“Of margins and men”. Were the City and Carillion ever friends?

City and Carillion

Of all that is being said about the collapse of Carillon, the comment that remains with me is something said by Robin Ellison, in his capacity as   in an interview with IPE.

The FCA is looking at asset management companies’ margins, suggesting that the average figure of 35% is too high. For Ellison, those margin levels seem “about right” for a service industry. Other industries – such as construction, where the figure is closer to 5% – are content with lower levels.

When we have growled about executive pay, distribution of dividends and the cost of historic pension legislation, the bottom line remains. There was insufficient money coming in, to afford the payments going out. At the beginning of this week, Carillon has only £29m cash in the bank, it was not trading as a going concern. It went  bust.

So just who was content with a 5% margin on construction contracts? I suppose those awarded the contracts – Government- and in the short term- the tax-payer. Collectively we drove the price of the services we were asking of Carillion below a level that Carillion could withstand and it went bust. The logic of this argument is that Government and the tax-payer need to take a long hard look at the way we run large construction contracts (and finance them).

So who wins from low margins?

So  don’t agree that Carillion and their competitors were happy with the 5% margins they were keeping. The article is dated March 2017, before the first of the Carillon profit warnings. I suspect that at the point this interview was given, Robin was content with the employer’s covenant too.

But in July 2017, the wheels fell off. The cordial relationship between Carillion and the City was over for ever. What followed after was simply the aftershocks of the July profit warning.

Carillion share

The bad news in July surprised everyone


Received wisdom says that you cannot run a business for ever on wafer-thin margins , sooner or later – you will hit a problem – as Carillion did, and there will be insufficient reserves to meet the ongoing liabilities (including the liabilities of its various defined benefit pension plans (and their deficit recovery plans).

Who defends the indefensible? A fool or a joker!

I suspect that Robin knew that, just as he knows that the 35% margins for asset managers (and service industry margins in general) are unsustainable. Robin Ellison’s career has been established on his having the Chutzpah to defend the indefensible, (while doing the right thing despite what he says).

Nobody negotiates with a fund manager , knowing that they’re charging seven times the margin that you’re getting from your customers, without questioning those margins and I simply don’t believe that Robin was prepared to subsidise the lifestyles of those in the City at the expense of the Carillion shareholders.

Robin Ellison was not in a corner, I suspect that he was in wind-up mode.

A failure in market economics

Of course Robin is of the City and of the service sector and he has enjoyed the margins to which he has referred. He is a very extreme cases of someone who puts his money where his mouth is and attacks regulation at every opportunity. His great friend, Con Keating , when asked last week by the FCA  for his views suggested that “the only good regulator is a dead regulator”. I am sure that Robin would have agreed – Con too can see the funny side.

But to have a de-regulated system, whether we are referring thinking of an enterprise or its pension scheme, we need to have strong internal controls. In most British companies, these controls exist, at Carillion, they appear to have broken down, Carillion is the exception that proves the rule – it is not the rule itself. Carillion is a market failure, not a regulatory failure.

Which is why we have the PPF. Ordinary people should not be solely dependent on the covenant of an employer for the payment of pension promises, there should be a pooling of risk, which is what the PPF does – the PPF takes the risk that an employers cannot take and it manages it off with the help of stronger companies (that pay a levy). I have no doubt that the PPF will absorb whatever part of Carillion’s schemes – it gets landed with, it is a success. Robin has the comfort of offering us his “laissez-faire” views from his tight-rope , while others tighten the safety net below him.

Again, I suspect that wry smile on Robin’s face – an endearing feature of his Chutzpah, is his delight in having someone else’s cake and eating it.

 Robin is not wrong, he’s naughtily right!

Robin EllisonRe-reading Robin’s interview to IPE , I can see why he is one of the few Trustee Chair’s who I would have dinner with. He repeatedly points out the fallacies of conventional de-risking, the need to take long-term views and the positives of direct investment into infrastructure (what a few months later is being called “patient capital”). Were I to afford to eat in Robin’s restaurants, I would buy him supper and listen to him speak all night,

Robin’s provocative comments throughout the IPE article, make for great reading. I am sure he enjoyed the interview as Carlo Moreolo enjoyed writing it up.

It remains a cameo that could variously be described as “pride before a fall” or of “mischievous prescience”. I prefer the latter.

However the fun has now stopped, the PPF have arrived, the schemes will go – quickly I suspect, into the PPF (there are already 5,900 of the 28,000 members in the lifeboat).

We now have the extra moral hazard for those who want to keep schemes out of the PPF, that members become vulnerable to lastminute.scam. Much as I would like to see Tarmac and McAlpine and other great schemes soldier on, I fear that we live in a wicked world, and the mischief that Robin Ellison can manage, will be visited on his members without Robin’s integrity and humanity.

In defence of Chutzpah.

We have much to learn from Carillion and – as it touches pensions – I look forward to more from Robin Ellison. His wit, Chutzpah and integrity will continue to be needed in the months ahead.

With a little humour, good will and understanding, the City and Carillion could have been friends. Sadly, these things seem to have been missing. What happened in July last year, suggests that the two were never really on speaking terms. Robin could have changed that.

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Who need’s a factory gate when there’s google


Update***** Update****Update***** Update*****Update*****Update

The ad below appeared this morning as the top Google Ad on the search “Carillion pensions”.  I asked the FCA and tPR to ask for it to be taken down shortly after and it has been taken down at lunchtime.

We are quick to denounce regulators for being slow to act, but we are slow to praise them when they act effectively. Thanks regulators, especially tPR who have responded at the highest level.

carillion scamThere are thousands of deferred pensioners in Carillion’s 13 DB plans who are waking up feeling vulnerable and scared. If they google “Carillion Pensions” , the first thing that google will offer them is the ad above. I won’t do it the honour of making the link live, but were you to press it, you would land on this.

carillion scam 2

Scroll down and you will find this;

Carillion scam 3

To which we could add, transfer now , before your scheme goes into the PPF.

This might seem dodgy to the trained eye , but it looks pretty plausible if you are a Carillion employee who has just lost your job and suspect you might lose your pension.

Even more plausible if you read the small print about Financial-Advisor.co.uk

Carillion scam 4

.I’ve no idea which advisers are paying for Financial-Advisor.co.uk ‘s leads, but clearly one of them is prepared to help out with some clever compliance stuff so they can’t be seen to be soliciting transfer business.

As with Celtic Wealth/Active Wealth in Port Talbot, the tactic is for the factory gating to be conducted by professional lead generators – except there’s no factory gate like there was at Port Talbot – so the generation happens on Google.

Has Google no shame?

There is nothing illegal about what Financial-Advisor.co.uk is doing. There is nothing illegal about Google selling them the top-priced ad space. This is capitalism with a capital “I” for irresponsible. Google are not responsible for the outcomes of this ad, nor are those paying for the advice and by the time that the punter has filled out all the data collection stuff, we are three or four layers away from the direct approach.

No one will be accountable at Google, nor at the lead generators and meanwhile the vulnerable members will have been caught up in an urgent rush to get forms in before the guillotine comes down and their scheme goes into the PPF assessment period.

The intervening period is the perfect shark pool for those with the agility to profit from the pressures of the imminent departure of the scheme , the lure of capital and the horror of immediate redundancy.

Forget cold-calling , this kind of advertising is far more insidious and relevant to the FCA. I’m asking Megan Butler and Lesley Titcomb to ask  Eileen Naughton, newly appointed CEO at Google UK  to stop running these ads.

So go on – click that add!

Every time someone who knows, clicks the add in real time (google Carillion Pensions) it costs the lead generators money. I suggest that you spend a couple of seconds this morning, making the day of these parasites a little bit less profitable. If anyone wants to go a little further and find out what IFA sits behind all this, go for it.

If we have another Port Talbot at any of the Carillion Pension Schemes, it may be the end of transfers for a while. But I don’t want to see transfers banned and I don’t want to see Carillion deferred pensioners ripped off.

So get to it and see these stinkers off!


The Pension Advisory Service (TPAS) has set up a dedicated helpline for Carillion pension scheme members 020 7630 2715


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Don’t panic about Carillion’s pensions.


The fate of Carillion as a company is in the balance. Up to 20,000 jobs are at risk.

Carillion 2

Bond and equity holders are likely to lose substantial sums. Carillion driven projects are likely to suffer and 28,000 members of Carillion pension schemes will suffer loss.

Carillion’s 13 pension schemes which include such household names as Tarmac, Mowlem and Alfred McAlpine, will probably into the Government lifeboat , the Pension Protection Fund.


Pensioners may get a slightly lower rate of pension increases, those awaiting their pensions will see their pensions cut by 10% (more if they have big pensions). None of this is good, this is not a good time to be connected with Carillion in any way.

There is a group of former public sector workers who may lose out slightly more, as Prospect are pointing out (via the FT).

It is clear however , that members of the pension schemes are protected.


But  it would appear that the situation is complicated by not all of the individual companies being in administration – It would appear that 8 out of the 14 companies in the Carillion Group are not in administration , which explains this statement from tPR


The list of companies in administration is

Carillion Plc

Carillion Construction Ltd

Carillion Services Ltd

Planned Maintenance Engineering Ltd

Carillion Integrated Services Ltd

Carillion Services 2006 Ltd

For a pension scheme to go into the PPF , a section 120 notice has to have been issued following the  insolvency . It is possible that some of the businesses may survive and with them their pensions.

keep calmNone of this is sufficient for people to be alarmed, let alone panic. Even if a pension scheme goes into the PPF, you have strong protections.

The PPF is strong and will be able to absorb the deficit of £580m, even if this deficit is measured another way, it is not big enough to increase levies on other pension schemes (which have been falling fast in recent years as the PPF moves towards being “levy-free” or “self-sufficient”).

We must get used to seeing companies fail. Not all companies that fail pass their pensions into the PPF , BHS remains outside as do others. The British Steel Pension Scheme avoided the PPF. The PPF has capacity and is – if anything -underused.

As this blog has said many times, the PPF is a national treasure. It is invested – not in funds – but by its own investment managers, it is self-administered, it treats its members well and it is a model of good governance. It is one of government’s success stories.

While it is not a good time to be retiring from Carillon, its pension schemes are not badly run. The deficit is not so “huge” as to make the scheme the cause of the company’s financial woes. Indeed the scheme, would, in the normal course of events, have followed a recovery plan to solvency. It may not now be allowed to, but Carillion members should not be blaming its trustees for that.

Carillion’s woes as a company are to do with its debt and to do with business decisions that went wrong. These things happened , not because of some financial credit crunch or global recession – we are beyond these things – but because of a combination of poor decision making and bad luck.

The attrition rate of large companies operating in the Western World is low, not many go bust – Carillion may still not go bust. But some companies will go bust. For every Amazon there is a BHS.

I worked for a time with Alfred McAlpine and got to know a good many of the people who were in its pension scheme. They were good people who built roads, I remember being taught about roads –  I remember the pride with which they talked about environmental considerations. We do not stop needing the skills of these people. They will find new work. The shareholders and bond holders of Carillion will absorb their losses as these holdings are part of diversified portfolios. Few people should have their financial futures dependent on the price of Carillion equities and debt.

It seems to me, the major concern expressed today , is that Carillion has been awarded Government contracts, while in its current financial pickle. This may be a political worry for those who awarded them and may account for the weekend meetings in the Cabinet Office. But this is hardly the cause for panic.

The reality is that Carillion’s current problems are local and manageable. The deferred pensioners and pensioners will get less , but not markedly less (full details here) . The PPF will do what it is designed for. Investment portfolios will absorb losses on Carillion debt and equity and Carillion workers will find new work.

This is business as usual and not the end of the world, even if that is what it feels like, if you work for Carillion this morning. My thoughts are with those who work for Carillion and I hope that any who read this , will take heart that they are not the first – nor will they be the last – who face this situation.

The Pension Advisory Service (TPAS) has set up a dedicated helpline for Carillion pension scheme members 020 7630 2715

philip green carillion

Carillion’s Chair – Phillip Green (no relation)


Posted in pensions, Pensions Regulator, Retirement | Tagged , , , , , | 7 Comments

“Probing” IFAs is not enough; we need simpler more transparent transfers.


Allegations of “mis-selling” against IFAs are premature and unsubstantiated.

My eye was caught last night by a linked in post by Andrew Warwick-Thompson, formerly of the Pensions Regulator.

Here we go again. The personal pensions miss-selling scandal all over again. Per the FCA over 50% (so far) of the advice given to Port Talbot workers was not appropriate. When will we learn that for the majority of consumers a transfer out of a DB pension is not in their best interests?

A sentiment that all right-minded pension professionals could agree on. There are similarities between now and the introduction of transfer values in 1987. But the difference are bigger than the similarities. We have to deal with the present problem in a different way than we did in the mid-90s and we need to use prevention as the best cure.

Andrew’s comment linked to an FT article UK’s FCA to probe thousands of pension advisers after Port Talbot crisis” 

The article quotes the FCA’s (Megan Butler’s) letter to Frank Field (Dec 21st)

 In 2018, we will be collecting data from all firms who hold the pension transfer permission with the intention of assessing practices across the entire market to build a national picture

I replied

To be fair to the IFAs , the FCA surveyed 88 transfers and none of them had anything to do with BSPS. It’s a small sample to condemn advisers with.

It’s good that the FCA are going to continue their investigation into transfer advice, 88 cases is not a large enough sample when Origo reported that over half a million transfers occurred in 2017 alone.

Nor is it good enough to imply that the problem is all about IFAs. I take issue with the FCA’s headline; “probe” is the wrong word, “consult” would be fairer.

In this article, I suggest that the FCA need to look beyond IFAs and consider

  1. How they get (and how whistle-blowers give) intelligence
  2. How whistle-blowers can be better encouraged and supported
  3. The role of trustees and their administrators in providing intelligence
  4. The role of SIPP managers – especially their accountability for the destination of investments
  5. The application of the fit and proper rules to those managing SIPP investments.

It’s a long list – too long – there are far too many parts, too many regulators and a lack of co-ordination around a central purpose. The reason I am writing this blog is that I can find no other account of what has happened at Port Talbot that could enable the Pension Regulator , the FCA, trustees, IFAs , SIPP managers, fund administrators and fund managers to see the problem in one view. It may also be helpful to the Work and Pensions Select Committee as they prepare their report on what has happened at Port Talbot.

The difficulties good IFAs and the FCA have had putting matters right.

The activities of Active Wealth Management came to light because Al Rush and went to Port Talbot at the invitation of the moderators of the BSPS Facebook Groups. It was Stefan Zait and Rich Caddy who drew out attention to problems at Port Talbot, it was the steel workers themselves who put us on to Celtic and Active Wealth management and it was Al and I who brought our intelligence to the FCA.

When giving evidence at the Work and Pensions Select Committee, Megan was asked by Frank Field  ”

Chair: So you went into the plants at dinnertime and talked to the men there?

She replied that she was about to go to Port Talbot – which she did, the next day.

Frank Field asked if she’d been in touch with me and pressed on the mattermegan butler

Actually both Al Rush and I approached the FCA. Al is a Pension Transfer Specialist, I am not – I haven’t been an adviser since 2005 and actually took holiday to go to Port Talbot.

Megan has been charming , courteous and I have congratulated her every step of the way. I am totally behind the work she is about to do with the FCA and I hope that it brings about lasting change that stops the haemorrhaging of monies from good occupational schemes into SIPPs and then to who knows where.

Al and I only lit the blue touch paper and sprung the FCA into action. But had we not done this, Active Wealth Management, with whom the FCA had been dealing since August 2016, would undoubtedly have continued shipping money through SIPPs to Gallium , Vega and 5Alpha.

But Al did not stop there, he went on to set up Chive which has done great things to put wrongs right and provide the counselling to steelworkers that they needed. He has worked with TPAS and has built up a network of like-minded IFAs who have given freely of their time. This has been recognised in New Model Adviser. Looking through the 33 comments on this post, I see praise and support for Al and Chive’s IFAs. But I also see professional jealousy.


Chive did come to the rescue at Port Talbot and they guided the FCA to where the problem was. I actually agree with Megan Butler that she could not reasonably have been expected to have been in “the plants at dinnertime”. She relied on evidence which got passed from steelworkers, though the Facebook pages and IFAs. That is how it works.

The offensive post from Kuchu, quite misses the point. IFAs care about their reputation and the reputation of advice. So does the FCA. But the primary driver in all this is the fate of the money that has left BSPS. We now know that Darren Reynolds himself, helped £40m out of BSPS and into 5Alpha. Chive (and I) continue to lobby for the return of that money to the SIPPs through which it passed (without penalty).

For people like us to act as we do, means we have to take considerable risks. We risk upsetting everyone and getting considerable abuse. Al Rush is one of the bravest people I have ever worked with, he spent much of his life dodging bullets in the service of his country – he has faced worse than Kucho and his whispering friends.

We need to stick up for our whistle-blowers as we need to stand up for our troops.

DB Administration and its shortcomings

I work with other large occupational schemes, some much larger than BSPS. I see they have the same problems as BSPS in preventing the departure of money from their DB sections or identifying where the money goes.

One scheme I am particularly involved with shares the same administrators as BSPS so I can see exactly the problems that Derek Mulholland has. The only direct contact the scheme has in the process is in transferring money to the SIPP. It is the administrator who verifies the IFA has certified the transfer.

The management information that trustees need to identify where there are clusters of transfers around specific advisers (as happened with BSPS), is not available to them in a timely fashion. It takes too long to gather and – when it arrives – it is inconclusive. Trustees can only see half the story. Here is the list of SIPP providers and the amounts they put into Strand Capital (the failed predecessor to 5Alpha).

Gallium SW3

With a couple of exceptions all the introducers are well known SIPPs. A trustee asked to send money to James Hay or Curtis Banks or Intelligent Money could not have known that it might have been lost to Strand. BSPS were sending money to Momentum , Intelligent Money and Fidelity (at Darren Reynolds’ request). They could not have known it would go to Strand’s phoenix – 5 Alpha.

They could and should have seen an unhealthy concentration of transfer activity through Active Wealth Management, but my experience suggests that the MI systems would not have been able to pick up these patterns in short time. Certainly there are lessons for administrators in this.

The screen that divides trustees and the FCA

But there is also a lesson for SIPP providers. I have spoken to SIPP providers who were approached by Strand’s sales team and by Vega Algorithms and said “no”. As one SIPP provider told me “there was no way we were going to have our money going to Strand”.

There is also a lesson for the FCA, who knew of the connections between Strand (which is in special administration) and Vegas and 5Alpha – from the Witness Statement of Joe Egerton (dated 15.05.17) detailing the links between the three organisations.

The SIPP providers are effectively a screen dividing trustees and the FCA. Trustees can see the SIPP providers (and the advisers using them- eventually). The FCA can see the asset managers to whom money is directed – but not the origination of the money.


A more open transparent system is needed.

This article started by looking at the lack of understanding of a former pension regulator; it looked at the problems facing the FCA in getting intelligence on Port Talbot, the issues facing project Chive and the distrust many people have with the motives of whistle blowers.

The article goes on to look at the difficulties trustees have finding out what is going on, the problems administrators have providing timely MI, the inability trustees have to see the probity of the investments made by SIPPs (under instruction from advisers)

Finally it looks at the problems the FCA have tracing the origination of monies arriving at fund managers like Strand and 5Alpha because of the lack of transparency created by the SIPP screen and the opaque structures of certain investment structures.

My conclusion is that the FCA need to look at the problems with transfers holistically. They cannot simply look at advisors, they need to talk with SIPP managers and the fund administrators and managers behind them. They need to get the other side of the SIPP screen and talk to trustees and their administrators. We need better intelligence and that means enabling trustees and administrators to bring intelligence to the FCA’s attention in a timely way.

Above all , we need to make whistle blowing an activity to be encouraged. To my mind the comment of “Kucho” is akin to racism or homophobia , a kind of hate crime that should not be tolerated.

Project Bloom – which brings together the enforcement activities of the FCA, tPR, the police and Action Fraud, is a closed book to those who pass information to it. Again and again, those who report to Action Fraud, get no feedback, no thanks and no support. They watch the train crash and are barred from making public comment lest they be accused of “tipping off”.

The system seems set up to allow the regulators to operate a closed shop. While I support Megan Butler , it was right that Frank Field called her to account and it is right that I and others continue to demand action on 5Alpha and its infrastructure.

I hope that this blog, and others like it will bring about lasting change and not just dump the problem on IFAs – who I consider are being made unfair scapegoats for a much wider failing.





Posted in Blogging, BSPS, Change, FCA, pensions | Tagged , , , , , , , , , | 3 Comments

For all the noise-news from BSPS is good!

Yesterday saw a number of documents published and statements made, confirming  findings in Port Talbot but leaving many questions unanswered.

But for all the noise, news published at the end of this blog is good- very good – it should make us  breathe a sigh of relief and earns BSPS Trustees, my congratulations.

port talbot 4

Port Talbot and the Tai Bach Rugby Club (in red)

We’re learning that what we suspected was true

At first sight, the letters and statements appearing on the Work and Pension Select Committees’ website, are useful in confirming what amateurs had already discovered

We learn that Celtic Wealth Management had a large number of introducers within the Port Talbot Steel Works and that it earned £700 a lead for work passed to Active Wealth Management.

We learn that Active Wealth Management advised on around £40m of BSPS Transfers, that the average CETV advised on was £400k and the largest twice that. Anything between 90 and 100% of transfers were arranged on a contingent basis and the upfront advisory fee charged by Active was £1500.

We learn that there is an 8th firm that has closed its doors to transfers as a result of the FCA’s review.

In a further statement from the FCA published yesterday (but not own the BSPS website) it is reported that the FCA are looking to extend its activities to probe all transfers and that 45 further firms will be subject to investigation.

What is clear from Frank Field’s statements on the W&P website is that he is far from satisfied , either by the letters from Celtic and Active Wealth or by the responses of the FCA.

The responses raise a series of further questions about the FCA’s actions in regard to the BSPS, which the Committee will be pressing them further on:

FCA intervention in British Steel Pension Scheme

The timeline of FCA intervention in the BSPS saga, including specifically in relation to Active Wealth.

Although it is apparent Active Wealth  was already on their radar, the FCA first contacted the firm about the BSPS specifically in November 2017 – two months after BBC investigators presented it with evidence they had uncovered on Active Wealth and Celtic Wealth.

The FCA had requested case files and outlines of business processes from Active Wealth between August 2016 and February 2017, leading to a visit by the FCA in July 2017. As a result, Active Wealth’s director Darren Reynolds agreed not to recommend any “non-standard assets” to clients. It is unclear whether this means that Active Wealth had been recommending “non-standard assets” to pension transfer clients before July 2017.

The FCA finally required Active Wealth to cease advising on new pension business 14 months after it first started digging, and just weeks before the original deadline for BSPS members to make a decision on their pension.

Active Wealth’s reductions for early retirement

The description by Active Wealth of the Scheme’s reductions for early retirement as “taking a penalty” and “suffering a penalty” raises the question of whether they were using this pejorative characterisation of what is actually simply an actuarial calculation in their advice to clients.

Size of transfers and fees

Questions remain over the actual size of transfers handled and fees received for them. The highest transfer value that Active Wealth handled in respect of BSPS clients was £790,404 and the average was £398,347  – representing upwards of £40 million transferred out of BSPS on their advice alone.

Active Wealth state they advised over 300 clients on BSPS transfers, “around a third” of whom acted on that advice to transfer out. Their director Darren Reynolds failed to answer the specific question of how many in total of those 300 plus individual pension savers were advised to transfer out of the “gold-plated” scheme.

The highest and average fees paid to them so far described as £1,500 and £1,443 respectively. The fees seem very small relative to the huge transfer values and it is unclear how many BSPS clients signed up to an ongoing adviser charge or what that might cost them ultimately in total.

Field concludes

“I have already described the FCA’s action on BSPS as grossly inadequate, and these responses do nothing to increase my estimation.

The FSA was reformed and renamed amid concerns that it was too close to the financial businesses it was supposed to regulate. From their intervention in this affair it seems clear that the FCA’s actions still effectively protect these businesses’ ability to make money out of pension funds, rather than protecting pension savers. They must take care they are not sleepwalking into yet another huge misselling scandal.”

What we aren’t learning

Nothing above is new, the dribble of firms voluntarily resigning their capacity to transfer extends, the tone of the FCA’s (unpublished) statement , is considerably more robust, but such developments are to be expected.

We still have no idea why Darren Reynolds and Active Wealth Management chose to invest money into 5Alpha, via Vega Algorithms’ DFM, why he was charging so much below the market rate for transfers and nothing at all for ongoing advice. We don’t know why the redemption values offered to Vega/5Alpha investors are so much lower than the amounts invested. We don’t know which classes of 5Alpha shares were purchased (or why) and we have no idea whether the marketing fees that 5Alpha can pay, were paid.

5Alpha , confusingly – has been removed from the Newscape website. Fortunately , I have a copy of the “supplement” prospectus, from which this extract is taken

If investors want an update on the progress of its plan since inception, they can use Bloomberg (5Alpha is represented by the orange line and is compared to the global equity index (red) and FTSE 100 (blue).



On the face of it, Darren Reynolds undercut the advisory market while investing members in funds that were to put it mildly – obscure. The fund has already built up a formidable history of under-performance. Ultra Conservative maybe – but hardly living up to its billing.newscape bloomberg

If we can accept that AWM and Celtic did not take these distribution fees, we must assume they have not been paid. Hopefully this will be reflected in the full return of monies invested through Vega (by Gallium).

Reynolds’ letter goes at length to reassure the Committee that he uses the most sophisticated risk management techniques, which…

 involves looking at the strategy and track record of the fund manager and the funds under consideration, and to analyse a range of metrics, including common measures of volatility, such as standard deviation, and of risk-adjusted returns, such as the Sharpe ratio. We also consider Sortino which is a variation of the Sharpe ratio which distinguishes downside volatility from overall volatility. It uses an investment’s standard deviation of negative returns, often referred to as downside deviation or semivariance

yet the fund into which Vega’s DFM invests – 5Alpha was seeded from Strand Capital, a fund that is currently in special administration. The performance of Strand and 5Alphas is right at the bottom of its sectors and the costs that are incurred in the management of the Vega DFM , the fund and sub funds it invests in , not to mention the fees charged by Gallium , the SIPP providers and Vega itself, make an investment into 5Alpha a total nonsense.

What possible reason had AWM (and others) for investing client monies in Vega?

We now know that Active Wealth Management has been under the FCA’s surveillance from August 2016, we know that Strand Capital has been in special administration since May 2017. It really is time that we started to make sense of why AWM were investing as they were, why most SIPPs refused to have anything to do with Strand, Vega , Newscape of 5Alpha and why AWM were not charging the market rate for what they did.

Put another way, if AWM were paying Celtic Wealth Management £700 per case, and only charging the client £1500, how could Darren Reynolds afford to do business?

Would it not have made more sense for AWM to have simply used the TATA Steel workplace pension , at a fraction of the cost , with a guided pathway and at no regulatory risk ?

Finally some good news

The first cut of numbers suggest that a very high proportion of the BSPS members who made a choice have chosen to move to BSPS2. Some will have deliberately chosen PPF (for better early retirement and tax free cash). Some will not have chosen as they had already transferred. For some the impact of choice would have been so marginal, making a decision was not critical.

And of course some members will have voted more than once – a problem with the lag in communication resulting from using paper.

These numbers are an early indication and the Trustees will be making announcements once a proper audit has been conducted.

But of this,  the Trustees of BSPS have a right to be proud. They have conducted themselves with integrity throughout and look as if they will be rewarded with the confidence of the general membership.

I stated in a recent article that the trustees had lost the confidence of members and these figures who that I was wrong – or only partially right!  What I saw in Port Talbot was not representative of the total membership, the disaffection with BSPS – was not a disaffection with the Trustees, but broadly with TATA.

I am very happy that such a high proportion of BSPS members have taken good decisions and congratulate the trustees and management of BSPS for what is looking like a result.

Nonetheless, there are lessons to be learned from the Facebook pages of the members and Frank Field’s comment that the trustees were  in “another country” (I had previously remembered “a different world”) is justified – at least in terms of what happened in Port Talbot.

Lest the Trustees become complacent, they should consider that many who have yet to complete their transfer, have elected to join the new BSPS, in case the CETV is never actioned.

From what I am reading on the pages, there is still considerable anxiety that pipeline transfer applications will not be submitted by the administrative deadline of February 16th and that many CETVs will not be paid by the RAA cut-out date of March 29th.

Until the very end of the Regulatory Apportionment Arrangement, the Trustees will not know for sure how much of the BSPS fund has transferred away.

Until we have answers to the questions that remain outstanding over AWM, many who have transferred will remain in darkness.

Until we have a rethink of the way that ordinary people are presented with decisions over their pension rights, that enables them to make informed decisions into products with predictable outcomes, we will have more Port Talbots.

Latest estimates are that there are only 3,000 advisers in the UK – qualified to give transfer advice. Mercer estimate that since April 2015 over 200,000 people have elected to transfer.  We can only speculate over the number of CETVs which weren’t taken up.

This suggest that on average, a Pension Transfer Specialist has advised 65 clients to transfer. If we are to believe the FCA’s own research , that only 47% of transfers were suitably advised, then we must see Port Talbot as the  visible tip of a very large iceberg.

Good news for the steelworkers – but the fundamental problem remains



Posted in BSPS, corporate governance, dc pensions, pensions | 2 Comments

Tough choices for our Pension Minister

Guy opperman tweet

Despite the reshuffle, our Pension Minister, Guy Opperman is staying our Pension Minister.

As pension celebs go, Opperman has been – so far – decidedly B-list; there is only so much time a Pensions Minister gets to acquaint himself with his job and – as recent tenure has shown- that time can run out. The list of ex-pension ministers who never quite got round to doing anything is growing longer.

So far, the only firm commitment Opperman has given is to the Pensions Dashboard. He intends for it to be, not the series of data standards envisaged originally, but a utility run and managed by the DWP. This is, as I have said on this blog several times – a vanity project – destined to fail. It is also a blocker to the very real challenges that exist within pensions which are not glamorous , but are pressing.

At some point in the next 12 months, Lloyds Banking Group’s Trustees will be taken to court by its (unrecognised) union to determine what will be the position for occupational schemes with regards GMP equalisation.  The legacy of 40 years tinkering with the interaction between state and occupational pensions is unlikely to go away any time soon.

This year we will also see Pension Wise disappear and re-emerge with a new name, under new leadership bringing together TPAS and MAS. This reshuffle looks like absorbing considerable energy , though one wonders to what great effect.

And while all the deckchairs are being moved, there is a very real considerations for the Pensions Minister , one that demand more than a briefing from his civil servants.

The decision of 140,000 postal workers to defer a Christmas strike on the expectation of reaching a settlement of  their differences with Royal Mail has yet to prompt comment from Guy Opperman.

This is surprising. The current truce could be broken as soon as it becomes clear that Royal Mail cannot implement a CDC scheme because there is inadequate regulation for them to do so.

In my opinion, if DWP fail to act on the reasonable expectation of postal workers that they can have a DC scheme that allows their current pension contributions to accrue them a CDC pension, then blood will be on its hands. There is a very real expectation that the secondary legislation promised in 2015 but never written, will be completed with some urgency.

A tough choice for Guy Opperman

While the Pensions Dashboard is glamorous and even sexy, turning pension savings into pensions is not. As Hargreaves Lansdown’s submission shows, creating collective rather than individual DC schemes will ignite the wrath of the insurance and SIPP industry, who have their snouts buried in the swill of pension freedoms.

But the needs of the unadvised “silent majority” of whom the postal workers form a significant part, have not been met by the Financial Advice Retirement Review and the innovation sought by the Retirement Outcomes review is nowhere to be seen. Instead we have increased concern, crystallised by the issues facing BSPS members in their Time to Choose, that there is simply no obvious exit route from what is considered the burning building.

CDC is not designed to de-risk accrued Defined Benefit liabilities, but it does represent a better mass-market alternative than a self invested personal pension – for those who cannot stomach staying in their employer’s scheme a moment longer. Not only is CDC an alternative for future accrual, it could be a pragmatic alternative for a very large amount of money , currently in the wrong kind of SIPPs with the wrong kind of management. I speak with feeling as I have seen these products close up and the stench is still in my nostrils.

In creating a way for DC schemes to pay scheme pensions, the Minister can enable the great new master trusts that are taking the money from auto-enrolment, to provide the guided pathways into retirement, they have been asking for. CDC is the obvious retirement solution for the workplace retirement saver,

It is touch for an inexperienced Pensions Minister to take choices , especially when it means forsaking a project that only last month he was congratulating himself on. But I think it is time to say this loud and clear. The DWP must prioritise the present needs of the Postal Workers and help create a scheme fit for those who are currently stuck in products entirely unfit for purpose.

In doing so , they should not forsake the pensions dashboard, but return to the original conception – laid out by the Treasury last year – of limited intervention and maximum facilitation of market driven innovation.

In place of diverting the DWP’s limited resources into trying to build a digital annuity, the DPW should grasp the nettle and complete the work needed for CDC schemes to operate. There is resource at hand from the private sector to make that happen (if needed).

Let’s see the Pensions Minister stand up and be counted as a friend to the postal workers and those whose pension rights languish in inappropriate products.

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

Cauliflower steaks and their wrappers

CAULI -GOSH!cauli gosh

Marks & Spencer have withdrawn their Cauliflower Steak product after an outcry from the public that at £2.00 for a third of a cauliflower, it represented poor value compared to a whole cauliflower available at £1.00.

Today Mrs May is launching a 25 year plan to reduce the environmental damage created by overly packaged food- products. The Cauliflower Steak may have fallen foul of Mrs May’s campaign against wrappers!

Will Mrs May extend her campaign to financial wrappers?

Dressing up a commodity and re-selling at a premium price is what good marketeers do. It is what Hargreaves Lansdown do better than anyone, and the wrappers they use don’t do damage to the environment.

I mention HL because they have given CDC a hard time (very expertly). If I want to buy a share for £1.00, I can do so – but I have to do all the preparation myself. Or I can buy that share for (a notional) £2.50, wrapped up in Vantage.

I don’t mind paying lots of money for Vantage, so long as I’m getting value for money. That Hargreaves Lansdown are one of the most successful packagers of financial cauliflowers there has ever been – is beyond doubt. People value their wrapping.

However, I think Mrs May  right to encourage people to buy Cauliflowers whole (from the market) without the wrapper and at the lower price. People could use the saving to pay more into their retirement plans!

Marks & Spencer, Harrods Food Hall and Selfridges all give those who are affluent, the right to shop exclusively – knowing that the products are reassuringly expensive (except at about 6pm when the yellow-label brigade go shopping!).

Market stalls and Mark and Sparks can both flourish!


M&S v the Market Stall


But we need our market stalls, to provide good quality food , without the fancy packaging and at a price that “hard-working-families” can afford.

I will encourage the rich to shop at Hargreaves Lansdown – for much the same reason- you meat a nicer class of shopper on their sites.

Meanwhile, I’ll be shopping for my financial products, unwrapped and a little dirty, on the CDC market stall!

You can make your own mind up! Both my submission and Hargreaves Lansdown’s submission to the W&P Select Committee are on this blog. And they’re the only two published by the Work and Pensions Select Committee itself!

Incidentally my blog has got more negative votes than any other I have published!

Why Hargreaves Lansdown want to put out CDC’s little flame is beyond me, Market stalls are no threat to Marks and Sparks and CDC is no threat to Tom and his team in Bristol.

Posted in pensions | Leave a comment

Bring back Ros! (with a twist)

Convictions before careers

“Social mobility matters to me and our country more than a ministerial career. I’ll continue to work outside of government to do everything I can to create a country for the first time that has equality of opportunity for young people wherever they are growing up.” – Justine Greening

I don’t know Justine Greening (and her words may be hokum) but that she turned down a cabinet position as she did , suggests she’s more a conviction than a career politician.

Having lost her seat in 2015 and regained it in 2017 (inheriting George Osborne’s 14,000 majority in Tatton), McVey has now got the chance to show she’s more than a “super sub careerist”.

Sign on, sign on, with hope in your heart..

Esther 2

We do have a new Minister for Work and Pensions.


I don’t know much about Esther McVey – she’s the first woman boss at the DWP since Harriet Harman and it’s an irony to have a scouse in charge at the social.

That said, with 7000 Liverpudlians on the wrong end of the bedroom tax, our Esther’s not got the greatest of reputations in her home town (see comments on her appointment in Liverpool Echo).

Debbie Abrahams (McVey’s shadow) welcomed her to the post

“In her time as Minister for Disabled People, then Employment, Esther McVey was a key architect of the most draconian and incompetent social security reforms this country has ever seen.

So much for a honeymoon period; Abrahams concludes…

Her failure to make work pay through Universal Credit with 2.6m families now losing up to £2,100 a year, record numbers of working people living in poverty and more disabled people in poverty since 2010 are testament to her record of failure.”

“The boss for DWP” has become a dud job, not because of the pensions piece but because of Universal Credit. In a magnificent piece of work, Gareth Morgan (aka the Ferret) has demonstrated  the issues that “most” older people have with pensions.

It is absolutely critical that we have universal credit working for those who cannot . To give but one example of the failure of UC , look at the abject failure of this policy…

So how does this work for pensions?

Guy opperman tweet

It’s about time our current minister for pensions and social inclusion moved on. He’s been in office long enough to nail his colours to the pension dashboard (ludicrous folly). He’s been tweeting away over the new year.  Sadly for pension folk, none of these tweets are about pensions.

Infact – looking at his twitter profile, you’d be hard-pressed to guess he had any interest in retirement at all. He’s the least “pensions” minister Britain has ever had and he’s showing all the signs of wanting to move up the greasy poll.

The last time I had a meeting with the  Pensions Minister, Richard Harrington told me how committed he was to seeing through the job. I met him again a few months later at the Tory party conference “oh no – not you – no talk about pensions!”.

The first (and only) time I met Guy Opperman, he told those us how committed he was to seeing through his job.


“Other camera Tapper”

He came across to the House of Lords to dish out some certificates for TPAS and tell us about his work with credit unions.

I haven’t seen him since

DWP months in office

If Guy Opperman remains in his current post, it will be more out of sufferance than conviction.

Bring back Ros!

It is about time we had someone in the Pensions hot seat who is prepared to deal with the many and varied issues facing pensions people. Ros Altmann was our Pensions Minister, she left office and her position has since been downgraded, but she knows her stuff. She may not always be right (IMO) but she is someone who puts conviction before career.

David Gauke may not have known much about pensions but he had enough time at the Treasury to know a bit about money. Esther McVey could do with Ros Altmann back to revive the position of Pensions Minister. There are huge challenges facing her – relating to the parlous state of DB pensions, the impending hikes in contributions through auto-enrolment and the demands of Royal Mail and CWU for the rules for CDC.

Having spent a year getting Harrington up to speed and another 6 months trying to find Guy Opperman, it is high time we had a pre-baked pension specialist in the role.

For all her faults – bring back Ros!

This works


There was a moment this afternoon where we all thought things were going to change,

First thismalthouse.PNG

Then this mail 3

But Guy Opperman keeps his job.

No new Pensions Minister as Guy Oppermankeeps his post. But two women in the department have been replaced by men AlokSharma is Employment Minister and Kit Malthouseis in an as yet undetermined job.

— Paul Lewis (@paullewismoney) January 9, 2018

Funny that because I thought it was “absolutely true because I read it in the Daily Mail

Posted in corporate governance, DWP, pensions | Tagged , , , , , | 3 Comments

Save money and party – it’s the best way!

There is saving gene in our DNA. I haven’t  firmly identified it from the human genome project  but I think it’s the black ball just to the left of the light blue one second coil along.

human genome

can you spot the saving gene?


Well there has to be a saving or hoarding gene, otherwise so many of us would save or hoard our money when we would be much better off buying daily supplies of Magnum Ice Cream.

Magnum Ice Cream - Classic - Almond - Chocolate Truffle

not a sponsored ad

I was in the Co-op at about 8.30pm yesterday and I was faced with the choice of purchasing chocolate ice cream or having an untouched five pound note in my back pocket. I chose the latter. This was not a fitness thing, it was that little black dot asserting its way in the genomesphere.

This is why this tweet is so wrong.

I don’t have the ludicrous Annamaria Lusardi on my twitter feed but if I did I’d mute her. She is wrong, wrong , wrong!

The last thing you need when you have no money is to have some educationalist telling you not to smoke, or drink or eat the new 10 packs of Magums (with the different flavours and the diddy sticks).


Glesga pointing something else out!

It worries me that my good friend @glesgabrighton was found promoting Lusardi’s educationalism.

I fear he has a an extra frugality gene in his genome (maybe a national characteristic but I don’t want to be banned for racial slurs).

The research Lusardi is pointing to is here. The Wall Street Journal produces really great pictures; like the one below.





a truly happy man – expanding into his 401k retirement plan

When I saw the corpulent corporatist, my reading was that he’d “expanded” into a narcoleptic torpor due to the feather-bed of his 401(k) “pension” plan.

Maybe I ought to have my genome corrected by Rory Sutherland or some other behaviourist – maybe I’m aberrant. But this is precisely what the Wall Street journal article is going on about.

With more in savings, auto-enrolled employees may also feel wealthier and able to afford a larger home, Prof. Madrian said.

Prof Madrian is what the article calls a “retirement scholar”. She has the same views as Prof Choi who is presumably a “getting into debt scholar”. He has found that

A bigger mortgage can put homeowners at greater risk of default if home prices decline or the owner suffers a financial setback, he says. But in recent decades, the long-term trend is that “homes have been appreciating assets” and having a higher 401(k) balance and a bigger mortgage “is not bad and possibly even good for net worth, depending on what the housing and stock markets do.”

Put that in your pipe and smoke it, Annamaria Lusardi (if you had a pipe- which I’m sure you don’t as weed is also bad for you).

You can have cake and eat it – if you work hard

The amazing conclusion of the Wall Street Article is that saving through an auto-enrolment retirement plan makes you more financially self-confident so you go out and buy a bigger house and you work a lot harder and smarter to pay for all this. In other words, you earn to get fat and fall asleep after a good lunch like the splendid fellow in the picture.

You do not have to be in charge of the human genome project or even a retirement scholar to work out that setting yourself tough financial goals, like saving proper amounts for retirement or living in a nice house, leads to success at work.

When I started out , John Ellison, my sales manager made me buy a brand new golf GTI (D85 EYP) which remained my reason to do 20 sales appointments a week for the next three years. His #2 Jasper Gundry-White marched me round to Jaeger in Regent Street and required me to buy a nice “whistle” and several expensive shirts and ties. I was immediately overdrawn . I have never blamed them for auto-enrolling me into penury!

I am very wary of underweight people as I suspect them of extreme parsimony. I fear they do not consider the Magnum option and financially educationalise their children from an early age. They are the Flanders and I will remain a financial Homer.flanders and homer

Financial Education has been abused by these parsimonious “thinnifers” who preach that we should not enrol the poor into pension plans (well not without the financial education they need to avoid buying Magnums at the same time).

I have recently joined the ever-swelling ranks of the “fattipuffs” who consider you can have your cake, eat it, have a mortgage and save for your retirement, so long as you are productive and good at what you do and stay honest.

The simple dictum – work hard- play hard, trumps all this silly saving nonsense. My appalling lifestyle decisions (I purchased a nice bottle of wine with the money I didn’t spend on Magnums) will result in my early demise. The CMA tables are full of fattipuffs like me and we will provide a solution to the longevity crisis yet!

I may not die thin, but I will die happy – and I’ll die solvent





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

It’s not just IFAs that should be livid!

two stories

Here is the note I wrote when I read New Model Advisers report

  1. On why FSCS cannot determine its current levy (uncertainty over Strand Capital)
  2. On why FSCS has to unravel its past compensation (uncertainty over Arch Cru)

Today (Jan 4) FSCS published its Outlook for 2018. Last year’s levy of £100m has been increased by £24m to cover the cost of failed investments in Self Invested Personal Pensions. Deep in the Chair’s statement is an admission that FSCS can’t share any rebates to IFAs because of uncertainty over compensation payable to customers of Strand Capital.

IFAs will be surprised to know that Strand Capital’s management and ownership is shared by another fund that has been much in the news lately – 5Alpha, into which the majority of the transfers from BSPS by Active Wealth Management were invested.

100% of Strand Capital and 48% of the Vega Algorithms Discretionary Fund Manager (DFM(currently 100% invested in 5Alpha is a company called Optima Wealth Group (OWG). The manager of Vega Algorithms, of Strand Capital and until recently displaced of 5Alpha, is Steffen Hoyemsvoll

5Alpha has been recently been analysed by a leading funds expert who has delivered a demining verdict on its structure, governance and sustainability.

How can the manager of a fund that is currently FSCS’ major problem, be back managing a DFM and until recently a fund at the centre of another controversy within a few months?

How can the FCA have failed to spot the common ownership of Strand and Vega by OWG.

How must FSCS be feeling to discover that Strand’s phoenix “5Alpha” is busy taking money from steelworkers in Port Talbot.

And how must FSCS feel that Stephen Decani , CEO of Newscape, the owner of 5Alpha was was a Senior Partner and Head of Strategy and Distribution at ARCH Financial Products LLP, where he was responsible for deal origination and structuring, and for a team of strategy and distribution professionals.(Bloomberg)

I wrote the note to simplify the issue for a friend who is doing some work on this subject. The sad fact is that it’s not just FSCS who will feel the pain of Strand and Arch Cru, it is the IFA community and the people they support.

This point is made well by the excellent Ken Davy who calls the FSCS levy a “disgraceful injustice“

This totally arbitrary and ridiculous system which virtually everyone recognises is a broken model must be radically changed by the FCA without any further delay.”

FSCS is to advisers what the PPF is to occupational scheme, a levy paid by the good on account of the bad. It introduces moral hazard into the mind of the already unscrupulous . When the management of Strand Capital or ARCH Financial products decide to bail out, they can walk away and start again. Strand became 5Alpha, Newscape was born out of Arch Cru.

While the management of Strand are now raking in 0.66%pa of assets in the Vega Algorithms (sole investment 5Alpha Ultra Conservative), Newscape host 5Alpha as a SICAV on its Dublin fund platform.

Potential investors in “My Workplace Pension” were advised their money would be managed by Strand Capital

The lead managers for Strand are Hamilton Keats, a physicist and statistician from Imperial College London and Steffen Hoyemsvoll a physicist from University of Oxford

You might think that giving your money to a couple of egg-heads straight out of university was a bit risky but don’t worry

Strand Capital Limited is  authorised and regulated in the UK by the Financial Conduct Authority under reference number 494001. Strand Capital is part of Optima Worldwide Group which is has interests in asset management, merchant banking, security, natural resources and agricultural sectors as well as providing professional services and advice to Governments, Companies and select individuals in the UK, Middle East, South Asia and Africa.

Who owns my workplace pension? Well the BBC investigated it and found

MWP Pension Ltd is a company appointed by My Workplace Pension to do marketing for it. According to Companies House, it is 50% owned by Gavin McCloskey.

Gavin Mccloskey was company secretary and director of  Bespoke Pension Solutions


While the names aren’t quite the same, isn’t it odd that Gavin and Sean handed over to a certain Clive Howells, who has since become famous for giving not chicken in a basket – but sausage and chips to Port Talbot steel men – before introducing Active Wealth Management.

Isn’t it odd that Active Wealth Management’s advice to those Steel workers was to invest the transfer of BSPS rights in Vega Algorithms? What a weird coincidence that the manager of Vega Algorithms is Steffen Hoyemsvoll (see Strand Capital above), that 48% of Vega is owned  by the Optima Wealth Group (see Optima Wealth Group above) and that according to research published in Money Marketing

Asset management conglomerate Optima Worldwide Group purchased Strand in 2014, and made an investment into the company to develop an algorithmic trading platform.

This went live in February 2016. Before then, Strand Capital only arranged investments in Optima bonds, but these tailed off “as alternative investment products were introduced by the company” the administrators say.

A company called 5Aplha provided IT services to Strand. The administrators say that around November 2016, a “significant portion” of Strand’s investments were moved to the Irish domiciled 5Alpha Adventurous Fund and/or Conservative Fund.

Justin Cash’s report of the demise of Strand shows that its management locked themselves out of their own computer systems , leaving assets and unit owners floundering!

This would be vaguely comical if it were not that there are real people who own Strand units. That FSCS is currently unable to finalise its levy as it seeks to sort out the mess left when Steffen and Hamilton turned out the lights and that all the aforementioned now appear in the Port Talbot train-crash , played out over the past six months.

The most frightening document of all , is the Smith and Williamson joint administrators report itself, not for the incidental detail above , but for this.

Trading background

 In September 2014 Mr Hamilton Keats was appointed director of the Company, and OWG invested funds into the Company to support the development of an algorithmic trading platform.

 5Alpha Limited (“5Alpha”) provided IT services to the Company, in particular in relation to the development and maintenance of the algorithmic trading platform. No formal contract for services appears to have been entered into between the Company and 5Alpha. Mr Hamilton Keats was also the director and largest shareholder of 5Alpha.

 Until May 2016 the only investments arranged by the Company were in OWG bonds. However, investments in OWG (optima worldwide group)  bonds slowed thereafter as alternative investment products were introduced by the Company.

 The algorithmic trading platform went live in February 2016, and from circa May 2016 the Company began using the algorithmic model to pick investments on behalf of clients. Around this time the Company’s online platform also went live, which provided clients with access to their individual investment account details.

We might well ask why Strand was invested in bonds issued by the company that owned it

In January 2014 the Company was acquired from Mr Martin McNally by Panacea Corporate Services Limited, and was subsequently transferred to Optima Worldwide Group Plc (OWG).

But it seems to be out of the frying plan into the fire…

Until November 2016 the types of securities selected by the algorithmic model could be broadly categorised as relatively conventional, on the basis that they were typically listed on the London Stock Exchange.

Around November 2016 a significant proportion of the security investments were transferred to one or both of the following UCITS (“Undertakings for Collective Investment in Transferable Securities”):

1. 5Alpha Adventurous Fund; and/or

2. 5Alpha Conservative Fund

Both UCITS are sub-funds of Newscape Plc and are open ended investment companies with variable capital. This means they are professionally managed collective investment funds whereby investors receive shares in the fund, to be subsequently redeemed at a time suitable to individual investors. Both 5Alpha Adventuruous Fund and 5Alpha Conservative Fund are traded on the Irish stock exchange.

Its into these very funds that Active Wealth Management have been pouring the monies of the Port Talbot Steelworkers (via various SIPPs). The SIPPs are not inconsequential in this for Smith and Williamson also tell us

We understand that SIPP providers and Pension Trustees are the Company’s clients, as distinct from the underlying beneficial investors

Well here they are  – the asset owners of Strand.Gallium SW3

All reconciled, unlike the assets – the OWG bonds (especially the D bond)

Gallium SW2

And here is where the payments arrive and depart.

Gallium SW1

Plus ça change

I wish I could draw a line under Strand as easily as I drew a line under those accounts. I can’t. Vega Algorithms is an appointed representative of Gallium and invests in a fund run by a former director of Arch.

5Alpha is now managed by Newscape’s James Hutson but Steffen Hoyemsvoll is  still at Vega. Hamilton Keats is still listed as a Director of 5Alpha and of Strand Nominees though his linked in profile makes no mention of Strand (nor does Steffen’s).

OWG is still issuing corporate bonds (series D) and enjoying its share of the success of Vega Algorithms.

Newscape is still being instructed by Gallium on shares purchased with money advised by Active Wealth Management and “owned” by Active’s recommended SIPPs. This money is in part coming from “self investing individuals” but the decisions on share classes , exit penalties and dilution levies appear to be taken at a business to business level.

Investors are trying to work out exactly what they have rights to , by way of a return of their money or what they are likely to be paying for its management. What was “5Alpha” has changed its name

Newscape Global Multi-Asset Conservative Fund (previously 5alpha Conservative Fund)

Hopefully, as well as updating the name, Newscape will update the link so investors can see their newly renamed factsheets and fund prospectus.

Plus ça change, plus c’est la même chose

If I was Ken Davy, if I was an IFA, if I was a SIPP manager and if I was anyone who had to pay a part of the FSCS levy (which is practically everyone in one way or another) I would be livid. I am livid!

Plus ça change, plus c’est la même chose just isn’t good enough. Optima’s offices are a few hundred yards from me, Vega is a couple of stops down the line in Kidbrook, Newscape are close by me too. Gallium 20 minutes by train in Sevenoaks.

While everyone else picks up the tab, the various characters in this blog carry on regardless. Smith & Williamson’s report  makes no allegations and nor does this blog. It is not for us to regulate or prosecute.

But as FSCS payers, we should all be justly irate that it is ArchCru and Strand that are the principal reason for the FSCS levies exceeding their £100m limit.

FSCS is the PPF of the retail world. The Pensions Regulator is accountable for strain on the PPF and the FCA is accountable for strain on FSCS.

I am with Ken Davy and with every good IFA I know in demanding that more is done to protect FSCS. So long as the incompetence and insouciance that is displayed by this blog, in the Smith and Williamson report, in the FSCS outcomes report and in the various articles quoted – continues; confidence in our financial system will remain damaged. Worse, people will continue to be ripped-off

If you have read this blog, this far, you may be asking whether much is changing.

Posted in accountants, advice gap, FCA, governance, pensions | Tagged , , , , , , | Leave a comment

Has Tata the courage of its conviction? (the workplace pension that dare not speak its name)

tata steel.PNG

Available to all Tata Steel workers.


It I’ve been in correspondence with a steelworker who wrote me this

Over the past few months when my work colleagues at TATA have been talking about transferring out I suggested the TATA Aviva Plan to them as it is a good DC scheme with very low charges.
They have been to see their IFA’s and are transferring to other good companies like Liverpool Victoria, Royal London etc.
I have considered transferring to Aviva myself and actually started the transfer process but after doing a lot of research online from various sources (including Pension Playpen) I cancelled my transfer to move into BSPS2 instead. I hope I’ve made the right decision as if I decided to transfer out of BSPS2 in the future, transfer values will be lower?
I, like many others have increased our top up contributions (through salary) into the TATA Aviva DC Plan as we benefit from tax relief and lower national insurance. We can access our Plan account information online through Aviva’s excellent website and although the account was only opened in approximately April 2017 the balance is now becoming substantial.
As you have said in one of your previous blogs (Commission – the charge that dare not speak its name),
 I would like to think that TATA have chosing carefully and are keeping a watchful eye on where our money is going as over time there will be large amounts building up in these DC accounts?
I have some reassurance in this as we received information from TATA about the Aviva Plan in March 2017 which included
It is rare to hear someone trusting TATA to do the right thing by staff. Having researched Aviva’s workplace GPP for some years, Pension PlayPen can endorse it as excellent, it has a good IGC and it rates highly for its investment and at retirement options. TATA took advice on the plan from Thompsons Online Benefits and negotiated a keen discount for members. TATA has done everything right and this plan offers stunning value for money relative to most options available to members transferring out of BSPS.
The plan accepts transfers from occupational pension schemes (including BSPS) and could have been a default option for those who wished to transfer advisedly but invest using a guided pathway (the Aviva Lifestage Approach). The plan even has its own financial adviser!
This gentleman cancelled his transfer because he sensed more conviction in the future of BSPS2.
In another mail he points out
I think a lot of people who have asked for their British Steel Pension transfer value quotations didn’t consider the Aviva Plan as it was right under their noses and they overlooked it? As you quite rightly say, this should have been promoted by TATA to those exercising their CETVs
Aviva have previously stated that they haven’t actively promoted the fact that the TATA Aviva GPP can take CETVs as they don’t particularly want to be seen to be encouraging DB Transfers.

Just how confident are we in our DC plans?

I get why TATA and Aviva did not want to be seen to be intervening.  But had the TATA workplace pension been used as a benchmark against which the solutions put to those transferring away , what would have been the outcome?

  1. Would it have prevented advisers promoting inappropriate investment options?
  2. Would steel-workers have spotted a good thing and flocked to the safe harbour?

I think the answer to both those questions is no. Even if you go to the TATA Steel Personal Retirement Savings Plan website, (hosted by Aviva), you get no sense of the value that plan offers.

The plan’s charges only a third of what someone working in a small company would pay for the same thing. The default fund is available to members at an all in 0.26% pa charge!

The nearly 0.5% pa saving on the standard 0.75% charge for this fund , negotiated by TATA,  is equivalent to over £200 pm on a £500,000 transfer.

The guided pathway is effectively a free feature that cuts out the need for a middleman, saving a further £200 pm.

As Aviva say of themselves, they operate to the highest standard of governance, something I can totally endorse – I have met their IGC chair twice this year and they take governance seriously.

Aviva’s plan competes with the IFA solution (LV, Royal London etc.) and for those who want a well governed simple solution it has to be on the short-list.

And yet, not one IFA I spoke to has put this plan forward to members of BSPS actively at work at TATA and this gentleman is one of only a handful of members who had considered the Aviva GPP as an investable option.

Despite paying up to 10% of salary into it, TATA do not promote their workplace pension!!

It has come to a pretty pass when a perfectly good, very well funded DC plan has become an embarrassment. But that is what the TATA Steel Personal Retirement Savings Plan is.

The truth is that neither TATA or Aviva were or are prepared to stand up and say that the cash equivalent transfer value taken by the former BSPS member would be well-invested in this plan.

Instead of being an employee benefit, this “PRSP” is hidden away (as in a cupboard). Despite spending hours on its website, I still can find no mention of the plan’s unique feature – its heavily discounted charging structure!

I can only call this a massive failure of nerve.

So long as workplace pensions are this shy, then they will never get a date with the workers they are trying to engage. Might it not be time for Aviva to consider raising its game and having the courage of its convictions?

Or does Aviva secretly agree that it cannot offer – through this heavily discounted product, something that steelworkers need? If so, what is it doing offering this product at all?

Perhaps Aviva should consider moving to a CDC approach and showing a bit of bottle.


If they don’t have confidence in their pensions why should we?

I will be sending this blog to the Chair of Aviva’s IGC committee and asking that these questions be discussed at its next IGC meeting.

I will be doing exactly the same thing to the chair of the IGC committee at L&G (which runs a similarly priced service to the members of the Greybull and Liberty businesses which employ many other BSPS members.

All over Britain , people are taking CETVs and investing them in almost everything but their workplace pensions. I can understand a SIPP as a wealth management tool, but I cannot see why ordinary people should be shoe-horned into SIPPs when they have no pretensions to “self investment”.

Workplace pensions should be the gold-standard – instead they are the “dustbin option” as one steelworker called PRSP.

That can’t be right – something has to change.

tata steel

The plan members forgot.



Posted in advice gap, pensions | Tagged , , , , | 3 Comments

Aussie’s are “Super Pension Savvy” – why aren’t we?


As most people (in pensions) know, Australia has a thriving retirement savings industry that works because there is a social contract between Government, Unions and Employers to fund workers pensions at ever-increasing amounts. I don’t want to do a teach in – if you want to read up – here’s Wiki.

What is most interesting to me about the Australian system is the personal engagement among many Australians in “their Super” – Super being the superlative applied to superannuation funds! In Aus, it is the member -not the employer that gets to choose their “Workie”. Employers use a clearing system where a single feed to the clearer, tags the ultimate destination of the money – the clearer does the rest.

The experience of the past five years tells me that in the UK, the employer has engaged with auto-enrolment but not with the workplace pension. A recent blog remarked that even now, the intent of the Pensions Regulator is to ensure compliance with the processes of auto-enrolment and not engagement with the build up of capital within member’s funds.

While this will be acceptable in the short term, the creation of savings balances within the pension pots will attract the interest of members over time and employers will be called to account for both the choice of workplace pension and its reason for keeping it.

“Workie” the lovechild of benevolent paternalists?

The role of the employer as sponsor , AE administrator , fund selector and fund governor, is a hangover from an earlier time when British employers did run pensions as a fully integrated part of their reward strategy. They contributed to pensions because they wanted to not because “it’s the law”.

The 1m new employers who have “embraced” auto-enrolment have yet to show much enthusiasm for the workplace pensions they sponsor. If they are the offspring of “benevolent paternalism”, then they’re the bastard children.

If we want a properly functioning workplace pension system, then either

  1. employers are going to need to pay more attention to their pension..or
  2. we are going to need to switch to a system of individual choice (and clearing).

The pension dashboard suggests that the Government has given up on the original conception of a personal pension that employees could take from job to job and accepted the principle of one workie/one employer. This would suggest that employers are stuck with “choice and governance” for a good time to come.



Choice and governance

Despite attempts to get informed decision making into the market, the bare stats suggest that for most employers “NEST” was a “good enough” choice- it is and there’s no problem having a NEST-centric auto-enrolment system. We have- apart from NEST, a wide range of alternatives, all of which are “good enough” and some – in certain circumstances – much better than NEST.  That is the sign of a functioning market. Those who want a “NEST fits all” approach beware, there is nothing that will so quickly destroy a success story as a state monopoly.

What has yet to develop in the UK, but flourishes in Australia is a means for people to engage with their own pension. Jo Cumbo has been posting back links from her native land of the websites available in Aus to members. Here’s an example.

While you have to pay to see the information, the comparison process is well laid out and participation in these web pages seems universal (at least by super providers). The shift of money out of workplace pensions into the Australian version of SIPPs continues apace but – since the Cooper report, the value of collective pensions (the original conception of Super) seems to be reasserting itself.

This dynamic between enthusiasm for “going it alone” and the prudence of collective schemes, is healthy. What we can learn from Australia is that if we want people saving more, we have to make the saving sexy. That means putting the emphasis back on returns. This is SuperSavvy’s “return page”.

Right now , Britain is building the infrastructure to properly report on workplace pensions. Yesterday was an important day as we saw the implementation of MIFID II (albeit with rather too many exemptions). Chris Sier’s institutional working group on costs and charges, continues its good work (as does the Transparency Task Force). The IGCs should – without exception – be giving us proper value for money assessments, the Trustee Chairs of our occupational DC schemes are consulting with the DWP on how best to disclose value and money to members.value for money


Full of sound and fury…

But I wonder whether the workplace pension has yet to become part of our financial culture. The British Steel and Tata pensions (run at ultra-low costs by L&G and Aviva respectively, were hardly considered as transfer options in the BSPS “Time to Choose” election.

There was a distinct whiff of condescension from trustees, pension managers and IFAs about these bastard children (my analogy).

The IGCs of both L&G and Aviva need to be asking serious questions about why these excellent products were not promoted to those who were exercising their CETVs.

My suspicion is that neither TATA or Greybull or Liberty wanted to be associated with any pension risk from BSPS and that the insurers were quite happy to fall in line.

While politicians are full of sound and fury about the success of workplace pensions, this will signify nothing – if those workplace pensions are not brought into the mainstream consciousness of those who use them.comparing super

In Australia, websites like Supersavvy, Moneysmart, Australian Super, Superguide, and choice abound and prosper because Australians care about their Super as if it were their house, their car , their family.

Until I see evidence for demand among the British public to know what is going on within the workplace pensions into which they are investing and some interest in comparison, I will not believe that workplace pensions are really working.

Demand or supply?

The British financial services industry is incredibly weedy. All attempts to get comparison into play are met with howls of indignation from IGCs, Trustees and fund managers. League Tables and the like are poo-pooed. Past performance is dismissed, any sense of accountability for outcomes is lost in a hopeless pass the parcel between the various stakeholders at play.

We need a bit more of this!


And if we adopted that attitude elsewhere, we might win a few more cricket matches too!


I’d like to see a little more help from Government for those promoting choice, comparison and good governance in this country.

Wouldn’t you?

Posted in advice gap, Australia, auto-enrolment, cricket, dc pensions, pensions | Tagged , , , , , , | 2 Comments

CDC – the nuclear fission of the pension system.


The way we safeguard our pensions today

This blog looks at the different way people are protected from mischief depending on what type of retirement savings plan they are in. I’m thinking about this because I have various meetings planned in the next month to consider what basis of protection should be given to people who join a CDC pension plan.

Wherever there’s a trust, there’s a risk that trust will be abused. Contract law is designed to minimise the capacity of the unscrupulous to abuse our trust by formalising the relationship between one party and another, which is why most the personal pension is written as a “contract” between provider and individual. With personal pensions, there is a contract not a “Trust”, there are Independence Governance Committees but no Trust Board.

In the past, that there were “trustees” was thought to be enough. But the abuse of trust by Robert Maxwell and his family, who raided the Trinity Mirror Pension Scheme has started a process to ensure that the actions of trustees are monitored and regulated so that similar abuse is not repeated. Lately we have seen the Pensions Regulator enforcing trustees to behave in certain ways and even putting in their chosen trustees from firms like Pi and Dalriada, to make sure good order is returned.

The proliferation of master-trusts that followed the compulsory introduction of UK workplace pensions, lead in the first instance to the creation of the master trust assurance framework and latterly to the provisions in the Pension Schemes Act which now require master trusts to conform to a set of standards enshrined in law. The inexorable direction of travel is towards a rules based regime where trustees do as they are told – much as they would have to – were there a contract between them and their members.

Philosophically, the gap between trust and contract based pensions seems to be narrowing , giving trustees less discretion and regulators more powers. Price caps, reserving, cost disclosure and assurance frameworks are all part of a process that ensures we get what we expect – value for our money.

Why CDC is different, difficult and dangerous!

With the contraction in the scope of trustees to do what they like  (exercise discretion) has come a desire to be told what to do. DB pensions now have to seek the Pensions Regulator’s permission before taking any actions that could impact the security of member’s benefits – this is because the Pensions Regulator has taken on responsibility for ensuring schemes do not fall into the PPF and become a burden on other schemes.

Usually, the process of getting permission (clearance) is a happy one and the right decisions are taken. When things go wrong, it is usually the Pensions Regulator who is now blamed (witness the spats between Lesley Titcomb and Frank Field). All this happens in a culture where benefits are not only “defined” but “guaranteed” – at least to PPF levels, by the whole system of occupational pensions.

But CDC is quite different, it is not about guarantees and the trustees of CDC schemes do not have liabilities, any more than the trustees of DC master trusts have liabilities. All that CDC pension plans have is money which they have a duty to distribute equally (equitably) to members. This is why Friends of CDC talking about it as an “equity driven” rather than “liability driven” pension plan.

This is why some of us want to see CDC regulated as an extended version of the occupational DC plan and not a cut-down version of DB regulations.

Incidentally, we don’t want to have a new code of pensions established as envisaged by the Pensions Scheme Act 2015 – a code called “defined ambition”. Defined Ambition is a nice concept that made it easy for Steve Webb to get people to see CDC (and a range of other ideas) incubated to meet the changing needs of pensioners (post freedoms).

CDC is different because it restores discretion to trustees, does not guarantee but creates a reasonable expectation and because it delivers what is in the pot – over time. This may sound woolly but it’s not. I have worked with products that aimed to distribute 100% of a fund over time and these products were equitable because they recorded the timing and incidence of every individual contribution and paid back people’s contributions with a keen eye to what was fair.

Interestingly, the products I am talking about were overseen by the then insurance regulator (LAUTRO) , there was no equivalent of the PPF or the Pensions Regulator. The demise of these products was because the trust that existed between LAUTRO and the insurers was broken by insurers who repeatedly broke the principles of prudence under which trust had been established. The most heinous example of this breach of trust was the Equitable Life but almost every insurer was guilty of buying the love of their policyholders by over distributing bonuses.

CDC is not only different but it is difficult, because it asks for its operators to be given back the discretionary powers that insurance companies last had in the days of with-profits, but to do so – not as insurers – but as trustees. This is not only difficult, it is highly dangerous – it is like giving someone a lump of uranium.


More “uranium” than “marmite”

I use the simile advisedly. A lump of uranium can- with care – create immense good – producing low-carbon energy that can save the planet. If used badly, then it can pollute (Chernobyl) or destroy (Hiroshima).

CDC cannot do as much damage as uranium but it has an equally wide range of outcomes and could- in the wrong hands- make “Maxwell” and the “Equitable Life” look like a walk in the park. Critics of CDC liken it to the kind of Ponzi Scheme we last saw being operated by Bernie Madoff.

To prevent this happening, we need to have the discussions about how CDC’s discretionary powers are granted before we begin and we have to learn from our past (and to a lesser extent from the pasts of other countries). The historical lessons are mainly negative (they teach us mistakes to be avoided, but they can also be positive, they can inspire us with a prize – an ambition – an aspiration.

Inevitably there will be those who never see the discretionary powers available within CDC as good (again the parallels with nuclear power are helpful). Those people are well known today. Their protest is helpful in ensuring that whatever is built and managed, is managed to the high safety standards expected of a nuclear power station.

Can we do without the power of fusion?

I suspect that technology will bring us advances over the next 50 years that will make our endeavours in 2018 look rather silly. Readers of this blog in 2068 (I flatter myself) may laugh at how puny our ambition was!

But we are where we are in the development of retirement distribution systems that transfer income into savings and back into income.

We have a DC system that transfers income into savings but cannot efficiently return savings to income. We have a DB system that can provide efficient income from savings but at an expense to initial incomes which is untenable.

We need to extend the DC system so that it can distribute savings back to income as efficiently as in DB, but without the strain on income (employer and employee).

We can only progress by pushing at the boundaries of what we know (past experience) and moving forward in hope. I am not sure we will get it right- infact I am sure there will  be setbacks- but you cannot build a progressive pension system without progression!

To use the language of the early part of this blog – we need a contract with the past but we need trust in the future. Creating that balance is what underpins my phrase “restoring confidence in pensions” and it’s what the Friends of CDC is trying to do.

If you can see this as I see it and want to be a Friend of CDC, please drop me a line at Henry.Tapper@pensionplaypen.com and I’ll make the introductions.




Posted in actuaries, advice gap, CDC, defined ambition, pensions | Tagged , , , , , , | 2 Comments

Has the hardest nastiest problem in finance just got a little easier?

nastiest 3

I enjoyed reading this serious and sensible argument by Steven Lowe of “Just”.  I suspect that most financial advisers reading it will conclude, as I do, that planning an income for the final years of someone’s life is so fraught that (if income is needed) it had best be provided by an annuity. This is the conclusion that all the workplace pension providers have come to. Every “guided pathway” on the market leads to the deferred purchase of an annuity – usually at 75.

But Steve’s article makes the point that if you make it to 65, you are likely to live well beyond average life expectancy

While facts in the newspapers may make it tempting for clients to target fixate, the reality is that life expectancy is transitory. A 65 year old man may be expected to live to 84 but those who make it will be expected to live to nearly 92.

Steve is writing to financial advisers whose clients are wealthy enough to have taken themselves out of the common way of financial planning (trust in my pension or hit and hope) and instead employed the services of an expert. Almost by definition, this self-selecting groups of clients will live longer.

What Steve doesn’t say, but has to be said, is that by staying in a pool of people who are likely to live a lot shorter, the wealthy are doing those poorer people in the pool a favour. They are effectively cleansing the pool of much of its longevity risk and taking that risk upon themselves (the hardest nastiest problem in finance).

Has anyone considered the impact of the wealth industry on pensions?

If occupational pensions lose their 10% longest living clients through CETVs to self-managed drawdown, then they are managing a different set of liabilities to those people hanging around and scooping the pool. This is particularly the case with defined benefit schemes which could become in twenty or thirty years time a means of supporting a few very old people (typically the spouses of the men who built up the pensions).

The wealth industry depletes the liability pool, probably faster than it depletes the asset pool, those transferring out of occupational schemes on high incomes carry those schemes biggest liabilities not just because of the size of their pensions, but the duration over which that pension is paid.

A lot is made of the problem of allowing people to select against their pension by taking a transfer value because they anticipate dying quick, not much is made of this opposite- beneficial – situation, where the rich select against themselves.

But we get that the richer we are the less we need income in retirement!

A great capital reservoir is a great thing to a capitalist, he or she can use a drawdown pot to fund all kinds of ventures, from deposits on dependent’s houses to small businesses set up to diminish the tedium of retirement. The agility of liquid capital – what pension freedoms is about – is precisely what an entrepreneur prefers. The rest of us “wage slaves” are about the maintenance of a wage for life which ensures there is bread on the table.

When Merryn Somerset Webb said in the FT that if she had a DB pension she would cash it out, she was saying more about her life aspirations than her financial skills. She is a woman with high self-confidence- Ros Altmann is another (again someone advocating transferring income to wealth last year.

The difficulty with these messages is that while they play well with core FT readers, they can (and are) lifted out of the context of the intended readership and used in advertising by the mass market transfer houses about  which this blog has spoken at length.

While shifting the wealthy out of DB schemes, is probably good news for those schemes, shifting the average Joe (of which I’m one) is not good news to anyone.

Typically people like me underestimate our life-expectancy by 8 years and writing with a new years eve hangover , I feel like living till 60 will be a challenge! But the reality is we do not know. We certainly don’t know about our spouses and even if we thought we knew, we might not now be so sure. Here is the Christmas circular from one of my friends. He doesn’t say he was given no chance of being on the planet past the end of 2015.

Health-wise, it’s all been good, my tumors have had a quiet year with no growth. so my wonder drug is still doing a great job! So well, in fact, that my oncologist only wants to scan and see me 3 times a year, not 4.

We just don’t know!

nastiest 1

Nobody can accurately predict their income needs for thirty years, there are too many variables and that is why increasingly we are looking for the break clauses that might allow us cash out an annuity or take a CETV while a pension in in payment.

My hard-core actuarial chums grind their teeth when I write such heresy but it is a fact of human nature that people are much more likely to enter a building if they know they can get out of it again! The truth is that most of us don’t need EXIT doors and won’t use them, but I would not have been dancing last night in a bar where I didn’t see the bright green light!

What I’ve argued in this article is that by giving people the freedom to leave defined benefit schemes, we allow the wealthy to do what they do best, which is to put capital to best use. By allowing ordinary people like me to have property rights over our pensions, we give us all the EXIT option – albeit one that we are unlikely to take. Auto-enrolment tells us a lot of things – but it shouts loudest that once “in” most people stay “in”.

What does this mean for CDC?

My first “guess” is this. Despite having no empirical data to prove I am right , I suspect that most wealthy people will want nothing to do with CDC – they are wealthy because they like to invest their money as they like.

nastiest 2

Most of us will not be millionaires


My second guess is that the 87% of postal workers who would rather go out on strike than be stuck in a cash balance or DC plan – voted because they wanted a pension – a wage for life.

As Con Keating’s masterful blog yesterday demonstrated, when you stop guaranteeing pensions , you can release sufficient upside from patient capital, to provide better pensions (pound for pound) than any other kind of pension scheme.

CDC has the opportunity to take a vast pool of people with relatively low life expectancy,  and allow the rich to self-select against themselves. By managing the pool on the basis of “equity” not “liability”, the pool can pay more – a function of the duration of investable capital.

Of course CDC could also screw up and become a series of Ponzi Schemes run for the benefits of mendacious actuaries but this seems a very low level risk. Far more likely is that CDC could be the way for the FAMR problem – the great unadvised- to find a solution to the hardest, nastiest problem in finance.

  • global aging
    Could we make them softer?
Posted in actuaries, annuity, CDC, pensions | Tagged , , , , , | Leave a comment

Why we are still angry about Port Talbot.

port tal2

It’s the last day of 2017 and a time to look back at the last three months. The small picture is a series of events that have led to a general awareness that something very wrong was going on in Port Talbot and elsewhere during BSPS’ Time to Choose. Re-reading my and other’s blogs over the period, I realise that we may have missed something which was evident to us (as financial people) but not to members (who may not be).

The following chart is accurate. It shows the impact of “intermediation”; intermediation is the business of the middleman, or in the case of some of the investments we look for the many middlemen.Impact of fees

I know that the title of the table isn’t very catchy, but think of these numbers as how much your money loses because of middlemen and you can see that over a typical 55 year olds life expectancy (30 years) , a low charging fund (my money is invested at 0.25%) will shed 7.2% of its value while a high charging fund (for instance the Vega Algorithm fund you invest into through Active Wealth Management), would lose 58.8%.

If you have transfer your money into my fund (or the TATA workplace pension fund), then expect to lose £36,000 to intermediaries, invest in Vega and expect to lose £294,000.

The choice is yours – or is it?

This wasn’t disclosed

Nobody I spoke to who used “wealth management” such as the Vega Algorithms, had any idea what they were paying or what they were getting for the money. We have looked into both and can confirm that you will be paying at least 3% pa on your investments if you enter Vega using the more expensive share classes (which most appear former BSPS members appear to be in).

Last year the UK stock market made a return of 7.1%, it was considered a good year for investors. But if you are paying 3% pa, then half of your investment return has gone to the middlemen. And this is before we consider the huge impact of the initial fees that would last year have seen your fund go down even though the market went up.

Not only were you not told about the cost of investing into Vega, you weren’t told that you could have invested into the TATA workplace pension , or whatever workplace pension you are now in, at a fraction of the cost. These transfers could get you equivalent deals with self invested personal pensions managed by reputable advisers. There are no shortage of good deals in the market.

This wasn’t explained

In order to make up for the 3% pa taken as business as usual (and the 7%) extra-ordinary costs on the fund when you start out, you need to beat the market.

You can only beat the market by taking risk, but you weren’t taking on the markets, most of you were investing in the “Ultra Conservative Portfolio”.vega cert

Actually , the Vega Algorithms Portfolio you were investing in was buying into other funds which had investment targets that were typically no more than inflation + 3% (6% at the moment). So rather than getting something close to the stock market return, you would have got last year no return at all – in fact a negative return. You could have put your money in the bank and got a better return.

It should have been explained to you that putting your money in the bank is not a good idea, well not for long term investment, but putting your money into Vega is like using a “guaranteed loss account”. Nobody would invest into such a thing, if this was explained to them, the point is, Vega was not explained.

You never had the choice

What makes me and Al and Frank Field and everyone else so flipping angry is that you put your trust in us and we (the advisors) have let you down so completely. Now you know why Al set up Chive and gave up his time. He was so angry that he was prepared to work for nothing to put distance between himself and the rubbish advice being meted out by the sausage and chips merchants.

You – Port Talbot steel men – had no choice and this is not because Celtic and Active were in your face, but because no-one was there to give you another view. I spoke with Ray Adams of Niche,  in November and by then he had already pulled out. It takes one of Ray’s advisers 25 hours – the best part of a week – to properly advise on a transfer – and Ray has only 7 qualified transfer analysts. He had to stop taking on new business to make sure he treated his existing customers fairly.

Somewhere around 15,000 transfers will be requested before the BSPS window is closed in March, nobody- not the Trustees, not the FCA, not the good advisers – recognised the demand to get out. But Celtic and Active and other firms who came down from the north saw their opportunity. You did not have a choice because nobody foresaw what was happening and when it happened, nobody was there to stop it.

Al is working throughout the holiday period helping people who have decided to transfer to get their decision executed. TPAS is doing what it can to provide support to those in limbo after the with drawl of many advisers. There is a mobilisation of resource to help the many people who still don’t know where they will be on March 29th.

We’re not going to let this happen to you.

But the most urgent job is to help people who have transferred already.

If you find yourself in a fund where you are paying 2% or more a year for “intermediation” then you are paying well more than I am. If your adviser can first disclose what you are really paying and explain what you are getting for this cost- and if you are happy with that explanation – then no problem.

But if you hadn’t had this explained, and you can’t see what you are getting for your money, then you should be getting help.

Over the next few months, you will be able to read about the practical steps that the Communication Workers Union are taking for the staff of Royal Mail (ask your postman!). You’ll be able to read about what those who work in universities are negotiating with their employers and I hope you’ll be able to me and my friends (like Al) about what is to be done in Port Talbot and elsewhere.

It is not good enough to point out that a wrong has been done. It is necessary that the wrong is put right. There is indignation throughout the financial services industry at what the press call “the feeding frenzy” that has happened in South Wales and in other parts of the country. But that indignation means nothing if people who have been put in funds like Vega aren’t given the chance to get out on proper terms,

The reason is because experts know the numbers in the table at the top and understand what they mean for your long-term financial futures. Trust me, we are not going to shut up and go home. We will be staying angry for a long time to come.

If you are interested in understanding investment and the reason why charges matter, you might like to take 7 minutes out of your day to watch (or listen) to this video. It clearly explains the message in the table and why it is so hard to ever make investment fees up – once paid.

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

Some commercial considerations for CDC


So who’s going to “sell” CDC?

What an odd question!

I can see the friends of CDC choking over their cornflakes at my asking this question. In the gentile world of policy- it is rarely done to use the “s” word! But for a policy to be successful, it needs take up. There may be a thousand flowers blooming in the garden but they all need water!

CDC is a type of pension scheme for whom it is easier to find buyers than sellers. This unusual state of affairs is because so far, the attention given to it has been from those on the buy-side – politicians, policy makers, consumer groups and those acting as pension fiduciaries. CDC’s promotion has been from actuaries and lawyers, those who are seen as having most to gain by its success, but so far, no-one has really focussed on how CDC schemes might be delivered to the market.

CDC challenges traditional distribution models

If I was (still) an IFA, I would be asking myself, “why would I want to promote a solution that takes diminishes my relationship with my client (effectively outsourcing pension management to the CDC operator)”.

If I was an insurer, I would see CDC as threatening not just my distribution rights but the embedded value of my DC portfolio.

If I was a union, I could see CDC as a further dilution of members right to a guaranteed pension (especially where those rights remain strong – e.g. the public sector).

There is no commercial reason for CDC to be promoted, the benefits of CDC are individual and societal, they are likely to diminish rather than increase the profitability of the “pensions industry.

I do not see CDC being adopted by the existing players other than as a defensive measure.

CDC plays to the new distribution models

The biggest change in pensions distribution over the past fifty years has been auto-enrolment. Not only has it enrolled over 9m new savers into regular retirement saving but it has done so without the assistance of the direct sales forces or retail (rather than corporate) IFAs.

The beneficiaries of this change of distribution have been the master trusts, most obviously NEST, NOW , Peoples and a legion of “upstart crows” most notably Smart.

They have the relationships with small businesses that (by and large) the traditional insurers have failed to reach.

The obvious distributors of CDC pensions will be the master trusts and the most obvious master trust to be involved would be NEST. Despite the DWP knocking back NEST’s request to provide “guided pathways”, I would hope that the opportunity will knock for NEST to provide a CDC section or a new “NEST CDC” scheme.

In time, the workplace pension providers could fill the void between those with super-small pots (that could cash-out with little negative consequence and the larger pots that could be managed with the help of an IFA “wealth” manager).

CDC could de-risk  transfers for DC providers.

While I am sure the sales teams at the large insurers and SIPP providers are enjoying a merry Christmas, the bumper years on 2016 and 2017 have been fuelled by enormous shifts of money out of DB and into their products. The Prudential, Royal London, Zurich , Old Mutual, LV and a host of SIPP providers (Hargreaves Lansdown excluded) have simply held out their platforms and watched the money fall in (like the cook with his apron).

The insurers should have sufficient memory to remember the last time this happened, things ended badly. I see things ending badly again and much of that money will have to go back, unless the outcomes of these platform investments, proves better than what the ceding scheme offered.

CDC may not be as profitable to an IFA or platform manager, or SIPP provider or asset manager, but it looks a whole lot safer – if the phrase “safe harbour” means anything at all.

Of course, just because money has reached a CDC scheme, does not mean the CDC scheme will succeed.

But if the CDC model is fit for purpose, and we intend to prove within reasonable doubt that it is, then all these parties may be prepared to swap mega-bucks with a big risk ticket for more moderate profits with lower risk attached.

In practice, I do see IFAs , faced with clients who have good reason to transfer but insufficient funds to merit their wealth management, offering the transfer advice and operating or recommending CDC.

The role of large employers

My primary focus in writing this article , is to set some hares in travel towards the doors of IFAs , SIPP Providers Master Trusts and Insurers. None of these parties have been included in discussions on CDC, mainly because it has been assumed that CDC will be focussed on large occupational pension schemes looking to move to a new benefit basis for future accrual. Royal Mail has already stated that this is its intention, not just for the members of its DB scheme but also for those in the DC scheme – CDC for 140,000 postal workers.

The implications for other large schemes such as USS, BT and even some of the public sector schemes are obvious.

Large employers are not the sole source of likely flows into CDC but they remain the most obvious and most reliable source. It may well be that the impetus to complete the legislation needed for Royal Mail to set up afresh (and avoid strike action) is CDC.

Royal Mail may beat down the door for other large schemes to follow and these schemes collectively may encourage other schemes to follow. The slow burn of workplace pension accumulation does not require organisations like Peoples Pension and NEST to be in any hurry but the acute problem of pension transfers means a solution for those with small transfers is more pressing.

It is tempting to look at a total rewrite of pension legislation but that temptation should be resisted. In practice I see CDC as an extension of DC and that the many flowers in the defined ambition garden can progress as demand from the market requires.

Demand from the market is currently with the large employers with acute DB problems and those problems include the loss of billions of pounds through CETVs to unknown outcomes.

Building a commercial case for CDC provision is as important as identifying demand.

Building a CDC distribution model around these two fundamental needs should allow the workplace pension providers to follow in at a speed they decide on.

I will be seeing the FCA to discuss all this in the first half of January and would welcome any thoughts from readers. The commercial considerations of CDC are critical to its success and they are the little elephants roaming the room.

Compulsion and incentivisation

What CDC does not need is Government incentivisation. If CDC cannot work within the current tax framework then the commercial model for CDC is at fault. No doubt wealth managers will show that for those with high net worth, CDC is not tax-efficient and there will be all kinds of special reasons why those with smaller DC pots might be advised away from CDC.

But CDC is not a tax- driven product, it is designed for people who want the ease and comfort of a wage for life without the drag and risk of having that wage guaranteed.

The Government’s role in the incentivisation of CDC should be as light touch as possible. Perhaps its most important role would be to make the provision of CDC as difficult as possible to any party looking to make a quick buck. The long-term nature of the enterprise requires the investment of patient capital – both financial and human – in return for consideration that is steady and reliable.

consideration 2

The Government should give consideration to “consideration” as the basis of its enforcement.

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

That’s what Friends (of CDC) are for!

that's what friends are for


It is not pleasant to open your phone to find 25 messages directed towards you and your colleagues trolling your work. So thanks to Alan Higham for what I hope is a message if not of support, at least of sympathy.

The suppression of constructive discussion is an activity that I don’t understand. Why bright people take their keypads on a Christmas evening to be rude to people who in everyday life they’d have a decent conversation with is beyond me.

But it gives me hope that the ideas that we are discussing, not only have intrinsic merit , but that they are getting through to ordinary people. Witness the postman I talked to earlier this week who talked with me about what he understood a “wage for life” to  be and – when I explained CDC to him – immediately told me that that was what he wanted.

In the context of ordinary people’s lives and their aspirations for retirement, CDC is what is wanted

.An apology to Mike Otsuka

Somewhere in the trolling last night, I tried to defend Mike Otsuka for something he did not say. What Mike did say can be read here, it is one of the best things yet written on CDC and anyone interested in restoring confidence in pensions will find it uplifting.

What sparked the trolling was the use of the word “deficit” in a blog about CDC published on my website and written by Con Keating. In this blog, Con points out that there by investing in growth assets or “patient capital”, CDC can actually produce better wages in retirement than both DC and DB, because it need have not adopt the de-risking tactics prevalent in DC and DB approaches. The passage that aroused confusion is this.

It may be in surplus or deficit relative to the equitable interests of its members. If in surplus, the new member has an immediate windfall gain, if in deficit an immediate loss.

The confusion arose because Mark Rowlinson (of my parish) had previously said that CDC could not be in deficit. The objection was that the Friends of CDC were talking against themselves.

With aplomb , Mike Otsuka, who had been wronged  by me – came to my rescue!

Whether words like surplus and deficit are appropriate is another matter – the sense is clear – in an equity rather than liability based scheme, it is “ambition” and not a “promise” that is being targeted.

Sorry to have put you to this trouble Mike! I guess you’d say “that’s what Friends are for”.

Nuts and bolts

Those who seek to antagonise us, argue that we should “by now” have come up with a full blueprint for CDC. This is rather the argument put to political parties who haven’t published a detailed manifesto and I can only put it to our detractors that we cannot specify our version of CDC until we know the parameters within which we can work.

It would be foolish to build models in anticipation of secondary regulation but helpful to do modelling at the behest of regulators , to help them create the parameters. Aon have done work on modelling, more needs to be done. The impetus created by Royal Mail and CWU’s moderated agreement to press for a CDC solution , makes the need for this work pressing. In the new year, the USS and UCU and the University employers will renew discussions about the basis for future pension provision for university staff.

Those who consider our proposals “half-baked” , will have the opportunity to participate in consultations, but unless they have alternatives to those which would have taken the postal workers out on strike, I suggest they hold their breath and cut the Friends of CDC a little slack.

Pro bono

As with the work of Chive in Port Talbot, the actions of Friends of CDC is subject to extreme scepticism from “the experts”.  That a group of people can come together to act as a force for good , offends. That they seek no remuneration offends again. In both its genesis and its ongoing activities, Friends of CDC is clearly offensive to a minority of people.

If we need to point to a precedent, the Transparency Task Force , is probably it. It has done much to promote transparency and created conditions where detailed work can be done and it is a Pro Bono group.

If you want to go after Andy Agethangelou of TTF, or Al Rush of Chive or any of the members of Friends of CDC, you are free to do so. You can troll them as glory-hunters, as disruptors or as amateurs. You would be substantially wrong , but you have the right to your opinion.

But you cannot go after the principle of Pro Bono, – for the public good – for it is inviolable and will persist so long as people believe in the right thing to do.

Here is my message to those that troll others for working for the public good.

Pull down thy vanity

Thou art a beaten dog beneath the hail,
A swollen magpie in a fitful sun,
Half black half white
Nor knowst’ou wing from tail
Pull down thy vanity
                        How mean thy hates
Fostered in falsity,
                        Pull down thy vanity,
Rathe to destroy, niggard in charity,
Pull down thy vanity,
                       I say pull down.
But to have done instead of not doing
                     this is not vanity
To have, with decency, knocked
That a Blunt should open
               To have gathered from the air a live tradition
or from a fine old eye the unconquered flame
This is not vanity.
         Here error is all in the not done,
all in the diffidence that faltered  .  .  .

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

Big pension decisions need grounding.


Get back down here!



I am getting worried by the return of the word “systemic”.  It pops up in Andrew Warwick-Thompson’s (otherwise) excellent article “a misunderstood shift” and it’s behind calls from those who know better to “just ban transfers”.

It would be as easy to ban transfers as to make pensions saving compulsory – easy but not right. For when you take away the right of someone to do something, even if it’s as negative as “opting out” you have broken a bond of trust between the state and the individual which is very important to us in Britain.

I would go so far as to say that the right to make mistakes is why we don’t have a written constitution.

Let’s be clear In finance, systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system. What we are seeing in Port Talbot and elsewhere is not systemic, it is local and the result of a special set of circumstances. The ship of state may be leaking but it is not holed beneath the water-line.

Where I take issue with Andrew is not in terms of substance , but of tone. This statement comes from early in his article

Shifting pension risk from firms to individuals may be the only viable option in a low-interest-rate environment. But once the risk is borne by individuals, the danger that poor individual choices will create systemic imbalances could be far greater. People who are poor in retirement are a huge burden that society at large has to bear in some way.

This is more than the statement “the poor is with us”, it implies that poor people take poor decisions. In my experience, poor people don’t take decisions, they have them made for them as they don’t have the money to make free choices.

If you are wealthy, you get access to legal, accounting as well as pensions advice. You can read articles like Andrew’s (published in “Intelligence in European Pensions and Institutional Investment“). These are privileges not granted to most people in this country who have to make do with what they’ve got. I return to the choices that BSPS members told each other they were making.poll bsps

Less than four in a hundred of people were directly exercising freedom and choice, everyone else was delegating. They were putting trust in financial advisers (83%) and  their trustees (13%). That they were choosing advisers over trustees is a marginal decision (to someone who knows nothing about pension governance- they do the same job), what should shock Government is that only 4% of those who answered the snap-poll, felt they had the financial capacity to go their own way. This is hardly surprising, the decision on how to pay yourself a wage for life is “the nastiest, hardest problem in finance”.

This is not what I call systemic, this is behavioural. When faced with choices which are too hard, our behavioural instinct is to put matters in the hand of an available expert, the shift for the steel workers was that they rather trusted an “at-hand” adviser than a remote trustee.

This is a lesson to be learned – we can’t have two worlds!

Frank Field was right when he observed at the W&P Select hearing that the BSPS Trustees and members were in different worlds.two worlds

The problems at Port Talbot and Scunthorpe and Redcar weren’t because someone was buying chicken/sausage and chips, but because the Trustees weren’t. It is a long way from South Wales to Glasgow. Geography matters, the closer to BSPS headquarters, the likelier the bond of trust. There has been no reported transfer trouble at Motherwell, seat of the former Ravens Craig works.

Where pension trustees know and understand their members (and vice and versa) , issues of trust diminish. The vast majority of transfer requests in South Wales happened out of the breakdown of trust.

Member One ;don’t work for Twata anymore the thought of them having their grubby little fingers in the pension was enough to transfer out. I will take my chances .

Member Two; Exactly … my thoughts too I couldn’t wait to get my money away from them

Member Three; We are in this mess because of them greed simple as

Member Four; Finally transferred out of BSPS and gone private. Big relief and happy days

Gone private

Member four went private in a public way, many of the posts on the BSPS Facebook Page are cries of anger and frustration not at the system, but at the particular circumstance that members found themselves in when “choosing”.

Again, to claim that this is a systemic risk and that transfers should be banned, is to misunderstand the decisions that BSPS Trustees made. Looking back , I am sure that they will see that putting resource into the local areas was a higher priority than running remote helplines and websites.

These members went “private” as the “public” confidence had gone and that wasn’t just confidence in “Twata” it was confidence in the BSPS management and trustees.

Public confidence

If we are to keep confidence in collective decision making and collective pension schemes, they need to be relevant to the second decade of the twenty first century. We need to look forward and not back

Restoring public confidence means recreating collective pensions so that they give people the freedoms that they find popular without over burdening people with choice.

The suggestions that are coming from our discussions on CDC are at last addressing these very specific issues. We are asking questions like

  • Should people be able to transfer away from a CDC scheme while it’s paying them a pension?
  • Could people “shape” the kind of CDC pension they receive?
  • Can we explain how smoothing works – when applied to transfers in particular?
  • Is the administrative apparatus up to giving these options?

Good IFAs should be asking similar questions of their clients.  For instance.

  • Would you be able to manage without me?
  • Have you got a succession plan if I’m not around to advise you?
  • How do we deal with matters if our drawdown plan goes wrong?
  • Do you understand what you are paying and what it is for?

I think that those of us who are thinking about CDC , should be thinking about individual drawdown at the same time. We need to ground the arguments for both in the specifics of individual choice and understand the different needs for wealth management and collective pensions.

Systemic arguments – especially arguments about systemic risk- aren’t that helpful!

At this moment, we need to think of how we develop pension policy around freedom and choice , not instead of it.

Banning transfers, or imposing CDC are equally bad things to do. Helping people towards good decisions – as nudge does – is a good thing to do.

Treating people as incapable of making good choices is retrogressive, but giving people options if they can’t or don’t want to take big decisions is progressive.

Trust is everything and trust comes from “being there” rather than in another world.

The lessons of BSPS are critical for our formulation of “big policy” but whatever we formulate, must be grounded in the needs of ordinary people and not based on some vague concept of systemic change or risk!

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

Tell us what value is and we’ll measure it!




Donny Hay , a client Director at Pitman’s Trustees, argues cogently in this week’s Pension Expert- about recent work by Chris Sier and colleagues

the cost assessment template focuses on the numbers, but says nothing about whether those costs represent good value for investors. The context is missing; its inclusion is crucial to avoid a race to the bottom, where literal costs dominate over value for members and investment outcomes

I agree that we need to find a proper measure for value, Donny concludes


Asset managers, whether active or passive, will need to fight their corner to demonstrate that those costs represent good value.

Pension schemes will undoubtedly benefit from this unbundling. Clearer disclosure of costs will empower pension scheme trustees to grill their asset managers on all charges and ensure that trading is optimal and in the best interest of their members.

Fund costs will fall as managers absorb more costs, such as broker research, and there is likely to be an increased use of performance fees as active managers seek to recover these costs

I’m not clear why mean reversion applies to manager’s fees (though Thomas Philippon has argued that it does! The FCA claims that the average margin of an asset manager is 36%, it might equally be argued that rather than find knew ways to skin us, the Asset Managers might tighten their belts a couple of notches!

Value – what value!

Fund managers find it a lot easier to claim they add value than to demonstrate it. This is not necessarily their fault. Since we started believing that “past performance is not necessarily a guide to the future” fund managers have become divorced from failures and successes in the past and increasingly rely on brand awareness among customers and intermediaries.

There is another race to the bottom going on here as brand managers look for the bottom of their branding budgets (a thankless task it seems!)

It is all too easy for a fund manager like Newscape to issue a fund prospectus as disastrous as that for the 5Alpha Conservative Fund but to prosper because of a judicious sales and marketing strategy. In terms of brazen carnality , the supplement is the best example of fee-gouging I have ever read, yet it is a perfectly legal document!

If there is an exemplum for what Donny is saying, the fate of the Active Wealth Management pension transfer -bank, is it!

The value of the 5Alpha Fund , the Vega Algorithm DFM or the advice of Active Wealth Management is in its perceived value. We have no measure to judge it by since 5Alpha is new and we cannot judge it by its predecessor (Strand) since that fund no longer exists. The value of Active Wealth Management is in the perception of its clients who were introduced in the main by Celtic Wealth Management. It is arguable whether the value of this introduction derived from sausage and chips or chicken in the basket, though Clive Howells has argued forcibly in his letter to Frank Field MP, that it was sausage and chips.

This “reductio ad absurdam is another race to the bottom. If value can be reduced to silly conversations about marketing inducements, then the value for money debate is lost.

We need a universally accepted framework to understand “value”.

Just as cost needs the context of value, so value needs the context of cost. But we need to be able to measure value and cost independently and we are now – with Chris Sier’s and Mifid and Priips, close to getting full and standardised cost disclosure.

We need the same for value disclosure. For all their hollering for us to consider value, I don’t see much forthcoming over than fund managers claiming to be “value hunters” and advisers comparing nutritional inducements.

The objectives of a fund must be given a value and the fund’s ability to meet those objectives, measured by risk-adjusted fund performance, must be another measure.

If a fund aims to achieve 2% outperformance of a benchmark and does so without taking undue risk, let’s praise it. Providing that is that the benchmark was vigorous enough in the first place!

If a fund takes too much risk to achieve its objective, let’s mark it down for that. If it takes no risk but fails to deliver – let’s mark it down. If the benchmark is akin to stuffing the money under the mattress- let’s mark it down.

Cost is – in the final analysis – only one of a number of risks a member takes, cost effectively raise the bar for value. But cost is easily measurable and comparable. It is one risk that can be taken off the table (to the extent that funds bear unnecessary costs). The risk of paying others too much is one that any sensible person can see is “unrewarded”.

The ball is in the “value-hunter’s” court

While it is right that the Investment Association is given a low place at the costs table, it is also right that they be fully involved in the value debate.

Provided we have nailed cost, then value is a “sunny upland” and I hope that the IA will be getting on with a proposal for us to measure value which can allow us to complete value for money comparisons.

Value hunters should know what value is and they should be able to tell us. Whether it is through the delivery of “alpha” – whatever that is, or “beta”- which I find easier to understand, the fund management industry must tell us what they want the rules to be.

As Donny puts it;

The context is missing; (value’s)  inclusion is crucial to avoid a race to the bottom, where literal costs dominate over value for members and investment outcomes

chris sier


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

If you can’t be clever – have clever friends

Having clever friends has been the secret to whatever success I’ve had!

In my third year at college in 1983, a bloke in specs appeared. His name was David Wilson and he came out drinking with us. He was a really good bloke and I’ve often wondered what happened to him.

Last night, my old college, Selwyn College Cambridge, were on the University Challenge up against the sweaty socks of St Andrews. Blow me down but David Wilson was on, now Professor David Wilson . He captained the alumni to a heroic victory and Wilson knocked off 73 of our 145 points! You can watch it here!

David wilson 3

The whole team contributed and I’m pleased to confirm that Sophie (S) Wilson, the person who designed the BBC computer was a chess adversary of Stefan Zait – our BSPS hero!

David Wilson 5


Sophie left with Stefan, the year I arrived. David turned up as a PHD student , being that bit older – and a whole lot cleverer!

Mirum diem

Boxing Day 2017 will be a day of sporting wonder for me for many years to come. Not just were the Alumni doing their thing, but Yeovil Town recorded its first back to back victory since 2014 beating local rivals Cheltenham Town 2-0 away. Add to that news that Moonlight Camp is in preparation for his first race and England caning the Aussies in the Boxing Day test and you can see why yesterday was a “Mirum Diem”.

Selwyn College – no longer the backdoor!

Ok – Selwyn’s the college that no-one has ever heard of and till recently it had a reputation as the back-door to Cambridge. But I’ve got a shed load of Selwyn friends from the early eighties and a good few of them will be reading this blog.

So if you are, and you haven’t been in touch, drop me a line at henry.tapper@pensionplaypen.com

We might have a get together in the Cockpit in Blackfriars and I’ll get Zoe to switch on BBC2 for the next round.

Keep your friends close and your clever friends closest!

Posted in Blogging, pensions | Tagged , , , , | Leave a comment

One man’s solution to his problems with “pension freedoms”

David Neilly is a steelworker who has represented Port Talbot members of BSPS at Parliament.

David stef

David Neilly ; centre picture


His words count; we talk of a  pensions “industry” but this is from a man of Ravenscraig and Port Talbot. It is published with David’s permission.


Mr Frank Field Chair of the Pension Freedom and Choice Select Committee.

Season greetings to you Chair and the members of the Pension Freedom and Choice Select Committee, In order to quantify the contribution that the BSPS Members make to the UK economy, I am sending this email to you, from my control room in the steelplant in Port Talbot at 25/12/2017, 7am to 7pm day shift.

As the new Pension Freedom and Choice Act takes its infantile steps the current Defined Benefit Schemes must also work towards the flexibility that can be realized from the Pension Freedom and Choice Act. Why aren’t the Defined Benefit pension schemes more flexible in allowing early or partial access to the member’s funds?

We the BSPS members have now found ourselves in a position where the Financial Services Sector are now actively avoiding our requests to transfers. With FCA reducing the amount of qualified practitioners due to client capacity and or non-compliance issues. We now have to go further a field to find an IFA to facilitate a pension transfers transaction request, which increases the likelihood of compliance breaches by financial practitioners.

In order to give the level of protection to the Defined Benefit Scheme members there is a need for a safe haven so members can exercise their Pension Freedom and Choice options. The creations of a single regulatory body to authorize the Defined Benefit transfer transaction; this would work by an IFA requesting a transfer pack from the centralised source. The Defined Benefit transfer pack would contain all the necessary documentation required to facilitate the transfer protocol.

This Authorized body would be responsible for identification, implementation and execution of the Defined Benefit transfer transaction via the Pension Scheme Trustees. As the intermediary, this would lead to improved processing and transparency and help identify the non-compliant practitioners quicker.

By creating this Authorised regulatory body its prime objective would be to highlight the financial practitioners who do a deliberate act entrapment, manipulate, scam, the Defined Benefit Scheme member, and fund-managers who offer artificial enhancements to the introducers, mitigate the rogue factor.

The financial services have enough control measures in place to reduce the likelihood of a repercussion of the red flag events seen with BSPS transfer. In order to further improve the reaction time within the compliance system could the digitization of the Defined Benefit transfer transaction aid the current measure data analysis for identifiable traits for risk adverse products that warrant action by Financial Conduct Authority?

Many Thanks


David Neilly


david n

A Scotsman in Wales!

Posted in pensions | 4 Comments

Five Christmas Crackers from the Pension PlayPen!

oh no

Merry Christmas readers. I bring you news!



Plan B

Here are five Christmas Crackers to discuss round the tree while you’re waiting for Santa 2.0.

CRACKER ONE – Transfer contracts; FCA to bring in rules surrounding the disclosure of costsFCA 78

  1.  Full disclosure of all transfer costs and cost of ongoing advice to include an estimate of exit penalties from fund management and/or advisory contracts.
  2. Independent sign-off from a second IFA where total cost of transfer exceeds 2% or £2,000.
  3. Banning of all marketing expenses paid from funds to third parties for provision of services (e.g. lead generation). Lead generation costs to be explicitly stated where total cost exceeds 2% or £2000
  4. Transfer analysis and advice certificate to be paid for prior to request for funds and not charged conditional on transfer transaction completing.
  5. Advisers engaging in this business to submit fee model to FCA prior to annual authorisation. Re-authorisation subject to inspection of previous year’s business, cost of PTS to be calculated by FCA to include this extra regulatory burden.

Undoubtedly these measures would decrease the numbers of advisers willing to offer DB transfer advice.  It would reduce the numbers of advisers preying on the vulnerable and focus transfer advice on “special cases” (see CRACKER TWO).

CRACKER TWO – those transferring out of DB must have “special needs”

Where advice is given to transfer, Al Cunningham’s “what makes you special?” test needs to apply. The client needs to explain in their own words (not more than 200), why it is that he/she considers transferring is in their interest.


CRACKER THREE – Guided pathways to include CDCcropped-target-pensions.png

That the FCA and DWP work together on guided pathways for the over fifties who do not have access to good advice and have DC pots (of whatever size).

Guided pathways should include deferred annuity schemes (as proposed by NEST and put in practice by several master trusts)

Guided pathways to include the opportunity for a CDC operator to offer access to a scheme pension at the operator’s discretion , for members wishing to exchange cash for “a wage for life”

CRACKER FOUR – Government to shift from providing to facilitating pension dashboards

That the regulatory costs of the above are met from a redirection of monies away from the Pension Dashboard project. The Pension Dashboard project should be rescaled to the original Treasury conception of Government approved data standards available to commercial organisations looking to improve the visibility and transferability of “loose” DC pots.

CRACKER FIVE –   the new institutional disclosure regulations are extended to retail cover workplace pensions and retail SIPPs.

The artificial division between retail and institutional investor be abolished and all funds, including those offered by SIPPs through DFMs , are subject to the same cost disclosure regulations.

The vertical integration of fund managers and investment advisers offering holistic services to those purchasing investments through retail pension wrappers , is being abused.

Where retail investors want to or are advised to “self-invest”, they should be regarded as having “special needs”, one of which is a heightened understanding of investment costs and charges.

We have protection for intuitional investors , through trust boards, protection for those in contract-based workplace pensions from IGCs, but we have no protection for those investing in Self Invested Personal Pensions. Since these contracts use investments which are supposedly “self-directed” , the onus on disclosure must come from those executing the contracts.

My final recommendation is that the responsibility and cost of reporting on the total cost of investment (including adviser costs) within a SIPP contract, should fall to the SIPP manager. The cost of this reporting should be included (and explicitly quoted) in the wrapper fee.

Five Christmas Crackers – implementable in 2018!

My experience over the last three months leads me to believe that where a small group of like-minded people get together for the common good, they can make change happen.

That is what Al Rush and I started and what others (led by Al) have continued.

There is no point in simply pointing to Port Talbot as an isolated instance of abuse, we know that bad advice, poor implementation and rip-off charges are happening elsewhere. There are systemic problems in the provision of advice on freedoms that include;

  1. The practice of conditional pricing
  2. The under promotion of obvious transfer solutions (workplace pensions +)
  3. The over- promotion of complex products using SIPP wrappers
  4. No proper contracts for those contracting into advisory fees.
  5. Chronic under-resourcing of regulators and legislators to make things better

My five Christmas Crackers give those “in charge” some light-hearted Christmas discussion topics.

Santa is clearly in trouble this year, his presence has been delayed and we should use the intervening period to discuss such pleasant and Christmassy suggestions as are contained in my FIVE CHRISTMAS CRACKERS!

five crackers



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

Opting back into a pension scheme?!?

One of the uses of a CDC scheme could be to allow people who have opted out of a DB plan – to opt back into a scheme which pays them a wage for life – albeit one that isn’t guaranteed by an employer or by other schemes. In this blog, I look at the logic for people to do this.

I should point out , that opting into a CDC scheme isn’t possible yet, and even if it was, it wouldn’t be the right thing to do – for many people, but read the blog and then come to your own conclusions as to whether that option might be a comfort.

How can my pension be worth so much?

A lot of members of defined benefit pension schemes seem amazed at the present value of their future pensions.

I am not an actuary and also struggle with “discounting a series of future payments into a cash equivalent transfer value”. I wrote a blog called “why are transfer values are ridiculously  high”, which is one of the best read of the year. Con Keating has added some technical detail.

It’s often said that we underestimate how long we’re going to live (Apparantly by 8 years), it’s not so often said that we underestimate the economic value of the work we do.

If the wage paid to the average British worker (lets say £27,,000) were to be paid over a working lifetime , an actuary might value that string of payments over 40 years at something like the range of transfer values paid today on a pension commencing today to someone on 55.

To put it another way, to pay my son an average wage for life , I would need to invest a sum of around £1m today.

So in terms of their economic value, those steel men I spoke to in their fifties, had already delivered a million pounds of work (in today’s money) and stood to be paid a pension valued at around £350,000 (in today’s money). The shortfall between the transfer value and the cost of two thirds of a million pounds (the full DB promise) is the actuary’s estimate of the real growth in investments that can be expected above wage growth.

If we expect no real investment growth (above wage growth), we might have to pay higher transfer values yet!

The average young person is worth a million pounds in work

If this headline appeared on the front page of the Daily Mail , most Mail readers would cough and splutter through Christmas – aghast.

The average person retiring in their fifties needs a million pounds in their pension

If this headline appeared on the front page of the Daily Express, most Express readers would react similarly to the Mail readers.

But these are the present values of a lifetime’s work and a replacement  “wage for life”.

We start work as millionaires in unpaid wages and we should finish work as millionaires in unpaid pensions.

Would my son want his money up front?

If I were to pay  my son one million pounds and tell him this was instead of a wage to life, I am sure he would be extremely happy with the deal – for a few minutes. But being a smart lad, I think he would ask himself how he was expected to manage that money and what he was supposed to do with his time over the next forty years, he might even ask where he was expected to find the money to pay for the later years of his life!

Infact it would be a terrible deal for my son, if he realised that taking the money now, would deny him the wage for life that he would otherwise get, he’d be bricking himself. Looking back at all the payments I have had to make for my and my family’s expenses, the thought of managing them out of a lump sum paid to me 40 years ago, sends shivers down my spine!

But that is precisely the pact that many of us are making with our pension providers when we take a CETV.

Of course it’s not as simple as all that.

The present value of my state pension , due to be paid to me in just over 10 years time – is probably £250,000, most of the steelworkers I spoke to , knew about this and they also knew they still had economic value from their future work (they might feel knackered at 55 but they had money-making in their bones). Which is why, the CETVs are regarded – to an extent – as windfall money.

But even with the future promise of work and pensions, the enormity of old age and the financial demands of a failing body, had not sunk in (to many of the people I spoke to). Nor would I expect it to. We are not designed as functioning working people to worry about the future in the way that I – a dysfunctional cod-actuary, cod-financial planner, worry about mine!

My father is in his late eighties, so is my mother, they are in the 30th year of receipt of an NHS pension and that pension goes up every year in line with inflation. It meets their financial needs today, just. It does not meet the special needs that might befall them tomorrow – the cost of care. They have been frugal all their lives and they get a state pension and help from the NHS which means they will be alright – especially as they have four sons who can help out.

But… to a pensioner – a pension means so much

But that NHS pension, still going strong after 30 years has supported them for three decades. For them – it is pretty simple, they have been paid a wage for the second half of their life based on the wage from the first half of their life (and without my mother, my father could not have worked as he did).

When I was giving evidence to the Work and Pensions Select Committee , I meant to make three point, the first two were about the transfer process and investments, the third was about ongoing advice and support.

The ongoing support that a pension gives older people is independent of any advice. But the Steel workers I have spoken to are dependent on advice to support them for the next three decades or more. They are relying on an advisory superstructure that may or may not be there for them.

At present, if they want to move from a drawdown from capital to a pension, they will have no choice but an annuity. The option to return to the BSPS2 or PPF will not be open to them.

I , and other Friends of CDC, see the creation of another option- the option to transfer that money back into a pension plan which pays a wage for life (albeit one not guaranteed by employers or other schemes) – a good option.




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Leave DB – we need proper DC



I don’t care if you fall it CDC, target pensions or “proper DC” as I call it in the title. What we need is an opportunity for everyone who has saved in a retirement plan to be paid a wage for life and to my mind that’s what a pension is.

Which is why you can keep your ISAs out of this conversation. The ISA is a decent way of building up a capital reservoir, but it won’t pay you a wage for life and needs to be kept in the shed outside the pension house.

Until now, the only thing that got called a pension was “guaranteed”. The state guarantees your pension (though not when you get it!), employers guarantee your pension (until it gets too tough and they hand over to the PPF and insurance companies guarantee you a pension , if you buy an annuity.

The funny thing is that we work all our lives with no idea if our pay will go up , down or even be there next year, then we get to retirement and we expect the income for the rest of our lives to be guaranteed (and usually to be inflation-proofed too!).

It’s the cost of that guarantee that has done for Defined Benefit pensions and it’s done for annuities too. it hasn’t sunk the state pension because the state can change the basis and timing  of the benefit according to its needs. in this, it has something in common with CDC.

CDC is a way of turning DC into a pension without anything being guaranteed.

CDC is not a dumb-downed version of DB – it is proper DC – DC which pays a pension.

All this is a preamble to the main point of this morning’s blog. It follows a post from a friend of mine who is a Friend of CDC.

I had a long chat today with  one of the civil servants at the DWP who would be drafting any CDC legislation.

He has made the following points:

a) The Pensions Act 2015 was really drafted to allow Defined Ambition and shared risk schemes. Whilst the CDC section was tagged on to it, it wasn’t done as a stand alone section and you couldn’t introduce this bit of the Act without the whole of the defined ambition stuff as well. That means re-writing lots of pensions legislation and he thinks that’s a 2-3 year project with no guarantee of political support

b) An alternative would be to start from current dc legislation and see what needs to be done to is to allow collective accumulation and drawdown. He thinks this could be a much better way of approaching the problem

This may sound arcane stuff , but it’s vitally important to the way we organise pensions in this country.

Royal Mail and the 140,000 people it provides pensions to , have agreed to adopt a CDC approach just as soon as there are sufficient regulations in place for this to happen.

They might have a long wait if the DWP can’t find a way to write the regulations quicker than the 2-3 year project mentioned above. That wait might not be acceptable to Royal Mail or the members and that might mean a return to the strained industrial relations that have dogged 2017. 87% of the members have voted for a wage for life and CDC offers it, cash-balance DB and DC don’t cut the mustard.

But we should not plan this nation’s pension strategy around 140,000 workers – the rules need to work for everyone. Royal Mail is the spur to prick the sides of DWP’s intent. But no more.

People don’t trust DB and don’t understand DC.

The fundamental reason why we need Proper DC – e.g. DC which pays pensions , is clear to see , to anyone who has been following what has been going on in Port Talbot.

The real reason  around 18,000 of the 43,000 eligible steelworkers  have applied for a transfer quote, is that everybody is fed up with the scheme’s sponsor – TATA. If you don’t believe me – read this.  People are increasingly distrustful of their employer’s capacity (let alone intentions) to meet the DB  guarantees and they are taking their money away by the billion. Lloyds Banking Group have seen £3bn leave its scheme in 2017, Barclays are reported to have lost even more, one pension scheme CIO I spoke to last month tells me his colleagues call him “cashpoint”.

This is all very well, were there a decent place for all this money to go. This is not to say that good financial advisers aren’t doing a sterling job managing the SIPP drawdowns for their clients, but a lot of this money is not going into carefully planned retirement decumulation plans but into plans that I fear will not end well. Much of the criticism of what has happened at Port Talbot has been levelled at the advisers. As far as I can see the advisers have used legal SIPPs which invest into legal funds with legal charging structures. All this may seem fine until you do the maths and realise that the only guarantees from these funds is financial ruin.

People who say that DC has been unfairly demonised by government – argue that DC would give as good as DB with the same contribution level. This is tosh – for one thing – DC has a finite horizon – even the NEST guided pathway tips you into an annuity. That means shorter investment horizons , lower investment returns and no either an annuity or no insurance against living too long.

People don’t trust DB and don’t understand DC, the only reason that DC is not a scandal is that we haven’t seen its outcomes (yet).

Proper DC now!

We need proper DC now and it should be the default for anyone who wants a pension from their retirement savings

I’ve been saying this for the eight years I’ve been writing this blog and I’ll be saying the same thing for a good few years to come!

DC is not fit for the purpose of paying ordinary people pensions , DB is no longer trusted. 87% of the 140,000 postal workers were prepared to go out on strike rather for the right for a wage in retirement.

Those steel-workers who I spoke to had little or no idea how their SIPPs would pay them a wage for life and neither have I. The same can be said for most workplace pensions that have no pension strategy other than to signpost those at retirement to financial advisers who have capacity or inclination to help anyone but the “wealthy”.

Proper DC will help Royal Mail and the postal workers, it could help USS, it would certainly help those taking DB transfers and it will be a godsend to those managing workplace pensions.

The DWP seems to have got the message

Cross as I am with the DWP chasing rainbows with their pension dashboard plans, I am still a huge fan of Charlotte Clark and her team. I am confident that those looking at writing the secondary regulations for DC will find a way to quickly and efficiently deliver us Proper DC – CDC – Target Pensions.

Part of that confidence is because of the 50 or so Friends of CDC who are doing everything they can to help!

If you think you are a Friend of CDC – please drop me a line on henry.tapper@pensionplaypen.com and I’ll keep you in the loop.





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Here error is all in the not done, all in the diffidence that faltered . . .


Thanks to the Work & Pensions Committee for giving me a soapbox. Video doesn’t lie and this is what I said, and how I said it. I’m particularly pleased that I was able to share one of the best things I learned at this summers Great Pension Transfer Debate where Al Cunningham spoke.

Some people have called this scaremongering and no doubt Al Rush and I will continue to get criticism from those who support a different way of doing things. However, I put it to you, that if we are to make sense of the FCA’s findings that more than 50% of the advice to transfer is wrong, there must be something that defines what wrong is.

What is wrong with transferring?

There is nothing wrong with transferring if you are know what you are doing. I question whether the comments in this blog, demonstrate that the people transferring know what they are doing, though they might do. Simply kicking out against the sponsor of your pension scheme is not a good reason to transfer and people who give this as their chief reason to take a CETV look extremely vulnerable to being ripped off.

I’d turn things round. To have a good reason to transfer, you must be able to articulate to yourself and to your adviser (assuming you’ve got more than £30k as a CETV) that transferring is in your best interest. The adviser has got to push back if he or she disagrees.

A financial adviser is paid to advise, and as Al Cunningham, Al Rush and all good advisers do, financial advisers have got to be good at saying “no”, even when “yes” makes them more money.

What is wrong with transferring is that defined benefit pension schemes are the best way for most people to get a wage in retirement. It is the exceptions that prove that rule- and there are exceptions.

What is wrong with the world?

A much bigger issue relates to why we cannot be definitive with people and tell them they are wrong. One large pension scheme I deal with knew that a huge amount of CETVs were being taken by one adviser. That adviser turned out to be one of the six that have stopped giving BSPS CETV advice because of the FCA’s current interventions.

But the trustees of this scheme had not shared their intelligence with the FCA and so nothing had been done.

Ezra Pound ends my favourite poem of his

Here error is all in the not done,

all in the diffidence that faltered  .  .  . (Canto LXXXI)
Much of what is wrong with the world is that we do what is easiest to do, not what is right. Which means that bad things happen.
But on a happier note, Ezra Pound also wrote
gloom gold
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Concerns over the money invested though Active Wealth (UK) Ltd

This blog is about the investment solutions recommended by Active Wealth (UK) Ltd to members of the British Steel Pension Scheme (BSPS).

  1. Corporate structures
  2. The role of Vega Algorithms
  3. Custody and fund governance of 5Alpha
  4. 5Alpha fees

Scene setting; the investor’s journey

I ( understand from documents shown by clients of Darren Reynold’s Active Wealth (UK) Ltd) that a typical journey for invested monies after transfers from BSPS.


Members are understandably confused about where the money is going and who all the participants are.

The complex relationships described below enable huge amounts of fees to be levied on investments. By way of example, the 0.66% pa currently being charged by Vega Capital for the Vega Algorithms is paying for nothing at all. I estimate that business as usual for what is described below is costing around 18 times as much as is being levied by Aviva for running the same service for steelworkers in the TATA GPP.

Concern one; corporate structures.

Typically, I have seen money from Active Wealth Uk Ltd (Active Wealth) invested into the “Vega Algorithms AWGO – Ultra-Conservative portfolio” which is currently invested in the 5Alpha conservative UCITS managed by Newscape Capital Group. Vega Algorithms is a research and technology company that advises Gallium Fund Solutions Ltd on its portfolios and is an Authorised Representative of Gallium Fund Solutions Ltd.

This note looks at the underlying asset into which most of Active Wealth’s money is invested. CETVs are principally invested through the Momentum SIPP and the Intelligent Money SIPP. I am not focussing on these two firms, who are clearly doing what they can to help BSPS members.

My concerns with the other participants in the chain are more substantial.

I cannot see how Vega Algorithms and 5Alpha are separated.

Steffen Hoyemsvoll who manages Vega Algorithms gave an interview earlier in April 2017 as manager of Newscape’s 5Alpha .Vega Algorithms is an appointed representative of Gallium Fund Solutions Ltd).

Gallium and Vega Algorithms are also linked through regulation, though the impact of this link is not clear.

David Cassettari is a CF1 Director of Gallium Fund Solutions Ltd and AR for Vega Algorithms and Steffen Hoyemsvoll is CF30 for Gallium and AR for Vega Algorithms

I can see clear links between the Celtic Wealth, Strand and Vega Algorithm businesses.

Steffen Hoyemsvoll is also well known to My Workplace Pension, a master trust known to Clive Howells through his partner – Gavin McCloskey , co- owner of Bespoke Pension Solutions. Gavin McCloskey is also listed as a Director of MWP Pension Ltd which operated My Workplace Pension.

Celtic Wealth Management – (which provided leads and office space to Darren Reynolds) – was created out of Bespoke Pension Solutions, (much as Vega Capital emerged out of Strand Capital).

My Workplace Pension employed Strand Capital to invest member’s assets and Steffen Hoyemsvoll is the named manager on My Workplace Pension’s website’s “who we are” page

We can see that Steffen Hoyemsvoll is named as the manager of Strand Capital which, until it failed in May 2017, managed My Workplace Pension’s investments.strand

I can see a clear link between this master trust, Bespoke Pension Solutions and Celtic Wealth.

I can see that Steffen Hoyemsvoll is still managing money resulting from the lead generation of Clive Howells and associates to this day.

The ownership of Vega Algorithms and Strand gives further grounds for concern.

Strand Capital’s former owners “Optima Wealth Group” (OWG) is listed in Strand’s former offices. It also owns 48% of Vega Algorithms and Brandon Hill Capital which it acquired in 2015. Optima’s principal is Neal Griffiths. OWG does not look solvent from a preliminary inspection of its accounts

Like Strand Capital, My Workplace Pension is no longer accepting new business.

With such a high casualty rate, I wonder how wise it is for the entire proceeds of BSPS member’s retirement accounts be entrusted to the management of this small web of companies and individuals.

Concern two; the Vega algorithm.

Despite it only investing in 5Alpha, Vega advertises itself as having radical capabilities, this is a statement taken from Vega Capital’s website

Unbiased algorithmic portfolios

The portfolio construction algorithm is based on empirical research and up-to-date portfolio management techniques. We use technology to do the heavy lifting: the systems we have created enable us to make qualitative and quantitative assessments of 1,000s of securities every day. The result is an intelligently diversified portfolio with the greatest potential for return for a given risk profile.

You can be sure that the human biases of fear and greed, proven to be detrimental to long terms returns, do not play a role in how your investments are managed. Instead, every investment decision made is free of emotion and consistent with a growing body of investment and risk management research that spans decades.

Similar hyperbolic language is used to describe the Vega system of risk management.

Despite this, there is no evidence that the Vega Algorithms does anything at all other than holding the 5Alpha fund. At present the algorithm is merely a marketing device.

Concern three; custody and fund governance of 5Alpha

5Alpha uses the outsourced service of Newscape, an Irish hosting service. A similar arrangement is described in this article.

My concerns here and elsewhere focus on the 5Alpha Conservative Fund Factsheet and especially from the Conservative Fund Supplement (the Supplement) downloadable from the Newscape website

Despite the numerous participants in the chain, we have no idea who acts as custodian sub-custodian and accountant of the assets of 5Alpha. I am aware that failures to disclose these relationships led to the falsifications in the Madoff fraud and could allow those operating the funds to declare whatever performance numbers suited its purposes.

The 5Alpha prospectus gives the managers almost total discretion as to the funds exposure to exotic assets, there are no guidelines on portfolio turnover. This is particularly worrying as though the fund’s target investor profile is the low/moderate risk investor, the Supplement suggests that the fund could be incorporated into a fund with a different investment portfolio.

Considering the managers of Vega Algorithms and 5Alpha appears to be the same persons, the controls on risk management seem weak and the provenance of the asset management team as weak.

Concern four; 5Alpha Fees

Ignoring whatever fees are levied elsewhere, the capacity of 5Alpha to ruin the retirement plans of those investing in it, stretches beyond its investment strategy (see Addendum). The fee schedule laid out in the prospectus is frightening.

The stated management fees of the fund are 0.5% pa. This management fee can double at any time and for any reason and without notification, so the fund can operate with a 1% charge whenever it’s managers want it to.

The fund also pays its managers a performance fee of 10% of returns over a 5% pa performance hurdle. The Supplement is quite explicit in detaching the fee from what the members get as a return.perf 1

One instance where performance fees might be paid, where no performance has been realised is where third parties have been paid out of gross contributions. The 5% performance hurdle is based on the performance of the fund after entry costs have been deducted which wouldn’t normally be an issue, but certain share classes of this fund allow a 7.5% marketing fee to be paid to an introducer.

There is good reason to believe that a fee of this proportion has been paid to Darren Reynolds on money he has invested into the Vega Algorithms. The statements below are taken from the BSPS deferred member Facebook page.perf 2

The member may see a gain on his statement but not be able to realise it as can be shown below.

It is easy to see how such an exit change can be generated. Many of the share classes allow for at least 10% of the initial investment to be taken in year one. This table is taken from the Supplement.perf 3

In addition to these stated charges are other costs, the following analysis has been passed to us from someone we consider to be expert in this field.

  • “The Introducing Broker will be remunerated out of the assets of the Fund for its services directly by the Fund on an ongoing basis at a rate of 0.25% per annum”.
  • A Contingent Deferred Sales Charge will be payable to the Fund when Shares in certain classes, as set out in the Chart, are redeemed.”
  • “To preserve the value of the underlying assets and to cover dealing costs the Investment Manager, on behalf of the Company, may deduct from the repurchase proceeds when there are net redemptions an anti-dilution levy of up to a maximum of 2% thereof to cover dealing costs and to preserve the underlying assets of the relevant Fund.”
  • Total to leave in year 1 is therefore 7%
  • “The Investment Manager is also entitled to be paid certain specific costs and out-of-pocket expenses incurred directly in relation to the Fund that including marketing and data and information source subscription expenses
  • These are known as disbursements. In this case these fees include marketing expenses. This is unusual, uncapped and highly likely to be abused.
  • “The Administrator shall be entitled to receive an annual fee out of the net assets of the Fund charged at commercial rates as may be agreed from time to time up to a maximum fee of 0.08% of the Net Asset Value of the Fund accrued and calculated on each Dealing Day and payable monthly in arrears subject to a minimum monthly fee of up to €3,000.”
  • This may be spread across the entire fund, but if levied on the asset of an individual, it means EUR 36k pa
  • “The Depositary shall be entitled to receive an annual fee out of the net assets of the Fund charged at commercial rates as may be agreed from time to time up to a maximum fee of 0.03% of the Net Asset Value of the Fund accrued and calculated on each Dealing Day and payable monthly in arrears (plus VAT thereon, if any) subject to a minimum monthly fee of up to €3,000.”
  • Again probably spread across the whole fund, but also possibly levied on individuals, at a minimum of EUR 36k pa
  • Sub-custody transaction and holding fees are also applied at ‘commercial rates’. No fee schedule is attached, but a bad sub-custodian will charge a lot for passing and holding esoteric asset in esoteric markets
  • “The Fund may incur a distribution fee or charge, payable to the Investment Manager or for onward transmission to an intermediary or distributor or by way of direct payment to an intermediary or distributor of up to 5%”
  • “The Fund may levy a discretionary arrangement fee on an initial investment payable to the Investment Manager or for onward payment of up to 3%”
  • “The cost of establishing the Fund and the expenses of the initial offer of Shares in the Fund, marketing costs and the fees of all professionals relating thereto are estimated not to exceed €50,000 and are being borne by the Fund and charged to the Fund”


With the exception of the SIPP providers, I see evidence of collusion along the whole supply chain.

Clear links exist between Celtic Wealth, Active Wealth, Vega, Newscape and Gallium. There are links here to other failed ventures such  My Workplace Pension and through this master trust to Strand Capital.

Taken together I see considerable danger of failure .

There is insufficient evidence of controls in the Supplement and insufficient track-record of the fund to justify anything other than a highly speculative investment. I don’t think this is what the members who used Active Wealth Management had consciously chosen to invest in.

Quite apart from these failings, the costs associated with investing in these funds, especially if it is found that money was invested through share classes B & C, make it highly unlikely that there would be capacity to pay reasonable pensions over time.

I am grateful for help in putting together this report by experts, one of whom has asked to be quoted.

I am an experienced professional investor, both personally and as an institutional manager. I have been active in the world of pension investment for decades. In my opinion, this investment proposition is wholly unsuitable for individual pension savers, and particularly so for those nearing retirement. – Con Keating.

Call for Action

Having conducted this investigation, I call on the FCA to immediately canvas IFA and brokers to establish the nature and extent of any investments into Vega.

I suggest the FCA issue a “Charlie Charlie”. This is the phrase used in the military to get radio subscribers to prick their ears up and listen in to an important signal intended for all call-signs.

In the meantime, there is helpful advice from a number of sources –  collated in the blog “steelworkers – what to do now”.

taibach al

Addendum – an example of member disclosure.

It would seem that what members hear is  different from what I see.

There has been a lot of talk on the Facebook pages about a 0.66% annual charge applying to Vega. Here is  evidence of how this number is publicised – an anonymous email posted on the Facebook pages suggests disclosure that Vega’s annual fees are 0.66% .

Whatever the intended impact of this disclosure, it in no way describes the full impact of “fees” on an investor’s account.

No automatic alt text available.


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Is auto-enrolment to become a stealth-tax on the poor?

stealth tax two



The DWP has released a 200 page  report into the state of the auto-enrolled nation. You can access it here.

I’ve read the executive summary which is full of surprises and the report is clearly informing future strategy.

The executive summary is data heavy and analysis light. It concludes that we are saving more but that our saving is diluted over a wider group so that average pension saving is actually down.

The summary looks at the pinch points of Auto-enrolment, in particular the opt-out patterns but doesn’t contextualise its findings against the needs of households. What is needed is to know whether it is sensible for low-earners to be saving into workplace pensions (as opposed to avoiding debt) and whether the proposed increases in full-pay saving , are really necessary.

If you haven’t seen the proposals for auto-enrolment, have a look at yesterday’s blog.

david robbins

Is auto-enrolment becoming a stealth tax on the poor?

Nudging low-earners into high savings increases their savings ratios much faster than high-earners. With an improving second state pension , it could be that many low-earners are “over-saving” and could be doing better things with their money.

Lurking at the back of this are comments made in a recent review of the solvency of state pensions by the outgoing Government Actuary


GAD quinquennial review of State pension Funding (2014)


I am told that “phasing options” is code for a reduction in state pensions. This is of course the Treasury’s de-risking strategy. High dependency ratios among poor pensioners mean high state support for poor pensioners. Getting pensioners to pay for their own support through private pensions reduces the need for subsidisation from the tax-payer. This is how stealth taxes work.

Why don’t low earners get savings incentives?

Such a cynical view gains credence when one considers the absence of any discussion on tax-relief for those not paying tax. As numerous blogs have shown, a high proportion of those auto-enrolled with earnings in the  £8-12,000 range are contributing to workplace pensions without getting the promised government incentive (equivalent to tax-relief).

These people will see their minimum contributions increase by 500% over the next two years, but they will not see this blow cushioned in any way by the incentives enjoyed by higher earners. How absurd and how unfair. The problem is compounded by low-earners not benefiting from other tax-saving-wheezes such as “salary sacrifice”.

And how do the poorest get paid a pension from all this saving?

At the time that the Government Actuary wrote his report (back in 2014), there was an assumption that all this pension saving would turn into the payment of a wage for life (a pension). The words “Defined Ambition” appear in the excerpt quoted.

GAD was writing when the hope was that this workplace pension saving would result in the payment of pensions resulting from the adoption of CDC and other strategies by workplace pensions. Ironically, this is strategy, that was seen as “at odds” with pension freedoms, was dropped early in the term of office of the ill-starred Cameron government.

Two and a half years later, the calls are once again for a means to turn pension pots into pensions. Royal Mail and its principal union are calling for 140.000 postal workers to save using collective defined contribution, the Work and Pension Select Committee is inquiring into how CDC might yet get the oxygen of proper regulations and the Labour party has adopted CDC as part of its pension proposals.

The answer to the question about how the poorest get pensions from their savings does not get answered by IFAs – who are not their to give financial advice to those with modest savings. It is not answered by the pension freedoms – see how they play out in Port Talbot. The answer to the problems low earners have converting cash to a wage for life lies in CDC.

87% of Royal Mail workers in the CWU voted for a wage for life over a cash balance of DC solution.

I want to see the end of pensioner poverty.

The auto-enrolment proposals being put forward by Government under the disguise of supporting younger people, are in practice a tax on the poor.

  1. They hit poor people’s wages disproportionately hard. (see chart above)
  2. They exacerbate the fiscal injustices of the pension taxation system
  3. They offer Government the moral hazard of reducing state spending on state pensions
  4. They are ignoring the meaningful reforms of workplace savings plans to make them workplace pension plans.

I want to see the end of pensioner poverty, but I don’t want that to be achieved by making ordinary families save so hard that they cannot have a decent standard of living while working.

The proposals put forward by David Gauke this morning are based upon faulty assumptions. I look forward to reading the whole of the DWP analysis and expanding on this theme over coming weeks.

This looks like being a very cold and damp Christmas for the poor and the Government auto-enrolment proposals will do nothing to make it any better.

stealth tax


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Auto-enrolment for all?


The Government has leaked details of the findings of their auto-enrolment review and what its wanting to do about them.

Each of the four proposals outlined below has merit, though they won’t be achieved without protest from those who will  pay more into deferred rather than immediate pay.

The fundamental problem that these extra contributions won’t be used to pay pensions, isn’t addressed. Though these proposals add weight to arguments that the DWP should complete unfinished DWP regulations for Target Pensions (CDC).

The consensus is that any “intentions” that won’t be implemented for 7-8 years aren’t worth the leaking over a weekend. Much of what’s on offer is “spin” and social media knows it!


Meaningful change when change comes

These proposals would mean substantial changes – especially for people on certain bands of earnings. As brainy tweeps point out, the message is heavily disguised.


david robbins

Curated by David Robbins (via Twitter)


The press release doesn’t say this but it’s clear these changes won’t arrive for many years and for many, they won’t arrive at all. This certainly has caught the eye of everyone (as this blog will show).

That said, the pedestrian pace of change could be a blessing.  It may at least give space for  reforms to enable workplace plans to pay pensions!

What’s changing?

  1. Employers currently have to enrol any worker aged 22 or over, who is earning over 10,000 a year, into an approved pension scheme. The start age will now be cut to 18. Those aged between 18 and 21 will be automatically enrolled in workplace pensions . Counter-intuitively, the Government argue this is doing more for the prospects of young voters – who are struggling to make ends meet, let alone save for retirement. Soft compulsion is increasingly necessary as life expectancy grows and the length of time people spend in retirement increases.
  2. Another type of worker – the multi-jobber – will not be helped by proposed changes. The Government plans to ensure that people who are in multiple jobs, but whose combined income totals more than £10,000 – get enrolled – appear to have been shelved.
  3. Whereas, at present, the first £5,876 of their earnings is excluded from their pensionable income, the Government  will push through changes to ensure every pound is in future included in the calculation of contributions. This will make administration easier (while ramping up contributions to employers and staff).
  4. Finally, the Government is set to trial ways to include the self-employed in workplace pensions. Writing in the Guardian, David Gauke said that this would begin “with the launch of targeted interventions, including through the tax return process” . This stops way short of what pensions ministers Harrington and Opperman have promised and arguably breaks a manifesto commitment. However, in the light of the battering the Treasury has already taken on Self-employed taxes, this is all that was expected. Well done to Citywire/AJ Bell  for this report.


When’s it changing?

Together these measures will see an additional £3.8bn in annual contributions when fully rolled out. But “when” is the operative word!

The Government intend these changes to come into effect in the middle part of the next decade (let’s say 2025). So quake in your trainers if you are an eleven year old!

I’m with Steve Webb who commented on twitter

“Lots of good ideas in auto-enrolment review – but implemented in ‘mid 2020s’ – seriously?”

The sad truth is there is no legislative timetable for reform before 2019 and frankly we are unlikely to see reforms of this nature legislated for in this parliament. Assuming the next election is in 2020, then these policies will be reviewed (as auto-enrolment was in 2010) with a view to implementation within that parliamentary term. 2025 is a realistic back-stop for David Gauke.

But this auto-enrolment review was baked in to the system well in advance of 2017. The planning process seems wrong if a review is commissioned eight years before it can bring change. Government can blame BREXIT for so much, but BREXIT does not put on hold the reasonable aspirations of a generation of youngsters, multi-jobbers, low-earners and the self-employed.

What should be changing -but isn’t?

As a point of order Mr Gauke, your department’s claim that

“at present, employers must contribute 1.0% of an employee’s qualifying earnings while employees pay in 0.8% of earnings, although they enjoy the benefit of tax relief on contributions”

– is untrue.

We estimate that over 300,000 low-earners are not getting the benefit of tax relief because they pay no tax and are in the wrong kind of scheme. There is no mention of addressing the injustice for those auto-enrolled into net-pay schemes who would have got this incentive if they’d been given relief at source.

38% are under-saving ; how will that change?

The DWP estimate that nearly 4 in 10 of us are chronic under-savers.

“The review estimates there are still around 12 million individuals under-saving for their retirement, representing 38% of the working age population. Of this 12 million, some 6 million are ‘mild under-savers’.” – Jo Cumbo (twitter)

For this to change, AE contribution rates must rise above 8% of capped earnings at some point. The reports so far are silent on this matter.

It is an unpalatable truth than no matter how far we stretch the width, we have to address the quality. Whether through the AE rate or by encouraging additional voluntary contributions, contributions per member must go up and go up before it’s too late!


While these reports help the young, they leave those earning below £10,000 pa, excluded from workplace pensions.


 “For an entire generation of people, workplace pension saving is the new normal.
And my mission now is to make sure the next generation of younger workers have the same opportunities.
We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire.
When the modern state pension was introduced in 1948, a 65-year-old could expect to spend 13.5 years receiving the state payment – 23% of their adult life.

In 2017 a 65-year-old can now expect to live for another 22.8 years, or 33.6% of their adult life”

The numbers saving into a workplace pension has grown by more than 9 million, with many of them under the age of 30. However, around 12 million people are judged to be under-saving for their retirement.
Time is not on their side.
I would like to believe that the proposed implementation timetable was to give space for workplace pension reform, but I doubt it. I fear that the only reform on the DWP’s mind right now , is their vanity project , the DWP Pensions Dashboard.We can only conclude that while inclusive policies matter – Politics matter more.

Policies matter, but Politics matters more?


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Target pensions – freedom from freedoms


freedom from religion

Last week I ran a couple of meetings of the Friends of CDC, a loose affiliation of pension people with a view that CDC can offer a solution to some of the intractable problems people face in retirement.

Let’s start with the problem

There is no shortage of ways to build up money for your retirement, in fact there is a super-abundance of products from workplace pensions to Lifetime ISAs with a range of plans in between from SIPP to Stakeholder.

There is a shortage of choice as to how to spend your pension money (“wealth” as IFAs call it). There are three ways, the first is the scheme pension, which is what you get from a defined benefit scheme that pays a wage for life – (not a cash balance). The second is the annuity, the third is an individual drawdown arrangement. While most of us have the opportunity to buy an annuity or drawdown, few- outside the public sector – continue to build (accrue)  rights to scheme pensions.

This is a problem. Megan Butler of the FCA went on Channel 4 news this week and told us that more than half of the DB transfer cases the FCA had looked at did not provide good advice. For whatever reason, the FCA considered that more than half of those advised would have been better off keeping their scheme pension than cashing out and relying on annuity and drawdown.

Despite this, we heard on the same day from Allan Johnston , Chair of BSPS Trustees , that over 12,000 of the 40,000 steelworkers eligible for a transfer, had asked for quotations.

There is considerable demand from people who want control of their retirement fund but too little supply. This is what is known as a market failure. The problem is that schemes can no longer afford to accrue scheme pensions and people have no easy way to pay themselves a wage for life.

What’s wrong with using an IFA?

Firstly there aren’t enough qualified IFAs to go round. Finding a Pension Transfer Specialist to help you take your decision isn’t as easy as it sounds, as the British Steel Pension Members are finding. Finding a good one is even harder. But you need such a specialist if you have a CETV paying more than £30,000.

Secondly, good IFAs will only advise you to transfer if you have special needs, simply thinking that you or they can do better than a scheme pension is not enough. You have to have a clear plan – either a specific cash flow need or tax reasons or perhaps self-confidence in your capacity to take investment risk. Most people don’t have such special needs which is why Megan Butler says what she does.

Sadly, there are a few IFAs who make matters worse by driving a coach and horses through the transfer analysis process for personal gain and this is making the problem worse. These rogue IFAs are not the main problem, the main problem is that most people should never forsake their scheme pensions in the first place.

People are right not to want to buy an individual annuity as a replacement for a scheme pension, it isn’t as good. People are right to be worried about drawdown, for most people – it isn’t as good. People need a wage for life – something that pays them a pension. That is not something that IFAs can help you with, IFAs help those with special needs and most of us don’t need them to manage our wage for life.

What’s right with CDC?

CDC – or collective defined contribution – provides a target pension. Infact CDC would better be called “target pensions”, which is why there is a target beside “the vision of the Pension PlayPen”.

This is something that drawdown can’t do. Annuities can provide a pension but the target is set so low most people don’t want it. Schemes are reluctant to target any more money at future pensions than they do at the moment. CDC is our best way of providing ourselves with a wage for life.

Right for big employers

Royal Mail and its membership (represented by the CWU) have agreed to pay scheme pensions in future using a CDC plan. These pensions won’t be guaranteed by Royal Mail who will only guaranteed a defined contribution for each member. The members know this isn’t as good as having a guaranteed pension , but 87% of them have voted for a wage for life rather than a “pension pot” which they’ll have to invest themselves.

Right for workplace pensions

Most bosses don’t have the Royal Mail’s history of paying pensions nor a workforce which expects to be paid a wage for life in retirement. They pay into DC workplace pensions using auto-enrolment. Many employers are new to paying anything into their worker’s pot at all.

Right now, most of these pots are very small but the workplace pension providers want to bring money to them and we think that were they able to pay benefits as target pensions , they would.

Right for people transferring away from DB

I totally understand and agree with people wanting out of schemes where they have lost confidence in their sponsor. It is what is happening at BSPS. But wanting out is one thing, managing your own pension another. The reason I am angry with the state of affairs at Port Talbot (and elsewhere) is that people are going into advised drawdown policies without the first clue of what they are doing, trusting the word of an adviser when many of the advisers are patently unfit to be giving such advice.

The good advisers are as angry as I am as they agree that most of the people going into drawdown plans should have gone for BSPS2 or the PPF and kept the right to a scheme pension. Megan Butler clearly agrees (and that lady deserves a lot of praise for what she said on Channel 4).

What ordinary people need if they transfer away, is somewhere to transfer away to. A target pension is a better alternative for most people than drawdown or buying an annuity. It can give people the freedom that annuities and scheme pensions can’t with the security that drawdown doesn’t.

Right for ordinary people

When most of us heard we would never have to buy an annuity again, we breathed a sigh of relief. If you read my blogs in the four years leading up to George Osborne’s 2014 budget you would hear me moaning about the rubbish value people with DC pots were getting with their savings. Pension Freedoms meant we didn’t have to worry about losing control of our money and we didn’t have to buy into rubbish annuity rates.

What we want is a wage for life with the freedom of having our money back if we really need it. My vision for CDC (target pensions) is one where even if the target pension is in payment, people still have the right to take their money away.

This right is essential for people to have confidence in the system. Deny property rights to people in CDC and you will have annuity 2.0 – people feeling their money is trapped.

CDC target pensions are likely to pay out more.

You will notice that so far, I have resisted the temptation of claiming people will get more from target pensions than from annuities or drawdown. That’s because that is not proven  – it is just “highly likely” !

This is why;

  • because these target pensions aren’t guaranteed, they can be invested for the long term – this allows the scheme operator to invest in “patient capital”, which provides a better deal over time than bonds and gilts, the short-term investments that back up annuities and scheme pensions (so they can be guaranteed). This long-term investment strategy is more suitable for long-term pension schemes and should allow them to pay higher pensions
  • because these schemes are “collective” (the Royal Mail one would have 140,000 members day one), they have economies of scale meaning charges should be lower. This again should mean more efficiency than individual annuities and drawdown.
  • because these scheme are centrally governed, they don’t need individual advice, which cuts out the cost of middlemen. This means that more of your savings come back to you,
  • because we are all in this together, a CDC plan can self-insure the risk of us living too long. This allows CDC to pay a wage for life and not just till the money runs out. Insuring against living too long, is a central feature of CDC plans.

There are other advantages to a CDC plan but these are my big four. I’m not saying they are right for everyone (13% of the Royal Mail workforce didn’t want a wage for life) but I think they’re right for about 87% of us!

A small snag!

When you read this, you might be asking “why don’t we have these CDC target pensions today?”  The reason is that while we have the enabling legislation for them (set out in the Defined Ambition section of Pensions Act 2015) we don’t have the secondary regulations which tell us the controls that need to be in place for these pensions to act within the law.

While organisations could set up a CDC plan today, it would be a foolish person who would, since without rules, such a plan would be a hostage to fortune (and ambulance chasers).

We saw the secondary regulations being built in 2015, but by the time this was going on ,we had a new Government , one that was more interested in bedding down the freedoms and auto-enrolment than writing regulations for a product for which they saw no immediate demand.

I now see considerable demand. Most obviously from Royal Mail but potentially from USS. We may have missed the boat with BHS and BSPS but they too could have moved to a CDC arrangement for future contributions.

I see demand growing among the master trusts to use CDC to pay target pensions. Some insurers may even see the target pension as better for the FAMR constituency , than advised drawdown. I see an immediate need for a default product for those transferring away from defined benefit schemes.

While in the very short-term, workplace pensions, advised drawdown and cash balance arrangements  can pick up the slack, there needs to be a solution for the next decade. It will probably take 2 to 3 years to complete the secondary regulations – though this could be sped up with real intent from Government.

The snag is that we can’t do CDC or provide target pensions today. We need to get to it and start writing those regulations early in 2018. If we don’t – we risk the kind of disputes that we expected at Royal Mail and are expecting at USS. We will see more Port Talbots and we will see increasing numbers of DC dependent savers becoming frustrated with pension freedoms which prove illusory.

As one Port Talbot steel-worker said to me

“I want freedom from these freedoms!”


Immediate positive affirmative action – write to Clark Charlotte STRATEGY DIRECTOR FOR PRIVATE PENSIONS <CHARLOTTE.CLARK@DWP.GSI.GOV.UK> and make a submission to the Work and Pensions Select Committee http://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/inquiries/parliament-2017/collective-pension-schemes-17-19/


freedom zappa





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

30,000 is a lot of people.


At Wednesday’s hearing of the Work and Pensions Select Committee, Allan Johnston (Chair of the Trustees) told us that there were some 30,000 people who had yet to submit their option to BSPS in their Time to Choose. Although he is right to say this is actually a low number relative to the 130,000 people given the Time, and represents a “success” relative to similar requests at other schemes, 30,000 is still a big number.

It is ten times the average home gate of Yeovil Town FC (well we might get a few more if our cup run continues)!crowd 3

You can probably find your own comparator to imagine what 30,000 people look like sat together.

But they are more than a number or even a crowd. They are all people who BSPS has served for years, they have all paid in and been promised a benefit.

Doing nothing between now and December 22nd (today week as I write) will mean each individual will have their pension paid not by BSPS but by the Government lifeboat- the pension protection fund.

Some people may still think that because Tata Steel UK is still operating and that the Liberty and Greybull business are still employing and pensioning members, that doing nothing means business as usual. It doesn’t.


For the vast majority of those 30,000 individuals, the new pension scheme set up by TATA with the help of Government , will mean more money in retirement. How much more will vary, if you want to do the sums you can still go to the Time to Choose website and do the sums, you can speak to the helpline, you can call TPAS and you might get a meeting with the advisers who have promised their time pro bono under Project Chive.

If you want to find out what others are doing you can go to the BSPS Facebook pages , this link is for pensioners, this for those yet to draw their pension.

You may have heard me saying the same things on the Radio yesterday. Thanks to You and Yours for making time available to get this message out.

Regrets, we’ll have a few.

I am not looking forward to the anxiety that we will hear from BSPS members over Christmas. Anyone who is submitting their forms today, will have to contend with the Christmas post and will have an anxious wait for the letter of confirmation back.

The Facebook pages are already full of complaints from members who understandably are anxious to have a digital communication telling them their option form has been received and being processed ;Email, text or social media message would do!

I very much hope that BSPS will be considerate to the timeframes, to the numbers and to the vagaries of the Christmas post. I cannot make the promise, it is not mine to make, but it might be a good idea for BSPS to make a communication through the website which can be conveyed via social and broadcast media. I expect to be on the radio again on Saturday.

Let’s focus on these 30,000 for now!

Many of the 30,000 never worked for British Steel, they are the widows and occasional husbands of steel workers. They may not think they have a choice – they do. You may know these people and you may be able to help them with their choice.

Managing the data for such a large number of people is hard, every week  steelworkers die, move house, emigrate – they can change name, they can even change sex! It is not surprising that many are still unaware not just that it is their time to choose but that now it is in their interests to choose.

So wherever you read this, whoever you are, if you know someone who has worked in the steel industry or who was married to someone who did , ask them a simple question

“have you filled in your options form and sent it to the British Steel Pension Scheme?”


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

Frank Field and the “two worlds” of pensions.


Al Rush

The world of the member and the adviser


Another world


On Thursday 13th December the Workplace and Pensions Select Committee took evidence from a variety of people with an interest in the choices members have to take as part of Time to Choose, but in the context of  the pension freedoms.


This blog contains my personal thoughts about the meeting.

On the witnesses

Everyone who is a witness at a Select Committee, is nervous for their own reputation. The first feeling you have after you’ve provided oral evidence relates to how you have done. Stefan, David , Rich and I were as nervous as you can be before, during and after appearing at the W & P Select Committee yesterday. I could see our hands shaking, knees tapping and listening back, I can hear my nerves in my voice, especially at outset.

That we were properly prepped and had delivered written evidence , made it a lot easier.

My heart is with Megan Butler this morning, who was outflanked by Frank Field’s questions and embarrassed by not having information to hand that Field and the Committee thought essential. On a personal note, I thought she managed the crisis professionally (as did her team).

If you have interest in how Government gathers evidence then you might want to watch those parts of the meeting that most interest you. You are able to do so using Parliament TV  and you can see excerpts on this blog

This excerpt deals with the evidence of the steel workers with my supporting statements .

This excerpt contains the evidence from Allan Johnston and Derek Mulholland of British Steel Pension Scheme, and Alasdair McDiarmid of the Community Union.

This excerpt contains the evidence given by Megan Butler.

Matters arising for the Chair.

The meeting was not important for performances but for the conclusions from its chair Frank Field;

It is clear that Field does not see this as the end of this. He told the meeting he intended to write to the DWP Secretary of State (David Gauke) to help the estimated 30,000 steelworkers and/or their dependents choose an option (PPF or BSPS2).

He has clearly no intention of letting Darren Reynolds and Clive Howells of Active and Celtic Wealth Management off the hook. They chose not to give evidence much to Field’s displeasure.

The FCA have work to do , filling in the imperfect information they could give as evidence and Megan Butler , along with TPAS and The Pensions Regulator will be meeting members  tonight in Port Talbot. It is a public meeting and should be well worth attending. It is at 2pm Thursday 14th December at the Twelve Knights Hotel Margam (Port Talbot).

There are more general matters that need clarifying. I found the conversation about the data from BSPS misleading. The Trustees cannot put out data that they know to be incomplete or formatted in a way that might mislead. The gaps that have appeared in data given to members do not mean that the data that has been released is wrong or that the operations of British Steel’s Pension Scheme lack controls. Every pension scheme in the land struggles to present its data in the right way.

BSPS members should be aware that their scheme managers have regularly been applauded for the quality of their work and the efficiency with which they do it.

Clarification on my comments on redress

Rory Percival has rightly pointed out that you cannot provide compensation for those who have wrongly invested in a fund from those who remain in a fund.

What I said at the meeting was that the redress should come from those who advised on the investment and – should it be decided the fund was not properly disclosed, from those who managed the contractual arrangements of the fund – it’s managers.

Bringing the two worlds together.

As I write, Time to Choose still has over a week to run, there follows a period of just over three months when decisions will work out. Many of the 14,000 CETVs issued will be taken up and the numbers given by the Trustees for those transferring and monies transferred will increase. The Trustees expect the total amount to leave the fund by CETV to be around £1.2bn, I suspect it will be higher.

At one point in the session , Frank Field remarked that the Trustees and Members seemed to be in different worlds and this is the learning not just for trustees in general, but for people like me who advise them.

That the BSPS Facebook page has been so successful suggests that social media is assuming the function of member representation that might previously have been managed by Unions. The work done by Rich Caddy and Stefan Zait in managing the BSPS pages over the past 18 months shows that members can organise themselves effectively to fill the gaps left by their scheme.

As I understood Field’s comment, it was that the worlds of the members and of the trustees did not have sufficient overlap. I think this is fair criticism. Going forward, any member support strategy must include the views of members and a proper understanding of their needs.

The Trustees of BSPS under-estimated the demand for CETVs and their take up, under provisioned for advisory support and didn’t make sufficient use of TPAS. Through the pages, the Chive support service has emerged, information has been passed to the FCA, public meetings have been advertised and members have been alerted to changes on the Time to Choose website (through the page managers monitoring system).

The Trustees and their advisers need to work more closely with the member’s and their advisers. We cannot allow these “two worlds” to work apart, they must work better together in future.

A tribute to Al Rush

There was one person who should have been at yesterday’s meeting who should have been – Al Rush.

Al is organising the public meeting in Margam today and has spent every working hour this week meeting members and organising his team to meet more.

Al couldn’t be at the meeting for expressing a view about those who failed to attend which seemed to be endorsed yesterday by the Committee. Al is of the member’s world and I hope that the Committee can acknowledge that Al has done as much as anyone outside the scheme to stop the problems we heard about yesterday and put people right.

Al – you were greatly missed yesterday – in Westminster. Your world is every bit as real.



Al Rush, helping a member in Margam



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The Steelworkers submission to parliament


1. Social Media

Rich Caddy created the British Steel Pension Members Facebook Group in April 2016 when Tata made their announcement about the future of Tata Steel UK (TSUK) Ltd and the potential impact on the British Steel Pension Scheme.

The purpose of the group was to provide members with a platform to discuss issues facing the BSPS.  A second group was created in September 2017 to focus on Deferred Members and the additional concerns of members considering transferring out.

In May 2016, Stefan Zaitschenko joined to offer help and support as he had been following the potential changes to BSPS.  He created the British Steel Pensions Members – Information & FAQs page to provide easy access to the queries raised regularly by new members.

David Neilly joined in December 16 as is an administrator providing support in the Port Talbot area.

There are a total of 25 admins and moderators from all parts of the UK and all British Steel communities.

The main group currently has over 5,100 members.   Any member can post on the group, email our confidential email address bspsmembers@gmail.com or private message any of the other members.  Hundreds of members have used private messaging to get one-to-one support.  Thousands have viewed the FAQ pages and asked additional questions.  Response time is usually within minutes to any query and this has been one of the major benefit from this social media platform.

There is a Twitter account @bspsmembers which is followed by members of the pensions industry and media.

Telephone support has also been given to assist members who at times just want a ‘sounding board’ to listen to their concerns and give ‘counselling’.

One post that sums up many of the views expressed:

“I wonder what the total amount of hours of lost sleep will be for all members struggling to make a decision on their options without the benefit of a crystal ball.  Even after the decision has been made I guess there will be many members still worrying in case they have made the wrong decision.

It is shameful that this is the outcome for workers who have given so much of their life to steel making. So many people thought the daily grind and the unsocial hours would be worth it to have a comfortable and relaxing retirement with a multi award winning pension scheme. Just so unfair.”

2. Background

Tata acquired Corus, now Tata Steel Europe, in April 2007. The European behemoth was formed by a merger of British Steel and Dutch firm Koninklijke Hoogovens in 1999. Tata Steel Europe became the 2nd biggest steelmaker in Europe behind Accelor-Mittal.

Tata Steel employees were given with free shares in the new company and informed that we had all become shareholders and that our future pensions and those of the existing pensioners were safe.  Within a few years, pension benefits were eroded steadily with the loss of, for example, ‘1 in 7’ additional years, change of accrual rates and ultimately scheme closure to new accruals.

BSPS Members Communications

The first statement to scheme members came in a letter in May 2016 which advised of a government consultation on ‘potential changes to the law’ and led with a statement which caused many to not read further.

“You do not have to take any action as a result of this letter but you may wish to participate in the consultation and will find details attached on how to do so.”

The consultation spoke of deficits, accruals, section 67 and changes in law to allow the Trustee to reduce benefits without member consent.  Many respondents opposed such changes and after several months, the consultation faded into the background without a conclusion.

Tata Steel UK/BSPS Trustee entered negotiations with the Pensions Regulator and Pension Protection Fund which would ultimately lead to the same outcome they had proposed in 2016 without a change in legislation.

In January 2017, scheme members received a second letter which led with the statement,

“This letter is to update you on recent developments in connection with the British Steel Pension Scheme. It is intended for information only and you do not have to take any action.”

This mailshot informed us of termination of benefit accrual, PPF compensation levels and a release of the guarantees and security provided to the BSPS by other Tata Steel companies, words which meant little to any but those having a background in pensions law.  It mentioned a Regulated Apportionment Arrangement and the efforts the Trustees were making to ensure better benefits for members.  In this letter, we were also told that there would shortly be the actuarial valuation in March 2017 and a recalculation of the funding level which was expected to show a modest deficit.  This reflected a statement made previously:

“A report on the Funding position as at 31 October 2016 on both a Technical Provisions basis and a Modified benefits low risk basis was reviewed by the Trustee. The Actuary reported that a modified Scheme with a low risk investment strategy would have had a funding ratio of 116% at that date and a buffer of over £2 billion to cover residual risks.”

This gave members a belief that the fund was on target to be in a strong position and to have recovered from the problems identified in previous letters.

However, speculation in the press continued and on 11 August, TSUK/TPR/PPF announced that they had negotiated the terms for TSUK separation from the BSPS fund. ]

“As a result, following lengthy discussions between the Trustee, TSUK, the Pensions Regulator and the Pension Protection Fund (PPF), it has been agreed that TSUK will make a final one-off contribution to the current scheme of £550 million and will then be free from any obligations to the current scheme.”

Members were informed that by the August newsletter that “Your pension is changing” and “It’s time to start thinking about what’s right for you”.

This 8 page newsletter contained a great deal of information including the headline that all members will have two options:

  • • Move with the current scheme into the Pension Protection Fund
    • Switch to the New British Steel Pensions Scheme

It also reminded non-pensioners who were more than a year away from retirement age that they could choose to transfer out of the current scheme.
The newsletter included a commitment to provide personal information by October to help make our choice and that we would have until December to choose.  A free and impartial helpline would be available so that we could speak to a pensions expert.
For most members this was the beginning of a period of anxiety, stress and concern as this document included phrases such as:

  • • lower benefits than in the current scheme
    • future increases will be lower

We immediately saw a huge increase in traffic on our Facebook Group as members wanted to know what it meant to them individually.   It was very clear that this was a wake-up call.  I told them that the pension that they believed was rock solid and would provide for them and their spouse through their remaining years was about to change.

The major emotions were:

  • • Anger – that the promise made to them when they signed as young steelworkers was being broken
    • Anxiety – that they didn’t know how this would affect them
    • Despair, pessimism and uncertainty

Through social media we were able to help by explaining the two choices and in general terms how the proposed changes in benefits would impact their pensions.  No additional information on the impact to them personally would be seen prior to their Time To Choose booklet being sent out later in the year.  So we were only able to illustrate how the choice of PPF or BSPS2 could affect them in the most general way.

3. Option Packs

From mid-September onwards, members were concerned that they had not seen their individual Time To Choose option packs that were due to arrive by October.  The first packs started to arrive w/c 8 October and included details of the two dedicated helplines; for pensioners and for deferred pensioners.

The packs were received in batches until the end of November and we are still aware of members who have received no information.  The helplines provided a professional service and answered many of the straightforward questions posed by the majority of members.  However, many packs arrived with little or no personalised information.  When called, the helplines directed the members to the Pensions Office for any additional information not available on their systems.

Members were told at the roadshows that, even without the figures that other members had received, they should have sufficient information in their annual pensions benefit statements and the generic examples to make their choice of the new scheme or PPF.

This is the post on the TTC website:

“We won’t be sending you any more figures on top of what is in your option pack, because it’s not possible to do that in the time available. If you’re a non-pensioner and your option pack has no personal figures, you can find information about your deferred benefits in your latest deferred benefits statement. If you can’t find this statement, please phone the helpline and ask for a replacement.”

“We know that the lack of figures in your option pack could make it harder to choose your option, particularly if you are thinking about transferring your benefits to another pension arrangement. If you are thinking of doing that, you or your financial adviser can get a fact sheet here. This sets out in more detail how pension increases in the new scheme will be calculated. This will help your adviser carry out the analysis they need to advise you.”

Many members and their IFA’s found that they did require additional information and tried to obtain this from the Pensions Office but the volume of calls and emails overwhelmed the available resources handling telephone and email queries.

The helplines provided for assisting members with clarification of the information in their packs were responsive and it was worthwhile in helping members interpret the data available.  Whilst they could answer a set of queries affecting those with a relatively straightforward choice, they could not provide any additional information beyond what was in the packs.  Members lacking figures or with more complex queries were referred to the pensions office.

Most complaints we have seen about the Consent Exercise have focussed on the inability to contact the pensions office in a timely manner.  Most calls are met with automatic disconnection due to the volume of traffic.  Emails are met with the automated response.  (see attached).

“Has anybody out there in this world of pension madness got an alternative number to 03304400844 to get in touch with the pension office. No one wants to answer on that number. I’ve emailed every day for a week and still no reply.”

The decision not to allow responses by emails and confusion over the address to return the option forms was the subject of many queries raised by members even after an update the TTC website.

We have an automated service checking the content of the website so that we can inform members of information updates immediately after they happen and point them to the relevant page.  Many of the outstanding questions could be answered and given a wide audience in a timely manner by this approach.

4. Indexation of Pre-1997 Accruals

The immediate change in benefits recognised by most members was that both the new scheme and PPF benefits would be at statutory minimums with neither including indexation for pre-1997 accruals.

Comparisons quickly showed that the Trustees view that the new scheme would be better for the vast majority was correct.
The Pensions Regulator in a letter dated 19 Sep 2017 stated:

“We fully appreciate that the pension increases the members will receive in the New BSPS are at the statutory minimum and are less generous than those of the BSPS. However, the proposal is the product of intensive negotiation between the BSPS trustee (on behalf of the members), TSUK and the wider Tata group. It seeks to reasonably strike a balance between the interests of the stakeholders and in the light of the alternatives.”

Many older pensioners who worked for the British Steel Corporation and British Steel PLC and left a decade before Tata purchased Corus now faced an uncertain future because the benefits, proposed in 2016, were thought to be a fair outcome.

This was said by the Chairman in the BSPS Trustee response to the government’s consultation:

“It is true that members whose pensions were earned wholly or mainly before 1997 might see little or no future increases to their pensions whilst in payment. But the same (or worse) would happen with PPF compensation. It should also be noted that existing pensioners in this group have enjoyed full RPI indexation since retirement, whereas future pensioners will not. If circumstances allow us to reinstate pension increases in the future, we would expect to prioritise pre-1997 accruals.”

Many family members of older pensioners, widows and dependents have expressed deep concern and anxiety about the real term reductions to their loved one’s pensions.  The lack of pre-1997 indexation leads to a potential 20% real term reduction over the next 10 years and this is seen as particularly unfair.

 “Hope someone can help, my dad has 26 years service all pre97 he has received little information from BSPS he doesn’t use any modern technology and I am his only hope to find out the correct information before he makes a decision in December. Dad is on a very small pension by today’s standards plus my mum is still with us so not having the pension index linked could mean hard times for them both! Would appreciate some advice.”

All efforts to persuade the BSPS Trustees and other stakeholders that took these decisions were met with the same answer which is known from previous responses to the Committee and APPG Steel.  The loss of pre-1997 indexation remains the overwhelming concern of the 82,000 pensioners and while scams have a devastating impact on an important minority this change affects a group who have no other source of income and are unable to cope with future cost of living rises.

5. Bridging Pensions

The impact of funding the High/Low (11-8) pensioners was covered in the BSPS Trustees response to the 2016 consultation.

Under current rules, members in receipt of the bridging pension would receive higher compensation from the PPF after reaching State Pension Age.  This windfall was estimated at £600 million and this would need to be taken from the assets destined for the new scheme.  In October we were made aware of the consultations on the draft amendments to the PPF regulations.  The 4,600 members were left in limbo and could not make their Choice of BSPS2 or PPF until this was resolved.

At the roadshows, questions about the PPF rule changes dominated much of the time allocated for Q&A but no answer could be given other than “We await the decision by Government”.  With the deadline approaching we saw anxious members trying to get advice on what they should do.  BSPS extended the deadline to 22 December and wrote to relevant members this week stating the government’s intention was clear; the PPF amendment would apply to all BSPS members transferring to PPF.

This issue will not be a concern to other DB schemes transitioning to PPF in the future.

6. Transferring Out

The option to transfer out of the scheme has been available to members as part of the scheme rules for many years so could be thought of as separate from the Time To Choose Consent Exercise.  In reality, the need to provide CETVs and other information in a timely manner has been the biggest problem to the members of our group and the pressure to consider transferring out has weighed heavily on their shoulders.

Pressure to transfer out

Historically transfers out of the scheme have been looked on as bad decision and it is evident that many remain reluctant to take this decision for fear of getting it wrong.  Normally anyone considering transferring out would have had put much time and effort into studying the options before starting the process by asking for a CETV.  Many of the younger members spoke to us about “not really thinking about pensions at their age” but now being forced to make a life changing decision against hard deadlines.

Whilst many knew little of this option prior to August when the newsletter was received, some were aware of the pension freedoms introduced in 2015.  Peer pressure came to the fore as transferring out was seen as the means to get total control of your fund with these new freedoms.

Demand for CETVs rose exponentially as members reacted to what became a “fight or flight” response.  They began to see leaflets, posters and business cards from IFAs along with new websites referring to the benefits of transferring out.  The first sites returned when Googling “British Steel Pensions” were IFAs offering free consultations for members who wanted to gain from the new pension freedoms.  The website designs appeared to show that there was some link to British Steel or Tata.

Recently, the first site being returned is a firm specialising in no win – no fee claims for “mis-selling”.
(see figure 1 : below)

We saw a huge surge of posts and replies extolling only the positive benefits of transferring out.  Many questioned the principle that DB schemes provide a ‘guaranteed’ pension as they saw vindication in their view that ‘nothing is guaranteed’ as BSPS2 was forcing ‘Hobson’s Choice’ of lower benefits on them.

“I look at it this way. I transfer out and what happens is my own fault stay in and I’m at the mercy of something that changes the deal anytime it likes. Nah ram it!”

The major perceived benefits for transferring out became:• Being in charge of your financial future with no company or state interference

  • • Death benefits for your wife and children
    • Their fund would gain from the inflation busting performance that they were told they WOULD get from private investment funds
    • CETVs are at their highest point (told at roadshows their TV’s would drop in BSPS2)
    • Being able to retire early and use the new freedoms of draw down

“Well after reading that (Pension transfer ‘wrong for 85% of British steelworkers’) it confirms that transferring out is right for me. I want to pay my mortgage off, retire early and half of my pension is pre 1997”

The differences in the underlying risks between a guaranteed DB scheme and a private plan was considered but not seen as a reason for remaining with a TSUK/BSPS. Many of the members believe that TSUK would “go bust and we would all end up in PPF anyway”.  Putting their trust in the PPF was perceived to be giving control of their future to politicians who could change the rules of the PPF when it inevitably collapsed under the weight of future DB scheme failures.figure10
Figure 1: Google search

There is also much importance being given to the lack of trust in Tata who “engineered this whole thing to get what they wanted and damage our pensions”.  The perception remains that the pension fund and the members were forced into this situation as collateral damage to allow a JV with ThyssenKrupp.  The timing of the signing of the MoU suggests there may be some truth in that.

“Any collaboration with Thyssen will favour the Germans which BS/Hoogovens favoured the Dutch (more powerful workers voice on board backed up legally so UK workforce suffered more pain).  Transferring guarantees me a CETV which is significantly more I would have expected, big numbers more than I would have been quoted 2 years ago, so Bank it and invest with someone you trust. It is yours no strings attached and you use it for your family to get the best outcome you can without looking over your shoulder.”

The members of the panel at the Thornaby Roadshows in November 2016 appeared not to appreciate that the choice of PPF or the new scheme also depended on the suitability of transfer for an individual member.  It is apparent that the trustees are focussed on one target; achieving the split of members and assets of BSPS by 29 March 2018.  Transfers appear secondary and must not affect this objective.

Lack of a guided pathway and counselling

The FCA’s regulatory guidance on DB to DC transfers and conversions (April 2015) appears to support the view that the role of the Trustee is provide the information in a timely manner, keep records and consider the effect of the transfer on the funding level.  Support to members is covered:

Trustees can support members in a number of ways to ensure they have the information they need to make a fully informed decision, including on how to find a Financial Conduct Authority (FCA) authorised adviser.

Trustees can do this by making members aware of the FCA’s consumer pages at http://www.fca.org.uk/consumers.

This was considered at the June 2017 Trustee board meeting:

The Trustee approved the setting up of a separate member helpline service to provide guidance when members come to make their decisions. The Trustee decided however that it was not appropriate to recommend a particular firm of independent financial advisers for those members who wished to pay for more detailed, individual advice.
The decision not to provide a guided pathway and independent counselling to their members, most of whom with little experience of investments, set them on a turbulent journey which left them vulnerable to dubious advisers and unsuitable financial advice. On the 29 November, an additional section was added to the Q&A’s on the TTC website:

You should think carefully before transferring out. You would be giving up guaranteed future pension income in return for income that might not be guaranteed and could vary depending on how you manage it. You should take independent financial advice – and legally must do so if your transfer value is over £30,000. You should be very careful to avoid scammers and unscrupulous financial advisers. You can find an adviser from unbiased.co.uk. Make sure they’re authorised by the Financial Conduct Authority with permission to advise on pension transfers. You can check this by looking up the adviser at http://www.fca.org.uk.

Even though transfer values can seem very large, transferring out is unlikely to give you as much total pension income as either the PPF or the new scheme, on a like-for-like basis.

We took a (unscientific) poll asking

“Do you agree that the Trustees should have supported you more in terms of information on the risks of CETV release and provided a panel of ‘preferred’ IFAs?” The response from 200 members was “94% YES; Strongly”.

Finding a suitable adviser and getting all the relevant data

Transfer values were ‘mind-blowingly large’ compared to any sum the members were likely to see in their lives and expert regulated advice was a legal requirement.  Finding a suitable adviser and meeting the deadlines became a near impossible task for the following reasons:

  • • Numbers of members who requested CETVs – overwhelmed local FCA approved advisers
    • ‘Harvesting’ by unregulated introducers and out-of-area advisers intent on ‘turning the handle’ rather than giving the counselling and impartial advice
    • Not considering the individual needs at all – many were told to transfer at the initial meeting
    • Concern over the reliability of unbiased.co.uk
    • Finding a suitable adviser on ww.fca.org.uk required “an MA in Pensions” to navigate
    • CETV’s not provided to the member within the statutory 3 months
    • Inability to get the information the adviser needed

Most BSPS members alive locally to the steelworks where they worked.  This clustering meant that the local IFAs were inundated with requests and took a professional decision to close their books to new DB transfer business rather than dilute their service.

“I’m struggling to believe it. But 5 reputable Financial advisers that have been recommended to me are at capacity. I feel like I’m chasing the last bus that’s accelerating away. Can you please recommend advisors to me that you have faith in?”

Many of the advisers themselves were not aware of all the possible permutations and did not have the rules and financial assumptions for all potential outcomes.  Few have considered all of the options open to the BSPS members.  The major factors for a deferred member considering the choice are:

  • • 10% reduction in PPF before NRA
    • No transfers allowed from PPF
    • Transfers from BSPS2 possible
    • Better early retirement package from PPF (even with -10%)

Members and their IFAs need to compare the relative benefits of all the options available to them:

  • • Transfer out now
    • Transfer from BSPS2 later
    • Early retirement PPF
    • Early retirement BSPS2
    • Retirement at NRA from BSPS2
    • Retirement at NRA from PPF

IFAs tell us they have been hampered by their inability to get the information they need.  Posts on the group refer to not receiving CETVs within 3 months of requesting one or receiving a CETV with an expiry based on sign off several weeks earlier so the member has less than 3 months to take their decision.

“I am in a similar position, requested transfer 9th October, finally got through to someone to be told it was posted 7th November, so it was emailed to me yesterday 4th December, noticed straight away it was dated 3rd November. E mailed them back pointing this out and asking ng how to get it rectified, was told it was my responsibility to chase it up, and the date would stand.”

Financial advisers have regularly private messaged the administrators of the group to ask if we can assist getting information from the Pensions Office.  They informed us that they are told of a standard 6 week turnaround of emails, that they can only ask about one member per email and most were unable to talk to anyone at the pensions office because “they can’t get through by phone”.

The extension of CETV guarantees from 11 December to 26 January was welcomed.  This primarily affected the large number of members whose CETV’s were frozen until the 11 September RAA payment by TSUK.

Pressure to get a CETV before the deadline

On 29 November, members became concerned by a new communication from BSPS stating:

If you are thinking about transferring out your Scheme benefits but have not yet requested a transfer value quotation you should contact the Pensions Office by 11 December 2017 at the very latest. This is to allow time for:
1. Your quote to arrive (up to three months, though we aim to do this in one month)
2. Finding an independent financial adviser and taking their advice
3. Finding and joining a new pension arrangement that can take your transfer
4. You, your financial adviser and the provider of your new pension arrangement completing and returning all the necessary forms to the Pensions Office – by 16 February 2018.
If you complete all these steps by 16 February 2018, we estimate that the Pensions Office will be able to process and pay your transfer instruction by 28 March 2018. However, we can’t guarantee that the Pensions Office will be able to do this. So please give them as much time as possible by completing the steps above as soon as you can.

Questions raised by this included:

  • • Do I lose my right to a CETV after 11 December?
    • Do I lose my right to a 3 month guarantee for my CETV?

BSPS said “If you miss this deadline, you might only be able to take a lower transfer value, or might not be able to transfer out at all.”– We are still unclear if the deadline is 16 February or 28 March.

The deadline for submissions was 28 March according to a letter from the trustee. At the roadshow in Thornaby, Martin Ross, BSPS Technical Manager, requested that members ask their FAs to submit completed paperwork by mid-March 2018 so that the necessary checks could be completed.  This issue of when the deadline is remains unanswered.


The overall conclusion is that members choosing to consider transferring out were put under great pressure to consider an option they had never thought about and many had never considered.

The lack of timely responses led to ineffective use of the 6 month statutory timeframe from requesting a CETV to submission of paperwork to proceed with the transfer.  The Trustee were following FCA guidance given but there appears to be a gap in essential support to the members from the moment they requested a CETV.

Many if not all of the issues could be solved by providing a service which could guide members from consideration of a transfer through to completion.  The lead could be taken by TPAS who have been outstanding in their help and support to our members.  They would need access to the DB Scheme administrators to obtain timely responses to queries.

The £30,000 limit forced DB scheme members to obtain independent financial advice but without a support mechanism for unsophisticated investors with large pension pots.  The BSPS bulk transfer is unusual, but not unique, and members of many other schemes would benefit from a service which helped them create a personalised plan.

In recent weeks we have had many pensions experts volunteering their support to our members.  In particular, many of the members in the Port Talbot area are grateful to Henry Tapper and  Alastair Rush for their face-to-face counselling and review of member’s transfers.

If the Trustees were required to provide access to independent counselling and guidance with help from UK agencies and a panel of suitable advisers many of the members would have a single point of contact for the comprehensive support they required.

Many members also thought they were protected by a final check of the suitability of the transfer by the BSPS Pensions Office.  It is understandable why this is not the case, at the present time, but it is also easy to see how an unprincipled regulated FA could take advantage of this.

In the past fortnight, many of our members have seen the media reports on Celtic Wealth/Active Wealth (UK).  We immediately followed this up by talking to the FCA and reviewing the additional requirement on the Active Wealth (UK) Ltd entry on the FCA web site.  To date, many members are unaware of any actions taken on their behalf by the FCA. The letter, which should have been given to review by the FCA on 27 November, has not been seen by any members.

In addition, we talked to Stewart Davies at Momentum Pensions and were able to provide a list of actions being taken by them to protect the members funds while they awaited the outcome of the third party IFA reviews.  These same points were sent by email to affected members the same day.  We were unable to get statements from the other companies involved.

Posts on a group set up by Alastair Rush for the Port Talbot members affected include all the negative emotions:

  • • Sadness (depression, despair, hopelessness)
    • Anxiety (fear, worry, concern, nervous, panic, etc.)
    • Anger (irritation, frustration, annoyance, rage)
    • Guilt from those who referred their colleagues
    • Shame/Embarrassment

As the members have had little information from other sources they are reliant upon telephoning the firms involved to understand what they should do:

“I have just spoken to Liam of Celtic Wealth and he has explained the facts of this issue to me and I’m still happy that I went with Celtic/ Active. I advise anyone with concerns to contact him or Clive. From what I see this is just a case of sour grapes, greediness and scaremongering.”

The FCA and TPAS have helped callers by explaining the purpose of the voluntary requirement but are unable to answer their most important questions:

  • • Is my money safe?  Will I lose money?
    • When can I get my money back?  Will this be over soon?
    • When will I get a letter from Active Wealth (UK) Ltd
    • When will my transfer be reviewed?

We hope that the CHIVE initiative will be able to give counselling to affected members, (and any other members) concerned about the suitability of their transfers).  We hope the members will get immediate clarity on the suitability of their investments and advice on actions they can take to prepare for all outcomes.  Many members now fear that their pension pot is at risk from high charges and exit fees.  Unfortunately, the early indications are that their fears are justified.perf 2


Automated response to emails to the BSPS Pensions Office:

From: Pension Enquiries <pension.enquiries@tatasteel.com>
Subject: Automatic reply:

Thank you for contacting the British Steel Pensions Office. We have received your email but we’re sorry that we won’t be able to reply as quickly as we usually would. Please bear with us.

Because of the change to the pension scheme, we are receiving a very large number of enquiries from members. We are working as hard as we can to respond to each one quickly and accurately. We are dealing with each enquiry strictly in the order it arrived and cannot move anyone’s enquiry to the top of the queue.

If you are asking about the option pack sent to you in October, we cannot reply. Instead, we have set up two free, impartial helplines to answer all your questions:

Pensioners (including spouses and dependants) call 0808 1688 709. For outside the UK, call +44 (0) 1206 585 361

Non-pensioners call 0800 085 7264. For outside the UK, call +44 (0) 113 823 1344

Lines are open Monday to Friday, 9am to 8pm

If you are waiting to get a Transfer Value quote that you’ve asked for, we will get this to you no later than three months after your request. We are working hard to get these quotes to members sooner than that if we can. To help us focus our time on providing quotes, we won’t reply to emails that are chasing up quotes, unless it’s less than a week before the three month deadline.

If you are asking about a payment that you are expecting for early retirement or a transfer, please bear with us – we are dealing with all these payments in order. We will tell you when we have paid you. If we need any information from you, we will contact you.

Are you are contacting us about something else?
For example:
– change of details
– to tell us about a death
– to ask for a Transfer Value or early retirement quote

If so, please check that your email includes your:
– full name
– date of birth
– National Insurance number
If it doesn’t, we won’t be able to deal with your enquiry.

Once again, we are sorry to keep you waiting, and appreciate your patience.



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A pension settlement needs general agreement.

I spent most of this cold dark weekend putting together a submission to the FCA on what we know is happening to millions of pounds of money that has been disinvested from the British Steel Pension Scheme and reinvested through the Vega Algorithm in the 5Alpha Conservative Fund.

I was working with ordinary steel men, IFAs and fund experts. Late on Saturday afternoon – having read the first draft, Stefan Zait wrote me

As I read it, I got more and more angry. Feel sorry for the families affected

i won’t go into more detail here, hopefully the damage can be stopped.

Can we make steelmen their own chief investment officers?

What a ridiculous question – of course we can’t!

What I’m learning from this work is

  1. That you should never invest in something you do not understand.
  2. That you need to know what you’re paying for
  3. That pension freedom does not mean the freedom to rip people off.

I am also convinced that the great pension schemes that have paid ordinary people like today’s workers at TATA steel have done a great job of investing people’s savings and paying them an income at a pre-agreed rate for as long as they and their partners need it.

What has gone wrong is not the mechanism of investment and payment – we call the pension.  It is the expectation of certainty that has been given to ordinary people about that wage for life.

We cannot predict how the world capital markets will perform over the next three decades. nor can we predict how inflation will bite into stock market returns. Nor can we predict accurately how long we will live. Past performance is a guide but even the actuaries are confused about mortality trends.

So to guarantee a wage for life over the next thirty of forty years to someone in their fifties today is a mad thing to do. There has to be the flexibility to pay more or less depending on what actually happens.

These simple ideas have not been discussed at meetings between steel men and those advising them. Consequently many steel men have been convinced to leave the collective pension schemes which they feel may not pay out in full and put their trust in advisers who will manage their pots.poll bsps

There is another way

While the steelworkers have been putting their trust in the likes of the Vega Algorithm and the 5Alpha Conservative Fund, the Communication Workers Union has been making it clear to its members what the risks of self-managing pots is and how much better it would be to stick with the traditional collective way of paying pensions.

Of course there is a problem with this. Royal Mail cannot afford to take the risks of markets going down, inflation going up and people living longer than expected.

What appears to have happened last week , is that Royal Mail and the CWU have come to an agreement on a level of risk that the Royal Mail can accept and what risk is right for the member to take.

The solution , which has been described as “Collective Defined Contribution” is discussed in yesterday’s blog.

What has happened between CWU and its members and latterly between CWU and Royal Mail is a proper discussion of pension risk and just who should be taking it. If this had happened at BSPS, I suspect that I would not have spent the weekend discovering the delights of the Vega Algorithm.

We all can be special but we can’t all be special in the same way!

Everyone has the right to a transfer value from a DB scheme (until they get within a year of retirement when they lose that right).

In my opinion , we should have the right to a transfer value even in retirement. in the trade this is called a “property right” and it recognises that in special circumstances people should have immediate rights to the capital value of the future income promise.

It gives us great comfort to know that if the worst happened, we could get a reasonable pay-out so that we and our immediate loved ones, would not go short.

A few people will be determined to manage their own pots (4% in the survey above). These people should have the right to self-determined pension outcomes. But it must be clear to such people that they are taking the risk of poor outcomes and that “taking their pot and letting an IFA manage it” does not guarantee them good outcomes.

In practice, we all want to be seen as special but most of us are happy to use the default investment – let the scheme pay our wage for life and be special other ways!

We need a retirement default – a single guided pathway that we can all agree on.

In my view, the solution that the CWU and the Royal Mail are working towards, provides just that. I hope it will cater for people who want to opt-out for health reasons, or wealth reasons or just because they think they’re special.

But i am sure that as with all other collective decisions we see in pensions, 90%+ of Royal Mail staff will stick with the default.

But let me remind those who are designing that default of what I have learned from all this stuff with BSPS members.

  • That you should never invest in something you do not understand.
  • That you need to know what you’re paying for
  • That pension freedom does not mean the freedom to rip people off.

The agreement at the Royal Mail has been reached collectively and will be supported by the postal workers. The Solution at Tata was imposed on the steelworkers. Ironically, BSPS2 will probably offer a higher degree of security than whatever emerges at Royal Mail. But I will be very surprised if we see the scenes at Port Talbot at Mount Pleasant.

Whatever the CDC solution turns out to be, it needs to be intelligible, transparent and have total integrity. That’s a tall order – but if the CWU and Royal Mail can pull it off, we may be some way to restoring confidence in pensions elsewhere.



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Common sense to the rescue; Royal Mail and the CWU adopt CDC.


The last thing this country needs is more strife over pensions. With the BSPS Time To Choose election window , drawing to a close, it’s good to know another vexatious chapter will not be opened,

Whichever side of the dispute you sit, I hope you will join with me in congratulating the Royal Mail and the CWU for finding a workable solution that avoids a strike, pays posties a wage in the retirement and doesn’t tie up investable capital in unwanted guarantees.

In the dispute, both sides have agreed in principle to a mediator’s recommendation to adopt a collective defined contribution (CDC) pension scheme with a defined benefit element. CDC was authorised by primary legislation in 2015,   Regulations to make it possible have not yet been enacted. Labour has come out in favour of such regulations, and the Conservatives are expected to announce their position in the new year.

Here is Royal Mail’s summary of the mediator’s recommendations:


  • Royal Mail and the CWU should commit in principle to the future introduction of a Collective Defined Contribution (CDC) scheme with a Defined Benefit element.
  • To support the introduction of a CDC scheme for all, Royal Mail and the CWU should establish a Pensions Forum. The Forum will have responsibility for lobbying the Government to make the necessary legislative and regulatory changes so that a CDC scheme can be established, and for overseeing its governance.
  • In the meantime:
  • For members of the Royal Mail Pension Plan (RMPP), Royal Mail should implement — from 1 April 2018 — a Defined Benefit cash balance scheme on the terms already proposed by the Company.
  • In addition, existing Royal Mail Defined Contribution Plan (RMDCP) members with five years’ or more continuous service in the standard section of RMDCP should have the option of joining the Defined Benefit cash balance scheme.
  • Royal Mail should auto-enrol current and future members of RMDCP to the top tier of contributions (10 per cent from the Company and 6% from the member).

Here is Terry Pullinger, CWU Deputy General Secretary (Postal):

“[T]he employer has now accepted that we will develop one pension scheme for all of our members. That it will be a Wage in Retirement Scheme. That there will be an element of defined benefit guaranteed, and that there will be an element of shared risk. But it will be targeted to genuinely produce a pension in retirement for people. It will not be a scheme that simply cashes out the moment you retire. It will be a Wage in Retirement Scheme.”

What Pullinger refers to as a Wage in Retirement Scheme is not, however, the pure DB scheme with discretionary as well as defined benefits originally proposed by First Actuarial.

Rather,  the ‘shared risk’ element involves the mediator’s recommendation of CDC:

“…to have the scheme that we would like, the scheme that I’m describing to you, there has to be legislation introduced. It’s already law in this country. But the regulations for that legislation have not [yet] been drawn up. …We are now jointly connecting with people to try and ensure that we drive through that legislation as quickly as possible to enable our new scheme as we develop it and agree it. …that may go on for some time [so] we’re also dealing with transitional arrangements.”

I’m looking forward to the two meetings of the Friends of CDC  next week and I hope it will result in a helpful submission to the DWP’s consultation early in the new year!

Thanks to Mike Otsuka for his help in publishing this report. The basis of this article is Mike’s post here. I hope that Mike will join us at Congress House, an invite has been sent!

Posted in pensions | 1 Comment

Why CETVs at BSPS have changed so much.

BSPS CETV change 1.png

This letter explains why a former BSPS member claimed on BBC News last night that he had lost hundreds of thousands of pounds by timing his transfer request wrong; or- as he claimed – because he was badly advised over timing.

The letter endsBSPS transfer change 2

and gives two option boxes – one to stop and one to go. Those who stopped, like the person who got this letter – got the new values – which were generally higher, those who carried on regardless, were left with much lower transfers. This is the practical explanation for the grievance aired on BBC news.

Why did the basis change?

I mentioned that I am walking forward with a blindfold, I need help and I am getting it. I have received this explanation from an IFA who is happy to remain anonymous.

Regarding the sudden change in the British Steel transfer values this year – I have seen a letter from the trustee which states before June 2017 members who were more than 10 years away from retirement (under 55) had their transfer values calculated using a discount rate based 100% on Equity Dividend yields.

Members age 55 or over had their value based on a discount rate using Bond Yields. Then in June 2016 they used Bond yields for everyone which meant a big jump in transfer values because the bond yields are so much lower than Dividend yields. This particularly helped younger members (e.g. someone in their 40s could have seen an overnight increase of 170%).

This accords with the letter sent in by an  IFA who has asked not to be named. The more conservative the investment strategy , the lower the discount rate and the higher the transfer values (all else being equal). The younger you were (under the old arrangements, the lower your discount rate and the lower your CETV). It is possible that some older people might have seen their CETVs gone down, but in moving to a flat discount rate for everyone, it looks like most people were winners.

This is because at the same time as going “flat rate” the scheme reflected the more conservative investment strategy which reduced discount rates all round and gave the scheme’s CETVs a big kicker!

Whether the scheme is “fully in bonds” – as mentioned above is another matter. The most reliable information I have at the moment is that the best estimate discount rate is calculated against the actual asset distribution within the BSPS fund , which is thought to be “rather less than before than rather greater than nothing”. This explains why CETVs are rather lower than would be expected if a pure gilt discount rate was in operation (the rate if the fund was totally in “risk-free” assets)

Transfer values  were helped still further when later this summer BSPS received a cash injection of £550m sufficient to reduce its deficit and allow the trustees to reduce the clip on the assets that recognised this deficit from 8 to 5% (known technically as an insufficiency report). So it’s only been recently that CETVs have reached their highest rate.

What does this mean now?

CETVs are likely to fall soon as the basis for calculation moves from the old benefit basis (BSPS) to the new benefit basis (BSPS2). But BSPS2 may have a more conservative investment strategy which might offset the fall – so we just don’t know how much or quite when. The general view is that CETVs from BSPS will be higher than those of BSPS2 and any CETVs already issued or issued in Time to Choose, will be based on BSPS and  be honoured at least to January 26th and possibly for three months after the date of issue.

To complete your transfer by 28 March 2018, BSPS estimates that you’d need to get your completed paperwork to them by 16 February 2018. This is to allow enough time for the Pensions Office to process your paperwork and pay your transfer to your chosen pension arrangement, by 28 March 2018.

If you miss this deadline, you might only be able to take a lower transfer value, or might not be able to transfer out at all.

If you’re switching to the new scheme you won’t be able to carry on with transferring out of the current scheme. But you may still be able to transfer out of the new scheme at a later date. You’d need to start the process again by requesting a new transfer value quote from the new scheme. When you ask for your transfer value to be paid, you need to be at least 12 months younger than your normal retirement age. Your normal retirement age is usually your 65th birthday. Your transfer value in the new scheme is likely to be lower than your transfer value in the current scheme, to reflect the fact that the overall benefits, including possible future increases, could be lower in the new scheme.
If you’re moving into the PPF you can still go ahead with a transfer, provided that your completed paperwork reached the Pensions Office by 28 March 2018. However, the transfer value you get might be reduced. This is because the transfer value payable in these circumstances cannot be more than the cost of providing the compensation payable to you by the PPF. This might be lower than the transfer quote from the current scheme. If you don’t want to go ahead with that transfer, you won’t have any further opportunity to transfer out. If you didn’t return your transfer paperwork by 29 March 2018, then you won’t be able to transfer out at all.


The obvious guidance is that if you are going to transfer, get on with it and get your papers in by 16th Feb, if you aren’t – make sure you’ve completed your option form and put your feet up – it’s nearly Christmas!

And finally “The Chair of the Trustees speaks”

In a rare utterance on member choices, BSPS trustee chairman Allan Johnston has said:

‘We are concerned by reports that some members have been targeted with inappropriate financial advice and feel pressured into making a decision on transferring their BSPS benefits.

‘While the trustee cannot advise people what to do with their pension we would urge eligible members to think carefully before transferring their scheme benefits out of the BSPS to another pension arrangement as they would be giving up guaranteed future pension income in return for income that might not be guaranteed and could vary depending on how it is managed.’


Posted in BSPS, Financial Conduct Authority, pensions | 4 Comments

Commission – the charge that dare not speak its name.

charge at work

I feel like someone walking to a destination with a blindfold on, I am getting information from my phone but it is intermittent and there are many obstacles that I stumble over as I walk along. Thankfully, there are people watching my progress and warning me to watch my step!

  • Yesterday I learned a lot about workplace pensions that I didn’t know. Much is tied up in my blog about what is officially  the “TATA Personal Retirement Savings Plan (PRSP)”.
  • I learned about the default investment strategy, its composition (55% shares – 45% bonds, equity), its objectives (to help people invest to retirement) and its charges (0.26%).
  • I learned that advisers can use this low cost , diversified strategy to help clients achieve good retirement outcomes and be paid for doing so through “adviser charging”. This can even include the cost of transfer advice which is charged “conditional” on the transfer being executed into this Plan.
  • I also leaned that the advisers who set up the plan do not offer individual advice but that Aviva allow the transfers to be managed under a separate agency agreement and be paid for at the request of the client from the PRSP pot.

As almost all those still working with Tata are using the PRSP, it would seem the “natural thing to do” to consolidate any transfer taken from BSPS into this plan. But this option does not seem to have been considered by all but a fraction of advisers or BSPS members.

I remain confused – why not? If Tata chose Aviva to run its workplace pension (into which they will pay as much as 10% of workers salaries, one would expect this choice to have been advertised as a good one. Large companies do due diligence, they do not commit large amounts of their and their staff’s wages to a plan that isn’t good – they conduct due diligence.

This due diligence should provide workers with a safe harbour – the first port of call in stormy times. Why has it not been visited by all BSPS deferred members in their “Time to Choose”? I searched the Time to Choose site for information about PRSP but couldn’t find anything. I searched the BSPS Scheme site – no help.

Finally I googled the full fund name and found a website set up to help members with the plan. It contains a webcast with all the details of the PRSP which you can watch here.

Ironically , Aviva told me yesterday that they couldn’t tell me how much PRSP cost, but this information , like everything else I needed to know, is in the public domain! If I go to the dedicated Tata Personal Retirement Plan website and navigate through a lot of linked pages, I can even find a page that tells me my options if I have another pension plan. You can see this page here.

Unbelievably, this website makes no reference to BSPS, whether money from BSPS can be transferred, what the terms of transfer are. It’s only next step is to a contact page

Contact Tata

Is this helpful?

Steel workers are thrown back into the same loop – with a link to http://www.unbiased.co.uk which will take them to advisers. There is no responsibility taken by Aviva, or the plan adviser (whoever that is) or indeed Tata – for everything reverts back to unbiased.co.uk.

This PRSP, the primary retirement vehicle for Tata steelworkers going forward is so divorced from the Time to Choose process as if it were a Dutch or American plan, and yet it offers a default investment strategy in a product selected by the employer sponsoring BSPS, BSPS 2 and the employer or former employer of all 133,000 people in their Time to Choose.

I don’t think this is helpful. If I was a member wondering around with a blindfold on, I wouldn’t be feeling anyone wanted to help me.

More stumbling in the dark

As I continue to wonder around with my blindfold on, I come to more information I did not know. Last night I watched the BBC news at 10 to find out that people have been losing hundreds of thousands of pounds by  transferring out of BSPS at the wrong time.

Apparantly advisers should have been telling their clients that the transfer values on BSPS were about to rocket up, though I haven’t been able to find out how they could have foreseen this, nor why they actually shot up.

That people accepted one price for their benefits only to find they could have got a couple of hundred thousand pounds for the same benefits a month or two later suggests a failure in the valuation process (as well as a question as to how the lower value could have possibly been worth taking). I don’t intend to go down that route today, as I expect I will get some help from somebody as to what really happened earlier this summer and why transfer values shot up (I said I  get a lot of people stopping me stumble).

But the program brought up a word I had not heard mentioned in pension circles for a long time – the C word – Commission.

The regulatory expert Rory Percival picked up from the BBC news piece the use of the word in relation to what was going on at Celtic Wealth and Active Wealth Management.


Technically I am sure he is right, but Alan Chaplin had a point when he replied.

Rory alan

I had made the same point to the FCA’s Robert Finer at a Transparency Symposium last week.

A major contribution of SIPP platforms to the advisory market is the facilitation of layered contingent charges levied as  a % of fees which work no differently than commission.

Put another way, the customer can be led around with blindfold, for all he’s going to see of what he’s getting – and paying.

The charge that dare not speak its name?

If a client signs up to pay an annual fee to an adviser for an indeterminate time, with the onus for cancellation being on the client and the fee being taken as a percentage of funds under advice, that fee is a commission.

Lawyers may argue on a pin, but the charge that dares not speak its name is “commission”.

What every business wants is to amortise the annual value of fee income several years ahead as this gives the shareholder a capital value to the business and a price on which to buy or sell it. Commission does this, it only stops when a client cancels the agreement. We know that clients don’t do that very often, so the practice of embedding advisory fees into products is highly desirable to anyone running an IFA business.

By comparison, the need for advisers to annually request that a fee be taken – the practice that Aviva demand in operating adviser charging –  works the other way round. The adviser has to justify his or her fee every year, the fees cannot be amortised and the value of the business is measured against the capacity of the adviser to gain repeat business.

Am I stumbling here into an area where someone can help me? Am I hearing and reading the wrong things, or am I finding myself groping in the dark adjacent to something that might just be called “the truth”?

Is the reason that the TATA GPP is not promoted by Aviva , Tata, BSPS or institutional advisers because they are terrified they might be considered to be giving advice? Is the reason that the TATA GPP is not promoted by advisers because they are terrified of not getting paid? Where are members interests in this? Why is nobody talking about this?

Finally – what does the regulator make of transfer advice to TATA workers looking to transfer BSPS benefits that doesn’t refer to what TATA’s dedicated pension website refers to as “the Company Pension”?

All answers to henry.tapper@pensionplaypen.com or in comments below – thanks!

charge at work

Posted in BSPS, dc pensions, Financial Conduct Authority, pensions | Tagged , , , , , | 10 Comments

A method for the madness. Is the DWP Select Committee – pension’s best hope?


The diverse agenda of the DWP Select Committee might be considered madness. I am not going to write that their is method in this madness as it’s clear to me that we cannot properly consider freedoms, without looking at CDC for those with  pots but no pensions.

I also want to get on the right side of this Committee as I am due to give oral evidence to them in a few days time. I have only once been done a genuine favour by a Minister and that was by Frank Field who gave me a lift back to the Oxford Park and Ride after a lecture in town. Frank Field is regularly thought mad twenty years have passed since that lecture and I still see a kind and generous soul who understands the financial behaviour of ordinary people better than most.

So to have the chance to answer questions about what Al and I saw in Port Talbot and the interactions we’ve had on the Facebook pages will be an honour and a pleasure.

The special session is informing the inquiry into the operation of pension freedoms.

 The Committee is due to produce the first report of this inquiry in the next weeks: this evidence session is intended to inform a second report that will propose regulatory and other measures to prevent similar situations.

It is not for me to propose those measures but I notice that on the list of inquiries currently being carried out by Field and his team is one on collective defined contribution schemes.

Chive – a good interim solution

I hope that the link between the current madness in Port Talbot and other steel towns needs not be repeated.

Al Rush has embared on Chive, yesterday he was doing  work with steelworkers who are flocking to him and his team of unpaid IFAs, unravelling the misconceptions of BSPS members. I understand that the BBC will be reporting on this on the 6 and 10 o’clock news.

If you are a member and you are reading this, then you can book yourself a session in one of the many locations Chive is operating in – using this link.

Some IFAs have been rather less than generous to Al and this charming note – captured by Dave Trenner – explains why Chive – as applied to the emergency at BSPS, is not a measure to “prevent similar situations”.

up against

But Chive, relying as it does on a self-moderating group of highly qualified Pension Transfer Specialists, is a resource that other employers and schemes will be able to call upon when other groups come to their “Time to Choose”.

Chive will need to operate on a commercial basis in future but for now , I’m sure all but the hardest hearted will agree with these sentiments.


More radical long-term solutions needed.

To my mind , there is no obvious solution arising from the FCA’s retirement outcomes review. The retail sector has failed to come up with a mass market solution to give ordinary people , faced with pension freedom , a guided pathway.

Although it will take two years to create the regulatory framework, CDC could still deliver, by the beginning of the next decade, a default solution for those -like Al and others are speaking with – who are looking for a wage in later life without the backing of a sponsor.

In the short-term, the demand for such a service will be as much from those with money emerging from DB as from money accumulated in DC. The wall of pension wealth moving inexorably towards later-life , demands the Select Committee’s attention and I’m very glad it is getting it.

Method in its madness.

So the seeming madness of running concurrently an enquiry into pension freedoms and an enquiry into CDC makes sense to me. One is the solution to the other, CDC will be born out of frustration with pension freedoms but CDC is also the expression of pension freedoms for those who want a wage for life but do not want to be tied to the tyranny of annuity rates.

Which is why you will see a lot more articles like that from Con Keating this morning – on this blog. And why I am confident that the remedial work Al is doing in the steel towns needs the publicity it will get from the DWP Select Committee’s ongoing scrutiny.

I am not supposing that achieving a short-term fix to the problems created by the decline of DB will be easy, CDC is no silver bullet; nor am I suggesting that the proper organisation of advisory report is a long term fix for retirement outcomes, it is only a sticking plaster. But I do think that the DWP select committee hold the keys and that with the stewardship of Frank Field, will be able to take matters forward.

That is my hope. It is probably pension’s best hope – right now.juliafield



Posted in drawdown, DWP, governance, Henry Tapper blog, pensions | Tagged , , , , , | 4 Comments

“Cry havoc and let slip the dogs of war”

cry havoc

One of the features of a close-knit community is that people talk to each other. For Steelworkers this has been at works and  in clubs.

Now the works and clubs of Port Talbot, Llanwern, Scunthorpe and Redcar  have digital counterparts in the Facebook pages managed by Stefan Zait and Rich Caddy.

This post is about the conversations that begin on those pages and lead to discussions via email and other messaging systems. If we want to understand how decisions are being taken by BSPS members , we need to recognise we are in a digital age. The rapid free-flow of information has its own risks, as I am about to show.

The nature of the risk

A post on one of these pages signalled a worrying development for those fearful of the consequences of DB to DC transfers.

Hi, my investment is with Vega algorithms via Gallium via intelligent money via Darren Reynolds /active Wealth , just checked my investment, it’s down -0.32, could you advise next step please.

Steelworkers know how to use a calculator, that 0.32% fall in the investment might be equivalent to a week’s wages.

The post is followed by another “investor”

“Mine is same. Down 0.02%”

Of course it is not uncommon for daily unit prices to fall as well as rise, these steelworkers are going to see this happen almost as often as they see them rise and with on-line access to their Gallium accounts.

There could be a lot of sleepless steel men over the next few decades, unless people understand the nature of their risk

 Why DC is different

It is difficult to put your shoes in those of a community of workers who for the past five decades have been assured pensions that don’t go down in value. But that is what Port Talbot is – and many other steel towns.

For thousands of steelworkers moving their DB entitlements to Defined  Contribution pots, that certainty is gone.

The basic message that past performance is no indication of the future is not one that is getting through to most of the people with whom I am speaking (or messaging).

Here is someone with £590,000 in his account (he’s given me permission to quote anonymously),

“a FA has told me (and others) that Royal London have averaged 10% over the last 10 yrs and I could have the potential of having £1.1M in my pension when I’m 60. Whether those figures are exact or an exaggeration I’m not sure, but that gives a lot of flexibility come retirement”

For an opinion on Royal London, I asked Al Rush who’s replied

The Governed Portfolio range has ‘only’ been going for eight years or so.  I think it’s a great choice of fund.  With a portfolio of that size, the all-in charge (including advice) after transferring out should be somewhere in the region of c.1.2% – if transferring is the right thing to do.

The bold “if” comes from Al.
I am not in a position to comment on the rights or wrongs of specific investment but I do think that giving people expectations based on past performance goes against the letter and the spirit of the law.
We are in an era of low inflation (the new normal as experts call it). We can expect long term equity returns to give an above inflation return (the liquidity premium), but that does not mean that 10% returns are on the cards.
Guys – DC is different because you are taking the investment risk, not Tata.

The cost of the risk

I’ll take Al’s word for it that the cost of the Governed Portfolio is 1.2% pa. I’ll take my correspondent’s word for it that he will be paying a 1%  advisory fee. I would like to think that the 2.2% total charge will include the cost of investing (though I fear transaction costs may be on top).

If my actuaries are telling me to expect inflation +3% on my DC pot and inflation is 2%, I can see the cost of the risk this fellow is taking is very nearly 50% of the expected return. In other words, to achieve inflation + 3% , I’d need to get a 5% +2.2% return = 7.2% pa.

That’s a pretty tough call over the fifteen years this fellows got to retirement. The £1.1m figure looks like a 4% net roll up, which still assumes a 6.2% return (and that’s before netting off the £7,500 fee to meet the initial advice.

My simple argument is that this fellow may be able to afford the risk of the Government portfolio’s volatility, but can he afford the advice? My assumption is that if you are paying 1.2% pa for the portfolio, a secondary level of governance on what is a growth portfolio is not needed.

Can you afford all this advice?

The worrying lack of alternatives

My correspondent tells me he is investing into his workplace DC plan at the maximum match (he is paying 10% of salary and so is TATA). This is into an Aviva personal pension set up on TATA terms.

I have mentioned this option before and asked steelworkers if it has been put to them. My correspondent has given me a reply.

When you ask could I invest the CETV into my Aviva DC pension. I was always under the impression that Aviva wouldn’t accept the transfer into this – nearly everyone I’ve spoken to also think this and this would have been the easy option to do.

I am currently investigating whether there is a special clause in the TATA GPP which prevents transfers in and I am asking what the terms applying to default investments into this plan actually are. I suspect they are rather lower than 0.75%.

I am not suggesting that the TATA (Aviva) GPP is suitable for this gentleman’s money, but I am very concerned it he has been given the impression it is not an option,

You have to wonder how such an impression could have become prevalent in the community, when Time to Choose was initiated by TATA and managed by its pension trustees.

Why aren’t steelworkers considering transferrin to their workplace pensions , whether with TATA or elsewhere?

Perverse consequences of conditional pricing

I am also asking Aviva, whether its workplace GPP could, should it be able to accept this man’s money, pay the £7,500 initial advisory fee to the advisor from the fund. I suspect it can’t because the advisor does not have rights to the policy – but more on this later.

If I am right then the cost of the advice goes up, as it will have to be paid for from taxed money and VAT will be payable (as the advice will be deemed to be about transfer advice not about product advice).

Put income tax and VAT on that £7,500 and the bill suddenly seems a lot less palatable.

If I am right, then I can see why steelworkers do not think they can exercise “the easy option to do”.

If the FCA are happy to turn a blind eye to this, then should they have bothered with RDR?

Why do we allow such taxation inconsistencies to persist? “Scheme Pays” could be used for more than the collection of tax.

Putting the answer before the question.

In this blog, I have identified four  concerns I have with the steelworkers  risk transfer from DB to DC. My questions to steelworkers are in bold.

  1. Steelworkers getting agitated by falls in their DC pots – visible online. Are you prepared for inevitable market reverses?
  2. Steelworkers being given unreasonable expectations based on selective use of past performance figures. What happens if you pick a losing fund?
  3. Steelworkers paying twice for “fund governance”. Are you aware of the impact of a 2.2% + yield drag?
  4. Steelworkers getting poor information on alternatives (such as workplace pensions), possibly because of adviser introduced bias. Do you know what you might be missing out on?

To these , I will add a fifth, alluded to in Al’s bold “if”, the gent I’m corresponding to has 15 years till he is 60 and he’s in a well funded DC plan. He has tax-free cash entitlements from his DB plan (whether he move to BSPS2 or defaults to PPF).  In terms of his major concerns, the lack of inheritable wealth from DB, I think he is under further misconceptions. He talks of DB benefits being capped by indexation (not strictly the case as discretionary increases are still possible  (with a £2bn buffer at outset). He talks of his reduced life expectancy as a manual worker (I’ve pointed out that there are more than 100 members of BSPS over 100 years old).

In short I think the fifth concern I have is that the £7500 advisory fee that this man will pay to transfer to a DC pot is just that. That it is a golden key to £590,000 (well call it £582,500).

Cry havoc and let loose the dogs of war

The military order Havoc! was a signal given to the English military forces in the Middle Ages to direct the soldiery (in Shakespeare’s parlance ‘the dogs of war’) to pillage and chaos.

I fear that this is just what TATA has done. It is important that we seek to manage the potential havoc using these digital means at our disposal.





Posted in BSPS, pensions | Tagged , , , , , , | 12 Comments

Steelworkers are “front and centre of my mind”



MM topOver the course of the last 24 hours there have been a number of positive developments for BSPS members.

  1. The deadline for decisions taken in “time to choose” has been taken back to 22nd December for all members (previously this had only applied to a handful of special cases)
  2. The CETV quotes issued to date will be honoured by trustees till 26th January or the end of the 90 day guarantee, whichever is the later.
  3. One of the SIPP Providers – Momentum – that took money from Active Wealth Management has made a number of timely interventions to protect member’s wealth from damage.

Taken together, these developments should go some way to ease the growing sense of disquiet among steelworkers and particularly those worried by the closure of Active Wealth Management (AWM) to new clients

The FCA’s restraining order on AWM, goes further. Darren Reynolds – who runs AWM is not allowed to continue advising his clients.  Almost at the close of the week’s business, the FT broke further news.

Fox in charge of coup

I have written to the FCA, suggesting that it reconsider its position and actively involve itself in the selection of a third party IFA.

The scale of the AWM transfer portfolio has yet to be revealed.  However we know that there around 100 CETVs that have been paid to Momentum through AWM and Momentum is only one of the destination. If average CETVs are £350,000, then the FT’s estimate that AWM’s BSPS assets under advice (£25m) looks  low.

To ask Darren Reynolds – who is barred from advising this portfolio – to appoint the “third party IFA” is akin to putting the fox in charge of the chicken coup.

Were the Pensions Regulator involved, either Pi ,  Dalriada or similar would have been appointed to restore order.

The surveys we have seen which looked specifically at BSPS decision making make it clear that steelworkers are not liberating their pension to manage their money themselves, they are appointing IFAs instead of their pension trustees as their fiduciaries.poll bsps

What is clear is that less than 4% of those who responded – wanted to manage their own money , 82.6% said they wanted to “take their pot and let their IFA manage it“.

Put another way, these decisions aren’t about pension freedom, they are about another style of control. Members are swapping trustees for IFAs.

This should be deeply worrying to the FCA, for while Trustees – especially of schemes such as BSPS, are few and accountable, IFAs are numerous and are far less easy to regulate. The failures of trust documented on this blog, suggest Active Wealth Management abused the trust of BSPS members as did its lead generator and most likely those downstream offering wrapper, asset management and fund administration.

The vulnerable people I and Al (and now Jo Cumbo) have spoken to, had every reason to trust AWM. It was fronted by Celtic Wealth, a local firm which was (until this week) endorsed by a Welsh rugby hero (Shane Williams). Celtic Wealth did not lavish hospitality (chicken in a basket) but offered a service at a reasonable price (£1500) which promised steelworkers the keys to unimaginable sums of money and removed control of that money from Tata UK, on whom the Steelworkers feat they were overly-dependant.

Any implication that those who signed up with Celtic and then AWM were being stupid , should consider the degree of trust steelworkers have in local IFAs. The members we spoke to repeated what they had been told by IFAs about the FCA, guarantees, expected returns and most of all about the viability of the adviser’s plan to more than meet the expectations they could have of BSPS2 and the PPF.

They took this on trust and they were not being stupid. Who else was there for them to turn to? Those local IFAs who have spoken to who have behaved impeccably, (Ray Adams of Niche and Matt Richards of Aspire for instance) have had to turn away business to manage the clients they have taken on properly.

It took Al Rush and some local experts to point out that the majority of advice given was a pack of lies.

“Victim” is not too strong a word.

I came across a member yesterday who had removed his investment from Vega Algorithms and now sits with the Momentum SIPP in cash, the excursion had cost his pension pot £3,000.

The cost of restitution – if it is anything like what we have seen in the past – will put considerable financial strain on FSCS, PI insurers and IFAs (if they are not following the example of Bespoke/Celtic or Strand/Vegas).

But the biggest cost will be to the members, who are even now enduring considerable uncertainty. We know exactly where such doubt leads and it is not a healthy place.

That is why I want the Regulator to take stronger action and engage with the local community of IFAs who are (from conversations I have already had) prepared to move mountains to restore some confidence in pensions.

I have written to the FCA and asked that they take immediate steps to reverse the decision to put the fox in charge of the coup and that they divert resource to providing victim support to steel-workers who have been duped.

I am using strong words which no doubt a lawyer would advise me against. But I fear there is not time to argue these matters in the court. The need for help for the victims of poor advice in Port Talbot and elsewhere is immediate and can be focussed on a relatively small number of people.

We pride ourselves in having a regulatory system that protects the most vulnerable. What has and is happening in Port Talbot shames us.

I was very pleased to read this headline and the article behind it.MM top

The words are good. But unless Megan can follow them up with action, they will ring hollow in the valleys.

Addressing the victims of poor advice in Port Talbot must be front and centre of our minds this weekend.





Posted in BSPS, pensions | Tagged , , , , , , , , , | 10 Comments

You have to be there to fully understand it.

Though it’s a truism – it’s true. You cannot understand the break down in the orderly provision of pensions that is occurring in Port Talbot, until you go there.

I did not go to Port Talbot yesterday, there was a need for professional reporters (Jo Cumbo) and professional advisers (Al Rush ). There was a need for witnesses to verify what Al and I had seen earlier.Eugen pt

Eugen is not being sensationalist, you can sense in the simple words he is using that he has been shocked as a professional adviser but more as a sympathetic person.

Jo Cumbo’s reporting throughout the day emphasised the vulnerability of people who have been given plenty of advice but little support.

Two tweets responses from Chris Sier are worth quoting. The first is to Jo Cumbo

eugen 2

The second to himselfEugene 4

That something is going very wrong cannot be in doubt. What’s needed now is sound practical advice to steelworkers on what to do.

This is Michelle Cracknell’s response, which I count as definitive. If you are an adviser and know steelworkers who have yet to take a decision or have taken a decision and are unsure. Please cut and paste what sits beneath the line and text, e-mail or just print it out and give it them.

It is not too late to change things. The FCA have taken steps to stop Darren Reynolds and Steelworkers  still have the first 11 days of December to make or remake their choice.

Steelworkers in peril

Steelworkers are in peril as the deadline for members of the British Steel Pension Scheme is fast approaching and many of the members are yet to return their option form.

Members of the British Steel Pension Scheme must make a decision about their pension by11th December 2017. Each member has received an options pack and must decide whether to:

  1. remain in the current scheme, which moves into the Pension Protection Fund;
  2. move to the new British Steel scheme – BSPS2; or
  3. transfer to a private pension.

Many Steelworkers are struggling to make a decision and feel nervous, angry and distrustful of the scheme. Some members have been vocal on social media about the issues that they are facing. There are reports that a number of opportunist financial advisers and unregulated introducers who, for their own financial gain, have been plaguing the members to use their services by inviting them to “chicken in a basket” suppers. There are some very good financial advisers who can go through the options available to you and make a recommendation.

Only use financial advisers who are regulated by the Financial Conduct Authority to conduct this type of work and be prepared to pay them a fee.

For those who have made a decision, the agony is not over. The administration of the British Steel scheme has been under immense pressure with the volumes of questions being asked of them and members are reporting that there has been no acknowledgement of receipt of their option forms. Further confusion has been created by the address given on the option form being different to that given on the pre-paid envelope.

The pension scheme has said that forms will be processed no matter which of the addresses it was sent to.

If you are a member of the British Steel scheme, here is a checklist.

Spot the scam –

  • With all the publicity surrounding the British Steel scheme, the scammers are targeting members with the promise of investments such as hotels in Cape Verde, with promises of returns of 8% per annum or more. Be very wary of anyone who approaches you out of the blue with a proposal of how you can transfer your money out of the scheme to invest in a high risk, high charging and unregulated investment that promises high returns.
  • Proceed with Caution – 


Ask questions

  • Your pension is very valuable. You may be feeling very confused about the options. It is really important that you do choose an option so that you know what pension you will have. A good place to start is to contact The Pensions Advisory Service. TPAS is a publicly funded organisation that has pension specialists who can talk members through their options. It has a dedicated and free helpline for British Steel pension members is 0207 932 9522.



Mind your money

  • If you are considering transferring out of the scheme (option 3), be prepared for the ongoing work that is needed for managing your own pension fund. Even when you have an adviser who you are paying to look after your pension, you will need to meet with the adviser regularly to review your pension and make decisions about investments and level of income that you want to take out. You will have to pay a fee for this service and you will have to spend your time.


Proceed with Caution

However angry you are about the British Steel situation, the options of going into the Pension Protection Fund or the BSPS2 scheme may result in you having a lower pension but the pension is still guaranteed.


A guaranteed income is very valuable. You do not have to worry about investments going up or down. So give careful thought before giving it up. Once you have transferred out, you cannot go back into the scheme.


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

Following the money away


port tal2

There is a simple rule in investment matters, “if you can’t understand it, don’t invest in it”.

Which is why the FCA stop people with limited investment understanding investing in compex financial products .

It is why transparency matters, if you can’t see what is going on- don’t go there.

The  news is that thousands of self invested personal pensions could be investigated for “‘non-mainstream investments’, which tend to be more exotic, higher risk, often unregulated projects“.

If anyone is any doubt about the relevance of this topic, follow this link to see how the FCA is starting civil proceedings in relation to alleged misleading statements on pension investments.

For example

This is the investment strategy that was being suggested for a man with a £200,000 CETV.

The portfolio construction algorithm is based on empirical research and up-to-date portfolio management techniques. We use technology to do the heavy lifting: the systems we have created enable us to make qualitative and quantitative assessments of 1,000s of securities every day. The result is an intelligently diversified portfolio with the greatest potential for return for a given risk profile.

You can be sure that the human biases of fear and greed, proven to be detrimental to long terms returns, do not play a role in how your investments are managed. Instead, every investment decision made is free of emotion and consistent with a growing body of investment and risk management research that spans decades.

The man was introduced to Darren Reynolds of Active Wealth by Celtic Wealth and  planned to use Intelligent Money to invest in Vega Capital which is an appointed representative of fund administrator Gallium. As the investor pointed out on a private Facebook page

this may be normal but I have no clue.

The journey of the £200,000 would have incurred an introductory fee to Celtic, Darren Reynold’s advisory fees, the wrapper fee for the Intelligent Money Sipp, the investment management fees from Vega and the administration fees of Gallium. On top of this would have been the transaction costs involved with the “Vega Algorithms”.

As almost all of this money would have been paid out of the £200,000, the investor would have got all of this for free – he would not have had to reach for his pen to sign a cheque or open his wallet.

Thankfully the FCA are now on top of this situation, Active Wealth has a restriction on it contacting its clients and cannot take new clients.Darren 4

But we know that money has reached Vega because former BSPS members show us.

vega cert



Fees are one thing, but they are only part of the harm that come to an investment. There is a more fundamental problem- competence. Vega Capital is run by these two chaps;


Source Matt Richards FPSS ACII

Both were former RBS bankers .

Steffen’s  linked in CV suggests he left RBS to set up Vegas. But we know better.

Steffen actually set up another investment company before setting up Vega in March 2017.

That company was called Strand Capital.

Strand entered the FCA’s special administration service following insolvency proceedings in May 2017.

Just why Steffen forgot his time at Strand is a mystery, but clearly it should be of interest to investors in Vega Capital and indeed savers into myworkplacepension.com/  an auto-enrolment master trust that invested in Stand Capital’s funds.


It would seem that Vega Capital is a Phoenix of Strand. I’m grateful to the website of My Workplace Pension (known to BBC viewers as wideboys r’ us) and to Steffen’s Linked in page  for these two quotes.  Note the date in the URL for my workplace pension-no mention of this on Linked-in.

A lot of coincidences

Now of course none of this is proof of anything dodgy. It might just be an awful lot of bad luck that’s befallen those at  Active Wealth/Strand Capital/Myworkplacepension all to be caught up in insolvencies or shut down. Similarly the problems at Celtic Wealth and Gallium detailed previously on this blog, may just be an unfortunate coincidence,

But if you are a regulator, or a fiduciary and your job is to protect people from getting into financial deep-water, you’ve got to start somewhere. So perhaps they could start here.

Posted in advice gap, FCA, Fiduciary Management, Financial Conduct Authority, pensions | Tagged , , , , , , | 3 Comments

Honest endeavour stops scammers in their tracks.

Al rush - working hard

Al Rush

Darren Reynolds and his firm Active Wealth have been restrained by the FCA from carrying out pension transfer business for the foreseeable future. Darren 4

Active Wealth’s business plan was to take leads generated by Celtic Wealth through promotions such as the notorious “chicken in a basket” suppers in Port Talbot.


Celtic Wealth is owned by Clive Howells, the same Clive Howells as was behind Bespoke Pension Services . This was the firm behind Mrs Hughes’ liberation of her pension from the Royal London Staff Scheme.


For those who don’t follow such things, Justice Morgan allowed Mrs Hughes to transfer out of her occupational pension scheme into another occupational pension , even though she had no connection with the sponsor of the new scheme.

Royal London had fought the transfer on the basis that it was a scam and that allowing it would encourage similar scams.

Here’s what Angie Brooks wrote at the time

I am not saying that Bespoke Pension Services are scammers but on the back of their victory in the case of Ms. Hughes, there are a further 160 blocked pension transfers sitting with the Pensions Ombudsman. We have no way of knowing whether they will all be pension transfers invested in Cape Verde assets, but we do know the Hughes case must have been very important to Bespoke Pension Services’ business.

Interestingly, Bespoke Pension Services are unregulated and their address is a virtual office. According to their latest published accounts the firm was insolvent in 2014. The two directors/shareholders – Mark Anthony Miserotti and Clive John Howells – have between them an impressive portfolio of investment, consultancy, property development, investment and financial planning companies – one of which is called “Fortaleza Investments” which suggests something Brazilian

This is the conclusion that the Pension Ombudsman came to after reading

In particular, it (the Hughes judgement) provides instruction to trustees and administrators that, assuming the other requirements for a statutory transfer right are made out, members do not need to be in receipt of earnings from an employer sponsoring the occupational pension scheme to which they wish to transfer their pension. Earnings from another source are sufficient.

It seems likely that most transferring members will meet this requirement so, beyond verification of earnings and the provision of risk warnings, trustees and administrators will be conscious that under current legislation they cannot refuse such a transfer – even if they have significant concerns that it may be for the purposes of pension liberation.

So it came to pass

I am sure that Clive Howells, in his new guise as boss of Celtic Wealth, could not believe his luck when the British Steel Pension Scheme members were given a limited time to choose. With entrepreneurial zeal , he has provided Reynolds with leads on an industrial scale as documented in FT Adviser.

Back in 2014 asked these questions of Clive Howells

What qualifications do your team have for pensions and investment advice? Why was your firm still trading while, according to Companies House records, the company was insolvent in 2014? Did your firm pay off the £101k owed to creditors in 2014?

If we had answers from Clive Howells on these questions, I suspect we would not be reading of Celtic Wealth , nor Darren Reynolds , nor the mess that will now have to be unravelled by Trustees who surely must question the integrity of the advice behind any transfer request that has come through this sales channel.

Thanks to Al Rush

As I write, Al is once again dashing down the M4 to Wales, this time with an intrepid journalist beside him. Al is the hero of the piece. He is responsible for stopping Reynolds in his tracks and I hope Celtic Wealth from greasing the wheels of other associates looking to by-pass proper process.

The story of Hughes v Royal London is a salutary lesson. It turns out not just to be a test case for pension liberation, but a confidence boost for Clive Howells and others intent on providing fuel to this fire.

The pronouncements of Antony Arter, the Pensions Ombudsman who ruled in favour of Mrs Hughes, turned out to be a judgement in favour of Bespoke Pension Services and its offspring Celtic Wealth.

No thanks to the British legal system

Thanks to Al Rush but no thanks to the British Legal system which has singularly failed to act in anyone’s interests but the scammers.

The courts are the scammers friends and the only action that matters now is more prevention by the FCA.

It was Angie Brooks who asked the questions and nobody followed up. Thankfully Al has asked the question and somebody is following up. If you see malpractice , you should report it to Action Fraud, the FCA and tPR and you should follow up.

If we leave things to the British legal system, the likes of Clive Howells will still be digging out leads in another five years.

The next Pension Play Pen lunch is on Monday (Dec 4th). We will be discussing Bob Ward’s question “are trustees doing enough to stop bad outcomes from DB transfers?”

If you have read this article and want to come , then you are most welcome. We meet at 12 for 12.30 at  http://www.the-counting-house.com – near Bank . The meeting is free and we share the cost of the food and drink which is typically £15. We wrap up around 1.45 and everyone is away by 2pm.

Well done to all who exposed Philip Nunn this weekend,


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When will they ever learn? (The CDO is back)


The FT reports (with its usual light touch ) that the collateralized debt obligation is back and being used by Global Pension Funds (and hedge funds) as an alternative to junk bonds. I question whether in its “authentic” (CLO) or synthetic (CDO) form, the packages of toxic alchemy that fuelled the 2008 crash were anything but “junk”.





 The sale of collateralised loan obligations — bonds that group together leveraged loans made to companies — has already past $100bn of new issuance for 2017, well ahead of the $60bn sold over the same period in 2016 and approaching the post-crisis record of $124bn set in 2014.

(FT (Nov 28 2017)

There is of course an alternative to junk, it is called patient capital. In a world where pension funds paid pensions rather than obsessed about mark to market valuations, then the need for high yield bonds would be minimal. But in the Alice in Wonderland world that has been created for us by the banking industry, we have to listen to Tracy Chen, head of structured credit at Brandywine Global Investment Management

 “Investors need return, they need yield, with junk bonds at such low yields where else can you go? It pushes investors into the securitised world.”

It” is grammatically the “need”  for return and yield. It cannot be achieved through patient investment of productive capital but must be achieved by using “structured credit” – that is what the bankers tell us and the bankers are running the show (again).


Need generation


Is this what we want?

I don’t address this question to the people who are involved in creating structured banking products to help out pension trustees, I address this to the trustees and especially to trustees who still talk to members.

What would your members say if you told them that you were considering using collateralized loan obligations and collateralized debt obligations (synthetic or otherwise)? And what would they say if – as happened in 2008 – these CLOs and CDOs failed as a result of their alchemy?

In the 10 years since the banking crisis, the people of this country have paid a high price for the failure of the banks and the mis-purchasing of these financial instruments. These failures have impacted wages and the services we receive out of general taxation. With little economic growth and with the debt burden taken on to bail out the banks, Government has decided to close basic services like libraries. This is the impact of CDOs and CLOs on ordinary people.

If any trustee of a pension scheme (global or otherwise) is thinking of investing in opaque banking instruments that promise a higher yield than ordinary bonds through these structures, can they stop and think about the damage that has already been done.

Remember Einstein’s definition of insanity and learn from it. We fought two world wars, we don’t need to fight two banking crisis’.


Stop it – right now!

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

We do not restore confidence on our own – we do it together

Patient capital

Today we see the launch of the Government’s new industrial strategy.  Five Live’s “Wake up to Money” program came from the white heat of a Coventry industrial research plant. Last week Nigel Wilson called for us to put back the Capital into Capitalism and that same (budget) afternoon, Phillip Hammond name checked the “Patient Capital” project that is designed to do just that.

So it’s sad to hear that Aviva, one of the great sources of capital for British industry, is choosing not to invest in British productivity but to buy back shares and boost its share price. This can’t be seen as a productive use of capital, the parable of the talents bemoans this kind of behaviour and so does Aviva Investors  (share buybacks short-term pain, long-term gain).

With earnings hard to come by in a low-growth world, … companies offering sustainable revenue and earnings growth, rather than short-term fixes like share buybacks, are likely to be rewarded.

Rewarding investors for taking a long-term view and not a quick return on investment is at heart of a good industrial strategy. I’m not good with these kind of words so I’ll continue to quote from Aviva Investor’s market briefing.

Whilst companies will likely continue to generate significant amounts of cash and debt markets will remain accessible, it is questionable how much longer this buyback boom can continue. Long term investors, in particular, want to see firm evidence capital is being used productively.

Here’s  the conclusion.

To generate sustainable long-term growth, companies need to focus on re-investing further in their own businesses

and the threat to management who put pandering to short term shareholder interest before the long-term interests of the business.

 Ultimately it is up to long-term shareholders, as stewards of capital, to demand companies allocate capital in the most efficient way.

I hope Aviva’s Mark Wilson (no relation) has access to his own company’s websites!

As with pensions

Investing rather than speculating) in equities demands a long-term view. You are expecting to be rewarded for being patient. This is why John Ralfe points out that equities are not a risk-free source of return; the risk is that in the short-term you need your capital back and lose out.

But that does not mean you should not invest for the long-term; that is what our great pension funds like British Steel and the University Superannuation Scheme have historically done and that is why they successfully pay pensions to hundreds of thousands of people.

Ordinary people investing in DC are still invested in equity based funds; but recently, we’ve seen a shift from equities to bonds among institutional investors.

retail institutional

Like the insurance companies, our pension funds have been a long-term source of “patient capital“. It seems no coincidence to me that the drop in the productivity of the British Company has coincided with the fall in equity investment among British pension funds as LDI and other fixed income strategies are adopted.

The wholesale de-risking of our funded occupational DB plans from equities to bonds, often using complex derivative structures as part of “liability driven investment” has led to a decline in investable capital for the long-term. This has in turn led to a decline in long-term investment and is one of the reasons we are falling behind other OECD countries in our productivity.

Any industrial strategy needs to address not just the lack of investment but the reasons for the lack of investable capital. Nigel Wilson has put L&G’s money where his mouth is and invested shareholder funds in long-term investment projects with social purpose. Mark Wilson seems intent on handing back working capital to shareholders.

We are sitting on £300bn of cash in ISAs, “we” being British tax-payers (or in the case of ISAs – “non-tax-payers”).  This is dead money that is simply sloshing round the system creating un-needed and unwanted liquidity. That money would be better put to productive use.

We want more Nigel and less Mark, more investment into real assets (equities and infrastructure) less into short=term holdings (cash and bonds). Activists, including Aviva Investors, should be pointing this out to management – including Aviva.

We want pension funds prepared to invest for the future. It is clear that many DB schemes are so far down the line in their de-risking programs that they may never be investors again. But that does not close the door on their opening again to future accrual, albeit accrual using equity investment to meet the long-term horizons that pension liabilities create. The FT reports that even the Bank of England are considering returning to investing in growth assets, a move that provoked this comment from Ros Altmann

 “It effectively admits that the cost of providing pensions using only index-linked gilts may be too high and that the use of just these gilts may not deliver the most effective asset backing for the liabilities.”

It is opportune that in the week that we announce a new industrial strategy and days after a forward-thinking budget , the DWP Select Committee choose to open discussion again on CDC – what I like to call “target” (rather than guaranteed) pensions.

The essence of social capitalism is that we are all in this together. Nothing could be further from that truth than the self-invested personal pension. We need to isolate self-investment as the means of the special few and not shoe-horn SIPPs into the mainstream.

The mainstream investment is a collective , it’s how equity markets work – collective investment into publicly owned companies. Similarly it is how our pension schemes work. It is high-time we reasserted the importance of long-term investment and the vital risk-mitigation that comes from investors coming together to collectively define outcomes.

We do not restore confidence in pensions on our own – we do it together.cropped-playpensnip1.png


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A time of trust – not guarantees.

About the time that I was ranting to TISA about the complacency with which we are dismantling the retirement promises made to those who were promised a DB pension based on the years they worked with the company;- this happened!

DA enquiry

Click the link to read what the DWP Select Committee are up to. For those who are “click averse”, I’ve left the blurb at the bottom of the page.

This is why the DA Pension (better known as collective defined contribution or “CDC” matters).

Forget the technical stuff – this is how CDC could matter to you.

Every single private defined benefit pension scheme in Britain is under threat of closure. That doesn’t mean you lose what you’ve got , or even that you have to take less than you’ve earned to date. It means that the pension promised against what you’ve yet to earn, is going to be based on what you can get from a pension pot – not more “wage for life”.

It needn’t have been this way!

At some point in the nineties , some hard-boiled eggs decided that the promise employers paid to pay pensions needed to be written in stone. Writing promises in stone is expensive and the weight of the stone sunk many pension schemes that , had they continue to promise to pay what they could, would still be helping you build a wage for life (rather than a pension pot).

What’s done is done. Most of us have to make the best of our pension pot and some of us have even decided to cash out our wage for life in return for a bigger pot. The hope is that there will be some way to convert our pension pot into a wage for life that suits us when we get to wanting to spend our money.

Advance to Go – collect £200

In 2014, the then pension minister Steve Webb, decided to allow the old style pension schemes that didn’t have promises written in stone – to start up again and call themselves “CDC”. He was successful and the idea became law in April 2015. Unfortunately, the new Government decided that the market didn’t need anything as old fashioned as a pension system that worked, but that we wanted a brave new world of financial empowerment , free of pensions or at least with pension freedoms (probably the same thing). This meant scrapping the detailed rule-making which would have meant that CDC schemes would be available about now and investing in Pension Wise, and the Pension Dashboard and trusting in the market to come up with innovative solutions (aka silver bullets).

Unfortunately, no matter how many times we have passed “Go” since then , few “collect £200” silver bullets have been dished out. Many people are already looking at the “community chest” or “take a chance” as their best chances of winning.

Confidence in pensions is not high

Since Frank Field took over as Chair of the DWP Select Committee, he has seen one great pension scheme after another sink beneath the weight of the promises written in stone. BHS, BSPS, USS, Royal Mail,  Halcrow, Hoover Candy and a whole load of smaller schemes like Austin Reed, have all either “closed to future accrual” , “entered the PPF” or used an RAA to become semi-comatose or “zombie”. This blog is full of it – just key these words into the search button at the top of the page.

It is highly unlikely that – had the old system persisted – or if schemes like Royal Mail had been able to revert to the old system in future, that much of the argument, industrial action and the general turbulence we are seeing in places like Port Talbot or Scunthorpe would have happened. Put simply, Royal Mail, USS, BSPS and Hoover Candy might all have carried on providing a weaker promise – a promise to do the best they could – if they had been allowed to convert to CDC.

But that couldn’t happen – because of the stupid mistake made by the Government in the summer of 2015.

Head and Tails.

The idea of CDC, as presented to the House in 2014/15 was to provide a way for companies to convert from a DC plan to something  like the original idea for the company pension scheme before promises had to be written in stone. Unsurprisingly, employers were less than enthusiastic to put their necks into a noose which might again be tightened when the CDC promises were re-written in tables of marble.

It was a case of heads we lose . tails we lose. Few- if any- employers told Government they would voluntarily take up anything that could remotely be interpreted as them providing staff with guaranteed pensions.

Meanwhile, the only way members could convert their pots to pensions was being given a good kicking by George Osborne

“from this day forward, no-one will ever have to buy an annuity again”

Which was all jolly good news for those who believed you could turn mutton into lamb using pension freedoms. But while the freedoms are fine for the high-net-worth, financially literate clients of IFAs, they are not going to provide the steelworker or the postman with a wage for life.

We have given the nastiest, hardest, problem in finance – to people least capable of solving it.

CDC however has the capacity to operate without an employer’s sponsorship. It could be used to bring together the disparate pots of the postmen and the steelworkers and provide scheme pensions rather more efficiently than through individually advised drawdown and without the risks of DIY drawdown.

I have argued this point to the FCA at their stakeholder events which they ran this autumn as part of their Retirement Outcomes review. I was publicly ridiculed by the FCA moderator in the room for suggesting that “risk-sharing” along CDC lines could provide the innovation needed to sort out the postmen and the steelworkers and the people who never had a DB pension and are hoping that “something will turn up” from auto-enrolment. In short the mass-market that they have been worrying about as part of their work on FAMR.

It’s Tails you lose your wage for life and Heads you lose your chance to risk share! Guided pathways and annuities at 75 all round!

Weirdly, the simple answer to the mass-market  retirement problems that the FCA are considering, is sitting on some shelf in the DWP’s Caxton House office.

If Frank Field and his committee can get this message and then transmit it to the people in Canary Wharf, running the Retirement Outcomes Review, we will have the most significant piece of joined up Pension Government since Steve Webb left office. It’s a big “if”, but it’s the only game in town right now.

There will be more Royal Mails, more BSPS’ and the next one is just around the corner. There will be more feeding frenzies like the one we’re seeing at Port Talbot and there will be some very disappointed people who’ve taken “no-brainer” CETVs over the past 18 months.

Even if the DWP Select Committee, get the drafting of the CDC secondary regulations back on track, they are unlikely to be finished before 2020. So CDC is not going to be a silver bullet for the 2018-19  scheme casualties. Nor will it be a solution for people who have DC pots and want them to pay them more than an annuity without the risks of advised or unadvised drawdown. They too will have to wait till at least 2020.

I am not holding my breath, I’ll respond to the DWP consultation (as I’ve just done re the problems in South Wales). Until we have a pension minister who busies himself in these issues and a regulators who are in listening mode, 2020 looks a pipedream.

But pensions are long-term plays – the wheels grind slowly but sense prevails.

It’ll be a long-time coming but change is going to come.


(an appendix for people who don’t click the link at the top but who want to know more about CDC) – the text of the DWP SC press release.

Collective Defined Contribution (CDC) pension schemes are a new – to Britain at least – type of retirement saving plan with the potential to address some of the concerns that policy makers and the public have about the current pension “offer”. They are commonplace in the Netherlands, Canada and Denmark but are not yet allowed in the UK.

Defined ambition schemes

Also known as a form of “defined ambition” scheme, they differ from Defined Benefit (DB) schemes in that you are not promised a certain retirement income – although as we are seeing often, the company sponsors of DB schemes are not always able to keep those promises.

A CDC scheme instead has a target or “ambition” amount it will pay out, based on a long term, mixed risk investment plan. CDCs aim to pay out an adequate level of index-linked pension for life but this is an ambition rather than a contractual guarantee. They have the scope to redefine the benefits they offer if circumstances – like adverse economic conditions – require.

CDC  differs from the traditional Defined Contribution (DC) schemes that are largely replacing DB schemes in that it does not produce an individual “pension pot”, which you then have to decide how best to use for your retirement, but invests your savings in a larger “collective” pot, and then provides an income to you during your retirement.

Thus, CDC schemes take the big central decision of pension freedoms out of retirement planning, and also much of the risk.  In the Budget this week the Chancellor announced plans to “unlock” investment in UK infrastructure through longer term investment in “scale-up”, innovative business: CDCs have been identified as a potential source of this type of investment.

Potential benefits to savers

The Committee is launching a new inquiry into merits of this idea, the role that ‘defined ambition’ CDC schemes could play in the pension landscape, the potential benefits to savers and the wider economy, and the legislative and regulatory framework that would be required to make it work.

The Committee’s ongoing inquiry into pension freedoms has highlighted the general level of mistrust and disengagement with pension plans, and it is well known that policy makers are keenly looking for ways to get people to plan and save much more for their retirement.

Advocates of CDC schemes argue that they provide greater assurance of retirement income and more efficient pooling of costs and risks among members than traditional DC, but do not impose the burden of underwriting an onerous pension promise on employers. Studies by the RSA and Aon Hewitt estimate that CDC could have delivered 33% better pension outcomes than traditional DC over the past half-century.

Detractors argue that CDC may further fragment the pension landscape, suffer from lack of demand, and run counter to the trend towards greater individual freedom and choice in pensions.

The Pension Schemes Act 2015 created by the 2010-15 Coalition Government defined “shared risk/defined ambition” or CDC as a distinct pension category.

However, regulations under the Act to bring them into effect have not yet been introduced. In October 2015, the Government announced the plans would be shelved indefinitely so as not to distract from other major reforms such as auto-enrolment and pension freedoms.

Chair’s comments

Rt Hon Frank Field MP, Chair of the Committee, said:

“What the Select Committee is aiming for is to retain some of the best features of company schemes in a different age when employers are no longer willing or able to sustain the burden of final salary promises to employees, who could club together and pool the risk themselves”.

Call for written submissions

The Committee invites evidence from any interested parties on any or all of the following questions:

Benefits to savers and the wider economy:

  • Would CDC deliver tangible benefits to savers compared with other models?
  • How would a continental-style collective approach work alongside individual freedom and choice?
  • Does this risk creating extra complexity and confusion? Would savers understand and trust the income ‘ambition’ offered by CDC?

Converting DB schemes to CDC:

  • Could seriously underfunded DB pension schemes be resolved by changing their pension contract to CDC, along Dutch lines?
  • How would this be regulated and how would the loss of DB pension promises to scheme members be addressed?

Regulation, governance and industry issues:

  • How would CDCs be regulated?
  • Is there appetite among employers and the UK pension industry to deliver CDC?
  • Would CDC funds have a clearer view towards investing for the long term?

Submit your views

You can submit evidence through our evidence portal, or please get in touch if you have special requirements for submitting evidence.

The deadline for submissions is Monday 8 January 2017.


Posted in CDC, DWP, FSA, Music, pensions | Tagged , , , , , , , , , , , | 3 Comments

Is the USS really in crisis?

leech 2Professor Dennis Leech is Emeritus Professor of Economics at Warwick University. This week has seen the University Employers threaten to withdraw sponsorship for future DB accrual, the University Union announce intended strike action and the DWP Select Committee ask fundamental questions about how Defined Benefits are promised. Professor Leech’s contribution the debate is the more timely and valuable than ever.

Threat to the defined benefit pension scheme

The employers have said that they want to close the USS defined benefit pension (DB) scheme to future accrual, which means that new members will not be allowed to join, and existing members will not be able to contribute any more into it than they have already built up. Future pensions contributions will all go into a defined contribution (DC) pension pot via the Investment Builder.

Defined benefit pensions are much cheaper and less risky

This is a very bad decision because DB pensions are much better than DC ones. They are a guarantee of a secure ‘wage’ in retirement for life, whereas a DC pension scheme works differently: it gives a single sum of money on retirement which you have to turn into an income. And pension freedom puts you in the position of having to take some very serious decisions about what to do with this pot of money that will affect the rest of your life. A lot can go wrong, especially as a result of poor financial advice, and you may have to live out your retirement with the consequences of one bad decision.

A DC pension is risky because how much your ‘pot’ is worth depends on the vagaries of the stock market. Academic research has shown that it costs between fifty percent more and double to provide a given secure income in retirement via a DC pension scheme than DB.

Essentially, there is less risk in a DB pension because of the collective nature of the scheme. None of us knows when we will die, which is the biggest risk facing us if we are having to live off a DC ‘pot’: if we do our ‘drawdown’ sums wrong we might run out of money before we die, or leave unused retirement money as an unplanned legacy if we die earlier than planned. (It is actually rather far fetched to believe we can plan for our retirement in this way.) But actuarial life expectancy tables solve this problem in a DB scheme: the longevity risk is simply pooled.

Likewise it is much less costly to build up a DB than a DC pension because the investments are pooled in a large diversified portfolio, exploiting economies of scale and the law of averages which are not available to a DC fund.

A pension is a ‘wage’ in retirement for life. A DB scheme is designed to provide that while a DC pension does not. A DC scheme is really an employer-subsidised saving scheme. How you turn the savings you have built up into a pension is another matter that you have to decide and that is not easy or cheap.

The source of the problem facing USS

Contrary to what a lot of people think, the USS is not a government scheme backed by the taxpayer, like the teachers, civil service, health service and others. It is a private scheme run and regulated like a company scheme. It comes under the Pensions Regulator in the same way as, for example the schemes at BT, Royal Mail, British Steel, BHS, etc. Like all these it is ‘funded’ which means, in effect, that it must stand on its own feet, that its trustees must be able to show the regulator that it will have enough funds to pay the pensions members have been promised and expect every month after they have retired.

The source of all the controversy about valuing the scheme is the interpretation of the phrase ‘enough funds to pay the pensions’. Does that mean a capital sum or a flow of income? The difference has a big effect on how much risk there is.

The UUK have said the scheme must close because it is in deficit, the deficit is growing and that is unsustainable because it means the institutions will have to make ever larger recovery payments.

Let us examine the claims of the UUK. First, the scheme is not in deficit in the ordinarily meaning of the term. Second, there is no evidence that investment returns are too low for the scheme to be sustainable. Third, the scheme is sustainable as long as it remains open and continues into the future along with the universities it serves. Fourth, it is highly questionable that there is a deficit even in the narrow technical meaning in which the word is being used here.

Where is the deficit?

Figure 1 (below) taken from the USS Annual Report for 2017 shows the income from contributions and investments and payments of benefits. It shows that there is not actually a deficit in the usual meaning of the word. Income from contributions by employers and members totals £2 bn, while pensions in payment come to £1.8 bn. In addition it made a return on its investment portfolio of £10 bn (mostly this was from market price movements but that figure includes over £1 billion in dividends, interest, rent etc.).

We usually think of a deficit in the George Osborne sense of not enough money coming in to pay the outgoings, necessitating selling assets or borrowing more. The USS is clearly not in deficit. It is cash rich and every year investing its surplus in new assets such as Thames Water, Heathrow Airport, and many other infrastructure projects in addition to traditional assets like company shares and bonds.

Figure 1: Deficit?Figure 1: Is this what a deficit looks like?

Will there be a deficit in the Future? Here we must enter the realm of intellectual speculation and deal with economic theorising, market fundamentalism and evidence-free opinion

Looking at one year’s figures is not enough since they may not be typical and we need to look into the future. We need to find a way of seeing if there will be enough money to pay the pensions when they come due.

It is not obvious how that can be implemented. We have to do a thought experiment.

Consider a pension payment to a young lecturer early in his or her career, when he or she has retired, say in 50 years from now. There has to be enough funds to pay that. The pension can be forecast on assumptions about longevity, salary growth, inflation and other factors. But how can we tell if will be enough money? One approach is to ask how much will be needed to be invested today to give enough in 50 years to pay the expected pension.

Since the trustees have to be sure that the money will be there, they must be prudent in their assumptions. How prudent is prudent enough? Since nothing is ever certain, if they wish to be very prudent, they cannot rely on contributions from employers or members in the future. Theoretically the scheme could close (maybe all the member institutions go under for some reason we do not yet know) and there could be no contributions. So it is arguably best to err on the safe side and make this assumption.

And they have to decide how the money is invested to pay the pension in 50 years. Since nothing is certain in investments it would be imprudent to rely on risky assets like equities, even though they are almost certain to grow handsomely in a long enough period. Prudence – paradoxically – requires investing in secure bonds, which have a poor rate of return. At the moment the rate of return on government bonds is at a record low level due to the government’s policy of quantitative easing.

If we do this calculation for all prospective pension payments, we get a figure for the liabilities. Comparing that with the value of the assets the scheme owns gives the funding level or deficit/surplus.

The liabilities figure is very large because it is based on the very powerful arithmetic of compound interest over long periods of time. It is also very sensitive to assumptions made – for the same reason. And it must ignore a host of real world factors that can change dramatically. The figure for the deficit is very inaccurate and volatile since it is the difference between two very large numbers, the liabilities and the assets, both of which are highly volatile. The deficit figure quoted by the UUK and USS executive has changed by over £2billion in little over two months. This fact alone suggests that this way of valuing the scheme is unreliable: the actual value of the benefits can not have changed in that time by more than a miniscule amount.

Another other problem with this approach, that has not been sufficiently discussed, is that it begs the question of how the capital value of the assets is to be converted into money to pay the pensions – that is, an income stream. That process needs to be spelled out and not just assumed. Can a scheme as big as the USS just sell assets on a large scale if need be without disturbing the market? It seems unlikely.

Are investment returns really too poor?

The UUK give one of the reasons for the deficit that investment returns have fallen. It is certainly true that gilt rates are at the lowest they have ever been, lower than inflation. It would not really be sensible for a rational investor to invest in gilts since that would guarantee losing money. But other investments, particularly equities, produce a good return that would seem to be enough for the pension scheme to continue to be viable, if it continued to invest in them.

Figure 2 below shows the estimated returns on different investments that were prepared for the UCU by its actuary, First Actuarial. They contain a suitable margin for prudence to enable them to be the basis of a discount rate. The returns have fallen dramatically to low levels on bonds particularly government bonds.

Figure 2: Poor investment returns?


Is the USS unsustainable?

Another thought experiment is to ask if there is likely to be enough cash flow to pay the pensions, based on a projection of income from contributions and investment earnings and liabilities. This is a natural, direct approach that requires less in the way of assumptions than the capitalisation approach described before. In particular it does not require a discount rate for compound interest calculation.

Figure 3, below, shows projected cash flows for the USS that have been prepared for the UCU union by its actuaries (First Actuarial). This is just one of a number of scenarios that have been studied but all show the same picture (2% real salary growth, real asset income of 0.2 percent). It is clear that from this point of view, where the scheme remains open indefinitely, in the same way as is highly likely the pre-92 university sector will, the pension scheme will be perfectly sustainable, having a small deficit or surplus.

Figure 3: Unsustainable?

Figure 3

Is the scheme in technical deficit or is it in surplus?

There is a fundamental difference in the methodology between the situation where the scheme is assumed to be open indefinitely and where it is assumed to be getting prepared to close. In the latter case it must find a way of ensuring it is funded at all times, or at least as soon as possible while it can rely on the employer being able to support it. Volatility of the technical ‘deficit’ due to market fluctuations in asset prices represents risk here. The risk is that the scheme will close and the valuation will crystallise with assets values low due to a depressed market, such that they are inadequate to pay the liabilities. Hence the need for recovery payments to meet the cost of covering this risk.

On the other hand, if the scheme is open indefinitely with a strong covenant, it can be assumed it will never need to close. Therefore asset price volatility is not important. The ability of the scheme to pay benefits depends on there being sufficient investment and contribution income coming in. Therefore market volatility is not a source of risk. There is much less risk and therefore the scheme is cheaper because there is no need to cover it. Also the scheme does not need to invest in ‘safe’ assets like gilts for the same reason. An open scheme can, and should rationally, invest in assets that bring the highest return.

Figue 4 below (from the Technical Provisions Consultation document, September 2017) is the analysis, by the USS executive (not the UCU actuary this time, but the USS exectutive itself under its requirement to provide a fair view of the scheme), of the ‘deficit’ based on these two different assumptions. On the assumption that the scheme may have to close and therefore must be extremely prudent, so called ‘gilts plus’, which is the proposed basis, the ‘deficit’ is £5.1bn. (This has been changed since the TP document was published and is now £7.1 bn. The fact that these figures are so very volatile, with pension liabilities which change very slowly over decades being valued at amounts varying from month to month by billions calls into question the whole methodology.) On the other hand, if the scheme remains open, there is no need to apply a great layer of prudence to all the calculations, and the valuation of the liabilities can be done using the ‘best estimate’ of the investment returns as the discount rate. On this basis the scheme is massively in surplus, to the tune of £8.3bn!

Figure 4: ‘Deficit’ or ‘Surplus’?

Figure 4


All the efforts of the scheme trustees, the employers and the Pensions Regulator should be devoted to ensuring the scheme remains open. The biggest risk comes from the deficit recovery payments calculated on the basis that the scheme might close. It is therefore a self-fulfilling prophecy. If the scheme is assumed to be ongoing and open then there is little risk.

Risk is not an absolute exogenous quantum as some suggest. It is contextual. And assumptions about it are self fulfilling. The problem with the methodology that is being used is that it is based on an assumption that risk is the same in all circumstances. That is a theory which is false empirically.

Why can’t the Pension Protection Fund help?

What is puzzling is that the methodology takes no account of the safety net provided to all pension schemes by the Pension Protection Fund. The USS contributes its share of the levy to this government scheme which guarantees pensions in payment and ensures active members will receive pensions at 90 percent of the DB scheme level.

Why does the USS valuation ignore this? It seems directly relevant since it manifestly limits the risk.

It is said that if the USS entered the PPF it would be too big for it. But the PPF would take on the assets as well as the liabilities. Since the PPF is a government body there can be no problem of it failing to support the schemes in its portfolio, as there is with a private sector employer with a weak covenant. There is no problem with short term market volatility posing a risk.

Therefore we can argue that because the USS is protected by the PPF, a statutory body supported by government, the greatest part of its risk is removed. The valuation should therefore be done without such a large amount of prudence, and therefore the deficit will be much smaller or non-existent. Therefore the scheme is not in danger of failing and of having to enter the PPF.

Can anybody explain why this argument is not being used?

This article was originally posted here.


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TPAS offer BSPS a dedicated helpline. Don’t leave your choice to chance!

tat 3

If you are a steelworker , you now have help on your pension options from TPAS. This is great news.

As from this morning, members of BSPS, can call experienced pension people who can discuss the scheme with the experience of TPAS counsellingtata jo

My understanding is the same as Jo Cumbo’s; the provision of this helpline is at the FCA’s request and it is no small measure a victory for Jo who has championed the cause of steelworkers who have had precious little support so far. It is in direct response to the reports coming out of Port Talbot of a “feeding frenzy”,

Too late?

We are now barely two weeks away from the end of the  Steelworker’s “time to choose”. Some will argue this is too little too late. That would be wrong.time to choose

While the deadline for getting election forms back to the BSPS administrative centres is December 11th, there is an extended deadline for elections to transfer.

The trustees have requested that if the CETV is still valid that the election to transfer is received by March 15th to allow the paperwork from the FA to be verified as accurate and complete

This reflects the time it is taking turning round transfer quotes, getting the transfer analysis completed and in establishing (where appropriate) a plan capable of receiving a transfer).

For most steelworkers who have yet to make up their mind, TVAS comes in the nick of time. For steelworkers who have made up their mind but may be getting second thoughts, TPAS is there to reassure , confirm and on rare occasions to correct understanding.

Out of touch?

Anyone who thinks that TPAS is out of touch with the needs or ordinary people has not spoken to their helpline and has certainly not met Michelle Cracknell or visited their offices.

Michelle may look the prim headmistress but she has fire in her belly. I had the good fortune to watch her wind up an audience convened to discuss Pensions by London Fraud. Her brilliant talk focussed on her wish to start a coffee shop in her Hampshire village to jump on the band-wagon. She took us through the way the shop would run – it would have no queues as we’d all pay up front in advance, it would sell choice but deliver a single coffee and it would promise a coffee that would make you thin.

I suspect that 50% of the audience thought she was serious, so plausible was her business case. Michelle knows that scammers are smart, offer great customer service and are totally unscrupulous in promising what they know they cannot deliver.

TPAS are in touch and it is not too late!

TPAS know about these choices, which is why I urge steelworkers who are unsure of what to choose, or of their choice they have made  to phone  020 7932 9522. This may have arisen out of reports from Port Talbot, but is as relevant for Scunthorpe, Redcar, Motherwell, Newport or wherever a steel worker lives today. TPAS is only a phone call away.

The choices made in the next two weeks have lifelong consequences. Don’t leave your choice to chance.


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USS pension changes would be a disaster (but they are preventable) – Dennis Leech


The changes to the USS that UUK proposed on Friday will substantially alter the nature of academic employment in the Pre-92 universities and will damage higher education irrevocably. They will mean academic salaries having to rise substantially to attract the best both internationally and from other industries to maintain standards. As such, they are a very unwise, short-sighted – and unnecessary – move by the university employers.

The academic career in a leading institution is never easy. Research is fraught with hazards. However the certainty of a pension provides a safety net that facilitates risk taking. It permits a researcher, for example, to explore an avenue of enquiry, not knowing what if anything is there to be found, but always in the knowledge that if it turns out to be a blind alley – as is often the case – then at least he or she will not be personally worse off as a result. It is a good basis for intellectual risk taking on which progress in human knowledge comes.

So why are the UUK preparing to scrap the pension scheme that has worked so well and contributed to the success of British higher education? We are told it is all getting too risky and hence too expensive. But I don’t think that is true.

Without going into technicalities, two things stand out, one political, one intellectual, as having created this fallacy. The political change was the coalition government’s withdrawal from formal involvement in the management of the scheme. Originally, when it started in 1975, there were three partners with seats on the board: the employers, the members and the government. At that time universities were mainly government financed through the University Grants Committee. The scheme had a strong covenant so could ignore any short term market volatility and invest long term in high return assets. But HEFCE withdrew in 2011, since when the institutions themselves have had to stand collectively behind the scheme. That is proving increasingly difficult given the uncertainties they are currently having to face. On the other hand, many commentators regard this particular group of well respected institutions as almost certainly sure to thrive for many years to come, and wonder what the fuss is about.

The other change that has led to this crisis has been in the mental framework used for pensions accounting in recent years. Most of the actuarial profession has undergone an epic ontological conversion from having a world view based on macroeconomics to one based on financial economics. Instead of pension schemes being able to benefit long term from economic growth by investing in productive capital, the traditional approach, they are now seen as myopic speculators in financial assets. Instead of investment return being the reward for patience, it is now seen as the reward for bearing risk; the world has become a “Random Walk Down Wall Street”; all assets are assumed to have a fixed quantum of risk which automatically and always gives a commensurate return. There is no distinction between long term and short term investment; all investment is speculation.

Financial economics has been widely adopted despite the fact that it is merely a theory without a sound basis: a pseudoscience. Many of its core ideas have been debunked by leading economists. For example the efficient markets hypothesis – that markets embody all known information – has been refuted by leading economists Joseph Stiglitz and Robert Shiller on theoretical and empirical grounds respectively.

Yet much of the finance industry including many pension scheme managers ignore the evidence. It is at the heart of the USS valuation methodology which talks about market derived asset prices, yield curves and inflation expectations being “objective”. But it is nothing more than a theory based on a particular set of assumptions.

It is a truly alarming state of affairs that such a closed belief system should be governing something as important and mundane as pensions. Yet universities themselves must ultimately take the blame. For the past twenty years or so business schools have found a ready market for financial economics courses. They have been marketed as “modern finance” embodying the latest research, with the emphasis on application of techniques rather than critically reviewing evidence, and have trained many thousands of graduates applying the ideas uncritically and confidently.

We are told there is a fixed amount of risk: the USS valuation document talks about a “risk budget”. Such a thing could only exist in the world according to financial economics. Risk depends on the context. There is a lot less risk if the scheme remains open to new members than if it may have to close. The view embodied in the USS valuation is the latter and that means market volatility poses a great risk that the pensions may not be paid and that has to be covered at great expense to the institutions. But if it remains open there is no need to regard market volatility as a problem and there is much less risk. In fact the UCU actuaries, First Actuarial, have demonstrated that the scheme could continue to invest in high return equities for the long term and all would be fine. Why are the UUK not listening?

This article first appeared in  the Times Higher Education Supplement and is reproduced with the permission of Professor Dennis Leech who is Emeritus Professor of Economics at the University of Warwick.

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We have “capitalism without the capital” – we should be patient!

Nigel Wilson

It’s budget day and Nigel Wilson has been on Wake up to Money, urging the Chancellor to encourage Britain to invest positively for its future. He tells us that Britain has “Capitalism without the Capital”, he’s right and I’m with the caller from Portsmouth who urged L&G’s CEO to become UK CFO and step into Phillip Hammond’s shoes.

I don’t seem to be agreeing with much that John Mather says at the moment but I agree with this message he sent me last night;john mather

Where are the Statesmen? Can we quadruple the return in £300bn of cash ISAs by cutting out that banks and lending directly to the smaller developer who builds homes and communities across all markets

I support John’s attempt to get ISA money flowing into housing as development capital as I support the work of L&G which is doing rather more to increase the UK housing stock than the grand words of Government (I hope I can change this paragraph after this afternoon’s budget).

What Wilson and Mather are saying is that the money we are holding to pay tomorrow’s bills can be put to better use than short term deposits or short and medium term bonds. The duration of an equity is limitless and is right for longer term investment. We have a bond and cash culture, Mather and Wilson want us to think for the longer term and (in different ways) for the good of Britain. I would be glad to see both of them in the Treasury, but they are probably doing more good where they are!

More Wilson, less  Morgan

nikkiI could do with less of Nikki Morgan, who has recently been given the role of chief secretary to the Treasury. She spoke at the TISA conference yesterday afternoon. She repeated the mantra around broadening the range of tax incentivised products to line the financial adviser’s briefcases.

She was hot on Fintech and robo-advice to fill the FAMR gap and she talked about funding long-term care . Her animus against long-term investing through pensions was barely concealed.

Steve Webb’s assertion (most recently made at the First Actuarial conference) that the Treasury hates pensions, rung truer the longer that Morgan talked.

Meanwhile, one of the great British Pension institutions, the British Steel Pension Scheme is being ransacked by financial hooligans , repeating the anti-pension message.

The short termism of the Treasury in respect to saving (pension or otherwise) is creating an epidemic of like-minded behaviour which is doing lasting harm.

My hope for Hammond

There is an opportunity in this afternoon’s budget for Phil Hammond to put the Capital back into Capitalism , to create investment in urban renewal though the building of new housing and the infrastructure to support urban dwelling.

There is plenty of capital. including the £300bn sitting in cash ISAs which could be incentivised to be put to this use. We still have a funded defined benefit pension system with more than £1tr in assets, well over half of which aren’t being invested in growth seeking assets.

My hope for Hammond is he looks at this money and gets it working. Wilson and Mather and many others will help.

My fear is that we will instead retreat into the shrivelled carcass of the austerity project and pull up the drawbridge (not just on Europe but on growth).

As Wilson said on the radio this morning, there is nothing stopping us, now is the time to look forward and avoid the timidity that has oppressed us for nearly ten years. We do not need another financial bubble, we need simple policies such as those advocated by Wilson and Mather, that put our money back to work.

But as the cartoon below shows, it will take more than a budget to move us on, we need to restore our confidence in equity, in long term savings and in pensions.


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A day with Dalriada

brian spence



Dalriada are a firm of pension trustees who divide their business into “Regular” and “Irregular” business. Brian Spence who runs the business was prepared to talk to me about “Irregular business”. Members of, and employers participating in, the NOW master trust will be pleased to know that Dalriada consider them as “regular business” confirming what is already in the public domain, that Dalriada were invited by NOW to become trustees – and not the Pensions Regulator.

Irregular business

Not all Dalriada’s appointments are at the behest of existing trustees. The Pensions Regulator has been given the right to appoint its own trustees under Section 7 of the Pensions Act 1995 Dalriada are generally appointed to this work after a competitive tender, other firms appointed to schemes of this type are believed to include Pi Consulting and ITS.

Irregular business is typically work where Dalriada replace existing trustees in executive duties and take responsibility for the management of the pension scheme. Importantly they do not work for the Pensions Regulator or HMRC or any other public agency. However, they may get special support from public organisations and work closely with the police, action fraud and the regulators.

brian spence 3



This is because there is typically a high level of suspicion surrounding irregular schemes. The first such scheme that Dalriada took on (in 2011) were the “Ark” pension schemes. This was a pension liberation arrangement. I was shown the good and bad of the scheme management; the good surrounded the high level of asset recovery, the bad the difficulties agreeing the member’s liabilities to taxation as most payments made by the scheme prior to Dalriada’s appointment were unauthorised, illegal and potentially subject to penal tax recovery.

I was given insights into a number of other schemes, well known to those, like Angie Brooks, who have tried to stand in the path of pension scammers. These include London Quantum, a particularly egregious arrangement which managed to both misinvest and mislead simultaneously. Dalriada were keen not to use the word “fraud” in describing the various irregular schemes it acted for, but the whiff of malpractice was prevalent.

What impressed me most in our conversation, was its lack of emotion. Clearly the people in the room who had direct dealings with those who had lost their pensions had suffered considerable trauma, albeit one step removed from the financial calamity of those they were helping. I was impressed by the people I spoke to who supported victims of what are clearly gross injustices.

I was also impressed by the professionalism and deliberation of the senior managers in our meeting. They accepted that in hindsight, decisions could have been different, but I was satisfied that – despite the desperate plight of many I have dealt with who have been on the wrong side of the scams – they had been diligent in the carriage of their duties.

That said, I remain unconvinced that the British legal system is working properly for either Dalriada or the members of the schemes it acts for. I am far from convinced that HMRC are sufficiently agile to deal with the sensitivities of fraud victims.

brian spence 2


I am absolutely convinced that there is no sense in pursuing victims of liberation frauds for money. The current plans to tax such victims on the capital of loans they had unwittingly made to others is against all common justice. It is no deterrent to future scammers, who will not be inconvenienced by the financial ruin of victims. It has no practical relevance to the current scamming of members, as these are not involving liberation.


What became obvious during our meeting and has absolute relevance to today is that the best way to recover from pension scamming is not to let it happen in the first place. This is why it is so important that the FCA act on the numerous whistle blowing reports coming out of Port Talbot and not let money from BSPS flow into the hands of villains.

The speed with which the FCA are currently acting is most welcome (and in sharp contrast to the pace of restitution for the victims of scams past).

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The “integrated risk management framework” must include impact on members.

crowd control

There are certain events where the police anticipate trouble and turn up in anticipation. There are certain traffic black spots where speed cameras are put in to reduce the risk of accidents and there are some occasions when regulators could see trouble coming.

The question is – was Port Talbot one of them? Rory Percival, who is as on the money about regulatory responsibilities, asks this question.

<blockquoteclass=”twitter-tweet” data-lang=”en”>

Yes, which is exactly why the FCA has been undertaking thematic supervision of DB transfers for a couple of years. But any reason to have specific concerns with BSPS in advance?

— Rory Percival (@rorypercival) January 18, 2018


The integrated risk management framework failed some members of BSPS

Collectively we should stick up our hands and said that in hindsight, the FCA could have been supervising a lot better in Port Talbot than they were.

But let’s ask ourselves what would have needed to happen to trigger their earlier arrival.

  1. The Trustees of the scheme could have called in the FCA – as a football club could ask for extra police after conducting a risk-assessment of a certain game. I spoke with the Trustees and their advisers in late July about the likelihood of factory gating and the consequences for members.
  2. Tata, could have provided the Trustees with intelligence of the mood of workers in Port Talbot, this could have come from the unions of perhaps the various lead generators within the works – passing lead generators early intelligence
  3. Had I had the lines to the FCA which have been cleared for me and others, I could have whistle blown on the risk, certainly other IFAs in the area could have done.
  4. The Pensions Regulator could – following its detailed discussion with TATA and BSPS, conducted a risk assessment of the RAA as it touched members and shared it with the FCA.

The question for next time is why it took well into November before any intelligence on what was going reached Canary Wharf and why it took Frank Field and the W&P Select, to put this question to Christopher Woollard when he appeared before them later that month.

The answer about the past is for others to deal with. I am sure it will centre around Active Wealth and Celtic Wealth though the scale of pension transfers now emerging from other schemes, suggests that it isn’t just BSPS that under estimated the volition of members to want out.

 Where there’s a weak covenant…

The Pension Regulator’s Integrated Risk Management framework is designed to link an assessment of investment strategy to the capacity of a sponsor (employer) to meet future bills. Any covenant assessment of TATA  Steel over the past two years would have shown that there was a high likelihood that the employer would withdraw full support for the scheme. This infact happened early in 2017, what is unusual is the stay of execution created by the RAA which was designed to give members space to move to BSPS2 but also gave opportunities for steelworkers to jump out of BSPS and into a personal pension.

The same type of weak covenant assessment must have been sending red flags to the trustees of Carillion and will be doing the same to a few other schemes. The integrated risk management framework allows tPR to see which schemes are most in danger of failure and – by extension – where it is most likely – the next feeding frenzy might arise.

If the Pension Regulator has intelligence, this could be shared with the FCA – if the Trustees of an occupational pension scheme have evidence of a high incidence of transfers following a pattern, there is an anonymous helpline they can use to avert the FCA of a need to look into things.

There are also specific people in the FCA who run teams to prevent the development of future Port Talbots. If any Trustee or administrator wants details, I am happy to share my intelligence.

Do not be too quick to judge

The problem with being close to a situation, is that you lose perspective. It is easy for people like me to cast stones at regulators, but it’s hard to see how this is helpful.

Past performance is no guide to the future, but the future must learn from the past (if we are not to fall into Einstein’s definition of insanity).

Trustees, the Pension Regulator , employers and other IFAs could all have anticipated Port Talbot and so could the FCA. We all need to shoulder some of the responsibility for allowing the situation to develop as it did but that is not the point of this blog.

The point is that if we are to talk of “integrated risk management” , we must now include in the framework, the impact of a failing sponsor not just on a scheme , but on its membership.

I’ve spent the last 24 hours with a group of Trustees, trying to make just such a point!

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As Carillion goes bust, First Actuarial shows PPF can take the strain.

FABI Jan18

Carillion’s dramatic and sudden insolvency is likely to push its 13 defined benefit (DB) schemes, and their 28,000 members, into the Pension Protection Fund (PPF). However, as reports emerge of a combined section 179 (s179) shortfall of as much as £0.9bn, First Actuarial says that the PPF is well-equipped to absorb this.

As at 31 March 2017, the PPF was 121% funded with £6.1bn of reserves. The impact on the PPF’s reserves of Carillion’s DB schemes falling into the PPF is likely to be lower than £0.9bn, as the PPF doesn’t fund itself on the same assumptions as those used in a s179 valuation – which is used to determine the PPF levy for individual schemes – and there may also be some debt recovered.

According to the PPF 7800 Index, at the end of December 2017, the 5,588 PPF-eligible DB schemes had an aggregate deficit of £103.8bn. Of those 5,588 schemes, 3,710 schemes were in deficit to the tune of a combined £210bn. On the face of it, this points towards a bleak future, prompting the CEO of a large independent financial advisory firm to ask: “how many more big hits can the PPF take?”

But what these snapshot figures hide, is that the PPF continues to go from strength-to-strength, and the financial position of the UK’s 6,000 DB schemes remains healthy.

For example, the PPF’s reserves at 31 March 2017 were £2bn higher than the previous year, as a result of strong investment performance, income from levies and lower than expected claims volumes, and the PPF remains on target to be “financially self-sufficient” (or levy-free) by 2030. In addition, according to the PPF 7800 Index, the number of DB schemes in surplus on a s179 basis has increased from 1,482 out of 5,794 (or 26%) at 31 March 2017, to 1,878 out of 5,588 (or 34%) at 31 December 2017.

First Actuarial’s Best estimate (FAB) Index – which provides the best estimate position of the UK’s 6,000 DB pension schemes calculated using the best estimate expected return on the assets held by those schemes – remained strong over December, with a month-end surplus of £357bn, and a healthy 129% funding ratio.

First Actuarial Partner Rob Hammond said:

“It is a sad day for the 20,000 UK employees of Carillion whose future remains uncertain. But it is important that Carillion’s pension scheme members (and members of other defined benefit schemes) know that their pensions are protected.

“The PPF can take the strain of Carillion’s £0.9bn section 179 shortfall – the actual impact on the PPF will be lower than £0.9bn – and it is well-equipped to cope with any future insolvencies. The financial position of the UK’s remaining 6,000 defined benefit schemes will also improve over time as companies continue to plug funding deficits.

“So, we urge members not to fall for scaremongering from unscrupulous advisers using situations like this to encourage people to transfer out of their own valuable, defined benefit schemes.”

  FABI Jan18




The technical bit…

Over the month to 31 December 2017, the FAB Index remained stable, with the surplus in the UK’s 6,000 defined benefit (DB) pension schemes falling slightly from £358bn to £357bn.

The deficit on the PPF 7800 Index worsened over December from £87.6bn to £103.8bn.

These are the underlying numbers used to calculate the FAB Index.

FAB Index over the last 3 months Assets Liabilities Surplus Funding Ratio ‘Breakeven’ (real) investment return
31 December 2017 £1,590bn £1,233bn £357bn 129% -0.9% pa
30 November 2017 £1,564bn £1,206bn £358bn 130% -0.8% pa
31 October 2017 £1,543bn £1,227bn £316bn 126% -0.7% pa

The overall investment return required for the UK’s 6,000 DB pension schemes to be 100% funded on a best estimate basis – the so called ‘breakeven’ (real) investment return – has fallen to minus 0.9% pa. That means the schemes need an overall actual (nominal) return of 2.7% pa for the assets to meet the liabilities.

The assumptions underlying the FAB Index are shown below:

Assumptions Expected future inflation (RPI) Expected future inflation (CPI) Weighted-average investment return
31 December 2017 3.6% pa 2.6% pa 4.0% pa
30 November 2017 3.6% pa 2.6% pa 4.2% pa
31 October 2017 3.6% pa 2.6% pa 4.2% pa



Notes to editors

The FAB Index is calculated using publicly available data underlying the PPF 7800 Index which aggregates the funding position of 5,588 UK DB pension schemes on a section 179 basis, together with data taken from The Purple Book, jointly published by the PPF and the Pensions Regulator.

The FAB Index will be updated on a monthly basis, providing a comparator measure of the financial position of UK DB pension schemes.

Rob Hammond is available for interview. Please contact:

Rob Hammond on 0161 348 7440 or rob.hammond@firstactuarial.co.uk, or Jane Douglas on 0161 348 7463 or jane.douglas@firstactuarial.co.uk.



About First Actuarial

First Actuarial is a consultancy providing pension scheme administration, actuarial, investment and consultancy services to a wide range of clients across the UK.

We advise a mixture of open and closed defined benefit schemes with our clients concentrated in the small to medium end of the pension scheme market. Our clients range across a number of sectors including manufacturing, financial services, not for profit organisations and those providing services previously in the public sector.

Posted in actuaries, First Actuarial, pensions | Tagged , , , | 3 Comments

Pensions aren’t on the brink of anything!

carillion brink

I’m sorry to disappoint the headline writers at the BBC, but pensions are not about to change very much, are not in crisis and aren’t really worth the headlines they are getting.

Those were the stunning findings of a group of pension experts holed up in windy Worcester on a stormy January evening.

Here are the four great non-stories your headline-writers will not print (but we discussed last night).

  1. Defined benefit schemes are finally getting their shit together and recognising that integrated risk management means managing your pension with a mind to the risk to the sponsor, to scheme assets and to scheme liabilities.
  2. Defined contribution schemes are waking up to their being savings plans not pension plans.
  3. Ordinary people are taking their money away from workplace pension schemes, because they can.
  4. There is no obvious way to convert a self-owned pension pot into a pension.

This does not add up to a crisis, it is just a stage on a circular journey which hopefully will take us back to where we started in 1950 or whenever. Because, despite all the tra-la-la, for the ordinary person, nothing has changed or is likely to change anytime soon.

We learn, we work, we stop working and put our feet up. Pensions are our way of putting our feet up, or at least doing what we want to do , rather than what our bosses or customers want us to do.

In place of a wage from employment , we expect a wage from investments. This is incredibly boring as it isn’t contentious and it tells us that in basic human needs, the world hasn’t changed any since the second world war (or as long as most of us can remember).

Crisis what crisis?


rubbish record-rubbish story

There is no story at Carillion, at least no story that spells that pensions are on the brink.

It was not pensions that brought Carillion down. Carillion brought its pension scheme down (as the FT reports).

Mr Rubenstein said that if banks and governments had thrown Carillion a financial lifeline last week there might have been an opportunity for Carillion to restructure its pension debt.

“What brought down Carillion in my view was they simply ran out of funding,”

This is not a pensions crisis, it is a local problem – in the grand scheme of things we will be able to put our current troubles in a wider historical context and be amazed at current hysteria.

In the 80s and 90s, defined benefit pensions were worried about being in surplus and in the last twenty years, they are worrying about being in deficit.

Over the last five years, the way we are building up pensions has changed, fewer people are building up pensions at a fast rate and more people are building them up at a slower rate. The overall picture is one of more people saving for a pension but with shallower resources.

If there is a potential crisis, it’s that – as yet- we haven’t got a way to turn these savings into the retirement income that people think they’re getting – “workplace pension”, the clue’s in the title.

We have abandoned the idea of guaranteeing people a wage for life by forcing them to buy an annuity, but we haven’t given them a better alternative. Or at least Government’s call for innovation have fallen on deaf ears. At the moment we are in the hands of the wealth management industry who are showing conspicuously little interest in finding a solution to the hardest, nastiest problem in finance.

Instead of looking to solve these problems, we take each corporate failure , as indicating pensions are on the brink. This is the BBC headline which prompted this article. Some 28,000 pensions at Carillion are on the brink of going into the PPF and of being paid out at a marginally lower rate than had they been paid by the now defunct employer. This is unfortunate but it is not a crisis.

The PLSA warn that up to 3m of those lucky enough to have a defined benefit pension , could find themselves with someone else paying the pension at a slightly lower rate. This is taken to mean the wholesale dismantlement of the system of workplace pensions we built up since the second world war.

I am very glad that Mr John Ralfe has stood up and said something sensible about this. As he has said a lot of silly things recently, I am going to quote him – with approval- for this.

The PLSA said there was a “real possibility” of a collapse for more high-profile pension schemes, and that one solution could be the pooling of resources into “super-funds”, which would then have bigger investment opportunities.

Pensions consultant John Ralfe has described the super-fund plan as “outrageous”.

He said there was “no crisis in defined benefit pensions, so there is no need for crisis measures”.

His confidence is based on the existence of the pensions “lifeboat” – the Pension Protection Fund (PPF).

I’m sorry to sign off with yet another “non-story” but when John Ralfe is right, he is very right indeed!

FAKE NEWS is just that

Our pension system is changing, but our need for pensions is not.  By faraway the most significant thing to happen in the past twelve months – and this is not fake news – is that 87% of Royal Mail workers agreed they would rather go out on strike than be left without a wage for life when they got to retirement.

For the vast majority of ordinary British people, the best bit of pension news – is no news at all;

just get the bloody things paid and leave me to read about something else over my corn flakes.

Consequently, the needs of ordinary people for boring predictability, and the needs of the press for “disruption” are fundamentally at odds.

The continued reporting of fake news about pensions being on the brink, not least by the PLSA, is driving a substantial proportion of the 11m people in this country with defined benefits, to swap pensions for wealth in what is likely to be (for most) a very unsatisfactory long-term deal.

Earlier this week, somebody – I’m pretty sure it was the Pensions Regulator got Google to drop an advert that pumped out FAKE NEWS on Carillion’s pension situation, on current options and (if you clicked through) on the loss of pension rights.

Romi scam

It is absolutely the responsibility of those of us who get pensions, to put our foot down and stop this kind or rubbish being pumped out. Whether it be sensationalist reporting on the BBC (to be fair to David Peachey, his article belies the headline) or in the Daily Mail (this FAKE NEWS has caused a lot of heartache) or indeed in Google, people are being bombarded with stories which are ill-researched and sensationalist.