I am sitting aboard Lady Lucy in the millpond at Hurley awaiting today’s guests. The sun is shining and there is only the slightest of breeze. Coots are nest-building and swans glide past me hoping that I will feed them from the bread bin.

The sound of water comes from below me and from Radio 3 which is this week celebrating along British rivers

I am thinking about football and the events which will unfurl today. Will Manchester City succumb to nerves and fluff their lines? Will Wolves spoil the scouse party?

Despite all the brouhaha about Brexit, Britain is quite the place to be.

If you’d like to spend a day on the river aboard Lady Lucy, you can book yourself and friends and family on any of the days on the dropdown,

It is absolutely free.

Just follow this link

People often ask me what the f*ck is “Pentech”. Well they don’t really – I ask myself that and then imagine that everyone is asking the same question.

But as people continue to follow and maybe read my blog, I have to assume that what troubles me – troubles them- I mean you!

We have fin-tech – which covers a multitude of techs, including insure-tech, reg-tech and even prop-tech. But Pen-tech hasn’t really made it into the tech family (yet).

I have often wondered why we find the idea of a pension dashboard so odd. After all, we were close to having combined pension forecasts 15 years ago and the idea of populating a few fields with data from different sources is not that advanced. But the pensions dashboard remains a kind of technological nirvana, so near and yet so far.

As I’ve noted before, the worry people have with technology is that you can’t really fiddle it. If you ask your data a question, you get a straight answer – a “straight through” answer. Which rather reduces your capacity to explain why something unpleasant is about to happen, like a realisation that all in the pensions garden is not rosy.

Pentech is slow to be adopted in some quarters because it can expose to common view the venality of some pension practices but much much worse, it can give people ideas that many pension providers would rather they didn’t have. If for instance you can, with a keystroke summon up a number that tells you what you own, what you’re paying someone to manage what you own and how successful that management has been…..you are not far from soliciting a second keystroke -“delete” . We are nearly deleted if we give people the pension technology they require. Pentech is a dis-intermediator and intermediaries do not vote for existential risk.

Pentech not only dis-intermediates, it also exposes whoppers. For instance it can show you that the data held on you is rubbish, This is very likely to be the case, because a lot of data is not static, we move house, change names and of course change jobs. Pentech puts us back in touch with our data (the pension finder service) but what we discover is often corrupt, data may have been badly input or not input or it can (occasionally) go wrong. The find/replace button is a scary one.

Pentech is – to those who see the word risk as bad news- bad news. It creates risks, risks of people finding out what is really going on , finding out that their data is dodgy, risks that people may decide to delete you from the management of their money.

All of this is behind why pensions has been slow to adopt technology, while other areas of financial services have been steaming ahead and getting their “tech-titles”.

To a techy, pensions really aren’t any different.

The business of getting data, and representing it to people so it tells them meaningful things is the same whether you are working out  a loan, a life insurance policy or a wage for life. There are assumptions in all financial services that underpin projections into the future but other than those assumptions, the only variables are the data inputs, the rest is a matter of fact.

Where pentech is so difficult is not in the representation of the data, but in controlling the reaction to that data. Give someone a number representing the amount they paid you to have their pension managed last year and they could fire/delete you. Tell someone how much money they have and they might ask it back.

Pentech is a very simple but a dangerous thing because it takes pensions off their pedestal and simplifies them, to a point where they can become meaningful to people.

Pentech is the way we unlock the gates of engagement, but to allow people to walk straight through, we need to be brave – a lot braver than we are today.

We need to be brave

I want to restore confidence in pensions – that’s what Pension PlayPen does and it’s what AgeWage will do. I want to restore confidence by dis-intermediating and I want to be brave enough to allow the 90% of people who don’t take advice, to make their own minds up on what they want to do.

I want pentech to open the doors for people to do just that.

I was woken this morning by radio news of an explosion in the Port Talbot works. My heart sank as my mind turned to people I have met and the livelihoods that depend on these works

‘The tremor shook the foundations of my house’

Video footage appears to show the moment an explosion happened at Tata Steelworks in Port Talbot. Latest here: https://t.co/bA1UfsBzAl

Credit: Josh Adams pic.twitter.com/WVdGJChi0M

— ITV Wales News (@ITVWales) 26 April 2019

It seems that the incident was caused by a train , that there have been no fatalities and only a couple of minor injuries have been reported.

The safety procedures seem to have worked – a testament to how far workers protection has improved in recent years.  18 years ago a blast at the Corus plant killed three workers.

The cost to productivity and the fragile recovery of the steelworks towards sustainability will emerge over time.

 The works , the town and pensions

The Port Talbot steelworks are iconic. The link between the town and its major employer is obvious even as you drive past on the M4.

Explosion at Tata Steelworks plant in UK’s Port Talbot

READ: https://t.co/cdfRh1nSpz pic.twitter.com/VoEvZbYsTX

— Times of India (@timesofindia) 26 April 2019

The blast is felt in India (at least on social media)

The link between the works, the town and pensions is well known. It was here that some of the most egregious advice was given to financially vulnerable steel men and the words “Port Talbot” have resonance in pensions circles.

Wales’ Notre Dame?

I thought another blast furnace went. I hope nobody was hurt. The steel works is the heart of this town, our workers Notre Dame. I can see the fire now. Who will rebuild this? TATA? Who will rebuild our town? We’ve been waiting for years. #PortTalbot pic.twitter.com/27MrSrS2fE

— Damian Healy (@DamianHealy) April 26, 2019

 Port Talbot means so much to us.

Port Talbot is relevant to the UK, to India and it has brought the issues that this country faces over pensions into a sharp focus.

We understand that the financial futures of many steel men are linked to the productivity of the works. We want the works to do well because we want the steel men to get good pensions. The town, its people and its future prosperity are so tied up with the works that Port Talbot is to me and to many others a way of understanding what workplace pensions can be about.

Which is why today’s blast seems relevant to me as a pensions person.

And what is of enormous value is that the NewBSPS scheme is pretty well sufficient from problems such as these and that past benefits, whether they are paid from the PPF or from NewBSPS are secure.

We hope that the blasts heard and felt by the people of Port Talbot and nearby towns will not lead to lay-offs and that the works will return to full production soon.

A nation holds its breath, and those who have been involved in the steel men’s “Time to Choose” hold our breath too.

Port Talbot has made pensions relevant for us, we are deeply engaged with the livelihoods of its people and hope that this blast will not endanger the covenant of work and pension accrual, the plant provides.

Sun rising at port Talbot

There aren’t many employers or policyholders that SJP run workplace pensions for, but though they are few, they merit a mini-IGC – known as a Governance Advisory Arrangement (GAA).

The SJP GAA Chair Statement is an excellent document that looks at value for money within policies used by SJP customers as workplace pensions.

It is a must read because it brings an institutional perspective to a retail issue – that of vertical integrated advice and product management.

This is the second time I have read this report and for a second time, I am highly impressed.

 

 

Given that ‘value for money’ inevitably assesses all the benefits received in the context of the charges levied, the GAA’s opinion is that the value for money varies from good to poor. When considering the earlier series of plans, policyholders with large funds and Series 3 policy holders which are more than 10 years into their contracts may receive good value for money. Policyholders with smaller funds and other Series 3 policyholders with less than 10 years in their contracts receive lower value for money. Smaller funds represent a large portion of the early series of plans. Series 4 policyholders pay different and simpler charges with, overall, a similar level of value for money. Series 4 policyholders represent the majority of policyholders

Policy charges are easily assessable, but the investment strategies pursued by SJP advisers are varied – tailored to the needs of each customer. The only exception is the SJP staff scheme which is invested in SJP funds and administered by SJP/

So the GAA are right to point out that without better reporting it cannot do its job.

However, the GAA was not able to conclude that St. James’s Place reviewed the outcomes for policyholders individually or in aggregate in a way which fed back into the oversight of the model portfolios. This was particularly pertinent for the SJP staff scheme where there is no advice.

The Chair’s Statement carefully picks its way through these difficulties. The tone of the report is formal – the report is there to be read by professionals , this is not a populist report. It’s tone is perfect and gets a green.

Value for Money Assessment

Although SJP are not as other providers , the GAA looks to assess value for money and concludes that while some policyholders are getting value for money, some most definitely are not.

It is not very easy to see who is winning and who is losing, not least because SJP don’t seem particularly interested in opining on what good looks like.

When the IGC inquires about the transaction costs within the workplace pension investment strategies – they come up with some startling results.

Since the dispersion of results is twice the workplace pension charges cap, you’d have thought this would have solicited some urgent comments from SJP. This does not turn out to be the case.

The “money aspect of the VFM assessment looks extremely toppy. If transaction charges of more than 1% are added in, then they begin to look excessive. The negative slippage on the Absolute Return Fund is worth of some kind of statement, if only of congratulation!  I wonder how on top of these costs , SJP advisers are.

Although I think the VFM assessment methodology fine, I am disappointed not to see more analysis of outcomes.  The best way for this to be done is to analyse the Internal Rate of Return of individual policies and benchmark them against each other. That would at least get to the bottom of what is working and what isn’t.

I’m giving the GAA an amber for its VFM assessment. What is there is good, but there is too little here for the VFM assessment to be meaningful.

Effective

SJP is a quoted company with over £100bn under management. It is genuinely surprising that it does not want to adopt a full scale IGC (something I’ve said in previous years).

As far as I know, the GAA is the only governance mechanism that can ask the difficult questions about charges, costs and value – from inside the tent. Certainly it is the only one to publish its findings.

The next steps section of the report makes it clear that the GAA are not going about their work  quietly

In the next year the GAA will:

• Further assess the extent to which St. James’s Place governance monitors policyholders’ portfolios effectively.
• Review the process by which SJP Partners tailor the investments for each policyholder.
• Further consider policyholder feedback methodology.
• Assess the future consideration of charging structure.
• Assess the extent of Environmental, Social and Governance investment considerations.
• Assess the extent of any actions taken around transaction cost analysis.
• Assess the investment review process for any exceptions.

For a mini IGC, the SJP IGC is not pulling its punches, I give it a green for that, it is doing  an effective, if under publicised job

In conclusion – this is a must read

I am really pleased that the GAA have again written an authoritative statement of what SJP are up to as a workplace pension provider.

In doing so , they provide valuable insights into the vertically integrated structures that SJP employs.

This is a must read for people who want to understand how over £100bn of the nation’s wealth is managed. Like it or not, SJP sets the pace and the benchmark for other such firms.

This statement is of great value.

The L&G IGC Chair report for 2019 and can be accessed from this link from it’s much improved IGC web-page.

Last year I though L&G produced a real stinker of a report and said so.

L&G have my money and many of the employers sourcing workplace pensions through  Pension PlayPen were guided to L&G. I hold the management of L&G in high regard .through their investment company (LGIM) , they’ve innovated, leading the promotion of ESG or what is more commonly known as  “responsible investment”.

L&G are credited with convincing Government not to refer the insurance companies operating workplace pensions to the Competition and Markets Authority. Through its policy and pensions teams , it proposed IGCs in the first place. So the performance of the L&G IGC in speaking straight to members, in offering a transparent view to the value for money they are getting and in effectively lobbying for members and for employers, is of particular importance.

I make no apologies about being very critical of the IGC in 2018, I thought they had taken their feet off the pedal and had produced a lazy report indicative of a lazy year’s work.

Getting back on track

From the moment I started reading the report, I felt something had changed. Here is the focussed and well written statement of the IGC’s responsibilities

Our responsibility to you

We’re committed to protecting your pension. We use our combined knowledge, experience and skills to make sure you’re getting a good deal from your scheme.

This includes (but isn’t limited to) checking that:

• your scheme is good value for money, and the costs and charges are reasonable

• the default funds (the ones you will invest in if you don’t choose something for yourself) are suitable

• the range of self-select investment choices can reasonably be expected to deliver the returns people are looking for to suit their own circumstances and timelines

• you can easily access your savings when you retire, and there are flexible options for taking your money

• you receive clear and regular communications about your pension • you can easily access help and information when you need it, and that customer service is efficient and accurate

We measure how well Legal & General perform across these areas, offer impartial advice when they need an external view and suggestions on how they can improve where needed.

And if they don’t deliver, we have the powers to hold them to account to the regulator, the Financial Conduct Authority

Tone of the report

I enjoyed reading this year’s report which spoke to me in a way that I understood and in a language which was generally accessible. There are times when any IGC report gets technical (the Appendices on funds) but provided these are appendices, I am comfortable.

There is one area where I think future reports can get bett. The chair’s statement is prone to hyperbole.

We’ve continued to be impressed by the quality of people in each and every area of Legal & General that the IGC works with.

(on the sale of the legay book to Reassure) All aspects of the transfer will be reviewed by an independent expert, with oversight from regulators.

We always want to make sure default funds are delivering the best they can for members.

These cases are taken at random but they suggest an imprecision of analysis; faults are found within L&G’s admin which must be down to individual failings – not all the people can be good. If the IGC know in advance that all aspects of the transfer will be reviewed, then their oversight is superfluous and the assertion that the IGC is always on top of defaults is tendentious, it is not for the IGC to be making that claim , it is for the IGC to demonstrate to members that that is what it does. “We’ll be the judge of that!”

My reason for raising these points is to improve the quality of the conversation with members, the IGC does not have to prove itself or justify the activities of L&G in this hyperbolic way. The still small voice is better.

But these are minor areas for improvement, overall I think this report has the right tone and I’m giving it a green for the way it talks to its savers.

Value for money assessment

The IGC are still struggling to get to grips with VFM. They are looking for it in the wrong places and haven’t worked out what really matters to members. In part this is because they don’t understand the dynamics of auto-enrolment and in part because they miss the importance of outcomes over the member experience.

Ironically , L&G are producing excellent member outcomes for the money received , but they are failing many of their stakeholders – especially small employers.

IGC failing small employers

L&G are one of the most widely used workplace pension providers in the UK, this is because they set up many large auto-enrolment schemes in 2012-13 and continued to be active in the mid to small scheme market well into the staging process. They took on relationships with the Federation of Small Businesses (FSB) and promised exceptional service to employers through payroll integrators ITM and PensionSync.

But since 2016 , I have charted a steep decline in its service offered to employers who are required to comply with regulations on auto-enrolment. Many employers complain of not being able to speak with L&G, of sharp increases in the cost of using the link with ITM and third parties (typically IFAs and accountants) complain that their reputations are being tarnished for recommending L&G in the first place.

L&G’s value for money assessment does not take into account the employer’s experience but it should, especially when the employer is spending as much money sorting out payroll issues as it is in contributing (something I’ve heard more than once).

The IGC seem quite divorced from a central dynamic in workplace pensions , that costs to employers of dealing with them, are costs to members. Money that is spent on workplace pensions that does not reach the member’s pot, is bad value for money.

The Chair Statement completely ignores the train-wreck that L&G’s workplace pension has become to many of its participating employers and this continues , despite my , and many other’s protestations. I brought this up at the IGC member’s meeting this year and was reproved for doing so, I bring it up again now as it remains the biggest failing of the IGC.

Anyone reading this statement on administration who has been involved in the problems of the past 3 years, will wince.

The IGC must listen to small employers who have complaints about L&G’s support to them. They cannot pretend it is out of scope. They need to make this a priority.

IGC doing good work for members

I am sorry to have to carry on about employer support when I can see so much improving on the member’s side. Last year I was angry with the Chair’s report for delivering adverts from the communication and ESG teams. This year I am pleased to see the promise of those adverts fulfilled.

I am pleased to see policyholders like me getting more value for money and recognise that the insistence within the IGC’s VFM scoring system on good communications has driven this forward

At present the IGC weights all VFM factors equally. They say they will review this in 2019-20 and I hope they will. All external studies, including the NMG report commissioned in 2017 which looked at what savers valued, conclude that people want good outcomes and the experience along the way is secondary to them.

I am also pleased to see the IGC demanding and getting proper reporting on performance but ask that a summary of the fund tables which includes information on Future World – would be helpful as well.

There’s no doubt that L&G’s IGC are well intentioned and that they are working hard towards delivering better value for money for members, but they really need to work out what they mean by “Administration” , include employer interfaces in that and work harder on the promotion of outcomes based VFM metrics.

There is no reason why they shouldn’t, L&G really is providing excellent outcomes for members- I should know.

I seriously considered giving the IGC a red for ducking the employer admin issues but have given them an amber instead. 

I will revert to red next year if the IGC doesn’t take L&G to task and force it to treat its employers fairly.

How effective is the L&G IGC?

I was concerned to read this statement in the costs and charges section of the report

We asked Legal & General to make sure that initial unit charges for Mature Savings members were no more than 1% a year. We were pleased when they did this for active members. But we were disappointed when they decided not to limit these initial unit charges for members who are no longer active.

What this amounts to is an active member discount, something that is illegal for post 2012 workplace pensions (the ones we auto-enrol into). The IGC have not got the legal power to force L&G to treat all mature savers the way, but they have ways of putting pressure on them. One of these is to refer L&G to the FCA.

Whether they do so, depends on whether they feel paid up members of the Mature Savings Group deserve to pay more. If this group of savers are “no longer active ” (contributing?) – it is probably not their fault.

Their employer has most probably closed the scheme or closed as an employer. Why should members be paying more  because of this. Doesn’t this look like L&G charging members to recover costs and is punishing them for what is not their fault really treating customers fairly?

Here is an example of too much weight being loaded into the one word “disappointed”. The report leaves “disappointed” hanging, but I want to see more.

When we read later the rationale for not pressing on this, I am left “disappointed”.

Legal & General considered this (treating active and deferred members the same) but decided against it on the grounds that it wouldn’t be fair to other members of the with-profits fund…

We disagreed with their decision. But as their rationale was not unreasonable, and we recognised that they must consider other factors outside our remit, we decided that we should accept the decision and bring the matter to a close.

I don’t see why the costs of treating customers fairly should be born by the with-profits fund, L&G is a PLC with shareholders who have the capacity to meet these costs from shareholder returns.  What “factors are outside” the IGC’s remit, when it comes to treating savers fairly?

I am not sure that the IGC has pushed as hard as it should have here.

I’m not sure that it’s being totally straight with us about other areas in which it is making claims for itself

Later in the same section we read

We’ve been asking for the drawdown administration charges applied to the members in the WorkSave Pension Plan to be removed and were pleased that Legal & General agreed to do this.

I’m really pleased to see this but I have never read anything in previous IGC reports that was openly critical of L&G’s drawdown charges. I have been very vocal on this matter both to L&G and to the IGC and I’m really pleased that L&G have stopped charging me to have my money back.

For me to be sure that the IGC are really acting in my interests and of fellow savers, I’d like to see something rather stronger than “disappointment” and some transparent criticism of L&G in the report.

However….

In 2018 a lot has gone right for policyholders and the IGC should be credited with having an effective year.

1. The default fund range is better (including a more responsibly invested version of the default)
2. The back catalogue of self-select funds has been rationalised
3. Costs have fallen
4. The investment administration system has been improved
5. Oversight of the transition costs resulting from fund restructuring has been effective
6. Communications are better (especially through the web portal)

The IGC seem involved in all these areas and this report is so much more focussed than last year’s that I am giving it green for effectiveness , with an urgent request to continue the path back to righteousness!

One feels the benign influence of Daniel Godfrey is telling and the keen intelligence and no-nonsense approach to governance of Joanne Segars will hopefully continue this improvement.

In conclusion

The steep decline in the authority and quality of Chair’s reports following the departure of Paul Trickett has been arrested. This report sees the IGC moving back into the black and out of my red-zone.

But it still misses the point on VFM (employers are critical and they are being failed).

It still shows areas where it is ineffective and there are times when the report over-states the mark.

I am an L&G saver and care particularly for fellow savers as I have championed L&G over the years. The inclusion of Joanne Segars on the board is great. The improvement in the Chair report is good and if 2019-20 continues to see the IGC tackling L&G on service and on treating “mature savers” fairly, then they will get a bigger thumbs up this time next year.

Smashed it.

Thanks to everyone who invested in AgeWage yesterday. We have smashed all expectations. In what is down as a 66 day campaign we raised well over half our funding target in the first 12 hours. Collectively you invested nearly £105,000 in amounts ranging from thousands to the minimum investment of £16.50

To remind you, here is the link to our crowdfunding page on Seedrs

 https://www.seedrs.com/agewage

For those of you who want to know what AgeWage about, here’s our pitchbook

If you want our business plan, a comprehensive series of spreadsheets , then please mail me on henry@agewage.com.  We require an NDA which I can quickly turn around.

Here are the great things!

Our landlords – WeWork got wind of AgeWage crowdfunding, saw our numbers and came to my desk with a bottle of Prosecco! This is the kindest of things

This is what ⁦@WeWork⁩ gave me yesterday. So proud and happy to work there! ⁦@agewage2⁩ https://t.co/45ZHttz3UN pic.twitter.com/Dmb2jN1dyf

— Pension Plowman (@henryhtapper) March 21, 2019

Here are a few of the messages I received yesterday.

I’m in. I love this idea, there’s a real market need as currently no basis for comparative rating of pension funds. This “power” needs to be within the mandate of the member.

Good luck, and if I can help, let me know.

Building on this.

The most exciting part of all of this is that we really haven’t started yet. We are in private mode, only the people who read my blog and are connected with me on social media are seeing all this.

We don’t go out to the wider public till next Monday!

Just 5 days to go until you have the chance to invest in AgeWage on Seedrs!

Give us a message or a call on 07785377768 for more info!#wageforolderage pic.twitter.com/L7A1GOCFB6

— AgeWage (@agewage2) March 20, 2019

When we do, we have an opportunity to be pretty well at target, meaning that we will be considered a success by the algorithm of the CrowdFunding platform of Seedrs.

The way that algorithm works takes into account not just the amount of money invested but the number of people who are investing. Currently we have relatively few investors compared with how much we’ve raised.

So if you think you have to invest thousands to be a shareholder – think again! In the world of crowdfunding, your £16.50 is very important.

And once we’ve got your tax back – that £16.50 shrinks!

This business is eligible for EIS relief – providing qualifying investors with income tax relief of 30% of their investment and certain other tax reliefs. Tax treatment depends on individual circumstances and is subject to change in future. Click to learn more.

But as a minimum (and do read the small print) you should see your £16.50 (or multiples thereof) shrink to £11.55 and – if you pay a lot of tax – forget about CGT when it works and write off your losses against tax, if it doesn’t.

Seedrs provide a handy tax calculator which you can access here.

Tax is complicated but Seedrs make getting your tax back a simple business.

What I want you to do – please!

It’s a lot easier to go to some private equity house for your money, or get a rich sugar daddy type sponsor. Getting money through crowd-funding is a ball-ache with a lot of due diligence to even get to the Seedrs platform.

As far as we know, no organisation like AgeWage has gone this route and we’re proud to be the first.

But it wouldn’t be the same without you.

Can you, when you have finished reading this , press the link and buy at least one share?

www.seedrs.com/agewage

And then tell your friends!

I , together with Chris Sier and a group of business minded pension experts am raising money for AgeWage.

You can help us achieve our goal of raising £200,000, ideally by April 5th (the financial year end).

All you have to do is click this link

www.seedrs.com/agewage

As far as we are aware, pensions is virgin territory for the big crowd-funding platforms.

It’s a big step for our start up to be the first pension app to get its funding from the people that will be its customers and to be sure of success, we need the pump to be primed by you!

For as little as £16.50 you can buy a share in our company and seed the great things we plan to do.

Here they are

• We will work with life companies, their IGCs – with master trusts and large DC company pensions and we will provide millions of people with an AgeWage score.
• The scores will tell you how much value you’ve got for the money you’ve invested
• When we’ve shown you how you’ve done, we’ll guide you to the choices you have ahead
• We’ll make it clear how those choices will work for you.

• We’ll equip you to make those choices and help you to a better AgeWage.

AgeWage is not here for the 6% of Britains who take financial advice.

We will actively promote the value of advice but we will not compete to be your advisor.

Instead we will provide you , through the AgeWage app with a way to understand what you’ve done, how you’re doing and what to do next.

I think you will agree that this is a bold and important business.

We are grateful to  the FT who have written about what we are doing.

We are grateful to our first round investors who have got us this far.

And now we are asking, humbly – for your money, whether £16.50 or £150,000.

Of course we’re going to make this easy for you, you’ll be investing into an EIS and that means that there are substantial tax-breaks. This business is eligible for EIS relief – providing qualifying investors with income tax relief of 30% of their investment and certain other tax reliefs. Tax treatment depends on individual circumstances and is subject to change in future. Click to learn more.

So if you’re wanting to help us and be a part of the democratization of pension know-how press the link!

www.seedrs.com/agewage

Nobody writes about the NHS pension scheme and you don’t see it featuring in PLSA and other pension events.

That is because it generates precious little profit for the private sector. So here is a brief description (thanks Wiki).

The NHS Pension Scheme is a pension scheme for people who work for the English NHS and NHS Wales. It is administered by the NHS Business Services Authority, a special health authority of the Department of Health of the United Kingdom. The NHS Pension Scheme was created in 1948.

The NHS Pension Scheme is made up of the 1995/2008 Scheme and the 2015 Scheme. From 1 April 2015 all new joiners, without previous scheme membership, join the 2015 Scheme automatically. Members prior to 1 April 2015 retain rights to remain in the 1995 or 2008 section of the existing scheme.

The NHS Pension Scheme has 1.35 million members and 650,000 members actively contributing.

The benefits and conditions vary according to the type of worker and the dates of their service; from 2008 the “Normal Retirement Age” changed from 60 years to 65 years while the proportion of pay upon which a pension is based was increased. The benefits are index-linked and guaranteed. They are based on final salary (members who joined before 1 April 2008) or average salary (members who joined after 1 April 2008) and years of membership of the scheme. There are no administration costs. Members can increase their contributions if they wish to get larger benefits (within certain limits).

As of 2016, the tiered employee contribution rates start at a 5% rate increasing in 7 steps to 14.5% on income above £111,337.

If the NHS pension scheme was funded, it would be the largest funded pension in Britain, it might even rival the mighty CALPRS in the States to be the largest funded pension in the world. But it isn’t funded and therefore doesn’t trouble the  asset management scorecard.

To the lay-reader, a pension scheme that serves 1.35m of the UK population would deserve considerable attention – but the UK pension industry has but one master – the fund management industry.

Which is why  bottom-up engagement is more likely than top-down debate. It is why the most vigorous discussions on the NHS scheme (and by extension all state sponsored unfunded pensions) are on social media.

Pension problems for doctors is a problem for the NHS

We should not confuse the apathy of the pension (fund management) industry toward the NHS pension scheme with its potential consequences for the nation’s health service and the nation’s health.  As Nitin Arora points out in his blog (published alongside this), the issues Doctors have need immediate address.

The problem the NHS has is that we have most consultants working ~20% more than full time, with anything over 10PA being non-pensionable; and lots of departments rely on consultants doing extra lists.This is not conducive to efficient tax planning for individuals.

When people realise that their extra 20k of income results in a 12k tax bill, and potentially 3-5k of ‘scheme pays’ they may elect to stop doing this extra work.

Nitin call for action is deliberately targeted at people who care about the health service, whether within or without.

We as custodians of the NHS need to look at the bigger picture, and alert the government to the impending crisis. The taper, AA and LTA together, are going to drive an already demoralised workforce to cut working time. At this time of an overstretched health service, and staff shortages, this would be a disaster.

Why the NHS is not the USS

There is no crisis of funding at the NHS Pension Scheme, there is no question that the NHS pension scheme will close for future accrual, there are no arguments to be found about self-sufficiency. This is because the balance between  Government funding (via taxation) and member contributions is maintained by the Government Actuary without the usual hullabaloo around investment strategy.

The business of the NHS pension scheme is in providing pensions and this singular intent is recognised by its members, I am not aware of any substantial challenge to the Scheme (though clearly there is an issue around the provision of support for members in the decisions they now have to take.

The issues around the NHS pension scheme relate to tax. The suspicion is that the already burdensome membership cost to higher earning members is increased further by progressive taxation . We are used to the pension system robbing the poor to pay the rich – (the regressive alternative), but with the taxation of high-earners pension increases running at as much as 67.5%, there are now serious reasons for Doctors do the “hokey” – the member’s phrase for going “in-out” of the scheme as tax liabilities dictate.

The main difference between USS and NHS is that the NHS is making membership untenable for members while UUK argues that USS membership is untenable to employers.

Giving members a voice.

What I find interesting about the eruption of interest in the NHS Pension Scheme – is that it is happening on twitter. Twitter also provided the platform for debate on USS and Facebook was the platform members of the British Steel Pension Scheme (BSPS) use to understand their “time to choose”.

What is interesting is the attitude of the unions to the mobilisation of their members in these self-help groups (and threads). At BSPS, there was no involvement, at USS, the UCU has been heavily involved in the debate, we have yet to see the extent to which the BMA and other NHS unions will encourage the debate on an open platform or try to confine it to in-house publications and forums.

In my view, social media has become the forum where pension policymakers have most to learn. If I was HMRC or the Treasury (especially GAD) , I would be exploring the different views expressed on the threads that Nitin Arora and others have created.

We have yet to explore the full functionality of social media in assessing opinion. Polls can play an important part in this and are as yet virtually unused as a way of testing the water.

What social media has is scope and – using a limited number of hashtags, social media can provide scope and immediacy to conversations that demand quick and decisive conclusions.

So I look forward to the NHS Pension Scheme debate being conducted in public, as it is today. It is far more healthy for doctors and other members to share their grievances with a wider audience, than be confined to the pages of Pulse.

You can’t buy a sausage with a brick

James Coney, one of our best financial journalist has written a very fine article in FT Adviser on why he wants to “leave property our of pensions dashboard”.

It turns out that the Equity Release Council has been lobbying to get the un mortgaged value of your house onto your financial balance sheet, so when you see you’ve got no savings, you don’t burst into tears but nip down to your local friendly equity release specialist and liquidate your bricks and mortar.

James is against this

We are utterly obsessed with property prices. What is more, our attitude towards property has led to many people to make some very bad financial choices.

And these are just two reasons why housing wealth should not be included in the new pensions dashboard (another more obvious reason being: a property is not a pension).

It is of course impossible to stop people considering their finances in the  round. The idea that a pensions dashboard can frame our thinking on retirement planning is fanciful but that is to jump ahead of my argument.

The “bad decisions” he’s referring to are to do with over reliance on property equity and under-provision of the replacement income we need when we stop working.

The article turns on itself as it explores the relative merits of downsizing and taking a lifetime mortgage. It hints at what is a very real moral hazard, that if you are so skint in retirement that you have to mortgage your house to live properly, you are certainly not going to be able to pay the costs of long term care (other than by selling your house).

The moral hazard is that people assume the right to state care and recognise that that care is means tested. If you are planning on a state assisted later life, then you should burn your equity and your potential income. Since most equity release plans don’t ask any questions about how you spend the cash released, the opportunity for people to game the NHS and the social services funded by the DWP is obvious.

We pay far too little time thinking about how ordinary people consider housing, later life income and the threat of needing long-term care.

Self sufficiency?

The over reliance of a very large number of people on their house as their pension also misses an important historical factor. Those people who pushed their finances to the limit to buy a house and keep up the mortgage payments, often did so by not paying into a pension.

Their idea of property investment was to be independent of pensions – which many people see as a black hole into which you pour your money, never to get it back.

The tangibility of a property is pretty obvious, it is a place to live and – if rented out, is a self-sufficient asset. Property has become a free lunch – with low interest rates, high rents and a seemingly inexorable rise in property prices.

The housing shortage , which the Government continues to talk about – without building houses, keeps property prices high. The tight control of interest rates keeps away the perils of negative equity, the young are priced out of the market – but they don’t vote.

All this has the smell of a rigged and rickety market with the potential for a real fall in property prices which could have very nasty social consequences – especially for those for whom property underpins their lifestyle, retirement plans, their legacy and their long-term care insurance.

Far from offering self-sufficiency,  a property can and does give a false picture. Which is how James leaves his argument.

People who rely on housing equity or investment income from rental property to fund their pensions are playing a scary game, the risks of which are underestimated.

Or a contingent asset?

The terminology of Defined Benefit pension funding is useful here. Most people do not achieve financial self-sufficiency when they enter retirement. They have to carry on working – or they rely on their savings whether inside a pension wrapper or not.

The house is the back-stop. It acts as a “contingent asset”, something that is pledged to be used but only as a Plan B or C.

If people are having to rely on work and savings to produce income, then they are taking on a lot of risk, risks associated with health, interest rates, markets and people’s capacity to make financial plans and keep to them. There are many calls on older people’s money and most of them cannot be anticipated.

So the financial backstop of a lifetime mortgage is a tremendous advantage to someone who has not achieved self-sufficiency. It makes for a much more relaxed prospect for someone reaching the end of their working life.

Which is why I am very much for equity release, especially the responsible varieties such as Legal & General’s Lifetime mortgage. So long as property is viewed as a contingent asset and not as the answer to all life’s future property, I see it as key to the financial security of most older people.

Property equity is a contingent asset which should form an important part of financial planning for later life

Messaging and dashboards

I am concerned that the expectations of politicians and the proletariat for the dashboard are being set too high. In particular – I fear that “trust” is being commandeered by the pensions industry to justify “control”.

The current obsession with controlling the messaging will doubtless be reflected in the DWP’s consultation response due out shortly.

It is the easiest of wins for those who respond to these consultations to demand high levels of centralised governance resulting in a state dashboard and a few highly regulated portals that plug into a single pension finder service.

It is very unlikely that anyone from the pensions establishment  will have written to the DWP telling them to let the market control the messaging. Here for instance is Prospect’s report on its recent dashboard meeting with the Minister.

“All feared the potential for confusion, and some the possibility of exploitation if commercial players had too much scope to fashion the presentation or in any way edit the contents of the dashboard”.

Controlling the messaging from pension dashboards will be quite beyond Government or the pensions industry. People want access to data on their pensions and they want to take control of their savings. They will include housing in their thinking – they would be mad not to.

I hear the splashing of water around King Knut’s chair.

Should your house be on your pension dashboard?

The argument of this blog is this

1. James Coney’s article is right to raise the question
2. The interaction of housing on pension savings is perverse and underestimated
3. People who rely on house equity to be self-sufficient in old age are usually deluded
4. Housing equity is a good backstop or contingent asset and shouldn’t be ignored
5. Messaging from pensions dashboards can’t be controlled (worthless power of kings)
6. With responsible positioning housing could and should feature on dashboards.

I think, were James to read this blog – he’d ultimately come to the same conclusion , despite his title suggesting the opposite.

Jo Cumbo

In an important contribution to the debate on how members of DB plans can pay for advice on whether to transfer out, the FT’s Jo Cumbo calls for the financial advice bill – regardless of whether the answer is “yes” or “no”, to be paid by the DB scheme.

The suggestion is very helpful;  this practice is already in place for individuals to pay tax bills arising from stealth taxes on pension accrual where individuals inadvertently breach annual allowances. Schemes are getting used to docking pensions for divorce settlements and the administrative processes needed to administer the advice payments are already in place.

Royal London’s Steve Webb has now come in alongside this suggestion.

Indeed – but if contingent charging was banned we’ve also suggested in our submission that the impact could be mitigated by allowing advice costs to be debited against DB rights, in line with your column this week in @pensions_expert https://t.co/f2uDMAXR3o

— Steve Webb (@stevewebb1) February 7, 2019

This is a rare example in pensions of a news reporter making the news!

The ironies of over-information

Most of the time, prospective pensioners walk into life-changing financial decisions surrounding their defined benefit pension schemes with little or no knowledge of the decisions they are taking. An example being the taking of tax-free cash, which is now so much the default that actuaries assume it will happen in scheme funding calculations.

Many schemes are offering commutation factors that can only be justified by the tax-free outcomes, means that schemes are getting away with poor exchange rates between cash and pension – because people don’t know the questions to ask.

So it’s ironic that the conversion factors surrounding a CETV are accorded so much scrutiny that such a cumbersome vehicle as scheme pays – is actively considered.

The reason it is, is that large parts of the DB pension system are now so fragile that they risk being eroded and falling like cliffs into DC. It needs to be pointed out that there appear to be no losers in such erosion, the advisers are making money, providers are making money and pension schemes are clearing swathes of risk from corporate balance sheets. As with most “win-win-wins”, the dictum we should be reminding ourselves of is..

“If it looks too good to be true – is probably is”.

Case study – me!

When I was 55 , I looked at taking my defined benefit as a transfer to a DC scheme. I was allowed a free transfer quote, prepared at some expense to the scheme by scheme actuaries and administrators. I looked at my CETV and was able to assess whether I would be getting value for the money on offer. I gave myself advice (which I was entitled to) and did not take the money. It wasn’t hard to see that there was a good case at the time for taking the transfer , but I didn’t.

1. I didn’t trust myself to manage the money successfully
2. I didn’t trust anyone else!
3. I didn’t want to be worrying about the markets and the impact on my pension
4. I had confidence that as a pensioner, I would get my pension paid as long as I was on the planet – and that my partner would get a residual pension too.

Because I did not pay to come to these conclusions , I saved myself around £10,000 (+vat) in advisory fees or a nasty litigious time with an IFA – if I had turned down a recommendation  to transfer on a contingent charge.

I will of course have to live with my decision to get paid a pension rather than take cash, but I am sanguine about that.

If I had taken advice and had a £10,000 charge against my pension, I would have around £25 pm docked from my pension (increasing by RPI each year) for maybe 50 years.

The consequences of eroding pensions by fractional deductions through scheme pays are every bit as serious to my long-term finances as the payment up front. I imagine that in a scheme pays, the VAT I paid would be un-recoverable ( 20% of the £10,000 I was quoted).

The danger of scheme pays

The numbers above are sobering. £10,000 paid to an adviser from a scheme or from the client’s bank account is still £10,000 and that £25 pm is the equivalent of £10,000 whichever way you cut the cake.

It is effectively paying for advice on the never-never – a kind of Hire Purchase agreement of which PPI is the latest incarnation.

The danger of this approach is that it is presented to clients as so painless as to be a “no-brainer”.

“what’s the worst that can happen, I say “no” and you’re out a fiver a week?”

If a fiver a week’s the downside and the upside is half a million pounds of accessible capital, the temptation to take unnecessary advice is obvious.

Unnecessary financial advice

I don’t think you’ll find the phrase “unnecessary financial advice” in the FCA’s COBS rulebook, you certainly won’t see it as a risk in any advisory literature. The received wisdom is that regulated financial advice is necessary.

But in my case study, I firmly believe that I did not need advice about taking my transfer, all the decision points listed above were decided upon by my emotional response to the prospect of having to manage my own money.

Most people, when presented with the stark reality that now faces people who’ve transferred, is that they would have been better off in their schemes being paid a scheme pension for the rest of their days.

They didn’t need to be charged thousands of pounds to be told that. So for most people, the scheme pays route is a total red-herring and good advisers will not lead people down that route.

The danger is that less good advisers will find the each way bet of being paid by the scheme or out of the transfer value, a bet they cannot lose. The poor adviser will be able to lean on the victimless charge argument to provide unnecessary financial advice – as damaging an insurance policy as PPI – and equally useless.

Scheme pays requires full disclosure

If we are to have a non-contingent charge transfer advisory payment based on scheme pays, it must be made crystal clear by the trustees that they will be sending the client’s adviser an amount in pounds shillings and pence terms. Trustees must also make it clear that the deduction from someone’s pension as a result of this is likely to cost the member that same amount – in today’s terms and is simply the same bill expressed another way.

Advisers who work on such a system would need to be equally clear about the impact of scheme pays.

I remain to be convinced that a system of scheme pays would stop unnecessary advice. I think we need more, applying for a transfer should be like applying for planning permission on a house.

Planning permission

I stick with  previous comments in precious blogs; that this kind of advice – advice that is paid for on the never-never, should only be entered into where there is a clear reason why a prospective client might be better off not taking the scheme pension.

My argument is that the onus should be on the adviser to prove that there is a case for the client to be asking the question about transferring in the first place.

Taking a planning decision like this should be as serious a decision as applying for planning permission on a house

The submission of that case for clearance – should be something that should be carefully considered by the adviser. It should not be a cost-free process. As with a house- planning application – it should be submitted with the risk of failure being obvious upfront.

The advisory diagnosis may not always be what was hoped for,

I think AgeWage the most exciting thing I’ve done in my working life!

Watch our video and see if you agree!

Have you noticed how TV drama focusses on dying? We’re obsessed with death. Statistically the county of Midsomer should be totally depopulated by 2050, such is the carnage wrought on its citizens. We mark each celebrity , friend who dies. Our news broadcast focus on the loss of life. Our obsession with our ending overshadows the fact that we are still living and most of us are showing no sign of dying.

We spend time in the gym, we walk the hills , we diet and we avoid toxins to avoid death. Yet we still bet on our dying sooner than later.

This fact is we do not want to insure against old age because old age is not in our imagination. Everything we are doing in this massive attempt to stay young, is in denial that we will grow old.

Just 12% of newly accessed pension pots are used to buy an annuity. Part of the reason for this may be that people systematically and significantly underestimate their life expectancy. https://t.co/L6QRRrkCNq

— Paul Johnson (@PJTheEconomist) January 24, 2019

I am not surprised by the findings of the IFS. Paul Lewis comments

And also years of propaganda against one of the very few financial products that gives a genuine guarantee.

— Paul Lewis (@paullewismoney) January 25, 2019

He is partly right, but the propaganda is populist, there is a pre-existing bias in our psyche towards nostalgia and we yearn for youth rather than preparing for the future.

Death is so much more glamorous than living long. Death doesn’t just sell TV drama, it stalks our imagination, a real foe against whom we fight to be rewarded with the one thing we have no plan for – a long older life! This is so curious. It is what the Institute of Fiscal Studies calls “the annuity puzzle“.

A conspiracy against annuities?

Picking up Paul’s theme about “propaganda”, and continuing my musing on murder mysteries, I’m looking for a motive.

Why has everyone from George Osborne to the Wealth Management Industry got it in for annuities?

Research from the mid nineties on (Orzag + Orzag +Mehta) shows that annuities purchased in the UK are value for money products. They are well priced , there is a competitive market and for the certainty they offer, they provide a decent income in exchange for the capital used to purchase them. The research consistently shows that annuity providers are not ripping off their customers.

When George Osborne said that nobody need ever buy an annuity again, he raised the roof of the house of commons, we all dislike a product the point of which is to fund the part of our life we don’t want to think about.  But the product is sound, it does what it says on the tin. I wrote recently about work Legal and General have done on annuities which shows again that the problem is not with annuities, but with people’s failure to engage with the reality of the future.

I think that this unstated bias against protecting ourselves against old age is built in to much of the objections to CDC. If only 12% of us are purchasing an annuity with any of the money we have at retirement, why should 100% of us choose to club together and insure ourselves against living too long? Do we want longevity protection – 88% of us clearly don’t see this as a priority.

Do we need longevity protection? Well we are likely to hear within the next few weeks more bad news about the state of long-term healthcare and the vital need for us to do some planning to afford the implications of a long demise.

If our answer to this problem is to blow our pension pots in our sixties and seventies, then DC is presenting the next generation with a massive problem. The moral hazard is obvious, we are presenting our children with a long-term care bill that can only be met from their inheritance or for a levy on the wages of those still working. Either way our children will have to pay for our healthcare – unless we make provision today.

Mortality pooling prevents inter-generational transfers.

My conclusion is that ordinary people cannot afford annuities any more than ordinary private companies can afford Defined Benefit pensions. The cost of guaranteeing the future is too great, a lower level of certainty must be admitted or people give up altogether.

The lower level of certainty I am thinking of, is of course the unguaranteed wage for life offered by a properly managed CDC plan.

If we cannot afford “proper” pensions , we cannot afford not to insure against old age either. The annuity puzzle presents this paradox but no answer.

CDC presents an answer, albeit one that depends on a belief that over time – maintaining the funding of unguaranteed pensions depends on investing in growth assets rather bonds, keeping admin and investment costs down through economies of scale and ensuring that new people arrive into the retirement pool to replace those dropping off the perch.

This is what Royal Mail are doing with a pool of around 140,000 postal workers. It is a noble experiment that will need to be emulated by other organisations if we are to call CDC anything more than an experiment.

Without such an experiment, I see little chance of individuals changing their behaviours much, people will continue to vote against annuities nine to one and we will have as a nation no plan as to how to spend the massive sums we are saving into DC workplace pensions.

Gregg McClymont- a man of the People

Nigel Mills MP now quizzing @greggmcclymont about how People’s Pension markets itself to employers. He notes that of the 9 reasons listed on People’s Pension website why employers should consider the provider, not one is
that the members will get a better pension.

— Josephine Cumbo (@JosephineCumbo) January 23, 2019

Nigel Mills asks the right question, but it is not for Gregg McClymont or People’s pension to answer. This question needs to be aimed squarely at the Department of Work and Pensions and its Pensions Regulator.

We are now six and a half years into auto-enrolment. Ten million new savers have been included in the second “workplace” pillar of pensions. The vast majority of them can now say that they “have a pension”, though what they mean by that , I doubt many could explain.

As for People’s Pension, the 4m pots that they manage will be unlikely to turn into pensions – in the sense that most people understand “pension”. They are unlikely to turn into a “wage in retirement”, the pots will simply augment other sources of savings, albeit in a tax-advantaged way.

People’s have done exactly the job they have been asked to do.

It should be noted that the 4m people who have pension pots with People’s pension, are paying a very low amount for the management of their money (only 0.5% of the amount in the pot each year). Many  of the employers that People’s provide workplace pensions for, engaged with People’s at no cost and those that are now paying to sign up are paying a low amount.

People’s has had no Government loan yet it has been competing with NEST that yesterday announced another loan from the tax-payer, this time for NEST to meet its obligations under the Mastertrust Authorisation regulations.

People’s do not have this backstop, while NEST can boast they are well on their way to self-sufficiency, they will have got there with the help of up to £1.2 billion of our money lent to them on non-commercial terms.

It is in this context that the Work and Pensions Select Committee should consider statements to employers on People’s websites.

People’s are the real deal.

Employers value their staff, they are pleased to run pensions for their staff – but as I know from running Pension Play Pen since 2013, employers do not feel they have an obligation to provide better pensions, they have an obligation to comply with the rules, to stay solvent and to reward shareholders but they are not obliged to become pension experts.

Actually, those employers who contract with People’s Pension are probably already going the extra mile, People’s has regularly featured in the top three workplace pensions in Pension PlayPen ratings and – in terms of useability for employers – it is right at the top. Not even with all the money spent on it, has NEST bettered the People’s inter-operability ratings for company and multi-company payrolls.

A genuine not-for-profit

As Gregg McClymont likes to remind me, People’s are a not-for -profit organisation and do not have a shareholder to reward. They share this with Royal London and several other smaller master-trusts.

It does make a difference, not just in terms of the commercials, but in terms of the care that the organisation can focus on individual members. In my experience (and Pension PlayPen’s, People’s Pension have done the right thing for members, they have not fallen into the net-pay trap, they offer good member support and they are working towards a more sustainable investment default with the help of the relatively new CIO – Nico Aspinall.

People’s Pension should be getting a round of applause from W&P Select for achieving all this with no soft-loans and in the teeth of competition with a Government backed organisation that operates with the tax-payer’s safety net sitting below it.

It’s a commercial not-for -profit and like its parent B&CE – it always has been

Time to put the member first?

It’s clear that People’s are beginning to think about the peculiarities of being seen as a pension provider, without actually providing pensions. People’s don’t offer an annuity, nor does B&CE (the life insurer).

As their membership matures, helping those members to spend their money will become an increasing feature of what Peoples Pension does. It is not a wealth preservation outfit, the majority of its savers will need at the very least a top up to the state pension, at best a proper wage in retirement paid from their People’s Pot.

This will mean, at some stage, getting those 4m odd savers to take decisions. Decisions such as whether they use People’s or some other pension scheme as their big pot. People will have to have a basis to decide to move money to or from People’s pension and they will do so on the basis of their perception of who has done best for them in the past and who is likely to do best for them in the future.

That value for money estimation is not something that most people are prepared for. The decisions that lie ahead of the 4m employees who Nigel Mills is thinking about are hard and right now there is precious little advice to go round.

People’s pots

So far, to survive as a commercial not-for- profit, People’s have had to focus on the needs of their employers and not on member support.

But that strategy has to – and I’m sure – will – change.

I expect that if W&P Select to ask that question of People’s Pension in another six years, they\d get a very different answer.

The Work and Pension Select Committee is holding an inquiry into the way that pension transfer advice is charged for. This may seem an arcane subject but it’s not. As this blog has said many times, contingent charging was the lube that made the transfer market deposit up to £36.8bn into SIPPs and insured personal pensions in 2017 and over £10bn in the first quarter of 2018 alone.

The committee is calling for evidence of a link between contingent charging and the alleged mis- advice to over 50% of the estimated 200,000 people who transferred out over the past two years.

I know people who read this blog who took £1m + transfers from gold-plated de-risked DB schemes – some of which they de-risked themselves. They paid for that advice with their own money – and paid the VAT too – both of them. Why? Because they didn’t want to lock into some crappy advisory deal (one of them used that phrase), when they could manage their money better themselves.

That’s heroic stuff – those people make their money managing other people’s money, why shouldn’t they manage it themselves – one paid £10k + VAT and the other £8k +VAT – the VAT would not be recoverable.

Compare this pair with the people who transferred on average £400k from BSPS, they were not getting such good CETVs (typically 25 rather than 40 times the payment forsaken) but they paid nothing to get their money out – their fund paid it for them. They transferred out on a system called contingent charging which lubed the process and made it all “oh so easy”.

The W&P Select is calling for evidence. I can’t evidence myself. I refused to transfer my DB pension – I refused to take tax free cash – I am a Zurich Pensioner and I have no gilts!

My evidence is simple. If you can do better than a DB pension scheme, pay to have your head examined and pay the VAT – you may be right but the chances are you are deluded and a good adviser like Phil Billingham or Al Rush will tell you so.

If you have no cash but a big fat pension – like most of the people who were approached by Active Wealth, you should not be allowed to be seduced by a no win no fee transfer deal – promoted with a sausage and chips dinner. If you can’t pay the advisory charge (and the VAT) – you can’t have all your money in a CETV.

I know that Al Rush disagrees and points to special circumstances like single people with reduced life expectancy and a need for cash now. I have no doubt that there are people like this and no doubt that some have no money to pay for an upfront fee. But they are exceptional and I have no worry for exceptions to be dealt with via an exceptional process by exceptional advisers like Al.

There should be a process for quick release in dire circumstances and it’s the kind of process that could run through FOS, FSCS or even SFGB – a hardship committee could be set up.

But the exceptions cannot drive the process. Read my recent blog where I called on Government to take positive steps to reshape the transfer market.

Bring it on

I welcome this initiative by the Work and Pensions Select Committee who I know read what I write (from time to time!).

Here is their call for evidence – I will of course be sending this blog and those like it.

To help the FCA with its next steps, we want to hear from anyone who has been affected by this issue.  Have you, or someone you know, received taken advice about a defined benefit pension transfer? Did you have a good or a bad experience? Do you think this was driven by the financial adviser’s charging structure? If so, please tell us your story by Thursday 31 January 2019.

If you do not have personal experience of this issue, but have views on banning contingent charging, the Committee still wants to hear from you. In particular, relating to the following questions:

• Does contingent charging increase the likelihood of unsuitable advice?
• What would be the impact of a ban on contingent charging on consumers and firms and how could any negative effects be minimised?
• Are there any alternative solutions that would remove conflicts of interest but avoid any possible negative impacts of an outright ban on contingent charging?

 

My Mum doing good stuff

Although she doesn’t read my blogs, my Mum inspires many of them.

On Wednesday she had her second new knee in six months and is now an 86 year old bionic woman.

Thanks to the NHS, she has not just new knees but the incentive to go out and do what she has been doing longer than I can remember – be the rock that she is.

She lost her husband last year and she had been his rock, her social circle in Shaftesbury are in slow decline and cling to her for everything from a free taxi service to a listening ear when they are lonely. Her family adore her – for good reason – she is our rock.

The good news is that she was out of bed and walking around (just a little) yesterday. Her aim is to be ready to ramble in April – when  we expect to see her “knees up mother Tapps”.

Cleaning her house

Another generation

The generation that preceded mine, lived through the war, my mother was evacuated to America and saw boats in her convoy perish, she was spared and saw life beyond the confines of Welwyn Garden City and Hitchen where she was born and schooled. It has always amazed me that she never talks about her years as a child away from her mother and father, except with gratitude for the family that looked after her.

We are losing that generation that lived through the war and we should not let them pass on without thanking them for the stoicism that they’ve displayed when young and the magnanimity with which they pass on the lessons that those tough times taught them

Bernard Rhodes

In May , I am going to be talking with Bernard Rhodes at First Actuarial’s client conference. Bernard, like my Mum lived through the war years – he was evacuated to the East End of London from Europe and had it even tougher. If you are a First Actuarial client – you’ll be able to hear the man who founded the Clash, talk about how the war shaped him – and punk!

But a generation with more to do

You do not go through the pain of integrating your 86 year old body with two new knees unless you are optimistic about your life ahead.

My mother started her new life this morning , as she does every morning – I’ve never come accross anyone so darned optimistic. I think that – like Bernard – her fortitude was born out of struggling through those early years.

My Mum’s not giving up, she’s starting over – with new knees. Today or tomorrow she will be coming home to Shaftesbury, to the house she has lived in since 1960 – to be looked after by Rupert and Gregory – my two brothers – and by Albert- my youngest brother who lives not far away.

Mum and Olly

Also my son Olly – of whom my mother is most proud.

In my thoughts

Knees up Mother Tapps!

I am proud of my mother and father. I am particularly proud today of my mother. I’m also proud of my brothers for filling the vacuum in my mother’s life – after my father died.

How we look after our older friends, defines us.

I work in pensions, there is a social responsibility in what I do, to make the lives of those who like my mother – have every expectation of living to 100, to do so with the means to enjoy those later years.

At 86 – my mother is starting out again – with new knees – intent on doing good things and leading a good life. May that be a lesson to me and to anyone else who holds him or herself out as a pensions expert!

At Sherborne Abbey this Christmas

The Government is minded to tender a single contract to run a pension finder service. This is a regressive strategy which we need to say NO to.

Giving control of the pension dashboard’s central piece of architecture to a single organisation or even a consortium, will not be in the public’s interest. It risks one entity controlling not just the price of the service, but what the service delivers. It risks outage of the service with no back-up and it denies potential competitors the chance to innovate.

The only reason why Government would grant a monopoly to the provider of the pension finder service were there to be no demand for competition. There is demand for competition and there are plenty of competitors to the current front-runner for the pension finder contract.

Not only is there demand for competition, potential competitors but there are clear advantages to Government in not granting a monopoly. Just as at the start of auto-enrolment – when the DWP fervently wanted NEST to be given a monopoly as the workplace pensions, so today. The reason NEST was not given a monopoly was so that insurers and master trusts and even SIPP providers could compete for workplace business and create a dynamic innovative market. That is exactly what we’ve got.

One of the glories of the UK pension system is its diversity. Public and private pension schemes still provide defined benefits. We have a vibrant market for personal savings, a well developed wealth management industry. The large insurers operate master trusts and GPPs that compete with NEST and the non-insured master trusts, many of which are run by consultants.

To suppose that a single pension finder service will harmonise the competing forces is naive. There is no such harmony today nor is there likely to be tomorrow. Despite the opportunity to do so, most third party administrators have not signed up to the Origo transfer hub, they are showing no signs of wanting to be bullied into line for a single pension finder service.

There are local sensitivities at play which make the arguments for a single pension finder service untenable.

A better way of doing things

There is an alternative approach to the pension finder service which I am promoting. I call it the “tech-sprint” approach and it allows any competitor for the job of finding pensions to set out in a race for success.  A tech-sprint would do away with the need for a central tender and would replace it by a genuine competition to get total coverage of the UK pension genome in the shortest possible time.

Let me make this a little less abstract. Let’s say that one particular data service has strong connections with insurers, then that data service provider naturally plugs into the APIs at the insurers, encouraging their adoption using its particular knowledge of that sector.

Another service provider is familiar to third party administrators and does a similar job in that sector

A third service provider works best with SIPP providers and the IFA community.

Each provider builds up expertise in its sector and is given the all important verification certificate to collect information that finds pensions and that later can deliver the more complex information that will populate dashboards.

An inquiry from a consumer may be initiated with a pension finder who is expert with insurers but may be passed on to other pension finder services. All the data is fed initially into one dashboard operated by the Single Financial Guidance Body. Once the concept has been proven , the commercial dashboards can use this diverse infrastructure in the same way.

One critical advantage of this approach is that it gives the weakest links in the dashboard project – those with the poor data and poor systems , the chance to work with pension finders who are sympathetic and can help.

Another advantage is that it keeps the threat of cartel-pricing at bay. A monopoly can too easily create a cartel (a rigged-market). It is human nature, if you’ve got a monopoly to sit back and stop pushing. Indeed my experience of these central tenders is that they are so exhausting – they leave all parties – winners and losers – disincentivise to push for better going forward.

An example of this was the procurement process that happened for the dashboard prototype in 2017. The winner excluded all the losers and then sat on the prototype which has gone nowhere.  We are in danger of delivering exactly the same thing again in 2019.

The pensions dashboard is exciting – it captures the public’s imagination, it’s potentially a fantastic win for everybody. But to properly deliver it needs to be adopted by all providers as quickly as possible (ok we can let SIPP and EPPs opt-out if they choose).

But the timeframes envisaged by the industry are ludicrously long. Even if SFGB’s dashboard is up and running by the end of 2019, pension finder won’t be fully functional for 2-3 years after. We all know what happens to these timelines, we’ve already seen it happen with the feasibility study, just look at the delivery of CrossRail.

Where things get delivered to time is when they are powered by private sector innovation and competition. Look how the private sector found ways to auto-enrol 10m new savers through 1m new employers.

I am not having a go at those who want a single pension finder service, I thoroughly understand where they are and where they are coming from. I’ve had good meetings with Origo and suspect that it will be top dog  where multiple pension finder services are in play. But I can’t support Origo, or any other single pension finder.

The biggest danger is that we will sleep-walk into a monopoly; which is why you’ll be hearing a lot more noise from me and my mates on this!

My first blog was in January 2009.

Has there ever been such a start to the year. Freezing temperatures and frozen bank accounts. May I start my blogging career by wishing anyone who reads this a little warmth!

It was only a headline as I hadn’t learned you had to add text.

10 years on and with well over a million reads, it’s time to take a step back and work out what my blog is actually about.

The masthead says it’s the blog of the Pension PlayPen and it’s about restoring confidence in pensions. The Pension PlayPen was something I devised with Marianne Elliot (now MD of Redington) back in 2007 and was conceived as an online club for people who wanted to pay their own way in corporate entertainment.

In the meantime, the Pension PlayPen has become a means for companies to choose workplace pensions, has entered into t tripartite arrangement with Sage (along with First Actuarial) and has built into a linked in group of some 10,000 of us – interested in making pensions better.

I’m asking myself two questions, whether independently of Pension PlayPen , people have the prospect of better pensions now , than they did ten years ago. I don’t think there is anyone asking that question in academic circles – perhaps one for a PHD or maybe best left to the PPI. The second question , which is one to ask myself, is whether the blog and the activity behind it, has restored any confidence – made things any better.

What has got better?

There are a whole lot more savers today than there were at Christmas 2008 – auto-enrolment has seen to that. The current AE saving rate isn’t great- still not much more than the contributions we made to SERPS. The rate will go up in April when most of us will pay 4% – about 1m of us will bay 5% because they have low earnings and won’t get the promised tax incentives. Clearly that kind of economic injustice is acceptable in 2018, which shows that while coverage is better, the taxation on pension contributions remains the same – pretty shabby.

We have a genuine alternative to annuities for those who don’t have the money for income drawdown. A great number of the blogs I wrote in the first five years were about the fate of people who were buying into annuities at artificially depressed rates. I contributed to several radio and TV programs which insisted on calling this an annuity rip-off – it wasn’t. The large annuity providers opened their books and showed that margins on guaranteed annuities weren’t high (in fact value for money on annuities was good). The damage came from negative real yields which people were buying into as the default.

The major change in taxation did not come (as expected) on contributions, but on claim. We can now spend our retirement savings as we like and we have a strengthened Government guidance system to help us do this wisely.  The apparatus that was put in place over the period to give people help – is bing merged in the new year into the Single Financial Guidance Body. The major task for SFGB- other than integrating the disparate parts of Pension Wise – will be to deliver a pensions dashboard to people’s expectations.

The change in taxation and the introduction of auto-enrolment have both been policy successes. The delivery of the Pensions Dashboard has so far been an unmitigated disaster, though we now have a chance to turn things around.

One area where we have seen genuine improvement is in pensions governance. The Office of Fair Trading Report into workplace pensions published in 2014 painted a picture of poor governance among insurers, if they had looked harder – they’d have seen poor governance among occupational DC schemes – including master trusts.

Over the past five years we have seen a number of initiatives that have improved governance

• The establishment of IGCs and GAAs to oversee the behaviour of insurers and the managers of SIPPs active in providing workplace pensions
• The extension of the Master Trust Assurance Framework into what now looks like a proper governance framework for occupational DC schemes.
• The work of the IPB in getting to grips with legacy charges
• The consultations on cost transparency leading to the delivery of reporting templates by the IDWG
• The CMA study into the working of investment consultants

What has deteriorated?

Apart from calling for an alternative to the annuity trap, a change in contributory tax relief and promoting auto-enrolment, this blog has also been concerned with the state of defined benefit pensions. I come from a DC background, I was self-employed for my first 10 years as a financial adviser and the hansom pension I get from Zurich is a fluke.

I have held since I took out my first savings policy when I was 17, that long-term saving is best. I cashed in that policy to pay for the deposit on my first flat when I was 25. When I started this year I had around £800,000 in retirement savings, around half a million in pensions- I finish the year down around £200,000 but still cheerful. Because I have the security of a DB pension in payment and the prospect of a state pension in only ten years, I am comfortable to ride out the financial storm of 2018.

I would not be so comfortable if I’d taken a transfer value, as I thought of doing before taking my pension in November 2017. I could have added to the £36.8bn transferred out of DC. DB schemes have deteriorated in the past ten years. Whether through employer sponsored “de-risking” or through member initiated transfers, much of the benefit has been exchanged for what Steve Webb used to call “sexy-cash”. I don’t think there is anything sexy about what is happening to defined benefit schemes and I see problems piling up down the road for the transfers taken in the past three years. The majority of those transfers should not have happened. There has been a sustained failure by the Regulators to get to grips with defined benefit pensions, the current plans to slice and dice benefits so that we can have super funds – looks a pretty feeble response to the demise of our once proud pensions industry.

Where there is hope is in the prospect that we may be able to convert some of our DC saving into non-guaranteed scheme pensions through a mechanism we call CDC. Though the first CDC scheme will actually replace both a DC and DB scheme (Royal Mail), I see hope for savers down the line – especially if schemes can be set up to exchange DC savings for CDC scheme pensions. While these scheme pensions won’t be as secure as annuities or defined benefit pensions, they’ll be a lot more secure than DC drawdown.

Right now the deterioration of DB schemes (other than in the public sector) has not given rise to the expected innovation for DC savers – certainly in how they spend their savings.

In conclusion

Despite attempts (thanks Aon) to turn off the Tapp, no-one has been able to shut me up  and I’m not done with blogging yet.

But I will be moving my AgeWage related blogs to my new website www.agewage.com – which is going to be much more about helping people with pension problems (we call it our digital TPAS).

In terms of changing the world, I’d like to think that this blog has supported what I have been doing at First Actuarial, Pension PlayPen and latterly at AgeWage. I hope that it may have nudged some policyholders and regulators into better places – especially regards the taxation of DC claims (freedoms), the impending legislative changes on CDC, the coverage of AE and the improvements in DC governance.

We can look back and see genuine improvements – the abolition of active member discounts, the adoption of the 0.75% charge cap on workplace pensions and the introduction of the RDR have all given consumers a better deal from their pension savings.

But there are still big holes in pensions policy. The central questions of the FAMR and the Retirement Outcomes Review remain unanswered. The SFGB will not fill the gap in advice that leaves 94% of us unadvised on what to do with our pension savings.

We have no answer to the disqualification of over 1m people from promised savings incentives due to the “net-pay anomaly”. We still have a system of contingent charging for transfers which results in advisers being incentivised to say “yes” to pension transfers that shouldn’t happen.

Defined Benefit schemes continue to close and to set their sights on buy-out (or the PPF) when they should be staying open. The system of best estimate based funding promoted by First Actuarial is largely ignored in favour of gilts plus valuations marking liabilities to market and creating phoney pension deficits.

In conclusion there is still much to do – and far too little done. We have an opportunity in 2019 to nail pension dashboards and deliver better information to people sorely in need of proper help in sorting out their pension arrangements.

We have the opportunity over the next ten years to stem the tide of closing defined benefit schemes and we can start re-building collective pension schemes from the money invested into DC workplace plans through auto-enrolment and properly funded  employer schemes. We can stem transfers by banning contingent charging and we can start building on the great work done by TPAS in the past ten years in providing proper mass-market pension advice.

All this is yet to come. Keep reading – and I’ll keep writing.