Clarification needed on CETV volumes.


The FT published a number yesterday – £100 million. It is the amount that pensions  administrator JLT are paying out in transfer values every month. It looks a large number. Mischievously I suggested that might be revenue to JLT rather than the money processed. What followed was a long and constructive discussion on the responsibilities of trustees towards members looking to transfer cash away from DB plans.

My suggestion was not entirely facetious. The  information I am getting from my contacts in large pension schemes is that at least two schemes are seeing CETVs leaving the scheme at more than £250m. That means these schemes have lost more than £1bn in assets (and liabilities) this calendar year – already,

I have no source to corroborate this so you will have to take my evidence as anecdotal. Any journalist that wants to know the schemes will not get names.

My point in raising this is that the estimates so far (from the big three actuarial consultants – Mercer, Willis Towers Watson and Aon) suggests that since April 2015, the aggregate amount leaving schemes from transfers is around £50bn. I would suggest the number is considerably higher than that.

The best way to get these numbers is from scheme accounts and particularly the numbers within the FRS102 accounts that organisations are required to provide to account for the impact of the pension scheme on their financial position.

In terms of FRS reporting, the extent of CETV transfers will not be under-reported. CETVs are good news for the balance sheet; they represent liabilities leaving the scheme on a more favourable  basis than their book value. That does not mean the CETVs aren’t fair value, it just means that “book value” carries a degree of prudence in it that is not included in the transfer value calculation.

So the higher the aggregate CETV number, the better the news for the company’s balance sheet. There is a useful piece of work for any researcher out there and that is to identify the trend in CETV reporting within FRS102 pension reports of the large companies.

I suspect it will show the following

  1. That CETV activity is highest where the membership of a scheme is financially aware. Despite scammers praying on vulnerable unaware members, most money flows into sophisticated products such as SIPPs and as a result of paid-for advice.
  2. That CETV activity is highest where employers are financially strong and capable of locking down liabilities with gilt and corporate bond orientated investment strategies. These strategies give best-estimate CETVs using gilts + discount rates that make for very attractive valuations
  3. That CETV activity is particularly focussed in schemes sponsored by financial institutions (banks and insurance companies) where a combination of (1) and (2) are in play.

If , as my anecdotal evidence suggests, some of these schemes are transferring out money at a rate of £3bn a year each, then estimates of the total CETV run rate may well be considerably north of the £20-25bn pa that is currently knocking around.

If I am right, we will only really understand the nature of this exodus retrospectively. Worryingly, there is no means to reverse the trend, CETVs are a one way valve (unless we return to the restitution practices that followed the pension mis-selling crisis following the introduction of personal pensions.

Is there a problem?

In the short term, there is not a problem. Corporate balance sheets will benefit from CETV activity (see above), individuals will have unheralded liquidity and the economy should benefit from the spending of pension cash “liberated”.

The problem is not in the short-term. The problems is that the savings consumed today are not around to pay tomorrow’s bills. They cannot be used to pay for long-term healthcare and will mean that there is a greater dependency on social security and the NHS in years to come.

In terms of Big Government, an escalation of voluntary transfers out of DB schemes of the proportions I suspect we are currently seeing , is worrying. It would take the Institute of Fiscal Studies, the Pension Policy Institute (or similar) to confirm this hypothesis and I hope that someone, as I type is working on just such a project.

What happens to the money?

The utility of the money set aside to pay pensions is currently a matter for occupational pension trustees. If transferred the money will be invested at the discretion of individuals with the help of wealth managers, financial advisers and the asset managers they recommend.

Money invested, as opposed to that spent on lifestyle items, is likely to be spread more diversely than were it to have stayed in occupational schemes. It may be invested wisely or it may be squandered in stupid or even unscrupulous investments but it will not be money focussed on the purchase of pensions – as is the case with occupational schemes.

The money that has left occupational pensions is – if the CETV levels are as high as I suppose- likely to change the long-term investment strategies devised meticulously by investment consultants. The financial models that actuaries use to predict cash flows from pension schemes did not predict as much as 5% of liabilities of the scheme being called upon in a year to pay CETVs.

The immediate call for cash will mean a partial unravelling of the meticulously crafted LDI strategies most large schemes have in place and this will prove expensive. This cost will be born by the trustees and passed on to sponsors by way of demands for improved funding. Hopefully this will be forthcoming – the sponsors having benefited from the FRS102 improvement – however, accounting benefits are short-term and the legacy of CETVs is long-term. I worry that CETVs may weaken the financial position for those who stay and the patience of scheme sponsors who will benefit now and pay later.

Is this thought through?

I observe as an outsider and not as a scheme actuary or an investment adviser. I am not a pension trustee either.

In my view, there is a disconnect between what is happening at ground zero (by which I mean at the level of individual financial advisers who are being overwhelmed by demand to transfer); and what is happening at the top of the tower block (by which I mean the trustees, their advisers and those commentating on the situation). I would put on the very top of the tower the Government and its Regulators.

I suspect that there is an absence of strategic thinking about what the staggering outflows from occupational defined benefit pension schemes actually means.

When those at the top of the tower have caught up with those at ground zero, we may find that much of the damage to scheme infrastructure and indeed the long-term social security strategy of Government has been done.

Instead of pensions – we have pension freedoms – a massive reflationary exercise where long-term money is swapped for short-term consumption; where fund managers and advisers are handed a windfall of billions of pounds and where the consumer- the member or (in future) , the policyholder, is unaware of quite what’s happened.

This may be for the best – but I don’t think it’s thought through. We usually found that the unexpected consequences of badly thought-through pension policy, are not good.



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Is the mood music on DB transfers changing?

mood music.png

The irrational exuberance that characterised the FT’s pension transfer seminar in the spring may have marked a high-water mark in the rush to liberate. Martin Woolf and Merryn Somerset-Webb urged us to take our pension in our own hands (or swap it for a pile of cash). Clear hosted an event that included Ros Altmann recommending we negotiated with scheme actuaries to get ourselves a deal and some fund managers sponsoring proceedings suggested that 8% pa was an achievable return on a sustainable basis.

It is small wonder that money has haemorrhaged from some of our largest pension schemes, especially those in the bank and insurance sectors. I know of two schemes where exiting money exceeds £250m a month. These flows are materially effecting established investment strategies and are troubling trustees in more ways than one.

This morning I’m reading a more circumspect tone in FT publications. This may be because Jo Cumbo has reasserted her control of the pensions agenda (she was off for the spring extravaganza) or it may be because CETVs have come off their November 2016 highs (some prospect of an interest rate rise on the distant horizon). But the primary driver for sobriety has been the belated attention of the FCA in the risks attaching to taking £50bn out of gold-plated DB schemes and punting the proceeds on the red (well that may be a little unfair on the markets but..).

This morning’s article by Jo is indeed entitled “Rush to cash in pensions spurs FCA’s scrutiny” and is a run through the various events of the past few weeks that suggest that today is “after the goldrush”.

Some advisers have opted to slow down and some to close down. Organisations offering out-sourced transfer advisory services (where the outsourcer takes no responsibility for where the money goes) have been told to shut up shop- at least for the moment.

I’m quoted by Justin Cash in Money Marketing offering the rationale

“The critical thing people seem to be missing out on is the FCA is very keen to hold advisers to account for the outcomes of the advice that’s given. It is saying it’s not enough just to give the transfer value analysis calculation. You have got to be clear the recommendation leads to a positive outcome.

“The FCA knows there’s a crisis going on. But the danger is the market is already travelling at 80 miles an hour, and the regulator is seeing if it’s possible to pull on the handbrake.”

If only I could be that eloquent!

The Tide turns

Personally I look back to the Great British Transfer Debate as an inflection point. To have the best part of 300 interested parties assembled in an aircraft hanger out of Peterborough on a hot day in June was testament to an industry that knew. We knew that something big is going on and that there was far too little debate on what this £50bn dam-buster meant.

The meeting has seen conflicting positions find common ground (I have made my peace with Tideway Investments) and it’s seen a greater appreciation among advisers of actuaries and vice-versa. There is sufficient memory of the late 80s and early 90s mis-selling epidemic for all parties to be wary.

This month is scams awareness month. The scammers are hard at it – probably promoting scams awareness month to the people they are scamming. Angie Brooks and a few other souls are outing the networks of the villains , preventing fraud by promoting vigilance. But they acknowledge they are lone voices , (we could not even ban cold-calling with the legislation awaiting the button to be pressed).

We need to be aware not just of scams but of the risks inherent in swapping the protections of collective pensions for the uncertain rewards of pension freedom. The FCA’s recent paper on the subject questions a market which has seen little innovation since the freedoms (unfortunately reminding us that the attempts to create innovation in Steve Webb’s “garden of many flowers” suffered a savage dose of DDT from his successor.

Risk-sharing is the obvious way to construct a default and this does not necessarily mean sharing risk with Government or employer. Risk-pooling in this country has a long and noble tradition in our acceptance of mutuality, social insurance and wider risk pooling. It is quite possible that the new mutual – NEST, Peoples, NOW and their many smaller counterparts , can find ways to allow us to share risk between ourselves. This is the origin of all insurance.

Why the mood music is changing

For the mood music to properly change we need more than the prohibition that is the outward sign of the FCA’s current concern. We need recognition that for a very large number of us, the concept of the self-managed pension is simply too ambitious. The reason that we leave pensions to experts is that they are complex things which require a skill-set beyond most of us.

mood music 2

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Austerity keeps life “nasty, brutish and short”.



leviathan 2


An actuary friend of mine writes to me

If we adjust the State Pension Age ahead of time, then it depends on assumptions for future improvement – (as adjustments follow a formula).

And right now as you know and I assume your actuaries discuss, future improvements are very debatable.

My suspicion is that the growing number of older people (which will happen for sure whatever happens with future mortality) will inevitably lead to a reduction is average resources devoted to the elderly.

As we pay lower pensions, we will find future longevity less than currently produced by the models and prudent modellers.

Perhaps people who model are reluctant to change rather than prudent


This argument can be simplified. What my friend is saying that the less money is put aside to pay for the lifestyle and health needs of those growing old tomorrow, the shorter “our tomorrows” will be.

This position is pretty radical. But we are seeing radical things happening elsewhere. Paul Johnson and the IFS are showing that for the first time, there are generations of us coming through who will have saved less and accumulated less wealth on their own account than the generation that preceded them.

The link between financial security and the capacity to go on living is proven. It is fundamental to actuarial longevity assumptions and is to some extent the reason that DB schemes are a victim of their own success.

If you are in receipt of a pension, you are financially motivated to live longer, if you are spending out of capital, it’s CARPE DIEM. Pension Freedoms not only bring up front tax-revenues, they curb the capacity of people to fund late age – they are a killing mechanism.

Austerity up – longevity down.

What my friend is hinting at, is that it is in the interests of those who are running this country’s finances, to impose austerity on us in retirement, to keep longevity down. His final point is that this is not actuarial prudence at work, but a deliberate exploitation of actuarial conservatism to beat the actuaries at their own game.

John Cridland based his recommendations on data published by the Office of National Statistics in 2015. The data will have been collected well before 2015.

Latest actuarial projections use more recent data and suggest that there has been a noticeable reduction in the speed at which longevity is increasing. Commentators are now directly linking this slow-down to the austerity measures in place to combat the economic problems created by the financial crash (now nearly 10 years ago).

The Labour party response to the decision to increase SPA for 6m of us is to call it “an unwelcome extension of austerity”. No doubt Philip Hammond could counter this by pointing to Greece where no curbs were placed on state pension promises leading to the disasters that have occurred to current living standards.

The only alternative I can see to the impact of austerity on old age is a sea-change in pension policy and an end to the current system of reverse redistribution.

At the moment the vast majority of pension wealth is held by a small proportion of pensioners and those saving for retirement. This has a lot to do with the distribution of incomes but the inequality is enhanced by an unfair regressive taxation system that distributes the vast majority of tax relief on pension saving to those who have most to save (and most saved).

I am not in favour of tinkering with pension taxes (as might happen with further changes to the lifetime and annual allowance. Figures in the FT show that for all the noise the Lifetime Allowance is yielding negligible revenues.

lta tax

The cost of pension contribution tax relief is measured in billions – not millions.

What the Government appears to be doing, which appears to me unfair, is to subsidise the retirement of the wealthy, through a free tax-ride on pension saving; at the same time they are imposing ever greater restrictions on the payment of the state pension (as witnessed by the implementation of John Cridland’s recommendations this week.

My friend is pointing out that by ignoring signs that austerity is already reducing life expectancy and using actuarial modelling from another time, the Government is recklessly taking away a year of retirement from those 6m people who are already facing a substantial drop in retirement income (relative to current pensioners).

Nasty, brutish and short

The Cridland report talk of “longevity” and “healthy longevity” independently. The truth is that we are heading for greater inequality in retirement living standards between the haves and the “have-nots”. The haves have healthy longevity and the have-nots don’t.

This Government,  by refusing to reform private pension tax relief is forced to reduce state pensions. This is grossly unfair to those on low incomes and ensures that a high proportion of them will be consigned to what we could call “unhealthy longevity”. The non-actuarial term is a life “nasty, brutish and short”.

That phrase has been knocking around a couple of centuries. When it was coined life expectancy in some parts of this country was under 30 years so its application today is relative. Government intervention has ensured that none of us in Britain live life in the state of nature,

However, in intent, the continued policy of “pension austerity” pursued by this Government can be seen as part of an inglorious tradition in this country of ensuring that the poor remain living shorter lives than the rich.

That is not something as a nation which we should be proud of – or should tolerate.

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How do you annoy a wealth manager?

Question; how do you annoy a wealth manager?

Answer; ask him about his fund supermarket.

fund supermarket


It may offend your local wealth manager (aka IFA) but that’s what Reuters call these funds platforms the FCA are investigating and if you believe Platforum, most customers (oops clients) asked what a platform was for, replied to get access to funds at knock down prices- avoiding the IFA in the process.

FCA platform model 2

“Paying less in fees than using a professional adviser”

People seem to see Fund Supermarkets as being on their side in getting a good deal on funds.


AJ Bell are campaigning to offer advisers the right to rebates of fund management fees rather than receive lower prices for funds as platform managers. This surprised me as I assumed that the economics of aggregation were dependent on economies of scale. Platforms with billions under management should be best plnaced to drive down price but (according to Hugo T and Stanley Kirk- this is not the case)

Independent platforms (not vertically integrated or ‘closet integrated’) can’t get a better deal for the end client if they have no influence over the funds flow…..The number of advisers or DFMs who choose that fund is independent of the platform so why would a fund manager allow access to a lower shareclass however large the funds on the platform? That’s what the FCA are going to find out after their studies

This sounds like a classic case of divide and rule; fund managers don’t like giving blanket discounts and were platform managers absolved of responsibility to negotiate price then advisers would have a fat wedge of cash to rebate against upfront fees. We would only be an inch from commission again with fund managers able to jack up fees and  offer massive cash discounts so that the adviser can advise for free.

If the FCA are serious about helping the consumer to win, we have to curb the  power of the advisers to manipulate rebates in their favour. We all now how food supermarkets have been required to make pricing clearer, perhaps the real reason wealth managers hate the term “fund supermarket” is that it reminds customers (oops Clients) about the importance of price.

fund supermarket 2



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Who wins from platforms?



I enjoyed reading the FCA’s Terms of Reference for its Platform Market Study, it posed many questions and I’m looking forward to the answers. Few investors properly understand what platforms are , what they do and  how much they cost. The aim of the study according to the FCA’s Christopher Woolard is tied up in this statement.

Platforms have the potential to generate significant benefits for consumers and we want to ensure consumers are receiving these benefits in practice.


The “significant benefits of platforms to consumers”

As far as consumers are concerned, the benefits of platforms are various and there is little consensus on what they’re really bringing to the party.

FCA platform model 2

Platforum Consumer Insights, Figure 42 (January 2017)


I would read into these findings that when pressed, more people would point to “security” than “feeling in control” but that the general sense of having investments organised is what makes the packaging of funds on a platform – so attractive.

I don’t see this as a financial benefit, it’s the benefit of empowerment. Platforms empower consumers to “pay less in fees than using a professional adviser and to manage investments independently of an adviser”. These are the financial benefits deriving from platforms.

The least valuable aspects of platforms are the tools and information they offer. These are still valued but they are the means to an end – the end is first of all control and security and secondly money saving. The capacity to be a funds expert , to move money and to have online valuations is only contributory to the main event.

Why and how people buy platforms.

From the evidence selected by the FCA, we can see those investing in platforms as predominately middle aged or in early retirement.

FCA platform 4

age bands of platform users (platforum)


They are income rich

FCA platform 7

household income of platform users (platforum)


And wealthy

FCA platform 8

Net disposable capital of platform users (platforum)


This is precisely the demographic that made the Equitable Life and were so let down by the Equitable. This market study is exploring precisely the issues that the FSA should have been looking at in the 1990s.

If you were to ask the Equitable policyholders before its crash why they invested with that Society, I would be surprised if the answers were much different to those given for choosing platforms (online services excepted)

FCA platform model 3

why people chose platforms (platforum)


And indeed, Hargreaves Lansdowne has the same trust from platform users as the Equitable had in the day.

FCA platform 9

non advised assets on platforms (£bn)

As in the 1990s, one non-advised provider dominates the sector that challenges conventional advised propositions.

FCA platform 10

Advised assets on platforms (£bn)


I am not saying that Hargreaves Lansdown has any of the structural flaws of the Equitable, but I would guess that the comparison between the two has been noted by the FCA.

Who wins from platforms?

Platforms are a profitable business (look at Hargreaves Lansdown’s share price). They are the means that fund managers get their products to the wealthy and they are the way that technology providers have skin in the assets game.

There is a cost to all this and the security and control that platforms offer, comes at a price. The FCA survey mentions the word “value” 49 times. Christopher Woollard must be wondering just how to measure the value that all this money spent on platforms brings.

We can safely assume that the financial services industry is doing very nicely out of platforms.

But at a time when Vanguard are under-cutting the non-advised price of Hargreaves Lansdown by more than half, can Woollard be sure that platforms are really “passing on the benefits to the consumer in practice”?

I suspect that it will be a lot harder to intervene in this market than we might think. The demographic that platforms serve is the Equitable demographic, now the Hargreaves Lansdown customer base. These people do not want Government protection until the balloon bursts, then they form Action Groups and lobby for their money back. It is a particularly insidious form of Moral Hazard.

But precisely for this reason, I would urge Woollard and his team to press on and really test whether these platforms are providing value, or whether they have become the means of ensuring wealth is redistributed from the mass affluent to the financial services industry.

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Postmen want to strike – is it any wonder?

postman sad

Maybe it’s because they’ve been reading the FCA’s report on Retirement Outcomes. Maybe the FCA have been talking with them. Either way, the 140,000 postal workers in the Royal Mail scheme don’t want a pension when they pack up their postbags, they want a pension.

Or as they eloquently put it, they want a “retirement wage”.

Yesterday I asked the Pension Regulator’s panel if they really stood for pensions or whether they championed retirement saving or financial wellness in later life or just “pension freedom”. I got a robust and very feisty answer from Nicola Parish. She was old school, she stood up for pensions.

In which case, I rather hope that she will be rooting for the CWU and their members in their conversation with Royal Mail and get behind its proposals, handily laid out here by my colleague, Hilary Salt of  First Actuarial.

Is it so unreasonable that the postal workers should want to receive more pension for each year they work with the Post Office.  That was and is the deal they sign up to. There is nothing in postmen’s contracts about “drawing down investments”, “buying annuities” or “cashing out”. The promise is for a wage in retirement commensurate with the time worked and the amount earned.

Are you watching FCA?

In case you hadn’t noticed, the FCA have been digging at the pensions industry for not coming up with innovative solutions. They may feel miffed that the CWU solution does not involve robots, dashboards or digital tools. They may feel sorry that the CWU is reinvigorating an old idea, using pension language to explain matters and adopting an investment strategy which is very simple.

This innovative approach is as close as a defined benefit scheme can get to being a defined contribution. It could only get closer if it was a CDC scheme, which it would have been had the Government not abandoned the secondary legislation for such arrangements a few months after enacting the primary rules.

The only reason that this proposal is not more innovative is because the Government has slammed the door in the face of the innovation that would have allayed the fears of  Royal Mail and their uber-cautious actuarial advisers.

But it is quite innovative enough. The proposal has been stress-tested and it survived the punishment it was put through. The assets are designed to meet the liabilities and not the other way round. The liabilities can be flexed so that the contribution rate remains steady (in line with the current funding rate from the Royal Mail).

FCA, you should read, understand and wonder that such innovation can exist in such parched a landscape. You could help – so could the DWP and tPR and the accounting standards board. We should not be valuing the liabilities of such a proposal against a corporate bond discount rate (for FRS102 purposes). We should not be requiring the pension to be guaranteed. We should allow members to have property rights even when the pension is in payment.

These are the very things that would have been allowed had we had CDC rules in place, instead of them gathering dust in a DWP filing cabinet.

Postmen are fed up – we all are

The FT is fed up, we are fed up, the FCA is fed up  , the CWU is fed up and the postmen are fed up.

Digital tools are not enough – dashboards are not enough, we do not need robots to tell us how to manage our investment drawdown and we don’t need a big pile of cash on deposit

The 140,000 postal workers in the Royal Mail scheme don’t want a saving scheme that just provides a lump sum when they pack up their postbags, they want a pension.


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Innovative pensions for the mass of us!

In its Retirement Outcome Review (interim report), the FCA were clear on  evidence of a problem


The blame lies not with thick consumers but with lack of competition

If competition is not working effectively and consumers make uninformed retirement income decisions this could lead to different types of harm, such as:

  1. paying more in charges and/or tax
  2. choosing unsuitable investment strategies
  3. missing out on valuable benefits (eg employer pension contributions) or investment growth
  4. running out of pensions savings sooner than expected

We will carry out further work to assess the harm these emerging issues may cause.

In the full report, the FCA point out that

Stakeholders identified several barriers to innovation, including the pace of political change, lack of demand from consumers for new innovative products, overall consumer inertia and lack of engagement and small pot sizes of the current cohort of retirees

The FCA issue a threat to the private market

If the market fails to deliver innovative products for mass market consumers, there may be scope for NEST to fill an important gap.

NEST have published their own blue print, which while limited in scope, offers the mass market who cannot afford advisory fees to drawdown or the limitations of a guaranteed annuity – an alternative. You can read the details in section 14 (NEST blueprint)

The relevance of collective solutions

Until recently, a collective occupational pension was accessible only to employers. However, recent legislation (PO/08) has meant that individuals can choose to invest in master-trusts (if the master trust allows), independently of their employer.

What the FCA and NEST have in mind, is for individuals who have built up a retirement pot (rather than a “DB” right to a pension) to transfer that money into NEST for NEST to pay what amounts to a scheme pension to that person.

Personally I find NEST’s blue-print a little unambitious, it does not employ the kind of collective pooling which it could, but it does embrace many of the principles of Collective Defined Contribution Schemes (CDC) , that could counter the market problems outlined by the FCA.

NEST is structurally no different from any other master-trust, if NEST can take such money, so can the 70 odd master trusts currently being used for DC purposes in the UK.

Is the NEST Blue-Print fit for purpose?

The difference between what NEST is offering in its Blue-print, and what defined benefits offer seems small but is massively important. A defined benefit scheme is managed to provide a pension ( a regular series of payments) till the death of the pensioner (or sometimes a surviving spouse/partner).

Occupational schemes can offer to pay till death because they pool the risks so that people who die sooner subsidise those who die later. This is life insurance in reverse.

NEST cannot currently offer its own pooling and therefore proposes to rely on the annuity market to offer individual annuity products to those getting to advanced years. This creates a cliff-edge which is likely to be seen as a bad thing by ordinary people used to being looked after by seamless products like the state pension and occupational DB schemes.

Even if NEST was to implement its Blue-Print, I don’t think the proposals to annuitize at a set age (say 75) would meet with popular approval.

Why doesn’t NEST just offer scheme pensions like DB schemes?

The DB occupational pension scheme offers certain guarantees, most importantly the guaranteed that there will always be enough money in the great big pot , to pay all the pensions. Traditionally, occupational schemes have had to have a sponsor willing to top up that pot in the case of it not being big-enough to meet the guarantees.

But recently, a new type of collective pension has emerged that aims to be self-sufficient of future funding. Such a pension relies either on an initial injection of cash (BHS2, British Steel Pension Scheme 2) or income from a business it takes over (Kodak) or from pre-funding by the rest of occupational schemes (PPF). Another model is being put forward by the CWU to the Royal Mail which scales down the guarantees of a DB scheme till the sponsor can almost see it like a DC scheme.

All of these models will provide people with scheme pensions (the kind of pensions that last as long as you do but are paid from the central pot rather than by an insurance company as an annuity.

What’s stopping NEST from joining in?

Here is the problem NEST and other occupational DC plans currently have in providing the kind of scheme pension that people want (a pension for life).

As soon as a DC pension promises to pay a pension for life, it becomes a DB pension. NEST cannot be a DB pension nor can NOW or Peoples Pension or Blue Sky or any of the others.

The only way they can take on this kind of obligation is by dropping the guarantees and by moving to a “best endeavours” approach. This would be possible if legislation ,enacted in the Pensions Act 2015, was completed in its detail.

But in 2015, this detailed drafting work was stopped because the Government did not see the need for a new kind of third-way pension scheme. DB might be dead, but employers would not commit to a non-guaranteed version – for fear that at a later date, they became on the hook for promises made on a best-endeavours basis.

This line of reasoning was flawed. It was not employers that the DWP should have been talking to, it was employees and even the self-employed. Infact all the people who are struggling now to know what to do with their pension pots.

These people would benefit from NEST or any of its rivals paying scheme pensions without guarantees. It is precisely the system under which defined benefit pensions were established in the fifties to the late 1980s.  People paid into pensions with the hope of getting their pension paid in full but without the guarantees that were introduced from 1987 onwards.

Can people stand any degree of uncertainty?

We have yet to test the market on this question. Currently people are given a binary choice between certainty (annuity) and uncertainty (drawdown of various kinds).

The non-guaranteed scheme pension provides a higher level of certainty than drawdown but a lower level than annuity. It depends on mortality pooling (the principle that those who die sooner subsidise those who die later), it depends on actuarial prudence and it depends on increased efficiency from pooled investments and pooled administration.

It should not be dependent on capital markets (hedge funds, derivatives and other exotics), scheme pensions should be payable through a clear mechanism which has transparency throughout. Money invested should be transparently invested, the funding position of the great big pot should be totally clear and there should be clear rules about exiting the arrangement so that people who wanted to transfer away, knew in advance how they would be treated.

This kind of scheme can be arranged quite easily on paper, but it cannot currently be put into place, because the secondary regulations, which began to be drafted in 2015, have yet to be completed. I’ve spoken to the people who started the job and they reckon there is two to three years of work left to be done.

Next steps

I nearly typed “NEST steps”,

The FCA are worried there is no innovation, there is no real innovation in the mass market because there is no regulatory space in which to innovate.

In the short-term, master trusts  like BlueSky and Salvus are already offering the NEST Blue-Print through Alliance Bernstein’s Retirement Bridge product. The FCA could see innovation at work. But these products  are still  not offering what people really need which is a scheme pension payable for life (without guarantees on how much).

The FCA need to test whether people will accept more pension ( than an annuity will give) for less certainty. They need to do their market research not on companies but on people.

If they find that people are prepared to give up some certainty (particularly about guaranteed pension increases but also about the fundamental floor of income from the scheme pension), then they should allow products to be built to meet this demand.

This will mean allowing the products to be developed in lock-step with the regulation, so we have a reasonable chance of delivering scheme pensions to the mass market in the early part of the next decade.

If we do not do this work now, then we will continue to come up with partial unsatisfactory solutions which don’t provide people with a real alternative to drawdown or annuities (being a combination of both).

I urge Big Government – as the Pensions Regulator, the FCA, the DWP and the Treasury to take these next steps , resume work on the Defined Ambition regulations, consult with the occupational master trusts and most importantly , start the work of managing expectations of what people can expect in the complicated risk/reward trade offs explored in this blog.

Posted in advice gap, auto-enrolment, DWP, pensions | Tagged , , , , , , , | 3 Comments

This market failure’s not about advice but product.

target pensions

Target Pensions – we need them now


The FCA paper on structural problems with the pension freedoms that I wrote about yesterday, is the first evidence of Government admitting all in this garden is not rosy.

What has happened since 2015 is an increase in people hammering poor pots for cash usually unadvisedly and sometimes foolishly. This is not where there’s a market failure. Most small pots can be drawn down in a few stages to give the over 55s a well earned bonus as they come to the end of their working lives. This may not be prudent, but nobody says you have to be prudent. It may not be sensible to take your money from a tax-free investment account and put it in a (potentially) taxed deposit account, but nor is that disastrous. What happens to the victims of pension scams – that’s disastrous.

If all that had happened since 2015 was the reallocation of  minor savings from pensions into bank accounts then I could be as sanguine as Steve Webb – on this morning’s Wake Up to Money.

What about the £50bn flow from DB Schemes?

The vast majority of the £50bn Mercer estimated has been unlocked from “frozen” DB plans has come as CETVs well in excess of £30,000 and has been advised upon.

This is not money that individuals have saved, it is money that has been accrued by trustees and appears as a windfall to most ordinary people. The cost of unlocking this money is typically the cost of advice. Advisers have found ways of mitigating the cost by deferring the bill so that it can be paid out of the proceeds of the transfer. This is known as conditional charging and has three advantages.

  1. It takes away the need to charge VAT (@20%)
  2. It bundles the cost into an annual management charge rendering it painless
  3. It ensures that the proceeds of the transfer provide annuity income to the adviser

Unsurprisingly, conditional pricing is hugely popular with advisers and clients. It has fuelled the transfer boom. Advice- for those with the money in their pension pots, need not be an obstacle and can be a great help in future planning.

But here’s the problem

Those who have built up these huge DB CETVs have seldom read the scheme accounts. If they had they would see that the costs of investment management , actuarial ,investment and legal advice, custodianship and administration are met by the scheme.

When you take your CETV, these costs do not go away, they are transferred to you. What is more, where the scheme can get economies of scale by pooling these costs – you can’t. You have to pay the majority of these fees as an individual.

This shift of management costs from group to individual is part of the price of freedom. If you are paying 1% pa of your CETV of £1m to an advisor, you are paying £10,000 pa. If you pay a platform fee of 0.6% for fund administration, you are paying another £6,000pa. If you are paying 1% in annual management charges for the investment of your money, that’s another £10,000pa. If you are paying another 1% in transaction costs within the fund(s) in which you are invested, that’s another £10,000pa.

It is not unusual for the total cost of ownership of an advised Discretionary Fund Management contract to exceed 3%pa of funds under management. On a £1m transfer, that’s £30,000 + that you are paying in fees. You can scale up or down depending on the size of your transfer, my point is that these are fees that you would not have paid if you had stayed put in your DB plan and these fees, whether directly charged or wrapped up in the product, eat into the value of your plan.

This is what the FCA are most worried about. They are most worried that in a low-growth investment environment, a 3%pa cost of ownership could reduce a gross return on investment by as much as 50%, that’s either an immediate pension income cut or it’s storing up problems for future years.

The problem that the FCA are most worried about is that much of the £50bn that’s come out of DB plans since the granting of the freedoms, is under management that is so expensive it is almost bound to cause problems in five, ten or fifteen years time.

Should advisers be accountable for the outcomes of their advice?

The simplest answer to the question “should I transfer” is “no”, not unless you have confidence that you can invest the money to provide a better income than that promised by your pension scheme.

But it’s no longer as simple as that. Firstly, the inflated transfer values caused by low interest rates and by schemes de-risking into bond-based strategies, makes it a “no-brainer” for most people to say

“yes we can do better than the critical yield you are showing me”.

But can they do better than the critical yield + 3% ?

Do they have, what pension schemes have, which is a way of pooling risks so they can manage payments without disinvestment – when times are tough?

Can individuals pool mortality risk to protect themselves against out-living their and their adviser’s cash flow projections?

These and many other similar questions are what any adviser should be worrying about. Because the FCA are becoming increasingly explicit that unless advisers are taking into account these risks in their recommendations – and unless it can be made clear that those taking CETVs are aware of and comfortable with these risks, then there is residual risk on the adviser if things don’t work out.

Advisers are increasingly accountable for the decision people take, which is why so many outsourced agencies that provide the basis for that advice are being asked to cease trading.

The problem is not with the advice but with the product

There is of course an element of scale in the transfer itself. The £1m CETV may merit a discount on some fees bringing that 3% down to 2% or less. I can see a point where an advised DFM approach makes a lot of sense.

But like the FCA, I worry that these expensive drawdown solutions are being marketed to people who do not fully understand the cost, nor are willing to pay it – over time.

I mean those people who have £50,000 + in their pension pots – either through saving or through CETV .

These people do not have the means to be considered wealthy, but they are being sold wealth management.

The use of wealth management is as inappropriate as the use of an annuity. Most people unlocking money from DB schemes or investing their lifetime pension savings need something different.

They need something like the DB scheme they left, but with property rights (the right to take money out in emergency), they need higher income than offered by an annuity and they need to take some risk to get all this.

We are failing to provide people with this product.

Ironically, the only financial product on the market which comes close to doing what the ordinary person wants it to do , is the Prudential with-profits fund. This is fast becoming the stand-out option for advisers keen to offload the risks associated with wealth management gone wrong.

The Prudential With Profits fund is not the ideal product but it is closer to the ideal product than much else.

Infact it is a kind of proto-type for a product that should have been rolled out later this year, had the DWP’s then minister not canned the Defined Ambition project initiated by her predecessor.

The FCA lament the failure of the financial services industry to develop an affordable drawdown solution for the mass market, but how could it?

I drew the attention of anyone who’d listen to the folly of canning DA and in particular the rules that would have allowed us to provide the equivalent of scheme pensions from collective drawdown schemes (CDC).

Now, exactly as predicted, we have the need for mass market drawdown arrangements which do as CDC schemes do, providing certain income streams, mortality protection at a low-low cost. But we do not have the product.

Those of us who continue to campaign for the revival of the DC legislation being drafted till the summer of 2015 by the DWP, need to shout again for that project to be restarted.

We cannot wait till the current problem becomes a crisis. We have to have a mass market answer that recognises that CETVs will continue to be taken, that DC savings will be much greater and that neither wealth management or annuitisation properly takes the strain. We need a third way product that builds on with-profits but betters it.

There is no time to waste, we need new and better product now!

target pensions

We need a better pension product now

Posted in advice gap, CDC, pensions | Tagged , , , , , , , | 5 Comments

Freedoms;- the Treasury got us into this mess, can the FCA get us out?


It is good that the FCA are looking at the introduction of Pension Freedoms through experience. Here’s what they’re finding.

  • Over half – 52 per cent – of fully withdrawn pots were not spent but were moved into other savings or investments. Some of this is due to a lack of public trust in pensions. This can result in consumers paying too much tax, missing out on investment growth or losing out on other benefitsbriefcase2

Where does this distrust in pensions come from?

  • Consumers who access their pots early without taking advice typically follow the ‘path of least resistance’, accepting drawdown from their current pension provider without shopping around.briefcase2

The line of least resistance?


  • Consumers are increasingly accessing drawdown without taking advice. Before the freedoms, 5 per cent of drawdown was bought without advice compared to 30 per cent now. Drawdown is complex and these consumers may need more support and protection.briefcase2

Free money?


  • Providers are continuing to withdraw from the open annuity market which could bring a risk of weakened competition over time.briefcase2

Is anyone surprised that the open annuity market is screwed?


  • Product innovation has been limited to date, particularly for the mass market.briefcase2


The quotes are taken from FCA research. What people say is that they are prepared to take huge decisions with the money they could be relying on for the rest of their lives typically on a whim.

Of course there are many more who are silent (the silent majority) and most people I know are sitting doing nothing, saying nothing and waiting for something obvious to do.

Ros Altmann is keen to criticise the pension industry for not innovating. She doesn’t like the phrase “default option”, so I’ll stick with “something obvious to do”. The obvious thing for me to do is to remind Ros that it was her who froze the Defined Ambition regulations as they were being drafted, only months after primary legislation had been enacted.

The organisations – including those working as Friends of CDC – who had invested heavily to bring innovation to the market, are right to feel frustrated. If the original legislative timescale had been followed, we could have expected to see the finalised secondary legislation around the end of this year.

Instead, even if the Government gave the green light to those in the DWP who were working on this , it is unlikely to be till 2021 that we have the opportunity to bring new products to the market.

The FCA are stating the blindingly obvious.

Much of the loss of trust in pensions is down to Government, the FCA is a Government agency; it must recognise that regulation is part of the problem.

People do not shop around for drawdown products because it is impossible to do so. Show me one comparison site that is brave enough to rate one drawdown product over another! No-one would insure that site even if anyone could figure out a way to offer it without being held responsible for outcomes.

Drawdown is , as the FCA says,  “complex”. I spoke this morning to one of the big-hitters in the bulk buy-out market, he’d taken his CETV last year and told me he was troubled by the amount of time (his) and money (his) he was spending managing his pot and with his financial advisers. He didn’t criticise his advisers but pointed out that only a handful of people he knew would be prepared to pay the advisory fees he did. The problem is in a system that is complex to the point that there is no obvious thing to do.

Annuity providers are indeed withdrawing from the market. Why insure risk when you can make risk-free money out of drawdown? Our great insurers like Standard Life not only want out of annuities, they want out of insurance. The Pension Freedoms have killed collective insurance, liability pooling and risk sharing.

Nothing that the FCA says can be disagreed with, but the implication that the problem is with the pensions industry is disingenuous, the problems identified were created by Government and intensified by Government. This is a Government problem.

The FCA should seriously consider coming to our next Friends of CDC meeting to get some answers to their problems!


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What passing bells for those who work as cattle?


The Carousel

Weep for the deprived gig-journalist!

Unlike the formal press , I have not had an opportunity to leak the Taylor report.  I am like the workers that Matthew Taylor has been investigating, I have the freedom to do what I like but do not the tools to work with (unlike it seems those who have an embargoed copy of his Report).

Flexibility or choice?

Critics of the gig-economy argue that it gives employers flexibility, but workers no real choice.

The “flexibility” that the gig economy provides workers is illusory, since most workers have little choice but to comply to the conditions of the firm they contract to.

However, most people can choose to work in the gig economy or in more formal work structures.

For the most part, the gig economy is not abusing casual labour but organising it.

Around central London, you cannot cross the road without considering a fast-moving delivery person. The ones I meet are a happy bunch taking advantage of their youth and health to their and my delight. London is a better place for the gig economy in many ways.

What worries the TUC and GMB in particular, is when casual labour hardens into permanent work. Here people may get trapped in casual labour and find no way out.

I don’t know to what extent this is happening, I want to find out more, as this is the point where I start thinking about the link between work and pensions.

My own experience suggests that there are ways out of self-employment into what my parents called “a proper job”. My first 10 years of work were as a self-employed gig-worker, my last 22 in full employment

All aboard the carousel?

I volunteered,  being a member of the RSA, to help Matthew Taylor. I suspect that Matthew took one look at me and smelt “self-employed insurance salesman on the make”! 25 years ago, he’d have been right! I could have told him that not much has changed in a quarter of a century!

I worked in the gig economy of Oxford Street spivs (Liberty/Porchester/Kabel-Halsey/General Portfolio etc.) back in the eighties. We had no rights, were abused by our so-called  employers and most of us left with a profound contempt for financial services.

I didn’t leave.   But I retain a concern for young vulnerable people who can find themselves getting dragged into the wrong kind of work – on the promise of pseudo-freedom.

I ended up with a large tax bill and a larger overdraft with little to show for my endeavours. Giving up self-employment (cessation) was tough – like giving up cigarettes. But I had the choice- just.

The flexibility is always with the employer

For many insurers including Merchant Investors, Lloyds Life, Irish Life, General Porfolio, Target Life and to a lesser degree Abbey and Allied Dunbar, the gig-economy was the source of almost all new business

The insurance industry turned a blind eye to the quality of its new business and the labour practices of the brokers who organised it.  Many people like me were forced to miss-sell shamelessly.  It took the Financial Services Act (1987) to create some semblance of order. The insurance companies  paid a  price through restitution , but it took a couple of decades before that price was paid.

Now the insurance companies see the 6m or so self-employed – served in the past by insurance agents like me, as new business again.

Last week, Aviva and Royal London published a joint report suggesting that the self-employed could have the right to have 4% of their wages docked into a workplace pension.

As there is no gig-economy of insurance salesmen able to sign up the rabble, the insurers have suggested a Carousel be built, which will fit them up with an approved pension depending on where they are standing in the queue.

What passing bells for those who work as cattle?

This ludicrous suggestion reminds me that those who sit at the top of insurance companies have never sold insurance one on one. I know the guys (and they are mostly guys) at the top of Aviva and Royal London. They never worked in the gig-economy and they certainly don’t know the potential customers they’re trying to fit-up via this Carousel.

If we really did think that all workplace pensions were the same then we could fit all the self-employed up with NEST and be done with it. Or we could get the insurers and private master-trusts  to bid against NEST for exclusivity.

But we don’t do things like that in the UK. We set up workplace pensions so that employers had not just the right but the obligation to choose the workplace pension offered to staff.

I am in the trade press this week saying just this.  Insurance companies can waffle on (listen to John Lawson for proof), but the Taylor Report is not about bolstering their new business figures.

The Carousel shows just how little credence insurers give to the individual’s capacity to make informed decisions. If they had half a mind, they could adapt technology such as that we use at to allow the self-employed a free comparison of their options.

Ironically, the insurers who abused the gig-economy back in the eighties to build their unit-linked businesses are now back at the same trough, this time using the nudge technologies to distribute to the types of people who used to sell their wares!

If I had worked on the Taylor enquiry, I would have told Matthew to stay well clear of financial services companies. The Taylor report should not be used as a door-opener for bulk sales of insurance policies.

The positives of the report

Having listened to Matthew Taylor, I would be surprised if the report went so far as to make specific recommendations on pension inclusion.

The DWP have set up an expert advisory committee (which includes Standard Life’s Jamie Jenkins) looking at this issue as part of the auto-enrolment review. No doubt they will be reading the report and adding it to their general understanding of the self-employed.

Jamie was commenting on twitter yesterday about those contributing to the debate (I assume neither he nor Andy Michael knew of my work history)


If that committee wants to know what it is like to be working as a self-employed person in their twenties and thirties, they can speak to me – I remember selling Standard Life endowments for you Jamie!

I remember having to lapse my own savings  policy to pay for three parking tickets and the rent! Those who argue for compulsory savings for the self-employed should try fending off the bailiffs – it’s not much fun!

The Taylor report needs to speak to and for the millions of people marginalised by poor work. We need to make poor work- better work. That cannot be done just by taxing the pay-packet with compulsory pensions and there is certainly no dignity in this Carousel.

The virtue of the Taylor Report is in its reading. Hopefully that is what I’ll be able to do, later this morning.

carousel 2

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The Care-taker

care taker

The Caretaker or janitor was a familiar figure in apartment blocks until recently. Their demise has coincided with the advent of outsourced facilities management. Listening to the National Association of Fire Door manufacturers calling this morning for a single accountable person for the fire safety of apartment blocks got me thinking of what we’ve lost.

A care taker is someone who takes care of an asset when the owner is not there.

Strangely, from Pinter to Matt Groenig, portrayals of the Caretaker have been unsympathetic. A search through google images shows we associate care-taking with mismanagement at best – naked horror at worst.

Care-taking needs a brand make-over. Perhaps now is the time to think of care-takers in a kinder light. We need to bring care taking  back in-house!

“Taking care” begins at home.

The concept of risk management should have “taking care” as its motto. Instead it has “outsource” written under its theoretical coat of arms. Whether it be a residential tower block or a hedge fund, controls that mitigate risk are now part of a complex management structure with no immediate point of contact/concern/complaint for the customer.

Outsourcing is theoretically advantageous; facility managers like fiduciary managers can be professionals whose processes are repeatable and effective. But they don’t live on the premises, they are disassociated with the day-to-day management and are too remote for ordinary people to talk to.

If it takes a tragedy to improve things…

I am nervous about using the misery of others to make my point, but the visceral reality of Grenfell brings home the importance of taking care – of governance.

The FCA set up Independent Governance Committees to ensure that those in contract based workplace pensions got the standards of care expected by those in trust based occupational schemes (including master trusts). The Asset Management Market Study is now recommending something that looks pretty close to an on the site “care-taking” role for each fund.

It is difficult to get your head round fund governance using the language of the Asset Management Market Study as the sections on fund governance are written for fund managers by lawyers. Ordinary people need a comparator. “Care-taking” is a good comparator.

A proper fund care-taker is accessible to those who have handed over the responsibility of managing money to others. He is there to answer questions as well as to ensure that the funds are properly managed. He (and I mean she as well) is there to issue instructions in emergencies and general reports most of the time.

I always remember care-takers and janitors as people who had absolute authority. Those who have been on Lady Lucy this summer will recognise the importance of lock-keepers in providing orderly management of boats through locks – they too are care-takers – the best of them unquestionable in their authority.

The buck stops with the care-taker.

This last point about authority seems critical. If we do not give our care-takers the right to be right, we consign them to cleaning duties. The best care-takers take on care for which  extends beyond the mundane tasks so that they become our champions.

The problems with tower blocks clad with flammable material is that no-one is considering what it is like for those within the blocks, there is no-one on site to whom concerns can be made.

The lessons that are being learned is that the remoter you make your caretaker, the harder it is for concerns to be heard. This is precisely why we need to champion our IGCs and the new independent fund governors and why they cannot be allowed to dissolve into the amorphous management structures of the fund management executives.

The care-takers stood out as being distinct from the commercial management  but integral to the care of the customers. We need to get some respect back for caretakers, re-introduce them onto estates (and to some locks on the Thames!). We need to pay them properly and treat them with respect. They are the people who we will rely on not just to stave off disaster, but to ensure our buildings, boats and funds run properly day-to-day.

My three thoughts on a Monday morning in July!

  1. We need more care, we need independent care-takers!
  2. Care begins at home – on site – in house.
  3. We need care-takers we respect absolutely.



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We save for certainty – what LDI can learn from Funeral Plans


Stand and the door and knock!


There’s controversy over the management and sale of Funeral Plans this morning. Fairer Finance report that many plans are simply no good and that this is often because they pay commissions of up to £1000 to those who sell them. Funeral Plans , though they meet an investable need, are not covered by the FCA but by the Funeral Plans Association. Those who buy them have no ombudsman to complain to.

If Funeral Plans were a quiet backwater of personal financial planning , this would not be a front page story, but they’re not.

Funeral plans.jpg

Thanks to BBC and Fairer Finance


So why are funeral plans so popular?

  1. Funeral plans meet a defined need – they are an insurance.
  2. They are sold as a “last gift to loved ones” to those who buy them
  3. But they address a fundamental fear, “no-one will remember us”.
  4. Funeral plans are affordable, most older people underspend on themselves
  5. These plans are unregulated making them cheap and easy to sell.

This may sound brutal, but as a salesman myself, I know that it’s the cheap and quick sale that’s the one that will pay my bills. There are a lot of half-trained financial salesmen left over from pre RDR days who can’t sell PPI no more.

It is easy to sell to need (1), pity (2), fear (3) and price (4). These simple triggers have worked for 200,000 of us, the vast majority of whom are in retirement. The plans may be poor investments but they rely on those purchasing not looking under the bonnet. There are few IFAs attending on the needs of the people taking out these plans.

Harsh lessons for us all

I fear the blinkers with which people purchase funeral plans have been applied elsewhere. In the eighties, we saw spurious liability driven investments such as school fees plans and long-term care plans which employed the same triggers. They met with varying degrees of success.

School fees plans were more popular than long term care because – like funeral plans, they were brought for others but were a vanity sale; and like funeral plans they met a specific need which- in the final analysis, was one people felt comfortable with. We may not feel comfortable with dying, but the idea of a good send-off’s great. Most parents see the paying of school fees as good for Johnny and an entrée into a new social club.

These recurring themes of defined needs, vanity and pseudo-altruism at a defined cost were the very things that long-term care plans could not provide. The costs of care were indeterminate, the reality of a nursing home- too awful to consider and the fact that you were spending money on you and not others meant the LTC sale was a dead duck from day one.

Easy-sell products have short-shelf lives

School Fees Plans didn’t last. They were exposed because good financial advisers were able to peel off the packaging and show better.

Long term care plans didn’t last because they just weren’t sexy enough, they pulled none of the triggers.

Funeral Plans are a bubble that is about to burst. Fairer Finance may prick the bubble with just one report as we are familiar with the toxic cocktail of sales features that funeral plan salesmen employ.

But as soon as the Funeral Plan bubble bursts, the sales teams will have moved on to find another quick win. If I knew what that was , I’d be as “smart” as them- thankfully I’m not!

LDI – an institutional funeral plan?

Not as far fetched as it sounds. Liability Driven Investment most of the features of a funeral plan. Most importantly, it is a means to send off a Defined Benefit plan to a better place (a bulk annuity rather than a funeral parlour but you get my drift).

Secondly it secures the welfare of others at the expense of the purchaser (a scheme argues that buy-out offers members something post cessation that cannot be achieved in life – life is a liability!

Thirdly it panders to the intellectual vanity and fiscal responsibility of its purchasers. The LDI product is a box of tricks as opaque as a funeral plan, but like the funeral plan, it gives its purchaser a (sometimes spurious) financial capability.

Let’s hope that like the school fees plans of the past and the funeral plans of the present, LDI does not leave its inheritors with a nasty and unexpected debt at the death.

I wouldn’t want to compare investment consultants to funeral plan salesmen, but they might want to look at their practices and ask whether there may not be some in common!

For like the funeral plan salesmen, those consulting on LDI are facing imminent regulation by the FCA.

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

“Feed and skim” – how NEST want to help the low-paid save more.

nest insight.gif

Thanks to NEST and their think-tank NEST Insight for a scorching day on top of the National Theatre which yielded some real thought leadership.

Delighted as I was to lock horns with some very bright students (and Tom McPhail) in a debate on the need for forward planning, the highlight of the day was a discussion on helping those who have been excluded from pension saving to save more.

I sat next to Charlotte Clark of the DWP (the wisest of owls) and when I initially didn’t get it, she explained. If we are ever to get savings rates above 8% of the band, then we are going to have to give those just getting by, the chance to join in. Otherwise auto-enrolment will become too intimidating for those who struggle to save.

Here’s what “feed and skim” is about.

Feed and Skim is just a working title I gave what I saw, it is not NEST’s title and I am sure there is a better characterisation. But it will do for starters.

The ideas is that for people who are saving into NEST on the auto-enrolment scales, a second account is offered. This is not offered by NEST but by a firm licensed to take deposits and capable of taking a separate feed from payroll. In the presentation I saw this was likened to the sidecar beside the motor-bike.wallace

Money is “fed” into this account as part of the auto-enrolment deal, it is an additional voluntary contribution – though it could work as an opt-out, rather than an opt-in.

The idea is that this money would build up a side-account which would be available to the saver to pay for emergency bills.

But if this account was not touched and exceeded a certain amount, it could be “skimmed” by prior agreement with the member, into the NEST account – to be used for later-life.

The sidecar idea is the brainchild of Jeremy Smyth, here’s how he introduced it.

Tapper got confused!

Initially I thought that this was “scope creep” from NEST and that a Government agency was moving into a space traditionally occupied by banks and credit unions.

I apologise to NEST for throwing my toys out of the pram and telling them to stick to pensions!

In the clear light of day I can see that this arrangement could be used by any workplace pension provider as a way of helping those nervous about committing to higher saving rates to stay “in”.

Tax and all that

Frankly, this feed and skim arrangement is going to be about as popular with lah-de-dah middle and high earners as Christmas Clubs. Most of us  who pay appreciable amounts of  tax (or national insurance) are unlikely to want the help of a “feed and skim” arrangement; those who want this help should not be especially concerned that it will not have the Government incentives that you (should) get saving into a pension. (Don’t forget many low-earners don’t get the incentives if they are in net-pay schemes).

But by the same standards, the majority of money being “fed and skimmed” should be paid out of gross earnings – simply because of the higher tax thresholds we have these days. So I don’t see this as a tax-driven scheme.

What makes it attractive?

There seem two advantages.

The main advantage is that it helps people to get used to saving more from pay than they have been used to. It creates good habits and confidence among those who have been excluded in the past.

While the money is in the “sidecar” , it is accessible; but once people have shown to themselves that they can keep a balance of more than a certain amount (say £500), then there is an opportunity to invest the money for the future which can be taken simply by breaching a pre-set time at which an agreed balance has been maintained.

We saw an interesting presentation from a lady from Harvard that showed that having more than one purse, with one purse available to spend from, and one  locked, savers would build long-term savings quicker than by having one great big purse. (I think the research was done in India as there was a lot of talk of rupees).

The slides are here; 

So both from the savers point of view, and from a societal perspective “feed and skim” makes a lot of sense.

What next?

It’s a shame that rather than poncing around at the ABI yesterday, the new pension and financial inclusion minister, Guy Opperman, had gone to the NEST insight conference. I am sure this would be right up his street, he has been helping a regional bank in Hexham Northumbria , which is doing good things with local credit unions. The Pensions Minister needs to meet with NEST insight and get as excited about this as those in the room yesterday.

The next thing is for NEST to find some of their clients willing to get this trialled. That shouldn’t be hard, they have a lot of participating employers and are quite a likeable bunch!

We then need to see how well all this works in practice.

Perhaps one of the banks to use to set up these sidecar accounts, would be the Pension Minister’s Tynedale Community Bank in Northumbria!

Thanks to NEST for a great day and for the most welcome beer after!

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

“Is it worth planning when the future’s so uncertain?”


Today is NEST Insight day;  it’s also TTF symposium day.  So I’ll be cycling from the City to the South Bank like Mark Cavendish (pre-crash).

At the TTF event, Beccy Young and Robert Finer will be presenting the FCA Asset Management Market Study . I’m pleased to hear that Andy Agethangelou has a place on the committee which will be supervising the introduction of new metrics. The TTF have screwed the FCA’s courage to the sticking post.

Meanwhile NEST have a day looking “beyond longevity. Here’s the blurb

People are living longer. That fact has become a truism. But what is the reality of longer lifespans for those who are now of working age?

NEST Insight’s second annual conference will move beyond the headlines to explore what longevity means for the ‘defined contribution generation’.

What does later life look like for those people – largely on lower-to-middle incomes – whose retirement income will depend on defined contribution pensions?

What challenges and opportunities will shape their long-term financial wellbeing?

What does an ‘optimal’ mix of savings products and behaviours look like for this group as they pick their way through competing calls on their income?

Which is all very well till you find out that

global leaders from the worlds of academia, public policy and industry will explore practical interventions to help drive better outcomes for this all-important group of savers.

I am one of those “global leaders”, (though I don’t feel, look, think or sound like one). I have been cast as the villain in a debate with Tom McPhail and a bunch of students. We will be debating

“Is it worth planning when the future is so uncertain”.

Squeaky clean Tom has bagged  the “of course it’s worth planning” position, leaving me to argue for feckless idiocy.

Before the debate, I am putting on the record the key arguments for and against.

Contention For Against
The future’s uncertain! Yes – we’ve no idea what we’ll need money so let’s just have fun while we can. No, we will grow old and stop working, we will die, we will pay taxes – nothing much changes
It’s not worth planning! So let’s leave it to the experts. Let’s do what we’re told and let others plan for us. I’m not saying “opt-out”, I’m just saying- chill! Like it or not, we’re taking the risk so we’ve got to plan.
Carpe Diem! Absolutely – you only live once. There’s no point reminiscing about the things you couldn’t afford to do! Save now – spend later -retirement is the longest holiday of your life
My house is my pension ! Well if it isn’t my house, it will be my parent’s house. If you haven’t got any houses in your family, what’s wrong with you! You can’t buy a sausage with a brick. Houses are illiquid and expensive to run. Your house is more likely to be a drain on your pension
The state will provide! We are a rich country, we can afford to pay proper state pensions, It pays to be feckless The Government should apply reasonable force to ensure everyone has enough for the future not to be a burden on the state, if you opt-out, then don’t expect to be bailed-out
Be positive! Obsessing about the risks of old age won’t help. Build  small, be trustworthy, make money You can and should take responsibility for yourself. You won’t want to be a burden on your family when you get old- you’ll want to support them with an inheritance
I hope I die before I get old! The way I’m going, I’ll be lucky to make state pension age! We are living longer and not shorter and the fact that you’re debating this suggests that you are likely to be around longer than most!

Any other arguments that you can think of prior to 2.30pm this afternoon should be inserted in the “comments” box below this blog or mailed to

Don’t call me unbalanced – or I’ll fall off that bike!



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The Department of Workplace Procrastination?

david gauke


Keen to dispel the impression that the DWP does absolutely nothing with its time, its new Secretary of State , David Gauke has promised that the Government “will not shy away from taking  decisions on pensions“.

This  statement was made nearly two months after the legal deadline for announcing the DWP’s decision on the future of the state pension age (SPA) and two years after the start of the consultation on the future of tax-relief on pensions – initiated by Gauke’s former department – the Treasury. We are still awaiting any tough decisions on either.

If Gauke is after advice – there is plenty for him on Twitter this morning.


And what of our new Pension Minister?

I attended an audience with our new Minister for Pensions and Financial inclusion yesterday and got the shake the hand of Guy Opperman thanks to our friends at the Pensions Advisory Service.


I like Opperman’s background as a campaigner for social justice and he told us that along with Steve Webb , he is one of only two Pension Ministers who has actually asked for the job. He will have to work a lot harder than his predecessors to get things done but the tenor of his short speech yesterday suggests that that’s what he’s good at.


Sources that know tell me that the Minister would be well-advised to make a statement on the SPA that links any decision to the latest data being collected by the Office of National Statistics. These are eagerly awaited by the actuarial profession. If they confirm the data from Club Vita and from the professions own CMI unit then what seems an inexorable rise in SPA may just be delayed.

Morale in his section of the DWP must be low for it to admit to the FT that recent policy on auto-enrolment was based on assumptions made in 2009

A spokesman from the DWP told Jo Cumbo.

“These figures are based on outdated estimates which were made before automatic enrolment was introduced,”

That is not good,

Women at the gates – women to the rescue!

There are two further areas of immediate contention for the Pension Minister. The first is what to do for the women against state pension inequality (WASPI) and the other is how to appease the wrath of Angie Brooks and the legion of the scammed.

It is no surprise that both campaigns are led by women or that yesterday’s event was organised and sponsored by Michelle Cracknell and Jeannie Drake.

Opperman is surrounded by some formidable women, let’s hope that he taps into this resource.

Awkward for Gauke

Exactly why Gauke thinks he has a chance of introducing radical reform with through a minority Government is beyond me. If his boss, George Osborne, could not introduce a radical system of tax-relief for fear of his back-benchers, what chance Gauke, sitting in the DWP with a lame-duck Chancellor and a party that can’t even sing in tune on public service pay.

The pension system is listing towards the wealthy who get the bulk of the tax-relief on private contributions. It is failing those who are on low incomes, many of whom get no tax-relief at all on pension contributions due to the idiocy of “net-pay” auto-enrolment schemes.

While such fundamental inequalities exist within pension taxation, the Pension Minister must concern himself with the reorganisation and rebranding of MAS, TPAS and Pensions Wise through a Bill which is starting its way as we speak.

What hard decisions are left with the DWP?

Gauke and Opperman need to be clear just what these hard decisions are if they are to have any credibility with those in pensions, let alone the wider public

If they are ambitious, they will take on the issues around the funding of long-term care.

They will work with the Treasury to revive the proposals for a fairer form of pension tax-relief.

They will be decisive on the State Pension Age. But I am far from convinced that the junior role accorded the Minister for Pensions and the compromised status of David Gauke (the minister for Treasury failures past) render the brave statements of the past few days much more than rhetoric.

The proof of the pudding

The departures of Richard Harrington who claimed pensions were more important than politics and Baroness Altmann, who dismantled the DA and pot follows member initiatives and then jumped –  means we have had no pension champion in Government for over two years.

Meanwhile money is bleeding from our DB schemes into “pension freedoms”, we have no idea how to manage lifetime incomes for the majority of those with DC pots, we have no direction for SPA, we have a pension tax system discredited by the very Government who has ducked reforming it. The WASPI women remain unsatisfied, the legion of the scammed are being horse-whipped by HMRC and the triple-lock is propped up by a bunch of loony-toons from Ulster.

The proof of the pudding for the DWP is in the eating. We are on a diet of austerity in more ways than one. If David Gauke wants to tell us he is as good as his word, he had better come up with something a little more meaty than what we’ve had since May 2015.

This is thin gruel at best.

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How can we expect the young to save? Here’s how!

millenials are top savers

A happy millennial

The odds are stacked against our kids.

  • Low interest rates make paying a mortgage a cinch
  • But tight credit makes getting a first-time  mortgage a nightmare
  • House price inflation makes first-time buying near impossible
  • And pushes up rents as demand increases.

Add to this

  • The drag of student loan repayments
  • The cost of travel – again linked to affordability (of homes close to work)
  • Falls in real wages for the under 40’s (evidenced by Resolution Foundation report)
  • Pathetic yields on savings accounts

Why Save?

Is it any surprise then that kids aren’t saving? The financial odds are stacked against them and those I’m speaking to have little interest in playing their parent’s game.

If the ONS stats are right, it’s not just Millennials but their parents who are struggling to save. Credit cards and car finance are still are most used financial products!

The one financial windfall  kids have to look forward to is inheritance , which is precisely the opposite of a savings strategy. It’s a “sit tight and wait for mental and physical collapse” strategy. Look at the Royal Family – it’s high risk.

Frankly, if I was a kid, I would struggle to rationalise saving. My reason for saving would be abstract, something along the lines of “keep saving and it will be alright”. This is pretty lame but it’s hard-coded into most young people’s financial DNA.

Let’s not lose sight of that.

The answer is not “better products”

The savings products we have – primarily workplace pensions but also directly purchased ISAs, are now fit for purpose – even good value. The financial services industry services the needs of savers, but does not inspire them.

Young people will not be inspired by the old people to save, my analysis above suggests that young people see old people as the problem.

The answer is …… regular savings over time!!!

The regular payment of at least 8% of earnings into a non-spendable savings pot will create a pot sufficient for market growth to get to work. Over time, the money kids will save into workplace pensions will build into an appreciable sum. A 22 year old on average earnings contributing 8% of the band can expect to have saved £20,000 by the time they are  30.

This is a tangible amount of money, a genuine achievement which will be a reality for most young people enrolled into workplace saving. It is enough money to attract the attention of young people. It is an amount that could have genuine interest. The Australian experience shows that once you’ve saved more than the cost of your car, you start getting proud not just of your savings, but yourself.

This is why it is so great that after all the time between conception and implementation, auto-enrolment will soon be universal (at least for employees).

The young do not opt-out

The answer to the question raised in the blog, is not to make it attractive to save. Young people when they think about it, see savings as deeply unattractive.

The answer is to make it easy and normal to save, which is what auto-enrolment is doing.

The small payroll tax which is the AE contribution is about to get bigger in April and bigger again in April 2019. But I don’t see the hikes in contributions as an issue.

That is – provided we can give young people some genuine feedback on what their financial sacrifice is producing.

Critical to this, we need to get young people easy access to their balances with hopefully some good news , that their pots are worth rather more than their contributions.

Bad news is better than no news!

But even if the news is awkward , we need to tell it to savers as it is. Most young savers are in global equity index trackers which have done brilliantly over the period of auto-enrolment so far.

But a reversal in the speedy growth in equity valuations (plus the kicker of a weak pound up-valuing overseas equities, is very likely.

We should not shy away from delivering bad news as well as good.  “Over time” means over decades and the impact of workplace savings will on individual financial self-esteem is still a decade away. Over that time there will be plenty of market crashes.

We cannot immunise people from the short term shudders of frightened markets.

Fiduciaries must emphasise the positive

We must point out the key savings messages

  • The tax advantaged savings system into which AE contributions are paid
  • The quality of the savings vehicles available from employers
  • The ease of saving through payroll deduction
  • Ready access to performance data showing how investments are doing
  • Information on how the invested money is being put to good use

We do not need to ram this stuff down our kids’ throats, but we do need to emphasise the positive.

In this, the IGCs and trustees should be key. They – not the providers – should be the key messengers, for as independents, they are able to provide a balanced and authoritative view.

millenials are top savers

Millennials want to know what’s going on.


But not shy away from reality.

The messaging needs to be absolutely clear. There are no short cuts- no pension holidays- no postponement of contributions.

Months when money is not saved is ground lost , that can only be made up by paying in more in future years.

There is a cost of delaying contributions and we should not be shy of pointing this out.

We owe it to our kids to be honest about saving. There is no get quick rich here. This is not about 1m hits on you tube and instant fame and success. Getting savings right is a lifetime thing.

In my recent conversations with those under 30 about saving, I get one over-riding message.

Tell it like it is.

millenials are top savers

Financial self-esteem

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The value to me of “set and hold”!

ready set hold 2

Michelle McGrade – Kiwi Mum and CIO


The FT is masterful with understatement.

A 2% charge can take quite a chunk out of the overall portfolio return

If your predicted investment return is (say) inflation +3%, having to earn 2% to pay your investment manager, custodian and adviser, is a big ask.

The average all-in fee charged by the UK’s wealth managers is approximately 2.24 per cent, according to stockbroker Numis Securities. That’s what they’re charging you for custody, advice and for asset management and it doesn’t include the cost of investing.

Which may be why Kiwi Michelle McGrade, CIO at TD Direct says

“As an adviser, the best thing may be to say, ‘Stay as you are.’ ”

Which , by and large, everyone from Warren Buffett and Terry Smith to your humble actuary would say “hear hear” to!

The trouble is that everyone from your institutional risk manager to your IFA wealth manager is a tinker man!

It became an article of faith among the investment consultants 10 years ago that investments needed constant attention. One of my first blogs in 2009 was a report of a debate between Cardano and Redington on why it was inadvisable to “set and go”, the only thing that both sides agreed on was that the client’s money could not be left alone.

LDI demanded the ceaseless trimming and triggering of transactions designed to “maximise the fuel economy” of the investments. I understand that the OECD are currently looking into what this cost asset owners – preliminary results are pretty shocking.

Meanwhile, organisations and individuals who purchased units in long-term investment funds and sat back, have enjoyed a pretty good run of it. This is not to say we should be complacent, but with the VIX at an all time low, now is a time to ask some big questions about long-term investment strategy.

Running your investments like your business

You can run a business for growth or for efficiency. The first strategy involves new investment and the second means keeping costs down.

We hear that the “new normal” is a low-growth investment climate. It does not seem the time to expect salvation from double digit real returns.

So it makes sense for us to look at our costs. If you are paying 2.24% + transaction costs – then you may be losing half of your anticipated return simply trying to get there. That is not efficient and it won’t help you achieve what you are after, whether that’s to grow your wealth or to provide yourself with income. I very much doubt that were another 2008 storm to blow over, your portfolio would be much better protected than it was through the financial crisis.

The reality is that about the only risk that you can take off your table without it creeping back on the table behind you….. is cost. That 2.24% is dead money and while the transaction costs may be earning you out-performance, they may not…in which case you may be paying 3%pa or more – all of which is ending up in other people’s pockets.

Value for money?

The FT concludes at the end of its article that

“Short of a move towards performance-based fees, expect more focus on what is known as “value-add” — which could mean parallel services such as retirement or inheritance planning”.

Like I said, the FT is a master of understatement!

Nature abhors a vacuum and wealth managers cannot – it seems – live with the idea that investors might want their money back.

Instead of cutting out all the costs associated with platforms, active management and discretionary fund management, wealth managers are considering getting into financial planning as a value add!

This is the classic response of the funds industry, who live with revenue assumptions that create eye-watering profit margins, typically of 30% or so. If Wealth Managers aren’t managing inheritance and retirement plans, what the hell are they doing?

These costs  really are frightening. How are they justified?

For we know that for every extra 1% pa of costs, we will lose over a quarter (27%) of our lifetime return on our money. These were the figures supplied to John Denham , then Pensions Minister in 1997 and quoted in the original stakeholder pension consultation and they have “set and gone” ever since. In the intervening 20 years we have consistently paid well over twice stakeholder pension charges and for what?

I have great difficulty getting hold of numbers from any wealth manager that shows how a portfolio fared against any benchmark over 20 years. These numbers just don’t get published!

Show me I’m wrong and I’ll promote you!

If any wealth managers can demonstrate that they have, net of charges delivered from 2017 to this day to the expectations of their customers, I promise to publish their numbers. I will publish them, as I recently published Tideway Investment’s apology for conditional fees, without prejudice.

But if you can’t show me results, I’ll stay set and hold!

But until I see a wealth manager who has through his or her endeavours outperformed a set and hold strategy investing directly into the market, I will be following Michelle’s advice and doing nothing with my money.

I set my strategy back then and have held that strategy for almost 20 years. I have not touched my investments which are directly held without platforms, advisers or wealth managers.

I see the wealth management industry and – Michelle and a few like her apart – I see a lot of willy waggling but very little action!

My money is too important to me for vain bluster – 2017 is another year when – as Terry Smith advises – I’m doing nothing.

Ready set hold

it gives you time to read those books!



In case you are wondering why I’m gabbing on about Michelle, it’s because I used to work with her. That was a decade ago and she talked mostly b*llocks then. Now I listen to her on the radio and she’s making a bit more sense.

But it wasn’t until I read her statement in the FT, that I ever fundamentally agreed with something she said!

And if you want a rather more assertive view on the same issue, perhaps you could indulge in a little “Miller Time“. (link only available to FT subscribers).

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A make or break week for UK investors

make or break

I’ll be listening in on 28th June!

Are fund managers the new bankers? If you’ve read the excellent  (draft) FCA Asset Management Market Study, you’d be forgiven to think they were – (and that investment consultants were their knowing flunkies).

The question now is how far the FCA retreat in the face of industry lobbying, fears about BREXIT and domestic political uncertainty.

Thankfully, we have in the UK an independent press who can report dispassionately on the issues. A fine example appears in the FT this morning , courtesy of Chris Flood. Many readers won’t have access, I do and will draw on this article for a poor man’s version!

Here then are the FT’s 6 things to watch when the final report is published on Wednesday (28th July).

1. A single all-in fee to beef up transparency;

including trading (transaction) costs in the quoted fund charge would give consumers a clear idea of the cost of ownership. But it goes against what the Europeans are bringing in (MIFID II) and fund managers argue that it would focus minds on just a half of the value for money equation. The funds lobby has attempted to become the consumer’s champion, even going so far as to set up their own working group headed by NEST CIO Mark Fawcett, but has their credibility at the FCA finally run out?


2. Fund managers accused of price-rigging;

once you’ve got to a certain size as an asset manager, your business profits track the performance of markets you invest in . This is great for shareholders but means that asset management gets more expensive as markets rise.FTfcaArguments that fund managers are cutting prices are at variance to popular perception of asset manager behaviour (offices in City/sports sponsorship and bloated bonuses). The FCA say they have uncovered evidence that a fund management pricing cartel exists (supported by investment consultants). The managers argue that competition is alive and well as evidenced by the arrival of low cost management through the likes of Vanguard.


3.Value for money for retail investors;

the FCA claim that savings that consumer savings that should have passed through post the abolition of commissions have not been passed on to the consumers. This seems right and wrong, consumers are now paying more than ever for funds as they use more sophisticated fund platforms and get more sophisticated advice and even fund of fund management from their advisers. The asset managers argue that their prices are coming down and that consumers are prepared to pay for expensive platforms and fund advice is not their problem.

That the asset managers spend so much time and money getting their funds prominent places on platform buy-lists suggests that the days of commission aren’t quite over yet and that market bias’ persist. If you take that view, then the FCA are right to point to the asset management/platform love-in , as simply another way of skinning the consumer cat.

My reading may explain how the FT’s and Fund Industry’s views can both be correct. The Fund Industry may have dropped their prices to platforms but consumers are still paying the same. Platforms have become a means to return value to advisers, a commission replacement mechanism.


4. Fund governance crackdown

The FCA are convinced that the asset managers are not policing themselves. They appear to regard the Investment Association as a poacher not a gamekeeper and they’re keen to get some kind of arms length governance in place to curb the perceived excesses in reward to fund managers and their shareholders.

Whether they  do this using something akin to the powerful US mutual boards, or the Senior Managers and Certification Regime, or something more like the insurance Independent Governance Committees was left open in the draft consultation.

In any event, the funds lobby would argue that they have quite enough governance and that the market should be left to look after itself. The alternative argument “Britain is a good place to do funds business, as we can do what we like” is not heard in governance debates, but is regularly trotted out to the Treasury by the Investment Association. The implication is clear, if we want the taxes, we’ve got to make Britain asset management friendly, so go easy on the governance!


5. Performance  reporting

Anyone who has tried, knows how hard it is to get accurate data on what a fund manager is actually achieving for a client. The problem is the bundling up of directly and indirectly charged fees in one direction and the reporting of performance gross in another,

The funds industry does not like benchmarking (the practice of comparing performance of one manager against another). The FCA argue that by making reporting so complicated, benchmarking cannot happen. Infact benchmarking does happen but it is a minority sport. You have to pay investment consultants a shed load of money to get a clear view. The fact that we cannot compare performance of fund managers in most markets (including workplace pensions) is, the FCA suggests, part of the reason fund managers have been getting away with it for so long.


6. Are the investment consultants doing their job right?

The FCA reckon the investment consultants used by large pension funds and other institutional investors aren’t holding fund manager’s feet to the fire. Indeed they argue that there may be collusion between the two resulting in higher prices and lower transparency for customers.

For the reasons that I’ve already pointed out, the investment consultants appear to have been at best “asleep at the wheel” and at worst, “in on it”. With so much money floating about, investment consultants have understandably wanted to get stuck in and now look more and more like fund managers, if not asset managers.

The move among retail consultants into Discretionary Fund Management (DFM) is paralleled by institutional consultants into Fiduciary Management (FM). The “integrated” model, where consultants take their fees with relation to funds under advice muddies the waters – claim the FCA.

Investment consultants point to the fact that they are stymied in implementing their consulting/advice by poor decision making by their customers (trustees etc.). Moving to an integrated model gives them the power to take decisions over other people’s money in a timely and sensible way. The FCA is troubled by this attitude presumably questioning where all the complication arose!

Two sides for every story?

There are two sides to every story. The funds industry sees itself as a value creator and the FCA doesn’t. I guess there were two sides in the Garden of Eden too.

Whether the FCA acts is a test of their conviction, I have seen no evidence to suggest that their original view (the draft report) was materially wrong. Where the Investment Association and others can argue is that “now is not the time”. This has been the underlying argument for the past thirty years and the FCA may consider it’s wearing a bit thin.

If the FCA do introduce change, there are organisations like mine poised to move in and make change happen. So I’ll be watching for the report with bated breath from the poop of Lady Lucy on the first day of Henley (28th June) !

I hope that we will have change, Thomas Philippon argues that we’ve had no fundamental shift in the value equation of Vfm in the past 140 years. Could this be part of  that change and can consumers be looking for more value for paying less money going forwards?


I’m grateful to the FT for helping me organise my thoughts and for their versions of the charts above. Once again, their take on these topics can be found here








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Restoring victim’s confidence in pensions

The confidence I have in pensions is because I know the people who are at the helm give a damn. I am lucky, I can bump into them in all kinds of ways. It is easy for me to say that the pensions in the UK are in good hands.

But if you were sitting in court 11 of the Royal Courts last week, you might have a different impression. The “members” (victims) of the various ARK arrangements will be forced to repay whatever monies they have received by way of loans. If they do not , they face bankruptcy proceedings. They will then have to find the money to pay punitive tax bills for having taken the loans and for transferring their money into arrangements which clearly were unauthorised. What little money remains in these arrangements will be diminished by sanctions from HMRC which will means the victims may well end up paying more in tax than they transferred out of their UK pension schemes.

If you want to read the whole grisly history, here is an excellent account courtesy of The Times.

The victims I spoke with transferred from the BBC, Royal Mail and similar schemes. They are as far removed from tax-arbitrage as you will find. They are the ghastly legacy of ARK.

Among the people who weren’t in Court 11 this week were the people who set up ARK and those who sold it to people who had little confidence in pensions. These villains are still at large, some still trading using the same firms as lured the victims to ARK.

For the victims, there is little reason to have confidence in a system which punishes them a second time for their gullibility and allows their tormentors to live the good life in Spain/Malta/Gibralter/Dubai etc.

Help of the helpless

Until last week, the victims’ only contact with the pension professionals that form my world was through their new trustees – Dalriada.

Dalriada were appointed by the Pensions Regulator to take over the maintenance of ARK and act as trustees when the original vilains were exposed.  Dalriada had to take one of the ARK members to court to have a determination on what to do.  The dignity with which that member acted will live in my mind. But dignity cannot change the momentum of the law, the defendant lost and monies will be recovered.

But last week , in the midst of a heat-wave, the CEO of the Pensions Regulator came up to London from Brighton for a meeting with the victims and listened. She did not offer to intervene, but she heard and she saw and she promised to do what could be done to ease the pain that is to come. This was noble and proper and right. She did not need to do this, she did it to

“connect with the people we are charged with protecting and those who seek to help them, hear their stories and learn a bit about how they feel”.

scamproof scorpion

In freedom’s name

The scammers are still at it. They have moved from occupational schemes to QROPS and are now moving from QROPS to SIPPS but the underlying strategy is the same.

That strategy is to destabilise people’s confidence in UK pensions to create confidence in their hopeless investment scams. A favoured tactic is to take the words of those in the pension establishment and use them to justify their actions. Careless talk costs lives.

They know they can use the concept of pension freedom to blind their victims as to what is going on. You can do much mischief in the name of freedom.

Who stands for pensions?

The victims of the ARK case were joined in court by victims of other scams, the commonality was financial loss and the likelihood of further persecution through the courts and by HMRC.

Dalriada stood for pensions, but they were taking on their own members as part of the process.

Standing behind the ARK victims was Angie Brooks, a former tax-adviser , a brave woman who is making a meagre living fighting their corner. And there is Lesley Titcomb listening.

There are people who care about the ARK victims other than Angie. Their voices were heard last week at the Great British Pension Debate, but they are little heard. Darren Cooke- who campaigned for a ban on UK pension scam cold-calling , has seen his work washed-up as part of the snap-election. Politics before pensions.

What traction these people got with the previous pension minister has been lost as it’s all change at the DWP.

Other than Dalriada and one or two tPR appointees, the entire pension establishment has ignored what has been going on in Court 11 of the Royal Courts of Justice this week.

We are all fiduciaries

We are doing the victims a dis-service. We are doing ourselves a dis-service too. If we claim to be “pension expert” then we need to guard the good name of pensions. That means sticking up for the way occupational pension schemes work, sticking up for its trustees and for the safeguards it provides – especially the PPF.

It means sticking up for contract based plans, for best practice and for the work of their IGCs and GAAs. If we do not promote the values of the UK pension system, then we must take some share in the blame for money being shipped off to Malta/Gibralter/Dubai and Spain to be invested in car-parks and store-pods and hotels in Cape Verde.

The point of pensions is to make people comfortable in their later years. The people who fall victim to ARK and other scams are having their later years blighted by the actions of those who scammed them.

If you speak with the victims, you do not hear anger, infact you hear guilt. They feel hapless, foolish and – as a result of last week’s judgement they may even feel they have acted criminally. They are not criminals, for whatever gullibility they showed, they have paid a price.

Now they are left on their own , friendless and bereft of sympathy. Dalriada is their only point of contact and it is constrained to act against them by the process of the law.

It is time that we held out our hands – as Lesley Titcomb did last week. These people were our members, our clients, they live next door to us. It is our job to restore some confidence in pensions, at the very least by protecting, listening and finding out a bit about how they feel.scam4



Posted in actuaries, advice gap, annuity, pensions | Tagged , , , , , , , | 1 Comment

CETVs; the flight from quality


Both the Times and the Financial Times report today on the anticipated voluntary withdrawals from Britain’s DB pensions through cash equivalent transfer values (CETVs).

The FT, relying on Mercer as a source, estimate the withdrawals to be as much as £50bn since April 2015, the Times estimate £45m. Aon and Towers Watson estimate CETV activity up 15 and 10 times since 2014 (the Aon figure just refers to high value transfers). There is sufficient corroboration of these numbers to suggest that there is a significant “flight from quality” and that the 210,000 people Mercer estimate have taken CETVs are many more than previous tPR estimates.

It would be good to have official figures, but we have little but the estimate from tPR that 80,000 people transferred in the last year.

Not all schemes are seeing transfers at the same rate. The evidence we have suggests that the money is being pulled  from banks and insurers whose schemes pay high CETVs (their scheme investment strategies are conservative, investing in gilts creating discount rates that pay particularly juicy multiples of pension forsaken).

And it’s clear that there are  separate markets. There is a highly advised market where white collar staff are paying as much as £10,000 in advance  for a passport for their CETV to go where they like. There is a mid-market where money is flowing into solutions of the adviser’s choosing with fees contingent on these scheme being used and there is a bargain basement market where money is flowing into any old tat with very little proper advice ( very small DB transfers don’t need a passport).

I’m not writing here about the reducing  quality of advice, it has been a subject of many recent blogs. I am questioning why the spectacle of this huge shift of pension wealth is only now being publicised.

An undercover operation

I don’t subscribe to a conspiracy theory. Despite this blog shouting about this for a couple of years, my writing has been speculative, based on anecdote and frankly it does not carry the weight of an FT or Times.

But what is more surprising is that this shift has not been picked up on the radar of the Regulators as a major financial risk. For the FCA, the risk is potentially bad consumer outcomes; for the Pensions Regulator, the risk is the further destabilisation of the defined benefit occupational pension schemes for whom £50bn in outflows is a material loss.

In the short-term, many consultants, trustees and especially plan sponsors can celebrate that £50bn as a quick win. The money that voluntarily leaves a scheme is valued using a best-estimate discount rate that is likely to be higher than the discount rate used to account for the underlying liability in the FRS102 accounts. That means that CETVs are giving corporate balance sheets a healthy short-term windfall.

We know of circumstances where these windfalls are not only being booked retrospectively but being accounted for on a forward basis – the assumption being they can be accounted for today, on the expectation they will happen tomorrow. This is  particularly good news for the short-term targets of the C-club (bonuses all round).

Put another way – if , as the Pension Institute claim, there are 1000 DB schemes in a “stressed state”, why are only a handful reducing CETVs through an insufficiency report?

It is hardly surprising that a “don’t rock the boat” attitude is prevalent, the C-club need as little disturbance to the current transfer deluge as possible. This is one of the reasons for the low profile given to this trend.



I believe there is something else at play here. I suspect that the people who are supposed to be managing DB schemes are hopelessly conflicted and embarrassed about it. I know many investment consultants who sheepishly own up to have recently taken transfers and I have seen swathes of long-serving senior executives who are following suit. There’s definitely a “don’t shout about it or there’ll all want one” feel about this exodus.

Why it can become professionally embarrassing is that the plans set up by the said advisers and senior execs (either trustees or close to trustees) are playing into their hands. These highly loaded bond based investment strategies are what gives rise to the high transfer values in the first place.

Worse, the advisers and trustees have locked schemes into such strategies through the purchase of contracts for difference (derivatives) that can greatly increase the scheme’s exposure to bonds through gearing ( a process known as Liability Driven Investment of LDI).

But if the current trend continues, then many of these strategies will have to be adjusted and potentially even unwound, to create the liquidity to pay all the transfers. I know of one scheme that had a cash call of £250m in March from unanticipated transfers.

The problem is , as John Ralfe is pointing out to anyone who listens, a lot deeper than the admin hassle of having to arrange the transfer. We have an unanticipated risk to a scheme’s investment strategy.

The key word here is “unanticipated”. What happens when you want to keep transfers quiet is you neglect to write their likely impact into your investment strategy – here is the conflict and the embarrassment.

No victimless crime – a cancer within.

I have given up on “win-win” , let alone “win-win-win”. In financial markets, for every winner there is a loser. The winners in the CETV game are the advisers, wealth managers and a few very lucky people who can afford advice to get into the right products for their privileged circumstances. There is a further immediate winner- which is HMRC who stands to pick up penal taxes through LTA and AA busting quite apart from the penalties it can meet out on unauthorised payments through scams (see ARC).

The losers are those who end up in the wrong financial products, or no product at all. The losers are the trustees  that see their pension schemes convert to cashpoints. The losers are future generations of  corporate executives who have to manage the consequences of the current CETV bonanza.

The losers are the non or poorly advised who quickly find the cashpoint has no “repeat” button.

The losers are future generations of savers who are losing the rights to good quality occupational pension provision as the infrastructure is dismantled through this “flight from quality”.flight 2

Calling time on this nonsense

The FCA consultation on transfers published this week proposes we no longer denigrate the CETV and promote it to having equal status to the scheme pension. This will be loudly applauded in the boardrooms of asset managers, DB corporate sponsors and both instructional and retail advisers. It is a fundamentally stupid thing for the FCA to have done.

The damage of losing scheme pensions in favour of swollen cash balances will haunt us for decades to come. Those like Merryn and Ros who pander to populist cash-craving will be called to account for their public statements

ros abused

There is nothing this blog can do to stem the tide of nonsense transfers. I can say for myself that I ignored my CETV last year and now draw a scheme pension (I even ignored my tax-free cash in favour of more scheme pension ). I am lucky to have had this choice.

I called time on the nonsense of my £1m + CETV because I could see no long-term value in it. I want an income that lasts as long as I do, one that protects me and my family against the consequences of growing really old. I want a pension like my Dad’s and his Dad’s and I wish that my Mum and her Mum had had one too!

The corrosion of DB schemes by this mania for freedom is bad news for society and it is time that more people said so. The arguments for short-termism are everywhere (see above). The prudent arguments of decent people like my colleague Alan Smith are less appealing but a lot more serious.

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

@theFCA- #transfers-NOT GOOD ENOUGH


The FCA has produced a measured, thought-through but ultimately facile paper on transfer advice.

The FCA did not make it to the Great Pensions Transfer Debate and it is just as well that this paper was published after not before the 19th June.

For the paper really does little to protect the consumer, causes considerable disruption and fails to address the issues of those who have set up and run occupational pension schemes. If we had read it before going to Peterborough, I doubt our conference would have been as optimistic as it was.

This paper is a missed opportunity and here are 5 reasons why!

Here are the five things which should have been in the consultation but aren’t.

  1. A firm statement on contingent fees. The paper is silent, the FCA are pointing to COBS but AJ Bell are reporting over 50% of IFAs are effectively taking advice as commission from their in-house investment solutions
  2. Encouragement for trustees and scheme administrators to help IFAs through the creation of a single template questionnaire . Most of the timing problems on transfers come from non-standardised questionnaires.
  3. Encouragement for trustees to allow scheme rules to provide partial transfers so IfAs can split CETVs with an amount remaining for scheme pensions and the balance available for greater freedom
  4. Inclusion of adverts (digital or otherwise) promoting transfers as financial promotions (whether from lead generators or not)
  5. Prohibition on the use of leads generated from unregulated firms as a source of transfer business.

The FCA’s paper, which you can read here, is out of touch with the reality of today’s market.

Money is flowing out of occupational schemes at a destructive rate. One scheme which I am connected with is reporting outflows of £250m per month. Such flows are destabilising the investment  strategies of DB schemes, creating a severe strain on pension scheme administrators and destabilising the confidence of many people in the schemes they are relying on.

Much of the money flowing out of DB is doing so regardless of critical yields. I have in my possession three reports that have been forwarded me where the critical yields are in excess of 8%, one in excess of 10%. Add to these yields the costs of investment in full-priced SIPPS and you are needing over 12% pa or a return 10% over inflation to meet the scheme guarantees! And yet these reports are recommending transfer.

To suppose that the scoundrels who write this bullshit are going to be any more responsible because they assess covenants and use stochastic modelling is to be naïve in extreme. The abuse of customers which is rife abroad and bad enough at home will not be solved by requiring advisers to use more sophisticated report writing services.

This week, a group of good people have been in the high court listening to the arguments of QC as to what should become of what is left of their pension scheme. The scheme is called ARC and when they finally know what is theirs , they will move on to find out what they will have to pay in excess tax to get their benefits. The only people not in court are the villains who set Arc up, they are in Spain and similar – and they are still setting inappropriate pension schemes up and cajoling new cohorts of innocent decent people into them.

In the meantime, the funnels into which people’s retirement dreams disappear, are still open wide.



Google Ads , Facebook and the digital advisers of all the tabloids are selling digital space. This one sits on the Daily Mirror site , here’s one from Financial Advisor .co .uk

Ros Altmann, the scammers new best friend!

Worst of all, these very sites are now aping Ros Altmann, our former pension minister endorsing the liberation of guaranteed benefits. Ros has been quick to hail the FCA’s paper in a blog. 

But sadly Ros’ list looks  just a more sophisticated version of the scammers list! 


She is delighted that the FCA are no longer discouraging IFAs from rescuing people from failing DB plans but “waking up to the new landscape for pension transfers”.

The new landscape is one that most IFAs are very familiar with, it is the apple held out by Eve to Adam, delicious and offering untold knowledge. It is an apple that only too easily could see IFAs banished from Eden.

The last time Ros piped up on transfers she was widely broadcast . Look out for her latest blog to be abused in a similar way

ros abused.PNG

Careless talk…


Far from protecting consumers , with this paper, the FCA have just opened the door for the scammers and invited them to the table.

Where are you when you’re needed Ros?

Ros did not come to Peterborough for the Great Pension Debate. If she had, she would have heard close to 300 people involved on a day to day basis with transfer calculation/advice and administration thinking about the decisions “diversely, responsibly and capably”. I chaired and listened – I was hugely impressed.

Ros has not been seen at the High Court or spent time with those whose pensions have been ripped from them and who now face bankruptcy either from the trustees (much of the pension is out on loan) or from HMRC, who want 45% of invested monies, monies which are mostly gone).

Ros does not spend time with pension administrators or pension managers having to cope with the huge flows out of schemes created by what sometimes seems like panic-transferring.

Nor will she have to live with the long-term consequences of these transfers. The drawdowns that dry-up though poor strategies, high execution costs and unrealistic withdrawal rates. There are great advisers who will manage their businesses for 20 years and hand them on to other great advisers, but it is hard to pick them today.

In reality , most of the money coming out of CETVs is being invested in SIPPS which are likely to become destitute of good management over time. This is the awful prospect facing those who pay for advice on the cheap and accept the twaddle that charges don’t matter.

By ignoring these harsh realities, Ros and the FCA and the Treasury are allowing the conditions to spread that have led to the carnage in the nineties, have pension victims in the  high court today, and will doubtless lead to countless disappointed retirees in decades to come.

When doing nothing pays

There is another way of managing people’s money. It does not involve taking a CETV, it doesn’t even involve looking at a CETV, it simply involves people taking a scheme pension for the rest of their lives.

Instead of listening to scaremongering about BHS and Tata, people with defined benefits could ask their Trustees for a clear statement about the likelihood of their scheme paying benefits in full. They might even ask the Trustees for its most recent employer covenant assessment – or at least the edited highlights without confidentialities broken.

They would almost certainly find that their Trustees are well advised, that the scheme is either in surplus or has a proper deficit recovery plan and they may even find themselves being asked to become a trustee.

Instead of the provocative calls to actions from the scammers (which echo the blogs that Ros writes) people could see how much care and attention is paid to the management of the schemes from which they will get paid their pension. Far from being the greedy beneficiaries of your money, most trustees are unpaid and are acting out of a sense of duty. Those professional trustees who are paid are extremely accountable.

As for the FCA’s paper, it is an exercise in irrelevance. Everything in that paper is rehearsing what good advisers already know and do. Meanwhile scoundrels are doing untold damage and the FCA and tPR seem powerless to do much about it.

Another opportunity missed.

Posted in pensions | 3 Comments

A single guidance service


The simple idea of merging the functions of The Pension Advisory Service, Money Advice Service and Pensions Wise under a single “Guidance” banner makes a lot of sense. It acknowledges that the current situation is working too well and supposes that a reorganised super-service could do a lot better.

Earlier this year, the DWP released its Christian Ronaldo, Charles Counsell from auto-enrolment duties to take over at the Money Advice Service.


Charles Counsell


Charles is an organiser, someone who gets things done very well, he has done a great job (and got a gong) for fixing auto-enrolment, now he looks set to do the same with guidance.

Charles’ masculine virtues as a fixer are complimented by TPAS’ Michelle Cracknell, who has transformed TPAS on next to no budget through a different intelligence. If Counsell is Ronaldo, she is the instinctively brilliant Messi!

In many ways this should compliment Counsell’s , the fear is there may only be one space at the top.

How and who the re-organisation of guidance is achieved, we will find out over the next twelve months, but I am comfortable that with Counsell and Cracknell at the helm, this will happen and that we will see a new simple service that the public will use.

How will it be used?

The current approach is reactive. Guidance is given to people at the point when retirement becomes real, when they have to start taking decisions on accumulated savings and pension rights.

At the Great Pension Transfer Debate, Cracknell told the audience her vision was that good savings practice needed to be instilled in the young and that they could educate their parents. It’s an interesting thought and one I have never heard articulated in that way.

Actually, by the time you get to Pensions Wise, you are either financially self-sufficient, in which case you turn to the Government for validation, or you are needing to be told what to do. MAS, TPAS, CAB and Pensions Wise cannot tell you what to do, they can only sign-post you to someone who can. The “someone who can” generally needs paying for carrying the responsibility of delivering a definitive course of action.

The new service, if it is to work is going to have confidence in the advisory process and financial advisers are going to have confidence in the new service.

In my opinion, there is a lack of confidence either way which is what Counsell and Cracknell are going to have to fix.

Guidance and Advice

I am a firm believer in getting people to understand the difference between the two. Guidance is about empowering people to take a decision for themselves and advice is about taking the decision for them. You should not pay for guidance, it is free, it is on the internet, the Government can stick some people on phones and web-chat but they are really only improving on the web-based service.

Advice is something different, it is as different as sitting with a priest in a confessional compared to listening to a sermon.

If we see no value in advice , it is either because we are self-sufficient or because we have no trust in the “confessional” process of financial planning or of its sister “wealth management”.

I think a critical function of a guidance service is to establish in the minds of those using it whether they see value in advice, and if they do, how and where to get it.

Making progress?

The Retail Distribution Review cleansed the advisory process by reducing advisor numbers and focussing minds on financial planning rather than the sale of financial products. We now have less advisors who are better qualified to give advice.

What we have is progress. What we don’t have is a public that is educated to look after itself. The talks on behaviour, most notably from Michelle Cracknell and Greg Davies pointed to our instinctive bias’ towards lazy decisions.

A current example is a survey by AJ Bell, published yesterday. It  shows  that 50 per cent of advisers conducting DB transfers are getting clients to pay for them by paying a percentage of the transfer value. This means advisers only receive payment if the transfer goes ahead (into their “wealth solution).

This is a case (IMO) of the RDR taking one step forward , and (half) the advisory community taking two steps back. The argument for this kind of product driven advice is made on this blog by one of its major proponents.

IMO the arguments for contingent charging are “recidivist”. -advocating  the habitual and repeated relapse into bad habits! Behaviourists will point out that water tends to flow downhill, or as Tideway point out “the earth is not flat”.

Progress through leadership

The DB transfer debate we had on Tuesday showed me that there is a genuine wish among a large group of IFAs not to be recidivist. There was little or no appetite in the room to go back to a pre-RDR state of play.

There was considerable support for the triage or segmentation of Pensions Wise customers between those who needed support but could take their own decisions (guidance) and those who needed to outsource decision making (taking advice).

I would call the group who assembled at the DB debate, thought leaders. They were looking for a way to conduct transfer advice safely and to ensure that everyone got enough guidance to feel comfortable in their own skin.

Of course the conference could not deliver such reassurance, it showed that there are large numbers of people who will go to the Government for guidance, find they need advice and end up taking decisions based on the inherent bias’ of the adviser’s charging system.

But there were sufficient numbers of advisers in the room to give me confidence that progress has been made and we will not slide back into pre-RDR days.

In which case, I hope that those who lead the guidance will feel more confidence in those giving the advice. As to whether this works the other way round, I have more concern. Advisers cannot expect the new guidance  to be a “lead-generation service” unless they are prepared to offer advice to all. That means finding ways of offering a simple recommendation at an affordable price (less than £500).

But if the new service can feel that there are advisers who can provide bulk advice to the parts of the market that FAMR is addressing (e.g. the middle market), then guidance and advice can work together to provide something very valuable.

That can only happen if IFAs show considerable leadership and decide between themselves not to relapse into bad habits but to pursue the tough road to professionalism.

Time for IFAs and those delivering guidance to work together.

Now it is time for senior IFAs to show that leadership, that is the best chance we have to make the new guidance service work. Michelle Cracknell and Charles Counsell have a tremendous opportunity to work with IFAs, I hope they will take it.

Posted in pensions | Tagged , , , , , , | 7 Comments

Don’t get strung up on pension ministers!


Guy Opperman – our new Pension Minister?

News that Richard Harrington is leaving his post as Pension Minister for BEIS shouldn’t surprise readers of this blog. The move had been heavily flagged in the DWP and tPR even before the election, @Richard4Watford put “pensions first” for his 9 months as pension minister but the BEIS job is a promotion, we all take promotions.

There may be people in pensions who mourn the demotion of the job title from full to junior minister. There may be people who point to the rapid turnover both of pension ministers and shadow ministers as indicating the post has little point. They would (IMO) be right.

In running the state pension system, any Government is running huge amounts of risk which they cannot easily control. Linking the state pension age to mortality is the easiest way to control that risk but there are others. Auto-enrolment is a way to reduce dependency on welfare among those at the bottom of the  financial ladder.  Get that right and we are reducing dependency on future generations to pay for generation x, y and z’s retirement spending.

Pension Ministers do not decide these big ticket items, these are decided in Treasury and agreed within the Cabinet. The Pension Minister is merely the mouthpiece for what Philip Hammond , David Gauke et al determine.

Guy Opperman

Harrovian, Guy Opperman appears to be our new Pension Minister though Jo Cumbo reports that the responsibilities of the new DWP ministers Guy Opperman and Caroline Dineage are to be confirmed in due course.

It seems silly to speculate on what we are about to receive, not just because it’s unclear who is doing what but also because neither will be doing a lot very soon.

Unlike Steve Webb, who came to the office a full-on pension expert or Ros Altmann who certainly knew what she wanted, the new appointments have to learn on the job. It is possible, as Gregg McClymont showed, to do this. But it takes a full parliamentary term and it takes a view of the current job which would make it one to aspire to.

Humbled in Iceland

So I’m not wasting valuable time worrying about the propensity of Guy or Caroline to do the job. Instead I will be wondering around the middle of Iceland.

This may result in you hearing rather less from me than you are wont from now to Sunday.

And if anyone wonders why Iceland, then I hope to explain next week!


caroline Dineage

Caroline Dineage could also do the job – she understands how to run a small business


Posted in advice gap, auto-enrolment, pensions, Politics | Tagged , | 3 Comments

You want (pension) engagement? Ask Corbyn!

Corbyn result

That didn’t happen by accident



How do you get youngsters interested in politics?

How do you get youngsters interested in pensions?

One and the same question IMO.

Instead of sitting in “blue-sky” meetings, maybe we should be looking at what successful politicians have done to get people  off their backsides and into the voting booth.

There have been three recent examples where political leaders have captured the imagination of millions – Farage – Trump – Corbyn. These are people who have had far more difficult products to sell than “saving money”, they’ve had to sell a reason for participating in a democratic process they may never have engaged with in their lives!

Farage got disaffected white British workers (especially male voters) to vote.

Trump got disaffected white American workers (especially male voters) to vote.

Corbyn got young British people (especially students) to vote.

Where do you learn how they did it?

Go to you tube.

Farage’s speech (which has nearly 400k views) spells it out

“If it wasn’t for Youtube in 2007-2008, I’d be nowhere.. nobody has made better use of social media than me … the broadcasters and the media in the wake of 2016 have got to press the reset button …because you are probably talking to less than half the country!”

Trump’s team  have picked up on this. Corbyn’s team has picked up on this. The fact is that Snapchat, Buzzfeed, Facebook, Twitter and Youtube have had more influence on British Politics than the BBC and the Daily Mail. Farage’s point is that conventional media is reinforcing the bias’ of the conventional voter – the affluent, elderly British metropolitan middle class. Farage’s point is that it is this isolated group who now totally dominate those working in the media. It is a very large echo chamber – but an echo chamber no less.

Now let’s put PLSA into the Youtube search engine. Where Trump and Corbyn and Farage get 100,000 views for sneezing, the PLSA can’t muster 300 views for a conversation by young people about why young people aren’t saving.

The only pensions organisation that has come close to getting popular viewing is the DWP with its auto-enrolment promotions. This simple video has got 150,000 hits

while this short clip gets over half a million views

I’m not claiming I’ve got the answers – but I know that google analytics is the key to understanding why our pensions industry is failing to get the message across and why the DWP and tPR can.

Is this a social or a commercial issue?

Well it’s both. If we want to see our commercial pensions prosper we need the money of young savers. If we want to spread the load of older-age dependency from the state to private pensions, we need the money of young savers.

But the financial services industry is not adapting very well. Here in this weekend’s FT is an article entitled “slow adoption of technology hurts asset managers“. It reveals asset managers as slow to adapt as the Conservative Party.

This is how the asset management industry sees the threats to its existing business model


The FT reports that Google has  commissioned research on how it could enter the asset management industry while Facebook recently received regulatory approval from the Central Bank of Ireland allowing it to operate a payments service.

Not only is social media grabbing the eyeballs, it is looking to grab the money.

Change or die

If you go back and watch the Nigel Farage video at the top of the blog, you will hear him warn the media moguls in the room, that if they don’t change, they will become irrelevant. That was in 2016.

In the first half of 2017, Jeremy Corbyn revitalised a tired Labour Party into an animated and interesting protest group. He did so with the worst set of policies ever put before a British electorate but he did so with the power of the new media. He delivered what the Conservatives couldn’t, he delivered to the people who get their news from Facebook, who watch youtube on their phones as they go to work.

If pensions want to talk to the people with whom it has no engagement, it is going to need to find new ways to deliver its message. Because right now we look about as good at talking to these people as the Conservatives.

Our brand new stand.PNG

Further research?

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

If you see bad advice – say something!

whistle blowing



I was very pleased to read Natalie Holt’s article in Money Marketing, we need a better way to deal with bad advice. It deals with public perceptions of financial advisers and is uncompromising.

The reality of advice is lost every single time poor advice is given, every time an unsuitable unregulated investment is sold, and every time a firm is declared in default by the FSCS.

“The reality of advice” is an interesting phrase. Can advice be unreal? Or is Natalie saying that people stop feeling they are getting advice when they see their advisers closed down for selling dodgy products?

I guess “good advice” makes the concept of an “advice profession” a reality.

I don’t entirely buy that. I work in an area of financial advice (advice to trustees and employers about workplace pensions) which considers itself professional. We have rogue firms that deliver poor advice and we have individuals and even firms struck off by our professional body (the institute and faculty of actuaries) and our regulators.

By and large the profession is self-regulating, when bad practice is spotted , it is reported. This anonymous whistle-blowing is  taken very seriously and is used sparingly and not vindictively. Generally it works.

I see no comparable mechanism in retail financial advice. But there is no comparable body (to the IfOA) that all advisers subscribe to. The Law Society, the BMA, the ICAEW, professions have professional bodies that issue codes of best practice and dish out discipline where necessary.

Where Natalie’s argument falters, is in supposing the problem lies with FSCS. The Financial Services Compensation Scheme is a means of redress for customers that are ripped off, it is not a trade body with a code of best practice to which retail financial advisors sign up.

If FSCS became a member organisation, like the IFOA then I can see IFAs whistle-blowing to it , as actuaries whistle-blow to the IFoA. But for that two things need to happen.

  1. Financial advisers need to be clear about what they are and where they are conflicted
  2. There must be a clear process by which IFAs can whistle-blow on bad practice, not to gain commercial advantage but to prevent their profession being brought into disrepute.

Saying it like it is

Over the ten years I’ve been writing this blog, I have often written of bad practice. I complained about the unfairness of active member discounts, citing a particular case where bad practice would bring shame on workplace pensions.

More recently I have pointed the finger at vertically integrated master trusts, fiduciary management and the general trend among actuarial and employee benefit advisors to double up fund management fees (with little VfM).

Most recently , I am pointing out the dangers of “conditional pricing” of advice on transfers, where IFAs advise for free so long as they get wealth management fees.

What is consistent is the insidious trend among advisers (of whatever hue) to ignore conflict of interests and to tell it “how it isn’t”. Active member discounts were a way of cross-subsidising employer fees by charging them to deferred member pots. Vertically integrated master-trusts/fiduciary management and manager of managers are all ways of collecting advisory fees via the “ad-valorem” back-door. Conditional pricing is simply a way of taking commission from a SIPP instead of charging a fee.

If we want a profession that is trusted by the general public, then financial advisers (including investment consultants and actuaries pretending to be asset managers) must not just be clear about how they charge but make it clear they do not consider un-transparent charging structures acceptable.

The conflicts of interest created by making consultants shop-keepers , manufacturers as well as financial advisers are obvious. But they are never called.

Natalie points to the recent claim on FSCS from a collapsed firm, Central Investment Services, that had been selling unregulated investments which have proved worthless.

Here is just one of the comments in the article in her paper she is referring to;

He does what he does and then disappears, leaving customers in the lurch. There are three potential sources of redress: the PI insurance, the assets of the firm and the compensation scheme. (Richard Hobbs

This firm traded in the UK, it had the support of a reputable platform (Nucleus) in which it had a share-holding. There is nothing to suppose that there are not man other IFAs doing precisely the same.

It really is time that when the kind of behaviours that firms like Central Investment Services are discovered, they are stopped at source. If IFAs know of bad practice, they should have a way of reporting on it to their trade body (perhaps FSCS could become this), before a crisis develops.

In the meantime I will go on blogging about what good looks like, the evils occasioned by conflicts of interest and the necessity for bad practice to be exposed before it does the damage.

The message is certainly getting through. My highest read blog this year is on just such a theme. My recent blog on conditional pricing is in the top five (you can’t read it as the firm I am criticising are threatening legal sanctions). We all know this is important stuff, it is not enough to read about it, we really need to take action against the bad apples before they infect the barrel.

So I would add this blog as my comment to Natalie. The answer to the problem is not in more regulation, it is in good advisers refusing to tolerate bad practice. We need pre-emptive action as “a better way to deal with bad advice”.



Posted in accountants, actuaries, advice gap, pensions | Tagged , , , , , | 5 Comments

(D) electable ironies

bucket head

Mr Bucket Head’s 15 seconds of fame


Mr Bucket Head wore the stand out costume of the evening.

Theresa May dressed up like a Fish Finger but was outdone by Mr FishFinger,

fish finger

Mr Fish Finger lurks behind Tim Farron


Photos courtesy of Chris Chivers.

Of more moment is this brilliant comment posted on this blog by Colin (the Eagle)

The Democratic Unionist Party now look like the Tories preferred coalition partners. The DUP, which is the biggest Unionist (ie pro-UK) party in Northern Ireland, are often treated as though they are just the same as the other Unionist party they have essentially replaced – the Ulster Unionists.

The DUP are another thing entirely. They have strong historical links with Loyalist paramilitary groups. Specifically, the terrorist group Ulster Resistance was founded by a collection of people who went on to be prominent DUP politicians.

For the Tories to end an election campaign which they spent attacking Corbyn for his alleged links to former Northern Irish terrorists by going into coalition with a party founded by former Northern Irish terrorists would be a deep irony.

May in pocket

Commissioned by G Osborne

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Immortal but not immutable – the never ending Tory.

I have not had such a violent reaction to a blog this year as to “this blogger’s a reluctant Tory“. It clearly deserves this.angie 6The Tories aren’t going away, as Prospect quipped – they are the never ending Tory.

They may be immortal but they are not immutable and there are people within that party who both want change and are open to new ideas.

I know this also to be the case with other parties, the Labour party has views on pensions much closer to mine, I would not want to change them.

So if there is such a thing as a tactical dissenter, that is me. I would rather not lie about my intentions and I would like people to know that when  I put an X against the execrable Mark Field, conservative candidate for City and Westminster, it will be with the greatest of reluctance.

I may be saying “good-bye” to many good friendships as I press “publish” on this one. Here goes….


Foot note

– more positively – read this!

Posted in pensions | 15 Comments

This blogger’s a reluctant Tory


Some year’s ago, Mrs May reminded the Conservatives that some people thought them the nasty party, this election she’s reminded us that they are the hapless party. They have been opposed by a Labour Party who’s policies are under-costed (IFS reckon they will add £75bn to Governmental spending( and under provisioned, (IFS reckon that at best Labour’s tax changes will bring in £50bn).

The Labour party have not even talked about stopping the Tory’s planned cuts in benefits – the impact of which would run into further tens of billions of pounds.

Instead of debating the management of our economy in and out of Europe, the Conservatives have allowed the election to have been fought as a popularity contest between May and Corbyn – which Corbyn has won hands down. They have taken on one serious issue and have u-turned on it .  For the rest, the Conservatives have simply trotted out slogans which the general public have dismissed with the scorn they deserve.

Whoever has been advising Mrs May on how to run this campaign has done a terrible job and should hang their heads in shame. May herself should never be so exposed as she has been. She has allowed herself to be hung out to dry, she can do so much better, as witnessed by her performances in parliament.

A reluctant conservative

I am voting conservative reluctantly. My natural inclination is to vote Liberal or Labour but I am voting for an agenda that the country has already agreed , the Brexit agenda.

As virtually no policy was announced in the manifesto – other than the aborted policy on social care (which I agreed with), I am not voting conservative on policy grounds. I am simply unable to come to terms with Labour policy and unable to think what a Liberal vote would mean – at a time when the country has voted to leave Europe.

I suspect that the Conservatives will win – because the Labour party will not be able to get its voters out (the kids who didn’t vote remain). I suspect that the Conservatives will win because they own the voters and Labour own the votes of those who stay at home.

If Labour can mobilise its votes then they can win. The poll’s margin for error is considerable, the polls only measure voting intentions – not the intentions to vote. Good intentions are not enough if you never make it to the booth.

But if the Labour party wins this election, it is because it has mobilised a class of people who have been de-energised from politics for some time and they will deserve our support for doing so. There are decent people in that party – including pension people like Rayner and Cunningham who I will support.

If Labour wins I will support them, but what if neither party wins. What if there is no majority. Heavens! I can see no alternative but another bloody election.

We need another election like a hole in the head.

Cameron will be remembered as the bungling idiot who led us unnecessarily out of Europe, May may be remembered as the lady who u-turned getting out of a cul-de-sac.

Either way, the Conservatives since 2015 have been hapless. They have proved themselves a party that cannot govern themselves or others.

They have imposed politics on our lives three times in two years. With politics has come horror.

We need to get on with our lives- we do not need another election and we need to led out of Europe.

Can we do without a Conservative Government? Sadly I think not,

For all this- I will be at the Conservative party in October, listening and wondering how Conservatism works for me, for pensions and for my country.

Whether they are a party in or out of Government by then I do not know. I can only conclude that they are the better of two evils.

Essential reading

Quietroom’ s analysis of the election manifestos; not an analysis of the policy, but of how ideas are conveyed

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Pension Transfers; tread softly- for you tread on their dreams.

Tata pensions

Had I the heaven’s embroidered cloths,
Enwrought with golden and silver light,
The blue and the dim and the dark cloths
Of night and light and the half-light;
I would spread the cloths under your feet:
But I, being poor, have only my dreams;
I have spread my dreams under your feet;
Tread softly because you tread on my dreams.

W. B. Yeats

Over the second half of the year, a number of  occupational schemes migrate status. Some , like BHS will enter the PPF or at least the PPF’s ante-room.

One or two more will migrate into a Regulatory Apportionment Arrangement (RAA) which you can read about here.

The British Steel Pension Scheme (BSPS), currently sponsored by Tata is well down the road to becoming an RAA, the Hoover Candy scheme has recently been granted permission to move into an RAA.

So members of migrating schemes are faced with choices which present closing windows of opportunity. You do not need to be a behavioural scientist to know the power of the “buy now while stocks last” close.

I was not surprised to read in the FT another highly responsible article on pension transfers from Jo Cumbo , which published this statement from BSPS Trustees.

“The number of transfers completed during the year to March 31 2017 was 482 (the comparative figure for the previous year was 170).”……: “Included within the figure of 482 would be a very small number of current and former senior managers, consistent with the numbers overall.”

Management showing proper restraint

The wording is precise and correct. Trustees are mindful of the Ilford Ruling where the Regulator ruled against well-informed pension scheme members taking advantage of un-reduced transfer values prior to a corporate insolvency sending their scheme into the PPF. This is behind the defensive positioning of scheme and sponsor.

Tata declined to comment. But it is understood that no senior executives involved in talks over separating the pension fund have transferred their pensions. The pension scheme trustees, comprised of both company and member-nominated representatives, also declined to say if any of these representatives had transferred their pensions over the past year.

Schemes that are properly managed and governed

Schemes like BSPS and Hoover Candy operate to a high standard of governance. That standard – we would hope – would be maintained, whatever happened to the member’s benefits.

There is no reason to suppose that the RAAs set up for Hoover Candy and BSPS won’t be run as well as the current schemes. Nor is there any reason to fear the PPF. As I have written recently, there are some members who may – because of personal reasons, be better suited by being in the PPF than an RAA or even the original scheme.

Restraint needed from advisers

I have had some fairly vitriolic comment from some IFAs who point out that it is a no-brainer for members heading for the PPF to “cash out” and take a CETV.

Part of this may be a natural revulsion with the 10% haircut in immediate pension that members take on PPF migration. But John Ralfe is right when he tells the FT

“BSPS has improved its cash transfer values in the last few months, to reflect the scheme’s lower risk investment strategy. The fact that a member transferring now gets more cash, may explain the marked increase in the number of people transferring.”

Infact, the numbers of transfers mentioned by the BSPS Trustees are in line with figures we have seen elsewhere. I do not think they spell out a rush for the door.

There are 126,000 people who have or will have pensions from the BSPS, of them 33,000 are able to cash-out their pensions. 482 is a very small percentage of the potential CETC population.

I have not seen equivalent figures for Hoover Candy or indeed BHS or any of the other schemes in the PPF assessment period. However I would be surprised if there has been a rush to any door.

The more strident wing of the advisory community who consider pension freedoms not only a right but a universal opportunity should also show restraint

Restrained cautioned by employee representatives

I very much liked the comments of Community- the steelworker’s union.

“Steelworkers have already made tough choices necessary to secure the future of their industry, and the ongoing uncertainty about the future of the BSPS is extremely difficult for scheme members.

Tata workers

“All scheme members must be given the choice ….and this must be delivered. “We would urge members to think carefully before making long-term decisions regarding their pension.”

It is hard for those of us in white-collar jobs with the security of a liquid job market to imagine what losing your job in  Port Talbot is like. I remember speaking to a group of Allied Steel and Wire workers in Cardiff in the mid nineties, the loss of their pension on top of the loss of their jobs left them doubly desolated.

Nowadays , available pension security is higher, but insecurity among steel-workers must be high- as Community point out.

It will require great restraint and understanding among financial advisers talking with BSPS members, to remember that however easy we may see for a CETV to add value, it is not going to replace the security of a BSPS, BSPS RAA or a PPF pension.

Indeed, the options available after taking a CETV are all potentially loaded with future insecurity.

“We would urge members to think carefully before making long-term decisions regarding their pension.”



Further reading

The FT article Tata Workers cash in Final Salary Plans can be found here;

If you are an IFA and want to consider these issues in greater depth, come to the Great Pension Transfer debate at the East of England Showground near Peterborough on June 19th. The event is free and will attract over 300 IFAs to listen to Rory Percival, Steve Webb, Gregg McClymont, Alan Smith, Michelle Cracknell and many others.  You can still book a free place using this link

Had I the heaven’s embroidered cloths,
Enwrought with golden and silver light,
The blue and the dim and the dark cloths
Of night and light and the half-light;
I would spread the cloths under your feet:
But I, being poor, have only my dreams;
I have spread my dreams under your feet;
Tread softly because you tread on my dreams.

W. B. Yeats

Tata Scunthorpe









Posted in pensions | 2 Comments

The time is right for pension price disclosure.

price 1

Last week I went to the FCA to discuss price disclosure with the Regulator. The time is right for people to understand what they pay to have their pension managed.

I am one of the few people who gets information on what I am paying to own a pension fund. That is because I get a statement each month telling me how much money is in my pot , what I am paying for investment management, what is being spent on transactions and what is being spent on giving me and my employer a good experience (call it administration).

Here is my disclosure

  Fund charge % Slippage % Admin Charge % Total Funds Cost of ownership pm £
Multi Asset Fund 0.13 0.06 0.18 400,000 123
Global Equity Fixed Weights 0.10 0.02 0.18 400,000 100

This is a “before” and “after” comparison. In May I moved from the more cost Multi-Asset Fund to the Global Equity Fund. I moved because I did not want to be invested in anything other than equities – it was helpful in making the decision to know I would be paying less in transaction costs.

The decision was not this binary, other choices were available, but once I’d got to the point when I wanted to move funds, this table was helpful. Please don’t tell me I lost the value of multi-asset diversification (I know that)- I simply didn’t need bond returns in my pension fund.

I am my IGC

Independent Governance Committees, when deciding whether their members are getting value for money need to have the same fundamental management information.

They have not one but two questions to ask

  1. Is there provider getting value for money from its investment management and administration suppliers (whether in or out of house).
  2. Is the member getting value for money from the provider.

These are not the same question but the two are inter-related.

I am my own independent governance decision, I have to decide whether to stay with L&G  and then what fund I used as the Henry Tapper default.

My means of benchmarking whether I am getting value for money on costs and charges is to look at what the market is offering me elsewhere. I have found that I could invest using the  Vanguard admin platform and the cost of ownership would be roughly the same. Except I can’t do this for my workplace pension. If I go anywhere other than Vanguard, my costs go up. So my decision is to keep my money on the L&G platform

Then I have to decide from a range of fund options available from L&G where to put my money; if I make no choice, I use MAF , I chose a similar fund to MAF that was more focussed on equities. This was because I have a 30 year time horizon and have no immediate liabilities to meet from this money (I’m still working).

I have told myself, that relative to the market as a whole, I am getting value for money. This could change. The fund I was in and the new fund have about £2bn in them, the L&G platform maybe manages £10bn. But NEST will be managing £500 bn on its platform within my time horizon. Once NEST has paid off its debt (2038)- assuming it stays not for profit – it may offer members better value for money than L&G.

As my own IGC, I will keep a watching brief on NEST and other top workplace pension providers to make sure I continue to get the best deal for me.


Very few people will pay as much attention to their pension as me. Most people will outsource the decisions I take for myself to

  1. Their Financial adviser – for personal decisions
  2. Their Employer – for the choice of workplace pension
  3. Their IGC of master trustee – for the governance of that choice.

Most people will trust their employer to be choosing in their best interest  and their IGC or master-trustee to keep their workplace pension provider honest.

Most people would be shocked to know that most employers and even the super- buyers at IGC and master-trustee level, are buying with imperfect decision. They don’t know how well the investments you are making are working and how much they are costing.

This simply isn’t good enough

To decide if you are getting value for money , you don’t just need to know how much value and money you are getting, but how much you could be getting elsewhere. My explanation of my own decision making shows the process I had to go through , to get to where I am.

But employers don’t know what their staff are getting as VFM as they (generally) don’t have the MI from the IGC to see. Even if they knew the cost and the value of their workplace pension, they would have no way of evaluating those costs and values unless they could make a comparison with the other choices.

price 3

IGCs can’t even (generally) disclose their own costs and value let alone disclose how their provider is doing compared with others. There are a number of reasons for this.

  1. They can’t get the MI from their own providers because they are blocked by a non-disclosure-agreement (NDA)
  2. They have the information but can’t share it because of the terms of the NDA.
  3. They can share it but they can’t compare it as other IGCs are bound by NDAs.
  4. They simply don’t want to share information to protect their provider and/or its suppliers.

I have been canvassing the opinions of IGC chairs on disclosure and have  found them split between the four camps. I am pretty close to outing those IGCs who would not meet with me (one agreed to meet with me so long as we did not discuss benchmarking, two did not reply and three told me to go away).

The rest of the IGC chairs expressed frustration that they could not get the information they needed to make a decision on Vfm as I did, or that they could not publish their work because of NDA restrictions.

price 5

What is needed

What we need are Vfm scores properly compared in league tables that allow IGCs and Master Trustees, employers and members of workplace pensions to see what they are getting.

At the moment there is no way of getting this. To change this we need the FCA to empower and require those tasked with measuring Vfm to do so in a consistent published fashion.

That means ignoring NDAs and disclosing what is really going on at the pricing level, within the providers, IGCs oversee.

We are remarkably close to being able to do that, but “close” is not good enough!

price 2

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Pension Risk Sharing – they’re all at it but us!

Oh dear!

News that the Japanese have gone all defined ambition did not go down well. Infact it went down like Japanese Knotweed at the Chelsea Flower Show.

This is not surprising; to the pension purists, the arrival of schemes that walk the middle way between DB and DC would sully their pension landscape. Those who seek to profit from the back-end of DC, especially the insurers and SIPP providers looking to “decumulate” our savings, collective risk-sharing is a direct threat to their business model. To the pension experts, led by  John Ralfe, anything not backed by gilt or a high-grade corporate bond, is heresy.

Ralfe’s arguments are intellectual and founded in economic theory, the insurer’s behavioural and founded in commercial greed. Both are deeply and widely held.

It is ironic that news of the Japanese risk-sharing plans is brought to us by Willis Towers Watson (WTW) who are perhaps the UK’s most powerful exponents of pension de-risking (AKA extinction of private DB liabilities over time).

I have published two widely distributed blogs on here criticising WTW and this will not be a third. Well done WTW for publishing developments in Japan and in particular for this paragraph from its report.

Companies should start to analyze how they may take advantage of this new opportunity, including potential implications for the company (e.g., cost, accounting) as well as for participants

That had WTW’s former UK guru spluttering

Of course the current Government couldn’t and didn’t. Within months of the passing of the Pension Act 2015, then Pension Minister Ros Altmann stopped the secondary legislation for risk-sharing schemes. We have Defined Ambition in principle but not in practice.

This under-reported U-turn has meant that instead of having risk-sharing both in accumulation and decumulation, we have the binary choice between DB and DC that creates the industrial conflict between Royal Mail and the CWU. It is why BSPS is having to set up a DC scheme for its veteran employees. It is why no new hires in the private sector get a defined benefit accrual.

It means that we have thousands of people taking choices on their “pension freedoms” without proper advice. We have people becoming their own CIO and actuarial functionary who are financially witless. We have pension scammers, industrial scale panic-selling of DB transfers and a public who has never been so excited/confused/vulnerable.

The failure of the British Government to see through the legislation set in place by the Coalition, that would have allowed us to risk share as the Canadians and Dutch do – and the Japanese will do by the end of the year – is a great lost opportunity. Ros Altmann has a lot to answer for -as I keep telling her.

All is not lost.

If I was the CWU, I would be printing out that WTW article and distributing it to every member of the Royal Mail Board. If I could get an audience with Moya Green, the Royal Mail’s brilliant (female) CEO, this article of WTW’s would be the first thing I’d put under her nose!

The CWU’s proposal to  Royal Mail do not rely on any of the half-completed regulations for DA, they use existing regulations to minimise the risks to Royal Mail of offering future DB accrual and scheme pensions to Royal Mail employees. To all intents and purposes they offer Royal Mail a CDC scheme.

All is not lost- if Royal Mail can have the courage that the Japanese have, if they can – in place of strife – share pension risk.

Further reading

Here- again – is the link to WTW’s excellent report; WTW doing just what a global consultancy should be doing – thank-you!

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Ever wondered where those “pension leads” come from?

Many financial advisers buy “pension leads”. These are hot prospects keen to take action to change their financial circumstances. Many of these leads are legitimately sourced, but many aren’t.

If you spend time on Linked in or Twitter or Facebook, you will see adverts that look like this.

pension services 1

The headline says that you will get “trusted advice”, but if you go to the site , you discover something different. This is what you are eventually told.

In accordance with the Financial Services and Markets Act 2000, Pension Services do not provide any financial advice whatsoever. We are simply a lead generation website that puts you in touch with a pension review expert.

This is how the “business model’ works

1) We will give you call once you have submitted your contact details and pension size to us via the contact website form
2) We arrange a meeting with yourself, as we have IFA and pension review experts based all around the UK
3) We meet with you and discuss your pension, we provide honest advice and it maybe a case of leaving your pension where it is if it performing well.
4) In most cases our customers tend to want to release cash, this could be an option for you depending on your age, and we will discuss this option with you, but if you do not quality for this then we can discuss other options during your free pension review.
5) We then answer any questions or concerns you may have during our meeting and pension review with you

What you’ve just read is the small print. The advisers are “FSA” advisers, though there is no reference to FSA or FCA authorisation anywhere on the site.

Here is the large print. It is aimed at the most vulnerable in society, those with no financial education, with debt and without the wit to spot what is implausible to well-educated and financially literate people.

The people who have written the following advert have no knowledge of pensions but worse – they have no knowledge of morality. They are no better than common criminals.

Pension service

So just who is buying leads from Pension-Services? I suspect that it is not the kind of IFA who is booked into the Great Pension Debate. I suspect it is the kind of cold-caller who we have exposed working out of Geneva.

Lead sourcing of this kind fuels the boiler-rooms of Europe and sends money out of good quality approved pensions into the SIPPS that invest in Capita Oak , Trafalgar and the host of other scams exposed by Angie Brooks, Chris Lean and first

Legitimised by you – sold in your name!

Almost every part of the pensions industry is misrepresented by Pensions

These are the providers they “work with”pension services 2

I had originally thought that these might be the recipients of money liberated from elsewhere, but Pension-Services are far bolder than that!

pension services 3

There are warnings against scammers and the Pension Regulators Scorpion makes numerous appearances – associated with some remarkable mumbo-jumbo about human behaviour!Pension services 4.PNG

The aforementioned FSA advisers are your protection against the diabolical liberties occasioned by “pension scammers” who can “sell your pension”, “cash in your pension chips” etc..

Where confusion reigns , the scammer gains

This is the souk where philosophy , regulators and insurance are thrown together. It is a financial services car-boot sale. It is Bartholomew Fair.

But we are all implicated. Insurance companies, Regulators, Financial Advisers (I didn’t see actuaries but I’m sure they were there somewhere!).

This confusion is legitimised by our acquiescence. So long as websites like this can be publicised on social media alongside legitimate propositions, they will send out leads to Geneva or Malta – or (heaven help us) some UK based boiler-room operation.

People will “trust-bust” and HMRC will chase after them for the 55% tax-charge – after all the initial money has been stolen. People will lose their life-savings and we will complain that this should never have happened.

Wake up and smell the coffee people, this website is being advertised on linked-in and Facebook as you read this blog

We are all complicit if we do not take action.

I am taking action in writing this blog, you may wish to write to your contacts at the FCA and tPR and ask them politely to chase these scammers down.

What I would like to see is where these leads generated are being sent, who is buying them and who is providing the “FSA advice” promised on .

For this is the origination of the scamming industry and if we can kill-off this nonsense, we can starve the rest of them of their oxygen


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How real is your pension deficit?

How real is my pension deficit?

How real is my pension deficit?

How real is my pension deficit?

How real is my pension deficit?

 We get a lot of questions on this issue!
Pension scheme deficits continue to make the headlines and many companies will be approaching their 2017 actuarial valuations with trepidation. However, behind the headlines it is not all doom and gloom for UK pension schemes. Asset values are up and the expected pension payments from schemes are largely unchanged.
First Actuarial Best-estimate Index (or FAB Index for short) has generated a significant amount of interest amongst the pensions industry – and has even been quoted in Parliament and the Government’s recent green paper. The FAB Index is calculated assuming the UK’s 6,000 DB pension schemes continue to pay out benefits as they fall due and allowing for our best estimate of the future investment returns they will earn on their assets. This best-estimate measure is important to consider when setting a DB pension scheme’s financial strategy. The FAB index consistently shows a surplus of more than £250bn, so many companies will be wondering how real is their pension scheme deficit and why are they being asked to contribute more money?
Our webinar will provide practical guidance on how to approach your next valuation, including:
  • assessing whether your existing funding methodology reflects your long term strategy;
  • why the “gilts plus” model for setting discount rates is now being challenged;
  • how to consider whether you have the right amount of prudence in your funding strategy; and
  • an update on non-cash funding options.
The webinar will start at 11am on Tuesday 20 June and will be presented by Peter Shellswell and Sam Mullock. It will last around 40 minutes and will be of interest to finance directors, financial controllers, trustees and anybody with defined benefit scheme responsibilities.
Book your place on our webinar please visit:

We hope that you can join us. For any questions please email
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ARE CETVs being “panic sold” OR NOT?


To his credit, James Baxter of Tideway (who I have criticised in a recent blog for selling not advising) , has posted a reasoned response. The key matter for me is whether members of DB schemes are being panicked out of them by the prospect of falling CETV rates. I post my views in my response to James’ self defence. Reading both comments – lengthy as they are, may be helpful in understanding the fundamental dynamics of the great transfer debate. I post both James’ comment and my response without further comment, if you haven’t read the blog in question – it is linked here


Its a shame you did not come to the conference and hear the talk and subsequent Q&A session that put these slides into context.

I agree with your comment that CETVs are non negotiable. We speculate that the reductions in values offered in the schemes mentioned is down to increased outflows through the transfer option and trustees obligations. If you have a better explanation I would be keen to hear it.
The BA scheme reduction was announced in their ‘Trustee’ news letter which can be read hear:
This pre announcement caused a rush for the exit door…not us. RBS gave no notice to their changes in the summer of ’15 , SGN made a similar announcement at the end of 16 for a forward date with the same panic effect on members as the BA announcement. Again nothing to do with Tideway, but as an adviser active in this space we get to deal with these panicked members.

The panic in members is also caused by the likes of Tata, BHS and the media not Tideway. To the contrary we spend time reassuring members of FTSE 100 blue chip company schemes with resilient covenants, that in fact their benefits are going to be paid in full and fear of this is certainly not a reason to consider a transfer.

I’m sure if we met Henry, aside from establishing a shared love of boats you would quickly recognise that we are one of the good guys. We have a great website, issue plain English guides and work hard on our PR. Aside from this we do no selling. All our advisers are employed on generous basic salaries without any incentives around specific cases or business volumes. All our inquiries are in bound from members who have usually read our guides, thought about there options and have sensible plans and ideas as to how to take advantage of pension freedoms and a generous CETV. We facilitate transfers to DIY platforms, other wealth managers and advisers as well as offering an end to end service for those who want that. Our 1% contingent fee is both competitive and hugely popular with consumers, it actually makes it easy for them to pull out at any time if they decide to stick with the scheme benefits and some do as you would see if you read the testimonials on our website. We are absolutely not pushy and do get a huge amount of repeat business from schemes where we have become the trusted firm to use.

Mercers are now predicting around 40% of DB actives and deferreds will want to transfer. The Pensions Regulator tells us that probably 80,000 members transferred in the 12 months to 31/3/17, Tideway has completed around 1% of these by volume and 2% by value. We are not alone in meeting an increasing level of customer demand.

How many DC pensioners are buying index linked annuities at NRD these days? Not many, and quite correctly. Who given the choice would lock in capital at today’s annuity rates and can predict that the income they will need in their 60’s will be the same in their 80’s and 90’s. That’s assuming they can any way afford an indexed annuity to meet their age 60’s and 70’s income need, most are a country mile away.

I lost both my parents before age 75, my parents in law in their mid 80’s can live on two state pensions per month quite happily and have a DB benefit to spare, but just had a £25,000 stair lift fitted after one fell and broke a hip, try doing that on a defined benefit. My 95 year old next door neighbour gets three visits a day at home costing in excess of £2,000 a week, again try doing that on a defined benefit. I think I have a pretty good comprehension of what retirement looks like.

Fixed life time incomes bought at today’s interest for 60 year old’s are unlikely to prove fit for purpose. It therefore should surprise no one, especially an actuary, that 50 to 60 year old’s offered such large sums of money will prefer flexible access to a conservatively invested fund over an annuity.


James Baxter




I didn’t come to the event because the thick end of £700 and a day not consulting is too rich for my blood. Al Rush has arranged a conference for practitioner which is free on 19th June and I’ll be going to that.

The question about panic buying and selling on the “buy now while high CETVs last” is in the front of my mind. Ironically, the volatility in CETVs is now linked to the gilt rate as many schemes use best estimate valuations for schemes with little diversification.

Those schemes with a balanced investment approach – eg – a decent proportion of growth assets produce lower and less volatile CETVs.

Smart advisers can focus on schemes with high gilt allocations and be pretty sure of a low critical yield on the TVAS. These schemes look like annuities because they are preparing for a buy-out into a bulk annuity. But that high CETV reflects the high level of security in the ceding scheme.

Ironically, the schemes which are still “investing” are producing lower CETVs , because they are using higher discount rates ( on a best estimate basis). For these schemes, there’s a lot less CETV volatility (the virtue of diversification) – so they get less transfers.

If there is a fundamental for the  “panic sale”, it is that the gilt curve moves against transferors, but this is speculative in the extreme. High CETVs are high for a reason, they reflect the security being given up. The cost of that security is not a discretionary calculation, the decision to take a CETV should not be based on whether the transfer is a good or bad deal but on the fundamentals of someone’s financial planning.

I appreciate you know some old people but are you going to be around for thirty years for those in their fifties to really need you? I question whether the decisions being taken by most transferors are properly considered. Whether they have a proper understanding of the duration of retirement and the liabilities of later life.

Posted in pensions | 3 Comments

Proper information gets value for our money.

value for money
In this weekend’s FT, Merryn Somerset-Webb asks us to imagine ourselves a Government strapped for cash to meet rising costs of social care and struggling to find a source of revenues.

.. late last year Britain’s Financial Conduct Authority established that the average profit margin of UK based asset management companies is 36 per cent against an All-Share average of a mere 16 per cent — you have no taxation-related way to get at it.

The article stops short of calling for the dementia tax to be levied on asset managers, but suggests that cost transparency could in time lead to a redistribution of wealth from the City to Care, via the savings pots of Britain’s savers.

It is vision that will find favour with those in the Transparency Task Force but it is a vision not a policy, there are – as Merryn’s article points out, various caps already in place but there is no rule that says that savers cannot invest in high charging fund management schemes, nor will there be. It is simply unenforceable.

There are alternatives; the Government can – and in my view should, promote a simple value for money measure to show the chances of a high and low cost manager achieving and out-achieving. The trick is to use data wisely.

We need data

Data is out there and it can show comparative performance accurately; there is however no trusted source for that data to cover all the options a consumer has. For instance, there is no way of properly comparing the performance of NEST, People’s Pension and NOW against the performance of L&G, Standard Life and Aviva. The Data isn’t marshalled!

Data is out there and it can show the risk taken to achieve results. comparative performance data can be organised on a risk-adjusted basis to show the value that you are paying for- though no such mechanism currently exists.

Data is also out there to show the true cost of fund management, the money lost through “slippage” and direct fees that cannot be recovered by the consumer because it is in the hands of the fund management “industry”.

Data that is organised

If the data is out there – can we find a way of organising it? I think the answer is “yes”, though whoever does that organisation will need a leg-up from the regulators- the market cannot be expected to organise itself and the Government cannot hope philanthropy to achieve such a mammoth undertaking. There has to be intervention, if not in further capping, than in ensuring there is proper benchmarking with results open to all.

The benchmarking of rivals, whether sports teams, or financial services providers is a brutal way of showing who is cutting the mustard. Football managers are sacked for comparative under-performance but fund managers are able to prosper even when they are shown to be performing battle.

Last week, some big-wig at F&C kicked up a stink when Morningstar downgraded his fund for having high charges (the multi-asset funds do). He argued that he should be judged on a more sophisticated measure (perhaps he is). The problem is that consumers have no access to the conversation – it happens in the private pages of financial journals.

And when Vanguard very publicly launch a service which brings the cost of fund management down by between two and three times, this important information is also buried.

The truth is that fund managers and pension providers fear benchmarking almost as much as they fear price-capping. Both leave bad practice exposed, price-capping is simply an extension of the competitive pressure created by benchmarking.

Data that is available

But back to Merryn’s argument.

If we are to have a price-capped funds business then we will have imposed a control of a beast for a while, but the beast will break out of its pen – using its creativity to defeat the regulators , rather than benefit consumers.

If we go the benchmarking route, we need to have popular awareness of what good looks like and general enthusiasm for getting value for money from the financial services purchased. We have to recognise that most of us will not have the interest or the capacity to choose for ourselves, we will need advisers, trustees, consultants and IGCs to do this for us. And they will need the data organised in a proper way with the help of Government.

The distribution of digestible data is critical to the transfer of value.

The means of getting information to the people who take decisions is changing. The Government is making it possible for people to see information about their investments through pension dashboards, I am seeing interest among those who organise payroll data (the software suppliers) in providing information on the workplace pensions they help manage to employers and their advisers.

The chances are that by the end of the decade we will have access to the kind of performance data that will expose the weak managers and promote the strong.

I think that this is the way forward – and I suspect that Merryn agrees. Price caps are there for breaking, but if we have savvy consumers we have a mechanism to keep a lid on back practice that cannot be broken.

I hope that with the help of others, we can provide a lasting means of transferring the value that sits with the City to the care we must pay for in the coming decades.


Further reading

Merryn Somerset Webb’s article; Cap asset management fees to free up cash for social care

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Tideway – we’ll resume this conversation on June 19th!



The original blog published here has been the subject of certain threats by Tideway Investments both to me and to my employers.

I have no intention of letting this blog get in the way of my daily work by defending  the positions it takes in courts of law.

I would remind readers that what I write, I write in my own time, in my own name and though I will refer to my work with my employers, this blog is nothing to do with them. So please do not go whingeing on as if it was!

If you want to read what Tideway is saying, the links is below; if you want to read what the Pension Regulator is saying, the link is below.

It is unfortunate that the excellent debate – which you can find in the comments to this blog, has been curtailed by these threats, however it will be renewed later this month.

If you would like to be a part of the Great Pension Transfer Debate on June 19th – you can do so via this link! Free speech assured!

Tideway’s guide to Final Salary (why not “defined benefit”?) transfers.

FT article on active members transferring living funds;

Money Observer article;





Posted in pensions | Tagged , , , , | 13 Comments

Pension scams; too little-too late?


Angie Brooks -pensions’ Mother Theresa


News from the Serious Fraud Office that they are at last on to the gang of financial thugs behind Capita Oak and the network of related frauds, will come as scant comfort to those who have been robbed and are now facing a tax-bill for the robbery.

If ever there was a case of two speed financial regulation, it is this.

Moving in top gear and way ahead of the peloton Ms Angie Brooks and her Pension Life website which has for several years been whistle-blowing on the activities of the scammers.

Moving in the peloton, the various parties to Project Bloom, all chatting between themselves and disregarding Ms Brooks’ alerts.

Now at last the heat is being turned on the SFO, not least by a Government threatening to abolish it. One wonders if this belated consultation on scamming is anything more than a gesture.

Here is what one brave woman is doing

Below a redacted letter issued by Angie Brooks to solicitors protecting the interests of those now under investigation.


I am afraid a continuation of your refusal to engage with this matter is no longer an option as this is now a criminal case.

The Serious Fraud Office is now seeking statements from victims of Trafalgar MAF because this investment scam is linked to the Store First, Capita Oak, Henley and Westminster pension scams through James Hadley who was the promoter and distributor behind all of them.
STM accepted hundreds of transfers from Hadley’s unlicensed firm Global Partners Limited (which later changed its name to The Pensions Reporter) in the full knowledge that neither Hadley nor his firm were either licensed or qualified to provide pension transfer or investment advice.  Further, STM then accepted investments into Trafalgar MAF in the full knowledge that Hadley was the investment manager of the fund.
Can you now please come to the table and deal with this.  A number of victims feel that STM has been complicit in facilitating financial crime – while at the same time depriving the investors of any information or updates on the fund.  There has been no news for far too long and this is no longer acceptable.
I am meeting another trustee firm (who travelled from Malta to Spain to meet me) to sort out another matter today, and will call you towards the end of the week.  I trust you will put all the investors in the picture regarding this at the AGM tomorrow.  Shares have now been purchased on behalf of the Trafalgar victims so that their right to be kept in the loop is clearly established.
Regards, Angie

Here is what the SFO have finally come up with

The Serious Fraud Office has today announced that it is urging storage pod investment scheme investors in the Capita Oak Pension and Henley Retirement Benefit schemes, self-invested personal pensions (SIPPs) “as well as [investors in] other storage pod investment schemes” to get in touch, as it is launching an investigation.

Also included in the investigation are the Westminster Pension Scheme and Trafalgar Multi Asset Fund, which invested in other types of products, the SFO said in a statement on its website.

More than a thousand individual investors are thought to have been affected by the alleged frauds involving these schemes, including those who invested their pension funds, the SFO said in its statement. It said the amounts invested totaled over £120m (US$156m, €139m).

“The SFO encourages members of the public who have invested in these schemes over the period 2011 to 2017 to complete a questionnaire, which is available here,” the SFO statement adds.

scamproof scorpion

The Scorpion campaign that is now used by the scammers in their marketing documents!

We have worked with tPR and have reported schemes to Action Fraud. We have never had any feedback (or indeed acknowledgement) of our work. Our (Pension PlayPen, Henry Tapper and First Actuarial’s) efforts have been as enthusiasts for good pensions.

But we find that what we’ve experienced is amplified many times over abroad. Following the work of Ms Brooks , Christopher Lean, Darren Cooke and the others who have made it their life work to stop the scammers, I cannot but feel a deep revulsion for the way they have been ignored and insulted by the UK authorities.

Justice delayed – but Angie is as strong as ever.

Angie and her team of helpers have every right to feel aggrieved, but they’re not. Instead they are taking the belated help they’re getting and pulling the peloton along.
At last she has the co-operation of the Pensions Regulator (the excellent Lesley Titcomb) and on June 19th, I intend the 300 or so IFAs attending the Great DB debate to give Angie a standing ovation.
She should be a Dame.

Further reading

There are quite a few blogs on here about how the scammers are operating. But if you want to see Angie at work, go to her website
Above , just some of Angies’ images – visually representing the venal forces she fights!
For a wider perspective on why we are not so hot on financial fraud read this excellent paper.
Posted in pensions | Tagged , , , , , , , | 1 Comment

DB pension heading for the PPF? – Read this!



Here are some things you didn’t know about the Pension Protection Fund (PPF). If you are in a pension scheme heading in that direction you should read this!

While most people think it would be an unmitigated disaster to see their pension scheme fail and their benefits sink beneath the waves, the PPF lifeboat can – in certain circumstances – provide not just a lifeboat, but a wonderful alternative. It could be like being washed up on a desert island! desert


It’s all about “actuarial equivalence” applied to tax-free- cash commutation” and “early retirement factors”!

If that last sentence hasn’t blown your mind, then read on as it should get easier.


Actuarial science made simple!

In theory every calculation that an actuary does should be fair and provide equivalent benefits to one party as it does to the other.

In practice this doesn’t always happen. Actuaries have a number of ways of calculating things which can skew “fairness” in the direction of one party or another.

One such case is the calculation of how much pension you have to give up to get a pound’s worth of tax free cash.

Another is the amount of pension you can get if you retire early

Have a look at this tasty little table – cooked up by Nicole – actuarial doyenne of our Basingstoke office.

She’s compared a “model scheme”- one she’s prepared earlier, with the benefits you’d get if the scheme sunk and the PPF came along a life boat.


So what does this tell us?

Well it shows that if you waited till 65, you’d have done better in your private scheme, so long as you weren’t taking your tax-free-cash

And it also shows you’d be better off using the Pension Protection Fund if you retired early, even if you took all your benefits at 60 as pension

Using her ace actuarial skills, Nicole can show you’d get more tax-free-cash out of the PPF whether you retired at 60 or 65.

What’s more you’d get a larger residual pension from the PPF – even though you’ve taken more tax free cash!

True you’d give your spouse a smaller pension if you conked out day one  but even then the value of the package of benefits offered you by the PPF would be higher at 65 and at 60 .


All benefit were created equivalent but some are more equivalent than others!

The PPF actuarial factors for swapping pension for cash are around 26;1 whether you’re going cash to pension or pension to cash.

But the actuarial factors for the private scheme swapping (commuting) pension for cash are 12;1 reducing both the value of taking tax-free-cash and the value of your pension if you retired early.

Now of course Nicole’s model scheme is one that proves the point and not all schemes have the same differential between their “commutation factors”. Sometimes, the PPF won’t look as good! There are all kinds of bells and whistles that might be offered by a private scheme that aren’t offered by Nicole’s model scheme and all of this could make the private scheme more attractive.

And if you are a high-roller with a big fat pension the PPF will not be nearly as much fun – even if you were in Nicole’s model scheme.


The point is you should not despair if you are heading for the PPF lifeboat!

Infact if you were to call into our Basingstoke and spoke with Nicole, she would be able to explain all kinds of things about defined benefit schemes that neither you or I knew (unless you too were a Doyenne).

Things are not always as they seem in the Alice in Wonderland world of actuarial science!

And actuaries are not always what you thought they’d be – especially when they are doyennes!



Why does this matter?

This matters a lot if you are about to go into the PPF and it matters even more if you are faced with the choice of going into the PPF or staying in the scheme you’re already in.

That was the choice that faced Kodak Scheme members a couple of years ago and it’ll be the choice of British Steel Pension Scheme members in the next few months.

It is almost impossible to get your head round how actuarial equivalence can provide such a odd results.

I am not an actuary but I know enough about money to know this is really important.  People should not be taking decisions without knowing how all this works .

Unfortunately – people take decisions on what kind of pension they want (or don’t want) all the time often without the basic information needed to make a choice.

If you feel strongly about this -you should talk to The Pension Advisory Service or Pension Wise (if you are over 50).

If you want more help, you can contact and I may be able to find you someone to talk to, who really understands these things.



Posted in de-risking, pensions, workplace pensions | Tagged , , , , , | 4 Comments

If you don’t know who’s paying, it’s probably you.


victomlessThe last few days have seen a reality check on who’s paying for the long term care of our elderly. Now I read this morning a report by the Resolution Foundation on who’s  paying for the deficit reduction plans for Defined Benefit pensions (hint- it isn’t the shareholder).

There is a simple truth at work here. If you don’t know who’s paying – it’s probably you!

As with care so with pensions

In the case of care, if the costs of residential and home care for the elderly, aren’t met from within the family unit, they call on local authorities, the NHS and ultimately on general taxation. The cost of funding is felt in closed libraries, the loss of cottage hospitals – all kinds of little projects that councils and the NHS have to cut back on. In the end, the cost is born by a future generation of tax-payer who must put up with less or pay more.

Resolution found that

“by far the biggest driver of the increase in non-wage payment increase in 2016 – was employer pension contributions”

That those picking up the tab are unlikely to be those benefiting

“With 85 per cent of DB schemes closed to new members and 35 percent also closed to future accrual, the population with most to gain from closing scheme deficits is likely to have limited overlap with the population affected by any reduction in dividend payments, investment or pay”

That the bill is (in part) being picked up by current workers

With the £19 billion relative increase in DB deficit payments that we have identified in 2016 being roughly equivalent to 2.5 per cent of the UK’s total wage bill, the implication is that such employer contributions are lowering average employee pay by between 0.2 per cent and 0.3 per cent.

And that

in the region of 10 per cent of the £19 billion elevation in special (deficit) payments can be directly associated with lower hourly pay

Resolution admits to not having completed the research on where the rest of the impact falls, but it does not appear to have hit dividend payments or executive pay.

It concludes

there is a significant negative effect (with a coefficient of 0.22 per cent) for those who have never been members when we concentrate on employees in the bottom quarter of the pay distribution

In short, the people paying for pension deficits, include those who have never paid for them – to a significant degree.

The clever win , the ignorant lose

What is clear both from the Resolution report on pension funding shortfall and from what is emerging about social care funding shortfalls, is that costs that are incurred by the better off (those who live long enough to fully enjoy DB pensions are also major beneficiaries of residential and home care) are being born by all parts of the workforce and indeed the wider society.

Those who instinctively opposed Conservative manifesto pledges, should be careful to think what the alternative of those with wealth meeting their costs actually is.

Those who are driving our defined benefit schemes along the grind-path to buy-out, should be aware of the wider impact of doing so on the workforce. I don’t here just mean the Pensions Regulator, the immediate enforcers of deficit reduction plans, but the PPF (with the extortionate levy which should be included in any “special contribution” calculation).

The ultimate beneficiaries of the pre-funding of defined benefit funding are

  1. the shareholder who is released from balance sheet misery
  2. the buy-out insurer (or PPF where deficit funding can be afforded)
  3. the DB scheme member whose interests are prioritised.

Arbitrary funding policies make matters worse

The arbitrary apportionment of cost of both pension scheme liabilities and long term care funding is made worse by the lack of consistency with which subsidisation is applied.

Let’s take first long-term care. There is ample research (see below) that the extent a family can seek relief from the direct cost of an elderly member falling into dependency is a post-code lottery. Steve Webb is rightly talking in a BBC article this morning about the disparity between Authorities in the application of cost deferment, but the Kings Foundation has found more worrying disparities between Authorities willingness to pay against the means test.

These reports point to growing skill among those wealthy and educated enough to know, to work of “game” the system for their own benefit. If you are skilled in understanding care funding, it is possible to get high subsidies, if you are not, you may pay the lot – even if you have relatively little to pay. The situation is analogous to the abuse of Church School education – which is monopolised by the children of the affluent – who wish to get a public school education at someone else’s expense.

As for pension deficits, the speed at which these are paid off depends on the willingness of employers to absorb the pain and their capacity to pass the pain on through low-risk activities such as reductions in pay and benefits to the current workforce. It is clear that employers will do anything within their power, including hugely expensive incentivisation of individual transfers, to get DB pensions off the balance sheet and the immediate expense can be justified to shareholders in terms of improvements to the balance sheet.

But the reality of such de-risking is not just a loss of value to members but a cost to the reward budget. As with care costs, there is a subsidisation of pension de-risking by those who are least likely to benefit.

No victimless crimes

The analogies I am drawing between care costs and DB pension costs are relevant to the current political debate. My general rule is that if you don’t know who’s paying, it’s probably you, applies. The clever people avoid paying and pass the costs on to the ignorant.

Some would argue that the answer is in social insurance but as with pensions, so with long-term care, social insurance can all too easily be gamed by those who have, at the expense of those who haven’t.

The current system of means testing long term care has been changed not by the shift in the means test from £23,500 to £100,000 but by the removal of the Cameron/Dilnot cap of £72,000 meaning that those with most to pay now have most to lose. This is undoubtedly fairer and though there is a lot of detail to be decided upon, it’s very much more transparent.

With transparency comes many benefits. At the moment, opacity is benefiting the clever and the rich, in the future we will pay for what we use, with a bar of £100k below which the inheritance cannot fall.

Many poor people will look at the bar and laugh at it as unattainable. For them long-term care need now have no fear. It is theirs by right.


In the few hours between publishing this blog this morning and publishing an update, the Conservative position has changed. As with National Insurance for the self employed. As for the review of pension tax relief, it seems that finding an owner for our long-term care costs, is back in the sidings of general taxation.


Further reading

Resolution Foundation – The Pay Deficit –

BBC article on arbitrary apportionment of care costs;

The Local Government Association 2016 State of the Nation report on social care funding:

The King’s Fund is a highly (probably the most) credible think-tank commentator on the issue:  – for their publications see: .

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Tory plans for pensions (with impressive opinions for boss/pub/partner)


impress boss/mates/partner with this DIY assemblage

Replace the current State Pension ‘Triple Lock’ with a new ‘Double Lock’ by 2020 – ensuring rises are in line with earnings or inflation. The ‘Triple Lock’ will be maintained until then.

Frankly , most people didn’t expect triple-lock to survive to 2020; we’re all sorry to see it go as it helped poor people most. Not a vote-winner and shows how strong May feels about her chances (or that she’s an honest politician?)

Continue to support the successful expansion of auto-enrolment to smaller employers and make it available to the self-employed.

Great – making auto-enrolment available to the self-employed begs some important questions, not least about how the national insurance system works. There is no way to put the genuinely self-employed on payroll – another collection system needs to be found. Step forward DWP?

Give The Pensions Regulator (TPR) increased powers to scrutinise and fine arrangements that threaten the solvency of company pension schemes.

Frank Field firing up Theresa (as he has with the self-employed and auto-enrolment). Intervention may be needed – it is good to see tPR being recognised as potential policemen; under Lesley Titcomb tPR could be a force to be reckoned with.

Consider a new criminal offence for company directors who recklessly put at risk the ability of a pension scheme to meet its obligations.

Wrong priority, the priority is to put the likes of Steven Ward and the serial pension scammers behind bars. The manifesto is silent on increasing enforcement against them.

Introduction of means testing for Winter Fuel Payments for pensioners.

The right policy, tricky and expensive to set the means-test but it’s got to be done – despite the howls.

Warning**** Warning****Warning****Warning*****

Cut out and keep in top-pocket; use in executive briefings or to make yourself sound authoritative down the pub.

Don’t expose to too much scrutiny – most of this is half-baked at the moment!

half baked

please no jokes about what this reminds you of

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

“Look after yourselves” – tough plans for the ageing-affluent.


The nice bits



Ditching Dilnot’s cap

Ditching Andrew Dilnot’s proposed cap on the amount we pay for our long-term later life care is the biggest attack on wealth I can remember. Protecting personal assets at £100,000 is scant comfort when the average residential home costs more than £50,000 pa and the wealth of most elderly couples (including housing) is several times £100,000. The proposals for long-term care costs will be seen as a living inheritance tax,

Whatever my politics (and I am thoroughly confused what they are called), my instinct is for social justice. My instinct tells me that the alternative to “pay for yourself ” – social insurance – is not the answer. Those who have the means to pay – should pay for themselves.

My instinct tells me that not only have the wealthy, the greatest means to pay, but they have the greatest need for the really expensive care – residential and home-based. Put simply, they die slower.

Social insurance is a tax that spreads the cost across all of society. If implemented for later-life care, those who used social care most and had most means to pay for it, would be subsidised by those who have less use of it and have less means to pay. THAT IS NOT FAIR.

The generational knock-on

One of the unspoken aspects of many baby-boomer’s financial planning is the expectation of inheritance. We laugh uneasily at jokes about Charles awaiting his crown because his wait mirrors our wait for our inheritance, our share of our parent’s estate. Over the years, a windfall can become a “right”. There are many people of my age who have not just anticipated but virtually spent the money coming their way when their parents pass on the estate.

This expectation has been fuelled by successive Governments (especially Conservative) who have clung to the mantra of wealth cascading down the generations. These same politicians have been kicking the cost of healthcare down the road. It’s 10 years since the Dilnot report, the subsequent reports have been read and filed, but until the Conservative Manifesto, no politician has been brave enough to face up to the very real issues of a weakening – if not dementing – older population.

I applaud the Conservatives for confronting the issue head on. It is what the serious commentators such as Paul Lewis and Ros Altmann have been calling for and it is what we now have.

Why now?

I suspect that the answer is part political and part idealistic.

Pragmatically, there has never been an election in recent times that gives the Conservatives such headroom for bad news. The votes lost by declaring this bad news are votes that can afford by Conservative Central Office.

Idealistically, Theresa May has shown a consistency since taking office of standing up for the less well off. This cannot be done simply by pleasing everyone, it requires the comfortable to pay more. She has appointed people to advise her in number ten who have social equality like “Blackpool” in the little stick of Blackpool rock.

From what I can see – this is uncompassionate conservatism – neither patronising nor ingratiating. But it seems right. The alternative – the Cameron/Osborne version of Conservatism, happily ducked this issue – as it did the issue of pension taxation, as a vote-loser which could be the next Government’s problem.

That kind of opportunistic politics belongs to Malcolm Tucker but not to a strong Government acting with integrity. We waved goodbye to Cameron/Osborne because they were weak in integrity though long on smarm.

We cannot have it both ways.

Those of us who are better off cannot have it both ways. We cannot have the privileges of better pensions , our own houses and more health and social care at the expense of other generations and even those within our generation who are unlikely to have such property rights or such claims on the NHS and Local Government.

The promise that no-one has to sell their house to meet their long-term care costs is a good promise. I assume it will mean that debts accumulating from home-based and residential care can become a charge on a property, to be met- like inheritance tax- at the point of death

This system creates a much greater certainty in the planning of public finances and it has the right social consequence. It ensures that surviving partners can continue to live in their home and it enables the next generation to plan for the bib bill coming.

Taking on your parent’s debt

There is a generation of people in this country who are coming into cash as never before, they are those in their forties to sixties who have accumulated wealth coming from pensions and properties which have risen in value inexorably over the past 20 years. To this portfolio of wealth, they have anticipated the arrival of inheritances unencumbered by debt.

The Tory Manifesto is a wake-up call to this lucky generation. The care of their parents is not another nanny-state hand-out , as our university educations were. It comes at a price, and now we are going to have to think what that price is.

Not before time.

long term care

The immediate reality

Further reading

For a broad overview of the issues,  this OECD report is  a good start: .

You can see all the OECD publications on long term care here:

For the UK perspective, the best report to read is the now 5-year old Dilnot Commission: (Fairer Care Funding)


The Local Government Association 2016 State of the Nation report on social care funding:


The King’s Fund is a highly (probably the most) credible think-tank commentator on the issue:  – for their publications see: . The King’s Fund have a ‘reading list’ facility on their website us a very useful and up to date resource on the future of funding social care, here it is:


The PSSRU is the leading academic consortium that investigates social care and has produced some excellent research:

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

Tory Theresa gets tough on pensioners.

THERESA May will end the triple lock on pensions and use the money saved to help younger workers instead.

It will be one of the most controversial parts of the Tory election manifesto being unveiled by the PM.

She will scrap a system that has seen OAPs’ cash shoot up for seven years.

Under it, the state pension rises by the rate of inflation, average earnings or 2.5 per cent a year – whichever is the highest.

The move – introduced by former Tory PM David Cameron in 2010 – has increased payments by £1,100 annually, while working age Brits’ pay has flat-lined since the financial crash in 2008.

Theresa May,  is set for a large majority according to the polls

Now that pensioners are more comfortable, Mrs May will insist it is time the nation tackles the growing gap in wealth between the generations.

She is expected to argue that pensioners’ income is now on average £20 a week higher than working age Brits.

But as both Labour and the Lib Dems have already committed to keeping the Triple Lock, the PM’s bold move will ignite a furious row.

A senior Tory source said: “Scrapping the Triple Lock will cause us some pain, but it is the right thing to do for the country.

“Theresa is confident that she can persuade people about that, and most people agree we need to rebalance between the generations.”

In another controversial move, Mrs May will also scrap the Tories’ tax lock.

Introduced two years ago by her predecessor Mr Cameron, the law forbids the government from raising income tax, VAT or national insurance contributions.

But the PM has already ruled out hiking VAT and will again today recommit to the Tories income tax cuts promises from the 2015 election.

That leaves Chancellor Philip Hammond free to raise NICs, and make another attempt to hike the hated tax on self-employed – the tax raid on White Van Man he was forced to abandon after the Budget in March.

But Mrs May will carry on with the party’s promise to raise the basic rate income tax free personal allowance to £12,500 and the higher-rate to £50,000 by 2020.

Planned Corporation Tax cuts will also stay, moving from today’s 19% rate down to 17% in 2020.

The Tories manifesto will also:

See also ;

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

Tata puts pensions first


Though the details of Tata’s offer to the members of the British Steel Pension Scheme (BSPS) are only sketchy , it is clear that they are focussed on members getting “PPF+” on existing benefits and a defined benefit pension against future service.

The deal looks similar to that offered to members of  Royal Mail’s scheme and looks- as Steve Webb says to Professional Pensions

“a much better solution than the idea of a ‘zombie’ pension scheme with no sponsoring employer or a special deal done for one pension scheme, which was the government’s original plan last year.  The potential impact on the PPF is now much reduced and many pensioners will get a better outcome than they would have done”

Not the deal some expected

The deal will confuse those who saw the options open to the Regulator as binary “Zombie of Lifeboat”. Writing in the FT John Ralfe asserted in April

The regulator can only approve a deal if it meant the pension scheme got more cash than if Tata Steel UK simply went bust, and the pension scheme got its share of assets as an unsecured creditor, and by calling any guarantees from group companies.

Under the proposed deal Tata Steel would pay £550m into BSPS as well as provide it with a 33% stake in Tata Steel UK.

Tata Steel UK has also agreed that following the RAA it would sponsor a new scheme and would offer members of the BSPS an option to transfer into this new scheme.

This is a far cry from the £1.5bn cash injection that John supposed the PPF would demand to keep BSPS from its clutches.

The PPF’s new rules for zombie schemes — cleverly designed to minimise its risk — mean the British Steel Pension Scheme would have to start with a surplus against the assets needed to pay the PPF level of benefits.

In December 2015 the pension scheme had a £1.5bn PPF deficit, which will be at least that today. For the pension fund to qualify as a zombie scheme, Tata Steel would have to inject at least £1.5bn cash, and possibly a lot more, depending on the cushion the PPF requires.

How will members and their representatives react?

Tata states in its latest accounts that the deal has been agreed in principle with both the Pensions Regulator and the Pension Protection Fund but that it is subject to approval of the stakeholders of the new RAA.  Tata concludes that there is

“presently no certainty with regards to the eventual existence, size, terms or form of the new scheme”.

The new scheme would have lower future annual increases for pensioners and deferred members than the BSPS but offer better than PPF benefits as well as significantly less risk for Tata.

Importantly, the BSPS Trustee chairman Allan Johnson is recommending the terms of the new arrangement to members. This is no tick in the corporate box, Tata is one of the best run pension schemes in Britain, it’s operating costs per member at £63 are amongst the lowest to its sponsor.  Members have every reason to consider Johnson has been acting- as a trustee should, in their best interests.

No pre-pack

To what extent Tata are sponsoring the new scheme – as opposed to setting it up and walking away – is unclear. That is presumably the quid per quo for not stumping up the £1.5bn that the PPF are said to have originally demanded for an RAA solution.

But the matter is not open and shut and members appear to be free to choose the PPF instead (as they were in the Kodak case – where the business similarly became an asset of the scheme).

John Ralfe, writing in the FT in April, claims that all 70,000 members already drawing a pension, and many of those wanting to take early retirement, would be no better off, and around 6,000 would be worse off than going into the PPF.

TPR also point out that should the RAA fail, the impact on the PPF could be much worse than the current “deficit” it calculates for the scheme.

What is clear is that Tata are avoiding going into administration and “pre-packing” its pension liabilities into the PPF. This is surely a step in the right direction.

BSPS – a healthy scheme

As I’ve mentioned above, BSPS is a well run scheme, it has low operating costs and a relatively low PPF deficit to its £15bn size. As we pointed out last month, this PPF deficit is actually a surplus if considered using the FABI basis of valuation.

In April First Actuarial wrote on this blog

reports of an offer by Tata Steel to make a one-off payment of £520m into its £15bn UK pension scheme – the British Steel Pension Scheme (BSPS) – have been criticised as not going far enough to plug its funding deficit nor sufficiently protecting the Pension Protection Fund, with suggestions that its funding deficit could increase to as much as £2bn at its 2017 actuarial valuation.

Tata workers

First Actuarial have estimated that using assumptions in line with those used for the FAB Index, the BSPS could easily have a surplus of £2bn calculated on a best-estimate basis. Whilst not necessarily suitable for funding purposes, it does demonstrate that more context needs to be given when reporting on the financial position of UK pension schemes.

It would have been a great shame if the BSPS had gone into the PPF, because so much of it is good. That it looks like staying outside the PPF (at least for members who choose to stay in the RAA) is also good.

It is good that Tata are agreeing to risk sharing and that PPF and tPR are finding a way for that to happen.

It is good that the Trustees are a party to this solution and recommending it.

Let the members decide

Finally it is good that the make or break of this deal is in the hands of the members. It is clear they will be taking more of the risk themselves, at least in having to cover the shortfall between what they would have got and the terms of the new arrangements.

Some will argue- as John has argued- that the PPF presents a safer harbour and that reliance on a private arrangement is too risky.

The employer representatives (the Unions) could say no collectively. But ultimately it will be down to individual members to decide what is best for them; which – provided the choices are clearly laid out- is good for them.

FT article “It’s Zombie versus Lifeboat” by John Ralfe (April) here;

Professional Pensions article on the RAA deal (May) here;


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“No more junkets if you cut our margins” – IFAs warned.


Delegates at PIMS 2017, a floating holiday for Financial Planners (and journalists), seem have  been threatened .

“Platforms will struggle to cut charges without affecting existing services”, Seven Investment Management (7IM) head of platform Verona Smith told advisers (including New Model Adviser to whom I’m grateful for this reporting!

‘I get asked all the time where platform fees are going. The answer is they are going only one way and that is not up,’ she said.

‘But the service I am going to give you is not a service you or your client is going to like if we put the platform fee down.

‘If you want me to halve the platform fee, then don’t expect the phone to be picked up after one ring.’

The threat is hardly veiled!

PIMS claims to support “financial planners” , but a cursory inspection of its sponsors suggests that it is really about wealth management. wealth.PNG

Make no mistake, PIMS is an aquatic trade show.

The context!

Here is what a typical day aboard the cruise-liner Aurora looks like for PIMS delegates

7.45am Pre-arranged breakfast meeting  with a supplier and fellow delegates
9am Mixture of conference sessions, supplier meetings and requested free time
1.15pm Pre-arranged lunch meeting with a supplier and fellow delegates
2.45pm Mixture of conference sessions, supplier meetings and requested free time
6.30pm Free time or an activity
8.30pm Pre-arranged dinner meeting with a supplier and fellow delegates
10.30pm Post dinner drinks and evening entertainment

While you toy with the negotiations around “requested free time” and speculate what kind of evening entertainment begins at 10.30, you can only marvel at the IFA’s complicity.

The main advantage of a cruise ship (for the suppliers) is that you cannot get off, other advantages include limited capacity to make phone calls and with a bit of luck, no access to the internet.

Delegates are sitting ducks for “suppliers” .

The threat itself

I am struggling to understand what an intermediary needs by way of “service ” from a fund manager like 7IM. If its measure is the number of rings an adviser needs to speak to Veronica, then advisers need not quake in their Church’s.

Coincidentally, a paper arrived in my inbox yesterday from a research organisation called Cicero, that directly addressed the question of service, not just the service that IFAs get from suppliers but the service they give to their clients.

Surprisingly, IFAs don’t seem particularly keen to embrace technology

cicero 1.PNG

Less than half the IFAs questioned saw much value in a higher level of technological integration with their “high net worth” clients.

Apparently the HNWs backed this up.

Cicero 2

The threat for IFAs is not from clients demanding new ways of doing things, the IFAs get this. The threat is that 7IM will stop picking the phone up after one ring. By extension they might even stop junketing IFAs on cruise liners while telling them this unpalatable message.

What of the customer?

In April the Financial Conduct Authority (FCA) announced it would review the platform market after it identified a number of concerns about competition in the space.

The regulator said it would look at ‘complex charging structures’ on platforms and examine whether platforms were able to put pressure on asset management charges.

By extension , it will be reviewing the users of platforms (the IFAs) to see what competition is happening. I doubt that the FCA will be asking how many rings an IFA has to wait to speak to their 7IM agent.

Instead , the FCA may be asking some of the questions asked in the Cicero Report “Distribution and Technology – the role of technology across the advice chain”.

The report concludes that the advice “industry” has no real long-term choice other than embrace technology.

“Millennials are living their advice on-line and that’s where they are going for advice”.

Which isn’t quite true, as by the time the millennials have built (or inherited)  the wealth to replace the current client bank, the advisers will be retired.

I think this is the real message for Christopher Woollard at the FCA. The current interests of clients and advisers is aligned. They want a comfy time where the phone is picked up in one ring, where no-one puts too much pressure on price so that a long and healthy retirement beckons.

If this is the message that IFAs are allowing to go to the FCA – and the Cicero paper was to have been discussed by Woollard (till Purdah came down) – then neither 7IM or the platform managers or the IFAs that use these platforms , has a leg to stand on.

Because the one thing that none of these discussions addresses , is the investment outcomes for the people whose wealth (or savings) are being managed.

Vanguard are reported to be about to launch a service where the total cost of ownership for a fund will be 0.3% pa (30bps). The reports are in the FT- a link is included at the end of the blog. While Vanguard will not disrupt the trusted relationship of IFA/client, it will attract the large number of non-advised HNW customers who are fee conscious. Increasingly the old style, high-priced advised platforms and funds will struggle to compete for these new customers.

Service must be digital – prices must be slashed and outcomes improved

The state of the wealth management marking is truly shocking. Compared to the deal being offered members by NEST , L&G and other workplace providers, the platforms are expensive and hopelessly intermediated. With a few exceptions, they need advisers to operate them and PIMS 2017 shows that nothing much has changed since the early 1990s (when I went on one of these cruises myself).

There is an alternative for IFAs keen to learn and create best practice. An example is the Great Pension Transfer debate which has been set up for IFAs by IFAs and features a great line up at an accessible venue and has no sponsorship from “suppliers”. There’s a link to the Great Pension Transfer debate below.

7IM provide a link to the two events, as the idea for the Pension Transfer Debate was born from the FT conference in April at which 7IM were both sponsor and speaker. So appalled were some delegates at the lack of technical knowledge and balance from some of the speakers that they decided to set their own event up – for their own learning.

The 200+ IFAs who have already signed up will be joined by many more before June 19th. If you are an IFA and you are fed up with being junketed, then maybe the Great Pension Transfer Debate is for you.

A word of warning though, there is no telephone to pick up. To register, you’ll have to do things digitally – it’s the only way to keep costs down and get standards up!

Places at the Great Pension Transfer Debate can still be reserved at

PIMS 2017; cutting prices will reduce service ,7IM warn – New Model Adviser –

FT report on the new Vanguard platform that looks like slashing the cost of fund ownership;


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Actuaries – many ears here to listen!


“And if they’ve got anything to say
There’s many black ears here to listen” – Joe Strummer

I am glad that I had a go at the actuarial experts arguing in the FT.  It didn’t change the way  people behaved yesterday – (although several hundred people appear to have spent time reading it) – but  it solicited comments from some of the FT signatories – and some from people not on the list who are supposed to be on holiday!

Perhaps we’ll have to extend the definition of “professional” to someone who reads relevant blogs while lying by the pool – actuarially speaking!

It was left to an actuary close to the Plowman to put into words what I suspect the IfoA committee really wanted to say.

The actuaries letter was wimpish.

What it should have said was.

We deplore the PWC press release with its deliberately misleading figures.

Although the ft obtained a quote from one actuary saying the assumptions were extreme, we are disappointed that the ft nevertheless see fit to publish the essence of it with a ludicrously provocative title.

The facts are
Population mortality does not appear to be improving as fast as previously expected.
Mortality of better off individuals IS improving at roughly the expected rate.
Mortality of worse off individuals is improving at a significantly lower rate.
DB pension liabilities are very much weighted to the better off.

So EVEN IF the mortality change is not a blip, and we recognise the uncertainty, most of the DB liabilities seem likely to be UNAFFECTED by the population change.

Experience of individual pension schemes differ.

It has long been recognised that there is a significant difference between “Lives” and “amounts” mortality, i.e. People with higher pensions (or annuities) tend to have lower mortality) so it is dangerous to naively use lives experience for valuing pension liabilities. And very naive to use population experience.

It is particularly misleading to go on to assume such incorrectly derived lower mortality will continue in future and publish grossly misleading numbers.

It is not good enough to justify it in footnotes and to treat it simply as an arithmetical exercise.

At the very least it should be made clear that it is not what is expected and something like “best real world estimates” published at the same time. . And of course such real world best estimates need to be properly based on reality and proper analysis of the data.

Of course my correspondent was constrained ;- I recognise that there are rules governing how actuaries conduct themselves that prevent them from saying these things “out loud” – (the real world?).

Peter Tompkins argued “There is no purpose in turning this into an argument” but the cat was out the bag..

Here’s another private message

Hopefully not too many years until people feel able to make such statements publicly. Who knows, one of the retired old boys still might.

In the meantime, you are going to have to have your actuarial argument -sorry “debate” on this blog, and as nobody reads the comments, here are the “real world” thoughts of a very angry Stuart Macdonald, (more please!)

I am sorry to hear that you found the simple and concise letter to the FT to be silly.

As you will be well aware, many of the signatories have both professional accountabilities and obligations to their employers, whose approval of public statements may be required. This can lead to more mitigated language than might otherwise be the case.

Perhaps you will find my personal response, sent on the day of the PWC press release, to be more to your taste.

Of course there is some healthy debate within the actuarial profession about likely future mortality. This is right and proper and to be encouraged. A consensus on something as uncertain as life expectancy, which will be influenced by unknown medical advances and social changes over the coming decades, would be foolish and, I’d argue, dangerous.

However, still more dangerous in my view is putting into the public domain, the idea that a 200 year history of mortality improvement has forever ended, life expectancies have peaked, and pension liabilities can be reduced by 15%. A statistical model used by expert practitioners to calculate uncertainty around life expectancy forecasts suggests that there is less than a 1% chance of the PWC scenario materialising.

Scheme trustees and senior executives at sponsoring employers, who may never have had to subject themselves to the detail of actuarial reports, had sight of these headlines. Indeed several of the signatories has already fielded questions from such individuals by the time the letter was submitted. Hence in my view it was right for members of the profession to respond quickly, in the same forum, using such language as all were able to sign up to, in order to mitigate the impact of the initial press statement.

PWC had every right to point out what the financial impact of no further increase in life expectancy might be. Just as Professor Aubrey de Grey has a right to speculate that we might live to be 1000. However, by presenting such a scenario as their updated forecast, rather than acknowldgeing that it is one possible but extreme outcome, they risked misleading people.

As you might encourage, my comments here are spontaneous, unchecked and made in a personal capacity. They are not the necessarily views of my employer, the actuarial profession or the other signatories to the “silly” letter.

If 750m people can collectively focus on the Eurovision Song Contest for 3 hours, I think that a few hundred can spend a few minutes (the morning after) thinking about what the Continuous Mortality Investigation is telling us about social equality, defined benefit schemes and indeed the way conventional and social media are interacting.

Jo Cumbo seems to have got some collateral damage from all parties, but she was the only person prepared to run this story. Not only did she run it, but she ran it without the help of the moaners who wrote the letter. My message to the signatories

You may call the debate unbalanced – but where were you?

Actuaries do not have a right to a hearing, PWC took an extreme position with CMI data and got the debate going, the letter did not incite further debate, it stifled it – until this blog asked what the letter was all about.

Let’s hope that the actuarial profession moves away from “mitigatory language” to using the “real world” language; away from professional disputes about the interpretation of data to a public debate on what is really going on with the CMI statistics.

As I said in my blog yesterday, now is the time for the actuarial profession to be making meaningful statements when people are actually listening. This data informs our thinking on DB plans, on social and residential care, on the state pension age and on the affordability of the triple lock.

The British electorate is waiting to hear from you, what are you saying?

White youth, black youth
Better find another solution
Why not phone up Robin Hood
And ask him for some wealth distribution

Joe Strummer – (White Man) in Hammersmith Palais


Jo Cumbo’s original article (loathe it or love it) is here;

I’m pleased with my FT subscription which is value for money; you can buy here

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Actuaries! Talk with us – don’t argue with each other.


Arrogant and self obsessed! How we see actuaries


There’s a  silly letter in the FT this week which I print in full.


Jo Cumbo’s report “Mortality update bodes well for pension deficits” (May 4) refers to an assertion by PwC that slowing mortality improvements could reduce UK defined benefit pension scheme liabilities by £310bn, which is about 15 per cent of their estimated total liability of £2tn.

In our opinion, this is a relatively extreme outcome and would be widely viewed as such among UK actuaries.

We feel it is potentially misleading to refer to liability reductions of 15 per cent without placing such estimates in a proper context.

Andrew Cairns, Professor, Heriot-Watt University

Deborah Cooper, Risk and Professionalism Leader, Mercer

Cobus Daneel, Consulting Actuary (Retirement), Willis Towers Watson

Sacha Dhamani, Head of Longevity, Prudential

Matthew Edwards, Head of Longevity/Mortality (Insurance), Willis Towers Watson

Matthew Fletcher, Longevity Consultant, Aon Hewitt

Tim Gordon, Head of Longevity, Aon Hewitt

Dave Grimshaw, Head of Longevity Consulting, Barnett Waddingham

Steve Haberman, Professor of Actuarial Science, Cass Business School

Stuart McDonald, Head of Longevity, Lloyds Banking Group

Kevin O’Regan, Head of Longevity and Portfolio Reinsurance, PartnerRe

Brian Ridsdale

Peter Tompkins Actuarial Consultant

To which I  make three observations

  1. What is said , is said badly – “a relatively extreme outcome” – relative to what?  “Potentially misleading” – either the 15% figure is misleading or it isn’t – you’ve just told us it is so why caveat? The first sentence is too long, the use of the subjunctive in the second sentence drains the statement of any vivacity.
  2. What isn’t said is what the reader wants to hear – the article leads nowhere.
  3. The bulk of the copy is used to list the actuaries and their ridiculous titles.

This kind of letter does nothing but bring actuaries into disrepute. They have slagged off PWC (Raj Modhi) but to what end? If they wanted to put PWC’s comment into context, they could have used the space they wasted with their list of titles. They have showed they cannot make a point simply , they have wasted an opportunity to educate the readers of the FT’s letter column.

Is 15% or £320m too high?

Our actuaries at First Actuarial have been asking this same question. They were asking it before PWC put it in the FT , because I asked for them to comment on it.

I  have been banging away about the changes to the IFOA’s continuous mortality research ever since Douglas Anderson mentioned them to me 5 months ago (they agree with Vita Life’s own research). You know this if you read this blog.

Their general feeling is that 15% is too high, the reduction in the rate of increase in life expectancy is probably a blip and will be explained as an anomaly in time, it is too early to reduce pension scheme liabilities (certainly by 15%).  That is a reasonable position to adopt – “wait and see” is a prudent policy when you are dealing with problems that have durations measured in decades.

But that is their opinion and the conversation is “ongoing”! It is a conversation we are having with our clients and with Government and with anyone who will have it with us in formal and social media! It is a great conversation to have.


Is this worth this public attention?

You bet it is! What the actuaries are arguing about has immediate impact

Your State Pension Age – recently reviewed by John Cridland – depends on the outcome of this debate; the Government were supposed to report on Cridland (the deadline was last week), it is such a hot potato – they have left it in the oven till after the election.

The triple lock – one of the key issues of this election, may be more affordable it PWC are right – the IFoA CMI tables are key to this issue.

The Royal Mail – is in dispute with its 130,000 staff and the CWU as to whether it continue to promise them a pension for life – or just a sum of cash at retirement.

The PPF/ Tata Steel/BHS/ Cluttons/ Bernard Matthews and the Pensions Regulator are engaged in complex and sometimes acrimonious disputes over the affordability of the pensions promised by the employers in the middle of that sandwich.

Everything from our wages to our council tax bills is impacted by the collective  life expectancy of the 60 million of us who live in Britain. It is not just our propensity to die (mortality) that is in question, it is our propensity to detoriates in health as we close in on death (morbidity). Understanding what our liabilities are for ourselves , our children and our parents is critical to how we manage the public finances.

Time these actuaries stopped arguing among themselves!

This is not PWC’s fault. Raj has put some good stuff into the papers and has aroused a public debate. The silly letter looks no more than a marker for internal squabbles at the Institute and Faculty of Actuaries. The debate is more important than to be conducted behind the IFOA’s closed doors.

This blog is open to any actuary who wants to put forward a point of view about this which is framed in language that ordinary people can understand. It is also open to Con Keating!

I will continue to look at the affordability of old age in my articles – offering an “inexpert” view.

Actuaries should be taking the debate to us

All these views will be shared with anyone who reads this blog and I expect most of them will contradict each other. That is not a bad thing. What is bad is for actuaries to complain about “relatively extreme outcomes” and “proper context” without any explanation of what they mean – as if their disagreement meant something to those outside their magic circle.

There are many ways to get people engaged with these questions, you can comment to the newspapers, or blog, or tweet, or you can do work with trustees and employers and you can even explain these things to ordinary working people through financial education sessions.

But please actuaries – don’t belittle yourselves again -with your silly letters to the FT!


An actuary who isn’t on the list!


You can read the silly letter in its original context here

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NEST’s duty to tell us how it spends our money.

This article is about the costs NEST is incurring, not to criticise those costs, but to publicise them as benchmarks to drive other provider costs down.

I had the privilege yesterday of having lunch with Richard Lockwood, NEST’s Finance Director. I was in the mood to talk costs as I spent the rest of the day at Accountex. Much as I enjoyed Accountex, the discussion with Richard was the highlight of the day.

Richard’s background is as a financial controller, Kingfisher, Home Retail and World Duty Free. He came to NEST because he knew about scale and cost control.


The word that re-occurred throughout the meeting was “obsession”; clearly the guy is obsessed by measurement. The grand plan, as outlined by Robert Devereux to the Parliamentary Committee, is his plan, his measurement of NEST’s current debt, projections of future debt and the longer term projection of NEST self-sufficiency (2038) are his. They are based on an understanding of the unit costs of keeping records, interfacing with employers and members and investing the money. Clearly there are variables and it wasn’t until he had reasonable certainty on those variables that he could happily  publicise these projections .

The numbers were with the DWP last October and were only disclosed to Parliament some six months later. This suggests the political sensitivity surrounding them.

Measurement and accountability were themes that impressed me.


However, I remain less impressed by NEST’s arguments about its social purpose which still appeared muddled.  NEST has always declared itself to be operating in a new space where standards are set because no service has existed before. We might call this “greenfield”.

The major expense that Richard incurs is the payment of Tata- who manage NEST admin. The contract with Tata was re-negotiated in 2016 and runs to 2023. We do not know the terms of that contract but I got the impression there is not much about it that doesn’t sit at the front of Richard’s head.

The other expenses, associated with marketing NEST and investing NEST’s money are similarly not open to public scrutiny but , as our conversation had it, part of the NEST obsession with value.


Here the conflict between public service and commercial enterprise is most acute. NEST’s scale (both now but particularly projected) enable it to target economies in record keeping, administration and investment administration and money management, that should be ground-breaking.

Unlike many of their competitors, NEST do not carry the corporate overhead of legacy business nor need it share the unrewarded costs of re-using legacy systems and processes. NEST is greenfield and can – like other newly established master-trusts, take advantage of the latest technology to minimise outgoings.

This it has done; NEST is lean and mean and should have the lowest unit costs of any DC workplace pension provider. So why isn’t it publishing these costs as the aspirational benchmark for its rivals? If NEST is providing a public service, it should be helping to drive down not just its own costs but those of workplace pensions as a whole.

This also goes for investment costs which (I am sorry to say) are still undisclosed , sitting behind NDAs which NEST- unaccountably – entered into at the point it set up. It is high time that these external costs were revealed. The argument that NEST secured super-low deals with UBS, State Street and others- on the basis that it would keep the prices secret should cut no ice with anyone.

  1. It is in the public interest to know what “best prices” are from these providers.
  2. Without knowing what NEST is paying, we cannot assess value for money
  3. NEST should be leading and not acquiescing to “common practice”.

If common practice is to keep fees hid, then we can have no progress on Vfm nor can we move towards lower fees for workplace pension provision. The annual management charge, which includes not just investment costs but marketing , governance and administrative outgoings, is no measure of NEST’s value or the money it is spending. It has no practical value in assessing value for money. To do that, NEST’s trustees must know and report on the efficiency of each aspect of NEST’s costs at something of the obsessive intensity as Richard Lockwood.

It is simply not enough for the general public to be told that all in the garden is rosy, we need to see the garden, the roses – and (where necessary) the compost. When I say “we”, I mean those people who are trying to assess what good looks like – that includes consultants, but also NEST’s competitors and the outsourced suppliers who should be benchmarking their costs against NEST’s.

Until NEST reveals what it is paying, there will be no NEST standard for us to measure investment management, investment administration, record keeping , marketing and governance costs against.

We need the same obsession that Richard Lockwood has with cost control , to be displayed in cost disclosure.

For NEST is not like other providers, as it keeps telling us, it gets its new business on a massive inertia pitch – it is the Government supplier and is hovering up employers at a rate of 1200 a day (a disclosure NEST is happy to make).

It should have nothing to hide and – since it is enjoying the munificence of a tax-payer subsidised loan, it should be putting back into the workplace pension community , the information that community needs to benchmark costs and lower them.

NEST has been in the past guilty of going it alone (most notably in not helping to create a joint industry standard for data-interfaces). PAPDIS came too late because PAPDIS and the NEST data standard should have been one standard.

The same could be said about value for money reporting. Instead of going it alone in the obsession with costs, NEST should be sharing its cost reduction measures with its rivals, to drive overall efficiencies’ through workplace pensions.

Instead Richard still mouthed the old platitudes about market practice which have prevented consumers from getting fair value as long as I have been working in pensions.

Let’s be clear. NEST must tell its suppliers that it is abandoning its NDAs and publishing its unit costs for administration and the costs it is incurring for fund management and administration. If it cannot do this, it should ask Government to step in and break the contractual terms with its suppliers that are preventing it.

Nothing less can do. There can be no concession to the commercial interests of the market when the market has failed us so long. The Asset Management Market Review, the Office of Fair Trading report and the Retail Distribution Review have pointed to market failure in financial services – some things have changed, but market failure persists.

NEST owes us £539 million of favours and that number increases to £1,218,000,000 by 2026. That is money that has been and will be spent by NEST’s members, they have to pay it back, they have a right to know that that money is well spent. I have no doubt, knowing NEST quite well, that it is well spent. What I don’t know is how well spent and those numbers become the greenfield benchmark to which other providers can aspire.




Posted in pensions | 5 Comments

“So why aren’t there more women in pensions?” – Jess Jones

“If women were in charge, the 2008 financial crisis wouldn’t have happened”- Christine Lagarde.

 So why aren’t there more women in pensions?


I’m a 23-year-old woman who works at Quietroom, a communications consultancy. As a relative outsider to the pensions world, I was looking forward to this month’s Pension Playpen lunch, which was asking: why aren’t there more women in pensions?

I wanted to know how diversity was being talked about in an industry which seems to be run by men. So I was relieved and pleasantly surprised by an hour long discussion which was insightful, respectful, and where female voices were heard loud and clear.

Why is diversity important in the first place?

One of the ideas we kept coming back to was that diversity leads to better decisions. When people with different perspectives and backgrounds tackle a problem, they think about it for longer, and more carefully. They have to consider how it will affect people who aren’t like them.

We talked about studies which looked into how different groups handle a problem-solving task. A group of 4 friends will have a great time doing it, and report that they did brilliantly. But as it turns out, their success rate is a lot lower than the groups which had to swap a friend for a stranger. These groups may have had less fun, and a less easy ride reaching a consensus, but introducing a different perspective made for better results. Disagreement and difference leads to better decisions. Familiarity and homogeny leads to decisions which are more rash, more selfish, and replicate what’s gone before. Which brings me to the financial crisis.

‘Women have different ways of taking risksof ruminating a bit more before they jump to conclusions’ (Christine Lagarde)

There’s good reason to think that it wouldn’t have happened with women in charge. Women tend to consider more facts when assessing risks or opportunities. Which means women tend to take less risks. And if we know anything about the financial crisis, it’s that it was the result of some short-sighted, arrogant and reckless decisions.

You might think this would bode well for women in the financial industry. In the aftermath of near financial ruin, brought on by misplaced confidence, it would probably make sense to embrace an approach which was more deliberative. More measured. Less typically ‘male’.

But it seems that the ability to take risks is a key part of getting ahead in this industry. By ‘taking risks’, I don’t mean investing massive amounts of money into mortgage-backed securities on the shaky assumption that house prices weren’t likely to decline, sparking a chain of events which led to the near collapse of world’s financial system. No, the kinds of risks we talked about were things like applying for a job even if you don’t meet all the entry requirements. One of us mentioned a study which shows that men will apply for a job if they meet 60% of the requirements, whereas women will only apply if they meet 100% of the requirements.

‘If I don’t know about something I’ll know it by tomorrow. Therefore I do know everything about everything’ (Scott from The Apprentice)

Another personal risk you might take day-to-day is speaking to someone even if there’s a chance they’re not interested in what you have to say. The women in the room shared experiences of everything from board meetings to my philosophy seminars from undergraduate days, and our suspicions were confirmed – in most settings, men tend to dominate discussions, at the expense of women who have valuable things to say.

Being averse to this kind of risk – the kind of risk we take when we choose to suggest an idea in a meeting at the risk of not being taking seriously – affects the kinds of job roles women are seen (and see themselves), as being able to do.

For example, think about the traits we typically think a good salesperson has. Confident. Persistent. Willing to do almost anything to secure the sale. Doesn’t take no for an answer. In other words, all the risk-embracing traits women are trained from birth not to exhibit.

‘Such a nasty woman’ (Donald Trump)

And who could really blame us. Look at any example of a woman who’s progressed to the dizzy heights of management, or leading a country, and once you get past the analysis of the skirt she’s wearing that day you’ll find a slurry of commentary about her character. ‘Bossy’, ‘ruthless’, ‘abrasive’, and ‘hard to work with’ are common choices to describe women who have dared to step above their station.

So it seems we can do no right. If we quietly and competently get on with our job, we don’t progress. (One of us talked about her frustration at time and time again seeing younger, less qualified men overtake her in her company). And if we do muster up the confidence to chase a promotion – and manage to be picked over men who have been referred through a boys’ club recruitment process – then we’re bloody difficult.

As we reached the end of the discussion, it was clear it had gone well. We all agreed that the time had flown by. Discussions like this, which identify the problems which are holding women back in their careers, are becoming more and more common. What we need to do now more than ever is figure out how we’re going to fix them.

Share your experiences

Having these kinds of conversations brings things that are hidden in plain sight into public scrutiny. The more they’re talked about, the quicker these practices will become unacceptable. So please join in the conversation.

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WTW-you don’t “de-risk”; you transfer risk!

In late March, Willis Towers Watson (WTW) published a survey of the choices made by 170,000 members of occupational defined benefit schemes.

This is the question the survey sets out to answer

“What choices have pension members made since the dawn of pension flexibility?”

I urge you to read it. It is the best research I have yet read into what is really happening to DB member benefits .

But it is flawed in its conclusion and the flaw can be found in the language of the question . “Dawn” is a loaded word -it implies positive change , which is all  rosy stuff. But all that dawns isn’t rosy and the report doesn’t provide the balance that the debate over member choices need.


Need or want? Pension or cash?

In this article I argue that trustees are being corralled into providing what people think they want – not what they need.

Flexibility is what most members want, that means cash not pensions. WTW report recent cash equivalent transfers (CETVs)  up ten times on pre 2014 budget levels.



Whereas in the past, consultants had to organise Enhanced Transfer Value (ETV)  “exercises” to inflate transfer values beyond their best estimate valuation, they are now having to martial IFAs to convert enquiries into actual transfers.

The IFA is now part of the de-risking armoury as he or she is now converting over half of enquiries – up from a third only a year ago.


WTW conclude that with transfer values at all time highs, the demand for financial advice from members wanting out is being met by financial advisers eager to manage the money. A more sombre note is sounded for the future. Where Transfers fall in value, the appetite for members to pay for financial advice may also fall.

Without advice , there can be no transfers (other than for “trivial” pension rights).  This leads to bizarre speculation.



Schemes – as opposed to scheme sponsors (employers) are in the business of paying pensions. They may outsource the payment to an insurer but the member outcome is the same – a lifetime income.

It is bizarre that schemes are now expected to pay for advisers to winkle transfers that provide people with flexibilities – but not necessarily pensions. I say “necessarily” because it seems many of the people taking CETVs who had been surveyed told WTW they had or would be buying a private annuity with the money.


RTO =Retirement Transfer Option



This suggests that people are exercising choice not just to get cash but to get the shape of income they want. Certainly you can get a higher initial income from a level annuity than from a scheme pension but an escalating scheme pension soon catches up. If people think they are getting value from an individual level annuity as opposed to a scheme pension then they have an odd understanding. Bizarre!

Even more bizarre is the supposition that Trustees will want to sponsor advice so that people make choices like that. If they have any form of conviction in their acting in their member’s best interests, they should be asking whether the outcomes of the transfers are likely to match the scheme pensions given up.

Do Trustees care?

At the beginning of the report, WTW produce a wheel of options available to schemes to offload liabilities and “de-risk”.WTW5But it leaves out the most obvious de-risking tool at the trustee’s disposal; cash commutation factors.

While most schemes offer CETVs in excess of 30 times (sometimes 40 times) the pension given up, you receive tax-free cash (if you take that option) “commuted” at as low as ten pounds cash to one pound pension given up.

People take their tax-free cash from their defined benefit schemes on terms up to 75% worse than offered on CETVs. Trustees sanction this anomaly because people will take tax-free cash on almost any terms. Scheme solvency is being propped up by the outrageous commutation factors being offered and there is a conspiracy of silence about it.

That is one reason why tax-free cash commutation figures don’t appear on the de-risking wheel.

Trustees do care, they care about the solvency of their schemes. But they don’t care that commutation factors may be ripping off members taking tax-free cash and they can justify this by saying they want people to take pensions not cash.

What they cannot do is justify “de-risking” by getting people to take freedom over pension as that is entirely not what a trustee is about. If tax-free cash is an incitement to be feckless with your pension rights, so are pension freedoms.

This is bizarre, WTW are encouraging trustees to behave in precisely the way they have been preaching against for the past forty years. What is more, they are operating a dual system of exchanges where pension to CETV is valued at four times pension to tax-free cash. There is simply no actuarial or moral basis for this.

Trustees should care about this. They are being advised to become opportunistic dismantlers of the schemes they run. They are being put in an awkward position with their members and sooner or later they will find themselves either being challenged for not giving fair value on commutation or over-egging CETVs – or both.

Not “de-risking”- “risk transfer”.

Trustees must act with a duty of care and should be very careful about the way they discharge their pension obligations. Some of the money that flows from DB schemes simply lines the pockets of scammers, Much of the money is being wasted on inefficient and inappropriate drawdown products, some is being taken as cash with high tax-bills to come. Some is even being used to purchase annuities that cannot be as effective as scheme pensions. All the money flowing out of occupational pensions is transferring risk from schemes to members. Much of the value is transferring from members to agents.

While many members will happily accept the risks – and be able to manage them – many won’t. The mass migration of members -evidenced by the ten-fold increase in transfers and the eighteen fold increase in transfer monies, suggests that the flood gates have been set to open.

I fear for this risk- which is now in the hands of people who the OFT have described as quite disengaged.


WTW’s report is excellent, I urge you to read it, it is the most important statement made to date on what is going on. But it is misguided in concluding that what it calls “de-risking” is a win-win-win.

WTW 6If it looks too good to be true – it probably is too good to be true. WTW would do well to think back to the days when they said the same kind of things about Equitable Life.


The Willis Towers Watson survey is here

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Isn’t life looking up for our DB Plans?


Say it quietly but the outlook for our defined benefit pension schemes is improving. Members , trustees and sponsoring employers can be heartened by five concurrent signals – all of which suggest that the cataclysm predicted last year by Cass Business School and others , is proving “fake news”.

  1. Mortality is improving but not as fast as we’d expected
  2. Equity markets are buoyant and bond markets stable
  3. Costs of management are falling
  4. The PPF is thriving
  5. Accounting deficits will benefit from high levels of CETV take-up.

Corporate confidence

Taken together, the pressures on schemes should reduce. Trustees could regain their mojo to invest for the long-term and resist de-risking.

Consumer confidence

Members may regain confidence to stay put and employers may get some balance sheet relief (and lower cash demands from recovery plans). There are a lot of conditional here, but this is a blog not an economic forecast.

Let’s take each signal and test my case;

Firstly mortality.

Hymans Robertson, who share data from their Club Vita project, started talking last year of a slowdown in what seemed an inexorable improvement in British life expectancy. This improvement is baked into most actuarial tables so any adjustment would reduce the valuation of scheme liabilities.

Now the Actuaries own institute has confirmed that

“Recent population data has highlighted that, since 2011, the rate at which mortality is improving has been slower than in previous years”.

The figures suggest that men aged 65 will now live another 22.2 years, down from 22.8 years in 2013. Women aged 65 will now live for a further 24.1 years, down from 25.1 years in 2013.

Actuarial firms vary in predicting the impact of these numbers , Mercer and Aon are cautious and talk of adjustments in liabilities of 1-2%, PWC are more optimistic and suggest they could slice £310bn off UK pension liabilities, reducing their calculation of  deficits by 15%. Whatever the impact, there is consensus that this will be positive for immediate triennial valuations.

What of markets?

For all the talk of terrorism, populism and unprecedented uncertainty, the markets have improved. Equity markets in the UK and abroad are at or are close to record levels. This should not be seen as odd, markets are supposed to rise over the longer term as productivity increases.

The fundamentals that drive improved productivity – digitalisation, better education , low wage costs and up-skilling are all working towards higher valuations for company equity and lower risks of bond defaults. The low inflation world in which we currently live may create problems in terms of pension scheme liabilities, but it has meant there is plenty of cash in company coffers to meet cash calls.

Management costs

There is substantial fat in the management fees paid by occupational pension schemes. This is recognised by the FCA’ Asset Management Market Study which sees Trustees over-paying for both asset management and for investment consultancy fees.

The obvious targets for cost reductions are in alternatives. Last year Chris Hitchen claimed a deep dive into the way “alternatives” managers were rewarded  saved the Railway Pension Scheme more than £100 million a year on fees.

Large funds such as the British Steel Pension Scheme and notably the PPF, have insourced investment management from fund managers , making notable savings that have been passed on in improved investment performance to ease the road to self-sufficiency.

Smaller schemes have been able to negotiate fees with asset managers as they see deals available through platforms such as Mobius. Consultancies like my own, that work with schemes with less than £100m in assets have been adopting a rigorous approach to fee negotiation often moving large swathes of actively managed money into passive investments. The greater transparency in the market has given trustees confidence not to take things lying down. There is still scope for considerably greater efficiency in scheme management.

A thriving PPF

The current levy consultation being carried out by the Pension Protection Fund has allowed us to see a fund where management costs are reducing, risk is more fairly assessed and investment strategies are working. The PPF’s aim is to reduce the period till it is self-sufficient but this needs to be balanced by the strain of the levy on corporate P/L.

The levy’s trend is downward. A thriving PPF not only means a better safety net but a cheaper one too.

A word of caution; the PPF can be too cautious and we warn against it drinking its own kool-aid; the levy is too high, self-sufficiency reserving is being set at absurd levels and the investment strategy of the fund is ill-suited to its long-term aims, but in terms of current strain, a thriving PPF can only reduce the burden of DB pensions on employers.

High CETV take-up.

The current CETV bonanza has been variously billed as the salvation of the retail funds industry, the making of SIPPs and a risk-free windfall for deferred members of DB plans.

FABI graph

best estimates v risk free

Actually, CETVs are calculated to be cost neutral at best estimate valuations. Since best estimate valuations are much more favourable than accounting valuations (where liabilities are measured at the risk-free rate), there is almost always a windfall to the employer when a CETV is taken. This is a notional windfall and the long-term impact of seeing a scheme reduce in size is questionable, but employers will be able to book substantial improvements FRS 120 pension numbers as CETVs continue. Indeed many employers have already started booking them, some several years in advance.

Something to write home about

Taken together, the five signals of improvements in DB pension funding are something to write (home) about.  It’s much easier to make headlines by doing the Cassandra bit and no doubt JLT will continue to warn employers of the toxicity of their pension schemes for years to come.

However, if I was a trustee or even an employer, I would be sleeping a lot easier today than a couple of years back when all I had to hear was woe!

First Actuarial will continue to publish its FAB index showing that while not all in the garden in rosy, we are a lot better off than the Cassandras would have us. John Ralfe apart, there is an acceptance that pension schemes invest for the long term because they have long-term liabilities. The long-term outlook for the global economy is positive (unless you are Chicken Licken) and it even seems we have over- cooked some of our mortality assumptions. The costs of running a pension scheme should be falling as should PPF levies.

Which begs the question – why are so many people choosing to leave what appear to be perfectly good defined benefit pension schemes?

Further reading;

Shift in life expectancy promises £310bn cut to pensions deficit – FT;

IFoA CMI mortality projections (March 2017) ;

A huge pension fund hired an investigator to work out where it was getting screwed;


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It’s just not cricket – (that’s why we love it!)

I love cricket, played it very badly and still enjoy a bit of umpiring and scoring. I am a very hands-off cricket fan. That all changed last night when I sat on the Oval terraces and watched Surrey and Middlesex play out a 20/20 thriller.

It had it all, mighty sixes into the top tiers of the stands, Pieterson playing the oaf, runners, streakers, even a fight in the stands.


loving the egg in a doily sitting in front of me


Surrey won, Middlesex won the other week, the cricket brought us together but it was the crowd that made the cricket happen. The England Captain, Owen Morgan stood in front of where we sat, playing to the few away fans in our section. It is clear that the players are energised by the crowd as much as the other way round.

And the Oval was heaving. The beer and cider was flowing, the girls brought the picnics, the boys bought the drinks! The average age of those around us was probably 30. This was the Vauxhall pleasure gardens of the Victorian age revived!

Cricket could never have revived itself in this country. It took the IPL in India followed by the Big Bash in Australia to show us cricket could be fun. Played out on a Friday night, this was fun!

Thanks to Surrey County Cricket Club for putting on such a great event, thanks to both teams (including pantomime zero Kevin) and thanks to the youth of London who made this great.

If you don’t think you can change things in pensions- take a look at cricket!

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Radio times!

henry singing

I’m really keen that more people spread the word about pension. One of the ways to do this is to do it yourself.

I appreciate that many who read this will not have the independence that I enjoy (thanks to my fantastic employer First Actuarial) but perhaps you have,

I have never planned to speak out for pensions but I’m increasingly being asked to speak on the radio and TV and to contribute to a variety of publications (digital and print).

This is very rewarding personally – it does not make me or my employers any money – but I hope that the connection between my work and my employer’s enlightened attitude is not lost on anyone! I hope that my work will benefit my employer but it will be extremely difficult to measure whether it does.

So, for people who’d like to spend some time speaking out for pensions, here are some things I’ve done (mostly by accident) that have helped me , and could help you.

  1. Blog hard and regularly – even if no-one is reading you. Looking at my blog-stats for 2009, I find i get more reads in a week than I did that whole year (9,780).
  2. Publish your blogs on a good site like word press or BlogSpot that allows you to spread the word across social media
  3. Build an audience on Facebook, Twitter and LinkedIn. As with blogging this is hard to start with but gets easier. You need readers and these will be your regulars.
  4. Speak with journalists and offer them a quote whenever they need one, if you are good to your word and answer your calls, you will soon be in demand!
  5. Treat people who comment on your blogs, RT and like you with respect, they are your champions – even if they criticise what you do!
  6. Be prepared to go the extra mile to get on any public media you can find- this can mean early starts and travel – your efforts will be rewarded
  7. Thank everyone who gives you a break – it is generous of them to share the limelight!
  8. Listen, watch and steal. My publishing heroes are Jo Cumbo, Paul Lewis, Ros Altmann, Steve Bee and yes John Ralfe. I don’t agree with a lot of what they say, but they’re all carving out a path for people with lesser talent (me) to follow.
  9. When challenged, accept you are probably wrong, it is not worth your livelihood for a heroic stand
  10. Don’t stop! When you think you’re established you are over the hill,

There are hundreds of new ways to make a difference. We have yet to see our first pension vlogger, snapchat is pension-free as is instagram. If you want to be the first that ever burst into those silent seas..go for it!

Case Study

Last night around 6pm , someone who claimed to work for the BBC but who I’d never heard of , called me on the phone and asked me what I thought of speaking on the changes to the state pension age the following morning at 5.40. I just said “I’ll do it”. The rest was easy.

We need to liberate our talented and self-confident staff to do just this. Why did I get the call? Well the chances are I was the fourth or fifth person the BBC had tried and the rest said “no”. But I was on the list because I’ve done the 10 things I set out above.

You cannot stop to think about it, you cannot come back on an offer like this when you have got your employer’s permission, thought out your storyline or even worked out the logistics.

I loved appearing on Wake Up to Money this morning , even if I was half dead having worried all night. There is nothing glamorous about doing this, you get yourself to the studio and back, you sit in BBC reception on your own, you forget your notes, you spill your tea, forget to turn off your phone and at the end of it, you get some awkward thanks and are escorted off the premises.

But you know you’ve spoken to more people in a few minutes than you could have spoken to in a month any other way. If you really need to make a difference, you need to talk with large numbers of people. Take my advice, become an independent blogger and work for an employer who is prepared to trust you.

Whether that employer is you, or a super-special firm like First Actuarial, in the end – this is up to you.up to you



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Fair, right or honest? The new State Pension Age for Generation Y


If you were born between April 6th 1970 and April 5th 1978 and between 39 and 47, this affects you. You have just slipped one year back from your state retirement age, have another year’s National Insurance Contributions to pay and you’re facing a state pension age of 68.


Fairer for some than others. If you have no intention of retiring this may not bother you much. If the reason you go to work is because it’s one day closer to retiring, this will seem unfair.

By and large the people who love their jobs are the higher earners and in control of how long and how they work. Those who hate their jobs have little control of their career or how they can put an end to the “toad work”.

Simply treating everyone the same is unfair- certainly if you listen to Ros Altmann who would have a state pension age that reflected individual’s longevity. This segmented approach could work if big data could pull together our postcode, our medical record and our lifestyle to tell Government how long we were going to live. Is that the kind of fairness we want? Or would we prefer a fairness where those who die early, subsidise those who live longest. To date, we have worked on the latter model, but don’t expect Cridland to cap out the arguments for personal retirement ages – they have a fairness of their own.


I’m not sure that Cridland was using the right data, the latest mortality data in the UK sheds a different light on future longevity than the 2015 ONS numbers that Cridland used. If there really is a change in direction for longevity, then Cridland will be wrong and the need to push back SPA will disappear. Some people thought that the reason the Government missed its May 8th deadline for publishing its plans was that it was rethinking them in the light of the new data.

Tories kill

I’m not sure you can stretch the argument this far- mind!


They were wrong, the Government just didn’t want to announce bad news prior to the election. This was not right. As I was in the room when the Pensions Minister found out about the next election and as John Cridland was waiting outside when I finished the meeting, I have no doubt that the timing of the announcement was politically motivated! Yesterday was a good day to bury bad news.

I personally think Cridland was right to stick with a universal state pension age, to push back SPA for this cohort of people and I think his idea for a mid-life MOT is a good one.


The Government has been accused of being sneaky in its introduction of changes to SPA in the past. Most vociferously by the WASPI women who campaign against the changes to retirement age of a group of them who weren’t well informed of what were going on and who feel particularly hard done by.

The Government need to try doubly hard to communicate not just the changes but the impact of those changes. The cost of the State Pension has recently been estimated to be about the same as a Lamborghini, it’s a big ticket item for the Government to pay. It is small wonder the SPA attracts attention in the Treasury and DWP.

But this subject did not even trend on Twitter. For most people , pensions will continue to be too hard, too distant and too inaccessible and people will hide under the covers and go to sleep rather than to listen to the arguments.

If the Government is serious about pensions, it has to invest in getting the messaging right. People need to know not just what has changed but how the changes will effect them and what they need to do to get back to where they were.

There’s a good discussion on this on the Radio 5 wake up to money podcast. I’ve just got back from the studio this morning. I’m sure if we could have more of these, we’d keep the Government honest!

You can listen to the Podcast here, the discussion is at 32 minutes.




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Why should employers give a damn about their staff’s retirement welfare?

retirement plan

It’s a straight question, a fair question and one that takes John Ralfe to ask!

In our subsequent conversation I introduce a historical context, Benevolent Conservatism- Disraeli- blah blah blah! John is having none of it.

In the course of dealing with small businesses and their advisers I get these questions frequently .

Why should an employer pay above the AE minima?

Why should an employer do due diligence on a workplace pension that already “qualifies” for workplace pensions?

Why pay above the minimum wage?

The answer is of course “you don’t” unless you want to – and we leave it that. Most employers don’t need a lecture they do what they like – which is what they think is the right thing..

After all the BBC can tell the licence-payers, as they are this morning that they are paying below the benchmarked “proper price for the job”, because of the cachet of the employer….that is the right thing for the BBC, the license payers and indeed for staff,

“Do you wanna make tea at the BBC?” sang Joe Strummer – clearly many do – and the BBC know it!

Total Reward

The total reward for working at the BBC is more than the pay, and (to John’s estimate) an over-generous pension; it is the value workers place on their job,

The question Government  should be asking is whether people are so exploitable that they need protecting from “bad work”. Matthew Taylor suggests that Government needs to intervene in the gig economy, as it did to get businesses to pay the minimum wage and auto-enrolment contributions on top. People do not understand total reward, do not benchmark their role against what may be available elsewhere and they may not even know what “good work” looks like.

This is why we have a trades union movement and why Government intervenes in the labour market. The issue is not whether employers have duties, it is to what extent employers need to pay beyond the minima (at the expense of other stakeholders).

Philip Hammond’s assertion that public sector employees get their reward as much after they stop working as when they work is largely right. This is  (certainly on Twitter) John’s #1 issue! His article in the Times “It is time to reveal the cost of public pensions” will require you dip into your total reward and accessing it via his blog is tricky…

john Ralfe2

Fortunately, I have made it through the high security validation process and can reveal in John’s own words…

Cabinet ministers are queuing up to say that the 1 per cent pay cap for public sector workers is unfair and unsustainable, and urging the chancellor to loosen the purse strings. But this  headline figure ignores the value of defined-benefit (DB) pensions to public sector workers, a big part of their overall pay and perks.

DB pensions, an inflation-linked pension for life, based on salary and the number of yearsworked, are all but dead in the private sector. They have been closed to new employees for many years and most smaller companies and many large companies — Marks & Spencer, Tesco, Royal Mail — have closed them to existing employees. DB has been replaced by much less generous defined-contribution (DC) pensions, a glorified savings scheme, leaving all the investment and longevity risk with employees.

Meanwhile, DB public sector pensions are flourishing, with more than five million employee members and all schemes — NHS, teachers, civil service, local government and armed forces— still open to new members.

How much is the annual public sector DB pension perk worth?…..

This article pre-dates Philip Hammond’s remarks, no doubt the Chancellor would like to know how much the “DB perk” is worth too.

I suspect it is what is underpinning public sector worker’s continued loyalty and commitment to public service; but unfortunately you cannot measure this on a balance sheet – until you take it away. Let’s hope no one tries that!

Yet John is right..

John is right to question why employers have to do anything for staff’s later life, after all their retirement negates any obvious value of their future labour.

Just because we have unions and labour regulations does not mean we should have these things and in re-engaging with the fundamental issue of whether an employer has a duty of care, we should not rely on conventional morality. If the mores of this country said yes, then has time moved on – do they now say “no”?

Is Auto- Enrolment a con? As John asserts it is

Is the Pension Regulators “tougher-quicker” stance just management consultant speak? As John asserts it is.

Is CDC a magic money tree? As John asserts it is.

John is right to question the fundamentals of our pension system, for if he doesn’t – who will. There is none other to articulate non-conformism as he does.

But John is also wrong

This is not just me being balanced, it is me at maximum conviction. The morality of this country includes an unsaid rule that employers should give a damn about their staff’s welfare. It isn’t written down – nor does Britain have a written constitution. We do not have to write some things down, we are confident in our own moral skin.

Employers have a moral duty to provide good work and that -to me – is an end to it. Good work includes a good end to work. If you as an employer decide you want to be a contrarian and do as little as possible (within the law), I will think the less of you as an employer. If you go beyond the law , pay below the minimum wage, avoid your employer duties under auto-enrolment, I will whistle-blow on you.

If we did not have conviction about good and bad work, then we would live in the kind of anarchy, Trump’s America could descend into. The breakdown of the morality that enabled Britain to build a welfare state and a voluntary pension system created by employers would be an awful thing for Britain.

John is a trustee of a defined benefit pension scheme and as such , he has a fiduciary obligation to his members. By accepting that role, I assume that he takes this duty responsibly – it is a duty that pre-empts a positive answer to the question on his tweet.

Good employers see the welfare of their staff as part of their business. It has been the same throughout Britain’s emergence and maintenance as a commercial power. John is right to question this, but he is wrong if he concludes that employers don’t give a damn.

The evidence is against him.

John Ralfe



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Pension = Wage for life

wage in retirement

Sloppy journalism confusing readers.

A quick scan of the Daily Telegraph’s Money Pages leaves me hopeless at its hapless reporting of pensions. Somebody should sit down with the whole personal finance team and read them the riot act.

Take Mike Walls

Mr Walls, 64, spent most of his career as a golf club manager and intended to pay for an extension and kitchen refurbishment using withdrawals from his £100,000 pension, held with Royal London

Mike has not got a pension of £100,000, he has saved £100,000 towards the cost of either buying a pension or providing himself with an income. Nowhere on the packet did it say that this was a plan for extensions and new kitchens.

How many people are today confusing the pot for the pension? I suspect many more than we’d like to think. Talking to TPAS, it is a regular confusion and one that is reinforced by this kind of journalism.

Now let’s move on to the second story in the digital edition of Telegraph Money.  Royal Mail’s improved offer of a Pension Plan to staff. What the staff and their CWU union have been asking for is what they have already got – a wage for life. A wage for life paid for from one great big pension pot according to what is in the pot. This is eminently sensible , by-passing extension and new kitchen plans (which can be paid for from tax-free-cash BTW) and focussing on the lifetime need for income – one that is common to most ordinary people.

What the Telegraph does not make clear is that the choice being made to Postal Workers is between a lump of money which depends on investments (defined contribution) and a lump of money paid on a defined basis (cash balance). Neither of these offers is a pension, neither is a wage in retirement. Royal Mail is offering a choice of two things neither of which is what postal workers get today or want tomorrow. Once again the Telegraph confuses between a pot and a pension and let their readers down.

The myth is perpetuated everywhere you look. Here is my old mate Sam Brodbeck talking about cashing in a defined benefit pension and getting a “defined contribution pension “. What is a defined contribution pension? Is it an annuity – read George Osborne’s lips – it’s not an annuity anymore”. Is it an investment drawdown….  ?occasionally, and even more occasionally an advised drawdown.

In case the Telegraph think I’m picking on them, I know it’s the same elsewhere, but that does not make it alright.  Organisations like the FT are reporting responsibly, which shows it can be done!

The macro de-risking agenda

It looks like the idea of a works pension is something you get from the Government. Everyone else gets cash. Philip Hammond is now using this argument to hammer down public sector wages.

On the BBC’s Andrew Marr Show on Sunday, Chancellor Philip Hammond said public sector pay had “raced ahead” of the private sector after the economic crash in 2008.

He added that when “very generous” public sector pension contributions were taken into account, public sector workers enjoyed a 10% “premium” over their private sector counterparts

It is the macro de-risking strategy that takes from the worker and distributes to the shareholder.

  1. Devalue private sector pensions
  2. Make private sector “total reward” less valuable than public sector reward
  3. Devalue private sector wages to compensate for their exaggerated reward
  4. Blame public sector pensions

Guess who are the winners, the shareholders and the Treasury. Guess who loses- everyone who is not in the inside circle where reward is concentrated.

It is small wonder that people don’t trust pensions. One minute you are on a promise, the next minute you have that promised pulled. One minute you are guaranteed a pension, the next you have your wages capped at 1% to pay the guarantee.

Confuse and control

The general public are now quite confused. The media add to the confusion by talking about £100,000 pensions (which are no such things), defined contribution pensions (that don’t exist) and cash plans that purport to being a “wage for life” but are just more of the same.

It is not for nothing that CETVs are being paid at 30 to 40 times the pension forsaken. That is what it costs to guarantee an inflation protected income for life to a family.

A £100,000 pension pot converts to a wage for life of between £2,500pa to £3,000 pa. Infact it’s worse than that as individual annuity rates have to factor in profits for insurers and don’t get an occupational pension scheme’s economies of scale.

All this talk of “sky high transfer values”,  needs be set against the cost of a “wage for life” which can seldom be met from private management. The issues Mike Walls with the tax-man are nothing compared to the issues he’ll have if he’s left with a fine house and nothing to pay his council tax with.

We are confusing short-term financial solvency with financial well-being. When we lose the ability to earn, we need a wage in retirement. The fall-back of the occupational pension scheme is being eroded from every quarter and we are doing little to replace it but boast about new extensions, new kitchens and fine bank balances!

The CWU are being deeply responsible in guiding their members towards a wage in retirement, Royal Mail are badly advised to persist with the Hobson choice of cash or cash. The FCA are waking up to the reality of “pension freedoms”, people like Mike are finding out that freedoms need tax-management beyond them and all this time, the roll-back of pensions continues as CETVs are recklessly promoted.

This confusion must end; a pension is a wage for life!

We must stand up for pensions. We can’t allow this relentless dumbing down to cash to continue. We must get a new affordable way of providing pensions as a wage for life.

The answers are in the rulebook – we just need to do the colouring in . Roll on  “collective target pensions”  and a return to a time when pension risks were understood and shared.

target pensions


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