Is your pension due an upgrade?


In the relentless pursuit of new business, insurance companies and other financial institutions involved in the commercial marketing of pensions , have focussed on the new customer or the existing customer increasing his or her savings. It’s not hard to understand why, everyone from the CEO down is rewarded either directly by the shareholders or by performance-bonus structures on growth.

Past wonder-products meanwhile languish, often sold to consolidators such as Phoenix and ReAsssure or managed in separate units, quarantined from the latest developments and labelled “legacy”.

The reality of product management today is very different from the promise of product management made to savers in the fifty years since pension savings products became mass market in the early seventies.

We have become used to upgrading legacy products. For instance if you have a hotmail account – you can upgrade to Outlook easily and for free.


This article looks at what has happened and what could happen, and asks just how easy it is to upgrade your pension to one fit for today’s purposes

Shouldn’t all customers be treated the same?

The idea of upgrades is to make available to loyal customers the best service provided by the organisation they purchased from. All customers should get the same value for money or “moneys-worth”.

Not all legacy products offer customers poor moneys-worth. If you got lucky, your policy might offer you valuable features guaranteed by the original policy conditions. These might include a guaranteed annuity rate and loyalty bonuses. At the other extreme, the product may deteriorate rapidly if you cease making payments or draw your money before the end of the contractual term.

These legal conditions do not however govern the provision of advice on the product. Despite insurers agreeing to pay commissions – which could be as much as everything paid into the policy in its first year- to financial advisers who recommended and help set up the product- the insurer had no responsibility for the service offered by that “adviser” who typically was never seen after the original sale.

The cost of using these advisers did not fall to the marketing departments of insurers but was passed on to the customer. So products that were bought with advice had the cost of the advice paid for from the policy, the impact of which is experienced today. Many insurance companies offered the product on commission free terms – provided the adviser was prepared to forsake his commission and we can see the impact of the enhancement in today’s pot value by comparing the returns achieved on the commission free and the commission loaded policies over time.

Research we are doing at AgeWage shows that this impact is huge and can account for more than half the total value of a pension pot.

Insurers will argue that legally the advice was paid to agents who were not under the employ of the insurer and that any claim against non-production of a promised service is against the individual advisor or the advisory firm that employed them but this could well be challenged in a court of law. Many of the commission agreements with advisers placed no obligation on the adviser to maintain contact with its customer, the insurer was simply paying a sales incentive and charging it to the customer.

The issue for customers is whether this was ever fair, or whether they were vulnerable to purchasing poorly because they were fooled that the insurer and agent were on their side. As many of these sales are twenty or thirty years, I doubt that the customer’s issue will ever be tested in a court of law, but that does not mean that the issue isn’t very real.

The rates of return we at AgeWage are discovering from these legacy products are so far below the returns that would have been achieved from an investment in an index that many outcomes are little more than a return of contributions paid.

Quite clearly, the returns for past policyholders are not comparable with those of customers in modern products such as the workplace pensions used for auto-enrolment. All customers are not being treated fairly and the issue for the FCA and tPR is how to ensure that this inequality is reduced and ultimately eliminated.

Ways of reducing inequalities

The first and most radical way of addressing the problems of legacy pensions and their outcomes is to get the shareholder to make good. Solutions could include the reduction of exit penalties – where the policyholder can walk away from legacy terms at minimal cost. This already is in place for those over 55 but could be extended to all policies.

The second is to identify policyholders who have been particularly badly treated and offer them a policy enhancement from a fund set up by the insurers and others with books of customers impacted by legacy charges. There might be a case for the fund to be seeded from the orphan assets of those insurers (eg the unclaimed pots of those who have “gone away”. This would not of course restrict the right of the gone-aways to their pension pots – if they come back for them.

The final and most radical solution would be for the Government to enforce a retrospective enhancement on all policies with a reduction in yield of above a set figure (say two percent per year). This would require a lot of work from the insurers to identify policyholders affected and a very major dent in shareholder profits – akin to the cost of PPI to the banks.

Is your pension due an upgrade?

The four hundred billion pounds worth of legacy pensions are going away. They are shrinking as people cash in pension pots , transfer them to aggregators who draw down from them or swap them for annuities. This is happening now and will continue to happen for the next twenty or so years as the hump of the old pre-RDR personal pensions and other legacy products reach maturity.

The sleeping dogs – including many of the people I advised – have often been lied to. They are now paying the price of the deceit of insurers, advisory firms and advisers who abandoned clients but continued to claim trail commission and did not pay back the initial commissions that promised ongoing advice.

I do not see Government enforcing an uplift in policies impacted, so long as insurers continue what many have started, and do something to upgrade the experience of those who have not been treated well.

So we at AgeWage will continue to explain to legacy customers with low AgeWage scores just why their scores are low and make it clear – where options to upgrade exist – what those options are.

We will not suggest people cash-out or even move pots to another pension provider until the internal options have been properly explored.

But if legacy providers whether ReAssure and Phoenix , or others insurers like Zurich and Prudential do not invest in upgrades for existing customers, we will have no problem explaining to those who use the AgeWage service, that other avenues are open to them.

Your pension may well be due an upgrade – and your retirement lifestyle with it.



Enter a caption

Posted in advice gap, age wage, pensions | Tagged , , , , | Leave a comment

Lady Lucy – the pensioner; on the Thames

Lady Lucy is a pensioner, she was built in 1946 by Osborne’s of Littlehampton and she has spent most of her life on the Thames.

This summer, Kim Kaveh of Professional Pensions interviewed me aboard the boat and on the banks of the river Thames.

If you have access to the Professional Pensions website, you can read Kim’s account of the day here!


Tapper Thames v3.jpg


Posted in pensions | Leave a comment

How to find that lost pension!



The DWP tell us that we’ll have lost 50m pension pots by 2050, unless we do better at tracking them down than we’re doing at the moment! There’s £20,000,000,000 of lost money in the pension system at the moment so let’s get finding! The dashboard ‘s going to help but – why wait for the dashboard!

Here are some handy tips from our friends at People’s Pension about how we can find our pensions today.

How to find a lost pension

How are pensions lost?

People Pension’s  research found that 1 in 5 people have lost track of a pension and 3 in 5 adults don’t know where all their pension savings details are.

So, why are people losing track of their pension pots?

Not sure who you’ve got pension savings with?

  • You may have changed jobs several times by the time you retire, so you could find yourself having to look for all your lost pension savings when you need it the most.
  • You may have moved house, misplaced the details and no longer receiving annual pension statements from your provider(s).
  • Pension scheme information can become lost as many people now choose to go paperless, so there’s emails to keep track of as well as paperwork.

How to trace lost pension savings

Finding the details of a lost workplace pension can be a little easier than finding the details of a personal pension. Often your employer, or former employer (if they are still in existence), should have the details of their pension provider.

It can often be a little bit more difficult finding the details of a lost personal pension. A good place to start would be to contact the pension provider that you set up the personal pension with.

Next steps

  • Start at home – dig out as much paperwork as you can and see if you can find the details of any pensions you have forgotten about.
  • Take a look at any previous employment contract and old payslips and check if there were any pension contribution deductions. If so, and you haven’t taken a refund, you could have a pension you’ve forgotten about.
  • Contact your previous employers and ask for the details of their pension schemes. They’ll be able to give you the pension provider’s contact details, so you can contact them directly to find out if you were a member of a pension scheme.
  • And you can use the Companies House website – they hold the names of all closed and existing companies registered in the UK.

If you are still having difficulty finding the details of a lost pension, you can use the government’s online pension tracing service.

Visit their website or call them on 0845 6002 537.

Check if your pension contributions were refunded

In the past when leaving an employer, you could have had a refund of your pension contributions after only being in a pension for a short time.

So, it’s important to consider whether your pension is actually lost, or if your pension contributions could have already been refunded.

There are several key dates to help you check whether this applies to you:

  • If you left your employer before 1975: it’s almost certain that you’d have had a refund of your pension contributions. If you did not pay into the pension scheme, then the chances are you will not be entitled to anything – the only exception will be if you worked there for a considerable amount of time, usually over 15 years.
  • If you left your employer between April 1975 and April 1988: you may have a pension if you were over the age of 26 and had completed over 5 years’ service. If not, it’s almost certain that you’d have received a refund of your pension contributions.
  • If you left your employer after 1988: you may be entitled to a pension, as long as you completed over two years’ service for your employer. If you left before completing two years, it’s almost certain that you’d have received a refund of your pension contributions.

If in any doubt you should contact any previous employer(s) for absolute clarification.

Take a look at the steps below if you think you have a lost pension and don’t think you’ve received a refund.

Once you’ve found a lost pension provider’s details

You’ll need to contact them to give them as many details about yourself, so they can trace your lost pension savings quickly and easily. They’ll need:

  • your name (current and previous, if different) date of birth and National Insurance number
  • your address (current and where you resided when you think you had the lost pension)
  • the date you joined and left the pension scheme (if known).

And if it’s a workplace pension:

  • the name of the company you worked for
  • the address of the company you worked for (in case your company had multiple branches/outlets)
  • the date you began working for the company and the date you left the company.

Find out as much information as you can

It’s important to find out as much information as possible about any pension scheme you may be part of. For example, you should ask:

  • what’s the current value of the pension pot, and the estimated value on your expected retirement date?
  • are there any management charges, and if so, how much?
  • is there a nominated beneficiary?
  • is it a defined benefit scheme or a defined contribution scheme?
  • would there be any charges if I wanted to transfer the pension pot to another provider?
  • are there any pension guarantees included e.g. Guaranteed Annuity Rates?
Defined benefit schemes (DB) These are also known as final salary schemes, or Career Average Revalued Earnings (sometimes known as CARE schemes) – your pension is based upon the number of years worked and your salary at retirement age, giving you a guaranteed income every year from your retirement. Check out our jargon buster for more information about defined benefit pensions.
Defined contribution schemes (DC) These are based on contributions into a pension pot where you and/or your employer add money into it (like The People’s Pension) and can be accessed at any time after the age of 55 (proposed increase to age 57 from 2028). Check out our jargon buster for more information about defined contribution pensions.

Once you have the full details about your lost pension savings, you may wish to get advice.  You could choose to leave it as it is until you reach retirement age or, if you have other pensions, you could consider combining them into one pot –  making it easier to manage and keep track of.

Posted in pensions | 1 Comment

The Con Keating take on value for money

Towards a Value for Money metric


The Work and Pensions committee’s paper “Pensions Costs and Transparency”, as well as the Editor of Professional Pensions have called for a commonly agreed definition of value for money for DC funds. Clearly costs and fees are only a part, often small, of this.

The fund management industry and many pension managers have been keen to stress that the financial performance of a member’s savings is only part of the overall value to the member. There is more than a grain of truth in this, but it obfuscates the fact that it is the amount of the members’ savings which are consumed and enjoyed in retirement. This is, and must be the paramount concern.

Value for money is at heart a cost-benefit or input-output comparison; it is retrospective. In the case of DC funds, the inputs are the contributions made and their timings, and the output is the market value of the fund at measurement date. This delivers the actual performance as an internal rate of return (IRR). 

An IRR is a risk-experienced average return. It has experienced the good and bad times of market behaviour over the period of saving. This renders otiose the confused and confusing discussions of risk management, and the role of risk in the risk return equation.

This requires a little explanation. One of the few things we know about risk is that it means more (bad) things may happen than will. The essence of good active fund management is the identification and avoidance or mitigation of those bad events which will occur from among those which may. Passive investment is acceptance or tolerance of what comes to pass.

The IRR of a pension fund reflects the strategies followed by the funds in which it was invested. This might be the passive ‘non-strategy’, or cyclical rotation, or market-timing, or even life-styling. Each had their own ex-ante risk exposures, but the IRR explicitly captures all of those risks which eventuated. It also captures the costs associated with risk avoidance and mitigation of those events which did not occur.

The arguments that a value for money metric for an investment should reflect the ex-ante risk-preferences of the investor/fund manager are a canard. There is no need for a plethora of comparator benchmarks.

However, to be really useful, the IRR of a member’s savings does need a comparator, a benchmark or counterfactual. This may be peer-relative, the IRRs of contributions invested in other funds or strategies or it may try to capture the wider and more general universe of possibilities, the average allocation of DC savings to different classes of funds. This is a broad index, capturing the products, management styles and asset allocations actually used by DC savers. 

A benchmark index of fund averages has been created by Morningstar and Agewage for this purpose. Over the period from 1980 to date, it has averaged 80% equity and 20% fixed income. The constituents of these broad categories, equity and debt have changed over time, and doubtless will continue to do so in future.

The contributions of a member may be applied to this benchmark, and an ‘as if’ IRR derived. Comparison of the IRR achieved and this benchmark ‘as if’ IRR indicates the (relative) value for money achieved. It may be presented as a return, a score or even the historic probability of achieving that outcome.

Costs and fees have not entered the picture here. They were what they were. We might augment the analysis forensically and consider what the IIR might have been had these deductions been different, or perform many other analyses, but those are separate matters from what value for money was achieved, and their application is practically limited to prospective situations.

Similarly, we may augment the basic value for money analysis with additional qualitative disclosures, such as service quality. 

However, the basic value for money metric is simple and clear, and most relevant to the pension saver.



Posted in age wage, pensions | Tagged | Leave a comment

Get to gnome your pension.

I’m very pleased that my friends at the DWP have asked me to promote their new social media campaign designed for us to get to know our pensions.


These clever people have sent me a link that allows me to click on these fine gnomes to reveal a gallimaufry of treats for a pensionholic like me.

Screenshot 2019-09-17 at 06.23.48.png

These gnomes had first appeared on my phone when I was searching for state pension forecasts for the burghers of Peterborough on Sunday. Then someone turned up with one of those pop-up banners with the gnomes staring gnomically over Cathedral Square. Then the pensions minister turned up without a red hat or a fishing rod but with plenty of enthusiasm for all things digital.

I’m afraid I rained on Mr Opperman’s parade a little by informing him that well over half of the pension providers AgeWage is helping people to get to gnome, are not willing to allow us to analyse our investor’s data. Which makes getting to gnome their pensions a little hard for us.

So –

Dear insurers– let’s be clear – you do not have to have a registered financial adviser to make a data request about your pension.

Dear pension administrators, you are required to honour a data requests and provide your customers with data in machine readable format (not paper or PDF)

Dear trustees, your administrators cannot demand copies of driving licences, passports and birth certificates in exchange for passing members details of their contributions.


Dear Minister– these insurers, administrators and trustees are standing in the way of the digital pensions dashboard by refusing to recognise electronic signatures and requiring wet signatures, with letters of authority sent to them by the Royal Mail.

Gnome fun finding your pensions!

One of the great gnomic sports laid on by the pension industry is the game of “find the pension”. The DWP estimates that unless we get a bit better at it, we will have 50m abandoned pension pots by 2050. Today over £20bn is lost to members and policyholders (according to the PPI).

We are awaiting the pension finder service that is at the heart of the pensions dashboard and we are awaiting a pensions dashboard – actually we are awaiting the pensions bill which enables the Government to set up a pensions dashboard and – I fear – there is a distinct possibility that we won’t get a pensions bill anytime soon (even though the DWP have told the FT that the only bill they want in the Queens Speech (ETA October 14th) is the pensions bill  (with the dashboard in it. I asked the Minister about this and he rolled his eyes.

So it’s back to pension hunting and there’s a whole industry of  pension sleuths including ourselves, Pension Bee, Pensions Link (Euraplan), Profile Pension not to mention the Government’s own services through MAPS and the DWP. Google Find my pension and off you go (though you’ll find many of lead generators among the good guys – and the odd scammer too). Like I say, it’s like navigating the straits of Hormuz!

Will the retirement I get be the retirement I want?

This is a good question. I suspect that my retirement will be a lot happier once I’ve set up AgeWage and got it dishing our value for money scores to millions of burghers in the UK.

In this I suspect I am going to be a cog in the DWP’s Gnome your Pension service and I’m looking forward to chatting to my friends in Caxton House about this – this morning. I am not proud, I think these gnomes are rather good and I have enjoyed spending the early hours of this morning messing around on this site. is offered under the Open Government Licence, which means I can employ these gnomes on to help us all out. Which I seriously think I will do.

There are conditions which you can read here    but…..

Screenshot 2019-09-17 at 06.37.18.png

and that sounds like a very sensible way to go about things!

Get to gnome your pension

Short of giving us a proper pension finder service and a dashboard to go with it, this new website is the best the DWP could do – just now – to help us get to gnome our pensions.

I am sure there are better pension calculators than MAS’ and I don’t thoroughly trust my state pension forecast (which I suspect is overestimating my NI payment history). I can throw stones at the Mid Life MOT. and the one to one pension “advice” I can get from Pension Wise.

But now is not the time to carp at what we haven’t got – or complain that the Government still confuse advice and guidance in their own videos. This is not a time to require people to take financial advice.

Instead this is the time to help ourselves and others get to gnome our pensions, which I intend to do!

agewage evolve 1

Posted in advice gap, age wage, Dashboard, dc pensions, DWP, pensions | Tagged , , , | 2 Comments

Pensions – Awareness is all!

Screenshot 2019-09-15 at 06.27.51.png

Welcome to September 15th – Pension Awareness Day.

I’m travelling up to Peterborough to join Jonathan Bland, Biggsy and other geeks who have been travelling around the country this past week, bigging up pensions.

The Pension Geeks are a well established feature of the pension landscape and though their bus may not be as big as previous years , it is perfectly formed.

And this year it’s the girls who have been centre stage

I’m looking forward to answering some incisive questions of the Peterborough burghers.

and it’s great to see the Geeks working alongside the Scottish Widows RV

Pension Wise and CAB are in on it


and this is about public and private sectors

If ever there was a time to get to grips with your pension, the time is now! #PAD19 #pensions
— Pension Awareness Day (@PensionDay) September 14, 2019
So if you are in the Peterborough area today. I hope you will pop over to the Cathedral and have a chat!

Screenshot 2019-09-15 at 06.44.45.png

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

The financing of DC

As anticipated (in blogging), yesterday’s article on CDC attracted some vitriol, not just from my friend Con Keating, but from the inter-web of things.

John’s rather extreme reaction came over the top of a slightly more measured response from Sam Pickard

I think it worth saying at this point that the statements objected to came from Adrian Boulding, which is important as he knows rather more about the financing of DC than me (and I suspect John and Sam).

DC financing

But let me explain what I mean about the “financing of DC”. To start a DC plan – all you used to need was a licence from HMRC and away you went. If you wanted to run an authorised personal pension, you need to set up with the FCA and you are subject to the various solvency requirements laid down by that Regulator and probably the PRA too.

To bring DC workplace pensions in line with these solvency requirements, the DWP have insisted that commercial occupational pension plans are also tested for solvency and this forms part of the master trust authorisation regime. Non commercial DC plans – set up by employers for their staff, are not subject to these solvency requirements but they are still monitored to ensure they are properly supported by their sponsor- the employer.

So all DC plans, whether personal or occupational – whether privately funded or funded by employers as workplace pensions, are in some way tested for solvency and need to show they are sufficient. Hopefully gone are the days of the rogue DC plan set up to scam members out of their savings, which set out to be financed out of the savings with no regard to anything but commercial gain for the provider. These plans soon found themselves anything but sufficient and are typically in special measures under the expensive stewardship of professional insolvency trustees.

What is common to modern DC plans is that they need to have credible business plans which pass the scrutiny of external auditors and the solvency requirements of regulators.

To meet these solvency requirements, all commercial DC plans need to set aside reserves against which they can draw when things go wrong.  Things go wrong with DC – errors are made, money spent that should not be spent – and this is when the reserves may be drawn on. When they are drawn on, the reserves must be replenished by the provider of the plan- and this can either be done by recourse to the provider’s reserves, by cash calls to the shareholder or by the issue of debt.

The only way that the providers of DC services can be repaid this amount is from the ongoing charges levied by the scheme, or on scheme wind-up, at which point the residual reserve is repaid to the provider, following the payment of outstanding debts to everyone else and – most importantly – the payment in full of member’s pension pots to other pensions or to the member.

So it is clear that most of our DC plans is subject to financing. The majority of DC plans are loss making in their early years and this means that DC plan providers have to wait for the repayment of the money they have sunk into the scheme. The most famous example of a DC scheme borrowing money to finance this debt is NEST- which is enjoying a subsidised loan from the Government which is anticipated to reach £1.2bn by 2026. This loan will be repaid from the fees generated by the scheme and  NEST hopes to pay it off by around 2040. This does not make NEST a DB scheme.

NEST is not a disgrace



The financing of CDC should be no different than the financing of DC – CDC is a subset of DC.  So far, we have only thought about CDC in the context of Royal Mail, which intends a sponsored CDC scheme where all costs are picked up by RM including those of running the scheme and meeting the defined contribution level. In such a situation , there is no need for a reserve and my understanding is that RM has decided to run the scheme distributing 100% of the smoothed return over time to members.

This is fine and not what Adrian was commenting on.

But for schemes like NEST and NOW and People’s pension, which may in time want to pay scheme pensions to members on a collective basis, the situation is rather different. There is no sponsor behind the payment of scheme pensions, the defined contribution only creates an obligation on the employer to pay while the member is in service, not when he or she is retired, so necessarily there will have to be some form of protection for members to ensure that the income in retirement is stable.

There are stabilising mechanisms in place which include conditional indexation (where pension increases may be held back in years of financial stress) but what Adrian was talking about are the occassional years of extreme stress – such as 2008/9 and I think he is right to consider how a commercial CDC scheme might meet its obligations were it only running scheme pensions as an option for members – rather than as part of an integrated accumulation/decumulation program.


Optional CDC?

I may have jumped ahead of my readers here, but I firmly believe the way that CDC will develop beyond the fully sponsored model to be offered by Royal Mail, is as a retirement income option available to people looking to spend their retirement savings. I see maser trusts like NOW and NEST and Smart and Salvus and Peoples paying scheme pensions from a collective pool that insures the risks of some living longer and some dying sooner. I see this pool managed sufficiently with those joining the pool replacing those who die.  I see people choosing a CDC pension over an annuity or drawdown where a middle way is preferred.

I don’t see anyone having to opt for CDC but I suspect that when presented with the option of a wage for life, Aon’s estimate of 62% saying “yes” wouldn’t be far out. I think that optional CDC might be popular with 6 out of ten cats.


Financing optional CDC

And if that is the case, we need to start thinking of how we could set such optional CDC schemes up and how they would be financed. Which is why I welcome Adrian’s thinking. Adrian has of course worked with NOW on getting it straight to be a workplace pension beyond November this year when its authorisation extension runs out.

He knows the financing requirements on master trusts backwards and he’s now thinking about the financing requirements of CDC. He is not shameful for doing so, he is not a disgrace and what he’s thinking is certainly not #bollocks.



Posted in age wage, CDC, pensions | Tagged , , , , , | Leave a comment

“CDC could solve freedoms issue”-Boulding

Scanning the depressing progression of fake news on my linked in timeline, my eye was caught by a very odd post indeed.

Screenshot 2019-09-13 at 05.59.04.png

There’s a lot going on here and I decided to probe the link to what Adrian is saying. 

What Adrian was actually saying was that “CDCs could solve freedoms issue. Ironically we had a “fake headline” but “real news”!



As regular readers know, I am a fan of CDC and – should I live so long – will  transfer my retirement savings into a CDC scheme run by NEST or Peoples Pension or Smart, or Salvus or one of Adrian’ Boulding’s other employers – NOW pensions.


Quoting Adrian

“without sound budgeting, even the largest lottery winners can end up penniless”.

I do not want to spend my retirement savings too soon, or not at all – I want my retirement savings to last as long as I do and I’m prepared to join others in a collective arrangement to make that happen.

So it is great to see someone with a much bigger brain than mine recognising that CDC need not be about employers trying to wriggle out of DB obligations , but about solving a very real retirement problem that is besetting a high proportion of people winding down from work right now.

We know all is not well with pension freedoms when the latest Financial Conduct Authority Data Bulletin, published in September 2018, tells us that more than half (51 per cent) of all pension pots accessed for the first time between October 2017 and March 2018 were fully cashed in.

And most of the resulting savings end up in personal bank or building society accounts offering low interest rates. How will the ex-holders of the 757,927 pensions so far fully cashed in since pension freedoms fare 15 years from now, particularly those who seized control over seemingly life-changing amounts of money from large defined benefit pots?

An opportunity to put things right

We know that a high proportion (the FCA estimate around half) of the transfers out of Defined Benefit pension schemes in the period since April 2015 should not have gone ahead. There are two reasons for this.

1,   The first relates to the sum on offer – the CETV – was inadequate to meet the expectations of those transferring. I heard yesterday from a retired steel-worker that of the 8,000 BSPS CETV transfers – over 450 were transferred in the months leading up to March 2017. Transfers made pre March 2017 were typically only 60% of the value after March when a new discount rate was applied. What this means is that these people missed out on around £150,000 a person – compared to what they would have got – if they had waited.

I put it to anyone who is thinking straight that these 450 people were not acting in their best interest. Infact they were being advised against their interest.  How could transferring away from a collective pension scheme at 60% of the market value  have been in their interest?

2, The second was that there was no suitable alternative proposed  to the pension given up.

I have know doubt that many of the 200,000 or so people who have transferred  out over £60bn of money are amongst those who have either fully cashed in their pot or stripped out the tax free cash and are seeing the rest of their money exposed to the markets and plundered by high costs and charges.

The solutions I saw proposed to steelworkers ranged from an investment into a with profits fund (typically Prufund) to a speculative punt on Active Wealth’s Vega Algortihm.

The steelworkers I spoke to had no understanding of the products used to take their money and did not have the financial capability to manage the complex decisions they were needing to take around the management of their pot.

Putting things right

If 100,000 of the 200,000 people who transferred shouldn’t have – what can be done for them?

They cannot go back into the schemes from which they came. I don’t think there is appetite for doing that again.

But they can be accommodated in wage for life CDC schemes run as sections of master trusts under the oversite of experts managing pensions in an effecient way.

This can only happen if we have the legislation put in place for Royal Mail and that that legislation offers the opportunity for second movers like NOW and Peoples and Smart , Salvus and NEST.

Because whatever reservation people may have about CDC, it has to be a better solution for those 100,000 people who have pension pots rather than pensions – and shouldn’t have.

I totally agree with this statement from Adrian’s article

The benefits of CDCs are evident: members get a clear picture of what pension to expect, with regular payouts from their scheme. And unlike traditional final salary pension schemes, those payouts are not affected if your employer goes under. Furthermore, you cannot over-draw on your pot unlike income drawdown policy holders.

The first priority is to deliver on the agreement reached between management and unions at Royal Mail. As soon as the Royal Mail CDC scheme is operational and the threat of a postal strike over pensions is averted, the government will be able to open up the exciting new world of CDC schemes to other players.

Better budgeting

Adrian is brilliant in linking the concept of a “wage for life” to the societal problems identified by the Government’s own research

Knowing precisely how much we have coming in means we slowly get better at managing our costs in line with virtually static monthly incomes. So, we should not be as alarmed as many were with the 2016 Money Advice Service research study that found that 16.8m people of working age in the UK had less than £100 of accessible savings.

If you think a little deeper about that statistic, it suggests that the majority of workers have a finely-honed ability to manage their spending accurately between pay cheques. Watch a parent out shopping with their kids and you will see it in action as they say, ‘Ask me again when I’ve been paid and maybe you can have that’.

So, what we need to deliver to many of the 16.8m captured by the MAS research is a monthly retirement income that is predictable and will last their whole lifetime.

Collective investments

Adrian is also right to focus on the long term advantages to society of having one great big pot with an infinite time horizon – the vision for a CDC investment strategy

CDC lifecycle

The yellow box gives us the opportunity to invest CDC for the long-term

in the sort of real assets that long-term pension funds should hold, like infrastructure projects for improving roads, bridges, schools or railways, as well as in equities and property development.

The trustees managing the CDC fund will share out the spoils in a collective manner, organising the cross subsidy between those who live long and those who die early, spreading costs over both large and small pots, and smoothing out the short-term ups and downs of market prices.

The normal commercial dynamics do not apply in schemes managed by trustees. While a purely profit-driven approach pressures the managers into offering the customer a little less and charging them a little more for it, trustees have a duty to protect the members’ interest and to ensure that the scheme managers are properly following the trust deed and rules. I have sat in many trustee meetings and seen them spend money on members, when a purely commercial approach would have been to cut back.

Financial Backing

I had originally conceived of what Adrian calls a “later life replacement income” and I call a wage for life scheme, as a standalone entity. But Adrian is smart enough to cotton onto the fact that master trusts with authorisation have a financial strength to gestate CDC as part of a wider savings and spending strategy.

The importance of having a ‘capital adequacy’ buffer becomes apparent when what yesterday’s economists thought was a temporary market downturn turns out to be a permanent correction. In these cases, CDC scheme trustees could find that they have reduced payments too late – as happened in Holland. In this instance, the balance can either be paid for from the capital buffer or from future new entrants.

But with a financial backer fresh capital can be raised, averting this scenario from playing out in tough times like we saw back in 2008-09. Of course, capital buffers have to be paid for, so the reward mechanism for the scheme funder can be built into the rules and honestly managed by the trustees.

Purists will hate it  – (and I look forward to a call from Con Keating later this morning) but Adrian is right. For us to have CDC schemes , there needs to be infrastructure and sufficient resilience within the scheme to ensure that pensions are paid, Sometimes a CDC scheme may indeed need resource to external backing and that backing will need to be repaid.

However, I do not see the handing over of the management of CDC schemes to commercial organisations (as opposed to pure mutuals) as disastrous. As with so many parts of our society, a pure mutual (such as Royal Mail) could run alongside a commercial master trust – both aiming to provide those who prefer collective wage for life solutions to annuities or drawdown , with a third option.

Adrian suggests that people should make such choices with the help of advisers and I am sure that that would be the best way for many people. But 94% of us are not currently paying for advice and I suspect that most of the people who would use CDC would do so as a continuation option from the workplace pension they were already in.

The questions I hope people will be asking of their workplace pension provider in future will be about the at retirement options they offer – I consider a wage for life scheme pension offer (using CDC) will prove very attractive,

CDC solving the freedoms issue

I am very glad to have found in Adrian Boulding, someone who shares my vision for CDC as a wage for life solution for people who cannot make up their minds. I am one of those people who wants a simple solution and I know there are many like me

Screenshot 2019-09-11 at 05.59.30

The wait and sees and the DIY managers

Those who are DIY-ing drawdown and those waiting to see if something better comes along are the principal market for CDC as a wage for life. I think we represent about 50% of those approaching retirement , suggesting that CDC could become very big very quickly.

But to do so, it needs people with the vision of Adrian Boulding , Kevin Westbroom and Hilary Salt to be joined by many more who are prepared to knuckle down and make this happen.

We need CDC to pass into law and I’m heartened to hear that we are likely to have a Queen’s Speech where the Pensions Bill (containing CDC legislation) will be set before the house on October 14th.


Posted in actuaries, age wage, CDC, pensions | Tagged , , , , , , | 2 Comments

Annuities – don’t knock ’em!

The upshot of Jo Cumbo’s conversation with Nathan Long of Hargreaves Lansdown is this table.

This image has an empty alt attribute; its file name is Screenshot-2019-09-12-at-07.37.24.png

I am not sure of Hargreaves Lansdown’s agenda but I don’t suspect Hargreaves Lansdown (despite still being one of Britain’s largest annuity brokers) are quite the fan of annuities they once were).

The case for buying annuities well

This article sets out to explain how a few top annuity brokers maintain a standard of service that makes annuity purchase both easy and profitable. I will hesitate before saying pleasurable – though the trust pilot scores suggest that people do feel they get a good deal when purchasing well.

I have long thought that annuities offered value for money and continue to do so today. Even in the early years of this decade, when I blogged about people being trapped by stunted annuity rates, it was not the annuity providers that I was complaining about, but the impact of quantitive easing.

I first met Mike Orzag, WTW’s head of research, when he was conducting research into the UK annuity market in the late 1990s. He came to Eagle Star to look at our (not particularly competitive) annuity book. He concluded – as an independent expert – that annuities were amongst the best value financial products available to the UK consumer with low margins, effecient processes and marketing which did what it said on the packet.

The paper Mike , his brother Peter and Mamta Murthi produced in July 2000 can be read from this link.  It found that for a typical 65-year old male, annuitization typically involved a reduction in yield of the order of 1 percent. There are very few financial products that can offer that efficiency.

When I was discussing annuity margins with Legal and General in 2013 as part of research for Channel 4, I found that the insurer’s margin was 6-7%. This compares with the typical margin for fund managers of 36% – as discovered by FCA in 2017.

Annuities are not a rip-off product and they never have been. I would contest that the problems with annuities come about from bad purchasing  induced  by poor salesmanship.

I use the word “salesmanship” deliberately (I did not say advisedly). Annuities are not an advised product, people like David Slater (Retirement Line)  and Billy Burrows (Annuity Direct), the heroes of annuities – are business people who sell a broking service to the public in a straightforward way. They are the people to whom I would go to get the right annuity at the best rate for me.

Annuities expert, William Burrows, recently joined Justin King  on a podcast k to chat about his specialist subject and why reconsidering an annuity in later life could be a good idea.

You can listen on Justin’s website by clicking here or on iTunes by clicking here. It’s one of the best explanation of what annuities are about – I’ve heard recently.

With people like Billy about – why do things go wrong?

The problems have occurred when annuity broking is not sold – when instead, people are offered annuities without the care about enhancement and annuity type that the best annuity brokers typically display.

Yes brokers take commission but it is fully declared and customers can choose to walk away and execute with another broker of directly if they feel they can get a better deal. Clearly not all brokers are the same and Sam Brodbeck has written feelingly of poor customer experiences with one well known “name” – here is his Telegraph article

But high commissions are negotiable and most annuity brokers use what they call “decency levels” to cap commissions where they don’t represent value for money. Retirement Line are one such broker.

Retirement Line are rightly proud to have the highest trust pilot score of the 96 Financial Services companies that use their ratings (9.8/10).

It’s the way you sell ’em

Sadly, some of our largest insurers, most notably Prudential and Standard Life have not shown this care for the customer and have been caught by the FCA offering a shoddy service.

Screenshot 2019-09-12 at 05.54.33.png

The FCA are on top of this and are doing a good job making sure that people know they have an annuity option as they get to retirement.

Screenshot 2019-09-11 at 05.59.30

The four options people choose from  at retirement

The FCA has produced a technical paper (CP19/27) that has the intent of reinforcing the importance of people shopping around to get the best rate on the market. I spoke to Retirement Line about this and – as ever – their response was focussed on the customer rather than their business needs. This from Retirement Line’s CEO – David Slater.

Retirement Line wholeheartedly agree with the annuity information prompts as outlined within FCAs PS19/1 and the proposed amendment within CP19/27.

The proposed amendment in CP19/27 will ensure any consumers who refuse to supply potentially sensitive health and lifestyle information will still benefit from seeing a ‘market leading quote’ – This should be the highest ‘like for like’ quote available on the open market.

Retirement Line also supports the FCAs concerns that too many consumers have failed to shop around for the best annuity rates and as a result, have potentially missed out in securing higher standard or enhanced annuity income for the remainder of their lives.

Although Retirement Line agree with the proposed amendment, they feel it is important that the FCA reviews the text supplied on the information prompts taking into account a consumer could refuse to answer health and lifestyle questions for multiple reasons some examples being:

  • security concerns
  • a lack of supporting explanation
  • complexity and length of the health form leading to its abandonment

Whatever the reason for refusal, it does not necessarily mean that the consumer does not have any health or lifestyle factors which could result in an enhanced annuity quotation and higher annuity income. A consumer could receive an enhanced annuity rate through simply supplying their BMI, occupation and weekly alcohol intake.

As a result, Retirement Line have proposed that the FCA considers reinstating the ‘Did you know?’ text box on the relevant information prompts. The ‘Did you know’ text box clearly explained the benefits of supplying health and lifestyle to consumers.

This may sound arcane – but to me it demonstrates the care annuity brokers take to maximise engagement in what matters. It’s more than putting “annuity” into google – though that works too!

Annuities – well sold – are good buys

There is nothing sexy in annuities. The most exciting thing that’s happened to the annuity market this month is the arrival of Scottish Widows as a provider of standard (as well as enhanced) annuities.

The market has actually expanded rather than contracted this month (in contrast to the general trend identified in the article promoted at the top of this blog).

Annuity sales have slightly recovered since 2016 and while they are nowhere near at the pre 2015 levels, they are stable. Many people are buying fixed term annuities, waiting and seeing what is going to happen to rates (which everyone thinks can only go up).

I should add that there is absolutely no guarantee that annuity rates will go up. But if they remain depressed, then it will be because the deposit rate – the other source of risk free return, is also depressed.

Annuities remain a good value product, there are annuity brokers in the UK – Retirement Line being my favourite, that offer consumers a good deal in terms of service. Annuities themselves are well priced and (apart from oddities like Purchased Life and Deferred annuities), there is a competitive market for them.

Annuity salesmen like Burrows and Slater are honest and proud about what they do. They may sound a little cheesy (like Frank below) but there is nothing wrong with promoting what you do with old fashioned vim.

Clearly rates are low right now, but that should not stop people investigating their annuity options – if they want secure income that lasts as long as they do.


It’s the way you sell ’em

Posted in annuity, pensions | Tagged , , , | 4 Comments

A proper discussion on how long we live

This is such a good discussion on how we measure life expectancy that I don’t want to spoil it by blogging all over it. That’s not just because it contains my colleague Hilary Salt’s contribution, good as it is. It’s also because of the clarity of explanations of what is going on right now – the stalling (not falling) in the improvements in life expectancy.

Are we hitting a biological ceiling or is there potential to by-pass avoidable mortality?

Why was 2015 such a bad year for life expectancy in the UK and Europe?  Why was 2014 a good year?

Is there another societal shift in the pipeline – to match the general stopping in smoking?Are there more wonder-drugs like statins around the corner?

Why does where you live make such a difference to where you live? What’s so great about Camden and so rubbish about Glasgow – when it comes to living longer?

And why is the gap between women living in Camden and in Glasgow widening?  Is it coincidental to the period of austerity we have gone through?

Listen to this excellent piece and decide for yourself. As one of the Scottish people interviewed pointed out

We don’t listen to this – we live it.

payroll 11

Posted in actuaries, advice gap, pensions | Tagged , , | 2 Comments

Amber Dudd – anyone for Coffey?

I cannot work out what the point of Amber Rudd’s resignation is.

Rudd knows Johnson well, from what I’ve observed, Johnson is all over her in his slightly predatory way. They are often pictured as Tory pin-ups.

Rudd knew exactly what was coming when she accepted her position in Johnson’s cabinet and if she didn’t – she’s a lightweight.

Her job was to stand up for her department for which she is Secretary of State and to moderate the populist behaviour of her prime minister.

She has decided not to do that, preferring to make a political statement.

She should have made that statement earlier.

Where does this leave pensions?

By resigning the whip, Rudd effectively resigns from being Secretary of State for Work and Pensions in future Governments. What she says in her letter about her department, suggest she valued it.

Screenshot 2019-09-08 at 10.18.38.png

small print from Amber Rudd’s resignation letter

But she has deserted it.

What replaces her is anybody’s guess.  In the gallery of Tory thugs left supporting Johnson, there aren’t many I would want to associate myself with, for me it’s “what” not “who”.

Thankfully we haven’t seen Esther McVey back. She’d have  put the kybosh on any impetus behind the dashboard. Certainly the progressive pensions bill looks as far away as ever. Johnson will have to appoint something to the role – let’s hope it’s short-lived.

Coffey anyone?

Since starting this blog – I discover we now have Therese Coffey as our new DWP SOS. She is the 7th conservative to occupy this role since 2016-suggesting the importance placed on welfare by the party in recent times.

We know a little about Therese Coffey in pensions, she seems to have spent most of her political career in the whip’s office , she’s a former FD and she likes listening to Muse.

What little we know of her suggests Coffey is not my cup of tea.

Her best known intervention involving pensioners isn’t encouraging. In 2014 Coffey’s authored a paper for the Free Enterprise Group recommending pensioners should be forced to pay National Insurance

This puts her firmly in the “tough on pensioners – tough on benefit scroungers” camp of fellow scouser Esther McVey.  Thankfully her policy proposal has so far gone no further than that, national insurance is paid on earnings, not pensions.

But she seems also of the – “don’t let pensions get in the way of a free-market economy school of thought”

I see nothing in her wider career to date that suggests she is progressive.

Coffey is the first unfortunate consequence of Amber Dudd’s resignation. I hope she is a caretaker and lasts as long as this Government. If that is the case – let’s look at alternatives.

De-caffeinated alternatives

If we look to the Labour benches, Margaret Greenwood currently holds the DWP shadow brief and she’s supported by Jack Dromey, Guy Opperman’s counterpart.  Short of campaigning for a higher take up of pension credit, Margaret hasn’t said much about pensions but Jack has a keen handle on the major issues and works well with Guy Opperman.

The Liberals have put up Tim Farron as their pension spokesperson- a  very decent man. As far as anyone can make out, Archie Kirkwood speaks for the party on pensions – from the Lords, Stephen Lloyd doesn’t do much speaking for pensions anymore but has been on the Work and Pensions Select Committee. Since Steve Webb’s departure, Liberal pension policy has taken a back seat (in a very small car).

And then there is the SNP, whose DWP spokesperson is Neil Gray With due respect to Mr Gray, the pensions spokesperson is Mhairi Black who is so brilliantly outspoken as to be both the SNPs spokesperson on pensions and on youth affairs.

Pensions has cross-party interest and (I suspect) the pension policies proposed by Government command common (cross-party) support. What we are sadly short of – as of today – is a single person who could promote the pensions agenda. Rudd has proved a Dudd.

Party conferences are upon us.

The party conferences are upon us and no doubt will be jumpy affairs. The lobby people I speak to are struggling to find politicians within the Lib-dems to turn up to pension events but see plenty of interest in Labour ranks, what goes on at the Tory conference is anybody’s guess but Rudd’s resignation looks like making DWP related sessions a matter for political contention rather than thought leadership.

I hope that in the limited window that BREXIT will allow, the great issues surrounding pensions, pension credit take-up, collectivisation (in DC), support of pension freedoms, the dashboard and the future of the DB legacy, will get some attention. But I fear that Rudd’s departure will mean that any proper debate on how the DPW will spend the money will be replaced by further upheaval.

If , as seems very likely, the party conferences are used to forge the manifestos for a general election, then not only is Amber Rudd’s dereliction of her post, harmful to debate, but harmful to the promotion of progressive pensions policies in the general election to come.

Rudd’s another dud

It really is a great shame that politicians who talk about the honour of taking a Cabinet position, have so little regard for the importance of keeping promises. Amber Rudd took on the role of DWP Secretary of State in November 2018

Iain Duncan Smith led the DWP from 2010 until 2016, spanning the whole five-year coalition government of the Conservative and Liberal Democrat parties.

He was replaced by Stephen Crabb, who lasted just four months before being removed in the wake of the 2016 EU membership referendum.

Damian Green then led the department for 11 months before being transferred to the Cabinet Office in June 2017.

David Gauke lasted seven months in the role before being replaced by McVey in January.

Esther McVey lasted ten months and quit because we weren’t Brexiting fast enough.

With the exception of IDS, who had no interest in pensions (and a bloody good pensions minister) , there has been no consistent leadership of the DWP in the past ten years. One commentator described the role as as stable as a shed in a hurricane, he was right.

As can be seen from this chart as supplied by Professional Pensions.

Screenshot 2019-09-08 at 09.25.19

I expected more of Rudd and frankly I am disappointed that she appears to be more interested in political positioning than doing the job she set out to do with great authority. and which she kept when she knew just what was coming.

Rudd Tisa

Rudd in November – full of sound and fury…

Posted in pensions | 10 Comments

“What’s the best way to use my two pensions?”

MArtin wray

I’ve done another of those Portfolio Theories things from the Times. I was  billed a pensions expert, which suggests I’m something that Steve Webb and Ros Altmann aren’t. My apologies to the two real pension experts in the article!

My 150 words got a bit cramped, so – on my blog – I’ll give you what I submitted which you can find at the bottom!

As for Martin, he and his dog look to be train lovers, which suggests he knows how to enjoy himself, the most important advice I can give him is to get on with having a good time! Article below – original in today’s Sunday Times.


Screenshot 2019-09-08 at 07.08.16.png

Martin Wray, 56, from Berkshire, works in the sales department of a pharmaceuticals company, but is looking to retire in June next year.

He earns £63,000 a year and has two company pensions. One is a defined-contribution pension from the company where he has been for four and a half years, to which he has been adding voluntary contributions when he can. The pension will be worth about £186,000 when he retires.

The other pension is a final-salary scheme from his previous employer, another pharmaceuticals company, where he worked for 25 years. He has been told that if he draws on this pension from the age of 57 he will be able to take an annual sum of £22,500 for life and a lump sum of £149,000. However, if he waits until he is 62 to claim he will get an annual sum of £32,500 and a lump sum of £215,000.

Martin is financially comfortable. He has no mortgage, his wife is retired on her own final-salary pension, and his children are grown up.

“I think I will have a good standard of living when I retire, but the different advice I’ve received is confusing,” he says. “Should I take my second pension when I retire or wait a few years?”

He says he is also concerned that if he waits to access his final-salary pension he could breach the lifetime pension allowance and face tax implications.

Steve Webb, director of policy at Royal London, an insurer

“If Martin takes his final-salary pension early, he will lose £10,000 a year for the rest of his life and get a reduced tax-free lump sum. Assuming he is in good health, this could be poor value, especially as he has no need for the money now.

“He could put his defined-contribution pot into a drawdown investment policy and take a quarter tax-free upfront. This would support his lifestyle for a year or more, and he could use income from the rest of the pot to support him until he is ready to take his defined-benefit pension. Any income under the annual personal allowance of £12,500 is tax-free.

“Although his pension pots could bring him close to the Lifetime Pension Allowance (LTA), which is £1.05 million, the only implication of going slightly over would be a tax bill on any excess. This is not a good reason to lock into a much lower pension now.”

Ros Altmann, a former pensions minister 
“If Martin is retiring at 57 because of ill health, then taking both pensions would give him financial security. If his health is excellent, that may not be the best option.

“He needs to be mindful of the 55 per cent tax charge if he exceeds the LTA. There are good reasons to start the final-salary income next year. He will have an extra five years of guaranteed income, although he will have to pay tax on this, and taking £22,500 at 57, rather than £32,500 at 62, helps keep him under the LTA limit. That is because of the way the tax system assesses the value of a final salary pension: multiplying the income by 20, plus any tax-free lump sum. So taking it next year gives a value of £599,000 [£22,500 x 20 is £450,000, plus a tax-free sum of £149,000].

“Adding in the £186,000 defined-contribution pot gives £785,000, well below the LTA. However, if he waits until 62, the final-salary pension value would be £865,000 [£32,500 x 20, plus a £215,000 lump sum]. Adding the £186,000 would breach the LTA.

“So Martin might consider taking the final-salary pension next year, but keeping the other pension, which he could still add to, gaining extra tax relief to build a larger fund. The defined-contribution pension can be passed on free of inheritance tax too.

“However, he and his wife could live for 30 or 40 years. Their final-salary pensions won’t cover additional costs if one or both move into a care home. Building up extra savings for care is something most people forget about, but may be another reason to keep the defined-contribution pension intact.”

Henry Tapper, pensions adviser
“Martin will get a 30 per cent pay cut if he takes his gold-plated pension at 57 — ouch. He should wait until 62. As for his other pension pot, next year he could cash out £46,500 tax-free, and get about £28,141 a year for five years with the remaining £139,500. This is the safety-first option.

He may prefer to stay invested and draw down up to £40,000 a year until 62, a quarter of which would be tax-free. This may mean he exhausts his £186,000 by 62, but he will have the prospect of cash and a lifetime income from his second pension.”


Martin says
“Thanks so much. This has given me reassurance that my thought processes are right. I hope the advice helps others too.”


Henry’s submitted response below

Martin, you’ll get an immediate 30% pay-cut if you take that gold-plated scheme at 57 – ouch! Take your DB pension at 62!

As for your pension pot:- next year you could cash out £46,500 tax-free. Retirement Line can find today a flat £x for five years with your remaining £139,500. This is safety first.

You may prefer to stay invested and draw-down up to £40,000pa till 62. Under the Pension Freedom UFLMP option you’d get a quarter paid tax-free. More risk but perhaps more profit!

You may find you’ve exhausted your £186,000 by 62 but now you’ve the prospect of a cash, and a lifetime income from pension #2! In the mean-time you’ve had an easy-to-budget-with “bridging pension”.

If you want more pension at 62 you might look at what your scheme offers for taking less cash.

You’ve got state pension kicking in at 67 and you really don’t have a problem with the Lifetime Allowance.

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

How payroll won friends and influenced Government


This is national payroll week so I’m blogging an article I wrote earlier in the summer for Reward Strategy Magazine. Since the end of the auto-enrolment staging period, I have had less day to day interaction with payroll people, but I continue to consider them the unacknowledged hero of workplace pensions!

Late in 2012, I sat in a crowded room above a bar in Southwark. Payroll World (the predecessor of Reward Strategy) were hosting a roundtable of payroll and pensions people and we talked. The payroll people were frustrated, they had no voice in the pension reforms and were expected to design software for regulations that made no sense to them. The pensions people, myself, Stella Eastwood then of Centrica and Alan Smith of First Actuarial listened.

A few days later we got a message from a friend in Government. Steve Webb was prepared to meet a delegation of payroll people but there was to be no whingeing, they should bring no more than five demands to the table and every problem should have a solution. In short, the Pension Minister thought payroll had been asleep at the wheel. He said they had one shot at getting change.

Using the resources of Payroll World, a summary and agenda for action was drawn up by payroll thought leaders Alex Rowson Norman Green and Simon Parsons. They got input from payroll practitioner Andy Gould of Centrica and technical assistance from the pension specialists.

Karen Thompson of the Chartered Institute of Payroll Practitioners (CIPP) made the arrangements to meet the Minister. We had listened and this is how we presented ourselves

The purpose of this brief is to inform the Minister of the Payroll and Pensions Industry Group’s (PPIG) five areas of concern about automatic enrolment (AE) and to promote the Group’s recommended solutions. In summary we have 5 concerns and 5 solutions

These were our solutions

For AE to run smoothly,

  1. We urgently need to align the pensions pay period and the pay points used for the operation of Tax and NICs.
  2. To allow employers the option to commence contributions from the next pay period and align the start of communication duties with the pay date, when pay facts are known
  3. To remove the requirement for pro-ration and have employees pay the full contribution when age and triggers are passed, at the point of payment.
  4. The auto-enrolment reassessment date should be maintained for the duration of an employee’s continuous employment.
  5. Regulations should consider AE and contribution payment as due from the point of payment, in alignment with tax and NICs, and allow communication duties to commence from this point.

Reading the DWP’s consultation on Technical Changes to Automatic Enrolment, it’s clear the Minister listened. He edited our wordings and responded incorporating the body of our group’s requests.

The result was simpler payroll processes, less risk, less cost and less of a burden on the Pensions Regulator.

Companies have been able to spend more time and resource concentrating on improving the member outcomes.

Staging auto-enrolment was designed to be a smooth-ride and become business as usual. The PPIG recommended practical steps that took auto-enrolment in the right direction.

Hats off to the journalists, thought leaders, practitioners and trade representatives who worked together for good. In a couple of weeks, we created a framework for change.

It’s people who make the difference, payroll people, pensions people and people in Government who are clear about what they want, open to ideas and decisive in their actions. Great credit was due to Steve Webb.

Could this have happened today, maybe. But I think that what happened seven years ago stands out in my 35 year career in pensions. From a personal point of view, I felt empowered by payroll and in the years that have followed, I hope that I’ve been able to repay the favour.

I sit down regularly with Helen Hargreaves as the CIPP help resolve the problems surrounding net pay and pensions. These days we have allies not just in Steve Webb but in Baroness Altmann who is now Chair of PensionSync. I hope that payroll won’t ever again be left behind as it was at the outset of auto-enrolment.

And I hope that the reason for my optimism is grounded in that morning in a bar in Southwark, when payroll made friends and influenced Government.

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

What would BREXIT mean to workplace pensions?

Brexit pensions.jpg

Sage advice from Holly


Europe has a great deal of influence on UK pensions; the influence includes fund reporting, funding requirements, reserving against risk and even competition between service providers.

This can have very strange results. The reason that NEST has such a complicated charging structure is because the EC would not allow NEST to use tax-payer money to create commercial advantage, the EC required NEST to levy a 1.8% charge on regular contributions. Because NEST was allowed to split the charge – others followed, including NOW which has a £1.50 monthly charge on the investments. It was Europe wot dunnit!

The influence of Europe is felt in the money that life companies need to set aside to meet liability over runs. The EC’s Solvency II regulations impact life companies directly but they have also had an impact on workplace master trusts that now have to set money by against their possible failure.

And it is felt by fund managers who now have to report costs against the MIFID and PRIIPS standards.

Would Britain leaving the European Community mean that we would abandon these regulations as Brussels red-taper? Most pension experts think this highly unlikely. Many of our largest pension schemes – though locally regulated – form part of a global pension strategy and aspire to be Pan-European. It is unlikely that a firm like Unilever or Shell would argue for one level of member protection in Holland and another for the UK,. You can take Britain out of Europe but you can’t stop corporates from operating both here and there.

Then there are the pension funds, both the large portfolios that back our defined benefit schemes and the retail funds into which you and I can invest our private and workplace money. Many of these funds are set up in Dublin and Luxemburg, they need to comply with European standards like MIFID II if they are to be used in Europe. It is highly unlikely that a UK Regulator would allow lower standards to exist in the UK. Consumer organisations are already looking for areas of “consumer detriment” arising from the exploitation of BREXIT.

Finally there is the very obvious but – often overlooked – fact that much as we moan about new regulations, we are very reluctant to give up legislation that works. I am not writing as a partisan Remainer or Brexiteer, but it seems patently obvious, from the lack of kickback from consumers, that the majority of EU legislation as it touches pensions, is considered benign.

I go to pension conferences in Europe and there is general admiration for aspects of our pension system – especially the parts that are workplace centric. Auto-enrolment is being copied in a number of EU jurisdictions and our funded Defined Benefit pension system is still the envy of many countries who aspire to the level of security it provides many of us in later age. The fertilisation of ideas (such as the development of CDC) is unlikely to stop – even if we have a hard Brexit.

This is not to argue that BREXIT has not got the potential to harm the British pension system. We are still highly dependent – for the wages we get when we stop working – on the dividends and capital growth received from UK investments. Overseas investments are subject to currency considerations which while they could work for good or ill of a pension fund, are likely to increase as we divorce ourselves from our largest trading agreement.

But in general, the pensions industry has shown itself, to date,unconcerned about BREXIT. As with the country in general, people in pensions are split between those who see BREXIT as a good thing (like my partner – who is Pensions Director at one of our largest banks) and violent remainers. Gina Miller is almost as immersed in pension fund management as she is in keeping us in Europe. She is joined by other strong women, including Baroness Altmann.

While it is unlike me to remain on the fence, I am genuinely undecided whether BREXIT will bring pensions harm or good. One thing I am sure of, it will not change the fundamental need of people in the UK and Europe to secure for themselves financial security in later life. It remains the case – whether we are in or out of Europe, that we will still need pensions.

This article first appeared in CIPP magazine

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

The language that we use

I am worried by the language that we are using in AgeWage. We are not being profane, or blasphemous, but we are not making ourselves understood , to each other , our investors and our future customers. We have not found a consistent set of words to explain what we are up to and I suspect we are not alone. There is a need for standardisation of terms used, so that people know what we are talking about.

So here is our first attempt at an AgeWage dictionary; I hope that people who love words – like Quietroom – will help us build and refine this dictionary and I hope that pension experts will challenge our words and definitions.

So here is the (dynamic) AgeWage dictionary

AgeWage– the wage we pay ourselves from our savings and get from pension(s)

Pension – an amount paid to us by formula (scheme pensions, state pension , annuities)

Savings – the amount we save

Pension savings – the amount we save for later age

Later age– the time we are relying on savings to get paid, rather than work

Work – what we do to get paid (unpaid work is different)

Unpaid work– what we do which isn’t paid

Member – someone who benefits from  a pension scheme

Scheme Pension– a regular amount paid to us by formula from a Pension Scheme

Pension Scheme – an arrangement to pay money to us by a formula (a defined benefit) or as a scheme pensio pot

Annuity – a pension we buy with our savings

Drawdown – cash taken from a pot as an agewage

Lifetime annuity – a pension which pays as long as we live

Fixed term annuity – a pension that pays for a set number of years

Scheme pension pot – the amount saved in a pension scheme that does not offer a scheme pension.

Dashboard – something where you can see whats going on

Pension Dashboard- somewhere you can see what is going on with your pensions and pension pots

Defined benefit– a formula that tells us the pension we get

Formula – an agreed calculation which determines how much is paid into your pot or the pension you get in later age

Value – what we get from our savings

State pension – the AgeWage you get from the state

Money – what we save

Value for money – the amount we get from the money we save

AgeWage score – a measure of the value we get from the money we save

Pot – the value of our savings

Pension Pot – the value of our savings for our Later Age (really this should be a later age pot)

Lump sum an extraordinary payment from the scheme which can be taxed or tax-free

Tax relief at source – money that’s paid back into your pension by the taxman

Payroll tax-relief – (aka “net-pay”) tax paid back into your paycheque by the taxman

National insurance rebates; money paid into your pension by the national insurance people

GDPR – General Data Protection Regulation

DPA – Data protection act

Cash – money that’s not in a pot

Plan- the apparatus around a pension pot which forms a contract with the provider

Policy – the legal word for a plan

Policyholder – someone who owns a policy (aka plan)

Plan Provider – the organisation that offers a contract for a plan

Employer – an organisation  which sponsors a plan or a scheme

Workplace – where we work

Workplace pension – a pension scheme that we join where we work (short for a workplace pension scheme)

Scheme Provider – the commercial organisation behind a pension scheme

Trustees – people who make sure the pension scheme is properly managed

Trust – a group of trustees that manage a pension scheme for an employer

Sponsor- somebody (usually an employer) who pays into a pot or agrees to fund the payment of a pensions

Master trust – a group of trustees that manage a pension scheme for many employers

Independent Governance Committee– people who make sure our plans are properly managed

Fund – a place to invest savings

Platform – a way of arranging funds that savers can choose

Assets – what our savings buy – whether in a fund or not

Data – information in digital format

Contribution – money paid into a plan

Contribution history – the data about all the contributions paid

Data set – all the data we hold for a person , organisation or as AgeWage

Adviser – someone who helps a member or policyholder with their AgeWage

Advice – help given to someone which is regulated by the FCA

FCA – the Financial Conduct Authority –  supervises advisers and insurance companies

TPR – the Pensions Regulator – supervises pension schemes

Guidance – help you get which isn’t advice.

Lifetime mortgage – a product that turns equity in your house into later life cash or an agewage

Equity release – the process of liquidating money from your residential property.

If you’ve bothered reading this, please drop any suggestions into the comments box or tell me where we’re going wrong by mailing

It’s really important we develop a language which is consistent and helpful to ordinary people. It’s not about “jargon busting”, it’s about using words that make sense both inside the world of pensions and out!

Agewage logo

Posted in advice gap, age wage, pensions | 7 Comments

LEBC – the demise of “de-risking”?

Yesterday LEBC  resigned its permissions to offer regulated advice on the transfer of safeguarded rights within a pension scheme (DB transfers).

It also decided to stop advising on Flexible Retirement Options such as Pension Increase Exchange and Enhanced Transfer Values.  This means that they will not only not be tendering for new schemes, but existing projects will go uncompleted.

This is a major change in direction for one of Britain’s senior corporate pensions advisers and suggests an intervention by the FCA.

We learnt of this through Hannah Godfrey

and NMA were quick to follow up on the implications for the industry

We should be in no doubt that the regulatory climate has changed.

Awkward regulation

Unlike individual CETVs which are initiated by members, the work LEBC was involved with resulted from discussions between trustees ,sponsors and their institutional  advisers – typically the pension consultancies of large accountancy firms and the corporate arms of the actuarial consultancies. The advice to set up these ETVs and FROs did not come from directly regulated firms but from firms working under the permissions granted by the Institute and Faculty of Actuaries. Firms as various as Aon, Mercer, Willis Towers Watson and my own First Actuarial.

The work was carried out with the full knowledge of the Pensions Regulator and there has been free interchange between the Regulator and these firms in terms of senior personnel. David Fairs, ex KPMG is now head of policy at tPR, Steven Soper, now at PWC was Executive head of DB at tPR.

It was convenient all round that the actuarial practices had firms such as JLT, Origen and LEBC to do the de-risking and I expect a roaring silence from them over what appears to be a firm “no” from the FCA on what was firmly “yes” from tPR.

LEBC are caught in the middle and I feel for their head of Retirement Advisory Nick Flynn and their CEO Jack McVitie.

What does this mean for schemes and their advisers?

LEBC were generally considered within the industry to be the go to company for individual advice forming part of corporate de-risking programs. They offered services to employers and members not only got the benefit of LEBC’s advice, but had the bill picked up either directly or indirectly by their bosses.

Trustees were comfortable with all this as the funding position of their schemes (especially on a buy-out basis) was improved. This did not of course mean that the scheme was improved -the scheme shrank and its social purpose diminished, but trustees are taught now that their first duty is to tPR , who’s first duty is to the PPF and the fact that the scheme was set up to pay pensions (not (c) ETVs or PIEs) is forgotten.

The days of de-risking through offering members what Steve Webb used to call “sexycash” seem to have entered a crepuscular darkness.  I have predicted that this would end badly and it has.

The problem is that tPRs agenda has stopped being about people’s pensions and become about  pension schemes. Instead of worrying how to get people their pensions, tPR now has to worry about the politics of solvency. Meanwhile the FCA have intervened and look likely to intervene a great deal more.

Until recently, pension schemes and their advisers did not have to worry about the FCA, but that is changing fast. The CMA has recommended that investment consultants become FCA regulated, many schemes now report DB transfer activity to the FCA and now some schemes will be caught  in the middle of a de-risking exercise, without a key part of the advisory chain.

The message for schemes and their advisers (and I include my own firm in this)  is that the FCA aren’t coming – they’ve arrived.

How will this go down in Brighton?

The Pensions Regulator is in Brighton and the FCA are in the east end of London.  They are only 70 miles apart physically, but the policy agenda looks wider than that.

I would be very surprised if, in the current climate, any more tenders for ETV and FRO “exercises” are issued this year. Since the funding plans of many of tPR’s schemes depend on further de-risking, the FCA appear to be throwing a spanner in tPR’s works.

I do not think that this intervention will go down well in Brighton.

How has this gone down with IFAs?

The IFAs who’ve been noisy on twitter pick up on LEBC offering too much for too little

Ironically, LEBC did not charge for advice on a contingent basis and no doubt this will be picked up by the IFA lobbying groups who can now point to an example where fixed fees led to bad outcomes.

In short the IFAs who act as pension transfer specialists are dancing up and down with glee.

How does this go down with the consumer?

I have not heard any consumers complaining about the way they were dealt with by LEBC, my professional experience suggests that customers were only too pleased to have LEBC’s services offered by their employer and that LEBC carried out their work to a very high standard.

But I do not know what has carried on between the FCA and LEBC , we have only the cold comment of LEBC’s backers, B.P Marsh

As part of its market-wide review of the DB transfer market, the FCA has undertaken a review of LEBC focused on the division of the business that provides DB pension transfer advice. Following this, LEBC has agreed voluntarily to cease the provision of DB pension transfer advice and projects, forthwith.

“In line with its successful long-term investment strategy, B.P. Marsh will continue to support LEBC as it evolves its business, which provides a range of financial solutions, for the benefit of its customers, staff and shareholders.”

LEBC will move on , and so will the industry, the days of de-risking through FROs and ETVs look over and ironically – it was not the Pensions Regulator but the FCA that called time.

Some consumers may wish that LEBC had called earlier.



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

Is there wisdom in saving?


Thanks to Dave Thompson who sent me this random picture, presumably with a hope of an answer! I suspect its a teaser for Pensions Awareness Day – which is now just a fortnight away!

Well here goes Dave, I’m going to do some big picture philosophical stuff and ask some fundamental questions

“Who says I should save?”

“Should” suggests you have some kind of duty. In places like Australia, saving into a pension pot is compulsory, in others – like the UK where we have auto-enrolment- it is business as usual and in others – like America , it is a personal thing.

“Why do we Britains save?”

In 1998, I worked with Ben Jupp on a paper called “Reasonable Force”. It looked at the level of compulsion that the Government should apply to a nation recalcitrant in its savings habits. Ben argued then for a “target  lifetime income” that went beyond the level of the Basic State Pension and was achieved through compulsory savings. His arguments were founded on political thinking.

Over a hundred years ago John Stuart Mill argued that ‘the only purpose for which power can be rightfully exercised over any other member of a civilised community, gainst his will, is to prevent harm to others. His own good, either physical or moral, is not sufficient warrant.”

This idea of saving to stop ourselves being a harm to others suggests that in Britain at least, we are engaged in a social enterprise that is designed to get everyone to a minimum level of personal solvency in retirement. That I suspect is what we think auto-enrolment is about.

We don’t like compulsory saving, we have – since the early days of company pensions – had a savings opt-out. The pension freedom is the freedom to spend our savings as we like. We are a liberal society that likes defaults but defends the rights of individuals to do what they like (even if that leads to self harm).

Is there wisdom in saving for the future?

As Victoria Derbyshire told her radio listeners, it’s easier for people to spend on retirement than save for it. We like a plan that has a purpose and for most of us, the purpose of saving for the future is as insurance rather than greed. We do not save to be rich – we spend on the future so that we are not poor.

Infact we are behaving as John Stuart Mill would have us behave, collectively agreeing not to be a burden on each other.

What is “enough”?

Ben Jupp wrote Reasonable Force at a time when the state pension was (in real terms) about 2/3 of the value it is today. He was – in 1998, writing at a time when our housing stock was a relatively low part of British wealth when we expected both inflation and markets to be measured in double digits. We also expected to be paying 10% + as mortgage interest.

What is interesting is that the details of Jupp’s solution-are based on very different financial conditions than we have today.

The State Pensions has moved a long way from the 10% of “male” average earnings. It is now three times that.  

Practically, it suggests that:  a target minimum income for pensioners should be 40 per cent of expected average male earnings, which currently would amount to £160 per week; 

to achieve this level a basic state pension of 10 per cent of average male earnings should be guaranteed by the government, leaving individuals to fund a target minimum additional pension of 30 per cent of average full-time male earnings;

it is reasonable to require those with over half average male lifetime earnings to save the amount required to reach this target; 

a compulsion rate of 11 per cent of current earnings should ensure that people earning over half average male lifetime earnings contribute enough to fund the target minimum pension; 

once people had saved enough to ensure the target minimum pension they could stop paying into their fund if they wished; some people would reach the target in their forties, some in their fifties, some in their sixties, a few never at all without government help;  to ensure low levels of contribution avoidance the government will have to win people’s hearts and minds about the need to save more and the need for a minimal compulsory system.

But the answer from today’s experts remains very similar to Ben’s. Here is the answer that Scottish Widows have come up with. For 11% read 12% – plus ca change.

hr />

Savings system need popular support

Looking back, the idea of compulsory saving Jupp was recommending, was unworkable. It ignored the idea of “net disposable income” which we know to be lower for those in the mid-career than at outset or at the end of work. It came before “nudge” and the behavioural work that suggests that an opt-out coupled with re-enrolment is more likely to win popular support than the minimal compulsory system he suggested.

The success of auto-enrolment is that it commands popular support, its weakness is that it has yet to convince us that we are either saving enough – or that we know how to spend what we save as a replacement income.

These weaknesses need to be addressed as people will not go on saving for ever – without knowing how they are doing.

We need to know how we are doing

British savers are not stupid, they know what they don’t know and are anxious to remedy their ignorance.

I shy away from phrases like “financial education” which have a patronising feel to them. We don’t need education – we need information on which we can take informed decisions.

That means understanding how we have done, how we are doing and what we need to do. These are the “how much should I be saving” questions.

A pensions dashboard is needed. Not necessarily a national dashboard, but an individual dashboard which can be downloaded from the App Store and populated with real-time information from databases that keep records on what we have saved.

That is all we need – the data that tells us what we’ve got. But that is what is missing right now and the longer that we put off dealing with the problem of aggregating that data – the more likely people are to get frustrated.

Wisdom in saving?

There is wisdom in saving, but if we are wise enough to save, we need to be rewarded. Right now we are saving into what many of us consider to be black boxes to which we have no keys.

There is currently £21bn of lost pensions savings floating around in asset pools managed by organisations who have lost contact with their customers. The DWP estimate that by 2050 there will be 50 million lost pension pots.

People will – if they cannot find their money – cannot find out what they’ve saved and cannot spend their savings – very quickly question the wisdom of saving.

That is the number one pensions challenge facing Government and it’s one I am far from convinced – we are properly facing.

how much.jpeg

You can support Dave and the Scottish Widows team as they make their way around the country on the Scottish Widows pensions bus

You can also support the Pensions Geeks who are also on the road!

Posted in advice gap, age wage, pensions | Tagged , , , , , , | 1 Comment

Kids should not borrow- parents should not lend.

Screenshot 2019-09-01 at 08.04.20.png

Nice advert – but what happens to Mum and Dad’s equity?

Last week Legal & General ran a press release that suggested that rather than the  Bank of Mum and Dad bailing out children from their pensions, parents should consider releasing equity from their homes by using LifeTime mortgages. You can see I was a little quizzical from the title of my blog. As I said on the BBC, banks don’t give money away, they lend it.

Bank of Mum and Dad now a top 10 mortgage lender?

This weekend, The Times picks up the story and looks at what happens when what started up as a leg-up , ends up as a knee in the groin – at least as far as parents are concerned.

It happens

Annie’s comments are well made. I spent a Sunday in August talking with one of the guests on Lady Lucy who was eastern European and  had come to the UK to work in the NHS 20 years ago. She had left her husband and brought her young son with her.

She was keen her son had a house and decided to save like FIRE from her wages. She opted out of the NHS pension scheme and managed to buy a property where she and her son lived. She put the property in her son’s name and the son fell in love. He married a lady who did not like living with her mother in law, especially when children arrived.

Now the son, who works in the City has turfed the mother out and is selling the house. The mother is resigned to getting nothing back, she gave unconditionally and now faces an uncertain future on a nurse’s wage – with little prospect of a pension and with little security of tenancy.

I wished I could have offered her these wise words from Iona Bain;

Of course there are safeguards.

If parents want to behave like banks they should agree safeguards to ensure that they can get their money back. It’s not what Iona and I were discussing but it is one way of doing things.

Annie has sensible suggestions

The trouble is we grossly overestimate the power of our houses to sort out our problems and underestimate the cost of looking after ourselves in later lives.

The greatest safeguard you have is to stay close to your children, but even if they show unconditional love – parents are having to compete with the harsh realities facing young families and the even harsher truths of human behaviour.

So what of giving to your children.

Annie is right, parents should only give what they don’t want back. But if you give unconditionally, you cannot give thoughtlessly and you can’t rely on your children to show the genorosity to you, you showed to them.

The Times article talks of the costs of securing a legally binding agreement with your child(ren).  A declaration or deed of trust costs between £1500 and £10,000 and that’s the price you pay not to get into later life litigation. Remember that son or daughter in law may not remain so for ever, the most vexatious disputes are between parents and those who came and went from the family.

And of course as soon as you involve lawyers, you get into destructive debates about tax.

And we could go a very long way down that path before finding it is a cul-de-sac.

The simple solution was worked out some time ago and articulated by Polonius in Hamlet. When it comes to retirement

“Neither a borrower or a lender be”

I’ll leave the last word, not to that old bore Polonius but to Annie Shaw

The debate on giving the money we borrow to help our kids borrow more, has a long-way to run.

Posted in advice gap, pensions | Tagged , , , | Leave a comment

No one should ever have to buy a poor annuity again.

Screenshot 2019-08-31 at 20.35.30.png

I’ve just read an article that could best be described as smug. It’s written by a lawyer in the financial regulation team of Foot Anstey – Alan Hughes. I don’t know Alan but I know his firm and have a high regard for it. But I think the article needs to be challenged.

The article deals with the minutiae of an FCA judgement against Standard Life and in particular breaches Standard committed of its duty to treat customers fairly and failings in its internal controls. Specifically this related to the selling of Standard Life annuities to the exclusion of the open market and with little or no regard to the enhancements in rate that customers might have got had the Standard Life salespeople cared a little.

Beyond these two breaches of FCA principles, the article draws a conclusion

Finally, it is worth bearing in mind this fine related to non-advised sales of annuities to customers approaching retirement and who may have been eligible for an enhanced annuity. If there was ever a situation which clearly demonstrated the value of advice it must be this.

This is what I want to challenge

Over the past three months I have become interested in annuities and have written several blogs about how we can get value from them. In this I have been helped by my conversations with annuity brokers, in particular Retirement Line but also Hub.

I have found that both these organisations offer an extremely professional service. Retirement Line in particular is regarded by its customer as exceptional and is rated #1 out of 96 financial services firms rated by Trust Pilot

Screenshot 2019-08-31 at 08.18.13

I have found that though the annuity broking service is unadvised , it benefits customers by not just offering enhanced annuities , but guiding customers to their best enhancement. The “our in this slide refers to Retirement Line.

Screenshot 2019-08-31 at 20.00.43

I learned that when a customer is asked how much beer they drink, not all beers have the same impact on longevity – or annuity rates

Screenshot 2019-08-31 at 20.01.29

and I learned that missing certain conditions can have a huge impact on your retirement income.

Screenshot 2019-08-31 at 20.01.15

I did not learn these things from regulated advisers, but from Retirement Line and Hub.

I also found out that there is a massive problem in Britain about annuity awareness

Screenshot 2019-08-31 at 20.01.54

and I found that most regulated advisers are neither recommending annuities , nor do they have the competencies that give Retirement Line and Hub #1 and #2 place in the annuity broking market (respectively).

What little the public knows about annuities is coming from annuity brokers who offer great service and show massive integrity in their dealings with me and those who they speak to – who like me are finding ourselves awestruck by their competence.

And I am amazed by the hostility of financial advisers not just to annuities, but to me promoting annuity solutions  in the Times and through this blog.

Why don’t financial advisers like annuities?

I was an IFA and I know why I didn’t like annuities- I felt deeply out of my depth arranging them. Indeed, when I started selling insurance with Hambro Life I was required to pass all annuity requirements to a specialist broker because I didn’t have the capacity to do a decent job for the customer.

Back in the day when everyone had to buy an annuity from their 226 or personal pension many people had guaranteed annuity rates, enhanced annuities were a twinkle in the underwriter’s eye and the open market was in practice restricted to those annuity providers with the best expense accounts.

For this reason, the behaviour of Standard Life (and the Prudential) is part of an ignoble tradition and most IFAs think that annuity brokers are no better than the cowboys at the insurance companies.


So IFAs feel out of their depth selling annuities, are worried that annuity salesmen are cowboys and thirdly they feel they hold the keys to unlocking retirement income through drawdown.

I hate to say it, but IFAs have got annuities all wrong

IFAs can use annuities as part of their retirement income portfolios without having to be experts in execution

There are some great annuity brokers in the UK but they don’t tend to be IFAs.

Annuities are brilliant as part of a retirement solution – as I talked about in a recent blog.

Will we ever have to buy an annuity again?

There’s been a lot of talk about the decline in annuity sales. I’m hoping that what we are seeing is an end to the poor practices we’ve seen in the past from the likes of Standard Life and the Prudential.

In my experience, the annuity broking market in the UK is one of the most competent I have come accross and firms like Retirement Line and Hub are setting standards other aspire to. This is reflected in customer Trust Pilot ratings.

Infact annuity sales are holding up remarkably well. If you exclude from new drawdown numbers the drawdown cases where all that is taken is tax-free cash (zero income) you can see that the numbers of people buying annuities is not appreciably less than the number of people “in” drawdown

Screenshot 2019-08-31 at 20.38.40.png

But only a tiny part of the annuity sales are through IFAs while the vast majority of proper drawdown sales are through IFAS.

Foot Ansty are telling IFAs to take control of the annuity space but they are wrong.

IFAs are neither competent to broke annuities , nor do they have the capacity to. They can however see where an annuity is appropriate and should be referring annuity business to firms like Retirement Line and Hub who know what they’re doing.

George Osborne was wrong but he was nearly right. Here’s what he should have said

Screenshot 2019-08-31 at 20.28.54.png





Posted in advice gap, age wage, annuity, pensions | Tagged , , , , , | 7 Comments

What price certainty? (Boring blog on annuities and drawdown)

price of certainty.jpeg

In financial matters, certainty comes at a price. Is it a price that I’m prepared to pay?

I’ve been putting myself in the shoes of a friend who is around the same age as me (57) and is hoping to put his feet up and quite literally STOP WORKING. Knowing this person, not working will mean working as hard as ever but she does not want to have to charge others for what she likes to do for free and besides she has a healthy financial outlook.

She’s married to a man who is independently wealthy and she’s worked for most of her life in a job which was pensions. She has what she feels is the certainty of a defined benefit pension of £22,400 today or £32,000 if she waits for it to start till she is 62 and she has around £186,000 in a personal pension.

Shocked by the actuarial reduction!

Although the actuarial reduction on her DB plan is only 5% pa, my friend considers this a rip off! I’ve explained that her £22,400 could be revalued up towards £32,000 if there is plenty of inflation in the next five years, she’s having none of that “if”! She wants the certainty of a pension for life and has worked out that she’s likely to live a long time. So she has dismissed the idea of taking her actuarially reduced pension today.

I’m not sure she’s right but she is taking a view on her durability and as she pointed out to me “I need a financial incentive to stay on the planet – my pension is the only one I’ll have!”

Bridging the pension gap

The problem with waiting till she’s 62 is bridging the gap between now and then. She asked me whether she could get a certain pension just for those five years and I asked my helpful friends at Retirement Line.

If she wants a certain pension these are her options.

Tax Free Cash £46,500   Fund Value – £139,500   
TermIncomeGuaranteed    Maturity Amount
8 years (to age 65)£18,058.44 pa£0
13 years (to age 70)£11,543.52 pa£0
18 years (to age 75)£8,846.16 PA£0
5 Years (if he waits to age 62)£22,500£29,529.00
5 Years (if he waits to age 62)£28,141.44£0
FV – £186,000  
8 years (to age 65)£24,171.36£0
13 years (to age 70)£15,446.88£0
18 years (to age 75)£11,840.52£0
5 Years (if he waits to age 62)£22,500£78,372.00
5 Years (if he waits to age 62)£37,643.04£0

We’ve discussed all the greyed out options which have been discarded. What my friend is interested in is that she can have an income of getting on for £38,000 pa certain or just over £28,000 with the flexibility to dive into £46,500 for special purposes.

What appeals to her about a fixed term annuity (which I’ve told her will earn Retirement Line £1,500)  is that she will get a monthly deposit in her bank account and that she can get on doing what she wants to do knowing that she is independent of her husband’s income. These simple emotional pleasures mean a lot to her

The opportunity cost of certainty

We have also looked at two types of income drawdown, one would involve investing all her £186,000 and taking an income. Here she can take advantage of a tax break from UFLMPS which she really likes (she refers to UFLMPS as FLUMPS).

Under FLUMPS she can set an income level for herself and have it paid to her 75% taxed and 25% tax-free, I’ve explained she’s taking her tax-free cash as she goes along.

I’ve explained that even if she put all her money in cash , she is more likely (even with added charges) to do better than with a fixed annuity for the whole sum (the £37,600 one).  This is just down to tax.

We’ve discussed how much risk she’d be happy to dial-up to get herself more income and the answer’s “not much!”.

So for her, the opportunity cost of certainty is not very high at all and she’s now weighing up whether she wants her tax free cash up front and a fixed term annuity of £28,141 or an UFLMS drawdown with money held in income paying deposits.

Benchmarking against certainty

I’m not a financial planner, I’m certainly not an investment expert and the lady will – if she goes the UFLMPS route, implement with the help of a financial adviser. Retirement Line will implement if she buys an annuity and they’ve been upfront with my friend that the £1500 commission will only be paid on execution of her annuity – there will be no fees for the help we’ve got from them.

We’ve put together a simple spreadsheet which allows her to work out how much income she could drawdown ( net and gross) and we’ve factored in the extra costs of product and advice (which are integrated in the annuity rate).

See you in five years time!

I’ll leave her to decision. I’ve told her to come back and talk to me in five years time about how much of the tax-free cash she needs to take from her final salary pension . That £32,500 comes with a big fat tax-free- cash sum of £215,000.

Having objected to her actuarial early retirement factors, she may well choke at the conversion factors on her tax-free cash. When she compares the cost of buying an annuity with the lost pension from taking cash, I suspect she’s going to think twice of taking the cash (tax-free or not).

And of course – there’s also the little issue of valuing her pension for the purposes of the lifetime allowance – but that’s the least of my friend’s worries!

The value of using the risk free pension rate.

I’m getting used to getting my friends at Retirement Line to give me quotes. They are happy doing this work – I tell them they’ll get a thank you on this blog – and this is it!

If we don’t know what certainty we can purchase with our money, how can we measure the risk and reward of moving away from that benchmark?

I think that an absolute pre-requisite in terms of financial decision making but I wonder how many people have entered into drawdown arrangements without ever having looked at the annuity alternative?

I also wonder how many people have taken their tax-free cash and are sitting on the remainder of their pension pot wondering what do do next. These are the people who should be phoning up Retirement Line – not just me!

And of course , this risk free pension rating service can be used for more than quotes. Retirement Line tell me well over half the annuities they set up get an enhanced rate from one of the1500 factors that make us less than perfect – in terms of our life-expectancy.

Screenshot 2019-08-31 at 08.18.13
Posted in advice gap, age wage, pensions | Tagged , , , , , | 2 Comments

Dashboard? – we’re dash-less and bored!

open .png

What the public want


The title was my summation of a discussion of dashboard progress over the past four years.

We’d been talking about what the general public want and had landed on precisely the model illustrated at the top of the blog.

It came at the end of a workshop on how we will get people to manage their later finances last night.

If I had three topics I would not want to discuss at a workshop right now they would be (in no particular order)

  1. HS2
  3. Pension Dashboard

But as I can’t do anything about numbers 1 and 2, I’ll confine by comments to this dash-less,  dash-bored.


The chief achievement of the ever-listening MAPS this year, seems to have been semantic. We will not have a “non-commercial dashboard”, ladies and gentleman, we will have instead a “MAPS dashboard”.

Where this means that MAPS are thinking commercially I doubt. Right now they seem to be spending their time looking for a new CEO. Since inception, MAPS have been in listening mode which means they haven’t been doing much.

Angela Pober has been brought in  to head the Industry Delivery Group (IDG).

Cap Gemini has been brought in to produce the business plan


Chris Curry has been brought in (for two days a week) to be the IDB principal.

At each gently puff of wind, Anthony Rafferty and Origo have tried to excite us that we are seeing a change in the weather, but it is hard to see the Pensions Dashboard as anything but becalmed. 

There is no-one at MAPS who appears to be at the wheel – becalmed and moored.

Where is the impetus to come from?

Anthony Rafferty, Origo’s CEO has sent me the Q&A Origo produced this time last year , with the following conclusions.

1. The Pensions Dashboard Architecture IS Open Pensions; 
2. There is a significant opportunity to learn from the Open Banking approach to governance and some of the technology approach; 
3. A foundation of Open Banking would not work for the pensions industry due to the differing characteristics we have in terms of scale, complexity, cost-control and consumer experience; 
4. The UK Pensions Dashboard initiative is one of enormous ambition and has a real social purpose. We really do need to get the architecture right and make sure it is fit for purpose. With appropriate governance, we can then increment the data architecture to meet emerging requirements for Open Pensions as and when they occur; 
5. Open Banking will be interested in the Pensions Dashboard architecture as this evolves and is finalised. The use of a federated digital identity scheme and the techniques to enable secure attribute sharing to allow the consumer to control who has access to their data will be particularly relevant; 
6. Under an appropriate governance regime, the proposed Pensions Dashboard architecture will support an innovative Open Pensions landscape where the consumer is at the heart of the solution and their privacy and consent central to the design. This will eventually enable an Open Pensions architecture that is more sophisticated than currently exists for Open Banking;


Screenshot 2019-08-30 at 06.53.01.png

So where is the delivery?

What started simple ends complex

If you read Origo’s 6 statements you move from 1 Simple to 6 Complex – just look at the length of the text. It’s always like that with the Pensions Dashboard. If it could just focus on getting a quick start, we could get on with things, but oh no! We need a huge complex machine with enough governance to sink a battleship.

Those I know , who sit on the FCA’s Open Pensions Group agrees that the Origo is best placed to deliver a pension finder service (a simple first step) but that Origo’s Hub approach is no replacement for the point to point interactivity found in open banking (what follows).

So people like Romi Savova of Pension Bee do not confuse Open Pensions with Origo’s approach to the pensions dashboard.

What Origo is building is infrastructure for a Government led project. What Open Banking standards delivered released banks to build a web of connectivity that avoided the delays we are seeing happening at the Pension Dashboard. The Origo Hub demands an Industry Delivery Group, Open Banking was based on a simple set of rules or standards – agreed through the CMA- that has enabled FinTechs to get on with it.

So long as we keep building infrastructure and focussing on governance, we will see the Pensions Dashboard becalmed and moored in the same place it was three years ago


Screenshot 2019-08-30 at 06.14.25.png

The Proof of Concept moored and becalmed since September  14th 2016


It looks clunk and it is clunky. It arrived on 14th September 2016 and has sat there ever since, an unchallenged model – at least by those who control the dashboard’s delivery.

The #TellRick initiative – now three years old – did not catch on. Why should it – Sid’s well retired by now!

The Open Banking Implementation Entity

While the Data Feed Engine has been becalmed and moored for 3 years, open banking has happened.

Screenshot 2019-08-30 at 06.28.36.png

Look at the last item in the bottom right hand corner – Nesta’s Open Up challenge. My FinTech was asked to join that challenge, we couldn’t because though on every one of the challenge metrics we would have been approved, because we worked with pensions data rather than banking data – we had to exclude ourselves.

The OBIE has done for banking what the Treasury envisioned for pensions back in 2016.


What open banking’s given us

  1. It’s put consumers in control of their finances
  2. It has been secure
  3. Our banking transactions , costs and charges are now obvious to us
  4. We see things in real time
  5. At the heart of it all – we’ve come to trust our banks a little bit more,

Read again the 6 reasons why pensions refuse to adopt the simple principles of open banking.

The pensions industry said it couldn’t be done, the CMA and the banking industry did it.

Posted in age wage, Bankers, customer service, Dashboard, dc pensions, pensions | Tagged , , , , , | 4 Comments

Why do DB transfer values make me sick?

Screenshot 2019-08-29 at 06.47.19.png

One of the things ordinary people find hardest to work out is why their share of a defined benefit scheme can go up when stock markets go down. This happened last month where the stock market fell.

Screenshot 2019-08-29 at 05.58.48

FTSE100 in August 2019

But in August, the 10 year Government Bond yield fell yet again

Screenshot 2019-08-29 at 06.00.36.png

10 year bond yield (FT)

Most people understand a transfer value to be a “share of the fund” and most people think that pension funds invest in company’s shares. Both thoughts are a little askew.

Firstly , defined benefit pension funds do not pay out a share of the fund, they pay the estimated cost of meeting the promise made to you, based on the actuary’s estimate of the liability (your pension) and of the cost to the fund to pay it.

Most pension funds are now largely invested in “risk-free investments “, by “risk-free” experts mean investments which aren’t impacted by market conditions – in terms of meeting liabilities, pensions funds regard an investment in Government Bonds as risk free.

So a stock market in free-fall no longer impacts pension funds that much. Our transfer values are immune from crashes in equities. Infact transfer values can benefit from market crashes – as money is swiped into gilts, pushing down gilt yields and increasing the price at which gilts need be purchased.

The transfer value represents the amount of cash that would be needed to pay the pension (it’s often called the cash-equivalent transfer value) and when gilt yields fall, the amount of cash needed to pay the pension rises. That’s because the gilts which are yielding less are more expensive to buy.

I know it sounds crazy, but last month your DC pension probably dumped in value but (if you had one) , your DB pension went up (in terms of its transfer value).

Does this make sense?

We are in a world of extremes. Politically we are in the middle of a trade war between the USA and China and a political struggle between Britain and Europe. These big (macro) events are know as “geo-political” tensions and they cause markets to put tin-hats on. Shares are sold off and money invested in risk-free assets, markets seek the strongest currencies (the pound is not one of them) and the fundamental state of economies is ignored for fear of how these economies will change if things go badly wrong.

Does this make sense? Markets are a law unto themselves, they cannot be controlled by central bankers and politicians, though such people’s actions can influence markets in the short term.

In short, you are – in terms of your pensions, in the hands of irrational forces that defy your prediction.

People who were advised last year to transfer may now be wishing they’d hung on a year. Over the past year, the FTSE 100 has fallen 6% , but according to pension consultancy XPS

The continuing fall in gilt yields has pushed transfer values to new record highs, around 10% higher than they were this time last year. Although there is a lot of uncertainty around the future of the financial markets, an increase in transfer values will mean we are likely to see a lot of members investigating their options.

Why do I feel a little queasy?

I feel a little sick of speculation about DB transfer values; I’m not the only one. Recent FCA papers warn that many transfers are wrongly advised, there is insufficient reason for people to be transferring to warrant the loss of guarantees inherent in the pension given up.

And yet there is still a view among those who advise pension fund that the payment of transfer values actually helps a pension scheme. There is something in that final sentence that makes me feel sick

…we are likely to see a lot of members investigating their options.

I am not in any way accusing the statement’s author , XPS’ Mark Barlow of encouraging transfers, but anyone who has read this article will realise that the temptation to go for a transfer today is higher than it’s ever been – transfer values are at record levels.

The reason for these high values is – as Barlow also says, because scheme liabilities are valued using the return expected from the scheme’s fund and that return trends towards the return (or yield) on Government Bonds (gilts).

This is an entirely artificial situation, created by the mania to match liabilities with risk-free assets. It is the by-product of financial economics which uses theory and ignores practice. The theory is that schemes dump risk, the practice is that risk is dumped on members. That is why I feel queasy.

Enhancing Transfer Values with no capacity to transfer

And the worst of it is this. If you do as a DB member with a CETV, investigate the option to transfer, you will find it increasingly hard to get financial advice.

Financial advisers who can give advice on transfers (about one in three regulated) are often subject to quotas imposed by Professional Indemnity Insurers, many firms with capacity to advise have withdrawn from doing so and some firms have been stopped from doing so by the FCA.

The member tempted to investigate options is now facing a frustrating task. Though he and she may see good news in the CETV increase, they may face more obstacles than ever in taking money.

For the first time, I sense that actuaries are waking up to the consequences of the de-risking they have watched happen (and often advised to happen). Mark Barlow’s statement this month ends

“Trustees and sponsors should ensure that members considering long term irreversible decisions are being provided with sufficient education and support to enable them to make the right decision for their circumstances and financial futures. We would also recommend schemes consider how the substantial changes in market conditions have affected the funding strategy and whether, in light of this, the transfer value basis remains appropriate.”

This is a coded way of saying that the consequences of de-risking may not be as great as we thought. That pension schemes have a social purpose and that at the moment, the way they offer transfer values is causing moral hazard – it’s encouraging the very behaviours that the FCA are trying to prevent.

Actuaries only follow rules when they increase transfer values at times like this, but the transfer value basis – fair as it seems to actuaries – may not be fair to members. Dangling carrots and then locking the carrot away, is no way of managing people’s retirement planning.

An awkward state of affairs.

I think the current state of affairs is best described as awkward. There is no easy way to talk to members about what to do. The head says sieze the opportunity – but the heart says stay where you are. The head says use the contingent charge, but the heart says, enjoy your pension. I could easily turn these formulations round, for some the heart yearns for freedom and the head says no.

And for those who took transfers – the £60bn of us, between 2016 and today, those transfer payments may not be looking quite as healthy as we they did earlier this summer.

Screenshot 2019-08-29 at 05.58.48

How resilient do we feel looking at this chart?

I feel queasy, I feel awkward, so I think does Mark Barlow and so do many actuaries who value pension schemes.

The question is just how sick do you have to feel, before you get off the boat.

Posted in actuaries, advice gap, BSPS, FCA, pensions | Tagged , , , , , , , | 8 Comments

Bank of Mum and Dad now a top 10 mortgage lender?

Screenshot 2019-08-27 at 06.44.37.png


This bold claim is made on behalf of Mums and Dads throughout the land by Legal and General and the Centre for Economic and Business Research (CEBR)

New data also shows that many people could be accepting a more uncertain retirement after financially supporting family members to buy a home. These latest findings follow earlier research from Legal & General which showed that this year the average BoMaD contribution has risen by more than £6,000, to £24,100.

The rise means that the Bank of Mum and Dad is now the equivalent of a top 10 UK mortgage lender, gifting a total of £6.3bn in 2019. Equivalent because lending and gifting aren’t quite the same thing!

I’m going to be on BBC Radio this morning debating with Iona Bain whether this is fake news or whether L&G have discovered what every Mum and Dad knows, that when it comes to our kids – financial judgement flies out of the window!

BoMaD  bonkers!

If we are to measure the Bank of Mum and Dad by any normal standards, then it is a bonkers institution. Nearly a fifth of over-55s (19%) are  gifting money because they feel they have a responsibility to help. But 26% of BoMaD lenders are not confident they have enough money to last their retirement after providing support

Despite this, BoMaD lenders are increasingly using equity release to help family with deposits and fund retirement

Thousands of over-55s are generously gifting money as part of the Bank of Mum and Dad (BoMaD), using savings and even pensions to help their family onto the housing ladder

Apparently this  new research shows that when it comes to gifting money, the Bank of Mum and Dad is drawing on a wide range of sources to financially support other family members with a deposit.

Although more than half are using cash (53%), 9% are cashing in lump sums from their pension savings, 7% are using their pension drawdown and 6% are drawing on their annuity income to help support their loved ones’ homeownership ambitions.

But despite this generosity, digging ever deeper into their retirement savings is leading some over-55s into a more uncertain retirement.

Over a quarter (26%) of BoMaD lenders are not confident they have enough money to last retirement after helping their loved ones and 15% have had to accept a lower standard of living. A small number (6%) are even choosing to postpone their retirement.

If BoMaD had been regulated by the Prudential Regulatory Authority, it would have been closed down long ago! BoMaD is a bonkers lending institution!

It’s all about the boomer’s obsession with property

The research apparently shows that parents and grandparents across the UK are overwhelmingly in favour of supporting their loved ones to buy a home.

More than half (56%) of BoMaD lenders who have or would consider helping family to purchase property said they are willing to because ‘it was a nice thing to do’. Almost another fifth (19%) said they feel it’s their personal responsibility to help out.

Bottom line, we are passing on to a next generation , our obsession with home ownership. Whether the decades-long boom in property prices will continue for generations to come is an open-question.  The assumption is that it will and any such assumption is dangerous.

I think a much stronger driver among our kids is  the state of Britain’s rental market which is at best shabby and at worst so set against the tenant as to make property ownership a must win. The comments about personal responsibility may be born out of guilt as well as parental love!

And here comes the advert

Currently equity release is some way down the pecking order for boomers. The “research” suggests that this is changing. The sceptic in me thinks that this may be where research turns into advertorial!

However, the Bank of Mum and Dad research has also revealed that consumers are increasingly considering other solutions that can help them to support family members but also pay for the retirement they want to lead.

Unlocking housing wealth with equity release is becoming more popular with the over-55s and many are now using the money to help with a deposit.

16% of BoMaD lenders have or would release equity and use that money to financially support their children or grandchildren. This makes it the third most popular source of funds for the Bank of Mum and Dad.

But BoMaD lenders are using these funds to help with their own retirement ambitions too.

More than a quarter (26%) would or have used their housing wealth to fund home renovations and nearly three in every five (58%) parents and grandparents are using it to free up cash to stay in their own home. Across the over-55s surveyed who haven’t released property equity already, well over a quarter (29%) said they would consider drawing equity from their home with a lifetime mortgage.

The real lender is not BoMaD but Legal and General 

Chris Knight, Chief Executive, Legal & General Retail Retirement said:

“There are a vast range of considerations today’s retirees face when it comes to planning their finances, from whether they can afford to help their children buy a home, to setting aside funds for any future care needs they may have. Parents and grandparents across the UK want to see their loved ones settled in homes of their own and are giving generously as part of the Bank of Mum and Dad. Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement, especially if they don’t get the right advice.

With these pressures, it makes sense that the financial services industry should help provide solutions to suit a range of circumstances.

Housing wealth has the potential to play a hugely transformative role for both Britain’s retirees and the next generation of homeowners. There is around £1 trillion of property equity owned by the over-55s. Not only could this wealth be transferred across the generations to provide a ‘living inheritance’ for children, but it could also give many retirees the financial freedom they need to enjoy the colourful retirement they really want.”

And if you want to buy a sausage with your bricks – seek professional advice

As usual the message is mixed.  We can borrow from ourselves, but we should do so with expert help. L&G is already protecting itself from the next potential mis-selling boom. As with pension transfers, financial advisers are being used as a “litigatory condom”.

While the Bank of Mum and Dad plays a positive role in helping thousands of people onto the housing ladder, Legal & General also wants to encourage more over-55s to seek professional advice before using their retirement savings to help loved ones. This year’s research shows the situation is improving.

Last year, just 12% of BoMaD lenders said they had sought professional advice from a mortgage broker, while nearly a third (31%) this year had or would seek advice. However, nearly half of all BoMaD lenders (44%) still hadn’t taken (or would not take) any advice at all before gifting money.

Legal & General believes that by supporting more consumers to take advice, they will be in a much better position to make informed decisions about their retirement income and financially supporting the homeownership ambitions of their family.

“The litigation condom”

As usual, it is ultimately our fault if we buy equity release products without paying an adviser to take the blame

“Thousands are still dependant on the Bank of Mum and Dad to take their first or next step on Britain’s housing ladder. The generosity of parents and grandparents is inspiring, but many are making big financial decisions without adequate planning or professional advice.

Legal and General finish with a message to the Equity Release Council, the Council of Mortgage Lenders and presumably the FCA

As an industry, it is crucial that we provide the products and solutions people need in later life, as well as encourage them to seek the support of advisers who can help them navigate this increasingly complex landscape.

I think this is fair enough, advisers are critical to managing the complexity that the pension industry has created.

But in this bonkers world where we cannot take simple decisions like gifting money to our kids without “taking professional advice”, haven’t we lost the plot?

Should it really be that hard for ordinary people to pass the keys to the kids, or the kids to look after their parents in later life?

I expect there are many families, particularly those with strong links to family systems that originate from countries without the welfare backstops we have in Britain, for whom the litigation condom is entirely irrelevent.

They will bypass the need for financial intermediation and the need for complex financial products such as equity release (and pensions)/

For many ordinary people, being a Mum and Dad is about creating the inter-generational solidarity that allows families to by-pass the financial services industry and remain self-reliant.

Ultimately we don’t need a Bank of Mum and Dad, we are all  Mums and Dads!

Posted in advice gap, age wage, pensions | 4 Comments

Stoking it up on the river

The heat was intense but there was enough wind from the passing of the boat to keep the guests.


The plugs were in as we sailed along, Ben Stokes and Jack Leitch were pulling British cricket back to a high we hadn’t experienced since – last month’s world cup final.

The boat passed smoothly through Hurley lock, Hambledon Lock, Marsh Lock and Shiplake Lock and into the weir pool at Sonning where (as usual) we didn’t spot Goerge Clooney.

We lunched on the bank at Shiplake and very wonderful the lunch was. Home made Falafels and Bhajis, crisp salads, Pimms and juices.

next 2

Thanks to Rai and apologies to Raj and his party. We had a double booking.

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

Why does product bias exist among advisers?

Paul bradshaw.jpeg

One of the dilemmas that IFAs face is that they need to get paid for what they do. If all they had to do was act in their client’s best interest – “put the customer first”, they would advise pro bono. But advisers have to be paid and how they are paid becomes part of the advisory process.

I am well aware that some advisers charge fees directly to the client, and some take their fees from the products they advise on (provided the product provides the option to pay the IFA that way).

Here is where the problems start. Some products do not pay advisers and some don’t. In the world of master trusts Salvus MasterTrust does, People’s, NOW and NEST don’t. Royal London, Aviva and L&G all run workplace GPPs that pay adviser fees.

Are we to criticise the IFA for choosing to use workplace pensions that pay them or are we to criticise those workplace pensions that don’t offer a facility for the adviser to get paid?

It seems to me that there is a cost for the provider in offering this facility that can only be justified internally as a distribution cost. NEST does not get much advised business because it does not pay advisers. The cost of administering Royal London’s adviser charge is justified because Royal London get a huge amount of IFA introduced business.

How isn’t this product bias?

So why does product bias exist?

Firstly because of customer behaviours. People are not inclined to pay IFAs out of their own pockets. Since Mark Weinberg opened Abbey Life in 1972 people have been paying advisers for the advice they buy out of the product.  This form of payment is now in the adviser’s and customer’s DNA – it is what we do. We do not write cheques to IFAs.

The reason for the product paying is that it is a whole lot easier. It is easier for an insurance company to pay commissions (or today the adviser charge) than for an IFA to collect the money – there is minimal credit risk (so long as the agreement is properly structured) and IFAs are relived of the onerous task of managing an aged debtors list.

It is also a whole lot easier to pay fees without VAT being added. Private individuals have got used to paying for advice without VAT – because it relates to an insurance product. Since VAT is irrecoverable by an individual, the creation of a VAT invoice by an IFA is effectively 25% more expensive to pay.

I accept that an invoice can be raised without a demand for VAT – but this is only where there is no clear link to the execution to an insurance or investment product – for instance a cashflow forecast, taxation advice is vat-able. This is why providers are always biased towards the execution of a vat-able service, it reduces the advisory bill by 25%.

Finally, is it a whole lot easier to pay for something out of a tax free pot. Adviser fees paid out of a pension pot are effectively EEE – that is the contributions are Exempt, they’ve grown in a tax-Exempt fund and there is no tax to the client when the payment leaves their pension account – the third Exemption

The VAT invoice on the other hand is paid for out of taxed money, money that sits in the client’s bank account.

I am not blaming the IFA for using the most effecient way fora client to get paid. But if the FCA think that the RDR has abolished product bias, then they must think again. The IFA solution set is partially defined by the means of payment offered by providers.

All that adviser fees are – that commission isn’t – is more transparent. The client signs a form to allow the fee to be paid, but if the form isn’t signed , the execution of the advised strategy is not completed. There is no win to the client in not signing the form, no way of cheating the IFA out of a commission other than finding a way to execute only  or at a reduced fee with another IFA.

I do not hear this as a problem for IFAs, IFAs might as well be being paid a commission, for the little pushback on adviser charges.

Introducer fees

Getting paid for financial advice is a matter for regulated advisers, but you can get paid for referring people to financial advisers, annuity brokers and certain products.

Introductory fees are available on all kinds of regulated products including annuities,  equity release, certain protection products and SIPPs.

These fees are paid to unregulated introducers as well as regulated advisers. They are typically business to business fees so VAT is recoverable and the fees are subject to corporation – not income tax,

These introductory fees inevitably reduce the capacity of individuals to negotiate fees downward but the organisations who pay them, typically offer non-negotiable charging structures so there is no question of dual pricing. There is not what the Americans call a “load- no load” dilemma where the no-load product is cheaper because it was purchased directly (rather than through an intermediary).

Value for money on fees

Unfortunately I have concluded that the worst value for money for the consumer is to pay fees directly to IFAs. To the consumer the commission or advisory fee is better.

This means that NEST and other master trusts that do not offer adviser fees are excluding themselves from the workplace market. We found in Port Talbot that even though an adviser could get paid by Aviva for transferring money into the Tata Workplace Pension, there were much greater rewards for transferring into other pots where ongoing fees could be taken from the fund both for advice and for managing the money.

This product bias is explicitly mentioned in the FCA’s recent consultation on contingent charging (CP19/25) and has been brought up in other investigations by the Work and Pensions Select Committee – most noticeably on Transparency.

So long as advisers can show that their fees are offering better value for money when charged contingent on the product provider paying them out of a fund, then provider bias will persist.

As for introductory fees, comparison websites are quite explicit. They will show – albeit greyed out- the providers that do not pay introductory fees and people still use their introductions to get the best product that the website can get paid on.

I do not think this is necessarily value for money from the price comparison website, but I know why I buy that way, it’s because it’s easier to do , and in certain situations , I will pay extra for convenience and good service. Buying a protection policy online (for instance) can be anything from a nightmare to a pleasure.

My general rule is that cutting out the middle man is generally a good thing, Middle men need to demonstrate they are value for money and worth the additional cost of using them. Most middle men rely on inertia rather than good service but this is not always the case.

Why does product bias exist?

Advisers and introducers are biased to products that suit their commercial model. The B2B model used by advisers selling to corporations has different dynamics in terms of  buying practices than the retail model used by IFAs.

These differences are typically created by the complexities of the tax system which drives buying behaviours. To some extent it is down to ways we treat our own and other people’s (shareholders) money. We purchase in an emotional way and are subject to our own behavioural bias’ which widen the divisions between retail and individual.

So product bias is integrated into the advisory process and no amount of legislation on advisers can eliminate it. There would have to be a wholesale reform of the taxation system and a requirement on those advised to pay the fees separately from the product for this to happen.

The call for a ban on contingent charging for DB transfers (where there is clear evidence of product bias) is necessary to protect vulnerable people from making bad financial decisions on the income they’ll relay on for the rest of their lives. It is a special case because of the clear damage that is being done to people’s financial prospects.

But it is only the beginning of a wider argument on product bias (and it will be an argument and not a conversation). We have to work out whether we want independent advice or restricted advice and so long as we are prepared to accept the current product bias, most IFAs must accept that they aren’t really independent – but restricted advisers.

Whole of Market?

Paul Bradshaw once challenged me to give an instance of whole of market advice. I spent many months trying to do so but I never did. I never got the lunch he promised me for showing him advice that was truly independent. I had forgotten one thing, for advice to be truly independent – the adviser cannot be paid!

Lady lucy bank h 076

Thanks to this swan – and the Kingfisher which evaded my camera this morning

Posted in advice gap, age wage, pensions | 12 Comments

When naming and shaming had to stop

name and shame

It now is clear there are not one but two firms that have been hit with a  £350,000 fine through escalating penalties from the Pensions Regulator and both relate to the non-payment of monies into staff pension accounts. These are breaches of auto-enrolment regulations, basically fines relating to payroll practice and the illegal retention of deferred wages. In one instance we know the fine resulted from an attempted theft from staff of £100,000.

In the past, employers like Dunelm and Swindon Town FC, who flouted the rules were named and shamed, but that has now stopped.

The question of naming and shaming is contentious and was picked up in an FT article from Jo Cumbo

“Maintaining a shroud of secrecy around one firm which has been fined while naming and shaming others doesn’t really make sense,” said Tom Selby, senior analyst with AJ Bell, an investment platform. “Ultimately the firm will have to file accounts with Companies House and so, one way or another, this information will become public.”

This is true and no doubt the executive of the employer (with over 2000 staff), knows that their anonymity is temporary. The regulator said it did not consider it “appropriate or proportionate” to name the business, clearly it feels it is in the interests of staff not to be transparent at this time.

Protecting confidence

This may be one of those rare cases, where transparency needs to be tempered with pragmatism. What amounted to  attempted theft of staff pension contributions seems to have arisen from incompetence rather than criminal intent and the remedy put in place may already have resulted in the incompetents being sacked and a new regime arriving – intent on restoring confidence in pensions.

If this is the case, then some time to restore order is sensible. We have to question how much of all this, the impacted staff know, and whether they have been properly compensated for any losses incurred in the late payment of contributions.

But with those who staff who’ve been impacted, having access to their contribution records, it seems unlikely that they don’t know what’s gone on. That we know nothing from them, suggests that sleeping dogs are best left to lie.

name and shame 2

The worry of AE compliance

TPR also report that between April and June this year tPR issued 23,000 fines and that from the spot checks it has been running, 75% of the companies investigated had AE breaches.

There are around 1.4 million employers in the UK who have auto-enrolled staff but if the quarterly run rate is creeping towards 25,000, then this suggests we may be seeing 1 in 10 companies in line for a fine.

Screenshot 2019-08-23 at 06.43.49.png

Source- tPR compliance and enforcement – April-June 2019

The shift in tPR’s position is clear, we are moving from education to enforcement, the trend in non-compliance is clearly up and we are going to have to keep a keen eye on these quarterly bulletins.

The worry of AE compliance is that the public loses confidence in pensions through non-compliance over the payment of contributions. The employer is key to keeping AE on the road which may explain the less aggressive approach being taken in the two instances at the top of this blog.

When naming and shaming has to stop

With 23,000 employers in breach last quarter and over 300,000 having been issued some kind of compliance notice, the list of those potentially in breach would be a long one.

Naming and shaming the 24,000 employers who have been issued escalating penalty notices is no longer practical. There are some flagrant abusers who are still named and shamed (Dunnes Stores), but for the most part – the penalties paid by employers are now part of business as usual.

It seems that a fair war-chest is being built up in Her Majesty’s Treasury from all these fines. Perhaps they might consider returning money to Napier House, tPR’s Brighton HQ.

Now may be a good time to use that money to good effect. An analysis of the detriment created by the 300,000+ breaches to date should result in a better understanding of when employees are being short-paid and when the breach is of a technical nature with little harm to staff pension contributions.

This analysis should lead to the isolation of breaches which have no material impact and recommendations to amend secondary legislation to cut these breaches out.

We know that AE compliance is complex, we have known from the start. But AE has worked despite of the complexity. That AE is working doesn’t mean that it can’t be improved and the cost of tPR’s compliance and enforcement looks considerable.

TPR are being pragmatic in not naming and shaming employers in serious breach where anonymity is best preserved. Let’s hope that that pragmatism is evident throughout the compliance regime so that we can see the number of breaches falling.

If 75% of spot checks result in the identification of a breach, it may not be employers who are at fault – so much as the rules.

Posted in auto-enrolment, pensions, Pensions Regulator | Tagged , , , , | Leave a comment

Value for money? Let the saver decide


Earlier this year AgeWage ran a series of snap polls which proved popular enough!

VFM poll.png

We have spent the past six months asking people what they want to know about their workplace pensions and they tell us that once they’ve found them and found out what they’re worth, what they want to know is whether they’ve had value for their money. This blog looks at how the value for money assessment has evolved since the OFT demanded IGCs be set up to tell people the VFM they were getting.

It’s not gone well has it?

People outside of pensions think that people in pensions are making a meal of value for money.

If you look at the various definitions of value for money or “moneys worth” used in this blog- you’ll see they are very simple – and can be universally applied.

If you look around the practical ways value for money is assessed, you find examples which simplify complicated things into formulae that people understand.

This is what’s behind Frank Field’s frustration when he complains in a recent paper on transparency that

We repeatedly heard in evidence that there is no clear definition of what good value for money means for pension schemes. Perceptions of value for money will vary depending on the perspective being considered and attitudes to risk, return, costs and other factors

He ends up calling for an

“agreed definition of what is meant by value for money in the pensions industry. Although individual schemes will need to vary their value for money goals, without agreed definitions it is not possible to make effective comparisons”.

In practical terms he questions whether what we do at the moment works and he calls for an immediate review of Value For Money practices

The review should assess whether or not this requirement leads to better scheme focus on achieving value for money and better communication to scheme members about value for money.

So let’s look at how VFM is being used elsewhere. I’ve been looking around and the first thing I’ve notices is that…

VFM is a lot simpler than pension people think

The way that people estimate value for money is by a simple analysis of inputs and outputs. Take football, you want to know who is delivering value for money, take goals v salary

Screenshot 2019-08-21 at 05.44.38.png

Actually, best value for money last season came from two south coast heroes, Callum Wilson – who’s goals cost Bournemouth around £148,000 and Brighton’s Glenn Murray who only cost £122,000 a goal.

Purists may point to a host of other factors, but this is what matters for Talksport listeners……..

Now let’s move on to how Government does Value For Money assessments for what it buys

Government procurement may look complicated

Comparing outputs and inputs

Screenshot 2019-08-21 at 05.35.59.png


But in practice, it’s very simple.

A local authority sets up a new programme to reduce litter dropping. One of its early steps is to agree with stakeholders a set of outcomes for the programme. The effectiveness of the programme is to be judged on the extent to which it reaches its outcomes in a year.

In this case, the programme achieves 97% of its outcomes and councillors declare they have ‘come within a whisker of winning the battle against litter’. The programme was effective.

However, the programme cost more than expected and overspent its budget by 25 per cent. This was because the programme managers allowed costs to over-run in their drive to meet the outcome. The programme was not economical.

The cost over-run prompts a review of the service. This concludes that, outcome for outcome, it was more expensive than similar programmes in neighbouring areas. The programme was not efficient.

If programme objectives had been exceeded sufficiently, the programme may have been cost-effective despite the overspend. However, programme managers could still be criticised for exceeding the budget.

The most disadvantaged parts of the area were also those with the biggest litter problems and these neighbourhoods improved more, from a lower base, than wealthier places. The programme was equitable.


So how have pensions people got in such a mess?

The idea of using value for money assessments in pensions to ensure people are protected from rip-offs has been around a long-time. The Stakeholder Price Cap was introduced so that the money we paid for our pension management was capped at 1% of the amount under management. These early price cap set the tone for VFM debating and by the time the Office of Fair Trading reported on rip-off workplace pensions in 2014, this idea for VFM had  already taken root.

Here are some slides delivered by Sandy Trust to the Institute and Faculty of Actuaries.

Sandy starts by saying that VFM is in the eye of the beholder, quoting trip advisor.

Screenshot 2019-08-21 at 06.03.33

but concludes it can’t be as simple as all that…Screenshot 2019-08-21 at 06.03.59

It is at this point that the member’s view of VFM is replaced by that of various Government organisations (office of Fair Trading, National Audit Office, Financial Conduct Authority and The Pensions Regulator).

The conclusion is that VFM in pensions (especially pension savings schemes) is already out of control, it cannot make its mind up whose perspective it’s measuring, it’s complex , it’s expensive to measure and there is little clarity of approach.

In short it presents an opportunity to actuaries to “help customers and in so doing help themselves”. 

Screenshot 2019-08-21 at 06.05.16

Sadly value for money has not helped savers – though it is helping actuaries 

We now are in a position that every DC  trust and contract based work place pension must report on value for money in its own way, through the formulae of IGCs, GAAs and Trustees with the help of their advisers – typically the actuaries who sat in the room listening to Sandy.

Far from simplifying pensions , VFM has become one of the most complicated areas of pensions.

  • Some providers use returns based formulae such as CPI +3% (Adopted by the Prudential)
  • Some providers use a balanced scorecard, assessing each aspect of the workplace pension either using numbers or the “red orange green” or RAG rating system.
  • Others seem to have abandoned all objective reasoning and adopted a “let’s give our lot a tick for VFM and go down the pub approach.

It’s time we listened – not to ourselves – not to Government – but to the savers

In 2017, in a rare moment of unity, the heads of the various IGCs clubbed together and got a project underway led by NMG. The report produced what its co-ordinators – Sackers – described as

some interesting and unexpected insights into how members perceive value for money when it comes to pensions.

The overwhelming insight – that dwarfed all others was that for ordinary people

Perceptions of what value for money means focus around ‘good returns’:  In the online survey this was the top rated attribute; the workshops revealed this is much broader than investment returns but is perceived by members as achieving a good outcome at retirement.

This isn’t complicated at all. It goes back to the simple examples we looked at earlier.

  1. Goals for money
  2. Litter for money
  3. Holiday for money

So why not “money for money”? 

What members said they wanted as their VFM measure was very simple. They wanted to know the amount that they got at retirement compared with the amount saved.

The pensions industry has refused to address that simple request

“Value for member”

Instead of a simple way of calculating the amount of money out for the amount of money in , we have decided once again that members cannot have what they want, they must now have a new metric called “value for member”.

This is a clever ruse that perverts the simple idea of “money in – money out” and returns us to an abstruse formula that no”member” or any other kind of saver, will either understand or be interested in. Value for member requires trustees to

assess the extent to which those charges and transaction costs represent good value for members. Trustees are required to detail the level of charges and transaction costs under their scheme and explain the outcome of their good value assessment in a new Chair’s annual governance statement.

We are back in the cul-de-sac we explored earlier with the OFT/NAO/FCA/TPR/IFOA alphabet soup. This time we can add in the PLSA, who in conjunction with the Investment Association have come up with this new way for actuaries and others to make money – at the expense of value for money.

Why we can’t have what savers want?

Savers have had precious little say in what they consider value for money from the pension saving schemes they choose to join or choose not to opt-out of.

Instead of what they want, they get what the OFT/NAO/FCA/TPR/IFOA/PLSA/IA think they want. Which is exactly what the pensions industry wants but nothing to do with what savers said they wanted (when asked).

What savers want is to know how their savings have done. They want an answer that is simple, ideally simple enough to be expressed in a score or ranking.

They want to understand that score or ranking  as how they’ve done relative to the average person and that is all they want.

They do not want a detailed attribution analysis that looks at costs and charges, risk and return, details the quality of comms, at retirement options and a host of other “features” of the pension plan.

They want a simple way of assessing their pension savings and how it’s done.

Why can’t we give them it?

AgeWage evolve 2


Posted in pensions | 4 Comments

Judge rules that people matter (shock)

Adrian is right, Andrew is barking up the wrong tree!

man from pru

The man from the Pru

The issue here is not “what does this mean for the bulk annuity market, but what does this mean for ordinary consumers for whom the question “who pays my pension” is fundamental.

Imagine that you found that you hadn’t got a state pension but a Capita pension. To most people, this would be a downgrade, even if Capita were no more than the administrator and the financial muscle of the State stood behind each payment. This is pretty well the argument that Judge Snowden used for turning down the Pru/Rothesay deal. Here’s the reporting from the FT 

…the judge on Friday blocked the process, known as a Part VII transfer, arguing that Rothesay did not have the same heritage or diversification as the 171-year-old Prudential. Annuities are pension products that often last for decades.

Mr Justice Snowden said that when buying them, customers might have chosen Prudential because of “its age, its established reputation and the financial support which it would be likely to receive from the accumulated resources of the wider Prudential group”.

Rothesay, he said, was “a relatively new entrant without an established reputation in the business”. He added that, although its capital strength was as strong as that of Prudential at the moment, Rothesay “does not have the same capital management policies or backing of a large group with the resources . . . to support a business that carries its name”.

It’s important that the High Court have ruled against the regulators and independent experts and asserted the right of ordinary pensioners to have their money paid to them for the rest of their lives by the organisation they chose to pay the pension.

There are wider implications

prudence 2

The ruling is important for legacy pensions of all kinds. At present, the “books” of business that comprise of our money, are bought and sold on the capital markets with little thought for the people who will benefit from the various policies.

Similarly, rights in occupational pension schemes can be bought and sold by insurers through buy-outs and  buy-ins. Moves are afoot to shift the ownership of money in occupational pensions from trust to trust as consolidators eye the weak employer market for the sponsorship of our pensions. “Weak employer market” is my euphemism for “employers don’t want to know”, which is pretty well how the Judge saw the attitude of the Prudential.

It is odd, that when so much is spent getting the lifetime interest of consumers in a product, insurers and employers are so keen to jettison the lifelong link that comes with paying someone a pension. As a Zurich pensioner, I get a reminder of Zurich every pay period and a very positive one.

Let’s hope that – as a result of this ruling – people’s reactions to the corporate decisions being taken at buy-out and consolidation, are given more consideration.

When do customers start and stop being strategic?

Why is it that an insurer like the Prudential – regards its customer interface for a product such as Prufund or the M&G funds platform as strategic?

Why is that an annuity book – comprising the customers who chose Prudential in years gone by, ceases to be strategic?

People are important, but it seems that the lifetime promise made by an insurer to treat them as such, is dependent not on the promise made but by the strategic value of that promise and that’s what Judge Snowden has said is wrong.

Advisers who urge consolidation onto the whizzy platforms can sometimes neglect the importance of the strategic value clients place on familiarity, financial strength and permanence.

And these values are particularly important when clients want the security of a wage for life annuity. If we see our clients as strategically important to our businesses, we should be listening to what is strategically important to them – not to us.

How does the ruling fall?

Most of the Prudential annuity holders will never know about the judgement, they will continue to get money arriving in their bank account from the Pru, and get Pru communications about their annuities. As annuitants get older, they get less financially capable to deal with change- we know this through a number of studies. The continuity of payments is a good thing for older people.

But what is better is that the judgement calls into question the Prudential’s own values towards their customers and insists that it is subjective value that underpins people’s confidence in the Pru.

..its age, its established reputation and the financial support which it would be likely to receive from the accumulated resources of the wider Prudential group”.

This is absolutely right. Older people may not have the financial capability they may once have, but they have an awareness of security that is based on familiarity (among other things).

Rothesay is not a familiar name, Rothesay does not say “prudence”, Rothesay is an unknown quantity that annuitants need no longer to worry about.

No doubt many will worry that people are in Prudential annuities for the wrong reasons (they did not shop around) but that is not the point, the right reason for most people about the Prudential , is that they see the Pru as a lifelong financial servant (the provider of a financial service that lasts as long as they do.

The ruling falls well – even if it’s footfall is fainter than the man from the Pru’s.

man from pru 2

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

Provider’s mixed messaging on CETVs


A troop of CEOs have paraded accross New Model Adviser in the past week, all claiming that banning contingent charging would stop advisers working in the mass market.

Quilter’s Andy Thompson speaks out here

Simply Biz’ Matt Timmins speaks out here

SJP’s Andrew Croft speaks out here

More from Quilter and Royal London here

Meanwhile Prudential research suggests that half of financial advisers report that they would do less DB transfer business if contingent charging was banned.

Considering the FCA’s contention that around half of the advice given on DB transfers is flawed and that a high proportion of the recommendations to transfer should not have happened, the FCA must feel satisfied that their proposals are on the money.

Who benefits from transfers?

While the CEOs have been speaking to IFAs via the trade press, explaining how supportive they are of IFAs spreading the transfer love, they have also been speaking to analysts about the drop in new business from the slowdown in CETV transfers they’ve been receiving this year. It is – it seems – something that was not expected to happen.

Screenshot 2019-08-17 at 09.11.29

Screenshot 2019-08-17 at 09.14.11.png

As we all know, the reason the flow of CETVs is slowing is because  professional indemnity insurers are restricting the numbers of CETVs , forcing IFAs to ration advice. Did the retail divisions of these providers ever think the levels of CETVs they received sustainable?

The ban on contingent charging will simply restrict the numbers of CETVs recommended, it would have little to no impact on the broadening of ongoing financial planning. The vast majority of CETV money is now with insurers or in DFMs and generating ongoing fees which benefit insurers, DFMs and financial advisers but were never designed for the mass market clients  that SJP, Royal London, Quilter and SimplyBiz believe would be excluded.

  The FCA and workplace pension schemes (WPS)

In a bizarre twist of logic, one independent adviser is now accusing workplace pension schemes from excluding them using them.

From the conversation I am reading, the problem is around the FCA’s insistence that these cheaper products are considered in IFA’s recommendations and that IFAs will have to explain why they have not chosen what on the face of it look cheaper solutions to the ongoing management of money. This is reckoned an irrelevance by another IFA

Screenshot 2019-08-17 at 08.43.35.png

Where exactly the customer stands in all this is unclear,

Workplace schemes are hidden

Another adviser rightly points out that at the time of BSPS’ Time to Choose, steelworkers – who by and large were in WPS were not offered them.

He is right.  I wrote about this at the time and you can see from what I wrote then that it wasn’t just the IFAs who were avoiding WPS, the insurers and the employers were scared silly of their products being used too!  Please read the article below.

Has Tata the courage of its conviction? (the workplace pension that dare not speak its name)

At the time – Michelle Cracknell called out the scandal of the unused Tata and GreyBull workplace pensions. It has taken nearly two years for the FCA to swing round its guns but now it has.

The questions that need to be answered by these CEOs

  1. Why did you take CETVs onto your platforms without question?
  2. Why did you not promote WPS alternatives – when you had them?
  3. Are you reviewing the suitability of your  products recommended?
  4. Will you consider restricting charges on those products to WPS default levels?

If you cannot answer these questions, then I wonder whether your commitment to mass-market advice is anything more than a sham. Contingent charging looks like backdoor commission and your arguments for “broader advice” sound like volume and margin preservation to me.

Margins and volumes preserved by vulnerable customers who should not be in your products.

I am unconvinced that in a low return environment where the yield on an annuity is around 2.5% nominal, charges of 2.0% pa + on drawdown (let alone accumulation) can ever be in the client’s best interest. But what I see reported to me by those who have transferred and the IFAs and solicitors who are trying to sort out the problems of 2016-18 is that such charges are common.

It would be better if – instead of arguing for more of the same – insurers, SIPP managers and IFA compliance services faced up to the reality of the situation which is that billions of pounds is in the wrong kind of policies, in the wrong kind of funds with the wrong kind of fees.

Posted in advice gap, age wage, pensions | 5 Comments

Lipstick on a pig – the sorry state of “robo-advice”


On 11th  and 17th of September, those turning up for the FT Adviser Financial Advice Forum in London and Birmingham respectively, will be entertained by a panel session.

Screenshot 2019-08-17 at 06.59.40.png

The conference promised to bring  the views of industry and regulatory experts on the latest challenges facing advisers, and how they can be overcome.

I had been invited and accepted because I do challenge the advisory community to raise its game.

I’m cross because I was originally on the “interactive panel” and appear to have been dropped (though I have not been informed of this by the FT).

I’m sad because this confirms what I have long suspected, that Robo-advice is being treated as nothing more than lipstick on the wealth management pig.

If you look at the three propositions on offer from WealthSimple, MoneyFarm and Holland Hann & Willis, you will find the same core model. Technology front end- wealth management back end.

All that technology is being used for – is to reduce the cost of acquisition of other people’s money. And the money that is being acquired forms part of the current wealth pool that is all that IFAs seem capable of feeding from.

Disruptors excluded

The FT seem to have excluded me from this cosy threesome because I might just point this out. They are right to do so, though why they ever thought I wouldn’t challenge the robo-advisory lip-stickery I do not know.

Every iteration of the Nutmeg model revolves around funding from a pool of assets attracted by an expensive UX (user experience for the uninitiated). But no matter how bright the lipstick, there is still a big fat wealth-management pig sitting behind – ready to chew up the twenty and fifty pound notes.

Meanwhile, the genuine innovators, whose models reach out beyond a replication of Nutmeg  are nowhere to be seen.

AgeWage – which was originally been invited has been dropped – no reason given

Pension Bee – who have produced the first genuine mass-market SIPP – are nowhere to be seen. Open Money – doing much the same.

My FutureNow -which only this week cut an important deal with L&G to be an independent aggregator and Zippen which should follow, are outside the tent.

And there are many more in incubation..

Financial advisors – cover your ears

Robo-advisers are not embracing new technologies to extend the scope of their advice, they are doing so to become more competitive in the existing wealth pool.

Meanwhile for the 94% of us who are not paying for advice, these new players are an irrelevance.

Organisations like the four mentioned above, who are looking to reach out to the millions of  savers who do not currently have access to the support they need to make complicated decisions are excluded.

I can only conclude that the tent is closed to all but the regulated advisers and that includes the 94% of us who are no closer to getting advice than we were “pre-Nutmeg”.

Financial advisers – (cover your ears) –  you don’t really matter to most of the UK population and that isn’t going to change so long as you zip up your tent.

Opening up the tent

Eventually, the FCA, MAPS and tPR will find a way to broaden the scope of advice beyond those with the wealth to pay for it.

But that day is some way off.

The  innovators are excluded from the FT Financial Advice Forum  

But it is only a matter of time before the tent is opened up. I will keep up the pressure and so will those who genuinely want open pensions and open dashboards providing ordinary people with the information they need to take decisions.

And AgeWage will never exclude financial advisers from joining in our work.



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

It’s not pensions that are scary – it’s “search”!

Every day, thousands of people worry where their pensions, how much they’re worth and what they can do to get their money back. Pensions are scary but they are not as scary as what you find when you search the web! The story Iona’s quoted on appeared on Yahoo Finance, but we don’t have to look far to find that Yahoo finance are promoting “advertorial” that isn’t much better.


Before you think that I’m knocking search, I should point out that this blog would be a pretty boring place without google and yahoo that allow me access to an understanding of what to do (as well as what not to do).


This of course is both the value and problem of search.

Who’s googling pensions?

I’ll lay a pound to a dollar (not much of a bet these days), that a high proportion of those googling “pensions” are finding their way to the kind of dubious propositions the FCA are so worrying about. That’s because those with the wrong intentions are very good at SEO (search engine optimisation). Googling final salary schemes does not take you to a website that tells you how final salary pensions schemes work, it takes you here

Screenshot 2019-08-16 at 13.15.46.png

Four ads designed to help you get out of final salary pensions.

And the people who are searching are almost certainly going to end up with the wrong kind of advice , charged at the wrong end of the spectrum in a contingent way.

This is where the problem starts and where the FCA should be focussing its efforts (if it wants to reduce the number of people transferring when it thinks they shouldn’t.

This is not cold calling

The traditional boiler-room scam, initiated by a cold-call is dead. It died before the cold-calling ban came into effect. Most bad advice originates from “search” not a cold-call.

If you go to the websites behind the ads, there is nothing actionable to be found. Lead generation for IFAs is perfectly legal.

Darren Reynolds generated a good proportion of his leads – not from chicken dinners – but from the Money Advice Service’s search an IFA facility which disastrously through up Active Wealth Management if you input your location as Port Talbot.

MAS were not actively promoting scamming – but they promoted scamming nonetheless and the FCA can no more prosecute Google or Yahoo than they can MAPS.

This is OUR responsibility

Some scammers may read these blogs, but for the most part they’re read by trustees, employers and other fiduciaries who feel they have either a duty of care or a regulatory responsibility to protect members.

Let me be straight with you.   YOU – ME – WE’RE FAILING

We should be taking personal culpability that people are googling Final salary pensions to get out of them, that they’re finding mini-bonds when looking for income.

We should not be leaving it to our staff/members/policyholders to find complex solutions to their financial futures using web-search, we should be making it perfectly clear what their next steps should be and they should not include finding a pig in a poke on the web.

The pensions map is like the Straits of Hormuz, people, like oil tankers , are forced into a tight situation when they come up to retirement, and like fully laden tankers- they are full of money and at their most vulnerable.

We should not be relying on more legislation to stop the scammers, we should be taking personal responsibility.

Over the course of this week , 23 of Britain’s largest employers and/or reps of their pension schemes visited WeWork More Place and discussed how to help people who fall into these categories.

Screenshot 2019-08-04 at 09.05.28

the things people want from their pension pots

We are about providing simple things for employers/providers/fiduciaries to do when you meet people with these wants.

Ruston Smith is helping people find good IFAS

AgeWage is helping people find good annuities

Quietroom is helping  people find the right words

We are all trying to help the majority of people who are totally lost and in danger of asking google or yahoo for “next steps”.

We are running two more of these events at the end of the month. If you have people who are asking for things from their pension pots, you can help them.

Simply sign up here


Screenshot 2019-08-16 at 13.55.12.png

The first 100 people to find this blog




Posted in advice gap, age wage, pensions | Tagged , , , | Leave a comment

Absolutely true (as I visited the Royal Mail)


royal mail pensions.jpeg

How the Royal Mail pension schemes are run

Whether it be through its Final Salary Scheme (RMPP), the interim Cash Balance arrangement or its DC trust, Royal Mail Pension Trustees have consistently over-delivered to their organisation and the members of the various Royal Mail pension schemes.

This has been overlooked but is rather important.

Under the excellent investment management of Ian McKnight, the funding costs of the promises made to postal workers have been stabilised and look in future to be negative (at times plans have been in surplus with attendant savings to the ultimate sponsors (including the Government).

Ian has worked with Ben Piggott, who is in charge of the DC arrangements looking at innovative solutions to the shortcomings of insured DC defaults, though these have been stymied by permitted links regulations (liquidity based) , hopefully they will bear fruit in the investment strategy of the imminent CDC plan – which McKnight expects to be “punchy”.

Further innovation comes from Tim Spriddell, a consultant to the Trustees who is so embedded in Royal Mail communications that I can speak of him as the architect of the member’s communications. I love the RMDCP video- made with Quietroom

With Mark Rugman and Michael Mayall providing the link to Royal Mail’s member benefit administration, Richard Law-Deeks can be very proud of the team of whom he is chief executive.

The Royal Mail’s pension executive is a fine example of how pensions should be run – and I cannot say that for all the executives I have visited recently.


How the Royal Mail pension schemes are governed

The management of the Royal Mail pension schemes is down to the executive, but strategic decisions and oversight is up to the Trustees.

You can read about the Trustees of the DB plan here. Joanne Matthews, Mark Ashworth and others represent the  independent ones and Phil Browne and others from the Royal Mail fill the rest of the places other than Graeme Cunningham and Lionel Sampson of Unite and CWU respectively. Though this plan is no longer accruing new benefits, it underpins the pensions of most postal workers and is of vital importance. The executive and trustees need to work properly together, I get the impression they do.

The (new) Chair of the Trustees of the DC plan (RMDCP) is Venetia Trayhurn.  

Victoria spent time at the Financial Ombudsman Service and we had a good conversation about protecting member’s interests when she came to a recent AgeWage workshop. She works as a professional trustee for LawDeb but gave up her time to come to a workshop we gave this week about helping members with their difficult retirement choices.

Other trustees include Jon Millidge, formerly the company HRD and instrumental in negotiating the proposed CDC plan with Terry Pullinger and the CWU. Though the DC plan is likely to be superseded by the CDC arrangement , you can see by the attention paid to its communication, that it is anything but a poor relation.


What does this mean for members?

Postal workers at Royal Mail are properly pensioned and – provided the Government don’t renege on promises, will continue to be offered build up of a  wage for life pension into the future.

My recent visit to their Pension’s Office in Ironmonger Lane in the City of London and meetings with their trustees, teaches me that this is an organistion where sponsor, trustees and pensions executive are working together with the member’s interests at heart.

I love writing this blog, because it lightens my heart that there are places in Britain where pensions excellence persists, and Royal Mail is one of those places.

They are setting the gold standard against which others can be judged and we should be grateful that they do.

What this means for the members of the various Royal Mail pension arrangements, is they can work with the comfort that when they stop working, their pensions will last as long as they do.

Oh and don’t confuse the Royal and Daily Mail!

Posted in CDC, pensions, Royal Mail | Leave a comment

Help for Trustees, Sponsors and Members with AVC plans

AgeWage evolve 2

I’ve divided this blog into two- the first bit’s for the people who have charge of defined benefit schemes and relates to the DC savings plans that members can use to supplement their pensions (AVCs).

The second bit’s for the members, but it will probably be helpful for those in charge – who may be members – and may have the job of explaining these complicated things in simple terms.

I recently had to make decisions on the AVCs I paid, and much of this relates to my personal experiences. I was lucky, I had plenty of help.

I am not a tax expert and I don’t know my way around all the arcane rules that govern AVCs ( the older the more complicated) but there are people who do , who are there to help you and this article is here to help those people who might otherwise google – stick to the true and trusted sources – your scheme administrators, your trustees and the Government helplines that really are impartial/

This bit’s for trustees and DB sponsors

Back in the day when corporate benefits structures were about defined benefit pension schemes, additional voluntary contributions were considered very important.

To those who have paid them, they still are.

But the focus has shifted and nowadays the AVC schemes set up in the last quarter of last century are consigned to the legacy cupboard.

Trustees have got better things to worry about, like keeping tPR and the sponsor happy.

But the money in these AVC schemes with the likes of Prudential, Standard Life, Aegon, Aviva and the Equitable Life is still the trustee’s responsibility, they own the policies not the members and they have a fiduciary duty to ensure these schemes are giving value for money. Increasingly the DWP – through tPR – is looking at value for money as the primary concern of trustees looking after DC benefits.

In its recent investigation of transparency, the DWP’s Work and Pensions Committee called for a definition of value for money that could be applied across all DC pension pots. We have given a lot of thought to what that definition should be.

What “value for money” means to members

The two things that concern someone saving into a DC pot (AVC or otherwise) are money-in and money-out. Money goes into the pots by way of regular and special contributions, in the case of AVCs from payroll. Money comes out of AVCs into annuities, as cash (sometimes tax-free) or into personal pensions which are used for drawdown.

Value for Money is a measure of what happens between “in and out” and is best measured as the internal rate of return achieved uniquely by each contributor. Each contribution history is unique as is the output – the net asset value – or in the case of with-profits investments, the plan value.

But simply giving a member his or her internal rate of return (IRR) is meaningless unless it is compared to a benchmark. If benchmarked, the IRR can show whether the AVC has done better or worse than average, what the value for money has been.

Creating the benchmark and a VFM score

Until now, no organisation has created a meaningful benchmark, against which to measure the internal rate of return of AVCs for VFM purposes.

Which is where AgeWage comes in. We have co-created a benchmark with Morningstar , the rating agency. We have used indices going back to 1997 and fund-baskets before then, to create a daily price track representing the fluctuations of a typical DC pension fund going back to 1980. Investing a contribution history into this price track creates an alternative IRR, being what the average AVC saver would have got.

We are able to calibrate the difference between “achieved and average” to create a score out of 100 – with 100 being outstanding and 0 being dire.

Better still, the universe of data we have already built up makes this score comparable to the VFM members may have got from other pension contributions, for instance into workplace or stakeholder pensions, even DC pensions in payment.

What AgeWage scores mean to trustees

Trustees running DC schemes (which we take to include DC AVC plans), have a fiduciary duty to get value for their members contributions (money)

Their care on this matter is likely to be scrutinised by tPR. 

Trustees are vulnerable to criticism and even censure – if they have no regard to member’s voluntary contributions.

But more important than “compliance” with regulation, we believe that the reputation of trustees as upholding member’s interests is of critical importance, especially where those trustees are under pressure to add value

This bit’s for members

I’m surprised by how little attention is paid to helping members of DB plans with their AVC pot. I’m quoting here from a guide given us by the Prudential.

Currently, from age 55, you have a number of options to choose from when you decide to take the money in your AVC pot. You may need to move your AVC pot to another pension to access some of these options or to access them when you prefer.

  • Take flexible cash or incomeYou can do this by moving your money into a drawdown plan. In most cases you can take up to 25% of your money tax-free, you’ll need to do this at the start. You can then dip in and out when you like or take a regular income. This may be subject to income tax.

  • Get a guaranteed income for life
    You can buy an annuity – it pays you an income (a bit like a salary) and is guaranteed for life. These payments may be subject to income tax. In most cases you can take 25% of the money in cash, tax-free. You’ll need to do this at the start and you need to take the rest as income.

  • Cash in your pot all at once
    You can take your AVC pot as a single lump sum. Normally the first 25% is tax-free but the rest may be subject to income tax.

  • Take your cash in stages
    You can leave the money in your AVC pot and take out cash lump sums whenever you need to – until it’s all gone or you decide to do something else. You decide when and how much to take out. Every time you take money from your AVC pot, the first 25% is usually tax-free and the rest may be subject to income tax.

  • Leave your pot where it is
    You don’t normally have to start taking money from your pot when you turn 55. It’s not a deadline to act.

  • Take more than one optionYou don’t have to choose one option – you can take a combination of some or all of them over time.

Now tax is the hard bit. You can of course take tax free cash from your defined benefit plan – but this means you have to swap pension for cash- like you do when you take a pension transfer. The exchange rate between cash and pension is down to what the trustees (advised by their actuaries) choose to offer you. Some may be generous and only charge you a pound of lifetime income to get £30 cash, some can be stingy and charge you a pound of lifetime pension to get £15 cash. It’s all down to what actuaries call commutation factors.

If you have a really generous set of trustees, they will let you use your AVC pot to fund your tax free cash meaning you don’t have to “commute” cash for pension. This is almost always a good thing to do.

The “almost” bit refers to AVCs which can be exchanged for an annuity at a preferential rate – what is known as a “guaranteed annuity rate” or GAR. If you see any mention of such things in your AVC literature you should check out what the GAR deal is with your pension manager or with the insurance company who offers the AVC (there should be contact details on the communication.

So what about this 25% tax-free cash option?

If you can’t swap your AVCs for tax free cash, (because the scheme rules don’t) allow, you can usually take your AVCs as a lump sum or transfer to a personal pension. In either case you should be able to get a quarter of your AVCs as tax free cash.

But you need to check with your scheme to make sure that you don’t fall foul of one of many very complicated bits of tax legislation that surrounds these old style pensions.

Where can I get help (that doesn’t cost an arm and a leg)

I don’t mean to sound biased but I strongly suggest that if you have any doubts about tax, you speak first to your scheme and see if they have advisers who can help you. Most do and most will allow you to understand the complexities of the situation using advice that is paid for – not by you – but by the trustees (and ultimately by your employer).

You can also get help from the Pensions Advisory Service that is now part of the Money and Pensions Service (MAPS).

Their  pension helplines are open from 9am to 5pm, Monday to Friday.

They are available on webchat from 9am to 6:20pm.

Theye are closed on public holidays.

Pensions Helpline: 0800 011 3797
Overseas helpline: +44207 932 5780

Helpline for Self Employed: 0345 602 7021

Posted in pensions | 5 Comments

Navigating pension’s Straits of Hormuz

Screenshot 2019-08-14 at 06.44.53.png

The contested space between the Persian Gulf and the Gulf of Oman

We met last night in a crowded room in Moorgate WeWork. We were an eclectic mix of pensions directors, chairs of trustees , annuity experts Retirement Line,  Ruston Smith, Vincent Franklin and me.

You can see the slides here

Unfortunately slideshare won’t show the embedded video from Quietroom which you can watch below. I know lots of us have seen the horse in the orchard before but it’s worth reminding ourselves how simple the choice architecture can be made.

The premise of the evening was that moving from the controlled world of workplace pensions to what comes in retirement is the financial equivalent of passing through the Straits of Hormuz

Check out the map at the top of the blog and see where you think the pensions equivalent of the Straits of Hormuz are on the Quietroom/DGP map of the pension world.

Screenshot 2019-08-14 at 06.45.16.png

The contested space between the workplace and retirement


Vincent Franklin’s analogy brought to mind brigands from Somalia and state sponsored raids from Iraq. It is easy to draw parallels to the ravages on people’s pension pots from scammers and the Treasury

Perhaps the most important point of the evening was made by Boots’ Julie Richards who pointed out that while the £20,000 saved by one of her staff might not sound much to pensions professionals, it was possibly the most significant savings achievement to that person.

Denying that person the right to that money on their terms was an insult to that achievement. But not helping them understand the perils of being scammed by brigands or losing out to the taxman, a failure in personnel management.

Treating all pension pots as equally important

Julie’s comment set the tone for the evening. Whether you have £20,000 or £2m in your pension pot, that money is important to you and deserves the same attention from pensions professionals. We cannot go on supporting the wealthy and ignoring the savings of those with smaller pots.

The meeting focussed on the needs of four groups of savers whose plans could be characterised by one of these statements

Screenshot 2019-08-04 at 09.05.28

For those people who wanted access to an IFA, help was at hand as Ruston Smith talked us through an important initiative he is pioneering at Tesco where IFAs he introduces to his staff will be required to abide by a code of conduct and be subject to due diligence by a significant third party. You can see Ruston’s ideas embedded in the presentation above.

For those who want to wait and see, we discussed the support that can be offered from MAPS and particularly Pensions Wise but also from the pensions departments of the leading companies around the table.

For those wishing to do their own drawdown, we discussed the investment pathways due to be implemented next spring as part of the FCA’s Retirement Outcome Review

While for those people wishing to buy an annuity, a range of options were outlined by Retirement Line, including the deferral of decisions using Fixed Annuities.

The point was that this was not about wealth at work, it was about everyone.

We’re all in the same boat

I came away from the presentation inspired by the enthusiasm of organisations as divers as Tescos, Royal Mail, ITV, Boots and BT. All professed to having different ways of helping their staff through the perils faced as they chose retirement options but all were in the same boat.

We can surely do more to help our staff, whether we are mega -employers like these – or we run one of the million SMEs (like Quietroom , Retirement Line and AgeWage) that have staged auto-enrolment.

The role of the employer in outlining the options available to staff in a clear and concise way is what employers can do. They may not feel up to doing the guidance themselves but they need to know the resource that is to hand.

same boat.jpeg

You can come to future workshops

If you have staff who are coming up to retirement and you’d like to find out how you can help them navigate the pension straits of Hormuz then there are still spaces available on 28th and 29th August. There’s one space for tonight (Wednesday 14th August).

You can sign up to one of these days using this invite

Invite to AgeWage summer workshops

Posted in advice gap, age wage, pensions | Tagged , , , , | Leave a comment

Convince or collapse – the options for small DB schemes in the next decade.


two ugly.jpeg


We stand on the cusp of the third decade of the 21st century. That decade is likely to see small DB schemes collapse into consolidators or stand firm with renewed conviction. I wonder if I will still be writing blogs in the summer of 2029 to review this statement, I suspect that most current trustees of DB plans will not be around to read them – if I am.

Yesterday I paid my first visit to Vestry House in Laurence Poutney Hill, the offices of Disruptive Capital and its nascent Pension SuperFund. Whether this DB consolidator succeeds or fails is itself a matter of conviction, it looks as if Edmund Truell has dug in his heels and it will be hard to dislodge him. But if he fails, there are others – such as Laurence Churchill’s Clara, that will step up to the plate.

The Treasury are giving support to the insurers who fall under their regulation (FCA and PRA).

The DWP have decided that consolidation will happen their way and though the Pensions Regulator is dragging its feet, the pensions industry generally expect the non-insured consolidators to get licensed by the end of this year

Two ugly sisters

TPR has adopted an attitude of tending small schemes through a fast track process which is the pensions equivalent of the Liverpool care pathway. A gentle decline into insurance – “go gently into that good night”. This is not pleasing the consolidators who wish they’d listen to their paymasters at the DWP.

Insurance companies have lobbied hard against the DB consolidators, claiming they are simply exploiting loopholes in regulation to underwrite buy-outs without the requirements of Solvency II. They have the Treasury’s support.

In the face of considerable opposition, the Pensions Superfund has hit back with a report commissioned from Redington proving against a number of (to me) incomprehensible measures, that the asset allocation of consolidators (modelled on the PPF) provides better outcomes in all weathers than those of insurance lifeboat funds.

This is not a fight that I want to get into, not least because of the twitter storm going on after I pointed out the availability of life annuities in the Times. Redington’s analytics have always been suffeciently arcane to prove any point, insurers are hardly charities;- who is there to love?

Insurers and consolidators are the two ugly sisters. They will be going to the ball long after Cinders has had her pumpkin night out.

Faith in small schemes waivers

Small DB schemes have to face a harsh choice. Either they go back to their sponsors and members and argue for their continued existence – with conviction- or they collapse into consolidators. I don’t see the Liverpool pathway as much of an option – though it will keep diverse pension administrators, accountants, lawyers, fund salesmen, platforms and most of all professional trustees in a job at least till the summer of 2029.

But the job of the employers who sponsor these schemes is not to act as surrogates to the Ugly Sisters, but to produce things, or do charitable things or to provide services and the cashflow calls of the pension schemes are unsustainable, the blight on business strategy unmanageable, the impact on productivity dismal.

We can’t let small DB schemes blight corporate and charitable strategy, these schemes must either shape up or shape out. This is not Edmund Truell talking – it’s me – and I work for an actuarial consultancy that is supported by small schemes.

The residual value of small schemes

Small DB schemes can and do add value to companies, but not when they put themselves on the pathway, then they only act as a succubus.

My point is illustrated by this graph – devised by my friend Derek Benstead so that even I could explain the value of keeping a pension scheme open

life cycle open

There is no great benefit in closing your own scheme, you might as well collapse it into whatever the ugly sisters are offering. You’ll pay a price for off-loading it, but it’s far from clear to me that insurance companies are worth the extra price that solvency II creates, they are the non-profit option and at the non-insured consolidators are holding out some hope of with-profits increments if they are proved right.

Your choice as a Trustee is probably dictated by the pockets of your sponsors, they will in the next ten years be looking at what the ugly sisters have to offer and they will ultimately be making the call.

The value of small schemes is int the conviction of their trustees and the aspiration they can create with sponsors. I can’t see schemes re-opening, I can see schemes resisting closure and I see those schemes that struggle on doing so on a radically more effecient basis.

The proper management of open schemes will increasingly involve modern systems of record keeping – the adoption of digital communication with members, low cost asset management using platforms to drive down costs and e-payment of pensioners.  Trustees who do not employ efficiencies available through new technologies will perish.

The value of small schemes lies in their capacity to adapt to tomorrow’s world, while preserving yesterday’s promises.

How many DB schemes will survive?

I doubt that more than 1000 of the 7000 remaining DB schemes in this country will be around for me to blog about in 10 years time.

I believe that consolidators and insurers – the two ugly sisters of the pensions world, will convince sponsors who remain unconvinced by their schemes, to pack it in. The ongoing costs of keeping schemes open will ensure this is the case. The PPF will remain the lifeboat – the third ugly sister – though she waits in the wings.

This is a harsh prediction and I hope I am proved wrong. The prediction is a challenge for trustees (especially independent trustees). It is also a challenge for consultancies and other professional firms.

We are approaching the third decade of the 21st century and it is a decade that makes or breaks DB schemes. The ugly sisters have already arrived at the ball, will Cinders?



Posted in CDC, dc pensions, de-risking, defined ambition, defined aspiration, pensions | Tagged , , , , , | 2 Comments

Why the door’s slammed shut on open pensions.

Screenshot 2019-08-09 at 06.35.20.png

During the week, AgeWage was invited to compete in the  Nesta Open Up Challenge. Nesta is funded by the UK lottery – they are an agency of change sponsored by the likes of you and me;

As any entrepreneurial start-up would, we were excited by the prospect of a £1.5m prize fund to unlock the power of open banking for UK consumers. It’s hard not to want to be involved with an organisation with this claim

Nesta is an innovation foundation. For us, innovation means turning bold ideas into reality. It also means changing lives for the better

My aim for AgeWage is to provide all of Britain’s pension savers with a simple number telling them how their pension has done – in terms of value for the money  contributed.

So when I read that the eligibility for this award focusses on organisations that

Must target a total potential market of at least hundreds of thousands, ideally millions of consumers.

I felt in the right ball park.

But then the bad news; organisations that enter

Must use the Open Banking Implementation Entity (“OBIE”) API endpoints and conform to the OBIE Read/Write standards (“the Standards”) to programmatically access digital bank account data and/or payments functionality, even if in practice the Product does so indirectly by using the AISP or PISP capability of an authorised Technology Service Provider (“TSP’). Evidence of usage of OBIE API endpoints and conformance to the Standards may be sought by the judges as a condition of acceptance onto Open Up 2020.

and that was when our application ended.

Open pensions are as far away as ever

Our summer at AgeWage has been spent helping our investors apply for and receive the data they need to get AgeWage to provide them scores.

We struggle with bulk uploads of data from insurers and third party administrators that never arrive.

We are told we cannot process data because

the data provider

  • won’t accept e-signatures
  • won’t accept emailed letters of authority
  • won’t accept AgeWage as a data processor
  • won’t identify a customer without a policy number

I could go on.

We cannot operate effeciently unless we can exchange data in a free way. But there is no freeway for data requests because we do not have open pensions.

The idea of a free flow of information between customer and data provider is not entertained; despite the pensions dashboard being supposedly delivered this year.

Using scams as an excuse is not good enough

It is true that there are scammers who would like to steal money – after stealing data and pensions administrators, like banking administrators are right to be vigilant. But that does not mean that pension providers should put the up the shutters against innovation.

The data protection act of 2017 gave individuals the right to have data held by others about them , returned on request in digitally useable format.

That does not mean in a PDF or embedded into a word document. It means in a format where the data can be extracted and used for purposes the data owner has in mind.

Which might just include finding out how their pension has done compared to the average pension – by way of an AgeWage score.

Scammers are not to be used as an excuse for providing this information.

The sooner pension providers  think of open pensions the better

Earlier in the year I made a fuss about the pension dashboard and the exclusivity being given to Origo in the design of its functionality. I wanted (and want) pension information to be freely available on request through the use of the same data standards that have made open banking a reality.

There are of course limits to the success of open banking, but we are living with the happy results. I get a text message every day of money in and out of my account – on my phone – my watch – my laptop – where I want it.

My money is now more accessible, more manageable and better governed than ever before. That’s because there is absolute transparency between First Direct’s systems and what I see at 6 am every morning.

This kind of transparency was achieved because of the determination of the CMA to force banks to out customer data using secure protocols called the CMA 9.

It is now expected of anyone wanting to compete for money from Nesta, that they subscribe to these standards.

I cannot subscribe to these standards , because – much as I would like to adopt them – there is no counter party. And there is no aspiration amongst pension people (other than with a few Pen-techs like Pension Bee), to see this change.

Until there is this aspiration, the pensions dashboard will continue to dawdle along at an unsatisfactory pace and the public will become increasingly disillusioned.

The old way of doing pensions, where you worked a lifetime and then got told what you were getting at retirement is gone. That was the world of SERPS and DB pensions

Instead we have a world where we have to take decisions on what we’ve got, which – by the time we get to the end of our working lives, will include many pension pots.  People need to get the information they need to take decisions for the future and organise themselves. They simply don’t want 400 sheets of paper – they want a single sheet of numbers – so they can make sense of their information.

Lengthy wake up packs are precisely what people don’t want. Wake up packs present information in the way we want it digested, but it gives people financial indigestion.

We have to move to clear digestible financial information available at the swipe of a phone , using proper security protocols. We must move to open pensions and the organisations that must make this happen start with Government and work right down to AgeWage.

This starts with Government and ends with AgeWage

Whether the energy for change starts at DWP, BEIS or HMT – we need a new commitment to open pensions for currently the door is slammed shut.

We need the pensions dashboard released from MAPS and put in the hands of the technology entrepreneurs that disrupted banking to give us open banking. Those entrepreneurs are all around us, they are waiting to work on pensions given half a chance.

We need the ABI and its technology partner Origo- to open itself to change and not seek to colonise the infrastructure of the pensions dashboard.

We need insurers, third party administrators and the in-house teams that manage occupational pensions to work towards a solution that applications like AgeWage can adopt.

So that we can hold our heads up high and say that pensions is no longer the technology laggard, but fully participating in challenges that Nesta and others set us!

Posted in advice gap, age wage, Pension Freedoms, pensions, Start ups, Technology | Tagged , , , , , , , , | Leave a comment

When advice sits behind a paywall.,,,


One of the many pleasures of it being summer is that I have time to contribute to newspapers. I searched myself on the Times website and found out I’ve been contributing to their articles at a rate of one a month for the last year. So maybe I’m selling myself short – perhaps Im a “regular contributor”

Though obviously no rival to (ahem) John Ralfe!

Advice behind a paywall.

Yesterday I was able to comment in the Times on an FCA press release and was quoted on page 12. If you have a paper copy, my comments sit beneath pictures of Mick Jagger and Keith Richards.

If you don’t  I’m afraid, that like financial advice, my  digital comments sit behind a paywall!

Five million pension savers are in danger of losing their savings to scams that guarantee high returns, regulators warn.

The Financial Conduct Authority (FCA) and the Pensions Regulator say that savers have been too willing to be taken in by the promise of exotic investments and too many discuss their pensions with unsolicited callers, even though cold-calling about pensions has been illegal since January.

Their findings in a report today have been criticised by pensions experts who believe that the FCA has been too timid to protect savers since the introduction of freedoms in 2015 that let people access their pension pots from the age of 55 without having to buy an annuity.

“The government is scared of scammers but who opened the door to the chicken run?” asked Henry Tapper, the founder of AgeWage, a pensions rating system.

“When George Osborne [then the chancellor] promised us no one would need to buy an annuity again, he invited every fox in the land to a lifetime of chicken dinners.

“This research should have been conducted before we got pension freedoms, not four years after.”

It sounds like the FCA are getting fed up with us behaving like muppets , but why should we be anything but confused. The FCA don’t make it easy for us to know the difference between advice, guidance and scams. When I perused the notes to editors on the press release I discovered I could still contact TPAS

6. The Pensions Advisory Service provides free independent and impartial information and guidance. 

and better still I can get free independent advice from Pensions Wise

7. If people aged 50 or over require free independent advice, they can contact the government-backed Pension Wise service. To book a free appointment, visit

But we can’t get free independent advice from Pension Wise, unless it’s to go and see an independent financial adviser (who aren’t free). TPAS is now subsumed into the Money and Pension Service which has been neutered of its “Advisory” title.

The Government does not make financial advice – independent or otherwise , available to ordinary people and it should not be suggesting to journalists that it does. If we define advice as “the provision of a definitive course of action” , then advice sits behind a paywall.

paywall big.jpg

Bypassing the paywall

Most people  take financial decisions about their retirement benefits without guidance or advice. Only about 10% of people who are eligible , use Pension Wise and they are the kind of people who will be amenable to taking advice. Estimates vary, but the FCA have told us that only about 6% of us pay for financial advice on an ongoing basis.

This rather clumsy diagram shows how AgeWage research suggests people divide up when taking decisions about their pension savings.

Screenshot 2019-08-04 at 09.05.28

Which type of decision maker are you?

‘Im not asking you to answer this as a pensions professional but as an ordinary member of the public with the prospect of a diminishing income from work.

I am genuinely interested in how people are behaving, as – I know – are the authorities.

One of the reasons is that over the next four weeks, I’m going to be managing some workshops for employers and trustees whose staff and members are having to take difficult choices without much of what the FCA call “choice architecture”.

Just organising the choices people have into a simple diagram, helps me to think about the problem.

Do you agree with the four choices I’ve identified?

Let me explain a little

Most people know enough about pension freedoms to remember that they include “never having to buy an annuity again”. As “buying an annuity” was the only choice most people had, this was a big shift in choice architecture in 2014 when it was announced and remains the first thing most people will think of when they think about their pension savings.

But if not an annuity – what?

The simple answer is that you can choose

  1. to have all your money at once – today – so long as you are 55 or older
  2. to have your money in stages, known as drawdown
  3. to leave your money to your inheritors.

My diagram has a box for two out of three choices of these choices , but it also has a box for annuities. I’ve not put a box there for people who want all their money at once because I think such people are special needs. Most people who take all their money at once are muppets. According to my muppetometer, they are 100% muppet (though there are times when you have to be 100% muppet for tax purposes because the end justifies the means (you just have to have the money.


So why do I include annuities in the choices?

Simple, because loads of people still buy annuities and they do so by searching for annuities on google. Retirement Line – who are annuity brokers – don’t get their inquiries from pension providers but from google.

This is a breakdown of the annuity choices actually made by people in 2018  – as delivered to Frank Field by the FCA

Screenshot 2019-08-05 at 06.38.00

IFAs will occasionally recommend an annuity – but it’s the exception that proves the rule, the vast majority of annuities are purchased through independent brokers like Retirement line and LEBC or the broking arms of the insurance companies – JUST Retirement (Hub), Standard Life, LV= and Sun Life Assurance.

I would be surprised if 1% of IFA inquiries on annuity choices result in the IFA recommending an annuity. The numbers I see show that the vast majority of annuity decisions are taken through annuity brokers who are not financial advisers (LEBC being an exception

What the table does not show is the number of people not visiting Pension Wise, not taking financial advice and not taking a decision that e

The truth is we do not take decisions at retirement in a holistic way. We buy through google, through our pension provider and I am afraid to say, we buy with the help of scammers. At retirement is a mess (and I’m sorry that this section of the blog reflects that).

When advice sits behind a paywall..

The FCA have run out of people to blame. They have blamed financial advisers over transfers.  They have blamed insurers over annuities. They have blamed everyone for non-advised drawdown.

Now the FCA have moved on to blaming the general public for not fighting off the foxes. The foxes are in the chicken coup because George Osborne opened the coup door and invited them in.

I am with Jo Cumbo.

People need access to proper help with their pension choices

What I will be telling the employers and trustees at the AgeWage summer workshops  over the rest of the summer is this.

If employers and trustees want to protect their staff and members from poor at retirement decision making they are going to have to do more than install a token IFA to advise staff.

They are going to have to help not just the people who would not normally take and pay for financial advice, but those who don’t and won’t.

That means signposting not just Pensions Wise, but the other options, the non-advised options available from their  workplace pension providers, annuities available through reputable brokers and especially the option to do nothing.

Doing nothing when the scammers call, is the best option of all,

If you want to follow up on the ideas in this blog…

If you represent an employer or trustee board and are interested in the ideas in this article, join me, Retirement Line and Quietroom at one of our summer seminars, some are sold out but we still have space at the end of the month.

You can find out dates, locations  and availability here.

AgeWage summer seminars.

Posted in advice gap, age wage, pensions | Tagged , , , | 5 Comments

Mr Field – you want a common measure for value for money? I’ve got one!

In the Work and Pension Select Committee’s report on pension transparency, one demand has caught the imagination of the pension community

Screenshot 2019-08-06 at 06.14.48.png

You can read Kim Kaveh’s excellent article here.

Professional Pensions ran the question on its Pension Buzz survey and asked its readership what the single definition should be . This is what I wrote.

“Value is what you get out, Money is what you put in and value for money is what happens in between”

The more you think about it, the truer that simple statement is – and the more universal.

VFM  to most of Britain’s millions of consumers does not lie in the user experience of the product, nor the variety of fund choices, nor in the range of at retirement choices. It lies in the simple equation – “money in v money out”.

Will the pension industry adopt such a transparent approach?

Frank Field said that he thought the pensions industry incapable of adopting a transparent approach to what it does.  Pension Age asked the great and good of our industry if we were, of course the great and good said Field was wrong.

Screenshot 2019-08-06 at 06.22.51.png

To quote David Rowley

The Work and Pensions Committee has called on the government to compel all pension schemes to show how they are providing value for money, as it is ‘unconvinced’ the industry can rise to the challenge itself.

So just what is the big idea?

My idea is very simple; Every person or business saving money for retirement can benchmark its savings history by submitting a data file to me containing their contribution history and the current value of their pension pot (the NAV). In practice, they can delegate authority for me to get this information for them.

I will, with the help of a co-operative pensions administration community, get the information requested in digital format and will provide the following information

  1. The money you have put in
  2. The value you can get out
  3. What’s happened in the middle

The third bit’s the tricky bit, as I have to compare the value of your pot with the theoretical value of your pot if you’d been invested in the average or “benchmark” fund. I and my genius friends have created this benchmark fund with the help of Morningstar who set it up and who maintain it.

What we’ll tell you about what’s happened in the middle is

  1. The rate of return all your contributions have received after charges
  2. The rate of return your contributions would have got if invested in the average fund
  3. The score you have achieved (out of 100) when we compare your Value for Money with everybody else’s.

This is the big idea and this is how you will get the score.

AgeWage evolve 2

The proof of concept

I have now convinced myself and my colleagues on the AgeWage advisory board that we can collect sufficient data to measure this number, thanks to brilliant organisations like Evolve, Royal Bank of Scotland and Scottish Widows for helping with bulk data. Thanks to Royal London for pioneering an easy way to get individuals their VFM score. Thanks to the FCA and DWP and tPR for being supportive and thanks to the other providers who are getting there!

The real proof of concept for me is whether the organisations that need to show consistent value for money metrics, will agree to use our VFM standard.

The Work and Pensions Committee has called on the government to compel all pension schemes to show how they are providing value for money, as it is ‘unconvinced’ the industry can rise to the challenge itself.

Like Frank Field, I think it unlikely that they will adopt a single VFM standard. I think they will continue to consider the feature of the products they have created more important than the outcomes of those products . I think they will continue to score on a Red , Orange and Green basis, the various aspect of the UX they think important while ignoring what ordinary people want to know – the value they’ve got for their money.

People will put up objections that my approach is too simple.

They will say I should be including volatility measures.

They will say that a simple system of scoring will encourage people to take bad decisions.

They will get angry with my scoring system, many already have. That is because it is too simple to meet their complicated needs. As one CIO told me, if pensions were as simple as you make them, I’d be out of a job.


Hard things can be made simple, but they will always prove controversial when they are.

I asked Frank’s question on twitter yesterday

If Scott – or anyone else can find a common measure for value for money which people can understand and find genuinely useful, I am happy to move to it.

However, in the five years I have spent trying to find a common measure to VFM, I have found nothing better than the measure I am using – creating the AgeWage score.

agewage evolve 1

If you would like to be part of my proof of concept and have at least one DC pot I can measure for VFM, drop me an email on It may take me a couple of weeks to get the data, but I promise me and my team will do our best!

The Professional Pensions Buzz survey this week
Posted in advice gap, pensions | Tagged , , , , , , , , | 9 Comments

What WPS is ACTUALLY saying about pension transparency

Frank Field

The headlines are about “rip-off” pension charges, but the WPS Select Committee’s report is a wide-ranging  investigation into the transparency of the pensions industry and not a sensationalist attack on charges. It sets out its stall in the pre-amble.

There should be no cause for the complacency about the pensions industry’s performance on transparency …We are not convinced that any part of the industry scores above half marks on transparency.  Frank Field – Chair of Work and Pensions Select Committee- August 5th 2009

This blog is my understanding of what is being said, including a few comments of mine on the sense of  the paper. I am broadly supportive of WPS in this , though the weight of bureaucracy that would be created by some of the proposals on dashboards and guidance seems unworkable to me.

Workplace Pensions

The first section of the  WPS report focusses on Workplace Pensions and  hones in  on 5 areas where transparency is weak

1, It comes down hard on charging workplace pensions which do not have simple charging structures. Pension Bee’s comments are noted and  NOW is singled out for its flat fee and  its impact on “dormant pots”.

We recommend that DWP review the level and scope of the charge cap, as well as permitted charging structures, in 2020. The review should consider preventing flat fee charging structures being applied to dormant pension pots and revisit measures to proactively consolidate smaller pots.

2. It has no truck with Charlotte Clark’s  argument that getting  value for money from DB schemes is not a consideration for regulators.

Better scrutiny of value for money in defined benefit schemes will either justify or avoid the need for the often difficult decisions being taken about the future of pension schemes.

The FT have publicised figures today showing that despite “cut-throat competition” between asset managers, the amount of money DB schemes are paying for their asset management is not reducing. Whether they are getting more value for the “value add” services like LDI , CDI etc. is not clear. That question according to WPS- needs to be asked.

3. IGC’s are criticised for providing insufficient information for members to understand the value for money they’re getting

In the light of the concerns which are being expressed about the work of some Independent Governance Committees, the FCA must not postpone this (IGC review) any further.

4. To help institutional purchasers of funds,  theW&P Select demand the mandatory adoption of the  CTI templates bequeathed them by the IDWG.

48.We recommend that the Government bring forward legislation to make the disclosure templates mandatory for both defined contribution and defined benefit schemes.

49.We recommend that, to avoid poor quality and untimely data, the disclosure templates are supported by an independent verification process. Compliance should be overseen by the relevant regulators, who should be given any additional powers they might need to tackle non-compliance.

50.We recommend that schemes should be supported to collect additional information if the template does not fully cover their individual scheme needs. This information should be available for scheme members as part of the wider information provided on value for money including information on exit charges and any other costs associated with transfer of their pot. The FCA should explore the creation of a public register of asset managers’ compliance records with reasonable data requests.

5. On value for money, WPS notes

There is no agreed definition of what is meant by value for money in the pensions industry. Although individual schemes will need to vary their value for money goals, without agreed definitions it is not possible to make effective comparisons.

This is critical to the whole transparence debate

We recommend that the Government reviews the initial impact of requiring occupational defined contribution schemes to publish their assessment of value for members in 2020. The review should assess whether or not this requirement leads to better scheme focus on achieving value for money and better communication to scheme members about value for money.


The second part of the report is on investment strategies on which it has relatively little to say. There is the mandatory hat-tip to the Pensions Minister for fine words on impact and infrastructure investing but the only substantive recommendation is to bring IGCs in line with Trustees on mandatory ESG reporting.

We recommend that the FCA should introduce requirements for contract-based schemes, corresponding to those introduced for trust-based schemes, to report on environmental, social and governance factors as proposed in the FCA’s consultation on Independent Governance Committees: extension of remit.

Transparency for individuals

The third and longest section of the report deals with protecting ordinary savers (mainly from themselves- but also from IFAs and scammers (who are often treated as the same).

It rightly focusses on the decisions those with pension pots have to take at retirement.

It starts with what the State can do to help us take decisions

Pensions Dashboard

The report is pretty timid in its ambitions for the Pensions Dashboard

We recommend that by the end of 2019 the Government publish a timetable for the rollout of a non-commercial pensions dashboard. This should include key milestones, such as the date for pension providers to include their data on the pensions dashboard, as well as target timescales for phases beyond the initial launch—for example, longer term plans to enable consumers to make value for money comparisons through the pensions dashboard.

With consent, authorised providers of financial services should be able to include an individual’s pensions dashboard data within their own applications.

90.We recommend that the pensions dashboard should feature retirement income targets to ensure the information is meaningful to its users.

Bearing in mind we have been at this for four years, a rather more authoritative tone would have been welcomed. All the dashboard targets laid out at the start of this year look like being missed and this cannot be blamed on BREXIT.

The W&P Select seemed to have a blindspot here, it is precisely because everything is being driven by the need for a single non-commercial dashboard , that nothing is happening. 

Advice and Guidance

The report is worried that advice and guidance could be a barrier to people taking timely decisions on their own, citing a theoretical example of someone trying to get some money from their pension pot (crystallisation) only to be told they’ll have to wait 5 weeks for a pensions wise appointment before the request could be granted.

But the report has a touching confidence in the ability of Pensions Wise and MAPS to act as a front-line in the war against self-harm and concludes

We recommend that individuals should only be able to opt-out of guidance through an active decision communicated to an impartial body, such as the Money and Pensions Service. This should not be a process which needs to be repeated for every pension pot an individual has.

99.We recommend that for any transaction to be deemed valid, the relevant upfront costs and any further charges should be detailed on the front page of the product and the investor should be required to specifically sign that they are aware of those charges and have agreed to them. This should be the case for exiting a scheme as well as for investment into a new or additional scheme. Investors should also be given a 14-day cooling-off period where transactions can be reversed without detriment to the investor.

Frankly – I cannot see these measures doing much to protect consumers, they look a bureaucratic nightmare. There is a lot more that can be done in this area digitally.

Non-advised, non-guided.

The FCA have provided WPS with a table of the percentages of people taking advice and guidance when trying to get their money back. It makes for interesting reading.

Screenshot 2019-08-05 at 06.38.00

Only when someone wants to buy an annuity , does Pensions Wise show more influence than advisers, but apart from “drawdown” – which is the adviser’s stock in trade”, no spending strategy is well advised or guided. There is a missing box which contains the people who are doing nothing, these people are either very savvy (waiting for something better to come along) or totally bemused.

WPS calls on MAPS to come up with some new ideas for the non-advised, non guided

We recommend that the new Money and Pensions Service should outline in its forthcoming strategy how it will increase usage of Pension Wise.

If they want a hint- they could read again the previous section of the report (the bureaucratic nightmare).

Investment Pathways

Early in the report , WPS extol the good sense of introducing a charge cap on Workplace Pensions. It now makes firm recommendations that the cap should be extended to decumulation of all pension savings

We recommended in our Pensions Freedoms report a 0.75% charge cap on default decumulation pathways. The FCA told us that it would prefer to see if market-consistent tools work and, if those fail, introduce a charge cap. This conversation is a near repeat of those our predecessor Committee had with the FCA about schemes used for automatic enrolment savings, which are now the subject of a charge cap. The FCA would send a simpler message to the industry by setting a charge cap now for investment pathways—rather than issuing vague threats to the industry.

It is good on the need for value for money comparisons between the options in the FCA table above.

113.We recommend that the FCA implement a robust monitoring programme for the effectiveness of the investment pathways, including value for money comparisons with other available products, in partnership with any other DWP monitoring work of the pension freedoms.

It recommends triage – though whether this is the FCA’s job or a DWP legislative requirement (as talked of for opt-out guidance) it isn’t clear.

114.We recommend that the FCA clearly set out how people who have passively built up saving through automatic enrolment will be supported to make and carry out an informed choice from the available decumulation products and not solely directed to drawdown products.

It sees the charge capping of investment pathways offered to those in non-advised drawdown as a trojan horse to all decumulation strategies (echoing the comply and explain language of the recent FCA PS19/21/

115.We recommend that a 0.75% charge cap should be set on decumulation products available through FCA decumulation pathways from the outset.

Independent financial advisers – mis-selling and scams

The conflation of IFAs and mis-selling and scams will annoy IFAs (rightly so). the report barely touches on the mis-selling of pension transfers  but it mentions its concerns about the SIPP solutions employed for BSPS members and grumbles that the availability of the good quality financial advice it notes comes from IFAs is scarce.

Anyone listening to the Wake up to Money article on this report this morning will have heard Chris Ralfe of SJP referring  to his company “like many other  independent financial advisers”. So long as senior representatives of insurance companies continue to regard their sales forces as IFAs, the confusion between types of advice will continue. IFAs , restricted advisers and scammers are not “as one combined”.

Many Independent Financial Advisers provide good value for money for pension customers. However, the number of people paying for good value advice is low. People who are not able to access good advice need guidance and effective protection from pension scams, which can have life changing impacts. Scams not only harm the individual but cause wider damage to the industry by discouraging potential savers. Scams are not a necessary consequence of the pension freedoms.

122.We were concerned to learn that the FCA’s dedicated scams team only consisted of approximately 10 people out of 3,700 FCA staff. We recommend that the FCA review whether it dedicates sufficient resource to combat active pension scams, prevent new pension scams and protect individuals.

123.We recommend that the Financial Conduct Authority’s list of unauthorised firms be expanded into a widely publicised database. This database should be regularly updated by the range of governmental organisations involved in pension scams and act as a co-ordinated early warning system

As this appears to be the section of the report that the press is picking up on, I think we should remember it is but a fraction of a much wider investigation.

LAST BUT NOT LEAST – A word about the net-pay scandal

It looks like an add-on and doesn’t sit comfortably in the report, but I’m pleased that the fate of the 1m+ pension savers not getting their promised Government incentives to save – are recognised.

In 2019/20, those with earnings below the personal allowance and contributing at statutory automatic enrolment rates will see a difference of around £65 per year between net pay and relief at source tax relief arrangements. Over a lifetime of pension saving this will be a significant amount to many people and a significant proportion of their pension savings built up through automatic enrolment.

The Government says that it would cost too much to put this right. In doing so, it risks damaging faith in the system, by perpetuating arrangements which cause individuals to lose significant sums through decisions they did not make. 

41.We recommend that the Government resolve the discrepancy between net pay and relief at source tax relief arrangements as a matter of urgency. 

Note to HMT – kick arse at HMRC!


How influential WPS is – is hard to gauge.  It has certainly been influential with tPR over DB deficitis and its support of CDC and work on pension transfers have clearly shaped policy.

This report is wide-ranging and contains many good insights. It makes strong recommendations – especially when dealing with quantitative data.

When it comes to supporting members and staff on their difficult decisions at retirement it is less good, stuck in a rut of 20th century thinking which ignores the digital revolution we are going through.

I am really pleased we have this report and will draw from it in future blogs. What is important is that it doesn’t get swept under the table by a Government pre-occupied with everything else!

Posted in advice gap, age wage, auto-enrolment, pensions | Tagged , , , , , , | 1 Comment

Auto enrolment isn’t SERPS

workplace pensions

The original AE workplace pension

Many years ago I was involved with  the Kingfisher Retirement Trust, a bare COMP that just about competed with SERPS for value because it offered employees lower national insurance and the semblance of a pension.

Kingfisher (now B&G) offered a final salary scheme which you could opt into, about 5% of staff did – they were white collar and understood the difference between the KRT (a non contributory DC scheme funded by rebates and a 1% employer contribution and a sixtieth plan.

KRT was auto-enrolled and had a huge take-up. Unfortunately most of the people in it, had no idea that by being in it , they lost out on service in SERPS/S2P for an uncertain pension pot run first by Aviva and latterly by Eagle star.

One union called it the worst scheme in Britain, but -being auto-enrolled , it had massive take-up and had hardly any opt-outs.

Complete with member confusion

KRT worked on paternalism, there was a trust behind it and the employer believed that members were better in an insured with-profits fund than in the state pension. For a time the contracted out rebate made this kind of “bare-comp”feasible, but over time the rebates fell – frankly the plan fell into disrepute and has since been replaced.

What worried me at the time was that so many members thought that KRT was a company pension – which for them meant a plan that gave them a wage for life based on service. This view persisted because so little information on the plan got to members. There were for instance unit-linked investment options – but of the 100,000 + members, hardly a handful used them.

Members weren’t so much confused, but bemused. They had no idea what they were in and only got to find their hopes of a wage for life were false, when they got to scheme retirement age. I may be a little harsh on the trustees here, but knowing one or two, I think they’d share my characterisation of KRT as “not what it seemed”.

Are member’s confused by today’s master trusts?

The excellent Ray Chinn – who is a customer champion at NEST, reported that a high proportion of NEST members thought that NEST- being a Government pension, would give them a Government pension.

This is a cosy enough place to be for NEST, it is unlikely that many members will opt-out and they can carry on building up their investment pot, with the problems of explaining the misconception left to the next generations of NEST trustees and management.

NEST is not the kind of organisation that likes to disturb its members – it famously runs a low-risk default for youngsters because it thinks young people, discovering their investment pot has gone down, might get put off saving. It’s the kind of wonky thinking born out of a deep-rooted grounding in state sponsored defined benefit schemes where members take no risk.

The golden rule of this kind of thinking is to let sleeping dogs lie, which is precisely why Adrian Boulding and NOW’s disruptive 20 year charge projection table has created a furore.

Here’s Adrian reigniting the blue touch paper after Darren Philp of Smart went to press over his table

Of course Adrian Boulding is not impetuous, he knew just what he was doing and he did it well. He asked us to think about what we were choosing as workplace pension for our staff.

I am hoping that staff in workplace pensions will start asking where their money is going because many of them don’t give the investment of the money a second thought. This is clear from this vox-pop from Quietroom, from work done by Investec and by Ignition House

We can’t let people sleep-walk into retirement

Some time ago – we took the decision to scrap the state second pension (aka SERPS). We did so because we wanted people to own their own investments, data and retirement choices.

We decided to go the funded pension route, and what’s more, we decided that there should be multiple pension providers competing for our money.

But there is a strong group of pension experts who do not share my belief that we should tell people that

a) their money is invested

b) how their money is invested

c) how these investments are doing

These people are left of centre paternalists who see the success of workplace pensions as dependent on people being kept in the dark, asleep to what is happening to their money and blind to the performance of the investments (both in terms of returns and ESG factors).

These people are like the Trustees of KRT, they are not evil or in anyway malicious, they just think the interests of ordinary people are not best served by telling them what’s going on.

It’s well worth tapping through to the rest of the thread. Gregg and I are friends but we hold radically differing views on the need for engagement.

I think that Gregg would ultimately like to return to the days of SERPS. That wouldn’t be such a bad thing in an abstract world where theories dominated. I was nearly sacked for being quoted by Barbara Castle as saying that all private pensions aspired to the efficiency of SERPS.

But the world has moved on and Gregg is now working for a workplace pension scheme which has well over 4m members, each with an individual pot. It is a much better scheme than KRT but it is still a DC plan which depends on member contributions. Those contributions are currently too low to possibly match the benefit of a company pension scheme as KRT members understood “company scheme”. Contributions are high enough to make People’s give ordinary people more than SERPS, but people have the opportunity to use People’s to get themselves a great deal in retirement.

To do that, they need to feel that People’s pension is worth investing in. I urge People’s to start promoting the great things it is doing with its default and the excellent outcomes that arise from its low charging structure and sensible investment options.


workplace pension 5

Posted in advice gap, age wage, pensions | 3 Comments

Without contingent charging – will IFA’s get paid?

contingenet charging

I don’t think enough attention is getting paid to credit risk in the debate on contingent charging.

Clients of IFAs sign up to Terms of Business that typically offer a means of remuneration for the IFA from the money that the IFA is advising on. Where there is no money, such as in the purchase of life insurance, or other protection products , there is a commission payable by the insurer. Either way, there is certainty of getting paid which is why IFAs like their creditors to be funds and insurers rather than their clients.

This is not always the case. IFAs who have wealthy clients find they are used to writing cheques and paying VAT on professional services. So contingent charging is less needed in certain circles. However, given the choice of paying VAT on the service or not, I know which I would choose.

So the system reverts to contingent charging as the line of least resistance. IFAs do not want to spend a lot of time chasing creditors, insurers and the operators of fund platforms make good creditors who pay on time and are easily chased when they don’t.

So what if we move to fee charging for all?

The argument that is given for retaining contingent charging is that it promotes advice to a much wider range of potential clients. In practice, advisers would not do business with clients who potentially didn’t pay their bills.

Direct fees are not only more transparent, they are more expensive (as they are typically loaded with VAT) and they are paid for out of taxed income, rather than out of a tax-exempt fund (pension) or a loaded premium of a life policy.  Direct fees are painful and they don’t always get paid.

There is a side of me that says “welcome to the real world” till I realise that actuarial consultancies (like most large law firms) don’t have private client departments – other than for the super-wealthy.

The problem is not so simple as it appears. IFAs are necessarily dealing with private clients and we have around 25,000 of them in the UK. Without contingent charging, I imagine it wouldn’t just be the breadth of advice that would suffer, it would be the number of advisers – capacity.


This has been the central problem of the RDR and it isn’t going away. The FCA recognise that there are hardship cases where advice is needed and can’t be paid for up front – hence the carve outs in CP19/25. Al Rush has argued for them and I agree.

The question is where do you draw the line.

At what point do you accept that independent financial advice is a luxury item beyond the means of most people (who will have to make do with DIY management – unadvised drawdown- the purchase of commission paying products like equity-release and annuities?

I don’t have a problem with an advisory market that targets IFA as a premium service that is bloody expensive but worth it.

I don’t have a problem with the idea of an annuity broker like Retirement Line who declares its commissions upfront.

I do have a problem with the idea of “free advice” that is “mutton dressed as lamb” product selling.

If this sounds regressive – perhaps it is.

The fable that IFA should be available to all is both unrealistic and actually harmful. That’s because of the credit risk of running a mass market fee-based service and the perils of contingent charging.

Much better to split out IFA as a fee charging service that requires VAT to be paid on the fees and for the fees to be paid out of taxed income.

Anything else is not IFA  – it is advice that is product dependent.

The improvement in standards of IFA since the RDR is self-evident. There is now a mass-affluent market which it can serve on the basis of charging fees without tax subsidy.

If that means that some of the business plans of IFAs – predicated on serving another part of the market using contingent charging have to be withdrawn – so be it. They were rubbish business plans which carried the potential for consumer detriment and therefore regulatory and political risk

For years IFAs have ignored the regulatory risks of contingent charging.

Now those risks are being exposed, many networks will suffer, some small advisers will go out of business. The numbers of IFAs will reduce as will turnover. Profits will also reduce.

All of this is necessary because the IFA has to move onto a more sustainable remuneration model if he or she is to be considered as a provider of a professional service rather than a product salesman.

For confident IFAs like David Penney, an upfront fee charging model is no problem

But most IFAs and IFA networks cannot be confident of a high fee recovery rate. The credit risk of unpaid invoices looks immense and taking the step beyond contingent charging too daunting.

The pain of taking that step cannot be underestimated and that is why contingent charging is the issue it is.

IFAs will only get paid by direct fees, if they are considered worth it. Most IFAs are worth it, contingent charging has had its day and so have the financial advisers  who can’t live without it.

Posted in pensions | 3 Comments

Bosses + trustees talk “pension choices” too!

agewage advice

This blog looks at what the FCA is planning to do to regulate the way unadvised drawdown plans are presented to customers. This follows the publication on a further policy paper from the FCA – CP 19/21

The point of the blog is to explain that the choice architecture discussed by the FCA can be talked about by non FCA regulated people – the employers with workplace pensions and the trustees of occupational pensions – including the multi-employer ones,

These people are often outside the FCA’s line of sight!

What’s new?

The FCA have made three simple changes to the proposals in their Retirement Outcomes Review – changes that are intended to help people who don’t  take advice when drawing down from their pension pot (or pots)

The FCA plans to

  • introduce ‘investment pathways’ for consumers entering drawdown without taking advice
  • ensure that consumers entering drawdown only invest mainly in cash if they take an active decision to do so
  • require firms to send annual information on all the costs and charges paid over the previous year to consumers who have accessed their pension

According to the FCA, around 30% of consumers who enter drawdown, do so unadvised.

It proposes that such people are given a range of investment pathways which might include continuing with the current investment strategy and drawing nothing, preparing to buy an annuity , or drawing the money from the pension pot into a bank account (drawdown). The investment pathways are collectively know by the FCA as “the choice architecture”.

The Retirement Outcomes Review found

  1. Many consumers, particularly when focused on taking their tax-free cash, take the ‘path of least resistance’ and enter drawdown with their existing provider.
  2. Around 1 in 3 consumers who had gone into drawdown recently were unaware of where their money was invested.
  3. Some providers were ‘defaulting’ consumers into cash or cash-like assets. Overall 33% of non-advised drawdown consumers were wholly holding cash.
  4. A consumer drawing down their pot over 20 years could increase their expected annual income by 37% by investing in a mix of assets rather than just cash.
  5. Evidence suggests drawdown providers could improve investment outcomes for consumers by offering more structured options and making the decision simpler to navigate.
  6. Charges for non-advised consumers vary considerably from 0.4% to 1.6% between providers. Average charges are higher than in accumulation, and can be complex and hard to compare.

Some simple thoughts

When I sit outside the FCA’s bubble and consider things as an employer and on behalf of trustees, I am asking myself the following questions.

What is wrong with non-advised drawdown?

The problems with non-advised drawdown are listed – but not everyone who chooses non-advised drawdown does so as “the line of least resistance”, for many people it can be a smart decision. I’ll explain why..

The paper was published on the same day as the pile-driver of a report into adviser behaviour over transfers (CP19/25).

The costs of advised drawdown established in CP19/25 are considerably higher than the 0.4- 1.6% quoted here

Total ongoing advice charges of 0.5% to 1% will reduce an average transferred pension pot of £350,000 by £145 to £290 each month in the period immediately after transferring. Similarly, ongoing product charges of 1% to 1.5% will reduce it by a further £290 to £440 each month. So the total deductions on a transfer value of £350,000 would range from £435 to £730 each month. A DB scheme with that size of transfer value might have a current income value of £1,000-£1,200 each month, so the charges represent between 44% and 61% of the current level of that value.

It would seem from the FCA figures that not only is the cost of non-advised drawdown cheaper because it doesn’t include adviser charges but because the cost of the drawdown product itself are cheaper 0,4% – 1.5% pa for unadvised and 1% to 1.5% for advised.

While the pensions industry gasps at the stupidity of people DIY’ing their drawdown , I suspect there are many in the FCA who see such people as quite smart. They are at least doing something to combat the 44-61% income cut – occasioned by entering into advised drawdown.

I don’t think there is anything wrong with DIY if it can substantially increase your retirement income. For some people unadvised drawdown is more than the line of least resistance – it is an active choice which is right for them.

What is wrong with talking with an annuity broker?

Annuities provide a certainty that drawdown don’t – and they provide a genuine insurance against you living too long.

If you go to an IFA, you are unlikely to get much help buying an annuity.

As Eugen says, IFAs are not set up to broke annuities, if you are looking at your retirement options in retirement in a holistic way, you are going to have to shop around and find yourself an annuity broker.

If you rely on the line of least resistance and buy the first annuity that comes your way (one from your provider) you may end up like the people who are currently seeking redress from Standard Life. Annuity shoppers need to shop around.

In my work for AgeWage, I have done research on annuity brokers and recommend you talk with Retirement Line

Could something better come along?

If we get a Pensions Bill this year, then it will contain the legislation to enact CDC for Royal Mail and an open door for other types of CDC – including decumulation only CDC which would allow you to swap your pension pot for a scheme pension.

This could provide a halfway house between an annuity and a drawdown policy with more income than the annuity and more certainty than drawdown. If you were to look at that glass half empty, you might say “less security than an annuity and less income than from drawdown” and I’d expect CDC to fit into the choices people have in future years as a further option (not a default).

I’m also asking….Is my choice architecture broken?

What the paper doesn’t cover is who is delivering the choices (other than the provider of the pension pot). In the wide-world, many of the people approached for help on these choices are employers who are generally told they should not offer advice but should refer people to Pensions Wise or tell them to see a financial adviser. I know and like Pensions Wise but many people who go to Pensions Wise just go back to their boss with a statement like “they told me to seek regulated advice from an independent financial adviser, which doesn’t get the monkey off the employer’s back.

I am coming to the conclusion that the stock phrase “you should seek regulated advice from an independent financial adviser” is of limited value. It’s fine for the top 10% of people who have the money to pay for advice and the need for a very sophisticated approach.

But I don’t think that seeing a regulated  financial adviser tells you the whole story. An IFA may give you a long income and expenditure questionnaire to fill out to help him do his cashflow modelling, he may give you a huge underwriting questionnaire that he can send to an annuity broker, but he is unlikely to talk to you about the advantages of either unadvised drawdown or of buying an annuity or of holding on till something better comes along.

If you are going to an IFA for help with your retirement choices, you will be offered advised drawdown as your default option and you will find it hard to get advice on much else. Even if you go and pay your adviser to get all the choices, you may not get them. IFA’s aren’t always providing the full choice architecture that people actually need,

I think people need to have a different type of choice architecture that lists what is around now – advised drawdown, non-advised drawdown- but also what may be round the corner – CDC and the options that may emerge by waiting to take decisions.

After all, while the cost of delay to starting saving is obvious enough, the cost of delaying your starting spending your pension savings is a lot less clear.

We’re discussing all this at a series of workshops over August

If you are in charge of helping members of an occupational pension scheme or your staff in a group personal pensions with these tough choices at retirement, you might like to come to one of our four seminars in WeWork More Place on 13th, 14th , 28th and 29th August.  Places are limited so if you are a consultant or adviser, we may not be able to fit you in, but please apply anyway and we can have a chat.

Along with AgeWage, you’ll get to hear about Choice Architecture from Quietroom and about Annuity Broking from Retirement Line. The sessions are 90 minutes long and we’re calling them workshops because we want all the participants to do some hard work establishing how they can adapt the choices they offer their staff to the changing world created by pension freedoms.

We will of course be talking about unadvised drawdown as part of this , by which time I expect to have had some deeper thoughts on CP19/21


If you are interested in the choices offered by employers and trustees, you can sign up for our seminars via this link

Sign up to AgeWage’s summer workshops



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

Do we have to wait for the car crash, before we mend the road? CP19/25

It is now too late to ask whether there is about to be another mis-selling scandal. That question was asked to two years ago on this blog when I accused Tideway of sluicing through transfers using contingent charging. Tideway complained to my bosses at First Actuarial and we agreed that rather than damage my company, I would withdraw my comments.

Throughout the summer of 2017 I persisted in raising the issue of high volumes of transfers conducted under a conting