What have we to lose from CDC?

This article was first published in Professional Pensions.


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

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

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

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

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

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

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

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

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

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

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

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

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

Is it, as Machiavelli supposes, that

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

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CMA investment probe shock; the big three breathe again!

icarus 2

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

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

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

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

The High and Mighty got off lightly

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

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

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

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

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

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

Hubris and how to avoid it!

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

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

Vertical disintegration

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

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

Breathing again

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

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

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

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

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

icarus 3

Icarus falling – business as usual?

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The loneliness of the long-distance saver


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

Here she is on a Saturday afternoon, fulminating

Jo 4

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

jo 3

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

jo 2

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

jo 1

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

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

Bots are not enough

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

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


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

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

Why so lonely?

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

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

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

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

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

I intend that that future is sooner rather than later!

The long distance saver

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

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

But as Jo’s second tweet properly puts it,

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

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

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



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

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


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


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

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

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

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

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

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

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

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

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

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

There is however a snag.

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

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

ONS Q1 2018

ONS MQ5 updated June 21st 2018 (table 4.3)


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

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

ONS transfers Q1 2018 2

ONS MQ5 updated June 21st 2018 (table 4.3)

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


So where has all the dirty water gone?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

pension debate

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

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

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


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

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

Lack of Transparency?


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

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

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

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

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

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

“A wage in retirement”

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

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

Wiki contrasts wages and salary like this

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The abuse of a soapbox

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

He has a deep understanding of his area of economics.

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

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

The use of a wage in retirement

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

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

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

There is more that unites than divides us

like cricket!

JR Cricket


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Why pensions are turning green


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

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

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


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

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

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

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

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

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

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

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

Does this go far enough?

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

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

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

What is the financial justification for introducing ESG?

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

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

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

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

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

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

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

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

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

What is the political justification for this intervention?

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

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

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

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



green 3

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

Posted in advice gap, IGC, pensions | 4 Comments

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

HL Workplace solutiosn

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

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

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


New technology – new ideas

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

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

As Hargreaves Lansdown put it

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

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

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

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

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

workie 4

What Hargreaves Lansdown is actually saying…

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

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

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

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

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

Most payolls are progressive

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

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

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

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

Sorting tomorrow’s problems now – not later

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

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

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

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

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



get to know 2

Do these really include employers understanding pensions ?

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We need to simplify our pension affairs

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

Self-perpetuating complexity



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

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

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

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

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

Most pensions are paid very simply

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

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

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

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

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

Financial gravity will do the trick

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

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

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

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

ppp screen 2

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

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

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

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

The utility of simplicity

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

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

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

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

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


the lonely Platonist in his tower

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

unite uc.png

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

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

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

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

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

It also published this excellent set of slides,

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

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

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

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

The Joseph Rowntree Foundation made three recommendations in its report


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


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

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


The National Audit Office reports DWP in denial.

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

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

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

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

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

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

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

Whatever happened to social justice?

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

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

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

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

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





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Can we map the pension genome?

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

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

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

Mapping the genome

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

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

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

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

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

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


Mapping the pension genome

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

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

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

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

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





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Who gave this windfall to the rich?

Xafinity transfer value index

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

There were two reasons.

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

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

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

The perverse impact of de-risking

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

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

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

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

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

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

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

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

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

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

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

Democratising the opportunity to transfer is not the answerXafinity 2

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

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

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

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

And yet…

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

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

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

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

The perverse windfall to the rich

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

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

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

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

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

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

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

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

xafinity 3


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University pensions! – Stay collective! Stay open!


The Babbage Lecture Theatre – Cambridge

Another good day for pensions!

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

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

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

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

Wanting the best.

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

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

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

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

The best for the best

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

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

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

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

CDC or DB – the show must go on.

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

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

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

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

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

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

Some proper thanks

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

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

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

Cambridge colleges

and Rosencrantz and Guildenstern




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Aviva (unlike tPR) get it right on transfers.

andy briggs

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



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

Aviva backs ban on transfer advice charges“.

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

What contingent charging does.

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

The impact of contingent charging

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

ONS funds

ONS MQ5 (£ bns)


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

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

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

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

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

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

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

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

What will put the lid on transfers?

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

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

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

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

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

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

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

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

and again

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

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

NMA charges

Survey numbers from New Model Adviser.


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

Why not use the cheaper alternative ?

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

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

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

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

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

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

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

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

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

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

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

After thought

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



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

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


Alan and Gina Miller


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

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

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



Why is the supply chain so complicated?

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

Sipp 1

And here is how things are today


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

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

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

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

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

true and fair

This is not trust


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

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

There are a number of reasons why this is very difficult

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

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

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

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

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

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

Can advisers be trusted?

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

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

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

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

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

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

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

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

Should advisers welcome this new level of scrutiny?

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

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

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

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

true and fair3

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

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


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

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

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

A. a sense of entitlement to my money!

An alternative way from Julian Richer

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

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

Should RBS be brought back into the fold?

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

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

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

Society needs Julian Richer not RBS.

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

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

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

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

No bail out for the millennials either

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

Nor is it a nation that should tolerate organisations like RBS, who put balance sheet before people. It is a nation with a strong moral compass, a nation that knows what it wants and how we want to be Governed.

My personal politics side with Julian Richer in condemning zero hour contracts, ensuring that people have the opportunity to rent reasonable property at reasonable prices and I want to see a well funded NHS and proper wages in retirement. I believe that achieving things is within the scope of our national wealth.

I am not compassionate about RBS or any of the other institutions that took our national finances to the brink, ten years ago. I am not celebrating their milestone fine and I hope that we take this opportunity to ensure that the businesses we invest in in the next ten years operate on the basis outlined by Julian Richer (and the CSFI sustainable finance group).

As for the millennials, you should look out for each other – I will look out for you. But you’re not getting my money, unless I choose to give it you.

I wish I could say the same for RBS.



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

Hey Willetts, leave those kids alone

leave alone 2

The Resolution Foundation have today published a paper which has as its central thesis

A policy shift is needed to mitigate risks and promote asset accumulation for all

It calls on Government to intervene to make society fairer, at least in terms of wealth distribution.

  • From 2030, citizen’s inheritances of £10,000 should be available from the age of 25 to all British nationals or people born in Britain as restricted-use cash grants, at a cost of £7 billion per year.

  • To reflect the experiences of those who entered the labour market during and since the financial crisis, and to minimise cliff edges between recipients and non-recipients, the introduction of citizen’s inheritances should be phased in, starting with 34 and 35 year olds receiving £1,000 in 2020. Each subsequent year, citizen’s inheritance amounts should then rise and be paid to younger groups, until the policy reaches a steady-state in 2030 when it is paid to 25 year olds only from then on.

  • The citizen’s inheritance should have four permitted uses: funding education and training or paying off tuition fee debt; deposits for rental or home purchase; investment in pensions; and start-up costs for new businesses that are also being supported through recognised entrepreneurship schemes.

  • The citizen’s inheritance should be funded principally by the new lifetime receipts tax, with additional revenues from terminating existing matched savings schemes – the Help to Buy and Lifetime ISAs.

“Lord” David Willetts, who is promoting these ideas, is liberal with his knowledge. At Gregg McClymont’ recent book launch he announced that BT were considering “going CDC”. An indignant BT Pension Director, suggested that I corrected this information (BT aren’t). I guess when you’re a Lord – anything goes.

“Lord” David Willetts is also the architect of DB pension transfers. Why not allow the DB system to be dismantled in favour of capital invested by wealth managers?

I was taught back in those days (1987) that my job as a financial adviser was to put the right money in the right hands at the right time. Financial Planning (then) depended on people deferring gratification and saving. Financial Planning has now been dispensed with – in favour of tax mitigation and wealth preservation schemes.

In short, we have moved from an income based system to a capital based system, largely thanks to “Lord” David Willetts. I put these “Lords” in inverted comments because Willetts really does Lord it. His view, which is now, received wisdom, is that by dumping money at strategic points in people’s lives, Government can do the job that I was told to do – right people, right place, right time.

It’s social engineering gone mad. It’s think-tank madness. It’s Lordly largesse with a big fat lollipop hanging out of the side of its mouth.

Fostering insecurity

It is true that there is less financial confidence among the young than the old. It is also true that the young don’t have to think about death so much, nor the impact of bodies falling apart, nor indeed the responsibilities of having money.

If young people had what old people have – wealth – then they can have our insecurities too!

Actually, one of the challenges of being young, is balancing the urges of short term gratification with the need to be prudent.  The progressive view of the Resolution Foundation is that each generation should benefit from more wealth as they profit both from what they make- and what their parents pass down to them.

So – when the Resolution Foundation find that

Beyond the weak earnings and incomes performance of young adults today, the Intergenerational Commission has identified two major trends which barely featured in political debate for much of the 20th century. The first is that risk is being transferred from firms and government to families and individuals, in their jobs, their pensions and the houses they live in.

In short, the baby boomers are suffering the insecurity of ownership.

The second is that assets are growing in importance as a determinant of people’s living standards, and asset ownership is becoming concentrated within older generations – on average only those born before 1960 have benefited from Britain’s wealth boom to the extent that they have been able to improve on the asset accumulationof their predecessors.

Both trends risk weakening the social contract between the generations that the state has a duty to uphold, as well as undermining the notion that individuals have a fair opportunity to acquire wealth by their own efforts during their working lives.

Actually, “generation rent” – which comprises most people under 35 who aren’t getting a leg up from the Bank of Mum and Dad, have both the insecurity of not being wealthy and the freedom of not being tied down by ownership.

The social contract of which the report makes so much, is based on the Thatcherite premise of ownership, which is actually under threat.

Homes and pensions do not need to be owned as equity, they can be rented and paid from landlords and pension funds.

I see a group of young people (my son being typical) who do not aspire to own anything . They have no record collection (they have Spotify), no car (Zipcar and Uber), no house , no savings – no responsibilities. They have fun and lots of it.

An irresponsible world of youth?

Actually, the millennials don’t seem to be bothered about wealth- or that bothered about debt, they seem reasonably confident in their capacity to cut it in a world where they own the technology, they have the health and the energy to make things happen.

Willetts and co reckon they should be given a dollop of wealth to get them back into the capital owning class that they belong to. But do young people want to be the recipients of hand-outs? I see nothing in this report to suggest that the Resolution Foundation know.

The report suggests that young people are like old people; that they want capital in the form of houses, cars and wealth management.

I see no signs of this being the case. Of course there are entrepreneurs who make their first million by the age of 17 but they do not make for a social norm. The millennial norm is doing fine, having fun, not worrying about being rich or getting angry that they’re not as rich as their parents. They are fine.

Leave those kids alone

The Resolution Foundation has a firm belief in what makes a good citizen and they seem determined to force the mould on generation X, Y and Z.

Meanwhile our kids get on with their lives with little or no interest in what our generation want them to be. It seems this is always the case.

Our progressive view that our kids should be brighter, happier and more fulfilled than ever before, seems to be measured on our terms – not on theirs.

Left to their own devices, young people will reinvent youth their way – ever thus – and no doubt when my son is in his fifties and sixties he will be trying to impose his standards on the generations born twenty years hence.


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

Johnson misses the point; CDC is for the common man

cdc pic 2


I don’t know whether Michael Johnson is being obtuse or obstructive, but either way, his letter to the Financial Times, misses the point.


 A small cabal of consultants to the pensions industry has been banging the collective defined contribution (CDC) pensions scheme (“ Royal Mail eyes Canadian-style pension model ”, May 2) drum for some time.

Without a client cause, success has eluded them: there is next to no demand for CDC from corporate sponsors of pension schemes.

Having transitioned from providing defined benefit (DB) to pure DC pensions, employers have no intention of entering what would be a very complex, untested, arena.

But the opportunity to play a role in settling the Royal Mail’s pensions travails has been gleefully leapt upon. The consultants’ have attached their CDC cause to settling what is ultimately a labour dispute. This renders the CDC debate primarily political, rather than being driven by any performance merits.

This is not a sound basis for the formation of pensions policy.

Michael Johnson -Research Fellow,Centre for Policy Studies,London NW5, UK

CDC will do very little for employers (at least in the short-term). Johnson is right to point out that Royal Mail came to CDC as a means of resolving a labour dispute. There are other potential disputes out there, quite apart from the recent dispute among University Lecturers and CDC may again be used as a compromise solution – but it is not of the least importance to small employers and not to most big ones either.

CDC is important to staff, or at least it will become so, as more staff find out that pension freedoms don’t equate to proper pensions.

As one of the small cabal of pension consultants named (indeed the pension consultant who invited Johnson to the meeting of Friends of CDC to which this letter refers), I am pleased to be recognised for banging the CDC drum.

The alternative would be to allow the UK insurers to press ahead with drawdown for the masses with a fall-back position of annuitisation. Both of these solutions work for insurers but don’t work too well for the UK consumer. If Michael Johnson wants to hand the trillion of so that will be in UK DC by 2030 to a small cabal of life insurers, he should continue along this way.

But knowing him, I do not think he wants this, I think he is a libertarian who generally wants people to choose or at least have the choice of, good ways to finance their retirement, not least to reduce the burden of their maturities on subsequent generations.

It is not the job of small employers to insure against their retired staff’s super-longevity, but employers are quite comfortable to operate workplace pensions (as proven by the successful staging of auto-enrolment).

If an employer was given the choice of a standard DC scheme or an upgraded DC scheme (which enabled staff to have the equivalent of a scheme pension) then few employers would begrudge the upgrade – PROVIDED they were ring-fenced from any liability for the payment of the pension.

If an employer has any residual concern about the potential liability of participating in a CDC scheme, they should not enter into such a scheme. Employees should be free to transfer their DC pot into a CDC “general purpose” scheme.

Johnson seems unimpressed by the arguments put forward by people like me that CDC will produce pound for pound better results than IDC/drawdown or IDC/annuity and he is unlikely to transfer his pot into a CDC plan or run a company that participated in a multi-employer CDC scheme. But his libertarian principles should include a recognition that he does not speak for everyman. Others may hold different view than his.

As for his contention that pension policy should be based on performance rather than policy, I agree.  Royal Mail’s potential settlement has added £2bn to its share price, should a “wage for life” solutions not be delivered, then the performance of Royal Mail’s shares will not be sustained.

That £2bn is of course based on what the CWU’s membership has voted for (91%). Michael may agree with other pension experts that over 100,000 postal workers have been mis-sold the deal by their union, but that is in itself a political opinion.

If we consider workplace pensions as deferred pay ( and we have done for many generations) , then any pension dispute is a labour dispute. By breaking the link between contributions and pensions (firstly by moving from DB to DC and latterly by taking away the need to annuitize), the Government has created a problem for itself.

That problem goes beyond Royal Mail’s current “labour dispute”, it is a problem to do with the adequacy of retirement incomes in later lives.

The Government, which sponsors workplace pensions with generous tax incentives, is perfectly entitled to facilitate innovation in private pensions. This was precisely what the Defined Ambition of PA2015 was designed to do and what the FCA’s Retirement Outcomes paper is calling for.

The Government should see Royal Mail’s request for secondary CDC legislation, not as a burden, but as a policy windfall. If anyone should be gleefully jumping to Royal Mail’s aid, it should be the DWP and the Treasury.

Michael Johnson should remember that the meeting he attended in January had 69 attendees, I have the list and can count only 6 consultants on it. He is as wrong in his memory as he is in his analysis. CDC is for the people , not for consultants and not for employers.

cdc pic



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

Did the 2018 IGC reports meet today’s challenges? Only in part.

IGCs 2018 with TP16

For the spreadsheet with live links, mail henry.tapper@pensionplaypen.com



The table above reports on the various ratings given to IGC reports in 2018, it includes the GAA report of St James Place that is good enough to be an IGC report.

I said, when I set out on this task, that I was looking for three things from these reports.

  1. An interest in the provider’s work on decumulation (innovation)
  2. A proper analysis of the provider’s work on  “responsible investment”.
  3. A statement on transfers from other workplace pensions – especially from DB plans.

I got a little satisfaction on “1” and “2”, but no IGCs  engaged with what is happening in the big bad world of transfers.ONS andy

How we spend our money

The money we build up in workplace pensions is there to be spent. The spending of the pot is as close as we get to justifying the tax reliefs given to “saving”.

Most IGCs seem to consider their remit to extend only to the point where the member reaches some notional retirement point and then cashes in the pot. Pot encashment is not happening at anything like the rate anticipated by some. Money is transferring from savings programs to wealth management programs which could often be described as wealth preservation programs.

The concept of a pension as a means to mitigate inheritance tax, is as bizarre as the idea of swapping a pension for a Lamborghini. Sooner or later, providers are going to have to exercise some control and give members who don’t know what to do, a guided pathway that approximates to a pension. If workplace pensions don’t adopt CDC, then the product needs to provide a collective drawdown option which offers a real alternative to an annuity. I saw little or no evidence of IGCs engaging with these issues in the 2018 report.

Engaging through responsible investment

For all the hand-wringing about policyholder’s lack of engagement (either in saving or in reading these reports), IGCs are still struggling to understand why people find pensions so very boring.

In my recent piece on pensions and the blue planet, I highlighted research commissioned by a group of fund managers, that concluded that people don’t find pensions so boring , if they know where their money is invested and that it’s invested responsibly.  This report can be read here.

There were some good analyses of provider behaviour with regards concepts like ESG and SRI, but none really made the link between what the member wants and what the provider can deliver.

I hope the DCIF deliver their report to all IGCs (and GAAs) this year. I hope that all members read it rather than wasting more time on vanity projects on member engagement which are little more than pointers for the provider’s marketing departments.

Responsible Investment should be what Workplace Pension Defaults practice. Let’s hope that by this time next year, the trend developed by L&G and NEST to offer members responsible investment as standard, are adopted by others. As for the IGCs , they should be calling for responsible investment to be as standard as the wearing of seat belts in cars. “clunk click every trip”.

That said, we did see a section on responsible investing in almost every report, which is a move in the right direction.

The workplace pension for transfers.

For most people, their workplace pension will offer lower fees, better default investments and – let’s hope default ways to spend money. They should be – for most people – the way, not just to save in the workplace, but to spend in later life. They should be both pension and deposit account, a reliable source of funds in later life.

It is therefore extraordinary that workplace pensions are pretty well ignored in the transfer debate. They are rejected by most IFAs in favour of wealth management solutions which offer ongoing involvement for the adviser, not just in the advice on drawdown, but on the management of the drawdown pot.

Most workplace pensions (including NEST, Peoples and NOW) do not offer advisers the opportunity to be paid from the fund for initial transfers (contingent pricing) and are therefore ruled out of court. Even those providers (like L&G and Aviva) who offered workplace pensions to steelworkers, hardly got any money into their workplace pensions. This appears because TATA and Liberty, the principal employers behind these workplace pensions, were shy of putting forward their products.

Many large occupational pension schemes do not make their workplace pensions available to transfers from active employees. This is because they do not want to be seen to encourage transfers. But the transfers are happening anyway, sometimes we are seeing members accruing DB, ceasing to accrue and then transfer to an advised SIPP, even when the employee is still in employment. Ironically, the employer is turning its back on these people. I’m pleased to see that Lloyds Bank’s “Your Tomorrow” scheme has recently changed policy on this.

Transfers from DB schemes tripled from 2016 and 2017. Yet not one IGC mentioned this change in workplace pensions.

The IGCs are simply not engaging in this issue. They should be asking their providers whether the providers are making the “transfer in” option available to members and promoting the advantages of using a workplace pension for saving. If the Aviva GPP and the L&G workplace pension had been advertised in Port Talbot and Teeside, the abominable solutions put forward by firms such as Active Wealth, would have had a benchmark.

I find it hard to credit, that most IFA reports I have read on transfer options did not even mention the opportunity to use the workplace pension.

I find it hard to credit that not one IGC report I have read, has focussed on the role of the workplace pension as a “default” for those who have decided to transfer away from their DB plan.

Some final thoughts on IGCs in 2018

In 2018 IGC reports show IGCs more effective and more engaging than in previous years. They are slowly getting to grips with the concept of value for money, but most are still along way from reporting on it effectively. More work needs to be done if the 2019 reports still show such inconsistency in Vfm reporting.

With regards the future, IGCs have to move with the times. We are in a world today where consumers are much more aware of the Blue Planet than when the terms of reference of the IGCs were established (2015). Such is the pace of change, that a review of the TOR may be needed to ensure that 2018 focusses on what matters to members.

There needs to be urgent thought by all workplace pension providers about what can be done about decumulation. IGCs,Employer Trusts and  Master Trusts should look closely at what comes out of the DWP legislation on CDC and see what can be taken for their schemes. IGCs should be pushing providers for the innovatory solutions called for by the FCA.

Finally, and belatedly, the IGCs must look at the numbers below and ask themselves why the schemes that they are so proud of (only one IGC referred its provider to the FCA in 2018), are not being used as safe havens for transferred money. There remains an opportunity for workplace pensions to be better promoted both for primary transfers and for secondary transfers from unsuitable SIPPs.

I hope the Chairs of IGCs, especially those I am critical of, take note that I can change my views (Royal London being an example). There are no underlying prejudices, I simply want IGCs to become effective consumer champions as the OFT meant them to be – and the FCA require them to be.


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Hargreaves Lansdown’s IGC as pretty and effective as a chocolate teapot!



In 2015, David Grimes and the Hargreaves Lansdown IGC, delivered what remains the worst IGC report I have ever reviewed. Things improved considerably in 2016 but the IGC has not kicked on and I find the 2017 report disappointing. It is a good read and has the kind of stock images that would make me feel valued (something that HL do better than anyone other than perhaps SJP). Hargreaves no longer call their workplace product “Corporate Vantage”, it is their HL Workplace SIPP. In terms of innovation, HL are unlikely to be at the front of the queue, they are the market leader at what they do and they will do all they can to keep things that way.

And here I think is the problem. While HL’s report is from an IGC  (and SJP’s isn’t), the SJP GAA are really biting into the neck of their provider to see what blood runs in its veins. The HL IGC report is clubby and nice, but it really is a bit of a chocolate teapot. The status quo must prevail for corporate objectives to be met.

Value for Money

The report rightly focusses on funds – this is what HL does, present funds for investment which are likely to do better than their peers.

The function of the IGC in such circumstances is to ensure that the selection process is good and that the monitoring and communication of that monitoring is also good.

The IGC this year has chosen to include an investment commentary on selected funds which is from HL and not their own work

This is all very well when things are going well, and things are going well for most of the default and core funds under scrutiny. But what happens (as is happening with the Newton Real Return Fund, when the fund underperforms its benchmark.

The fund has achieved its aim of producing cash-beating returns over time, while also sheltering investors’ capital during difficult periods. We believe the fund is an excellent choice for relatively cautious investors seeking a core holding for their portfolios.

Is this good enough when the benchmark is actually rather more serious than beating cash, the displayed benchmark is as follows.


The Fund has and continues to underperform over 1 (1.67), 3 (5.63) and 5 (13.74) years

So what is the IGCs reaction – well there is no reaction. The IGC doesn’t comment on this underperformance and it doesn’t pick up on the gloss given by the HK commentators either. In governance terms, this is as useful as a chocolate teapot and calls into question many of the other judgements in this report.

If performance = value, then fees =money. In the value for money debate, the HL IGC are equally limp on either side of the equation.

They have clearly detailed the costs of the main funds within the HL workplace SIPP

fees hl

But the level of analysis is very weak. Anyone who thinks that HL are passing on the full discount it gets from IMAs with any of these managers has a very naïve view of platform economics!  HL makes its money from its platform fees (just why the fee for Schroder’s is lower is not explained -typo?). It makes more money from retained margins between the amount it pays through its investment management agreement and what it charges in the fund charge. Is the total margin value for money, we have no analysis other than the feeble.

The IGC notes the platform charge for the HL Workplace SIPP is higher than many other platform providers’. However, members also benefit from HL’s considerable buying power, which enables the default and ABC funds to be offered at significant discounts to members. The result is that the overall charges (platform fee and fund charges together) are not out of line with the market.

The real issue is whether the entire proposition represents value for money and the IGC continues to keep all dimensions of the offering under close review; at present the IGC is happy to confirm the services provided within the platform fee do represent good value for members.

Which is about as rigorous as “£81bn of member’s money can’t be wrong”. Hargreaves Lansdown is a money making machine which is charging 0.75% for a default fund that has a further 0.13% in transaction costs. 0.88% is a lot of money for a fund that has (net of the fund charge has barely beaten its benchmark, and net of all fees has consistently over one, three and five years – underperformed. The impact of all fees on the customer experience in both HL defaults – drives the net performance of HL’s defaults, below the benchmark returns (which are themselves net of fees).

This is not mentioned in the IGC report, nor do we get a clear idea of what is going on with cash management (now under the auspices of a Non-Executive Director). Since the HL default runs into cash, this matters. It would well behove the IGC to demand a clear statement from the NED on what HL actually made from cash last year rather than the insipid

The IGC note that HL has a process in place to ensure that the difference between earnings and the distribution on cash is below the Government charge cap. A fair and competitive rate of interest is distributed and overseen by a Non-Executive Director.

If the level of analysis committed to “competitive” is similar to that elsewhere, then I have no confidence that HL members are getting a fair deal on cash.

The entire section on value for money in this report is feeble. The HL IGC has a duty of care to its members to be rigorous, and the IGC is flaccid. HL are and should remain a shining light for transparency, the flag bearers for MIFID II, fund educators and all round good guys. The IGCs standards need to be commensurately high, they are not, and HL will continue to mint money from their margins – until the IGC asks some serious questions about fees and fund selection and monitoring. I am tempted to give the IGC a red but will stop at an orange. Compared with its first report, this is still good enough, but compared with its potential, the IGC is a VfM under achiever – it gets an orange.

Effectiveness and engagement

This is a well enough written report, there is nothing in it that surprises me or indeed is supposed to surprise. The last section deals with the results of the HL survey where members complain about costs, transparency and investment performance (see above).

There is a degree of complacency evident in the IGCs reaction to these complaints which suggests either a lack of engagement, or effectiveness or both.

HL customers are bound to be more engaged than others, HL offers a non-advised service where customers are buying direct. Unlike SJP, there is no partner or adviser in the way – so policyholders are likely to be using the IGC as its only intermediary.

If I was an HL investor (and at the levels of margin I see within their product – that is very unlikely), I too would be pushing hard for more transparency, putting pressure on fees and wondering just why Newton (and to some extent the default providers) were on the platform.

So while I found the report a good read and offer it a green (for grace), I think it is ineffective and for its lack of push-back on all of the above – I give it a red for clout!


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SJP policyholders deserve an IGC. They have a great GAA – but that’s not enough!

st james place

St James Place is one of Britain’s largest financial institutions, it is a FTSE 100 company with 2017 revenues of over £9bn. It is therefore surprising that its exposure to workplace pensions is so limited that it does not need to run an Independent Governance (IGC)Committee, but instead is externally governed by a Governance Advisory Arrangement (GAA). In any event, I would question whether the “kid brother” status of the GAA is appropriate for an organisation with the responsibility and reputation of St James Place PLC.

But there are two further matters which suggest to me that SJP shouldn’t be “getting away with” sub-standard scrutiny.

The first is that it has within its control, rather more “relevant scheme” for workplace scrutiny than it previously thought.


Why the extra 6000 policyholders with nearly £1bn of assets weren’t previously included isn’t clear, though the GAA make it clear that they weren’t there in previous years.


On its own, I would suggest that this should be ringing significant alarm bells at the FCA.


However, there is a second significant link between SJP and the workplace which hasn’t been disclosed and isn’t within the remit of the GAA to discuss. I’m referring to the very significant inflows to SJP from workplace DB pensions through cash equivalent transfer values (CETVs). For obvious reasons, SJP are coy about what percentage of the £90bn under management came to them this way. In the last quarter alone, SJP£2.2 billion came into the pension offering, a figure 48% higher than in the first three months of 2017.

All things else being equal, one has to assume that the surge in pension assets is in line with the surge in transfers identified by the Office of National Statistics.

ONS funds

I have argued elsewhere that this money , originates from workplace pensions and has been granted its tax-reliefs and NI exemptions as part of the occupational pension framework. That is should now be excluded from the scrutiny of an IGC (or with SJP a GAA) is illogical.

In the case of SJP, I have seen evidence from large occupational schemes, of SJP topping the list of wealth managers to whom trustees have been writing cheques.

The IGC structure is well suited to examining the value for money , not just of ongoing workplace pensions, but of money formerly in workplace pensions. SJP have more of that money than (I suspect) any other wealth manager/ provider in the country and they should not be operating a GAA rather than an IGC. Let’s hope the GAA is upgraded in 2018/19.

A very good GAA report.

Apart from the increases in relevant schemes and the huge increase in pension assets (from DB), there is a third reason for upgrading SJP’s governance from GAA to IGC. The GAA – under the chairmanship of Pitmans’ Colin Richardson, has produced an excellent report – under the restrictions of being a GAA – a superb report.

The report is well laid out, well written, interesting and very effective. Against considerable headwinds it comes up with a meaningful value for money assessment.


This is very far from a clean bill of health. To only give SJP – a FTSE 100 company, an overall assessment inches from poor is a strong statement. Had the assessment been one notch further into the red, I imagine that Richardson would have had no choice but to refer SJP to the FCA. As it is, I think there is strong grounds for doing so in 2018, unless things improve fast.

A healthy scepticism

At no point in this quite long report (29 pages), do I feel that Richardson and his team are taking anything at face value. Early in the report we read

The GAA took into account the high levels of policyholder satisfaction reported by St. James’s Place.

but the GAA return to this subject – with a hint of concern

as this is a high quality, high cost proposition with St. James’s Place claiming high policyholder satisfaction the GAA sought to review the methodology of the policyholder satisfaction surveys. The GAA would like to review this further in the next year.

What appears to be direct feedback, is anything but…

St. James’s Place will receive and filter all policyholder communications, to ensure that this channel is not being used for individual complaints and queries rather than more general representations which may be applicable to more than one policyholder or group of policyholders. Where St. James’s Place determines that a communication from a policyholder is a representation to the GAA, it will be passed on in full and without editing or comment for the GAA to consider.

This is an editorial policy that the Stasi would have been proud of. The GAA is quite right to push back.Stasi

Inconsistent investment management

A more substantive, and even more worrying concern for the GAA is that it finds it impossible to measure what is going on with the £1.25bn of assets it now governs; its headline criticism is that

..the selection of suitable investments from the range of model portfolios and other funds appears variable

This is because the management of these relevant schemes is in the hands of individual partners, who do not reveal the secrets of their management. The GAA does not see this as at all beneficial

Therefore, we believe this is likely to lead to more appropriate individual investment strategies for policyholders. However, the review showed example portfolios for sample policyholders remaining static over the medium term and we wish to review further next year the frequency and depth of SJP Partner review of portfolios

The question is one of sustainability over time

Whilst the GAA views the process of construction of ‘model portfolios’ as strong, the GAA questions how easy it may be to maintain such performance in a general lower return environment if we are entering such a period.

This is a sound analysis, if it cannot be measured, then there is a governance failure, the SJP investment model – is (in terms of independent governance) ungoverned. The GAA rightly highlight this issue as a key determinant of its lowly VfM rating.

The thorny issue of SJP member costs

The attitude of the GAA to cost disclosure and cost management is clearly hardening. Costs fall into two categories, what policyholders pay for “product” and what they pay for “funds”.  On product charges the GAA has this to say

the GAA have noted that the impact of charges varies widely between policyholders. St James’s Place have informed the GAA that charges were under review in 2017 but no changes were made this year.

SJP are stalling and the GAA know it, had they the clout of an IGC, would they be knocking on the FCA’s door – I’d hope so.

As regards fund costs and charges, the news is little better.

Transaction costs will also be borne by policyholders, based on their underlying investments. St. James’s Place publishes details on its website in line with guidance from the Investment Association, and, like all providers, are awaiting further FCA guidance on the calculation and disclosure of transaction costs.
Limited information was provided on transaction costs, due to the difficulties of analysing dilution charges. The GAA will look in more details at the transaction costs in future reports. The methodology and timing have now been clarified by the FCA with an effective date of 3 Jan 2018. As such there has been limited time since then to meet the requirement within the reporting period. We are expecting to be able to provide fuller information next year.

The analysis of SJP’s investment governance is rightly favourable

The range of funds is determined by St. James’s Place and how it is tailored for individuals is determined by the SJP Partner, under supervision by St. James’s Place. This offers individuals a higher level of governance compared to most other workplace pension schemes.

But the GAA simply don’t have the resource to discover the investment management agreements behind the funds employed and whether SJP are passing on the economies of scale , its £90bn of assets should be providing its policyholders.


So – for reasons more to do with resourcing than intent, I cannot give the GAA a green – but only an orange, for its value for money work. I will however, be treating the SJP GAA going forward as if it were an IGC – were it a proper GAA it would have got a green. It does well for a role it has outgrown.

As mentioned earlier, I consider Colin Richardson has written an excellent report, which is engaging and interesting. It gets a green for its style, content and focus.

I am also convinced that the GAA are no patsies, that they clearly see what they cannot see clearly and will not relent from demanding more transparency from SJP. I give the report a green for its being effective – in the face of many headwinds.

St James Place, are ducking their responsibilities by not having a full IGC and they are getting away with blue murder on a number of fronts. Whether the FCA will call them to account in 2018, I don’t know. But I don’t think the current governance situation is satisfactory and I call on the FCA to upgrade the SJP GAA to and IGC ASAP!


In 2016 I published a full review of GAAs (including SJP’s which I called on to be upgraded). You can read this review here.

I have not published a full list of the other GAAs in 2017 or 2018, because of lack of time. I am concerned that many policyholders of small insurers and SIPPs are not getting the care they deserve from their GAAs. I am absolutely sure that the vast majority of these policyholders have no idea that the GAAs even exist.

The FCA might use the SJP example to more generally review GAAs. My next and – probably final – review of the year will be of Hargreaves Lansdown, a principal rival of SJP. Hargreaves Lansdown does support a full IGC.

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“As for pensions – tell me what to do and let me get on with it!”

I can do it

The quote in the title comes from a friend of mine, who has a successful web-based comparison site (that doesn’t compare pensions). The comment has haunted me since Christmas.

What’s that coming over the hill?!?

uh- “guidance”…

uh – “single guidance body”

The Financial Guidance Bill is making its way through parliament.

If Government were following the rules of business, it would have scrapped the central construct of the new legislation, the single guidance body. Instead the amendments listed here support the inexorable progress of this quango, the lovechild of the Money Advice Service and Pension Wise.

Pension Wise has not been a success. Infact it has been a failure. If it was proof of concept for the single guidance body, it has shown that the concepts of financial guidance, advice and education are no closer to being grasped by the general public than they were by the Chancellor in his budget speech of 2014.

We are in danger of quarantining the phrase “financial advice”, in a place where only highly qualified financial advisers can go. If we define “financial advice” , as the Pension Advisory Service does, as the provision of a definitive course of action, then you’re not going to get “it” unless you sign a terms of business and pay money for it. Financial advisers would say this is as it should be. Their lobby has effectively created a monopoly on “telling people what to do”. But of course you cannot quarantine something as amorphous as “advice” and as there are financial implications to most things we do, the quarantining of financial advice will be as helpful as nailing water to a wall.

The single “guidance” body had, at one times, designs on requiring us to all be subject to a “sheep dip” known as a “mid-life financial MOT”.  The idea was, that rather than the voluntary guidance available from Pension Wise, we would be forced to pay attention, at least for forty minutes, to our long-term finances. Not since the introduction of compulsory education in schools, has such an ambitious program been proposed. Unsurprisingly, the idea appears to have reached its high-water mark.

So what is emerging is a very insubstantial Bill with the feel about it of fairground crab-thrapping. Whacking a crab (or mole) is hugely satisfying to the thrapper, but crabs and moles abound and the faster you hit them, the more they reappear, You can be a champion thrapper, but the crabs and moles survive to carry out their pernicious practices once you have left the stall.

The amendments are principally around pension cold-calling, which will be banned (at least from within the UK) from as early as the summer. This is a victory for good sense, though it will hardly leave the scammers exposed. Already, lead generators are hard at work creating pension enquiries from online activities that lead us to leaving our telephone numbers in a data capture device. My guess is that these “hot leads”, self-generated” will solicit a phone call which will be “warm” enough.

It is very hard to see us preventing scamming by suppressing supply. The best way to suppress scamming is to improve the supply of relevant help for people.

The absence of “help” on pensions is very evident to the general public.

If you go to “Go Compare” or “Compare the Market” of  “Money Supermarket”, you will be able to get your car insured, your life insured, sort out short term savings, find out about mortgages, compare credit cards – do all kind of useful financial tasks.

But you will not be able to find out about your pensions.mse3

Even Martin Lewis is silent on pensions. I’ve been going to MoneySavingExpert for 10 years now and I have never seen so little stuff on pensions on the site. Not one of the headline services is talking about retirement, retirement saving – the word pension seems to be taboo.

The sad truth is that none of the great comparison websites that are so crucial to our financial decision making, has a pensions business.

Talk to the people who run these sites and they are not happy about this. They would like people to come to their sites and transact. But they find it very difficult to help.

Over the next few months, I will be exploring why this is. I want to know what is stopping people taking decisions on what to save, where to save and how to spend their savings, without recourse to advice or government guidance or a financial education program.

I want to know why everyone thinks its so easy to press a button marked “transact” for credit cards, ISAs , loans and insurance but why pensions remains “out of bounds”.

I want to know why telling someone what to do is a “quarantined” action and how people can by-pass advice and do things for themselves without risk of being bitten by some rabid scammer.

I want to know why people can’t manage their financial affairs in retirement without being considered “Lamborghini” feckless or recklessly conservative.

We should not give up on providing people with a definitive course of action.

As well as reading the amendments to the Pension Bill, I also had the time to read an article in Pensions Expert which contained this interesting thought.

When the Department for Work and Pensions allowed the industry to block mastertrust Nest from entering the drawdown market in 2017, it did so with a proviso; the industry had to drive innovation itself.

The “reassurances” offered to policymakers were such that the DWP expressed “hope that development of new products will progress at pace now that the freedom and choice reforms are well established”.

One year on, and some politicians are questioning whether the collection of competing mastertrusts and insurers have earned their respite from what they had labelled market distortion

Politicians I speak to are as frustrated as the general public that there is no “obvious thing to do” – no definitive course of action.

For the public to be satisfied, they need to be able to get to grips with pensions as they can do with any other financial matter.

This country has one of the great internet buying cultures of the world, according to Wake up to Money this morning, 17% of all shopping now happens on-line. And yet , outside of the workplace, nothing “pension-wise” is happening at all.

It really is time we started putting to people default solutions that make simple sense. Innovation is needed and innovation is happening, talk to the 145,000 Royal Mail postal workers.

Origo has reduced the processing time of transfers from 50 days to 12 days, there are opportunities to go further.

Innovative new aggregators are coming into the market and talking about ways of looking at products using value for money scoring to compare “apples” with “pears”.

In short, the Financial Guidance Bill is a hopeless irrelevance that simply treads water. The single guidance body will be a flop, as Pensions Wise was a flop. People don’t get guidance, they want advice and they want to be told what to do by people like Martin Lewis who they trust.

They can’t get what they want right now and they are rightly frustrated (as are the politicians).

This all adds up to this being a time of opportunity, for someone to take a lead and deliver what people really want – a definitive course of action – being told what to do!


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Whatever happened to “pot follows member”?

pot holes

The Liberal pension spokesperson – the very shadowy Stephen Lloyd, has labelled the Conservative Government “incompetent” for shelving Steve Webb’s pot follows member initiative (which should have arrived in 2016).

Guy Opperman, with the weight of the Government’s massive research into this area (ho ho ho), has determined that “now is not the right time” for such an initiative. This is “not so subtle” code for “don’t bother me with this, I have enough on my plate”.

Guy does indeed have a few matters on his plate, like sorting out the rules for Royal Mail and others to go CDC and – more importantly to his reputation – to make something happen with this Government Pension Dashboard.

The CDC project appears to be moving in the right direction and I hear word that it may yet adopt some of the unloved DA legislation in PA 2015. If that’s the case, then CDC may have more flowers blooming in its garden than the snowdrops seen so far.

The Pensions Dashboard is doomed to failure so long as it is a Government project. The only way to make Government Pension Policy to work is to put it in the hands of Michelle Cracknell but as she is currently fighting for TPAS’ identity in the brave new world of the single guidance body, I doubt she is in any position to help.

Lovers of grand Government pension initiatives will point to auto-enrolment – but that work because the Pensions Regulator let the private sector get on with it. They will talk of NEST, but that worked because it was given a £1.2bn leg-up by the tax-payer and got extremely lucky (just how close to being a net-pay disaster NEST was, has yet to be revealed). NEST worked because of Tim Jones and latterly Helen Dean and because (for once) the DWP had a 10 year run at it.

None of which is the case with the Pensions Dashboard, which has Charlotte Clark (a NEST  stalwart in charge, but the budget of a Lada to NEST’s Rolls Royce).

And so to pot follows member

The best thing to say about the Government’s policy on pot follows member, is that it has abandoned it. Government could no more direct pots to follow members than Canute could have directed the tide to reverse and keep Canute dry.

Pots will follow members when

  1. It is easy to aggregate
  2. People know the value of their various pots (not just £sd but Vfm)
  3. There is something worth aggregating to.

Since most of the best pension schemes are not generally open for aggregation, point 3 is very live. There are aggregators out there, ready to get your money, but frankly – how do you know they are any good?

The argument that if you transferred a DC pot , you might be putting “the Ming Vase in a boot sale”, carries some wait. But not if there was a financial equivalent of an Antiques Roadshow for legacy financial products. You do not need an Arthur Negus to spot a Guaranteed Annuity Rate, you simply need a robust process that ensures that GARs and other financial oddities are flagged by ceding insurers.

The more general argument – that there is no Value for Money measure to compare a legacy pension pot with a Pension Bee or Evestor, is more serious. People will not press the transfer button without a degree of confidence – and short of an adviser telling them what to do (and taking some responsibility for the outcome), people are not transferring “old pots for new”.

What can the Government do?

If Guy Opperman was in listening mode (as he has been with CDC), then he would go and have a chat with the people at the Treasury who conceived Pension Dashboard 1.0. This conception stopped short of a Government built and run dashboard and encouraged small, agile Fintechs to use the protocols created by Government to gather data about pots and their value (and value for money).

This work is being carried out in the institutional space by Chris Sier and his IDWG, but there is (as yet) no retail trickle-down. Opperman should speak with Dr Sier to see how the templates he is creating (to find out what we are paying and getting  for fund management) could be used to find out what we are paying and getting  for policy management (e.g. the vfm of the pension contracts themselves).

The Government can also shake up the FCA to shake up the IGCs to ensure that recalcitrant insurers make contract information available to organisations establishing dashboards with which people can monitor “value”, “money”, “value for money” and press the button that says “transact”.

We have the tools.

One of the oddities of pension policy is that we have – very slowly, built up the tools to allow pots to follow member. We can quite easily run dashboards and we could populate those dashboards with real-time data which could allow people to take decisions about which pots to fold into what pots!

We also have the technology, much of which has come to us from auto-enrolment. I’m talking about the application programming interfaces (APIs),  which we’ve built to allow insurance and trust based record keeping systems to talk to payroll (and other) systems.

We have the understanding of slippage to know how to get at the hidden costs within funds and this can be extended to understand slippage within policies (the cost of life styling for instance). So we can tell “money”.

We have a way of measuring gross and net performance so we can check that our money calcs are accurate and that the slippage between the performance of the assets and that of the fund is in line with our slippage calculation.

And if we can measure net performance, we can assess it on a risk adjusted basis so that we can tell people on a lemons v limes basis, whether one contract is giving better value for money than another.

We can even – for those who value these things – measure the user experience of one contract against each other, so that people besotted by one platform’s support, can compare it with another’s.

Whatever happened to “pot follows member”.

Pot follows member is stuck and – left to the Government -it’s going nowhere. But the Government don’t know what its like to have multiple DC pots (they have DB pensions).

People who have multiple pots and are closing in on 55, want all their pots in one great-big-pot”, because they know about economies of scale, because they know how hard it is to manage pension freedoms from multiple pots and because they suspect that some of their legacy pots aren’t doing them any favours.

The one chink of light in the gloomy pre-Brexit penumbra, is that people like me are talking about this and that out there – deep in the gloom – people are building the kit that will make pots follow member.

I will keep writing these blogs in the hope that people will call me on 07785 377768 or email me henry.tapper@pensionplaypen.com and join the swelling band.

Pot will follow member – whatever the Pension Minister says!

Pensions or pots



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

By George, I just shrunk the pension!

honey i.PNG

While “workplace pensions” go from strength to strength in terms of coverage, the amount of money being paid as “pensions”, certainly in the private sector, is likely to shrink. this article looks at why and asks some awkward questions about the long term consequences to ordinary people when they lose their “wage for life”.


The Office of National Statistics publish a document known as MQ5 which contains a spreadsheet – famous to actuaries – table 4.2 (Pictured below)ONS funds

It contains regularly updated data on the state of UK pensions and is studied with the intensity of astronomers peering at the milky way.

The latest update- keenly awaited- contained the 2017 numbers; the stand-out number is a jump in transfers out of defined benefit pensions into personal pension “pots” from £12bn in 2016 to £34bn in 2017. This is the actuarial equivalent to finding a “black-hole” on your galactic doorstep.

The £34bn in voluntary transfers is not only three times the 2016 level, it is three times the amount involved in insurance buy-outs – the accepted medium by which trustees get rid of their liabilities or (more politely) “de-risk” their scheme.

The unseemly rush to the door is proving an embarrassment to all parties; the Pensions Regulator is consulting with the FCA, the FCA is consulting with the public. This was definitely not in the Treasury forecasts , published in the wake of the 2014 budget announcement.

Treasury DB transfers

From Treasury impact assessment of Pension Freedoms -2014


The stable door is open and meanwhile wealth managers are leading out the horses with the cheerful message “buy now while stocks last”.

There is a real threat that the bonanza will not last; the FCA’s consultation is into whether contingent charging should be banned. Were it to be banned, the current ability of advisers to charge fees “contingent” on the transfer going ahead, has enabled payments of tens of thousands of pounds from tax-exempt pension pots – VAT exempt.

Many pension experts consider that it is contingent pricing – a practice that has come to the fore in the past two years, which has led to the astonishing increase in transfers.

But the stable door will be shut too late for billions more to have transferred and this is now a genuine issue for those in reward. For so long as this money was destined to pay pensions, it was “deferred pay”, with the money in “wealth”, the link with reward is broken.

As steelworkers in Port Talbot discovered, the arrival of six figure sums into accounts of those over 55, gives people the confidence to retire immediately. Many advisers complain that the transfer values, high as they seem, are inadequate to support early retirement but the lure not just of pension freedom, but freedom from the blast furnaces, has proved compelling.

Included in the £34bn – identified by the ONS will be £4.2bn from the Barclays staff pension scheme, £3bn from the Lloyds Banking Group Pension Scheme and close to £3bn from the British Steel pension scheme. These huge sums will never be paid by pensioner payroll, they will be drawn down from self-invested personal pensions or cashed out to buy anything from home improvements to Lamborghinis.

While former pension minister – Steve Webb – may continue to argue that people are quite entitled to swap their pension for a sports car, those in reward may feel differently. The traditional point of running a pension scheme was to ensure that long serving employees can move from employment to retirement and be paid a wage for life.

Instead, some communities, Port Talbot among them, are now swamped with pension wealth which may last as long as a lottery win. The implications for the communities are worrying as is the impact on the workplaces. While one generation of workers are enjoying a windfall from a defined benefit pension, another is struggling to accumulate money in a workplace plan.

If reward strategies are to be deemed fair, there will have to be a remarkable recalibration of pension policies. For many of the children of those retiring today will be seeing their pension pots accumulate at the auto-enrolment rates.

And it is only a matter of time before some of these transfers are spent and former workers find themselves looking for work again, as they discover that they are rather more healthy than they’d ever expected to have been.

All of which leads us back to the orderly dispersion of money through a pensioner payroll. The idea of a stream of payments that last as long as you do, is deeply unfashionable at the moment. However, we may look back at the transfer frenzy of 2017 and 2018 as a time of great loss.

The discipline of paying and receiving a pension, relative to the drawdown of a capital sum, is something that it is easy to dispense but very hard to return to. Let’s hope that we learn that lesson before there is nothing much left in ours great private pension schemes – to pay out

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From EasyBuild to Peoples Pension; B&CE’s IGC’s “special purpose”.


Time to pack your bags


BB&CE’s workplace pension empire has changed. EasyBuild  is shrinking its policyholders  and moving their “pots” to  the People’s Pension  with the help of The B&CE IGC.

EasyBuild was once Britain’s largest stakeholder pension scheme, the B&CE flagship. , B&CE has moved with some agility to running one of Britain’s largest master trusts – People’s Pension.

The transition is a result of Government interventions, the stakeholder initiative has been supplanted by auto-enrolment. B&CE has been at the forefront of providing for small employers and their members both as a stakeholder and master trust provider and should be commended for its foresight, responsiveness and operational efficiency.

Over the course of 2017, all but £9m of the £1.2 bn. in EasyBuild moved to People’s Pension , securing lower charges and a more certain future for the rump of stakeholder pensioners. Of the 2000 policies remaining in EasyBuild, 400 are for those who have died (and are awaiting payment) and 700 are in the process of transferring away to other providers, the 900 members left will be looked after by the IGC, though you would hope that keeping an expensive governance committee in place for much longer , can be avoided.

The B&CE IGC has overseen an effective dismantlement of EasyBuild and , though it fights on for lower charges for the remaining members, the work of Delo, Pickering et al is as good as done. Those who were members can thank their IGC for doing an effective job. I give them a green – this transition has no doubt been conducted better for their help, expertise and oversight.


The 2017-18 IGC report still engages

One of the good things about reviewing IGC reports is that none are written to a template  (unlike some GAA reports). Even with such a meagre audience, the B&CE report reads a considered piece of work. Steve Delo, the Chair, is used to working to a tight time and financial budget and though there is a little padding (see appendices), this report is engaging and – for those interested in consolidation of small pots – a fascinating case study. It is to both the IGC’s and B&CE’s credit that this report exists and reads as well as it does ; it too gets a green.

Value for Money

I won’t go so far as give the report green for amber for money. I will give it an amber, since what is happening within EasyBuild is no more than care and maintenance. While the 900 members who choose to stay within EasyBuild may be an irritant to B&CE, they have taken a conscious decision to stay (opting-out of the transfer). B&CE pledged to provide a stakeholder pension through to their chosen retirement date and has an obligation to do so and these members deserve to be treated as fairly as any other customers (including members of People’s Pension).

I fear for groups like this, the pensions equivalent of property tenants and owners , holding up the clearance of sites intended for other purposes. While I am sure they will not be harassed, let’s make sure they leave on good terms. I hope too that they are not holding out for bonus payments to clear off and that B&CE will not buy them out on  special terms. The IGC should not be kept alive as part of a protracted dispute ; it should close itself down as soon as the FCA will let it.

Since the sum of money the IGC is looking after (£9m) is rather lower than the governance budgets of some larger IGCs, I suspect that given time, the IGC will become one of Easybuild’s greater expenses, because of the stakeholder charge cap – that expense won’t fall to the remaining few policyholders, but it will put a brake on greater value for money which no doubt be available elsewhere.

In Conclusion

The transition of almost all assets within EasyBuild to People’s is another quiet success story for People’s Pension and for its owner B&CE.

Because the transition has been successful, it is not subject to the publicity that usually accompanies the wind up of a collective financial arrangement.

Other IGCs should look at the example that B&CE has created and ask whether there may not be arrangements such as EasyBuild within its remit, that could be managed into the equivalent of People’s Pension (a large and growing arrangement offering better value for money for members.

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

Nothing wrong with being contrarian – the Hargreaves Lansdown 2018 IGC report

HL Workplace solutiosn

There’s a compelling logic to the HL IGC Chair’s introduction

Since they all relate to value for money for scheme members, our findings and progress are set out in the following analysis of value for money.

Value for Money is not only the measure, improving it is the objective and that objective leads to increased contributions. This is the conclusion of the HL IGC and it is one that HL would undoubtedly sign up to. Higher contributions equals higher shareholder value from the HL Workplace SIPP. Wins all round.

I buy into this vision, where the customers are engaged in saving and investment and HL has a very special type of customer, it has customers that not only can – but want to “do it themselves”.

Evidence of the utilisation of non-default funds can be seen in the number of members making alternative investment choices. 29%of members (28% last year) invest outside of the default funds and 53% of HL’s workplace pension scheme assets (51% last year) are outside of the default funds. This reflects a high level of member engagement.

This is the contrarian world of Hargreaves Lansdown, a firm that demonstrates what can be done by knowing your customers. But highly engaged customers can be vulnerable too, there is a fiduciary responsibility on HL and its IGC and the challenge for HL is to make sure that when focussing on greater engagement (and contributions) HL do no take advantage of the position it has built up – and rip-off its customer base.

My worry is that the HL IGC are a little in awe of the reputation of Hargreaves Lansdown and forget that their primary responsibility is to the member.

The good news for HL customers is that the default workplace options available to employers and members are currently delivering the goods

hl perf

The not so good news is that when it comes to the “money” side of things, the HL IGC is rather short on detail.

The real issue is whether the entire proposition represents value for money and the IGC continues to keep all dimensions of the offering under close review; at present the IGC is happy to confirm the services provided within the platform fee do represent good value for members

This would be fine if there was evidence of how HL’s charges compare with other similar providers. “At present”, suggests that the IGC has it in mind to demand improvements in member charges as HL’s proposition grows in shareholder value.

The (otherwise pretty boring) findings of the member survey , includes this conclusion about HL satisfaction scores

Most were rated as either good or excellent. However, one area the IGC were concerned with was the relatively high number of ‘I don’t know’ responses to the cost of the plan

You would have thought that the IGC would have used the opportunity of the Chair report to explain how HL is making its money and give members the transparency they claim they lack.

But the report fails to do this. Though we have tables on communication metrics (how long does it take HL to respond to an email) we do not have tables on how much members are really paying for their funds and how much less they would be paying, if HL was passing on the full value of the investment management agreements it is negotiating with fund managers.

This is particularly the case with regards the passive default fund, the “BlackRock Consensus 85 fund”. If I was an experienced investor reading the IGC report, I would be particularly interested to see a transparent assessment of the money that HL are making from promoting this fund (as well s the other defaults).

There is not enough in the IGC report for me to be frustrated,  but the absence of close analysis of HL’s charging structure is now a priority. I’m giving the IGC an amber for its analysis of value for money and an amber for the effectiveness of its work. But I will give the report a green as a read, it is a very engaging document.

In conclusion

The report reads well , but there is too much missing. I am not happy to see no mention of HL’s attitude (or lack of one) to ESG management , I am not convinced that life styling ordinary people to cash, is a good at retirement strategy and (as talked of in this article) I’m worried that the HL IGC is not asking awkward questions about the commercials of the HL Workplace SIPP.



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Pension paralysis over the net-pay rip off.


I won’t bore you with a list, but there are 31 blogs on this site dealing with various aspects of the net-pay rip-off which is denying hundreds of thousands of low-paid people the incentive promised them by HMRC for contributing into workplace pensions.

It is a scandal, the pensions industry are complicit in allowing it to become one and this blog explains why the situation has got to the state it has. It also gives some hints to employers who don’t want to be a party to yet another pension scam.

I’m writing this article because net-pay has finally become topical. It’s become topical because a pension consultancy (Hymans Robertson) has launched a report on the matter which has sufficient PR behind it to get it media prominence. Good for Hymans Robertson, they are part of the solution, but why has it taken them and others  3 years to wake up?

How did we get here?

Around October 2015, payroll experts, notably Kate Upcraft, noticed that the lower threshold for auto-enrolment contribution and the minimum threshold for income tax were diverging so that some people could be paying no tax , getting no tax relief and yet being auto-enrolled.

As Kate and I and a few others looked further, we realised that a lot of auto-enrolment was starting at £1 of earnings (this is what happens at the House of Fraser). This means that all low-earners in net pay auto-enrolment schemes, could be missing out on incentives to contribution. Then remember that many people on habitual low-earnings “spike” into auto-enrolment – as a result of a well-paid pay period and you realise that auto-enrolment’s 11m new participants , include a few hundred thousand who get no incentive to contribute – just because their employer is operating net-pay rather than RAS.

From my emails that Kate Upcraft first had a meeting with the DWP about this in November 2015, and NOW Pensions and my blog were flagging all this from mid September 2015. Kate first discussed this with me in July 2015.

It is very hard to know how many people are contributing to DC schemes under net pay and missing the incentive. Many are doing so under salary sacrifice and are completely off the radar. Lloyds Banking Group reckon that they may have as many as 3000 such employees on their own. Since the vast majority of own occupation occupational schemes are set up under net-pay and as many of them (for instance Whitbread) have high numbers of low-earning, part-timers, I think our initial estimate of 300,000 people in the “rip-off”, should be revised upwards.

Over the past 3 years, despite my blogs, Ros Altmann’s blogs and the pleading of parts of the payroll industry (Kate Upcraft in particular), nothing has happened. OK Now has cobbled together a fly-by-wire compensation structure, but other than that NOTHING HAS HAPPENED!


Nothing has happened because virtually all the players in this sorry fiasco , have blood on their hands.

Chief culprits are the consultants, who both recommended employers set up net-pay arrangements (which suit the high-earning purchasers very well) and administer them on systems which are “net-pay only”.

These consultants – especially the big three – Mercer, WTW and Aon, have now gone further and set up their master-trusts under net pay. That means that they are so steeped in net-pay themselves that they can say nothing on the subject. No advice- no action, the large employers sail on ignoring their low-earning members and no-one, not the PMI or PLSA or AMNT or any other trade body does a thing about it.

Now let’s look at the employers. Quite apart from feeling they are absolved by their consultants, they have no wish to deal with this issue on any commercial grounds. The staff who are missing out are their least valued, they are probably more mobile than senior staff but even if they aren’t they have no voice. They have no voice because their normal representatives – the unions – are making no noise.

I do not know why the unions are not bothered about this issue. Perhaps it is because this is DC, perhaps because of phasing, the scale of the problem is currently too small, perhaps because one of the unions has a 50% share in a net-pay mastertrust. Anyway, the unions have generally been quiet on this issue and that has let the employers and their advisers off the hook.

All of which is leading up to the great big villain of the piece – the Government – more especially HMRC – who see Net Pay as a handy way of avoiding the impact of auto-enrolment on tax inflows. Having a high number of low-earners outside of the RAS system is just fine by HMRC, and as the low-earners are not even being told they are being ripped off, this situation can go on bubbling away – just like PPI.

Just like PPI!

Of course we all know what happens when the PPI bubble bursts. You get hundreds of thousands of claimants downloading forms from Money Saving Expert and demanding expensive to administer compensation for being ripped off.

Which is exactly where HMRC is heading.

And even if employers and unions aren’t directly in the line of fire, they will find themselves with the same collateral damage as all those who condoned PPI find themselves with.

This is another version of the “too big to fail” problem. The PLSA, PMI, Consultants, Employers, Unions and most of all HMRC really do believe that they can keep a lid on the Net Pay scandal, because it is so big that no-one will have enough energy to lift the lid on it.

Well done Hymans Robertson (and a few others)

It may have escaped notice, but there are consultants who don’t run their own master trusts and who are prepared to stand up and be counted – even if it means pissing off some of their clients. Hymans Robertson are the biggest, Lane Clark Peacock are another and First Actuarial are a (smaller) third. Apart from us and a gaggle of smaller consultancies  too numerous to mention – (oh and JLT), all the other pension consultancies run their own net pay master trusts and they all do their own administration. JLT of course administer NOW Pensions master trust – and they can’t offer NOW a relief at source solution.

Of course we do have our own vested interests and by writing about net-pay I will undoubtedly piss off some of our clients and introducers. But we really do need to solve this problem and as an industry – put pressure on HMRC to find a proper solution. So long as most of the stakeholders in this debate remain conflicted and stay silent – that will not happen.

Possible solutions

Because NEST is a relief at source scheme, many large employers have put in place a NEST scheme for low-earners and the problem (for them) is mainly solved. I know of at least one large employer with their own occupational DC arrangement (net-pay) considering a GPP for low-earners.

I have seen (from Kate Upcraft) various solutions that could be administered by HMRC , which would compensate those on net pay without incentives, through “year end sweeps”.

And I know that some workplace pensions operating under Net Pay (Smart for instance) are promising to offer Relief at Source within a few months.

People’s Pension of course has the best solution which is to offer both forms of relief(though not within one employer arrangement).

All of these solutions are pro-tem till HMRC gets its act together. HMRC were the bright lads who introduced Relief At Source and HMRC should have it in them to provide us with the long-term solution. I don’t know what the long-term solution looks like but we cannot go on like this!

In conclusion

So rather than right another 32 blogs about net-pay, I hope that others apart from Hymans Robertson , will do it for me. I hope that the PLSA and PMI and other bodies will start lobbying HMRC for fairness for those on low-earning and I really hope that we will have – in quick time- a solution that ensures that a large part of the newly phased contribution increases of those on minimum auto-enrolment contributions, are given what the Government has promised them – an incentive equivalent to basic rate tax-relief – WHETHER THEY PAY TAX OR NOT!

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

Laugh, cry, applaud! Zurich’s IGC report is flawed – but a “must read”

zurich ass

I don’t know whether to laugh, applaud or cry when reading Zurich IGC reports and Laurie Edmans’ third report is no exception.

Laugh – because of Laurie’s brutal honesty

But from the members’ perspective, it does not matter whether the issues are industry wide or not. The fact is that the considerable majority of scheme members have little idea whether what and how they are saving is going to give them the lifestyle in retirement they expect.

Cry at the massive amount of customer research that has led the IGC to this conclusion.

Or applaud Laurie for pursuing the course most difficult, questioning whether we can ever sufficiently empower customers for the task ahead of them – to manage an income for life from a pot of money built up within a DC plan.

This may explain my erratic ratings of previous reports. I veer between violently agreeing , ranting with frustration and then smiling appreciatively at Laurie’s great project.

Sadly, that project will not be continuing as intended. Zurich’s modern pensions, the book of DC business established since the turn of the century, has been sold to Scottish Widows, what will be left will be the old Eagle Star and Allied Dunbar books, which hardly bear examination under the ambitious project that Laurie and his colleagues embarked on in 2017.

Value for Money

The IGC comes to one important conclusion that every other IGC should contemplate. Relative to its peer group, the Zurich Corporate Pension is succeeding, but relative to what members want – it is not.

This tough assessment results from the consumer research conducted between 2015 and 2016. It is not based on Laurie’s private prejudices. It is ironic that the largest scheme that Zurich has underwritten, the Royal Mail’s DC plan, looks likely to be abandoned by its 40,000 members, in favour of a CDC plan which – to the Postal Workers – delivers what they want (value) for their money.

When I was working at Zurich (then Eagle Star), the Royal Mail Trustees came on a site visit, arriving in a couple of limos at the gates of our Cheltenham offices.

“Who you here for?”

asks the gateman of the chauffeur.

“We are the Royal Mail trustees”,

replies a voice from deep inside the car.

“Alright, the post room’s round the back”,

said the gateman dismissively –  the site visit never quite recovered.

I am sure the IGC will smile at the story, which illustrates that how we see our customers and how they see us, are seldom aligned! Here is how the IGC sees Zurich relative to its peers.

Zurich vfm 2

Here is the “harsher” truth of how Zurich customers see their pension

Zurich Vfm

When Zurich looked at service standards, they concluded

… our consumer research clearly shows that the comparators that count most for members were not with other financial services companies but with other sectors which are perceived as having higher standards – retailers and digital companies being cited most as examples. Consumers saw financial services companies generally as falling short of their expectations for service. Zurich, in common with its peers, appears to have work to do

What worries the IGC is that Zurich’s service standards and dashboards pass muster not just within Zurich, but with the employee benefit consultants who recommend Zurich. Like Eagle Star, who alienated the trustees of the Royal Mail all those years ago, Zurich don’t know their customers.

The same can and is said by the IGC about the empowerment of customers to take the decisions they need to take to keep their policies up to date. Zurich are proud of the tools and communications they put in place, but the customers don’t seem to use them or read them. Having seen the efforts Zurich went to , to create a self-service culture among clients, and the pitiful use of self-service, I know the frustration that must be felt by Zurich, the painful truth is that much of what is being asked of customers, is beyond them. Again, the simple conclusion is that this is more than a Zurich issue – but it is an issue for Zurich all the same.

The only areas where Zurich’s view of itself (as a good provider) and the view of its customers align, is in terms of investment and compliance. My cynical view is that these are areas that are the “inner sanctum” of a provider’s competence. It is extremely hard for the general public to question whether value for money is being achieved in areas of competence they know nothing about and against which they have no proper benchmark (you don’t find funds or pension compliance on the high street).

These insights are important and for more than Zurich. For the IGC’s brutal honesty, for their focus on Zurich’s customers and for their refusal to give “the right answer” to their masters, I give Zurich IGC a green.



For most of 2017, I was a Zurich customer and I struggled to transfer my legacy pension away from Zurich. I even got as far as tabling a complaint, but gave up against the waves of bureaucracy that came at me. Mine was not a happy experience, I suspect that Allied Dunbar and Eagle Star customers of the eighties and nineties, will have similar stories to tell. To have any chance of getting value out of legacy pensions, you need to be 55 and in my case, it wasn’t till close to my 56th birthday, that I finally got out with only a 1% penalty.

There is a lot of data relating to legacy products , much supporting the assertion that the underlying funds are doing well both in terms of value (outperformance) and efficiency (low transaction costs). There is also much truth in Zurich’s assertion that the process of “moving away” can cause more detriment than staying put (or at least moving to a better fund).

However, I don’t find that Zurich have been particularly effective at managing legacy issues and I don’t find the IGC have been particularly good at helping me! I give Laurie and his team an amber for “effectiveness”.


Having criticised some other IGC reports for being over-lavish with stock photos and info graphics (sometimes used as padding), it may seem churlish of me to criticise the Zurich IGC as over-Spartan.

It does however look like one of my reports, before I put it into beautification for clients. Heavy blocks of text appear as they would on a first draft word document , tables are poorly aligned and there is little  relief to the eye over 24 pages.

Did the budget not stretch to some proper type-setting and some “modern” presentation?

While I enjoyed the content, I couldn’t help feeling that the IGC had run out of money and support from Zurich. This may be the case, as workplace pensions is clearly not the focus going forward.

It is a cruel irony, that having so much time and money since 2015 , getting engagement with its public, this report fails to engage them back. As a matter of style, there are too many difficult words. Here for instance is the opener to the Chair’s statement

The IGC’s main task is to ascertain whether the members of the pension schemes within their remit receive ‘value for money’from their product provider

The word “ascertain” appears at the start of the main body of the report. Why? “find out is the phrase ordinary members use and understand.

This report contains some of the best work of any, sadly it doesn’t quite engage and I can give it only an amber.

In conclusion

Once again, I am left laughing, crying and applauding all at the same time. Laurie is Hamlet “he was likely , had he been put on, to have proved most royally”.  However, the grand design of the IGC is dead and what follows for the Zurich IGC will

necessarily be less.

Hamlet Laurie

Alas poor Zurich, I knew it well.

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Life’s a beach for the BlackRock IGC

black rock stock.PNG

It’s a sure fine of things to come when an IGC report is promoted by a stock photo. This couple appear on most of the IGC reports I have read, I suspect they were scammed out of their pension and now have to make a living looking happy outside of beach huts.  Sadly they presage a lazy report and here’s another (and hopefully the last) from BlackRock.

“Lazy” is not a word that I’d ascribe to most IGC reports, most are testaments to the struggles the Committee has with Value for Money, that – like the holy grail – hovers tantalisingly out of reach.

Not so BlackRock who just get out the cheque book, hand the problem over to BlackRock and presumably slope off to the beach hut.

It is important that you, as members, receive good value for the contributions that you and your employers are investing. This is generally referred to as value for money.

The IGC takes this extremely seriously.

Whilst we could technically have performed this exercise ourselves, we believe that it is important for members that this exercise is carried out at the highest level by appropriately qualified professionals and so during 2017 commissioned KPMG, as specialists in this area, to provide an independently assessed review of the overall offering as a follow up to the 2016 assessment.

What the IGC have agreed with KPMG is so anodyne that it is hardly worth my comment. BlackRock achieve a score of 92 out of a potential 100. KPMG have constructed some bizarre universe of rivals to Black Rock, each with its spurious title.

black rock charges

This is an analysis of BlackRock’s charges , the “money” in value for money”. We aren’t told what these charges are (that might be disclosing some client confidentialities). Black Rock clients can feel proud that they are not offering members anything “basic” or “average” but an “above average scheme”.

This is so uncontroversial that it probably ticks every box on KPMG’s risk register. It is busy saying absolutely nothing – very elegantly – kerching!

KPMG’s assessment gives BlackRock 135/150 for investments, despite all stages of the target dated funds underperforming their benchmark during the year (gross of charges). Just why their is underperformance isn’t clear (though it may have something to do with hidden charges which KPMG mention but do not display). The report does display the charges later (still not accounting for the underperformance). As one would expect, slippage trends to zero because BlackRock are a top tracking manager.

The reason for the 15 point loss, is not that the benchmark wasn’t achieved – pretty material in a value calculation but because

BlackRock didn’t quite reach 150 as it doesn’t provide an additional range of LifePath options based on member’s risk appetite (e.g. high risk or low risk).

Sweet mother of Jesus, I so wanted those extra LifePath options!” – (taken from the blog of the unknown member).

The report meanders on in similar vacuous vein.  BlackRock are nearly perfect at retirement, just tripping up because they don’t integrate their drawdown process into the accumulation fund but tip the target date fund into a special drawdown fund. It isn’t clear why this is a bad thing – it clearly trips some internal trigger in the KPMG DC rulebook.

Similarly , BlackRock’s governance is almost perfect except BlackRock don’t tick all KPMG’s boxes

to obtain a score of 100% an IGC must have an agreed training log. The IGC does, however, undertake ad hoc training as and when required and it should be noted that the IGC includes professional trustees. In addition, the IGC reviews member communications on an annual basis, whereas, to get 100%, KPMG felt that continuous review should be undertaken.

For heaven’s sake! Admin is perfect, communication almost perfect, the sun is shining and the waves are twinkling – happy days.

BlackRock’s IGC get out of their deckchairs just long enough to deliver their verdict on BlackRock’s overall value for money

We consider the methodology adopted by KPMG, based on its research of workplace pension providers as useful, covering the most important factors affecting you. Their assessment gives us independent confirmation of our own beliefs that members are provided with good value for money.

I have a good mind to send this to the FCA as an example of an IGC holding the IGC process in contempt. It is simply not good enough, outsourcing governance when you are an independent governance committee is not on. This report gets red – with vermillion streaks for its value for money assessment.


I will not labour the point. During the year BlackRock’s workplace pension business was purchased by Aegon. Though the report suggests that the IGC is likely to do another report in 2019, I really can’t see what is the point (unless KPMG are doing a “buy two- get one free” service.

The report is engaging enough not to be downright annoying. It didn’t send me to sleep and it was well written. It was however lacking in anything that I could call “interesting”. I’ll give it an orange which can be peeled in the beach hut.


You’d have thought, that having outsourced its main function to KPMG, that the IGC could get on with doing some effective work ensuring that policyholders got the best innovation their money could buy.

There is however no evidence that the IGC Committee did very much with BlackRock last year. They express disappointment that they didn’t get the transaction cost numbers from external managers, and there are perfunctory statements on ESG and GDPR. The report fizzles out with some biographies of those around the beach hut and a couple of links to post boxes which members are invited to click if they have anything to say.

I wonder if BlackRock have turned on the “out of office” message. This IGC report is really ineffective, I give it a red for not turning up, it rivals the first Hargreaves Lansdowne report for laziness.

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Royal London’s IGC comes of age

royal london logo

Not the IGC chair!


I’ve been tough on the first two reports from Phil Green, Chair of Royal London IGC. I guess I am a convert third time around, as this report reads well, is stacked with useful information on Royal London’s value for money and gives me confidence that his IGC is effective in what it does.

Ironically, just as I’m getting to like his reports, Phil announces he is leaving and next year’s report will be from a new Chair. I hope that the rest of the committee, some of whom I’ve met, can provide continuity and continue the progress made so far. Phil Green has been the most open of IGC Chairs and I’ve learned from our meetings, thanks Phil and your committee, for helping me understand your job.

Engagement – “no longer a brochure”

My criticism of previous reports has focussed on a lack of separation between the IGC and the Provider, to the point that the report read like a sales brochure. I was, to read Green’s opening remarks, one of several who fed this back. The new report is denuded of the stock photos that pad out so many reports. instead there’s a lot of fact, especially in the appendices, which contain some really good graphs explaining the impact of commission, exit charges, transaction costs on net performance. The charts are clinical and targeted at the expert investor and the IFA.

I’m glad that Green has got the message, I know this work has always been done, but we never saw the outputs; whether for fear of scaring the horses or for confidentiality reasons, this information had been preciously withheld. Now it is in the public domain, I feel happier with the IGC and the Provider. Royal London uses financial advisers, it is not a direct to consumer outfit, consumers who purchase Royal London policies, are likely to have the protection of advisers. It is right that the IGC opens the bonnet.

Gone too is the euphoria with regards the policyholder’s dividend shared by Royal Mutual as a “mutual”. Rather than distribute excess profits to shareholders, Royal Mutual pay it to policyholders. They do of course reward their senior executives handsomely before doing so, so we should not think of those ragged tramps in Royal London adverts as sitting on the Board.  The IGC position on this has been toned down, allowing the reader to work out for him or herself, the benefits and shortcomings (there is no Remco) of the Royal London structure.

So in terms of engagement, I have moved my view of the report to Green – some achievement from the Chair!

Is this report effective?

I mentioned in my reviews of Prudential, Old Mutual and Aviva, that these providers were benefiting from the inflows of money from DB pensions. In 2017, £34.25 bn.  (ONS) , transferred from institutional to retail fund management. A substantial proportion of this money went to Royal London, though no mention is made of whether this money went to Royal London workplace pensions, or to Royal London’s SIPP platform.

As I’ve argued elsewhere, this matters. The different in governance standards between a workplace pension and a SIPP is that the workplace pension has an IGC in charge and the SIPP is governed by the members and adviser.

Royal London operate Governed Portfolios, an excellent idea, these portfolios bridge the gap between retail and institutional and are, I understand, available on both the Royal London workplace and SIPP platforms. But the price the SIPP customer pays, is dependent on an individual contract with the member, while the workplace price is negotiated at employer level. I am very interested in knowing how this works in practice – and so should the IGC. In short, is the SIPP adding value or detracting value; is the Royal London workplace pension being avoided by the advisers who are supporting the SIPP? What is Royal London’s position on the promotion of the workplace pension for the receipt of transferred money?

At present , the IGC are not engaging with these questions. I think they should be. Perhaps they can consider this as part of the 2018 work. My worry is that while the IGC has been effective in 2017 in reducing legacy charges, strengthening the value money framework and analysing performance, they are not addressing the wider challenges of Royal London’s being a workplace pension provider. Stepping up to the plate on key issues of the moment – such as transfers and decumulation options, should be within Royal London’s scope.

Much as I admire the attention to the detail on issues such as “opt-outs” on auto-enrolment, the details of adviser charging and the analysis of phasing and workplace support, these are the secondary issues. The primary issues going forward will be in helping policyholders convert pots into the retirement income streams people know as “pensions”. This issue is too little covered in the report – I would like to hear more on this next year – and to see Royal London taking a lead.

This progressive and well-funded IGC should be taking the lead – right now I think it still a little too reactive to give it a green- I give it an amber for effectiveness.

Value for money

I’ve said it on each occasion I’ve reviewed an IGC report, if the Chair states that the IGC is giving value for money, what is he comparing his provider to? My criticism of the Royal London IGC approach is that it is too much in its own bubble.

But this is a minor criticism, the sections 5 (charges) and 6 (investments) of the report are excellent. I got the impression that the IGC is connecting with other governance committees within Royal London, and while I wish there was a little more expansive look at rival approaches, I cannot fault the IGC’s understanding of its own provider.

Royal London’s approach to governance is clearly embracing the concept of value for money and you get a strong feeling – reading this report – that the IGC are going with the flow – or may even have created that flow in the first place. This may be Phil Green’s legacy.

I’m happy to give the Royal London IGC a green for their work on value for money and to commend Royal London for the way they are sharing information with their IGC on issues such as transaction costs. There is something very functional about the relationship between provider and IGC which is admirable, it is quite different from the “IGC in the provider’s pocket” impression given elsewhere.

In conclusion

I’m pleased that I can write nice things about this report. I wish the Chair well whatever he does with his time next.

He has given the Royal London IGC a firm base, and this style of report is much more effective than previous styles. I hope that whoever picks up the reins, will take a progressive view on the challenges I set out in my discussion of the effectiveness of this report. I suspect, from the commitment to better understand ESG in 2017, that the willingness is there.

Phil Green and the IGC committee do not put their faces on this report, but their integrity shines through and I really commend it to anyone interested in what is happening at Royal London today. Let’s hope that I can say the same next year.

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Prudential’s IGC get it right – a model Chair report.

To understand why the Prudential’s IGC reports are so good, you need to go to first principals and read the opening paragraphs of their value for money definition (oddly sitting on p40 of the report)

The IGC’s approach to VfM takes account of a range of factors, including charges, performance, service and communications. However, these have been weighted to reflect our view that what ultimately matters is the outcome for members.

On the basis that good financial outcomes that lead to higher retirement income are the most important, we prioritise investment returns and charges as being the most important elements of VfM. We then look at a number of secondary service quality features, placing particular emphasis on the swift and accurate processing of contributions, the level of performance in dealing with complaints, and the quality of communications.

This is the 7th report I have reviewed and the first that specifically mentions retirement income as part of its value for money assessment.

Of course, workplace pensions do not produce retirement income in themselves – (though CDC pensions will); but in terms of their tax treatment, they are expected to replace income lost when people grow too old to work at former levels.

Prudential’s IGC Chair, Lawrence Churchill knows this.  He also knows (and states)

The major factor in how much pension you can take out, is how much you put in.

The Prudential have had a bumper year for inflows and I will look at why in this report.

Value for money

The report ends well but it starts well too, clearly setting out the IGC’s view of what is working (and what is not).

Pru scorecard.PNG

Sadly, I cannot reproduce the original, but you  you can click on it here. Each segment provides you with its narrative at a click of a mouse. Certainly the most engaging use of digital technology I’ve encountered and representative of the high level of engagement I had from this report (see below).

Wise bird that he is, Churchill then  assigns each sector to one of his team. Particularly impressive is the report by John Nestor on investment matters which deals very properly (and in the IGCs own words) with Environmental, Social and Governance (ESG) issues.

Prudential are retaining their (outcomes based) CPI+3% performance benchmark and this is regularly referenced. Where performance charts are included, they show the performance against relative benchmarks.

Of particular importance to me was the statement on with-profits.

With £1.2bn of funds under the IGC remit being invested in With Profits, we undertook further research into the charges for guarantees and smoothing. This showed that the charges were less than could be supported theoretically. Importantly, we also confirmed that if the charges for guarantees were excluded, all the with-profits funds were charging 1% or less for investment, in line with our reference point for unit linked funds. There are consequently no concerns about the Value for Money members are receiving.

“Prufund”, the commonly used name for the Pru’s With Profits, is mainly used for people transferring out of DB plans. It is recommended by advisers because it provides stability through a smoothed investment return.

In my opinion, the IGC should be considering whether the use of Prufund in this capacity falls within the remit of the IGC. My argument is that while the money is being transferred into non-workplace pensions, the source is workplace, albeit a DB plan.

The statement from Nestor deserves wider distribution to IFAs as it clearly states a methodology that can be used for determining VfM in with-profits. Let’s hope that Prudential can go further and clearly identify the cost of guarantees in all their with-profits products, so other third parties can follow this method.

Prudential have gone so far as to provide underlying performance data for Prufund


Pru fund return

I will be recommending that the Friends of CDC look at the quality and quantity of these disclosures. While CDC is not with-profits, it can learn from Prudential and its IGC.

There are other reports on transaction costs, communication and service levels which are also good. I found the Prudential’s section on Value for Money, outstanding, and the best I have read. I have no difficulty giving it a green (in Pru’s terms – it should get a deep green).


There is a sureness of touch in this report, matched only by Phoenix’s (of those I have read so far). The use of appendices is tried and tested, it leaves the main report tightly focussed on the job in hand.

The links are engaging as are the graphics but it is the tone that marks out this report as special.

Engagement leads to confidence and confidence to use, if the IGC can be immediately useful, it is most immediately useful as a way of encouraging people to save and keep saving in pensions.

By this yardstick, I am giving the report a green for engagement, if I was a Pru saver, I would be considering upping my contributions having read it!


The report doesn’t mince its words; on the massive range of funds that were within the workplace contracts, it has this to say.

Members have been able to invest in 129 different funds. We regard this number as far too high for Workplace Pensions, and see little sign of customer demand or need for many. For example, 71 funds have fewer than 500 members investing and 72 funds have less than £5m invested by workplace pension members. In addition, a number of funds seem to be doing pretty much the same thing.

We believe there is an opportunity for Prudential to simplify its fund range and reduce its costs by reducing the range of funds offered. As set out above, 23 funds will have closed in the last 18 months, simplifying Prudential’s proposition and

delivering better Value for Money for members. But 106 funds still remain. We are challenging Prudential to make much more progress in 2018.

Not only is this a very effective piece of writing, it is indicative of the confidence that the IGC has in itself and in its relationship with the Prudential. I got , throughout this report, a sense of a functioning relationship with Prudential.

Churchill had boasted about the effectiveness of his IGC in the trade press and I was up for taking him on. I won’t, I suspect he would be able to defend his position as he defends the policies of his members.

This is an effective report and I will give it a green for that too, it is the report of an effective IGC.

In conclusion

This is the first report I’ve read this year (I’ve read eight) that I would be proud of having been a part of. Others have been good in parts, but this is good all over and it gets three greens from me.

Consultants, trustees and other IGCs would do well to mark it.


Pru laurence

Churchill, right to be proud of himself

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“Phoenix and the Island of misfit pensions” – how one IGC is making a difference.

misfit mascot 2

Phoenix – the island of misfit pensions.

It’s not much fun if your pension finds its way to Phoenix Life. It’s the pension equivalent of the Island of Misfit Mascots – the place where Peetie the Sexual Harassment Panda gets pensioned off to in the eponymous South Park episode, (see clip at bottom).

If you bought an NPI, Abbey Life , Brittanic, Pearl or Scottish Mutual pension, and you haven’t transferred somewhere else, then you’ll be in Phoenix. But don’t worry, you are in safe hands, because you have someone to watch over you. That Someone is David Hare, who runs the IGC. He and his team don’t make any bones about it, having a pension with Phoenix isn’t going to be great. But since most of the people in Phoenix aren’t likely to kick up a fuss and will just sit there like “sad pandas”,  it’s a good thing that the IGC is a good un.

Although, the Phoenix 2018 IGC report  doesn’t talk about it, there are likely to be a lot more Sad Pandas next year, when Standard Aberdeen ships Standard Life off to Phoenix. There will also be another sad panda IGC to be assimilated  (Standard life IGC 2018 report here).

I don’t suppose that Standard Life policyholders will want to be referred to as Sad Pandas, they’re a proud lot. But they’ve had a pretty rubbish time at Standard Life recently and many employers would swap the £100 per month they pay for Good to Go for a £0 per month Phoenix charging structure. OK, Phoenix fund performance is pretty dire…

Phoenix Hare 3

Phoenix 2018 IGC report


But then so is Standard Life’s

peer standard

Source – Salvus

Phoenix IGC does not have the benefit of top investment consultant Redington, advising them on how rubbish their fund performance is. Instead the IGC tells members how it is.

The top of those two tables is from Phoenix’s IGC report, the message is clear. Right now , Phoenix funds aren’t cutting the muster, aren’t giving value for money and even if you look at the whole table , you won’t find one fund that is consistently delivering above average returns.

Plus you are paying way over the odds for the privilege (another thing that Standard Life Pandas are used to). Pension Bee’s Robin Hood Index shows that in their  universe of pensions, Phoenix’s 1% charge is a lot more expensive than the average pension that comes Pension Bee’s way (0.78%). Smart people will take their money away from Phoenix and unless Standard can get some separation from the other sad pandas, smart people will get out of Standard Life.

Except, life is kind of sweet at Phoenix, as the IGC goes on to show!

Value for money (for sad pandas)

sad panda

The Phoenix IGC don’t make any bones about it. They know that Phoenix policies were too expensive and they are pleased that they’ve got Phoenix to cap charges at 1% pa.

They also know that the kind of people who keep their pensions with Phoenix may have some pension learning difficulties. So they’ve gone out of their way to make their value for money scoring system comprehensible.

Phoenix hare

This remarkably simple system is known as a “balanced scorecard”. I won’t be pursuing the Hare care bunch for plagiarism, but it looks rather like the scoring system my Pension PlayPen uses.

I might quibble with the “3” given to performance – (what’s good about all your funds consistently underperforming?) and  I might quibble with giving a 1% pa charge a top rating, but I can’t quibble with the simplicity of presentation. Swap that 96 for 66 and you’d get my value for money score for Phoenix, but heh – I don’t get paid by Phoenix (only kidding).

Actually, the only thing that most Phoenix policyholders should give a stuff about are investment performance and charges – the rest being fluffy – but I am learning to live with the idea of the “member experience” being important to IGCs , especially on the island of misfit pensions.

Within the (limited) scope and resource of the Phoenix IGC, I give it a green for value for money reporting. It is the only report I’ve read so far that benchmarks performance against other providers, it is the only scorecard that I can make sense of , and though the score is highly contentious, I can at least follow the argument.

If I was the Phoenix IGC – I’d be adding streaks of yellow here and there. Phoenix has not even tried to get to grips with the hidden charges in their funds, they have not explored (as Standard does) issues of risk adjusted performance and the scores for customer service and other fluff bear no relation to the feedback I get from policyholders and IFAs who find Phoenix’s service and comms, at best “variable”. There is something to build on for later years and other IGCs would do well to look at this simple method of doing things (and adopt it).

Engaging (sad pandas).

sad panda 3

As mentioned above, the best thing to do if you find yourself on the isle of misfit pensions (Phoenix) is to get back to the mainland and aggregate your fund into something better. But while you are staying on the island, isn’t it refreshing to have an IGC that speaks the language of everyday people.

Phoenix hare 2

Hare is a lay-preacher in the Church of Scotland and it shows! My translation of the above is “you should get the f**k out of Phoenix and back to the mainland.

But whether these messages are coded or not, the whole report is a straight response to the concerns that an ordinary policyholder would naturally have, being on the island of misfit pensions and the report is really engaging.

The IGC is never going to win Fintech awards, but I’m pleased to see that this year, they’ve found the hyperlink button and included lots of links to useful information.

I’m giving these guys a Green for engagement – I was engaged – and I’m not even a sad panda!

Effective (for sad pandas)?

sad panda 2

I’m struggling to really buy into the wonderful world of the Phoenix IGC as the consumer champ. OK – so a consumer has to be a chump to stay on the island but there remains a huge gap between mainland IGCs and what is going on here.

I’m not convinced by the sections on Environmental, Social and Governance policy.

I’m not convinced that all these policies really give access to all the pension freedoms

I’m not convinced that there is a common investment policy at work to deliver a best in class default fund.

Instead I see an island of misfit pensions with plenty of legacy pensions , none of which make a lot of sense and collectively make for a pretty dire population (of sad pandas).

I don’t diss what has been done, the report is proud of getting 60,000 policyholders cheaper pensions, and it should be, but there is really a lack of ambition here, appropriate to the provider, but in the final scheme of things – unsatisfactory.

Much as I’d like to live in the sunny uplands of David Hare’s perception of the IGC, I can only give it an amber for effectiveness.

In conclusion

Thank goodness for the Phoenix IGC, for its sense of fun, warmth – even adventure. IGCs are supposed to be on the member’s side and though I don’t always feel the IGC has quite broken free of Phoenix, I know they are as independent as they’re going to get;

The report barely mentions the “S” word, but clearly there is as much distance between the approaches of Standard IGC and Phoenix IGC as there’s water in the channel that divides the island from the mainland.

The report barely mentions Standard Life but the proximity of the deal makes thinking about what is coming next – an urgent question! I hope that we get the best of both worlds for Standard and Phoenix policyholders. Let’s have the rigour and resource of the Standard IGC but lets have the clarity and engagement of the Phoenix ICG too!

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Aviva’s IGC – a “finger of fudge” – just enough (to give members a treat).

Fudge 3

To fudge or not to fudge?

Aviva’s 2018 IGC  report starts well. It’s front cover declares

For members of Aviva’s workplace pension schemes

There is no ambiguity here and , by and large the Aviva report delivers as it sets out. It is a document with members in mind

Where the document is weak, is in its rigour (or lack of it). It appears that Aviva along with a number of other IGCs commissioned Redington to audit them for value for money. I am not entirely clear what the nature of the contract with Redington was, but it appears to have delivered rather too late for its findings to find their way into the Aviva report.

The upshot of the report is detailed by IGC Chair Inder Dhingra on p19

All the key areas of our VfM framework were considered as part of the exercise. At this stage quantitative rather than qualitative factors were considered (so for example the length of communications rather than the quality of the content).

The research shows that Aviva is performing well when compared to a number of its peers in some of the key areas of VfM which we monitor. It is fair to say that there is room for improvement in some other areas

So where are the results? If this research was meant for IGCs and IGCs are “For members of workplace pension schemes”, why aren’t members able to look at Redington’s work and draw their own conclusions?

This cloak and dagger stuff suggests that there were hidden agendas at play and frankly , a little more transparency is called for!

Value for money work

The slippage method for assessing hidden costs in Aviva’s workplace contracts has been used again. It shows that the impact of hidden charges on the pure passive funds being used within the default are negligible (0.01%) but that the costs incurred within Aviva’s diversified asset funds (DAF) are four to five times higher. There’s nothing odd about this , the DAF funds are actively managed and more ambitious; people investing in them are now aware that one of the risks they are taking is that the “hidden” costs aren’t recovered. What’s more concerning is that Aviva aren’t yet able to monitor what’s going on behind the scenes with external managers (other than their default manager – BlackRock).

But it sounds as if the IGC are on Aviva’s case and this is as it should be. The work that the Aviva IGC is doing on “money” continues to be good. But I am less happy with their work on “value”. The report presents us with a number of charts showing performance of key funds but only compares them with other funds within the Aviva range – sometimes the comparison is between one fund with contributions and one without. This is not at all helpful to members.

Whereas Legal and General have simply applied one fund for everyone, Aviva will have a number of default funds depending on the intentions of members. This is as confusing as the graphs, as people will have to enter into the kind of complicated risk/reward trade-offs that even “experts” cannot agree on. The “value” of choice between various default options is questionable as is the value of presenting DAF funds and the single index funds (the default funds).

Although everything is set out simply, I defy anyone reading the “Investment Choices and Returns” section of the IGC report – to establish a default course of action. I would expect Aviva’s complex approach to be challenged by the IGC. If they read Frank Field’s call for a default decumulation fund (as well as a default accumulator) then they can see the contrary argument for simplification of choice.

Is “value for money” really being questioned?

AVIVA product

This very green view of Aviva’s current workplace proposition strikes me as lacking the rigour needed from a “member champion”. The lack of comparisons with other providers (typified by the sloppy section on benchmarking) suggests to me that the IGC isn’t really pushing itself. So I’m giving it an amber for its work on value for money. I’d hope that over the next year, they will address the issues  with the  member choices I’ve outlined – they should have considerable help in this from external pressures, not least from Government.


At no point in the reading of this report, did I lose a sense that this was being written for me (the member). Though I got lost in the investment section, that was down to the deficiencies of the product offering rather than the Chair’s explanation.

I was impressed by the presentation of the Environmental, Social and Governance (ESG) section of the report. It tackled head on some of the big issues – screening of tobaccos stocks – as an example. Aviva have a good track record on voting on ESG, but there remains a problem, that most of the workplace pension investments are outsourced to Black Rock. Perhaps next time, the IGC can look at how Aviva ensure that BlackRock are using ESG in its work. Passive managers have particular responsibility for ESG, they have no other leverage on the companies they invest into , than through governance.

This is the third report from Inder Dhingra and I am getting used to his style, it is friendly and engaging and I feel he is on my side – for a consistently good read, I give the Aviva IGC a green for engagement.


As mentioned above, I consider the IGC ineffective in holding Aviva to account on the value aspects of Value for Money, but this is in my VFM score.

Elsewhere, the IGC are unrelenting on legacy pensions which they continue to pester Aviva about. There is here some evidence of benchmarking with other providers. The report points out that other providers are doing away with the capital units and exit charges within workplace contacts – even for members who are under 55.

The report notes that Aviva, unlike some of its rivals, is still paying commission to advisers out of legacy charges, despite some providers abolishing such payments (even for pre 2013 contracts. I support the sentiment in the Chair’s opening comments

We will continue to challenge Aviva in areas where we believe that improvements to the member experience can be made. This is not just limited to charges – it means we want to see improvements in member communication and engagement, service and new product features which work for everybody, and not just those members who benefit from modern products.

I suspect that there is a lot less timidity in the IGCs approach than might be suggested in the mildness of the Chair’s style. Aviva’s is an effective IGC but I should remind it that Aviva is not (always) as progressive an insurer as it should be.

But in maintaining its presence in the workplace pension market, offering its APIs to the vast majority of payrolls and managing the differing needs of IFAs and employers, Aviva has been market leading. While I’m not for giving undue pats on the back, I think the IGC could do more to commend Aviva for its good work as an auto-enrolment provider – effective in the workplace.

But – and you knew there would be a but – I see nothing in this report about the use of workplace pensions as an option for transferring members of DB plans. Perhaps someone could put Port Talbot on the IGCs “investigation list” for 2018. Why did the Aviva run Tata Steel workplace pension scheme become the forgotten product and just how is Aviva managing the conflicts between having a non-advised workplace product and a fully advised SIPP platform.

As with the question of a default at retirement, I’d like to see the Aviva IGC being a little more proactive next year.

Despite these cavils, I’ll give the IGC a green for effectiveness this year – but I’ve put a squiggle against its performance – I want to see Aviva taking action over the year and I want it to be on the front foot.

Next year, a finger of fudge may fall foul of the plowman’s sugar tax!


fudge 2

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Frank Field helps us spend our pensions

Spend 3.jpg


Here is the main recommendation of Frank Field and  the Workplace Pension Select Committee’sfinal report of its inquiry into Pension freedom and choice published today.

We recommend every pension provider offering drawdown is required, by April 2019, to offer a default decumulation pathway suitable for their core customer group. These would be subject to oversight by existing Independent Governance Committees and subject to the same 0.75% charge cap already in place for accumulation in automatic enrolment. People would still be free to choose to invest and spend their own money as they wished. But if they did not make an active choice, they would move into a suitable and regulated default product.

NEST would be included

Rather than impeding a market that is hardly functioning well, evidence from automatic enrolment suggests that NEST may drive better retirement outcomes by forcing other providers to offer greater value or risk savers switching over to NEST to get a better retirement deal.

Pension Passports should be issued

Trials show that single page pension passports increase consumer engagement with pensions options. We recommend that pension providers are required to issue them.

Providers be required to participate in the Pension Dashboard project

We recommend that all pension providers are mandated to provide necessary information to the pensions dashboard, with a staged timetable to enable smaller legacy defined benefit schemes time to comply.

The dashboard would be a single Government sponsored dashboard and be funded by an industry levy from April 2019.


Taking pension spending away from advisers

Frank Field and the Work and Pensions Select Committee are clearly pushing at an open door. The Government want a more engaged public but they want smart decision making more.

The trouble is that there’s no evidence that the “engaged” take smart decisions. If 53% of those who transferred £34.25bn out of DB schemes are reckoned to have got it wrong (FCA sampling) and if these were advised, then it’s small wonder that there’s a crisis in confidence in retail financial services. The crisis begins and ends with the FCA.

Setting up default decumulation pathways for the non-advised and non-engaged seems a good thing, so long as the default is demonstratively better than the annuity default that preceded pension freedoms.

Having just concluded a review of CDC, where W&P gave the collective approach a big tick, it’s not hard to see what Field & Co would like the default decumulator being.

The rest of the recommendations in the paper are a series of proposals to disintermediate. The pensions dashboard is out of the reach of advisers, being in Field’s vision – a Government project; the midlife MOT , something that might have involved advisers , is dismissed

The introduction of mid-life MOTs should not be mistaken for something likely to have a transformative effect on consumer behaviour.

Where Field does talk of advice it is in the lack of its take up

Most people who have exercised pension freedoms have not, however, taken up financial advice. The PLSA found that 32% of individuals accessing their pots under pension freedoms paid for regulated financial advice. The FCA found that the proportion of drawdown products bought without advice has risen from 5% before the introduction of pension freedoms to 30% afterwards. 63% of all annuity sales in the year to September 2016 were made to non-advised customers

and when he listens to those who have contributed to his Pension Freedoms review, he hears only the negatives

Others witness warned,…,that the “advice gap”, whereby consumers are unable to get advice at a price they are willing to pay, needs to be tackled.131 Advice is perceived as expensive, though as the FCA found that 51% of people would not be prepared to pay for advice at any price, it is not the only barrier. A widespread lack of trust in financial advisers, and a lack of engagement with pensions contribute to this effect. Advisers may also turn away potential clients if advising them is not likely to be profitable

spend 2

Advisers are likely to be offended by this talk, but may be even more offended by the suggestion that robo-advice be put to the test

We recommend the FCA conduct and publish a review comparing consumer outcomes from face-to-face and automated advice

All in all, this paper comes down firmly on the side of default solutions governed by charge caps and against regulated financial advice. It promotes technology solutions and while it does not mention CDC, it clearly has collective solutions in mind when it talks of empowering NEST.

After all, it was Frank Field who said a recent enquiry session

“NEST should have been CDC from the start”.


Posted in advice gap, auto-enrolment, Big Government, pensions | Tagged , , , , , , | 2 Comments

What I’ll be looking for from the 2018 IGC chair statements

IGCs 2017



2018 and all that

It’s IGC reporting season again and I’ll be looking to have answers to four questions this year. So here are my questions (more hope than expectation).

  1. If you’re making a value for money, what is your value for money (VFM) benchmark?
  2. What has your provider done to improve its performance in terms of “Environment, Social and Governance” practice (ESG)?
  3. What innovation has your provider shown in helping members/policyholders to better outcomes in retirement?
  4. What have the IGCs been doing to ensure that people taking CETVs from occupational schemes are getting a good deal?

Value for Money

I’m looking for a more strenuous approach to value for money which asks searching questions of providers with a weather eye to what the competition is getting up to. I suspect this was what the Office of Fair Trading were after when they conceded they would not refer the insurers to the CMA (subject to their operating effective IGCs).

By way of explanation, we have become used to the platitude from the Chair “In my opinion xyz are providing you with value for money”, but I have yet to see one provider offer a league table of other providers compared on the same basis. Not all providers can be offering the same value for money on their workplace pensions, some must have superior investment propositions, others a less engaging member journey – and we know that the costs of different providers can differ radically.


Innovation in retirement 

Innovation is in short supply among workplace pension providers. There has been lip-service paid to innovation in retirement outcomes, but nothing substantive. The deferred annuity solutions put forward by Alliance Bernstein and others have been adopted by one or two master trusts.  People’s has put in place a partnership with LV to offer non-advised drawdown, but for the most part, providers continue to stand behind the mantra “we offer all the freedoms”.

CDC is not a natural fit with a GPP but it may be an option for Master Trusts to convert to. Since the acquisition of the Zurich proposition by Scottish Widows, Widows has announced it will launch a master trust (using Zurich’s existing model). The same is happening at Phoenix, which can now boast the Standard Life Master Trust.If not CDC -what? Just what are the IGCs doing to help individual savers who cannot or will not take advice, solve the nastiest hardest problem in finance

The time for sitting on the fence on this – is coming to an end. In short, CDC is an option for all the major workplace pension providers and I hope that at least some of the IGCs will tip their hat to what is happening at Royal Mail.

Well they don’t. No workplace pension – trust or contract based, has yet taken a position on CDC, though in private many providers have done all they can to disrupt its progress.


The IGCs should (by now) have cottoned on to this and be looking at what their asset managers are doing as voters and in their corporate citizenship themselves. I would like to see IGCs holding the likes of Phil Loney’s feet to the fire (Royal London has no Remuneration Committee for Phil to answer to). IGCs should act as consumer champs – where they feel their own providers governance structures are lacking!

If the providers want to know what they were saved from, they should take a look at the kicking the leading investment consultants are taking from the Competition and Markets Authority right now.There is consensus; most people agree that a fund that has a positive stance to environmental issues, looks for social purpose and demands good governance in companies it invests in, will win out over time over one that doesn’t.

The major passive players, State Street, BlackRock, LGIM and perhaps UBS (Nest) have the biggest part to play in this. Not only are they the biggest owners of stock, but they have no way of exercising leverage over companies, other than to vote at AGMs.This is particularly true of mutual and of private companies where the public scrutiny of internal behaviours is weakest


In 2017, £34.25bn was transferred out of Defined Benefit pension schemes into defined contribution pension arrangements. Some of this money went to old style personal pensions (what the FCA call “non-workplace”), most of it appears to have gone onto SIPP platforms (many of which are with insured providers) and a proportion has gone into workplace pensions.

I suspect that when the numbers are finally produced, the amount going into workplace pensions will be insignificant. But it’s the workplace pensions that offer ordinary people the best non-advised options. Many of these workplace pensions even offer the facility of adviser charging. My experience working with BSPS members, was that hardly any of them even knew that you could transfer into workplace pensions. The Tata Steel plan with Aviva was almost hidden from sight.

IGCs should be asking whether they should, in 2018, be ensuring that workplace pensions are being promoted (for those who have them) as a choice. In my view, most of the people who I met in Port Talbot, had been led by the nose into over-engineered, over-priced and quite unsuitable SIPPs when – assuming they should have taken their transfer in the first place – they should have gone into available workplace pensions.

What shape are the IGCs in?

This year will see two of the major IGCs subsumed into others. Standard and Phoenix are chaired by Rene Poisson and David Hare respectively. Hare has in previous years done an outstanding job of pushing Phoenix into places you would not expect a closed-book insurer to go. Poisson has a number of other positions, most importantly as a Trustee of USS, I hope that the merger of the two IGCs sees a continuation of the Phoenix style.

The merger of Scottish Widows and Zurich’s proposition should leave Scottish Widows with the upper hand. I have relented this year on State Street who appear to have moved on from the bad old days and I should relent on Babloo Ramamurthy, IGC chair at Scottish Widows. The performance of the Zurich IGC has been weak, simply outsourcing its work to consultants to tell it what to say about your provider is no good. Zurich’s IGC was weak with its provider on the introduction of the 1% cap on transfers. Although I dislike the conflict between Babloo’s roles at B&CE and Widows, he has been effective at both and I hope he has a combined role going forward.

One IGC’s report that I’ll be reading with particular interest is Aegon’s. Aegon’s behaviour towards Pensions Bee was frankly appalling. I will be interested to see what role (if any) Ian Pittaway and his IGC took in allowing the Pension Bee people go. Pension Bee’s Tobin Hood index should be referenced by the providers , if only to gloat over the improved performance of insurers using Origo, over the master trusts and single employer schemes using TPAs -who don’t (Peoples Pension excluded).


Why does this matter?

The IGCs are about the only means ordinary savers have to get questions answered by their providers. They fulfil the role of trustees of occupational schemes (including master trusts) as being member champions.

In the past. I have focussed on their role as providers of help to employers struggling to introduce auto-enrolment. Some providers have got it right (Aviva) and continued to offer themselves to smaller employers, some of got it wrong (Legal & General) and have had to withdraw.

The focus of the decision for employers and individuals is changing. It’s now less of a question of what should I buy, as what should I keep. Already more employers are using the Pension PlayPen to rate their pension than to implement one.

If we are to have a functional workplace pension market, the IGCs must play a muscular and relevant part. They should provide information on their providers performance, on their attitude to developments among their asset managers and they should be championing the cause of members, where things go wrong – or where providers are slow to pick up on new developments.

Organisations such as Share Action now take an active interest in the performance of IGCs against the metrics laid out in this article. We need competitive IGCs to provide a real test for the master trusts, to hold providers feet to the fire and to ensure that consumers – the people investing in workplace GPPs get a proper deal

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

Is CDC “Flat World” – or “Flat Earth”?

The World Is Flat: A Brief History of the Twenty-first Century is an international best-selling book by Thomas L. Friedman that analyzes globalization

The Flat Earth model is an archaic conception of Earth’s shape as a plane or disk. Many ancient cultures subscribed to a flat Earth cosmography – (both Wikipedia)

The distinction between Flat World and Flat Earth suggests how easily a simple idea can have binary engagement. CDC is much the same – I see  CDC as progressive and a means of binding society together, John Ralfe sees CDC (and me) as bogus.  Trump has proved that the insistence of the globalisation lobby can be checked and while I’d stop short of likening John to Donald, I suspect that both of them have an important role in keeping the world honest.

The point of this article is to explain that while it is fun to ridicule CDC, it is impossible to ignore it, like globalisation , collectivisation is not going away!

The recent conversion of St Guy of Opperman to CDC – suggests that the £2bn uplift in the Royal Mail share price, resulting from the CDC settlement – is a market indicator – even he could not ignore.

Flat earth

The Price of Freedom

No one has costed “freedom and choice”. The Treasury tried in their various impact assessments. If they had gone to consultation over the changes in the tax laws on the payment of DC pots, we (as Friends of CDC) would have pointed out

  1. That paying a wage for life is difficult and requires scale
  2. That managing a wage for life with any certainty – as an individual – requires an annuity

It would not have been enough for us just to have said this, Kenny Tindall asked on Twitter yesterday what proof there was that CDC provided more certain pension outcomes and I’ll start by showing how expensive it is to manage a typical drawdown

Breakdown of costs

The model above is only one of a number knocking about, but it fairly represents the kind of costs you can expect to pay for an efficient drawdown product.

Paying 0.5% of your fund for financial advice – is akin to paying somebody to look after your car, you could do it yourself, but most people will pay a mechanic.

Investment Management costs are what you pay upfront to people to manage your money, typically in a fund. They’re business as usual costs – the price of fuel. They do of course come down where a fund grows in size as is evidenced from this article on Prufund .

Platform fees are payable to those who manage the technology and in car maintenance terms , they represent routine maintenance charges – including MOTs!

Finally there are the occasional costs of running a cost which include the cost of parts when things break and the cost of labour to fit the new parts. As always in these things, these costs are underestimated as unknown and could be called the hidden costs of running a car or fund

The price of freedom, in this model is 1.65% of the amount invested, a considerable amount compared with the “rule of thumb” 4%pa drawdown.

Put simply , for most people, the price of freedom is a high price; it is too high to make drawdown sustainable for most people. Drawdown is not a mass market solution because even for 1.65% pa- you are unlikely to get sufficient value to meet your need for a satisfactory income that lasts as long as you do.

So simply in terms of defining pensions freedoms in terms of an alternative, there is no mass market alternative to the discredited annuity.

The three arguments for more certain collective outcomes

A collective approach can do three things

  1. It can bring down the cost of pension management by disintermediating advisory fund management , platform and hidden (transactional) costs .
  2. It can improve value by investing in more appropriate assets (for the purpose of paying a wage for life)
  3. It can manage the problem we have of not knowing when we are going to die.

These are the three reasons I give Kenny Tindall for why CDC gives more certain outcomes. But I am aware that so far- I have only dealt with  “1”.

Collectives add value

Collectives aren’t just about reducing the impact of costs and charges, they add value in their own way.

It’s long been known that pension schemes can take certain kinds of risks , other schemes cannot – and be rewarded for those risks. Taken together those risks give rise to an “illiquidity premium”, a measurable amount of out-performance resulting from a scheme investing in long-term illiquid assets which give favourable long-term returns,

However, the illiquidity premium has lately been squandered – because pension schemes of all types have chose to de-risk rather than take a long-term view. Exponents of de-risking point out that there are other risks that their “de-risking” avoid that make missing out on the illiquidity premium worthwhile. That may be the case if DC plans are forced to de-risk prior to buying an annuity and if DB plans are put on a similar “glide path to buy-out. But handing over your assets to an insurance company for the payment of an annuity was never an essential end-game! I find myself in agreement with Ed Truell who writes in the FT

 “As a co-founder of Pension Insurance Corp, I know better than most the strictures of an insurance regime that is ill-suited to the long-term nature of pension asset and liability management.”

He added that insurance was an expensive way to secure pension liabilities when employers ought to be devoting their attention elsewhere.

“British companies need to be freed up from their legacy liabilities to invest in their businesses, restore productivity and continue to boost employment and growth,” .

The original point of running a pension scheme was to keep it going for future members.

CDC schemes have the opportunity to restate that original aim and avoid de-risking altogether, they can take a long-term view and invest in assets that give them an illiquidity premium. They do not have to sell these assets to pay pensions (as has to happen in the individual DC model). They can rely on future contributions and income from existing assets to meet the target pensions.

Certainty of income from longevity pooling

The third and most obvious advantage of a CDC scheme is that it can insure longevity risk from within its pool of members.  As Abraham puts it in his recent book,


Instead of having to rely on super-outperformance or an outsourced insurer (either traditional insurance or capital market solutions), a CDC scheme relies on pooling the mortality experience of all members, those who die soonest within the scheme subsidise the pensions of those who live long.

This process is abhorred by libertarians who consider any form of cross-subsidy, the spawn of the devil. But it should be pointed out that this kind of social insurance is the basis of all mutual movements, there is a solidarity between people based on our fundamental insecurity about our capacity to survive.

We all know that there is a general underestimation of how long we live and this appears to be particularly the case among people who live longest. Ironically, those who stand to gain most from guaranteed pensions are those who are most wealthy. These wealthy people are most likely to leave a longevity pool – making things that much the easier for those with genuine short-life expectancy!

This is why I think CDC schemes should offer the door to all members who want to transfer out, including those who are receiving pensions, for every pensioner who lives on the grounds of ill-health, there will be twice that many leaving for reasons or wealth (typically inheritable wealth).

CDC will I am sure, benefit from it being spurned by those wealthy enough to live forever.

Flat world or flat earth?

I hope in this article, I have put up a reasonable argument for considering CDC as a more certain source of income in retirement than either drawdown or annuity purchase. I’m aware that this article is not splattered with numbers, I’ll leave that for my actuarial colleagues.

I hope too, that I am seen to be talking sense, and that through reading this far, you have inched closer to the “CDC is “flat world” – rather than “flat earth” thinking”.


Flat earth thinking

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USS – thoughts from off the campus

Cambridge colleges.jpg

The situation at USS is like a medieval siege, where both sides are at Parlez. The threat of violent action has not gone away, but the talking holds some hope of a resolution.

Since the nuances of those talks are too intricate for this blog, I will try to hold your interest with some general thoughts, based on my being a parent of a second year undergrad, a friend of a few who are on strike and a tax-payer. This doesn’t make me unique, but I have followed what has gone on so far, closely enough to have some opinions.

The current position.

Having rejected the ACAS offer of March 12th, the UCU are awaiting something better, UUK are conditionally agreeing to go back to the table

‘Employers have indicated their support for this proposal, however, this is conditional on the suspension of industrial action.’  universitiesuk.ac.uk/news/Pages/USS

As I’ve mentioned in previous blogs, there are aspects of the 12th March agreement which are very unpalatable to university teachers, a 2.5% cap on pension increases, a lower accrual rate and a lowering of the pensionable earnings on which pension are accrued.

But the UUK offer is a long way from the 100% individual DC offer it started with, and the UUK are putting a lot of store in the creation of a long term pension ACAS, in the shape of a standing committee looking at funding issues.

There does not appear to be sufficient trust between the sides for the UCU to call off the threat of strike actions, both sides to put matters in the hands of a supposedly independent committee or for social media to be rid of the #UUS hashtag!


Ways forward

UUK has mentioned that CDC could be a solution but it hasn’t proved to be (yet). Many lecturers  (rightly) see CDC as an upgraded version of DC and not a substitute for what they went on strike for. The covenant between UCU members and UUK includes a DB promise (in their opinion).

My colleague, Hilary Salt, who advises UCU , has publicly floated the idea of a “negative pledge” as an innovative solution. Such a pledge would involve some of the University assets being pledged , not as “contingent assets” but as “unmortgageable” and therefore potentially available to USS in a dire calamity.

This approach has merit in that addresses the Pensions Regulator’s fundamental concern with the USS’ current funding position – that should it deteriorate, there is no long-stop but the PPF.

It seems most likely that any resolution to the long-term issues that have brought both sides to such conflict , must involve the Pensions Regulator, which guards the interests of the PPF and to some extent the tax-payer (the other recourse is of course higher tuition fees).

Personally, I find the idea that even under a last man standing scheme, that our universities could go bust because of pension promises, absurd. The UUK has boxed itself into a corner in projecting itself as a commercial entity, quite clearly – universities are different.

Which is why I support university teachers being paid differently – a higher proportion in deferred pay, a lower proportion in “pay at risk” or bonus.  As Rebecca Leach has pointed out on twitter, the bonus culture for academics doesn’t stretch much further than likes on twitter.

The flattening of all pay negotiations into overall reward, with pensions simply regarded as a cash flow item, entirely ignores their very real differences in career expectations and aspirations.





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DIY Pension Diagnostics – (a data dream)

DIY pension diagnostics


Most of us know how hard it is to see a Doctor these days, and how easy it is to get medical help online. Most people I know will consult the internet rather before ringing the surgery.

If only we could say the same for pension advice. I am sick of being told that I should seek independent financial advice , every time I want to know about my workplace pension. It’s such a cop-out. Even The Pensions Advisory Service have to trot this line out, as soon as the question “what should I do?” is asked.

If advice is about giving someone a definitive course of action, then I’m all for it. But you won’t get a recommendation from a qualified adviser without his getting to know you through a “full fact find” and after you’ve signed terms of business and a fee agreement

This is all very well when you are making a life changing decision, but what if you just want to have a look at the funds you’ve  invested in , or move your pension pots together, why can’t you do a job for yourself on-line without the computer saying “no”?

Throwing the baby out with the bath water

I’m always surprised  by the phrase. I’m equally surprised when I’m told that I shouldn’t be comparing one kind of pension with another because I might not spot a guaranteed annuity rate lurking in the bath- or a with-profits guarantee – or some kind of terminal bonus. If I’ve got one of these lovely things coming my way, I think the baby should be shaking its rattle at me, it shouldn’t be hard for these outliers to be flagged.]

Experts tell me that these outliers need an IFA to spot, I say don’t be so silly.

Putting aside the oddities, I’m going to move on to the next reason I’m told i can’t look at my pensions without an IFA. This is because I’d be comparing apples with pears. This is why Money Supermarket, Go Compare and Comparethemarket don’t have a pension comparison site. They have all been warned off because only someone with  a degree in pension science can compare one fund with another.

Again babies and bathwater are involved,  it seems you can’t put all your babies in the same bath. This is even more silly, I want a big bath for all my babies! The problem is that some bath suppliers are rather less happy about losing their babies than others. Pension Bee run a rather amusing “Robin Hood Index” (google it) which tells you which providers let you take your babies and which insist on you using their bath!


So how do we get to help ourselves with our pensions?

The Government’s big idea is to create a pensions dashboard. The original idea was that there would be lots of independent dashboards which could compete against each other, but right now – we look like we are heading for one big dashboard, a sort of dashboard-NEST,

The trouble is that rather like Pensions Wise (the Government’s pension guidance service) the dashboard won’t tell you what to do, it will just tell you the pension equivalent of how much fuel you’ve got and when you are likely to get to your destination. All the real fun stuff  – like  “is my pension any good” – is far too difficult for a Government website. When Governments try to nationalise guidance or dashboards, you can be pretty sure they will mess up.

So how could we work out what’s hot and what’s not in our “pension portfolio”. Well the other big idea in the Government’s locker is “value for money” and this is a lot more exciting – not least because the DWP haven’t yet tired to nationalise it. she

The idea behind value for money is that it is just a score, say a score between one and a hundred. The score would allow you to compare baby A with baby B and even allow you to compare the bath and the bathwater. If value for money ratings got off the ground, you’d be able to compare NEST with  a QROPS, a SIPP with a Stakeholder, you’d even be able to compare the workplace pension your employer chose, with all the workplace pensions he/she didn’t.

In case this sounds a little utopian, then let me give you some reassurance. Achieving universal value for money ratings only requires two things. A proper measure of value and a proper measure for money. Value can be measured by the outcome of the investment and money is what you pay to get that outcome. An ideal outcome would involve you paying nothing and getting a shed-load more money back than you ever put that, sadly some people are looking forward to lousy outcomes which will cost them a fortune.

What is needed to achieve this very simple scoring system is rather harder to achieve than to explain. No one knows the outcome of their pension saving till the day the money runs out (hopefully when you know longer need your pension). Nobody knows how much you are paying, unless you can get to all the hidden costs and charges your pension providers don’t talk about.

But help is at hand. The price comparison sites are beginning to get excited about pensions because they can see how “value for money” ratings could make pensions as easy to compare as – well baths and bathwater and investments as easy to move around as babies.

If we can put all the pension experts back in their box and silence their silly quibbles about outliers and apples and pears, then we can get on with collecting all the data to compare all the funds and put them into league tables that show us what value they’re giving , what they’re costing and what value we’ll get for our money.

When we’ve managed to do this – and we’re beginning to think we can actually do it – then you, your employer and your colleagues can start helping themselves, precisely as they do when they feel a little poorly.







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

Why consumers need better choices; (explaining CDC to a merchant banker)


My business card bottom left – to remind me I was there!



Yesterday I met a merchant banker, I didn’t know that’s what he was at the time , but he’s subsequently been identified as one by Con Keating, who knows about these things.

We sat in his office which looked down on the Bank of England.  I thought I could wave at Mark Carney and I suspect he would have waved back, it seems pretty clubby in these corridors of power.

At the end of our meeting, we agreed that I would write a brief explanation of what I wanted to change in pensions , especially with regards the choices ordinary people have to spend their pension pot(s).

This is what I propose to send to him, though I may get some comments from you that change my mind!

  Why consumers need better pension choices

It’s assumed that since April 2015, consumers are spoiled for choice – having been granted pension freedoms by George Osborne. It’s true that there is now more choice than in the days when most people had to buy an annuity with their pension pot(s) but the new choices are all hard and there’s no obvious choice that is best – I would like to put that right and so would all Friends of CDC. We would like people with pots of retirement savings, being able to exchange them for a non guaranteed “wage for life” pension delivered from a CDC scheme.

Until recently, the fate of the personal pension was a relatively low policy priority. Relative to the State Pension and occupational pensions, personal pensions didn’t really matter.

That is changing for three reasons, firstly, the first wave of unit-linked savers are now hitting retirement with their share of the £400bn in non-workplace pensions. These lifetime DC savers will become increasingly important as their ranks are swelled by people taking transfers out of DB schemes. As recently as 2014, only £5bn switched to personal pensions but in 2017 over £34bn passed across.

The second reason is that those people who had historically accrued DB benefits – the mass affluent employees of large employers, are now building up DC pots instead.

The third reason is that 10m new savers are building up DC pots in workplace pensions as a result of auto-enrolment. The scale of contributions per capita is small, but this will increase by a factor of four over the next 13 months as auto=enrolment contributions phase in.

So from being a minor issue, the fate of our DC pensions – will become a major issue and before it does so, policy makers should be clear that there is a clean and efficient way to spend these pension savings, pots must be capable of buying pensions, if the policy aims of pension tax-subsidies are to be achieved. Put bluntly the public purse has paid to ensure that future generations are not a burden on the state and the public purse should get value for money.

And at present, the pension system is providing variable value for the money that is in it. Money accumulating in workplace pensions is now well supervised, efficiently managed and not a problem. However much of the money in non-workplace pensions is not so well managed and is often subject to fee gouging from complex product structures which are so untransparant as to be dangerous.

Worse, the current choices for people choosing to spend their savings are quite inadequate. Advice on drawdown is hard to find, RDR has reduced adviser numbers to around 25,000 and  they are purposed for wealthy clients. The man on the Clapham Omnibus is unlikely to access regulated advice and instead is used “unadvised drawdown products”, the FCA has expressed concern about how these products are used.

Concern is over people drawing down too fast and risking running out of money and those not drawing down fast enough, and denying themselves the fruits of their saving.

We are in a non-functional market where annuities are all but ignored without any natural successor to the annuity emerging.

Into this market, we need a new choice, one that takes on the nastiest, hardest problem in finance and pays people a wage for life, with a minimum of decision making needed from the pension owner.

CDC provides a better choice

There are no CDC schemes in this country yet, though yesterday, the CWU announced that more than 90% of its members employed by the Royal Mail, voted for a CDC solution over either a pure DC arrangement of a DB cash balance plan. They voted for a “wage for life” provided for them by their employer through a contribution fixed as a percentage of their salary. The contribution has been fixed at a level that is expected to provide (together with a fixed employee contribution) a wage for life targeted at around 1/80th career average earnings with CPI inflation linking to that wage.

This model is comparable to a DB scheme – though it is clearly only offering a guarantee on the contribution. For it to work, it will have to deliver to the target pensions and be transparent about how it does so (and why it fails to deliver- when a target isn’t hit). The critical success factor will be in maintaining trust between the CDC scheme managers and the beneficiaries of their management.

The Friends of CDC believe that there is scope among the many pension experts in Britain, to run a number of CDC schemes in a very efficient way with the schemes benefiting from institutional management of patient capital, low investment administration and record keeping costs, high quality governance, good member communications and a sound system of distribution based on well-established actuarial principles.

The greatest strength of such a system is that it is confident in its skin and gives people the right to walk away with a transfer value whether they are saving through the scheme or spending their pension.

How a transfer value is calculated is up to each scheme. Some schemes will use a money purchase underpin , with notional unitisation- some will calculate transfer values on a discounted cash flow basis (as they are calculated for DB schemes). It would seem logical for schemes like Royal Mail to operate on the latter basis and CDC schemes that are funded by transfer from other arrangements to grant transfers (and pensions) based on the timing and incidence of contributions received. Some schemes may operate on both basis (operating a money purchase underpin for voluntary contributions and a discounted cash flow CETV where there is a salary related target pension on offer.

Detail such as this, is currently being discussed by Royal Mail and the DWP, who have expressed an interest in facilitating a scheme for the postal workers with options for other types of CDC scheme to emerge over time. We do not know how long it will take to write these regulations or how much scope they will offer. However, there is considerable expertise from lawyers, actuaries, investment managers and retail advisers available to the DWP policy team involved and there is quiet confidence that rules will be available sufficient for the CWU to recommend it to their members.


Moving the market

What is needed is for there to be second movers. NEST are an obvious candidate by dint of size and access to resource, but so are many of the large single occupational schemes with more mature membership and a commercial reason for ensuring members have a default decumulation option which allows them to retire in confidence. Other workplace pensions are showing interest in the CDC model though the commercial or societal imperative for a “DC upgrade” is not so compelling,

In the opinion of the Friends of CDC, there is urgent need for an improvement in the options open to consumers with DC pots – especially with pots that need to be spent.

The biggest market for CDC may not be with large employers , but with the millions of disassociated savers with non-workplace pension pots which need a better home than they have today. Aggregating these pots together to buy a decent wage for life as rights in a CDC scheme , could and should become BAU for those struggling with freedom and choice.

We are not that far from achieving this vision of CDC. With the help of senior merchant bankers – we might just get this over the line!


Looking down on the Bank of England!

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

Don’t blame advisers for non-advised drawdown!


“Savers accessing the burgeoning non-advised drawdown market are failing to engage with information, investing in unsuitable investments and risking running out of money in retirement, an FCA probe has found”. – John Greenwood – Corporate Adviser.

You can read the FCA probe –

Non-advised drawdown pension sales review: summary of findings


Should anyone be surprised there is a burgeoning problem?

It may sound obvious, but we have around 25,000 advisers in this country and around 450,000 people arriving at retirement each year. We do not have enough advisers so most people are facing the nastiest hardest problem in finance, with little more than a helpline to their DC provider.

  • We should not be surprised that people are not shopping around – where is the shop?
  • We should not be surprised that people are taking their “pension commencement lump sum” and rolling up the rest of their money without much engagement – what is there to engage with?
  • While I “take comfort” that pension providers are meeting their obligations to their policyholders/members – I find little evidence of any innovation and can’t see what remedies the FCA have in mind for their current retirement outcomes review.

Let’s be clear about this. There is no shop for those who want to explore their options to shop around in. Money Supermarket, Go Compare and Compare the Market are staying away from all this with good reason. This is a nest of vipers.

So far, we have seen a benign market since we switched our outlook from pensions to pots, but there is a gathering consensus that so far, investors have got luck- this article- again in Corporate Adviser last week, – is well worth a read. Also worth a read is the FCA/tPR joint paper on a strategic approach to the retirement income sector.

There is nobody prepared to stick their head above the parapet and tell ordinary people how to go about turning the non-cash element of their pension pot into income. Abraham Okusanya is teaching advisers but this is a brutally hard thing to do.

And the FCA will struggle to find any kind of innovation , since the “thousand flowers that were sprouting in 2015” had a massive dose of DDT sprayed over them when the Government cancelled project Defined Ambition in 2015.

In short – there is a market failure happening today

The £34.25bn that has transferred out of DB into DC – is part of this market failure

The 10m new recruits to DC saving – are also part of this market failure.

Even those in well-heeled properly funded occupational DC schemes are part of this market failure.

The DC world is “all dressed up with nowhere to go”. As in Australia, so in the UK, the mature end of the DC market has spurned “annuities for freedoms” but should now be singing “is that all there is?”.

And you laugh at collective solutions?

The guys who spend their time at the FCA’s Canary Wharf offices, dissing CDC – the SIPP providers, those operating commoditised fund platforms, the managers of large advisory groups and those with vertically integrated decumulation propositions – I hear you laughter!

I hear your dismissal of collective DC and the scheme pensions it can offer. I hear your claims that we will find a way to provide each individual with a “default decumulation pathway” and I see you running around like so many Mr Micawbers – convinced that something will turn up.


the improvident Micawber

But nothing is turning up.

Meanwhile , the FCA watch on , as the individual market fails to innovate and more and more people stop saving, draw cash and wait for the pension to turn up.

But nothing is turning up.

If all that was coming up to retirement – were diddy little DC pots accumulated from the first five years of Auto-Enrolment,  I would not be worried. But many people who are retiring today, are doing so with great big pots. Some have been saving in DC all their lives, some have transferred DB savings into a DC pot and some people have been feather-bedded by paternalistic employers who have been paying into their DC plans at substantial rates.

For these people, nothing is turning up.

We urgently need a way of converting pots back into pensions. We have rejected the annuity and we can’t get our heads round unadvised drawdown. There aren’t enough advisers to go round and people are uncomfortable paying advisory fees out of smallish pots. Smallish pots used to mean less than £150k but with the glut of CETVs with an average pot size of £450k, I suspect that the bar for advised drawdown now sits rather higher.

The FCA should be aware that the DWP are now consulting with the CWU and Royal Mail to get rules in place which will allow 145,000 Royal Mail staff to de-cumulate their DC savings as scheme pensions.

They should also be aware of the DWP’s aim to make the rules they are creating , available to other organisations who could offer scheme pensions from DC pots.

There is – within the scope of what has been openly discussed at Work and Pensions Select Committees, at forums of the Friends of CDC and in the numerous private meetings with the DWP I’ve attended, the capacity to offer a “wage for life” solution to those millions of people who have , are or will reach the end of their retirement savings.

Don’t blame advisers for non-advised drawdown

It is not up to advisers to offer pro-bono consultancy to Government on non-advised drawdown. Nor is it the advisers fault that there are not enough of them to go round. Nor is it the advisers fault that they are busy advising those with pots of more than half a million pounds and leaving those with smaller pots to their own devices.

Nor is it the fault of Go Compare, Money Supermarket or Compare the Market that they haven’t set up pension shops.

The market failure that the FCA are hinting at, and will explore more deeply (I hope) in the Retirement Outcomes Review proposals, can only be addressed by a return to collective pension solutions.

Otherwise, Britain will degenerate into the mess that Australia and the USA are finding themselves in, countries where Super and 401k are creating plenty of pots but precious few pensions.

We now need a collective solution for those currently in non-advised drawdown

The purpose of tax-incentivised private pensions is to provide people with an income for life, not a pot of inheritable wealth or finance for a Lamborghini.

While I am in favour of giving those people who refuse to spend and those who insist on spending, their retirement savings, the chance to do so;- I am not in favour of making the default decumulation option, a pot of money sitting with an insurance company or on a SIPP platform- with little or no advice.

For the vast majority of ordinary people, a collective means of converting pot back into pension is needed, and needed as soon as possible.

I call on the FCA to spend time with the DWP in exploring the opportunities CDC brings to help ordinary people create wage for life in their post – retirement years.


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

Is a ban on contingent fees “RDR 2”?


Firstly an apology, some of my readers yesterday, considered the analogy between the fate of Syrian cities and UK pension schemes distasteful. I write a lot, I don’t always get it right – I don’t mean to offend- but sometimes I will. Here’s a picture of a Lamborghini to cheer us all up.

I was at Malcolm Small’s funeral yesterday, walking to the crematorium I thought how little Malcolm would have thought of the FCA’s proposed interventions; I was walking  with a business colleague of Malcolm’s who is CEO of one of the big fund platforms – big winners from the shift of assets from institutional from wealth management. He told me that the removal of the right to charge contingently – would be akin to RDR2, threatening the vertically integrated advisory model itself.

I agree. That model is under existential threat, but not just from the FCA’s challenge to the transfer market. The Asset Management Market Review and  the CMA’s subsequent investigation of investment consultants points to the same conflicts of interest.

Time for us to come clean on RDR

The public was told , when the Retail Distribution Review was implement over 5 years ago, that the advisers would no longer be rewarded from the products they advised upon. At a recent Dentons seminar, Michelle Cracknell cited an example of an adviser refusing to act for a client on a transfer unless the money was directed at a discretionary fund managed by the adviser. I read the same in a number of submissions at a recent IFA award event, at which I was a judge.

Rather than give whole of market advice on investment options, advisers seem to be operating to a commercial model that focusses on creating an ongoing annuity stream for the adviser’s business. This is – to my mind – precisely what the RDR sort to prevent.

The inherent bias that has crept back into the system – call it contingent (or conditional)  charging, call it vertical integration – looks like commission to the man or woman in the street. If it looks, feel and smells like commission – it is commission – whatever you call it.

It is time for us to come clean on RDR and on independence, if advisory  businesses are dependent on assets under advice and are rewarded for asset gathering, then they are  not independent financial advisers. They may be regulated by the FCA but they cannot claim to be acting for the client, they are acting for their business. People need to know this and accept that they are being sold a solution – in the matter in hand – the transfer of pension rights to an asset management service.

At the moment, they are being sold something different, people are expecting an IFA to advise them independently of the solution.

Putting separation between advice and product

I was talking to a friend of mine who worked for Tideway as an intern in the summer of 2013 and was surprised to find that the model he was working on back then was to evolve into what Tideway offer today (see Pete Doherty’s article on this blog). Doherty is a smart business man, he could see then, what the FCA and tPR seem to be waking up to today, that it is impossible to operate as an adviser and manage funds without justifying the conflict of interest. Docherty’s article is an excellent articulation of how conflicts can be justified but it depends on our suspending disbelief in inherent risks that the RDR sought to mitigate.

I stand on the other side of that argument, and I call for the immediate cessation of the practice of contingent pricing.

I also call on the large consultancies to split their fiduciary management businesses from their investment consultancies. Let me remind you of that leaked memo from Mercer to its staff.

“We want to protect our existing … revenue as much as possible,” .

“Accordingly we do not intend to advertise the new lower fees to existing members and we don’t want to make it easy for them to [a] find out about the new lower fees and [b] access them.”

If you are claiming to be acting for your “existing members” but in practice “protecting your existing revenues” then it is a commercial imperative that you manage these kind of business problems in your favour and against the interests of those you claim to act for.

Until we separate advice and product, we cannot have a transparent market and that goes as much for the world of independent investment consultants as it does for independent financial advisers.

There is an argument , much loved of those who argue for vertical integration, that “the people have spoken”. It works on the fallacious logic that because a business model is successful, it is legitimised. We – the public – have proved again and again that in matters financial – especially matters involving long-term investments, we are poor buyers. Here is the OFT in 2014.OFT

Ironically, one of the strongest parts of the retirement market is now the workplace pension. I say “ironically”, because it is a financial solution studiously ignored by those who offer contingent fees as a means to pay for transfer advice. I would like the FCA to do a spot check on the advisers it is currently monitoring as Pension Transfer Specialists and look for evidence of advice on a transfer into NEST or any other workplace pension plan into which their client may be saving.

This is a conflict between consumer and provider

Let us not pretend that those who are providing commoditised advice to transfer on a contingent fee basis are IFAs, they are not, they are providers of a transactional service that turns a pension to a pot.

So these advisers are really providers and the pots they manage are only “pensions” in that they can be adapted to draw down through regular capital redemptions, a string of regular payments.

The system is incentivised by tax-relief, which was originally granted because people were saving to buy a pension (an annuity). That tax-relief is enjoyed by savers but paid for by all tax-payers. That tax-relief was not granted for the purposes of wealth preservation, for inheritance tax mitigation or any of the other arguments put forward by wealth managers to justify their ad valorem fees.

It was granted so that people could insure against living too long and provide themselves with a wage for life. That is precisely what a final salary scheme or career average pension scheme does. That is not what a wealth management service does, try as it might to convince us otherwise.

If we are comfortable to incentivise wealth management- then let’s be clear that is what we are doing. Let us have a Regulator who actively promotes contingent charging because the Regulator believes in neutrality and in people swapping pots for pensions (if that’s what they want to do).

But the clear feedback that the FCA got through CP17/16 was that was not what was good for people. In 53% of overall cases (51% in the recent work on BSPS cases), the FCA were unsure of the validity of the advice and could see no clear reason to transfer. They saw no reason to suppose those advised “special”.

That suggests, what the OFT told us in 2014, that in matters to do with workplace pensions, we – the public – don’t know what we are doing.

Handing us the keys to the Lamborghini, sounds a recipe for disaster to me.


If you want to see my short video on how I think we got here, press this link to New Model Adviser’s website.




Posted in pensions | 4 Comments

There’s nothing democratic about genocide. FCA should stop “contingent charging” today.


The FCA have published two papers on transfers

A policy paper CP 18/6 “Improving the quality of pension transfer advice and

A consultation paper  CP 18/7 “advising on pension transfers”.

The upshot of which is that The FCA has gone back to its historic position (one that it never left), the “starting assumption” for a transfer, is that it is unsuitable.

This reinforces the position adopted by Al Cunningham who asks each client “what makes you special?” when addressing the question “should I transfer?”.

It has gone further and in section  6 of the consultation it asks

“Do you think that contingent charging increases the likelihood of unsuitable advice?

and in case you thought the answer to that question was “no“, the FCA follow up

“If we proceeded to restrict the way in which pension transfer advice can be charged, do you have views on how this should be implemented? In particular, how could we avoid different forms of restriction being gamed?”

I have a very simple remedy for gaming – ban those who you think are taking the Michael from the privileges accorded a Pension Transfer Specialist and fine the firm.

For those not in the bubble, contingent (aka conditional) charging is the practice of only charging a fee for advice as and when a transfer has completed. It charges the fee to the transferred pot , thus avoiding the need for VAT or income tax on the fee or a cheque to be written.

Contingent charging is – to anyone outside the advisory bubble – commission. It is an agreed commission – which is how it gets round the RDR, but it is a commission.

As a reminder , here’s Wiki

The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often are calculated on the basis of a percentage of the goods sold, a way for firms to solve the principal–agent problem by attempting to realign employees’ interests with those of the firm.

In its study on Port Talbot, the FCA found that 51% of the cases it looked at led to unsuitable recommendations to transfer. As a reminder, nearly £3bn will be removed from the BSPS pension scheme, as much again from LBG and £4.2bn was transferred out via the back door from the Barclays Pension Scheme.

These schemes are now collecting from their administrators , the data on who advised on these transfers. The estimated figures from the Office of National Statistics for 2017 transfers is £34.3bn (up from £12bn), the year before. I know that at least one of the three schemes above did not submit data to ONS and I suspect that the final figure for 2017 (which we may not get till December)- will be much higher.

This explosion in transfer activity, coincided with the introduction of conditional charging. Pension Freedoms did not arrive in 2017, transfer values did not increase in 2017.

What happened in 2017, was that someone picked the lock to the stable door.

I have repeatedly called for contingent fees to be banned. If you want to read my call , read it here.


The democratisation of advice? – don’t make me laugh!

The standard defence of conditional pricing, one made on these pages by the CEO of Tideway – Peter Doherty – is that it is in the consumer’s interest.

  • It is argued that it makes advice affordable as it is levied on someone’s pension account , not the bank account.
  • It is argued that it reduces wastage, people pay on a “no win no fee” basis.
  • It is even argued that it is charitable, as advisers give “no” recommendations free of charge.

These are arguments are spurious, bogus and bullshit (depending on your attitude to the vernacular).

One response to CP16 was picked out on twitter by Ivor Harper


Advisers routinely “ignore the workplace pension”, despite it offering a guided pathway at a price typically a quarter that of an advised solution using a DFM within a SIPP.

Has anyone attempted to justify the 2.5% pa price tags routinely attaching to the SJP/Tideway….solutions? Has anyone benchmarked outcomes since 2011 against an investment in say NEST or L&G’s default- the multi asset fund?

Is anyone auditing the delivery of advice to those who have opted for the “advised solutions using a DFM within a SIPP?”

Is anyone – other than me, Michelle Cracknell and Ivor Harper asking what “guidance” is needed for advisers to be treating customers fairly?

We have been here before, in 2000, prior to the introduction of stakeholder charges – which capped pension AMCs at 1%. At that point , the FSA brought in RU64, which required advisers to recommend solutions at stakeholder cost, rather than continue to sell high commission products whose initial units could carry up to a 5% pa charge.

The FCA should look at that solution, it brought about immediate and positive change to consumers.

There is nothing democratic about genocide.

PPI was not democratic because it allowed financially illiterate people to walk away with a brand new 50 inch flat screen TV. Nor is contingent charging democratic because it allows people to swap a wage for life for the hardest, nastiest problem in finance.

 Stop the shelling now

It is quite clear that the game is up for conditional charging, meanwhile anything up to £5bn a month is transferring from pension to pot via CETVs. The consultation is open till May 25th , we can expect a policy statement in the Autumn (which usually means November).

The FCA can and should do better than this. It has identified a problem and the cause of the problem. You do not need a consultation to work out what 53% of £34.2bn is – it is £17bn + of ill-advised money currently in the wrong place.

If the FCA wants another £17bn to follow it, it can consult and propose. If it wants to do something to protect consumers, it should put an “RU64” style policy in place and cap the amount taken out of any advised solution at 0.75% pa (to include initial fees).



Before I get abuse for IFA bashing, I see no better behaviours among many actuarial consultants. Mercer in Australia have been “busted” for treating customers unfairly.

“We want to protect our existing … revenue as much as possible,” Mercer, a US-owned multinational that is a big player in superannuation, wrote to senior staff.

“Accordingly we do not intend to advertise the new lower fees to existing members and we don’t want to make it easy for them to [a] find out about the new lower fees and [b] access them.”

Posted in BSPS, de-risking, Henry Tapper blog, pensions | Tagged , , , , , | 3 Comments

Are DB pensions benefiting from CETV de-risking?


It’s a fair question for a blogger to ask. I don’t have the answer and suspect that you’d get a different reply depending on who you asked.

Here are the facts

According to Hymans Robertson ,

The total value of buy-out and buy-in deals struck in H2 2016 was around £7.6 billion (around £10.2 billion for the year to 31 December 2016) and there were two longevity swaps in H1 2017 covering £1.1 billion of liabilities. Forty two deals, covering liabilities worth over £65 billion, have been completed since 30 June 2009.

These figures are confirmed by LCP

LCP buy out

LCP Pension De-Risking 2018

Meanwhile, the levels of “voluntary buy-out”, or personal transfers, has rocketed.

These are the figures published by the Office of National Statistics last week

INS transfers

MQ5 (22nd March)


Not only are “voluntary buy-outs” three times up on 2016 levels, they are now three times higher than the much more expensive insured buy-outs and buy-ins.

Why so quiet?

DIY de-risking is gutting the active and deferred membership of some schemes; I quote Barclays £4.2bn, LBG c£3bn and BSPS (just under £3bn) – all 2017 transfers.

As the discount rates for voluntary transfer value is a “best estimate” figure, well below the buy-out cost, the beneficial impact on scheme funding of this mass migration is much more than the bare numbers suggest.

The £34.245 bn number at the bottom right hand corner of the ONS table is truly astonishing. I have written in a recent blog about what lies behind this mass desertion. I do not think it is about pension freedoms (we’ve had these a number of years), nor do I think there are conspicuously higher CETVs in 2017 over 2016, I see the explosion in transfers as being all about IFAs and other advisers getting their shit together. I have explained this in a recent blog – it’s got everything to do with contingent charging.

Old Mutual reported that 20% of all new money arriving on its commoditised SIPP platform came from CETVs, the recent hikes in new business at SJP, Royal London and especially Prudential suggest that for all the noise about institutional de-risking, the real heavy lifting’s taking place in the voluntary sector.

Here’s why these are numbers nobody wants to talk about…

  1. No fiduciary controls;  trustees can control the buy-out and buy-in of insurers- targeting the populations whose benefit payments are outsourced to insurers. No such control exists on voluntary transfers
  2. No management information; ask large occupational pension schemes (like those mentioned above) who has transferred out and they’ll be hard pushed to give you decent management information. Third party administrators are not geared up to provide the kind of reports trustees need to understand the impact of these individual transfers.
  3. No future skin in the game; trustees choose who provides members with their future pensions. They can conduct due diligence on the insurer’s covenant. They have no such choice on where member money goes on transfers and no control of how this money is paid to members (as members have total pension freedom).

Nobody wants to talk about voluntary transfers because (from a trustee standpoint) they are totally out of control.

We can also point to the Regulators (FCA and tPR), who have also lost control of what is going on. They are consulting on a joint strategy , but recent announcements fight shy of tackling voluntary transfers. This is amazing as….

  1. The FCA tell us they are unhappy with 53% of the CETV decisions they sampled last year.
  2. The Work and Pension Select Committee rightly concluded that the FCA had totally lost control at Port Talbot. Judging by the statistics above, there are many Port Talbots, many of which have yet to come to light.
  3. The destination of the transferred monies suggests anything but an ordered market. The chaotic “voluntary”  withdrawal of advisers from the market is leaving many pension scheme members unable to complete transfers (to general frustration).

Nobody wants to talk about this because it points to there being a train crash. This train crash is not on some branch line, it is on the main line.

Employers happy , trustees concerned , regulators terrified

That would be my current answer to the question posed in this blog. The Regulators who are responsible for protecting consumers (but also wider public policy) are terrified that when the outcomes of this £34.2bn voluntary transfer become evident, the fans in Whitehall and Canary Wharf will be distributing manure on an industrial basis.

Trustees are concerned but not overly so, their funding levels will improve as risks disappear. They don’t know what kinds of risks they are losing – they don’t know whether they are losing unhealthy members looking to spend before they die or the clever sods who will DIY their investments and live for ever. So the level of concern among trustees is not as high as it might be expected.

Meantime, employers are looking forward to the publication of their FRS102 numbers which should show (in many cases) a sharp drop in pension scheme liabilities on the balance sheet. It was not for nothing that Barclays chose to include the £4.2bn CETV number in its accounts – this is material to the shareholders – and materially positive.

So what does the Pension Plowman think?

I think that the awful truth is being supressed and that that is not good. It is better for the Regulators, Trustees and Employers to be clear about what is going on. The White Paper published last week on DB pensions, despite having a whole chapter (4) devoted to BSPS, hardly considers the impact of CETVs on DB schemes. LCP and Hymans’ surveys suggest that de-risking is an orderly market controlled by Trustees (and their advisers).

Meanwhile, the employers who have been used to paying handsomely to encourage Enhanced Transfer Values, now find that job is being done for them, on a huge scale, by advisers – and at no extra cost to them a above their best estimate funding levels.

If there has been a train crash, no one is telling the signalman, watch out for carnage down the line.


Full steam ahead

Posted in annuity, Big Government, BSPS, pensions | Tagged , , , , , , , | 1 Comment

“Too prudent for its own good” – how under-risking DB schemes causes new problems.

prudence 2

Someone , somewhere on the multiple threads surrounding USS, has asked me if I think that transfers out of USS are likely to be the next miss-selling scandal.  I think it unlikely, and to explain why, I need to explain a concept that I could call the “vulnerable defined benefit pension scheme”.

The vulnerable scheme

In the “old days”, advisers tried to judge a transfer by the critical yield resulting from a transfer value analysis (RVAS(. This was an inefficient way of doing things, the TVAS showed the adviser the critical yield needed to better outcomes, but as the TVAS comparison was based on annuity comparisons (and people were looking to be free of annuities), TVAS has fallen into disrepute.

Instead, advisers are resorting to a much simpler comparison; they simply look at the multiple of prospective pension within the CETV. So if you have a £15,000 pa pension promise and a £600,000 CETV, you are on a 40x multiple and it’s all systems go for a transfer.

The multiples for USS are likely to be a lot lower than 40x, that’s principally because USS is an open pension scheme and therefore adopts a growth based investment strategy involving a relatively high allocation to equities. These equities are expected to grow faster than gilts and so they allow those valuing USS pension promises to use a higher discount factor which leads to lower transfer values.

USS is not a “vulnerable scheme” in the way that schemes that have moved to “de-risk” by selling their equities and adopting a gilts based funding strategy. Barclays and Lloyds have such investment strategies and they provide transfer values over 40 times the pension.

Schemes like Barclays and Lloyds, which are reporting multi-billion pound outflows to CETVs, are “vulnerable schemes”.

But it’s not just a high income multiple that can make a scheme vulnerable. Other factors that can expose a scheme to high volumes of transfers are loss of confidence in the scheme sponsor (this is what happened at BSPS), a time limited transfer option (BSPS again ) and a well organised IFA marketing campaign (BSPS again).

British Steel Pension Scheme’s transfer multiples are around 25x, but in all other respects, it has become a “vulnerable scheme”.

There is (maybe) one other factor, the financial sophistication of members and their appetite for pensions rather than pots. I suspect that the USS membership are relatively sophisticated and have a higher regard for pensions rather than pots than other memberships, but that has yet to be tested. USS could become a mis-selling scandal but I suspect that advisers have got better schemes and easier memberships to target.

Targeting vulnerable schemes

Most IFAs I know, are fairly familiar with “vulnerable schemes”, they don’t need to know why a scheme is giving high income multiples, they just need to know they are on offer.

Once an IFA has done one transfer, word soon gets around and without too much effort, an IFA can pick up a number of referrals from other scheme members anxious to capture a pot from their pension

There may be many such “referral deals” out there. We certainly know of them at BSPS.

IFAs don’t need to have to work too hard where they are into a vulnerable scheme, unsurprisingly, their biggest threat is other IFAs competing for the same customers.

As has been rehearsed on this blog many times recently, the key breakthrough for IFAs has been their discovery that their clients can pay for transfer advice out of the transfer without having to write a cheque from taxed funds and without having to pay VAT.

In extreme cases, as happened with Active Wealth in Port Talbot, the adviser appears to have been part of a complex matrix of cross subsidies that made it appear to be charging rock bottom prices while the customer was paying exorbitant fund management costs.

Ultimately, Active Wealth Management had the perfect marketing approach for their customers, offering superb service at no price at all. What was going on behind the scenes is now a matter for FCA investigation.


Readers may be asking themselves, why two schemes with similar benefit structures (Barclays and USS) can offer different CETV multiples . At a technical level, it’s because of differing discount rates, but philosophically – it’s because the Trustees of a Barclays, or an Aon or a Lloyds have chosen to do what the Pensions Regulator want them to do, and target “self-sufficiency”. That means the Trustees immunising themselves against market shocks by moving into gilts, matching liabilities to assets – effectively making the scheme invulnerable.

Bizarrely, in adopting this super-prudent approach, such schemes are making themselves vulnerable in a new way – vulnerable to transfers. Barclays has lost £4.2bn of its scheme assets (probably around 25% of transferrable assets) in a single year.

There may be those within the bank who see this as good news, (CETVs are less expensive to pay than the liabilities are accounted for in the Banks accounts) but most stakeholders – including the Regulators, are not in the business of promoting CETVs against pensions.

Whose prudence is it anyway?

It is hardly surprising that this question is being asked by those who are giving away the prudence they have built up in their scheme, through ultra-high transfer values.

Trustees can rightly point at the Regulator for an answer. If tPR has demanded a prudent investment strategy, surely it should have protected the schemes from the ravages of CETVs. Evidently this is not what the Pensions Regulator consider its job. If it did, it would have taken reasonable steps to protect schemes by either enforcing insufficiency reports – to dampen down demand, or it would have worked with the FCA to restrain the activities of advisers who have been filling their boots with contingent charging.

Some blame also attaches to consultants who have egged on their clients to adopt ultra-cautious strategies without any consideration for the consequences. As many of these advisers have themselves taken CETVs from schemes they were in , there inactivity in respect to this is understandable (but not forgivable).

“Too prudent for its own good?”

One Trustee asked me last month if I considered her scheme too prudent for its own good; I replied – “yes”!

We are in an era of de-risking. But it seems to me that in de-risking, many occupational schemes have simply passed risks that were retained by Trustees as their core purpose – the payment of pensions, for risks now managed by wealth managers but born by members.

If that was the intention of the Regulators (tPR and FCA) then it was never explicit. I doubt it was and suspect that it is only now that the consequences of this “flight to quality” is becoming clear.

It is not too late to stop the carnage, but urgent action is needed, if we are not to see another year – like 2017.

Members of USS would undoubtedly get higher transfer values if its scheme pursued a more cautious investment strategy, but they should beware the impact their pensions.

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

DB Transfers all but triple in a year.

Transfers to other pension schemes10 RKQR 6,810 6,084 5,363 13,221 12,777 34,245

ONS andy

Andy is referring to the Office of National Statistics  update to “Investment by insurance companies, pension funds and trusts (MQ5)” -table 4.3:

The numbers are confirmed by the latest Origo stats, which show an alarming increase in transfers passing through its options service.

origo transfers

Origo Stats for their platform


So much for the Treasury’s predictions on the impact of Freedom and Choice on Defined Benefit Pension Transfers.

Treasury DB transfers

Vulnerable investors

There is , in the FCA’s cast-list , such a person as a “vulnerable investor”, defined as someone unfit to take rational decisions due to mental or physical incapacity.

I am tempted to include those active and deferred members of a DB plan as “vulnerable investors”.

The FCA recommend that vulnerable investors have special protections to ensure that they do not self-harm, when taking life-changing financial decisions. I suggest that special protection be given to those with eye-watering transfer values for whom the word “pension” no longer seems relevant.

Only a few weeks ago, the FTSE100 stood at 7700, today it is below 7000. I was at a session yesterday where we quizzed wealth managers on how they protected clients from major market downturns. The (provisional) £34.2bn that transferred into DC last year is a case in point.

Just how much financial resilience is there? What happens if the market falls below 6000? How will those drawing down units at 20% below purchase price recover from “pounds cost ravaging” AKA sequential risk? I heard no answers to those questions yesterday and I suspect that following a ten year bull run, such a scenario is far from wealth manager’s minds.

Wealth Managers show me charts with money flowing from accumulation, through transition to preservation and then inheritance, as if the point of his service was to avoid the question of income in retirement altogether. Were the generous tax reliefs on offer to these clients – supposed for inheritance tax mitigation?

It would seem that the pensions system established to supplement the state benefits, is being dismantled at a pace that quite outwits the Regulators. This weeks’ white paper earned this comment from LCP

This is a significant development in DB pensions policy, but it will be some time before many of the measures set out in the White Paper pass into law, if at all.

This week saw the Pensions Regulator and FCA issue a joint statement of intent to “work closer together”. LCP saw through that one too.

There is little real meat in this paper, with much of its content taken up in reciting what the two bodies are currently doing separately, before going on to ask what the two bodies could do jointly. 

And finally we were treated to the Pensions Regulator’s second DB landscape report. LCP managed a notable hat-rick of put downs , commenting

This report (accompanied by a blog) provides a useful overview of aspects of the DB landscape that will be of interest to policymakers, but one cannot help think that the Regulator has much more detail on the landscape that it is choosing not to make public.

Are we getting the full story on transfers?

While Government fiddles, Rome burns.

Meanwhile, real people are doing real things to limit the damage. Before I had decamped to judge the wealth managers, I had had a pint and a burger with David Neilly. Here he is a few hours later collecting an award on behalf of Chive with his wife Karen.

David Neilly

David picks up the Chive award



David, Rich and Stefan were instrumental in bringing the problems at Port Talbot to the public eye. Al Rush, Al Cunningham, David Penny, Darren Cooke and many more great IFAs are now building a restitution service to help trustees and employers manage the problems created by unscrupulous advisers. Above all, this is Al Rush’s award.

It is up to blogs like mine, and their readership, to make it absolutely clear that the current system of transfer advice is failing the ordinary working person in this country.

The tripling of pension transfers over the past year is testament to that. If – as the FCA estimate- 53% of the transfers advised on in 2017 contained questionable advice, we are looking at around £18bn of these transfers, that should not have been made.

We cannot go on ignoring this problem.

Posted in advice gap, BSPS, pensions | Tagged , , , , , , | 7 Comments

IFAs and the defined benefit promise


captive IFA

This article explores the relationship between IFAs and defined” benefit schemes, one that has historically been uneasy. It argues that the polarisation of opinion between IFAs who see pensions as “pots” of wealth, and those who regard them as a “wage for life” has never been stronger. This polarisation is present in politics, demonstrated by the differing view on “pension freedoms” at the DWP and Treasury, and present in Regulation, with polarisation between the FCA and tPR’s approach to these same issues.

This deep divide is philosophically between those who believe is that the management of financial assets should be a matter for the beneficiaries of those assets (the member) and those who think the creation of a lifelong income, a matter for collective endeavour.

And the fault lines created by these polarised positions are clear to see, wherever you look.

They are apparent from the Work and Pension Select Committee’s inquiry into Pension Freedoms, which focussed on the divisions in Port Talbot between BSPS members desperate to liberate the wealth in their pension scheme and the Trustees, who were (until recently) oblivious to the demand for “pension freedom”.

The fault lines were equally apparent in the disputes between Royal Mail and its membership (represented by the CWU) and the current dispute between USS and its members (represented by the UCU). In both cases, the employer believed philosophically that it was doing the right thing by switching from DB to DC accrual, based on evidence that ordinary people value a pot of wealth rather than a wage for life.

Contrarily, members have said no to a DC pot and held out for a wage for life. In the case of Royal Mail’s membership, this will mean an unguaranteed CDC pension and in the case of USS members, a continuation of guaranteed accrual from a DB plan.

An IFA, reading these paragraphs, has every right to be confused. Steel-workers are not normally considered as candidates for wealth management, but with average pots of c£400,000, they proved to be of great interest to a large number of IFAs. Meanwhile, the professors and lecturers who one would imagine financially capable, have gone out on strike , rather than be switched to a DC pension.

The polarisation of opinion cannot be defined on socio-economic lines, nor can it be defined in terms of education. In fact, the pension freedoms seem to be as popular on the streets of Tai Bach as in the City of London.

It now looks likely that once all transfers out of BSPS are completed (some time in April), around £3bn will have moved from “pensions to pots”. This is roughly the same amount that has been transferred out of the Lloyds Bank staff pension scheme and around 75% of the £4.2bn that Barclays have reported moving out of their pension scheme. It was not long ago that KPMG were estimating the total transfers from DB to DC in 2017 would be £6bn. What has happened?

The explosion of transfers  that has happened from mid 2016 onwards, cannot be explained by the Pension Freedoms alone, indeed , in its 2014 impact analysis, the Treasury saw no reason for the changes in the tax treatment of DC pensions as having little to no impact on DB to DC pensions.

Nor can it be considered a function of quantitative easing or the shift of DB assets from equities to gilts. While there may have been a marginal shift (major at BSPS), quantitative easing and the trend for DB pensions to “de-risk”, were established well before 2017.

What I believe has happened over the past eighteen months has had everything to do with adviser confidence, especially confidence in the IFA sector. Underpinning this confidence is the rise in world stock- markets which has seen equity-based wealth management solutions deliver fabulous returns to their customers for nearly ten years. There is a sense among many advisers I speak to , of invincibility in market forces and the power of investments in growth assets to deliver better outcomes than can be achieved from DB pensions.

The second factor that has given advisers confidence, is finding a mechanism to unpick the lock on the CETV, without creating disruption to their client’s cash-flows.  I mean by this the practice of conditional charging. By putting the bill for advice at the back end of the advisory process, IFAs can achieve a painless transfer to their wealth management solution that enables them to be paid from a tax-exempt fund without concerns over VAT. It enables clients to release their “DB wealth” without reaching for their cheque book and  it is a very elegant solution to the problems posed by the requirement of those wishing to transfer an amount above £30,000, to take financial advice.

There is nothing uncompliant about conditional charging and it is now widely used by the majority of Britain’s 2,500 transfer specialists. However, conditional charging is showing signs of stress. Ten firms have now “voluntarily” handed back their permissions to advise on DB transfers , leaving hundreds of clients orphaned from the transfer process and marooned in DB.

A recent article in the Financial Times, saw the Personal Finance Society’s Keith Richards, claim that Professional Indemnity Insurers were jacking up premiums for those remaining PTS’ and denying some cover. The practice of outsourcing pensions advice to specialist Transfer Value Analysts, has come under considerable pressure from the FCA.

All this is evidence of the deep divide between those who see a pension as a “pot of wealth” and those who regard it as a wage for life. Many advisers, such as John Mather, consider the defined benefit system, so broken, that engineering a route out of DB for clients , is the right thing to do. Meanwhile, the FCA insist that from their sampling in 2017, 53% of transfers examined, contained either questionable or wrongful advice.

The Pensions Regulator and the FCA are at last working together to produce a joint pension strategy. In a recent session of the Work and Pensions Committee, its Chair- Frank Field- suggested that advisers and trustees were living in “different countries”. The same criticism has been made of the two regulators.

It remains to be seen where this will all end up, few believe that we have seen the end to the DB transfers. The results of SJP, Old Mutual, Prudential and many other providers, suggest that pension providers are now reliant on the massive flows of assets brought to them by advisers. Many advisers now seem as addicted to conditional charging as they were to commission and the FCA and Pensions Regulator, seem powerless to prevent CETVs becoming business as usual.

As always, the analysis of the issue , post-dates it. The transfer from pensions to pots will go on, till a point where either the available assets within DB schemes have been exhausted, or a proper brake has been put on the transfer process, most likely by a Government with the will to ban conditional charging.

In the meantime. we have to hope that those in charge of this new found wealth, can deliver on their promises.

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

Bill Galvin , stop whingeing to the FT and come down here!

Bill Galvin

Bill Galvin is a very nice man

Bill Galvin would be well-advised not to snipe at social media for peddling misconceptions about the University Superannuation Scheme.

bill kill

Dennis Leech, Professor of Economics at Warwick concludes a recent article with the question

will this independent group be subject to the normal modalities of academic enquiry and discourse? It is after all the function of academia to find out the truth by open, free debate. That is what universities are for.

He is not speaking of the USS itself, but of the proposed group of experts proposed to oversee the valuations of the scheme. Personally, I find no need for such a group, like Dennis, I see the most constructive conversations about the future of the USS and the pensions of lecturers and professors in the open and free debate of social media.

Bill’s USS enjoy a privileged position in the current dispute

Just because Bill isn’t in the front line, doesn’t mean he shouldn’t be involved. I’d say he and his colleagues are failing the Frank Field Test.


The Frank Field Test

USS , like BSPS, has chosen not to use social media to engage its membership in its issues. Now Bill Galvin, its CEO has complained to the Financial Times.

“We have seen material which suggests that this valuation has been done on the basis of [all university] employers going insolvent. This is palpably untrue.”

Come off it Bill – this sounds pompous – it doesn’t sound like you at all.

And I have to ask you Bill why you think the FT is a better soapbox than twitter?

I didn’t see Jesus, when he preached, avoiding social media, he went to the nearest boat, hill or street and broadcast his views to the masses; much to the annoyance of the priests who had till then had a monopoly on teaching.

I am not likening the FT to the Pharisees, (the FT gets social media), but I think Bill would be minded to get out of their pulpit and come and talk to the people who pay his wages.

And quite some wages

The issue created by having a very big salary is akin to that of the Selfish Giant, who – finding himself in possession of a fine garden, put a big fence around it – to keep out the plebs. Bill’s behavior could be interpreted in that way.

It is doubly unfortunate that while I know Bill to be one of the most down to earth of people, the sponsors of his scheme, the Universities, are run by people who have quite lost the confidence of his members and indeed the University’s customers.

The Frank Field Test establishes whether  the management and Trustees of a pension scheme are in the same country as its membership. I suspect that Bill has been lumped in with the Vice Chancellors as an overpaid elitist, probably abusing his expense account and certainly avoiding open debate.

None of which is fair of the man.

Social media is not alternative truth!

Although it’s possible to find irresponsible comment on social media, and though much that is written is unintentionally wrong, social media has a habit of ironing out its creases in time. The threads about USS on twitter have shown some of the most intelligent debate on pensions I have ever read – not least because they are informed by the opinion of brilliant people (like Dennis Leech).

Bill can take many isolated instances of people getting wrong and use them to justify his negative views on social media, but these are exceptions – to use his language “outliers”.

Instead of criticising social media, he should be studying it – as should the Pensions Regulator, there is wisdom in the crowd and it will show itself over time. Social media cannot be pushed around as conventional media can, there are no Robert Maxwells or Rupert Murdoch’s controlling the social media agenda,

Instead there is a groundswell of informed opinion that surfaces from time – the still small voice of calm. Shakespeare wrote for the pit as well as the galleries and without the diversity of the Elizabethan theatre audience, his plays would be the less. Bill cannot confine himself to the Financial Times, he should come down off his high horse and mix it with the groundlings!

He should be feeding the 5000, not just the elite readership of the FT.

Posted in pensions, USS | Tagged , , , , , , , | 8 Comments

Transfer carnage at BSPS – the truth revealed

BSPS Missing

The full impact of transfers on the British Steel Pension Scheme has been revealed in this perfunctory tweet

I have since had it confirmed from the Trustee that it now expects the final amount taken via Cash Equivalent Transfer Values from the scheme to be “over £2.5bn”.

My estimates have been that £3bn has been requested to transfer, that it may be less than that, may be because a number of applications will be disqualified because the firm certifying the advice, has withdrawn from the market. Yesterday, the FCA confirmed that the number of firms who have voluntarily de-authorised themselves has risen to ten.

Technical note  ; the CETVs at BSPS are (as a multiple of salary) relatively low – typically 25 times pension. This is because of a relatively high discount rate resulting from the high allocation of the scheme to growth assets and the 5% clip on CETVs resulting from the insufficiency report issued by actuaries WTW.

As a proportion of total scheme assets, the amount transferred out is around 25%, as a proportion of deferred members assets – it is probably double that. Transfers taken have been from those with longest service and with most to transfer. This either suggests a degree of cherry picking among those advising, or that there is a preciously undisclosed class of BSPS employee – who might be deemed “wealthy”.

What does this mean for the 3,700 BSPS members who’ve yet to have their CETVs paid.

At least we now know that all those who got the correct papers in – will have their transfers paid – though I fear there are many who will find out too late that there was an error in their paperwork.


What does this mean for BSPS 2 (New BSPS)?

It will mean that up to  7,500 of the projected membership of BSPS2 will never join. Some of those may not have made an election under Time to Choose and some may have “chosen” PPF, but most of the transferees will have otherwise have headed for the new scheme.

Since the Trustee, by his own admission, totally underestimated the size of the transfer, it is likely to be a different BSPS2 than had been imagined, one with fewer deferred pensioners and less assets. Paradoxically, the financial resilience of BSPS2 may have been strengthened by these transfers as the “buffer” put in place as part of the Regulatory Apportionment Agreement, is not impacted by transfers out – it is only reduced by those falling into PPF. If the scheme is stronger, it is also likely to be less ambitious. The wings of CIO, Hugh Smart will be further clipped as he is now managing out a pool of pensioners with a much reduced constituency of youngsters. The capacity to invest for growth is severely diminished.

In summary, the shift of nearly 8,000 deferred away from BSPS2 will make the scheme stronger but less likely to deliver discretionary increases in future. This make for a different BSPS2 – not necessarily a worse one.

What does it mean for UK financial services?

BSPS is by no means the scheme with the biggest CETV bill. Barclays’ accounts it shed £4.2bn in 2017, Lloyds Banking Group reckon they are losing c£250m a month, British Airways talk of £75m a month.

The ONS MQ5 Data for Quarter 1 2017 onwards remain provisional and subject to revision until the incorporation of the 2017 annual survey results in December 2018.

So we will not know – till later this year  the full extent of the voluntary shift from DB pension members , from collective pensions to individual arrangements.  But there are enough schemes reporting more than 10% of relevant assets transferring to suggest that 2017 has been a game changer.

While the occupational schemes shed assets, the insurers and SIPP providers report record years. Old Mutual reported this week a 40% increase in profits with over 20% of all inflows last year from DB transfers. Similar numbers are reported from the Prudential (with exponential growth in Prufund) and St James Place. The insurers and the SIPP platforms have simply held forth their aprons.

What does this mean for Government policy?

The libertarians will argue that this is the greatest thing to happen for freedom and choice since the French Revolution. Others will be more cautious.

53% of Transfers investigated by the FCA last year were considered questionable or worse. That’s around £1.5bn of BSPS money and over £2bn of Barclays money.

The Personal Finance Society has claimed that many people who would have had the option of freedom and choice will have their dreams broken by Professional Indemnity Insurers unwilling to insure some advisers to do more of the same. This claim was reported in the FT.PFS

It is unsurprising that PI insurers are nervous about insuring a market where 53% of the cases investigated by the FCA are deemed unsafe. PI insurers have long memories!

And it was disingenuous of the PFS to suggest that the intention of the Treasury, in introducing Pension Freedoms was to increase the numbers of people transferring out of DB schemes.

Below is an excerpt from the Treasury’s impact study , published in 2014.

Treasury DB transfers

What this wholesale charge to freedom means is that the intentions of the legislation laid down in PA2015, have been reversed. Pension Transfers have soared since the introduction of the Pension Freedoms.

This is a major embarrassment to the Treasury, not least because the pension fund trustees, mentioned above, appear to have had no power at all to “help mitigate risks to DB pension schemes from an increase in demands for transfers”. It is only now that the FCA is recognising there is a problem. One of the lessons of Port Talbot is that neither Regulators, nor the Trustee were alive to what was happening under their very noses. They were – to use Frank Field’s phrase “in another country”.

The Treasury are an unwitting accomplice to this carnage

For all the fine words of its 2014 statement, the Treasury have unwittingly encouraged IFAs to milk defined benefit schemes. They have done this by condoning conditional fees which allow ordinary people “free advice” or at least advice paid for out of the transferred funds in such a way as they never have to dip into their pockets. The cost of this advice to the public purse is that it is paid for from a tax exempt pension fund and paid under the “intermediation” rules, without VAT.

The Treasury is aiding and abetting the very thing it claimed it would prevent. It’s principal enforcement agency, the FCA – seems powerless to do anything about it.

If you want to read more about this scandal, follow this thread.

Some sorry conclusions

  1. Transfer levels were at an all time high in 2017 with some schemes seeing over 10% of available assets transferring
  2. This has been a bonanza for advisers, SIPP providers and insurers.
  3. If the FCA sampling is correct, more than half of this money should not have moved
  4. The only thing that appears able to stop the flow is the refusal of PI insurers to insure advisers to continue
  5. The Treasury impact statement has proven hopeless – pension freedoms are now claimed by the FCA to be about allowing this carnage to continue
  6. The Treasury are aiding and abetting all this by permitting conditional fees to be used as a means of paying for advice.

poll bsps anon

The October poll on BSPS Facebook that led me to Port Talbot

Posted in annuity, BSPS, pensions | Tagged , , , , , , | 14 Comments

When enough isn’t enough – thoughts on #NoCapitulation

No capitulation

Is the USS really in crisis?

I was disappointed to read that the University strike isn’t over. But it isn’t and Jo Cumbo hits the nail  on the head.

By going against their Union’s recommendation, the lecturers now have to find a position which through some kind of collective process. And people who had previously no knowledge of how pensions work, are having to get up to speed with the arguments for and against.

as Rebecca goes on to say

Rebecca – read Dennis Leech’s blog

I wish I had the time, energy and wit to bring together in one short and easy to read article, a proper argument that refutes what John Ralfe is saying. If Rebecca or any other lecturer, wants to understand the “other side of the argument”, then I can point them to the excellent work of Mike Otsuka on this blog. I have written myself, but not as well.

However there is one article that has been published on my blog for some time, that has been read by many thousands of lecturers that meets Rebecca’s requirements. It was written by Dennis Leech and can be found here.


When I wrote yesterday morning that the UCU/UUK agreement could see the end of the strike, I had to change “should” to “could” , when I saw the weight of opinion behind the “no capitulation” hashtag.

I spent the day at Cheltenham (lucky me) and have just seen Dennis’ comment on my blog.

Dennis leech

Dennis is a sound judge, a lightening stick for the thinking of those around him. The UCU must now rethink its position, as must UUK. Sadly, the space afforded by the proposals put forward on Monday, is no longer there.

Meanwhile, the idealists among us , can enjoy four minutes of Bruce, getting carried away!

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

A master class in fractional scamming


It’s childsplay


Scamming has grown up; long gone the daylight robbery , fading into the distance “pension liberation”. Today’s scammer plays pass the parcel with your money, skimming off a slice of your savings – every turn. It’s called fractional scamming , it’s alive and well and the scammers are after your money.

Here’s how the FCA compare the pre and post adviser remuneration model (oops- I meant the “value chain”). Pre RDR it was called commission, post RDR it’s called “marketing fees”.

value chain

FCA – “non workplace pension review”


Fractional scamming works by sending money from one of those boxes on the bottom row to another, so that everyone gets a slice of the action.

fraction 2

So it’s all about distribution!

If you want to view the lesser-spotted overseas pensions introducer organising distribution, here’s John Ferguson

And here’s how he makes his money.  courtesy of Angie Brooks and Pension Lite  

I’ve been racking my brains…

I’ve been trying to remind myself of a UK investment structure that linked unauthorised introducers to authorised IFAS who worked with Pension Trustees to transfer money into overseas funds, but I just can’t remember the instance.

Somehow, Port Talbot, Dublin and Orpington came into the conversation. Hardly Dubai or Hong Kong…..

and then I saw this tweet and it got this horrible sense of deja vue

If I’d mate it all up- so had this guy!  Just like this Pension Scam Survivor, just like Angie Brooks.

I must have made it all up as I have a 12 Page letter from B**t Wils@n LLP (marked not for publication) telling me I had.

I’ve been racking my brains trying to remember what happened and now I realise it didn’t happen at all. And the You and Yours investigation that revealed all this is happening to the Pension Scam Survivor and the others, that was making it up too!

So was Bond Investor, whose beautifully written blog on Blackmore;  that  must be pure fantasy too!

We know that we must be liars, because all these guys’ solicitors tell us we are, and because John (Gus) Ferguson and David Vilka and Patrick McCreesh and Philip Nunn are still sunning themselves in Dubai, or Hong Kong or Spain .

And if we weren’t liars and these guys really did do the things that the BBC say they did, they surely would be under arrest – which they aren’t.


We get the financial services we deserve.

If we think it is ok that fractional scammers can carry on taking the p*** with our money, we can allow these guys to carry on – we can send them our money – we can indulge them their lavish lifestyles.

But if we think we deserve better, we ought to join with Angie Brooks and with all the good guys like Stephen Sefton, who are strong enough and admit to being a Pension Scam Survivor.

Because all the lawyers in London, cannot defend the venal behaviour that is going on today – and under our very noses.


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

Beyond the workplace – managing our pension saving legacy.

metro bank magic


The FCA are consulting on the £400bn of pension assets that are not in workplace pensions. Implicit in the consultation is a desire to help those who depend on them in retirement to maximise these savings.

The savings are of questionable value; some are invested in the wrong funds, some are subject to extortionate charges and most have no obvious means of release as a wage for life or “pension”.

Assessing the value from their current management, the cost of that management and arranging a viable default means to spend these savings – should be the primary priority of the FCA.

Fortunately, it looks as if we may be able to do all three, if not tomorrow – at least in time for some people to get a better deal. Doing nothing is not an option, we have the means to clean up the legacy ; help is at hand. Let’s look at these three issues separately and return at the end of this blog to the holistic solution which people with such savings need.


Mixed in with a lot of filth, there are some pearls. Genuinely good with profits contracts with guaranteed annuity rates, policies which carry good quality death benefits, some waivers of premium which are currently allowing accumulation to be insurance company funded.

And there are some very special self-invested personal pensions which are enabling the financially capable, or those with financially astute advisers, to manage their financial affairs within pension wrappers – with precision and acuity. John Mather and others – PACE!

There is also a lot of very good passively managed money, run within new style personal pensions, technically SIPPS, but for practical purposes, fulfilling the original intention of the stakeholder pensions. All of the above offer value, and I have no issue with these plans as a means of accumulating the capital to pay a retirement income.

But – and you knew there would be a “but”, there is one heck of a lot of filth.

  • Investments that made sense at the time but which have been taken over by changing economic circumstances (low interest rates for instance)]
  • Management that proved a flash in the pan – funds which now languish in the back office
  • Funds which were too big to succeed – the closet trackers

We all know the names of the providers – Allied Dunbar, Abbey Life, Crown Life etc.. but who remembers those top performing managers – the sexy Japanese warrant funds, the sophisticated broker managers that we gladly put our trust in? All offered value – most failed to deliver and few are accountable.


The money we have paid to providers for the investment of our savings has – in many cases been eye watering. I have recently transferred an investment of many thousand pounds made in the mid eighties, at the value of the contributions – no more. I was promised equity returns, if i had got them , my fund would have been worth four times what I contributed. For no reason other than charges, I got a quarter of what a simple investment in a tracker would have delivered.

All the arguments about tax free cash, tax free growth and tax relief on contributions pale into insignificance against the carnage created by

  • Capital/Initial units
  • Accumulation units
  • Periodic contract management charges
  • Non-allocation periods
  • Bid/offer spreads
  • Dilution levies
  • 90/10 with profits charging structures
  • Transaction costs within funds
  • Operational costs in switching (especially automated switch programs)
  • Paid up penalties
  • Exit penalties

The complex charging structures designed by private pension providers were designed to be fair. They shafted everyone.

If you tried to get out of a contract you were shafted by exit penalties

If you stayed in , you were shafted by the various initial and accumulation charges on the fund.

Thankfully, the 1% cap on exit penalties which has come in since 2016, means that those 55 or over, can at last get some relief from the incessant value destruction caused by the money we have had to pay.

However, the facts are , most 55 year olds don’t know what they are paying and don’t know there is any better.

The pension at the end of the tunnel?

The harsh truth is that there is no pension at the end of the tunnel, only an annuity or the freedom to go and spend your money as you choose.

That may sound inviting to those with little understanding of what it’s like to be alive and have no work, but it’s not much comfort if you are at the end of your working life and at the beginning of a long period when you’ll be on holiday on £8,500 a year.

When the tax-free cash runs out, there is a drawdown to come. But that draw-down is unlikely to provide a wage for life. Ordinary people who had expected a pension , are being delivered the hardest, nastiest problem in economics, dressed up as “pension freedom”.

There is no pension at the end of the tunnel.

Poor value – lost money and no light at the end of the tunnel.

That’s how legacy pensions are turning out for those who bought into Mrs Thatcher’s personal empowerment dream in the eighties and nineties. Things improved after the arrival of stakeholder pensions but even today, consumer protections are too weak and millions are being squandered daily on ridiculous self-invested strategies which look remarkably like the broker managed funds we thought we’d left behind twenty five years ago.

What we have not yet devised, is a means to look at what we have purchased and assess whether it gives us a value for money pension offering.  The means to look at value and money pensions simply doesn’t exist.

It is not possible to type in your personal pension policy number and have a machine tell you

  1. what value it has given you and what value is yet to come
  2. what you have paid for it and what you have still to pay
  3. The pension you are likely to get from your savings.

Could we build a machine to tell us the answers?

Yes we could. It would be a pension dashboard which had real purpose. A dashboard which had a diagnostic light for each legacy pension that you typed in.

Red light flashing – this pension is rubbish and you could and should get out now

Amber light flashing– this pension is rubbish but its questionable whether you should get out now

Green light flashing – this pension is alright and worth hanging on to.

Would that be advice? Yes i think it would, it would be a machine that would have had to have been kicked around in the FCA’s sandbox. The risk would be with the programmers and maintenance managers of the machine

Would that be guidance? Yes I think it would, it would be a machine that employers and other could promote without fear that they would be deemed “advisers”.

Would that be helpful? If you were able to tip in your pension legacy as easily as your old coins into the Magic Money Machine at Metro Bank

Not only does the technology exist, the Regulatory will is there as well.

We’ve had the technology to analyse funds, pension contracts and to deliver pensions from pots for some time. Until now, we did not have the Regulatory will to do anything with it.

Now, we have in the FCA and tPR, two regulators who seem to want to work together to ensure we can compare good with bad, whether it is in the workplace or not.

We finally have some kind of pension offering, emerging out of the fog created by pension freedom.

Before too long, we might have a way of comparing the retirement annuity contract I took out in 1984 with the SIPP I set up in 2014, the money in my trust based occupational scheme I joined in 1995 with the workplace pension I joined in 2012.

My hope is that ordinary people can – without having to consult with anything but a machine, be in a position to see what they have by way of value, what they are paying for it and a default option they have for this money in retirement.

They can then make easy choices based on clear information that might include employing an adviser.

If we could offer people the retirement equivalent of Metro Bank’s Magic Money Machine, then we’d have a pension dashboard worth talking about.

metro bank magic

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Can “for profit” prosper? It can with a Government Pension Dashboard.

Pension Dashboard

There is a strong tradition in this country of delivering services through “not for profit” organisations. Such organisations have been self-sustainable because of the endowments or trust funds that support their management.

The most obvious manifestation of the not for profit spirit in pensions is in the management of occupational pensions which has traditionally been conducted by a mixture of paid officials (the executive) and unpaid trustees. The lines are blurred a little by the rise of professional (paid) trustees and of “fiduciary management” where the executive and the trustee are one, but the principal of “not for the profit of shareholders” is maintained because of the capacity of some large and continuous sum of money to meet the bills.

We have yet to find a way to be paid in data.

Many now argue that data is the new currency. But this has not yet led to the establishment of data-centric trusts where data pays the bills.

The notion of Fintech is driven by equity participation – typically the aim of those holding the equity is to participate in profit not from the data , but from the underlying funds. Robo-advice is not paid generally paid against the quality of the information from income, but from a capital reservoir that generates fractional fees (ad valorem).

Firm such as pensionsync that charge not against a fund but for the transfer of data are very rare – very pure. (It’s good to see Ros Altmann putting her name down as Pensionsync’s chair).

But Pensionsync is an exception – not the rule. It’s biggest challenge is being paid, since it cannot be paid in the currency of data. It has to convert the value of data into something else, the current vision is that its data can generate value for companies and those who supply them , by sharing the pension decision making of their and others staff. This data informs on what staff do and what they are like, it builds a picture for those who want to construct employee benefit programs

Herein the challenge for a pension dashboard

The challenge for the DWP is to create a sustainable commercial model for the dashboard. NEST was always going to be a winner for the DWP because it works to the classic fractional charging model where a small charge over a huge asset base can repay £1bn + loans in time. The Treasury were happy with the NEST business case – provided NEST assumed a quasi monopoly and was given flexible terms for its loan. NEST is a classic not for profit, like the PPF, it will become self-sustainable , move into quasi-profit and ultimately it will be able to reduce its price (AMC or levy). In the case of the PPF, it might ultimately be able to increase benefits out of its own revenues.

The dashboard has yet to find a way to generate the revenues so important for “not for profit sustainability”. The dashboard has no fund and is therefore required, like PensionSync, to survive on levies. But levies are not sustainable unless the public perceives they are giving value for money and there is a fundamental flaw in the pension dashboard it has a very limited value proposition.

What is the pension dashboard’s value proposition?

As it is generally articulated by its advocates, the proposition is that the dashboard will allow us to see all our pensions and pension pots in one place. While this is extremely easy to visualise and engage with, once the delight of having a single view of your in-retirement finances has been enjoyed, the application of the dashboard is very limited.

  • Unlike the social media sites – which are becoming platforms to sell things
  • Unlike the challenger banks – which are becoming platforms to sell things
  • Unlike the software vendors (from pensionsync to Sage) – which are becoming platforms to sell things

A Government run pension dashboard can sell nothing.

It is simply a utility that depends for its sustainability on the goodwill of the tax-payer to maintain its debt or the unaminity of all participants to pay for it – by means of a levy – a tax.

And herein lies the biggest flaw of all. Not all the participants who pay the levy to keep the dashboard going , are going to be winners. Some will pay to lose. That is not an attractive proposition.

Why pay to lose?

Paying a levy when you are an insurer with the prospect of a net-inflow of assets is entirely acceptable, it forms part of your marketing budget. The ABI are able to sell the dashboard to its members as more than pro-bono, it is a means of getting net-inflows.

It could be argued that the dashboard, value-agnostic as it will be , is a means of neutralising the debate on what is good and what is not. £100,000 in a fund with no prospects for growth looks like £100,000 in a fund with a 10% guaranteed growth rate. The dashboard by definition is a snapshot of the current capital and income achieved.

So the dashboard is a marketers dream. It makes the losers win and the winners losers. Since the majority of the marketers work for the commercial for profits, it is clear to see why the ABI – which represents them – is a keen advocate of a value-agnostic state run dash-board.

By comparison, the big not for profit pension schemes, which are already being pillaged by the insurers and Sipp providers with the big marketing and distribution budgets, quite rightly point out that a value-agnostic dasboard, makes their capital bases – sitting ducks!

Why should the pension trusts pay for the right to be shot at by their more commercial rivals.

14,000 people can be wrong.

The last time I looked, 14,000 people had signed a petition to save the Government version of the pension dashboard. I am with Paul Lewis in staring at this figure with incredulity!


The reality is of course that having spent on NEST, the DWP has not got the appetite to spend on a dashboard which could become a sales platform for the ABI’s members.

My understanding is that the DWP are rather more interested in trying to make Universal Credit work, or at least limiting the downside of it not working.

It would be considerably easier for the DWP to revert to plan A and put dashboards in the hands of people who want to offer pension comparison as part of their business as usual, by whom I mean the comparison sites.

The comparison sites are the natural home for dashboards.

What would be best for consumers in this country, would be an ability for them to organise their financial affairs on the basis of easily accessible and digestible information. This is not a contention , it is a fact – based on the behaviour of the British Public. MoneySupermarket had 24.9m people give it their data last year so that 24.9m could get the best deal on something or other.

Only a tiny number of those people did pension deals because there is (currently) no pension aisle in the supermarket. Were there to be, it would almost certainly be because the comparison sites had found a way to bring together people’s pension data and compare the various policies and funds into which they are invested and find a way for the money to aggregate with commercial advantage to themselves.

This may sound brutal but it’s not. It’s exactly what the comparison sites have been doing with bank accounts, utilities, mortgages and insurance for years.

The creation of one big dashboard by the insurers is not just a way of creating a value-agnostic flat field for the insurance companies marketing teams, it is a way for them to avoid the invidious comparisons with their leaner less-commercial competitors – aka the not for profits.

I know there are commercial not for profits (Royal London and B&CE) and I know that some for-profits  produce good value, but let’s answer the exam question set in the title.

“For profit” can deliver, but it won’t deliver to the standards of “not for profit” investments , unless it is promoted. The Pension Dashboard is the way that the ABI has found for Government to fund the promotion of for profit funds. Their feverish attempts to salvage the dashboard from imminent return to the private sector confirms to me that I am right.

We are better off with multiple dashboards that sit within comparison sites than one big dashboard that gives the commercial pension providers a free run at marketing.

The dashboard is dead, long live dashboards.



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The Financial Scientologists


Paul Lewis is absolutely right in attacking the dogmatism that religion creates. People may be spiritual, without imposing their views on others, but when someone’s dogma overtakes their sense of humanity, they become strangely inhuman.

This is what accounts for John Ralfe’s duality. He is in real life a perfectly nice bloke who likes Bruce Springsteen, enjoys cricket and glories in the countryside around Nottingham. I would gladly spend time with the human being – John Ralfe.

Unfortunately, John’s duality contains another person altogether. As he prepares to address his 2000 followers in the hallowed halls of twitter, he dons the coat of financial scientology.

I did not realise that John is a financial scientologist until I read this exchange with Dennis Leech yesterday.

Financial scientology

Dennis has hit – perhaps accidentally , on the cause of John’s divisiveness. I don’t know much about the science of financial economics, but it’s clear that it is an “ology”. I don’t know much about Scientology either – though their church is near me in Blackfriars.

Both Scientology and the religion of financial science appear to overtake normal happy people and create completely different people espousing stuff that makes no common sense.

To make Dennis’ argument graphically, we use this diagram

life cycle open

What it shows is that a collective pension scheme finds life difficult if it closes and easy if it stays open. That is because benefits are paid from income with an infinite time horizon and the market value of the assets are irrelevant.

Close a scheme and you have the problem of having to sell assets to pay benefits with a shortening of time horizons. This is the hard problem that people face with DC and it’s why DB schemes find it so expensive to wind up.

John Ralfe often explains the cost of buy out to justify why he considers that open DB schemes like USS are in deficit. This is because financial economics cannot accept that market values are irrelevant to “open” collective schemes. They need to be valued on the capacity of their assets to meet future bills (e.g. pensions).

This seems to me, someone who is neither actuary or economist, to make common sense.

What would happen in John lost his religion?

The frightening hold that financial scientology has on John may have no remedy. Since it cannot be cured by common sense, it looks like John will remain a latter day Malvolio to whom Toby Belch can tease

Out o’ tune, sir. You lie. Art any more than a steward? Dost thou think, because thou art virtuous, there shall be no more cakes and ale?

It is very hard not to feel sorry for Malvolio and it is very hard not to feel sorry for John Ralfe, at least the John Ralfe who puts on the cloak of financial scientology.

But as far as I know, Malvolio was always Malvolio, he did not enjoy Bruce Springsteen, or walk on the Dales or watch cricket.

My hope is that John will somehow forget where he hung the cloak of financial scientology and that someone puts in the charity box. Then – for sweet charity – that box is lost and burned and that John never again has to “insist on the science of financial economics”.

Because John is a really good bloke who is trapped by his dogmatism. Perhaps I should put him in a room with Paul Lewis.

That would learn him.



Posted in actuaries, Bankers, pensions | Tagged , , , , , , | 6 Comments

Dashboard – heads or tails?

heads or tails



Britain will get pension dashboards, whether from the Government or from the private sector – heads or tails the public will win.

I am in the minority and have been since the DWP took over the dashboard from the Treasury. The Government should not be providing one great big dashboard but should create the data standards and encouragement to allow private organisations to offer the information people need to make pension decisions online.

Whatever is being leaded by Esther McVey – seems like a retreat from the over-optimism displayed by the DWP in carious meetings this time last year. The DWP have bigger concerns than dashboards, they have the train crash called Universal Credit to sort out and it’s no surprise that having spent its budget (£1bn and rising) on NEST, it hasn’t got resources for this project.

The ongoing delays on the “feasibility report”, (due out in March) suggest that the conception of the dashboard as presented last year in unfeasible. I said this at a meeting of the DWP in the ABI’s office and was ignored, I’ll repeat – the private sector, for all their conflicts, deliver dashboards best!

What is needed is not just a place where you can see all your pension rights, but some kind of total income modeller which can help you sort out what the jumble of policies you’ve built up – will offer you as a lifetime income (pension).  It might also show what this meant as one big cash sum and how you might be able to convert the capital into income.

What also would be helpful would be a means of establishing whether the various policies were worth keeping or whether they could and should be transferred into one big pot.

Since 94% of us , do not use financial advisers and since half a million of us each year get to the point when we can start spending our pension pot, the need for this kind of help is not just huge – but urgent.

So Government should stop fannying about and get on with telling us what we can expect and when. When we know that, people like us can step up to the mark and fill the gap or sit behind the dashboard and answer the next set of questions.

What’s going on at the moment is totally confusing and the sooner we have clarity the better. The good news is that when we get the clarity, we can deploy the technology and get going helping people.

Heads of Tails the public win, but we need that coin to be tossed within the next few days.


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CDC – a sop to the wreckers.

john ralfe questions

The  publication of the Work and Pensions endorsement of CDC, has led to agitation among the CDC wrecking crew. John Ralfe & Co throw stones on twitter – the wrecking is  largely ignored but we remain concerned to be transparent and helpful to those who are looking at CDC with fresh eyes.

The wreckers latest tactic is to issue lists of demands for documents that could be put in front of members explaining what CDC is. I have  refused to do so because such documents simply offer the wreckers the opportunity to make more and more outrageous demands on my and others time.

But it would seem such demands will continue to be made of us – whether we refuse or not. We are treated as if we were the communications agency of the Department of Work and Pensions (who are busy writing the rules that will allow us to answer the questions in due course).

Yesterday, The Friends of CDC were presented with a list of ten questions (above) which by consensus, we agreed to ignore.

This tweet has led to howls of protest from the people who pretend we are the communications department of the DWP.

The truth is that none of us knows the nuts and bolts of CDC, that will emerge after the DWP has created the legislation for CDC. The legislation is likely to be laid before parliament next year and enacted in a Pensions Act in 2020.

There will always local differences of opinion even among those who agree in the main. An example is whether a CDC scheme should offer a transfer value in payment.

If the legislation is written properly, there will be scope for CDC schemes to offer some flexibility in design to meet differing needs of different groups of people.

So any answer today, is subject to an individual’s view of what will be permitted in the future. I do not think it is sensible to speculate on what John Ralfe considers “nuts and bolts” and that is why we collectively agreed not to get dragged into what could become a protracted game of whack a mole which could be unedifying and time-consuming.


Kevin Wesbroom to the rescue

Late in the day, Kevin Wesbroom, one of our number, agreed to offer answers to John’s questions.

All of these questions have been answered in various blogs by me Kevin, Con Keating and in the various responses we have sent to the DWP to help them in their thinking.

In what I suspect will be a vain hope that this will quieten John down, here are

10 easy answers to ten easy questions.

  1. How much more is CDC v DC, with drawdown, on average for members of all ages?

I’m afraid you need to be more precise with your question John. The problem with drawdown is that it does not address a fundamental question – how does the member ensure that their savings last as long as they live. We could model all sports of rates of drawdown (and for that matter all sorts of assumed investment strategies for the investment of the drawdown pot) – but they would either leave an individual member with unused assets on death, or they would allow the member to exhaust their DC savings before they die. If you can come up with a drawdown strategy that converts a DC pot into a lifetime income, we can do the modelling – perhaps that would be an annuity then? And I’m sure you will have seen the previous Aon modelling of CDC versus annuity?

2. How much more is CDC v DC, with drawdown, on average for a member who  joins  5 years before NRA?

As above

3. How much LESS is CDC v DC, with drawdown, on average for a member who joins 35 years before NRA?

As above

4. Why would members joining at a younger age be happy to subsidise members joining when they are older?

If a CDC plan is set up on the basis of a uniform target benefit at pension age, then this is no different to a conventional DB scheme. The inputs will be different by age (because of the assumed investment returns, compounded over longer periods) but the expected pension for each year of service will be “more nearly equal” to use the language in the Sex Discrimination legislation. If you object to inputs that vary by age, then we would presumably need to close down all DB schemes for the same reason

5. How much of the higher average CDC return v DC drawdown is just a function of taking higher investment risk, which an individual with DC could also take for themselves?

Individuals could take greater risks with their (individual) DC savings – but how do they deal with downside consequences? The beauty of a CDC scheme is that risks are shared across members, and do not have to be experienced individually, or immediately. So the collective has a superior investment horizon to the individual, and can take a higher risk, because it can be distributed – still fairly – among members over a period of time, rather than immediately and personally as it would have to be in an individual DC scheme.

6. Who decides the “expected return on assets? And how do they decide this?

The Plan Actuary. But don’t worry John – you get to see his workings! One of our key principles – adopted by Frank Field’s report – is that key financial information about a CDC plan would be in the public domain. So you would be able to comment to your heart’s content on the expected return on assets adopted by any CDC Plan Actuary. I think this is a far greater level of transparency that ANY pension scheme at present – can anybody see the advice you are giving your clients on the expected return on assets, or any other aspects of the financing of the schemes you advise? CDC will be in the public domain – a pretty solid way of keeping all parties honest in the process.

7. How is the “expected return on assets”‘ changed in light of experience?

It would be changed each year, as the annual benefit adjustment date, or whenever it is needed. At any point in time it is always the Plan Actuary’s best estimate of the return on the assets held by the scheme.

8. How is a CDC wind-up triggered and how are remaining assets allocated to members when a wind­up happens?

It is interesting that you ask a question about wind up, when no scheme has yet been set up! I expect the wind up provisions to be pretty standard – the trustees decide the scheme is no longer viable, or the employer decides it no longer wishes to continue with the scheme (for whatever reason – maybe new statutory provisions or a host of other reasons). In these circumstances I would expect that assets would be equitably apportioned to individual members, who would have individual DC accounts in their names.

9. How are Transfer Values calculated? How does this compare with the “expected return on assets?

Transfer values – available to members up the point of retirement – would be available, based on a fair share of the assets of the plan. At the point of valuation, the Actuary would solve an equation so that the total value of target benefits under the plan was equal to the total value of the Plan assets. The member would then receive a transfer value based on these target benefits. Remaining members of the plan are indifferent as to whether the transfer is paid or not, since it ie an equitable share of assets that does not disrupt the funding of their own benefits.

10. How are members who die younger than average able to pass on the unused share of their pension to their family, as in DC Drawdown?

This would be down to plan design, but I would expect typically a plan would offer a 50% survivors pension on the death of the member.


I fear you are running out of ideas as to why CDC is bad John! Frank Field’s committee, after taking evidence from a wide range of parties, some supportive, but many hostile, concluded that the balance of advantage lay in allowing CDC plans to flourish. Unless you can come up with any evidence – rather than just assertions, based on no modelling or detailed analysis, as far as I can see – I really do think you should fall in line with his conclusions.

Follow up

No doubt the debate will carry on , no doubt we will have further ridiculous demands for answers to questions that will not have been properly framed and no doubt we will be accused of not being able to properly speculate on what the answers will be.

There appears to be here a simple disjoint – on the one hand there are people intent on wrecking and on the other there are people trying to get a new kind of pensions over the line.

At some point we will simply have to stop responding because we all have other things to be getting on with. I for one have three businesses, two of which I run.


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We are losing women leaders- will we also lose TPAS?

Going, going, gone – from public policy.

At one point in 2015, we had a female pensions minister, MAS was run by a woman, tPR was about to be run by a woman, the FCA,  PLSA and NEST were run by women and TPAS was run by a woman.

In three short years almost all these positions have reverted to the male hegemony. This worries me. The rise of women in pensions , spurred on by brilliant influencers like Jo Cumbo, meant that pensions were and still governed with emotional as well as intellectual intelligence.

Caroline Rookes has left MAS

Joanne Segars has left