Ping but no pong – we have a Pension Schemes Act ready to go!

 

At around 5pm on the afternoon of 19th January after 4 arduous years, the Pensions Schemes Bill emerged from the House of Lord/Commons “ping pong” ready to be signed by the Queen who will give it Royal Assent. It will then be the Pension Schemes Act and not a moment too soon.

The delays in parliamentary process have had consequences. Further regulations are needed on CDC schemes, dashboards, climate change governance, regulatory powers, defined benefit (DB) scheme funding and pension transfers.

David Everett of LCP told Pensions Age

“Although this feels like the end of a long journey, in reality it is more like half-time…we expect to see a phased implementation of the new Pension Schemes Act, with the scheme funding powers almost certainly not biting until well into 2022″.

Not everything made it. Several proposed amendments, including committing schemes to net-zero carbon emissions by 2050 and mandatory Pension Wise appointments, were voted down by the Commons. the brave attempts by the peers to reduce the powers of the Pensions Regulator to intervene in the funding strategy of  open pension schemes thought to have been snuffed out by the Pensions Minister. However…


Saved at the bell! – BREAKING!

The FT is today reporting that  the depth of feeling from many such schemes will  impact the secondary legislation now being considered.

Lady Stedman-Scott, said subsequent regulations, to be set out by The Pensions Regulator would “acknowledge the position of open schemes” but had yet to be set out. “I want to make it absolutely clear that they do not need to invest in the same way [as most closed schemes do now],” she added.

TPR has still to properly report on the first consultation and the interim consultation response has drawn some sharp criticism, not least from Con Keating in yesterday’s blog

And I’d agree with Jo, that the change of tone is very much to do with converting the economic capital in our great pensions schemes into social capital.

Three cheers for democracy!


If it were done when ’tis done, then ’twere well it were done quickly

Macbeth’s advice to himself on murdering Duncan must be echoing in the heads of many civil servants and indeed politicians but there is reason for parliamentary process and the year long debate on the Pension Schemes Bill has at least flushed out the problems with new laws.

It is now up to the civil servants in the DWP to get rules on the table and there is something of a rules race going on. If I was to run a book, I would have the rules on TCDF reporting as first to be consulted on, followed shortly after by the CDC secondary regulations. We can’t expect rules on TPR powers till much later in the year as we’re still to hear back on the Funding Code consultation

But one area where there is more need for urgency is on the pensions dashboard. We urgently need progress on the identification process needed to link person to pot and we need progress on the specification of the Application Programming Interface (API), that will enable data to be searched for, found and sent to the dashboard. We also need to find a way to assess the quality of data to establish which schemes are dashboard ready and how close we are to the dashboard available point.  Most importantly, we need confidence in timelines of delivery, we have about as much confidence in dashboard delivery as we do of passengers using Cross Rail.


New legislation already backing up.

Like lorries in Kent, new legislation is already being parked ready for a further bill. Pensions Minister, Guy Opperman, has said that he expects there to be a further pensions bill in the current parliament, which would include DB pension superfund legislation.

We are already 13 months into the new parliament and if that legislation is not to meet the wash-up process that set back the last bill, civil servants will need to be getting some of the legislation “oven ready”.

As well as superfund legislation, it looks likely we will get legislation permitting small pots to be aggregated into bigger pots. When it comes to speed of delivery, the DWP should look to the small pots working group as an exempla.

We live in a time of quickly arranged Zoom meetings , of digital documentation and electronic signatures. Let’s hope that this feeds through into the completion of the secondary regulationss for the Pension Schemes Bill and that the sequel will be a little quicker to pass into law!


Ping but no pong!

Whatever the frustration for us commoners, the frustration for the ministers, the civil servants of the DWP and  the regulators in Brighton, getting the Pensions Schemes Act over the line must have been much greater.

As the van with the parchment  paperwork, rolls down the Mall from the Westminster document department, we should congratulate them for their patience and forbearance – the Pensions Minister especially.

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Opperman – CDC makes pensions “more sustainable for employers”

From the office of Guy Opperman

Guy Opperman signs off his end of year vale dictum like this

Finally, we’ve made significant strides in terms of introducing collective defined contribution schemes. We’ve outlined a legislative framework for them, which spreads the investment risk, allowing for greater returns to members and improves schemes’ sustainability for employers. (my bold)

Those prone to conspiracy theories will note that this message wasn’t placed in the FT or any of the institutional pension magazines but in Money Marketing, whose readership has little interest in collective defined contribution schemes and less in the sustainability of pension schemes for employers. The conspiracy theorist will and is asking, just how will CDC improve the sustainability of employer’s pension scheme? “

To which (if I were the minister) I would choose between three answers


The proper answer

Many people in “workplace pension schemes” actually think that by participating, they will be entitled to a pension when they retire. If, these people reach retirement and don’t get a pension, then they will (unless something better comes along) have to follow various investment pathways to annuities, drawdown, cash-out or wealth creation.

The proper answer (if I was pensions minister) would be to declare DC workplace pensions unsustainable as they lead to a bunch of hard choices , none of which are efficient as a means of providing a wage for life. CDC makes workplace DC pensions more sustainable as they provide a promise of what people call a pension – (AKA – “a wage for life”) to participants.


The likely answer

The most likely reason for the inclusion of the claim that CDC improves the sustainability of an employer’s scheme is simply infelicitous phrasing. If this is the case, then this section of the article has been drafted rather more loosely than is usually the case at the DWP. Maybe Christmas festivities had spilled over into work-time and we can overlook a loose claim for CDC (unless you think as I do , that DC workplace pensions are fundamentally flawed to a point where they don’t deserve to be called pensions at all).

In the balance of probabilities, I suspect that the likely answer to what “improving sustainability of employer schemes” means, is that the drafting team were in end of term mode and weren’t too precise about what was said.


The disruptive answer

Ministers aren’t prone to throwing hand grenades into the carp-pond but that’s what this phrase could be interpreted as doing. If we are to consider employer schemes as DB schemes, then it would seem that the Minister is hinting at an easement for employers in the strain of supporting a DB arrangement.

If the minister means that open DB schemes might use CDC for the future accrual of pensions, which is what Royal Mail is doing, then there will be a number of employee representatives, most notably unions, lining up to protest. Open schemes such as much of the Railway Pension Scheme and USS are guaranteeing the defined benefit of an inflation proofed wage for life. CDC was never meant to replace those promises. The small but significant number of open schemes that backed the Bowles amendment should be reading this final paragraph with interest.

The alternative (and much more radical) interpretation of this phrase undermines the existing guarantees in place. If we are to read this phrase as the opening of a door that allows DB schemes to switch to CDC not just for future but for past accrual, we dispense with the entirety of the Pension Regulator’s funding code and swap it for a funding system where members get the best pension available within the constraints of a fixed set of contributions (which is what CDC gives).

I very much doubt that is what Guy Opperman meant, but the fact that several of my readers have picked up on the comment and asked this question proves that such thoughts are in the minds of hard-pressed employers. For many employers the DB funding code (as last presented) looks like the last thing they need when struggling to deal with the costs of the pandemic, Brexit and transforming to meet the challenge of climate change.

The idea that CDC might replace DB has been tried in the Netherlands and it hasn’t worked too well. People don’t take kindly to finding no rise in their pensions when the market goes down, when they believed the promise of inflation proofing. While it is possible to convince members of DC schemes that a pension can go down as well as up, the Dutch have shown that is much harder when a DB pension promise is in place.

Any idea being floated that CDC could replace DB pensions is highly disruptive.


What do you mean- Minister?

It would be helpful if the Minister, or one of his aides would clarify what is meant by the very ambiguous suggestion that risk-sharing improves the sustainability of pensions to employers.

I know of no employers who consider DC pensions unsustainable (that is one of the reasons auto-enrolment is succeeding).

I know of many employers who would be worried if they were participating in a CDC scheme where “risk-sharing” became “risk-reversion” when times got tough (the risk of supporting CDC pension increases through deficit contributions is still considered a risk by many employers).

I know of many employers who would gladly swap obligations to fund DB for a defined contribution into a CDC scheme.

CDC has the potential to transform pensions in this country, which is why it is such a debated topic. It has to be spoken of precisely as ambiguity will lead to speculation. For with CDC, careless talk is dangerous.

If there is a plan for CDC within the DWP – even if it is no more than a ministerial pipe-dream, then it is best it is shared. If – as seemed the case- CDC is simply facilitated by Government legislation and secondary regulations, then loose claims about risk-sharing “improving the sustainability of employer schemes” are best avoided.


After thought (but a good one!)

For those in an optimistic frame of mind, I urge you to consider Derek Benstead’s green line which represents the desirable outcome of any pension scheme, the ongoing payment of pensions to scheme members without any time horizon for closure. As this diagram shows, the enemy of good here is scheme closure, whether we are talking DB or CDC.

IF this is what the Minister is getting at then I thoroughly agree. If that is what he is getting at, then he is casting a cold eye on what has happened to DB schemes in the past 20 years and that gives grounds for optimism that the mania for de-risking  at all costs, that underpins the DB funding paper, may finally be receding. That would be a good thing.

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I’ve lost my pension pot – somewhere in Germany – what should I do?


I’ve lost my pension pot…

The BBC has made an excellent program building on last year’s exposure of problems at Dolphin Capital. At that time alarm bells were beginning to ring for thousands of UK investors in Dolphin’s bonds. The bonds had been marketed to people with pensions and savings in the UK by direct marketing from abroad, as well as authorised and unauthorized advisers in the UK.  The 2019 You and Yours program was promoted on this blog in an article I called Grand Designs.

The point of promoting the problem was to alert consumers to the perils of investing in something as intrinsically attractive as these Dolphin bonds; they were marketed to a template based on four  hooks which are the template for most unreliable investment schemes

1)    Plausibility. The Dolphin investment sounded plausible – it’s German, therefore reliable. It’s property, therefore tangible.

2)    Tax related – always a winner. Often mask the fact that the investment itself isn’t sound – but the fabulous tax breaks make it sound like it is

3)    High digit returns promise – 10% plus should sound an alarm bell to everyone but the financially vulnerable

and what wasn’t disclosed to investors but which was key to introducers

4)    High Commissions – which incentivise people to sell – and to people high risk investments aren’t suitable for.

It was almost possible for  an introducer to take a 20% commission and consider he/she had done the due diligence, in some cases introducers were flown to Berlin to see Dolphin Capital’s investments. It should be no surprise that marketing focused on countries (Britain, Ireland, Singapore and Japan) where many people are obsessed by property investment.


Somewhere in Germany

The latest You and Yours makes it plain that while Dolphin started off being open about its investments, those who have invested in the past few years have been given no idea where their money has gone and much of the program was spent on Dolphin sites which had not been developed, had been over-mortgaged or in one case, was claimed to be a Dolphin site but turned out never to have been purchased at all. While early investments may have been in prime sites (in Berlin for instance), latterly investor’s money had been spent on property in the back of beyond , some of it never even visited by Dolphin’s management. In short – what was sold as geographically sound, was anything but.

Geography is also important here, because though it is estimated that over 6,000 people in the UK bought into Dolphin bonds, it looks like most of what was going on fell outside the FCA’s “regulatory perimeter”.  Consequently most investors will have no recourse to the Financial Services Compensation Scheme and will have to stand in the queue of unsecured creditors awaiting the liquidation of Dolphin’s assets following the bankruptcy of Dolphin Capital.

As with the recent scandals surrounding the regulation of LCF and Connaught investments and the mis-selling of pension transfers, the FCA have been slow to the case. The first notice on its website was posted in October of this year

This despite the You and Yours program in May 2019 and the growing protestations of investors that money promised was not being returned to them. The FCA’s statement confirms that most of what was going on was not on its watch but that it is liasing with the Financial Ombudsman and the Financial Services Compensation Scheme as to what can be done for those who invested through FCA authorised SIPPs and other pension products.

This has prompted former FCA director and consumer champion Mick McAteer to tweet

I agree with Mick, we need our regulators to find a way to pick up on the tsunami  before and not after the wave has broken. This wave is likely to be bigger even than LCF and Connaught and more destructive – it is thought that more than £1bn of investor’s money may have been lost to Dolphin.


What you should I do if I am a Dolphin investor?

I did act as an adviser to the program and comment at the end of the program. My advice to those people who have money in Dolphin Bonds is to get in the queue (either for FSCS) or for a pay-out from the liquidators now. If you are such a person and want to know what to do next , you can contact the Financial Ombudsman Service either directly or via the Money and Pension Service.

How to complain to the Ombudsman service if the firm you dealt with is still trading

You should immediately contact the financial services firm that you have dealt with (for example, the financial adviser who advised you to invest in the GPG scheme and/or SIPP operator through which the money was invested) and submit a complaint. This means that the firm must take certain actions within certain time limits.

If you are unhappy with the response received from the firm, or do not hear from them within the relevant time period required by the FCA, the Ombudsman service may be able to help. It is a free and easy to use service that settles complaints between consumers and businesses that provide financial services.

It is important to note that every complaint to the Ombudsman service will be judged on its own individual merits. Further information on how to complain can be found here.


But what of those who did not invest via their FCA regulated pension?

The FCA website can only help those who invested through their pension but I have no “regulatory perimeter” – it is important that someone is helping those people termed “cash investors” who did not use their pension money but paid for their bonds directly.

Although the program did not refer to this, I understand that there is likely to be a criminal investigation about what happened to Dolphin investor’s money. If such an investigation finds against Charles Smethurst and the management of what is now the German Property Group, then there may be further avenues for compensation.

But for now the prospects for cash investors are limited.

These people are now being assailed by a number of claims companies , many purporting to have semi-official status. I strongly advise (if you are a cash investor) you are wary of all of them and direct any correspondence to Goerg – the lawyers in charge of the administration

The person to contact is Tim Beyer, whose details are here

Tim Beyer – insolvency partner at Goerg

 

 

 

 

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Bitcoin is the currency of the wild web

Peter Crowley is right to make the connection. Bitcoin is the currency of the dark web and it’s used to pay for the requisites of life if your wellbeing is dependent on a regular supply of under the counter drugs. Reading the quoted article from the London Review of Books is like diving down Alice’s rabbit hole into an alternative web with its own rules.

Some readers of this blog will use it regularly but not many. The 21st century version of the dirty-mac brigade, lurk down the virtual allies where sites whore virginity as ruthlessly as the 18th century madams depicted by Hogarth. The means are different but the impact is the same and bitcoin oils the wheels.

So what do we make of the boasts of this man (thanks for two of my readers for independently sending me this press release from the deVere Group.


Nigel’s power profile on Linked In

 

“I sold half my Bitcoin holdings over Christmas”: deVere CEO 

-FOR IMMEDIATE RELEASE-
December 26 2020

As Bitcoin hits nearly $25,000, the CEO of one of the world’s largest financial advisory and fintech organizations has revealed that he has sold half of his Bitcoin holdings.

The revelation from the deVere Group chief executive Nigel Green – one of the first high-profile cryptocurrency advocates – comes as the Bitcoin price hit yet another all-time high on Christmas Day.

The world’s largest cryptocurrency by market capitalisation jumped to more than $24,661. The value of all Bitcoin in circulation is now around $452 billion.

Mr Green stated: “I have sold half my holdings of Bitcoin as it hit an all-time high.  Why? Because it should now be treated as any other investment –that’s to say, where possible, it’s better to sell high and re-buy in the dips.

“The steady gains in the price of Bitcoin has made the digital currency the top performing asset of 2020, up over 200%. As such, I felt the time was right for profit-taking.”

He continues: “There should be no misunderstanding about my decision to sell.  It is not due to a lack of belief in Bitcoin, or the concept of digital currencies – it’s profit-taking now to buy more later.

“Indeed, more than ever, I believe that the future of money is cryptocurrencies.”

As Bitcoin surged past $20,000 for the first time ever last week the CEO noted that as some of the world’s biggest institutions – amongst them multinational payment companies and Wall Street giants – “pile ever more into crypto, bringing with them their enormous expertise and capital, this in turn, swells consumer interest.”

He went on to note that with governments continuing to support economies and increase spending due to the pandemic, investors are increasingly going to look to Bitcoin as a hedge against the “legitimate inflation concern.”

Previously Mr Green observed that inherent traits of cryptocurrencies are ever-more attractive. “These characteristics include that they’re borderless, making them perfectly suited to a globalised world of commerce, trade, and people; that they are digital, making them an ideal match to the increasing digitalization of our world; and that demographics are on the side of cryptocurrencies as younger people are more likely to embrace them than older generations.”

In addition, a global poll carried out by deVere Group found that nearly three-quarters of high-net-worth individuals will be invested in cryptocurrencies before the end of 2022.

The deVere CEO concludes: “Like me, many traders will sell record high prices as an opportunity to sell, so we can expect some pullback on prices in the near-term.

“But the longer-term price trajectory for Bitcoin is, I believe, undoubtedly upwards.”


The dark web is the new wild web

Bitcoin’s value is sustained and increased by high-net-worth individuals speculating on its future price, but the fundamental value of Bitcoin is as a way of paying for things that by-passes the MLRO and the governance of the traditional banking system.

There is nothing illegal about investing in Bitcoin or converting crypto into fiat money. There is no need for investors to “look through” to what is enabled by Bitcoin, nor the consequences of all this activity on the dark web.

When the west opened up to Americans in the 19th century, it enabled unbridled licentiousness , unpunished murder and a general lawlessness that was tolerated since it was out of the sight of those building up the apparatus of state – including the financial services on which platform America has built its global dominion. The expansion of America across its badlands from sea to shining sea, happened because the west was permitted to be wild.

The dark web is our wild west and like the entrepreneurs who made their fortunes from the pillage of indigenous culture and wanton lawlessness, those who work the dark web are furthering the wealth of nations such as the USA and the UK.  We can read the article on how to buy drugs, log into the dark web and – buy drugs. But to do so, we need to buy some of those bitcoin- but don’t worry about that last bit, there are plenty of speculators like deVere’s Nigel Green, who are creating the liquidity for you.

 

Nigel J Green – making my money matter

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The small pots working group find a progressive way to grasp the nettle

 

Almost as important as its findings, the constitution and delivery of the small schemes working group is an exciting foretaste of a new way of working for the DWP and its pension policy unit.  The 86 page report that was delivered to the public by the Pensions Minister this week is the distillation of experience of the past ten years of workplace pension development through a three month virtual alembic.

It’s a triumph of people getting things done by harnessing the new found collaborative technologies that the pandemic has forced us to use and what it means is that by June of next year we will be trialing a solution to one of the most difficult challenges to the long-term success of auto-enrolment. Unbelievably, this initiative was only laucnhed on September 22nd 2020.


Decisive and determined – “pot for life” gets the order of the boot.

A major calamity for payroll has been averted thanks to prompt and decisive action by the DWP’s small pot working group. Proposals put forward by Hargreaves Lansdown would have required payroll to pass contributions to each saver’s “pot for life”. This would be fine if the saver’s pot for life was the employer’s workplace pension, but for new joiners and for pension savers who fancied choosing their own pension, big problems loomed for payroll.

Those who have struggled to clear contributions to one pension provider will appreciate that the prospect of limitless interfaces would simply have been inoperable. My understanding is that the views of Samantha Mann of the CIPP, which chaired the implementation committee of the Working Group were crucial to the group’s decision to ditch the proposal. The Group’s report concluded

A lifetime provider solution would introduce a fundamental change in how workplace pensions operate and could result in losing the benefit of inertia, which AE has been built on, unless an approach was developed that did not rest on new employees having to provide existing pension details to new employers. In addition, it would also be complex and place an increased administration burden on employers and payroll as they would need to deal with paying contributions into multiple schemes.


Grasping the nettle

Small pots can breed nettles that sting

For year, small pots have grown like stinging nettles – dealing with them has been thought too painful . The best way to get to grips with nettles is grasp them firmly (it saves you getting stung and gives you full control).  This is  how this Working Group has gone about its task.

Happily,  the decision to ditch this payroll-breaking proposal did not put the kybosh on reform. the Pension Policy Institute have modelled how auto-enrolment proliferates small member pots meaning that by 2030 we might have 28m pots with less than £1,000 in them , the DWP have previously estimated that by 2050 there will be 50m abandoned pots.

There has been a school of thought that savers would get their act together and consolidate their pension pots -especially once the much-heralded dashboard arrives. However, the Working Group has determined that member action will not on its own be enough. So, to bring people’s small pension pots together, the Working Group is proposing that master trusts and other workplace pensions conspire to exchange members to the benefit of both the members and the schemes they join and leave.

This will be known as “member exchange ” and it will work like those exchanges of prisoners we used to see in the cold war. To use the prisoner exchange analogy, members will be lined up on either side of the bridge and at an agreed time, they will march past each other to their new homes.

While the concept is easy to grasp, there are some hurdles to leap before next summer when a pilot is due to be launched. Firstly, there needs to be a reliable member identification system to allow pots to be accurately allocated to members. Here there is an opportunity for workplace pensions to adopt in advance, the simple processes outlined in the find and view processes laid out by the Pension Dashboard Program.

There also has to be a universally recognised rationale for the selection of appropriate consolidation vehicles. Crucially, if public confidence is to be achieved, there must be robust safeguards against members losing out. There is not a risk of fraud here – we are dealing with internal processes that are subject to the controls put in place to meet the exacting standards of the master trust authorization process. The issue is one of member detriment, we cannot allow members to exchange a strong and well managed workplace pension for a pot that has slim chance of delivering good outcomes.

The Working Group have come up with a solution to this problem which focuses on the Government’s favorite measure

“In addition to looking at this in the context of trust-based schemes, consideration will also need to be given to contract based schemes concerning transfers without consent. Trustees / Independent Governance Committees (IGCs) would need a common Value for Money (VFM) assessment framework in order to enable pension pot exchanges without potentially creating unacceptable risk to the member or unacceptable burden on the Trustee/IGC”.


But member exchange only deals with the sins of the past

While member exchange has advantages in consolidating the already fragmented service histories of pension savers, it is not a forward-looking policy – it does not stop pots proliferating in future. Beyond the immediate remedy of member exchange, the Working Group is proposing what the pensions industry is calling a Master Pot.

The Master Pot collects small pots as they are left and is allocated to the saver either because it is run by the saver’s first provider or by means of some random selection called “the carousel”. It is proposed that savers would have an override so that they could deem the provider who would automatically pick up their small pots after them.


A paper well worth the reading

There is a lot more to the Small Pots Working Group paper than outlined here. There are good proposals on how multiple pots held by a single provider can be identified and brought together and there are excellent sections looking at (and rejecting) changes to opt-out options and the reintroduction of “vesting periods”. The paper is driven by consumer advantage but mindful of the needs of providers to offer sustainable value and employers to operate pensions. It is mindful of what can be done in the future and not constrained by what has not been done in the past.

It is quite extraordinary that the Working Group has delivered an 86 page paper covering so much ground in only three months. It is (by pension standards) a very good read and if you fancy following the arguments in more detail, you can do so using this link

 

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So who is accountable for the FCA’s failures over LCF?

Reading the Treasury commissioned report on London Capital and Finance by Dame Elizabeth Gloster was harrowing. Reading the FCA’s response was worse – two days after attending a superb event that asked if our primary regulator is doing its job, my previously held belief that the FCA is fit for purpose has been shaken

The dual purpose Lord Prem Sekka spoke of was to both promote UK financial services and protect the public from bad practice. In the case of LCF, the FCA has failed on both accounts, allowing a major scandal to happen in Britain and for its perpetrators to do so , seemingly with the FCA’s blessing. Although the activities that have lost investors around £237m were conducted “outside the FCA’s “regulatory perimeter”, all the financial promotions made by LCF relied on LCF being an FCA regulated business for their credibility. The Gloster report states clearly that the FCA was wrong and that the losses incurred by bondholders would have been much smaller had the FCA behaved correctly,

When whistleblowers tried to warn the FCA , years before the balloon went up, they were dismissed by FCA senior managers and no action taken. When Elizabeth Gloster asked for the papers that the FCA had on the case, she was repeatedly obstructed by being given information which was wrong or by being denied information altogether. This delayed the publication of the report by months. In the meantime, Andrew Bailey, the then CEO of the FCA has slipped away , promoted to the post of Governor of the Bank of England.

The full catalogue of failures by the FCA is listed at the end of this article. But none of these failings matters so much as the failure of the FCA to accept that the blame for this rests with the key individuals within the FCA.


Who was to blame?

Alfred Tennyson’s famous question for the carnage at Balaclava , rings out through the report and is answered by what will doubtless become the report’s defining statement

“Responsibility for the failure in respect of the FCA’s approach to its Perimeter rests with ExCo and Mr Bailey,”

The most frightening section of the whole report comes at the beginning and deals with the objections the FCA had to the report pointing fingers at the ExCo and Mr Bailey.

A number of participants in the representations process asked the Investigation not to make findings about individual responsibility for the FCA’s deficiencies in regulating LCF. For example, the Investigation was asked “to delete references to “responsibility” resting with specific identified/identifiable individuals”.

Similarly, the Investigation was told that criticism of senior managers who were recruited to overcome structural, cultural or institutional difficulties was “likely to have the undesirable consequence of discouraging people from taking on and tackling difficult and vital roles

The findings in this Report are certainly not intended to have that effect. In any case, it is difficult to see why an individuals’ willingness to take on challenging tasks in public bodies should absolve them from accountability.

A further comment was that “it is neither necessary nor… appropriate for individuals to be identified as bearing
particular responsibility for the matters which are the subject of the criticisms in the draft Report”.

The Investigation does not agree with these suggestions for the reasons set out below.

First, it was represented to the Investigation that there was “an inherent ambiguity” in the use of the word “responsibility” For the avoidance of doubt, the findings of individual
responsibility in this Report are not conclusions about the personal culpability of any individuals or groups of individuals.

In particular, the fact that the Investigation has
identified an individual as being responsible for one aspect of the FCA’s deficient regulation of LCF does not necessarily mean that the individual had specific knowledge of the relevant
problem(s), or that the individual failed to take reasonable steps to address them.

The Investigation has not made findings about personal culpability (as opposed to responsibility)
because it has not found it necessary to do so in order to answer the questions put to it. …. It follows that the Investigation has also not made findings about whether there was
any causal connection between the actions or omissions of specific individuals within the FCA and losses suffered by Bondholders.

In this Report, the term “responsibility” is used
in the sense in which that term is employed in the FCA Statements of Responsibility and the FCA Management Responsibilities Map. In short, it refers to a sphere of activities or functions of the FCA for which a senior manager bears ultimate accountability.

Second, it was said that the scope of the Investigation “does not require the attribution of “responsibility” to particular individuals within the FCA, but rather is directed at whether
the FCA (as an organisation)” discharged its functions.

The Investigation disagrees. Addressing responsibility of the senior management of the FCA for its failures in regulating LCF is well within the remit of the Investigation:
(a) The Direction asked the FCA to appoint an independent person to investigate the “circumstances surrounding”
“the supervision of LCF by the FCA”. These
“circumstances” plainly include the role that senior individuals within the FCA played in supervising LCF.

Moreover, paragraph 3(2) of the Direction provides that “the Investigator may also consider any other matters which they deem relevant to the question of whether the FCA discharged its functions in a manner which enabled it to effectively fulfil its statutory objectives”.

For the reasons provided in paragraphs below, accountability of the FCA’s senior management is a matter relevant to whether the FCA effectively fulfilled its statutory objectives in relation to LCF.

Third, it was suggested that since “investigations of this type are generally directed at identifying “lessons learned” following a high-profile financial failure, it is normal for such
investigations to focus on identifying institutional rather than individual failures”.

As to this, the Investigation is required not to identify publicly FCA employees below Director-level. This Report does not do so.
The primary role of the Investigation is not to identify the “lessons learned”…,that is a matter for the FCA. As
explained above, the key question for the Investigation is whether the FCA effectively fulfilled its regulatory responsibilities in respect of LCF.

It is also not correct to say that investigations of this nature are required to focus exclusively on institutional, rather than individual, failure. The following observations of the Treasury Committee in relation to the Davis Inquiry Report’s 100 findings about the FCA are instructive in this regard:101

“Simon Davis reached conclusions about the responsibility of certain individuals for the events of the 27 and 28 March. However, it is not clear from his report where individual responsibility lies for the failures of the FCA’s Executive Committee and Board. Instead, he concludes that the Board and the Executive Committee are collectively responsible for their respective failures.

This is a well-rehearsed and unfortunate mantra. The Committee has heard it often from regulated firms, and particularly banks. One of the key conclusions
of the Parliamentary Commission on Banking Standards was that “a buck that does not stop with an individual stops nowhere”….  

Mr Davis should have paid closer attention to individual responsibility in reaching his conclusions.”

Fourth, it was suggested that “no benefit arises (and the… report’s findings and conclusions are not strengthened) by the attribution of responsibility to particular individuals”.102 This
assertion is inconsistent with the FCA’s own approach to the public accountability of its senior management:

In March 2015, the Treasury Committee recommended that the FCA publish a ‘Responsibilities Map’ allocating responsibilities to individuals within the FCA.

The Committee stated that the FCA’s allocation of individual responsibility should be compliant, as far as possible, with the Senior Managers Regime that the FCA and PRA apply to banks

In 2016, the FCA published a document applying the fundamental principles of the Senior Management Regime to the FCA’s senior staff contained the ‘FCA Statements of Responsibility’ and the ‘FCA Management Responsibilities Map’.

It states that the FCA’s “senior management should meet standards of professional conduct as exacting as those we require from regulated firms” and “reaffirm[ed]… the FCA’s commitment to individual accountability”.

The FCA’s policy regarding the public accountability of its senior management is also reflected in paragraph 24 of the Protocol for this Investigation, which states that “[i]t is the policy of the FCA that employees at Director and above should be
publicly accountable for the FCA’s performance…”

For these reasons, the Investigation considers that it would have been inappropriate for it not to have made findings about the responsibility of the FCA’s senior management for the
deficiencies in the FCA’s regulation of LCF.

Having read the FCA’s response to the Gloster report,I get no sense that those on the ExCo or the new CEO have taken responsibility for the failings of the FCA. Some of the current ExCo were members of it through the period though most have now resigned. While the Senior Managers Regime is now in place for all regulated firms, the core principles by which managers (including me) agree to , are still being ducked by the people we’ve agreed them with.

This is why I wrote this tweet yesterday

And it’s why my position with regards the FCA’s credibility as my Regulator has been shaken.


Appendix;

The nine recommendations of the Gloster report  which found the FCA failed LCF bondholders.

Recommendation 1: the FCA should direct staff responsible for authorising
and supervising firms, in appropriate circumstances, to consider a firm’s
business holistically

Recommendation 2: the FCA should ensure that its Contact Centre policies clearly
state that call-handlers: (i) should refer allegations of fraud or serious irregularity
to the Supervision Division, even when the allegations concern the non-regulated
activities of an authorised firm; (ii) should not reassure consumers about the
nonregulated activities of a firm based on its regulated status; and (iii) should not
inform consumers (incorrectly) that all investments in FCA-regulated firms benefit
from FSCS protection.

Recommendation 3: the FCA should provide appropriate training to relevant teams
in the Authorisation and Supervision Divisions on: (i) how to analyse a firm’s financial information to recognise circumstances suggesting fraud or other serious
irregularity; and (ii) when to escalate cases to specialist teams within the FCA.

 Recommendation 4: the senior management of the FCA should ensure that product
and business model risks, which are identified in its policy statements and
reviews159 as being current or emerging, and of sufficient seriousness to require
ongoing monitoring, are communicated to, and appropriately taken into account
by, staff involved in the day-to-day supervision and authorisation of firms.

 Recommendation 5: the FCA should have appropriate policies in place which
clearly state what steps should be taken or considered following repeat breaches
by firms of the financial promotion rules.

 Recommendation 6: the FCA should ensure that its training and culture reflect the
importance of the FCA’s role in combatting fraud by authorised firms.

Recommendation 7: the FCA should take steps to ensure that, to the fullest extent
possible: (i) all information and data relevant to the supervision of a firm is
available in a single electronic system such that any red flags or other key risk
indicators can be easily accessed and cross-referenced; and (ii) that system uses
automated methods (e.g. artificial intelligence/machine learning) to generate alerts
for staff within the Supervision Division when there are red flags or other key risk
indicators.

Recommendation 8: the FCA should take urgent steps to ensure that all key aspects
of the Delivering Effective Supervision (“DES”) programme that relate to the
supervision of flexible firms are now fully embedded and operating effectively.

 Recommendation 9: the FCA should consider whether it can improve its use of
regulated firms as a source of market intelligence.


In addition Gloster makes four recommendations to HM Treasury

Recommendation 10: HM Treasury should consider addressing the lacuna in the
allocation of ISA-related responsibilities between the FCA and HMRC.

Recommendation 11: HM Treasury should consider whether Article 4 of MiFID
II or section 85 of FSMA should be extended to non-transferable securities.

 Recommendation 12: HM Treasury should consider the optimal scope of the
FCA’s remit.

 Recommendation 13: HM Treasury and other relevant Government bodies should
work with the FCA to ensure that the legislative framework enables the FCA to
intervene promptly and effectively in marketing and sale through technology
platforms, and unregulated intermediaries, of speculative illiquid securities and
similar retail products.

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Dolphin Trust and LCF – it’s Germany v England but will it go to penalties?

Speaking at last night’s Transparency Symposium, Prem Sikka, spoke with authority about the advantages of the German regulatory system where pressure is applied from stakeholder groups to get action in a timely way.

As we in Britain await the report on the LCF mini-bond scandal (where losses are around £260m), news is leaking out of Germany that a criminal prosecution is underway against those at the heart of the collapse of Dolphin Trust (now called the German Property Group). Apparently the simple question was asked “why has nothing been done in over a year?”. The Dolphin Trust collapse now looks like claiming over £2bn of savings  (ten times as much as LCF. For the latest news on this you can read Bond Review  , Beat the Banks  or follow the reporting of the BBC’s Shari Vahl on You and Yours.

Shari Vahl told me that her interviews with those promoting Dolphin suggest that many of the advisers felt they were acting in good faith (despite them receiving commissions of typically 20% of money invested. Similarly , the Times reported sympathetically on Wealth Options Trustees , who were the German Property Group’s representatives in Ireland. There appears to have been no problem convincing previously reputable intermediaries that what was clearly a massive ponzi, had strong fundamentals. This is the challenge facing both the German and UK regulators.

Following the progress of LCF and Dolphin Trust investigations will be a useful test of Prem Sikka’s contention that the German regulatory system is both more responsive to consumer pressure and less influenced by the financial lobby. Having listened to an array of speakers talking at last night’s symposium about issues with the FCA, I read again last night Prem’s work for the Labour Party that found itself into its manifesto in 2019. This work is worth promoting beyond political circles,  good examples being linked from this Guardian article

I am pleased to hear that You and Yours will be re broadcasting its recent session on Dolphin Trust having broken the story over a year ago and followed it up earlier this month. It would seem that matters are moving fast in Germany as the scale of the scandal is revealed. Let’s hope that help arrives in times for people like these to get back something from their investment.

Four people interviewed by the BBC with investments in Dolphin 

The behaviour of British advisers in actively selling bonds in Dolphin and the supine failure of the pension platforms that admitted these investments into client portfolios is another test for the FCA.  But this time we have the opportunity to see how the FCA works with the German authorities (the German Property Group is a German company).  This is a chance for the FCA to show – in a post Brexit world – how it compares with its European counterparts.

Smethurst and Lenz – The architects of Dolphin Trust

 

 

 

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TPR goes blog to blog with its critics

 

How to Start a Blog in 2020

Fight fire with fire, even if it’s friendly fire! That seems to be the tactic adopted by David Fairs as head of policy at the Pensions Regulator.

His latest blog is the clearest indication yet that TPR is adopting a more considered position regarding its DC funding code and for that he has to thank the pigeon blogger whose work features on this very blog.

My friend Henry Tapper has blogged on this topic many times and in fact in one of his recent blogs an ‘anonymous’ contributor said almost exactly this:

“I would suggest that a reasonable alternative would be to allow open schemes to set their funding and investment strategy based on the trustees’ expectation of the future flow of new entrants, but require all schemes to carry out contingency planning regarding the actions they would take if their scheme were to close to new entrants (and even potentially future accrual). This would include consideration of how they would achieve their LTO (funding and investment strategy) and their expectation of how long they would have to get there (ie when they would be expected to become “significantly mature”, if they were to close to new entrants tomorrow).”

This is almost exactly what we said, but we would go further and say that just ‘planning’ is not enough, it needs to be something more concrete and evidenced. However, I’m comforted that we may not all be as far apart as we thought.

David is keeping his friends close – but are there enemies closer still?.  This we will find out when the consultation response is published, which cannot be a moment too soon!


Friends –  but not that close!

 

Much as I like David Fairs, I still see there being a fair amount of distance between his position and that of the market (if the responses I have read to TPR DB funding code are representative). The market will be his friend when TPR shows it has paid  its consultation responses the attention they deserve!

David’s big boss, the Pension’s Minister has gone on the record saying that the consultation response will include full  impact statements. Frankly, the consultation should have done so too. The Pensions Regulator thought it had a done deal but it was listening too much to that part of the DB trustee and advisory which had fallen under the spell of de-risking. It had not been listening to the trustees , advisers and commentators who take the view that there is life in collective pensions yet.

The impact statement that should have accompanied the DB funding code consultation should have made it clear that the cost of de-risking is not just felt in the inferior retirement benefits of those kicked off future accrual, but in the cash-flow implications for sponsors moving to self-sufficiency and/or buy-out.

The belated arrival of some proper disclosures on financial impact will be welcomed as “not before time”; regulators need to be even-handed in consultations – and considerably more transparent than TPR has been thus far!


Friends – getting closer.

Let’s be clear, the Pensions Minister is holding TPR’s arm behind its back till it accepts his dictat that DB and DC pensions use long-term investment strategies that deploy patient capital into UK infrastructure. The alignment of this dictat to the wishes of the Chancellor of the Exchequer is surely no coincidence. Our pension funds are important to Government – not just to meet its climate change promises – but to help build back Britain post pandemic.

This is the context with which to read Guy Opperman’s statement in his Professional Pensions article

We will use the regulation-making powers to ensure that the secondary legislation does not prevent appropriate open schemes from investing in riskier investments where there are potentially higher returns as long as the risks being taken can be supported, and members’ benefits and the Pension Protection Fund are effectively protected.

As “my other friend”, Con Keating has pointed out in his excoriating deconstruction of Guy Opperman’s peice, the concept of “risk free”, as promoted by the pension industry’s characterization of investment in Government Bonds is not “political risk” free, RPI is what politicians want to make of it and may not be quite what you were sold.

The same could have been said of “fast-track” and it’s co-joined twin “bespoke” – as defined by the DB funding consultation. These strategies appear to be under review as they will need to be , if their impact statements are to be palatable to the CBI and Britain’s large employers.

It is good that much of this debate is being played out “blog to blog”. The fire is friendly but we are dealing with live ammunition. What is at stake is the capacity of employers to pay the pensions they have promised, the strain on the PPF if they can’t and the impact on millions of people’s financial security over the next thirty to fifty years. The debate cannot be played out within the walls of Napier House in Brighton, it has to be continued on pages such as this and the Pension Regulator’s helpful blog.


Note to Regulator

It is common protocol when cutting and pasting from other’s blogs, to leave a link to the plundered blog , so that the comment can be read in context. Examples of best practice are to be found on this page. 

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Pensions are stranded off-line; this must change!

Live link to the ONS data is here; https://lnkd.in/ewiZBHW

Alistair “@HelloMcQueen “McQueen has the knack of finding insights where others fail to look. Here he is showing us how our behavior has changed radically as a result of a little spikey ball that none but scientists has seen and no one had heard of this time last year.

In a year we have woken up, locked down and found a vaccine for a deadly pandemic. In a year we have (nearly) agreed a data template for a pension dashboard and announced a timeline that (nearly) tells us when we might be able to see our pensions and pension pots in one place.

“Time is an ocean, but it ends at the shore”, sang a noble laureate, the dashboard will arrive but in the meantime we must wait to be rescued like Robinson Crusoe – with no signal.

The internet makes keeps those who guard our pensions honest. On-line there is no hiding from the impact of poor pension management. Whether it be in terms of investment, the costs levied on our pension pots, the quality of the record keeping or simply the capacity to show us what we’ve paid others to guard.

Organizations that cannot today, nearly two years after the original “dashboard available point”, make our data available to us online are failing us.  But in our recent test in the FCA sandbox, the average time for a provider to satisfy an online data request was 29 days – and even then – only 45% of responses were in a digitally readable format.

Meanwhile, I attend many well-meaning seminars that agonise over “engagement” with pensions as if – by posting another video on another static website, we can rescue Robinson from the sandy margin of his island. I am skeptical about the capacity of any data provider to engage with its membership if it has not made a commitment to be dashboard ready by now; meaning that I am skeptical about all pension providers.

The day that one provider offers an API to me and allows my organization immediate online access to pension data that it holds on behalf of its customers is the day that I will declare pensions officially open. But there is not one- not even Pension Bee or Smart , that offers this facility to a third party adviser.

What we have instead is the online platform, where financial advisers are granted exclusive access to a view of funds held , at their instigation, in a gated community to which only the adviser and the client has access. This is not “open pensions” but the equivalent of an “intranet of things”, where the data is kept within the confines of a closed group. There are obvious advantages to this, not least that it enables data, like money – to be part of the fiefdom of the adviser and platform manager. But this is like Robinson Crusoe being allowed to communicate online with the monkeys and parrots , but having no access to signal beyond the strand.

The failure of the Pension Dashboard Program to go beyond the narrow expectations given it in 2019 is a crying shame for pensions. While the rest of the  country has stepped up to the challenge, the dashboard program has hunkered down and accepted that it must wait for the pandemic to end before moving forward.

So back to McQueen’s chart, we are now able to do just about anything online but pensions. We have a timeline that says we may be able to see our pensions online in 2023 but that depends on the capacity of providers to be ready by then. The providers should have been ready by 2019 and have shown no noticeable interest in improving their readiness in 2020, despite the very obvious advances in people’s readiness to go online.

It is time that Robinson Crusoe had a SatNav and some signal to get him home. It’s time that the pensions industry started putting its customers fairly. Organisations like Pensions Bee and Smart who have gone the extra mile are cruelly denied the right to share data via dashboards by the rest of the pension ecosystem that resolutely sits on its hands and debates the arcane detail.

  • People cannot find their pension, £20bn is lost – that is a scandal that we need to address now!
  • People have a plethora of pots, that is an inconvenience that we could address now.
  • People have no way to engage with their retirement income holistically, that – in a time of open finance – is a nonsense.

 

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No blubbing over the future of RPI please.

“I love the way they are doing this – it is not a move from RPI to CPIH, but recalculating RPI as if it were CPIH – and unless the Bank of England says that is a material change, eliminates any possibility of claiming this as a default. Still wannabuy those ‘risk-free’ gilts, as per TPR’s proposed Code??” – Con Keating

The Treasury’s announcement that RPI would morph to CPIH while still calling itself RPI was announced simultaneously with the Government spending review, prompting participants to criticize it as a £60bn raid on pension schemes. It is infact a £60bn raid on pensioners who will get lower pension increases but it is not increasing the liabilities of pension funds which promise RPI linking for pension increases. These schemes will still pay RPI but at a reduced rate. LCP’s  Jonathan Camfield, wirting in The Actuary Magazine summed up the efforts of pension schemes to float their deficits with gloomy black balloons


The angry brigade

All this makes comments from the purveyors of index linked gilts wrapped in LDI packaging very cross. This is about as cross as an LDI salesman can get (with a media policy guiding him)
The change from RPI to CPIH wipes £100bn off the value of these bonds, according to Insight Investment, a major pension investor. Jos Vermeulen, of Insight Investment, told the FT the firm was “disappointed” with Wednesday’s decision.

“This decision has been made despite substantial concerns being raised during the 2020 consultation, from a broad range of market participants,” he said. “Another chapter in the RPI saga has drawn to a close, but with 10 years until the decision is implemented, we struggle to believe that this is the final chapter, and we will continue to advocate for an equitable solution.”

The broad range of market participants are presumably Insight’s customers who had been sold long-dated RPI gilts as risk free assets. Often they had been buying RPI but promising CPI, a lower returning index than CPIH, banking the difference between what they held and what they had to pay as an asset mitigating deficits elsewhere.

What the Chancellor has done is unwind this artificial asset by narrowing the gap between RPI and CPI. In these cases it is the scheme funding that will suffer, but only because the scheme had got away with CPI indexation in the first place.

More generous schemes, that offered RPI, will see their liabilities decrease in line with the value of their assets, the losers in this case will be pensioners whose pension increases will be less generous from 2030 (but still more generous than if they had CPI).


So why is the pension industry blubbing?

Undoubtedly there is some skin in the game for those at the top of the pensions tree. Those senior pension figures with RPI linked pension promises in payment or soon to be in payment will lose out personally, unless they can find a way to get scheme rules to pay out on “old RPI”. I doubt that even the most brilliant lawyers will be able to argue that the Treasury are in default – as Con Keating points out – they aren’t changing the playing field, they are changing the rules of the game and they make the rules.

The pension industry is blubbing because they trusted the Treasury to be on their side and defend them as they have poured money into Treasury coffers over the past twenty years in the frenzy to de-risk pension schemes. Much of this has been smoke and mirrors stuff playing off corporate accounting policies and trustee funding statements using financial economics rather than common sense.

This has led to artificial funding gains resulting from “gearing” (borrowing to you and me) by buying derivatives of these RPI linked gilts at great expense to the pension funds who have to foot huge bills from the packagers of this “financial engineering”.

But while all this was being sold as “risk free” – it wasn’t. The risk was always there that the Government could change the rules of the game and these tears are the tears of crocodiles.

Those at the top of the tree are a lot more concerned that their reputations are now on the line and that a lot of these risk-free strategies now look a lot less attractive than they did at the beginning of last week.

Jonathan Camfield explains to other actuaries that much of their strategic planning over the past decade has been for nothing will need to be reversed

  • Does it still make sense to hold index-linked gilts and swaps to hedge CPI pension increases?

  • Changes in assumptions will lead to changes in member option terms, such as transfer values, pension increase exchange terms and commutation factors for converting pension to cash at retirement.

  • RPI changes could trigger further reviews of the appropriate index to use for pension increases under some scheme rules.

  • The knock-on impact on bulk annuity pricing may make insurance contracts more or less attractive to some schemes.

  • Trustees will need to think about appropriate communications to members in due course.

In short, the strategies were based on tactical plays which will now need to be reversed leading to extra costs to the scheme and little net gain to anyone but the advisers and fund managers


A more balanced view

I prefer the views of the eminently balanced Daniela Silcock, speaking for the Pension Policy Institute

“Some people are losing out but the economy overall should benefit if this is done correctly,”  Silcock told Pensions Expert.


The supposed threat to employers (following the proposals in the DB funding code)

The PLSA, who are now funded as much by the fund management industry as their pension schemes told the FT

“We are disappointed the government has chosen to disregard the detrimental impact this move will have on both savers’ retirement incomes. The change will also raise the risk of insolvency for employers as they seek to address the shortfall in funding of their workplace pension schemes.”

Those employers who have been following the advice of their consultants to de-risk with a view to buy out or self-sufficiency, have handed trustees billions to plug deficits calculated on discount rates determined by those advisers. This has been with the approval of the Pensions Regulator which is now proposing an acceleration of these “end-game” strategies to ensure that schemes do not tip into the PPF.

But the cost of these strategies is just what is pushing many such employers into the PPF, as – strong as the pension schemes appear to be, the cash flow drained from employers is leaving them unable to pay the operational bills. The PLSA cannot support the wholesale de-risking of pensions on the one hand , but complain that the adjustment to RPI is damaging employers – on the other. The wholesale rush to “risk-free” assets (gilts) over the past 20 years is the problem – and the risk that some of those gilts were over-valued has always been there.


So where does this leave the Pensions Regulator?

I can hardly imagine the Treasury’s decision went down well in Napier House, Brighton – home of the Pensions Regulator.

The extra costs associated with the decision are going to fall on the schemes that have been following the path advised in the funding code, those schemes that have not locked down into gilts are not the ones that will have to write off their RPI/CPI reserves.

The market new this was coming, the price of RPI linkers actually went up as a result of the announcement (the market had feared that the change would have come in from 2025 rather than 2030). If the gilts market knew, why is this coming as a shock to schemes and why has the Pensions Regulator been proposing schemes buy more of these over-priced gilts – when the risks were clearly understood?

To me, this suggests a fundamental rethink in what pension scheme investment strategies should be about. If pension schemes were set up to pay pensions, they should be investing in the long-term assets that make this country tick – businesses like Astra Zeneca that can do virus-beating things because of the backing of UK pension funds purchasing their equity. Rishi Sunak wants to get the money from the private sector going into  his £100bn reflation of industry.  That money is going to go into illiquid investment, not into funding more Government borrowing.

All this investment is at odds with de-risking and at odds with the DB funding code. to get Britain back on its feet , after the COVID punch to its solar-plexus, we will need to move towards a more ambitious approach to pension scheme funding and that means abandoning the mantra of “de-risking” and getting our DB pension schemes investing again. The Treasury’s message regarding the new calculation of RPI says just that.

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Lessons to learn from Dolphin Trust

 

18 months after its first program, Radio Four’s You and Yours program has produced a second program on Dolphin Trust (aka the German Property Group). You can listen to the second program here

As I’d followed up on the first report, I got asked to speak this time around. Sadly, the timings got mixed up so I’d only just started my carefully timed Spiegel when the program ended and I found myself talking on Facetime with no one listening!

I’d done the research and answered the program’s exam question “what lessons can we learn” from the debacle. The answer, in a simple phrase, is that if it looks too good to be true , it almost certainly is”. Dolphin looked and was too good to be true


Too plausible

Vorsprung durch technik and all that, Dolphin was a group of  German property company that had an all too perfect pitch, German companies don’t go wrong and this was based on the Grand Designs model – turning fabulous run down East German properties into desirable residences for the newly minted East German middle class.


Too much easy money

As if German property wasn’t exciting enough, the sauce was spiced with a healthy dose of German tax-payer’s money, lined up for anyone who wanted a “no-brainer” investment.


Too easy all round

Dolphin Trust was formed to provide two and five year bonds, with guaranteed exits and interest payable on terms that were at least four times what you could find on the high street. Investors could feel like savers, they were just smart enough to use the compelling combination of German Property with tax incentivized returns.


So why did this need to be sold at all?

The question that I asked in my last blog and ask in this, is why what seemed like a no-brainer needed to be sold with introductory fees of 20% or more? Surely this could sell itself with the developers taking their slice. What was wrong with German banks – why were the developers seeking crowd-funding in Singapore, Britain and other property mad countries.

The answer is that the developers did not want to develop, even when they got the builders in, they didn’t pay them. According to the joint investigation by the BBC and its German counterpart, what little building work that was commissioned wasn’t paid for.

In July 2020, German Property Group began filing for bankruptcy in Germany. It is estimated to owe at least £1bn to investors worldwide and at least £378m is thought to have been invested by people in the UK.

You can read the sad tales of those who lost out on the BBC website or listen to them on BBC Sounds but you may by now be weary of these stories, for the template is always the same and lessons are not being learned.


What lesson needs to be learned?

The lesson is in the returns you are actually getting on your pension savings. If you ask most people what a reasonable long-term return should be , you will probably get a default of 8-10%. Those numbers are hard-coded into our imagination. They were the numbers we learned from the 1980s and 1990s for that is when most people who Dolphin targeted were first saving into pensions, or PEPs or (later) ISAs.

But the actual returns most people have been getting since inflation was turned off at the turn of the millenium has been much lower. The average pension default fund has been returning around 3.5% pa since 2000 after all charges. Some have done  better

Some have done worse

The first data set shows returns from 2004 (where on average people have been getting 3.29% and the latter from 1997 (where on average people have been getting 5.91%.

Returns since 2010 have been comparable, despite our being in a bull market for shares and bonds, people have struggled to achieve an average net return of more than 5% in almost any of the large data sets we have analyzed.

The reality is that generally available 8-10% returns on 2 or 5 year bonds, live only in the imagination and the returns offered on Dolphin Trust bonds are – to those who study the facts – unimaginable.

There is a simple lesson to be learned from Dolphin Trust. When organizations are offering returns above the market rate, even with tax advantages, there is risk involved and if you can’t identify the risk, the risk is you are being scammed.

 

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The four green leaves of the clover

It’s my privilege to attend the three-weekly sessions of the Pensions NetWork and I’ve found them a welcome relief over this year of lockdown from the trials of the diurnal round. The 80 minute sessions are positive, informative and intellectually creative. Last night’s was no exception which reminds me to include the link to TPNW’s website from where you can apply to attend the sessions yourself. The next session is on December 17th and will be, like last night’s interactive with a number of panelists chaired by the avuncular John Moret, Pension’s answer to Bruce Forsyth.

The Pensions Network


The four green leaves of the clover

The success of last night’s session was in bringing together four distinct and complimentary approaches to responsible investment.

Tomas Carruthers, a risk-taker who has put his money where his mouth is since being a student, to improve transparency and value for the private investor.

Maria Nazarova-Doyle, a force of nature who flattens cynicism that insurance companies see ESG as “extra sales guaranteed” with the weight of her conviction.

Jonathan Parker, a consultant with a keen understanding of how to influence fiduciary decisions for good.

Tony Burdon, the mild campaigner with a tenacious focus on making our money matter.


Green for Go

I cannot report in detail – what was said – nor do I need to, the value of the evening being in the combined impact of four short presentations and questions from the floor from an audience that included many who could have been on the panel.


The big picture from a big-hearted Tomas Carruthers

Tomas’ approach is to clear layers of intermediation and create a 21st century stock exchange that enables people to take direct stewardship of their financial assets.

He sees the big picture, the $210trillion in the global financial ecosystem and considered how this money could convert to hitting Paris goals by 2030 and 2050. His estimate was that it would need to convert at $1.5tr a year over the next ten years for our financial assets to be on track for 100% carbon neutrality by 2050. There is £6.2 trillion tied up in the UK pension system, which is as good a place to start as any. He gave us three general insights to underpin what was to come

  1. Transparent governance works
  2. Don’t treat people as fools
  3. Respect the power of technology

Greta Thunberg in her thirties

Maria Nazarova-Doyle started turning up at Pension PlayPen lunches maybe 10 years ago. She was new to pensions then , finding  her way  as a transition analyst at Capita. She is now running the investment proposition for Scottish Widows and her presentation showed what intelligence, dedication and emotional intelligence can do. It is not for nothing that I liken her to Greta Thunberg. It’s greatly to Scottish Widows credit that they have given the responsibility of transforming their investment proposition to someone who fits none of the characteristics of a senior manager role within an insurance company.


The power of influence

Jonathan Parker has moved from being a senior manager within an insurance company to consultancy in a mirror image of Maria’s recent career path. His strength is in his capacity to influence while Maria’s is in transforming the environment directly. Both approaches are needed if we are to hit our Paris goals with the wealth of the nation.

We have to accept that the fiduciaries who look after other people’s money are not going to adopt new investment beliefs because of the noise of the market. They are rightly skeptical about “green-washing” and struggle to see through the complexity of different approaches to ESG, the wood for the trees. Jonathan Parker put forward a compelling case for using clear analytics and patient explanation to influence those with their hands on the levers of change.


Leading the campaign

What the responsible investment movement has lacked so far is a focus for popular support. Make My Money Matter is that focus and Tony Burdon is the CEO though not the poster-boy! There needs to be a backroom to any front room , and while we all know Richard Curtis, Tony is less of a household name.

But he brought to last night the perfect conclusion, a mild-mannered passion that left us in no doubt that what the transformation of pensions means is a better place for us to live both in terms of our planet and in terms of our social goals and the way we govern ourselves. The popular campaign for change makes influencing those with the hands on the levers and transforming the financial institutions a whole lot easier. It makes the big picture laid out by Tomas- happen.

The Four Green leaves of a clover

Clover is good, it makes honey and four leaf clovers are especially good, they bring good luck and they are exceptionally green.

Last night felt good, I felt lucky, I felt exceptionally green and in such good company saw a way forwards to the green goals we have set ourselves.


Further Zooming…

Learning about how financial services (and pensions in particular) are adapting to the challenge of a burning planet is an education devoutly to be wished for. I am looking forward to attending another such panel session hosted by Chatham House’s Hoffman Institute. , the IFOA and FiNSTIC We are fortunate to be able to get this education online and with minimum logistical difficulty, this will not always be the case, I urge you to  access to such learning , while we can.

Thanks to the actuaries for transformational change for bringing this to my attention.

 

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Tomorrow is a day of reckoning -DIES IRAE

Wednesday will be a day or reckoning – DIES IRAE, DIES ILLA, that day is a day of wrath. We have paid a high price for less productivity and less enjoyment. If there is such a thing as a lose-lose, the pandemic is it for there is no economic silver lining, unless you consider the Oxford vaccine a game-changer for our economy – which is optimistic in extreme.

SOLVET SAECLUM IN FACILLA, the earth is in ashes. For the second time this century, the prospect of progress has receded and we are shaping up for a second sharp intake of breath as we contemplate who will pay not just for what has happened in 2020, but for the cost of vaccinating us in 2021.

The question is both how we’ll pay and who will pay. Following the financial crisis (the first sharp intake of breath) it became clear that those without money would pay more tax , get less services and receive no pay-rises. This was austerity. It was deeply divisive, not least because the finger of blame could be pointed at those who had created the crisis, for whom austerity was just a fancy word.

The pandemic has hit the poor hardest. The second wave is repeating the first, hitting those on low incomes, in cities and in poor health . But will the poor have to  pay the economic price of COVID as they paid the price for the breaking of the banks?


What of the future?

While Wednesday will be about spending and borrowing, at some point the chancellor will have to decide how it will be paid for. He will start to address this in next March’s Budget, although most economic commentators feel the economy will still be too fragile for major tax rises.

It is possible that, with the success of a Covid vaccine, the economy could bounce back, limiting the need for big rises. However, Paul Johnson expects that four or five years down the road he still expects the economy to be about 4%-5% smaller than before the pandemic.

Rein in spending and raise taxes too early, and recovery will be choked off. Leave it too late, and the public finances will spin out of control.


Who pays?

It is possible that the austerity program that was introduced in 2010 could be repeated ten years on, but both Sunak and Johnson have publicly stated this is not the way they will go.

If the price for the pandemic is not dumped on the poor, then it must be paid by the affluent and that will mean taxing us (and most readers of this blog are affluent) on our income and on our assets. Higher marginal rates of income tax, higher taxes on capital gains, lower reliefs on pensions and investments and a reduction in the privileges  of those who have the means to pay more . This may not sound very Conservative, but it is the price that will need to be paid for national unity. DIES IRAE


A fair price for us to pay.

I live in the City of London, we have some of the least infected postcodes in London. But I do not have to cycle more than five minutes to be in Lambeth, Southwark, Hackney or Islington where infection rates were amongst the highest in the country earlier this year.

I cycled through Dalston last night and it struck me how huge the gap is between the lives of those I talk with on business calls and the daily lives on the Roman Road. The street that I live on has a hostel for the homeless, it is full and those who cannot get in are in tents along the embankment. Wherever I go , to exercise, I see affluence and destitution living alongside each other.

So my message to Ricki Sunak, as he prepares for DIES IRAE tomorrow is in the great chant.

Or , to put a 21st century slant upon the subject, here is the inimitable Jonny Cash with what Springsteen called the  “Momentous – ‘The Man Comes Around’.”

&
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The Regulator’s not for turning; in conversation with David Fairs,

 

David Fairs – speaking last year at the First Actuarial conference

David Fairs and I were born within a couple of months and have both spent our careers in pensions. We enjoy each other’s company so when David suggested that we spent the last 90 minutes of the business week on a Teams call, I cleared my afternoon. Whereas I have spent the last 37 years thinking about how to get better member outcomes, David has approached pensions from the employer’s perspective wrestling with the difficult questions of affordability, security and fairness that underpin “integrated risk management”.

But whereas the beaten track for policy-makers tends to start at the Pensions Regulator and end in consultancy, for David has been the other way round.  After 23 years as a partner at KPMG, David chose to move to Brighton to work for the Government, forsaking a much more lucrative end of career move in the private sector. Few people would call David a career regulator, his strength is that he sees issues with the benefit of a commercial career behind him.


A conversation focused on the corporate (not saver’s agenda)

Although TPR has recently set out its strategy for the next 15 years in terms of protecting savers, we scarcely touched on DC in the hour and a half we spent together. Where DC entered the conversation it was in relation to big data issues, especially the data-readiness of DC schemes to meet the challenge of the Pensions Dashboard. TPR are clearly interested in any information they can get on the quality of data in the DC schemes over which they have oversight, the speed at which the dashboard is delivered and the value people place upon the dashboard will depend on the capacity and willingness of these schemes to share data.

It was typical of the conversation that we focused on the challenges to schemes and scheme sponsors in releasing this data (not on the the engagement with members). My take is that TPR will continue to focus on DC from a corporate perspective (AE compliance, dashboard compliance) and is a long way from the FCA’s stronger consumer perspective. Despite TPR professing to be strategically moving towards protecting savers, there is evidence of this consumer focus. Even work on scams is focusing on employers adopting Margaret Snowden’s Pension Scams Industry Group.


Fairs on funding

As TPR pours over 130 submissions to its consultation on the DB funding code (and I hope the points raised by Keating, Clacher, Compton and others on this blog), it is not surprising that our conversation quickly moved to the funding of the guaranteed pensions that many in pensions seem to want to consider “legacy issues”. I asked whether the maintenance of schemes that remain open to future accrual and indeed new entrants was an irritant or (as Guy Opperman has stated) , something that should be encouraged.

Fairs was keen to point out that within the definition of “open scheme” were schemes that had to retain a section for future accrual and new entrants and those who saw the provision of pensions to future generations as what they did. For the purposes of the long-term objective of a scheme, those that sort to pay pensions from within the scheme (as opposed to buying out) might share a similar investment strategy with an open scheme. This point came out of a discussion over the capacity of defined benefit schemes to embrace “patient capital”, the illiquid investments into which everyone in Government from the Prime Minister down, is keen for pensions to invest. The conflict between fast-tracking pensions into risk-free strategies and the broader policy issues around re-funding Britain through its pensions is a live topic for TPR.

Fairs was keen to differentiate the investment strategies linked to funding from the disclosure requirements from the DWP’s TCFD initiative (where the emphasis is on mindfulness of the impact of the scheme’s investments on environmental sustainability). I was surprised that TCFD was not seen as a part of the Long Term Objectives of the scheme and separate from the funding debate, TPR are clearly wary of getting dragged into debates on the impact of ESG on returns (and so scheme funding).


Fairs on push back from open schemes

Guy Opperman has openly stated that the DWP were surprised by the vehemence of opposition to the powers being conferred on tPR to enforce the DB funding code (as evidenced by the debate on amendment 123 or the Pension Schemes Bill- the Bowles amendment).

We talked about the position adopted by Guy Opperman during the debate which appeared to point to greater flexibility in the use of the bespoke option within the DB funding code.

Trustees and sponsors  have been concerned about of open schemes having to get tPRs blessing when moving away from “Fast-track”. For them, this sounds like more of a pre-requisite than a cross-check on trustee and sponsor plans. Schemes  feel they may be treated as guilty until proven innocent and that the Pension Scheme Bill’s powers will give tPR way more leverage in agreeing investment and funding plans.

In practice, the industry seems to be dubious as to whether tPR has the capability or resources to agree bespoke solutions for all who want to go that way. One multi-employer has written to me on this

We handle over 100 sponsors … and agreeing with some of these can be a lengthy and protracted process. The Scheme specific funding regime that the Minister is looking to build on is more of an art than a science. TPR would need a deep understanding of sponsors business, it’s barriers to entry, capital and debt structure, opportunities and threats as well as the nature of benefits offered and scheme membership characteristics.

The question of whether the Pensions Regulator has the capacity to enforce its powers , if bespoke becomes the predominate route for schemes, seems to go the heart of the matter. There may be flexibility within the code for a thousand flowers to bloom, but who will keep the beds weed-free?


Fairs on impact assessments

David Fairs has clearly got his hands full with the 130 responses to the 58 questions of TPR’s recent consultation and he was giving nothing away with regards any changes in position from the regulator. However, he did drop a broad hint when confirming that the consultation was the product of a pre-pandemic world, that changes might be afoot.

He was keen to push back against criticism that TPR had provided no impact-assessment of the proposals within the code arguing that TPR could not pre-judge the outcomes of its proposals before the proposals had been finalized.  Here he seems at odds with many of the consultancies who have been keen to tell their clients and the world the cost of the Code on sponsors. We discussed the specific numbers published by LCP, which Fairs was keen to downplay. Here at least, I felt that we were moving into an area about which the Regulator felt uncomfortable. It will be interesting to see whether TPR approach any concessions on fast track and bespoke as resulting from local conditions (Covid) or from a more fundamental re-assessment of its role.


Fairs on transparency

That this conversation could be had , suggests that David Fairs is prepared to put his views into the open, even as the consultation responses are being absorbed. This is unusually transparent in itself, though Fairs is far too accomplished a spokesperson, to drop hints to an amateur blogger.

There were points our conversation when I sensed engagement with genuinely difficult issues but for the most part, David Fairs gave the impression that what we saw in the  consultation , was what we were going to get.

With no hint of any major changes in position by TPR, the debate moves from the substance to the nuance of the regulations and here Fairs is at a great advantage holding most of the cards and being an accomplished player.

I suggest that what we get from this consultation will be nuanced change resulting from what Fairs referred to as “some interesting ideas”. But what we are unlikely to see is any major changes in the direction taken by the Pensions Regulator, the regulator’s not for turning.

Posted in age wage, Blogging, pensions, Pensions Regulator, Politics, Public sector pensions | Tagged , , , | 2 Comments

Is Salesman Simon a pension scammer? I think not!

Simon Eagle is not your common or garden pension salesman. He is a mild-mannered actuary with a mischievous smile and a stammer that he has bravely overcome.

Simon Eagle

When he claims that CDC beats drawdown by 57%, we should listen up.

I am 59 and using (the largely discredited) 4% rule, I could draw down at 65 £25,000 pa or Simon’s 3.5% (safe rate) £17,500. My ears prick up at the thought of a whole of retirement pay rise from £17,500 to £27,500 pa.


Is Simon Eagle a pension scammer?

If your common or garden pension salesman offered me a 57% whole of retirement pay rise , just for switching to his pension plan, you would give him the bum’s rush. I know a few tweeps (and the bearded wonder) who would need no second invitation.

But here are the five reasons why I am looking to CDC to provide me with a pension.

  1. I need more from my pension pot than I can get from an annuity or a safe rate of drawdown
  2. I want a wage that lasts as long as I do and has built in inflation protection
  3. I’m prepared to take my chances that pension increases don’t come through and am not afraid to  take the odd pay-cut.
  4. I do not want to be worrying about pension decision making – especially as I get into the later stages of retirement
  5. I understand and accept the basis of Simon’s bold claim. Unlike DB pensions and annuities, CDC pensions don’t have to be subject to locked down investment strategies and unlike drawdown pensions, they aren’t subject to the ruinously expensive advisory costs and wealth management fees that make drawdown so risky for all but the experts,

Salesman Simon Eagle is no scammer – he’s just a very bright man who has integrity in spades. Thank goodness we have actuaries like him who have the courage of their conviction.


Putting our money where your mouth is….

There is a sixth reason which I will admit to. By wanting it, I hope I can influence some of the people who are in a position to me getting it. Among them I include Simon, who works for a consultancy that provides Britain with one of its most successful master trusts – Lifesight. Willis Towers Watson could soon be one company with Aon. Aon offer the Aon Master Trust, which like Lifesight , has over £2.5bn in assets and carries the retirement hopes of hundreds of thousands of savers.

I am waiting for both WTW and Aon to announce firstly that they will be opening a CDC section of their master trust as soon as regulations allow. Simon told the Corporate Adviser master trust conference that he expected to see the regulations for master trusts in place by 2022. In a conversation with TPR’s David Fairs yesterday, I gathered that CDC secondary regulations are “in plan” for the spring of 2021. On a Friends of CDC call on Thursday I asked salesman Simon and Aon’s CDC-guru Chintan Ghandi if they were thinking about CDC pilots. Right now the answer is “no”, but that won’t stop me asking (again and again and again).

The second question I’ll have for them – once they’ve got the CDC pilot agreed, is how I can transfer the AgeWage workplace pension from its current provider – to the new CDC offered by WTW-Aon.

And in case anyone from Aon or WTW are worried about over-promising, I will emphasize that nothing – nothing – has been promise by salesman Simon or guru Chintan to me or any other friend of CDC – yet!

 

Posted in advice gap, CDC, consolidation | Tagged , , | 9 Comments

USS; are UCU and UUK missing the big picture?

The image of two grizzly bears fighting each other is both eye-catching and appalling, we know this will not end well but we are drawn to the spectacle. As an image of the ongoing struggle between university teachers and their employers over pension rights, it is spot on or “apposite” to use the language of academia.

The problem for the public is that we are tired of the argument and want some resolution. We do not want the teachers to compound the damage of current distance learning with another wave of strikes, but that is where this dispute is heading.

Nor is the problem as easily solvable as John Ralfe would suppose. Though university teachers may not think of themselves as like postal workers, in terms of retirement planning, they are not that different. The average don has neither the inclination or the financial capability of managing a DC pot to pension and would certainly be shocked by the meagre fayre offered by an equivalent annuity from a DC scheme, relative to the benefits available from USS.

A wholesale shift to DC would cause the kind of industrial unrest that would have crippled Royal Mail. What is needed is the kind of leadership displayed by the UCU an UUK as occurred at the crisis point of Royal Mail’s negotiations at ACAS with the Communication Workers Union.

What happened there was that the heads of the two sides, Jon Millidge and Terry Pullinger, agreed that for the greater good , a compromise solution could be put together. Royal Mail gave up its insistence  on a DC solution while the CWU gave up their demand for guaranteed pensions.


The key is guarantees.

As we move towards the next round of negotiations over the future of the University Superannuation Scheme it seems inevitable that guarantees will have to be discussed and negotiated. The perilous position facing many individual universities with falling revenues from the loss of overseas students does not suggest they will return to the table better able to afford massive  hikes in pension funding costs.

The University and College Union, under the capable leadership of Dr Jo O’Grady now find themselves much as the CWU did, with a new way of teaching threatening the livelihoods of its 120,000 staff. If things have got to the point where students have to distance learn, why should they support the infrastructure of universities and colleges and the massive pay and pensions bill of lecturers when the teaching and information they need is readily available on line.

Universities are going to have to radically reinvent themselves post pandemic as the current tuition costs to students and tax-payer do not give value for money. In the wake of the pandemic , it is inevitable that the cost of guaranteeing funded pensions to academic staff will have to be revisited.


Mike Otsuka – speaking sense

Mike Otsuka

I very much hope that the three lectures being given by Mike Otsuka have been well watched. I could not make the first two and can’t make the third either (clashing work commitments).

As these lectures were delivered on Zoom I hope that there will be recordings which can be distributed to the wider public. For those who can attend, the third lecture (on the role of unfunded Pay as you Go pensions, goes ahead on Tuesday 17th.

 

;Mike’s work on the subject is very important but it is too inaccessible for the ordinary person to properly understand. Here is the advertisement for the CDC lecture which was given last week

On any sensible approach to the valuation of a DB scheme, ineliminable risk will remain that returns on a portfolio weighted towards return-seeking equities and property will fall significantly short of fully funding the DB pension promise.

On the actuarial approach, this risk is deemed sufficiently low that it is reasonable and prudent to take in the case of an open scheme that will be cashflow positive for many decades.

But if they deem the risk so low, shouldn’t scheme members who advocate such an approach be willing to put their money where their mouth is, by agreeing to bear at least some of this downside risk through a reduction in their pensions if returns are not good enough to achieve full funding?

Some such conditionality would simply involve a return to the practices of DB pension schemes during their heyday three and more decades ago. The subsequent hardening of the pension promise has hastened the demise of DB.

The target pensions of collective defined contribution (CDC) might provide a means of preserving the benefits of collective pensions, in a manner that is more cost effective for all than any form of defined benefit promise. In one form of CDC, the risks are collectively pooled across generations. In another form, they are collectively pooled only among the members of each age cohorts.

Mike is putting forwards the solution that Royal Mail and its union found. If the UCU and UUK could come to a similar compromise on guarantees and future benefit structures then many students would not lose more face to face or remote teaching times in the months and years to come.

But there are headwinds, and they come from entrenched positions both within and without academic circles. Take this tweet from Norma Cohen, representing a “no retreat – no surrender” position on DB pension guarantees.

 

The reality is that most employer with DB schemes are no longer honoring the offer of future accrual and are piling in money to meet deficits (which is getting tax-relief). The DB system is soaking up resources otherwise needed for Britain to bounce back. Both these deficits and contributions into DC schemes are tax-deductible for employers. Why do some people prize guarantees so highly?

I suspect for universities to bounce back, they too will need to dishonor their offer of future DB accrual. Now is the time for UCU and Government to think seriously about CDC as an alternative.

Let’s hope that Mike’s second lecture can be watched by all those with an interest in resolving the long-running dispute over the USS and lecturer’s pensions. Otherwise we will continue the argument from entrenched positions and miss the big picture.

I would refer those debating university pensions to look again at the work done by Royal Mail and CWU and learn from it.

 

Posted in advice gap, CDC, USS, Value for Money | Tagged , , , , , , , , , , , | 2 Comments

Cumbo asks “can pension schemes invest for social good and keep TPR happy?”

 

Rishi Sunak is keen to see pension schemes invest to get Britain to its climate change commitments. This week the Treasury set out its financial services policy  which ended with a promise

to encourage investment in long-term illiquid assets, such as infrastructure and venture capital, the Chancellor announced his ambition to have the UK’s first Long-Term Asset Fund (LTAF) launch within a year.

We know the DWP are taking steps to enable DC schemes to invest in such a fund and have issued a consultation on how to create larger DC schemes which can invest in less liquid funds. The DWP is also looking to tweak the charge cap rules to enable  notoriously expensive illiquid asset classes to be used within the charge cap. Success for DC schemes is far from certain as liquidity in DC is a lot less certain (who knows when people will want their money?). Successfully  embedding long term illiquid investment in collective defined benefit schemes sounds easier but will trustees commit to long term investment strategies if they are being regulated using short term measures?

Josephine Cumbo took to the tweets, to quiz the Pensions Regulator on how it might be resolving the seeming conflict between improving member security while supporting the Chancellor’s green objectives.

 

Whether the Government wants to get DC or DB pensions investing in the LTAF , it is going to need to provide different messaging about the duration of pension liabilities. If trustees are planning to buy-out or transfer assets into a superfund then they are going to need assurance that any investment in  the LTAF will be transferrable to whoever buys their liabilities out. Assets will need to be transferred in specie and its far from clear whether commercial organizations will want assets within the LTAF wrapper or indeed the assets at all.

Ironically, those DB schemes not looking to get bought out but which are either open to new members or future accrual  are likely to be subject to the Pension Regulator’s “bespoke scheme guidance”. There is considerable concern in and outside parliament that these bespoke rules offer little more opportunity to invest in “patient capital” than the TPR’s fast track. This is why there are attempts being made to carve schemes that want to stay open from being subject to the strictures of the DB funding code. By escaping “bespoke”, these schemes  would be much more free to invest in the LTAF (it is supposed).

Josephine Cumbo’s questions pose salient challenges for TPR’s DB funding code as well as to issues of member security they address directly. It is good to see invites coming out of TPR to attend briefings and even one on one meetings, this suggests that what appeared to be a slam dunk DB funding code consultation, may yet offer hope to schemes with longer time horizons to do as Rishi Sunak wants them to.

Posted in pensions | Tagged , , | 1 Comment

Bob Compton speaks out on Pension Funding

Bob Compton

Bob Compton  MD of Arc Benefits is  quietly spoken  but an acute listener. He wrote to me yesterday this mail which provides a fascinating insight into the debate over how we fund our open and closed DB schemes and the alternatives we can offer to employers for whom providing a DB pension presents insuperable challenges.


Email sent to Henry Tapper 10/11/20

I listened to the Pensions Bill committee reading as it happened on Thursday. As a result I have a few comments to share with you.

  1. Guy Opperman was very impressive in his grasp of the issues debated, with one exception.
  2. There appears to be all party support for the majority of clauses in the Pensions Bill, other than some would like to hard code legislation in a number of areas to a tighter degree.
  3. Guy Opperman has committed to taking action to legislate on CDC within this parliament, but this will take 3 to 4 years to become reality. As we have seen from the speed of policy changes from the current government, this could easily be conveniently forgotten in the coming months ahead if more pressing post EU jurisdiction problems arise.
  4. Guy Opperman has unbelievable faith that the Pensions Regulator DB funding code consultation will not lead to closure of ongoing DB schemes, and as a consequence has squashed proposed Bill amendments which would have ensured TPR could not create an environment where DB schemes have no option but to move to an end game faster than previously anticipated.

In point 1 above the one exception is this:

TPR has gone into print as follows:

“We propose that Bespoke arrangements should meet the key principles and be assessed against the Fast Track standard.” …..“ They will submit their valuation, along with supporting evidence, explaining how and why they have differed from the Fast Track position and how any additional risk is being managed.”….. “Bespoke arrangements may receive more regulatory scrutiny..”

Guy appears to have been persuaded by the Regulator that this means Trustees choosing the bespoke route will be free to adopt Scheme specific assumptions without hindrance.

However TPR’s Fiona Frobisher has on 2 October at an FT webinar stated Bespoke

  1. will be benchmarked against Fast track assumptions
  2. will be have a greater evidential burden
  3. will face greater Regulatory involvement.

When challenged on the implications for open DB schemes in terms of increased governance cost, the pressure to conform to a gilts based investment strategy based on comply or explain, Fiona made a telling statement (summarized as) TPR is only concerned about securing accrued pension rights, not about future accrual, and that if TPR’s remit were to consider future accruals, i.e. open DB schemes that is a policy matter best left to government.

The implication being, TPR is more concerned about its remit for PPF preservation, than ongoing Pensions accrual.

This is further reinforced when Charles Counsell at a later PLSA event stated TPR’s future policy was all about looking after “Savers” with no mention of “Pensions”, leading me to question should TPR change its name to “TSR” The Savers Regulator.

AE has been successful in increasing the numbers saving for retirement, but has a long way to go to match the success of past DB schemes in delivering quality of life in retirement. DC is not a pension, merely a means to have the option to purchase an expensive annuity which the majority will not take up.

So to sum up Guy Opperman has and is doing a great job, but he has a blind spot, which if not challenged will lead to the hammering of the final nail in the coffin of open DB schemes.

 

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

Can our pensions build back better? Sunak paints a greener picture.

Ricki Sunak’s first speech on financial services in the House of Commons came on the day we absorbed a Biden and a vaccine win. It was a bad day for viruses but a good day for the markets which bounced about with irrational enthusiasm. While all this was going on, Sunak’s plans went largely unreported – only the FT has given his speech much coverage.

The headline shows how complex Government messaging has to be over the weeks ahead.

Sunak sets out ‘green’ post-Brexit financial services regime

The content of the speech needed to address the three immediate priorities for the Chancellor

  1. Bounce Britain back after an appalling year of Covid-lockdown
  2. Maintain “equivalence” with the EU after December 31st to ensure BAU for UK financial services
  3. Ensure that investment both in Government debt and in UK equity promotes Britain’s commitment to be carbon-neutral within 30 years

There are many people who see Brexit, Covid and climate change as unmanageable problems and adopt a fatalistic approach to the future, Sunak doesn’t appear to be among them.

The speech sounded more like the autumn budget we never quite got. Sunak told MPs…

  1. he will grant equivalence to EU and European Economic Area states on financial services,
  2. pledged the launch of Britain’s first “green gilt”
  3.  launched a review of the listing regime to attract fast-growing technology companies to London
  4. proposed a new regulatory approach for “stablecoin” initiatives — involving privately issued digital currencies
  5. announced plans to launch the country’s first green gilts
  6. announced that Britain would become the first country in the world to make large listed and private companies disclose the threats to their business from climate change by 2025, including pension schemes.
  7. hoped to have the UK’s first long-term asset fund launched within a year to encourage investment in illiquid assets such as infrastructure and venture capital.

If some of this sounds familiar it is because much of this policy is in the Pension Schemes Bill and forms the heart of the DWP’s agenda for UK pension schemes.  With DB pension funds de-risking , green gilts will immediately attract the attention of consultants and trustees keen to work out how a shift to Government bonds can improve their commitment to E,S and G factors.

Those schemes with headroom to invest into growth assets (sadly mostly DC schemes) will be looking with interest at opportunities from exposure of the long-term asset fund, while trustees contemplating TCFD reporting will have the comfort of knowing that they are not alone- it will be a reporting requirement for insurance companies banks and large companies as well.

In the context of the Treasury’s agenda for financial services, it is now possible to see why Guy Opperman is so adamant that pension schemes should play a part in building back better. Opperman, unlike Webb and Altmann, plays to a gallery of those “above his pay grade” ( a phrase he uses regularly). This sense of being a part of a wider political enterprise has been lacking from pension ministers and those lobbying for amendments to the Pension Schemes Bill and TPR’s DB funding code should be mindful of that.

He should also be aware of his boss’ expectations!

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Pensions a part of building back better

Pensions are governed by old men who have served their working lives within the EU, without the mental and physical stress of a global pandemic and without fear of a broken climate. Sure there have been other threats, but never such a triumvirate of significant headwinds.

To meet these three threats to our long-term financial well-being, the old men will need to change, many will need to step down and make way for younger ,gender diverse and more attuned successors. Those that remain will have to adapt and adopt new ways to invest, report and consider risks and reward.

The financial crisis of 2008-9 was relatively easy to fix. The legacy of the pandemic and the economic consequences of Brexit will take longer to work through. But we have to address the changes they bring. Most of all we need to recognize the paradigm shift in behaviours we need to display and encourage if we have any hope of averting climate change and building a society where social fairness and governmental standards improve.

Pensions own a great slice of Britain and have a critical part to play in transforming financial services so that it plays a part in resolving the crisis we are currently in. We cannot stand by and await a bad fate. We need to rise to the challenges , as Rishi Sunak and other Government ministers (Opperman among them) appear to be doing.

But no matter how well intentioned we may be, open pension schemes  cannot invest pension funds into patient capital and be subject to the proposed DB funding code. Something has to give and let’s hope it’s the intransigence over Clause 123 of the pensions bill, of TPR’s senior management – or both.

 

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

Sharon Bowles has thrown the Minister a lifeline, he should grab it with both hands.

 

The DWP is in an awkward spot over the funding of defined benefit pensions. The 130 responses to its regulator’s consultation paper are likely to be making uncomfortable reading to those scrutinizing them in Brighton and the Pensions Minister is hearing on all sides that the DB funding code , far from protecting DB schemes, could so undermine the sponsor covenants as to risk losing retirement income and current jobs.

For a minister for “work” and “pensions” ,  the messaging is pretty grim. Having listened to the audio and now read some of the Hansard transcripts of the Committee stages of the reading of the Pension Schemes Bill, DB funding is the one area about which Guy Opperman appears defensive.

Even before the debate on the Pension Regulator’s powers, the Pension Minister was keen to let MPs know he was not introducing CDC as a Trojan Horse to sack DB schemes.

We will debate DB schemes, which I think have a great future. We have gone to great efforts to support the future of DB schemes.

This is an alternative way forward that some organisations—Royal Mail is the classic example, but there are others who are looking at this—will welcome. Under no circumstances should it be implied or in any way taken that the Government will do anything other than support DB schemes on an ongoing basis.

He opened his arguments for ruling out the Bowles amendment thus

We do not want good schemes to close unnecessarily, or to introduce a one-size-fits-all regime that forces immature schemes with strong sponsors into an inappropriate de-risking journey.

Opperman continued to acknowledge the risk of the one size fits all strategy (termed fast-track by TPR)

Open schemes with a strong sponsoring employer that are immature and have managed their risk appropriately should not be forced into an inappropriate de-risking journey.

Opperman tried hard to give assurance that the proposals within the DB funding code would do just that. MPs were asked to accept that they would be giving tPR powers to enforce secondary legislation which were it to follow the proposals in the Code , would put such strain on DB sponsors as to imperil  both work and pensions.

I make it clear that the Government can commit to using the regulation-making powers available to ensure that the secondary legislation works in a way that does not prevent appropriate open schemes from investing in riskier investments where there are potentially higher returns as long as the risks being taken can be supported and members’ benefits and the Pension Protection Fund are effectively protected.

This would sound more credible if the conciliatory tone was shared by the Pensions Regulator, but recent pronouncements from David Fairs and Charles Counsell do not acknowledge the need to move from the “scorched earth” proposals of the code.

I hope that the Pensions Regulator will be reading the Minister’s statements and recognizing they cannot have their code which eats what it seeks to protect.

I say this because the Pensions Regulator (through the aforementioned spokespeople) has relied for its positioning , not on what the pensions industry wants, but what parliament wants.


What does parliament want?

On most subjects in the Pension Schemes Bill, there is cross party support for the Government’s position, but with regards clause 123 of the Bill, which seeks to offer open pension schemes a carve-out from the DB code, there is not. Here is the position of the SNP put succinctly by Neil Gray

There is a problem with encouraging good open schemes to de-risk. We know where the bond market and gilts market is right now; we know that that puts them at risk. Baroness Altmann has intervened this week to say:

“If you decide to ‘de-risk’, then you are also deciding to ‘de-return’, taking away the upside potential that is so vital for making DB affordable. Deficit schemes just keep getting worse and contributions keep on rising. QE”—quantitative easing—“has undermined funding of all DB schemes”.

At which point Guy Opperman has to accept that Ros Altmann, who sits on the Conservative benches in the Lords, is indeed supporting the Liberal peer (Sharon Bowles)’ amendment.

Nor can he enjoy the usual support of Labour , who join the debate through Seema Malhotra (deputizing for Jack Dromey

We regret that the Government seek to remove the amendment made to clause 123 in the Lords. As the Minister is aware, there are grave concerns about the impact of the provisions in the Bill on open DB schemes, which includes many public sector schemes. Labour has been clear all along that we do not accept the premise that good DB schemes are not worth protecting.

And as Neil Gray reminds him, he can’t rely for support from employers or trustees with large schemes.

It is not just me or Baroness Altmann saying this. The schemes are saying that following this path puts their own good and open schemes at risk for members to continue to enjoy.

Faced with a considerable array of opposition, Opperman may have thought he had survived , only to be hit in the solar-plexus by Richard Thomson (a former Scottish Widows corporate account manager and now another SNP pension expert. Thomson pointed out to the Minister that the unintended consequence of squeezing open schemes into the DB funding framework would be to prevent them investing in the patient capital that Opperman has so promoted.

At this point Opperman’s hard line stance showed a crack (if not a crumble).

There is a legitimate and relevant point, although I will resist the amendment, that this is a perfectly valid debate to have in this place. It will definitely influence the regulator’s approach and ensure that, if there is any doubt whatsoever, not all schemes will be treated the same. There is not a one-size-fits-all approach. If anyone is proposing that that is the case, it simply is not. Every scheme should be looked at on its own merits and in its own particular way, because, as all colleagues have rightly identified, schemes have different profiles, different amounts and different objectives. That is what the regulator is trying to do—to build on the current approach.

The main theme of TPR’s DB funding code is that most schemes should not be looked at on their merits but be put on a fast-track conveyor to self-sufficiency and buy-out. This will mean wholesale investment in gilts and the kind of high-grade bond that puts liquidity at a premium (and is quite the opposite of patient capital.

If Guy Opperman believes that the DB code should allow open schemes to continue to take risk as part of their funding strategy then he is either going to have to change TPR’s view on what kind of investment risks are “supportable”.

Alternatively, he may give up the fight and accept that what parliament is calling for, as many schemes are calling for, is the right to determine their own investment strategy based on their time horizons. I make no apology for once again showing why it is economically more efficient for schemes to remain open.

For schemes to stay open , the sweet spot of the “infinite time horizon” must be rewarded. The Bowles amendment to clause 123 ensures that that reward is available. I am quite sure that Ros Altmann, Sharon Bowles or the other supportive peers, are not ready to give up their amendment yet.

 

 

Posted in Big Government | Tagged , , , | 2 Comments

Who pays for us doing nothing? Pension schemes and the poor!

It would seem that Britain has used the 9 months to pay off its consumer debt. Have we simply dumped our personal borrowings on our Government?

With so much public debt and so little interest available, it’s no wonder defined benefit pension schemes are fast becoming the nation’s bankers- is this why TPR are so keen on de-risking? What but  pension schemes could pick up the cost of furlough without anyone seeming to getting hurt?

What will be interesting, and here I will be relying on the Office of National Statistics, is to know just how interested private individuals have been in sinking cash saved on commuting , meals out, holidays and general jollification into long term savings and how much into the rainy day fund (codenamed “second wave”).

All the signs are that this Government, while it was comfortable with lockdown I, is not so sanguine about Lockdown II. I suspect this is for financial reasons and this is both about personal and public finances. What is needed is a whole lot of work (or as economists would have it – productivity). What is about to happen is that the work equivalent of quantitative easing – the furlough – will end on Saturday night.

These are not easy thoughts, my fellow Brits. We work to pay the bills and if we do no work, we rely on those who do to pay them for us. The alternative is the kind of problem we last saw in the great depression (before we had fancy banking).

This very fundamental issue looks like what’s behind the sharp intake of breath we’ve seen from world markets this week. The elephant is poking his head out of the window and waving his trunk about and people worry about the state of the room!


Who pays? Why the vulnerable* of course!

Pension schemes aside, the other easy target for those selling credit is the derelict borrower.

As Mick’s tweet points out, the people left with consumer debt are the people least likely to afford it, which means – the way credit markets work – that the cost of their debt is higher. The banks have found a way to balance their books and it’s at the expense of those who haven’t got their debt under control. This is from the Bank of England report Alistair is promoting.

The effective rates – the actual interest rate paid – on interest-charging overdrafts continued to rise in September, by 3.52 percentage points to 22.52%. This is the highest since the series began in 2016, and compares to a rate of 10.32% in March 2020 before new rules on overdraft pricing came into effect.

Someone brighter than me will tell me just what happened to make personal credit so much more expensive, I’ll just ruminate on how the cost of unsecured borrowing is sky-rocketing and how this isn’t called profiteering (when we are facing the prospect of negative interest rates). The problem first came to my attention with this article from June this year from MoneyExpert.com

The uptick primarily comes from an increase in rates on subprime credit cards, which are targeted at households which can’t pass credit checks and can’t qualify for credit cards from mainstream banks.

* “vulnerable” in this context means “financially vulnerable” – people  we used to call “poor”.


Do credit markets have to dump on the vulnerable?

I ask this question of friends like Con Keating, who I invite to comment on this blog and the BOE numbers.

If they do, then all the sidecars in the Nest car-park can stay there. If those who are borrowing unsecured are seeing their interest payments rocket to over 22.5% , then what are we doing prioritizing their saving more?

And why are organizations calling for an increase in auto-enrolment rates , especially the recommendation that we contribute from pound one of our salary?

And why are we charging 1.7m low earners 25% more for their pension contributions, just because they don’t earn enough to pay income tax?

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Why investors don’t have to choose between their values and their pocket books

I am a 58 year old investor whose pension pot is invested mainly in equities which are managed with ESG factors. I have invested this way for a few years now and am beginning to see the fund I use providing me with a better return than my previous strategy, which did not employ management to environmental , social and governance factors – to the same degree.

I took the view when I found I could use the L&G Future World fund, that though all funds would naturally move to ESG, because the underlying assets would be required to be managed that way, accelerating that process would pay dividends to me and make my money matter. This approach is criticised by Robert Armstrong, the author of the article Jo refers to – on the basis that you can’t have your cake and eat it.

Robert Armstrong

The article makes a few assumptions which for me are just plain wrong. Chief among them is that retirement savers suffer from short time horizons.

There are no investment returns at all on a planet left uninhabitable by climate change. But that is not the time horizon individual investors operate over (they might have just 20 years between acquiring significant assets to invest and retiring). And it is far beyond any corporation’s planning horizon.

There are two reasons to challenge this statement, firstly because it is much more widely held than many liberals (like me) would care to admit and secondly because it is plain wrong.

  1. The saver’s perspective

Looking at the subject from the pension saver’s perspective, people do not stop investing when they reach retirement. Unless they choose to put their savings under a mattress , they keep investing whether the decision is taken by them (DC) or by fiduciaries (DB and CDC) most people’s pension savings rolls over into retirement in broadly the same assets as prior. Even annuities are now backed by investments into social enterprise (see my blogs  on the capacity of annuity books to invest in patient capital).

2. The corporate perspective

People’s time horizons are long and so are companies, at least when long term investors in them demand it. The second fallacy of Armstrong’s statement is that the management of the companies to whom we lend money or invest in equity can behave as they please. They can’t; the management of a listed company is subject to the scrutiny and to a degree the control of shareholders- this is what is called stewardship and it is not some tree-hugging concept that doesn’t exist in real life. It is a reality of running a modern company. Corporate time horizons are having to merge with their investors whatever the past tells us about short-termism.

3. The global perspective

The third perspective trumps the first and second and is absolutely conclusive. “There are no investment returns on a planet uninhabitable”…  to suppose that a generation like mine can consider that those living in our shoes at the back end of this century will have to pay the price of our behavior is shocking. Can we really have become so carnal in our pursuance of immediate gratification that we can accept that our actions are condemning another generation to an “uninhabitable planet“?

I can think of no sentient parallel in nature, Within the DNA of the species that live on this planet is the capacity to mutate. The purpose of our mutation is to perpetuate the evolution of the species as it faces up to future challenges. Of course there are failures and they are known as “dinosaurs” because we know that dinosaurs couldn’t adapt! Are we really choosing to be dinosaurs?


Secondly let’s challenge Armstrong’s  market hypothesis

Armstrong argues that

it is the goal of the ESG movement to push investors away from “wicked” portfolios — making their prices cheap, and setting them up to outperform “virtuous” portfolios over time!

This allows him to suggest that there will come a time when cheap “wicked” stocks become valuable enough to reinvest in, meaning that we revert to mean – mean being a return to the ways of the past 200 years.

But this is not the reason for ESG. ESG is about changing the way that wicked stocks behave so that they become virtuous stocks and in so doing, avert the impending issues surrounding inhabitability.

There is nothing that says that the market is any different from the components of the market. If the weight of investment is so behind ESG that fundamental change happens, arbitrage against change will be swept away. There is no fundamental reason for financial markets not to be aligned with general good, indeed the converse is likely to be true.


ESG is more than an investment approach

My final beef with Armstrong is that he considers ESG investing a style , rather than a fundamental principle. In this he is currently right, we still hear trustees talking of the need to include an ESG factored fund into a range of investable options. But that is becoming rarer and what is becoming common is the shift of defaults to be managed along ESG lines.

Armstrong compares his adoption of “value investing” in the first decade of the millennium, to the current adoption of ESG factors. This is an introspective and myopic view of investment that sees the purpose of investment purely as a means to provide short-term in-flows of money into funds through marketing gimmicks.

But the demand for ESG in funds is coming, not from “experts” but from the general public and it is based less on investment theory than on observation of what is going on – both on the planet and in the boardroom.

We are now faced with the task of living in a world where Coronavirus is likely to inhibit economic growth, setting about making fundamental change to the way we manage our financial affairs does not seem so daunting , now that we have found ourselves adapting to a new way or work and living.

Within this new paradigm of circumstances, the arguments of Armstrong hark back to the old normal, to which few of us either expect or want to return. The world is moving on and so should Robert Armstrong.

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“Let my data go” – our plea to parliament

Submission to the Committee scrutinising the Pension Schemes Bill

 

1, This submission from Henry Tapper in his capacity as CEO of AgeWage and Chairperson of the Pension PlayPen. These private companies are digital resources for individuals and employers to make informed decisions on their workplace pensions and non-workplace legacy DC schemes. AgeWage is currently exploring whether guidance can be given individuals on choosing pensions, consolidating pensions and spending pension pots. It is doing so with the assistance of the FCA in the FCA regulatory sandbox. Our view is that technology can help consumers take informed decisions but that guidance (like advice) needs to be delivered in a regulated way.

2, We believe that the amendments in the name of Baroness Drake will be against the interests of consumers who need a pension dashboard to find lost pensions and have access to their providers to make decisions about choice, consolidation and the spending of benefits.

3,There is evidence that MaPS is extremely good at delivering high level information about options but are not able to give detailed guidance at the granular level of individual policies. If the MaPS dashboard has no transactional capabilities and commercial providers operate on a T+1 basis where T is the yet to be communicated launch date of the MaPS dashboard then the public will be denied the detailed guidance they need to manager their retirement affairs.

4, The main reasons given for preventing transactional capability on the dashboard is concern over people taking decisions without advice. This is certainly a concern where there are safeguarded benefits within the ceding scheme. But most pension pots since 2000 have no safeguarded benefits and have been set up if not as stakeholder pensions, in the spirit of stakeholder pensions (which were designed to provide portability without need of advice).

5, What is needed for pension dashboards to operate successfully is to recognise the vast majority of pension pots that are not carrying safeguarded benefits and legislate around them. It is up to regulators, especially the FCA, but also tPR, to ensure that member’s benefits are protected. The Drake amendments close the door on innovation and good practice to shut out poor practice and indeed scamming. However, poor practice and scamming focusses on larger pots and especially on defined benefit rights where the FCA report, the average loss to members is £82,000 per victim. There is no evidence that scammers are targeting smaller pots and we recommend that the Government sets a limit below which pots can be transferred not just without advice, but at the click of a mouse from the pensions dashboard.

6, The amendments in the name of Baroness Drake would have a second impact which would be systemic and negative. There is a reluctance amongst many pension providers, about which AgeWage has considerable evidence, to provide data to enable transfers and to accept legitimate data and transfer requests from consumers. They argue that by offering their customers a poor service, they are providing the “necessary friction” to prevent self-harm. This is giving inefficient providers an excuse not to upgrade systems and adopt better technology. It is giving them reason not to participate in the pensions dashboard project and is counter to consumer interests.

  1. Finally we would like to address the question of consumer confusion resulting from multiple dashboards. This same argument was being made prior to auto-enrolment when it was thought that only Nest should be able to participate in AE. This turned out to be a false alarm, competition has and will continue to improve value for money from workplace pensions. Nest competes with a variety of providers because the Government resisted calls, not least from within Government to grant Nest a monopoly. Consumers have not been confused and the system is working well.

8, It is often thought by those who are in the public sector that the private sector is predatory and trending to bad practice or worse. When the worst recent case of pension scamming occurred in Port Talbot and other British Steel towns it was private sector advisers who were on hand to give immediate support to those who had been scammed and the public sector regulators who were absent. Latterly, history has been re-written. There is a strong moral backbone to many financial advisers and to organisations like my own who often go where others regulators fear to tred. We should recognise a lesson from British Steel is that where good quality information and guidance is not readily available on transfers, poor quality information will be given much greater credence.

 

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Plagues past (and current matters ) Covid-19 Friday report (26)

                                        WWW.Covid-arg.com

The Friday Report – Issue 26
By Matthew Fletcher, Nicola Oliver and John Roberts

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

COVID-19 is still one of the hottest topics for scientific papers and articles. The COVID19 Actuaries Response Group will provide you with a regular Friday update with a curated list of the key papers and articles that we’ve looked at recently


Clinical and Medical News

Evolution and effects of COVID-19 outbreaks in care homes

Care homes have suffered disproportionately during the pandemic; indeed, care homes in   a 79 percent increase in excess deaths at the height of the pandemic.

This study published in The Lancet Healthy Longevity Journal describes the evolution of outbreaks of COVID-19 in 188 registered care homes located in the NHS Lothian region which encompasses Edinburgh and surrounding region (this included 5,843 beds, of which 5,227 (89%) were in care homes for older people).

Data for COVID-19 testing (PCR testing of nasopharyngeal swabs for SARS-CoV-2) and deaths (COVID- 19-related and non-COVID-19-related) were obtained, and several variables including type of care
home, number of beds, and locality were analysed. (Availability and quality of personal protective equipment (PPE) were not included because no reliable data were available at the care home level during the study period.)

Around a third of care homes (69 of 189 [37%]) had a confirmed COVID-19 outbreak, but with wide variation in the size, duration, and pattern of outbreaks. The number of beds was strongly associated with the presence of an outbreak; (odds ratio per 20-bed increase 3·35, 95% CI 1·99–5·63).

Deaths were largely concentrated in care homes with known outbreaks.


Asymptomatic and presymptomatic infection rates in skilled nursing facilities

Additional insights into the impact of COVID-19 in care homes are provided here. Asymptomatic and presymptomatic infection rates in a large multistate sample of US skilled nursing facilities (SNFs) are presented


Data was drawn from a multistate long-term care provider with roughly 350 SNFs.

The table shows that around 40% of cases were asymptomatic, 40% symptomatic and 20% presymptomatic. It was also reported that SNFs located in areas with high SARS-CoV-2 prevalence detected higher numbers of asymptomatic and presymptomatic cases during initial point prevalence surveys, building on emerging evidence that SNF location is an important predictor of outbreaks.


Tocilizumab

Tocilizumab is a monoclonal antibody drug used for its immunosuppressive properties to treat rheumatoid arthritis, juvenile idiopathic arthritis and cytokine storm syndrome for patients treated with CAR-T cell therapies. It has been investigated as a potential treatment for patients hospitalised
with COVID-19.

Two studies have reported results this week.

The first, entitled the Boston Area COVID-19 Consortium (BACC) Bay Tocilizumab Trial, is a randomized, double-blind, placebo-controlled trial of tocilizumab administered relatively early in the
disease course, with the aim of preventing progression of COVID-19.

The second is part of the CORIMUNO-19 Cohort, a series of trials testing different therapeutic regimens in France. This is also a randomised controlled study testing the effectiveness of
Tocilizumab in patients with moderate to severe pneumonia requiring oxygen support but not admitted to the intensive care unit.

At this stage, neither study report any impact on mortality.


Characteristics associated with racial/ethnic disparities in COVID-19 outcomes

Many previous studies have reported that those from BAME populations are overrepresented in the number of COVID-19 infections, hospitalizations, and deaths. In this analysis from the US, the researchers set out to determine patient characteristics associated with racial/ethnic disparities in COVID-19 outcomes.

The study cohort consisted of 5,698 tested or diagnosed patients, including 5,548 patients who were tested at University of Michigan Medical School (MM) from March 10, 2020, to April 22, 2020.

The main outcomes were: being tested for COVID-19, having a positive test result for COVID-19 orbeing diagnosed with COVID-19, being hospitalized for COVID-19, requiring intensive care unit (ICU) admission for COVID-19, and COVID-19–related mortality (including inpatient and outpatient).

The following were observed:

 Black patients were significantly more likely to be tested for COVID-19 and have positive test results than White patients (OR, 6.11 [95%CI, 4.83-7.73]; P < .001)

 Every 10-year increase in age was associated with increased odds of having positive test results (OR, 1.09 [95% CI, 1.05-1.14]; P < .001)

 In addition, higher BMI was associated with increased odds of having positive test results (OR per 1-unit increase, 1.03 [95%CI, 1.02-1.04]; P < .001), as well as alcohol consumption (ever
vs never: OR, 1.58 [95%CI, 1.29-1.95]; P < .001)

 Residential population density was also associated with positive test results (OR per 1000 persons/square mile, 1.12 [95%CI, 1.08-1.16]; P < .001) A higher comorbidity burden was associated with worse outcomes overall, with statistically significant differences by race. The figure below displays the results of the multivariate analysis.

In conclusion, the findings suggest that racial disparities exist in COVID-19 outcomes that cannot be explained after controlling for age, sex, socioeconomic status, and comorbidity score.


Modelling

Estimating the infection-fatality risk of SARS-CoV-2 in New York City during the spring 2020 pandemic wave: a model-based analysis (Yang et al)

The infection-fatality risk (IFR) of COVID-19 (the risk of death amongst those infected, including asymptomatic and mild infections) is a key factor when considering how many might die from COVID-19 in future.

This paper estimates the IFR in New York City, the first American city to experience significant levels of mortality from the pandemic.
The estimates produced are based on over 200,000 laboratory confirmed infections and over 21,000 confirmed and probable COVID-19 related deaths of city residents between 1 March and 6 June 2020. Infection figures were adjusted based on a model for the proportion of infections that were not detected, with the model estimates validated using three independent serology datasets.

The overall IFR estimated is 1.39% (95% interval 1.04-1.77%) –  the study also estimated IFR by different age bands, ranging from 0.12% for those aged 25-44 and 14.2% for those aged 75 and above. These figures are broadly in line with previous estimates (see for example our earlier report on IFR).

Living risk prediction algorithm (QCOVID) for risk of hospital admission and mortality from coronavirus 19 in adults: national derivation and validation cohort study (Clift et al )

This paper derives and validates an approach to estimate hospital admissions from COVID19 in adults. It draws on data from the QResearch database which covers 1,205 general practices in England, with linkage to COVID-19 test results, death registry data and Hospital Episode Statistics.

The algorithm aimed to predict time to death from COVID-19, with a secondary outcome being time to hospital admission following confirmed SARS-CoV-2 infection. The data used for the initial derivation of the algorithm was from 24 January to 30 April 2020, and the second validation covered May to 30 June 2020 – multiple predictor variables were considered, with the final approach being based on age, ethnicity, deprivation, BMI, and various comorbidities.

The algorithm performed well – it explained 73% of the variation in time to death, and those in the top 20% of the predicted risk of death accounted for 94% of all deaths from COVID-19.

Because the algorithm appears to pinpoint those at highest risk of death, it may be possible to use it to help clinicians and patients in decision making, as well as targeting recruitment for clinical trials and prioritising vaccination.

However, the authors caution that the models will need to be re-calibrated as absolute risks vary over time.

Quarantine and testing strategies in contact tracing for SARS-CoV-2 (Quilty et al ).

This paper has not yet been peer reviewed.

In many countries, there is a quarantine period of 14 days following exposure to a COVID19 case, to limit onward transmission. ]

This paper looks at whether PCR testing can be used to reduce the length of quarantine. The approach taken is to simulate various characteristics of an exposed contact’s possible infection (for example, time between exposure and detection, chance of being infected, incubation period, infectivity profile), using the UK as a case study.

The study finds that self-isolation on symptom onset can prevent 39% of onward transmission – a further 14 days’ quarantine for all contacts reduces transmission by 70%.

A negative PCR test taken once traced, with no quarantine requirements after a negative result, can reduce transmission by 62% – alternatively, a negative PCR test taken after a 7 day quarantine period (with no requirementfor further quarantine after a negative test) can reduce transmission by 68%.

This suggests that PCR testing combined with a shorter quarantine period could achieve similar results to the longer quarantine period.

However, structural issues in contact tracing (delays in tracing and / or poor adherence of traced individuals to the quarantine requirements) reduces the ability of quarantine and testing to reduce
transmission – the authors suggest that addressing these should be a key focus of future policy.


Data

Excess Home Deaths

The ONS has released a study which notes around 25,000 additional home deaths (up 30%) since the start of the pandemic. This was widely reported by the media, often with the implication that these were all additional deaths. In fact, the majority of these were displaced from other settings, most notably from hospital.

Although significant excess home deaths continued throughout the summer, overall there was no excess during this period, reflecting continuing displacement. ]

Many of the deaths were from causes that typically accompany end of life care in the elderly. With very limited visiting in care homes and hospitals, a possible conclusion is that many relatives have chosen to provide end of life care at home where at all possible.

Whilst hospitals have been open for all emergency care throughout the period, there will undoubtedly have been some instances where, possibly through perception that emergency care would be lacking, or fear of entering the hospital environment, the appropriate help was not sought.

This emphasises the need to reiterate the messages are hospitals are open for emergencies as usual.


ONS Surveillance Report

The latest report published today shows continued increases in infectivity in England, with numbers infected during the week reported of 433,000 (up from 336,000), or 1 in 130 people (1 in160).

New infections per day are estimated at 35,200 (27,900), which has doubled in the last fortnight

The regional analysis continues to show some signs of a levelling off in the North East and Yorkshire regions, to which can now be added the East Midlands.

We also see a marked downturn in the late teens age group,though the level at older ages continues to rise, which is clearly of most concern in terms of hospitalisations and outcomes. The age analysis suggests that we should be cautious about those regions showing improvement, as it is likely to be driven by the younger age reductions.

New this week we have some data on Scotland, which shows infectivity at 1 in 180, consistent with Wales. For completeness Northern Ireland is at 1 in 100. All these figures have wider confidence intervals than England, so need to be treated with some caution.

Additionally this week we have an update on antibody prevalence.

There are signs of a gradual drift downwards in prevalence, although the confidence intervals for earlier periods are wider, so it’s not compelling evidence. The latest level is 5.6%.

Finally, there has been some comment of late noting that the ONS surveys typically show a reduction in growth rate in the most recent week, which is then revised upwards in the following week.

The reasons for this are unclear, and it will be interesting to see whether ONS responds to the criticism.


R Estimate

The latest estimate of R for the UK is put at between 1.2 and 1.4 (compared with 1.3 to 1.5 last week). As usual this estimate is based on those with symptoms and requiring healthcare, so is lagged by a couple of weeks in relation to the current position.

For England, SAGE also estimates 1.2 to 1.4 – this is consistent with our own view, published yesterday, which has also suggested a small reduction in the past week. Regionally, SAGE puts the northern regions, along with London, at 1.1 to 1.3, with the South West an outlier at 1.3 to 1.6.


CDC Survey

Finally under data, and taking a less parochial view, in the US we note the recent CDC Report which suggests that 299,000 excess deaths had occurred up until early October.

Whether the reporting date was set to avoid breaching the significant milestone of 300,000 deaths is a moot point, but even so it is unlikely that the timing of the report was welcome for one of the presidential candidates.

When adjusted for population size the figure is broadly consistent with the estimates of 60,000 excess deaths for the UK, but the proportion not attributed to COVID is much higher at a third. ]This is likely to reflect differences in the policy for recording cause of death between the two countries as much as any true underlying difference in the proportions of COVID-19 deaths between the two populations.

A notable feature in the UK has been the increased mortality amongst ethnic minorities. That pattern is also seen in the US, with Hispanic, Asian and black communities all showing much higher excess percentages.


Other

13 cases, 10 million tests: China swabs city of Qingdao after COVID-19 outbreak 

This article  sets out some details of a mass testing effort in China. In the days following the discovery of 13 COVID-19 cases linked to a hospital in Qingdao, health workers have carried out almost 10 million tests and returned over 7.5 million results – they are on track to test 9.4 million residents and 1.5 million visitors within 5 days of launching the programme. They have not found any additional cases.

This effort is clearly very impressive; however, it remains to be seen whether it is possible to replicate over the longer term, either in China or elsewhere.


And finally….

Perhaps we can learn a little more about the current pandemic from medieval history. This fascinating paper reports that during plague outbreaks in the 14th century, the number of people infected during an outbreak doubled approximately every 43 days. By the 17th century, the number was doubling every 11 days.

Researchers believe that population density, living conditions and cooler temperatures could potentially explain the acceleration, and that the transmission patterns of historical plague epidemics offer lessons for understanding COVID-19 and other modern pandemics.

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A DC investor writes….

 

A rare but wonderful experience!

Once in a blue moon I get a mail from someone who is clearly an expert in pensions  but  modest enough to recognise she/he struggles with their own money!  I feel in awe of such people!

I got a message on social media from such a person this morning.  I hope that the questions (and my answers) prove helpful to people in our shoes!


Those questions and my answers!


Q. Henry, I’ve been thinking, probably a little too much about my DC pension pots, as I have multiple funds both contract based and trust based. 
A.

Thanks for your questions , I am replying on linked in and on your personal mail (which I got from Linked in)
Your questions  are all pertinent, I’m not qualified to speak for DC schemes but here are some thoughts.
You aren’t unusual, and you look like you are beginning to think, “these pots are my financial future”?

Q. My own role looks after DB schemes, but that is not quite what I have been provided with all my career. What frustrates me is I want my fund to grow by more than the default. But is that right?
It seems reasonable to want more than average. But you’ve got a number of pots  and  the default return on each will be different, if you’re in a very good scheme then your default return will be above the general average so it may be best working out which of the schemes you are in is offering best value for money and starting there. Our data analysis (and we’ve analysed over 1m pots) – is that those who self-select , statistically are unlikely to beat the default.

Q,  Should I know more than the organisation running my pension? 
 
A. Ideally you would know your pension , study the IGC report or Trustee chair statement and look at the statement of investment principles when there is one, but you’ve got several and I wonder if you can really do due diligence on all of them. You need someone to tell you where you are getting value and where not. You could employ an adviser – if you’ve got the money, or you could use a resource such as agewage.com which provides value for money scoring , providing you can give the website the details of your policies and membership.

Q. Is the default fund the best return per unit of risk? 
A. It’s a question that has been troubling us a great deal. We have a metric called “value for risk taken” which we use where we have a great deal of data from savers in an individual fund (typically we need 5,000 + records in the fund. It allows us to see the experienced risk people have taken in the fund and the experienced return for that risk. It’s a technical calculation and we haven’t rolled it out to individuals yet, but that will come.

Q If not then why not?
A. The main reason we haven’t found a way of providing a metric for value for risk taken is that we need a large data set and we have only got about 40 such sets. The second reason is that we are still testing with the FCA, what can be shared as factual information (guidance) and what is considered individual investment advice.
 
 We are using the FCA sandbox as a controlled environment to test whether providing value for money information – of the type you are talking about, can be considered factual. If we deliver investment advice to individuals, we are into a different “cost paradigm” – e.g. it becomes very expensive to you!

Q. Secondly, why does a scheme offer suboptimal funds?
 
A. The answer is almost certainly historic and could be to do with a good round of golf! 
 
When I worked on provider investment propositions we would get all kinds of intermediaries contacting us wanting their preferred funds on our platform and many went on with little due diligence. Ongoing fund monitoring has often been poor and good funds have turned bad. Woodford is a classic example. Twenty years ago “open architecture” and unlimited choice was all the rage – a triumph of marketing hope over the sober reality of saver’s financial capability!

Q. Finally, why does a scheme provide dozens of funds, but then only provides a quarterly fact sheet, which can be three months out of date before it is published?
A. Investment reporting via factsheets has been allowed to fall into disrepute because providers know that only a minority of their users (customers) use the information on offer. It’s a supply and demand thing and monthly factsheets are too much of a fag for many fund managers, let alone the insurers who have to convert them to reflect the unique information created by their fund wrappers. 
 
I guess many of the more well heeled providers are  moving to a more efficient digital means of reporting but the traditional factsheet is not telling the modern saver what he/she wants. For instance – if you are interested in ESG and personal stewardship , you want to know where your money is invested (not just the top 10 or 5 holdings) and you will want to know what the fund’s doing on stewardship, this kind of information isn’t ever going to be on a factsheet , but progressive providers, like L&G are adopting software that will give you a look through to the fund’s holdings and even allow you to participate in the stewardship of your investments.

Q. Why does a benefit statement provide little or no information about the return achieved? 
This is a real bugbear of mine.
I’ve attached a couple of pictures of the kind of information we would like to see on trustee reports
and individual benefit statements.
We think everyone should be entitled to see their internal rate of return, the rate of return they’d have got as an average investor and a score that tells them how they’ve done against the benchmark. This goes for trustees, IGCs and GAAs who should be able to see the average scores achieved by people in various schemes, funds, by age group, by pot size or any other way that their data can be cut!

 Q. Having a deferred pot in the XYZ master trust, I recently received a survey, so suggested there should be a separate helpline for investment questions. It feels to me that to get people more engaged with their pension savings, then the investment information and assistance to members needs a rethink
 
This is a great suggestion. If I was running your master trust , I’d be sending you an email asking whether you wanted to apply to be a trustee!
 
The problem with such helplines is that unless the discussion is data-based and factual, it strays into advice. What is needed is better quality information available to you and to the person on the helpline so that you can have a meaningful conversation about your situation, without it being deemed advice.

Henry Tapper

CEO AgeWage Ltd          www.AgeWage.com
Tel  07785 377768
AgeWage is authorised and regulated by the Financial Conduct Authority (FRN: 917800) and registered in England and Wales (Companies Registration No.11429498).
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CDC – a new type of pension provision coming to the UK

On Wednesday (October 8th),  CDC will be debated in the house of commons and with a fair wind, legislation enabling employers and multi-employer master trusts to provide DB like benefits for defined contributions will be enacted  by the end of the year.

To mark this special week for CDC, the consultancy-Willis Towers Watson has published a guide to CDC together with supporting analysis of how CDC competes with other types of pension schemes.

The aim of the Guide is to increase the public’s understanding of CDC pensions, and increase levels of interest in CDC in the pensions industry.

The new analysis compares the likely outcomes of CDC pensions to those of insured annuities, and typical DB pensions (for given levels of contributions.  The “spectrum of choice” , as the Pensions Minister calls it , has become clearer for this guide.

It is good to see that the new type of pension has, in Royal Mail, an early adopter. It is good to see how Royal Mail’s CDC plan has brought together the company’s management with its major union (the CWU) to avert what could have been damaging industrial action and replace it with a constructive “wage in retirement” solution. A solution that has been embraced by over 100,000 mail-workers.

It is good too that it has brought three pension consultancies, WTW, Aon and First Actuarial together.  They have worked to test and promote a new way. It is of course a “new way” that refers back to an “old way”, when DB pensions provided members with an income using the best endeavors of all parties , rather than an income guarantee whatever the market conditions.

Demand for CDC emerged out of negotiations for a new DB scheme for Royal Mail staff

But we should not forget early pioneering work that goes back to Derek Benstead’s stakeholder pension submission last century. Nor should we forget the work of David Pitt-Watson and Hari Mann with the RSA in their research “Towards Tomorrow’s Pension” which goes back to 2011.

CDC’s definition of a benefit is , after more than two decades of debate, finally gaining currency at a time when certainties of employment are most challenged.

One certainty has been the challenge of “pension freedoms” to the concept of collective pensions. It is particularly good to see this collective enterprise providing an alternative to the challenges creating retirement income from individual pots  identified only a week back by the FCA .

You can see the challenge of converting pots to pensions here https://www.fca.org.uk/data/retirement-income-market-data

 

It is good to see that CDC is enjoying cross party support in both the Commons and the Lords.

But of course CDC has critics who have made their opposition to this form of provision well known on social and conventional media. Their objections have helped make the CDC framework more robust and we should be grateful for constructive critical interventions.

It is in part , to counter valid concerns and in part to demonstrate balance against less rational prejudice that  WTW has published this analysis.

You can access the WTW reports from this link.

I can think of no better recommendation to read them than words taken from the email sent me by WTW’s Simon Eagle, who helped broke the Royal Mail deal with my former colleague Hilary Salt.

We have written the guide to be balanced, and the analysis to be transparent – with the aim of helping the truth about CDC’s advantages become more widely known and accepted, which will hopefully shine through.


Appendix; CDC – a little more detail

To help those coming to CDC afresh or after a decent interval, here is a little detail of what a CDC scheme is and some detail on how it fits into that “Spectrum of choice”.

Collective Defined Contribution (CDC) is a new type of employee retirement provision under which employers pay a fixed rate of contributions into the scheme and members are paid pensions with variable increases.  This will be a third option for employers, the two existing options being defined benefit (DB) pensions or individual defined contribution (IDC) pensions.

CDC is likely to be most compelling for those employers where the following key advantages of CDC pensions are important:

  • Pension costs are fixed, so employers’ pension budgets will not need to vary year-on-year.
  • Expected pension levels are higher – for a given contribution rate, the expected CDC pension is on average 70% higher than from buying an insured annuity with an IDC pot, and 40% higher than provided under a typical DB scheme.

And a CDC scheme provides benefits in the form of a pension, so:

  • Market volatility is smoothed out so that member pension levels (both pre and post retirement) are relatively stable.
  • Members don’t run the risk of running out of money (from a drawdown pot).
  • CDC is simpler for members than IDC, as they don’t need to make investment or retirement provision decisions.

Initially, employers wanting to provide CDC will need to do so through their own trust arrangement – employers with large workforces of over 5,000 employees would be best placed to open a cost-effective CDC scheme.

In time, further law changes could enable CDC multi-employer schemes or master trusts, making CDC more accessible for employers with less large workforces.

 

 

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Long COVID – Nicola Oliver tells us what we need to know

 

                                                                                           

By Nicola Oliver                                                                                Covid-arg.com

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.


What is ‘Long COVID’?

“Long covid” is a term used to describe illness in people who have either recovered from COVID-19 but are still report lasting effects of the infection, or have had the usual symptoms for far longer than would be expected.

Symptoms include fatigue, chronic joint and muscle pain, insomnia, reduced exercise tolerance, shortness of breathe, mental health issues and headaches. Clinical follow-up finds that even in mild cases, damage to the heart, lungs and brain may be permanent.

This worrying emerging condition may represent a material future morbidity burden, with some studies reporting up to 95% of people with mild cases experiencing symptoms more than 3 months from onset of the initial disease.


Symptoms

The UK government published guidance[1] on the possible long-term health effects of COVID-19 on 7 September and identified a number of persistent health problems that have so far been reported by people with mild or more severe disease. These are included in the following table which covers the main reported symptoms in those considered to have ‘long COVID’.

 

Respiratory Chronic cough Shortness of breath
Lung inflammation Pulmonary fibrosis
Pulmonary vascular disease  
Cardiovascular Chest tightness Acute myocarditis
Heart failure  
Mental Health Depression Anxiety
Cognitive difficulties/confusion  
Gastrointestinal Nausea/vomiting Diarrhoea
Quality of Life Chronic fatigue/weakness Insomnia/sleep problems
Chronic pain/headaches Prolonged loss of taste/smell
Other Skin rashes Clotting problems
Liver dysfunction Kidney dysfunction

Post-viral health problems are not a new phenomenon. Post-infectious fatigue[2] is known to be associated with a number of viruses including SARS and influenza, but also others such as human herpesvirus 6 & 7, HIV, herpes simplex, and hepatitis C. Symptoms include extreme fatigue, muscle pain, joint pain, sleep disorders, headache and psychoneurotic symptoms.[3] If these symptoms persist, the condition is categorised as chronic fatigue syndrome (CFS).

With particular reference to on-going respiratory problems, long-term follow-up from the previous SARS outbreak reports that lung function continues to be compromised many years following the onset of symptoms. In particular, pulmonary fibrosis, in which the lungs become scarred with functional compromise, has been observed in SARS survivors, even in those with relatively mild disease.[4] [5]


Prevalence

A key question is of course how many people in the population are affected? The main challenge is that it is likely that many of those who are affected may have suffered mild disease, and so may not have had testing or any contact with health professionals at onset.

The CDC published a report in July 2020 which addressed the symptom duration and risk factors for delayed return to usual health among patients with mild COVID-19.[6]

This study reports that around a third of those interviewed had not returned to usual health 3 weeks after testing positive, and that around 20% of young adults aged 18–34 years with no chronic medical conditions reported that they had not returned to their usual state of health. Pre-existing medical conditions and increasing age appeared to be key risk factors for prolonged symptoms.

A survey[7] carried out by the Dutch Lung Foundation reported that of 1,600 people who were asked about returning to normal activities after largely ‘mild’ (non-hospitalised) COVID-19, 95% indicated that they continued to experience problems including fatigue, shortness of breath, chest pressure, headaches and muscle aches more than three months following typical COVID-19 symptoms. Almost half reported that they are no longer able to exercise.

Similarly, research[8] from Italy has also identified that a high proportion of patients recovering from COVID-19 reported persistence of at least one symptom, particularly fatigue and shortness of breathe.


Challenges and Support

The many unknowns around SARS-CoV-2 now extend to recognising and managing long COVID. Many social media groups have emerged, and in the UK, a support group[9] formed in partnership with The Sepsis Trust has written to Jeremy Hunt MP, Chair of the Health and Social Care Committee asking that the UK government set up a multi-disciplinary Long Covid taskforce, including researchers, professional bodies, and representatives of peer-led groups, to address the urgent needs of people living with persistent, ongoing symptoms of COVID-19.

Further afield, a citizen scientists’ group known as the Body Politic COVID-19 Support Group[10] with a global membership, published analysis of a Prolonged COVID-19 Symptoms Survey[11] in May 2020, which identified similar symptoms to those listed in the previous section. The group is now working on a follow-up study to fill in gaps in their first report, including examining antibody testing results, neurological symptoms, and the role of mental health.

A letter[12] published in the BMJ on 15 September and signed by 39 British doctors all affected by persisting symptoms of suspected or confirmed COVID-19 called for a clear definition of recovery from COVID-19. “Failure to understand the underlying biological mechanisms causing these persisting symptoms risks missing opportunities to identify risk factors, prevent chronicity, and find treatment approaches for people affected now and in the future,” they wrote.

Research to evaluate the long-term health and psychosocial effects of COVID-19 continues. Major studies include the Post-Hospitalisation COVID-19 study[13] in the UK and the International Severe Acute Respiratory and emerging Infection Consortium (ISARIC) global COVID-19 long-term follow-up study[14].


Management

Trisha Greenhalgh and colleagues published guidance[15] in August 2020 on the management of post-acute COVID-19 in primary care. The guidance covers respiratory symptoms, fatigue, cardiopulmonary complications, mental health and wellbeing, thromboembolism and social and cultural considerations. The key to management, say the authors, is to consider that post-acute COVID-19 is a multi-system disease, requiring a whole patient perspective. The wide-ranging damage caused by SARS-CoV-2 cannot be underestimated; the long-term course is unknown.


Long-term Impact

The lengthy list of long COVID symptoms coupled with the fact that as yet, the exact pathophysiology of the virus is largely unknown(though more knowledge is gained all the time), means that we may be faced with a significant morbidity burden.

Follow-up of COVID-19 patients, even those with what is considered to be a mild case, has shown that damage extends to the heart, the brain and the clotting mechanism. Cardiac scans of a group of patients has revealed cardiac involvement in 78% of the patients studied and ongoing myocardial inflammation in 60%, independent of pre-existing conditions, severity and overall course of the acute illness, and time from the original diagnosis.[16]

There is potential that this will increase the risk of myocardial infarction, stroke and even Parkinson’s disease and Alzheimer’s disease in relatively young people.

The ongoing research projects will reveal the extent and impact of ‘long COVID’, not just to understand the disease’s long shadow, but also to predict who’s at the highest risk of developing persistent and chronic symptoms and the associated health problems, as well as to identify potential treatments that may be able to prevent them.

 

24 September 2020


[1] https://www.gov.uk/government/publications/covid-19-long-term-health-effects/covid-19-long-term-health-effects

[2] http://www.med.or.jp/english/pdf/2006_01/027_033.pdf

[3] Memory impairment, confusion, impaired concentration and depression

[4] https://www.thelancet.com/journals/lanres/article/PIIS2213-2600(20)30222-8/fulltext

[5] https://journals.lww.com/thoracicimaging/Fulltext/2020/07000/Long_term_Pulmonary_Consequences_of_Coronavirus.11.aspx

[6] https://www.cdc.gov/mmwr/volumes/69/wr/mm6930e1.htm?s_cid=mm6930e1_w

[7] https://www.biomax.com/lib/press-releases/Initial-Result-Announcment_English.pdf

[8] https://jamanetwork.com/journals/jama/fullarticle/2768351

[9] https://www.longcovid.org/

[10] https://www.wearebodypolitic.com/covid19

[11] https://patientresearchcovid19.com/research/report-1/

[12] https://www.bmj.com/content/370/bmj.m3565?ijkey=8abdf55c0b7baf571557260e7d8191930c44b482&keytype2=tf_ipsecsha

[13] https://www.phosp.org/

[14] https://www.ox.ac.uk/news/2020-09-11-global-consortium-launches-new-study-long-term-effects-covid-19

[15] https://www.bmj.com/content/bmj/370/bmj.m3026.full.pdf

[16] https://jamanetwork.com/journals/jamacardiology/fullarticle/2768916

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Why a vaccine can provide better immunity than an actual infection

Thanks to Nicola Oliver for highlighting this article from the Conversation in Linked in. At a time of increased anxiety, information about roads to immunity give some comfort, but this article by Maitreyi Shivkumar manages to underpin optimism with medical science and do so in a way a non-scientist can understand.


Maitreyi ShivkumarDe Montfort University

Two recent studies have confirmed that people previously infected with SARS-CoV-2, the virus that causes COVID-19, can be reinfected with the virus. Interestingly, the two people had different outcomes. The person in Hong Kong showed no symptoms on the second infection, while the case from Reno, Nevada, had more severe disease the second time around. It is therefore unclear if an immune response to SARS-CoV-2 will protect against subsequent reinfection.

Does this mean a vaccine will also fail to protect against the virus? Certainly not. First, it is still unclear how common these reinfections are. More importantly, a fading immune response to natural infection, as seen in the Nevada patient, does not mean we cannot develop a successful, protective vaccine.

Any infection initially activates a non-specific innate immune response, in which white blood cells trigger inflammation. This may be enough to clear the virus. But in more prolonged infections, the adaptive immune system is activated. Here, T and B cells recognise distinct structures (or antigens) derived from the virus. T cells can detect and kill infected cells, while B cells produce antibodies that neutralise the virus.

During a primary infection – that is, the first time a person is infected with a particular virus – this adaptive immune response is delayed. It takes a few days before immune cells that recognise the specific pathogen are activated and expanded to control the infection.

Some of these T and B cells, called memory cells, persist long after the infection is resolved. It is these memory cells that are crucial for long-term protection. In a subsequent infection by the same virus, the memory cells get activated rapidly and induce a robust and specific response to block the infection.

A vaccine mimics this primary infection, providing antigens that prime the adaptive immune system and generating memory cells that can be activated rapidly in the event of a real infection. However, as the antigens in the vaccine are derived from weakened or noninfectious material from the virus, there is little risk of severe infection.

A better immune response

Vaccines have other advantages over natural infections. For one, they can be designed to focus the immune system against specific antigens that elicit better responses.

For instance, the human papillomavirus (HPV) vaccine elicits a stronger immune response than infection by the virus itself. One reason for this is that the vaccine contains high concentrations of a viral coat protein, more than what would occur in a natural infection. This triggers strongly neutralising antibodies, making the vaccine very effective at preventing infection.

The natural immunity against HPV is especially weak, as the virus uses various tactics to evade the host immune system. Many viruses, including HPV, have proteins that block the immune response or simply lie low to avoid detection. Indeed, a vaccine that provides accessible antigens in the absence of these other proteins may allow us to control the response in a way that a natural infection does not.

The immunogenicity of a vaccine – that is, how effective it is at producing an immune response – can also be fine tuned. Agents called adjuvants typically kick-start the immune response and can enhance vaccine immunogenicity.

Alongside this, the dose and route of administration can be controlled to encourage appropriate immune responses in the right places. Traditionally, vaccines are administered by injection into the muscle, even for respiratory viruses such as measles. In this case, the vaccine generates such a strong response that antibodies and immune cells reach the mucosal surfaces in the nose.

However, the success of the oral polio vaccine in reducing infection and transmission of polio has been attributed to a localised immune response in the gut, where poliovirus replicates. Similarly, delivering the coronavirus vaccine directly to the nose may contribute to a stronger mucosal immunity in the nose and lungs, offering protection at the site of entry.

A boy in Pakistan being given an oral polio vaccine.
The oral polio vaccine elicits an immune response in the gut. Rehan Khan/EPA

Understanding natural immunity is key

A good vaccine that improves upon natural immunity requires us to first understand our natural immune response to the virus. So far, neutralising antibodies against SARS-CoV-2 have been detected up to four months after infection.

Previous studies have suggested that antibodies against related coronaviruses typically last for a couple of years. However, declining antibody levels do not always translate to weakening immune responses. And more promisingly, a recent study found that memory T cells triggered responses against the coronavirus that causes Sars almost two decades after the people were infected.

Of the roughly 320 vaccines being developed against COVID-19, one that favours a strong T cell response may be the key to long-lasting immunity.

Maitreyi Shivkumar does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

De Montfort University provides funding as a member of The Conversation UK.

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Andy Cheseldine’s VFM assessment is just too good!

Andy Cheseldine gave , in 21 minutes , one of the most complete and articulate expressions of what makes for good value in a DC pension scheme. I hate the word “masterclass” but on this occasion it is appropriate and I hope that Pension Age will publish the recording of this session of its Annual Conference.

It was, as it was billed.

Value for (Member’s) Money is the crucial criterion for trustees and IGC members. It encompasses everything – not just the basic charging level in a DC scheme. In this session, Andy will look at what trustees need to consider; what should be measured, and with what relative weightings (not all features are of equal importance), against which criteria; how your own services rate against those benchmarks; and how to articulate the results to members, regulators, employers, service providers and, where relevant, advisers/intermediaries.


The balanced scorecard – the impossible dream

Andy is trustee chair at a number of schemes, most noticeably Smart Pensions. The approach he suggests is a very sophisticated version of that we adopted at the Pension PlayPen where you take the characteristics of a good DC pension scheme and weight them according to the relevence to your membership to get a scheme score that tells you how well your scheme is working towards delivering good DC outcomes.

Getting to a common definition of a balanced scorecard is an impossible dream. When we are trying to help small employers choose their workplace pension we found that whatever level of sophistication we employed in researching the providers, the scorecard became weighted towards the employer’s agenda – compliance, ease of use and headline cost.

The agendas of employers, regulators and members of workplace pensions should be aligned but they are not. The member wants the scheme to pay as much to him or her in retirement as possible. The employer wants to keep its costs to a minimum. The Regulator is primarily concerned with the risk of failure. So within the balanced scorecard , there are at least three versions of value for money for the trustee to tell and three audiences that might listen.

And there are not enough Andy Cheseldines to go round!  While Smart Pensions benefits from this inclusive governance , what of the thousands of DC schemes not covered by the authorization framework, failing to meet the minimum governance benchmarks laid down by the Pensions Regulators?

While the major workplace pension schemes get the benefit of the high quality IGCs, what of the long tail of legacy that cannot benefit from the sophistication of Andy’s approach?

My issue – and I mentioned it in my question to Andy, is that the all inclusive balanced scorecard approach is actually a measure of how well the trustee is doing his/her job. It is not something that can be easily explained to anything other than a group of experts and by anyone other than an expert trustee. The approach has its place, but it cannot be the final word.


The final word

The only attempt I have seen from a regulator to formulate a common definition of value for money appears in the FCA’s CP20/09 document

The administration charges and transaction costs borne by relevant policyholders are likely to represent value for money where the combination of the charges and costs and the investment performance and services are appropriate

This definition looks at the issue of VFM not from the top down (as Andy’s does, as the Pension PlayPen did).

But the FCA – and the DWP in its recently published consultation on better DC outcomes, are looking at VFM from the member’s perspective. “By your fruits shall you be known..”.

Being brutally honest, however good the endeavors of trustees or IGCs, if they cannot improve member or policyholder outcomes , they have failed. What we need is not a means of measuring good scheme governance (which we have had within TPR for decades) but  a means of measuring outcomes.

This is what both the FCA and DWP are edging towards, by focusing on what members are paying and getting from the pensions they invest into. For quality of service, read the confidence members have that whatever statement is made by the scheme that it provides quality is realistic. After reading IGC and Trustee Chair statements for the last five years, I do not expect to ever read that a scheme is giving poor quality of service.

There are independent measures, especially as regards data quality, that can be employed to measure service quality and people like Holly Mackay and her Boring Money team are busy finding them.

Customer satisfaction with service is temporary, but the impact of poor performance and of unnecessary charges is permanent. We should not make the mistake of ignoring the data. One of the reasons I hold Pension Bee in high regard is that their high service quality is backed up with a deep understanding of the quality of their data , their costs and their member outcomes.

The final word on value for money is not in a definition but in the phrase. We need to make “value for money”, the standard by which we judge our pensions and in that we need Andy, Holly, Romi and  we need regulators with open ears.


Thanks to Pension Age for Andy’s session and a good day on Thursday

 

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“Shape up or shape out” – DWP give small DC schemes one year’s notice

 

 It is not acceptable for savers to be enrolled in arrangements that do not deliver value in terms of costs, investment returns or secure and resilient governance. Government would expect trustees acting in the best interests of their members to take appropriate action to wind up and consolidate without TPR needing to exercise its powers.

This is how the DWP have responded to its 18 month long consultation on DC scheme consolidation. In case such schemes think they can spin this out for as long again, the DWP continue

It is proposed that these regulations will come into force on 5 October 2021.

Trustees will be required to assess their scheme for value for money on a basis prescribed by the Pensions Regulator. The consultation’s assumption is that most small DC schemes will fail their own assessment.

Trustees with failing assessments  can be given grace to improve but their homework will eventually be marked by the Pensions Regulator.

 If the trustees fail in this attempt to improve they will be expected to wind up the scheme and consolidate the members into a scheme that offers better value.

In case trustees are in doubt, the DWP end their summation

TPR has the power to issue an order to wind up the scheme, to remove trustees in certain circumstances, or to appoint new trustees to properly manage the scheme’s assets.

The Government has widened the scope of the schemes that concern them (previously schemes with less than £10m). It’s scope now includes all DC schemes with less than £100m that are more than 3 years old


A new Value for Money/Member assessment

Lurking behind this is a new and much tougher VFM test.  This is aligned to the proposals in FCA’s CP20/9 VFM policy statement and calls for the same three legged stool approach with the test focusing on returns , charges and ” governance and administration”. The FCA opt for “quality of service” instead of governance but a peek behind the curtain suggests that the terms amount to much the same. This is an unusual and most happy alignment between the Regulators.

The risk remains however that Trustees , IGCs and GAAs can continue to argue that in their opinion “their provider continues to offer value for money”. To mitigate the risk that the opinion is biased by a conflict in favor of self-survival, both regulators appear to be moving towards a quantitative assessment where opinion is based on evidence and evidence based on data and benchmarking.

This assessment is variously described as “new” and “more holistic” but it’s clear from the sub-text of the consultation that for occupational DC schemes with less than £100m in assets that have been going for more than three years life is going to get a lot tougher. That includes commercial master trusts, some of which will fall need to take the new assessment.


So what of the new assessment?

Reporting will be against net returns

The key new idea is that of a “net return”.

We agree that while costs and charges have a significant impact on member outcomes they are best understood in the broader context of what the scheme delivers. The net returns received is a crucial factor in measuring value for members

The net return of a scheme may be measured by the quoted performance less stated charges but the DWP seem to be pointing at the return experienced by members in “various age cohorts”. This suggests a move towards measuring returns experienced by members. The illustrations in the Statutory Guidance (published in annex E)explain how this will work and it looks very complicated and makes comparisons between schemes all but impoosible

As I’ve noted on this blog several times, it is not what fund managers and trustees report as their estimate but what members see in their pot values – that matters. This blog will continue to press for the full transparency of actual experienced returns and not a proxy created using assumptions rather than outcomes.

The DWP are suggesting that

 in order to provide greater transparency to members all relevant schemes, regardless of size, must publish net returns for their default and self-selected funds in the annual chair’s statement.

This suggests that net returns will become a common feature by which members, employers and fiduciaries can judge workplace pensions. I would suggest that they are also relevant to SIPPs and to value assessments from fund platforms.

Shortcomings of the net return approach

However, if we are to have proper transparency, we need to move beyond net returns and look at the internal or individual rates of return achieved by members. This is the only true way to measure the value a scheme can measure value delivered and it can be bench marked.

scheme dashboard showing average IRRs achieved against benchmarked IRRs – a simple way of comparing returns.

People are rightly concerned about whether they are getting value for money not at scheme level but in their pocket.  While we agree with the thrust of the consultation to use value for money to help schemes consolidation, trustees need to be looking at value for money experienced by individual members.

The only way to assess returns that does this is bottom up, by measuring scheme returns by averaging the individual returns. The Net Return approach does not do this, it assumes that everyone’s experience of funds is the same – it never is.


Reporting will be against governance and administrative metrics

measures of administration and governance include:

  • promptness and accuracy of financial transactions
  • appropriateness of default investment strategy
  • quality of investment governance
  • quality of record keeping
  • quality of communication with members
  • level of trustee knowledge, understanding and skills to run the scheme effectively
  • effectiveness of management of conflict of interest

Some of these metrics are easily measurable- (a study of internal rates of return will provide evidence of the quality of record keeping).

Excerpt from an AgeWage report showing suspect data items identified by anomalous IRRs

Others will rely on a finger in the air. How for instance can trustees measure the effectiveness with which they manage conflicts of interest without declaring a conflict? TKU similarly needs external measurement as does the quality of investment governance, but there are no authoritative independent agencies to establish good from bad. There is no standard, let alone a certified standard for any of these measures. As for the appropriateness of a default, what board of trustees is going to call itself for running an inappropriate default?

These are not matters that can be measured by net promoter scores from members of by trust pilot, attempts to provide DC schemes such as the PLSA’s Pension Quality Mark have struggled to gain acceptance for measures beyond the bar set for contribution rates.

The worry is that a liberal interpretation of value for these measures  will be used to justify value for members even where net returns are poor. The DWP  is cute in its observation.

The outcome should be a holistic one but made with regard to government’s statutory guidance

It is going to be important for TPR to take a strong hold on the term “holistic” and not allow consultants and lawyers to deflect focus on the main event – the outcome of pension saving in the member’s pocket.


Bench marking

As in the FCA’s CP20/9 , the purpose of the VFM assessment is not just to establish an absolute measure of VFM but to allow the trustees to see the scheme in the context of others. As with the FCA, the bench marking is proposed to set the scheme against comparison schemes that span the options available to employers when choosing a workplace pension.

41. For the purposes of the assessing costs and charges and net investment returns as part of the value for members assessment, each specified pension scheme must compare itself with three “comparison schemes”.7

42. We expect trustees to have a clear rationale for the schemes they have chosen as comparators. The comparators should include a scheme that is different in structure to their own, where possible. For example, bundled corporate pension schemes should look at an unbundled example, and pension schemes not used for Automatic Enrolment should not limit their comparison to other such schemes.

This will only work if the comparison are simple. Here is an example of net performance reporting from the Guidance.

In this example, the scheme applies different charges to different employers, meaning that returns may vary between employees. Trustees do not need to produce multiple tables of returns but can instead provide additional information for each group of employers. The example below shows a scheme with four groups of employers who are charged differently:

Table shows employees in Group A.
Employees in Group B: add 0.05% to returns
Employees in Group C: add 0.15%
Employees in Group D: add 0.20%

Annualised returns % (if available):

Age of member in 2021 (years) 20 years (2001 to 2021) 15 years (2006 to 2021) 10 years (2011 to 2021)
25 x.y % x.y % x.y %
35 x.y % x.y % x.y %
45 x.y % x.y % x.y %
55 x.y % x.y % x.y %
65 x.y % x.y % x.y %

Annualised returns % (expected):

Age of member in 2021 (years) 6 years (2015 to 2021) 5 years (2016 to 2021)
25 x.y % x.y %
35 x.y % x.y %
45 x.y % x.y %
55 x.y % x.y %
65 x.y % x.y %

Much the same can be said for costs and charges and indeed governance and administration. I will be strongly responding to the consultation to suggest ways of simplifying this reporting.


What is the DWP’s big picture?

The consolidation section of the consultation comprises only one chapter of a 6 chapter consultation with 7 annexes and 2 impact assessments. Small wonder it was 19 months in the making.

The other chapters mainly deal with the introduction of alternatives into DC funds which is seen by Government as a positive. Alternatives include private equity investments and investment into what is variously known as “patient capital”, “infrastructure” and “impact” investments. The Government argue that these forms of investment cannot exist within the defaults of small schemes and that consolidation can ensure that more members get exposure to new forms of growth (with the positive social impact they can bring).

The consultation uses the imperative of getting these investments into DC defaults to dismiss calls for a more inclusive charge cap. Indeed the consultation into the charge cap is summarily dealt with in chapter 5 of the consultation and annexes F and G.

It would be easy to read this consultation as a whole and consider the point of it no more than to placate certain asset managers who are excluded from DC investment. This would be to miss the bigger picture.

Of much more relevance to pension savers is that pensions produce good outcomes by making their money matter. The requirements for TCFD reporting look beyond all but the best funded and most committed trustees.

Better returns need to be allied to better investment and implemented through better governance. By linking consolidation with an extension of the impact of workplace DC investment, the DWP may have pulled off something of a coup. For once this reads as a joined up document and let’s hope that when the FCA reports on its VFM consultation, the messages are equally direct and aligned.

Something of a coup for Guy Opperman and the DWP

 

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

Weathering the Storm

Iain Clacher & Con Keating

As part of our Funding Code research, we searched for academic or practitioner papers covering long-term expected returns forecasts. We were particularly interested in the ex post accuracy of these forecasts. We found none which used historic market performance[i] other than for short-term concerns such as corrections to market bubbles and periods of boom and bust. There were a few, macro-economic in nature, where long-term returns are functions of growth and demographics. To use an analogy, this is climatology rather than weather forecasting. We shall revert to this later.

What we do know

There are a few things we do know about gilt yields – they are strongly predictive of future long-term gilt returns, but that relation is tautological. They are not predictive of equity, property, or other asset class returns at any holding period horizon. This renders their use in gilts + presentation of expected returns highly questionable. To misquote Ralph Nader, they are unsafe at any horizon.[ii]

We have spent much of the past week trying to reconcile various claims and figures cited in the latest USS valuation consultation with UUK as these two things seem inextricably linked. We have had little success.

As best we can tell, the single equivalent discount rate for USS would be less than 2% nominal and the required rate of return on scheme assets would be around 3.2% nominal. These seem to us to be low and readily achievable. With that in mind, we looked to the long-term expected returns forecasts of other long-term financial institutions. The expected returns of other UK pension funds are not a valid comparator as they are subject to the same regulatory panopticon.

Looking further afield, The Norwegian Fund for Future Generations publishes its expected returns – they expect 3% real above their CPI which has averaged around 1.75% in recent decades, so a nominal of around 4.75%. The risk (volatility) of their portfolio is 12%. The most interesting aspect of all of this is that in 2017, in response to declining government bonds yields globally, they moved their target asset allocation from 60/40 equity/bonds to 70/30 equity/bonds and increased the expected return to 3% real from 2.75%. In the context of this shift in investment strategy and return expectations, it is worth bearing in mind this is the largest of the sovereign wealth funds (with circa $1.2 trillion of investments as of July 2020)[iii]. This is a fund that has access to the best advice in the world. Moreover, it has  achieved these types of returns over the long-term[iv].

By our calculation, if USS were to use this rate, it would not be reporting any deficit but rather a surplus of similar order to the headline-grabbing £18 billion deficit.

Intergenerational fairness

This issue of what do future returns look like (and what returns do we need) is also linked to the recent blogs on cash equivalent transfer values.

If we fund a scheme to the levels of liabilities arising from low rates of interest, we are effectively pre-funding those liabilities relative to their contractual values. This also has the effect of lowering the required rate of return on the asset portfolio, and with that, the potential future cost to the sponsor employer. If a scheme is fully funded at this rate, the required rate of return on assets is that rate.

In these circumstances, if a member takes a transfer based on these values, albeit that the transfer may be limited to the degree of funding of the scheme, then it is crystalizing the employer’s cost to that date. Crucially, this transfer enables the employee to extract all of the pre-funding, and denys the employer the possibility of recouping the costs of this prepayment,  as any future outperformance of the asset portfolio relative to this low return, is no longer possible on the assets that have been removed from the scheme.

While it may be the case that transfer transactions throw up gains in accounting terms when those accounting liability values are inflated by the use of low gilt rates, but that is a short-term accounting gain, which comes at the expense of longer-term real gains from higher returns than those we currently observe in the market.

Moving to a gilts-based de-risking strategy has the same effect of crystalising the elevated sponsor costs while removing any possibility of recouping them.

Another comparator

It is worth comparing these transfers with the size of the PPF; at £80 billion they are four time the liabilities of the PPF, and  in reality, the PPF is rather small relative to the overall DB pensions marketplace. In its 15 years of existence, it has assisted just 2% of scheme members and less than 1.5% if measured by liabilities, and it has done so at eye-watering cost. It is apparent that the fear of sponsor insolvency greatly exaggerates the actuality.

The Funding Code consultation makes much of protecting members. This raises the question of just how much of members’ pensions is at risk. The answer is rather little. If we consider the scheme we used in illustrations in earlier blogs, we have 63% as pensioners in payment and 37% deferred. The pensioners in payment are fully covered by the PPF so the risk exposure is limited to the 10% haircut applied by the PPF – so just 3.7% of future pension payments. These have a total future value of just £756k – a small fraction of even the minimal present-day funding cost of the proposed code. It is not difficult to conclude that this funding code strategy is more about protecting the PPF than members.

A final thought

The ‘lower for longer’ view of interest rates is now conventional wisdom. As such, it and its associated returns expectations are suspect. The shifting global demographics imply that we are moving over the coming three decades from the deflationary environment of the past three decades to one in which inflation and higher interest rates will prevail and with that low growth. This unconventional view is explored fully and coherently in Charles Goodhart’s latest book, ‘The Great Demographic Reversal’; we recommend reading it. This is a change in the financial climate that is perhaps as important as the change in the natural climate.

One consequence of that would be that this is surely the wrong time to de-risk in the manner proposed in the DB Funding Code.

Postscript

In the brief time since we wrote this blog, we have had some very productive discussions with some of our peers. Our attention was drawn to the Canada Pension Plan which publishes 75 year return expectations for each of its two funds. These are 5.95 % (CPI + 3.95%) for the ‘Base’ fund and 5.38% (CPI + 3.38%) for the more conservatively allocated ‘Additional’ fund. Obviously, it is too soon to evaluate the accuracy of these forecasts but the indications to date are supportive. It is notable that both CPP and the Norwegian employ peer review of their assumptions. We feel that the Pensions Regulator’s prescriptions should be subject to similar peer review.

It has also been pointed out to us that the large Canadian funds have proved able to harvest ‘illiquity premiums’ very successfully, with which we agree. However, we will make just one point here, though we will return to the subject in our commentary on the proposed second Code consultation. That point is that it is liquidity in the sense of tradability which has a cost rather liquidity which receives some extra compensation. The means that if you buy liquid securities you pay this cost regardless of whether you exercise the option to use it by selling in a market. Gilts, of course, are the most liquid and most expensive of securities from this perspective. One of the effects of quantitative easing is to lower the cost of liquidity, though relative value differences should persist between on and off the run securities should persist, This lowering of the cost of liquidity should also result in a greater reluctance by dealers to hold large inventories of bonds in pursuit of their liquidity provision role – the returns to capital are less attractive.

Finally, we have had much commentary on the prudence of buying gilts at times when their expected returns are negative in real terms[v]. However, as we have been promised a definition of prudence by the Regulator in the second consultation, we shall leave further discussion until that point in time.


[i] The long-term memory literature results for UK markets are mixed.

[ii] The original comes from Unsafe at Any Speed, Ralph Nader, 1965.

[iii] https://www.statista.com/statistics/276617/sovereign-wealth-funds-worldwide-based-on-assets-under-management/

[iv] Those interested in more detail should read their White Paper (in Norwegian) available at:

https://www.regjeringen.no/contentassets/114c28f5daba461e95ed0f2ec42ebb47/no/pdfs/stm20620170026000dddpdfs.pdf

[v] For more on this aspect see:  https://www.bankofengland.co.uk/statistics/yield-curves

 

 

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L&G shows we can all innovate if we try!

FCA sandbox

 

I have been reviewing the performance of various pension providers responding to  over 500 letters of authority issued by the 300 testers as AgeWage progresses through the FCA’s regulatory sandbox. The performance is mixed.

This blog looks at how some pension providers are rejecting innovation and how one has built a powerful business – by embracing smart contracts and the block chain. The lesson is clear – we can innovate if we try.


Abuse of our right to use e-signatures

ipo 2

A large number of pension administration teams still consider digital signatures as insecure and demand we print out digitally signed authorizations. Some go so far as refusing to accept or pass any data using email meaning that information requested under the GDPR arrives by post and has to be scanned back to digital format.

The most egregious example of these  breaches  of data rights is from an insurer whose email footer reads;

We’ve made a number of changes to make it easier to do business with us online, including submitting paperless instructions, removing the need for client signatures and managing your investments safely and securely online. 
We have a series of emails with this footer which begin
Unfortunately, we are currently unable to process your request as the provided Letter of Authority (LOA) has been electronically signed.

Providers who still take this approach might want to read the 124 page document from the Law Society or read this abridged summary entitled

“Electronic signatures legally valid, Law Commission confirms”

 

The impact of refusing to acknowledge this determination is that customers do not get to see the rates of return they have enjoyed from their savings in real time and can’t apply this data to get bench marked performance to compare  their pots.


Abuse of our right to be delivered portable data

Let’s remind us what the GDPR says about our rights to portable data.

  • The right to data portability allows individuals to obtain and reuse their personal data for their own purposes across different services.
  • It allows them to move, copy or transfer personal data easily from one IT environment to another in a safe and secure way, without affecting its usability.
  • Doing this enables individuals to take advantage of applications and services that can use this data to find them a better deal or help them understand their spending habits.

These rights are not recognized by many of the administrators we deal with.  They re-interpret them for their own convenience.  One of our major insurers has decided to limit the data they will provide their policyholders to the last two years, arbitrarily creating an internal rate of return that starts in 2018 whenever the policy was taken out.

I could go on. The point is that insurers cannot fight innovation by hiding behind security issues. It is up to them to make sure they comply with the rules without breaching data protocols.


But insurers do not have to behave like this

When there is a commercial case to adopt technology, insurers can and do. This is an extract from an article in Forbes magazine from Maarten Ectors, Legal & General’s Chief Innovation Officer

maartenectors1_avatar_1576179778-400x400

One challenge faced by the reinsurance market is the high degree of complexity inherent in these contracts. What’s more, setting them up can be a labor-intensive exercise. Parties and counterparties must verify and agree to complicated business rules. Contrast this with consumer insurance policies that can be set up in a few clicks.

At Legal & General (L&G), we use blockchain to break through these challenges to make complex reinsurance more efficient, affordable, and effective.

We are .. a provider of reinsurance for the pension risk transfer business. In pension risk transfer, an insurance company provides a guarantee to pay the annuities for members of a pension fund for the rest of their lives.

L&G has demonstrated an in-depth understanding of mortality trends and longevity risk, and proficiency in payroll, administration, and communication services. As part of our passion for moving the industry forward, we are pursuing innovative approaches to setting up contracts using blockchain.

Even though property and casualty insurance has been an early adopter of blockchain, we believe it is equally suited to the life and annuities sector and particularly the pension risk transfer business.

We considered several existing systems, but none could deliver the combination of security, flexibility, and auditability of the blockchain. We are convinced that blockchain is uniquely suited to the long-term nature of annuities, as it allows data and transactions to be signed, recorded, and maintained permanently and securely over the lifetime of these contracts, which can span more than 50 years.

It enables parties to exchange and agree upon data, to digitally and cryptographically sign the data, and to ensure that the data is perfectly traceable over any period of time—all without the need for a centralized authority. All members maintain a copy of the ledger database, providing greater transparency and independence.

Numerous benefits flow from this approach. First, blockchain provides a single version of the truth that remains immutable for the entire lifetime of the contract. At any point in the future, we can “turn back the clock” to any point in the lifetime of the contract, whether 5 years or 50 years in the past. We will be able to clearly understand what happened: who made which changes and when, who agreed to them, and the effects they had on the agreement. Given that pension contracts can last for decades, this is an essential feature.

Second, blockchain enables the use of smart contracts, which embody the business logic of a contract in code. This enables rapid execution of agreements and reconciliation of transactions, which are not possible when tracking contracts in Excel spreadsheets or using a ledger database technology with SQL-like interfaces. With a smart contract, we can automate complex transaction logic, enabling one-click execution. In our solution, we use smart contracts to manage pricing, claims, financial reporting, and collateral, providing an end-to-end ecosystem to streamline the reinsurance marketplace.

Our solution, known as Estuare, replaces multiple processes and systems traditionally used to support each function of reinsurance. The participants are L&G, direct insurers, and other reinsurers we partner with. We are exploring extending the system to more partners and insurers. Estuare has proven to cut monthly reconciliation from weeks to minutes. We expect it to lower costs, increase agility, and reduce risk for the pension risk transfer market. For the thousands of individuals whose pensions depend on risk management, this is exceptionally good news.

Feedback from clients that have piloted the system has been positive, especially about the simplicity and clarity of the underlying smart contract and the auditability it creates over any period. We are tremendously excited about the potential of blockchain to transform the life and annuities marketplace—and working closely with AWS to realize it.


Innovation where it suits

I totally agree with the approach adopted by L&G through Estruare. I suggested to its head of workplace pensions when some years ago she was exploring a new record-keeping system.

“Adopt smart contracts and move forwards” – said I

Right now, L&G are struggling to meet data requests from their workplace pension clients – corporate, trusts and individual. If only workplace pensions could have access to the technology that has revolutionized reinsurance!

The selective adoption of new technology seems to select against the customers who need innovation most – the DC savers. I do not single L&G out in this, indeed they have been a force for good through auto-enrolment.

But we have an immediate and pressing requirement for the sharing of pension data. We are in the midst of a consultation on data standards for the pension dashboards.

Whether it be through the adoption of the smart contracts – which are at the heart of the blockchain or by simply accepting the value of e-signatures and portable data at this difficult time, it is time we saw innovation for pension savers.

 

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Value Assessments and False Prophets

 

sermon

You shall know false prophets by their fruits

The FCA are said to be unhappy with the results of its first round of value assessments.  They could do worse than re-read the sermon on the mount and in particular Matthew 7 15-16.  But more of that in a moment.

There seems to be a gap between what a consumer sees as good value and what fund managers do. To be blunt, consumers do not want to judge a book just by its cover. They want to know what really happened to the money they handed over and how it  “did”.

These simple questions have to be the priority for value assessments, but once again financial services companies, left to their own devices have proven deficient in providing a common definition for value and too little practical help on working out what our funds are really costing us. The latter issue is particularly concerning for vertically integrated fund managers like SJP where the fund is paying for advice.

The lack of prescriptive guidance from the FCA on how managers should define value means that the first round of assessments vary widely from manager to manager. Why can’t they just tell us what we got?

Of course the absolute return of a fund is not the only standard by which a fund should be judged. If your fund claims to be invested for social purpose , you expect to see how that purpose was followed. If you decided to invest in technology , you want to know how you did compared with investing in the technology benchmark index. But the alpha and omega of value assessment has to be based on consumer “experienced” outcomes.

I think I speak for most consumers in saying that at the heart of any value assessment, we expect to see what we got for our money . The chief indicator of that is the internal rate of return on our investment over the period we gave our money to someone else to manage.


Beware false prophets

The review said the FCA was probing the process and governance behind the value assessments rather than the statements themselves.

And pleased to read co-founder of AgeWage, Chris Sier’s comment that that while cutting fees was eye-catching, it was only meaningful if accompanied by concrete steps to improve performance.

“Only if you do both will you get good value for money –  cutting fees on an underperforming fund just makes a bad fund cheaper.”

The famous phrase – “you shall know them by their fruits” would seem to be one guiding principle the FCA could follow. As the FT points out

The fact that some managers with high-profile performance issues did not identify a single failing fund raises questions about whether some groups have taken a wide-ranging interpretation of what constitutes value. For example, Hargreaves Lansdown’s value report was blasted as a “whitewash” by investor campaigners for giving a clean bill of health to its multi-manager funds, despite their large exposure to the failed Woodford Equity Income fund.

Clearly many funds that failed to deliver rates of return to consumers in line with expectations they gave in their prospectus and marketing literature made claims that turned out, at least for the period of the assessment to be false.

Thinking about the context of “you shall know them by their fruits”, I went back to Matthew 7 and re-read the Sermon on the Mount

Here is verse 15 which warns of false prophets

Beware of false prophets, which come to you in sheep’s clothing,

but inwardly they are ravening wolves

and here is how you can conduct a value assessment

Ye shall know them by their fruits.

Do men gather grapes of thorns, or figs of thistles?


Value assessments on the consumer’s terms

For the consumer, the idea that a fund manager can set the homework , do the homework and then mark the homework, is difficult.

Currently only a quarter of the fund boards who do the value assessments are independent of the fund manager. Indeed, their independence is compromised by their being paid by the fund manager.

As with IGCs and commercial master trusts, the incentive to stand up for consumers when it puts at risk your burgeoning “portfolio career”, is greatly diminished.

The consumer is looking for a champion but the fund management industry seems reluctant. The Financial Times ends its report on this year’s assessment , quoting the CEO of the Funds Board Council (representing fund directors)

“The Cadbury report [on corporate governance reform] was published in 1992 and we’re still talking about it today. If we expect the fund industry to make such fundamental changes in the first year [of new rules coming in], we’re asking too much.”

Many will be reminded of the wayward prayer of a follower of Chris, St Augustine

Lord make me pure  but not yet


Changing expectations in 2020

2020 has been a year when we have expected delivery on promises quickly and authoritatively.  The pandemic, climate change and Brexit have made us less tolerant of prevarication and more definitive about what we want.

If fund managers think that the slow implementation of the Cadbury report can be considered a comparator for the delivery of proper value assessments, then the FCA should intervene.

I as a consumer have no  difficulty in paying the right price for something, but if I can’t see what I’ve bought, how can I know if I paid the right price?

The process and governance of value assessments needs to meet consumer expectations and the value assessments I have read are simply not telling me what I paid and what I got.

We need a way to find out what we’ve got for our money and that means giving us access to our own experienced internal rates of return..the benchmark rate of return for our investment and a way to make sense of the difference.

Investors deserve no less.

augustine

Augustine by Sandro Botticelli (1480)

 

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Covid-19 actuaries give us their monthly medical update

Monthly medical update – Issue 2

4 September 2020

By Nicola Oliver and Joseph Lu for

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

Given the pace of change with ‘all things COVID’, it can be hard – even for those who follow all the updates – to know what the overall state of play is regarding medical developments in particular, as opposed to just the most recent news.

In this new type of Bulletin, we provide a summary of what we believe the current medical position to be. We will aim for these summaries to be accurate as at the date of publication but they will of course date rapidly, so we plan to issue an updated summary each month.

Vaccines

As at 3 September 2020, the following potential vaccines were in clinical trials[1]:

Stage Phase 1 Phase 1/2 Phase 2 Phase 3
Vaccine Candidates 12 11 3 8

In addition, there around 140 preclinical trials in progress for vaccines to tackle SARS-CoV-2.

Clearly, the vaccines in the more advanced stages of clinical trial development hold the most promise. The compound under investigation by the University of Oxford has demonstrated the ability to provoke both an antibody and T-cell response. However, the durability of this response is still unknown. Results from the larger phase 3 trials will shed more light on its potential success.

A candidate vaccine developed by U.S. biotech company Moderna and the National Institute of Allergy and Infectious Diseases (NIAID) was the first to be tested on humans in the U.S.. Results from this ongoing study also report evidence of neutralizing antibodies in participants.

The compound being developed by CanSino Biologics, in collaboration with the Beijing Institute of Biotechnology, has also demonstrated promising results. The study has reported that around 90% of the participants developed T-cell responses and about 85% developed neutralizing antibodies, according to the study.

 

 

Treatment

  • Corticosteroids have been shown to be effective in severely ill patients hospitalised with COVID-19 who are receiving mechanical ventilation. A recent prospective meta-analysis of clinical trials of critically ill patients with COVID-19 concluded that administration of systemic corticosteroids, compared with usual care or placebo, was associated with lower 28-day all-cause mortality. (steroids)
  • Results from trials using the antiviral drug remdesivir indicate that patients who received remdesivir had a 31% faster time to recovery than those who received placebo. A phase 3, randomized, open-label trial showed that remdesivir was associated with significantly greater recovery and reduced odds of death compared with standard of care in patients with severe COVID-19. (remdesivir)

 

Testing

  • There are currently two types of diagnostic test available. The molecular real-time polymerase chain reaction (RT-PCR) test detects the virus’s genetic material, and the antigen test detects specific proteins on the surface of the virus.
    • RT-PCR tests are almost 100% accurate if carried out correctly.
    • Antigen tests are less accurate but have a faster turnaround, potentially under one hour. However, false-negative results from antigen tests may range as high as 20-30%
  • Antibody tests are not diagnostic tests and are used primarily to identify whether you’ve recovered from COVID-19. Antibody tests also are subject to false-positive results. Research suggests antibody levels may wane over just a few months. And while a positive antibody test proves you’ve been exposed to the virus, it’s not yet known whether such results indicate a lack of contagiousness or long-lasting, protective immunity.
  • Unfortunately, it’s not clear exactly how accurate any of these tests are. Development in all test types is ongoing.

 

Antibodies

  • There is emerging evidence that those who have previously been confirmed positive for COVD-19 may not develop a sustained antibody response and are susceptible to reinfection.
  • Several cases have been reported (reinfection); this has implications for vaccine development and strategies to contain the virus.

 

 

[1] https://www.who.int/publications/m/item/draft-landscape-of-covid-19-candidate-vaccines

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Reasons to be excited about Marcelo Bielsa’s Premier League arrival

Guest post from Oliver Tapper

If you hadn’t heard of Marcelo Bielsa when he became Leeds United manager in June 2018, then you almost certainly will know his name now. In just two seasons at the club, Bielsa has been involved in a spying scandal, won a FIFA Fair Play Award, and been promoted to the Premier League.

On 12th September Bielsa will manage in his first top-flight game against the Premier League champions Liverpool, in what is likely to be one of the most anticipated opening games in Premier League history. But what is it about Bielsa that has given him cult status in Leeds, and why should you be excited about him managing in the Premier League?

He is ‘The Crazy One’

In 1992, Marcelo Bielsa suffered a 6-0 defeat to San Lorenzo in the Copa Libertadores while managing the prestigious Argentinian club Newell’s Old Boys. That night a gang of around twenty enraged Newell’s supporters travelled to Bielsa’s house and demanded he come outside to explain the team’s performance.

Bielsa did go outside; however, it was not to talk about the game. When Bielsa opened the door, he was holding a grenade and allegedly told the fans that if they didn’t leave he would pull the pin. This was the moment that led to Bielsa becoming known as ‘El Loco’ or ‘The Crazy One’.

English football has seen many characters in its time, from Mario Balotelli to Paolo Di Canio, the Premier League is rarely short of eccentric protagonists. But stories about ‘El Loco’ make Balotelli letting off a firework in his own house look about as dangerous as a cosy night in with James Milner.

Marcelo Bielsa turned up to Leeds United 100 year celebration black tie dinner in his Leeds tracksuit

In 1985, while working as a youth development coach for Newell’s, Bielsa went on a scouting trip to Sante Fe to assess and hopefully sign a promising young teenager. Except, this was not the usual meet the family and talk to the young player scouting trip. Bielsa arrived at 2am and asked the teenager’s parents if he could see their son’s legs to check whether they were ‘footballer’s legs’. After inspecting his legs while he slept, Bielsa signed the teenager on the spot in perhaps the most bizarre transfer agreement of all time. Oh, and by the way, as if this story couldn’t get any weirder, that teenager was Mauricio Pochettino.

More recently, when the Leeds board contacted Bielsa in 2018 he spent the rest of the night watching footage from Leeds’ previous season. By the time a face to face meeting had been set up, Bielsa had watched every single game of that season in full, that’s 70 hours worth of footage. To call Bielsa an obsessive is to massively underestimate the man’s attention to detail, even if it is a bit crazy.

It does not seem like Bielsa’s entertaining antics and methods are likely to change anytime soon. It’s for this reason that everyone should be excited about a season of Premier League football with Marcelo Bielsa. ‘El Loco’ is effectively a supercharged Jose Mourinho, so we should all be ready to expect the unexpected when the season starts in September.

Bielsa vs Lampard Part Two

As if the historic Chelsea vs Leeds rivalry didn’t need any extra spice, well try adding to the mix an unhappy personal history between the current managers of both clubs. Chelsea vs Leeds on the 5th December is definitely a fixture you should be circling in your calendar and clearing your plans for.

If you’ve been living under a rock for the last couple of years and don’t know why Marcelo Bielsa vs Frank Lampard part two is such a big deal then let us explain what happened in part one.

In January 2019, Leeds United were caught ‘spying’ on Derby County ahead of a crucial Championship fixture. Marcelo Bielsa had sent an intern to the Derby training ground to observe then manager Frank Lampard’s plans and tactics. The spy was caught and reported to the police, resulting in a mass media hurricane referred to as ‘spygate’. Bielsa was widely criticised for his major part in the scandal and Leeds were eventually fined £200,000 by the league.

 

Frank Lampard’s response to the scandal was to go after Bielsa, who he said had ‘violated fair play rules’. The comments were water off a duck’s back to Bielsa though, who even gave an unprecedented press conference explaining why he spied and his meticulous process for preparing for every match.

It’s fair to say that there is no love lost between these two managers which makes both fixtures between Leeds and Chelsea particularly mouth-watering prospects for the coming season.

He doesn’t fit the footballer mould

Whether you like him or loathe him, one criticism that cannot be levelled at Marcelo Bielsa is that he fits any stereotype. This will perhaps become most clear when Bielsa becomes a Premier League manager. The Premier League, much like any other major European Football league has become associated in recent decades with money, glamour and fame. Staggering weekly wages, flash cars, and luxury mansions are now part of being a top flight footballer or manager.

Who could forget when Manchester United funded Jose Mourinho living in the Lowry Hotel between May 2016 and December 2018 for 895 nights in a $1,040 per night room. Now contrast that with Marcelo Bielsa, when Bielsa moved to Leeds the club housed him in a high end spa close to Harrogate that was probably not dissimilar to Jose Mourinho’s living situation at the Lowry. However, Bielsa quickly got tired of living in a hotel and instead decided to move to a modest apartment in Wetherby because it was within walking distance of the training ground. Bielsa walked the 45 minutes to the training ground every day, spent time with locals in coffee shops, and did his weekly shopping at Morrisson’s. There is nothing ‘Premier League’ about Bielsa and his lifestyle and that surely is something that we should be excited by.

For all of El Loco’s eccentricity and sheer weirdness, he is a man of principles and values and that must be respected in him. Bielsa refused to let Leeds pay the £200,000 fine for spygate, instead funding it himself. In 2018, he donated 2 million pounds to Newell’s Old Boys calling it a repayment for all that the club had done for him. This is a man who once took time out of football to live in a monastery, and on other occasions to retreat to relative anonymity on his farm.

Bielsa’s different approach to life is one that we can all look forward to seeing in the Premier League next season and his philosophical outlook should provide plenty of food for thought for players, managers and fans alike.

His teams play amazing football

It’s not just Bielsa’s approach to life that is different: Bielsa-ball and his approach to football is unique and it’s an exciting prospect to see how it fares at the top level. ‘The Bielsa-way’ has a cult following among football fanatics and coaches within the game. Pep Guardiola is among one of many world-class managers who see Bielsa as a trailblazer for modern footballing tactics.

Leeds fans have bought into the ‘Bielsa Way’

While you will see a few of Bielsa’s trademark tactics in every game he manages, he demonstrates a great deal of strategic flexibility, thinking deeply about each match like an intricate game of chess. Against teams with a lone striker Bielsa typically uses a 4-1-4-1 formation; however, when an opponent plays two up front Bielsa opts for a Football Manager-esque 3-3-1-3. This unusual formation serves as a means of overloading the wings and creating tactical interplays that allow his teams to get through even the most congested areas.

Perhaps the most famous aspect of Bielsa’s style that has become a staple of the major European teams in the last few years is the ‘high press’. Bielsa is widely accredited as the instigator of the high press and it makes his teams a joy to watch as they play each match at a frightening pace.

As a result, Leeds training sessions are intense and involve constant running. This relentless intensity has led to various commentators referring to Bielsa’s style as ‘Murderball’. In the last few seasons newly promoted Wolves and then Sheffield United have had major success with their relatively new tactical approaches. Bielsa’s Leeds will offer something new and they are at the top of our ‘ones to watch’ list this season.

Predict Premier League games in the new season on Tenner!

It might be pretty pointless trying to predict what Marcelo Bielsa is going to do next, but one thing that is definitely worth predicting are next season’s Premier League matches on Tenner. Our free-to-play predictions games offer you the chance to win cash prizes for free! You can read more about what Tenner is here or check out more information on our homepage.

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Sam Marsh’s response to TPR’s DB Funding Code

db code

sam marsh

Sam Marsh is a lecturer and branch president of the Sheffield UCU. He has responded on his own behalf to TPR’s consultation.

My initial reaction when reading the consultation was “why consult?”. At that time we were concentrating on staying safe and Government had effectively assumed a state of martial law. We had voluntarily agreed to abide by its rules so when the Pension Regulator laid down its prescription for Defined Benefit funding, it seemed (to coin a phrase) that resistance was futile.

I have been proved wrong. The consultation has brought forth some great thinking from Iain Clacher and Con Keating and some great responses from Ros Altmann and now Sam Marsh. I am pleased to see more great responses in my inbox, keep them coming they are getting read (send your submission to henry@agewage.com).

They don’t have to disagree with the new funding code (though most submissions do), you will be guaranteed a non-edited publication.

Thanks to Sam and to all he and the UCU are doing to support the cause of open DB pensions, thanks too to dissenting  voices like Sharon Bowles in the House of Lords and thanks to David Fairs at TPR for his urbane gentility throughout.

We are lining up a lamb to the slaughter David – in support of your efforts to raise money

Keep on running everyone!

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Ros Altmann’s response to TPR’s DB funding code consultation.

db code

I have asked for responses to the Pension Regulator’s consultation questions and Ros Altmann has obliged. If you have submitted a response and would like your replies to be publicized in a similar way, I would be delighted to assist.

Clearly as a member of the House of Lords and former Pension Minister, Ros’ replies will be of particular public interest .  I have split them into two slideshows for ease of viewing.

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Please forward your consultation responses in word or PDF to henry@agewage.com.

Ros Altmann new

Ros Altmann

 

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They don’t do plagues like they used to

Defoe_Journal_of_the_Plague_Year.jpg

Daniel Defoe’s Diary of the plague year was published in 1722, over 50 years after the 1665 plague that struck the City of London. They don’t do plagues like they used to.

All the same, it has been a bizarre few months for those of us who stayed in the City and the manager of the Cockpit pub tells me he has not left the City boundaries since early March.

All the better then that the pub is open now and looking no different than the day it closed on March 19th. (I lie – the carpets are cleaner, the brown is browner).

 


The pubs of Blackfriars

Legend has it that when Henry VIII dissolved the monasteries (Blackfriars priory among them) , the land remained with the Church, even it the church was removed from the land. While the City of London swung to a puritanical lockdown, church land was outside the control of the City fathers.

The site of the Cockpit (now and then in Ireland Yard) was church land and the string of pubs that led up from the river were known as the four castles, each echoing Baynard’s Castle, a Norman stronghold and residence of Edward III that still gives its name to the ward to the East of Blackfriars.  Edward decided to move his glad-rags up to the Kings Wardrobe which gave our neck of the woods some glamour in the middle ages.

The Cockpit was nicknamed the fourth castle being the furthest from the river. Those who work in 60 Queen Victoria Street will be pleased to know that the BNY Mellon’s building is built on the sites of two other castles.

Pubs were able to flourish on church land as were brothels and playhouses. Twelfth Night and the Winters Tale both had their first performances in the Winter Playhouse, situated in what is now the Apothecaries Hall adjacent to Playhouse Yard.

For Defoe, this was a depraved but most enjoyable part of London, It was of course cursed by the plague and destroyed by the fire that engulfed the City in 1666. When Shakespeare bought property in Blackfriars (probably the other side of Ireland Yard from the Cockpit), it would have been inside Blackfriars . Shakespeare’s theaters in Bankside, Moorgate and Blackfriars, were even then handily sited for pubs and whore houses.


They don’t do plagues like they used to.

COVID-19 might well have been a plague had it arrived in 1665.

Week after week I bashed pans in the intersection of Ireland Yard and St Andrews Hill (formerly Puddle Dock Hill) at the entrance to  Wardrobe Terrace (marked in green)

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The  street plan for my building in “Fryer Street” is that of the sixteenth century (above) It survives though the church was gutted in 1666 and 1940.

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St Andrew by the Wardrobe , the Wardrobe Terrace is behind

There is a priest hole in the church and in the pub, many eminent punters would not be seen entering Blackfriars by the gate but preferred the subterranean passage between the ale house and the prayer house (for obvious reasons).

As I stood banging my pan at this little cross-roads , I thought how little our danger compared with our forefathers for whom life was rather less than half as long.

“Solitary, poor, nasty, brutish, and short”. Hobbes described the natural state of mankind in Leviathan and we would do well to remember that we never had a plague so good.

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BONFIRE. Keating and Clacher conclude their articles on the DB funding code

bonfire

Con Keating and Iain Clacher

After critically reading and re-reading the consultation on the new DB Funding Code and its associated documents several times, we decided that we would not submit a response to it.

Our principal reason was that it read to us more like a marketing document than a true consultation.

But having engaged with numerous consultations to see no meaningful change in approach or willingness to steer a different course, regardless of the facts, we thought it would be better to write extensively and hopefully spark some meaningful debate in the run-up. We are always available if anyone including the Regulator wish to debate and discuss.

Regarding the consultation itself, it states that it has been prepared in compliance with the government’s consultation principles. It even lists nine key principles. By our reckoning, the consultation breaches more of these principles than it complies with.

The problem with marketing documents is that they do not invite challenge and criticism; in this case they strongly suggest that the Regulator is not interested in listening to or changing anything. Their reported reaction (one of being less than happy) to the Bowles Amendment supports that view. In other blogs we have criticised the use of misrepresentative language such as “objective”. The dominant question that a marketing document seeks to provoke is: ‘Where can I get it?’ It is the setting out of a stall.

One major issue with the current consultation is that there is no cost-benefit analysis in either the consultation or supporting documents, though we are assured, in the Executive Summary, that: “We will take account of…our assessment of impacts.” This naturally raises a question: if this has been done, why not share it with us? If it has not been done yet, on what basis is the support for so many of the assertions and assurances in the Consultation?

The Introduction of the Consultation implies an objective to: “…ensure DB schemes’ efficient run-off phase”, which naturally raised concerns for open schemes and led to the Bowles Amendment. Taken together, these points led us to investigate the cost, impact, and efficiency of the proposed Code.

We began by attempting to model the cost to the entire universe of pension schemes, which the Consultation tells us have current technical provision liabilities of £1.9 trillion [as at 31st March 2019 – para 98 of the Consultation Document]. Unfortunately, there is insufficient information in the Consultation or the public domain more generally to do this reliably.  With many heroic assumptions and inferences, we simulated ranges of possible total cost outcomes.

The results ranged from £10 billion to £600 billion, with the 5% – 95% range being £80 billion – £200 billion and the most common outcomes lying in the range £100 – £120 billion. Perhaps the only significant result was that there was no instance of a net gain rather than cost. These results also take no account of the higher costs of administration, which we would estimate to be of the order of £500 million per year. We note that these simulations are far higher, perhaps orders of magnitude higher, than the risk exposures reported by the Pension Protection Fund. Given our low confidence in these results, we concluded that they could not form the basis of any further research or analysis and decided that instead we would investigate the costs and impact on a few small DB schemes[i]. We report here the results for one of these as it is extremely informative. We do not claim that this scheme is typical or representative.


An illustration

We consider one small open scheme, which is large by comparison with its sponsor employer. It has technical provisions and assets of £25.8 million at December 31 2019, while the sponsor has equity of £8.3 million with annual sales of £11.25 million and pre-tax profits of £1.24 million. The sponsor employer is small but of prime credit quality.

Although the scheme is open, we treat it as if it were closed to new members and future accrual, and then consider the position 25 years from now as the long-term objective (LTO) horizon. The scheme is today in balance with an expected rate of return on assets of 6.1% pa; this is high by comparison with other reported discount rates, but it is lower than the scheme’s twenty-year historic returns performance of 7.6%. We report this historical investment performance figure for completeness but do not rely on it in any of the analysis which follows.

At this 25-year forward point in time, it should be funded to a self-sufficiency basis, which we take to be a discount rate of 1%. The amount outstanding at this future date is 30.4% of today’s total projected benefits but only 10.9% of today’s present value. At a 1% discount rate the scheme would be funded at 97% of the buy-out level and 91% of the ultimate projected liabilities would be 100% funded.

It is immediately apparent that the proposed Code is a far from comprehensive solution for any scheme, focusing on a small tail of member benefits.

At this time, the Macaulay Duration[ii] (at 1%) of the scheme would be 9.23 years and pensioners in payment would account for 63% of the projected liabilities. The scheme would be mature.

As an aside, we do not believe that duration is a suitable measure of scheme maturity, as its value is dependent upon the prevailing level of interest rates. The duration of a perpetual is the inverse of its yield, so a perpetual yielding 1% would have a duration of 100 years, while that same perpetual would have a duration of ten years at a 10% yield.

The present value of the residual liabilities at this future date using a 1% discount rate is £18.6 million. This is an increase of £5.7 million on the current projected funding required (a 45% increase). This has a present value at 6.1% of £1.3 million. This is the amount of special contribution required today to arrive at a 1% funding level, 25 years from now.

This is slightly more than one year’s pre-tax profits. It is 1.7 times current annual contributions. It would require shareholders to forego any dividend. This is well within the employer’s current liquidity of £1.1 million and existing unutilised overdraft facility of £2 million.

But the Code does not end here; it requires the scheme to have transitioned to a low risk, and low return portfolio (1%), in 25 years from now when this level of funding is required. This will further raise the cost to the employer. For modelling purposes, we choose a uniform rate of transition over the 25-year period. The portfolio’s expected return declines from 6.1% to 1% and estimated one-year volatility from 20% to 10%. We then make a very important choice: we assume that only the assets currently supporting these future claims (£ 2.8 million) are ’de-risked’. If we ’de-risk’ all, the cost rises dramatically.

The cost in this limited case rises to £11.9 million in future terms (2.1 times the earlier cliff-edge case). This would require a current special contribution of £4.97 million, four years’ pre-tax profits, and 44% of total annual revenues. In the opinion of management, with which we concur, this would simply not be supportable. It would preclude any new investment for at least three years, damaging future productivity and sales.

If we were to ’de-risk’ the entire portfolio, the position becomes even more dire. It would be a future shortfall of £15.7 million requiring a current special contribution of £6.6 million, 5.3 years of current pre-tax profits. This would be truly catastrophic; to quote one director: “If we liquidated the remains of the business, we might just be able to cover employees’ redundancy payments.”

These costs are material given the size of the scheme; respectively 19.2% and 25.5% of total scheme assets.


How much risk to the employer would be removed by ‘de-risking’?

We use as our metric the expected loss given loss. We assume one-year volatility of 20% for the existing portfolio and 10% for the ‘de-risked’ portfolio. In the current situation, the risk to the sponsor at the future date is £916,955, while for the ’de-risked’ case it is £1,068,535. In other words, the proposed new Funding Code would increase the cost to the employer of pension provision by a very substantial amount while also adding to the employer’s risk exposure. We wonder how this could be considered compatible with the Regulator’s duty to employers to minimise any adverse funding impact on the sustainable growth of an employer.

The employer and trustees are comfortable with a current risk exposure of £1.9 million, arising from the volatility of the asset portfolio; particularly so, given its odds ratio of 2.65 :1 (Expected gain given gain: Expected loss given loss). By contrast, they are not comfortable with £1.07 million exposure given its odds ratio of 1.35: 1. The employer has equity capital resources of £8.3million; its risk exposure is 4.3 times covered in the present case. By contrast, the risk exposure coverage in the two ‘de-risked’ portfolio circumstances are respectively 3.12 and 1.59 times. This is a deterioration of the sponsor covenant equivalent to that from AAA to B.

We find it incredible that the 30% tail of the distribution of projected benefits should be so risky that it requires an increase in funding of 20-25%.

The claims to efficiency of TPR’s approach are surprising and it is well-known that pure funding solutions are sub-optimal; as the age-old adage has it, prevention is better than cure.

With this in mind we next examine the cost of an insurance solution. This is a policy with deferred effect where, if the sponsor fails, the insurer steps in and pays the full benefits as originally promised. This is the cover which the PPF could and should have provided.

It has been suggested to us that it is not wise to provide the top cover via the PPF. However, we see the precise form of arrangement for the provision as a matter for later discussion. (See endnote[iii]) )

The cost today of this pension indemnity cover[iv] is £343,609.10. The policy also has a value as an asset of the scheme. The value today of the policy is £1,370,423.12. This policy asset will increase in value until the date at which cover commences and then decline rapidly as pensions are discharged. In addition, its value moves in a counter-cyclical manner; its value will increase when scheme assets fall in value. Perhaps the greatest attraction of such an approach is that it would allow the scheme to follow return-optimising investment strategies.

It is clear that TPR claims to ‘efficiency’ are, at the very least, open to debate.


Conclusions

If we return to our earlier attempts at macro-level estimations of the costs of the code. The most extreme outlier, £600 billion, would correspond to the apocalypse of all schemes failing entirely unfunded at the objective date. In fact, the low estimates of cost are as high or higher than the highest estimates of the risk posed by schemes. It appears that this low-dependency ‘solution’ costs five to six times as much as the likely losses arising from expected sponsor and scheme failure. The cost to the taxpayer in lost corporation tax receipts is also substantial (as tax relief is given to these ‘costs of the code’), and particularly meaningful in the current pandemic circumstances.

The Regulator has failed to make any case for a special regime for schemes in run-off, let alone open schemes.

We began this series of blogs and articles with a call for a bonfire of regulation; at the very least we should start with this proposed Funding Code.


[i] We examined four scheme in total, varying in size from the £25 million of the reported scheme to a maximum of £180 million of liabilities. The results for these other schemes were broadly similar to those reported. For two of these schemes we do not have access to sponsor financials.

[ii]https://www.investopedia.com/ask/answers/051415/what-difference-between-macaulay-duration-and-modified-duration.asp

[iii] A range of issues have been raised and some suggestions made. For example: All of the current members in the PPF will ask for an upgrade. Better politically to require a compulsory mutual insurance or support fund – perhaps with 10%-25% of the annual premium being born by scheme members and collected by reducing future revaluation/ pension increases- should be weighted by value of pension – and can put in a exemption for small pensions.

[iv] The cost of this cover may be calculated in a variety  of ways from the complexities of forward start strips of credit default swap contracts to differences in single premium current start policies. The results are not highly sensitive to the method, though  they might be relevant in an active traded securities market. The figures quoted in  this blog are derived from the difference between two policies – one covering the entire period and one covering the entire scheme tenor.

 

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Has our attitude to wealth changed with Covid or with Brexit?

 

Covid brexit.jpgIt seems that we are in for another round of will he won’t he over wealth taxes. He being Rishi Sunak and the taxes in question surrounding business profits, wealth in excess property and the distribution of pension tax relief.

And once again the argument is being couched in terms of an internal discussion within the Conservative party about votes.

Of all the things that needn’t worry the Conservative party right now, it is votes. They have a massive majority and they are dealing with a series of issues resulting from the pandemic, all of which are immediate and some of which are existential.

But there is another good reason for Sunak to ignore the squeals of the backbenchers and that is the votes that won him the election weren’t from the wealthy but from the relatively deprived areas of the country which had traditionally been known as working class. Many of these people will not be working right now and for them , paying more tax on pensions, second homes and business profits will play out well. They quite rightly point to increases in VAT and council tax and the cuts in benefits and social services and are saying “we’re not paying again”.

Because they paid last time and while the pandemic can’t be blamed on corporate greed, there is an underlying resentment that while services have gone down, pay has not gone up and most people feel cheated – even if they don’t know why.


Cheated and you don’t know it!

What is amazing about there being 1.7m people in this country overpaying their pension contributions by 25% is that the only people who understand why are tax specialists.

The traditional spokespeople for those on low earnings – the unions – have been quiet about the net pay anomaly. The Labour party has hardly mentioned it. Ironically it has been those like Ros Altmann, in the House of Lords who have become the champions of fairer taxation for those on low incomes.

The great pension rip-off is the redistribution of tax opportunties from the poor to the well off and if Sunak wants to have a go at pensions he should appeal directly to the voters who got him his job.  They’re the ones who are owed.


Labour, Liberals and Greens are now the parties of the mass affluent.

And this is why there is political capital for the conservative party in pensions. They are not fighting their voters, they are fighting Labour votes. London, where average incomes are noticeably higher than anywhere else in the UK , is Labour’s heartland.

And I have absolutely no time for the whingeing of the homeworking classes. The homeworkers are the lucky ones, they are not having to worry about the end of furlough, they don’t have to ride public transport, they can choose how they organise childcare when the kids go back to school. Financially they have been convenienced by the pandemic with nothing to pay for commuting and with the perks of Government give-aways none of which have been means-tested.


Has our attitude changed to wealth because of COVID

The pandemic may not have changed us as much as we think. I suspect that attitudes to money are strongly ingrained in families and communities and that the fear of losing the tax priviledges around pensions , property and business equity is as strong among the mass affluent as ever.

What has changed is the empowerment of those who don’t have money in the political pecking order. The Conservative party is still run by Wickhamists and Etonians but it can see its power base being in the Brexit loving communities who voted for it last year.

There is an opportunity for Sunak to deliver a radical redistributive solution to the challenge of COVID and I suspect that it will be his confidence in his party’s appeal to low-earners , not the appeal of social justice , that will give him courage.

That said, I have learned not to underestimate the power of the shires and of the funders of the Conservative party. Sunak will need to be a stronger chancellor than any of his recent predecessors to tax the rich, and I include Labour chancellors in that estimation.

COVID may be the excuse, but the political swing occasioned by Brexit is what may drive change.

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Dangling temptation in our way – DB transfers in a time of pandemic

Final salary transfer

I read this and my heart sunk.

It sunk for the hundreds of thousands who have taken their transfers and must now be wondering why they didn’t wait for ol’man Covid.

It sunk for those advisers who have either been barred , blocked or chosen not to offer transfers.

And it sunk for those deferred pensioners with the right to a cash equivalent transfer value who are going to read the LCP research in the FT and go on a hunt for an advisor to unlock their treasure chest.

Bart 2

It simply doesn’t make sense that while markets have fallen, DB transfers have risen by 30% in the pandemic. It exposes the nonsense of DB pension valuations for what they are, academic exercises uncoupled from reality.


Why oh why?

This is the lunacy of pensions lock-down, the mania for self-sufficiency, the drive to de-risk.

All the prudence that has been built into  DB pension schemes has been at a cost to jobs, investment as George Kirrin pointed out in a comment on a recent blog on DB scheme funding  by Keating and Clacher 

And where does this prudence go? It is transferred to the wealth management accounts of those who by accident, have got lucky with a pension windfall.

Merryn Somerset Webb said a few years back now “If I had a  DB pension I’d take my transfer now”.  If it wasn’t for the economic nightmare that is upon us, interest rates should now be rising as we finally kicked off the shackles of austerity. Transfer values should be going down and the insanity of discount rates set at 1% or even lower would be a thing of the past.

Why oh why do we continue to dangle these over-inflated DB transfer values? They aren’t prudent and are an offence to the millions who face personal hardship at this time.


The details

Here’s an excerpt from the FT report

Analysis by Lane Clark & Peacock, the pension consultants, showed the average value of defined benefit pension transfers reached £556,000 in the second quarter of 2020 — an increase of 30 per cent compared with the previous quarter — and the first time in three years that the average transfer has exceeded half a million pounds.

Only about one in five of those who received a transfer value quotation from their pension provider in this period opted to take the cash; the lowest quarterly take-up rate since 2016, according to LCP.

Although average pot sizes increased dramatically, the analysis also found that overall levels of transfer activity in the period fell by 25 per cent — partly because some pension schemes paused transfer quotations under lockdown, in line with regulatory guidance.

But we are also in that period before the arrival of the ban on contingent charging where advisers are reconsidering the economics of transfers. The risk of getting it wrong are substantial (which is why PI premiums for those still advising on them are so high). Coupled to this, pressure on fees, now they can’t be cushioned by contingent charging, mean that advisers may decide their boots are full enough.


So what can be done?

Many trustees still see CETVs as the victimless crime. They get liabilities away at below buy-out cost and please employers who can book the technical accounting advantage into their short-term reporting (often with positive impacts to management’s remuneration).

But there are victims. The true discount rate for these liabilities is what Con Keating and Iain Clacher call the CAR or the underlying rate of return needed to meet scheme liabilities over time. If the CAR was used as the discount rate ,  CETVs would be slashed and schemes would retain pensioners.

Of course that isn’t going to happen , but if we took a long-term view of our DB liabilities we would continue the ability of trustees to voluntarily ban transfers. Indeed we might decide to put funded pensions on the same basis as their unfunded counterparts and just stop transfers where the discount rate fell below a nominal level (say 3%).

bart 3

Bart (not Ben) Huby. LCP’s actuary with the numbers

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Want to live longer? Get a pension!

live longer

Thanks to Jim Hennington for this

I’m writing on a sad morning when a great man died at 43 from cancer. Death can kill any of us in random ways and Chadwick Boseman died nobly cut short in the most unfair of ways

It is easy to let your head go down when someone dies this way. It is easy  to think that you have no control of your own mortality, but statistically and practically this is not true.

Chadwick Boseman’s death was untimely and also unusual, most people live long and healthier lives than at any time in the history of mortality records

life 2.jpg

However you look at the data, we are living longer and it’s for the reasons in the green boxes at the top of the blog.

Below is another chart confirming that life expectancy for women around the world  is increasing in a straight line over a very long period.

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Those little red lines flattening the improvements were projections that life expectancy would not improve – which turned out to be wrong.


We are in control of our own life expectancy

As I write, I am listening to an episode of  “More or less” that is looking at obesity and our capacity to keep our weight down and the fat off our tummies.

Fake fat news. Jamie Oliver’s stat that over a quarter of children’s fruit and veg came from pizza eating, is proved to be fake news. Similarly, Matt Hancock’s stat that if everyone who is overweight lost 5 lbs then we would save the NHS on average 30p  per patient per year. So stats

Fatually correct. Thankfully we got one set of statistics from Stuart McDonald that did make sense. His stats tell us that if the UK hadn’t been quite as obese as we are , we would have had about 600 less deaths than our European neighbors this year and about 1300 less deaths if we had all been Italian (who are notoriously thin)

Stuart put this in context, Britain’s excess death are down to a lot more than our being a nation of fatties


 

Being fat matters but being fat does not mean you will die of COVID-19

This matters to me because I am about 15 kg above my right weight and that is because I do not take enough exercise, because I drink too much in the evening and because I eat a lot of hula hoops.

If I am going to be incentivised to spend more time being active and turning down the second glass of wine in the evening, I am going to need facts I can trust. I trust Stuart and I don’t trust Jamie Oliver or Matt Hancock.

I know that being fat is unlikely to kill me today but it can lower my tomorrows. Presumably why Boris Johnson announced this week he has hired a personal trainer. Boris may be thinking about all his tomorrows


Which is where pensions come in

Although I have saved hard into DC pensions all my life, I am lucky enough to have a DB pension from  my time working at Zurich. I also have the prospect of a state pension in 8 years time. Boris too has a nice civil service pension coming his way.

These pensions become more valuable to me for every year I live , indeed they pay off by the day.

So – being a value for money kind of guy, I see my pensions as my financial incentive for drinking less and going to the gym. I  want to be a happy, financially solvent pensioner for a  very long time – for as long as I live. And I want Stella , who is younger than me (and as a woman has a longer life expectancy than me) to benefit from my pensions when I die. So I bought her a gym membership last month when the gyms reopened!

And this is something that is very peculiar to pensions (rather than pension pots). A pension is an incentive to live longer. A DC pot is a worry.

I am not suggesting that people with DC pensions consciously shorten their lives to ensure their pot doesn’t run out before they do.

But I do think that the security that comes from knowing you have a wage for life coming my  way, is a weight off my mind.

And I wonder, in 30 years time when I will close to 90, if we’ll be adding to that list , pf factors known to increase life expectancy – a proper pension!

Posted in actuaries, Blogging, pensions | 2 Comments

Why your pension records – like your medicals – should be yours by right

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This blog sets out for the first time a fundamental right of the retirement saver, a right to see their pension record in a digitally readable format. The right is fundamental to the “treat customer’s fairly” principal that FCA regulated firms sign up to and it underpins the trustee’s duties in an  occupational scheme. It is reinforced by the General Data Protection Act and it will be mandatory for pension providers to demonstrate when the pension dashboard arrives.

There are two reasons why pension contribution histories really matter

  1. They evidence that the amount you have paid into and taken out of your pension tallies with your pot
  2. They can be used to determine what rate of return you got while your money has been in the pension scheme

The right to see your pension records is as fundamental as your right to see your medical records.


Not all providers recognise you have this right

Over the past year, AgeWage has dealt with hundreds of letters of authority received from savers asking us to get them their contribution histories and the value of their pots.

We find most pots but when we submit the letter of authority we are rebutted with numerous excuses for not giving up the data you have asked for.

A good proportion of the refusals relate to the letter of authority which is often refused because signed with a signature. One provider sent us such a refusal on an email where the footer boasted

We’ve made a number of changes to make it easier to do business with us online, including submitting paperless instructions, removing the need for client signatures and managing your investments safely and securely online.

And other providers either flatly deny the data  or simply ignore the request. I will not mention names on this blog but we are compiling our dossier. Frankly we think these providers are behaving illegally and certainly against the principles of their regulators.

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