The “wonder” of wealth

As Dr Chris Sier entered the Corinthia Hotel on Wednesday, en route to a cup of tea with the AgeWage management team, he noticed a gentleman handing over his Bentley keys  to the doorman, with a fifty pound note as a tip .


Doorman at the Corinthia Hotel

Chris joined us genuinely surprised that so little value had been offered for the money.

I wonder about wealth!

The “wonders of wealth” are everywhere to be seen in London Town.  Everyone who is wealthy is “extremely happy”- at least on the outside. Of course the point of the host of celebrity magazines is to expose that underneath the botox, the super-rich are just the same as us. Some are well-adjusted and most are bonkers.

Funnily enough, the same can be said of the happy people who inhabit the Cockpit pub in Blackfriars. My conclusion is that wealth doesn’t make you happy or sad, it just hermetically seals your façade in an aura of well-being.

If you are part of a money making concern that churns out £50 notes by the sack-full, spraying them around the Corinthia, is a totally logical thing to do. I guess that this is why so many St James Place customers are happy with what they are getting, there are rules to the club.

For St James Place is the “gentleman’s club for the mass affluent” just as The Corinthia is “the gentleman’s club for the celebrity”.

That’s the wonder of wealth management.

The gnomic Eugen has made a splendid comment on my post on why everyone loves platforms. 

eugen platform.PNG

I find people talk about their investments with HL and SJP with the same rictus grin I find on those drinking tea in the Corinthia. Wealthy people have to wear their wealth on their sleeves, or else it is nothing. A low cost portfolio of tracker funds managed by Vanguard (or a free one managed by Fidelity) just doesn’t do it for wealthy Joe, there has to be a polo pony and an oak panelled atrium in the mix.

The same old crew who loved Equitable Life

Adam Norris, who made his fortune from Hargreaves and is now managing the fortunes of his racing car driver son, told me a great story of one of his early marketing coups.

As a young buck in the Hargreaves marketing team, he found many HL investors complaining about letters they were getting from the Equitable Life , telling them that the returns they’d been promised, weren’t coming any more.

Adam decided to become a member of the Equitable Life Society and invested the minimum premium to get him to see the rules of the club society. They included one rule that enabled him to request a list of all other members of the society. He couldn’t market from the list but he could read it.

He got his team to type all the names into the HL database and discovered a 70% match with HL customers.

He mailed those matched and offered them a discrete exit from the Equitable Life Society onto Hargreaves Lansdown investment platform. HL took £30m in the first month.

We love our clubs

Opposite the Corinthia, is the National Liberal Club, where I hang out. Clubs are great places as they offer you the Corinthia at rather less and you don’t have to tip the doorman (although it’s nice to do so from time to time).

We love our clubs because they make us feel special and I am no different from anyone else. But if the cost of owning your place in the club stops you being financially comfortable , then it is time to throw off the rictus grin and (for me) return to the Cockpit.

I hope Eugen writes his study of HL investors.

In one of the great poems of the English language, Samuel Johnson explores the “vanity of human wishes”. There are 368 lines in the poem, here are four of them, that could define the Hargreaves Lansdown investor,

Where Wav’ring Man, betray’d by vent’rous Pride,
To tread the dreary Paths without a Guide;
As treach’rous Phantoms in the Mist delude,
Shuns fancied Ills, or chases airy Good.

Nothing changes, Johnson was echoing Juvenal , Eugen echoes Johnson.

So long as rich people have fifty pound notes to give away, Hargreaves Lansdown and St James Place and the majority of wealth managers will exist. They will promise much – not least a club where those of lesser means are excluded.

Other clubs are available


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The problem with platforms (is that everyone loves them).

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Platforms are a relatively new but significant and growing distribution channel. The platform service provider market has doubled since 2013 from £250bn to £500bnassets under administration (AUA). This growth in AUA has been driven by rising markets and increasing levels of investment. More consumers are using platforms, with an increase of around 2.2 million more retail customer accounts between 2013 and2017.1 Platform revenue from retail consumers reached £1.3bn in 2017, up from £750m in 2013.

So begins the FCA’s interim market study on investment platforms , published last month. It finds a market that is generally delivering for consumers. However it identifies five issues that where platforms can fail us.

  • Switching between platforms can be difficult.
  • Shopping around can be difficult.
  • The risks and expected returns of model portfolios with similar risk labels are unclear.
  • Consumers may be missing out by holding too much cash.
  • So-called “orphan clients” who were previously advised but no longer have any relationship with a financial adviser face higher charges and lower service

Many of these issues have been covered in this blog recently. For instance I reported how Hargreaves Lansdown are making an eye-watering 48% margin on cash holdings and expect this margin to increase to nearly 70% as interest rates rise (and distributed interest doesn’t).

Net revenue on Cash increased by 15% to £42.1million (2017: £36.6m) as increased cash levels offset a slight decline in the net interest margin to 48bps (2017: 49bps). This was in line with our communicated expectations at the Interim results announced in February 2018 that margins would be within a 40 to 50bps range. Cash accounts for 10% of the average AUA (2017: 11%). At the start of the year the Bank of England base rate was 0.25% before being increased to 0.50% in November 2017.

With the majority of clients’ SIPP money placed on rolling 13 month term deposits, and non-SIPP money on terms of up to 95 days, the full impact of the rate rise takes over a year to flow through. Following the base rate change to 0.75% on 2 August 2018 and assuming no further rate changes, we anticipate the cash interest margin for the 2019 financial year will be in the range of 60bps to70bps. Cash AUA at the end of 2018 was £9.6 billion (2017: £8.1bn).

I print this in full because these are the exact words that appear in the HL preliminary results (p6). 

What concerns me is the impunity that HL feel they have to consumer regulation. That they can actually boast that customers in cash (representing more than 10% of platform assets) can deliver such mighty returns to shareholders suggests a brazen arrogance that needs addressing.

The FCA fully understand the problems they are identifying

Take these additional issues raised later in the paper

  • Platforms employ commercial practices which may restrict fund managers ’ incentives or ability to offer fund discounts to competitor platforms, and this may reduce competition on fund discounts.
  • Platforms could improve how they present fund charges at different stages of the consumer’s decision making

The report lays out a number of initiatives that – if implemented – would lead to platform customers getting better deals and better information. The issue is not that the FCA don’t know what is right, the issue is whether they can enforce change. I suspect that they need some encouragement and that will not come from within the platform industry

Who can address these platform problems?

A theme of the FCA’s interim report is that platform customers are generally happy. This is something I know to be true. Customers of the largest advised platform (St James Place) and of the largest non-advised or D2C customers are very happy indeed. They are treated with kid gloves, made to feel special and generally tickled out of their money like trout.

Customer satisfaction levels are generally a poor indicator of long-term value for money but a good indicator of short-term profitability. Both HL and SJP are extremely profitable and both are now stalwarts of the FTSE 100.

The impression the report gives is of deference to this success rather than concern about potential customer detriment. “kid gloves – iron fist” doesn’t seem an appropriate formulation.

Where SJP and HL lead…

My concern is that despite murmurings from regulators , other platform providers and even the financial advisers who support these platforms, there is no inclination within the wealth management industry to challenge the hegemony or the margins of HL and SJP.

They appear to provide cover for smaller platforms who can point to their larger rivals with the phrase “we’re not as bad as them” or perhaps “we’re only following SJP/HL”. I hear a lot of bad practice justified in this way. If the FCA is serious about driving down costs and improving completion it has got to get a lot tougher on enforcing better practice.

Dissenting voices

There are independent voices – the Laing Cat and Boring Money are both asking the right questions. But their research is primarily being purchased by platform managers, regulators and advisers.

The challenge of genuine disruption comes from outside the bubble, not within.

It is only the FCA that can properly address the problems of platforms and they cannot do so, by accepting consumer sentiment as an endorsement of platform success.

The fact is that platforms are way too expensive, too opaque and afford advisers an opportunity to milk clients unmercifully.

All too often, regulation catches up with the problem, after the event. The FCA appear to have identified platform problems “in real time”.

In due course, the true cost of the problems identified will feed through to poor outcomes.

  • You cannot employ a 4% drawdown rate and pay 3% in charges.
  • You cannot have over 10% of your platform in cash and boast about anticipated margins of 60-70% on that money.
  • You cannot charge clients who have lost their clients more for less.

We need dissenting voices that do not accept that contented clients are necessarily getting a good deal. I have worked in an occupational pensions industry that has accepted poor value for money for decades and has been happy to do so – such was the marketing skill of those who stripped funds of their returns, while we chugged round Britain on corporate beanos.

I see the same thing happening in the platform market and I’m going to do everything I can to ensure that platform customers are smiling, not because they are being treated with kid gloves, but because they are getting value for money from the platforms they employ.

vanguard 6.jpg

There may be trouble ahead….



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Mr N – a corrupted system and natural justice


Putting things right with the lawyers

I’m pleased to see that efforts are being made to meet Mr N’s legal fees , working out how to get restitution to the Northumberland Police’s pension scheme. Though he was successful in getting back in the scheme, the ombudsman did not grant him his costs arguing that he could have fought the case without recourse to professional advice.

I suspect that the Pensions Ombudsman also had it in mind to slam the door shut in the face of countless ambulance chasers keen to make a killing on no-win no-fee deals in Mr N’s wake.

The fact remains that Mr N has not got the money to pay his fees and since he has opened the door to people similarly unfortunate, it is good that people are rallying around. I understand that there is a pending criminal case to follow, it is important that Mr N’s anonymity is maintained for the moment.

Putting things right with the trustees

I’m also pleased to hear that there is last a conversation being had between the person organising the victims of fraud’s affairs (Angie Brooks) and those acting as trustees of the majority of the derelict schemes which the scammers used to steal the victim’s money.

We shouldn’t forget that the first port of call, to finance the restitution of Mr N’s pension will be the London Quadrant pension scheme – or what’s left of it after pillage from the original scammers.

The judgement will no doubt have come as a surprise to the trustees who are now subject to the unwelcome scrutiny of those seeking these funds (ironically the police pension fund). While I am sure that nothing is amiss in the trustee’s management , I am sure they feel that further claims on their primary source of remuneration (the remaining member’s fund), less than helpful.

Of course the vast majority of the management fees in cases like this are to lawyers.

Calling casuistry when you see it!

If you’re beginning to detect an anti-lawyer thread in this blog, you are right. Thomas Jefferson famously said “It is the trade of lawyers to question everything, yield nothing, and to talk by the hour”. The lawyers have been talking by the hour over the Pensions Ombudsman’s determination against the Northumbrian Police and for Mr N and the London lawyers are very far from happy.

That is because no ordinary person can afford a London lawyer’s fees , meaning that they rely solely on trustees, regulators and employers for a maintenance of their very reasonable lifestyles.

These lawyers have no masters but their clients and their clients are under threat from Mr N and his like.

Let us remember that Mr N took financial advice from a regulated pension transfer specialist – as he was told to by the FCA. He transferred his money out of his defined benefit pension scheme – as he was advised to by his IFA. He transferred his money into an occupational pension scheme that had been given its status by Her Majesty’s Revenue and Customers and he sought restitution as he was supposed to, through the Pensions Ombudsman.  The only thing that Anthony Arter found he had done amiss, was to employ lawyers.

As I have written earlier, Mr N is a hero

But this has not stopped the lawyers from finding Mr N to be the architect of his own demise..

In an opinion piece, published in Professional Pensions, Edward Brown , a pension  lawyer at Hogan Lovells has delivered the following judgement on Mr N.

It is easy to feel sympathy for Mr N – who has potentially lost all of his benefits in a scam. But it is a regrettable feature of 21st century life to conclude that if something bad happens to someone then someone else – with the means to pay – must be at fault. One can conclude that the authority is not to blame without needing to believe that Mr N is the author of his own misfortune.

This is extremely sophisticated (as in employing sophistry). Without committing himself to any view, Edward Brown allows us to read that Mr N is the author of his own misfortune. What does Edward Brown think? Does he subscribe to the views of 21st century life or not?  Who is this “one” that’s making this conclusion? There is not “one” voice here – but several – the inference is clear as  the lawyer dances on his pin with glee.

Edward Brown hides behind periphrastic phraseology and earns significant brownie points from other lawyers for implying Mr N is the architect of his own misfortune – without calling him it.

This kind of thing may work in legal circles Edward Brown, but it does not work with me.

I hope that Edward Brown has the opportunity in time to meet with Mr N and with others like them. They are the people who uphold the law and who assume that IFAs and pension scheme trustees and fund managers are honest. They do so because they believe in the legal system, the HMRC, the FSA (as it then was) and the Pensions Regulator.

For a member of the legal system to infer Mr N the author of his own misfortune is tantamount to siding with all the breakdowns in the judicial system that led to an innocent man – who did what he was told -being put through three years of intense anguish.

But of course Edward Brown said no such thing – the rhetoric said it for him. This is worse than sophistry – this is casuistry. This is the use of the legal system to say one thing and get away with saying it altogether.

Natural justice alive and well in the 21st century

I have sat in the Royal Courts of Justice and seen the treatment meted out to the victims of the Ark Pension Scam, people like Susan Flood (who can take some comfort from this determination). I have seen lawyers call on judges to “poke the victims with sharp sticks”. I have seen victims break down in tears for shame of their actions – when they have behaved admirably. All this has happened because of the cruelty of lawyers who have apply the letter of the law not its principles, who push legal niceties before natural justice.

I have had the chance to meet Mr N  and speak with him. I know other members of the Northumbrian Police Force and no-one thinks Mr N a chancer – he was and still is a very good policeman.

It is extremely hard for us privileged professional class to have any idea of how hard pensions are to them. Mr N put his trust in the system and agreed to pay its fees and he was let down – not just by those who advised him, but by those who could have protected them – and according to the Pensions Ombudsman’s verdict – didn’t.

Mr N had one advantage, he was not intimidated by lawyers. That is why he persisted and why he is back in his scheme.

No doubt there will be many training courses arranged for trustees by lawyers to help trustees do the due diligence that Northumbria Police did not do. No doubt there will be administrators looking at their files for instances of their allowing transfers into London Quadrant and schemes like it. No doubt there will be a few squeaky bums in the offices of some of the IFAs – over the forthcoming criminal proceedings and no doubt lawyers will be making money from all of this.

Lawyers are paid to keep people on the right side of the law, they are not paid to vilify those who do the right thing and then get ripped off.

This message to Edward Brown and anyone else inferring  Mr N “the author of his own misfortune”, is that they remember there is a higher law than that which we serve – there is natural justice, I applaud Anthony Arter for siding with natural justice.

edward brown.jpg

Edward Brown

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Why funds should be free!

My friend Robin Powell has produced a series of disruptive info graphics around comments he’s garnered following Fidelity’s announcement of “free funds”. He’s also written a good blog on the subject.

Of course “free funds” is a disruptive idea and should be viewed with suspicion

I thought to include some of the reasons why Fidelity might regret their decision here – thanks to all those listed below who get paid for marketing funds at exorbitant prices – thanks too to those who – like me – see “low-cost” as “welcome-cost”.

henry fund managers.jpg

Seemed a reasonable question…

But it seems that there’s a cost conspiracy against us – and our bosses are in on it.Fund costs 6.PNG

I am very glad that I wasn’t at this event as I might not have survived it. Here’s a sample of more tough talking going on…

Aviva investment proposition, workplace benefits Jason Bullmore explained what this focus on cost meant for providers. He said: “From a provider perspective we see an absolute focus on cost and this has got to change”

Jason is keen to point the fingers that the villains who are forcing fund management prices down. Apparantly it’s not just employers but consultants (like me)

“In our master trust we have to have a very low cost basic default. This pressure comes from both the employers and consultants.”

But there seems to have been a noble faction of consultants at this meeting

Mercer solutions leader, DC & individual wealth Philip Parkinson said: “Does the consultant community not have a responsibility here? All the sponsors come to us for advice about which master trust to choose. So do we have the responsibility to raise as a priority investment, and challenge the focus on cost.”

The harm we can do ourselves in seeking a bargain is spelt out in the Times, much to the approval of Martin Gilbert, head honcho at active fund manager Standard Aberdeen.

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It’s good to see the relationship between journalists and fund managers remains at arms length

I’ve bust the Times pay-wall to grab the gist of Ian King’s “fund terrorism” warning. Ian focusses on the battering investors got from investing into the dotcom bubble through companies like Baltimore technologies.

Despite this happening 18 years ago, it is still being trotted out as if all the active managers in the world knew!

Of course one of the reasons tech-stocks went through the roof in 1999 was because of the active fund managers who ran tech funds but I suspect that Martin Gilbert didn’t, or if he did – he can’t remember which of the various companies that comprise Standard Aberdeen did or didn’t!

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But back to the main event. It seems that we have a thing or two to learn from hedge fund managers.

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Wow – if any one person can earn that much in a day, shouldn’t I be putting my money with him? Oh- wait – that’s what he earned from my money!

The other side of the coin

We all know that Warren Buffet advises everyone who can’t keep up with him (like me) to invest in simple indices (like the S&P 500).

Robin Powell has been interviewing clever people who explain why

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and he explains why it’s the “buy and hold” passive funds which are best placed to exert pressure on the environmental, social and governance policies of the companies they invest in.

Before I get carried away..

  • Yes I invest heavily in private equity. I’ve invested hundreds of thousands of my own money in Pension PlayPen and now AgeWage.
  • Yes I do pay a fortune to invest in funds like Fundsmith and L&G’s Future World.
  • And no I am not invested in zero cost funds (yet).

I do believe that entrepreneurs , backed by private equity , can achieve more quicker – which is why I will be seeking private equity to grow my businesses.

I do believe that there are good men like Terry Smith out there, who can manage selective stocks on a buy and hold basis, better than the allocations within an index.

I fervently hope that the money I have in expensive index funds, can move to zero price funds – where all I am paying is the opportunity costs of not getting the revenues from stock lending. But for now – I am happy to line the coffers of passive fund managers – because I prefer paying a little over the odds to them for what I know, than an indeterminate amount to active managers, whose charges could be anything… As Robin has me saying!

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And finally for advisers…

In a recent blog, I explained why I see value in financial planners and little value in wealth management. Had I had the savvy to read Robin’s timeline, I’d have had the blog in a picture.

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AgeWage submission to the WPC on Pension Transparency

I am submitting evidence on behalf of AgeWage, a company set up to help people work out if they are getting value for money from their pensions (and pension advice).

I am a Director of First Actuarial and Founder of Pension PlayPen. I appeared before the Committee with BSPS members as part of the Pension Freedoms Enquiry, I blog as the Pension Plowman at

AgeWage wishes to submit evidence because its founders, (myself, Ritesh Singhania and Dr Chris Sier) believe that transparency is the best disinfectant to clean up pensions tarnished reputation.

Contained in our response and the blogs that expand it is a blueprint to make pensions and pensions advice more transparent.

Our response to the enquiry is set out here. Longer responses are available via links to blogs at the end of each section or by searching

  1. Higher-cost providers don’t generally deliver higher performance, and usually eat into clients’ savings. So long as we have the right data and the means to analyse it, we can answer that question “fund by fund”, “product by product”.  The aggregate of all the answers will eventually enable us to generalise. There is no short cut – the task is massive but it is one that is within the compass of data scientists and one that the pensions industry could and should undertake, more about our view here.
  2. The Government is doing a good job ensuring that workplace pension savers get value for money. The responsibility for making workplace pensions work, is all of ours. We should be relying on Government to create the framework, we should adopt best practice as a matter of course, more about why we think so here
  3. We see regulating providers as more important (for Government) than empowering consumers. We need better products, products first – empowerment second. – You Should not empower people to make good use of poor products. The regulation of pension products for auto-enrolment by both FCA and tPR has been a success – they’ve kept a proper market going, driven away the crooks and it looks like we’re moving towards a future where we can draw our pensions collectively. More of the same please! A fuller explanation here
  4. We see three ways to encouraged savers to engage with their savings either we can convince people to engage directly with their investment, or we can get people to engage with stewards or we can offer digital engagement. But we should be wary of ever expecting most people to pay much attention to their pension, most people just want to “know where to sign”. Find out more here
  5. Investment transparency is more important to savers than they know (or experts are prepared to admit). People cannot be expected to know the unknowns. The onus is on those expert in pensions to make pension investments clear and comparable. “Value for Money” is a way of thinking about what we have, which makes pensions easier to understand and manage. We explain this here.
  6. If customers are unhappy with their providers’ costs and investment performance/strategy, there barriers to them going elsewhere. Currently the system is set against people moving. It’s hard for people to know whether they are being penalised for moving, so in the absence of good information, they tend to stay where they are. This tends to reward the bad pension providers. More information here
  7. Independent Governance Committees could be a lot more effective in driving value for money. We’ve analyzed the performance of over 20 IGCs and the odd GAA over the last four years. We think they suffer from poor recruitment and that they do not get to their members to find the real issues. They’ve done good things in ensuring providers cap charges and can do more in ensuring data flows to dashboards. We explain more here
  8. Do pension customers get value for money from financial advisers who provide financial planning. Value for money from wealth managers is not so easy to find. We see plenty of product bias in the advice given by wealth managers and it looks like recidivism to a pre-RDR world. Those advisers who offer financial planning tend to have clearer charges which people understand. We explain the differences here.

We see a groundswell of support for Pension Transparency, evidenced in the work of the Transparency Task Force. We call on Government to recognise the Zeitgeist and support the work of Andy Agethangelou and his advisory committee.

We see Pension Dashboards as a way of bring transparency to ordinary people. We do not support the provision of a single dashboard but urge the committee to promote the conditions in which the private sector can give people access to their pensions and the information they need to manage them.

We call on the pensions industry to exert itself to help the 10m new pension savers who have arrived through auto-enrolment. Equally we call on Government to ensure that they have pension options when they mature, fit to retire on.

Henry Tapper

August 9th 2018

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Do IGC’s improve our value for money?

value for money

This is the 7th and penultimate blog , addressing the Work & Pensions Select Committee’s questions on pension transparency. This time the exam question is

Are Independent Governance Committees effective in driving value for money?

My short answer is that – for the money they have been given – they could do a lot better.

On the composition of IGC boards

In as much as…

  • IGCs have become an effective diversifier of revenue streams for firms of independent trustees.
  • IGCs are successfully integrated into insurance companies business as usual procedures
  • IGCs offer an alternative to trustee and non-executive roles for those seeking “portfolio careers”

IGCs are failing.

For too many IGC board members, the diurnal tedium of later life is alleviated by days out at insurance company expense, IGC boards are full of the wrong people – people who are too old, too male and too steeped in the failings of the past to understand the opportunities of the future,

After blogging a complaint about the ineffectiveness of the L&G IGC, I was called into L&G’s office to have it explained to me (by senior executives) the factual inaccuracies that underpinned my criticisms. Neither or the supposed inaccuracies resulted in me changing my mind or my blog, I maintain I was right.

At the end of the meeting (lecture), I mentioned that under the terms of my contract, I was now free to be an IGC member. The L&G execs thought I was joking  – I wasn’t.

The fact is that people who are genuinely interested in transparency are not getting onto IGC boards. Instead IGCs are being packed with “trophy” members who appeal to the vanity of the insurance boards, but who have neither the energy or the motivation to genuinely shake the tree.

It would appear that the open place at the L&G IGC will be filled by a “big-hitter” – or so the executives would have me believe. I thought “more trophy”.  I expect L&G are spending a lot of money getting big hitters to the IGC board, but the recent output – in terms of effective governance – has been poor.

By comparison, an IGC with a relatively small budget , like that of Phoenix, seems to be consistently punching above its weight. It strikes me that the Chairs of IGC boards are critical to their success and that many boards have chairs who are not up to the job.

On the effectiveness of individual IGCs

Each year I read (at least once) around 20 IGC reports and a further 10 or so GAA reports. Some of the GAA reports are very important (that of St James’ Place in particular-why a pension provider with £90bn under advice doesn’t have an IGC is a mystery).

Each year I mark the reports and publish the scoring. I blog my reasoning and I know that many of the IGCs read these blogs. In the absence of much feedback elsewhere, my blog has become a part of the reporting season. Here is the table of the reports I have done since the inception of IGC reports in 2015-16.

IGC review 2018 full

If you’d like the live  spreadsheet – of which this is a picture – mail

There are IGCs which are effectively reporting. Probably the most effective – consistently – is the Prudential’s. Some IGCs are getting more effective (Royal London) and some are slipping back (L&G). Some are consistently average (Fidelity) and some are consistently poor (Black Rock).

As we consumers have no other way of assessing the IGCs than reading their reports, we must take the reports as a proxy for the IGC’s performance.

IGCs are invisible to the people they serve

I don’t know if the FCA do polling on IGCs, but I’d be surprised if much more than 1% of those in workplace pensions know what an Independent Governance Committee governs.

In its recent inquiry into pension freedoms, the Committee chair had the chance to look at how the British Steel pension management and trustees related to their members. He concluded that the two were in different countries. I suspect that the pension management assumed this to mean that being Scottish, they were too distant from the steelworkers in Wales. I took this to mean that the members of BSPS were sorting out their issues on Facebook – while the management and trustees were devising a paper based communication plan.

The same can be said of IGCs, they are in a different country from their members. Members are spending their time getting information from Facebook and Instagram. Younger members get news from Snapchat or Buzzfeed. Static websites are seldom if ever visited. The work of the IGCs goes un-noticed by all but a handful of policyholders.

The efforts of the IGCs to talk to members are pretty well non-existent. In 2015, L&G decided to run a member’s forum, but the only people who show up are advisers and industry commentators. Some (like me) happen to be L&G policyholders but this is incidental, ordinary members are not going to go to the City of London in the middle of a working day to be lectured about the value of their workplace pension.

If IGCs want to enter into a dialogue with members , they should be looking to create digital forums like the Facebook pages of the British Steel Pension Scheme. They could do this by working with large employers to create employer specific forums and with smaller employers to create multi-employer forums. IGCs will become relevant – when they become visible – right now they are invisible which suits insurers very well.

IGCs can remain low profile – so long as they understand the issues.

My recent complaint against L&G’s IGC, was that it turned a forum into a lecture. those people who had turned up , came clutching questions and the meeting had 10 minutes out of 120 for Q&A.

IGCs have not yet established mechanisms to hear first hand from either members or their employers. When it comes to the nuts and bolts of  auto-enrolment and workplace pension saving, the IGCs therefore have to guess at the issues, or be guided by large employers – who have available resource to have individual meetings with the IGCs.

In Britain today, we have over 1m participating employers in auto-enrolment, but all but a handful are excluded from the IGCs knowledge and understanding.

Do IGCs understand Value for Money?

The import of the IGCs failure to engage with the policyholders and employers they represent, is that they have no real authority. Unlike Unions who speak for their membership, IGCs can speak only for themselves.

Unless they have clear evidence of what their members want, their lobbying for change will be seen by shareholders as spurious.

As for their task of telling members whether the members are getting value for money, I can see no evidence that the IGCs have any consistent measure for what value for money is.

The Prudential use an outcomes based measure that looks at fund performance against an inflation related benchmark. Others appear to be using performance aligned to the costs members are incurring and others use less quantitative measures, relying on independently managed surveys carried out by marketing companies.

In three years – only one IGC – has told its insurer that it is not giving its members value for money (or at least has committed this to an IGC report). That IGC was that of Virgin Money in 2017-18. By and large, the reports conclude with the Chair affirming that in the Committee’s opinion “xyz” has delivered value for money.

What kind of benchmark is being used is not clear. It is like the a football club chairman saying that in his opinion his club was worthy of promotion.

Until some proper system of benchmarking is in place, insurers will (as old Mr Grace would say) – “all do very well”.

Do IGCs deliver value for money?

Charged as they were by the FCA , with implementing a cap of 1% on exit charges from workplace pensions , the IGCs can take some credit as enforcement agents. Incidentally the Virgin Money report was focussed on the failure of VM to deal effectively with this issue.

But in terms of measuring value for money on default funds of workplace pensions, the primary duty of IGCs, they are failing. Many have yet to understand how much the defaults are actually costing members, not having been granted the means of testing hidden costs and charges by the insurers they are paid by.

If this persists into the 2019 reporting, then I hope that those IGCs who still (after five years of trying) , have yet to have this basic data, will report their insurers to the FCA as Virgin Money’s did.

As regards “value”, IGCs who persist in confusing “member experience” with “member outcomes” should be reported to the FCA for dereliction of duty.

It is all too easy for the marketing departments of insurers to pull the wool over IGCs eyes with talk of “portals” and “member journeys”, “modellers” and “Gamification”, but this is all cheap to deliver smokescreen.

It is time that the policyholder is given a clear value for money score on their workplace pension as a whole, with evaluation of the plan’s capacity to deliver “to and through” retirement and an assessment of the risk adjusted performance of the plan in one holistic number. Anything more complex will simply not make sense to members.

By reporting simply and holistically against clear measures, we may be able to start comparing one workplace pension’s VFM against another.

IGCs cannot in themselves – improve the member’s VFM. But they can put pressure on insurers to lower charges, improve funds and make it easier for policyholders to save and spend their money.

In order for them to do this they need to demonstrate they represent the authentic voice of the policyholders, they have a proper view of what they consider value for money and that their assessment is based in quantitative fact and not in the eye of the insurance company’s marketing department.





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

How can savers be encouraged to engage with their savings?


pension bee trust pilot

Engagement engendered by trust

This is the 4th of eight blogs considering the questions put to us by the Work and Pensions Select Committee.

WPC questions

Today’s exam question…

How can savers be encouraged to engage with their savings?

Quick answer; either we can convince people to engage directly with their investment, or we can get people to engage with  stewards or we can offer digital engagement. But we should be wary of ever expecting most people to pay much attention to their pension, most people just want to “know where to sign”.

  1. Direct ownership

People like owning possessions, but how many people would count their pension fund as their possession?

There are real problems with agency here. In practice very few people choose the assets into which their pensions invest, the complex array of intermediaries within a modern day SIPP, show just how far from the asset, the beneficial owner of the SIPP has drifted.


Source – FCA

“SIPP” stands for self-invested personal pension but in practice there is are at least five intermediaries between the investor and his/her money.

This perplexing complexity is the result of competing claims from each intermediary for hegemony in the client relationship. But in practice it is only the financial advisor who directly communicates with the investor.

If we are to get people back in touch with their savings, we are going to have to do something about these multiple agents. We need to get back to owning our pensions and that means having clear visibility about where money is invested.

People want to invest well

At a recent meeting of the Defined Contribution Investors Forum, Ignition, a communications company, demonstrated the frustration ordinary savers had , when wrestling with where their money was invested. A common thread to interviews was that people assumed their money would be invested responsibly. When they found that this was an “optional extra” they became agitated and even angry.

People do not expect to have their money invested in arms , or with polluters or in organisations that don’t behave responsibly to their staff, customers or shareholders.

In contrast , when investors were shown that they were invested in projects with a strong social purpose, they were proud, wanting to explore their ownership, eager to do more of the same.

Share Action have been making this point for many years. If we want to engage savers, especially younger savers, we need to get them involved in the story of their investments. We need them to be able to explain what they are doing to themselves and others.

But the problems of agency too often prevent this.

Share action report

The alternative way

Over the past four years I have been investing with Legal and General and am proud that I am now investing my workplace pension in a fund called Future World,  I am an evangelist for this fund which was created for HSBC’s staff pension scheme by people I know and trust. I am a fortunate person in that I have a clear understanding of the who, how and why my money is invested.

Not only am I invested in it, but my 20 year old son is also investing his meagre earnings in this fund, so are many of my friends. I was really delighted when Pension Bee, who offer a simple SIPP, offered this fund to their investors. I’m proud that one of our clients, RSPB, now offers this fund as part of its default for workplace pensions.

The  fund does good things with my money and I am really keen to see how my future contributions are invested. It is fair to say that a really well invested fund, has excited me to save more.

Seeing what is going on

They haven’t done it yet, despite promising me they would. Nigel Wilson and John Godfrey – who are two of the bosses at L&G want to put the investments of L&G on google maps so that as I travel around Britain, they can spring out at me and remind me of what I own.

This – in extreme form – is what I want. Everyone I tell about this get’s excited by the idea.  So why hasn’t it happened yet?

I reckon it’s because companies have become terrified of their customers. Legal and General regularly tell me how I – as an adviser – can have access to all kinds of information that adds value to my relationship with my clients, but when it comes to my own investments, I am constantly confronted with warnings that I am not a professional investor and that I should talk with a financial adviser before making any decisions.

I found this problem when I was in Port Talbot. Many of the steel men I spoke to told me that they had workplace pensions with Aviva (Tata’s auto-enrolment supplier). When I asked them why they didn’t use their workplace pension for the investment of the transfer they were taking from their DB plan, they looked perplexed. Not one of them had had this option discussed with them by their financial adviser. Instead they had ended up in SIPPs of the type advised above.

Once again we are allowing the complexities of intermediation to get between us and our savings. Had these steel men invested in the GPP, most would have paying well under 10% in terms of charging, and they would have had direct access to information on the funds into which they invested.

I am coming to the conclusion that nobody, not the intermediaries, the regulator or even the employer is particularly interested  in direct investment. When I asked Aviva why the website they had put up for Tata staff, had not been advertised as part of the “Time to Choose” communication program, I was told that neither Tata or Aviva were wanting to promote what would have been seen to be a “non-advised solution”.

direct investment

The site the steelworkers didn’t see

How do we dis-intermediate and find our way back to our savings?

If my contention is correct , then I think it is time we started investing, not on the basis of abstract concepts such as “anticipated returns”, “attitude to risk” and “risk models” , but into things we understand.

2.  Trusted stewards

The direct ownership model – outlined above – represents  ideal engagement. But as mentioned immediately above, it is unlikely that most people will want to pay sufficient attention to their investments. For most of us, it is enough to know that we have stewards looking after our assets, ensuring we get value for money and that our assets are invested responsibly.

When acting responsibly, as happens in many occupational trusts, the trustees are known to members and respected as their representatives in everything from funding negotiations (even in DC) to the choices of investment managers and products.

Similarly, some IGCs have created forums for employers and employees and are liaising with their product provider (insurer of SIPP provider) on member’s behalf. IGCs and Trustees are our stewards and can – in time – become as trusted as DB trustees have been.

For stewards- whether IGCs or Trustees, to be trusted, they must be visible and they must engender trust through their actions. Sadly – too many of our stewards are not up to the mark, we need younger, more diverse and more enthusiastic stewards than we have today.

They need to be familiar with how member’s money is invested and act as our agents where we cannot act ourselves. This might include, for instance, exercising influence on managers in using voting rights and reporting on their activities through Chair Statements and IGC reports in a way that genuinely engages members in their pension funds.

Similarly, IGCs and Trustees should be the independent arbiters of the value for money that members are getting from the products they are offered by providers. Presenting the performance and costs of funds (for instance) in a meaningful way – allowing people to compare funds and platforms in a simple way, meets member needs. The DWP get this, their latest consultation on value for money specifically calls for value for money measures to be published online by occupational trustees. The FCA are expected to follow with instructions to IGCs.

In short, Trustees and IGCs could and should have a vital role in helping members to get to know their pension, but we are a very long way from this position at the moment.

The  culture that allows the positions on IGCs and Trustee boards to be dished out as sinecures, must cease and instead we need new blood.

3. Digital engagement

Much has been made of the power of a single platform run by the Government which allows people to see all their pensions in one place. Over 100,000 people are reported to have requested the DWP to offer such a “pension dashboard”.

There is clearly demand for such a service, though the DWP are understandably reticent about committing to it. I have written at length about the rights and wrongs of who provides the dashboard, but fundamentally we need at least one – and probably multiple dashboards.

The advent of “open banking” has exposed the lack of digital innovation in pensions. People expect to see not just what they’ve got , but what it’s worth and even whether it’s any good.

Technology now allows us to set up secure systems to scrape data from a variety of sources to provide real time information to people looking to know what their pensions pots are worth and what to do with them.

The development of means – not just to show their money – but to enable people to do things with their money, is not far away.

This is particularly the case with older people. We hear this week that 40% of the over 65s now shop on line (four times up on 5 years ago). It is surprising that there is no pension aisle in the moneysupermarket, no way to Go Compare pensions.

If pensions are to be accessible through dashboards, the comparison sites – including Comparethemarket, would be a good place to start.

Instead of excluding pensions from the digital revolution, the pension industry and Government should be working with the digital comparison sites to bring pensions to the people.


This long blog has explored the three best ways to get pensions to the mass of us who don’t do pensions. In truth, even if we got all three ideas working properly, there would still be a majority of us who would not pay attention to our pension.

We should not rely on “engagement” as a panacea to under-investment in our futures. The tough truth is that to have more in retirement, we need to save more, and the engine room for saving is the nudge mechanism we call auto-enrolment.

Like it or not, nudge works. The various “nudge” ideas being touted about – such as the “sidecar”, depend to work on people not being engaged, but saving on auto-pilot.

For most of us, “engagement” will happen when people have got sufficient savings to make them worth engaging with. We need to make it easier for people – when they want to engage – to engage- but we should not try to coerce people into engaging with pensions if they see no need. Such people need to be nudged to save – they can engage later!







Posted in auto-enrolment, pensions, WPC | Tagged , , , , , , , , | 7 Comments

Higher costs – lower pay-outs? Fact or fiction.


Shedding light on financial markets

This is the first of seven blogs I will write, that will by September 3rd, form my submission to the Work and Pension Select Committee’s inquiry into pension transparency.

Today’s exam question is;

Do higher-cost providers deliver higher performance, or simply eat into clients’ savings?


My Simple answer;

So long as we have the right data and the means to analyse it, we can answer that question “fund by fund”, “product by product”.  The aggregate of all the answers will eventually enable us to generalise.

There is no short cut – the task is massive but it is one that is within the compass of data scientists and one that the pensions industry could and should undertake

We may start with a prejudice – we should end with clear evidence.

Consumers start with a prejudice, that prejudice is that we are being ripped off.

Robin Powell, the evidenced based investor, has written extensively on this topic, showing time after time examples where the money we’ve paid for “intermediation” simply hasn’t delivered value.

Not only is the “net of fees” position,  usually worse for the expensive investment option , but the gross performance – based on the net asset value of a fund from one point to another, is often demonstrably worse – the more meddling is done.

I deliberately use the word “meddling”, it’s not one you’ll hear in fund management circling, but that’s the kind of down to earth language needed, if ordinary people are to be part of the conversation.

Robin is probably right and his body or work has got us to a point where a Government Committee is asking the question. But we need to go beyond prejudice – there are no easy answers. Answers come from evidence.

Too much meddling.

The cost of “meddling” – buying and selling stock, purchasing derivatives to offer hedging, gearing, capping and collaring is met by the funds beneficial owners. Sometimes these costs are upfront and acceptable. Anyone who’s considered paying  a fee to fix their mortgage will be familiar with the trade offs. But whereas the banking instruments that provide certainty of outcomes when we borrow money are transparent, those that we buy to protect our savings (especially to provide protected growth) aren’t.

“Meddling” is almost always in the interests of the intermediaries who win whatever the outcome, but it is considerably  harder to see the benefit to the ultimate beneficiary. The nature of long-term saving leaves those who sold the product unaccountable for the outcome, while those there at the end of the investment can talk to the future, without reference to the past. You could call this the “asymmetry of accountability”!

Not enough accountability

Since most management teams within investment houses , move on regularly, the concept of ownership of “other people’s money” is low in priority. Sales targets are rather more common than “claims targets”. Unsurprisingly, there is little accountability for outcomes within the banks and fund management houses that create the products that we buy.

Nor transparency

The impact of the various instruments within the products we buy – on the returns we get, has seldom been analysed. But this is changing. The point of “transparency” in financial services is not just to shine a light on what is coming out, but to ensure that there is accountability for these costs (if only at the point of sale).

Fidelity has this month, launched in America, two funds with “zero pricing”. These funds generate revenues for Fidelity – purely from the lending of stock within the funds, to third parties (revenue kept by Fidelity rather than passed on to the investor). This transparent approach to revenue sharing is in sharp contrast to general practice. How many of us know whether stock lending is going on within our fund, who benefits from it and the risks attached? If it is possible to run a fund on stock-lending revenues alone, why do we pay so much for funds that are doing nothing more than the Fidelity zero priced funds? What are we paying our annual management charges for?

The lack of transparency among banks and investment managers around these questions, has led to a lot of head scratching not just among consumers. It’s also excited Regulators. Last year, the FCA decided to do something practical to improved transparency at an “institutional level”. By “institutional”, they meant  “business to business” . It was felt that if professional purchasers of fund management (including pension fund trustees), could find out what the real cost of all this “meddling” was, then the end consumer would follow.

The result was the Institutional Disclosures Working Group whose task was to create a template that allows buyers to see what they’ve purchased and to monitor the money and the value of the fund management they are getting. This , alongside other regulatory measures (MIFID II, PRIIPS) will – it’s hope- mean that the asymmetries of “information” and “accountability” will be redressed. Consumers -whether institutional or retail – will have a way to address the WPC’s exam question.

We can answer the question using “value for money” as our measure.

The only way for us to know whether higher cost providers are giving us value for our money is through data. Many providers will talk of “engagement” as an end in itself and will point to fancy portals, dashboards and other gimmicks. These is really nothing but marketing , a way to throw the bloodhounds off the scent.

We answer the question by looking at the Net Asset Values of a fund from point A to point B and then compare it with the gross performance of the fund and the difference in terms of fund performance is the “money” we have spent on intermediation – on management.

We then compare the performance achieved on a “net to net” basis, with the promise made by the fund, that is the value. And once we can get the value and the money, we can get the value for the money.

If we want to compare the value for money of Fidelity’s zero priced fund with the equivalent VFM for the BlackRock, Legal and General or Vanguard equivalent, we can do. It may be, once we’ve assessed the risks of stock lending or the impact of reinvesting stock lending revenues in the fund, that Fidelity’s offer doesn’t seem so good after all.

Similarly, if we want to compare a complex structured product like a pooled LDI fund, we can use the same method – the same template and data capture, the same rigorous analysis of the resulting information. Nothing should be beyond the scope of data analytics, provide that the right data is captured.

If you do not supply the data, we must assume the worst

If a high or low charging provider will not produce the data needed to capture value for money, we must assume that they have something to hide. If we do that, then all kinds of red flags should be thrown and investors should look to leave in droves. Of course mass desertion from a fund causes its own problems, but it is the only sanction that us consumers have.

It is unsurprising that the trade bodies of the fund providers (ABI and IA) have fought tooth and nail against disclosures of net and gross fund performance and the breakdown of costs within their funds. The asymmetries described have kept them in clover for generations.

However, we are experiencing a revolution – a digital revolution – that means that collecting – analysing and publishing analysis is now cheap, easy and fun. I use that last word  with tongue in cheek!.

The illustration below, shows how I would like to see value for money scoring displayed. I would like to see my personal pension with Legal and General , compared with those of the alternative providers and I’d like to see the score displayed as simply as it appears on this mock-up below (all numbers fictional).

age wage simple

If we can see behind these numbers, the working that goes into these numbers, then we can answer the question set by the WPC.

But that task will be massive, it will involve analysing the funds of thousands of providers (both unit-linked and non-insured), it will involve analysing the contract and trustee charges of thousands of providers and schemes. In short it will involve “mapping the pension genome”, something that will be as important for our financial health as the mapping of the human genome was for our physical and mental well-being!


This and the following eight blogs will be submitted in their native form and that will include comments. If you want to contribute, either anonymously or using your real name, post a comment.

Posted in advice gap, age wage, pensions, WPC | Tagged , , , , | 2 Comments

How a policeman may have changed pensions for good!

northumbria police

Mr N has just been awarded reinstatement to the Police Pension Scheme at a cost of £135,000. It’s a done deal, the cost is to the Northumbria Police , to the tax-payer – and may be partially offset by the remainder of any money he transferred out (via a CETV) in 2013 into a scheme that’s since failed.

Mr N is a policeman, I am not using his real name so as not to prejudice impending criminal proceedings that are being taken against those who engineered the sorry transfer.

You can read the history of this case in the “decision” of the Pensions Ombudsman (PO-12763) published here. It was published on Tuesday, the day that Mr N found himself back in the pension scheme he left 4 years before.

The story’s made BBC news – but it’s implications have yet to be understood in the pension world. When they are, Mr N may become as important as ” Mr Barber”.

Why this is so important

There are thousands of similar complaints to that of Mr N.  They follow the same path.

  • Financially vulnerable person approached by lead generator for “pension review”.
  • Qualified lead passed to financial adviser with a Pension Transfer Specialist
  • Vulnerable person sold an attractive investment option (without any real idea what he/she is buying
  • Trustees sign-off transfer on basis that a Pension Transfer Specialist is in place
  • Scheme goes tits up
  • Vulnerable member suffers agonies of remorse when he/she realises what’s happened.

But Mr N’s story is different, because Mr N was very brave and very determined and he beat the system that was set against him. Mr N hired help and with that help he won back his pension rights to the Police Pension Scheme. Mr N is now facing a legal bill of £25,000 because he didn’t get costs.

Why Mr N is a hero

I don’t use the word “hero” lightly, I used it in my conversation with Mr N yesterday and I want to explain why I admire him here.

The system likes to quote phrases like “caveat emptor” at people like Mr N. “It was his own stupid fault”. Mr N heard a lot of comments like this. Like one of the steel men  we heard from at Port Talbot, this made him very sad, depressed and it damaged his self-worth.

In the four years, Mr N has suffered anxiety and  depression and the impact of the scam on him and his family was nearly disastrous.

But Mr N pulled through. He instructed his own lawyer and (despite incurring £25k of legal fees which he is liable for), he took his case to pensions ombudsman. The tale he has to tell of the support (or lack of it), he had along the way from the people he put his trust in (his pension adminisrator, his independent financial adviser and the pension fund he transferred into), is barely credible. All were intent on labelling him the architect of his own demise. If you don’t believe me – read Anthony Arter’s “decision”.

Even when the Pensions Ombudsman made his preliminary decision earlier this year, this pressure did not relent. As Mr N told me from his come in north Newcastle yesterday, it was only on Tuesday evening that he could relax with his wife and drink a glass of wine in celebration.

He still has the £25,000 bill to pay.

Mr N is a hero because he fought a system that was shamefully set against him and he won.

He was not entirely alone, Angie Brooks helped him, if you want to read the full story- follow the link. She admits that she couldn’t help him much but she helped him find the right lawyer and made sure Mr N knew he was not alone. Mr N was also supported by Jon Douglas, a journalist who lives near Mr N and has produced a news article for the BBC’s You and Yours program, you can listen to the episode here, the pensions article is at 26 minutes 30 seconds.

Mr N was listened to by the Pensions Ombudsman- Anthony Arter – who took the time and trouble to understand – produce a decision and stand up for Mr N. I am very proud we live in a country where people like Mr N can get such justice, Mr N has not just got Mr Arter (pictured above) to thank, he has the Pensions Ombudsman’s office.

What the judgement means

Each case taken to the Pensions Ombudsman  is dealt with on its merits and we should be careful not to suggest that this case is a PPI style bonanza for anyone who has lost money through a pensions transfer.

But this judgment means that there is now an avenue for redress, for people who since the rules changed in 2013, have been clearly scammed.

The judgement gives those who feel that those who administered their occupational pension scheme did not conduct “due diligence” on where the money being transferred went, can be held liable – if it went to a scheme which was clearly a scam. In the Pensions Ombudsman’s view, Mr N’s scheme  was clearly a scam.

Of course the Northumbria Police  are able to have first call on any money left in London Quantum – hypothecated for Mr N, but as he wrote  in a mail earlier in the year,

I’m sure (the trustees) are trying to succeed and do a good job but due to red tape etc just spend spend spend without result

There is unlikely to be much for the Trustees to recover from the scheme Mr N transferred to, despite there being a bull market since 2014.

The net result of the judgment is that the Northumbria Police will have to fund the cost of reinstating Mr N themselves (as well as paying Mr N a small amount of damages).

The wider impact on pension schemes

If you are the trustee or sponsor or administrator of an occupational pension scheme, whether DB and DC – you should shudder.

The Pensions Ombudsman’s judgement is explicit

Having considered all the available evidence, I am satisfied, on the balance of probabilities, that but for the Authority’s maladministration Mr N would not have proceeded with this transfer and suffered a loss.

To put matters right, the Authority shall reinstate Mr N’s accrued benefits in the Scheme, or provide equivalent benefits, adjusting for any revaluation that has arisen since the transfer


The papers the Authority failed to deliver



The Pensions Ombudsman found against the Northumbria Police  because it failed:

  • to conduct adequate checks and enquiries in relation to Mr N’s new pension scheme; to send Mr N the Pensions Regulator’s transfer fraud warning leaflet; and.

  • to engage directly with Mr N regarding the concerns it should have had with his transfer request, had it properly assessed it.

The impact on Pension Scheme Administration

Most pension administration is outsourced by trustees to professional administrators known as Third Party Administrators (TPAs).

TPAs have generally considered, till now – that they are not liable for the destination of the money, provided they comply with the Law.

1.under section 48(1) of the Pension Schemes Act 2015, scheme trustees must carry out a check on whether members have received appropriate independent advice before permitting a transfer of safeguarded benefits;

2.under sections 98(2) and 99(2A) of the Pension Schemes Act 1993, a member loses the right to a cash equivalent if the scheme trustees carry out this check but the check does not confirm that the member has received appropriate independent advice; and

3.appropriate independent advice is defined in section 48(8) of the Pensions Schemes Act 2015 as “advice that (a) is given by an authorised independent adviser, and (b) meets any other requirements specified in regulations made by the Secretary of State”.

But the Pensions Ombudsman goes well beyond that level of due diligence

96.Turning to the Authority’s comments in respect of being entitled to rely on the relevant statutory discharge, I have found that the Authority failed to carry out reasonable checks before transferring Mr N’s pension and for this reason I do not find that it can rely on section 99(1) Pension Schemes Act 1993. It did not do “what is needed to carry out what the member requires”.

“What is needed” includes appropriate review of the transfer application, taking into account the law and regulatory guidance. “What the member requires” could only be established by ensuring that the appropriate due diligence was carried out, any warnings or concerns identified and brought to the attention of the member, and that the member then went ahead with the transfer, on a fully informed basis.

Although the Authority says it would not have been able to prevent Mr N from transferring out, I have found that Mr N would have acted differently had he received the appropriate warning from the Authority. On the balance of probabilities, I have found that he would have withdrawn his request.

I could summarise this by saying that the Pensions Ombudsman found that the Authority and its administrator’s did not exercise its duty of care to Mr N and is paying a high price for it.

Where does this end?

There is already a long queue at the Pensions Ombudsman’s door, it includes a number of former clients of Active Wealth Management and other firms who advised steelworkers to get out of BSPS. It will now get longer as other former members of occupational pension schemes, seek to get back on board rather than rely on depleted pension funds investing in everything from Cape Verde property to the Strand Capital fund.

Were these claims all to succeed, the liabilities currently expected to fall on FSCS , could fall on trustees – or their TPAs or their TPA’s professional indemnity insurers.

So the Determination will be being read with some interest by all these parties.


Mr N is a hero – but I can see him being cast as a villain

I will say this now, and hope that I am proved wrong. Mr N is likely to be considered not as I have described him, but as a troublemaker who costs shareholders and pension managers and administrators and trustees and sponsors and insurers money.

I expect to see the Pensions Ombudsman’s decision being challenged. It may be that legal arguments will prevent others being restored to their schemes.

Mr N took the pain of the past four years, perhaps advantaged by his being a serving policeman who was familiar with the workings of the courts.

But the strain that doing so put on him and his family was severe and it’s hard to underestimate his bravery. The criminal proceedings are still to come and I don’t want to prejudice them by publicising this Determination in an irresponsible way.

But  I will finish, by commending the Pensions Ombudsman’s Determination to anyone who is interested in justice for those like Sue Flood (a pre 2014 victim) whose losses and sufferings are just as great, but who risk being forgotten.

We do a great thing in running pension schemes for people and we should be aware that sharks live in the waters that surround them. £36.8bn was transferred out of our schemes last year and not all of it went to good homes.  This Determination gives those championing the Pensions Regulator’s Statutory Objective “to Protect Members” , will welcome this judgement.

Mr N is a hero!

mr N.png

He is no villain – nor are other pension fraud victims

scamproof scorpion

Posted in pensions | 7 Comments

Reach out and touch – success is a state of mind!


Yesterday the FT published an article with a headline many predicted we’d never read again.

“FTSE 100-backed pension schemes move from shortfall to surplus”

About the time the article was published I received a mail from someone who turned out to be the chair of trustees of one of these FTSE 100 schemes. Ostensibly this was about catching up with a mutual contact but it soon turned out that said trustee wanted a chat about his frustrations.

He was fed up with demanding money from his sponsor to plug what he considered a spurious pension scheme deficit, fed up with artificial funding targets that set the solvency bar ever higher and fed up with investing money into bonds at the wrong time.

I am not an expert in funding, but I know enough to sympathise. Apparantly he’d read one of my blogs (probably a FABI one) and felt like I’d provide a shoulder to cry on.

Need a shoulder to cry on?

First Actuarial provides a shoulder for frustrated trustees to cry on if you are

  1. An actuary fed up with working on “project fear”
  2. A trustee fed up with demanding money from sponsors, only to pour it down the drain
  3. A sponsor trying to run a business but being constantly harassed by actuaries and trustees.

We also provide shoulders to Financial Economists who have seen the error of their ways, Pension Regulators (ditto) and to the investment consultants struggling to come to terms with being regulated by the FCA.

Need a port in the twitter-storm?

If you find your timeline intruded by Financial Economists or their Bots, then tweet to @firstactuarial or @henryhtapper using #FABI.

We’ll calm the raging waters created by gilt plus valuations by smoothing your funding position using the ideas behind the First Actuarial Best Estimates Index ( #FABI).

We’ll call you and provide you with the love you need and deserve  – explaining how to avoid Financial Economists and their pernicious dictats!

We’ll speak with you with the tenderness that you need , having been brutalised by pensions these past ten years.

Reach out and touch!

You know that nothing worthwhile is ever achieved without taking on good risk. Reach out and touch the spirit of First Actuarial, a spirit of endeavour that sees “going for it” as good and “risk free” as a luxury your scheme and sponsor can probably not afford.

We’re entrepreneurs, we’re still in start up mode (though 300 strong with a £20m turnover). We disrupt Neanderthal thinking and encourage our people to think for themselves.

So if you are the Chairman of a FTSE 100 backed pension scheme or the humblest workplace pension scheme – reach out! We’re here to make pensions work and restore people’s confidence in their retirement planning!

Posted in advice gap, First Actuarial, pensions | Tagged , , | 1 Comment

Boomers struck down by Financial Constipation


Ok- so it’s American – but you get the picture!

I have four points to make about the figures published by HMRC on taxable drawdown yesterday

  1. The amount being drawn down is a dribble
  2. The drawdown is consistent over time – people are drawing down on average £30k pa
  3. These are the taxable figures- we can assume that 25% is being skimmed for tax free cash (which could be added into the totals to suggest total cash out)
  4. Boomers aresuffering a bout of financial constipation

But first – here are the numbers!

HMRC drawdown

The amounts being drawn down are a dribble

Here’s John Lawson’s perspective (which I share)


Not only is the amount coming out , puny, compared with the amount going in , but it’s puny compared with the pensions being paid from occupational pensions (four times as much). Perhaps more worryingly – the amount being drawn down is – in total- less than a quarter what was transferred out of DB schemes via CETVs. By any measure, drawdown is a half-opened tap .

The drawdown is consistent over time at £30k pa+

If you compare the growth in drawdown over time , you see a fairly consistent picture in terms of growth.payments hmrc

What appears to be going on is that people are drawing down more in the early part of the year and easing off in Q3 and Q4, even so – the typical annual drawdown is over £30k.

Since we know that on average , people have just over £30k  in their pension pots, this either suggests that drawdown is happening from the “rich person’s pots” or people are fully cashing in.

My suspicion is that it is mostly the former , but if we follow the 4% rule (where you only drawdown 1/25th of your pot value, this suggests that average drawdown pots are £750k + . If you add back in the tax -free cash, not shown in these numbers, then you’d expect drawdown to be a sport for pension millionaires.

The numbers are of course diluted by those with small pots taking all their money at once (which may be tax-efficient) and the odd Pension Muppet, taking all his/her money at once – making HMRC’s day. I know that someone will comment that there are the odd time when it is worth pension busting and paying 45% on most of it – but we are talking here of “mainstream”.

The alternative reading is that some people aren’t drawing down at the 4% rate , but burning cash at much higher rate – with heroic assumptions on mortality/inflation and investment growth.

Whatever way, these numbers do not suggest that people in drawdown are typical of the nation as a whole! I would characterise drawdown currently as a financial freak show.

These drawdown numbers may be undercooked but…

What we are being shown is what HMRC get via Real Time Information as the taxable element of money withdrawn. Up to 25% of all “crystallised” pots can be taken tax-free and probably has been, suggesting that the £17.5bn  drawdown since April 2015 probably needs to be inflated to something closer to £25bn.

Even so, this is a tiny amount of money relative to the amount paid from annuities, occupational pension schemes and of course the state pension!

The pension freedoms are in no way the universal payment system for the UK’s elderly population. Drawdown is a sideshow- a financial freak show. If the FCA considers that the exercise of pension freedoms is the critical success factor for retirement outcomes, they are ignoring the data.

So what is happening to all the money?

The official line (in the absence of comment from our Pensions Minister) comes from a former Pensions Minister – Steve Webb

These figures show the continuing popularity of pension freedoms. In the latest three months over a quarter of a million people took the opportunity to make flexible withdrawals from their pension, and withdrawals were at a record level. The key challenge is to make sure that more people take advice and guidance when deciding how to access their pension savings so that they do so in a sustainable way that meets their objectives’.

Well 94% of us are not taking advice Steve.  The 6% of us that are – may be drawing down advisedly – but pension freedoms, like financial advice, seems to be a minority sport!

So where is the money going – I suggest our pension savings are currently going nowhere. As John Lawson’s tweet suggests and the ONS MQ5 tables confirm, money is going in but it’s not coming out. We are hoarding our pensions – or perhaps suffering from FINANCIAL CONSTIPATION.

Perhaps this is because, finding a way to spend our retirement pots is – as William Sharpe puts it – “the nastiest, hardest problem in finance” . That comment comes from the man who figured out how to price portfolios via the capital-asset-pricing model, and how to measure risk via the “reward to variability ratio,” or what has come to be known as the Sharpe ratio.

If William Sharpe can’t solve the drawdown dilemma, is it any surprise that neither can the 94% of us who don’t have brilliant advisers – who can!

The obvious conclusion to all this, is that we need a new way to spend our savings – and we all know where I am going on that.


Posted in advice gap, Blogging, Fungible, pensions | 3 Comments

Pension Bee ask “who’s Robin who?”


Pension Bee Robin HoodPension Bee don’t play by the rules. They are a pension provider that isn’t run by actuaries. They give support to their customers through enthusiastic bee-keepers.

bee keeper

They run an efficient pension savings plan that offers everyone access to quality funds with a minimum of fuss (and cost).

They have the tools to help us bring our pensions together and best of all, you leave their website and app feeling brighter and more confident about your financial future, than when you landed there.

Pension Bee are also campaigners for better retirement savings. They run the Robin Hood index which benchmarks the pension villains against the pension heroes.

Published this morning. Here are headlines from this their third Robin Hood Index.

Pension BEE 3

Research reveals the best and worst of the pensions industry

  • Slowest provider takes almost two months to transfer a pension on average
  • Quickest provider takes less than two weeks
  • One provider charging customers an average annual charge of 62.1%, while another goes as low as 0.3%
  •  Savers still facing extortionate exit fees to move their pension from a handful of providers

PensionBee has analysed the transfer times, average annual charges, and exit fees imposed by 35 of Britain’s biggest pension providers.

Xafinity transfers taking an infinity

The online pension manager analysed a sample of 7,292 transfers to their platform, and discovered that the firm responsible for the slowest average transfer time is Xafinity at 52 days. This is seven days longer than the second slowest company, Now: Pensions, with Mercer, Towers Watson and Aon Hewitt also proving similarly sluggish.

5 slowest transfer times Position Provider Average transfer time
1 Xafinity 52 days
2 Now: Pensions 45 days
3 Mercer 44 days
4 Towers Watson 41 days
5 Aon Hewitt 41 days

Source: PensionBee.

Total sample size of 7,292 from January 01, 2018. Each individual provider has a sample of at least 5 transfers

However, while these providers are still putting up barriers to transfer there’s evidence others are taking a more positive approach, as reflected by the transfer times of Aviva, Scottish Widows, B&CE, Canada Life and Phoenix Life, who all manage to transfer a pension in under two weeks on average.

Now: Pensions are the most expensive annually

In addition to examining transfer times PensionBee also analysed a sample of 1,056 pensions. It found an average annual charge of 62.1% imposed by Now: Pensions – by far the biggest in the study.

PensionBee calculated the charge by adding up all fees, including fund fees, fixed £-based fees and any other policy fees that may apply. In the case of Now: Pensions, a £-based fee of £18 (in addition to a %-based fee of 0.3%) is applied to fairly small pension values (approximately 40% of the pensions in the sample of 91 were below £100).

The result is a high charge as a proportion of the pension pot. Currently these charges are permitted by the Department of Work and Pension’s charge cap legislation.

5 worst providers by average annual charge Position Provider Average annual charge
1 Now: Pensions 62.1%
2 Zurich* 5.9%
3 Aegon 1.1%
4 Phoenix 1.0%
5 Nest 1.0%

* predominantly personal pensions

Source: PensionBee. Based on a total 1,056 annual charges found between June 2017 and March 2018. Each individual provider has a sample of at least 20 observations.

No Robin here

Largely though, a number of providers appear to be operating a fairer fee structure. Legal & General charge the lowest average annual charge at 0.3%, with Fidelity and B&CE following closely with fees of 0.4% and 0.5% respectively.

5 best providers by average annual charge Position Provider Average annual charge
1 Legal & General 0.3%
2 Fidelity 0.4%
3 B&CE 0.5%
4 Standard Life 0.8%
5 Aviva 0.8%

Source: PensionBee.

Based on a total 1,056 annual charges found between June 2017 and March 2018. Each individual provider has a sample of at least 20 observations.

Phoenix Life enforcing the biggest exit fees

As part of their analysis PensionBee also examined exit fees across 5,431 pensions, with their research revealing that 305 had exit fees present. Staggeringly, the biggest was a £12,245 charge from Phoenix Life – who are entirely responsible for the top five exit fees in the study.

5 biggest exit fees Position Provider Exit fee (£)
1 Phoenix Life 12,245
2 Phoenix Life 10,543
3 Phoenix Life 9,413
4 Phoenix Life 9,206
5 Phoenix Life 7,239

Source: PensionBee. 5,431 from June 2017 to April 2018, of which 305 had exit fees.

The research further indicated that the highest exit fees are on with-profits pensions termed ‘market value reductions’, meaning they escape the FCA’s focus and rules for now.

Staggeringly, one Phoenix Life exit fee would eat up 96% of one unlucky saver’s pension – the biggest percentage in the study – with Abbey Life and ReAssure imposing similarly excessive exit fees.

5 biggest exit fees as a proportion of a pension Position Provider Exit fee as a percentage
1 Phoenix Life 96%
2 Abbey Life 69%
3 ReAssure 56%
4 Abbey Life 47%
5 Phoenix Life 45%

Source: PensionBee. 5,431 from June 2017 to April 2018, of which 305 had exit fees.

What’s the big message for the Pension Plowman?

People have no way of knowing where they are incurring costs and how their costs compare.

Of course the Robin Hood Index is only comparing one side of the value for money equation and people need to understand what value they’ve been getting from their pension.

Unfortunately it’s even harder to work out “value” than “money”.

The numbers published in the  Robin Hood Index are PensionBee’s and so are the comments. A more in depth analysis of what you are actually paying might include some hidden fees from transition costs. The value of a retirement savings scheme has to be found from a careful analysis of past performance – and its drivers. There need to be a separation of luck from judgement by looking at both the reward from the fund and the risk taken to get that reward.

The work started by Pension Bee, needs to be picked up by others. People need to be able to look at their pension pot and consider whether to keep it or transfer it to a better pot. People need to know when not to transfer too, which is why the analysis of exit penalties is important. A lot of the high exit penalties shown here, apply only to certain people. The over 55’s for instance, often get an exit-fee amnesty (as a result of Government intervention).

I stop short of saying we need an adviser to help us do this. 94% of us don’t use advisers and – as there aren’t enough IFAs to go round, a rush to advice could swamp them.

The long-term answer is for the kind of analysis started here, to continue across the whole pension genome so people can compare apples with pears without bothering advisers.

And finally!

After that little lecture, here is the PensionBee video, which is well worth watching!

You can find out more about the Robin Hood Index by reading the full report here

You can read the Beekeeper’s own thoughts here

romi savova

Queen Bee – Romi Savova!


Posted in advice gap, pensions | Tagged , , , , , , | 12 Comments

Bill Galvin – on accountability at #USS

Bill Galvin

Bill Galvin

If Jo Cumbo hadn’t mentioned it I’d have missed it. Bill Galvin- erstwhile CEO of the Pensions Regulator and now boss of the University Superannuation Scheme wrote a thought piece on the USS blog – it’s here.

It’s a meditation on accountability.

It’s called  “What should our members think about USS”, which suggests that there’s a right and wrong answer. I’d have thought a more pertinent question would have been “what do our members think about USS?”. In footballing terms, the members are the dressing room and the Bill is the manager.

We all know that there are two sides to the debate and most readers of this blog knows who is on whose side. The management of USS and the Trustee Board are supposed to be about making sure pensions get paid and that means they have to appease both the employers – who sponsor and the members who also sponsor – but benefit from the fund.

Bill sums up his dilemma in very simple and human terms

it is quite clear that the cost of insuring the future is even more expensive than it was at the last valuation, and the risk associated with going against the general consensus on future returns is higher, and so potentially more catastrophic if proved wrong

Though he doesn’t say so explicitly, the “general consensus” almost certainly means a strategic shift to bonds from more volatile growth assets. No manager wants to be out of step with the consensus, unless it is clear that he is the “special one”. Bill does not strike me as wanting to be considered a “Mourinho”.

But nor does he want to be reviled on the terraces. It must be daunting going to work with social media buzzing in your ears. Back in the day, managers were not accountable as members had no voice. University lecturers (the bulk of the USS members) are both vocal and articulate. Their students have been vocal and so have the parents of those students, these are the ultimate sponsors of Universities.

It is normally considered a good thing for stakeholders to participate in  governance. But the debate over the future of the USS has alarmed its management.

It has been alarming, therefore, to see the confusion, concern and distrust that some of the commentary has generated amongst our members

There was a time, when decisions on pension schemes were left to employers and trustees and regulators. There is a hint of nostalgia for this time in Bill’s admission that

Whatever the contributions of others might have been in that outcome, we clearly failed to communicate simply enough, convincingly enough, or from a basis of sufficient trust, to make the key messages clear

What “should”  the members think?

In the phrase “key messages”, I suspect Bill implies “the truth”. USS failed to properly communicate the truth and allowed the commentary to get in the way.

It must be frustrating for USS, who have been candid throughout, to be cast as obscuring the truth. I haven’t read all their communications , but what I’ve read from USS has offered insights into the competing pressures on the scheme.

The frustration must be borne from powerlessness. Ultimately Mourinho is accountable both to the Shed (or the Stretford End) and the oligarchs and may end up pleasing neither.

But I think Bill Galvin misses the point in blaming himself for poor communication. USS has communicated well – factually and for the most part without bias. What he is facing are two completely different paradigms of thought. On the one hand there are people who see USS as impairing the ability of our Universities to function and on the other people who see it as essential to maintaining the support of their greatest asset the teachers. Both views can use the information coming from USS to support their positions- and both do.

It is not the fault of USS’ communications that “commentators” take positions.

Bill Galvin has something of the Gareth Southgate about him. Amid all the noise that is going on around him, he continues to run USS – and run it very well. He will, so long as he pursues this path, have done his job. It is not his job to manage industrial relations or indeed to control social media. His authority, comes from his focus on getting the scheme to work properly. Like Southgate, he can keep smiling whatever the members and employers do. The members “should” thank him for that.

What do the members think?

The University Lecturers think a lot, and they talk amongst themselves on and off social media. They are well organised and have thought leaders of their own – some have written on this blog.

Their views will be expressed not just through words but through actions. Having a son about to start his third year at college who lost a large part of his second year’s teaching, I hope that they will not strike again. But I respect their right to strike on a matter as important to them as how it is they get paid.

What do the sponsors think?

I suspect that those who run universities have been surprised by the depth of feeling among members about keeping their DB scheme open.

As Bill Galvin writes in his piece

Ultimately, our task has been to make assumptions about how the world will turn at a time of significant uncertainty. These conditions have seen the number of private defined benefit pension schemes in the UK that are still open to new members fall from circa 3,500 in 2006 to around 700 today.

Most employers have given up in the face of these challenges.

That UUK has not “given up” is because the members have not let them. UUK is learning from the conversation that is going on. They are reacting not to what members “should think” but what they “do think”.

“A time of significant uncertainty”

It is easy to get lost in the madness of Brexit and the 2008 market crash and consider the last ten years as a “time of significant uncertainty”.

But the fundamentals of Universities remain unchanged, they teach and research and provide the nation with an underpin of learning which is part of the nation’s fabric. There is no reason to think of the uncertainties as being of great importance in that context.

The certainty of reward provided by a Defined Benefit Scheme is in line with the greater certainties that Universities bring us. Ultimately, I think Bill Galvin gets this.

As he concludes

We do not believe that providing defined benefit pensions is impossible, but it must be done in a framework that allows adjustments to be made that ensures the scheme can avoid the worst future outcomes, and sometimes these can involve challenges for certain cohorts of members.

Having read Bill’s blog three times, I am heartened that he will continue to run an excellent scheme, whatever anyone else should or does think!

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

Isn’t it time we thought of pensions as insurance (again)?



Yesterday, I wrote of the positive future that I saw for collective schemes, if they could rid themselves of the pernicious effects of financial economics. I based my arguments on my perceptions of the impact of mark to market measurement of scheme assets and liabilities.

In this blog, I want to step off-stage and look at some of the behind the scenes changes in the way we manage and consider pensions, comparing the financial environment when I started work (early eighties) to today.

The way things were

One of the first things I learned in my training as an insurance salesman was that there were three insurables; people could insure against dying too soon, getting sick and living too long. Occupational pension schemes paid to survivors on death in service, paid ill health pensions and offered early retirement and to those who made it to retirement, they paid a pension which lasted so long as the pensioner and spouse did.

When I sold personal pensions, we were told to offer and often insist that individual life cover and waiver of premium were included in the product. It was taught to us that this is what company pensions did and they did it for good reason. It was the concept of insurance that prevailed.

The way things are

Nowadays, advisers tend not to engage people with the insurables. Most people are in workplace pensions which use “nudge” rather than advice to get people saving. the concepts of integrated health, life and pension cover within an occupational scheme survives only in a few mighty pension schemes which self-insure. For the most part, PMI, PHI. CI and DIS are components of “employee benefit packages”.

The link between your pension and your life and health cover has been broken as has been the link between member and trustee. Very few people think of death in service cover as part of their pension (even if technically it forms part of a pension arrangement). People know that the contract is between them and an insurer – the employer is doing no more than paying a premium.

More importantly, the concept of the employer being financially  responsible for the longevity of staff- has disappeared. One of the things I heard from older members of the British Steel Pension Scheme was the complaint that the company no longer wanted to look after them (as it had their fathers and grandfathers).

Nowadays, many pensioners find themselves being paid not by their employer’s trustees but by organisations they have never worked for- PIC, Paternoster, a range of insurers and the PPF. This is the sad consequence of buy-out or employer failure – either voluntarily or due to corporate failure, the idea of the employer as insurer against old age, has all but gone.

The new contracts – financially engineered.

The concept of insurance as a contract between two parties hasn’t just gone from company pensions , it has gone full stop. Little risk is taken directly by insurers, most is laid off to other (re) insurers or the capital market. Banks now use contracts for difference to take risk on all the promises that used to be made by pension schemes.

It is not the “tail risks” (the exceptions such as those living beyond 100) whose risks are being passed on to banks, the fundamental investment of the pension fund is now supported by a range of derivative products provided by the capital markets, designed to meet the demands of financial economics. The most common Financial Economics strategy is Liability Driven Investment which is a way for companies to invest more than they’ve got to get more bonds. But almost every new idea that is touted by the investment consultants contains some exposure to “structured products” – artificial constructs designed to protect trustees from perceived risks.

This movement away from directly invested assets into structured (or artificial) products, puts still more distance between the employer and staff. It is now the trustee who is responsible for investment decisions (though most trustees struggle to explain what decisions they have taken).

The struggle to understand

I have sat in trustee meetings of some great pension schemes, in which all but a handful of the people in the room have any idea what is being decided upon. The few who know are typically on the sales side and this asymmetry of information is deeply worrying.

It may be that a bank may be offering fair value on a longevity swap, but if there is no understanding of what fair value looks like, how can any of the buyers be sure. This worry was shared last week by the Competition and Markets Authority who showed how Fiduciary Managers are almost totally unaccountable for what they do, partly because they have outsourced the skillset that trustees had, to know what was going on.

The same phenomenon is going on in personal finance where, having abandoned pensions for wealth management, insurance for investment and products for platforms, people are now further away than ever from the fundamental reasons they invested their money.

It is all too easy for us to consider pension freedoms as the freedom not to consider pensions and we are easily beguiled by the wealth management into considering our pension pots as a tax-advantaged means to create and maintain wealth, rather than as an insurance against old age.

Into this world of mysterious tax-planning arrive the banks with various structured notes that – as with company pensions – create artificial solutions to problems we might never have thought we had.

The more complex the better – for some advisers – who find such structured products ideally suited for them getting paid.

Everywhere we look , we find financial economics being used as an excuse for those with a little knowledge to sell expensive and incomprehensible products to people who have lost confidence to take decisions for themselves. It is difficult not to conclude that this was the point of adopting financial economics in the first place. It puts a small group of experts in charge of a large amount of our money and it gives them the keys to the fee-extraction machine.

Transparency is key

I am constantly being requested by the Financial Economists to read long and complicated books to understand what they are about. I resist doing so partly because I am not good at maths, partly because I am time poor but mostly because  I don’t see why I need to become an expert in something that is trying to replace something that works perfectly well.

The basic principles of an occupational pension scheme are understandable – even to a non-actuary like me! The concepts of prudence, asset matching, liability management and discounting are not beyond even my poor mathematical brain.

I can understand why it is sensible, efficient and safe to keep collective pensions open and why closing them is not good news. I understand why collectives can provide insurance again insurables in a way that individuals can’t and I thoroughly get economies of scale created by employers pooling assets and risk under the oversight of trustees.

Why can’t we go back to the good old days when we could see what was going on, accept risks for what they are and use our best endeavours to insure each other against living dying too soon, getting too sick and living too long?

Posted in Blogging, customer service, pensions | Tagged , , , | 2 Comments

Ros Altmann’s right about dashboards.

Ros new

It’s good to see Ros Altmann contributing to the debate on the pension dashboard – it’s particularly good that she chose to do so on this blog. (comments). For those who don’t press links – here’s what she has to say

Dear Henry

I do agree that it was never realistic to expect the Government itself to fund Pensions Dashboard.

However, I do believe it should funded – by the pension providers who should be required to enable customers to see all their pension savings in a standard format, in one place.

That will involve plenty of work of course, but what seems to have been forgotten too often in this debate is that pension providers receive billions of pounds a year in both tax relief and pension contributions, courtesy of the taxpayer.

Having received so much money over so many years, surely it is not unreasonable to ask them to invest in serving their customers better, ensuring their pension data is reliable and secure and funding a dashboard.

Expecting the Government to pay for this seems unreasonable – but Government should and could facilitate it. Requirements for providers to upload data, for example, would help. I can’t see DB getting on a dashboard any time soon, but DC auto-enrolment pensions should be on there at the very least.

Pensionsync could actually develop an independent dashboard, but it needs funding.

You are doing great work Henry, helping to explain pensions to people.

Thank you.

As it happens, I helped the Sun set up its super non-digital pension dashboard yesterday, helping Dan Jones and Harriet Cooke to explain pensions to millions of people who read that paper.

Paul Lewis had a bit of fun at my expense


Well he has around 15 times more followers than me so the “Lewis empire” not to mention the “Altmann” empire are what really matter

Pensions need to be explained for what they are and the Lewis’ and Altmanns are there to do it!

And they could do worse than cut out and keep the Sun’s simple

“eight point plan to show what your retirement pot is”

the sun.jpg

Not for the first time – Ros is right

Although I am always disagreeing with Ros, we agree on the main things, which is that older people need pensions to replace their income lost when they get too tired to work and set off on the longest holiday of their lives.

That they do so without a dashboard, a steering wheel -let alone some financial satnav – is a scandal.

The pension industry has the money to build the links and organisations like pensionsync have the capacity to deliver the kind of information that the readers of the Sun need to manage their money through their later years.

I suspect that most of these people will have access within a decade to collective schemes which can give them a wage for life by pooling their savings and providing them with an insurance against them living too long.

Those who prefer to have a huge capital reservoir from which they can drawdown, will be able to do so from a single well managed pot – provided we can get “Go Compare” into pensions. We need a pension aisle in the “Money Supermarket” so we can compare the pensions market as we do those for other insurances.

We need to protect the vulnerable (that’s most of us!)

The financial services industry does a good job of looking after the 6% of us who take financial advice but little for the 94% who don’t.

The story of Peter Lord in the Times this weekend, echoes those of decent people in Port Talbot and round the country whose trust has been abused by a handful of advisers.

Those advisers are the product of a system that does not do enough to help ordinary financially vulnerable people from being scammed. I am not talking here about making people financial economists, but of giving people the basic tools to make good decisions for themselves.

Digital dashboards that take people along the journey laid out by the Sun’s Mr Money, are what’s needed. We don’t need to wait for a big puff of smoke from the DWP to do this kind of work, we can get on with it right now.

Protecting the 94% of us who don’t have financial advisers from making bad decisions is more important than worrying about who does what. The 10m new pension savers who auto-enrolled and are seeing their pots swell as contributions increase, want more than they are getting.

So Ros Altmann is bang on the money in joining PensionSync. That’s precisely the kind of organisation that can put us back in touch with – and control of – our savings.


Posted in Dashboard, pensions | Tagged , , , , | 11 Comments

What have we to lose from CDC?

This article was first published in Professional Pensions.


Machiavelli’s commented thatthere is nothing more difficult to carry out nor more doubtful of success nor more dangerous to handle than to initiate a new order of things”.

For the DWP to enable Royal Mail to offer its 141,000 workforce a DC pension that pays a wage for life undoubtedly falls into the “new order of things” category and is confirming the dictum.

The criticisms of CDC range from IFAs who call it “with-profits in disguise”, through policy makers worried it carries with it risks of inter-generational unfairness. Add to this worries about nuts-and-bolts issues on scheme communication and it’s not hard to see why regulatory progress since Pensions Act 2015 has been so slow.

These are valid challenges to CDC. If CDC cannot demonstrate that it can be more transparent than with-profits, that it insures across rather than between generations and that it has proper nuts and bolts– it will fail. The next 18 months will determine whether the abstract arguments for CDC can be turned to practical application.

That the Work and Pensions Committee announced an inquiry into CDC while Royal Mail and CWU were finalizing their Four Pillars agreement is unlikely to be a coincidence. As their final report puts it, the agreement

As well as being a model of constructive industrial relations… opens the door for CDC to move from abstract idea to practical reality. This could transform the UK private pensions landscape”

The Committee calls on Government to open the door not just to Royal Mail but to “accommodate mutual, multi-employer and standalone schemes”. The Committee hints at a broader vision where CDC pensions become a default investment pathway for people transferring-in DC pots. It specifically talks of CDC as a means for the self-employed to provide themselves with a replacement income in later life.

This is precisely the innovation that the FCA has been calling for in its retirement outcomes review and it is unfortunate that the Committee’s report was not published prior to the FCA’s review’s findings.

The FCA will no doubt be looking with interest at the Royal Mail solution in the light of its finding that 94% of us are not taking financial advice on retirement affairs. The simple choices for members around CDC (to join or not to join), make such schemes attractive to the silent majority who are showing no aptitude for or interest in engaging in pension matters.

The advantages of open collective schemes are also evident in investment strategy. Since CDC schemes would remain open across generations, they could invest in patient capital projects with commensurate benefits in terms of investment performance.

The long investment horizons encourage the kind of investment strategies that characterised the early days of Defined benefit investing when the emphasis was on buy and hold growth strategies rather than liability matching. The implications for our wider economy of collective schemes returning to these principles appear entirely beneficial.

Finally, and most intuitively, CDC makes sense as a means of solving one of the most intractable of economic problems, the money to set aside to provide yourself a wage for life. Pooling longevity risk creates a mutual settlement that eschews both “boring” annuities and “scary” drawdown

All of which, begs the question, just why is this “new order of things” getting such a lousy reception?

Is it, as Machiavelli supposes, that

“the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order; this lukewarmness arising partly from the incredulity of mankind who does not truly believe in anything new until they actually have experience of it”.

Posted in pensions | 2 Comments

CMA investment probe shock; the big three breathe again!

icarus 2

The fallen Icarus – wings clipped when he flew too close to the sun

It shows the distance between the consumer and the investment consultant that all but a handful of readers will know what this headline refers to. To the general public, the Competition and Markets Authority’s probe into the opaque world of investment consultancy is an irrelevance. Fiduciary Management – quoi?

But of course the CMA referral of investment consultants  by the FCA was and remains massively important. It trims the wings of a small coterie which had lost accountability, assumed invulnerability and were pretty well unsupervised.

The 300 page report into the matter, published yesterday, is considered a major event by the coterie, though it’s a bit of a yawn for the rest of us.

The High and Mighty got off lightly

The headline sanction (remedy) was to have been the break up of the oligarchies at Aon, Mercer and WTW so that the consulting and investment management businesses operated independently of each other. The CMA thought better of this, no doubt under considerable pressure from the various lobbies within this arcane world.

I’m not overly fussed, so long as these businesses recognise that pension schemes are customers and not cannon-fodder, the CMA will have done its job.

The sanctions (remedies) that they are recommending include some tough asks. Investment Consultants will not find the FCA an easy organisation to be members of , they ask awkward questions and have a habit of closing you down if you don’t do what you should.

I’m less impressed by the sanctions (remedies) on the buy-side. At the heart of the problem, is that consultants have trustees in their pockets. This is no longer as overt as it was (not so long ago – corporate hospitality had choked any separation like Japanese knotweed). Nowadays, the thraldom is more subtle (though no less insidious). One consultancy has set up a social media website for trustees which gives them the opportunity to go to “university” to discover the complex products provided by investment manages over a posh meal.

The implication that such products need a university education is flattering to trustees who can – at least for the five courses- believe themselves part of the elite with whom they dine. But do we really need a degree in astro-physics to design and operate an investment strategy for pension scheme members?

The CMA should also be looking at pension trustees and helping them to raise their game. The investment consultants didn’t get where they are today without their being real problems on the buy-side (NB -tPR).

Hubris and how to avoid it!

My view is that investment consultants have elevated their profession to a level that it has assumed Olympian powers of intelligence . The reality is different and the CMA have chosen to treat investment consultants, not as numeric Gods, but as mere mortals.

Perhaps this is for the best. Some of the people at the top of the investment consultancies are really good blokes, reading the report, I get the impression that during the investigation, some pennies dropped. I suspect that the best work of the CMA was in helping the good guys down off the pedestals they never really wanted to stand on!

Vertical disintegration

One of the central themes of the investigation was the conflict created by consultants who considered they could be rewarded from the funds they managed. This practice is well known to lesser mortals (IFAs) who have been struggling to get paid in much the same way. IFAs can still be rewarded from the funds they manage through a process they call “virtual integration” and they justify this by claiming their interests are aligned with their clients. If funds went up and down because of the influence of advisers, then I’d accept this argument, when the funds are tracking markets, this makes less sense.

So with investment consultants. Their seems little accountability for the influence the strategies they recommend (or implement) in the reward they receive. Where consultants are paid on an ad-valorem fee from the fund, the quantum of the fee is set high enough that a reasonable profit can be assured in a bad time and when times are good – the investment consultants are in clover. While investment consultants are keen to explore “risk-sharing”, it is very rarely they who share the risk!

Breathing again

It could have been so much worse for the big investment consultancies and they know it. The FCA may be feeling that they may have rather over-estimated the size of the problem. Take for instance the FCA’s dismissal of consultancy master trusts

I would agree with the CMA and probably with most of the public. The activities of investment consultants just aren’t as important as investment consultants think they are!

Perhaps this is a lesson learned. For once, the investment consultants have not been puffing themselves up but breathing in. Instead of exalting their  intellects, they have been reminded of the fate of Icarus, who – flying too close to the sun, found his wings melting and him falling fast to his death.

The moral of Breughel’s great painting is that while this matter of Olympian importance was going on, everybody else carried on their business as usual.

Maybe the most important thing for investment consultants to learn from this report, is that they’re really no different from anybody else.

icarus 3

Icarus falling – business as usual?

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The loneliness of the long-distance saver


My heart goes out to Jo Cumbo as she pours over her provider statement. Jo is on the employer governance committee for the FT’s own workplace pension (I won’t mention the contract provider but it’s a household name).

Here she is on a Saturday afternoon, fulminating

Jo 4

Her frustration leads to her questioning what she’s in this contract for

jo 3

She considers the user journey for customers like her and calls it a “faff”

jo 2

and she concludes that workplace pension providers have a long way to go to offer a happy experience for long term savers.

jo 1

Let’s be clear, Jo is in a group personal pension offered to one of the most prestigious employers in the land by a provider selected with due diligence. But she is left to deal with her pension issues with minimal help.

There is a problem here , let’s call it the “loneliness of the long distance saver“.

Bots are not enough

I have not drunk the techno Kool-aid and I do not think that putting rubbish information on an app will turn this around. I don’t think that offering a “bot” with a friendly name, will cure the loneliness of the long distance saver.

But it is a start. If pension providers cannot – by now – present information from their systems on somebody’s phone, I will. I’ll be your bot!


And if anyone is interested enough to view the full list mentioned at the bottom of this screen, I’ll allow them to compare one workplace pension with another

number 2And if anyone asks what those numbers in circles are doing, I will explain. They are created using an algorithm that compares the value being given  with the money you are paying for the fund and contract. It’s not hard to understand that.

Why so lonely?

Jo is not alone, there are 24.9m people who went to the Money Supermarket, only to find there is no pension aisle there!

There’s no Go Compare Pensions or Compare the Pensions Market either. If Jo currently wants to compare her workplace pension with everybody else’s , she’ll probably have to commission a piece of work from her firm’s employee benefits adviser.

Why are we making it so hard for people to find out the value they are getting for the money we are paying?

The IDWG has sent its report to the FCA, the FCA are ruminating on a template that will tell us how much we are paying for our fund management. A similar template is needed to work out how much we are paying for our pension contract (the platform on which funds sit).

It’s been a long time coming- but change is going to come. At some point in the future, what is now available to institutions, will become available to Jo and the millions like her.

I intend that that future is sooner rather than later!

The long distance saver

It is a long race till you get to your tipping point when you start spending the money you’ve been saving over the years. As a 56 year old, I can tell you that the closer you get to that point, the more you care about your money. Two reasons for me-

  • there’s more of it
  • I  can spend it as I want

But as Jo’s second tweet properly puts it,

“if customers too stupid to understand fund performance, why is this company flogging drawdown to them?”.

The long distance saver is not only ill-served through the saving period, but they’re given no help in preparing for “spending”.

Hundreds of thousands of people reach 55 each year, clutching the pieces of paper that Jo has to work on. They may have ten or more setts of papers, all of which will talk at length but say very little. As Laura puts it…



People like Laura and Jo deserve better, they deserve an independent evaluation system that is the pension aisle in the Money Supermarket, they deserve to have the pension genome mapped with the same rigour as we mapped the human genome. Pension DNA should be analysed and from our understanding of it, we – the industry – should be able to produce a single number for everything  that tells us what we need to know about value , money, engagement and the exit costs if people have had enough.

It really is time we got some movement on this! I look forward to giving regular updates on how I’m doing. It won’t happen overnight – it will still be a long time coming – but change is going to come!


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When we “de-risk” – where does the risk go?


When you do the washing up, you leave your plates clean, the dirt gets washed down the sink. The same when you change the oil in your car or when you go to the toilet.

What happens is that all the waste flows into sewers and is either recycled or pollutes.

We have got used to the idea that we can flush away our problems because we are confident that we have infrastructure which is coping with the environmental stress we cause by throwing things away.

In financial circles, this is called “de-risking”.

Most of us are familiar with the term “de-risking”. It is (for instance) what a pension scheme does to remain viable. There are many sources of risk in a pension scheme, but when you get rid of one risk, it tends to pop up elsewhere. That’s why the Pensions Regulator talks of an “integrated risk management framework” (IRM).

There is no talk in the IRM of where the risks go – when they are managed out of the framework. The Pensions Regulator has a statutory objective to protect the members, so there is little in the IRM document to suggest that it is the members who are being asked to accept future and present risk.

For IRM to be effective, there must be less aggregate risk in schemes, for that to happen – there must be risk transfer. If has been assumed that risk transfer will occur, but that it will be through insurance companies buying the risk out at the full buy-out cost.

There is one way a pension scheme can get rid of risk for good, and that is to transfer it out. The IRM assumes this is through buy-out – or through the PPF.

But in practice it has typically been  the  member, who takes that risk away for good. So long as the member takes away his or her own risks voluntarily and is properly rewarded, there is no problem with this. The cost of an executed CETV to a scheme (and so to the employer is considerably less than the cost of buying out the benefits.

Schemes really benefit from CETV transfers – at least when a CETV transfer is properly executed. Latest figures from the ONS (see below) suggest that three times as much risk was transferred out of pension schemes last year through CETVs – than through organised buy-out. This has been a rare windfall for the IRM Framework.

There is however a snag.

Last year, the FCA noted that these transfers were not being properly executed, in one sample they reckoned that 53% of the transfers executed were problematic. In another survey this year , they said 30% of the transfers they looked at – shouldn’t have happened.

This week, we learned that the total transferred out of Defined Benefit private pensions was considerably higher than even the ONS’s provisional estimates at the end of 2017.

ONS Q1 2018

ONS MQ5 updated June 21st 2018 (table 4.3)


That’s an almost sevenfold increase since 2014 and £2.5m higher than the previous 2017 numbers.

The amount of de-risking to individuals is even more remarkable when you look at the quarterly breakdowns.

ONS transfers Q1 2018 2

ONS MQ5 updated June 21st 2018 (table 4.3)

Quarterly transfers have risen every quarter since the start of 2016 and in the first quarter of 2018 reached an astonishing £10.62bn -more than four times the 2016 equivalent!


So where has all the dirty water gone?

The dirty water (aka risk) has left the engine/sink/sump/toilet and the risk (good and bad) is now with the members of the pension schemes.

We don’t have accurate data scheme by scheme. I was told by a Government official on Wednesday that 8.500 members of the BSPS scheme had left the scheme, Jo Cumbo reported 7.500-8,000 yesterday and the last time I spoke with BSPS Trustee, the number was around 5,000. Until recently BSPS were reporting the aggregate transfer as up to £2bn, with average transfers over £350,000, we can suppose the amount transferred over £3bn. At least 20% of the membership with transfers chose to transfer and to take on the risks previously managed by BSPS Trustees.

That risk is now with members and is being managed in SIPPs by IFAs. Some may be being spent, but IFS stats would suggest that there is greater risk of hoarding than over-spending. People have taken on the risk not just of how to invest the money, but how to spend it – without spending too much or too little. Which is fine – so long as they know that these risks are for them “good risks”.

John Ralfe has queried the concept of a “good risk”. I would say that you would take the risk of managing your own pension if you had a different plan to consume the transfer than to replicate the CPI pension +spouse, offered by the scheme. If you wanted to spend it faster, or not to spend it al all, then you are in control of the money and can manage the risks yourself. The risk is a “good risk” to take.

No IFA who advises on transfers would ever say his or her client took anything but “good risk” when transferring. Yet the FCA remain unconvinced and so do the PI insurers.

The dirty water – good risk and bad, has been taken on by members and only time will tell how much of that risk was “good” and how much “bad”,

An update on what is going on to counter the transfer of bad risk

In the meantime, the TUC continue to report of “factory gating” by IFAs (Tideway and SJP named), the Pensions Regulator’s CEO accepts that members may not have been properly protected under the IRM and now the FT can reveal that it both the Pensions Regulator and the FCA are providing support to at least 8 large occupational  schemes whose members  under pressure from “rogue advisers. Being the partner of the Group Pensions Director of one of those eight, I can testify to the story’s validity!

Neither the Pensions Regulator , nor the FCA appear to be convinced that members are being properly protected. Yesterday morning I sat in a room with Lesley Titcomb and Margaret Snowden and Michelle Cracknell, all of whom spoke effectively and passionately about how to protect members going forward – from pension scams.

The output under discussion was the updated “Combating Pension Scams – a code of good practice”– published by Margaret’s Pension Scams Industry Group (PSIG). I am going to do my best to make sure this is on the desk of every pension manager and pension administrator. It can be downloaded from

The risk doesn’t go away – it just gets re-allocated

In the IRM, the idea is that risk is transferred to the PPF or insurance companies.

But in practice most of it gets transferred to ordinary people , many of whom would be regarded as financially vulnerable and not able to understand the risk they are taking on.

This is happening at an ever increasing rate and everyone is agreed that members are not being properly protected.

Organisations such as tPR, FCA and PSIG are doing their best to combat the unacceptable face of transfers – SCAMS.

But the root problem is not being addressed and will not till we have proper regulatory action.

We must stem this devastating risk transfer by banning contingent pricing and implementing other recommendations in FCA 18/7.

Trustees must be more aware of what is happening with their members and work with tPR and FCA as is happening with the eight schemes mentioned by Jo Cumbo.

Scheme administrators must must adopt the must adopt the good practice laid out in Combating Pension Scams; a code of good practice (v2 -22/06/18).

Finally, we must find a way for IFAs and trustees to work more effectively together. I would urge anyone interested in how this can be done to join me and Al Rush at the Aberavon Beach Hotel on July 10/11 for the Great  Pension  Debate (2),

Tickets to this event are free, and can be obtained here.

pension debate

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Is calling a CDC pension a “wage in retirement” dishonest?

Royal Mail 4

I got home from a fine evening with David Byrne at the Apollo, to a surprising assault from John Ralfe. It’s not surprising to be verbally assaulted by John on Twitter, but it was surprising that John, who had been watching England thrash Australia had initiated hostilities so late into the evening. Here’s the challenge he laid down.

I am not sure why I am to be held responsible for the “wage in retirement” label, but I think John and Sam Pickford have got this wrong. I have been at various events where the CWU and Royal Mail have explained what they mean by “wage for life” and it has always been made clear to postal workers and everyone else that a CDC pension is not guaranteed in the way a DB pension is.


I have spoken to a number of postal workers and – without exception – they are clear that what they will be getting will not have the guarantees of a DB pension. But there is an expectation that 100% of whatever is distributable, after expenses , will be paid to members and an understanding that this is a risk sharing arrangement where postal workers can do well in a positive market and not so well when investment conditions are bad. Indeed , certain underlying assumptions in a CDC scheme – such as the mortality of members as a whole can change , leading to lower or higher outcomes than predicted.

If John and Sam don’t think that this has been spelled out to members, they are wrong. They should be careful accusing the CWU , Royal Mail or anyone else of dishonesty.

Lack of Transparency?

The debate on CDC is being conducted in a most transparent way. The Friends of CDC have a linked in group for people who want to see regular updates on the progress of CDC regulations and discuss (as Kevin Wesbroom and Con Keating do in yesterday’s articles) aspects of CDC which are causing confusion.

We (collectively), are trying to help the discussion along and are happy to be challenged by John, Sam and anyone else.

I can’t think of any other debate on a major pension policy debate, that has been so rehearsed in public than this one.

It is very odd to be accused of not supplying nuts and bolts, when Aon has made its modelling public, First Actuarial has published numerous documents on the CDC model and the Royal Mail, DWP, WTW and CWU have accepted every opportunity to speak about how the scheme will be run.

There is a limit to how much detail people can go into, since nobody but the DWP can decide on the regulations needed to make CDC happen for Royal Mail and it is not sensible for the Friends of CDC to second guess what DWP come up with. In terms of nuts and bolts, we have to remain at the stage of the structural architecture , until we have the floor plans delivered to us.

I have many calls by John Ralfe, to deliver a two or three page document, outlining what CDC will mean for members; clearly such a plan would be speculative and it could lead to members being misled. I do not speak for DWP, nor does the Friends of CDC, nor Kevin Wesbroom. We cannot be transparent about the rules until the rules are published.

“A wage in retirement”

Royal Mail and CWU have agreed to call the new CDC scheme “wage in retirement”. It is a precise wording that relates to postal workers.

There is a difference between a wage and a salary, a salary is paid whatever the conditions, wages are dependent on the input and a reward for time spent. The wage a postal worker will get will be linked to service and the wages he or she earns prior to retirement.

Wiki contrasts wages and salary like this

Payment by wage contrasts with salaried work, in which the employer pays an arranged amount at steady intervals (such as a week or month) regardless of hours worked

The idea of a pension as deferred wages or a “wage in retirement” is generations old. Generations of postal workers have worked on the assumption that a lifetime of service would lead to a retirement wage based on a formula.

This construct has been challenged in most workforces, but not at Royal Mail nor in the public sector nor for many university employees.

To call such a construct dishonest, is to belittle the contract between workers, management, shareholder and taxpayer that has withstood many changes in politics and economics.

It is also to belittle the three pillars agreement reached between unions, Royal Mail and workers in which 90% of CWU members voted for a Wage in Retirement.

It is a great insult to the CWU and Royal Mail as it suggests that they have been dishonest in the representation of the CDC arrangement. This is not how Frank Field and the Work and Pensions Select Committee saw the evidence given by Royal Mail or CWU, nor is it how the Pensions Minister now talks of it, nor how the DWP talk of it, nor how the market sees the agreement.

Royal Mail’s share price has recovered subsequent to the Three Pillars agreement, recovering to the tune of £200m, Royal Mail is returning to the leading group of UK employers and the market continues to see the negotiated settlement as a positive.

In short, if Royal Mail and CWU are pulling the wool over people’s eyes, then they are fooling a lot of very bright and experienced people.

There is nothing dishonest about a “wage in retirement”.

The promise that is being made to Royal Mail workers is of an open collective scheme which is sustainable. The alternatives – an unsustainable DB plan or an unsatisfactory DC plan were not sustainable.

The CDC plan’s sustainability is based on assumptions agreed by Royal Mail and CWU but also by their advisers, First Actuarial, Aon and WTW. Considerable modelling has been done and continues to be done to ensure the structure of the scheme is as fair as it can be.

Any collective scheme , covering 145,000 workers, is likely to get it wrong some time. The trick is to minimise these occasions and maximise the advantages.

While all this is going on, the rest of the British workforce struggles on with the stark choices of drawdown (typically unadvised) or annuity (typically unloved) or of cash in a bank account (typically dissipated). All the noises are that people are having difficulty converting the cash sums they receive from their retirement savings plans, into a wage for life.

This process of converting a cash sum into a wage for life has been called the hardest, nastiest problem in finance. It is a problem we are presenting to hundreds of thousands of people reaching 55 , each year. We are giving them precious little help. It could be called dishonest to call this “pension freedom”.

I don’t call it dishonest, because the people struggling to find solutions to this – are doing so honestly. One way of sorting this problem out is the way that Royal Mail has chosen, to do things collectively.

I think that John Ralfe and Sam Pickford are doing Royal Mail and CWU a great dis-service in their comments and I think they are insulting the 90% of CWU members who voted to have a Wage in Retirement. John seems to be delivering the responsibility for all this at the doors of myself and the Friends of CDC, which is quite wrong.

The abuse of a soapbox

John has a number of outlets for his views, most notably the Times. He has done great work providing technical help to British Steel workers and commentary on a number of recent pension problems.

He has a deep understanding of his area of economics.

But he is abusing his soapbox by calling us dishonest. John has called me and First Actuarial dishonest so many times, he may think he has precedent to do it many times more. He does not.

Simply repeating a falsehood, does not turn a falsehood into a truth.

The use of a wage in retirement

The phrase “wage in retirement” is now in common parlance, and not just among Royal Mail postal workers. It resonates with ordinary people who have always talked about their pay as “wages” and it resonates with ordinary people who have looked forward to stopping working and having a “retirement”.

There may be another type of people who don’t see the need to stop working (they may not have lugged around sacks of post for decades) and these people may regard their way of getting paid as “salary” or “total reward” or something like that.

But “wage in retirement” is a phrase that explains a CDC pension well to postal workers. To call it dishonest is a nonsense, and very insulting.

There is more that unites than divides us

like cricket!

JR Cricket


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Why pensions are turning green


In an important consultation paper, the DWP has reversed its previous decision not to legislate to force pension scheme trustees to “go green”.

Rather than rely on the Pension Regulator’s guidance, the Government now intends to require the trustees of pension schemes to take account of financially material risks of the Environmental, Social and Governance kind in their investment strategy.100

If this sounds a little wishy-washy, the DWP makes it clear that for  schemes with more than 100 members, Trustees will be required to have a stated policy on stewardship (the exercise of voting rights and influence on the management of investments). What’s more DC Trusts (where the member’s are taking the risk) will need to publish their Statement of Investment Principles (SIP), alongside their statement on the costs and charges of a scheme, on a website. The SIP will need to be accompanied by an implementation report that tells members how the trustees got on with doing what they said on the packet.


The Law Commission recommended in its 2014 report that pension schemes adopt ESG but the Pension Regulator’s guidance has led to “confusion and misapprehension” among trustees. It would seem that – left to their own devices, trustees ended  up doing nothing at all.

So the stick is now being brought to bear, rather than the carrot. The Law Commission had established two principles

  1. That trustees should be prompted to action by concerns of members
  2. That their actions implementing ESG should not cause financial detriment to members

The “confusion and misapprehension” was around both principles. Trustees didn’t know what members thought and did nothing. Trustees did not understand the consequences of intervening on ESG, so  did nothing.

In discussing why the Government thinks these new measures will help in solving this confusion, the consultation points to considerable research (including the recent DCIF research from Ignite published on this blog)  that points to considerable public awareness of the importance of ESG (or responsible investing as I’d prefer to call it).

Infact 61% of the people interviewed by Ignite assumed that responsible investment was part and parcel of what a pension scheme did.

It would appear that most members are clearer about what they think the trustees should be doing, than the trustees!

Which is why the Government are effectively telling trustees to get on with it. I agree with the Government, I just wish we’d taken this stance four years ago (most of these measures will not be up and running until the next decade, but relative to the implementation of the new AE regs, this is lightening quick!

Does this go far enough?

Much of the paper discusses the balance to be achieved between driving “ethical” behaviour and financially responsible behaviour. The DWP conclude that they do not have the right to decide what is ethically right and impose this on trustees. For instance the new rules would short of requiring trustees to have a policy on positive social impact,  this leading to confusion and disputes that could get – well – political!

However, where there is clear evidence that poor environment, anti-social or weak governance is causing financial loss to members, the trustees will – in future – be required not just to state they will reduce the risk of loss  but also to report on how they got on in implementation reports.

Much as I would like to impose my ethics on everyone else, I recognise that this is not my job nor the Government’s job for that matter. I think that the Government has got this right and though I’d like to see trustees responding to pressure from members to push boundaries on things like social impact, I don’t think that ethical policies can be delivered top down. Not without some fair criticism of trustees for paddling their own canoes.

What is the financial justification for introducing ESG?

The paper is clear that there are occasions where there will not be an onus on trustees to implement an ESG approach

  1. Where the scheme is smaller than 100 members and can’t find resources or the clout to make a difference
  2. Where a scheme is winding up, and the short time horizons mean that the cost of implementing change can’t be justified by the positive impact of ESG over time

But for the majority of Pension Schemes – especially DC schemes, the new rules can be justified because they reduce the wrong kinds of  financial risks being taken by members.

Here we come to the philosophical heart of the paper and that part that I find most interesting. If trustees are exercising their duty to protect members (one of the Pensions Regulator’s Statutory Objectives for them, then they should be protecting them from the financial risks surrounding ESG.

This begs the question -what risks? There is an increasing body of  evidence that shows that pension schemes can reduce volatility and increase returns for DC members by adopting ESG principles.

However, trustees can choose to ignore this research and decide that ESG factors are not for them. To do so, they are going to have to say why in their statement of investment principles and revisit those principles year on year to prove they are still right.

This will be very difficult for trustees to do. They will have to justify this stance not just to the member, but to the Pensions Regulator and finally to themselves.

Ultimately , the risk of not implementing an ESG policy and stating what it is to members in a public way, will outweigh the risk of doing it.

This is what this consultation is saying and I would be very surprised if many trustees contested it.

What is the political justification for this intervention?

Government has signed up to the Paris Accord. Britain is committed to lower emissions and the prevention of harmful climate change. Like governments should, it is interested in good governance and of course it encourages positive societal change.

Pension funds are long-term investors in the assets and organisations that influence our capacity to improve behaviours. It would be great if our trustees were able to adopt and encourage these behaviours themselves, but attempts so far have ended in “confusion and misapprehension”.

This consultation is about resolving confusion and making it clear what trustees should be doing. It could go further, but I suspect it would not take trustees with it. As it is, I think it is what is needed, when it’s needed and I’m very glad it has been published.

I hope that the FCA read it properly – and indeed their IGCs.



green 3

Good article on this in this morning’s Guardian (no paywall)

Posted in advice gap, IGC, pensions | 4 Comments

AE Pots must follow workers (Hargreaves Lansdown’s right)

HL Workplace solutiosn

I have just read a policy paper in my hand from Hargreaves Lansdown;  “Putting Individuals at the Heart of the Pension System”.

After some pretty dire submissions to the Work and Pensions Committee on CDC, I hadn’t thought to agree with HL on much, but I do like this paper.

I would link it to the blog  but it doesn’t appear to be linked to its website and it’s too long for me to post. I have a PDF yours – if you mail


New technology – new ideas

Hargreaves Lansdown has, for some time, been looking to adopt new technology to put the individual in charge of their money (and prevent “pot proliferation. In November, they announced they were working with Tex and Criterion to help people move money around the system.

Now they are calling for the adoption of this new technology to allow employers to clear contributions to the workplace pension of the member’s choice – rather than the employer’s choice.

As Hargreaves Lansdown put it

If we forced employees to change their bank every time they changed jobs, there would be an outcry, yet this is what auto-enrolment does with their pensions.

Their’s is a good idea. Employers – especially small employers – are showing little appetite for governing their workplace pensions and are simply sticking to the compliance code laid down by tPR – ensuring they get the right contributions to the workplace pension in a timely fashion.

The Pensions Regulator is showing little appetite to educate employers that not all workplace pension are the same and has – consistently since 2012 – adopted a neutral stance to workplace pensions. Not all workplace pensions are the same, some are better than others and some suit some members better than others. For instance, Hargreaves Lansdown’s workplace pension is as different from NEST’s as chalk is from cheese.

Since the members get the workplace pension they are given, they have to make the best of it. But if they find they are in one they like – they can only rely on employer sponsorship as long as they stay in the current job. Once they join a new employer, they are into a new workplace pension – and it may not be to their taste.

This is hardly optimal. If we want members to “get to know their workplace pension”, why can’t we allow them to take it with them to their next employer?

workie 4

What Hargreaves Lansdown is actually saying…

Hargreaves Lansdown proposes the existing auto-enrolment system should be preserved as it is, with employers selecting a default scheme, enrolling members and making contributions on their behalf. All the current defaults would remain in place. Nothing would change or be taken away from the existing system.

For disengaged members and those without an existing pension, the system would continue exactly as it does at present.

However, an individual who has an existing auto-enrolment pension from a previous employment or who wishes to make an active choice regarding their pension provider, would have a right to choose that arrangement in preference to being forced to join their new employer’s scheme. They would have the right to have their new employer’s contributions paid into the pension of their choice, along with any of their own contributions deducted from their salary. (HL Policy Paper May 18)

There are of course barriers to managing this. Payroll has struggled to come to terms with the new employer duties for auto-enrolment. Despite most employers complying, we know there are areas of non-compliance.

The Pensions Regulator will warn Government that introducing the increased complexity inherent in HL’s proposal, risks some payrolls falling over with the extra burden of administrative complexity. What I and Tom McPhail might argue for at a pension policy level, payroll and tPR might argue against, from the employer’s perspective.

Most payolls are progressive

Talk to Sage about Sage DX and they will tell you that they can already clear – using APIs – to most of the major Auto Enrolment workplace pensions.

Other payrolls such as Star, QTAC and Xero use the pensionsync system, which is effectively a means for smaller payrolls to adopt clearing through a third party.

There may be resistance among other payrolls for whom API data clearance is harder and less readily adopted, but BASDA could take up Hargreaves Lansdown’s policy paper and respond to the challenge..

In my view, we are not far from being to implement clearance, especially if clearance was restricted to providers who committed to common data standards

Sorting tomorrow’s problems now – not later

In the early years of auto-enrolment, when the fear was that the data transfer system employed by most providers was clunky, insecure and prone to error, common data standards could be introduced that made payroll uploads to workplace pensions as simple as RTI.

PAPDIS was an industry initiative designed to provide a common data standard to enable this to happen. Some software has adopted PAPDIS but sadly, it is little used. The idea was a good one, but it came too late. NEST had already a data standard in place and was not going to re-engineer its service. BASDA was behind PAPDIS, but it was also behind the times.

It seems to me that a new data standard for clearing contributions according to member’s wishes, could be established, tested and implemented in a safe environment before the demand for clearing became a commercial and regulatory imperative.

What is needed is some forward thinking. We need (this time) to be getting technology prepared before – rather than after, the problem has arisen. Right now, most people’s pots are small enough for their being invested sub-optimally – to be a small problem. But this will not always be the case.

The DWP estimate that unless we get some way for pots to follow members in place soon, there will be 50m unloved pots by 2050 – resulting from auto-enrolment. This is in nobody’s interest. The time to get this problem sorted is now – not three decades hence!



get to know 2

Do these really include employers understanding pensions ?

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We need to simplify our pension affairs

  • We are told that pensions are complex.
  • We are told that we need advice to manage our retirement finances.
  • We are warned hat we could be scammed if we don’t.
  • Is it any wonder that people look at their retirement with financial foreboding?

Self-perpetuating complexity



But pensions do not have to be complicated. Ask a postman and he’ll tell you that a pension is no more than a wage for life, provided for him or her by an employer who organises pre-funding, investment and the payment of the pension.

This simple way of looking at things has met with vitriol. When I explained this to a crowd of Scottish Accountants last week, Maggie Craig, head of the Scottish FCA claimed that I was not “living in the real world”. I don’t know if she thinks that 145,000 postal workers aren’t living in the real world either.

A savings account geared to paying a wage for life should not be complicated. The account itself is simply an invested version of a bank account with an aim of providing more money than could be achieved by saving the money in a piggy-bank.

All the complexities surrounding tax arise from decades of attempts by the rich to avoid paying tax by subverting the simplicity of pension saving. Pensions are now regarded as a means to avoid inheritance tax (non-drawdown), avoiding capital taxes on a business (SSAS) and of hiding company profits (occupational pension schemes). Of course not all pensions are being used for tax-avoidance, but enough have been for HMRC to have built in the labyrinth of rules that prevent the public finances being abused.

It is not the pension that it complicated, it is the abuse of pension saving by the wealthy and their advisers.

Most pensions are paid very simply

Most people get caught up in this complexity for no good reason. The number of people I have met who tell me they want their pension to survive them is very few.  People know what inheritable assets are – houses, businesses, chattels etc. – and they know what dies with them.

I have never heard anyone complain that the state pension dies with them. It would seem absurd to us , that the state would pay a pension to our children, just because we have died.

The problem is that we have (and this is partly as a result of the pension freedoms) , started thinking of pensions as “wealth” and not a “wage for life”.

So it is that ICAS could have a two hour discussion on the supposed “crisis in pensions” without mentioning that the vast majority of pension payments are met by the taxpayer on behalf of other taxpayers.

Instead we had to agonise about how we could get engagement with our pension saving, as if that failing to do so, would result in a failing of the system.

Financial gravity will do the trick

If people were not to be bamboozled by the complexities introduced by tax consultants, pension experts and the wealth management “industry”, they would see that managing their pension affairs could be very easy.

If people had easy access to the information surrounding their various pension pots and a simple way of assessing what was good, what was bad and what was indifferent- they could employ “financial gravity”.

Financial gravity is my phrase for thinking about bringing lots of small pots into one big pot. Financial gravity is the process by which the money in the less useful pots is poured into the most useful pot and used to pay a pension. Some call this “aggregation”.

For financial gravity to work, people need to see which pot to pour into which pot.

ppp screen 2

There are many people who regard this simple idea with the same distaste as they have for a “wage for life” pension. It is offensive to people because it challenges their firmly held belief – not just that pensions are too complex, but that they should remain too complex.

Because these people are obsessed by the idea that they can create value for themselves from that complexity. If things were so simple that people could pay themselves a wage for life by transferring into a CDC scheme, or aggregate all their pots into one big pot, then we would not have the need for the pension industry at all – and that includes a lot of regulators!

Financial gravity tends to simplify over time. Over time, the complexity of our pension system, with its lock-ins and its guarantees and its tax-penalties will be washed away.

This is because, as we get into the later stages of life, all that matters is the rest of your life. Old people closing in on death should not be worrying about death taxes and the exhaustion of their savings or about stock-market volatility, they should be allowed to live their lives to the full -for the remainder of their days. Financial gravity should drain away the complexity and leave them to enjoy what is left.

The utility of simplicity

We all need to simplify our pension affairs over time, because- quite literally – life’s too short.

For the vast majority of people, pensions are way too complex and could do with a spring-clean. Creating simple structures like CDC schemes or even defaults for spending, simplifies matters greatly.

Creating a way to aggregate pots through dashboards and simple metrics that help financial gravity, is within our scope.

By using many of the great platforms and funds already in place, we can do much to get there; what remains to be done, is within our grasp. I feel confident that we will be able to make pensions simpler and easier and therefore more popular and better funded.

If you would like to join with me in this, keep reading these blogs, and I’ll keep writing them.


the lonely Platonist in his tower

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Why we should not be shut up about pensioner poverty – it exists and it shouldn’t.

unite uc.png

If you’d been at the ICAS “how to avert the pension crisis” debate on Tuesday, you’ll remember that part of the conversation when we discussed the Institute of Fiscal studies’ contention that we were having difficulty spending our retirement savings. I mentioned in my blog earlier in the week – that this did not seem a crisis to me. 

Since then Miriam Somerset-Webb has picked up on the IFS’ research in a blog at the FT. It’s a very good blog but you need to get past the paywall to read it. Miriam picks up on Clare Reilly (Pension Bee’s) comments, that it would be a lot easier to spend your pot, if you had proper technology that responded to your wish to have your money back when and where you wanted it. Clare’s is a good point but it is based on there being wealth to drawdown.

For a very substantial number of people in Britain today, there is no such wealth.

Damian Stancombe, pension guru at Punter Southall, called me on this and reminded me of work carried out by the Joseph Rowntree Foundation (published Nov 2017).

For the avoidance of doubt, the report offers data that shows how  the public policy decisions of recent years mean more money in the pockets of some families, while others are hit hard

It also published this excellent set of slides,

Joseph Rowntree Foundation’s work showed that for a significant proportion of the population, retirement was a time when every penny counted. For those dependent on benefits in retirement, the world has got a bleaker place in the last ten years. For it is our poorest who have suffered the most from the austerity imposed since the financial crash.

I mentioned in Edinburgh (ICAS) that if we had a crisis, it was a crisis not about pensions but about the lack of them; more particularly, we now have a crisis in benefits.

Unfortunately this was deemed “off topic” and we spent much of the debate talking about how to engage the “haves”, rather than what to do with the “have nots”.

To redress matters, I’m thinking about the “have nots” and hope that someone in the DWP will pick up on the matters raised by that presentation

The Joseph Rowntree Foundation made three recommendations in its report


  • As the cost of achieving a minimum standard of living increases with inflation, the Government must ensure that Universal Credit and other support for families is uprated at least in line with prices, ending the benefits freeze.
  • The Government must allow families receiving in-work benefits to keep more of what they earn, so that increases in the National Living Wage are not clawed back through reductions in Universal Credit and other support.
  • As pensioner costs also increase, pensioner benefits should continue to be uprated at least in line with prices, and should continue to keep pace with increases in earnings over the long term.


While I am not proud that our poorest citizens continue to fall behind due to the freezing of benefits, I am proud that we are upgrading the state pension  by the triple lock.

But it’s worth pointing out that it costs a lot less to triple lock Universal Credit, paid to the few, rather than the single state pension -paid to everyone.


The National Audit Office reports DWP in denial.

As Damian did, so the NAO have pricked my conscience on this matter this morning.

Though I didn’t then have a link to the NAO’s report, the edited highlights given us by the BBC’s Hannah Richardson, told me what I needed to know. That Universal Credit, through its flawed roll-out and fundamental inconsistencies, is leaving large numbers of people in genuine crisis.

I now have the link to the NAO press release, which links to the full report – you can find both here.

There are numerous case studies in the report . They cannot be swept under the carpet as “off -topic”. This is from the BBC article..

And yet the Department for Work and Pensions does not accept that UC has caused hardship among claimants, the (NAO) report says.

The report points to a recent internal departmental report showing 40% of claimants are experiencing financial difficulties.

I hope that somebody in the DWP is reading that. The criticism that the fate of our poorest is being swept under the carpet is coming not just from the Joseph Rowntree Foundation but from the National Audit Office.

Whatever happened to social justice?

I’m supposed to be a Tory, I carry their card. I was speaking at a conference of the Institute of Chartered Accountants of Scotland about a pension crisis. I wear a suit, I have a degree from the right kind of University, I am white, male and by any standards, part of the establishment.

And yet, when I introduced the concept of pensioner poverty into a debate about pensions in crisis as one of the panellists, I was told to shut up.

What chance for anyone who has not got all my privileges –  to get heard? Small wonder that the Grenfell march is a silent protest.

We should not be living in a society which shuts the door on such debate. We should allow a debate on pensions crisis to include the impact of public policy on all citizens, not just the affluent.

It is time that more people like JRF, the NAO, Unite and Damian Stancombe, got listened to.





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Can we map the pension genome?

genomeI don’t think I’ve ever heard mention of the “pension genome” , which may suggest it is a concept before its time.

To me it means the entire complex of products and funds from on which our rights to money in retirement depends.

Other than the state pensions, we could call it the product of that clichéd phrase – “the pensions industry”, though “industry” seems entirely the wrong word to describe much of what calls itself “pension expertise”.

Mapping the genome

In biological terms, ” the human genome project” means identifying and mapping all of the genes of the human genome from both a physical and a functional standpoint.

In financial terms, “the pension genome project” means identifying and mapping all the investable products and funds from both a “value” and “money”  standpoint.

The attached presentation, I’ll be giving to some actuaries in Birmingham on Tuesday, explains what a pension genome project could bring to ordinary people.

Whether such a project can be carried out by a single organisation, remains to be seen. I have some hope that it can

  1. The desire for greater transparency, driven from the general public and some parts of the “industry”.
  2. The capacity to understand what we are buying through the work of groups such as Chris Sier’s IDWG
  3. The arrival of workplace pensions, bringing new standards of disclosure and re-defining value for money.
  4. The willingness of DWP, Treasury, FCA and tPR to come together to empower consumers to get better information
  5. The emergence of new technology (APIs) capable of centralising data in real time in dashboard style.

Nonetheless, a project so ambitious as to put a score against every pension product, every fund and every combination of the two, cannot be brought to fulfilment without great endeavour.


Mapping the pension genome

To me, the research on value for money that is going on, has the potential to restore confidence in pensions. If it is matched by the endeavour of Government to ensure that all of us can see all our pensions in one place, it gives a means to aggregate pots into one big pot , from which each person can organise their finances in later life.

It may be that we need the help of the financial researchers who sit within our great universities, to help with the project.

It may be we need big Government to kick down a few doors, where data is locked behind.

It will certainly mean accepting that some of the assumptions with regards embedded value within life companies, SIPP and even  fund managers need reviewing.

But we can only properly move forward, if we can accept that all in the UK is not perfect and that there are better ways of doing things, than the way we do them today.





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Who gave this windfall to the rich?

Xafinity transfer value index

I’ve talked about the impact of higher transfer values on people living in Port Talbot and Redcar, and in the British Steel Pension Scheme. Around March last year, those transfer values in some cases doubled. Why?

There were two reasons.

  1. The scheme moved to a single discount rate for all members
  2. The scheme started de-risking – moving from a growth based strategy to a “lower-risk”, bond based investment approach.

What this did was to lower the discount rate applied to transfers , increasing transfer values, especially for the younger members (who had previously seen transfer values depressed by higher discount rates).

Apart from the small kicker to transfer values brought about by a cash injection into the scheme in the summer (bringing the reduction from the insufficiency report from 7% to 5%), these two reasons were perhaps the biggest contributors to the run on the scheme that happened in the autumn.

The perverse impact of de-risking

What a sudden shift from growth to defensive investment strategy creates is a big hike in the transfer values for the benefits of deferred members. This is – as far as I can see , ignored in the Pensions Regulator’s guidance on funding but shouldn’t be.

As CETVs are only available to a proportion of DB scheme members, the uplift in transfer values is a perk just to those who are not drawing their pension. It’s paid for primarily by the employer (through the special contributions needed when growth is taken out of the actuarial assumptions – the scheme discount rate).

This creates all kinds of conflicts within the scheme, especially where those driving the shift to bonds stand to benefit by high transfer values. It is one of the few areas of remuneration not covered by modern governance, but Directors of large companies with DB schemes, can profit from de-risking with no declaration that they have been both author of and beneficiary of , the improvements in transfer values. They can do so – simply by taking their transfer value.

It also creates a feeding frenzy for advisers and the long-tail of lead generators on one hand and fund management flunkies on the other – all of whom share in the financial orgies  we have seen in Port Talbot, Dagenham (Ford) and the Leeds conurbation (HBOS) – to give but three examples.

These conflicts – between the interests of members (in terms of more secure funding) and the interests of members (in terms of higher transfer values) have not been properly thought through by policy makers.

The perverse impact of de-risking a scheme’s investment strategy, is that it rewards deferred members at the expense of pensioners and it requires trustees to pay out their hard-fought prudence to people who have no interest in being ongoing beneficiaries of the scheme.

The absurdity of regarding these transfers as “de-risking”.

I have heard it argued, in learned actuarial circles, that because CETVs are calculated on “best estimate” terms and the scheme’s accounting position calculated on a formula closer to “buy-out”, that every transfer paid – is a step closer to scheme solvency.

This is nuts, it is a step closer to “buy-out” with an insurance company, but it is step further from doing what the scheme set out to do – pay a wage to life for its members.

It is only in the febrile world of “de-risking” , that an understanding of the wood could be so lost by the view of individual trees.

The best DB scheme is a scheme that stays open. Encouraging the taking of transfer values by enhancing or even promoting transfer values risks giving away the prudence in the scheme’s investment profile to those few members with the transfer opportunity.

Democratising the opportunity to transfer is not the answerXafinity 2

The current madness is about making it easy for all deferred members to share in the spoils of DB schemes. This is the argument being used for maintaining contingent charging. It argues that members without the financial capacity to pay for the advice on whether to transfer, should be able to do (in a tax-advantaged way) after the transfer has been paid. There is no logic in this argument – if you consider that most people shouldn’t transfer.

Of course, the richest members can pay the “exit penalty” which is what transfer advice is currently seen as. If a member can see they are benefiting from the overdose of prudence – (a simple calculation dividing the pension forsaken into the CETV), then the advice simply becomes a compliance ritual on the way to the payment of the transfer.

A friend last week asked me what his wife should do. She has just discovered her CETV is worth more than £2m. I was forced to explain to him her options. He was both appalled and delighted; appalled that she could be given such a grant without any public financial declarations and delighted that it allowed them both  – a windfall payment that could fund their future business.

He understood the conflicts , but legally neither he nor she has to declare them. Why should they. The CETV will remain their guilty secret. So it goes for tens of thousands of our new pension millionaires.

And yet…

With equity markets at all time highs, with a world economy looking in fine shape and a UK economy seemingly impervious to BREXIT, what could possibly go wrong with managing your own pot?

UK Defined Benefit Schemes, with the benefit of crippling special contributions, have finally worked their way into the black.

But they have done this while giving away much of the family silver (£34.25bn in 2017 alone). Rather than paying out that amount as pensions – as originally intended by HMRC and those who set up these schemes, trustees have paid this amount out – mainly to the richer deferred members, to fund wealth management programs.

Each of these programs is now taking on the burden of funding individual retirements (though we have seen in recent blogs that some are simply being used for IHT mitigation).

The perverse windfall to the rich

I am not a conspiracy theorist. I don’t think that CETVs is a plot hatched by advisers and trustees for the benefit of cronies with large deferred pensions. I am not saying that the Pensions Regulator was complicit.

I am saying that this is the perverse consequence of the drive to de-risking, the mania for self-sufficiency, the blue funk that is called the “glide – path to buy-out”.

It is only one of the consequences, but it is a major issue for schemes big and small. Small schemes can see huge slices of their assets and liabilities walk out of the door in one transfer. Big schemes can see multiple transfers which add up to the same thing (Barclays lost  over 15% of its scheme in one year to CETVs).

Nothing much will be said about this, unless I say it, because nobody who understands it , doesn’t have some skin in the game. Even the Pensions Regulator – is to a degree – compromised by insisting on “prudent” investment programs.

It’s time we came clean on this issue and recognised that one of the reasons for the glut of transfers – is because of the value of transfers. Transfer values are so high, because schemes are de-risking, schemes are de-risking because advisers and Regulators tell them to de-risk.

What does  not seem right, is the ease with which the prudence earned by schemes through special contributions from employers can be dispersed to the senior employers of the companies sponsoring the schemes.

What does not seem right is that many members in these schemes (or all financial make-ups)  are taking CETVs with little understanding of where the money is going and what the cash-flow consequences for them or their families might be.

These seem very real problems for the Pensions Regulator today and tomorrow.

xafinity 3


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University pensions! – Stay collective! Stay open!


The Babbage Lecture Theatre – Cambridge

Another good day for pensions!

Yesterday was a good day for the collective pension scheme in Britain. I had breakfast at Cicero’s offices in the Old Bailey (not the courts). I was able to hear our Pensions Regulator talk openly about the regulation of CDC schemes (Chatham House prevents more- but take it as positive).

As I took the train up to Cambridge, I talked with those close to Royal Mail who are enthusiastic at the progress made with DWP in establishing a way forward for their (and other) CDC schemes. This was what John Ralfe would call – “nuts and bolts” stuff.

When I got to my Alma Mater, I was amazed to discover 200 dons had turned out to a pensions meeting organised by Cambridge UCU to look at alternative ways of keeping their pension collective and open.

If you want to see what was discussed, I understand the event was filmed and that we’ll soon be able to watch. For the meantime, here are the my First Actuarial slides – easily downloadable for those deprived of sleep!

Wanting the best.

I hope I managed to avoid the trap of enthusing about CDC to the dons. My reason for being at the meeting was to stress the importance of keeping collective schemes open, whether they offer pension guarantees (DB) or simply pensions (CDC).

Obviously, given the choice, we would prefer our pensions guaranteed, and here there is a question of affordability. Much of the protracted question time that followed yesterday’s presentations, concerned the quality of the covenant offered by the educational system.

Can you compare USS – designed to provide deferred pay to university lecturers, to schemes for employers like Carillion or British Telecom?

Is a better comparison, a public service scheme or should we consider the total reward offered to UK academics uniquely geared to balancing immediate and deferred pay?

The best for the best

For me, and I got passionate about this, the success of the British University system (and we have around 15 of the top 50 universities in the world) is down to the quality of teaching. In the audience yesterday I heard American, European and Far Eastern voices. People want to teach in our seats of learning because the gold gathers the light about it.

Supposing that we should be benchmarking success with failure seems wrong. Carillion, BHS and to a lesser extent BT and the Coal industry, are business failures that led to pension failures. The businesses failed to meet the targets they set and had to close their DB schemes. BHS sits as a zombie scheme, BT’s pension scheme is an albatross around its sponsors neck and the Coal Industry Pension Scheme is saved from insolvency largely due to the physical damage mining did on its staff’s long-term health. None of these schemes have stayed open, all have been closed because (for whatever reason) the business failed.

This is the critical point for UUK (the employer federation of our Universities). You are not presiding over failure and the reason for your success is not your management policies but the people you employ. Part of your covenant to your brilliant workforce is a pension promise that lasts as long as they do. By “they” I do not just mean the people listening to us yesterday, but those subsequent generations of academics coming through schools and colleges today and the great academics of the 22nd and 23rd centuries who have yet to be born.

If you are a Vice Chancellor, you think two or three years ahead, if you are looking at our educational system, you should think two or three generations ahead.

CDC or DB – the show must go on.

Whether the system that pays deferred wages in retirement is guaranteed (DB) or simply pensions (CDC), the schemes must stay open. Closing schemes like USS is financial vandalism. The architecture of university pensions must stay the same , though the apparatus by which pensions are delivered may be adjusted to meet changing times.

As I came back yesterday afternoon with Con Keating, remarking from my bus to the station how little things had changed since when I “went down” in 1983. The buildings have changed (a little), but the people are still the same. University towns are special and different but that’s because they absorb a different type of person. Our academics are of immense cultural and commercial importance to Britain and we rightly cherish our university towns as the hot-beds of fresh thought. They have delivered, are delivering and – given a following wind – will continue to do so.

So this ridiculous struggle by the Universities to pretend that University lecturers can be likened to those in the commercial sector is wrong. If you open the presentation above, the first page will show those dons who made a difference to me. Some are still to retire, some are drawing their USS pension and some are dead  (some with surviving spouses still being paid). Why I got emotional, was that I was overwhelmed with gratitude for having the university system that supported and continues to support them and their teaching.

I work in the City. I have no links to Universities (other than my son at Girton Cambridge), but the thought of Britain losing its academic predominance as our top lecturers become devalued and disillusioned , is one I’m not prepared to entertain.

Any more than I’m prepared to see postal workers, who work a lifetime for Royal Mail, not get their wage for life.

It happens that my employer, First Actuarial, is fighting for the pensions of both groups , through UCU and CWU respectively.

Some proper thanks

I’m very proud that I’m a part of their work (albeit not the maker of the nuts and bolts).

I’m very grateful to Cambridge UCU for the chance to speak yesterday and for the dons for listening (and for the messages of support after). I’d also like to thank those from the University (Andrew Aldridge (Head of Internal Comms) and  Anthony Odgers (CFO) ). They listened to my  and other’s comments with patience and good humour.

Events like this enable the two sides in this long and bitter dispute to come closer together. I hope the Joint Expert Panel is a success and that we can move beyond 76.4 into the next decade with a lasting open pension scheme – whatever the acronym.

Cambridge colleges

and Rosencrantz and Guildenstern




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Aviva (unlike tPR) get it right on transfers.

andy briggs

Andy Briggs, CEO of Aviva (UK) and Chair of ABI



Well done Andy Briggs for saying what a responsible life company CEO should say .

Aviva backs ban on transfer advice charges“.

Let’s be clear Aviva are not calling for a ban on defined benefit transfers, they are saying that the practice of contingent charging- must stop.

What contingent charging does.

Contingent charging allows an adviser to charge for advice out of the proceeds of the transfer. If the transfer does not go ahead, the charge cannot be levied. The adviser can still charge a fee if the advice is “don’t transfer” but his/her recovery rate on such invoices is likely to be low – most people use IFAs to transfer and aren’t prepare to fork out to be told to stay put.

The impact of contingent charging

So contingent charging comes with an in-built bias. The ONS statistics show that since contingent charging caught on (really from 2014) the transfer of money out of DB schemes has risen seven fold; since in became the norm (from 2016) transfers have increased three fold in a year.

ONS funds

ONS MQ5 (£ bns)


Since the 2017 number is three times the amount of organised buy-out/buy-in and transfers, you’d imagine the Pensions Regulator would have some pretty good Management Information about the scale of the transfers. They are in fact making a material difference to the solvency of schemes it is regulating.

But this does not appear to be the case. The Pensions Regulator reckon that 100,000 people took DB transfers last year but that only £14.3bn was transferred. A gilt-plus discount rate now produces a multiplier of 40x. Most schemes use this discount rate, most schemes use a 40x multiplier on CETVs.

Simple maths tells you that the tPR’s estimate of an average CETV is £143,000- using a 40x multiplier , that makes the average pension foregone around £3,500pa.

The average transfer value for BSPS was around £400,000, Barclays and Lloyds report £500,000. Most IFAs will not touch CETVs less than £300,000 (for reasons I will explain in a moment). Where are all these small transfers?

Barclays  alone reported £4.2bn transferred out of its staff scheme, LBG £3bn, BSPS £3bn. These three schemes alone transferred out over £10bn last year. I think the average CETV paid last year was c£400,000 and that means that both the numbers of  ONS (slightly) and the Pension Regulator (massively) should be revised upwards.

The ONS £34.2bn is provisional, I suspect that the true number is north of £40bn.

The ONS confirmed number for 2016 was £12.8bn and if we continue to see the trajectory of transfers, demonstrated by the table above, we could lose over £100bn this year.

Thankfully this is unlikely to happen, but no thanks to the regulators and their dodgy sums.

What will put the lid on transfers?

There is only one way to stop transfer activity and that is to stop insuring the advice. Transfer advice is insured by Professional Indemnity teams and reinsured around the world. Lloyds of London is the primary centre for spreading the risk. The word I get from the insurance markets is that the game is up and that insurers have quite enough risk on their hands from last year’s bonanza, to be going on with.

They are insisting on quotas for the numbers of transfers (meaning IFAs get more picky and push average transfers higher still (my £400k estimate already accounts for some quota pressure).

Many IFAs are finding they can’t get transfer advice insurance at all.

The FCA may be able to put a heavy hand on the lid – by banning contingent charging- but I suspect that by the time they do, the PI insurers will have done that for them.

DB pension managers are already seeing a slow-down in transfers.

Andy Briggs is not just honest , he’s smart. By coming out now, he is adopting a position that won’t hurt his business in terms of revenues (the party’s nearly over) and it can only put him on the right side or the regulatory argument.

Even if we take this slightly cynical view, Andy Briggs is still doing the right thing. The hapless Adrian  Grace of Aegon, once again shows he has neither the moral backbone or the commercial nouse to be running a life company. Here he Grace in the FT

“Advisers and their clients should have a range of options for paying for advice,”

and again

“Surely between the regulator and the industry with its compliance departments and pension transfer specialists we can find ways of managing conflicts of interest. Failing to do so will inevitably widen the advice gap when we should be doing whatever we can to reduce it”.

Insurers have been part of the bonanza, they have sat for the past five years with their aprons held in front of them , while CETVs have poured in. They have paid advisor fees from the SIPPs and personal pensions they offer and have given advisers the right to take annual income from these products through their DFMs. The result has been a massive hike in advisory fees and no great fall in the cost of platforms and fund management. Witness these recent numbers published by Citywire.

NMA charges

Survey numbers from New Model Adviser.


Meanwhile , these same insurers are offering pretty well the same products as workplace pensions, without advisory fees and at massively discounted platform and fund management fees. Most Aegon and Aviva workplace pensions have charges around 0.50%, 1/4 the cost of the average SIPP.

Why not use the cheaper alternative ?

The answer can be found in one of the comments on the FT piece quoted above. This from “Matt”

 We are a very cautious, very ethical, IFA firm offering contingent advice on DB transfers. We advise against a transfer in 90% of cases (and that is 90% of cases that get past the initial sense-check screen), and we do not proceed to arrange a transfer that we advise against. We have given most of our business to Aviva up until now, but I guess they don’t want any more of it, so we will use AJ Bell or Alliance Trust for our clients from now on

The simple answer is that it hasn’t crossed Matt’s mind to recommend a product that he cannot derive an income from. I would bet a very large amount that Matt is now referring to the Aviva workplace pension – but to the Aviva SIPP (with the full “suite” of adviser charging options).

Both Adrian Grace and Matt are in the same boat. They both support contingent charging, they both promote products that pay advisers upfront and regular fees and they both ignore the fact that there are legitimate, cheaper product on their shelves that are not considered.

Andy Briggs – a straight man in a “bent” market.

I know I should use a word like “asymmetric”, but I’ll use “bent” instead – as it’s one that ordinary people will understand.

The advice market is bent by contingent charging and the provider market is bent by providers bending over to support IFAs distribute their products.

Aviva have called time on this and thank goodness there is some support for good IFAs who don’t use contingent charging.

Hopefully, this will help the FCA see the problem of contingent charging for what it is, a bending of advice and product to the benefit of financial services and to the long-term detriment of people in defined benefit pension schemes.

In all this, Andy Briggs is showing himself (albeit late in the day) to be “straight”. For which we have to thank him. He deserves my apologies for misspelling him Biggs (Andy Briggs is innocent ok?)

He won’t be thanked  by IFAs like Matt and he won’t be friends with Adrian Grace and others – down at the ABI,  but he’s done the right thing.

After thought

I am not a mathematician and I may be wrong on those numbers, anyone who wants to challenge my thinking (especially at tPR) please do so – either in the comments box or directly to me at .



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

Is there a “true and fair” way to value advice?


Alan and Gina Miller


Yesterday , I wrote a blog about “ownership” and how we cede ownership of our retirement savings – often to ill-effect. You can read that blog here.

This follows up on that thinking and looks at a specific issue that arises when you give up the management of your pension . I’m talking about how you measure if you are getting value for money from your agents.

This series of blogs is inspired by a meeting with Alan and Gina Miller last week. They are mentioned several times in this blog, but I should say at outset that their work on “True and Fair” value and money assessments , has excited and driven my interest in VFM from 2013. They have been campaigning for good for a lot longer (and more effectively) than I have!



Why is the supply chain so complicated?

If you look at this diagram (by the FCA), you can see how agents were employed pre RDR to manage our personal pension.

Sipp 1

And here is how things are today


As you can see, just looking at the number of boxes, the RDR has made it harder for us to analyse value for money by disaggregating the bundled service provided by the Provider (including the reward of the adviser by commission). In the lower box, you can see that in an attempt to move people to “self investment”, we have introduced a variety of new players into the value chain.

This has allowed what I refer to elsewhere as “fractional scamming”, where each participant takes what in isolation might seem a reasonable fee, but collectively – is an unreasonable fee. The obvious example is the famous one used by Active Wealth Management in Port Talbot which involved Celtic introducing to them, and they introducing Vega, Newscape, Gallium and a range of underlying managers introduced by Vega (the DFM).

Each of the participants featured in the second diagram fully disclosed their costs and charges, but the true cost of the asset management will depend on understanding the costs of investment within the DFM. These costs include not just the underlying transactional costs of each manager employed by Vega, but the costs incurred  by Vega in moving money between managers. As a DFM, Vega should be disclosing these costs (since Jan 3rd) as part of MIFID II.

How can we tell whether we’re getting value for money?

I mentioned yesterday that the key to everything , in the transfer of ownership to an agent, is trust.

true and fair

This is not trust


Where is the trusted party in this value chain – who is the principal agent on whom the investor can rely?

The obvious candidate is the advisor, who can tell you (the policyholder) to move away from one agent to another if he/she feels VFM is not forthcoming. If you have an adviser who is trustworthy, then he should be able to give a VFM assessment on all parts of the chain and you should be able to judge the VFM you are getting from the adviser on the quality of this assessment.

There are a number of reasons why this is very difficult

  1. Many advisers are vertically integrated with other parts of the supply chain. They may also be discretionary fund managers and could be being paid by a number of participants in the value chain. Clearly this gives rise to a conflict of interest, how can you give a bad score to yourself, or to someone who is paying you?
  2. Since the value chain is so complex, it is likely that the adviser will not be on top of all the costs and performance numbers of parts he is not directly involved in, he himself will have to take it on trust that what he is being fed is accurate
  3. There being so little supervision of the reporting (especially when we get to the granularity of MIFID II) that it’s quite possible the numbers that do feed through are total junk.
  4. So far, reporting has been to the standards of disclosure seen fit by the providers (though this is changing). This has been particularly frustrating to advisers trying to compare one service with another.

All this adds up to one big fat problem, which is that there is no way that a consumer can really see if they have value for money or not.

It also adds up to good advisers, good DFM managers and good asset managers being abused by bad ones. Some DFMs appear to be bypassing MIFID II altogether, some are reporting selectively, we have some evidence that reporting is being done in different ways- sometimes to hilarious results.

Speaking with Alan and Gina Miller last week, they told me that one of their bond managers was reporting 200 bps of transaction costs on one fund. After lengthy education on how to report “slippage”, this turned out to be around 50bps (still a very high figure). What was so outrageous was that this internationally famous fund manager, didn’t know what it was doing – AND NEITHER DID ANY OTHER INVESTOR.

The reporting of Alan and Gina is world renowned. Their “true and fair” campaign has nudged along Government to ensure MIFID II, Priips and latterly the IDWG, provide fund and asset managers with a way to report consistently. Is it any wonder that both are incandescent with rage that MIFID II is being ignored,  bungled,  or sabotaged (depending on the depth of your conspiracy theory)!

Until we have a way of ensuring the numbers are accurate and fully disclosed , we have no way of measuring value for money – and that goes for accurate performance reporting as much as cost and  charge reporting.

Can advisers be trusted?

Most can – all should be! However there is no easy way to assess the competence of your adviser unless there is an external correlative. If an adviser chooses to charge a lot to provide advice on your investments  – this is not in itself a problem. I recently paid a huge amount to sit on the Orient Express when I could have flown from Venice to London for less than 10%. I consider the Orient Express value for my money and paying 1% + of your assets for advice might equally be Vfm.

But – and this is why the Millers are right to be angry – where the adviser is failing to pick up on something as simple as accounting errors  in cost reporting – and obviously many have – then there should be censure and disclosure.

It is not just from the Millers, everyone I meet responsible for analysing MIFID II reporting has tales to tell. While the world is falling over itself to be GDPR compliant, MIFID II reporting is being ignored.

This is why I am keen to establish a single way of reporting Vfm on all funds, whether retail or institutional and to continue that analysis to the platform costs and indeed all the contract charges that surround the delivery of the investment outcome.

At present I have no plans to provide a VFM score on the advice , but I do believe that an external correlative (of the kind I hope Pension PlayPen will provide), will allow people to make that judgement.

For that to happen , there needs to be an integrity in the scoring system that we can only aspire to at present.

But I do believe that with regulatory tailwinds and with the adoption of new technology, it will be possible to get the right number on most products. Where it is not possible, I suspect that this will be identified as a deficiency in the product – and a marketing problem for the provider.

Ironically, the provision of factual information is not deemed advice. Provided VFM scoring is restricted to quantitative assessment, it can provide the external correlative on funds , platforms and policies that is needed to check the validity of your adviser’s advice.

Should advisers welcome this new level of scrutiny?

Independent Financial Advisers are now earning on average £93,000 pa. They are as a class of professionals, highly paid. They need to be assessed by professional standards and the scrutiny must itself have professional integrity,

The least satisfactory aspect of working with an IFA, is that the IFA is simply not subject to this scrutiny. We have to make blind assessments which are too often based on factors we know to be weak (personal bias’). While I am prepared to pay huge amounts for a once in a lifetime train journey, I won’t be commuting on the Orient Express. Similarly, an IFA who is retained for life must show cost-effectiveness in a different way to one off “project” value.

Alan and Gina are pioneering a standard of disclosure that must be adopted if we are able to judge funds and platforms and contracts. As DFM managers they are also advisers and I am able to judge them on an equivalent basis. They practice what they preach .

If IFAs want to be seen by me in the same way I see the Millers, let them show the same standards of care. The Millers set the benchmark – may others follow.

true and fair3

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

RBS remains a national disgrace. It will reach a “milestone” when it shows itself sorry.


There has been some good banter on linked off the back of my blog on hand-outs to kids. The Resolution Foundation’s proposals to up taxes for those working longer and hand-out a tidy wedge to kids (to get them owning property) has the merit of drawing opinion – but little merit else.

Listening to Wake up to Money, I was struck by a woman from the City, cooing over the RBS’ lucky escape (only £3.1bn in US fines) and how we could now expect business as usual at the bank. Let’s remind ourselves that this bank was responsible, not just for screwing up the American housing market, but a host of small businesses in the UK. The money that the UK tax-payer has poured into it , to keep it afloat, is money that has not been spent keeping hospitals properly staffed, libraries open and vulnerable people protected.

Q. What do RBS and millennials have in common? – 

A. a sense of entitlement to my money!

An alternative way from Julian Richer

The other person on Wake up to Money was Julian Richer, who sounded like Richard Branson’s kid brother and made a lot more sense. He talked about the responsibilities of his shareholders to keep his business honest, outlined what he considered responsible capitalism and talked about the social good that a good business can do. He also talked of the financial and behavioural benefit to him, of being a good boss.

Seething with anger as I am about the moral decrepitude displayed by RBS, I am heartened that Julian Richer and Micky Clarke, took the opportunity to distinguish between businesses that run their strategy with reference to the numbers on the balance sheet, and businesses that are concerned about what they produce and how it’s delivered . (Way too long a sentence – born out of the passion of the moment!).

Should RBS be brought back into the fold?

RBS has never properly said sorry to the tax-payer. Those who were the architects of its demise in 2008, sloped off with their pensions and their bonuses. They may not have got much from their share options, but they are not languishing in prison, as they undoubtedly would be were they in other jurisdictions. Fred and his lackeys got off pretty lightly.

Since 2008, RBS has lurched from one disaster to another, rotten to the core, it has spent its time repairing its balance sheet but it has done little to repair its reputation. Despite its excruciating ads, conning us into believing it is a caring institution RBS (Nat West)  is still a national disgrace. I see no good argument for the Government holding on to its shares, let’s get shot of them and use the money for social good.

If RBS wants to convince me that it is worth my money (and it has some by dint of my investments in trackers), then I would like to see atonement. The paying of a fine in the US – and the talk of “milestones” from the CEO – is not atonement. RBS will reach a milestone when it says sorry and shows it means it.

Society needs Julian Richer not RBS.

Today, I have a number of meetings with people I have a great deal of time with. I’m going to a sustainable finance meeting at breakfast in the City, I’m meeting Gina Miller this morning, having lunch with Jeremy Olsen, tea with Olly Payne of Ford and finishing with drinks with Jenny Davidson of Three. All of these business people will be wanting to talk with me about the purpose of what they are doing and how it works for good.

I wish I knew Julian Richer, he sounds my kind of businessman. Society needs guys like him, women like Gina and Jenny, actuaries like Olly, consultants like Jeremy. In the gloom the gold gathers the light to it.

The world envisioned by the Resolution Foundation, is one where the endeavour of the aforementioned is ironed out – flattened – and money is dished out to millennials so that their entitlement to own a property, run a business or have a well-funded pension can be met.

But there is no such entitlement. The entitlement is to those who are vulnerable, the physically and mentally sick, those who have suffered catastrophic loss and those who for whatever reason, cannot otherwise escape poverty. Society should be focussing on supporting those who otherwise should not be supported.

No bail out for the millennials either

It should not be bailing out whingeing millennials who would be better employed getting their heads down and working their way to what they want. This is a country of great opportunity, as any immigrant knows. This is not a nation that takes money from those who are working and old and dishes it out to those who are young – to meet some pseudo-Thatcherite notion of “property for all”.

Nor is it a nation that should tolerate organisations like RBS, who put balance sheet before people. It is a nation with a strong moral compass, a nation that knows what it wants and how we want to be Governed.

My personal politics side with Julian Richer in condemning zero hour contracts, ensuring that people have the opportunity to rent reasonable property at reasonable prices and I want to see a well funded NHS and proper wages in retirement. I believe that achieving things is within the scope of our national wealth.

I am not compassionate about RBS or any of the other institutions that took our national finances to the brink, ten years ago. I am not celebrating their milestone fine and I hope that we take this opportunity to ensure that the businesses we invest in in the next ten years operate on the basis outlined by Julian Richer (and the CSFI sustainable finance group).

As for the millennials, you should look out for each other – I will look out for you. But you’re not getting my money, unless I choose to give it you.

I wish I could say the same for RBS.



Posted in Bankers, pensions | Tagged , , , , , | 2 Comments

Hey Willetts, leave those kids alone

leave alone 2

The Resolution Foundation have today published a paper which has as its central thesis

A policy shift is needed to mitigate risks and promote asset accumulation for all

It calls on Government to intervene to make society fairer, at least in terms of wealth distribution.

  • From 2030, citizen’s inheritances of £10,000 should be available from the age of 25 to all British nationals or people born in Britain as restricted-use cash grants, at a cost of £7 billion per year.

  • To reflect the experiences of those who entered the labour market during and since the financial crisis, and to minimise cliff edges between recipients and non-recipients, the introduction of citizen’s inheritances should be phased in, starting with 34 and 35 year olds receiving £1,000 in 2020. Each subsequent year, citizen’s inheritance amounts should then rise and be paid to younger groups, until the policy reaches a steady-state in 2030 when it is paid to 25 year olds only from then on.

  • The citizen’s inheritance should have four permitted uses: funding education and training or paying off tuition fee debt; deposits for rental or home purchase; investment in pensions; and start-up costs for new businesses that are also being supported through recognised entrepreneurship schemes.

  • The citizen’s inheritance should be funded principally by the new lifetime receipts tax, with additional revenues from terminating existing matched savings schemes – the Help to Buy and Lifetime ISAs.

“Lord” David Willetts, who is promoting these ideas, is liberal with his knowledge. At Gregg McClymont’ recent book launch he announced that BT were considering “going CDC”. An indignant BT Pension Director, suggested that I corrected this information (BT aren’t). I guess when you’re a Lord – anything goes.

“Lord” David Willetts is also the architect of DB pension transfers. Why not allow the DB system to be dismantled in favour of capital invested by wealth managers?

I was taught back in those days (1987) that my job as a financial adviser was to put the right money in the right hands at the right time. Financial Planning (then) depended on people deferring gratification and saving. Financial Planning has now been dispensed with – in favour of tax mitigation and wealth preservation schemes.

In short, we have moved from an income based system to a capital based system, largely thanks to “Lord” David Willetts. I put these “Lords” in inverted comments because Willetts really does Lord it. His view, which is now, received wisdom, is that by dumping money at strategic points in people’s lives, Government can do the job that I was told to do – right people, right place, right time.

It’s social engineering gone mad. It’s think-tank madness. It’s Lordly largesse with a big fat lollipop hanging out of the side of its mouth.

Fostering insecurity

It is true that there is less financial confidence among the young than the old. It is also true that the young don’t have to think about death so much, nor the impact of bodies falling apart, nor indeed the responsibilities of having money.

If young people had what old people have – wealth – then they can have our insecurities too!

Actually, one of the challenges of being young, is balancing the urges of short term gratification with the need to be prudent.  The progressive view of the Resolution Foundation is that each generation should benefit from more wealth as they profit both from what they make- and what their parents pass down to them.

So – when the Resolution Foundation find that

Beyond the weak earnings and incomes performance of young adults today, the Intergenerational Commission has identified two major trends which barely featured in political debate for much of the 20th century. The first is that risk is being transferred from firms and government to families and individuals, in their jobs, their pensions and the houses they live in.

In short, the baby boomers are suffering the insecurity of ownership.

The second is that assets are growing in importance as a determinant of people’s living standards, and asset ownership is becoming concentrated within older generations – on average only those born before 1960 have benefited from Britain’s wealth boom to the extent that they have been able to improve on the asset accumulationof their predecessors.

Both trends risk weakening the social contract between the generations that the state has a duty to uphold, as well as undermining the notion that individuals have a fair opportunity to acquire wealth by their own efforts during their working lives.

Actually, “generation rent” – which comprises most people under 35 who aren’t getting a leg up from the Bank of Mum and Dad, have both the insecurity of not being wealthy and the freedom of not being tied down by ownership.

The social contract of which the report makes so much, is based on the Thatcherite premise of ownership, which is actually under threat.

Homes and pensions do not need to be owned as equity, they can be rented and paid from landlords and pension funds.

I see a group of young people (my son being typical) who do not aspire to own anything . They have no record collection (they have Spotify), no car (Zipcar and Uber), no house , no savings – no responsibilities. They have fun and lots of it.

An irresponsible world of youth?

Actually, the millennials don’t seem to be bothered about wealth- or that bothered about debt, they seem reasonably confident in their capacity to cut it in a world where they own the technology, they have the health and the energy to make things happen.

Willetts and co reckon they should be given a dollop of wealth to get them back into the capital owning class that they belong to. But do young people want to be the recipients of hand-outs? I see nothing in this report to suggest that the Resolution Foundation know.

The report suggests that young people are like old people; that they want capital in the form of houses, cars and wealth management.

I see no signs of this being the case. Of course there are entrepreneurs who make their first million by the age of 17 but they do not make for a social norm. The millennial norm is doing fine, having fun, not worrying about being rich or getting angry that they’re not as rich as their parents. They are fine.

Leave those kids alone

The Resolution Foundation has a firm belief in what makes a good citizen and they seem determined to force the mould on generation X, Y and Z.

Meanwhile our kids get on with their lives with little or no interest in what our generation want them to be. It seems this is always the case.

Our progressive view that our kids should be brighter, happier and more fulfilled than ever before, seems to be measured on our terms – not on theirs.

Left to their own devices, young people will reinvent youth their way – ever thus – and no doubt when my son is in his fifties and sixties he will be trying to impose his standards on the generations born twenty years hence.


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

Johnson misses the point; CDC is for the common man

cdc pic 2


I don’t know whether Michael Johnson is being obtuse or obstructive, but either way, his letter to the Financial Times, misses the point.


 A small cabal of consultants to the pensions industry has been banging the collective defined contribution (CDC) pensions scheme (“ Royal Mail eyes Canadian-style pension model ”, May 2) drum for some time.

Without a client cause, success has eluded them: there is next to no demand for CDC from corporate sponsors of pension schemes.

Having transitioned from providing defined benefit (DB) to pure DC pensions, employers have no intention of entering what would be a very complex, untested, arena.

But the opportunity to play a role in settling the Royal Mail’s pensions travails has been gleefully leapt upon. The consultants’ have attached their CDC cause to settling what is ultimately a labour dispute. This renders the CDC debate primarily political, rather than being driven by any performance merits.

This is not a sound basis for the formation of pensions policy.

Michael Johnson -Research Fellow,Centre for Policy Studies,London NW5, UK

CDC will do very little for employers (at least in the short-term). Johnson is right to point out that Royal Mail came to CDC as a means of resolving a labour dispute. There are other potential disputes out there, quite apart from the recent dispute among University Lecturers and CDC may again be used as a compromise solution – but it is not of the least importance to small employers and not to most big ones either.

CDC is important to staff, or at least it will become so, as more staff find out that pension freedoms don’t equate to proper pensions.

As one of the small cabal of pension consultants named (indeed the pension consultant who invited Johnson to the meeting of Friends of CDC to which this letter refers), I am pleased to be recognised for banging the CDC drum.

The alternative would be to allow the UK insurers to press ahead with drawdown for the masses with a fall-back position of annuitisation. Both of these solutions work for insurers but don’t work too well for the UK consumer. If Michael Johnson wants to hand the trillion of so that will be in UK DC by 2030 to a small cabal of life insurers, he should continue along this way.

But knowing him, I do not think he wants this, I think he is a libertarian who generally wants people to choose or at least have the choice of, good ways to finance their retirement, not least to reduce the burden of their maturities on subsequent generations.

It is not the job of small employers to insure against their retired staff’s super-longevity, but employers are quite comfortable to operate workplace pensions (as proven by the successful staging of auto-enrolment).

If an employer was given the choice of a standard DC scheme or an upgraded DC scheme (which enabled staff to have the equivalent of a scheme pension) then few employers would begrudge the upgrade – PROVIDED they were ring-fenced from any liability for the payment of the pension.

If an employer has any residual concern about the potential liability of participating in a CDC scheme, they should not enter into such a scheme. Employees should be free to transfer their DC pot into a CDC “general purpose” scheme.

Johnson seems unimpressed by the arguments put forward by people like me that CDC will produce pound for pound better results than IDC/drawdown or IDC/annuity and he is unlikely to transfer his pot into a CDC plan or run a company that participated in a multi-employer CDC scheme. But his libertarian principles should include a recognition that he does not speak for everyman. Others may hold different view than his.

As for his contention that pension policy should be based on performance rather than policy, I agree.  Royal Mail’s potential settlement has added £2bn to its share price, should a “wage for life” solutions not be delivered, then the performance of Royal Mail’s shares will not be sustained.

That £2bn is of course based on what the CWU’s membership has voted for (91%). Michael may agree with other pension experts that over 100,000 postal workers have been mis-sold the deal by their union, but that is in itself a political opinion.

If we consider workplace pensions as deferred pay ( and we have done for many generations) , then any pension dispute is a labour dispute. By breaking the link between contributions and pensions (firstly by moving from DB to DC and latterly by taking away the need to annuitize), the Government has created a problem for itself.

That problem goes beyond Royal Mail’s current “labour dispute”, it is a problem to do with the adequacy of retirement incomes in later lives.

The Government, which sponsors workplace pensions with generous tax incentives, is perfectly entitled to facilitate innovation in private pensions. This was precisely what the Defined Ambition of PA2015 was designed to do and what the FCA’s Retirement Outcomes paper is calling for.

The Government should see Royal Mail’s request for secondary CDC legislation, not as a burden, but as a policy windfall. If anyone should be gleefully jumping to Royal Mail’s aid, it should be the DWP and the Treasury.

Michael Johnson should remember that the meeting he attended in January had 69 attendees, I have the list and can count only 6 consultants on it. He is as wrong in his memory as he is in his analysis. CDC is for the people , not for consultants and not for employers.

cdc pic



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

Did the 2018 IGC reports meet today’s challenges? Only in part.

IGCs 2018 with TP16

For the spreadsheet with live links, mail



The table above reports on the various ratings given to IGC reports in 2018, it includes the GAA report of St James Place that is good enough to be an IGC report.

I said, when I set out on this task, that I was looking for three things from these reports.

  1. An interest in the provider’s work on decumulation (innovation)
  2. A proper analysis of the provider’s work on  “responsible investment”.
  3. A statement on transfers from other workplace pensions – especially from DB plans.

I got a little satisfaction on “1” and “2”, but no IGCs  engaged with what is happening in the big bad world of transfers.ONS andy

How we spend our money

The money we build up in workplace pensions is there to be spent. The spending of the pot is as close as we get to justifying the tax reliefs given to “saving”.

Most IGCs seem to consider their remit to extend only to the point where the member reaches some notional retirement point and then cashes in the pot. Pot encashment is not happening at anything like the rate anticipated by some. Money is transferring from savings programs to wealth management programs which could often be described as wealth preservation programs.

The concept of a pension as a means to mitigate inheritance tax, is as bizarre as the idea of swapping a pension for a Lamborghini. Sooner or later, providers are going to have to exercise some control and give members who don’t know what to do, a guided pathway that approximates to a pension. If workplace pensions don’t adopt CDC, then the product needs to provide a collective drawdown option which offers a real alternative to an annuity. I saw little or no evidence of IGCs engaging with these issues in the 2018 report.

Engaging through responsible investment

For all the hand-wringing about policyholder’s lack of engagement (either in saving or in reading these reports), IGCs are still struggling to understand why people find pensions so very boring.

In my recent piece on pensions and the blue planet, I highlighted research commissioned by a group of fund managers, that concluded that people don’t find pensions so boring , if they know where their money is invested and that it’s invested responsibly.  This report can be read here.

There were some good analyses of provider behaviour with regards concepts like ESG and SRI, but none really made the link between what the member wants and what the provider can deliver.

I hope the DCIF deliver their report to all IGCs (and GAAs) this year. I hope that all members read it rather than wasting more time on vanity projects on member engagement which are little more than pointers for the provider’s marketing departments.

Responsible Investment should be what Workplace Pension Defaults practice. Let’s hope that by this time next year, the trend developed by L&G and NEST to offer members responsible investment as standard, are adopted by others. As for the IGCs , they should be calling for responsible investment to be as standard as the wearing of seat belts in cars. “clunk click every trip”.

That said, we did see a section on responsible investing in almost every report, which is a move in the right direction.

The workplace pension for transfers.

For most people, their workplace pension will offer lower fees, better default investments and – let’s hope default ways to spend money. They should be – for most people – the way, not just to save in the workplace, but to spend in later life. They should be both pension and deposit account, a reliable source of funds in later life.

It is therefore extraordinary that workplace pensions are pretty well ignored in the transfer debate. They are rejected by most IFAs in favour of wealth management solutions which offer ongoing involvement for the adviser, not just in the advice on drawdown, but on the management of the drawdown pot.

Most workplace pensions (including NEST, Peoples and NOW) do not offer advisers the opportunity to be paid from the fund for initial transfers (contingent pricing) and are therefore ruled out of court. Even those providers (like L&G and Aviva) who offered workplace pensions to steelworkers, hardly got any money into their workplace pensions. This appears because TATA and Liberty, the principal employers behind these workplace pensions, were shy of putting forward their products.

Many large occupational pension schemes do not make their workplace pensions available to transfers from active employees. This is because they do not want to be seen to encourage transfers. But the transfers are happening anyway, sometimes we are seeing members accruing DB, ceasing to accrue and then transfer to an advised SIPP, even when the employee is still in employment. Ironically, the employer is turning its back on these people. I’m pleased to see that Lloyds Bank’s “Your Tomorrow” scheme has recently changed policy on this.

Transfers from DB schemes tripled from 2016 and 2017. Yet not one IGC mentioned this change in workplace pensions.

The IGCs are simply not engaging in this issue. They should be asking their providers whether the providers are making the “transfer in” option available to members and promoting the advantages of using a workplace pension for saving. If the Aviva GPP and the L&G workplace pension had been advertised in Port Talbot and Teeside, the abominable solutions put forward by firms such as Active Wealth, would have had a benchmark.

I find it hard to credit, that most IFA reports I have read on transfer options did not even mention the opportunity to use the workplace pension.

I find it hard to credit that not one IGC report I have read, has focussed on the role of the workplace pension as a “default” for those who have decided to transfer away from their DB plan.

Some final thoughts on IGCs in 2018

In 2018 IGC reports show IGCs more effective and more engaging than in previous years. They are slowly getting to grips with the concept of value for money, but most are still along way from reporting on it effectively. More work needs to be done if the 2019 reports still show such inconsistency in Vfm reporting.

With regards the future, IGCs have to move with the times. We are in a world today where consumers are much more aware of the Blue Planet than when the terms of reference of the IGCs were established (2015). Such is the pace of change, that a review of the TOR may be needed to ensure that 2018 focusses on what matters to members.

There needs to be urgent thought by all workplace pension providers about what can be done about decumulation. IGCs,Employer Trusts and  Master Trusts should look closely at what comes out of the DWP legislation on CDC and see what can be taken for their schemes. IGCs should be pushing providers for the innovatory solutions called for by the FCA.

Finally, and belatedly, the IGCs must look at the numbers below and ask themselves why the schemes that they are so proud of (only one IGC referred its provider to the FCA in 2018), are not being used as safe havens for transferred money. There remains an opportunity for workplace pensions to be better promoted both for primary transfers and for secondary transfers from unsuitable SIPPs.

I hope the Chairs of IGCs, especially those I am critical of, take note that I can change my views (Royal London being an example). There are no underlying prejudices, I simply want IGCs to become effective consumer champions as the OFT meant them to be – and the FCA require them to be.


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Hargreaves Lansdown’s IGC as pretty and effective as a chocolate teapot!



In 2015, David Grimes and the Hargreaves Lansdown IGC, delivered what remains the worst IGC report I have ever reviewed. Things improved considerably in 2016 but the IGC has not kicked on and I find the 2017 report disappointing. It is a good read and has the kind of stock images that would make me feel valued (something that HL do better than anyone other than perhaps SJP). Hargreaves no longer call their workplace product “Corporate Vantage”, it is their HL Workplace SIPP. In terms of innovation, HL are unlikely to be at the front of the queue, they are the market leader at what they do and they will do all they can to keep things that way.

And here I think is the problem. While HL’s report is from an IGC  (and SJP’s isn’t), the SJP GAA are really biting into the neck of their provider to see what blood runs in its veins. The HL IGC report is clubby and nice, but it really is a bit of a chocolate teapot. The status quo must prevail for corporate objectives to be met.

Value for Money

The report rightly focusses on funds – this is what HL does, present funds for investment which are likely to do better than their peers.

The function of the IGC in such circumstances is to ensure that the selection process is good and that the monitoring and communication of that monitoring is also good.

The IGC this year has chosen to include an investment commentary on selected funds which is from HL and not their own work

This is all very well when things are going well, and things are going well for most of the default and core funds under scrutiny. But what happens (as is happening with the Newton Real Return Fund, when the fund underperforms its benchmark.

The fund has achieved its aim of producing cash-beating returns over time, while also sheltering investors’ capital during difficult periods. We believe the fund is an excellent choice for relatively cautious investors seeking a core holding for their portfolios.

Is this good enough when the benchmark is actually rather more serious than beating cash, the displayed benchmark is as follows.


The Fund has and continues to underperform over 1 (1.67), 3 (5.63) and 5 (13.74) years

So what is the IGCs reaction – well there is no reaction. The IGC doesn’t comment on this underperformance and it doesn’t pick up on the gloss given by the HK commentators either. In governance terms, this is as useful as a chocolate teapot and calls into question many of the other judgements in this report.

If performance = value, then fees =money. In the value for money debate, the HL IGC are equally limp on either side of the equation.

They have clearly detailed the costs of the main funds within the HL workplace SIPP

fees hl

But the level of analysis is very weak. Anyone who thinks that HL are passing on the full discount it gets from IMAs with any of these managers has a very naïve view of platform economics!  HL makes its money from its platform fees (just why the fee for Schroder’s is lower is not explained -typo?). It makes more money from retained margins between the amount it pays through its investment management agreement and what it charges in the fund charge. Is the total margin value for money, we have no analysis other than the feeble.

The IGC notes the platform charge for the HL Workplace SIPP is higher than many other platform providers’. However, members also benefit from HL’s considerable buying power, which enables the default and ABC funds to be offered at significant discounts to members. The result is that the overall charges (platform fee and fund charges together) are not out of line with the market.

The real issue is whether the entire proposition represents value for money and the IGC continues to keep all dimensions of the offering under close review; at present the IGC is happy to confirm the services provided within the platform fee do represent good value for members.

Which is about as rigorous as “£81bn of member’s money can’t be wrong”. Hargreaves Lansdown is a money making machine which is charging 0.75% for a default fund that has a further 0.13% in transaction costs. 0.88% is a lot of money for a fund that has (net of the fund charge has barely beaten its benchmark, and net of all fees has consistently over one, three and five years – underperformed. The impact of all fees on the customer experience in both HL defaults – drives the net performance of HL’s defaults, below the benchmark returns (which are themselves net of fees).

This is not mentioned in the IGC report, nor do we get a clear idea of what is going on with cash management (now under the auspices of a Non-Executive Director). Since the HL default runs into cash, this matters. It would well behove the IGC to demand a clear statement from the NED on what HL actually made from cash last year rather than the insipid

The IGC note that HL has a process in place to ensure that the difference between earnings and the distribution on cash is below the Government charge cap. A fair and competitive rate of interest is distributed and overseen by a Non-Executive Director.

If the level of analysis committed to “competitive” is similar to that elsewhere, then I have no confidence that HL members are getting a fair deal on cash.

The entire section on value for money in this report is feeble. The HL IGC has a duty of care to its members to be rigorous, and the IGC is flaccid. HL are and should remain a shining light for transparency, the flag bearers for MIFID II, fund educators and all round good guys. The IGCs standards need to be commensurately high, they are not, and HL will continue to mint money from their margins – until the IGC asks some serious questions about fees and fund selection and monitoring. I am tempted to give the IGC a red but will stop at an orange. Compared with its first report, this is still good enough, but compared with its potential, the IGC is a VfM under achiever – it gets an orange.

Effectiveness and engagement

This is a well enough written report, there is nothing in it that surprises me or indeed is supposed to surprise. The last section deals with the results of the HL survey where members complain about costs, transparency and investment performance (see above).

There is a degree of complacency evident in the IGCs reaction to these complaints which suggests either a lack of engagement, or effectiveness or both.

HL customers are bound to be more engaged than others, HL offers a non-advised service where customers are buying direct. Unlike SJP, there is no partner or adviser in the way – so policyholders are likely to be using the IGC as its only intermediary.

If I was an HL investor (and at the levels of margin I see within their product – that is very unlikely), I too would be pushing hard for more transparency, putting pressure on fees and wondering just why Newton (and to some extent the default providers) were on the platform.

So while I found the report a good read and offer it a green (for grace), I think it is ineffective and for its lack of push-back on all of the above – I give it a red for clout!


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SJP policyholders deserve an IGC. They have a great GAA – but that’s not enough!

st james place

St James Place is one of Britain’s largest financial institutions, it is a FTSE 100 company with 2017 revenues of over £9bn. It is therefore surprising that its exposure to workplace pensions is so limited that it does not need to run an Independent Governance (IGC)Committee, but instead is externally governed by a Governance Advisory Arrangement (GAA). In any event, I would question whether the “kid brother” status of the GAA is appropriate for an organisation with the responsibility and reputation of St James Place PLC.

But there are two further matters which suggest to me that SJP shouldn’t be “getting away with” sub-standard scrutiny.

The first is that it has within its control, rather more “relevant scheme” for workplace scrutiny than it previously thought.


Why the extra 6000 policyholders with nearly £1bn of assets weren’t previously included isn’t clear, though the GAA make it clear that they weren’t there in previous years.


On its own, I would suggest that this should be ringing significant alarm bells at the FCA.


However, there is a second significant link between SJP and the workplace which hasn’t been disclosed and isn’t within the remit of the GAA to discuss. I’m referring to the very significant inflows to SJP from workplace DB pensions through cash equivalent transfer values (CETVs). For obvious reasons, SJP are coy about what percentage of the £90bn under management came to them this way. In the last quarter alone, SJP£2.2 billion came into the pension offering, a figure 48% higher than in the first three months of 2017.

All things else being equal, one has to assume that the surge in pension assets is in line with the surge in transfers identified by the Office of National Statistics.

ONS funds

I have argued elsewhere that this money , originates from workplace pensions and has been granted its tax-reliefs and NI exemptions as part of the occupational pension framework. That is should now be excluded from the scrutiny of an IGC (or with SJP a GAA) is illogical.

In the case of SJP, I have seen evidence from large occupational schemes, of SJP topping the list of wealth managers to whom trustees have been writing cheques.

The IGC structure is well suited to examining the value for money , not just of ongoing workplace pensions, but of money formerly in workplace pensions. SJP have more of that money than (I suspect) any other wealth manager/ provider in the country and they should not be operating a GAA rather than an IGC. Let’s hope the GAA is upgraded in 2018/19.

A very good GAA report.

Apart from the increases in relevant schemes and the huge increase in pension assets (from DB), there is a third reason for upgrading SJP’s governance from GAA to IGC. The GAA – under the chairmanship of Pitmans’ Colin Richardson, has produced an excellent report – under the restrictions of being a GAA – a superb report.

The report is well laid out, well written, interesting and very effective. Against considerable headwinds it comes up with a meaningful value for money assessment.


This is very far from a clean bill of health. To only give SJP – a FTSE 100 company, an overall assessment inches from poor is a strong statement. Had the assessment been one notch further into the red, I imagine that Richardson would have had no choice but to refer SJP to the FCA. As it is, I think there is strong grounds for doing so in 2018, unless things improve fast.

A healthy scepticism

At no point in this quite long report (29 pages), do I feel that Richardson and his team are taking anything at face value. Early in the report we read

The GAA took into account the high levels of policyholder satisfaction reported by St. James’s Place.

but the GAA return to this subject – with a hint of concern

as this is a high quality, high cost proposition with St. James’s Place claiming high policyholder satisfaction the GAA sought to review the methodology of the policyholder satisfaction surveys. The GAA would like to review this further in the next year.

What appears to be direct feedback, is anything but…

St. James’s Place will receive and filter all policyholder communications, to ensure that this channel is not being used for individual complaints and queries rather than more general representations which may be applicable to more than one policyholder or group of policyholders. Where St. James’s Place determines that a communication from a policyholder is a representation to the GAA, it will be passed on in full and without editing or comment for the GAA to consider.

This is an editorial policy that the Stasi would have been proud of. The GAA is quite right to push back.Stasi

Inconsistent investment management

A more substantive, and even more worrying concern for the GAA is that it finds it impossible to measure what is going on with the £1.25bn of assets it now governs; its headline criticism is that

..the selection of suitable investments from the range of model portfolios and other funds appears variable

This is because the management of these relevant schemes is in the hands of individual partners, who do not reveal the secrets of their management. The GAA does not see this as at all beneficial

Therefore, we believe this is likely to lead to more appropriate individual investment strategies for policyholders. However, the review showed example portfolios for sample policyholders remaining static over the medium term and we wish to review further next year the frequency and depth of SJP Partner review of portfolios

The question is one of sustainability over time

Whilst the GAA views the process of construction of ‘model portfolios’ as strong, the GAA questions how easy it may be to maintain such performance in a general lower return environment if we are entering such a period.

This is a sound analysis, if it cannot be measured, then there is a governance failure, the SJP investment model – is (in terms of independent governance) ungoverned. The GAA rightly highlight this issue as a key determinant of its lowly VfM rating.

The thorny issue of SJP member costs

The attitude of the GAA to cost disclosure and cost management is clearly hardening. Costs fall into two categories, what policyholders pay for “product” and what they pay for “funds”.  On product charges the GAA has this to say

the GAA have noted that the impact of charges varies widely between policyholders. St James’s Place have informed the GAA that charges were under review in 2017 but no changes were made this year.

SJP are stalling and the GAA know it, had they the clout of an IGC, would they be knocking on the FCA’s door – I’d hope so.

As regards fund costs and charges, the news is little better.

Transaction costs will also be borne by policyholders, based on their underlying investments. St. James’s Place publishes details on its website in line with guidance from the Investment Association, and, like all providers, are awaiting further FCA guidance on the calculation and disclosure of transaction costs.
Limited information was provided on transaction costs, due to the difficulties of analysing dilution charges. The GAA will look in more details at the transaction costs in future reports. The methodology and timing have now been clarified by the FCA with an effective date of 3 Jan 2018. As such there has been limited time since then to meet the requirement within the reporting period. We are expecting to be able to provide fuller information next year.

The analysis of SJP’s investment governance is rightly favourable

The range of funds is determined by St. James’s Place and how it is tailored for individuals is determined by the SJP Partner, under supervision by St. James’s Place. This offers individuals a higher level of governance compared to most other workplace pension schemes.

But the GAA simply don’t have the resource to discover the investment management agreements behind the funds employed and whether SJP are passing on the economies of scale , its £90bn of assets should be providing its policyholders.


So – for reasons more to do with resourcing than intent, I cannot give the GAA a green – but only an orange, for its value for money work. I will however, be treating the SJP GAA going forward as if it were an IGC – were it a proper GAA it would have got a green. It does well for a role it has outgrown.

As mentioned earlier, I consider Colin Richardson has written an excellent report, which is engaging and interesting. It gets a green for its style, content and focus.

I am also convinced that the GAA are no patsies, that they clearly see what they cannot see clearly and will not relent from demanding more transparency from SJP. I give the report a green for its being effective – in the face of many headwinds.

St James Place, are ducking their responsibilities by not having a full IGC and they are getting away with blue murder on a number of fronts. Whether the FCA will call them to account in 2018, I don’t know. But I don’t think the current governance situation is satisfactory and I call on the FCA to upgrade the SJP GAA to and IGC ASAP!


In 2016 I published a full review of GAAs (including SJP’s which I called on to be upgraded). You can read this review here.

I have not published a full list of the other GAAs in 2017 or 2018, because of lack of time. I am concerned that many policyholders of small insurers and SIPPs are not getting the care they deserve from their GAAs. I am absolutely sure that the vast majority of these policyholders have no idea that the GAAs even exist.

The FCA might use the SJP example to more generally review GAAs. My next and – probably final – review of the year will be of Hargreaves Lansdown, a principal rival of SJP. Hargreaves Lansdown does support a full IGC.

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“As for pensions – tell me what to do and let me get on with it!”

I can do it

The quote in the title comes from a friend of mine, who has a successful web-based comparison site (that doesn’t compare pensions). The comment has haunted me since Christmas.

What’s that coming over the hill?!?

uh- “guidance”…

uh – “single guidance body”

The Financial Guidance Bill is making its way through parliament.

If Government were following the rules of business, it would have scrapped the central construct of the new legislation, the single guidance body. Instead the amendments listed here support the inexorable progress of this quango, the lovechild of the Money Advice Service and Pension Wise.

Pension Wise has not been a success. Infact it has been a failure. If it was proof of concept for the single guidance body, it has shown that the concepts of financial guidance, advice and education are no closer to being grasped by the general public than they were by the Chancellor in his budget speech of 2014.

We are in danger of quarantining the phrase “financial advice”, in a place where only highly qualified financial advisers can go. If we define “financial advice” , as the Pension Advisory Service does, as the provision of a definitive course of action, then you’re not going to get “it” unless you sign a terms of business and pay money for it. Financial advisers would say this is as it should be. Their lobby has effectively created a monopoly on “telling people what to do”. But of course you cannot quarantine something as amorphous as “advice” and as there are financial implications to most things we do, the quarantining of financial advice will be as helpful as nailing water to a wall.

The single “guidance” body had, at one times, designs on requiring us to all be subject to a “sheep dip” known as a “mid-life financial MOT”.  The idea was, that rather than the voluntary guidance available from Pension Wise, we would be forced to pay attention, at least for forty minutes, to our long-term finances. Not since the introduction of compulsory education in schools, has such an ambitious program been proposed. Unsurprisingly, the idea appears to have reached its high-water mark.

So what is emerging is a very insubstantial Bill with the feel about it of fairground crab-thrapping. Whacking a crab (or mole) is hugely satisfying to the thrapper, but crabs and moles abound and the faster you hit them, the more they reappear, You can be a champion thrapper, but the crabs and moles survive to carry out their pernicious practices once you have left the stall.

The amendments are principally around pension cold-calling, which will be banned (at least from within the UK) from as early as the summer. This is a victory for good sense, though it will hardly leave the scammers exposed. Already, lead generators are hard at work creating pension enquiries from online activities that lead us to leaving our telephone numbers in a data capture device. My guess is that these “hot leads”, self-generated” will solicit a phone call which will be “warm” enough.

It is very hard to see us preventing scamming by suppressing supply. The best way to suppress scamming is to improve the supply of relevant help for people.

The absence of “help” on pensions is very evident to the general public.

If you go to “Go Compare” or “Compare the Market” of  “Money Supermarket”, you will be able to get your car insured, your life insured, sort out short term savings, find out about mortgages, compare credit cards – do all kind of useful financial tasks.

But you will not be able to find out about your pensions.mse3

Even Martin Lewis is silent on pensions. I’ve been going to MoneySavingExpert for 10 years now and I have never seen so little stuff on pensions on the site. Not one of the headline services is talking about retirement, retirement saving – the word pension seems to be taboo.

The sad truth is that none of the great comparison websites that are so crucial to our financial decision making, has a pensions business.

Talk to the people who run these sites and they are not happy about this. They would like people to come to their sites and transact. But they find it very difficult to help.

Over the next few months, I will be exploring why this is. I want to know what is stopping people taking decisions on what to save, where to save and how to spend their savings, without recourse to advice or government guidance or a financial education program.

I want to know why everyone thinks its so easy to press a button marked “transact” for credit cards, ISAs , loans and insurance but why pensions remains “out of bounds”.

I want to know why telling someone what to do is a “quarantined” action and how people can by-pass advice and do things for themselves without risk of being bitten by some rabid scammer.

I want to know why people can’t manage their financial affairs in retirement without being considered “Lamborghini” feckless or recklessly conservative.

We should not give up on providing people with a definitive course of action.

As well as reading the amendments to the Pension Bill, I also had the time to read an article in Pensions Expert which contained this interesting thought.

When the Department for Work and Pensions allowed the industry to block mastertrust Nest from entering the drawdown market in 2017, it did so with a proviso; the industry had to drive innovation itself.

The “reassurances” offered to policymakers were such that the DWP expressed “hope that development of new products will progress at pace now that the freedom and choice reforms are well established”.

One year on, and some politicians are questioning whether the collection of competing mastertrusts and insurers have earned their respite from what they had labelled market distortion

Politicians I speak to are as frustrated as the general public that there is no “obvious thing to do” – no definitive course of action.

For the public to be satisfied, they need to be able to get to grips with pensions as they can do with any other financial matter.

This country has one of the great internet buying cultures of the world, according to Wake up to Money this morning, 17% of all shopping now happens on-line. And yet , outside of the workplace, nothing “pension-wise” is happening at all.

It really is time we started putting to people default solutions that make simple sense. Innovation is needed and innovation is happening, talk to the 145,000 Royal Mail postal workers.

Origo has reduced the processing time of transfers from 50 days to 12 days, there are opportunities to go further.

Innovative new aggregators are coming into the market and talking about ways of looking at products using value for money scoring to compare “apples” with “pears”.

In short, the Financial Guidance Bill is a hopeless irrelevance that simply treads water. The single guidance body will be a flop, as Pensions Wise was a flop. People don’t get guidance, they want advice and they want to be told what to do by people like Martin Lewis who they trust.

They can’t get what they want right now and they are rightly frustrated (as are the politicians).

This all adds up to this being a time of opportunity, for someone to take a lead and deliver what people really want – a definitive course of action – being told what to do!


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Whatever happened to “pot follows member”?

pot holes

The Liberal pension spokesperson – the very shadowy Stephen Lloyd, has labelled the Conservative Government “incompetent” for shelving Steve Webb’s pot follows member initiative (which should have arrived in 2016).

Guy Opperman, with the weight of the Government’s massive research into this area (ho ho ho), has determined that “now is not the right time” for such an initiative. This is “not so subtle” code for “don’t bother me with this, I have enough on my plate”.

Guy does indeed have a few matters on his plate, like sorting out the rules for Royal Mail and others to go CDC and – more importantly to his reputation – to make something happen with this Government Pension Dashboard.

The CDC project appears to be moving in the right direction and I hear word that it may yet adopt some of the unloved DA legislation in PA 2015. If that’s the case, then CDC may have more flowers blooming in its garden than the snowdrops seen so far.

The Pensions Dashboard is doomed to failure so long as it is a Government project. The only way to make Government Pension Policy to work is to put it in the hands of Michelle Cracknell but as she is currently fighting for TPAS’ identity in the brave new world of the single guidance body, I doubt she is in any position to help.

Lovers of grand Government pension initiatives will point to auto-enrolment – but that work because the Pensions Regulator let the private sector get on with it. They will talk of NEST, but that worked because it was given a £1.2bn leg-up by the tax-payer and got extremely lucky (just how close to being a net-pay disaster NEST was, has yet to be revealed). NEST worked because of Tim Jones and latterly Helen Dean and because (for once) the DWP had a 10 year run at it.

None of which is the case with the Pensions Dashboard, which has Charlotte Clark (a NEST  stalwart in charge, but the budget of a Lada to NEST’s Rolls Royce).

And so to pot follows member

The best thing to say about the Government’s policy on pot follows member, is that it has abandoned it. Government could no more direct pots to follow members than Canute could have directed the tide to reverse and keep Canute dry.

Pots will follow members when

  1. It is easy to aggregate
  2. People know the value of their various pots (not just £sd but Vfm)
  3. There is something worth aggregating to.

Since most of the best pension schemes are not generally open for aggregation, point 3 is very live. There are aggregators out there, ready to get your money, but frankly – how do you know they are any good?

The argument that if you transferred a DC pot , you might be putting “the Ming Vase in a boot sale”, carries some wait. But not if there was a financial equivalent of an Antiques Roadshow for legacy financial products. You do not need an Arthur Negus to spot a Guaranteed Annuity Rate, you simply need a robust process that ensures that GARs and other financial oddities are flagged by ceding insurers.

The more general argument – that there is no Value for Money measure to compare a legacy pension pot with a Pension Bee or Evestor, is more serious. People will not press the transfer button without a degree of confidence – and short of an adviser telling them what to do (and taking some responsibility for the outcome), people are not transferring “old pots for new”.

What can the Government do?

If Guy Opperman was in listening mode (as he has been with CDC), then he would go and have a chat with the people at the Treasury who conceived Pension Dashboard 1.0. This conception stopped short of a Government built and run dashboard and encouraged small, agile Fintechs to use the protocols created by Government to gather data about pots and their value (and value for money).

This work is being carried out in the institutional space by Chris Sier and his IDWG, but there is (as yet) no retail trickle-down. Opperman should speak with Dr Sier to see how the templates he is creating (to find out what we are paying and getting  for fund management) could be used to find out what we are paying and getting  for policy management (e.g. the vfm of the pension contracts themselves).

The Government can also shake up the FCA to shake up the IGCs to ensure that recalcitrant insurers make contract information available to organisations establishing dashboards with which people can monitor “value”, “money”, “value for money” and press the button that says “transact”.

We have the tools.

One of the oddities of pension policy is that we have – very slowly, built up the tools to allow pots to follow member. We can quite easily run dashboards and we could populate those dashboards with real-time data which could allow people to take decisions about which pots to fold into what pots!

We also have the technology, much of which has come to us from auto-enrolment. I’m talking about the application programming interfaces (APIs),  which we’ve built to allow insurance and trust based record keeping systems to talk to payroll (and other) systems.

We have the understanding of slippage to know how to get at the hidden costs within funds and this can be extended to understand slippage within policies (the cost of life styling for instance). So we can tell “money”.

We have a way of measuring gross and net performance so we can check that our money calcs are accurate and that the slippage between the performance of the assets and that of the fund is in line with our slippage calculation.

And if we can measure net performance, we can assess it on a risk adjusted basis so that we can tell people on a lemons v limes basis, whether one contract is giving better value for money than another.

We can even – for those who value these things – measure the user experience of one contract against each other, so that people besotted by one platform’s support, can compare it with another’s.

Whatever happened to “pot follows member”.

Pot follows member is stuck and – left to the Government -it’s going nowhere. But the Government don’t know what its like to have multiple DC pots (they have DB pensions).

People who have multiple pots and are closing in on 55, want all their pots in one great-big-pot”, because they know about economies of scale, because they know how hard it is to manage pension freedoms from multiple pots and because they suspect that some of their legacy pots aren’t doing them any favours.

The one chink of light in the gloomy pre-Brexit penumbra, is that people like me are talking about this and that out there – deep in the gloom – people are building the kit that will make pots follow member.

I will keep writing these blogs in the hope that people will call me on 07785 377768 or email me and join the swelling band.

Pot will follow member – whatever the Pension Minister says!

Pensions or pots



Posted in pensions, steve webb | Tagged , , , , , | 2 Comments

By George, I just shrunk the pension!

honey i.PNG

While “workplace pensions” go from strength to strength in terms of coverage, the amount of money being paid as “pensions”, certainly in the private sector, is likely to shrink. this article looks at why and asks some awkward questions about the long term consequences to ordinary people when they lose their “wage for life”.


The Office of National Statistics publish a document known as MQ5 which contains a spreadsheet – famous to actuaries – table 4.2 (Pictured below)ONS funds

It contains regularly updated data on the state of UK pensions and is studied with the intensity of astronomers peering at the milky way.

The latest update- keenly awaited- contained the 2017 numbers; the stand-out number is a jump in transfers out of defined benefit pensions into personal pension “pots” from £12bn in 2016 to £34bn in 2017. This is the actuarial equivalent to finding a “black-hole” on your galactic doorstep.

The £34bn in voluntary transfers is not only three times the 2016 level, it is three times the amount involved in insurance buy-outs – the accepted medium by which trustees get rid of their liabilities or (more politely) “de-risk” their scheme.

The unseemly rush to the door is proving an embarrassment to all parties; the Pensions Regulator is consulting with the FCA, the FCA is consulting with the public. This was definitely not in the Treasury forecasts , published in the wake of the 2014 budget announcement.

Treasury DB transfers

From Treasury impact assessment of Pension Freedoms -2014


The stable door is open and meanwhile wealth managers are leading out the horses with the cheerful message “buy now while stocks last”.

There is a real threat that the bonanza will not last; the FCA’s consultation is into whether contingent charging should be banned. Were it to be banned, the current ability of advisers to charge fees “contingent” on the transfer going ahead, has enabled payments of tens of thousands of pounds from tax-exempt pension pots – VAT exempt.

Many pension experts consider that it is contingent pricing – a practice that has come to the fore in the past two years, which has led to the astonishing increase in transfers.

But the stable door will be shut too late for billions more to have transferred and this is now a genuine issue for those in reward. For so long as this money was destined to pay pensions, it was “deferred pay”, with the money in “wealth”, the link with reward is broken.

As steelworkers in Port Talbot discovered, the arrival of six figure sums into accounts of those over 55, gives people the confidence to retire immediately. Many advisers complain that the transfer values, high as they seem, are inadequate to support early retirement but the lure not just of pension freedom, but freedom from the blast furnaces, has proved compelling.

Included in the £34bn – identified by the ONS will be £4.2bn from the Barclays staff pension scheme, £3bn from the Lloyds Banking Group Pension Scheme and close to £3bn from the British Steel pension scheme. These huge sums will never be paid by pensioner payroll, they will be drawn down from self-invested personal pensions or cashed out to buy anything from home improvements to Lamborghinis.

While former pension minister – Steve Webb – may continue to argue that people are quite entitled to swap their pension for a sports car, those in reward may feel differently. The traditional point of running a pension scheme was to ensure that long serving employees can move from employment to retirement and be paid a wage for life.

Instead, some communities, Port Talbot among them, are now swamped with pension wealth which may last as long as a lottery win. The implications for the communities are worrying as is the impact on the workplaces. While one generation of workers are enjoying a windfall from a defined benefit pension, another is struggling to accumulate money in a workplace plan.

If reward strategies are to be deemed fair, there will have to be a remarkable recalibration of pension policies. For many of the children of those retiring today will be seeing their pension pots accumulate at the auto-enrolment rates.

And it is only a matter of time before some of these transfers are spent and former workers find themselves looking for work again, as they discover that they are rather more healthy than they’d ever expected to have been.

All of which leads us back to the orderly dispersion of money through a pensioner payroll. The idea of a stream of payments that last as long as you do, is deeply unfashionable at the moment. However, we may look back at the transfer frenzy of 2017 and 2018 as a time of great loss.

The discipline of paying and receiving a pension, relative to the drawdown of a capital sum, is something that it is easy to dispense but very hard to return to. Let’s hope that we learn that lesson before there is nothing much left in ours great private pension schemes – to pay out

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From EasyBuild to Peoples Pension; B&CE’s IGC’s “special purpose”.


Time to pack your bags


BB&CE’s workplace pension empire has changed. EasyBuild  is shrinking its policyholders  and moving their “pots” to  the People’s Pension  with the help of The B&CE IGC.

EasyBuild was once Britain’s largest stakeholder pension scheme, the B&CE flagship. , B&CE has moved with some agility to running one of Britain’s largest master trusts – People’s Pension.

The transition is a result of Government interventions, the stakeholder initiative has been supplanted by auto-enrolment. B&CE has been at the forefront of providing for small employers and their members both as a stakeholder and master trust provider and should be commended for its foresight, responsiveness and operational efficiency.

Over the course of 2017, all but £9m of the £1.2 bn. in EasyBuild moved to People’s Pension , securing lower charges and a more certain future for the rump of stakeholder pensioners. Of the 2000 policies remaining in EasyBuild, 400 are for those who have died (and are awaiting payment) and 700 are in the process of transferring away to other providers, the 900 members left will be looked after by the IGC, though you would hope that keeping an expensive governance committee in place for much longer , can be avoided.

The B&CE IGC has overseen an effective dismantlement of EasyBuild and , though it fights on for lower charges for the remaining members, the work of Delo, Pickering et al is as good as done. Those who were members can thank their IGC for doing an effective job. I give them a green – this transition has no doubt been conducted better for their help, expertise and oversight.


The 2017-18 IGC report still engages

One of the good things about reviewing IGC reports is that none are written to a template  (unlike some GAA reports). Even with such a meagre audience, the B&CE report reads a considered piece of work. Steve Delo, the Chair, is used to working to a tight time and financial budget and though there is a little padding (see appendices), this report is engaging and – for those interested in consolidation of small pots – a fascinating case study. It is to both the IGC’s and B&CE’s credit that this report exists and reads as well as it does ; it too gets a green.

Value for Money

I won’t go so far as give the report green for amber for money. I will give it an amber, since what is happening within EasyBuild is no more than care and maintenance. While the 900 members who choose to stay within EasyBuild may be an irritant to B&CE, they have taken a conscious decision to stay (opting-out of the transfer). B&CE pledged to provide a stakeholder pension through to their chosen retirement date and has an obligation to do so and these members deserve to be treated as fairly as any other customers (including members of People’s Pension).

I fear for groups like this, the pensions equivalent of property tenants and owners , holding up the clearance of sites intended for other purposes. While I am sure they will not be harassed, let’s make sure they leave on good terms. I hope too that they are not holding out for bonus payments to clear off and that B&CE will not buy them out on  special terms. The IGC should not be kept alive as part of a protracted dispute ; it should close itself down as soon as the FCA will let it.

Since the sum of money the IGC is looking after (£9m) is rather lower than the governance budgets of some larger IGCs, I suspect that given time, the IGC will become one of Easybuild’s greater expenses, because of the stakeholder charge cap – that expense won’t fall to the remaining few policyholders, but it will put a brake on greater value for money which no doubt be available elsewhere.

In Conclusion

The transition of almost all assets within EasyBuild to People’s is another quiet success story for People’s Pension and for its owner B&CE.

Because the transition has been successful, it is not subject to the publicity that usually accompanies the wind up of a collective financial arrangement.

Other IGCs should look at the example that B&CE has created and ask whether there may not be arrangements such as EasyBuild within its remit, that could be managed into the equivalent of People’s Pension (a large and growing arrangement offering better value for money for members.

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Nothing wrong with being contrarian – the Hargreaves Lansdown 2018 IGC report

HL Workplace solutiosn

There’s a compelling logic to the HL IGC Chair’s introduction

Since they all relate to value for money for scheme members, our findings and progress are set out in the following analysis of value for money.

Value for Money is not only the measure, improving it is the objective and that objective leads to increased contributions. This is the conclusion of the HL IGC and it is one that HL would undoubtedly sign up to. Higher contributions equals higher shareholder value from the HL Workplace SIPP. Wins all round.

I buy into this vision, where the customers are engaged in saving and investment and HL has a very special type of customer, it has customers that not only can – but want to “do it themselves”.

Evidence of the utilisation of non-default funds can be seen in the number of members making alternative investment choices. 29%of members (28% last year) invest outside of the default funds and 53% of HL’s workplace pension scheme assets (51% last year) are outside of the default funds. This reflects a high level of member engagement.

This is the contrarian world of Hargreaves Lansdown, a firm that demonstrates what can be done by knowing your customers. But highly engaged customers can be vulnerable too, there is a fiduciary responsibility on HL and its IGC and the challenge for HL is to make sure that when focussing on greater engagement (and contributions) HL do no take advantage of the position it has built up – and rip-off its customer base.

My worry is that the HL IGC are a little in awe of the reputation of Hargreaves Lansdown and forget that their primary responsibility is to the member.

The good news for HL customers is that the default workplace options available to employers and members are currently delivering the goods

hl perf

The not so good news is that when it comes to the “money” side of things, the HL IGC is rather short on detail.

The real issue is whether the entire proposition represents value for money and the IGC continues to keep all dimensions of the offering under close review; at present the IGC is happy to confirm the services provided within the platform fee do represent good value for members

This would be fine if there was evidence of how HL’s charges compare with other similar providers. “At present”, suggests that the IGC has it in mind to demand improvements in member charges as HL’s proposition grows in shareholder value.

The (otherwise pretty boring) findings of the member survey , includes this conclusion about HL satisfaction scores

Most were rated as either good or excellent. However, one area the IGC were concerned with was the relatively high number of ‘I don’t know’ responses to the cost of the plan

You would have thought that the IGC would have used the opportunity of the Chair report to explain how HL is making its money and give members the transparency they claim they lack.

But the report fails to do this. Though we have tables on communication metrics (how long does it take HL to respond to an email) we do not have tables on how much members are really paying for their funds and how much less they would be paying, if HL was passing on the full value of the investment management agreements it is negotiating with fund managers.

This is particularly the case with regards the passive default fund, the “BlackRock Consensus 85 fund”. If I was an experienced investor reading the IGC report, I would be particularly interested to see a transparent assessment of the money that HL are making from promoting this fund (as well s the other defaults).

There is not enough in the IGC report for me to be frustrated,  but the absence of close analysis of HL’s charging structure is now a priority. I’m giving the IGC an amber for its analysis of value for money and an amber for the effectiveness of its work. But I will give the report a green as a read, it is a very engaging document.

In conclusion

The report reads well , but there is too much missing. I am not happy to see no mention of HL’s attitude (or lack of one) to ESG management , I am not convinced that life styling ordinary people to cash, is a good at retirement strategy and (as talked of in this article) I’m worried that the HL IGC is not asking awkward questions about the commercials of the HL Workplace SIPP.



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Pension paralysis over the net-pay rip off.


I won’t bore you with a list, but there are 31 blogs on this site dealing with various aspects of the net-pay rip-off which is denying hundreds of thousands of low-paid people the incentive promised them by HMRC for contributing into workplace pensions.

It is a scandal, the pensions industry are complicit in allowing it to become one and this blog explains why the situation has got to the state it has. It also gives some hints to employers who don’t want to be a party to yet another pension scam.

I’m writing this article because net-pay has finally become topical. It’s become topical because a pension consultancy (Hymans Robertson) has launched a report on the matter which has sufficient PR behind it to get it media prominence. Good for Hymans Robertson, they are part of the solution, but why has it taken them and others  3 years to wake up?

How did we get here?

Around October 2015, payroll experts, notably Kate Upcraft, noticed that the lower threshold for auto-enrolment contribution and the minimum threshold for income tax were diverging so that some people could be paying no tax , getting no tax relief and yet being auto-enrolled.

As Kate and I and a few others looked further, we realised that a lot of auto-enrolment was starting at £1 of earnings (this is what happens at the House of Fraser). This means that all low-earners in net pay auto-enrolment schemes, could be missing out on incentives to contribution. Then remember that many people on habitual low-earnings “spike” into auto-enrolment – as a result of a well-paid pay period and you realise that auto-enrolment’s 11m new participants , include a few hundred thousand who get no incentive to contribute – just because their employer is operating net-pay rather than RAS.

From my emails that Kate Upcraft first had a meeting with the DWP about this in November 2015, and NOW Pensions and my blog were flagging all this from mid September 2015. Kate first discussed this with me in July 2015.

It is very hard to know how many people are contributing to DC schemes under net pay and missing the incentive. Many are doing so under salary sacrifice and are completely off the radar. Lloyds Banking Group reckon that they may have as many as 3000 such employees on their own. Since the vast majority of own occupation occupational schemes are set up under net-pay and as many of them (for instance Whitbread) have high numbers of low-earning, part-timers, I think our initial estimate of 300,000 people in the “rip-off”, should be revised upwards.

Over the past 3 years, despite my blogs, Ros Altmann’s blogs and the pleading of parts of the payroll industry (Kate Upcraft in particular), nothing has happened. OK Now has cobbled together a fly-by-wire compensation structure, but other than that NOTHING HAS HAPPENED!


Nothing has happened because virtually all the players in this sorry fiasco , have blood on their hands.

Chief culprits are the consultants, who both recommended employers set up net-pay arrangements (which suit the high-earning purchasers very well) and administer them on systems which are “net-pay only”.

These consultants – especially the big three – Mercer, WTW and Aon, have now gone further and set up their master-trusts under net pay. That means that they are so steeped in net-pay themselves that they can say nothing on the subject. No advice- no action, the large employers sail on ignoring their low-earning members and no-one, not the PMI or PLSA or AMNT or any other trade body does a thing about it.

Now let’s look at the employers. Quite apart from feeling they are absolved by their consultants, they have no wish to deal with this issue on any commercial grounds. The staff who are missing out are their least valued, they are probably more mobile than senior staff but even if they aren’t they have no voice. They have no voice because their normal representatives – the unions – are making no noise.

I do not know why the unions are not bothered about this issue. Perhaps it is because this is DC, perhaps because of phasing, the scale of the problem is currently too small, perhaps because one of the unions has a 50% share in a net-pay mastertrust. Anyway, the unions have generally been quiet on this issue and that has let the employers and their advisers off the hook.

All of which is leading up to the great big villain of the piece – the Government – more especially HMRC – who see Net Pay as a handy way of avoiding the impact of auto-enrolment on tax inflows. Having a high number of low-earners outside of the RAS system is just fine by HMRC, and as the low-earners are not even being told they are being ripped off, this situation can go on bubbling away – just like PPI.

Just like PPI!

Of course we all know what happens when the PPI bubble bursts. You get hundreds of thousands of claimants downloading forms from Money Saving Expert and demanding expensive to administer compensation for being ripped off.

Which is exactly where HMRC is heading.

And even if employers and unions aren’t directly in the line of fire, they will find themselves with the same collateral damage as all those who condoned PPI find themselves with.

This is another version of the “too big to fail” problem. The PLSA, PMI, Consultants, Employers, Unions and most of all HMRC really do believe that they can keep a lid on the Net Pay scandal, because it is so big that no-one will have enough energy to lift the lid on it.

Well done Hymans Robertson (and a few others)

It may have escaped notice, but there are consultants who don’t run their own master trusts and who are prepared to stand up and be counted – even if it means pissing off some of their clients. Hymans Robertson are the biggest, Lane Clark Peacock are another and First Actuarial are a (smaller) third. Apart from us and a gaggle of smaller consultancies  too numerous to mention – (oh and JLT), all the other pension consultancies run their own net pay master trusts and they all do their own administration. JLT of course administer NOW Pensions master trust – and they can’t offer NOW a relief at source solution.

Of course we do have our own vested interests and by writing about net-pay I will undoubtedly piss off some of our clients and introducers. But we really do need to solve this problem and as an industry – put pressure on HMRC to find a proper solution. So long as most of the stakeholders in this debate remain conflicted and stay silent – that will not happen.

Possible solutions

Because NEST is a relief at source scheme, many large employers have put in place a NEST scheme for low-earners and the problem (for them) is mainly solved. I know of at least one large employer with their own occupational DC arrangement (net-pay) considering a GPP for low-earners.

I have seen (from Kate Upcraft) various solutions that could be administered by HMRC , which would compensate those on net pay without incentives, through “year end sweeps”.

And I know that some workplace pensions operating under Net Pay (Smart for instance) are promising to offer Relief at Source within a few months.

People’s Pension of course has the best solution which is to offer both forms of relief(though not within one employer arrangement).

All of these solutions are pro-tem till HMRC gets its act together. HMRC were the bright lads who introduced Relief At Source and HMRC should have it in them to provide us with the long-term solution. I don’t know what the long-term solution looks like but we cannot go on like this!

In conclusion

So rather than right another 32 blogs about net-pay, I hope that others apart from Hymans Robertson , will do it for me. I hope that the PLSA and PMI and other bodies will start lobbying HMRC for fairness for those on low-earning and I really hope that we will have – in quick time- a solution that ensures that a large part of the newly phased contribution increases of those on minimum auto-enrolment contributions, are given what the Government has promised them – an incentive equivalent to basic rate tax-relief – WHETHER THEY PAY TAX OR NOT!

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

Laugh, cry, applaud! Zurich’s IGC report is flawed – but a “must read”

zurich ass

I don’t know whether to laugh, applaud or cry when reading Zurich IGC reports and Laurie Edmans’ third report is no exception.

Laugh – because of Laurie’s brutal honesty

But from the members’ perspective, it does not matter whether the issues are industry wide or not. The fact is that the considerable majority of scheme members have little idea whether what and how they are saving is going to give them the lifestyle in retirement they expect.

Cry at the massive amount of customer research that has led the IGC to this conclusion.

Or applaud Laurie for pursuing the course most difficult, questioning whether we can ever sufficiently empower customers for the task ahead of them – to manage an income for life from a pot of money built up within a DC plan.

This may explain my erratic ratings of previous reports. I veer between violently agreeing , ranting with frustration and then smiling appreciatively at Laurie’s great project.

Sadly, that project will not be continuing as intended. Zurich’s modern pensions, the book of DC business established since the turn of the century, has been sold to Scottish Widows, what will be left will be the old Eagle Star and Allied Dunbar books, which hardly bear examination under the ambitious project that Laurie and his colleagues embarked on in 2017.

Value for Money

The IGC comes to one important conclusion that every other IGC should contemplate. Relative to its peer group, the Zurich Corporate Pension is succeeding, but relative to what members want – it is not.

This tough assessment results from the consumer research conducted between 2015 and 2016. It is not based on Laurie’s private prejudices. It is ironic that the largest scheme that Zurich has underwritten, the Royal Mail’s DC plan, looks likely to be abandoned by its 40,000 members, in favour of a CDC plan which – to the Postal Workers – delivers what they want (value) for their money.

When I was working at Zurich (then Eagle Star), the Royal Mail Trustees came on a site visit, arriving in a couple of limos at the gates of our Cheltenham offices.

“Who you here for?”

asks the gateman of the chauffeur.

“We are the Royal Mail trustees”,

replies a voice from deep inside the car.

“Alright, the post room’s round the back”,

said the gateman dismissively –  the site visit never quite recovered.

I am sure the IGC will smile at the story, which illustrates that how we see our customers and how they see us, are seldom aligned! Here is how the IGC sees Zurich relative to its peers.

Zurich vfm 2

Here is the “harsher” truth of how Zurich customers see their pension

Zurich Vfm

When Zurich looked at service standards, they concluded

… our consumer research clearly shows that the comparators that count most for members were not with other financial services companies but with other sectors which are perceived as having higher standards – retailers and digital companies being cited most as examples. Consumers saw financial services companies generally as falling short of their expectations for service. Zurich, in common with its peers, appears to have work to do

What worries the IGC is that Zurich’s service standards and dashboards pass muster not just within Zurich, but with the employee benefit consultants who recommend Zurich. Like Eagle Star, who alienated the trustees of the Royal Mail all those years ago, Zurich don’t know their customers.

The same can and is said by the IGC about the empowerment of customers to take the decisions they need to take to keep their policies up to date. Zurich are proud of the tools and communications they put in place, but the customers don’t seem to use them or read them. Having seen the efforts Zurich went to , to create a self-service culture among clients, and the pitiful use of self-service, I know the frustration that must be felt by Zurich, the painful truth is that much of what is being asked of customers, is beyond them. Again, the simple conclusion is that this is more than a Zurich issue – but it is an issue for Zurich all the same.

The only areas where Zurich’s view of itself (as a good provider) and the view of its customers align, is in terms of investment and compliance. My cynical view is that these are areas that are the “inner sanctum” of a provider’s competence. It is extremely hard for the general public to question whether value for money is being achieved in areas of competence they know nothing about and against which they have no proper benchmark (you don’t find funds or pension compliance on the high street).

These insights are important and for more than Zurich. For the IGC’s brutal honesty, for their focus on Zurich’s customers and for their refusal to give “the right answer” to their masters, I give Zurich IGC a green.



For most of 2017, I was a Zurich customer and I struggled to transfer my legacy pension away from Zurich. I even got as far as tabling a complaint, but gave up against the waves of bureaucracy that came at me. Mine was not a happy experience, I suspect that Allied Dunbar and Eagle Star customers of the eighties and nineties, will have similar stories to tell. To have any chance of getting value out of legacy pensions, you need to be 55 and in my case, it wasn’t till close to my 56th birthday, that I finally got out with only a 1% penalty.

There is a lot of data relating to legacy products , much supporting the assertion that the underlying funds are doing well both in terms of value (outperformance) and efficiency (low transaction costs). There is also much truth in Zurich’s assertion that the process of “moving away” can cause more detriment than staying put (or at least moving to a better fund).

However, I don’t find that Zurich have been particularly effective at managing legacy issues and I don’t find the IGC have been particularly good at helping me! I give Laurie and his team an amber for “effectiveness”.


Having criticised some other IGC reports for being over-lavish with stock photos and info graphics (sometimes used as padding), it may seem churlish of me to criticise the Zurich IGC as over-Spartan.

It does however look like one of my reports, before I put it into beautification for clients. Heavy blocks of text appear as they would on a first draft word document , tables are poorly aligned and there is little  relief to the eye over 24 pages.

Did the budget not stretch to some proper type-setting and some “modern” presentation?

While I enjoyed the content, I couldn’t help feeling that the IGC had run out of money and support from Zurich. This may be the case, as workplace pensions is clearly not the focus going forward.

It is a cruel irony, that having so much time and money since 2015 , getting engagement with its public, this report fails to engage them back. As a matter of style, there are too many difficult words. Here for instance is the opener to the Chair’s statement

The IGC’s main task is to ascertain whether the members of the pension schemes within their remit receive ‘value for money’from their product provider

The word “ascertain” appears at the start of the main body of the report. Why? “find out is the phrase ordinary members use and understand.

This report contains some of the best work of any, sadly it doesn’t quite engage and I can give it only an amber.

In conclusion

Once again, I am left laughing, crying and applauding all at the same time. Laurie is Hamlet “he was likely , had he been put on, to have proved most royally”.  However, the grand design of the IGC is dead and what follows for the Zurich IGC will

necessarily be less.

Hamlet Laurie

Alas poor Zurich, I knew it well.

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Life’s a beach for the BlackRock IGC

black rock stock.PNG

It’s a sure fine of things to come when an IGC report is promoted by a stock photo. This couple appear on most of the IGC reports I have read, I suspect they were scammed out of their pension and now have to make a living looking happy outside of beach huts.  Sadly they presage a lazy report and here’s another (and hopefully the last) from BlackRock.

“Lazy” is not a word that I’d ascribe to most IGC reports, most are testaments to the struggles the Committee has with Value for Money, that – like the holy grail – hovers tantalisingly out of reach.

Not so BlackRock who just get out the cheque book, hand the problem over to BlackRock and presumably slope off to the beach hut.

It is important that you, as members, receive good value for the contributions that you and your employers are investing. This is generally referred to as value for money.

The IGC takes this extremely seriously.

Whilst we could technically have performed this exercise ourselves, we believe that it is important for members that this exercise is carried out at the highest level by appropriately qualified professionals and so during 2017 commissioned KPMG, as specialists in this area, to provide an independently assessed review of the overall offering as a follow up to the 2016 assessment.

What the IGC have agreed with KPMG is so anodyne that it is hardly worth my comment. BlackRock achieve a score of 92 out of a potential 100. KPMG have constructed some bizarre universe of rivals to Black Rock, each with its spurious title.

black rock charges

This is an analysis of BlackRock’s charges , the “money” in value for money”. We aren’t told what these charges are (that might be disclosing some client confidentialities). Black Rock clients can feel proud that they are not offering members anything “basic” or “average” but an “above average scheme”.

This is so uncontroversial that it probably ticks every box on KPMG’s risk register. It is busy saying absolutely nothing – very elegantly – kerching!

KPMG’s assessment gives BlackRock 135/150 for investments, despite all stages of the target dated funds underperforming their benchmark during the year (gross of charges). Just why their is underperformance isn’t clear (though it may have something to do with hidden charges which KPMG mention but do not display). The report does display the charges later (still not accounting for the underperformance). As one would expect, slippage trends to zero because BlackRock are a top tracking manager.

The reason for the 15 point loss, is not that the benchmark wasn’t achieved – pretty material in a value calculation but because

BlackRock didn’t quite reach 150 as it doesn’t provide an additional range of LifePath options based on member’s risk appetite (e.g. high risk or low risk).

Sweet mother of Jesus, I so wanted those extra LifePath options!” – (taken from the blog of the unknown member).

The report meanders on in similar vacuous vein.  BlackRock are nearly perfect at retirement, just tripping up because they don’t integrate their drawdown process into the accumulation fund but tip the target date fund into a special drawdown fund. It isn’t clear why this is a bad thing – it clearly trips some internal trigger in the KPMG DC rulebook.

Similarly , BlackRock’s governance is almost perfect except BlackRock don’t tick all KPMG’s boxes

to obtain a score of 100% an IGC must have an agreed training log. The IGC does, however, undertake ad hoc training as and when required and it should be noted that the IGC includes professional trustees. In addition, the IGC reviews member communications on an annual basis, whereas, to get 100%, KPMG felt that continuous review should be undertaken.

For heaven’s sake! Admin is perfect, communication almost perfect, the sun is shining and the waves are twinkling – happy days.

BlackRock’s IGC get out of their deckchairs just long enough to deliver their verdict on BlackRock’s overall value for money

We consider the methodology adopted by KPMG, based on its research of workplace pension providers as useful, covering the most important factors affecting you. Their assessment gives us independent confirmation of our own beliefs that members are provided with good value for money.

I have a good mind to send this to the FCA as an example of an IGC holding the IGC process in contempt. It is simply not good enough, outsourcing governance when you are an independent governance committee is not on. This report gets red – with vermillion streaks for its value for money assessment.


I will not labour the point. During the year BlackRock’s workplace pension business was purchased by Aegon. Though the report suggests that the IGC is likely to do another report in 2019, I really can’t see what is the point (unless KPMG are doing a “buy two- get one free” service.

The report is engaging enough not to be downright annoying. It didn’t send me to sleep and it was well written. It was however lacking in anything that I could call “interesting”. I’ll give it an orange which can be peeled in the beach hut.


You’d have thought, that having outsourced its main function to KPMG, that the IGC could get on with doing some effective work ensuring that policyholders got the best innovation their money could buy.

There is however no evidence that the IGC Committee did very much with BlackRock last year. They express disappointment that they didn’t get the transaction cost numbers from external managers, and there are perfunctory statements on ESG and GDPR. The report fizzles out with some biographies of those around the beach hut and a couple of links to post boxes which members are invited to click if they have anything to say.

I wonder if BlackRock have turned on the “out of office” message. This IGC report is really ineffective, I give it a red for not turning up, it rivals the first Hargreaves Lansdowne report for laziness.

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Royal London’s IGC comes of age

royal london logo

Not the IGC chair!


I’ve been tough on the first two reports from Phil Green, Chair of Royal London IGC. I guess I am a convert third time around, as this report reads well, is stacked with useful information on Royal London’s value for money and gives me confidence that his IGC is effective in what it does.

Ironically, just as I’m getting to like his reports, Phil announces he is leaving and next year’s report will be from a new Chair. I hope that the rest of the committee, some of whom I’ve met, can provide continuity and continue the progress made so far. Phil Green has been the most open of IGC Chairs and I’ve learned from our meetings, thanks Phil and your committee, for helping me understand your job.

Engagement – “no longer a brochure”

My criticism of previous reports has focussed on a lack of separation between the IGC and the Provider, to the point that the report read like a sales brochure. I was, to read Green’s opening remarks, one of several who fed this back. The new report is denuded of the stock photos that pad out so many reports. instead there’s a lot of fact, especially in the appendices, which contain some really good graphs explaining the impact of commission, exit charges, transaction costs on net performance. The charts are clinical and targeted at the expert investor and the IFA.

I’m glad that Green has got the message, I know this work has always been done, but we never saw the outputs; whether for fear of scaring the horses or for confidentiality reasons, this information had been preciously withheld. Now it is in the public domain, I feel happier with the IGC and the Provider. Royal London uses financial advisers, it is not a direct to consumer outfit, consumers who purchase Royal London policies, are likely to have the protection of advisers. It is right that the IGC opens the bonnet.

Gone too is the euphoria with regards the policyholder’s dividend shared by Royal Mutual as a “mutual”. Rather than distribute excess profits to shareholders, Royal Mutual pay it to policyholders. They do of course reward their senior executives handsomely before doing so, so we should not think of those ragged tramps in Royal London adverts as sitting on the Board.  The IGC position on this has been toned down, allowing the reader to work out for him or herself, the benefits and shortcomings (there is no Remco) of the Royal London structure.

So in terms of engagement, I have moved my view of the report to Green – some achievement from the Chair!

Is this report effective?

I mentioned in my reviews of Prudential, Old Mutual and Aviva, that these providers were benefiting from the inflows of money from DB pensions. In 2017, £34.25 bn.  (ONS) , transferred from institutional to retail fund management. A substantial proportion of this money went to Royal London, though no mention is made of whether this money went to Royal London workplace pensions, or to Royal London’s SIPP platform.

As I’ve argued elsewhere, this matters. The different in governance standards between a workplace pension and a SIPP is that the workplace pension has an IGC in charge and the SIPP is governed by the members and adviser.

Royal London operate Governed Portfolios, an excellent idea, these portfolios bridge the gap between retail and institutional and are, I understand, available on both the Royal London workplace and SIPP platforms. But the price the SIPP customer pays, is dependent on an individual contract with the member, while the workplace price is negotiated at employer level. I am very interested in knowing how this works in practice – and so should the IGC. In short, is the SIPP adding value or detracting value; is the Royal London workplace pension being avoided by the advisers who are supporting the SIPP? What is Royal London’s position on the promotion of the workplace pension for the receipt of transferred money?

At present , the IGC are not engaging with these questions. I think they should be. Perhaps they can consider this as part of the 2018 work. My worry is that while the IGC has been effective in 2017 in reducing legacy charges, strengthening the value money framework and analysing performance, they are not addressing the wider challenges of Royal London’s being a workplace pension provider. Stepping up to the plate on key issues of the moment – such as transfers and decumulation options, should be within Royal London’s scope.

Much as I admire the attention to the detail on issues such as “opt-outs” on auto-enrolment, the details of adviser charging and the analysis of phasing and workplace support, these are the secondary issues. The primary issues going forward will be in helping policyholders convert pots into the retirement income streams people know as “pensions”. This issue is too little covered in the report – I would like to hear more on this next year – and to see Royal London taking a lead.

This progressive and well-funded IGC should be taking the lead – right now I think it still a little too reactive to give it a green- I give it an amber for effectiveness.

Value for money

I’ve said it on each occasion I’ve reviewed an IGC report, if the Chair states that the IGC is giving value for money, what is he comparing his provider to? My criticism of the Royal London IGC approach is that it is too much in its own bubble.

But this is a minor criticism, the sections 5 (charges) and 6 (investments) of the report are excellent. I got the impression that the IGC is connecting with other governance committees within Royal London, and while I wish there was a little more expansive look at rival approaches, I cannot fault the IGC’s understanding of its own provider.

Royal London’s approach to governance is clearly embracing the concept of value for money and you get a strong feeling – reading this report – that the IGC are going with the flow – or may even have created that flow in the first place. This may be Phil Green’s legacy.

I’m happy to give the Royal London IGC a green for their work on value for money and to commend Royal London for the way they are sharing information with their IGC on issues such as transaction costs. There is something very functional about the relationship between provider and IGC which is admirable, it is quite different from the “IGC in the provider’s pocket” impression given elsewhere.

In conclusion

I’m pleased that I can write nice things about this report. I wish the Chair well whatever he does with his time next.

He has given the Royal London IGC a firm base, and this style of report is much more effective than previous styles. I hope that whoever picks up the reins, will take a progressive view on the challenges I set out in my discussion of the effectiveness of this report. I suspect, from the commitment to better understand ESG in 2017, that the willingness is there.

Phil Green and the IGC committee do not put their faces on this report, but their integrity shines through and I really commend it to anyone interested in what is happening at Royal London today. Let’s hope that I can say the same next year.

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Prudential’s IGC get it right – a model Chair report.

To understand why the Prudential’s IGC reports are so good, you need to go to first principals and read the opening paragraphs of their value for money definition (oddly sitting on p40 of the report)

The IGC’s approach to VfM takes account of a range of factors, including charges, performance, service and communications. However, these have been weighted to reflect our view that what ultimately matters is the outcome for members.

On the basis that good financial outcomes that lead to higher retirement income are the most important, we prioritise investment returns and charges as being the most important elements of VfM. We then look at a number of secondary service quality features, placing particular emphasis on the swift and accurate processing of contributions, the level of performance in dealing with complaints, and the quality of communications.

This is the 7th report I have reviewed and the first that specifically mentions retirement income as part of its value for money assessment.

Of course, workplace pensions do not produce retirement income in themselves – (though CDC pensions will); but in terms of their tax treatment, they are expected to replace income lost when people grow too old to work at former levels.

Prudential’s IGC Chair, Lawrence Churchill knows this.  He also knows (and states)

The major factor in how much pension you can take out, is how much you put in.

The Prudential have had a bumper year for inflows and I will look at why in this report.

Value for money

The report ends well but it starts well too, clearly setting out the IGC’s view of what is working (and what is not).

Pru scorecard.PNG

Sadly, I cannot reproduce the original, but you  you can click on it here. Each segment provides you with its narrative at a click of a mouse. Certainly the most engaging use of digital technology I’ve encountered and representative of the high level of engagement I had from this report (see below).

Wise bird that he is, Churchill then  assigns each sector to one of his team. Particularly impressive is the report by John Nestor on investment matters which deals very properly (and in the IGCs own words) with Environmental, Social and Governance (ESG) issues.

Prudential are retaining their (outcomes based) CPI+3% performance benchmark and this is regularly referenced. Where performance charts are included, they show the performance against relative benchmarks.

Of particular importance to me was the statement on with-profits.

With £1.2bn of funds under the IGC remit being invested in With Profits, we undertook further research into the charges for guarantees and smoothing. This showed that the charges were less than could be supported theoretically. Importantly, we also confirmed that if the charges for guarantees were excluded, all the with-profits funds were charging 1% or less for investment, in line with our reference point for unit linked funds. There are consequently no concerns about the Value for Money members are receiving.

“Prufund”, the commonly used name for the Pru’s With Profits, is mainly used for people transferring out of DB plans. It is recommended by advisers because it provides stability through a smoothed investment return.

In my opinion, the IGC should be considering whether the use of Prufund in this capacity falls within the remit of the IGC. My argument is that while the money is being transferred into non-workplace pensions, the source is workplace, albeit a DB plan.

The statement from Nestor deserves wider distribution to IFAs as it clearly states a methodology that can be used for determining VfM in with-profits. Let’s hope that Prudential can go further and clearly identify the cost of guarantees in all their with-profits products, so other third parties can follow this method.

Prudential have gone so far as to provide underlying performance data for Prufund


Pru fund return

I will be recommending that the Friends of CDC look at the quality and quantity of these disclosures. While CDC is not with-profits, it can learn from Prudential and its IGC.

There are other reports on transaction costs, communication and service levels which are also good. I found the Prudential’s section on Value for Money, outstanding, and the best I have read. I have no difficulty giving it a green (in Pru’s terms – it should get a deep green).


There is a sureness of touch in this report, matched only by Phoenix’s (of those I have read so far). The use of appendices is tried and tested, it leaves the main report tightly focussed on the job in hand.

The links are engaging as are the graphics but it is the tone that marks out this report as special.

Engagement leads to confidence and confidence to use, if the IGC can be immediately useful, it is most immediately useful as a way of encouraging people to save and keep saving in pensions.

By this yardstick, I am giving the report a green for engagement, if I was a Pru saver, I would be considering upping my contributions having read it!


The report doesn’t mince its words; on the massive range of funds that were within the workplace contracts, it has this to say.

Members have been able to invest in 129 different funds. We regard this number as far too high for Workplace Pensions, and see little sign of customer demand or need for many. For example, 71 funds have fewer than 500 members investing and 72 funds have less than £5m invested by workplace pension members. In addition, a number of funds seem to be doing pretty much the same thing.

We believe there is an opportunity for Prudential to simplify its fund range and reduce its costs by reducing the range of funds offered. As set out above, 23 funds will have closed in the last 18 months, simplifying Prudential’s proposition and

delivering better Value for Money for members. But 106 funds still remain. We are challenging Prudential to make much more progress in 2018.

Not only is this a very effective piece of writing, it is indicative of the confidence that the IGC has in itself and in its relationship with the Prudential. I got , throughout this report, a sense of a functioning relationship with Prudential.

Churchill had boasted about the effectiveness of his IGC in the trade press and I was up for taking him on. I won’t, I suspect he would be able to defend his position as he defends the policies of his members.

This is an effective report and I will give it a green for that too, it is the report of an effective IGC.

In conclusion

This is the first report I’ve read this year (I’ve read eight) that I would be proud of having been a part of. Others have been good in parts, but this is good all over and it gets three greens from me.

Consultants, trustees and other IGCs would do well to mark it.


Pru laurence

Churchill, right to be proud of himself

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“Phoenix and the Island of misfit pensions” – how one IGC is making a difference.

misfit mascot 2

Phoenix – the island of misfit pensions.

It’s not much fun if your pension finds its way to Phoenix Life. It’s the pension equivalent of the Island of Misfit Mascots – the place where Peetie the Sexual Harassment Panda gets pensioned off to in the eponymous South Park episode, (see clip at bottom).

If you bought an NPI, Abbey Life , Brittanic, Pearl or Scottish Mutual pension, and you haven’t transferred somewhere else, then you’ll be in Phoenix. But don’t worry, you are in safe hands, because you have someone to watch over you. That Someone is David Hare, who runs the IGC. He and his team don’t make any bones about it, having a pension with Phoenix isn’t going to be great. But since most of the people in Phoenix aren’t likely to kick up a fuss and will just sit there like “sad pandas”,  it’s a good thing that the IGC is a good un.

Although, the Phoenix 2018 IGC report  doesn’t talk about it, there are likely to be a lot more Sad Pandas next year, when Standard Aberdeen ships Standard Life off to Phoenix. There will also be another sad panda IGC to be assimilated  (Standard life IGC 2018 report here).

I don’t suppose that Standard Life policyholders will want to be referred to as Sad Pandas, they’re a proud lot. But they’ve had a pretty rubbish time at Standard Life recently and many employers would swap the £100 per month they pay for Good to Go for a £0 per month Phoenix charging structure. OK, Phoenix fund performance is pretty dire…

Phoenix Hare 3

Phoenix 2018 IGC report


But then so is Standard Life’s

peer standard

Source – Salvus

Phoenix IGC does not have the benefit of top investment consultant Redington, advising them on how rubbish their fund performance is. Instead the IGC tells members how it is.

The top of those two tables is from Phoenix’s IGC report, the message is clear. Right now , Phoenix funds aren’t cutting the muster, aren’t giving value for money and even if you look at the whole table , you won’t find one fund that is consistently delivering above average returns.

Plus you are paying way over the odds for the privilege (another thing that Standard Life Pandas are used to). Pension Bee’s Robin Hood Index shows that in their  universe of pensions, Phoenix’s 1% charge is a lot more expensive than the average pension that comes Pension Bee’s way (0.78%). Smart people will take their money away from Phoenix and unless Standard can get some separation from the other sad pandas, smart people will get out of Standard Life.

Except, life is kind of sweet at Phoenix, as the IGC goes on to show!

Value for money (for sad pandas)

sad panda

The Phoenix IGC don’t make any bones about it. They know that Phoenix policies were too expensive and they are pleased that they’ve got Phoenix to cap charges at 1% pa.

They also know that the kind of people who keep their pensions with Phoenix may have some pension learning difficulties. So they’ve gone out of their way to make their value for money scoring system comprehensible.

Phoenix hare

This remarkably simple system is known as a “balanced scorecard”. I won’t be pursuing the Hare care bunch for plagiarism, but it looks rather like the scoring system my Pension PlayPen uses.

I might quibble with the “3” given to performance – (what’s good about all your funds consistently underperforming?) and  I might quibble with giving a 1% pa charge a top rating, but I can’t quibble with the simplicity of presentation. Swap that 96 for 66 and you’d get my value for money score for Phoenix, but heh – I don’t get paid by Phoenix (only kidding).

Actually, the only thing that most Phoenix policyholders should give a stuff about are investment performance and charges – the rest being fluffy – but I am learning to live with the idea of the “member experience” being important to IGCs , especially on the island of misfit pensions.

Within the (limited) scope and resource of the Phoenix IGC, I give it a green for value for money reporting. It is the only report I’ve read so far that benchmarks performance against other providers, it is the only scorecard that I can make sense of , and though the score is highly contentious, I can at least follow the argument.

If I was the Phoenix IGC – I’d be adding streaks of yellow here and there. Phoenix has not even tried to get to grips with the hidden charges in their funds, they have not explored (as Standard does) issues of risk adjusted performance and the scores for customer service and other fluff bear no relation to the feedback I get from policyholders and IFAs who find Phoenix’s service and comms, at best “variable”. There is something to build on for later years and other IGCs would do well to look at this simple method of doing things (and adopt it).

Engaging (sad pandas).

sad panda 3

As mentioned above, the best thing to do if you find yourself on the isle of misfit pensions (Phoenix) is to get back to the mainland and aggregate your fund into something better. But while you are staying on the island, isn’t it refreshing to have an IGC that speaks the language of everyday people.

Phoenix hare 2

Hare is a lay-preacher in the Church of Scotland and it shows! My translation of the above is “you should get the f**k out of Phoenix and back to the mainland.

But whether these messages are coded or not, the whole report is a straight response to the concerns that an ordinary policyholder would naturally have, being on the island of misfit pensions and the report is really engaging.

The IGC is never going to win Fintech awards, but I’m pleased to see that this year, they’ve found the hyperlink button and included lots of links to useful information.

I’m giving these guys a Green for engagement – I was engaged – and I’m not even a sad panda!

Effective (for sad pandas)?

sad panda 2

I’m struggling to really buy into the wonderful world of the Phoenix IGC as the consumer champ. OK – so a consumer has to be a chump to stay on the island but there remains a huge gap between mainland IGCs and what is going on here.

I’m not convinced by the sections on Environmental, Social and Governance policy.

I’m not convinced that all these policies really give access to all the pension freedoms

I’m not convinced that there is a common investment policy at work to deliver a best in class default fund.

Instead I see an island of misfit pensions with plenty of legacy pensions , none of which make a lot of sense and collectively make for a pretty dire population (of sad pandas).

I don’t diss what has been done, the report is proud of getting 60,000 policyholders cheaper pensions, and it should be, but there is really a lack of ambition here, appropriate to the provider, but in the final scheme of things – unsatisfactory.

Much as I’d like to live in the sunny uplands of David Hare’s perception of the IGC, I can only give it an amber for effectiveness.

In conclusion

Thank goodness for the Phoenix IGC, for its sense of fun, warmth – even adventure. IGCs are supposed to be on the member’s side and though I don’t always feel the IGC has quite broken free of Phoenix, I know they are as independent as they’re going to get;

The report barely mentions the “S” word, but clearly there is as much distance between the approaches of Standard IGC and Phoenix IGC as there’s water in the channel that divides the island from the mainland.

The report barely mentions Standard Life but the proximity of the deal makes thinking about what is coming next – an urgent question! I hope that we get the best of both worlds for Standard and Phoenix policyholders. Let’s have the rigour and resource of the Standard IGC but lets have the clarity and engagement of the Phoenix ICG too!

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Aviva’s IGC – a “finger of fudge” – just enough (to give members a treat).

Fudge 3

To fudge or not to fudge?

Aviva’s 2018 IGC  report starts well. It’s front cover declares

For members of Aviva’s workplace pension schemes

There is no ambiguity here and , by and large the Aviva report delivers as it sets out. It is a document with members in mind

Where the document is weak, is in its rigour (or lack of it). It appears that Aviva along with a number of other IGCs commissioned Redington to audit them for value for money. I am not entirely clear what the nature of the contract with Redington was, but it appears to have delivered rather too late for its findings to find their way into the Aviva report.

The upshot of the report is detailed by IGC Chair Inder Dhingra on p19

All the key areas of our VfM framework were considered as part of the exercise. At this stage quantitative rather than qualitative factors were considered (so for example the length of communications rather than the quality of the content).

The research shows that Aviva is performing well when compared to a number of its peers in some of the key areas of VfM which we monitor. It is fair to say that there is room for improvement in some other areas

So where are the results? If this research was meant for IGCs and IGCs are “For members of workplace pension schemes”, why aren’t members able to look at Redington’s work and draw their own conclusions?

This cloak and dagger stuff suggests that there were hidden agendas at play and frankly , a little more transparency is called for!

Value for money work

The slippage method for assessing hidden costs in Aviva’s workplace contracts has been used again. It shows that the impact of hidden charges on the pure passive funds being used within the default are negligible (0.01%) but that the costs incurred within Aviva’s diversified asset funds (DAF) are four to five times higher. There’s nothing odd about this , the DAF funds are actively managed and more ambitious; people investing in them are now aware that one of the risks they are taking is that the “hidden” costs aren’t recovered. What’s more concerning is that Aviva aren’t yet able to monitor what’s going on behind the scenes with external managers (other than their default manager – BlackRock).

But it sounds as if the IGC are on Aviva’s case and this is as it should be. The work that the Aviva IGC is doing on “money” continues to be good. But I am less happy with their work on “value”. The report presents us with a number of charts showing performance of key funds but only compares them with other funds within the Aviva range – sometimes the comparison is between one fund with contributions and one without. This is not at all helpful to members.

Whereas Legal and General have simply applied one fund for everyone, Aviva will have a number of default funds depending on the intentions of members. This is as confusing as the graphs, as people will have to enter into the kind of complicated risk/reward trade-offs that even “experts” cannot agree on. The “value” of choice between various default options is questionable as is the value of presenting DAF funds and the single index funds (the default funds).

Although everything is set out simply, I defy anyone reading the “Investment Choices and Returns” section of the IGC report – to establish a default course of action. I would expect Aviva’s complex approach to be challenged by the IGC. If they read Frank Field’s call for a default decumulation fund (as well as a default accumulator) then they can see the contrary argument for simplification of choice.

Is “value for money” really being questioned?

AVIVA product

This very green view of Aviva’s current workplace proposition strikes me as lacking the rigour needed from a “member champion”. The lack of comparisons with other providers (typified by the sloppy section on benchmarking) suggests to me that the IGC isn’t really pushing itself. So I’m giving it an amber for its work on value for money. I’d hope that over the next year, they will address the issues  with the  member choices I’ve outlined – they should have considerable help in this from external pressures, not least from Government.


At no point in the reading of this report, did I lose a sense that this was being written for me (the member). Though I got lost in the investment section, that was down to the deficiencies of the product offering rather than the Chair’s explanation.

I was impressed by the presentation of the Environmental, Social and Governance (ESG) section of the report. It tackled head on some of the big issues – screening of tobaccos stocks – as an example. Aviva have a good track record on voting on ESG, but there remains a problem, that most of the workplace pension investments are outsourced to Black Rock. Perhaps next time, the IGC can look at how Aviva ensure that BlackRock are using ESG in its work. Passive managers have particular responsibility for ESG, they have no other leverage on the companies they invest into , than through governance.

This is the third report from Inder Dhingra and I am getting used to his style, it is friendly and engaging and I feel he is on my side – for a consistently good read, I give the Aviva IGC a green for engagement.


As mentioned above, I consider the IGC ineffective in holding Aviva to account on the value aspects of Value for Money, but this is in my VFM score.

Elsewhere, the IGC are unrelenting on legacy pensions which they continue to pester Aviva about. There is here some evidence of benchmarking with other providers. The report points out that other providers are doing away with the capital units and exit charges within workplace contacts – even for members who are under 55.

The report notes that Aviva, unlike some of its rivals, is still paying commission to advisers out of legacy charges, despite some providers abolishing such payments (even for pre 2013 contracts. I support the sentiment in the Chair’s opening comments

We will continue to challenge Aviva in areas where we believe that improvements to the member experience can be made. This is not just limited to charges – it means we want to see improvements in member communication and engagement, service and new product features which work for everybody, and not just those members who benefit from modern products.

I suspect that there is a lot less timidity in the IGCs approach than might be suggested in the mildness of the Chair’s style. Aviva’s is an effective IGC but I should remind it that Aviva is not (always) as progressive an insurer as it should be.

But in maintaining its presence in the workplace pension market, offering its APIs to the vast majority of payrolls and managing the differing needs of IFAs and employers, Aviva has been market leading. While I’m not for giving undue pats on the back, I think the IGC could do more to commend Aviva for its good work as an auto-enrolment provider – effective in the workplace.

But – and you knew there would be a but – I see nothing in this report about the use of workplace pensions as an option for transferring members of DB plans. Perhaps someone could put Port Talbot on the IGCs “investigation list” for 2018. Why did the Aviva run Tata Steel workplace pension scheme become the forgotten product and just how is Aviva managing the conflicts between having a non-advised workplace product and a fully advised SIPP platform.

As with the question of a default at retirement, I’d like to see the Aviva IGC being a little more proactive next year.

Despite these cavils, I’ll give the IGC a green for effectiveness this year – but I’ve put a squiggle against its performance – I want to see Aviva taking action over the year and I want it to be on the front foot.

Next year, a finger of fudge may fall foul of the plowman’s sugar tax!


fudge 2

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Frank Field helps us spend our pensions

Spend 3.jpg


Here is the main recommendation of Frank Field and  the Workplace Pension Select Committee’sfinal report of its inquiry into Pension freedom and choice published today.

We recommend every pension provider offering drawdown is required, by April 2019, to offer a default decumulation pathway suitable for their core customer group. These would be subject to oversight by existing Independent Governance Committees and subject to the same 0.75% charge cap already in place for accumulation in automatic enrolment. People would still be free to choose to invest and spend their own money as they wished. But if they did not make an active choice, they would move into a suitable and regulated default product.

NEST would be included

Rather than impeding a market that is hardly functioning well, evidence from automatic enrolment suggests that NEST may drive better retirement outcomes by forcing other providers to offer greater value or risk savers switching over to NEST to get a better retirement deal.

Pension Passports should be issued

Trials show that single page pension passports increase consumer engagement with pensions options. We recommend that pension providers are required to issue them.

Providers be required to participate in the Pension Dashboard project

We recommend that all pension providers are mandated to provide necessary information to the pensions dashboard, with a staged timetable to enable smaller legacy defined benefit schemes time to comply.

The dashboard would be a single Government sponsored dashboard and be funded by an industry levy from April 2019.


Taking pension spending away from advisers

Frank Field and the Work and Pensions Select Committee are clearly pushing at an open door. The Government want a more engaged public but they want smart decision making more.

The trouble is that there’s no evidence that the “engaged” take smart decisions. If 53% of those who transferred £34.25bn out of DB schemes are reckoned to have got it wrong (FCA sampling) and if these were advised, then it’s small wonder that there’s a crisis in confidence in retail financial services. The crisis begins and ends with the FCA.

Setting up default decumulation pathways for the non-advised and non-engaged seems a good thing, so long as the default is demonstratively better than the annuity default that preceded pension freedoms.

Having just concluded a review of CDC, where W&P gave the collective approach a big tick, it’s not hard to see what Field & Co would like the default decumulator being.

The rest of the recommendations in the paper are a series of proposals to disintermediate. The pensions dashboard is out of the reach of advisers, being in Field’s vision – a Government project; the midlife MOT , something that might have involved advisers , is dismissed

The introduction of mid-life MOTs should not be mistaken for something likely to have a transformative effect on consumer behaviour.

Where Field does talk of advice it is in the lack of its take up

Most people who have exercised pension freedoms have not, however, taken up financial advice. The PLSA found that 32% of individuals accessing their pots under pension freedoms paid for regulated financial advice. The FCA found that the proportion of drawdown products bought without advice has risen from 5% before the introduction of pension freedoms to 30% afterwards. 63% of all annuity sales in the year to September 2016 were made to non-advised customers

and when he listens to those who have contributed to his Pension Freedoms review, he hears only the negatives

Others witness warned,…,that the “advice gap”, whereby consumers are unable to get advice at a price they are willing to pay, needs to be tackled.131 Advice is perceived as expensive, though as the FCA found that 51% of people would not be prepared to pay for advice at any price, it is not the only barrier. A widespread lack of trust in financial advisers, and a lack of engagement with pensions contribute to this effect. Advisers may also turn away potential clients if advising them is not likely to be profitable

spend 2

Advisers are likely to be offended by this talk, but may be even more offended by the suggestion that robo-advice be put to the test

We recommend the FCA conduct and publish a review comparing consumer outcomes from face-to-face and automated advice

All in all, this paper comes down firmly on the side of default solutions governed by charge caps and against regulated financial advice. It promotes technology solutions and while it does not mention CDC, it clearly has collective solutions in mind when it talks of empowering NEST.

After all, it was Frank Field who said a recent enquiry session

“NEST should have been CDC from the start”.


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What I’ll be looking for from the 2018 IGC chair statements

IGCs 2017



2018 and all that

It’s IGC reporting season again and I’ll be looking to have answers to four questions this year. So here are my questions (more hope than expectation).

  1. If you’re making a value for money, what is your value for money (VFM) benchmark?
  2. What has your provider done to improve its performance in terms of “Environment, Social and Governance” practice (ESG)?
  3. What innovation has your provider shown in helping members/policyholders to better outcomes in retirement?
  4. What have the IGCs been doing to ensure that people taking CETVs from occupational schemes are getting a good deal?

Value for Money

I’m looking for a more strenuous approach to value for money which asks searching questions of providers with a weather eye to what the competition is getting up to. I suspect this was what the Office of Fair Trading were after when they conceded they would not refer the insurers to the CMA (subject to their operating effective IGCs).

By way of explanation, we have become used to the platitude from the Chair “In my opinion xyz are providing you with value for money”, but I have yet to see one provider offer a league table of other providers compared on the same basis. Not all providers can be offering the same value for money on their workplace pensions, some must have superior investment propositions, others a less engaging member journey – and we know that the costs of different providers can differ radically.


Innovation in retirement 

Innovation is in short supply among workplace pension providers. There has been lip-service paid to innovation in retirement outcomes, but nothing substantive. The deferred annuity solutions put forward by Alliance Bernstein and others have been adopted by one or two master trusts.  People’s has put in place a partnership with LV to offer non-advised drawdown, but for the most part, providers continue to stand behind the mantra “we offer all the freedoms”.

CDC is not a natural fit with a GPP but it may be an option for Master Trusts to convert to. Since the acquisition of the Zurich proposition by Scottish Widows, Widows has announced it will launch a master trust (using Zurich’s existing model). The same is happening at Phoenix, which can now boast the Standard Life Master Trust.If not CDC -what? Just what are the IGCs doing to help individual savers who cannot or will not take advice, solve the nastiest hardest problem in finance

The time for sitting on the fence on this – is coming to an end. In short, CDC is an option for all the major workplace pension providers and I hope that at least some of the IGCs will tip their hat to what is happening at Royal Mail.

Well they don’t. No workplace pension – trust or contract based, has yet taken a position on CDC, though in private many providers have done all they can to disrupt its progress.


The IGCs should (by now) have cottoned on to this and be looking at what their asset managers are doing as voters and in their corporate citizenship themselves. I would like to see IGCs holding the likes of Phil Loney’s feet to the fire (Royal London has no Remuneration Committee for Phil to answer to). IGCs should act as consumer champs – where they feel their own providers governance structures are lacking!

If the providers want to know what they were saved from, they should take a look at the kicking the leading investment consultants are taking from the Competition and Markets Authority right now.There is consensus; most people agree that a fund that has a positive stance to environmental issues, looks for social purpose and demands good governance in companies it invests in, will win out over time over one that doesn’t.

The major passive players, State Street, BlackRock, LGIM and perhaps UBS (Nest) have the biggest part to play in this. Not only are they the biggest owners of stock, but they have no way of exercising leverage over companies, other than to vote at AGMs.This is particularly true of mutual and of private companies where the public scrutiny of internal behaviours is weakest


In 2017, £34.25bn was transferred out of Defined Benefit pension schemes into defined contribution pension arrangements. Some of this money went to old style personal pensions (what the FCA call “non-workplace”), most of it appears to have gone onto SIPP platforms (many of which are with insured providers) and a proportion has gone into workplace pensions.

I suspect that when the numbers are finally produced, the amount going into workplace pensions will be insignificant. But it’s the workplace pensions that offer ordinary people the best non-advised options. Many of these workplace pensions even offer the facility of adviser charging. My experience working with BSPS members, was that hardly any of them even knew that you could transfer into workplace pensions. The Tata Steel plan with Aviva was almost hidden from sight.

IGCs should be asking whether they should, in 2018, be ensuring that workplace pensions are being promoted (for those who have them) as a choice. In my view, most of the people who I met in Port Talbot, had been led by the nose into over-engineered, over-priced and quite unsuitable SIPPs when – assuming they should have taken their transfer in the first place – they should have gone into available workplace pensions.

What shape are the IGCs in?

This year will see two of the major IGCs subsumed into others. Standard and Phoenix are chaired by Rene Poisson and David Hare respectively. Hare has in previous years done an outstanding job of pushing Phoenix into places you would not expect a closed-book insurer to go. Poisson has a number of other positions, most importantly as a Trustee of USS, I hope that the merger of the two IGCs sees a continuation of the Phoenix style.

The merger of Scottish Widows and Zurich’s proposition should leave Scottish Widows with the upper hand. I have relented this year on State Street who appear to have moved on from the bad old days and I should relent on Babloo Ramamurthy, IGC chair at Scottish Widows. The performance of the Zurich IGC has been weak, simply outsourcing its work to consultants to tell it what to say about your provider is no good. Zurich’s IGC was weak with its provider on the introduction of the 1% cap on transfers. Although I dislike the conflict between Babloo’s roles at B&CE and Widows, he has been effective at both and I hope he has a combined role going forward.

One IGC’s report that I’ll be reading with particular interest is Aegon’s. Aegon’s behaviour towards Pensions Bee was frankly appalling. I will be interested to see what role (if any) Ian Pittaway and his IGC took in allowing the Pension Bee people go. Pension Bee’s Tobin Hood index should be referenced by the providers , if only to gloat over the improved performance of insurers using Origo, over the master trusts and single employer schemes using TPAs -who don’t (Peoples Pension excluded).


Why does this matter?

The IGCs are about the only means ordinary savers have to get questions answered by their providers. They fulfil the role of trustees of occupational schemes (including master trusts) as being member champions.

In the past. I have focussed on their role as providers of help to employers struggling to introduce auto-enrolment. Some providers have got it right (Aviva) and continued to offer themselves to smaller employers, some of got it wrong (Legal & General) and have had to withdraw.

The focus of the decision for employers and individuals is changing. It’s now less of a question of what should I buy, as what should I keep. Already more employers are using the Pension PlayPen to rate their pension than to implement one.

If we are to have a functional workplace pension market, the IGCs must play a muscular and relevant part. They should provide information on their providers performance, on their attitude to developments among their asset managers and they should be championing the cause of members, where things go wrong – or where providers are slow to pick up on new developments.

Organisations such as Share Action now take an active interest in the performance of IGCs against the metrics laid out in this article. We need competitive IGCs to provide a real test for the master trusts, to hold providers feet to the fire and to ensure that consumers – the people investing in workplace GPPs get a proper deal

Posted in IGC, pensions | Tagged , , , , , , | 2 Comments

Is CDC “Flat World” – or “Flat Earth”?

The World Is Flat: A Brief History of the Twenty-first Century is an international best-selling book by Thomas L. Friedman that analyzes globalization

The Flat Earth model is an archaic conception of Earth’s shape as a plane or disk. Many ancient cultures subscribed to a flat Earth cosmography – (both Wikipedia)

The distinction between Flat World and Flat Earth suggests how easily a simple idea can have binary engagement. CDC is much the same – I see  CDC as progressive and a means of binding society together, John Ralfe sees CDC (and me) as bogus.  Trump has proved that the insistence of the globalisation lobby can be checked and while I’d stop short of likening John to Donald, I suspect that both of them have an important role in keeping the world honest.

The point of this article is to explain that while it is fun to ridicule CDC, it is impossible to ignore it, like globalisation , collectivisation is not going away!

The recent conversion of St Guy of Opperman to CDC – suggests that the £2bn uplift in the Royal Mail share price, resulting from the CDC settlement – is a market indicator – even he could not ignore.

Flat earth

The Price of Freedom

No one has costed “freedom and choice”. The Treasury tried in their various impact assessments. If they had gone to consultation over the changes in the tax laws on the payment of DC pots, we (as Friends of CDC) would have pointed out

  1. That paying a wage for life is difficult and requires scale
  2. That managing a wage for life with any certainty – as an individual – requires an annuity

It would not have been enough for us just to have said this, Kenny Tindall asked on Twitter yesterday what proof there was that CDC provided more certain pension outcomes and I’ll start by showing how expensive it is to manage a typical drawdown

Breakdown of costs

The model above is only one of a number knocking about, but it fairly represents the kind of costs you can expect to pay for an efficient drawdown product.

Paying 0.5% of your fund for financial advice – is akin to paying somebody to look after your car, you could do it yourself, but most people will pay a mechanic.

Investment Management costs are what you pay upfront to people to manage your money, typically in a fund. They’re business as usual costs – the price of fuel. They do of course come down where a fund grows in size as is evidenced from this article on Prufund .

Platform fees are payable to those who manage the technology and in car maintenance terms , they represent routine maintenance charges – including MOTs!

Finally there are the occasional costs of running a cost which include the cost of parts when things break and the cost of labour to fit the new parts. As always in these things, these costs are underestimated as unknown and could be called the hidden costs of running a car or fund

The price of freedom, in this model is 1.65% of the amount invested, a considerable amount compared with the “rule of thumb” 4%pa drawdown.

Put simply , for most people, the price of freedom is a high price; it is too high to make drawdown sustainable for most people. Drawdown is not a mass market solution because even for 1.65% pa- you are unlikely to get sufficient value to meet your need for a satisfactory income that lasts as long as you do.

So simply in terms of defining pensions freedoms in terms of an alternative, there is no mass market alternative to the discredited annuity.

The three arguments for more certain collective outcomes

A collective approach can do three things

  1. It can bring down the cost of pension management by disintermediating advisory fund management , platform and hidden (transactional) costs .
  2. It can improve value by investing in more appropriate assets (for the purpose of paying a wage for life)
  3. It can manage the problem we have of not knowing when we are going to die.

These are the three reasons I give Kenny Tindall for why CDC gives more certain outcomes. But I am aware that so far- I have only dealt with  “1”.

Collectives add value

Collectives aren’t just about reducing the impact of costs and charges, they add value in their own way.

It’s long been known that pension schemes can take certain kinds of risks , other schemes cannot – and be rewarded for those risks. Taken together those risks give rise to an “illiquidity premium”, a measurable amount of out-performance resulting from a scheme investing in long-term illiquid assets which give favourable long-term returns,

However, the illiquidity premium has lately been squandered – because pension schemes of all types have chose to de-risk rather than take a long-term view. Exponents of de-risking point out that there are other risks that their “de-risking” avoid that make missing out on the illiquidity premium worthwhile. That may be the case if DC plans are forced to de-risk prior to buying an annuity and if DB plans are put on a similar “glide path to buy-out. But handing over your assets to an insurance company for the payment of an annuity was never an essential end-game! I find myself in agreement with Ed Truell who writes in the FT

 “As a co-founder of Pension Insurance Corp, I know better than most the strictures of an insurance regime that is ill-suited to the long-term nature of pension asset and liability management.”

He added that insurance was an expensive way to secure pension liabilities when employers ought to be devoting their attention elsewhere.

“British companies need to be freed up from their legacy liabilities to invest in their businesses, restore productivity and continue to boost employment and growth,” .

The original point of running a pension scheme was to keep it going for future members.

CDC schemes have the opportunity to restate that original aim and avoid de-risking altogether, they can take a long-term view and invest in assets that give them an illiquidity premium. They do not have to sell these assets to pay pensions (as has to happen in the individual DC model). They can rely on future contributions and income from existing assets to meet the target pensions.

Certainty of income from longevity pooling

The third and most obvious advantage of a CDC scheme is that it can insure longevity risk from within its pool of members.  As Abraham puts it in his recent book,


Instead of having to rely on super-outperformance or an outsourced insurer (either traditional insurance or capital market solutions), a CDC scheme relies on pooling the mortality experience of all members, those who die soonest within the scheme subsidise the pensions of those who live long.

This process is abhorred by libertarians who consider any form of cross-subsidy, the spawn of the devil. But it should be pointed out that this kind of social insurance is the basis of all mutual movements, there is a solidarity between people based on our fundamental insecurity about our capacity to survive.

We all know that there is a general underestimation of how long we live and this appears to be particularly the case among people who live longest. Ironically, those who stand to gain most from guaranteed pensions are those who are most wealthy. These wealthy people are most likely to leave a longevity pool – making things that much the easier for those with genuine short-life expectancy!

This is why I think CDC schemes should offer the door to all members who want to transfer out, including those who are receiving pensions, for every pensioner who lives on the grounds of ill-health, there will be twice that many leaving for reasons or wealth (typically inheritable wealth).

CDC will I am sure, benefit from it being spurned by those wealthy enough to live forever.

Flat world or flat earth?

I hope in this article, I have put up a reasonable argument for considering CDC as a more certain source of income in retirement than either drawdown or annuity purchase. I’m aware that this article is not splattered with numbers, I’ll leave that for my actuarial colleagues.

I hope too, that I am seen to be talking sense, and that through reading this far, you have inched closer to the “CDC is “flat world” – rather than “flat earth” thinking”.


Flat earth thinking

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

The normal cost of pensions remains the same.

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The debate about the “fairness” of offering some people “gold-plated” defined benefit schemes and others no more than the auto-enrolment minimum is familiar to everyone in the UK.

Sometimes, it’s useful to look at the same debate from a different angle (perspective). I got a shock this morning when I got copied into a string of vitriol on linked in , involving Americans in the private sector letting their feelings be known about public sector workers accruing better pensions than they did. I won’t quote the whole thread, you should be able to access it here.   

Here’s a sample.

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Bill Motion(GB) seems to be trying to rope me in to the Zeitgeist against unions, proper pensions and those trying to destroy what’s “for the good of the tax-payer and the country”.

I had to explore the thread a little till I got to the source of this bile, an article by a Financial Economist called Andy Biggs (no relation to the CEO of Aviva in the UK).

Have public pensions become more generous or less?

This is the title of Andy Biggs article and you can read it here

This is how it starts.

There’s a debate going on about public employee pensions. One study finds that government pensions have become more generous over the years. But a prominent academic replies that public sector retirement benefits have remained steady in generosity and taxpayer costs have actually fallen because public employees are paying more for their pensions.

Who’s right? Me, that’s who

The “prominent academic”, who should walk warily in view of some of the posts on the thread, argues very sensibly that the promise being made to public sector workers is the same promise that has always been made by the US public sector.

The value of the promise has not increased, only the cost of servicing it, which is currently very high due to interest rates in the US. The academic (Alicia Munnell) argues that because members are being asked to pay more to accrue future benefits, the true cost of providing the benefits is actually less to the sponsor.

Munnell points out that using a consistent discount rate since 2001, the cost of US public sector pensions has remained steady.

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But that the  American public sector sponsors have been reducing support for these plans and passing these costs on to employees.


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Alicia Munnell goes on to point out that future pension awards to public servants will cost less – because they are less generous, so the normal cost of benefits will decrease in years to come.

Normal cost

The idea that their can be a “normal cost” of providing a pension accrual is one well understood in the UK. It is what gives those who think in the long-term, confidence that defined benefit schemes can and should stay open.

The “normal cost” of a pension is the internal rate of return assumed at the outset of the plan, based on economic science that thinks over generations and not from day to day.

Having the confidence to refer to the “normal cost” of a pension , is something that few people have these days. This is because of the flak they receive from financial economists who would have the cost of pension promises marked to market.

But it is good , that amidst the noise, the still small voice of Alicia Munnell holds firm. She concludes her article

In short, the generosity of benefits is not driving increased pension costs. If anything, benefit generosity has declined. The problem is that many governments have not made adequate contributions to fund their benefit promises (and their initial assumptions regarding the cost of benefits turned out to be optimistic).

From time to time, academics, actuaries and economists have to accept that their forecasts were wrong. Alicia Munnell is suggesting that this is what has happened in some grossly underfunded American Municipal Schemes.

But by inference, if the initial assumptions are correct, then schemes can remain open and – over time – remain affordable.

Levelling up or down?

So if we believe there could be a “normal cost” of pensions, why aren’t we spending more time finding out what this could be. Why can’t those schemes in dispute over funding (I’m thinking USS) , do what Alicia Murrell is suggesting – and find their normal cost?

If the normal cost of a pension is too high, then the benefit may be unaffordable and the benefit may have to reduce or the employee contribution rise to meet the normal cost or the sponsor contribution has to increase (meaning that wages in the long term will be lower).

There seems to me an underlying equilibrium in pension funding which is immutable and that most of the arguments we are having today , could be addressed by establishing and splitting out “the normal cost” and comparing it to the mark to market accounting positions of schemes at any single point.

In his central argument , Andy Biggs makes a simple logical mistake

..the answer is, yes, public sector pensions have become more generous and more expensive, because it costs more to provide a guaranteed benefit when the interest rates available on guaranteed benefits are low

The true cost of the promise is the same, the book-cost changes. We see the book costs of UK pensions swing from surplus to deficit and back again, but the normal cost remains constant. This is why we should understand and use the normal cost of a pension and not flip-flop with the book-keepers.

But few (other than Con Keating) is  making this argument  right now. Which suggests to me that we’ve rather lost sight of the wood for the trees.

So long as we see pension costs as wildly volatile, we will reduce our promises towards the lowest possible rate , the defined contributions of auto-enrolment.

But this is not necessary, we can afford more, if anything, we should aspire to level up our pension benefits.

We are not about to see the sky fall on our heads

For all the prophecies of doom over the past 20 years, and the promises of doom post March 2019, the sky is not going to fall on our heads.

The normal costs of pensions will remain the normal costs.

Markets will continue to go up and down and people’s views on liabilities (especially mortality) will change. But pensions are long -term things, they will outlast us all, as will our universities, schools and the apparatus of our whole public sector. In truth, much of the infrastructure of the private sector will outlive us too.

To suppose that pensions won’t be needed in years to come is daft, we will all need pensions and the plans we started decades ago, need to be continued if we are to get them.

We therefore need more common sense of the type displayed by Alicia Murrell and a good deal less of the nonsense pedalled by Andy Biggs and the wrecking  crew of malcontents he has assembled behind him.

Posted in advice gap, Facebook, pensions | 2 Comments

I will be a Tapper-Tubby no longer!