurdle rate you need to hit, to justify drawing a pension from your own pot will be higher than you think, after you have paid all fees.

That transfer value did not happen by accident. To put money behind the defined benefit promise, the BSPS Trustees and the scheme’s management have done well. We know that the management costs of the scheme are some of the lowest amongst all occupational pension schemes. If cost control is a proxy for a well-governed scheme, you can feel confident that transferring to BSPS 2 will keep you under this excellent umbrella.

It is an umbrella that will shelter many and an umbrella that is not available if you choose to transfer out. Though there is certainty in your transfer – there is no certainty that it will provide you with equivalent outcomes. The British Steel Pension Scheme has let nobody down.

Think before you press the trigger. If you are not a BSPS pensioner, you are likely to have a minimum of twenty years of life ahead of you. That is a long time for your money to last and a long relationship with your financial advisor.

But in terms of the timeframes of an occupational scheme like BSPS (or BSPS2) it is no time at all.

Posted in pensions | Tagged , , , , , , , , , | 6 Comments

Time-bound decisions; the tough choices facing BSPS members

time to choose.png

Supporting the Steel Workers in their decision making

Over the weekend I was asked to join two important Facebook Groups, one is for those still working at Tata and the other for former employees, what links them is that both groups are for members of the British Steel Pension Scheme (BSPS).

I am  proud to be in these groups, it shows a trust which I will not betray by attributing any posts. It gives me a precious insight into how steel men and women are reacting to the choices being presented to them and is incredibly valuable in helping me guide First Actuarial in how we can help future memberships who will undoubtedly face the same issues.

Those choices

As with the Kodak membership, the position if BSPS members take no action is that they will see their membership exchanged for membership of the Pension Protection Fund. It’s estimated that for up to 90,000 of the 130,000 members, this will be a bad thing. But for a sizeable minority, the PPF will present a viable choice and for a few, a very obvious improvement to moving to a new scheme (let’s call it BSPS 2).

There is another choice, to take money away from BSPS using a cash equivalent transfer value. Though this is the most volatile option, it appears to be the most talked about in the two groups I have joined.

Help is at hand

The Trustees of BSPS have appointed two firms to run a helpline for members.  The Daily Telegraph report that

“While there is a helpline, phone handlers are not allowed to tell savers which option is better for them”

This is not the helpline’s fault. It can only offer guidance – advice is about giving a definitive course of action – telling people what to do. So the help at hand is limited.

The Pension Advisory Service (TPAS) find there is a brisk trade in calls from BSPS members seeking a second opinion. This is good, people need to make informed decisions. If I was taking a decision as important as this one, I would want all the information I could get.

But not all the data…

For reasons which aren’t clear, not all the people being asked to take decisions have all the data they need to take those decisions.

This is from the very clear website put up for members to refer to

Some members have no personal figures in their option pack

There are several reasons why this can happen. We might not have had all the information in electronic format. In other cases, we didn’t have all the information we needed to calculate figures in time for the option packs because members transferred in benefits from another scheme, or paid Additional Voluntary Contributions to add a period of service. We are working to make sure we have all this information available before the new scheme starts paying benefits and the current scheme moves into the Pension Protection Fund.

The key word here is “before”. Giving members information after deadlines have past is not helpful to the decision taken before the deadline.

The issue of time crops up again in the next section of the site.

We can’t send you any more figures

We won’t be sending you any more figures on top of what is in your option pack, because it’s not possible to do that in the time available. If you’re a non-pensioner and your option pack has no personal figures, you can find information about your deferred benefits in your latest deferred benefits statement. If you can’t find this statement, please phone the helpline and ask for a replacement.

We know that the lack of figures in your option pack could make it harder to choose your option, particularly if you are thinking about transferring your benefits to another pension arrangement. If you are thinking of doing that, you or your financial adviser can ask the helpline for a fact sheet that sets out in more detail how pension increases in the new scheme will be calculated. This will help your adviser carry out the analysis they need to advise you.

Infact this whole section of the site is called “Time to Choose“. BSPS members have a closing window of time to take decisions, a window shaped not by them but by the Trustees and Employer.

Some things change with time (including CETVs)

But always at my back I hear, time’s winged chariot hurrying near – Andrew Marvell.

I can quite understand why BSPS Trustees want to impose time deadlines, but I can also understand the worry of members who are having trouble getting information about their benefits in a timely fashion. Things are not helped by people realising that in the outside world , interest rates are going up and transfer values going down.

This snippet was being reported on the Facebook pages yesterday, it comes from the Sun and it’s all about time.BSPSsun

BSPS members, whether they’ve left Tata or are still working there, are entitled to a CETV – unless they are actually drawing a pension. News that the CETV may fall in time is clearly a worry. It would be very helpful for members considering a transfer out of BSPS to be given assurances. I can confirm that CETVs are guaranteed for a three months period after issue. This conveniently takes members to the end of the decision making process. So members do not need to panic.

Having said that, one thing that was clear, is that a CETV from BSPS1 is likely to be higher in value than from BSPS2 (which has an inferior) benefit basis. You cannot take a CETV from the PPF so if you are going to transfer, you are best to do it in the pre-December window. Time is critical to the decision.

Some things do not change

People’s need for a wage in retirement after they have hung up their boots does not change, just because they have the freedom to do what they like with their pension.

BSPS is one of the oldest and best run pensions not just in Britain, but in the world. For all the discontent about having to take these decisions (which I totally understand), knee-jerk reactions against either BSPS or the PPF are unlikely to make for good decisions,

One thing that worries me  when I spend time on the Facebook pages, is the level of frustration shown at the process.

It is understandable frustration, but it worries me that some members seem to think it is worth transferring at any cost. As Angie Brooks points out on these sites, this attitude is precisely what scammers hope for. They will be more than happy to liberate pensions on the basis of ignorance. I urge all those considering moving their pension to speak to TPAS but also to read Angie’s excellent advice to deferred members of BSPS.

I am afraid that the presence of fraudsters is another thing that doesn’t change.

Our thoughts are with the 130,000.

I was in the fortunate situation of choosing to be a pensioner of a strong DB scheme. Not only did I make the choice not to take my CETV but I actually chose pension above cash.

I did so because I know I am likely to live a long time and will need to support dependants for much of that time. Nonetheless , the decision about what to do was tough.

The decision facing the 130,000 members of the scheme , including those who are drawing pensions, is tough. Doing nothing may prove a bad option, doing something may prove disastrous (if it leads to a scam). Most options in the middle should be reasonably easy to understand – provided the information is presented well. But as we have read, not all the information is at hand.

Understanding the options is one thing, knowing what to do is another and I totally sympathise with the people on the Facebook page who ask for such advice.

These decisions were never “in plan”. Those who set up BSPS did not expect the scheme to be a source of trouble. They saw it as a means for steel people to retire without trouble.

If we are serious about restoring confidence in pensions, we should be supporting the steel-workers over the next three months , in legal ways.

That means acting responsibly but helpfully. Which may mean doing no more than I can do on this blog.

What I can do is to promise what help I can give – if asked.



From the BSPS site

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How small schemes can win (with no surrender)!

no retreat 5

I’m listening to Bruce Springsteen – “no retreat, baby no surrender”

A useful note about “the consolidation opportunity” sits in my inbox. It’s from Con Keating who had been studying the ONS data on how pension schemes invest their money.  He concludes small schemes have already consolidated, they have yet to reap the consolidation premium. This blog looks at five ways that trustees of small schemes can win- without surrendering to Superfunds!

I keep hearing that there are enormous gains to be made from pooling pension scheme investments – cheaper fees as a result of economies of scale.

The ONS MQ5 data series contain aggregate information on scheme investments – though it should be noted that the sample used is large scheme biased, and in-house management is more prevalent among those schemes than in the small.

The total long-term assets are £1,473 billion at the latest date available (end 2015)- Corporate securities account for £903 billion of this. Of these £499 billion are held in mutual funds of one form or another.

These schemes hold just £84 billion in UK ordinary shares and £169 billion in overseas ordinary shares. These are self-managed or in segregated accounts.

Other assets, such as linkers (£195 billion) and insurance policies (£134 billion), account for the £570 billion difference.

If the £300 billion or so of small pension scheme assets not captured by the ONS sample were similarly distributed, then they would hold £183 billion of corporate securities of which £101 billion would already be in mutual vehicles. In my experience, smaller schemes actually hold far more in mutual vehicles than are self-managed or in segregated accounts.

The consolidation “opportunity” appears to be rather small in amount and as a proportion of scheme assets.

Should we conclude from this , that there is no opportunity to reduced the cost and improve the efficiency of how small schemes are run? The answer of course is no!

Scheme Consolidation is not the only way to achieve efficiencies. So far, the PLSA has been allowed the assumption that superfunds are the way to “super-value”. Let me quickly five other ways small schemes can get big value.

no retreat 3

Here are five top tips for trustees who don’t want to be consolidated.

  1. Hire a practical investment consultant who thinks about your funding before his/her getting paid. These are rare beasts, almost instinct among the big three, but they exist and I know a few (if you’re asking).
  2. Get your strategy right, before implementation – asset allocation trumps the “hunt for alpha”.
  3. Remember Buffet! Very few investors are capable of beating the market over a long-term; unless you can understand how an active manager you are employing, will outperform the market index, invest in the market index.
  4. Benchmark your fees, big schemes think they have favoured nation status, but I have sold to all kinds of schemes and the ones I liked to most are those who don’t check what they are paying with others. Do not sign NDAs, your adviser should be working with you to drive down costs (remembering that you are paying a lot more than what’s in that AMC).
  5. Consider platforms. The best fund platforms such as Mobius and LGIMs offer great deals on funds. They are today’s consolidators. Not only can they bring you funds at better prices than you might buy direct, but they can offer investment administration at considerable discount.

no retreat 2

What we can learn from Con’s note is that we already have consolidation , through pooled funds; the ONS statistics suggest that the inefficiencies are in our failing to get best value out of what we’ve got. The answer is not in retreat – nor in surrender!



Posted in advice gap, napf, pension playpen, pensions, Pensions Regulator | Tagged , , , , , | Leave a comment

A lot not happening! PLSA update


A rare sighting of our pensions minister (in a WASPI free zone)


As the PLSA conference winds down and attendees return home, they will be left wondering what hasn’t happened.

A lot of debate didn’t happen because those most wanting to debate were not at the Conference. Thankfullly we had expert journo Jo on hand to report and to give a lonely Plowman a big hug on arrival (I was the Conference fringe).

PLSA meet


There does not seem to have been much debate on Several sensitive topics – cost transparency, value for money, the conflicts of investment consultants and (most scarily) tax reform.

Delegates heard a lot about scamsJC11 snowden

but not much about remedyJC2

Delegates will have heard that the Government are unlikely to include the self-employed in the AE review (Matthew Taylor),JC9 white paper

and that there’s little appetite to extend the earnings band, include the young or up maximum contributions any time soon (AE working group).

They’ll have heard that we won’t be getting another pensions bill before 2020 (Charlotte Clark)JC 5 scams

and so the Regulator will have to use existing powers (Lesley Titcomb).jC3


They’ve heard that the dashboard is not finished but that the ABI’s wish for compulsion on data suppliers won’t be granted (Margaret Snowden) .JC1

They’ve heard that schemes should have in-house financial advisers from the Pensions Minister (presumably to explain the complexities he and his colleagues have created).

What little discussion there was around costs and charges focussed on what should not be done with the disclosures.JC10 feees

In short, delegates have heard very little new which is probably just as well. There is only so much change that pensions can absorb. As the dust settles on the detonations that followed turner for a decade, this has been the quietest year for pensions I can remember .

To suppose this is business as usual would be a mistake. Many consultancies have spent the past fortnight filing CMA returns that suggest the CMA referral is going to be every bit as thorough as supposed.  It was encouraging to see one forward looking consultancy looking for a way out.JC 14 stacy


Under the auspices of the FCA, the Sier working group is busy managing the disclosures that fund managers will make to trustees and IGCs so we can understand value for money. Up and down the country, we are starting a new phase of auto-enrolment where employers will have immediate duties.

What is happening is not happening at the PLSA. What is happening at the PLSA is a desire to consolidate small schemes, but this does not appear to be getting much support from Government.JC 7 consolidate

What is happening?

Beware the known unknowns! The Treasury weren’t conspicuous at the Conference and with an autumn statement a month away, it’s easy to concoct conspiracy theories! Tax was the elephant in the room. Long-gone the days when pensions had any control over their tax-treatment!

We know the Dashboard is now in the hands of the DWP, where it forms part of a raft of measures to improve guidance for the advice-excluded.

We will have a statement on auto-enrolment in the w/b December 6th and we’ll finally get the DB white paper in February (much delayed). The DWP will shortly consult on the disclosure of costs and charges as part of the trustee’s duties around value for money.JC12 costs

What is happening is a downgrading of the pension agenda, partly as a result of Brexit but mainly because auto-enrolment and pension freedoms are being allowed to bed in. The big ticket pension problems, BHS, British Steel, Royal Mail, USS, Hoover Candy, Halcrow – are working their ways to some form of resolution. Integrated risk management is working to a degree but only to a degree.

To sum up – we are catching breath and waiting for the next set of problems to emerge! WATCH THIS SPACE


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Why I’m not at the PLSA conference today


PLSA conference

I’m writing at 6am, soon I will be getting on a train to Manchester which will be full of people going to the PLSA Conference. I won’t be going to that Conference, instead I will be visiting Sage’s accountant support office in Salford and helping First Actuarial with its work with small businesses in the north west.

I first went to a PLSA conference in 1995 and they became for me a business highlight for decades. But three things now stand in my way.

  1. The cost of going has soared, add hotel and travel to the Conference rate and I have difficulty justifying to myself the value of the networking (the sessions are live-streamed for non conference goers
  2. The block of time the Conference books from your diary means it is hard to get on with other things. Most of the other things I do, do not involve the things the PLSA talks about.
  3. The agenda the PLSA is pursuing is quite opposite to the business agenda of my employer. We are believers in small being beautiful, open being good and we have a very old fashioned view that we provide pensions for people who can’t or don’t want to do it for themselves.

While I have been writing, I have been corresponding with Derek Scott, my Perthshire buddy who chairs the trustees of one of the great PLSA schemes. He was bemoaning my not going and I’m afraid I had to tell him it was unlikely I would be a member of the PLSA for much longer (unless 1-3 above, changed).

We are exchanging views on the merits of supporting St Johnstone (one win in six) and Yeovil Town (one win in six).st johnstone

Which I guess is code for sticking up for the smaller scheme. I watched Yeovil lose 2-1 to Cambridge last night – I was tempted to stream Real Madrid and Tottenham on my BT sport app (but didn’t).

There’s really no need for smaller football clubs you know. Only 95 Yeovil fans made it to the Abbey Stadium, hardly a reason to have lower league football (in economic terms).


But if you take the Yeovils and St Johnstones out of football, you cut out the feeding grounds for the Southamptons and the Aberdeens and that means that the foundations of the Premier League get a little shaky.

The occupational pensions world is about the glamour clubs (the schemes of the retail banks, the utilities, local authorities and the corporate giants. They have the budgets and the intent to spend to keep the PLSA Conference afloat for years to come. But if you cut out the smaller schemes then there is no one learning how best practice works and a Conference becomes an echo chamber for those who already know how to do it.

In all seriousness, the fabric of our occupational pension industry, which the PLSA and the NAPF before it, has represented for some 60 years, is being undermined by its own trade body. The Gupta report, though it makes great sense to a management consultant, makes no sense to me at all.

I am a Yeovil fan, a fan of lower league clubs who dream of being big one day. I don’t want to be part of some premier league set up where the integrity of my support is sold to BT or SKY sport. You won’t find Aon near Yeovil, unless Man Utd. come visiting as they did two years ago.  But if Aon knew the pride I had in getting a Ferrero Rocha from Pat Custard at half-time, perhaps they’d understand.

PAt Custard



Posted in actuaries, pensions | Tagged , , , , , | 5 Comments

Too late Chancellor – that ship has sailed!


If I were a cynical editor looking for a story to focus on, I would look no further than speculation on the autumn statement. Yesterday the Telegraph floated a story, purportedly a leak from #10, that the Chancellor was going to rob rich old gits to give youngsters more incentive to save.

I don’t have access to the Telegraph’s comment boxes (this is “premium” speculation) but when Hurricane Hammond hit New Model Adviser, it  quickly grabbed all the attention.attention

The comment count tells us exactly what bothers the new model adviser.

Within minutes of NMA, FT Adviser was reporting that the “Old for young pension tax”- was being shunned by the rest of the industry. The snowball had broadened with the comment of financial advisers keen to point out the plan was unworkable, unfair and foolish.

I thought I might point out that “we would say that” and that anything more unworkable, unfair and foolish than the current pension taxation system would be hard to devise.

I spent much of the rest of yesterday morning receiving calls from financial journalists as I appeared to be the only supporter of redistribution of Government incentives in favour of the “have-nots”.

As I talked, it occurred to me that one of the principal reasons given by advisers for transferring pensions wealth into SIPPs was to protect that wealth for the next generation. I chuckled to read IFAs falling over themselves to protect their wealthy old clients from any such wealth redistribution.

The reaction of the financial community to an attack on its principal source of remuneration is perfectly natural but it is not commendable. What is commendable is Hargreaves Lansdown’s reported proposals to Government

‘When do we want money to go into [pensions]? When you are young. Who doesn’t have the money to put into pension pots? The young. So let’s weight the government incentive in favour of young people. And it’s simple.’

This from the forever-young Tom McPhail.

I am not a PR agent, but if I were, I would listen to Tom McPhail and watch Hargreaves Lansdown. You don’t need a weatherman to know which way the wind blows, you need Tom.

Sense from Ros Altmann

I don’t agree with Ros in many things , but I do like what she has written about intergenerational fairness on her blog this morning. She argues that direct help to the young is better than redistribution through the tax-system.

The problem here may be the legislative agenda that does not have space for the recommendations she is making. If they cannot fit into the Finance Act, can they compete with the BREXIT avalanche.

We should remind ourselves again, that the opportunity for radical tax reform of pensions was missed in 2015 to stave off BREXIT, Governments do not often get second chances – the boat has sailed and with it the chance of serious progress on housing, social care and juvenile debt. Ros, you were a part of the Government that so let you down.

Some advice to the advisory community.

Most of us old gits, were young bucks in the eighties and nineties. We have grown up with our clients and those clients we now have, have got very wealthy through their own endeavours and through random factors such as the sustained growth in house prices.

Advisory firms report that there are no young people coming into financial advice.

Could it be that we have been pulling up the rope ladder behind us? Could it be that we have left no-one helping the young with their plans? I suspect that the 48 comments on the NMA story reflect just that.

Hargreaves may have a slightly different pitch. They may consider that the shareholders would like to see new advisers advising new customers in decades to come. Consequently Hargreaves Lansdown, through McPhail, are pitching through Government to the next generations who will not become wealthy old gits until the second half of this century.

This can variously be described as a long-term strategy, succession planning and sucking up to Momentum , all of which have obvious long-term advantage to the HL share price.

A lesson to be learned

Financial advisers would do well to look at Hargreaves Lansdown and learn. This sentence will probably cause considerable spleen amongst the advisory community but it needs be said.

Simply peddling your own pedillo is all very well, but your range is limited to your own efforts. Hitching your pedillo to the back of a yacht takes you wherever the yacht can go. Hargreaves Lansdown simply want access to the new waters.

Last night I listened to Tim Jones, former CEO of NEST brilliantly explain why we could not hold back the technological advances that the internet had brought, nor the inevitable changes to our working practices that social media has brought. He pointed out that the Labour party had won the hearts of our nation’s youth by capturing social media (in fact stealing it from Farage). Having been at #CPC17 I can tell you that I am about the only person over 50 who was using that hashtag and – as with the room of old people in which I was sitting- about the only person who had phone to hand at all!

Labour own social media

Labour social media

Too little too late – we are in a new paradigm whether we like it or not.

Tim hates it all – he claims we are sleep-walking into a surveillance society and handing the social media moguls who run Linked-in, Facebook and Ali-Baba the monetisation of our identities. For Tim, the fragmentation of the great financial hegemonies, the banks and insurers and fund mangers is inevitable. He sees social media as corrupting this change as people seek to win back self-determination in their business and social lives – but find themselves a slave to the very tools they trusted.

As I listened to his magnificent rant in the Guildhall last night, I realised how absurd the argument over inter-generational fairness has become. It is impossible for Hammond to win the hearts and minds of a nation’s youth, employing the carrot and stick of taxation. For him to have any chance, he is going to have to be smart like McPhail and mobilise the new upwardly aspiring voters who use their phones for everything.

I don’t agree with Tim Jones, I don’t think we are all victims of social media, I suggest that as with any dynamic social trend, those who win will be those who use the opportunity and those who lose will be the rest.

Hargreaves Lansdown do not need to win the argument against the IFA community, they need to win it with the very voters that Hammond is after. The difference is that young  people listen to McPhail and co, they do not listen to the fractious IFAs and I suspect they are not listening to Hammond.

One old git in the audience last night demanded the Tories reclaimed social media to “put young people right”. The idea that you can own democracy is still prevalent throughout the geriatric oligarchy.


that ship has sailed

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USS – the plot thickens!


Correspondence has emerged between the various macro-stakeholders in the USS “pension deficit”

The cast in order of appearance

Frank Field – Chair Elect of the Work and Pensions Committee.



Here he is kicking off correspondence in August with….



Lesley Titcomb – CEO of the Pensions Regulator.



Here is her response to Frank Field.



Field also writes to Professor Janet Beer at Universities UK (the sponsoring employer)

janet beer



And Janet Beer responds to Field on behalf of the employers.



Frank Field writes to David Eastwood, Chair of the USS

David Eastwood, Chair of the USS , responds to Field.

david eastwood



Taken together, this correspondence ,mainly in August 2017 forms an archive for future scholars trying to unravel the complex dynamics at play.

Frank Field – fresh from a bruising encounter with Philip Green of BHS is determined to be on top of the USS deficit,

Lesley Titcomb is determined to show Frank Field she is on the case and working hard to protect the PPF and the employer’s interests.

Field is critical of the Universities UK for inadequately funding USS and wants tuition fees ring-fenced.

Janet Beer hints that rather than put up tuition fees, Universities UK would prefer “benefit reform” ( a euphemism for pension cuts).

Field is critical of the USS’ management of the investment of the  scheme, it’s recovery plan and wants to know more about actuarial assumptions

David Eastwood defends the USS’ management’s transparent approach and hints that it is piggy in the middle.

Taken together, the correspondence displays how difficult it is to align the interests of the general public, employers and the managers of the scheme. The voice that is not heard in this debate is that of the members, who appear to be the stakeholder most likely to pick up the tab (by way of pension cuts).

The heart of the matter

Perhaps the most interesting letter is that from Lesley Titcomb to Frank Field in which she sets out the guiding principles that tPR’s past intervention prompted USS to adopt.

uss bull

These principles are open to challenge.

Take the first bullet;-  What does “proportionate” mean?  Given that DB pensions are not funded like insurers,   with no legislative standard other than “prudent”, what level of risk protection is reasonable/prudent for a scheme like USS? We now know that the Pensions Regulator is not prepared to accept the covenant assessments carried out by PWC and E&Y on UUK, so presumably tPR reckons itself the judge of prudence. This was never the Regulator’s role.

How exactly is USS pension risk measured?  The USS is an open scheme with liabilities already into the 22nd century.   Who defines the suitability of the risk measure and what is it?

Take the second bullet; what is meant by risk reduction? Pension cuts dressed up as “liability reduction exercises”? Why should tPR be intervening in what is fundamentally a matter of reward? The total compensation of those in the USS is the aggregate of pay and benefits, if benefits are reduced, does this not put upward pressure on pay? If so- where is the long-term gradual risk reduction going to be achieved?

Why is the Pensions Regulator taking such a proactive stance?

As mentioned above, the spectre of BHS runs through this correspondence. No one wants to be seen to be weak, everyone has to be on the front foot and so we have this extraordinary meddling.

Ironically, the losers in any pension dispute are the members who either see their benefits or their covenant reducing. The irony is that the members are hardly mentioned in this correspondence, they seem to rank lower than the interests of the tax-payer (who pays the student fees), the Universities, the USS (who have an a priori charge on the assets for their management) and of course the Regulator. The Regulator’s agenda – it appears – is primarily to protect the PPF, secondly to protect the sponsor and finally to protect members.

Here is the nub.

BHS, Tata Steel, Royal Mail, Halcrow have one thing in common, an employer with uncertain revenues and a weak business model. The USS is different, Universities are well funded, have strong cash-flow, excellent contingent assets and have no history of failure.

Both PWC and Ernst and Young considered the University’s covenant to be grade 1 (as good as it gets). TPR has disputed and is not yet prepared to accept the covenant assessments

It is hard with so much evidence to suggest that Universities UK cannot stand the risk, that the battle being fought is not about Universities going bust, or fees going up, but about USS members continuing to accrue a  defined benefit in retirement.

While I can understand the feelings of deprivation amongst those who are not accruing such a defined benefit, I do not agree with the principle of “beggar my neighbour”. For the same reason , I do not believe those who have fine houses should be forced to live in the annex and rent out the majority on affordable rents.

Fine pensions and fine houses are the privilege of a few but they are things that can be achieved by the many over time. They are things that people can work for. If we want to pull down our pension schemes, why not pull down fine houses too?

The alternative

The principle of “beggar my neighbour” that runs through much of the correspondence between the four parties in these discussions is mean-spirited and self-destructive. No one will win by transferring USS assets from equities to bonds.

In comparison, the £60bn of assets that the USS currently invests, are funding British industry, our infrastructure and doing so in a sustainable way.

No one will gain if the University staff go on strike, least of all those who pay tuition fees.

The tax-payer is the insurer of last resort of the maintenance of the University system and has been, one way or another since the 15th century.

It is an extraordinary thing, that the Pensions Regulator and the Universities themselves seem to have come to a pact which assume there can be no escalation in risk from pensions. For within the Pension Regulator’s letter to Frank Field we discover;-

USS bull 2

Instead of looking at the USS as a threat to the Universities’ future solvency, we should be adopting a “can do” approach – glorying in the taking on of 27,000 new members, exploring the flexibility of the scheme funding regime and looking at those £60bn assets as a tremendous opportunity.

For to look at pension liabilities as a threat, is to forget they represent the futures of millions of UK citizens which are the better for them. The mantra of risk-reduction hides a more fundamental issue, our workforce is relatively unproductive. If the best we can do to make our human resource more productive is to starve them of retirement income, we have no real understanding of personal motivation.

If we want to make Britain great again, we need to be a lot more ambitious in the way we deal with issues like the USS “pension deficit”.

Posted in pensions, USS | Tagged , , , , , , , | 12 Comments

Portals for show, pensions for dough



dough 1

in the beginning!

The Pension Dashboard is under pressure. Having lost its sponsor, Simon Kirby MP in this summer’s election, early-day momentum is running out. The ABI are clearly fed up and are now calling for Government intervention if they are to continue their involvement. Such intervention would mean that those holding data on our pension rights would be required to feed this data to a central source – not so much a dashboard – more a “NEST board”. This idea of a public utility, sponsored and maintained by some NGO has been rejected in the past by a Government anxious to keep away from such a role. I can see little reason to suppose anything will change.


What options for the friends of the dashboard?

  1. They can continue with plan A and deliver protocols that enable private firms to aggregated data more easily (multi-dashboards)
  2. They can move to plan B and force the Government into intervention (as they are doing)
  3. They can accept that the dashboard itself will evolve over time and that the advantages of having a dashboard, engagement, aggregation and better value for money, will happen without their work,

What does recent history tell us?

Government intervention in data management is quite common. The Real Time Information (RTI) initiative has been a success in allowing HMRC to digitalise the payment of tax and improve the accuracy of collection and the speed of enforcement.

It is now embarking on GDPR which it hopes will better protect the consumer from being swamped with unwanted marketing or attacked by scams.

Both initiative address problems that go beyond the scope of the private sector, RTI is about improving state revenues and GDPR is about civil liberties. I find it hard to create a similar justification for further intervention in the creation of portals to aggregate the data from our various sources of retirement income.

dough 2

one great big pot



The recent history of auto-enrolment suggests that when called upon to impose a single protocol by which data was passed from employer to provider, the Government stayed out of it. What has emerged since are multiple types of API and CSV data transfer systems which – one imagines- will rationalise themselves over time. There remains a strong argument that Government could and should have intervened at the outset of auto-enrolment and implemented something akin to the PAPDIS standard, but in 2010, technology was not where it is today.

The sad fact is that – save in under-developed countries – as Estonia was and many African countries are, the state has great difficulty in imposing any kind of data standards for private industry, precisely because of the speed of change of technology.

My fear for the Pensions Dashboard is that by the time a set of protocols emerge, a new way of doing things will have emerged that will make them obsolete.

Where has there been private success?

I can see two initiatives from the financial services industry in my small part of the market, that have made a difference. The first is the work done by IDEA in creating a common way to administrate investments so that money is deployed to assets faster. This initiative happened because Legal and General got tired of waiting for consensus and created a market around itself.

The second is the Origo pension transfer club which operates a transfer standard meaning that between club members deals are done in about a fifth of the time were the club not used. Origo was set up by the ABI and the insurers and seems to be doing a very good job. I have been urging more master trusts to sign up to it (Peoples are there, Smart and NOW are nearly there and NEST is thinking about it).

A third initiative, the pension passport, is reported in the FT today.Passport The passport, trialled by insurer LV – and much promoted by Tom McPhail, is a super one-pager which gives people with simple pots a green light to aggregate money without the need of financial advice. It is warmly to be supported.

I am currently struggling to release a pot of money with Zurich to join the rest

of the money with L&G. I have to fill out lots of disclaimers confirming  that I know not of any impediment etc.

I have to get two sets of paper forms and send them to the right people and once I have waited a few more weeks , I hope that I can stop paying Zurich 4.25% pa for doing what L&G do for 0,1% pa.

It should not be this difficult, if my Zurich benefits had come with a passport, I am sure that I would have had all my money in one place at my 55th birthday, now nearly a year ago!

Where can we look for hope?

If all the pension dashboard had hoped to do was Plan A (create the protocols by which data aggregation could happen) then I was onside. This was how it was laid out to us by Simon Kirby (ex MP) in the Aviva Digital Garage last year.

Plan B looks a non-starter to me. I’m not saying my lot wouldn’t play (First Actuarial are fairly confident about the quality of our data and we aren’t technology luddites), however we would resist compulsion – as would all organisations with an obligation of good faith to members , trustees, employers and their rights.

We look at areas in the private sector where aggregation is occurring and we see plenty of slick organisations such as Pensions Bee, Evestor and Neyber making great strides. Portals such as MoneyHub already exist. Software providers such as Altus, Intelliflo and pensionsync are providing the technology for IFAs , payroll, schemes, insurers and the DWP to talk with each other. RTI is developing within the private sector at a rate.

Talking with former NEST supremo, Tim Jones at a CSFI event this week, I heard of the advances in cryptography that could allow for a new generation of data management products super ceding and indeed by-passing the block chain.

I don’t pretend to fully understand how these technologies will be applied , but I am quite clear that whatever Government builds for 2017 will be an anachronism by 2020.

Hope springs from the selective adoption of new technology applied to a proper understanding of what ordinary people want. The dashboard and the passport should be friends as they both help people to do what they need to do, organise their finances in retirement. We hope that the single guidance body – the revamp of TPAS, MAS and pension wise, will be able to properly promote dashboards and passports before too long.

Portals and pensions

I feel for those involved in the dashboard projects, especially for good people like Yvonne Braun of the ABI and Margaret Snowden of PASA. The dashboard is a good thing that will have collateral benefits in improving data quality and the speed at which pots follow members. The dashboard has the right aims and getting common data standards is a good thing.

However, I think that Plan B is unworkable and that calling for compulsion is an admission of defeat. I do not support compulsory data transfer. Portals are a means to get better pensions but they cannot become an end in themselves. We urgently need better pensions now, especially because of the new freedoms.

The ABI are – in calling for compulsion – diverting attention from where the dough is going – the pension. This may suit the ABI who have consistently blocked any innovation in pension payments , but it does not suit ordinary people who are less interested in portals than in having a good retirement.

Portals are for show but are ephemeral, pensions are for dough and for sustenance.

dough 3

You can do good things with dough






Posted in pensions | Tagged , , , , , , , , , | 1 Comment

Zurich and Widows, a sensible marriage?


I had better be careful here, my partner Stella is Group Pensions Director at Lloyds Banking Group and I am a Zurich pensioner and ex- head of sales of the Zurich workplace proposition. I have -as they say – skin in this marriage.

Yesterday Lloyds Banking Group announced they were purchasing Zurich’s corporate pension book (with £19bn of funds). 200 staff will TUPE from Zurich to Lloyds and as part of the deal Zurich will get some protection business passed its way from Lloyds.

Zurich corporate pensions – born in a conflict zone

Zurich corporate pensions book is now a part of a life company set up in 2004 called Zurich Assurance.

Zurich assurance is itself a reluctant love-child of Eagle Star, Allied Dunbar. It’s genesis was in a trade war over who owned the pension brand – with Threadneedle Asset Management the cuckoo in the love-nest. The entity has nothing of these ugly sisters, it was set up with minimal reserving as a bright blue unit-linked platform from which corporate pensions could be purchased. It has done very well.zurich ass


The back-story

I was in a small-team, well remembered for the remarkable Jon Poll, who saved Eagle Star’s corporate pension proposition from extinction and created a new proposition using the hi-portfolio administration system (Caroline Moore) and the newly created Profund Open record keeping system. This system is now used by NOW pensions and owned by JLT when Profund went bust in 2004. We were wise enough to ensure that in this eventuality, the code for their version of the software stayed with us.

It seems odd that what is now reported to be a £19bn business, only saw the light of day because when Zurich took over the shooting match from BAT, the big beasts of Allied Dunbar needed to put Threadneedle in its place. Emma Douglas and Mark Stanley, who were then running the Threadneedle DC proposition were thwarted in their ambitions by Sandy Leitch who could not cede to Threadneedle big beast Simon Davies.

Corporate decision making usually comes down to politics , personality and pride and that’s exactly how Zurich Assurance was created. Whatever the legal entity that has been sold by Zurich Insurance to Lloyds Banking Group, it is considerably more valuable than anyone ever considered it could be. Back then, corporate pensions played second fiddle to worksite marketing, auto-enrolment was not even a twinkle in the eye and the Allied Dunbar direct Salesforce were lobbying Government to lift the stakeholder cap so that they could be paid some initial  commission on pension sales.

How a neglected child grew up to great things

widow 2

The DC pension landscape at the turn of the millennium was still dominated by commission , with-profits, opacity and greed. We took the decision to head for the high-ground and at that time there were only a handful of actuarial consultancies acting in a transparent way. Bacon and Woodrow, Mercer and Watsons charged fees to set up AVCs and other “money purchase” plans and first Eagle Star and then Zurich were able to compete more because they did not present a commission proposition than because there was any great confidence in their capabilities.

But a replacement was needed for the Equitable Life and Eagle Star had stepped into the breach. Pioneering straight through processing of contributions, it had become the first DC provider to have used a CSV upload, reconciled by the client and a direct debit to pull contributions through. This simple methodology was to revolutionise contribution collection in the UK. It effectively outsourced error reconciliation back to the client. The savings this created  the profitability for further investment in the business.

It wasn’t till around 2005 that anyone at the top of  Zurich even noticed this fast-growing business. As with most success stories, it happened because of luck, insight and a lack of interference from the top. As soon as the potential for this little business unit was discovered I was booted out, Poll followed a few months later and Zurich became the corporate behemoth it is today.

Scottish Widows

You tend to characterise your relationship with huge entities like Widows through some personal anecdote. Mine relates to a time when we were negotiating for Scottish Widows to be promoted on I and a colleague were ushered through the hallowed halls of HO in Edinburgh up a broad staircase at every turn of which were corporate slogans advertising Scottish Widows’ intention to treat customers fairly.

When we were sat down in a magnificent boardroom we were told in no uncertain terms that we were not to offer on our site any better terms than their existing customers already had. We were asked to quote no terms at all to employers with Scottish Widows products! We looked at that statement “we treat all our customers fairly” and gasped!


Until recently, Scottish Widows were an organisation that had lost its moral compass, its pride in itself and any sense of independent direction. It is greatly to its credit that it has soldiered on and made a recovery. It is now a credible insurer angling for the affections of IFAs against local rivals Standard Life and Royal London. While Zurich took the decision to court the actuarial consultancies, Widows had stuck with the corporate IFAs and the larger retail IFAs and I would be surprised if Scottish Widows and Zurich often compete.

Marriage prospects

The bride and groom have very different pedigrees and appeal to different sets of friends. But I suspect they will get on alright, because their cultures are now aligned.

I left Zurich because I had no place in the corporatisation of what we had started. I am not the kind of guy who hosts tables at awards ceremonies, shakes hands on tradeshow stands or spends most of my working day in internal meetings. We parted company on good(ish) terms, I got a good pension and a nice boat, they got a business which they could grow,

Scottish Widows, owned by Lloyds Banking Group have really done nothing in the corporate space but waste money. Their disastrous forays into “portals” (my money works) the sale of SWIP to Aberdeen, the failed attempt to win 10,000 new schemes through auto-enrolment, have seen them fall down the league table of credible providers of corporate money works

But relative to the propositions of Barclays Life and HSBC Life, Scottish Widows is the last player standing.

Scottish Widows appear to have sensible management (not before time) and they have gone back to their roots with their bulk annuity business. As with Aviva and Friends, and Aegon and BlackRock, they will now have to promote parallel propositions under single ownership. Will these merge or be maintained separately -time and the market will tell.

Zurich customers should have nothing to fear from the change of ownership. Scottish Widows are unlikely to destroy £19bn of value (though crazier things have happened). Scottish Widows will keep the Zurich product as a flagship- if they have any sense. It may be rebranded, but I very much doubt there will be much interference.

I don’t think the Zurich product has ever had much appeal to IFAs, it paid no commission and it never tried to adapt itself for the SME market.

The big question is not about accumulation, but about the capacity to keep funds on the respective platforms into the spending (decumulation) phase. I am far from clear what the strategy for the two propositions will be going forward, but this is where synergies may be found that can work for both Widows and Zurich. A jointly manufactured decumulation proposition for the billions of pounds that will be liberated as the policyholders mature, is the key opportunity (and threat) for Lloyds Banking Group.

It is on how successfully Lloyds can marry and maintain the marriage through retirement, that the long-term success of this acquisition will be judged.



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Is NOW the time to transfer out?

NOW Trustees.PNG

Spot the newcomer!

I was talking last night to a senior financial journalist about NOW pensions. In the catalogue of actions that the Pensions Regulator can call upon, insisting on the inclusion of Dalriada Trustees, is perhaps the most alarming.

Dalriada is a private entity but is used by the FCA as an enforcer. Victims of the ARK pension scandal will know Dalriada well as one of its professional trustees is busy enforcing tax -claims against members who have received unauthorised payments.

Dalriada are the fiduciary equivalent of Rentokil.

So when we heard that Dalriada is being invited to join the NOW board, alarm bells started ringing. According to my friend, the invitation was at the behest of other trustees but so was NOW’s withdrawal from the favoured master trusts list on tPR’s website. It appears that the Trustee’s are coming quietly.

You will note from the infographic above, that Dalriada are there in corporate rather personal guise and do not have a “NOW pensions” soubriquet.

As my friend said “very odd”.

Close, but no Segar (yet)

In December, Joanne Segars, former pensions boss at the TUC,  ABI and PLSA will become a trustee. She joins a string of marquee signings, replacing John Monks (ex TUC ). supremo). Chris Daykin is a former Government Actuary, Nigel Waterson a former Shadow Pensions Minister while Jocelyn and Win are respectively admin. and investment gurus with “portfolio careers”.

Once again NOW will have gone for the sage institutional option. Segars managed to sell NOW a “PQM ready” sticker back in 2013, something they are still very proud of. NOW went on to be the first to purchase the MAF sticker, which pleased the ICAEW and PLSA. They have given the investment audit on their mono-fund to Redington, which will please the mallowstreet community.

“The team think deeply about portfolio construction and risk factor correlations. Particular attention is paid to volatility and stress scenarios where they use expected shortfall to measure risk. The strategy extensively utilises the ATP risk infrastructure.” – Redington 2017

NOW tick all the boxes.

The trouble is that they are not doing a very good job of running a pension scheme, which is what the Trustees should be very concerned about.

No space to list the train crashes at NOW

NOW’s problems are with their participating employers who- over a period of five years have had consistent problems with the collection and allocation of contributions from payroll to fully invested member pots. There are so many horror stories, I cannot list them for space- even were I able to mention the clients (which I should not).

Over this five year period, we have seen NOW’s rating for payroll interface plummet on the Pension PlayPen. Contrary to Redington’s view, First Actuarial’s rating of NOW as an investment organisation is a dim view. , which has been a staunch supporter of NOW’s noble ambitions, has bowed to the weight of evidence.

For all its promise, NOW has failed to deliver. It is Paris St Germain ,relegated to the Championship..

You cannot outsource the member experience – it is what you do

The problem is not just with marquee trustees. There is a real issue about the Commercial Board of NOW. Its Chair is a Danish banker (with a regulatory hat), its CEO was CFO of NOW’s chief administrative supplier and its sole non-exec is a former fund manager. None of these people has first hand experience of managing the funds of ordinary people.

now commercial.PNG

Like the marquee trustees (Blackwell excluded), these are people who see matters from the abstract cloud of policy or strategy , not with the eagle eye of the practitioner. The people who are getting their hands dirty are not in NOW;  NOW outsourced its operations to Xafinity, to Staffcare and latterly to JLT. NOW has listened to conventional wisdom that suggested “best in breed” third parties beat doing it yourself.

But this has meant NOW are two steps away from resolving any crisis. Whether it be the problems that forced it to swap administrators, or the outage when they did, or the disastrous relationship with a middleware supplier or the failure to get their administrator to operate relief at source or even the problems they’re having transferring members out, NOW seem to have no control of their suppliers.

It might be argued that NEST have a similar issue with TATA but NEST are different, they seem to have limitless money to throw at TATA and a payback period as flexible as the gusset on a tart’s knickers.

NOW the price goes up.

NOW has told us that they have embraced Origo and that in future , members wishing to transfer out to other Origo members, will be on the 10 day pathway to completion. I hope this is the case, as Pension Bee’s Robin Hood Index has NOW taking 5 times that standard to rid themselves of members who quit.

Deferred members of NOW with small pots should consider this. From April 2018 they will be paying £1.50 pm however small their funds. This is on top of the investment charge on their fund.

This is a substantial hike from the current member charge


NOW charges 2

And this comes on top of the charges to the employer for having them in their part of the NOW master trust.

NOW ongoing costs

If you are the fifth active member of your employer’s fund and you leave that employer, you are costing your Ex- employer, £7.50 pm + VAT.

It is not just in the interests of members to get out of the £1.50pm member charge, but in the interests of their employers. This is why Romi Savova, CEO of Pension Bee wrote me

If only it was possible to transfer out…

She was writing of the member’s experience getting NOW’s administrator’s to process transfers to third parties (including Pension Bee).

NOW argue that this (further) price hike, is to protect the richer members from cross-subsidies, but there is no corresponding price reduction for richer members. NOW is simply showing it has got its pricing wrong.

Taken with everything else that has gone wrong this year, this suggests worse may yet be to come.

Intentions good – implementation terrible

It is the inevitable conclusion. Marquee trustees, a non-executive commercial board and operations outsourced ineptly.

NOW is not a bad organisation, it is an incompetent one, one that consistently hides behind accreditations and the commendations of institutional partners. It is operating in a space where payroll is king and accountants the king-makers, but NOW is not able to build the APIs to the software through which their employers pay their staff.

They simply don’t have the confidence of the organisations who feed them – Sage especially.

NOW has lost the changing room.

NOW is a massive operator of workplace pensions, more than a million of us depend on NOW for future benefits. It is time it recognised that it simply isn’t in charge of itself. The appointment of Dalriada tells me that the Pensions Regulator has lost all patience.

Without a proper CEO, without trustees who have hands on experience of running a large pension scheme and with a commercial board about whom we know nothing, NOW should be putting itself into pre-pack mode. It should be talking now to its major competitors about handing over responsibility for the management of these pots to another trust.

There are several master trusts who would relish the challenge of turning NOW round and I hope that they are talking right now.

Employers should start considering their participation in this master trust, deferred members should seriously consider transferring out asap.

The Pensions Regulator is making it clear it has lost patience, NOW so do I.



Posted in pensions | Tagged , , , , , , | 1 Comment

Finger in the dyke stuff! DC pricing is just too leaky Jon!

Jon Stapleton


It’s a mug’s game Jon!

Jonathan Stapleton has written a deliberatively provocative piece in Professional Pensions which will be applauded by the operators of workplace pensions but is going to get short shrift from me.


You can read  Jonathan’s opinions here.

The gist of Jonathan’s argument is that price pressures on providers is forcing them to skimp on the quality of the investment default.

The pressure to reduce costs has not only meant payback periods for providers have been extended but also that the amount of money available for the investment content in the default offerings of these schemes has been squeezed ever further.

Members opting for a default offering in any major scheme are unlikely to receive anything more sophisticated than a passive lifestyle default. And, given that over 95% of people choose the default, this matters, especially at a time when the next financial crisis could be just around the corner.

Perhaps the time has come for us to adopt a different tack. To start choosing value for money over cost alone and, dare I say, paying more for our DC schemes.

Yes, members want low cost, and they don’t want to be ripped off by providers; but they also want a quality investment offering that will be robust in all market conditions.

I write as someone who has his entire DC wealth in a FTSE 50:50 global equity index tracking fund which I am paying 0.1% + 0.02% transaction charges. Jon might argue that I know the price of everything and the value of nothing. I would argue that I see no point in paying higher fees unless I have evidence of value. Other than NEST, I see no evidence of any particular value in the market. But as regular readers know, I am working on changing that so that we can compare apples with oranges using value for money scoring.

When we have accurate data that reflects performance over reasonable periods of time, then we can start assessing the validity of Jon’s assertion that you can buy funds robust in all market conditions.

The next financial crisis could always be just around the corner, like Chicken Licken’, we could assume the sky is about to fall on our head and no doubt it will.

chicken licken

Mark to market DC


In my short working career , the equity market has fallen on my head several times and I fully expect it to do so again. As a 55 year old expecting to crystallise in not less than ten years, I am under no delusions!

But as the conservatives will find out if they sack Mrs May, it’s one thing throwing out the incumbent, it’s another finding an alternative.

My first message to Jon Stapleton is that equities remain the best long-term growth assets and there is precious little point in paying for diversification if you have no immediate liabilities.

carsten -chicken

Nurture your chickens instead



Pricing pressure is fundamentally downwards

While I challenge Jon’s premise that paying more for fund management will increase value as unproven, I further challenge the assumption in his article that the operator’s  “fixed” costs and margins, that make up the majority of the AMC are “fixed” at all.

nest debt

and where does the line go after 2038?


He points to NEST which will continue to accrue debt till 2029 at which point it will owe the DWP £1.2bn He does not mention that in a few short years following 2029, NEST will pay all that debt off and then become the biggest cash cow Government has ever owned.

Well that’s what the NEST projections tell us, and this of course assumes that NEST costs remain constant and that pricing remains constant too.

But of course NEST’s current fixed costs are likely to change over time and I have to conclude that they will fall, as will all providers’. Here’s why.

  1. the adoption of distributive ledger technology; as NEST’s former CEO Tim Jones tells me, pension administration has yet to grasp let alone adopt the benefits of the block chain.  When it does, the manual processes that cost NEST and its competitors the bulk of its record keeping fees will fall away, making records more secure, easier to access and a whole lot cheaper to manage.
  2. the increasing ability of the public to self-serve; NEST – like most of its peers does not run an app to give members instant access to their pot and the capacity to manage it. This is because it has not yet confidence in the security and accuracy of its records (see 1 above). Following improvements in record keeping, operators will be able to pick up on people’s increasing capacity to do simple things for themselves. Assisted by artificially intelligent bots, taught by machine learning, we can – in time – self-serve!
  3. taking out the slack in fund management; the 36% margins enjoyed by fund managers and their cronies are not sustainable. Greater transparency caused by regulatory and consumer pressures (bravo to the TTF) mean that both the AMCs and the fund expenses of all pension funds are going to come down. This can either mean we get more for the same money (if Jon’s belief in buying robustness is proven) or that what we are currently paying fund managers will reduce. As we have no way of knowing what we are paying for fund managers (see my bleating about NDAs) , we currently cannot put pressure on fund management margins but that is going to change and very soon.
  4. Consolidation drives scale and reduces prices (eventually). Right now BlackRock is owned by Aegon, Friends is owned by Aviva and pretty soon we expect Zurich to be owned by Scottish Widows. The smaller master-trusts are queuing up to be bought by bigger master-trusts, the only question is whether they have earned a price. We will see a contraction in choice but this will create greater scale and – in a market in which the CMA are taking a great interest, this will ultimately benefit the consumer.

Jon Stapleton is right to point to a short-term increase in the operator’s prices. NOW pensions is putting up the fixed costs charged to deferred members as it claims these costs are subsidised by the richer members. This is of course hog-wash, were it true we would see richer members seeing a decrease in charges, which is not happening. NOW is trying to stabilise its current financial position.

Hardly any pension providers are making any money out of auto-enrolment but that is not the same as “workplace pensions”.  The biggest DC schemes such as LBG, JP Morgan and HSBC now have billions in assets and present fund managers with fabulous long-term income streams. The bundled players such as Zurich, Standard Life, Legal and General and Fidelity who got in early and captured the elite DC market ten to twenty years ago are now very profitable indeed.

nest debt

Profitability after 2038 will be huge (under lifetime pricing)


As the NEST chart shows, once you have reached a certain size, the operators of DC pensions can make huge amounts of money. Assuming that is, that people like me don’t go pissing on their bonfire and driving costs down. Why the operators are so resolutely against benchmarking, refuse to lift NDAs and write me stroppy letters when I write this kind of blog, is that their vision of “lifetime pricing” is complete baloney (and they know it).

We do expect the operators to finance the early part of a DC pension’s charges. We expect them to reserve for this or to explicitly state their borrowing (NEST). Even the non-insured master trusts are going to have to partially reserve within the next few months. We also expect for operators to recover the costs of this financing later in the contract and I am happy to see numbers which show them doing this.

But we do not expect to see the kind of profiteering that has been going on among the insurers on legacy DC (I am still paying 4.25%pa on the capital units of my Allied Dunbar pension bought in 1985).

Instead we expect to see prices for DC coming down as the massive surge in profits in the NEST projection, feed through.

nest debt

The long-term profitability of NEST is immense


Workplace pensions are not here to provide the shareholders of insurance companies with windfall profits in the ten or twenty years time. They are here to provide members with good outcomes. A 1% pa reduction in charges over the lifetime of a contract means a 27% improvement in outcomes for consumers.

Right now, workplace pensions may be costing the shareholders, their pleasure is downstream, but they should not expect a gold-rush – unless they get the ongoing patronage of a munificent financial press, regulator, CMA and of bloggers like me!


ear ear!






Posted in auto-enrolment, dc pensions, de-risking, Debt, NEST, now, pensions | Tagged , , , , , | 2 Comments

Normalising pension saving for everyone


The TUC is publishing this morning important research into inclusion. Since our new pensions minister has included “inclusion” in his title, I hope he is reading it!

Six in 10 workers in the UK agriculture and hospitality sectors are not saving into a workplace pension, according to new research which has sparked fresh calls for ministers to act.

The research … found 908,000 of those working in hospitality, such as pubs, clubs and hotels, were not enrolled in a company retirement fund — equivalent to 59 per cent of the sector’s workforce. (Jo Cumbo -FT)

The numbers need a little understanding. Many of the 908,000 will be working part time and have full time jobs elsewhere, many are students who are typically outside the auto-enrolment wage bands and there are many workers who are migrant from aboard and not properly part of our national labour force.

Which points to a larger question. Do we consider being part of a workplace pension a condition of work?

The gathered consensus

The ipsos Mori research published earlier this autumn suggests that we do. 73% of a large survey of low-paid employees said that being in a pension scheme was now normal, very nearly 70% were looking forward to being nudged into higher contributions. Considering the very large numbers of don’t know/don’t cares in any survey, these show considerable support among those most financially vulnerable – to paying money towards their own retirement.

It is very good to see the TUC promoting the need to include these people into workplace pensions. It demonstrates a degree of support from all parts of the labour market for greater self-reliance. This is not me making a political point, it is me observing that there is now general trust in UK financial services to deliver good outcomes for those with the least to contribute. Credit where credit is due, as a result of better industry practice and Government intervention, the TUC is countenancing using the private sector as the means to baluster the welfare state.  Guy Opperman – please take note.

We are used to a war between our major political parties on policy matters. But no such war exists within pension policy. Indeed, I have been in a room and heard Carolyn Fairburn of the CBI speak with feeling of her admiration for the work of Frances O’Grady of the TUC. Not only is there considerably less friction in Westminster, there is considerably less friction on policy matters such as this, within the representatives of worker and employer rights.agriculture 3

The auto-enrolment review

We are weeks if not days away from the publication of the Government’s auto-enrolment review. Last week, at his one appearance at the Conservative Party Conference, our Pension Minister, Guy Opperman, spelt out his support for greater inclusion in auto-enrolment. There has never been a time of such political and social consensus. Now is the time to extend the scope of auto-enrolment to embrace the young, those with small earnings and the workers who are excluded through self-employment.

Normalising pensions

I am not a fan of compulsory private pensions, we have compulsory national insurance which is a lever for Government to improve state pensions through the national insurance rate.

I am a big fan of inclusion, but it has to be voluntary inclusion, at least in as much as people need the right to say “no” (and opt-out or cessate). That is why I think auto-enrolment is the right policy for Britain (pace David Harris)

I don’t think we should try and second guess those who work in the hospitality industry. There are some genuinely low earners who some would have paying off debt rather than saving. Inclusion would require a few migrant workers to have small orphaned pots when they return to their countries of origin, and there will be quite a few in this group who will opt-out having no reason to be saving (and knowing it). But none of this is good reason not to include the bulk of this group in the “saving habit”.

A nation proud to save!

Blimey, I seem to be writing Guy Opperman’s headlines for him! Actually, I think this headline is the political equivalent in my own “restoring confidence in pensions”. Saving is a habit- a good habit – like going to the gym, not picking one’s nose and saying “thank you”. It is just good manners.

People who don’t save are not quite part of society and should be aspiring to save because it is the grown up thing to (like not picking your nose).

We are getting to a point where we have savings vehicles which are fit for purpose. We are beginning to think about the spending equivalents in our new “post annuity” world.

We have 9m people who are new-savers and we have very few employers who are deliberately non-compliant in helping them to do so. We have payroll organisations like Sage who are looking at how to help things stay this way. The nay-sayers like the IOD have piped down. There is a consensus that saving into workplace pensions is a good thing.

So I hope that if you are reading this Mr Minister, you will have the courage to listen to the numbers from the TUC and that you will have the courage to use the auto-enrolment review to extend the scope of auto-enrolment.

For this is the best chance the Government may ever get.

agriculture 2


Posted in auto-enrolment, pensions | Tagged , , , , , , | 5 Comments

Pensions entering no-man’s land

member 2

We are in an unprecedented situation. We now have around 1,000,000 employers participating in workplace pensions operated either under trust or contract by a small group of providers (with a long tail).

I think it highly unlikely that more than a handful of these providers are in trouble , the majority of the small master trusts are preparing themselves to be consolidated by those with deep pockets (the insurers) or big ambition (the non-insured master trusts + Peoples Pension).

I would number the providers who genuinely expect to be operating independently as at not more than ten. What this tells me is that there are around ten organisations serious about providing workplace pensions. Many will be running multiple offerings; Legal and General are already treating Smart pensions as their “Torro Rosso”, Aegon are taking a double bet having bought BlackRock and the market expects Scottish Widows to make an announcement over Zurich any day soon.  Smart and Peoples are openly acquisitive and NOW, BlueSky and Salvus aspire to be.

So we have the extraordinary prospect of having the vast majority of those 1m employers relying on the operators of a handful of operators. Equally unprecedented- neither these employers nor the millions of new savers have any advisers at all.

There are two schools of thought about the need for advice. Large employers have always assumed that their schemes should be advised but that staff can be looked after by their own trustees or by the insurers (who have devoted considerable resource to workplace education/selling). The large scheme school of thought supposes that internal resource will be enough.

The second school of thought, that which has prevailed among our various retail regulators since 1987, is that employees are not sufficiently educated to be left to their own devices and that small employers should be regarded as no better.

So far we have got by using what Share Action has described as the “triple default”. That means a uniform contribution rate, a uniform investment fund and a uniform recourse to advice/governance (non-advised).

This is fine so long as the sums in individual pots are sufficiently small and the contributions nugatory. However, turn up the heat on contributions and see the pots growing to meaningful amounts and the principal of Brownian motion applies. If your physics lessons are a distant memory, let me remind you. As molecules heat up, they bounce about and start jumping up and down. This causes a change in the state of the substance in which the molecules sit. So with workplace pensions.

The current un-advised and remotely governed state of workplace pensions is fit for current purpose. But it is not going to be right in three or four years time and even in a shorter time frame, many of the medium sized employers that staged 2014-16 will have to do some thinking.

Because my experience is that people will want answers to simple questions like “how is my pension doing?” and they do not want a bland assertion from a trustee or IGC that they are getting value for money. People will want some evidence, not just that the pension is working , but that it’s working at least as well as the alternatives.

People don’t expect to be winning the league every year but most would expect to be at least mid-table. If we do not see comparative information emerging then people will start making noise (angry molecules).

It strikes me that there is early mover advantage here. By which I mean that there is advantage for someone in creating a general utility that collects the various performance and cost feeds needed to create value for money scores and display the information in a single place.

This sounds simple enough but there is a more general problem which relates to independence. It does not sit well for providers such as NEST producing such performance tables. What is needed is an independent entity to take charge and distribute the performance utility at scale.

I have considered the various options, IFAs, accountants, the Pension Regulator. For varying reasons, none of these works. IFAs are busy doing other (important) things, accountants really don’t want to be seen as pension governance experts and the Pensions Regulator is decidedly awkward at these kind of things (See the choices pages on its website).

There is only one option that fits the bill and that’s the software companies that deliver the payroll and accounting software to SMEs. They are principally Sage (which has around half the private market, IRIS, Moneysoft, Star, Able, Qtac, Xero, myPAye, Inuit, and a long tail. There is also a smaller opportunity for the high-end payrolls (Cintra, SDworx, MoorePay, MHR, Northgate etc.

The opportunity is with these organisations who have a one off opportunity to create partnerships with organisations able to deliver performance analytics, independent employer and member helplines and switching facilities.

If any strategists within the payroll software organisations are reading this, they might want to contact me with some more information. I can be reached at

member 3



Posted in pensions | 2 Comments

The FCA is quite right to be worried about DB transfers.

FCA 78.jpg

The FCA has published an interesting blog entitled Our work on DB transfers. The nub of its findings follow

Since October 2015 we have reviewed a total of 88 DB transfers where the recommendation was to transfer. Out of these, we found that:

  • 47% were suitable
  • 17% were unsuitable
  • 36% where it was unclear if the recommendation was suitable

We also considered the suitability of the recommended product and fund and found that:

  • 35% were suitable
  • 24% were unsuitable
  • 40% were unclear

The proportion of suitable cases was much lower than we found in the wider advisory market for pensions advice, e.g. our Assessing Suitability Review found that 90% of pensions accumulation advice, and 91% of retirement income advice, was suitable.

This is not a surprise to me, I read the stuff that comes to me from advisers and I’m shocked.

Tideway Investments have been delivering nonsense to the Daily Telegraph

tideway 12


This is rotten advice. In the summer, I had cause to censure Tideway for similar rubbish. Tideway threatened to sue me for defamation, then they asked for help which my firm offered, the offer has not been taken up and here they are talking absolute drivel to the Telegraph readers.

stephen ward 2

James Baxter



Tideway are a vertically integrated adviser who makes money from the investment of the proceeds of the transferred money. The fees payable for advice are contingent on the money being invested in products on which Tideway takes a management fee.  The potential conflicts of interest are immense. We expect the highest integrity from such firms and this half-baked clap-trap is deeply worrying.

If you are worried about that!

I am now getting a stream of educational material from Sam Instone of AES International. Sam is keen to keep me on the right side of the financial thugs who rip off people like me when we choose to expatriate our pension savings to offshore financial havens.

Sam has a whole library of anti-scamming manuals you can access here. You should trust him, as he tells us we can.

Sam Instone, CEO at AES International, is passionate about positive change and ensuring expat investors get the best results

For AES International, the question is not whether to transfer (that’s assumed) but how to avoid being ripped off once you get your money offshore.

transfer 10

One would be forgiven for asking just what is wrong with leaving the money to be paid from a UK occupational pension. I wonder what the FCA makes of all this.

Actually, who needs regulators when we’ve got AES International cleaning up?





There is something not quite right about Sam or AES International, for all his fine talk, the brilliant PR and the endorsements from the Economist and even (for a while) the evidenced based investor Robin Powell.

stephen ward 3

Sam Instone

AES International , Sam’s firm was once a front for Premier Pension Solutions, the firm of Stephen Ward. Together, Stephen and Sam managed  the victims of the ARK Pension Fraud into financial ruin. The Times ran the story in 2014,   If you haven’t a subscription , you can read it here. Sam claims there is no link


“We had nothing to do with the Ark scheme and we earned a negligible amount from our tied agency with PPS. We have no legal responsibility for what has occurred here.”

But I am not so sure. Investigative work by Angie Brooks, published on her website, suggests that the links between the two firms were pretty strong!


Stephen Ward


Stephen Ward is another model citizen. Stephen actually wrote the G60 book that those of us who studied to be transfer experts in the 1990s.  Today, you can still hire him to speak! I wonder if he talks about the fate of those people to invest in ARK.

And then there’s lead generation!

Ever wondered how people end up on those cold calling lists? Well look no further than which just sits there waiting for people to google “can I cash in my pension at 35?”. This site has been reported more times than I was at school! But it still sits up on the web with a whole range of advice for the most vulnerable.

pension services 3

“No” is slightly shorter than “yes”


The FCA have a lot of work to do

There is a lot of clap-trap being spoken about pension transfers. If it was no more than clap-trap, there would be little cause to worry. But this clap-trap translates into people taking life-changing financial decisions.

One defining moment of my year was the meeting I had with Lesley Titcomb and the victims of the ARK pension fraud. The subsequent private meetings and the little  time I spent in the Royal Court have left an indelible mark on me.

We cannot take risks with people’s retirement savings as we are allowing risk to be taken today. The statistics quoted by the FCA, the appalling nonsense coming from Tideway and the lurking presence of notorious scammers such as Stephen Ward point in the same direction. The general public cannot trust financial advice so long as these are the standards  some of them present.

Another defining moment was the congregation of nearly 300 IFAs in a shed outside of Peterborough – all investing a day of their time to get better at transfer advice.

I’m into raising standards and I loved the Great Pensions Debate. I despise poor quality advice and detest scamming. We should be very worried about the evidence that the FCA are digging up – even if it is from only 88 cases.  It is critical that those who are in the process of transferring benefits from defined benefit schemes , really scrutinise the advice they are getting as clearly – it is not all great!

sam instone


Posted in accountants, Middle East, pensions, QROPS | Tagged , , , , , , , , , | 7 Comments

@CIPP_UK – “grafters not shafters!” – thx.


CIPP_ACE17_AWARDS (img_9888)_Lifetime achievment-PENSIONS_Henry Tapper (accepted by Jason Davenport).jpg

cropped-playpensnip1.pngI woke up this morning to lots of messages telling me I’d won an award! Not just any award but a lifetime achievement award from an organisation I have a lot of respect for – the CIPP, who had their annual conference in Chepstow yesterday.

While I was whizzing back to London from Newcastle, the CIPP and Trevor Mcdonald gave me this prize and I am so happy!

Coincidentally , I am even more happy as it looks like the work that I really want to do for tens of thousands of small employers is going to happen , thanks to a herbaceous software company in the North East!

ht lifetime achievment

McDoughnut, Graham and Hammond!



Not everything that happens with money – happens in London!

Are you getting a theme here? The CIPP are based in Solihull, I was in Newcastle and McDoughnut and co were in Wales. The word “London” refers only to where the action wasn’t! In case anyone reading this blog thinks that London’s where the heavy lifting goes on, think again! I got messages from Frome (thanks Jim Parsons)and Reading (thanks Hayley). Infact, almost everyone (quiet Liz) who I work with in payroll is out of town!

Because payroll isn’t very glamorous and doesn’t hang out in the Ned of an evening and doesn’t do awards in the Grosvenor House or the Dorchester.

But payroll makes pensions go round and if you don’t believe that, look at the compliance figures for auto-enrolment. When I was with the herbaceous software people I was studying a survey of thousands of their clients about pensions awareness. It was encouraging to discuss strategy based not on the likely impact on assets under management but on how we could better reach the millions of people paid by this firm.

The CIPP is the oil that keeps the payroll industry (including the software companies) grinding!


Grafters – not shafters!

Pension people can only aspire to the productivity of payroll. I know from five years of working with payroll people that they are grafters and not shafters.

Payroll – probably the most accountable profession in the world

There is something very simple about getting payroll right., it is- that if you don’t- you are sacked. There is no black or white in payroll. it’s right first time or out you go. That means that treating customers fairly is not an aspiration but a pre-requisite of the job.

Yes, payroll software companies are commercial and so are those who use the software, whether in-house or within a bureau. But the 36% margins achieved by the asset managers are not achieved in the competitive market of payroll. I doubt that most owners of the bureaux I work with, would tolerate any of their suppliers achieving such profitability, nor would they consider such margins for themselves as reasonable.

If the FCA wanted to set a benchmark against which to judge the asset management industry, they could do worse than look at payroll.

I am really happy to have been recognised for trying to help pensions and to help payroll.cipp22

The CIPP are great people and I value the CIPP’s recognition above that of any other trade body, as they are at the heart of what is good about payroll.

On Wednesday, I heard our Prime Minister croak that she would dedicate the rest of her term in office to making Britain a nation of house-owner again. That wasn’t much of a promise, the longevity of her term was undermined by the minute she stood on the podium!

McDoughnut my hero!


Last night, I missed out on collecting the award from Trevor (a teenage hero thanks to Lenny Henry) and I’m bloody glad I didn’t make any such foolish pledges myself.


I run the Pension PlayPen, we’re here to restore confidence in Pensions. I work for First Actuarial, the best pension consultancy in Britain. I am proud as punch that the CIPP think I’m doing a good job -I think they’re doing a great job too!







Posted in Payroll, pension playpen, pensions | Tagged , , , , , | 6 Comments

A geriatric convention led by a consumptive.


The one thing you do not want to solicit when delivering a prime ministerial address to your party, is pity. But that was the overwhelming response to Theresa May’s speech yesterday (at least from delegates). Elsewhere the verdict was harsher, Alistair Campbell commented that anyone can be prepared through medication to speak for an hour without coughing, fierce questions have been thrown at the party Chairman for the failures in security that allowed Lee Nelson access to the podium. The disintegrating lettering above May’s head is too embarrassing for (internal) comment.

I got a very bad feeling from the Tory party conference. The average age of the Conservative members is 72 and we weren’t far off that average yesterday. There was a lethargy just in moving from room to room. The die-hards never ceased telling anyone who listened how long they had been coming but the only new delegate I met turned out to be there because he’d just been elected an MP.

If I am painting a picture of bungling incompetence, of lethargy and a lack of challenge, then so did Theresa May. Her apology to the party was for not offering the nation change but continuity. This is the whole basis of the Conservative offering to the nation and if she is saying it is not enough, then we need to judge her on a different measure.

If the change that Theresa May is suggesting is to take on the housing market and make home ownership available to young people then she is going to have to commit much more in funds than the £2bn pledged yesterday. At a press briefing afterwards, she is reported to admitting that this added up to only 25,000 new homes. This is not nearly enough to justify her claim to be dedicating her time as Prime Minister to this project.

The other change she mentioned in her speech is a return to intervention in the energy markets. Whether this is a good or bad thing I don’t know, but it is no more than what has been promised before, it seems to be no more than a sop to those in the hall and their peers, for whom a winter fuel crisis is a perennial possibility.

As a delegate, I sensed I should be more supportive, and I did spontaneously stand up (unlike Boris Johnson) to applaud May when her cough got so bad she had to take a break. I did feel the general pity (you would have had to have been heartless not to respond at a personal level), but I didn’t leave the hall feeling much confidence that Theresa May will be effective in months to come.

The CBI were quick with a broadly supportive response, but having been at their reception the night before, my memory was of Carolyn Fairburn’s final remark to Damian Green “we need to grow our way out of austerity”. This is a distinctly different statement than anything that came from Philip Hammond or Theresa May.

There is no big economic idea to get Britain going, the big ideas are parked as minds focus on how to manage the BREXIT. Meanwhile , the Labour party are full of big ideas and are attracting to their conferences the young thinkers who used to turn up at Conservative conferences.

Instead of marking the beginning of something different, May’s speech merely emphasised the paucity of energy and enthusiasm within the Conservative party at the moment.  They are still the party of Government , but I wonder for how long.


Posted in pensions | 2 Comments

What I’ll ask the Pensions Minister today (if I can find him).


Calling Guy Opperman MP,  Minister for pensions and inclusion,

“are you out there?”

I’m on my way up to Manchester clutching an email from your office saying you want to meet me, I will be at (y)our conference for the next two days and I’d really like to know what (y)our views are on the current state of pensions.

Here they are;

  1. We’ve recently revamped the State Pension , in the process there have been winners and losers. Among the losers have been those who have stayed contracted in to SERPS/S2P – can you forgive them envy for those who contracted-out , will get the same single state pension and up to £100k as an additional pot- funded by national insurance rebates?
  2. You inherited the work of John Cridland on the State Retirement Age, it included a recommendation for a mid life review for people to engage with their later life income needs and rights. Has anything been done to take this idea forward? There are many angry women who point to the absence of any such engagement over state pension increases for WASPI, do you see an opportunity here to be proactive?
  3. The Corporate Defined Benefit sector is in turmoil with large employers ratting on their pension promises left right and centre. What is the Government going to do to maintain the balance between the employer’s obligations of good faith to members and their wider obligations to their shareholders and staff not in their DB plans?
  4. We want investment of pension funds to do more, both for members and society. What part will the DWP be playing in the regulation of pension investments? Will you be telling us soon what you expect from occupational schemes by way of disclosures and have you anything to add on the questions of value for money?
  5. Next year we expect to see a new body providing public sponsored “guidance”, do  you know what’s happening in at TPAS/MAS and CAB and do you have a plan to get people to engage with this new body?
  6. The FCA are consulting on Retirement Outcomes and the difference between advice and guidance. They are calling for innovation. We had innovatory approaches we were planning following Pension Act 2015 but we’ve never had the regulatory plans to take them forward.  Will you answer the Labour Party’s call and recommence the secondary regulation to allow us to provide people with collective ways of spending their pots?
  7. The Pensions Dashboard seems to be lacking a sponsor, since Simon lost his seat in Brighton. Will you step up and champion the single view technology proposed by the Treasury, or at least give occupational schemes a steer on progress?
  8. The auto-enrolment review is rolling along, I see you’ve included “inclusion” in your title, will you be adopting the recommendations of the Taylor report and taking steps to include the self-employed and others who fall outside the AE net?
  9. Are you aware of the problems that low  paid people in occupational schemes have in getting the promised Government incentive to save? Unless the Scheme opts to use the “relief at source” method, low paid people are missing out on incentives through no fault of their own. Are there any plans to right this wrong?
  10. You’ll be aware I’m sure, that billions of pounds will flow out of DB occupational pension schemes as CETVs. Are you comfortable with what is happening? Do you have any plans to clarify the basis of transfer to ensure that transfer values seem more equitable and how do you respond to your predecessor’s calls for  mandated split transfers?
  11. Finally, I hope I don’t need to remind you that much of the money flowing out of well managed pension funds, ends up in poorly managed funds – some of which are scams. Do you support the ban on cold-calling and have you any further measures in the pipeline to protect the vulnerable people who fall prey to poor advice and outright fraud?

I appreciate this is a long list of questions, but as we haven’t heard anything from you on Government policy since you took over from Richard Harrington earlier in the year, it seems we’ve all had to sit behind your learning curve. At the last party conference, I listened to Richard Harrington telling me I’d have to be patient as I wouldn’t get much sense from him till next year. Well he’s moved on and will you be saying the same thing to me this year?

I’m all for elected officials making policy decisions and support your being Pensions Minister, but your visibility is required and I very much hope you or a member of your team will be able to get in touch. My number is 07785 377768 and I’ll be in Manchester from 9 am this morning as party delegate for City and Westminster.


Posted in #WASPI, pensions | Tagged , , , , , , , | 6 Comments

Not the time to butcher teacher’s pension benefits.


My little break in France was rather spoiled when I read Jo Cumbo’s articles on the potential “remedies”  Universities UK are considering to correct their supposed pension funding deficit.

For those who can’t follow this link, these include

  • Lowering the salary cap against which DB benefits are earned for £55k to as low as £20k
  • Replacing the  DB benefit with a DC benefit (for capped earnings)
  • Fiddling with the commutation factors to give people less pension for taking tax free cash
  • Lowering the accrual level (the rate at which defined benefits build up)
  • Upping member’s contribution rates (again).

All this only three years after the same type of cuts were inflicted on the hapless members.

Whoever is Jo’s source, we can assume it is reliable. Whether the source is on the Union side (UCU) and is meant as a warning shot or from Universities UK (a softener upper?) is not material, the “remedies” are all about the teachers taking the medicine.

Is the patient sick?

The false diagnosis is something every doctor has to be wary of. The symptoms of the USS’ malady are not clear. Under one funding measure, the scheme is in deficit, another in surplus. The professed aim of the scheme – to be self sufficient (Test one) suggests that the employer’s covenant cannot be relied on, yet the last covenant assessment suggested the covenant is of the highest quality.

The assumptions that the deficit will worsen are linked to the scheme’s intention to reduce its exposure to the type of investment that could return it to good health. In short, there are a mass of contradictions in the messaging from the most recent valuation that make it anything but clear that the USS needs remedy at all.

Is now the time for surgery?

Some would argue that what is intended is not surgery but butchery, but that is to look at worst case scenarios.

The timing of the current valuation is critical. There are two potential factors that could radically change the funding position. The first is whether the recent changes picked up in UK actuaries Continuing Mortality Investigation are sustained, the second is whether Mark Carney’s promise of a rise in UK interest rates is imminent and substantial.

The CMI numbers suggest that UK longevity may be flattening and that some of the assumptions baked into the liability valuation may be over-cooked, this would argue that the deficit may be less serious than stated. We will have to wait a few years to test this one!

But the second factor, a sharp and immediate rise in UK interest rates, could make any decision based on a 2017 liability valuation, look very silly indeed.

The value of doing nothing.

There is a bias within management culture, to make a difference. Whatever the assets you are managing, the bias towards change reflects the vanity of believing you know better (or at least have better information). But there are plenty of examples to suggest that it is those organisations who start with a plan and stick with it , who outperform those who tack left and right towards their goal.

There is tremendous risk in Universities UK making radical changes to the pension scheme. Most obviously there is the threat of large-scale industrial action, but secondly there is the possibility of a long-term detoriation in the morale, quality and output of our teaching profession. We chose to pay university staff a mixture of wages and deferred wages for a reason. It is to give them the financial security not to worry about their future. If we want our teachers fighting for security, then we can give them a DC benefit, but that was never the idea.

I am a tax-payer and I have a son at University, I am not happy to see my taxes and my son’s contributions to his education dissipated in such a detoriation in teaching standards.

For the record, I do not think these remedies are necessary, I do not think the patient’s sickness is chronic and I do think that left to itself, the USS would return to good health over time. This is not the time – in my opinion- to butcher benefits.



Posted in pensions | Tagged , , , , , | 5 Comments

First Actuarial- proud to work for you!



I had a nice surprise over breakfast; whizzing through my emails I found that while I’ve gone on holiday, they’ve issued a FAB press release!

50:50 claim by PLSA is “dangerously misleading” says First Actuarial

First Actuarial chastises the Pensions and Lifetime Savings Association (PLSA) for its irresponsible claim that “three million members in the weakest schemes only have a 50:50 chance of receiving their full benefits”.

The PLSA also claims that, despite employers spending £120 billion over the last 10 years in special contributions, deficits have remained at over £400 billion. In contrast, First Actuarial’s Best Estimate (FAB) Index improved again in August, with a month-end surplus of £316bn and a funding ratio of 126% across the 6,000 UK defined benefit schemes.

First Actuarial Partner Rob Hammond said:

It is dangerously misleading of the PLSA to claim that there is only a 50:50 chance that some three million members will receive full benefits. And quoting multi-billion pound deficits, without proper context, risks unduly harming confidence in pensions for employers and members.

“Our FAB Index suggests there is a 50:50 chance that the 6,000 UK defined benefit pension schemes have a surplus of over £300 billion. And this is before allowing for scheduled payments of the order of a further £100 billion in place under existing recovery plans.

“So, opinions clearly vary. The problem with the PLSA claim is that it has been presented as fact, when it is simply an opinion – an opinion which could have grave consequences if misinterpreted.”

Hammond added:

“This careless scaremongering plays into the hands of pension scammers who will use it to dupe people away from perfectly sound DB pension schemes.”




The technical bit…

Over the month to 31 August 2017, the FAB Index improved, with the surplus in the UK’s 6,000 defined benefit (DB) pension schemes increasing from £308bn to £316bn.

On the other hand, the deficit on the PPF 7800 index deteriorated over August from £180.1bn to £220.4bn.

These are the underlying numbers used to calculate the FAB Index.

FAB Index over the last 3 months Assets Liabilities Surplus Funding Ratio ‘Breakeven’ (real) investment return
31 August 2017 £1,553bn £1,237bn £316bn 126% -0.8% pa
31 July 2017 £1,525bn £1,217bn £308bn 125% -0.7% pa
30 June 2017 £1,515bn £1,214bn £301bn 125% -0.6% pa

The overall investment return required for the UK’s 6,000 DB pension schemes to be 100% funded on a best estimate basis – the so called ‘breakeven’ (real) investment return – has remained at around minus 0.8% pa. That means the schemes need an overall actual (nominal) return of 2.8% pa for the assets to meet the liabilities.

The assumptions underlying the FAB Index are shown below:

Assumptions Expected future inflation (RPI) Expected future inflation (CPI) Weighted-average investment return
31 August 2017 3.6% pa 2.6% pa 4.0% pa
31 July 2017 3.6% pa 2.6% pa 4.1% pa
30 June 2017 3.6% pa 2.6% pa 4.2% pa


FAB index

The FAB Index is calculated using publicly available data underlying the PPF 7800 Index which aggregates the funding position of 5,794 UK DB pension schemes on a section 179 basis, together with data taken from The Purple Book, jointly published by the PPF and the Pensions Regulator.

The FAB Index is updated on a monthly basis, providing a comparator measure of the financial position of UK DB pension schemes.FAB sept




 First Actuarial

I joined First Actuarial nearly eight years ago. It has been a great eight years! Not only have they paid me well but they’ve allowed me to blog as Henry Tapper and supported the Pension Play Pen.

Pension consultancies come in for a lot of stick, but I’d exempt my lot from general criticism. They say what they think and they think deeply. This press release echoes similar comments made on my blog. This is not always the case and we’ve had some famous stand-offs over things that I have written.

But I’m very proud that after so long, we still are friends and that things are set to stay that way. I hope that you feel this way about your employer’s – it makes one hell of a difference!


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

“Glass half-full please!”

cheers 1

what do you think?

Glass half empty

Imagine you are heading the motor industry’s trade body and you put out a statement telling the public that small cars are unsafe. It would be true in as much as tanks rarely come off worse in road crashes, but it would be pretty tough on small cars and their manufacturers.

This week, the PLSA put out a statement that was supposed to tell us that pension schemes with weak covenants weren’t safe. This is not what the public is hearing, they are hearing that defined benefit pension schemes aren’t safe, in fact they are hearing that giving your money to someone else for 40 or more years, isn’t a safe thing to do.

What the PLSA has done, amounts to a public relations disaster, that it did it to promote a solution which has no obvious advantages will make it a commercial disaster, the PLSA have alienated still further a large part of its membership. If I had a weak pension covenant , I would not be weakening it further sponsoring such talk.

Glass half full

I don’t sponsor a DB scheme but I know if I did,  I would want my scheme to actively invest in making Britain more competitive, more productive and more secure.

The current DB regulatory regime, with its emphasis on integrated risk management, encourages a depressing downward spiral that encourages closure. Schemes have generally closed to new members, for future accrual to existing members and soon many will cease to invest, handing over their obligations to insurers or the PPF, the PLSA hope to jump the queue and accelerate the process.

This is not what the  employers who I do business with want, nor is it want ordinary people want, the Labour party – who seem rather more in touch with ordinary people – want something quite different.

What do ordinary people want?

I am reading a very well written paper by the Canadian Public Pension Leadership Council. It was published earlier this year and is called “The Pensions that People Want”, it is the result of a national survey. I don’t know how different Canadians are from the British but I suspect “not much”. These are the key findings of the survey.

The survey results give rise to a number of key findings:

    1. The features of pension and retirement income programs that are valued by respondents coincide with features of defined benefit (DB) plans and, within limits, respondents are prepared to pay more to improve the quality of their pension/ retirement savings plans.
    2. There is a great deal of variation among respondents in terms of the confidence they have in meeting their targets for retirement income and retirement age, with members of workplace pension plans and especially members of DB plans being more confident than others.
  • Canadians are finding ways to deal with inadequate retirement savings, including retiring later and working after retirement.
  • There is broad agreement among respondents that maintaining living standards in retirement is a key objective, but this objective is interpreted broadly to include income to deal with various contingencies over and above the regular consumption of goods and services.
  • The results cast doubt on retirement savings solutions based on individual choice of investments as they reveal little time is spent on retirement planning and self-assessed knowledge of retirement savings products is limited, as is confidence in managing retirement savings.





This is pretty much my view of the world and – if we take off our professional hats, I doubt that many of us really could argue against these findings.

Half full or half empty

We have a simple choice in this country, either we take the PLSA’s view which leads to the ultimate closure of the plans people want, or we take another view, perhaps the Labour Party view, which is looking for ways to keep DB plans open, perhaps on a different promise going forward, but with the emphasis on investment for the future.

It strikes me reading the Canadian study that younger people favour the Labour Party approach while older people favour locking everything down and pulling up the draw-bridge.

The young people I deal with – and I was with a room full of them yesterday morning (Share Action), consider pensions a matter of investment while the older people with whom I was with yesterday evening (CSFI) consider pensions a matter of banking and insurance. We need to keep the elderly comfortable but we need to invest for the future.

I believe we can do this using the kind of pension structures the Labour Party are advocating, and I work with much cleverer people than me , who can show that such structures are resilient and sustainable.

I am against the nihilistic determinism of the PLSA whose messages play well to the lucky few but offer no hope to those who come behind.

I am a man with his glass half full and I intend to fill that glass before too long. I do not support the PLSA, I do support the Labour Party’s pension policies and I intend to tell everyone I see in Manchester next week just that.

As for the Canadian study, wouldn’t it be good if we could run such a thing here?

Henry cheers


Posted in pensions | Tagged , , , , , , | 6 Comments

“NO!” to the PLSA’s self-serving proposals



I write as Henry Tapper , not First Actuarial, First Actuarial is a member of the PLSA and will have its own response to its DB’s Taskforce’s Opportunities for Change. A timely response now can lead to a more considered response later. What are we to make of the occupational pension scheme’s trade body issuing the press with this headline?

Millions may lose promised pension payout?

and the subsequent statement

Three million savers in final-salary pension schemes only have a 50/50 chance of receiving the payouts they were promised

Were this a report issues by a scammer in Marbella, I would have been appalled but not surprised. That this report has been targeted at the BBC by the Pensions and Lifetime Savings Association is a disgrace.

Much as I disagree with John Ralfe on other matters, I join with him in roundly condemning the PLSA for self-serving sensationalism of the vilest kind. They are putting the colly-wobbles up literally millions of people expecting  a DB pension so that their plans for “superfunds” can get some traction.

Here is John Ralfe as quoted by the BBC

 John Ralfe described the superfund plan as “outrageous”. He said there was “no crisis in defined benefit pensions, so there is no need for crisis measures” owing to a well-funded lifeboat system for collapsed schemes.

“The PSLA is trying to undermine all the safeguards put in place for members since the 2004 Pensions Act. It wants to turn the clock back to the days when companies could walk away from their pensions without fully funding them,” he said.

The detailed analysis of the Taskforce’s proposals will follow. We know them to be based on assumptions that take a deeply pessimistic view of the future both in terms of the maths and of employer’s attitudes to funding pension promises.

The PLSA is struggling to find some meaning. I have suggested for some time that it decides who it is representing and do something about representing them. Instead , we can give the report a better headline

“It has not come to praise pensions but to bury them”

In 2015 George Osborne delivered a budget that told people that he’d have to set them free from buying a pension with their pension savings. The pension freedoms are understandably considered “Freedom from pensions” as a result.

These proposals are as ill thought through as Osborne’s, and quite as dangerous. They can properly be compared to the report of Richard Beeching and the Beeching report.

In the 1960s Dr Beeching concluded it was in the national interest to rationalise the rail network by scrapping all but the most used lines. In doing so he destroyed the travel infrastructure for many small towns and villages, the railways have never returned.

The scrapping of our small DB pensions in return for superfunds, breaks the link between employers and good quality provision in favour or precisely the false efficiencies that Beeching proposed.

Small turned out to be beautiful and today we have seen precisely the upturn in rail traffic that could have justified continuing with the original rail system. The scrapping of small DB schemes at a point when they are at a low ebb would be a national calamity and disgrace.

This deeply irresponsible report with its heinous promotion will throw fuel on the fire of the scammer’s endeavours, destabilise the thinking of ordinary people fearful of losing their pension schemes and create yet more political uncertainty.

Instead of proposing these ill-thought through superfunds, the PLSA should be working with sensible practitioners towards better forms of risk-sharing. They should be talking with Terry Pullinger of the CWU about how his members want to work with the Royal Mail to establish a scheme that can provide the postal workers with an affordable wage for life.

The PLSA could be talking with the Labour party about the proposals they are putting forward to take on the legislation established by the Coalition government to allow this risk-sharing to happen.

The PLSA could be promoting alternative means of funding DB schemes based on a more optimistic approach to paying pensions, they might even be promoting keeping DB schemes open! The FABI index is a boon to such a pensions view, the PLSA have chosen to ignore FABI, the unions proposals for the Royal Mail and the Labour Party’s proposals for risk sharing.

This is because they are paddling their own little canoe and not collaborating with anyone other than an elite group who run its DB taskforce.

I am genuinely saddened that the PLSA, which I have supported for many years, is now no more than a cheap adjunct of the pension de-risking industry. Whatever vision it had, has been exchanged for these sorry headlines and sorrier report.

A shame on the PLSA and its DB taskforce, this is no way to restore confidence in pensions.



Posted in pensions | Tagged , , , , | 6 Comments

Labour adopts CDC for good retirement outcomes

Alex cunningham

Labour Shadow Pensions Minister- Alex Cunningham


This week , the Labour Party’s list of policies became one longer when shadow pension minister Alex Cunningham announced that reviving the mothballed secondary legislation to enable collective defined contribution schemes would happen under a future Labour Government.

A few months ago, such a statement would have been greeted with jocund merriment, but not in the current political climate. In case you haven’t realised, a future Labour Government is now odds on with most book-makers


I won’t go into why the Labour party are popular right now, but I’m going to explore why this policy is so deeply unpopular with the pension establishment.


Why John Lawson wants to keep things as they are

John Lawson is the ABI’s articulate roadblock to progress. Where he leads, other insurers follow – undoubtedly the ABI are digging out their dusty anti CDC propaganda. No need boys, it’s all here. Kevin Westbroom’s elegant destruction of the ABI’s previous arguments has lost none of its force over the past two years.

The ABI, John Lawson’s Aviva included, fear CDC for what it has done to them in Europe, it has returned value from the insurers to members of collective pensions. The current chaos presented to ordinary people at retirement is benefiting insurers who are supplying product without price controls and with little competition. It is a disorderly market in which only the suppliers are winning. Lawson would have it stay that way.

The ABI still own the debate – at least with the Treasury and the FCA

At a recent Retirement Outcomes workshop, I was a lone voice calling for innovation through the use of risk-sharing. I argued that the mass market of people with between £30k and £250k in pension savings were not served by the insurance industry. Neither drawdown or annuities were realistic products for the man or woman on the Clapham Omnibus.

To the shame of the FCA, my arguments were shouted down by a sneering triumvirate of Lawson, McPhail and Cameron, the wrecking crew employed to head off assaults to the status quo (aka innovation). The man from the FCA told me I was outside the scope of the current debate. Not now I’m not.

If a Labour Government get in, the cosy alliance between the Treasury, the FCA and the insurance and SIPP mafia will be challenged.

The Usual Suspects

The Usual Suspects calling for CDC include me, and I’m not a member of the Labour Party, in fact I am off to Manchester next week and will be banging the drum for CDC to any Conservative politician who can tell the difference between a pension and an ISA. I will be doing so as a Conservative Party representative for the City and Westminster (no less).

More generally, the usual suspects include Con Keating (University of Warwick), Hilary Salt and Derek Benstead (First Actuarial) , Kevin Westbroom (Aon), David Pitt-Watson (London Business School), Robin Ellison (Pinsent Masons)  and Tim Sharp (TUC). I’m proud to stand besides these people.

What we have in common is many years experience working with ordinary members of occupational pension schemes as financial advisers, union representatives, actuaries and academics. We are people who independent of insurance companies, SIPP providers and fund managers. We – the usual suspects – are not being paid to befriend CDC, we do so because we care about Retirement Outcomes.

We care enough to put up with the jibes of the insurers, the dismissal of the FCA and the insults of John Ralfe. We couldn’t care less.

CDC – no threat to workplace pensions – but the default way for us to spend our pension pot.

I have said it many times on this blog, the current workplace pension savings market is working, it could work a lot better, but it is functional, competitive and has the capacity to become “good”.

CDC is a huge threat to the ambitions of the insurers and SIPP providers who hope that the guided investment pathways, promoted by the FCA will lead to their coffers. It is in the interests of ordinary people that (as Alex Cunningham puts it)

CDC pensions give members higher and more certain pensions than would otherwise be available to them. They deliver a reliable base level of income during retirement which helps members plan for their retirement, that’s them planning and taking control

Spending our pension pots collectively protects against longevity risk and reduces cost.

This will not happen overnight

Because of the foolish decision by Ros Altmann to mothball CDC secondary legislation (in 2015) we will not now have the rules finished till (at earliest) 2020. That means that many people who could have enjoyed the fruits of a CDC pension will miss out. This is regrettable but inevitable.

If a Labour Government is returned in the next few months, then 2020 is a realistic timeframe for the legislation to be delivered and product to be developed, we might see the first CDC schemes in 2021-22.

The ABI and IA and all the usual vested interests will try to push these timeframes back and I still think we are most likely going to have to wait for up to ten years, to be able to buy into a  collective pension.

Nonetheless, it is hugely encouraging that the Shadow Minister for Pensions is taking the action he is and actively promoting CDC as Labour party policy.


There is an alternative use for CDC, as the logical replacement of Regulatory Apportionment Arrangements for schemes such as the Royal Mail, British Steel, Kodak, Halcrow, Hoover Candy and BHS. But that is another story and a different set of battles to fight!

Posted in pensions | Tagged , , , , , | 7 Comments

Con Keating; the purpose of a pension scheme

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This article is published with the kind permissions of Dr Keating and Professional Pensions (in which it first appeared).

Given its length and subject matter, Iain Clacher, Andrew Slater and I were surprised, and flattered, by the number of downloads – over one thousand – of our response to the DWP Green Paper, DB Pension Schemes: Security and Sustainability. Less satisfyingly, the majority of the comments, criticisms and questions we have received have concerned our first, and principal recommendation, which is that the precise role of defined benefit (DB) pension schemes, and their funds, be debated and determined. It was felt that our description of the issues of concern surrounding the purpose of a scheme and fund were just too sparse and scanty.

The truth is that the original version of the paper was one third longer than that finally submitted and published, which was itself longer than the consultation. Much of the material excised was concerned with an elaboration of some of these issues and their consequences. In this article, we shall attempt to precis some of the less well-trodden, but nonetheless important aspects.

It is a fundamental feature of English law, and many other legal systems, that a person’s debts and obligations cease to accrue on death. This holds for both natural and juridical persons. The obligations do not transfer to heirs and successors. This is often misleadingly, and incorrectly stated as ‘your debts die with you’, when in fact they crystallize and become payable, as the value accrued to date. It is self-evident that the person cannot perform the future actions promised; consideration of what might have been is clearly futile.

In other words, it is not the proper purpose of a company to make provision for events occurring after its insolvency. It is as misguided for a company to over-provide security for its pensions promises as it would be to the company to create and fund a trust for the payment of dividends to shareholders to take place after the company’s insolvency.

There is also an issue of equity among stakeholders to be considered. Favouring one class, pension beneficiaries, above all others, is inequitable. This holds true even if insolvency does not occur.

This raises some fundamental questions for both regulation and current practice. The specific questions arising range far and wide, from the trivial to the profound. They include valuation procedures taking present values of projected cash flows that arise after sponsor insolvency, to concepts such as the “self-sufficiency” of the scheme. The central regulatory themes of protecting beneficiary members and funding to reduce Pension Protection Fund exposure are deeply suspect, though well-intentioned.

A company should rightly be concerned with actions that continue or enhance its sustainability, which serves to the advantage of all stakeholders. As part of this process, honouring the due performance of its existing contracts and commitments is paramount. But not more.

The establishment of a trust to administer[1] the scheme raises further issues. The beneficiaries of an occupational pension scheme, current and past employees, are not the only members of the scheme. The employer sponsor is usually[2] the residual claimant to assets remaining after the discharge of all pension liabilities, and in this sense, it is also a member of the scheme having an interest in it, albeit of a different class. This means that the management objective of the trustees is compound. It is not simply to look after the interests of one class of member. In many regards, this is analogous to the standard situation of corporate finance, where creditors have fixed claims and the equity owners are the residual claimants. The most remote claimants, the equity owners have the most control.

The analogy is also helpful inasmuch as, analogously with stakeholders and the assets of a firm, members have an interest in the trust, not in its assets. In this regard, the strategy of transferring and encashing DB pensions enabled by so-called pension freedoms can be seen as a gross error of judgement. How could a company operate if its long-term creditors or equity holders could help themselves to the company’s assets at any point in time, at the sole discretion of those stakeholders?

There is an implicit return promised on the contributions made by both the employer and employees, which is defined and determined by the projected benefits payable. We refer to this as the contractual accrual rate. This is arguably the main occupational link. The employer underwrites any shortfalls from this rate. By equal part, as the residual claimant, it gains from returns on assets in excess of this rate. In all too much of the discussion around the risks of shortfalls, this fact gets scarcely a mention.

The sponsor is the bearer of the risk associated with the liability. The manner in which the asset portfolio is managed is the primary contributor to the sponsor’s risk exposure. It is only proper that it should therefore determine the asset allocation strategy of the fund, which contrasts sharply with the current legal position.

It is also worth distinguishing between real risks, that is to say the factors which increase the pensions ultimately payable and those arising from the measure used to reduce those liabilities to a present value. The former include longevity, and wage and price inflation, and the latter market interest rates. Changes to the expectations of the former alter the true cost of provision, the contractual accrual rate.

By contrast, changes in the valuation discount rate do not in and of themselves have to have cost implications. It is only when interim actions are based upon those valuations that this becomes the case. Unfortunately, solvency regulation, with its requirements for deficit repair contributions, operates in just such a manner. This is also true of cash equivalent transfer values – pensions freedoms have granted an attractive option to scheme members, which is integrally linked to the (actuarially utilised) discount rate. This is extremely costly to schemes in the current environment.

However, the true risk exposure of the sponsor is determined at the point of execution of the pension contract. In this regard, it is analogous to the fixing of a coupon at issuance for a debt instrument. Any actions by the sponsor to limit or modify this risk subsequently may only be properly done at the sponsor’s expense. Correctly, such actions should be conducted by and within the sponsor company, not the scheme.

A sponsor company may validly decide that it no longer wishes to bear the risk associated with its underwriting of the scheme, but in doing so, the costs incurred should be for its account, not members, not the scheme. Moreover, as these costs arise from a change in corporate risk preference or tolerance, they should not be classified as pensions or even labour costs.

It is disappointing to see some trustees accepting broad limitations on deficit repair contributions. Indeed, the idea that a sponsor may limit its exposure in absolute terms is anathema to the very root of a DB scheme. Once restricted, this is a defined contribution arrangement. In particular, it is inappropriate for the terms of new awards to contain elements of deficit repair; this would constitute subsidy of the sponsor’s cost liability by members.

The setting of extremely low expected return rates in the pricing of new award contributions is one, perhaps subtle, way of doing this. The risk exposure of the sponsor is relative to this rate and the use of a low expected return both limits the sponsor’s downside and increases their upside, to the detriment of beneficiary members.

There is a relation between the contractual accrual rate (and its scheme equivalent, the weighted average accrual rate) and the required rate of return on assets held necessary to meet all obligations as they fall due; it is the limiting case. This immediately gives rise to a measure of the performance of the sponsor. When the contractual accrual is above the required rate of return on assets held, the sponsor is outperforming its contractual obligations and when below, the sponsor is delinquent.

Why are we so concerned about these aspects of DB pensions when ‘everyone knows they are both unaffordable and dying. The future is DC’. The reasons are simple and many. The risk sharing and risk pooling of open ongoing DB schemes are powerful; depending upon the precise elements present, the efficiency of DB relative to DC lies between 30% and 100% above DC. Moreover, survey work shows that DB characteristics, not DC, are what individuals actually want in their pension. This preference for a predictable lifetime income is independent of the age of survey respondents. Contrary to the received wisdom, it is the younger cohorts who are most willing to pay more for a stable predictable lifetime income.

This is a sketch of some of the issues, omitted from our Green Paper response, which we believe need an open and frank debate. We would welcome it beginning.

Con Keating is head of research at Brighton Rock Group

[1] It has become common practice to use the existence of trustees to delegate to them responsibility for certain discretions regarding the pension obligation, for example pension increases, as specified in the governing documentation. But the trustees do not, in any sense, own the resultant obligation.

[2] This is the norm, but not universal. There will be some pension arrangements where it is not specified in governing documentation that the sponsor is a beneficiary of residual assets. But it is grey, as there is legislation which provides for a refund to the sponsor if the assets are considerably greater than the value placed on the pension obligation, although that legislation been reviewed or revised for quite some time.

Posted in pensions, Pensions Regulator, Retirement, risk | Tagged , , , , , | 4 Comments

Let these politicians do some work!

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We have had so many referendums and elections and leadership battles and cabinet reshuffles over the past two years, that politicians may have forgotten they are here to govern the country. We elect 650 people every five years to do a job of work, not to showboat from one media circus to another.

The party conferences this year seem particularly pointless. We are not due an election for four years , we are in the middle of an arcane dispute with Europe about how we extricate ourselves from the European Union and our economy continues to rack up debts as we continue with the current economic policy into a seventh year.

Ordinary people are worse off than they were in 2008, they are polarised between those who sit on fragile housing wealth and those who don’t, between those who have pension rights (the public sector worker) and those in the private sector (who have auto-enrolment).

The young are surly and live with the uncertain expectation of “wealth cascading through the generations”. As a nation we are unproductive, people are under-motivated, there is no big idea driving the nation forward.

If anyone has captured the public imagination, it is Jeremy Corbyn; he is admired for not changing his views since the 1970s. It could only be in a world bankrupt of any political spark that such a regressive outlook could inspire.

In such a vacuum of hope, even Vince Cable believes he has a chance to be Prime Minister.

We need politicians to do more work

The particular policy area in which most readers of this blog have an interest, is financial services and in particular the reform of our pension system.

This is an area in which much can be done to improve the lot of ordinary people. Unfunded pensions, especially the state second pension have been reshaped and probably need further reshaping to iron out some wrinkles (WASPI, the contracted in). But the big job has been done – probably Steve Webb’s biggest legacy.

Auto-enrolment is going well and though it faces big tests over the next three years, it has the support of the small businesses that we feared would not or could not participate.

The decline of our large DB schemes into the current mess is however a national disgrace and one that is directly attributable to a heavy-handed and unimaginative approach from Government. Not only has it resulted in a wholesale reduction in retirement prospects for a large proportion of the working population but it has seen productive capital diverted into non-productive investments – principally bonds.

I have table a request to speak at the Tory Party conference to excite the audience into considering the long-term renaissance that the better allocation of pension capital could bring. If we were to put the trillion pounds invested for our retirement in DB schemes to work, rather than to sleep, then pensions could become part of the solution – not the problem.

I very much doubt that I will be heard by the Tory grandees, but I will not be shy if I am! Pensions is an area where much can be done and it is not enough for us to sit and watch others, we need to show leadership to the politicians, otherwise they will do no work!

We need to work better – Productivity is all

As a nation we are unproductive, we sit around on our arses and moan too much. We moan at politicians for doing nothing and while we moan, matters get worse.

Successes – such as auto-enrolment – happen because politicians make rules that we can follow, this is proper Government. The reform of the funds industry being carried out by the FCA is proper Government and the work of CMA to prise open the hegemony of a few investment consultants will be the product of proper Government.

When I spend time with our pension management teams, I sense a zeal to do the right thing, whether to get scheme funding right, keep records accurately or talk to staff about their benefits and options. There is real pleasure in that productivity, our offices are happy places, the happier for being busy.

Productive work is what gives quotidian meaning to most ordinary people (me included). Without it, things would fall apart, the centre could not hold.

This is what we can teach those in Westminster, we want to be kept busy, we want to be industrious and produce! The current jaw-jaw about what we might or might not do is a distraction from what we should be doing – which is driving our nation forward as a single productive entity.

Pension policy is a part of that, but only one cog, I will be going to Manchester next week with some fire in my belly, determined to kick ass. Time to get pedalling again!

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Posted in pensions, Politics, Popcorn Pensions, Public sector pensions, Retirement | Tagged , , , , , , | 4 Comments

So you want to pay your own pension costs- do you?


A new twist to the Pension Transfer Debate has been introduced by Willis Towers Watson (WTW) at a seminar last Tuesday at their London offices.

At the event, consultants reported a ripple effect caused by the surge in members transferring out.

WTW have done their own research which shows that schemes are losing members fastest where CETVs are over £500k where members are engaging with the message “more cash now plus more flexibility overall”.

WTW’s message is that “facilitating paid-for impartial financial advice can dramatically increase the numbers transferring”.

WTW’s extensive data illustrates that only those members who are already informed about pensions and able to fund their own advice are able to access the flexibilities.

Through this series of logical steps (the ripple), WTW argue that extending the provision of financial advice to a wider section of scheme membership, could democratise transfers and accelerate the “Stampede to cash in ‘gold plated’ final salary plans” (FT headline).

At the same time, it could accelerate the stamped to buy-out of those same schemes, ridding UK Plc of the awkward problem of being partially accountable for its staff’s retirement experience. This after all is the long-term aim of the Regulator’s  “integrated risk management framework”.

Obstacles to transfers can easily be removed

Having established the case for financial advice from the member’s perspective, the seminar goes on to look at the impact of such a “stampede” from the scheme’s perspective.

In doing so , they counter four prevalent arguments

  1. The administration crunch for DB transfer analysis can be eased by bagging TVAS analysis resource using the scheme’s economies of scale
  2. The impact on assets following the departure of cash can be managed through employing top-notch investment consultants (step forward WTW)
  3. The lack of awareness of the honey-pot by less affluent members can be solved by better scheme communications (step forward WTW)
  4. And the DB transfer process can be streamlined by working through your scheme consultants to deliver excellent service through in-house IFAs.

And all this can be self-funding (at least for the scheme)

WTW estimate the administrative cost for an occupational pension scheme to pay a pension is £3,000. But if an IFA can get a member transferred out, that cost falls to £0.



The cost of getting an IFA to engage with a member is reckoned by WTW to be £900. WTW estimated that about two thirds of members would engage with an IFA with about half choosing to transfer out of the scheme after engagement. So a scheme might expect a third of members not to engage, a third to engage and do nothing and a third to engage and to transfer out. On this basis, the cost of transfer advice would more than be covered by the long-term administrative saving to the scheme.


I hope you get the picture. The message is clear. as long as trustees are prepared to meet the long-term impact on the scheme of investment strategy, projected cash flows and funding, WTW reckon that admin savings can fund the cost of reducing the membership of DB plans by a third.

So why would I want to pay my own pension costs?

It is clear that trustees like the idea of helping members to pension freedoms. Superficially they are fulfilling the dream of “more cash now plus more flexibility overall”. Employers are pretty keen on losing a third of their scheme liabilities, that’s a massive kicker to their balance sheet. In terms of reliance on the employer’s covenant, the trustees can demonstrate their journey plan is on track. The Pensions Regulator is watching integrated risk management in action! This is the classic win-win-win.

Beware “win-win-win”, there are no free lunches.

Sorry to poke a stick in the spokes, but there are losers here. Firstly, a third of members will have not only have lost their right to a wage for life , but lost their right to free pension administration (costing £3000) in the process. The cost of that administration should be reflected in the CETV though I have never heard an actuary mention it in the discount rate factors used to value pensions. I would welcome the views of any pension actuaries who can claim to factor in that £3000 into their CETV calculations.

My suspicion is that members who transfer are picking up this cost which is a fixed cost (not varying with the size of the transfer). So the lower the CETV, the higher these admin costs are as a percentage of the cash transferred.

This “£3000 admin cost” is truly  the cost of the pension – as a wage in retirement. For those in the Royal Mail scheme, it is one of the things you don’t get from a DC scheme or a cash-balance scheme, that you do get from a career average scheme.

I wonder how many TVAS style analysis, factor in the £3,000 admin saving to the scheme? I wonder how many SIPP drawdown plans are able to match the efficiency of a large occupational pension scheme in paying pensions? I wonder if those who cash out a SIPP for a big bank balance, ever consider what they have lost by way of the administrative structure of a pension wage for life?

Why would anyone want to give this up? Presumably the lure of “more cash now plus more flexibility overall”.

Not enough friction

The WTW seminar was entitled “DB Transfers; Seizing the Opportunity”. I remember going to a similarly entitled lecture given to me by Allied Dunbar in 1987.

The power of “more cash now plus more flexibility overall”, is so great that it could solve many of the problems with DB schemes overnight. By encouraging another third of members to take CETVs by using good scheme communications and employing IFAs, schemes can seize a massive opportunity for short-term gain.

However, the impact of that 1987 seminar is still being felt today by the millions of people outside pensions who were either mis-sold  or knew people who were mis-sold a dream that never materialised.

We need friction in the system and that needs to come from people asking serious questions about what we are doing. In my view, many occupational pension schemes are paying out transfer values which are too high, and many people are undervaluing the long-term benefit of a wage for life.

I do not think that the idea of encouraging transfers this way is good news at all. It smacks of all “win-win-wins”. The losers of these schemes are those who do not have the capacity to administer their own pensions or the means to pay others to do it for them.

WTW can point to the IFAs as capable of doing this, but I question the capacity of the IFA industry to manage the surge in DIY pensioners, that a frictionless system would create.

Pensions are hard, pension schemes are serious mechanisms that people seem to under-value. More questions should be being asked about the plans being put in place to dismantle them, for they are much easier to demolish than rebuild.


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Over 55 and still paying commission on your pension?!*!

It may surprise you, but I am still paying commission to Allied Dunbar on a pension I took out in 1986 and stopped paying into in 1989.

That commission works out as a 3.5% pa charge on the units I purchased in the first two years of my contract and I am still paying that 3.5% as I type – 31 years since the point of sale (the only point of contact i had with the advisor).

Most personal pensions sold between the mid 1970s till RDR in 2012 were sold with this kind of charging structure and it is only now, when the units have matured to a decent value, that we are paying companies like Allied Dunbar (now Zurich) the money back.

Until very recently, there was no way out of paying these charges, my personal pension has a contractual term that runs to my 60th birthday so the transfer value of my pension assumed a clip of around 20% (the value of those 3.5% deductions over the last 5+ years of my investment). Allied Dunbar simply took the money by right (read the small print).;

However, and this is very important if you are reading this and have a personal pension, everything changed a couple of years ago when the Government capped the amount that can be taken by the insurance company as an early transfer penalty at 1% of the amount you have saved. For me this has meant that my transfer value has shot up since my 55th birthday by around 19%!

My uplift is particularly high because I stopped paying into my personal pension after less than three years, but I wasn’t alone in that, the “lapse rate” on the type of contract I was in – especially among younger people -was high. Back then , as soon as you worked for a company with an occupational pension, you either gave up your works pension rights or had to stop paying into your personal pension

Not everybody knows that!

The Government’s early transfer cap recognises that most people with high transfer penalties never got the advice the charge on those early units was there to pay for and many of us stopped paying into the pension because we got a job that had a works pension.

However, not everybody knows that they don’t have to pay these extortionate charges and that they can transfer away with only a 1% penalty.

One of the reasons for that is the peculiar reluctance of some insurers to tell people they have this option! Funny that!

Yesterday I received a letter from Zurich (who have taken over Allied Dunbar) telling me about my retirement options.


Actually, one of my retirement options would be to transfer my money into a new style contract with Zurich where instead of paying the 3.5% penalty charge each year, I’d pay no penalty charge at all!

Unsurprisingly, the bulk of my money is not with Zurich and I intend to consolidate the Zurich pot into my main personal pension which is with another company.

Not a lot of people know they can now do this  – which is the point of this blog!

Better late than never

I’m pleased to have got the letter, earlier in the year I’d heard a rumour that Zurich weren’t honouring the 1% exit penalty guarantee. It was only a rumour but it might explain why these retirement options were sent to me over 10 months after my 55th birthday.

In the meantime, I’ve been paying 3.5% pa of “plan value” to Zurich for nothing at all. This pisses me off.

I’ve asked Zurich to look into why there is a delay and if I don’t get a proper answer I will escalate to the Independent Governance Committee. Actually I have already escalated this issue previously (poor old Laurie Edmunds), so I’ll be reminding him that Zurich are lagging.

It’s better that I get the offer to move my money late than never, but I wonder how many other Zurich policyholders have really clocked the significance of the 1% offer and how many simply opt to cash the money out (as advertised in the letter).

In my case, cashing out would have crystallised my money purchase allowance, reducing my capacity to pay future contributions from £10k to 4k pa (not a lot of people know that either.

Tricky things pensions- particularly tricky when you have small legacy pots.


One option – Pension Bee

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Pension Bee’s Romi Savova


If you want to know more about your options to consolidate, you might do worse than speak to Pension Bee which you can do by picking up your smart phone and dialling 020 3457 8444

This is not a paid for thing, there are hundreds of great IFAs who can help you here and other services which I’m sure rival Pension Bee’s. But I’ve recently been doing some due diligence on Pension Bee and can give them the thumbs up! Good people!

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A battle won – not yet the war; FCA demands cost disclosure.


Another step towards transparency



I get worried by premature announcements of victory. The battle to get proper cost disclosure is a long one , hostilities commenced properly with the OFT report on workplace pensions in 2014. This reminded Government that we know nothing about what we buy (even if we buy on behalf of others).


The OFT were explicit; we should know what we are paying for.


Now, three years later, the FCA have agreed with the OFT and yesterday made it clear it expects this to happen from January 3rd 2018.  While I am pleased that Policy Statement PS17/20 finally allows IGCs and Trustees to carry out their duty to properly report on the value for money “operators” are getting from their investment suppliers, this is not the result we might assume from the FT’s Headline “Victory for workplace pension savers over hidden charges”.

“Operators” is another term for “provider” and means the body that runs the workplace pension. Operators do not manage money themselves, they sub-contract to insurers who sub-contract to fund managers who sub-contract to brokers and dealers etc.). Occasionally the chain is shortened (NEST for instance do not generally use insurers to wrap funds) but the complexity of the various relationships means that (until now) , not even the IGCs and Trustees have no real idea how much “slippage” there is between what fund performance gross of costs and net of costs should be.

In practice it will enable IGCs and Trustees to get this answer when they send their fund managers a questionnaire (template courtesy of the Chris Sier disclosure committee). The answer will allow the IGC to establish the money that members are paying to have their fund managers. Hopefully the IGCs and Trustees will be able to add this to the charge made to the Operator to discover how much of the member charge is going on investment and how much is being retained by the operator to pay for other things (including the “member experience”).

Let’s be clear, members will not be allowed to see how much of their AMC is being spent on fund management. That number is still firmly locked behind an iron door locked by a non-disclosure agreement – unless you actually declare it (which L&G and Aegon do).

We will have to wait till the second quarter of 2018 before the FCA even begin to consult on what will be declared to members. Meanwhile we can hope that the DWP are intending to consult on member disclosure somewhat sooner. Even so , members cannot expect to see what they are paying for transactions for some time and there seems to be no plan to force operators to disclose what their Investment Management Agreements tell us about the cost of fund services they are purchasing from the fund managers or insurers.

In short, PS17/20 is another tiny step towards proper disclosure, but in itself, it will do little but empower fiduciaries such as IGCs and Trustees to be a little tougher on operators to be a little tougher on fund managers. This is not a great victory for savers of workplace pensions.  That hopefully will come later – let’s set a tentative target for the war to be over by 2020.


Having met with B&CE’s head of policy yesterday afternoon, I can confirm that its publication of the Peoples Pension’s “slippage” costs yesterday morning (within minutes of the FCA’s announcement – was a pure coincidence. Indeed, had it not been for a health problem with a member of said head’s family, B&CE would have beaten the FCA to the mark.

B&CE will be happy to know that , having followed the FCA’s original “slippage” methodology, the numbers they have published are pretty well the numbers they should be delivering to the Peoples Pension’s Trustees for analysis prior to the next Chair’s Statement, an event so pregnant with expectation that neither the Head of Policy or I could remember when it is. I have spent 30 minutes this morning searching Google, the Peoples Pension website and my own records for the latest Chair Statement from Steve Delo (trustee chair). I have drawn a blank.

So I think it most unlikely that the People’s Pension holds much store by the Annual Statement by its trustee chair and David Farrar – heading the trustee disclosure working group at the DWP, might like to ponder about disclosing anything via a trustee chair’s statement which is presumably available on request and after the production of a stamped addressed envelope to B&CE Towers – Crawley.

Having had my groan at the total nonsense that is trustee disclosure in workplace pensions, I will now applaud B&CE for getting State Street to produce the numbers and for presenting the numbers in a sensible way so that people like me (as well as the reticent trustees) can see them.  They are here

First the headline number 0.04%

Transaction costs

Total transaction costs in the People’s Pension default fund from 1 Jan 2016 to 31 December 2016 were 0.04%. This is a combination of explicit and implicit costs as outlined below.

Here are the Explicit costs  -0.01%

These can be broken down to 0.01% explicit costs (e.g. brokerage fees, stamp duty and custodian fees). This is the figure which can be compared with figures disclosed by other pension schemes.

Here are the Implicit costs- 0.03%

These are  the difference between the mid-market price and the actual price e.g. due to the effect on price of placing the bid/making the sale). These have been calculated following the methodology set out by the FCA in its consultation, and now adopted (almost entirely) into FCA rules. B&CE are not aware that any other pension scheme has reported implicit costs yet.

I’d agree, no other pension scheme has reported not just what the costs are, but how they were worked out.

What’s more B&CE have also published the anti-dilution levy figures and their stock-lending figures (see my countless blogs about this!!).

So full marks to B&CE for disclosure, State Street for disclosure and People’s Pension for disclosure. If this lot can do it, so can any workplace pension provider!

The Pension Plowman challenge


I  set myself this challenge. I challenge myself to make sure that by the end of this decade, every workplace pension is publishing not just the transaction costs of the funds used, but the costs to the operators paid to the fund managers.

I  set myself a second challenge. I challenge myself to produce a league table of these disclosures from every workplace pension analysed by and even those we do not analyse as they don’t want to be on this platform.

I set myself a third challenge to collect consistent performance statistics and publish them alongside the transaction cost figures together with risk-adjusted performance figures showing the true value delivered by the fund managers.

Finally, I set myself the challenge of aggregating these numbers into a league table of workplace pension providers , showing costs, performance and the value for money of the default fund of each workplace pension so that people can see if their “operator is getting value for money.

I will not stop there!

Once I have got a league table showing the value for money that the operator is getting, I will take the final step towards establishing whether members are getting value for money. This will mean analysing the difference between what the operator is paying for funds and what the member is paying as a member charge for the workplace pension.

The difference is what the member is paying for the experience of being looked after by NEST, L&G, Peoples Pension etc. That cost too deserves a value for money number.

I will not cease from mental toil, until I have produced a second league table that shows what I consider “value for money” from this residual charge. Indeed I will only lay down my plough when I can show people not just the value being got on their behalf on their investments and the value they are getting from their operator as “member experience”.

I will lay down my plough when I can get an agreed number from the IGCs , Trustees and Operators of workplace pension called the “value for money score”, which I can publish against every workplace pension in one big fat league table showing all the other scores like “goals for and against” in the football table.


I will set myself the target of this happening by the end of the decade because

  •  Ordinary people deserve to know whether their money is being properly managed
  • Operators need to be held to account
  • IGCs and Trustees need to benchmark their operator’s performance
  • Government (especially the Regulators)  need to benchmark performance
  • There needs to be a proper way of switching from one provider to another if things go wrong – with an audit trail of “why”
  • Fund managers , operators , trustees, IGCs all need to be held to account if we are to create and maintain confidence in workplace pensions.

Transparency is the best disinfectant, this is what transparency in workplace pensions looks like. If you don’t want transparency and don’t agree in the challenge I am setting myself, you are free to tell me why not!

Nobody has yet had a vision like my vision, no-one has seen the whole picture and dared to write it down as I am writing it down now.  This has been a challenge and I am proud that I can write this down – four years into the Pension PlayPen project, because I really believe that together we can get this done!


I want to be writing in January 2020 about that single league table that properly compares every aspect of the performance of a workplace pension and does so in a single “value for money score”! I want that table to be available to every person saving into a workplace pension and to all those who are considering doing so.

I hope that by then , we will be as one with my vision! Then the war will be won!

war won

War won!







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Why I’m for “patient capital”


I missed the consultation on “patient capital” but I’m pleased that it’s resulted in a proposal was put forward by an industry panel, led by Sir Damon Buffini, which looked at ways to encourage investment in new businesses, such as tech start-ups, for the long term.

The output of Sir Damon’s work is here and it chimes with what I’ve been wanting to do with some of my retirement savings. I’m really pleased to hear Phillip Hammond mentioning the review in his Budget Speech. I hope that mature savers will be able to invest patiently for the later years of our retirement without having to worry about penal rates of taxation. Doing the right thing with money, should be tax-incentivised. While most of my thinking is about the issues of those on low-earning, I don’t see why those who have done well and saved hard, should stop because of the LTA and AA.

I am 56, have an LTA of £1.18m and am saving avidly – even though it is no longer tax-efficient for me to do so. I am currently using ISAs but I’d rather keep my retirement savings in a pension pot and my shorter term capital in my ISA pot.

People like my friend John Ralfe may snipe at entrepreneurial tax-brakes, but I’d remind them that their financial security is built on the efforts of our entrepreneurs. We cannot have social justice without the wealth they create and we need to put that wealth to good use.

The proposals themselves focus on setting up an entrepreneurs fund that has a lot to do with VCT and EIS but provides longer term funding through a special investment vehicle. The proposals talk of an “opt-in” for DC investors, but reporting in the FT and elsewhere suggest that people who use these vehicles could accumulate beyond their lifetime and annual allowances without punitive taxation.

On budget day, Nigel Wilson spoke out on the need for direct investment to help the economy, improve productivity and encourage saving. You can read what he had to say here.

We currently have capitalism without the capital, but the proposals of Sir Damon and his committee, unlock the wealth of people like me , currently sitting in the £300 bn. cash ISA pool, for entrepreneurial investment.

I look like a late convert and – for once – an advocate of a Treasury pension policy!

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Question Time – The Growing Pains of DC Pensions

RSM3.pngThis is a plug for an event I’m helping to moderate. I don’t normally plug events but I’m making an exception for this one. Stephen Glover, who is behind this has donated £1,500 to a charity I chose and that money is going to make a huge difference.

This is going to be a great event and if you want to go, you can either use the contact details on the ad. below, or contact Stephen directly at



 The Royal Society of Medecine, 1 Wimpole Street, London W1G 0EA 1:30pm, Wednesday 10th January, 2018

For our new Question Time debate in London, we will look at the UK’s fast growing defined contribution pension fund market, and discuss some of the key challenges and opportunities that lie ahead.

This Question Time event is the ideal forum to exchange ideas on the future direction of the DC marketplace and your place in it.

The afternoon seminar will consist of two sessions in a “Question Time” format.

Each of the two sessions will open with contributions from panellists representing major stakeholders in the DC marketplace, following which delegates will have the opportunity to engage in what promises to be a vibrant question and answer debate.

The seminar is an ideal opportunity for participants to assess the DC market and discuss how to improve outcomes for members, authorities and advisers alike. It will be followed by a drinks reception, providing an opportunity to network with leading DC practitioners.

This event will provide genuine insight into the likely shape of investment thinking for the future of the DC sector and will be held under the Chatham House rule to encourage openness and the sharing of information.

Question Time – The Growing Pains of DC Pensions

13:30 – 14:00 Registration and coffee

14:00 – 14:20 Introduction Steve Webb, Director of Policy, Royal London

14:20 – 15:40 Question Time Panel 1: The Key Challenges in DC Scheme Design

Moderator: Stephen Glover, Director – Conference Development, DG Publishing

Panellists to date: Mark Cliff, Pension Director, Manchester Airports Group Louise Farrand, Executive Director, Defined Contribution Investment Forum Kevin O’Boyle, Group Head of Pensions, BT Mark Thompson, Chief Investment Officer, HSBC Pension Scheme

15:40 – 16:00 Coffee

16:00 – 17:20 Question Time Panel 2: The State of Play in DB – DC Transfers

Moderator: Henry Tapper, Founder & Editor, Pensions PlayPen

Panellists to date: John Nestor, Independent Trustee, Capital Cranfield Dr. Chris Sier, Chair, Institutional Disclosure Working Group, FCA Nic Sweeting, Senior Policy Adviser, Department for Work and Pensions

17:20 – 17:30 Closing remarks

17:30 – 19:00 Drinks reception

It promises to be a thoroughly rewarding afternoon and evening and I hope you can join us.

Venue The Royal Society of Medicine, 1 Wimpole Street, London W1G 0EA

1:30pm, Wednesday 10th January, 2018

For enquiries contact Lily-Grace Burford at or call 020 3904 0072. 0r



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Rodney Bewes


Rodney Bewes died yesterday aged 79.

We last saw him, with a friend on the river at Goring in September, he had cancer but he was still enjoying his boat Cera, in the company of a friend.

Like Matthew Pinsent, I can see Rodney in Maurice – clapping each Henley crew as it came by.

Everyone on the river will miss him. I hope that he is with Daphne now. Our thoughts are with Joe, Tom, Daisy and Billy.

joe tom and Billy


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How green is my pension?


Aberdeen Standard and FT sold out their conference on the DC investment default this week and kicked off the morning with a discussion on ESG and the greening of our pension pots.

As I listened, NOW Pensions sent me a press release;-

NOW_RGBAs part of its ongoing commitment to socially responsible investment, with effect from October 2017, NOW: Pensions has introduced green bonds into the NOW: Pensions Diversified Growth Fund. The fund now has approximately 13% of total assets under management invested in green bonds.

Green bonds provide essential capital for projects involved with environmental and climate protection. For example, renewable energies, resource efficiency, environmental friendly transportation, pollution prevention and control, sustainable water and wastewater management and biodiversity. Investments have been made in green bonds issued by KfW, the European Investment Bank and the French Government.

In line with diversified approach adopted by the portfolio, investments have been made in green bonds denominated in GBP, USD and Euro.

Win Robbins, Trustee Director, NOW: Pensions said:

“The NOW: Pensions Investment team has thoroughly researched the green bond market to identify bond issues which satisfy the risk return characteristics that the portfolio is seeking. 

“Encouraging and financing projects which focus on environmental and climate protection cannot be left solely to governments. The green bond market fulfils a vital role for society as a whole, while also benefitting members of the NOW: Pensions Scheme.”

NOW join NEST as master trusts that is backing up what it says by what it does.

Up your game – IGCs

Last year only two Independent Governance Committees (the groups overseeing the investment of insurance company group personal pensions), even mentioned Environmental Social and Governance factors by which they determine the value of their investment default.

Ironically, Standard Life were not one of the two and I mentioned at the meeting that I hoped this would change in 2018.

We should not have to wait until crowds beat down the doors of those who run our pension funds. The role of the trustee and the IGC is reach out to members and test the water – and then to adjust investment strategy to the wishes of members.

This is what Share Action have been doing for some years and I’m pleased to hear that they are about to put pressure on DC fiduciaries to step up to the mark. If we seriously want people to get interested in pension funds, we’ve got to make their pension funds interesting.

I am generally interested in green bonds. I know what poor governance does. For the past two summer , large parts of the Thames were polluted because of major governance failures of Thames Water. Thames Water’s bonds have tanked as a result as investors consider them more risky – less green. As a result , Thames Water is having to pay more for the money they borrow.

If Thames Water’s bonds turned green, the water of the Thames would not. These simple linkages may seem trite, but they make sense to ordinary people. When the Norwegian Oil and Gas fund decided not to invest in oil and gas – people sat up. When HSBC invested future contributions of its massive DC fund in the L&G Future World Fund, people sat up. I sat up and I went and looked at it and I invested half of my DC pot in it.

What’s more, my girlfriend asked me for the brochure and she is involved with another DC fund not dissimilar to HSBCs.

Getting more people to sit up

Much of the discussion that followed the ESG debate was about getting people to sit up and put more money into pensions,

It’s easy to throw money at the problem – paying for people to come into the workplace and explain the value of doing so. It’s easy to tell employers to bump up the contribution rates, it’s easy for Government’s to give away tax to encourage saving.

It is very hard to get people to really take an interest in investment for the future. It is almost impossible to convince people of the value of ALM, DGFs, ETFs and MAFs.

But if you explain, like NEST, NOW, L&G and Aviva are doing, how investment defaults are being managed for social purpose, then you have a chance of capturing the imagination of younger people. That’s what we need to do, we need them to sit up and take interest – for their money will be invested for decades to come and make a real difference.


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“Spanish steps” – ideas on pension funding from Jon Spain.

jon 2Jon Spain is an eccentric brilliant actuary who has worked for many years worked at the Government Actuary’s department.

I am proud he has asked me to provide a précis of his response to Charles Cowling’s Sessional Paper to the Institute and Faculty of Actuaries.

I cannot yet publish Charles Cowling’s paper but have a PDF of the original which I would be happy to mail to any reader requesting it me on

Charles Cowling’ s paper provides the basis for the implementation and management of an integrated risk management framework.

While grateful to Charles & Co for spending so much time and energy, Jon wished it had not all been built upon such loose foundations. He said he was one of those cited in paragraph [1.1.2] who think that actuaries and trustees are being too prudent in their assumptions, leading directly to pension scheme liabilities being overstated.

In paragraph [2.7.2], it was surprising that trustees’ duties were defined by reference to a TPR document rather than to legal sources.

His main problems with the paper stem from the claim in section 4 that financial economics are relevant.

As financial scientists, actuaries need to follow the evidence. However, there is zero evidence whatsoever that financial economics can offer useful guidance for long-term entities.

Not only do market prices not have any predictive return power but also higher achieved investment returns must reduce costs for the same benefits being provided.

There is a huge concentration on risk as if it must necessarily actually crystallise, no probability being ascribed, especially in the publication of alarmist deficits.

As long ago as 1952, 65 years ago, Redington pointed out that avoiding losses is the same as avoiding profits, but there is rarely any reward recognition. Prudence can only be identified from the best estimate, which needs to be targeted more explicitly.

The long-term can imply different restraints from the short-term because one can’t simultaneously aim “long” and “short”.

Short-term volatility need not be regarded as problematic for trustees, so long as they reasonably believe that they have a long-term upon which to concentrate.

Path-dependence is really important and it needs greater exposure.

A fundamental problem is that risk quantification is very poorly captured by scalars.

Actuaries should recall that the discount rate is simply the inverse operator upon future investment returns. No longer the case, capitalisation was originally the only actuarial tool available but it obscures more than it reveals.

Discount rates are simple and simplistic, readily available to anyone and dangerous, whether in “wrong hands” or “right hands”.

Actuaries should stop using discount rates alone for long-term projects. Instead, we should be using robust ALM, enabling actuaries to inform their clients better, with clearer probability outcomes disclosed.

Finally, he agreed with the authors that the current DB funding regime needs reform but he thought that their solutions rest too much upon quicksand.

So he implored Council and Pensions Board to look at the basics again and to commission more work, reflecting the real world rather than pretending that mark-to-market can possibly help actuaries guide sponsors and trustees in this area.

In May 2017, Jon submitted a personal response to DWP at

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To Belfast with love


I’m off to Belfast today to talk with Brian Spence and the Dalriada trustees. They’ve been billed the Regulator’s Rottweiler and I didn’t do much for their brand by dubbing them “Rentokil”.

My day-out is partly to build commercial links and partly to understand the misunderstood. Dalriada are keen to set the record straight.

I have three schemes I want to use to better understand the Dalriada way, NOW pensions, Friendly Pensions and the Ark Pension Schemes. Dalriada’s involvement in all three has been or is to remedy things that have gone wrong, but are they surgeon, executioner or undertaker?


Dalriada 5

Dalriada was a Gaelic Kingdom that encompassed the Inner Hebrides such as Islay , Mull and Iona, the Mull of Kintyre and the bit of Northern Ireland we now know as Ulster. Dalriada2

The southern end of Iona is one of my favourite places on earth. Belfast ranks alongside Newcastle and London as my favourite British City and Islay supplies my preferred source of alcoholic beverage. Dalriada clearly has more going for it than history would suggest, for it really hasn’t been a force in Scotland since the rise of the Kingdom of Alba in the 9th century.

I rather fancied Brian Spence as a latter day Dalriadan king, but an inspection of the list of Dalriadan kings suggest that the monarchs of yesterday survived as such for a maximum of five years. Spence set Dalriada up in 2003 so will soon have a span three times that.

He strikes me as likely to have been a good Dalriadan king, he has a war-like reputation but a saint-like disposition (at least when we talk). The “sharp stick” with which Dalriada’s QC Moeran threatened to poke the Ark victims , sounds straight from the Gaelic armoury. However a more genial and dedicated group of trustees than Brian has assembled , could be hard to find.

dalriada 4

The Book of Kells – Dalradian in inception


Velvet gloves hide iron fists.

Peace mission

Whatever has happened in the past (and I aim to find this out), Dalriada Trustees seem set for a strong future with a strong leader and a fine bunch of clansmen. I’m going to their head office (Dunadd?) with one of my colleagues.

We come in peace and in the firm expectation of a strong alliance between our firms.

Winter is Coming.

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