When ESG knocked at the White House

Trump trump.png

What has happened in America this week has surprised and delighted me. Donald Trump’s two advisory committees, staffed from the Chief Executives of big American business have been disbanded, or more properly disbanded themselves. The strategy and policy forum and the manufacturing council are “no more” because of opposition to President Trump’s position on white supremacy.

I hope that nobody reading this blog, thinks that white people are superior to people of other coloured skins or deserving of any greater privileges. While we might concede the historical fact that white people on both sides of the Atlantic had and still have better opportunities, our moral compass is now firmly pointed at equality. For that reason we can delight to see that Ken Frazier, CEO of Merck is a black-skinned man.ken frazier

Today I will be on my boat alongside 12 people , the majority of whom will be of Asian origin. They are as welcome to my boat and to the delights of the Thames as my own family (who have never been to Asia!)

Charlottesville is incomprehensible to me, other than as an historical abstraction. Arguments about the moral code of General Lee, of slavery and of the “rights” of the Klu Klux Klan, have no place in a forward thinking democracy like the UK or the US. And yet these codes , behaviours and values are validated by President Trump, implicitly and explicitly.

This was too much for the great and the good. For all their support of Trump’s business agenda, the executives could not simply laugh Trump’s behaviour off as “politics”.

John Flannery, the new chief executive of General Electric, told staff that the white supremacist march in Charlottesville

“could not be further from the values that we hold dear”.

Jamie Dimon, chairman of JPMorgan, wrote to the bank’s staff:

“It is a leader’s role, in business or government, to bring people together, not tear them apart.”

These leaders did not cite their Environment Social and Governance code, they didn’t have to. But that they had such a code meant that they could not do other than walk away from Trump’s condolence of racism.

Those who have campaigned for the adoption of ethical codes within businesses, can be rightly proud this weekend. For the adoption of the values within those codes has ensured that the president can no longer rely on naked economics but will have to respect capital as a force opposed to lowest common denominator populism.

Trump’s gamble seems a stupid one. Firms like Merck, General Electric and JP Morgan trade throughout the world. While Trump wants to put America first, these organisations have to listen and put their views second. It is hard to see Jamie Dimon talking to European analysts about the importance of ESG , if he was validating the behaviour of a racist bigot.

We will now have to see what the loss of this validation means to Trump’s administration. If corporate America rebels against Charlottesville, will it rebel about the USA’s withdrawal from the Paris Accord? Or the postponement of fiduciary regulations in financial services?

I am reminded of the reign of King Charles I which began with the support of parliament and ended with the King losing his head. Like President Trump, Charles’ legitimacy – which Charles deemed absolute – was questioned, opposed and ultimately brutally terminated because of what we can now see as the causes of the English Civil War. I do not want to see Trump beheaded or even impeached, I want him to govern according to the corporate code that governs corporate America.

Ironically, Trump’s core constituency of support, now looks as politically isolated as economically abandoned. Trump is finding that an attempt to reimpose a world of confederate values simply doesn’t wash in an America that put slavery and white supremacy behind it some time ago. Any thought of recidivism is blocked by the economic reality that corporate America cannot go it alone.

The values of  wider global governance  trump Trump.

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Taking care of the “social” in housing.


Paying for the improvements in our social housing, to improve safety is going to be expensive. You wonder where the money will come from, or at least I did till I read a good article by Merryn Somerset-Webb in the FT.

In it, Merryn argues that the net is tightening on Britain’s private landlords, many of whom are not registered for tax with HMRC.

Buy-to-let evasion could be costing the Treasury £150m, but HMRC is fighting back

She takes an example …..

For a hint of what this means in practice, look to Newham. The London borough runs a property licensing scheme and has 27,000 registered landlords on its lists.

But when it gave HMRC the names of those landlords for some simple analysis it was found that almost half (13,000) are not registered for self-assessment. This doesn’t necessarily mean all of them are not paying tax on their rents. Small amounts due can be collected via PAYE and some properties will be owned by companies or trusts and separately accounted for.

But even if you make allowances for this and assume that, say, 10,000 rather than 13,000 landlords are not properly declaring rent, there is clearly something of a problem here. Use the average rent in the area (just over £16,000 a year) and £166m of gross rent is not being declared.

Assume a 10 per cent profit margin and an average tax rate of 30 per cent (some will be 20 per cent payers and some 40 per cent) and HMRC is down £4.8m in revenues in one London borough alone.

I am sure many of us are implicitly making the link between the tax that isn’t being paid by private landlords and the lack of proper funding for the maintenance of our public housing stock.

The FT article goes on to talk about various initiatives at HMRC, including better surveillance, tougher penalties for those found out and ensuring that those licensed to rent a house , are registered with HMRC. (Those of us familiar with pensions will hope that those licensed by HMRC to operate a pension will soon be registered with a toothsome regulator)!

Merryn concludes that of her column is asking the question “how should the private investor best conduct himself” and concludes

Given the potential downside of being a ghost or a moonlighter, these days a large part of the answer has to be “honestly”.

The lure of property rental

I have a great deal of time for David Hargreaves who argues that direct  property investment is the way for individuals to cut out the middlemen and directly link the investment of their savings to the real economy.

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David Hargreaves in action


He’s on record on this blog and at various pension play pen lunches arguing that the best self-invested pension is the rental stream ordinary people can get by owning buy-to-let properties.

David is not just a bright guy, but he’s an honest one and I’m sure he isn’t thinking that the way to get rich quick is to avoid paying HMRC what they’re due.

There are over a million private landlords who agree with David and are relying on private rental income,

Of course there are risks, especially where the money invested is borrowed, but it is hard to argue that for those prepared to be properly organised – and go about this business properly – being a private landlord can be a very good way of replacing income as you grow older.

Taking care of the “social” in housing

Merryn stopped short of making an explicit link between the social aspects of the housing market (“social housing” for short) and the entrepreneurial impulse that leads to us becoming private landlords. Whether it is through Airbnb or as a Robbie Fowler style private property mogul, we have responsibilities to our tenants, the local community and indeed to the tax-payer.

We are keen to lambast local authorities like Kensington and Chelsea for not doing their job and turning a blind eye to the safety of their most vulnerable citizens. Perhaps we should be taking care that we the private landlords we are, know or are surrounded by, are raising their game too?

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Paul Lewis; you are awful – but I like you!

I was shocked to read – as I scrolled though my digital FT this morning – Paul Lewis telling me “employers should pay more into pensions”.  He argues that “miserly contributions into defined contribution schemes are storing up trouble”.

I had sat yesterday evening in a meeting where it was explained that the increase in auto-enrolment contributions plus compliance with the new minimum wage, would cause employers either to reduce their workforces or to delay taking people on.

The employers in question, were seeing labour costs rise – but not productivity.

Reading through the article, I realised just how hard it must be to understand workplace pensions , if your workplace is your living room.

Paul, like many people I know, is excited about the possibilities of the Pension Dashboard which will show us for the first time how much our employers are putting into our pensions.

Even more excitingly!

“When (the dashboard) moves beyond its prototype — the aim is 2019 — we will be able to see how completely inadequate our savings are with just a few clicks of a mouse”.

Paul then tells us we can’t see the value of our employer’s pension contributions online.  This is the point at which my credulity breaks.

For I am confused. Firstly, my payslip tells me what my employer has contributed to my pension, I have a website that tells me when that money has been received by my workplace pension provider and I can get a state pension forecast by going through my Government gateway. In my case, everything but a few very old scraps of pensions can be found by me online- I just have to remember all the passwords!

The pensions dashboard may tell me how much my employer will be paying into my pension but I know the answer, just as I know my salary.

Paul is self-employed , has no-one paying into his pension and no salary. If Paul is contributing into a pension as a self-employed person, he needs to look to his bank statements.

The myth that employers are paying less into pensions

Warming to his theme, Paul turns his ire on the paucity of employer contributions , quoting a graph that we have seen before, it is an Office of National Statistics production.

total pension

But this chart is misleading, The claret boxes show the average cost as a percentage of payroll of a DB arrangement and the rhubarb box the average payment into a DC scheme. I won’t go into the DB calculations as they are complicated by regular and deficit contributions, but most DB sponsoring employers looking at the claret boxes will say they understate their cost.
As for the fall in the DC contributions, this is  down to including a whole load of employees who previously didn’t qualify for a pension -typically at the minimum contribution rate.
If you previously had 1000 people to whom you were paying 10% , you might now have another 1000 to whom you were paying 1% meaning you have 2000 to whom you pay pensions with an average contribution of around 5.5%.
As an employer you are paying more in total, but on average you are paying less per member of your pension scheme.

The point is that most employers are paying more into pensions than ever before!

Something has changed in the way thinks about work and pensions

Workplace pensions are now the norm – 83% agree with this statement; 80% think workplace pensions are good for us – 79% think that being required to pay more would be good for us.

I could go on and rubbish some more of what Paul is saying , but that would be very foolish and wrong. That Paul is confused is obvious. He is confused in the nicest possible way. He need not feel guilty for being confused as he is coming at workplace pensions as ordinary people do – and ordinary people are much more confused than he is.

Something has changed not just for workers but for bosses.

The point is, that employer pension provision was, until recently , a minority sport where a huge amount of corporate resources were pin-pointed at those in a DB scheme (or in the replacement DC scheme) and the rest got nothing.
And if you are working for one of Britain’s 1m + employers who are in the process of setting up a workplace pension , you were getting nothing and now the “miserly” contributions that are kicking in are part of the Government’s great success story. We are starting from a high base for the few- and working down and no base for the many and working up.
Paul’s dashboard may show the many that they have a lot of catching up to do but that cannot be the fault of the employers. Employers run businesses not pension schemes, pension arrangements should be incidental to the business, but of course many take over the business (the current DB problem).
Workplace pensions are an employer cost, they do little to help employers run businesses. The increases in workplace pension costs in April 2018 and April 2019 will see most employer contributions double and then triple. Employers reading Paul’s article may be asking

“what more do you want me to do?”.

The importance of Paul getting it wrong

If Paul can be so wrong about dashboards, and employer costs then what must his readership be thinking?

Paul’s misconceptions are based on good intentions; but pointing the finger at employers as the solution to the pension problem is to miss the point. If employers pay more in pension they pay less in salaries or bonuses or benefits – or they simply cut jobs.

Only increased productivity can drive sustainable real wage growth and no amount of digital dashboards will change that.

The problems of inadequate retirement income cannot be placed solely at the doors of employers, nor can they be solved to giving people easier access to information on their pension rights and savings.

The only way out of the problem we have to day is the one we are employing, a slow nudge into adequacy which will take many years (if not decades) to complete. Employers are incredibly onside with regards auto-enrolment.  The vast majority have complied and will continue to comply with what they have been asked to do. Many have done more.

Employers need guidance as to what to pay and that’s what they are getting. It may not be enough yet -we are not Australia, but we’re getting there.

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Reaching the places advice cannot reach



Only a handful of pension providers have adapted their systems to allow people to use the Pension Advice Allowance.

The pension advice allowance, introduced in April, allows pension savers to take £500 tax-free from their retirement funds to help pay for the costs of financial advice.

The providers not planning to offer this service cite a lack of demand either from advisers or from their clients to pay for advice this way. I have spoken to a few advisers and the consensus confirms a reluctance to get involved.

It would seem that setting a cap of £500 on the tax-break is seen as setting a cap on the cost of advice. Few advisers submit bills to clients which are less than £500. Then again , few advisers submit bills, most make their money from ad valorem fees from “money under advice”. The bill is a cumbersome means of alerting customers to the true cost of advice. The pension advice allowance is perilously close to being a bill.

Not only does direct disclosure upset the frictionless charging of “ad valorems” but it creates unwelcome administrative complexities between providers and advisers. Providers need to evidence that the money is for work carried out on the provider’s product and verifying this can be problematic. The policing of this service will only be called into question when it is abused, quite properly some providers consider this a risk with little reward.

But beyond the commercial considerations, there is a wider and more important question here. Are the people who the Government want to take and pay for financial advice, interested in doing so.  It is easy for white-collar civil servants and those in think-tanks to suppose they should, but there is little evidence that many of the 7m new pension savers we have in this country share that view. The only time that ordinary people pay professionals substantial amounts is when buying a property. The conventions surrounding a property purchase include substantial up front payments of which a professional bill is only one. We are a long way from any such convention at retirement.

This is of critical importance to understand. While we consider where we live our property, we do not consider our state pension our property , nor the string of payments from an annuity or indeed the payment of an occupational pension. This is because we do not have the rights to sell on the pension.

The pension freedoms have created a property market in deferred pensions, whether the pension is explicit (the defined benefit) or implicit (the defined contribution) and in making decisions whether to swap DC for annuity or maintain DB as a pension, we are taking decisions every bit as momentous as purchasing a property,

Indeed it could be argued that the chances of buying a dud property because of lack of conveyancing are a lot lower than the chances of investing in a pension scam without advice. A recent report by the Financial Conduct Authority found many over-55s making the most of the pension freedoms were acting without the help of an adviser, were at risk of high charges or poor decisions.

The obvious conclusion is that anyone taking decisions on their pension property rights should be required to use a regulated adviser just as anyone making a house purchase is required to use a solicitor.

There is a strong case to make those taking pension decision take professional advice

Yet we know this will not happen. It won’t happen for political reasons (it would be very unpopular) and it won’t happen because there aren’t enough advisers to go round.

Even if Government mandated that a decent slice of a pension pot (say £2500) could be used to get advice, nothing much would change (other than those already tax-relief advantaged would get yet more tax exemptions.

I am a former financial adviser and I can see no possible way of making compulsory financial advice at retirement work.

There is a stronger case for making at retirement decisions easier.

The obvious answer to the problems considered by the FCA in the Financial Advice Market Review (and the recent research mentioned above) is to make it easier for people to make good if not brilliant financial decisions.

We cannot all be our own Warren Buffets, our own chief investment officers. Most of us want to swap the money we have saved for a sensible plan to spend it. The annuity used to be a no-brainer product but it no longer makes sense – for most people. It has stopped being the default product just as Defined Benefit Schemes are no longer the default retirement savings plan.

We have replaced the old certainties, discredited as they are perceived to be, with the freedom to do what you want, but no framework in which to take those decisions (despite the best efforts of Pensions Wise).

It is time to look at the failure to role out the Pension Advice Allowance, not as a failure of providers and advisers but a failure of the system. It simply should not need a professional adviser to lay out at retirement options in a way that makes one a default.

We need a better product for those who do not want to pay for advice, a product that instinctively makes sense for the masses (like me) who do not want a DIY approach to retirement planning. I believe such a product is out there waiting to be built. It is not called “annuity”, “bank account” or “SIPP drawdown”, it is called a pension.

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NEWS- Saving into a pension is what we WANT to do!

Mr Pension

Well you may not find it news, but I do. I started out in 1984 selling pension policies to people who I met in Oxford Street and again at their homes. These people were promised ridiculous returns (13% pa on the Lautro illustrations), told nothing about costs and few will even get back what they put in because of commission paid to me for my labours. To put it in perspective , my tax returns for my first three years had me earning below the nil-rate band – this activity profited no-one – except the insurance companies.

Now things are different. Ipsos-MORI were told to ask around 1600 adults in the UK , the kind of adults I was talking to – back in the day –  if they felt saving into a pension was a normal thing to do.ipsos

DWP - norm

83%  now say it is the normal thing to do, only 4% think it abnormal (the rest had no view). This represents a sea-change since 1984 when the idea that ordinary working people should be making plans for their retirement was greeted with blank disbelief by most of my would be customers. You were either in a works scheme or you would be on the state.

Ipsos MORI also asked if people thought saving into a workplace pension was a good thing for them.ipsos

DWP -norm2

80% thought it would be , only 7% objected – roughly equivalent to the opt-out rate. Not only do people think it is the “norm”, they think saving into a workplace pension is good for them. Confidence in saving into workplace pensions is much higher than I could ever have conceived 33 years ago!

Finally Ipsos MORI asked whether people thought it would be good to see a hike in their savings into a workplace pension (something that will be happening in a few months).ipsos

dwp norm3

Once more, the numbers are positive with 79% saying they thought this financial medicine would do them good . Only 6% disagreed with a slightly higher number of people not having an opinion.

This may not be news to you – but it’s news to me!

That people feel this way into pensions at this stage of the auto-enrolment implementation is incredibly good news. Not only do people think saving is the norm, but they think it is good for them and they are even sanguine about being nudged into higher levels of saving. If I was Charlotte Clark, head of the DWP’s pension strategy team I would be patting myself on the back.

There is a really important point here , not just for politicians but for all the stakeholders who are involved in auto enrolment.

Employers be aware, your staff see saving into these workplace pensions as a positive, this is your chance to capitalise and maximise your return on the investment you and they are making in their financial futures.

Business advisers be aware, dissing auto-enrolment and the employer duties is yesterday’s news. It is no longer clever to be cynical, the experiment is working and now is the time to encourage your clients to take a positive view about auto-enrolment.

Providers be aware, you and your trustees/IGCs are pushing at an open door. Your customers are with you not against you. You do not have to be on the defensive, now is the time to agree with your customers – this thing is working.

The message is getting through

When you are starting out on getting fit, you do not look to Daley Thompson’s fitness plan. You start slowly and build, you could be a wannabe Daley Thompson but the chances are you’re just trying to cut down on the flab and not get out of breath doing up your shoelaces!

Most of us are at the “first month going down the gym” stage of pension saving, we don’t have the full fitness regime and we know it, we know more is to come but we know at least that we are on our way.

Steve Webb was on the radio this morning talking about how it’s going to get tougher in April 2018 and 2019. It will get tougher, but then we are already in training.

I am proud to be involved in pensions, proud especially to be involved in helping employers set up and run workplace pensions. I and our business partners have great plans and we are going to use the next few months before April 2018 to raise a positive awareness among employers, business advisers and staff about what is happening.

I thought that would be a challenge, but reading those charts from IPSOS MORI, I think it is a challenge which we can rise to!




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BSPS2 – a superior kind of lifeboat?

British Steel

The news that members of the British Steel Pension Scheme will have the choice between swapping their pension rights for participation in the Pension Protection Fund of a new Pension Scheme (code-named BSPS2) has been well flagged.

It might seem Hobson’s choice, neither are as likely to offer quite the same benefits as staying in the original scheme but that will not, it seems , be an option.

On the face of it , people should look to the upside potential of BSPS2 to pay more but there are some (see previous blogs on this matter) for whom the PPF will give better commutation and early retirement factors ) – in particular those in an uncertain corridor prior to retirement (the so called high-lows).

There is a simply excellent analysis of the knowns and the unknowns (and thankfully no speculation on the unknown unknowns) which appears in Professional Pensions. Stephanie Baxter has clearly been given some advance notice as this piece of writing is both detailed and extremely clear.

It suggests that the messaging to members (as well as to the pension professionals) is likely to be clear vivid and real. I had some peripheral involvement in briefing those who are involved in this and know that the Trustees are not stinting in ensuring that as many members as possible take not just an informed choice, but a choice that they understand and recognise as right for them.

This is no mean undertaking, there are 130,000 people in this scheme, 80,000 are pensioners , only a relatively small number still work for Tata Steel and there are over 100 pensioners who are over 100. The challenge of dealing with a diverse set of decision makers , for whom every decision is potentially life-changing , should not be downplayed.

For those still working for the new merged company that emerges from the current negotiations , there will be a right to a pension contribution from the employer but no defined pension rights arising. Steel workers will have to face further uncertainty with regards to their future service which is unfortunate. The future offered in British Steel (to Nigel) was one of certain outcomes after a long and arduous working life. It never included the kind of choices that members will have to make on pension technicalities today and on investment probabilities tomorrow.

I don’t want to make a political statement , but I sense that the Regulated Apportionment Arrangement that grants Tata a high level of immunity from future pension risk, is a very complicated way of doing a simple thing.

It would have been easier, as it would for the postal workers at the Royal Mail, those working at Halcrow and Hoover Candy and the former shop workers at BHS, if a “target pension” could have established along Dutch or Canadian lines. Such arrangements put trust in the long-term capacity of the world economy to deliver returns capable of paying incomes for so long as those incomes need to be paid. Of course those incomes cannot be guaranteed, if there is no sponsor willing to pay for the guarantee, but there is sufficient flexibility in the conditionality of benefits in these foreign models to offer impacted members, not just some certainty on past benefits but greater certainty on future benefits.

We still have the opportunity to write up the secondary legislation from Pensions Act 2015 to make these kind of arrangements an option for the trustees of large schemes such as those mentioned above, I hope that the forthcoming DB white paper may look again at those options.

Jumping ship

Sadly, the reports I have heard, including from some BSPS trustees, is that there are many BSPS members who have cried a plague on all their houses and have or are voting with their feet to be out of either arrangement. “Factory-gating” is rife, with lead-generators seeing plenty of interests in the services of anyone who is prepared to adviser on Cash Equivalent Transfer Values (CETV). The fear is that some of those prepared to advise, are in no position to advise.

One thing is for sure, that the Trustees of BSPS are taking the plight of their members very seriously. If members decide to take a CETV, they had best take it before their rights are transferred to BSPS 2 (there will be no opportunity to take a CETV from the PPF). But I hope that many members will recognise the huge burden they will be taking on paying their own wage in retirement.

The BSPS was commonly regarded as one of the best managed pension schemes in the country with low administrative costs, an excellent pension investment function and with the very best advisers. None of this should change as BSPS moves into BSPS2 and it would be a great shame if heart ruled head in decision making.

The Trustees are clearly doing a great job in outlining options. Clearly they hope that the majority of members will not jump ship (while recognising that for some – taking a CETV will be their best option). I wish them well in their task of presenting these hard choices to people who should never have had to make them.

The great sorrow is that it has come to this.


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Pot follows member (unless we want to keep it where it is).


In a statement this week on the sluggish service standards of firms administrating our Defined Contribution occupational pension schemes, the PLSA concluded

The median transfer time is 11 days, and although some are much longer1, this is principally due to the need to combat fraud risks and achieve appropriate oversight. Whilst the speed of a transfer is one element that a trustee must consider, ensuring the transfer occurs safely and that members get the maximum benefit from their savings is of greater importance. In an environment where pension scams are occurring at an unprecedented level, a degree of caution on the part of occupational schemes should be welcomed.

The PLSA use statistics cleverly. As this table shows, the transfers completed by Pension Bee last month were typically completed in around 12 days. But these were the transfers which used the Origo system where due diligence is a priori and does not need to slow down the process.

In a survey published on the same day as the PLSA’s statement, Pension Bee published the second iteration of its Robin Hood Index, showing who was sharing and who was lagging.

robin hood

Pension Bee’s Robin Hood Index


With the exception of Aegon (which I will return to), all of the pension providers offering  “manual” services were at least twice as long in transferring and the worst offenders getting on for four times longer than those using the automated Origo service.


So what is going on?

Value for money in pensions is mostly about investment outcomes but partly about the customer experience. If people are trying to move away from Willis Towers Watson, NEST, NOW, Aon Hewitt and Capita they are getting a bad customer experience.

If this could be explained by these organisations offering due diligence on the destination of the transfer (as the PLSA) would have us believe, I would accept that this compensates the customer. However there is no evidence to suggest that there is a higher level of due diligence from the administrators of the occupational pension schemes (the manual ones). Origo offer the following statement concerning members of their options club.

To clarify, Origo does due diligence on potential joiners to the Options Transfers service to see if we are happy to contract with them to supply the service. This is in no way intended to replace each providers due diligence responsibility on for the individual transfers they conduct with counterparties (on or off Options). Options is simply the online system to make these transfers happen quickly.

You can choose to do whatever level of due diligence you are happy with on your transfer counterparties, ongoing or one-off, as can the all the other companies on Options too. The individual transfer/don’t transfer responsibility sits with the ceding and receiving providers/administrators/schemes, based on their own due diligence.

Pension Bee are one of the options on Origo as are all the others using an automated process.

There are two exceptions worthy of note. People’s Pension is an occupational pension using Origo and automated process and Aegon uses Origo and has chosen to turn off automation to Pension Bee – (Infact it appears to be turning off transfers to Pension Bee).

Having to wait an average of 51 days to get a DC transfer paid?

The disparity between manual (43 days) and automated (12 days) suggests that the manual system defended by the PLSA simply isn’t fit for purpose. As Pension Bee are a member of the Origo Club, they should not need another month’s due diligence every time an occupational pension is requested money.

I conclude that the problem is not with due diligence (which for all for obvious exceptions – the scams) is a red herring, the problem is in the passing of pieces of paper by post from one post box to another. This is precisely what Pension Bee and others report is going on.

My own personal experience bears this out, when I consolidated my DC pots , those using the Origo hub were transferred in days, the rest in months. That was two years ago but nothing much seems to have changed.

Tom McPhail, who led the PLSA/ABI research, has come to a very different conclusion to the PLSA.mcphail

“Sooner or later we are all going to have to find solutions to this challenge of how we serve our customers. It is far better that we work out the solutions for ourselves that work best for us, rather than having them imposed on us by the regulators.”

He claims that in the joint working group he chaired

“We’ve had lots of GPP, technology solution and SIPP providers coming along to the workshops. The bit that’s missing at the moment, and where we don’t have enough representation, is from the occupational pensions sector, which interestingly is quite often where the longest delays occur.”

Occupational schemes and their administrators are clearly not giving their problem much attention.


It is understandable – from a commercial basis – that commercial master trusts and even non-commercial occupational pension schemes do not want to invest in processes that lose them assets and thus revenues/members.aegon-logo

Understandable but not condonable. Respecting the wishes of members, whether they stay or go is part of “treating customers fairly”. In some cases, such as NEST, who only started offering transfers-out in April this year, I’m prepared to give the benefit of the doubt.

But something very different appears to be happening at Aegon. As has been reported in the FT, Aegon appears to have drawn up the bridge and stopped transferring money to Pension Bee.

We are conducting due diligence in this area for an organisation representing thousands of small businesses whose employees are looking for a good customer experience. As part of this we have been looking at Pension Bee’s Robin Hood transfer index and this has led us to ask Pension Bee what is gong on.

What we are discovering  is deeply worrying. It appears that Aegon, despite their being in the same transfer club as Pension Bee, is imposing a transfer ban on monies flowing out of its products towards the Bee.

I have written to Aegon and its IGC for clarification as to why this is, but have a pile of documents in my inbox that leaves me in no doubt that the requests of customers are not being executed with no reason given to customer or to new provider.

This is not restoring confidence in pensions

Whether it be due to underinvestment, laziness or over-zealous due diligence, it appears occupational pension schemes are seriously lagging SIPP and GPP providers (and Peoples Pension) using automated transfer processes. I do not buy the PLSA’s due diligence arguments which look like a smokescreen to me.

What is happening at Aegon is a mystery, but the longer I wait for a reply from the company and the IGC, the more suspicious I am that Pension Bee is being blocked for no good reason.

Due Diligence on Pension Bee is not hard to do, their’s is a simple proposition which is backed by the FCA, HMRC and Origo.

The general direction of travel is towards pots following members. If they get stuck the cost of maintaining small pots falls either on the providers (with the capacity to improve things being reduced) or on the members (as happens at NOW pensions – whose deferred members with small pots can suffer up to 10% pa charges on their funds.

The Origo initiative (which I thoroughly support) allows pots to follow members by creating a club of providers who work together to make this happen quickly and efficiently.

Occupational pension schemes should look to be joining that club, as People’s Pension has. If they do not work with Origo but continue to have slow transfer times they should be called to account.

If Origo members turn on other members of the club for no obvious reason then they should be referred to the FCA for not treating customers fairly. This is what Aegon’s current behaviour runs the danger of doing.


NB outcome 6

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

Why employers must understand the value for money of their workplace pension

good faith 3


Among the remedies leading from the FCA’s Asset Management Market Study was a clear recommendation

…that both industry and investor representatives agree a standardised template of costs and charges and we propose to ask an independent person to convene a group of relevant stakeholders to develop this further.

Following this, we will work with these stakeholders to consider whether any other actions are necessary to ensure that institutional investors get the information they need to make effective decisions


I want to focus on that second paragraph and in particular the definition, in this context of “institutional investors”

Within the glossary of terms in the Appendix of the document, the FCA defines

Institutional investor An investing legal entity which pools money from various sources to make investments.

But this is not particularly helpful. The legal entity might be thought to be an insurer or the trustees of an occupational scheme (such as a mastertrust). It might equally be thought an employer who pools the contributions of various staff and sends them to a provider to be invested.

The difference is critical as it defines who the work that the independent person leading this group is for. We know that leader is Dr Chris Sier and if there is one person I want to direct that question to, it is him.

The employer’s obligation of good faith

I think that Dr Sier is working not just for the insurers and master trust providers – and their fiduciaries – the trustees and IGCs; but also for the 1 million plus employers who will have set up access to workplace pensions for their staff as a result of auto-enrolment.

The auto-enrolment regulations define an employer as the legal entity responsible not just for choosing the workplace pension for staff but for pooling and passing contributions to the provider of investment services, each payroll period.

I define these employers however small and disengaged as “institutional investors” on the grounds of their doing exactly what the FCA define institutional investors as doing- investing “other people’s money”.

I do not justify them as institutional investors on  grounds of their knowledge.

The OFT in 2014 made it clear that employers are singularly poor at “getting pensions”


It is better argued that of all institutional investors, they are least able to carry out their duties under auto-enrolment because they are so ill-informed.

The institutional investor -defined by an obligation of good faith to others

We cannot define employers as institutional investors on the ground of their pension or investment knowledge. We need another definition.

For this, I turn to a much quoted statement in a judgement by  Sir Nicolas Browne-Wilkinson VC  in 1991 on the Imperial Tobacco pension dispute

In every contract of employment there is an implied term:

“that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee;” Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666, 670, approved by the Court of Appeal in Lewis v Motorworld Garages Ltd [1986] ICR 157.

I will call this implied term “the implied obligation of good faith.” In my judgment, that obligation of an employer applies as much to the exercise of his rights and powers under a pension scheme as they do to the other rights and powers of an employer. Say, in purported exercise of its right to give or withhold consent, the company were to say, capriciously, that it would consent to an increase in the pension benefits of members of union A but not of the members of union B. In my judgment, the members of union B would have a good claim in contract for breach of the implied obligation of good faith: see Mihlenstedt v Barclays Bank International Ltd [1989] IRLR 522, 525, 531, paras 12, 64 and 70.

In my judgment, it is not necessary to found such a claim in contract alone. Construed against the background of the contract of employment, in my judgment the pension trust deed and rules themselves are to be taken as being impliedly subject to the limitation that the rights and powers of the company can only be exercised in accordance with the implied obligation of good faith.

The judgement has been heavily relied upon in recent judgements concerning IBM and the BBC and is relevant here.

I regard employers as institutional investors as they take decisions on behalf of others (their staff) about the workplace pension available to those staff. They are responsible for pooling contributions for investment and they have an implied obligation of good faith to do this properly.

So long as this obligation of good faith exists, the work of Dr Sier must be to ensure that not just the providers trustees and IGCs know what is going on, but so do the employers who participate in workplace pensions.

Why does this matter?

Some will argue that since the IGCs and Trustees know the matter of Dr Sier’s endeavours, there need be no further disclosure. To some extent this was the position that the OFT adopted in 2014. In 2014, the reporting of value and money in workplace pensions was not even at base camp, there was a mountain to climb. We are now approaching the top of the mountain and the FCA are wanting to report a single charge that does capture the costs within the fund


The OFT did not (I suspect) suppose that over three years after the publication of its report, we would still be working on how to present costs to IGCs, trustees, employers and members. They could not have anticipated how IGCs and trustees would be operating today and how auto-enrolment would have gone. Overall, things have gone better than planned and the confidence of the FCA’s position in approving a single charge reflects a feeling that consumers can and should be aware of what they are paying. This goes beyond the position that was adopted by the OFT and I applaud it.

It does not make sense to present a single charge, inclusive of transaction costs,  to the public, but not make clear how that charge has been calculated and what is in it.

Nor is it responsible simply to report “money” – “value” by way of what’s been delivered, also needs to be reported. Not just simple fund returns but risk-adjusted returns that show what has been achieved with the money spent. That is how people can assess value for money.

It matters that employers can follow the argument and while they may be guided by trustees and IGCs over whether they are getting value for money, they are responsible – in the final call for the pooling of contributions and where they go. This is their “implied obligation of good faith”.

To deny employers the status of institutional investors and to simply report “money” and “value” to IGCs and trustees is to leave employers with obligations but no means to fulfil them.

“A legal and moral obligation of good faith”

I have made this argument many times before, and I have wanted them extended. Dr Sier will be aware of the amendments of the Pension Schemes Bill proposed by Alex Cunningham , the shadow pension minister earlier this year. I have written up the debate as it appeared in Hansard.

I had argued that the phrase “duty of care” should have been used in the subsequent Act to ensure that employers paid attention to the pension. In the end, both the Government and Opposition agreed to drop the amendment but the debate assumed that the employer’s obligation of good faith was implicit.

My worry is that – should the definition of “institutional investor” only include those “experts” responsible for the investment of the money (and its over site), ordinary employers will have no means to find out what is going on with the workplace pensions into which employees will be paying 8% and upwards of band earnings.

This may be what the “experts” see as desirable, but it is not what ordinary employers should see as in their interests. They are ultimately carrying an obligation of good faith and need to be able to exercise their judgement as to where the money they pool goes.

They have an obligation of good faith to their staff and we must empower them to use it.



good faith2

Another way of putting it!



Posted in actuaries, advice gap, NEST, pensions | Tagged , , , , | Leave a comment

“Pot follows member”? Who are you kidding? Pension Bee blows the lid on DC transfers.


We’ve had fuss about how hard it is to move your bank account, we’ve had fuss about how hard it is to switch utility supplier, but how hard is it to merge your pension accounts so that your pot follows you from job to job?

It all depends on how efficient your pension provider is in managing the “transfer-out” of funds and – believe it or not- some pension providers not only make it operationally difficult, they still can charge massive exit penalties. If you want to see evidence – you can link to Pension Bee’s website.  If you want to find out more from Pensions Bee, then you can read their blog on the matter here.

Pension Bee are a fintech led by an ex Goldman Sachs whizz Romi Savova.

romi savova

Romi Savocva – Pension Bee CEO


They have analysed over 1800 recent transfers they have executed for ordinary savers who have come to their site to bring their pots together. As soon as they read their research I cycled down to their South London HQ to get the full picture. This is not the full picture- the full picture is much worse- but more of that later!

robin hood


[1] AMC: annual management charge; electronic: using industry platform Origo; manual: paper transfer forms
[2] PensionBee’s fee transparency rating: 5 = very good. Fees visible on the paperwork. 4= generally good. Enough information given to calculate fees from the paperwork fast. 3= spotty. Requires a calculator. 2 = leaves a lot to be desired. Requires a calculator, a google search and occasionally a phone call. 1 = not available unless specifically requested over post or extremely complicated to calculate from available info.
[3] The charge is calculated as a proportion of the pension pot and where the charge exceeds the pension pot – i.e. is over 100% – it is expected to result in an extinguishment (account closure) of the pot.
[4] All data for Now:Pensions is based on deferred members (i.e. those not paying in contributions) earning over £18,000. Active members are subject to different fees and charges. Fees as a % of the pension will be lower as the pension pot grows through contributions.

Why does this matter?

Well it shows that your chances of getting your pot to follow you (at a reasonable distance) diminish the further you go away from a hard core of insurers who have a reasonable service standard of 12 days. These insurers use the Origo clearing service which Pension Bee says is working fine.

Where the problems lie, is with the third party administrators who do things for providers (clearly at their own pace). These include

Tata consultancy services – NEST

Jardine Lloyd Thompson (JLT) -NOW

Willis Towers Watson – WTW Lifesight

Capita – Capita Atlas

Aon Hewitt – Aon Hewitt master trust

(If you want something done slowly – use an established actuarial consultancy and their admin!).

This matters because people expect better, because money that sits around for 50 days is not being invested as the member wants and because these delays are bringing pensions into disrepute!

It’s no wonder people feel so remote from their money, if it takes them 50 days+ to move it!

NEST v People’s pension

NEST – it would seem -operate a lipstick on a pig pseudo digital service which requires the member to download and print-off a transfer form which then has to be sent by post from one party to another! What is this about? NEST tell me they want to be 100% digital but that noble aim seems to be abandoned when a member wants to transfer away – funny that!

Peoples – who are another occupational pension scheme, subscribe to Origo and are obviously doing a great job.

It makes a difference

Perhaps someone could tell NEST, NOW, WTW, Aon, Capita and I suspect Mercer who also administer their own master trust but didn’t have any TVs through Pension BEE in this period.

My friends at Quietroom tell the story of how they staunched outflows from Halifax Bank during the 2008 banking crisis. The Bank had put up barriers to exit (sounds familiar?) and this was not working. Quietroom tore down the barriers and the transfers dried up. I suspect that if you want to prove yourself worthy of being a long-term pension provider, you show the confidence to let people walk away easily.

I suggest that a few of the TPAs with 50 day turn-a-rounds, have a word with Quietroom!

Independent corroboration from Hargreaves Lansdown.

Coincidental to the publication of Pension Bee’s Robin Hood index, Hargreaves Lansdown’s Tom McPhail was in the press citing the same conclusions from work he and others are doing in a joint ABI/PLSA working group.


Tom McPhail- Hargreaves Lansdown



The group is finding it is the GPP  and SIPP providers using Origo and similar clearers who are delivering the goods, while occupational pensions (including the master trusts) are lagging (turn around times quoted are similar to those of Pension Bee’s survey.

What this means?

As a result of this research, http://www.pensionplaypen.com will be revising its metrics to accommodate a further score on provider’s performance in transferring out funds.

Employers and members need to know that they can take their money from one master trust to another or from master trust to GPP or SIPP within reasonable service times.

We have already contacted some of the worst performing providers about their behaviour and will be writing to both the trustee chairs and IGC chairs where problems are obvious. This includes writing to organisations where high exit fees persist

Once more the master trust assurance framework, which is supposed to be ensuring good administrative practice is shown to be a chocolate tea-pot. TPR and ICAEW please note. We will be writing to tPR and ICAEW asking how they square MAR certification with the results achieved by most of the master trusts.

Pension Bee have also alerted us of particular problems with one insurer who seems to be putting up the shutters on all transfers out – more on this to come.

If you have a horror story of a DC to DC transfer experience, please drop a comment into the box below. The gap between good and bad is too wide, there needs to be a raising of the bar and this needs to happen without more ado.

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

Pension Dashboards need clear next steps


pensions dashboardThe stock market keeps going up, our DC pensions keep going up, every morning I have a peek at my private pension dashboard with L&G and go whoop! There may never be such a time as this morning to enthuse about “engagement”!

This morning I’m meeting with a policy chap about the new breed of pension dashboards which we’ll be able to use from 2019 which will allow us to look at all of our pensions in one place , I dribble with anticipation.

If you detect a degree of cynicism in my tone, you are an expert reader! You are right! Stock-markets won’t always be touching record highs and when we get to 2019 we will still have precious more to do with all this money we’ve saved than we do now. There is no clear and definitive course of action for the clueless and until we build some form of collective decumulator which manages risks and costs and provides a pooled solution to longevity, we will be stuck with the current triage – “blow it, draw it down or give it to an insurer in exchange for a lifetime income”.

Blowing it means a big tax bill and a lifetime of poverty, drawdown means big advisory bills and uncertainty of outcomes and the annuity- well we all know that “nobody need ever buy an annuity again” – a ringing endorsement if ever there was one!

Dashboards and the workplace

I’ve noticed in Government projects like the Pensions Dashboard have generally succeeded because employers or their agents have adopted them. The three most recent examples are making tax digital, real time information and pensions auto-enrolment.

The supply chain has been simple, Government driving change, software companies delivering the means and employers and their business advisers adopting.

It will, I predict, be the same with the dashboard. Payroll software companies are already alert to the gap between what people want by way of pension information and what they are getting.

Organisations like Sage are already gearing up to do this and the dashboard will help. What’s more important, if the dashboard can be embedded into the BAU processes of HR and payroll then they will have fulfilled a key purpose, of engaging employers and employees with pensions as more than a matter of compliance.

A big if…

The two dependencies standing between the vision of pension dashboards and the reality are

  1. That they get used
  2. That they lead people to good outcomes

We may think that consolidation (aggregation) of small pots into a big pot is a third , but I really don’t see much to be gained from having one big pot unless that big pot does the business.

Dashboards need to be part of employer BAU as a springboard to individual engagement. But to have useful purpose , they must signpost clear next steps – a definitive course of action as simple as the annuity – but a lot more effective.

The alternative is that the Government accept that they are simply making the lives of wealth managers a lot easier.

In truth, all that Government is doing currently is establishing data standards for the wealth managers to use to pool our disparate pots.

To move toward a coherent workplace solution that helps people spend their savings as easily as build them, they need to pay attention to those not currently targeted by wealth managers. These people will not want wealth management at all, they will want a wage in retirement – from the state – and from their pension savings.

It is now up to the Government to turn its thinking to this much more ambitious project!


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How do we value our large DB plans?



Today’s Pension Play Pen lunch (at the Hydrant pub not the Counting House) will discuss how best we value our large DB plans.

What do we mean by large DB plans?

I guess there are a number of big DB schemes that we could discuss….

How about the PPF, which claims to be on a path to self-sufficiency but which many believe is already there! Is it pleading poverty to get its levy or is its very conservative valuation methodology necessary?pension protection fund

How about British Steel- probably the best run pension scheme in the land, which is closing its doors and re-opening as BSPS2 for members who want to avoid going into the PPF. Was all the fuss really necessary, could BSPS1 have soldiered on and paid its benefits had it not been treated (for valuation purposes) as a basket case?Tata workers

Then there’s Royal Mail, whose pension scheme was topped up only a few years ago to be fully solvent but which closed for future accrual in 2017, triggering considerable unrest among its members. Continuing to accrue in the old scheme’s gilt-heavy investment structure would have cost 52% of salary. Royal Mail don’t want to offer their membership a “wage in retirement” as they say this is too risky. Instead – they want to offer members cash at retirement so they can be free!  Have we valued Royal Mail out of pensions?Royal Mail 4

Oh and let’s not forget BHS which has become a cause celebre for Frank Field and the DWP select committee. Like BSPS’, its membership are being kicked out of BHS1 into either a weaker BHS2 or the PPF. Was all the fuss about a bust pension scheme, or just a tra-la-la about a weak employer covenant.

A woman walks past a BHS store in Leicester

Last but by no means least, we’ll be discussing the mighty University Superannuation Scheme, which is – according to the bearded wonder – on the rocks. That’s if you value it on a gilts + basis where there is a socking -great deficit. But the fund isn’t invested in gilts and as its report and accounts confirms, if the fund was valued using a discount rate reflecting the expected performance of the actual assets, it would have a £3.5m surplus.uss3

Indeed, using a best estimates approach to valuing pension schemes, albeit an approach that assumed that people actually wanted pensions and trustees were prepared to pay them, then  all the above mentioned schemes would look a whole lot healthier!

Accountants welcome!

I hope for a very diverse discussion, it would be great to have advocates for the gilts plus valuation method and for best estimates. Obviously I am biased, I work for First Actuarial which produces #FABI, the best estimate index but I’ll be in the independent chair. So if you’re sitting at your desk in one of our big pension consultancies or if your name is John Ralfe, get down to the Monument for 12.30!

Calling time on willy-waggling!

I also want this to be more than willy waggling- we want some female in the room – which as we all know is emotionally astute and usually right! Please ladies – come along!

Bigging up da yoof!

I’d love to see some young people – (e.g. under 40) in the room. Pensions cannot become an old soaks preserve. We need those who are currently denied the security of DB to be wise to both its faults and its merits. We can’t let DB go the way of rare-breed pigs. I don’t want a scheme pension being paraded around the financial services showground in 2050 as a curiosity!

DB virgins come on down!

Finally, I’d like to see people who know nothing at all about discount rates, DB valuations and the dynamics of scheme funding in the room! We need some common sense. We are all scarred with some kind of prejudice. We need some DB virgins!


It’s not the Counting House, it is the Hydrant pub where we are meeting.

Follow this link for directions – it’s right by Monument station.

If you go to the Counting House, you will meet a bunch of builders; the place is being redecorated, I will try to get a redirection service at the door if your habitual satnav takes you there – but think Hydrant!

We meet 12 for 12.30 and we’ll wrap up by 1.45 with networking after. The bill will be divided as usual, be prepared for a £15-20 hit to the pocket though you can opt-out if you are skint or don’t want to cross-subsidise the dipsomaniacs!



Posted in Pension Freedoms, pension playpen, pensions, Pensions Regulator | Tagged , , , | 1 Comment

Who will champion DC savers?

A barista at work in Costa Coffee.

I hear a lot of DB experts at conferences talking about transferring their “skill-set” for the benefit of DC savers; they want to transport their language – diversified growth funds, liability driven investment and glide-paths into the lingua franca of the DC saver. They are interested in the creation of synthetic annuities and they advocate we study behavioural economics. They have ways of controlling the herd of us DC savers using default investments, contributions and decumulators.

These people are so far from the thoughts and aspirations of ordinary working people and even to the bosses participating in workplace pensions, who know little to nothing about such things. They don’t need to transfer their existing skill-set, they need to learn a new set of skills. They might consider the job of a Costa Coffee Barista,

The arrogance of these people in supposing the world should follow them is breath taking. This is the generation of advisers who has turned DB from a great British Success Story, to its current state. They have found no alternative solution to the issues of our living longer, our desire for certainty and our financial ineptitude than to transfer all these risks away from organisations who can share them onto individuals who most certainly don’t understand them and can’t manage them even if they do.

Technical superiority makes me spit with rage

There is nothing that so riles me as when these experts preach to us about some pension technicality which we don’t get, when the bigger picture is that there is a world of unfairness the technical experts are happy to persist.

I see this in the WASPI debate, I saw it in the arcane arguments played out by barristers in the Royal Courts (re ARK) and I saw it again yesterday.

It was Lesley Williams , former chair of PLSA and head of pensions at Whitbread who first pointed out to me that non-tax payers cannot get tax-relief.  Whitbread own Premier Inn and Costa Coffee – hence my tagging baristas.


Lesley Williams


The same comment was made on my blog yesterday. It is a comment that is technically right but wrong from every other perspective.

Let’s be clear, when the Government announced the auto-enrolment contribution scales, they very properly laid it out like this;

The employer pays 3%, the worker plays 4% and the Government pays 1%.

The 1% the Government pays is not tax-relief, it is an incentive for people to participate and is open to non tax-payers as well as tax-payers. It may be thought of as tax-relief by the PLSA but it is a right for those who save , not those who pay tax.

We are in the process of disincentivising a whole raft of people who are saving (often for the first time) into pensions by simply not keeping our promises. Those people may not have found out yet, but they will. When they do, don’t expect them to be quiet. Let me explain…..

When Auto-enrolment was first mooted back in 2005, the nil rate income tax band was close to the auto-enrolment contribution threshold. Since then the AE threshold has lagged meaning many people are enrolled when they pay no tax. When low-earners have an exceptional pay period (overtime, bonus etc.), they become eligible for auto-enrolment for that pay period and – unless carefully managed- they may find themselves enrolled for good (unless they opt-out).

For these reasons, a very large number of non-tax-payers are currently in workplace pensions “unconsciously”. Some more choose to be in pensions because they are entitled to participate in an employer’s scheme or because – while not eligible to be enrolled , they are both entitled to be in a scheme and eligible for an employer’s contribution.

Technically, employers are under no obligation to make sure that these non-taxpayers get their incentive, but the moral superiority of these experts in denying low-earners the right to it (on the grounds that they are not tax-payers) is despicable.

That the PLSA , the PMI and the other leading pensions trade bodies have failed to champion the iniquity of low-earners being denied what the Government is offering them is frankly a dereliction of their stated aims. As I wrote yesterday, low-earners are least served by the current system of tax-relief.

The current system allows high earners to get a tax-rebate at up to 45% of earnings, more than twice the Government incentive being denied so many low earners. The vast majority of tax-relief goes to high-earners because they have the net disposable income to fund pensions to the max. While the Government has trimmed some of these tax-perks, they still prevail for most of the pension rich.

It is despicable that years after the “net-pay” problem emerged, large occupational schemes and many multi-employer workplace pensions continue to take contributions from non-tax payers and not credit them with the Government incentive.

I do not buy the argument that setting up systems to operate under the “relief at source” regime is not cost-effective. NOW pensions have campaigned for a work-round and – not being successful – have paid the incentives for the Government (it being a net pay scheme). In the meantime, the large occupational pension schemes that deny low-earners their incentive have twiddled their thumbs and relied on the “if you don’t pay tax, you don’t get tax-relief” argument.

It’s specious, bogus , arrogant and despicable and that – to me –  is indisputable.

So who is championing the low-earner?

The answer is not the unions, who seem to be disconnected with DC pensions if they aren’t called NEST.

The answer is a Tory Baroness called Ros Altmann.

Whether you like or loathe Ros, you cannot deny that she has consistently championed the rights of the low-earners to get their promised incentive.

I applaud her for this and will use this blog to back her up. It is absolutely ludicrous that large employers and workplace pensions (operating under the master trust assurance framework) can be allowed to operate net-pay DC arrangements without compensating members for the incentive or switching to relief at source.

The Pensions Regulator has issued feeble warnings on its website but have been absolutely supine in pressing trustees and employers to treat low-earning members fairly.

They too are in on the act; they may be technically right but the Regulator and its boss the DWP (wakey wakey Charlotte) proving absolutely hopeless in this matter. Like the PLSA and PMI and other pension trade bodies, the Pensions Regulator has chosen to ignore the plight of its poorest and most vulnerable stakeholders – SHAME ON tPR.

Who is championing DC savers?

There are plenty of champions for the DC super-rich, those who use SIPP platforms, have advisers and need to worry about LTA , AA and MPAA issues.

But there is no champion of the average DC member, unless it be the IGC chairs and members. Ironically they have no stakeholders in net-pay schemes as they govern purely relief at source pensions. It is the trustees of occupational pension schemes who should be championing DC savers and I have not heard a dickey-bird from one trustee on this issue,

The answer is that nobody is championing the rights of DC savers but Ros, and a few people like me and Kate Upcraft and Andy Agethangelous and his Transparency task force. None of the “experts” give a monkeys.

If you want their money, you lah-de-dah conference experts spouting your nonsense about DC LDI and the like, why don’t you look to issues like this? If you really think that your company’s DGF can add value, why don’t you show some intent by talking about this? You sell DGFs as defaults for schemes like Whitbread while their low-earning  Baristas can lose out on a 12.5% contribution kicker.

If we can’t fulfil on our basic job of administrating the Government incentives to our most vulnerable members, what right have we to consider ourselves pension experts at all?

barista 2

you deserve better!

Posted in dc pensions, pension playpen, pensions | Tagged , , , , , , | 16 Comments

Four ways to harvest what auto-enrolment has sown!


For the past year, we have been thinking about where to position Pension Playpen to help small businesses with their workplace pension. We’ve worked out that small businesses taking on pensions for the first time will need help in four areas.

  1. A way to see and display how the workplace pension is doing
  2. A way to compare value offered by workplace pensions
  3. A means to remedy problems when they arise
  4. Day to day support and occasional intervention from independent experts

To use a farming analogy, it is one thing to sew a field with corn, it is another to harvest it. Auto-enrolment has sown the field but that field could quickly become full of weeds and eventually barren unless it is given care with maintenance.

See and display

Employers need to get timely, relevant information on their workplace pension at least once a quarter. As well as a little narrative, employers tell us they want to know how the default fund has performed both over the quarter how the quarter impacts longer term performance numbers. When I speak about adjusting these numbers for the amount of investment risk managers take, most employers get it. Employers want these numbers delivered so simply that they can share them with all their staff “see and display”.

Compare and contrast

Employers are telling us they want to feel proud of the workplace pension they have chosen and take ownership of that decision. It may not be a pension scheme they set up, but employers still feel that the scheme in which they participate is their company, workplace or “works” scheme.

In taking ownership of the choice of workplace pensions, employers are telling us they want to see their choice vindicated over time by the delivery of superior value, lower costs and better value for money  both for them as employers and them as members.

Repair or replace

One employer told us that she’d been surprised to hear her workplace pension described as a vehicle. She said that if she bought a car, she’d expect it to be serviced once a year , repaired from time to time and either upgraded or replaced regularly.

While in practice, the incidence of renovation or replacement of pensions may be rare, that employers can see a way to do this, is seen as a positive. Just as with cars, utilities, bank accounts, payroll and accounting software, “switch-ability” is an important positive for employers.

Independent and effective

Employers we are speaking to are moving away from an advisory to a support model. Rather than control the decisions that employees make with regards contributions and investments, they want to have access to information and facilitate their staff through independent helplines.

The point of human interaction is to give confidence to both employers and staff on pension decisions, not to advise on a definitive course of action. Advice may become necessary but we found there was a primary need for effective information and sign-posting; advice was a secondary need.

Delivery of  independent support

In our conversations with small employers, we have seen a consistent frustration over the past three years with the availability of independent support.

While good workplace pension providers have offered workplace support, employers find it hard to work out what is fact and what is marketing. We shouldn’t forget the OFT’s conclusion from their report in 2014.


There will soon be over one million more employers with workplace pensions than there were only three years ago. But the knowledge of workplace pensions has progressed little further than an understanding that employers have a duty to set one up. Frankly the engagement is at the kindergarten level provided to them as Workie.

WorkieWith contributions increasing from 2 to 5% in April 2018 and from 5-8% 12 months later, demand from workers to know more about Workie will increase. Some of those workers will be the owners and senior managers themselves, they will be driven both by self-interest and by a wish to keep their colleagues happy.

The delivery of the support that employers need is not currently in any business plan I have read. It is not in the terms of reference of the current auto-enrolment review nor is it a service that I see business advisers, IFAs or EBCs gearing up for. In short, I see a market failure looming.

There is one solution that – when put to small businesses – makes immediate sense. Currently the support they get for pensions is provided through the auto-enrolment or pension modules from their payroll and accountancy software providers. Organisations such as Sage, Iris, Moneysoft, Star, QTAC, Bond, BrightPay, Payroo (Able) and MyPaye have stepped up to the plate and helped people to auto-enrolment compliance. They are the trusted support.

It is high-time that credit was given to these organisations and consideration given to providing them with the tools to deliver the four services provided above.

In considering the shortfalls in support to small employers, organisations like http://www.pensionplaypen.com can deliver those tools, effectively, independently and at a mass-market price that will appeal to other stakeholders.

Posted in accountants, auto-enrolment, NEST, now, pensions | Tagged , , , , , | 1 Comment

From Denham to Sier – a 1% world!


You know how sometimes a little fact gets stuck in your head for no apparent reason?

Back in 1998, I was reading an article by the then Pensions Minister John Denham. He stated that if we could reduce the annual management costs of pensions from 2% to 1% we could improve outcomes in retirement by 27%. Maybe he didn’t say “outcomes”, that word is a recent interpolation.

I think he may have pointed out that 27% more in the pension pot was like a 27% pay rise for the rest of your life, or at least a 27% better pension. Anyway this 27% number stuck in my brain and it’s still there. In fact it is the key number when I ask myself why I’m bothering with pension governance.

Actually, we are getting close to a 1% world, stakeholder pensions thought they’d got us there, but we bounced back to 1.5% and – if you counted in all the hidden costs, we may have been buying some stakeholder product at close to 2%pa.

The cap on workplace pensions meant that so long as you stuck with the default, you paid no more than 0.75%  by way of an annual management charge but of course this did not include all the hidden costs within the fund which might still bounce you back above 1%. And of course your boss might be hit with a load of direct and indirect fees meaning the total cost of your pension was a lot higher than what you were paying.

I did not think we would get to a position where we really knew what we were paying for workplace pensions -until yesterday.

Chris Sier

Dr Chris Sier has been appointed by the FCA to chair its working group on disclosure of costs and charges for institutional investors.

If that seems complicated, it isn’t. Chris Sier is a wonderfully uncomplicated former policeman who has a big brain and a moral compass set firmly in the direction of “good”.

He is someone who is motivated by good – he is good – Dr Chris Sier is a good man.

Which means that we will see good things coming out of the working group. We will get good data to work with when analysing the value of workplace pensions, we will get proper numbers on the costs of managing our money and we will be able to make value for money assessments on workplace pensions – at last!

That Chris was asked and accepted this task is a good thing and I am full of hope that at last I will be able to think of 1% pensions as a reality.

For Chris to succeed we are going to have to tear down all the bad things that stand in the way of knowing what we are getting. We are going to have to tear down the Non-Disclosure-Agreements and the anti-benchmarking clauses and all the nonsense that comes from those who say we over-value price comparison.

It takes someone as big and honest and good as Dr Chris Sier to make this happen. Until I heard he had the job, I did not believe it would happen – but I am finally believing that the 1% world that John Denham talked of 20 years ago – is going to happen!

And with it – we will carry on restoring confidence in pensions.


A 1% world with 27% better pensions

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

Why we should be proud to invest our savings in real assets!

'Really? We've only been here thirty minutes? Heck, it seems like an eternity.'

Investment consultants need to take the long-view!


My blog yesterday on USS attracted a lot of attention on social media and some interesting comment.

This from Ros Altmann – a blog in its own right;

Excellent piece Henry.

There is insufficient differentiation in this DB debate between open and closed schemes and of course the exceptional situation with respect to interest rates that currently prevails.

Long-term investment for long-term liabilities is a prudent approach, as long as the investments and risks are properly understood and managed.

The Bank of England’s pension scheme gives an indication of what has happened if schemes invest wholly in gilts – its pension fund fell into deficit and its contributions had to rise from around 25% to over 50% of staff salary.

This is a live ‘case study’ for those who suggest DB schemes should invest only in ‘safe’ or ‘matching’ assets.

Gilts do not match pension liabilities – they are an approximation. There remains a mis-match as they do not move with longevity, lpi or salary inflation and, of course, if starting from a deficit position then just ‘matching’ is not sufficient anyway.

Outperformance of the liabilities is required. Diversifying sources of risk and return, which can expect to outperform ‘low-risk’ bonds is likely to offer better long-term prospects for USS.

You rightly point this out and I do hope this receives plenty of ‘likes’! Well said Henry.

Anyone who follows my tweets knows that we don’t always agree, this was a  welcome point of harmony!

What we are agreeing on is the time horizons of differing types of investors and that there can’t be a one size fits all approach to the way we fund our financial futures.

We can take lessons from history; one lesson is that in the short-term, for instance over the years following the recent financial crisis, bonds can provide a better real return than equities.

gilts v equities 2

But to suggest from this that bonds are better than equities, is to ignore the longer term trend.

gilts v equities

I suspect that what lies behind these tweets from  well respected investment consultants is an unwillingness to engage in pensions much beyond the end of this decade.

gilts v equities 3

I am not going off on a discourse into the rights and wrongs of debt and equity (when Con Keating gets his internet access back, we can expect to hear from him on that).

But I think the statement that bonds are better for all needs to be challenged.

Investing in a company’s debt, like investing in index-linked debt is to me a misnomer. You are not investing, you are providing finance which is not the same thing. That finance is finite, investing in equity is infinite. Universities, Governments and even some private companies are to me infinite- they have no obvious end.

We have chosen to make some of our pension schemes “finite” with strategies that plan to end the pension scheme in a certain number of years. But we have also agreed that some pension schemes will continue on infinitely – the University Superannuation Scheme is such a scheme.

This concept of an infinite scheme should not frighten us, any more than the state pension should frighten us. We cannot assume that the world comes to an end when we do , this is a very myopic approach! We have to assume that the USS will outlive us and hopefully out live our children.

Bonds have a limited duration

The only thing I would add to Ros’ analysis is that bonds, which are effectively IOUs – demand repayment. At some point the bond comes to an end – it is finite.

If you are invested in bonds – as the Bank of England is and as the old Royal Mail pension scheme is, then you provide very high security for a group of people. The Bank of England have feathered the nest of one group of staff, but another group are now having to pay for the 50% of salary going into the pension scheme. That group has to be those left working at the bank.

Precisely the same thing has happened at the Royal Mail which has secured past benefits but is too finding it will have to pay 50%+ to accrue further – using a bond based strategy,

The Bank of England can of course pay pensions and people as it likes, the Royal Mail can’t. The end result of the Royal Mail’s excursion into the “bonds for all” strategy has been the closure of the scheme and industrial unrest. If this is what the investment consultants call “better for all” , I am glad I am not an investment consultant.

I stand by my tweet.gilts v equities 4

You cannot own a loan

People talk about owning a debt portfolio but that is nonsense. Owning bonds is not like owning a share of an organisation, you are not the real owner and you have no voting rights.

If you own equity you have a stake and a say in that enterprise. We need people to take the long-term view of ownership so that companies can invest and become more productive.

If ordinary people are going to understand investment, it is not through the bond markets – leave  that to the bankers (and the investment consultants).

Pension schemes need to invest in some debt (as Ros points out) but this should be balanced by investment in the long-term future of our companies and our economy, only equities allows us to participate in this long-term growth and that is why over the long-term, equity holders get rewarded by a premium of better returns.

If we are ever to restore confidence in our pensions, we must leave behind the short-term shallow thinking that assumes such rot as that because bonds have returned more than equities over 10 years, they are better all round.

You cannot invest in a bond, you cannot own a bond, you can only benefit from a bond. The ownership and investment opportunities lie with real assets; this is where the majority of USS’ investment fund is invested and where most of us have our pension savings.

We should be proud to be investing in our and our world’s future.

Posted in actuaries, infrastucture, investment, pensions, Treasury | Tagged , , , , , , , | 2 Comments

Is the University Superranuation Scheme suffering fantasy deficits?

fantasy deficit

First the big picture

Universities aren’t going away, nor are the people who teach in them, administrate them and provide the infrastructure that keeps them going.

Many of our universities have survived wars, plagues, great fires as well as many stock-market recessions. People have taught and been taught since the renaissance.

Now the little picture

It is being suggested, because of the financial deficit imputed to the USS pension scheme, that the foundations of our university system are under threat.

The latest financial reports from USS have made it to the front page.

Academics would have to contribute more to their retirement or have future pensions diluted, which would be strongly resisted, (John Ralfe) said. Alternatively, student fees would have to be raised, or more money would have to be diverted from teaching, he added.

John leaves us in no doubt

“The danger that USS poses to the future financial health of UK universities is hugely underestimated”

John is an expert in delivering bad news and the bare numbers give him plenty of ammunition. Using the gilt based valuation technology favoured by accountants , the deficit on the scheme has increased by £7bn in the last year to £16.5bn.

What is surprising is the next line  In the year to March 31, USS’s assets rose by 21 per cent to £60bn, but its liabilities increased by 33 per cent to £77.5bn.

What is going on?

The question I (and I hope you) are asking is how a pension scheme’s liabilities can jump 33% in a single year.

Are all those University staff living a third longer?

The answer is “no”, the nature of the liability is the same, same people with longevity increases probably flattening.

What is going on is a fiddling of the numbers about which we have heard very little. Sure interest rates have remained low and with the gilt rates – which drive accounting valuations, but I have seen no explanation why they should have driven a 33% rise in liabilities.

Bill Galvin, the USS CEO blames investment returns

 “All we’re in a position to say now is that it is likely that investment returns will be lower than they were assumed to be in 2014 and that will put up the cost of future contributions.”

I find this equally confusing. Apparently , the in-house investment team under-performed its benchmark over the period by 2% but still returned 21% growth on assets.

What kind or investment return was USS looking for? Presumably a return that could exceed the 33% increase in liabilities? In a low-inflation, low-growth environment this looks like a Herculean task?

To the ordinary reader, none of this stacks up. To assume this is leading to teachers being laid off and students paying higher fees is a big jump. People deserve a better explanation.

A better explanation.

Let’s look into the report and accounts and see what’s going on. Here is how the money in the Scheme is invested.USS1

You can see that the majority of the assets are directly managed with only around 20% invested in pooled funds. this should be good news if you have an eye for costs, but these numbers don’t give you the real reason for that 21% return. The reason for that was that the fund was invested 45% in equities, 34% in alternatives and only 15% in bonds (2015 figures).

Ironically, the under-performance was stated to be because the fund was under “invested” in index-linked gilts. I put invested in inverted commas – these gilts aren’t really an asset and their stellar performance last year is down to technical issues such as supply and demand the impact of ongoing quantitative easing.

The point to be made about the scheme, is that it appears appropriately invested for the future, a future where universities will continue to operate, teach and research. Back in 2006, when the fund was much more heavily invested in equities, John Ralfe predicted disaster. Here is what has happened (I exclude the latest returns already discussed)

2006 15.8%
2007 5.5%
2008 -37.0%
2009 26.5%
2010 15.1%
2011 2.1%
2012 16.0%
2013 32.4%
2014 13.7%
2015 1.4%
2016 11.9%

Equities have had one awful year (2008) and a number of good years. The overall impact of being invested in equities over this time will be to keep the fund invested in real assets that profit from real growth in global productivity.

We are currently working on scenarios which John would be happier with. What would have happened if USS had been more heavily invested in bonds in 2006 and what if we valued the fund relative to the actual assets it held, rather than how those assets would behave if they were gilts.

Talking of which…

Here is what has happened to the liabilities


From this, you can see that the contributions made to the scheme more or less cancelled out the accrual of new benefits (disappointing as some of those contributions were supposed to be reducing the imputed deficit.

You can also see that by far the biggest factor in the increase in the deficit was the “effect of market conditions on liabilities. This is getting to the nub of the 33% increase in liabilities. I am a simple man, nearly £8bn increase seems more than technical! What is going on?


FABI explains a lot!

FABI July 17

What First Actuarial’s FAB index does is explain that while all this “technical” stuff is going on, the real state of schemes improved from 2006 to 2017 because assets grew faster than liabilities (when you stop being technical about it).

In the real world, the USS did not increase its liabilities by 33% last year but it did increase its asset base by 21%.

The USS, unlike a lot of corporately sponsored schemes is not on a road to buy out, its members will still be teaching in 2117 and the scheme should still be operating indefinitely! We do not stop universities because of technical issues with pension scheme valuations.

The long-term future of the fund is bright so long as it takes a long-term view. The one thing that might stop that long-term view is the kind of panic measures being advocated by John Ralfe and others. We do not need to sack teachers, or increase fees – we need to see the deficit as what it is – “technical”.

This cry of pain from John Ralfe and the pedlars of gloom is crying wolf!



Here is something else.

Before I exonerate the management of USS, you might like to read this table. There haven’t been many pay-rises in the universities in the past decade, these figures make for uncomfortable reading.

The USS need to be better about messaging and explain just why the highly paid individuals working for it – are seeing such big wage-hikes.


Posted in accountants, actuaries, advice gap, pensions, Public sector pensions | Tagged , , , , | 14 Comments

Planning for a noble and quick death?


The wealth management perspective


The FT has been doing some research about what motivates people to swap a pension for drawdown. The sample may not have been big but they’re drawing a strange conclusion.


The superiority of the death benefits within drawdown are primarily to do with their fiscal treatment – the amount of tax payable.

Jo is concerned that fiscal advantage today may not last


The example given is the former steel worker about whom I have written a recent blog.


Jo makes her feelings known in that final comment “Didn’t think…”. A similar point is made by our friend Christopher Lean – writing as an IFA


Two separate issues but one general argument

There are two issues that Jo and Christopher are pointing to.

  1. Whatever the short-term fiscal advantages of drawdown, these are subject to change and cannot be relied on.
  2. The fundamental issue – of insurance against living too long, is addressed by a pension but is not addressed by drawdown.

But the demand for a cash settlement at death (inheritance) rather than a continuing income for a surviving spouse or partner is a key driver in people take money out of pensions. The IFAs know this and advise to the prejudice. I am not condemning IFAs giving people what they want, but I question whether what people want is going to happen.

People want a noble death but often get a slow decline

In her research into attitudes to ageing, Dr Debora Price has found that people are reluctant to think about themselves as dependent in old age. Cogitative impairment (going ga-ga) and physical decline (including the embarrassment of incontinence) are not the kind of things we want to read about, think about or plan for.

Yet these things will be realities for many people and unless there is a plan B, for the possibility that death will not take us nobly and cleanly, the chances are we’ll be ill-prepared.

Here is a photo of two friends of mine, the parents of a college friend, Audrey and JackJOC8

One of these two is much frailer than the other, but because of the support of their daughter, their love for one another and the financial security of  proper pensions, they can travel in a style they could not have dreamed of when children.

Like my friend, I have elderly parents who are declining physically and mentally and like my friend I am incredibly proud and happy when I see them happy. I know that many older people are not happy much, I visit many care homes and have sat in dementia wards.

Beyond these homes and wards are those who sit alone at home with little support and little means to get out and about. There’s is not a noble life.

Like most people still in the middle of life, I am tempted to think of old age in terms of euthanasia; to do what my Grandma did, go happily to bed one night and not wake up.

But for most of us – when we get to later life, the will to survive and fight death will kick in.

What worries me is that we are creating a generation of people retiring now who will have no plans to live long and an exit strategy that says “die young and nobly”.

The financial conflicts comes when someone with a diminishing drawdown pot wishes to spend but is guilty of reducing the inheritance.

Or worse, when the savings put aside run out and it is the house and not the pension that pays for care.

Worse still, when the partner who had the pension and cashed it in, has nothing left to leave the spouse when he dies – no cash – no residual pension.

Does anyone talk about this when “financial planning”?

It is a very tough thing to talk about incontinence and dementia to a 57 year old former steel-worker. It is tough to talk about the consequences of living too long. My colleague Mark is in his late forties and has a gran who is 99, she is in receipt of her husband’s steel-workers pension and very happy to be.

I wonder if this happy scenario will play out with the 57 year old ex-steelworker Jo Cumbo interviewed.

I suspect that there was an element of out of sight – out of mind, about the consequences of not dying nobly. But when there is an elephant in the room, that elephant often creates consequences and not usually good ones.

When occupational pensions were designed, they were not designed to give people inheritable wealth, they were designed as a social insurance against the consequences of living too long. This message has been lost. We now believe that a pension pot of £250,000 makes us wealthy- able to retire- it doesn’t.Joc10.PNG

We need a more realistic approach to later life planning, one that does not pander to our natural aversion to thinking of physical and cogitative decline, of what it’s like to live in an incapacitated state and what part insurance plays in managing the financial risks.

While Jo was concentrating on the fiscal risks of tax-rules changing, she was also touching on the issues raised in this blog, and by Christopher Lean and by Debora Price. I join my name to that list.

The future is not all about yomping on coastal cliffs , leisurely cruises and even lovely days out on the train.

Our futures may and probably will involve an adaption to decreased mobility, mental agility and financial security. We can’t do much about one and two, but we can plan for financial security and I don’t think this current rush to cashing out pensions, is the way to do it.

Posted in Facebook, First Actuarial, pensions, twitter | Tagged , , , , , , | 3 Comments

Why should frustration blight the pension promise?

I have been following a series of tweets from Jo Cumbo; they concern an interview with a man who has recently “encashed” his pension with the cash being invested in a drawdown product. He is 57, has worked for British Steel and he is confused.


So why was this ex steel-worker wanting out of his final salary pension?


There is no sense of how he feels towards his former employer but it’s clear he had little regard for the pension he had given up.

Infact – it turns out that the decision he has taken has worked out well so far and his money has doubled (he is on the “right side”)

bsps jo c3

Here is someone who has lost his livelihood and is looking for certainty. Ironically he has swapped the certainty of his defined benefit for an investment about which he knows nothing. Had this man been invested through the financial crisis , who knows what his predicament might be now. The only certainty would be trauma.

The only certainty from “stressed” markets  is trauma

This is great campaigning journalism  by our leading pension journalist. The series of tweets asked me to consider what my reaction might be were I in this man’s hoes.

That he had built a six figure sum and subsequently doubled his money suggests he had worked for much of his life in steel. That he had taken financial advice and made a decision based on what was right for his wife and children suggests a responsible man. That he knew nothing about where the money went but had trusted his advisor suggests a respect for the advisor and his profession. I think it fair to conclude that Jo was speaking to a very decent man.

There is nothing in Jo’s account to suppose that his planned inheritance will happen soon, he is living on his tax-free cash and – at 57- has his taxed savings intact. If markets continue to do well he may draw down less than the growth on his fund, he may well be able to provide himself with a replacement wage for life and even leave money for his family when he dies.

But there are a lot of “ifs ” here and his trust is in a mechanism he knows nothing about, he is flying by wire and in a passenger seat.

There are 130,000 people in the British Steel Pension Scheme, most of them are pensioners but well over 40,000 are still to draw their pensions and could well take the option this man took.

The British Steel Pension Scheme is commonly thought of as one – if not the – best run pension scheme in the private sector. Last year it returned 19.1% on its investments and though it runs a small deficit it has some of the lowest per capita operating costs of any funded pension scheme in the land.

As is well known, the Scheme will close soon and its deferred members can choose to migrate to a new British Steel Scheme, transfer away to a personal pension scheme- or- if they do nothing – have their benefits paid by the pension protection fund.

What we can be sure of, is that these choices are not easy, as I have written on this blog before, there are occasions when the PPF may represent the best option though many will choose to keep their money managed by the trustees and their investment team.

I am happy to report that these members are getting the care and consideration they deserve and that both the Scheme and its sponsor are acting in a responsible way to make sure that where decisions are taken , they are taken with blind faith but with deliberation.

The new scheme has secured a considerable cash injection and a stake in the continuing business run by Tata, this is a tremendous improvement on the original position faced by those in the scheme.  in particular the pensioners have very much to gain from continued participation in a private rather than a PPF paid pension.

For a very large number of the 130,000 British Steel Pension Scheme members, there is considerable certainty about their pension rights.

Our job’s to restore confidence in pensions

It is incumbent, not just on our journalists, but on all those who know about pensions, to point to the security offered by occupational pension schemes as a source of comfort to those whose jobs and pensions have been “at risk”.

This message is  too little heard ; it is the still small voice of calm in the hubbub of “pension freedoms”.

I totally “get” how the gentleman Jo spoke to came to his decision. He did so because he had lost all emotional attachment to his pension scheme having lost his future with British Steel. This man voted with his feet – whether out of frustration and anger, out of fear, or out of trust for his advisor. He certainly did not understand the decision cerebrally.

Our job, and I mean by “our” everyone who can subscribe to my wish to “restore confidence in pensions, is to promote the certainty of a well run pension scheme over the “hit and miss” situation this gentleman now finds himself.

That is not to say that transfers do not have a place, but there is no place for the confusion described so well by Jo. People either need to know what they are doing when managing for themselves of have confidence in those who manage money for them.

This gentleman seems neither to have confidence in what he has or what is lost. I suspect in both cases he should be reassured.



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

“NOW and then” ; why one big master trust is “off the list”!


News that one of the “big three master trusts ” was closing a significant door to new business, came as a surprise to auto-enrolment practitioners. NOW claimed to have voluntarily withdrawn itself from the Pension Regulator’s master trust assurance list, meaning it could no longer market itself to employers choosing a workplace pension through tPR’s website. The Pensions Regulator left us in no doubt that NOW jumped before it was pushed.

Nicola Parish, TPR’s Executive Director of Frontline Regulation, said:

“Those in the master trust marketplace should be in no doubt that we will act if we become concerned about the way schemes are being run, no matter the size of the scheme involved.

“Schemes have a responsibility to meet specific criteria required to remain on the master trust assurance list. If a scheme fails to meet the criteria, we will consider removing it from the list.”

Let’s first establish this does not mean that NOW pensions are a sitting duck for other providers and advisers to blow out of the water. Where NOW pensions is operating properly, there is no cause for concern, many employers report a strong relationship with NOW and have no complaints about it.

NOW is not going to resign its status as an occupational master trust and intends to soldier on till it has put its house together. We will continue to promote NOW so long as we are clear that the intent is real. Do not expect to see me change my back-pack.

NOW are clear about what has happened

Largely as a result of NOW: Pensions’ change of third party administrator, it has experienced some delays processing contributions for a small percentage of clients.

NOW: Pensions has kept The Pensions Regulator fully updated regarding these historic issues and accept that getting these schemes up to date has taken longer than it should due to the complexity of some of the cases, the poor quality data that was sometimes involved and the systems used

Morten Nilsson, NOW’s CEO told the market yesterday

“We feel that while we work to resolve these historic issues and ensure that every scheme is up to date, it’s appropriate to withdraw from the list. We are confident that this work will be completed shortly. Providing our clients and members the best possible service remains our top priority.”

and he accepted that the blame should be shared by NOW itself.

“We should have been more proactive in our communications with affected clients and members regarding these issues and apologise wholeheartedly to those we have let down. In this instance, we have fallen short of the standard of service we aim to provide.”

Our verdict

The Pension PlayPen has since 2013 promoted NOW pensions as a force for good. We like its aims , its management and its governance and we have downgraded its operational capacity with regret.

In our view, NOW has suffered from not having a proprietary administrative platform and from a lack of support from the third party administrators it has chosen to work with. In particular, the decision to move from Equiniti to JLT in the middle of the auto-enrolment staging process now looks a bad one. We were not happy with this decision at the time and I made our view clear to Morton himself.

The problem has been compounded by NOW’s failure to build out to payroll in a consistent way. It has employed a number of systems to collect premiums, some internal some from third party providers. The third party “middleware” providers have not proved as robust as was needed.

The best word to describe the systems architecture on which NOW relies as “messy”.

If this describes the problem – what is the solution?

I have put in bold , one phrase of NOW’s press release which I would challenge. NOW does not have “historic issues” in any meaningful sense, it opened its doors to coincide with the start of auto-enrolment back in 2012, five years is not – in pensions terms- sufficient to justify “historical”.

When you start with a clean slate, you would expect that slate to be clean five years later, but within a couple of years of opening its doors, NOW discovered it had the wrong administrative partner. It seems to have consistently listened to “expert views” on how the problem could be managed out using external partners and the Trustees have let the situation detoriate to a point where it has been forced to close its doors.

The sad truth is that the Trustee board, NOW management and its external service providers have lived in the past and not built for the future. The structures put in place to administer NOW pensions are in conventional terms the right structures, but auto-enrolment demanded more than a rehearsal of what had come before. NOW have only realised this recently.

The solution now is to take back control of its data and this will require recourse to NOW’s parent, the largely state owned Danish pension provider ATP. The Trustees need to be making it clear that NOW has the support of its Danish parent and if it cannot do this, it should be speaking to its members with its concerns.

NOW has over the past two years, been building a large internal operation out of its office in Nottingham and its own auto enrolment site to upload payroll files called the NOW: Pensions Gateway. The feedback from employers using this new service is better but it has not been able to put right the problems of the past.

The cost of restitution of DC problems such as NOW has will be extremely high; we call on NOW’s Trustees to confirm they have confidence that this cost will be met and to be transparent with members, participating employers and their advisers about how this will be done and when.

Apologies are not enough

The plans that NOW are putting in place to restore members to the position they should have been in, prior to the wholesale breakdown of the contribution process before , during and following the transition between administrators, need to be open to scrutiny, not just by the Pensions Regulator, but by all the stakeholders participating in the master-trust.

These plans need to be backed up by a cost analysis and a commitment from the Danish parent that where these costs cannot be met from UK revenues, they will be met from ATP’s reserves.

If such a plan isn’t forthcoming, the public has a reasonable expectation that NOW;pensions be put up for sale and if necessary be required to merge with another occupational master-trust with the capacity and commercial will to take on its problems.

Thankfully, as a longstop, we now have the provisions of the Pension Schemes Act 2017. These should ensure that if NOW cannot sort itself out, force majeure can be applied by Government to put members right. The Bill was enacted as one of the last acts of the last Government and a good thing too.

What of the Master Trust Assurance Framework?

This statement from Nilsson should cause considerable embarrassment to the ICAEW and tPR- joint authors of the MAF.

“NOW: Pensions has always been a huge supporter of the master trust assurance framework and was one of the first providers to adopt it. We’ve since completed the framework three times and remain committed to it.

Despite NOW’s early adoption and maintenance of its MAF status, it has seemingly lost control of a good part of its administration. One wonders what the MAF actually does to protect members from poor controls and administrative malpractice.

This is a question not for NOW, who must get on with putting its house in order, but for the Pensions Regulator which uses MAF as its primary means to promote good quality pensions. As we have said many times at Pension PlayPen, obtaining the MAF is not a sufficient achievement to warrant the promotion that the Pensions Regulator has given to the 23 schemes that hold it.

The Pensions Regulator needs to look at its own choose a pension pages and establish what responsibility it has for NOW’s current failings.

now 2018

Thanks Damian Stancombe and Barnett Waddingham

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

What can men do to reduce gender pay inequality?


For a start they can stop “welcoming this discussion” and blathering other related clichés!

If men welcomed a serious discussion on gender pay equality, we’d have been having them regularly since equal pay for both gender (for the same job) became compulsory in 1975.

Very few people in work today were working in 1975, that means that most men have worked their entire lifetimes with pay structures and work culture biased towards them. We men have done very little about this as we make the rules of the game and re-assert those rules every time decisions on hire and reward occur.

If we are honest, us men don’t welcome this discussion at all. It is not something we earnestly consider on the golf course or on the terraces or at the pub or whatever male preserve we retire to. We are quite comfortable with the status quo and we don’t welcome the prospect that our employer may “un-turn some stones” in April 2018 at all.

In case you are not aware, April 2018 is the deadline for employers with over 250 staff to produce reports on pay equality within the organisation. The reports won’t go as far as the BBC report which reveals individual pay – instead it will report on each quartile of the workforce. There are loopholes for reward directors to consult and I understand that smart reporting is already on the agenda of smart reward consulting. That said – it looks like most employers will to some extent do a BBC. The aggregate data is going to be collected by Government and some sense made of it.

This is the first step in a process where evidence not hearsay drives change. If people don’t think that transparency matters then they should look at financial services and the changes that occurring as we get to learn what we pay to have our financial affairs managed.

The second step will be interesting. Will transparency in itself bring change or will we have change thrust upon us.

The answer to that question is , in my opinion, in the title of this blog. This is an issue not just for women but for men and it needs men to consider what they can do to ensure women are properly paid.

In all I read and listen to, the problem seems to get broken down (by women) into two compartments.

There are structural problems within organisations that mean that pay is biased towards men. Some of these biases are biological, it is women who bear most of the trauma of childbirth and who naturally are suited to nurturing very young children.women 2 It is entirely reasonable for women to take time off to have children but (and I hear this a lot from childless women) it is not reasonable that they get financially rewarded for having a family in the workplace.

The non-biological reasons for male biased pay structures are less easy to discuss. Whether it be the agent system at the BBC, or collective bargaining through unions or the lobbying that goes on in some organisations to secure pay rises, the system of reward seems still biased in men’s favour. Perhaps this is changing as we slowly see more women on Remuneration Committees , in senior HR positions and on executive boards, but it is a slow process and not enough has been done to change corporate structures in the past 42 years.

It is hard for men to discuss this for cultural reasons. Stroppy men are seen as driven and focussed, stroppy women still too often labelled “immature or menopausal”. The capacity for women to assert their point of view in the workplace is limited. Even in the Pension PlayPen lunches we run every month, it is hard to get women to turn up and assert their points of view. I chair these lunches and am wondering whether it would be better to offer the chair as a matter of course to any woman who makes it to the meeting.

I think the word “offer” or “ask” appropriate. Too often we “senior” men assume responsibilities and assert our points of view with no regard for the points of view of others “in the room”. I mean “in the room” both literally and metaphorically. I don’t sense that we often consider matters from any viewpoint than our own, because culturally that is the well-established “normal”.

What can men do?

To break down both the structural and cultural barriers that exist, we need transparency in gender pay data, we need women to have more of a voice and we need to have men aware that they should be offering women the right to assert their position in the workplace.

Even with all this, there is no certainty that the pace of change towards pay equality will improve, but I think there is every chance that we are at a tipping point where the new normal will be to assume change is needed.

Men are going to have to take this on board and take a step backwards. It seems to me that this is going to be as hard for them as it will be for women to take a step forward. However, the initiative to publish gender pay equality statistics within organisations which has already begun and which will gather pace over the next nine months, is going to catalyse change.

Men need to be aware of this and accept that it heralds a real change which will be most unwelcome in the short term. We have much to lose by way of power and  pay, we have little to gain – in the short-term . But in the the long-term, I believe that re-basing the reward structures within our workplaces to comply with the 1975 act is more than a legal necessity, it is an economic necessity. We under-employ women in our society and pay is only part of it.

The sooner we can harness the power of women to lead, the more productive and happier our workforces will become!

women 3


Posted in economics, leadership, pension playpen, pensions | Tagged , , , , , , | 5 Comments

Clarification needed on CETV volumes.


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

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

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

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

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

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

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

I suspect it will show the following

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

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

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

Is there a problem?

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

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

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

What happens to the money?

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

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

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

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

Is this thought through?

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

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

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

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

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

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



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Is the mood music on DB transfers changing?

mood music.png

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

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

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

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

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

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

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

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

If only I could be that eloquent!

The Tide turns

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

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

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

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

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

Why the mood music is changing

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

mood music 2

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Austerity keeps life “nasty, brutish and short”.



leviathan 2


An actuary friend of mine writes to me

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

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

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

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

Perhaps people who model are reluctant to change rather than prudent


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

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

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

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

Austerity up – longevity down.

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

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

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

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

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

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

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

lta tax

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

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

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

Nasty, brutish and short

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

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

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

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

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

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How do you annoy a wealth manager?

Question; how do you annoy a wealth manager?

Answer; ask him about his fund supermarket.

fund supermarket


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

FCA platform model 2

“Paying less in fees than using a professional adviser”

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


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

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

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

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

fund supermarket 2



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Who wins from platforms?



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

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


The “significant benefits of platforms to consumers”

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

FCA platform model 2

Platforum Consumer Insights, Figure 42 (January 2017)


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

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

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

Why and how people buy platforms.

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

FCA platform 4

age bands of platform users (platforum)


They are income rich

FCA platform 7

household income of platform users (platforum)


And wealthy

FCA platform 8

Net disposable capital of platform users (platforum)


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

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

FCA platform model 3

why people chose platforms (platforum)


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

FCA platform 9

non advised assets on platforms (£bn)

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

FCA platform 10

Advised assets on platforms (£bn)


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

Who wins from platforms?

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

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

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

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

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

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

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Postmen want to strike – is it any wonder?

postman sad

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

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

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

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

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

Are you watching FCA?

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

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

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

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

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

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

Postmen are fed up – we all are

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

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

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


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Innovative pensions for the mass of us!

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


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

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

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

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

In the full report, the FCA point out that

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

The FCA issue a threat to the private market

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

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

The relevance of collective solutions

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

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

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

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

Is the NEST Blue-Print fit for purpose?

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

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

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

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

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

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

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

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

What’s stopping NEST from joining in?

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

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

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

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

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

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

Can people stand any degree of uncertainty?

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

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

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

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

Next steps

I nearly typed “NEST steps”,

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

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

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

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

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

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

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

Posted in advice gap, auto-enrolment, DWP, pensions | Tagged , , , , , , , | 4 Comments

This market failure’s not about advice but product.

target pensions

Target Pensions – we need them now


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

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

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

What about the £50bn flow from DB Schemes?

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

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

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

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

But here’s the problem

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

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

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

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

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

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

Should advisers be accountable for the outcomes of their advice?

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

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

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

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

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

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

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

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

The problem is not with the advice but with the product

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

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

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

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

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

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

We are failing to provide people with this product.

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

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

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

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

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

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

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

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

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

target pensions

We need a better pension product now

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

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


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

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

Where does this distrust in pensions come from?

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

The line of least resistance?


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

Free money?


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

Is anyone surprised that the open annuity market is screwed?


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


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

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

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

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

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

The FCA are stating the blindingly obvious.

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

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

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

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

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

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


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What passing bells for those who work as cattle?


The Carousel

Weep for the deprived gig-journalist!

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

Flexibility or choice?

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

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

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

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

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

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

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

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

All aboard the carousel?

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

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

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

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

The flexibility is always with the employer

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

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

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

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

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

What passing bells for those who work as cattle?

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

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

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

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

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

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

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

The positives of the report

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

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

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


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

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

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

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

carousel 2

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The Care-taker

care taker

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

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

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

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

“Taking care” begins at home.

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

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

If it takes a tragedy to improve things…

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

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

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

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

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

The buck stops with the care-taker.

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

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

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

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

My three thoughts on a Monday morning in July!

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



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


Stand and the door and knock!


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

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

Funeral plans.jpg

Thanks to BBC and Fairer Finance


So why are funeral plans so popular?

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

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

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

Harsh lessons for us all

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

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

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

Easy-sell products have short-shelf lives

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

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

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

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

LDI – an institutional funeral plan?

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

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

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

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

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

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

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

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

nest insight.gif

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

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

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

Here’s what “feed and skim” is about.

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

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

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

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

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

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

Tapper got confused!

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

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

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

Tax and all that

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

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

What makes it attractive?

There seem two advantages.

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

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

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

The slides are here; 

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

What next?

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

Which is all very well till you find out that

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

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

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

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

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

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

Any other arguments that you can think of prior to 2.30pm this afternoon should be inserted in the “comments” box below this blog or mailed to henry.h.tapper@gmail.com.

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



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The Department of Workplace Procrastination?

david gauke


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

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

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


And what of our new Pension Minister?

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


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


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

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

A spokesman from the DWP told Jo Cumbo.

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

That is not good,

Women at the gates – women to the rescue!

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

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

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

Awkward for Gauke

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

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

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

What hard decisions are left with the DWP?

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

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

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

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

The proof of the pudding

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

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

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

This is thin gruel at best.

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

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

millenials are top savers

A happy millennial

The odds are stacked against our kids.

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

Add to this

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

Why Save?

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

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

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

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

Let’s not lose sight of that.

The answer is not “better products”

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

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

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

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

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

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

The young do not opt-out

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

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

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

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

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

Bad news is better than no news!

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

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

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

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

Fiduciaries must emphasise the positive

We must point out the key savings messages

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

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

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

millenials are top savers

Millennials want to know what’s going on.


But not shy away from reality.

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

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

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

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

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

Tell it like it is.

millenials are top savers

Financial self-esteem

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

The value to me of “set and hold”!

ready set hold 2

Michelle McGrade – Kiwi Mum and CIO


The FT is masterful with understatement.

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

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

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

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

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

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

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

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

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

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

Running your investments like your business

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

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

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

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

Value for money?

The FT concludes at the end of its article that

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

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

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

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

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

These costs  really are frightening. How are they justified?

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

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

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

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

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

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

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

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

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

Ready set hold

it gives you time to read those books!



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

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

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

Posted in actuaries, advice gap, pensions, pot, Treasury | Tagged , , , , , , | 2 Comments

A make or break week for UK investors

make or break

I’ll be listening in on 28th June!

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

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

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

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

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

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


2. Fund managers accused of price-rigging;

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


3.Value for money for retail investors;

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

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

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


4. Fund governance crackdown

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

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

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


5. Performance  reporting

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

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


6. Are the investment consultants doing their job right?

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

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

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

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

Two sides for every story?

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

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

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

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


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








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Restoring victim’s confidence in pensions

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

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

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

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

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

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

Help of the helpless

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

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

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

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

scamproof scorpion

In freedom’s name

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

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

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

Who stands for pensions?

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

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

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

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

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

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

We are all fiduciaries

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

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

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

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

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

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



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CETVs; the flight from quality


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

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

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

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

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

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

An undercover operation

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

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

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

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

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

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



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

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

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

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

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

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

No victimless crime – a cancer within.

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

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

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

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

Calling time on this nonsense

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

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

ros abused

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

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

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

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

@theFCA- #transfers-NOT GOOD ENOUGH


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

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

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

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

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

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

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

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

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

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

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

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



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

Ros Altmann, the scammers new best friend!

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

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


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

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

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

ros abused.PNG

Careless talk…


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

Where are you when you’re needed Ros?

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

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

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

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

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

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

When doing nothing pays

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

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

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

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

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

Another opportunity missed.

Posted in pensions | 3 Comments

A single guidance service


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

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


Charles Counsell


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

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

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

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

How will it be used?

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

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

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

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

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

Guidance and Advice

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

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

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

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

Making progress?

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

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

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

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

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

Progress through leadership

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

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

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

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

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

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

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

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

Time for IFAs and those delivering guidance to work together.

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

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

Don’t get strung up on pension ministers!


Guy Opperman – our new Pension Minister?

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

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

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

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

Guy Opperman

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

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

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

Humbled in Iceland

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

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

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


caroline Dineage

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


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

You want (pension) engagement? Ask Corbyn!

Corbyn result

That didn’t happen by accident



How do you get youngsters interested in politics?

How do you get youngsters interested in pensions?

One and the same question IMO.

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

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

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

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

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

Where do you learn how they did it?

Go to you tube.

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

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

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

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

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

while this short clip gets over half a million views

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

Is this a social or a commercial issue?

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

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

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


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

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

Change or die

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

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

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

Our brand new stand.PNG

Further research?







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If you see bad advice – say something!

whistle blowing



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

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

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

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

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

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

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

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

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

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

Saying it like it is

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

(D) electable ironies

bucket head

Mr Bucket Head’s 15 seconds of fame


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

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

fish finger

Mr Fish Finger lurks behind Tim Farron


Photos courtesy of Chris Chivers.

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

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

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

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

May in pocket

Commissioned by G Osborne

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Immortal but not immutable – the never ending Tory.

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

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

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

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

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


Foot note

– more positively – read this!  http://www.itv.com/news/2017-06-07/real-politics-is-back-out-with-the-bland-easy-choices/

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This blogger’s a reluctant Tory


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

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

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

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

A reluctant conservative

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

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

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

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

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

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

We need another election like a hole in the head.

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

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

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

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

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

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

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

Essential reading

Quietroom’ s analysis of the election manifestos; not an analysis of the policy, but of how ideas are conveyed  https://quietroom.co.uk/general/manifesto-gets-vote/

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

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

Tata pensions

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

W. B. Yeats

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

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

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

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

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

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

Management showing proper restraint

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

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

Schemes that are properly managed and governed

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

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

Restraint needed from advisers

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

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

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

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

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

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

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

Restrained cautioned by employee representatives

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

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

Tata workers

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

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

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

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

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

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



Further reading

The FT article Tata Workers cash in Final Salary Plans can be found here; https://www.ft.com/content/78cfbc0c-46c9-11e7-8519-9f94ee97d996

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

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

W. B. Yeats

Tata Scunthorpe









Posted in pensions | 2 Comments

The time is right for pension price disclosure.

price 1

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

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

Here is my disclosure

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

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

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

I am my IGC

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

They have not one but two questions to ask

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

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

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

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

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

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

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


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

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

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

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

This simply isn’t good enough

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

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

price 3

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

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

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

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

price 5

What is needed

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

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

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

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

price 2

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Extreme investment caution’s killing off final salary schemes – Boulding.


Adrian Boulding


Extreme investment caution is killing off final salary pensions, believes Adrian Boulding – and, within that, there is a stark message too for the defined contribution saver.

Adrian is a long time friend of this blog and I’m pleased he’s happy for this fine piece to be published here (thanks to Dunstan Thomas and Retirement Planner too)

The strange and bizarre world of final salary pensions continues to throw up surprises. Open a newspaper at the City pages and you would think the schemes were in real trouble.

Talk of deficits abound. The government has consulted on a Green Paper that asked questions about the affordability of pension promises already made, while defined benefit (DB) workplace scheme closures continue to grab headlines. Just recently, while reporting their half-year company results, another great British engineering company, GKN, announced its final salary scheme was closing to future accrual.

Yet turn to the personal finance pages in the very same paper and you can find quite a different story. People are being offered very high transfer values to give up their DB pensions. It is regular to hear of transfer quotes of 40 times the pension being foregone, and recently I was shown one of 45 times.

Now, clients actually getting their hands on all that lovely lucre may currently be difficult – but the paralysis in the transfer market is caused by regulatory fear and that is a topic for a different column.

For now, let’s keep our eyes firmly focused on the final salary schemes and ask whether quantitative easing, or QE for short, really is the cause of the problem. Many will argue it is, and point to the very low returns available on gilts today. And it is certainly true these rates are lower than was foreseen when companies set up their final salary pensions a generation ago.

Around 30 years has passed since a formative day in my own actuarial training, when I asked questions about how the insurer that employed me was pricing its guaranteed annuity options and was told by a most eminent actuary: “Adrian, gilts will never go below 5%.” Today a 15-year fixed interest gilt offers 1.75% a year and the index-linked version a real return of 1.5% a year below inflation.

The mathematics is clear – if the pension has increases that are inflation-linked, or fixed increases of 2% or more, both of which are fairly common for DB, then gilts just do not keep up with the payments! Hence the reason surprised members are being offered a transfer value that is rather greater than their first year’s pension multiplied by their life expectancy.

And this is why so little of my own SIPP is invested in gilts. Or in a bank or building society account where, according to the Bank of England, most providers pay less than 1% and the average is just 0.15% a year. There are so many more exciting investment opportunities out there – as a quick glance at any financial magazine or website will show you – and yet final salary trustees, having taken professional investment advice, so often plump for the low-return options.

Again, we have to be careful not to confuse surface noise with the root cause. It is easy to attribute these ‘safe’ investments to the natural caution of trustees; or to The Pensions Regulator’s guidance the employer covenant needs to be carefully considered before trustees take any investment risks; or even accounting standards that encourage employers to seek liability-driven investment approaches to minimise year-on-year ‘shocks’ to the company balance sheet.

No longer friends

I have come to the conclusion the real cause is the pension fund is no longer part of the business – or even a friend of the business. It has become a rival, seeking to suck up as much resource as possible to bolster the security of the members’ pensions.

Three decades ago, when I gave actuarial advice to a portfolio of schemes, it was common to find the chief executive and finance director sat on the Trustee Board. They often viewed the pension scheme as an arm of the business, and we would discuss pace of funding alongside the firm’s other development priorities and cashflows.

To see how stark the difference has become, let’s look again at those GKN half-year results. The company is achieving a 15.8% annual return on capital employed, which is slightly down on last year’s figure of 16.6% a year.

Those sorts of returns are not particular to GKN – they are commonplace among FTSE 100 companies. No wonder shareholders are fed up with paying into final salary schemes then, when they see the funds invested by trustees earning so much less. Especially as the poor employer has been forced to take out and pay for an insurance policy too in the form of levies to the Pension Protection Fund that will pay benefits in the event of the employer’s insolvency.

There is a stark message in here for the defined contribution saver too. If you are too cautious in your investments, then achieving the sort of lifestyle you aspire to in retirement may well prove unaffordable.

Adrian Boulding is director of retirement strategy at Dunstan Thomas

This article first appeared in Retirement Planner Magazine

For an opposite view – try this – the latest blog from Redington

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“Time spent frail in old age doubles”

frail 3

Our last years may not be easy


A Newcastle University study, suggests that elderly people are getting frail for longer as they reach the final years of their life. According to the Seed project men spent 2.4 years on average needing regular care and women three years.  This includes everything from help with washing and dressing each day to round-the-clock care.


Dying is the easy bit.

As I’ve noted before on this blog, we find the concept of death and its consequences manageable. We can talk about it easily and we plan for it financially through life insurance, funeral plans and inheritance tax schemes.

But neither individually or collectively, are we getting our heads round the planning we need to meet the costs of this likely frailty. The study, which you can read here, draws on data from two major UK research projects in 1991 and 2011 and looks at more recent data that suggests that capacity to deal with the physically and mentally frail has recently fallen in absolute terms.

frail 2

publishes this research


Meanwhile demand for help is rapidly increasing so that by 2025 there will be another 350,000 people with high care needs.

Clearly this means we will need more residential care homes, better ways to look after the frail in their own homes and a great deal of money to fund the strain not just on social and residential care, but the NHS.

This is the secret side of growing old and the one that they don’t talk about in the retirement planning brochures. This is as far away from Saga holidays as you can get, but the fear of not being provided for is a big elephant clunking around at the back of older people’s head.

Dying is the easy bit, it’s the getting there we worry most about.

Financial solutions

The last Government , to its credit, tried to confront us with the unpalatable truth about the cost of meeting this challenge. For political reasons the Government backed down from its manifesto pledge to ask those at the point of need, to accept the majority of the financial burden. This was politically unacceptable as it seems there was an imputed mortgage on the elderly’s property by a younger generation who considered this a first charge.

But if we are to regard ourselves as having rights of inheritance , we must also accept we have liabilities to do with dependence. The independence of those who become too frail to look after themselves is lost. Who assumes the role of carer? Assuming we are not so callous as to abandon our elderly, there must be an alignment between those who stand to gain from inheritance and those who bear the pain of dependence. In short, I believe that people of my generation (I am 55) have a direct obligation to help those who are losing their independence (my parents may be a case in point).

This financial obligation extends beyond money, it is very much a demand on time. It is one thing to assume the problem can be outsourced through financial payments to care homes or the employment of home carers; but it is another to wash your hands of the very real need for care and attention that elderly people have for those who they have nurtured.

I struggle with these issues as they impact not just on my finances but on my lifestyle; I think very little is made of these important issues when we make our financial plans.

If we continue individually and collectively to duck the issues, we will find ourselves – like ostriches with their head in the sand, unable to cope with the impending threats to our well-being.

Engagement is the solution

Dealing with the problems surrounding increasing frailty cannot be done by pretending it doesn’t exist. Well done the people behind this study. This study should remind us individually and collectively that we cannot carry on kicking these issues down the road.

The Government decided to back down on its tough stance on funding, much to my regret. I suspect – in retrospect – they know they would have been better – stronger.

They now have a wafer thin hold on political power and may consider this issue just too hard. But that doesn’t mean we shouldn’t be putting pressure on it – to return to the reality this report talks of.

Actually – the Government can only really act on the financial implications of the evident problem, if we pay the issue urgent attention.

Thanks for reading this blog- that’s what you have just done.


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

“What’s the purpose of a pension scheme?” – Con Keating

collective scheme



Con Keating argues in this piece that pension schemes aspire to “self-sufficiency”, giving them the status of  insurance companies. His thinking centres on what claims we have on schemes if the covenant to fund these schemes is lost. His conclusions are that there is no certainty of outcome either in DB or DC, he is calling for a Royal Commission to clarify the situation.


In our response to the DWP’s DB Green Paper, we raised the question of the purpose of a scheme and fund and suggested that this was a topic worthy of extensive discussion. We called for a Royal Commission to investigate this issue and its treatment in UK legislation and practice. This note will address some, but by no means all, of the issues.

In simplified fashion, this is a debate as to whether we should consider the scheme and its fund as a stand-alone or independent entity with the duty to provide the pensions promised, or whether the obligation resided with the sponsor employer, with the scheme as little more than administrative convenience which holds security for the promise made and generates income to offset of defease the employer’s underwritten cost.

A related issue concerns the certainty and security of a DB pension promise. Should the promise be immutable, that is to say, require performance after sponsor insolvency or should the promise merely be secured. In this latter case, the member would receive the accrued value of the promise at the date of insolvency. This may or may not be sufficient to buy similar benefits elsewhere, and indeed would usually not be. Indeed, in order for members to receive the accrued value the scheme would need to be fully funded (at best estimate).

This really is a fundamental issue on which the legislation not clear; there is support for both views in that. It has arisen again in the context of recent articles on scheme valuation. Accounting treats the scheme liabilities as an obligation of the sponsor firm. Here, we will draw out some of the consequences of the two approaches.

If we consider the scheme as an independent entity, which has assumed the pension liabilities, its life is not conditioned on the survival of its sponsor; if the scheme is effectively an agency of the sponsor, then its life is conditioned on the status of the employer sponsor. In both cases, the scheme has recourse to the sponsor should it find its fund is insufficient. In other words, it holds an option to call upon the sponsor, recurrently if necessary, for further funding.

In this ongoing viable sponsor situation, the scheme could never be in true deficit since the value of this option would always offset that circumstance, unless, of course, the sponsor is insolvent and unable to pay. But as long as there is an ongoing viable employer, the scheme has no need for capital buffers or indeed “prudence” in its estimates. Good faith would require it to operate on the basis of a balance of probabilities and expectations (best estimates). “Prudent” funding levels, if applied, would simply reduce the value of the scheme’s call option on the employer sponsor.

The sponsor would report the value of the option written to the scheme – this is not a trivial calculation. Of course, the option contract crystallises with sponsor insolvency and its value at that time is the value of the scheme’s claim in insolvency proceedings.

The difference between the two views of the purpose of the scheme and its fund are of little consequence when the sponsor is viable. In our opinion, there is a gross over-emphasis on sponsor viability – sponsor insolvency is actually a rare event. However, problems do arise with sponsor insolvency. This has given rise to arguments that discount rates and much more should be conditioned on the sponsor “covenant”. We would note, here, that the concept of the sponsor covenant does not appear anywhere in the rafts of DB pension legislation.

This covenant conditioning idea is fundamentally misconceived. Indeed, it is not clear whether this was meant to be a higher or lower discount rate. In financial markets, it is customary and correct to demand a higher yield to compensate for the possibility of default. However, that would imply lower values for the pension liabilities, and lower security for members. This would make the obligations less likely to be replaceable elsewhere on sponsor insolvency. It would also not reflect the fact that the higher yield of markets reflects a diversifiable risk and is priced on that basis. If we are to apply a lower discount rate, then for consistency we should also accept lower benefits terms – perverse at best – potentially a subsidy to the employer. The pricing problem is a classic trilemma – the contribution, the implicit investment return and the final pension benefit are integrally linked and of course feed into the overall labour costs.

One variant to this idea is that the scheme should provide for the insolvency likelihood. We will return to this idea later, when considering the scheme as an insurance company, but content ourselves here with observing that this would be provision against a specific undiversified risk, and would for most schemes and sponsors be extremely small. If the likelihood of insolvency is around 1% pa, which may be thought of as being typical of a BBB credit, then the provision should be only 1% of the loss given default, and that is likely to prove grossly insufficient.

If the pension obligation were no different from other secured commercial debt, the amount of the claim in those insolvency proceedings would be based upon the accrued value to the date of insolvency. No account is taken of potential future developments or indeed of future events which will go unfulfilled. If the security is insufficient to satisfy this accrued value, then the deficit or shortfall is the amount of the claim in the proceedings. This claim may or may not be paid in full – usually not. If the security held exceeds the value of the accrued claim, the excess must be returned to the administrator or liquidator.

This would be the treatment of securities held by DC pensioners. It is equitable among the stakeholders of a company. It is also possible for these stakeholders to allow the alteration of their claims in order to rescue or restructure a company.

There have long been issues with another aspect of DB pensions, the treatment of different classes of members. If we look back at the historic record, distributions on sponsor insolvency were originally set by scheme rules, and only later by pension regulation. Preference under this was given to pensioners, with the consequence that some long-serving active members close to retirement could find themselves left with little or nothing – a situation which proved a public relations nightmare for government. The “cock-up” rather than conspiracy view of history would attribute many of today’s issues to a confusion between the treatment of a scheme among other creditors with the treatment of differing classes of scheme members among themselves.

In retrospect, this preference can be seen as the first step towards the rather strange idea that DB pensions should be inviolable, in the sense of being paid in full no matter what the condition of the sponsor. It also shifts the role of the pension scheme unambiguously to being that of stand-alone provider. A company’s promises die with it.

It is interesting that this view was first discussed by actuaries in 1986/1987 when it was simply asserted as the role of the scheme. No supporting evidence or argument was provided, and indeed the idea that this was the proper purpose of a scheme was contested within the actuarial profession. Here the scheme is offering inviolable immutable benefits; a situation which brings with it the problem of how it should approach this ideal.

The argument for such benefits seems to revolve around the magnitude of the DB pension in an individual’s wealth at retirement. For the long-serving member, the DB pension is usually the largest part of that wealth. However, the changing employment patterns, which many advocates of DC use as support for the argument that DB pensions are now inappropriate, actually mean that the employee would be rather well diversified. If employee tenure really is just 4 years, then the employee would be very well diversified. Indeed, rather better diversified than many employees with DC, given the findings of various studies of employee allocations to securities issued by their employer in these arrangements.

A related argument is that sponsor insolvency represents a compound risk: loss of employment and loss of some of their pension wealth. This is true only for active employee members of the scheme. Retired members have no employment and deferred members are usually employed elsewhere. In other words, this argument would have validity for only a minority of scheme members. We would note also that many rescue, restructuring and recovery plans are precisely concerned with maintaining employment.

The open question is what should the treatment of scheme members be in insolvency, and more broadly. This is genuinely a potential source for moral hazard, unlike many of the other situations described as moral hazard by the regulator and others. A scheme member may wish to have both a low initial contribution and a high and generous set of benefits. The low initial contribution opens the possibility of higher current wages – also an attractive proposition for members. The high set of benefits then implies a high rate of accrual or effective promised investment return. Using the accrual rate that we have proposed elsewhere for valuation would throw light on this situation. Using an exogenous discount rate, such as bond yields or the expected return on assets obscures this and may reward scheme members in an unwarranted manner. This is actually the position with cash equivalent transfer values (see Portfolio Institutional: “Transfer Values, Discount Rates and Reality”)

If all members are assured their full benefits, no matter what, they and their trustee representatives have an incentive to accept overly aggressive and generous terms. Note that this does not apply to benefits already awarded – those terms have already been fixed.

If we regard the scheme as a stand-alone entity, then it is effectively an insurance company – a DB pension is a deferred life annuity, a form of insurance. As such it needs to be capitalised to reflect this situation. As long as the sponsor is viable, this may take the form of the option to call upon the sponsor as needed. But post sponsor insolvency, there is no option to be called upon. The obvious solution, with funded schemes, is for the stand-alone scheme to be capitalised prior to sponsor insolvency.

This is a single risk insurance company, a rather odd and usually risky proposition. Multi-employer schemes have their roots in an attempt to diversify and mitigate these risks. Asset pooling may be expected to deliver economies of both scale and scope, but it is the combination of risk-pooling and risk-sharing which delivers the greater value. It is unfortunate that many of the larger, stronger participants in many of these schemes now view the risk sharing as purely negative, and fail to recognise the benefits which have accrued and should recur in the future.

As an aside, it is notable that there are two models for multi-employer schemes – some offer similar benefits to all members and have a common contribution rate, while some admit disparate terms among participating employers. The creation of multi-employer schemes was very much an early attempt to address the issue of sponsor insolvency intended to enhance the security of the pension promises made to members.

Capitalising a scheme as if it were an insurance company is an expensive business. By virtue of its single risk specificity, it needs to be better capitalised (proportionately) than an independent insurance company writing many such risks. In other words, it will be more expensive for a scheme to be self-sufficient at a given level of risk than for a specialty insurer to provide these benefits at that level of risk.

With employer returns on capital employed averaging a little over 12%, this is very expensive capital. It really is remarkable that schemes are calling for ever more in contributions which they then invest at rates as low as one or two percent when the employer is consistently earning returns on capital in excess of ten percent.

“Prudence” and the desire for “self-sufficiency” are simply forms of excess capitalisation of the promise actually made. Indeed, the Achilles heel of all funded standalone solutions is that they will generate orphan assets. The best estimate or expectation is the neutral level of funding – in fifty percent of outcomes it will provide more than sufficient and in the other fifty percent less than sufficient. If we provide capital to ensure that schemes may continue and discharge all pension liabilities as they fall due over time at say the 99.5% confidence level, then after their discharge all of these schemes will be in surplus – and the average amount will be very close to the value of the best estimate.

It is very interesting to note that schemes do not, in practice, continue to operate beyond sponsor insolvency; they discharge liabilities by transfer and wind up. Suggestions recently made that schemes might continue and operate as stand-alone entities, with no sponsor to support them, were not well received by the authorities. The legislation really does not envisage this – on sponsor insolvency the scheme either buys coverage from an insurance company or if it cannot buy more than Pension Protection Fund benefits, enters the PPF.

The claim of the scheme is based upon the shortfall of assets to the cost of buying out liabilities with an insurer (s75 PA 1995). This inflates the claim relative to other creditors, and leads to the pre-emptive reorganisation of their status and much “pre-pack” activity. It is clearly inequitable to other stakeholders, and might well not survive legal challenge. This s75 valuation is a new business valuation.

The problems of sponsor insolvency are not well-addressed by funding. As this is a problem of contingencies, it is well suited for an insurance solution; low probability high consequence events are routinely insured against by both individuals and companies. In the case, the specific risk, sponsor insolvency, is well-understood; it is the heart of corporate bond markets and bank lending. This is well understood in some overseas markets, where insurance even extends to coverage of unfunded book-reserve schemes. It is also far cheaper to apply and monitor than funding. It is the risk underwritten by the PPF – though in that case inadequately.

There is much confusion and ambiguity in the legislation and trustee practice. Legislation and practice have added greatly to the costs of provision of DB pensions; many of these increases have not benefitted scheme members. Some have advantaged members at the unwarranted expense of the sponsor employer. Against this background, it is hardly surprising that so many schemes have been closed by their sponsor employers.

If we are ever to see a revival of DB provision, and there are good reasons why we should want that, then these costs need to be kept below the level of the tax concessions that accrue to the sponsor. If they aren’t, and it appears that the costs of regulation are currently several multiples of the value of the concession, cash wages or DC contributions are and will remain the more attractive option for employers. Most aspects of the increasing costs due to regulation have attracted comment, but the lowering of the value of the tax concession as corporate and personal tax rates have fallen has passed largely without comment in the world of pensions. The two are a very toxic mix.

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Transfer values, discount rates and reality – some insight from Con Keating

Con 8

The picture above shows Con holding forth at a lunch in Whitechapel, I think he was talking of this very subject. “What oft was thought but ne’er so well expressed” – thanks Con!

Prompted by the publicity surrounding DB pension transfer values, an old friend obtained a quotation for his pension. It was 33 times the initial pension payable. He found this surprising, and asked me do a little analysis, in return for the traditional “old fashioned” lunch.

Using the longevity expectations and other assumptions of this scheme, the total future (undiscounted) pensions payable to my friend, over his lifetime, will be just 38.5 times the initial pension. A little reverse financial engineering delivers the discount rate implicit in this valuation – it is 1.13%.

As my friend observed: “If I leave the money where it is, I will only earn 1.13% on it in future. I can surely do better than that.”

This transfer valuation is not particularly extreme – I have seen multiples as high as 43 times and stories abound of values as high as 55. That latter value is simply incredible – with assumed pension inflation at 3%, an implicit life expectation of 32 years (at age 65) is needed for the total future pensions to equal this value. A 1% discount rate would extend this to almost 37 years.

This quotation of my friend’s pension represents quite a remarkable (weighted) return on the contributions made – 18.45% – a spectacularly good investment, over several decades. The implicit return[1] promised under scheme terms on these contributions was 7.95%. In other words, my friend should have been expecting a transfer value of 15.4 times the initial pension payable, not the 33 times quoted. This lower figure was the commitment originally underwritten by his sponsoring employer.

“Freedom and choice” has introduced a new option into scheme arrangements. It is an option which is staggeringly expensive to sponsor employers, more than doubling the real cost of provision. It is a long-term option on discount rates written by the sponsor, which after the many decades of declining interest rates is now deeply in the money, so much so that it would be a churlish cavil to consider, at this time, the value of the residual term of the option arising from market volatility.

In my friend’s case, the credit status of his former employer, or the level of scheme funding do not enter consideration. It has been earning over 10% p.a. on its capital for decades, is likely to continue to do so, and is large relative to the pension scheme (even at these valuations).

Ordinarily, we might argue that discount rates do no matter, that they are just a pace of funding calculation for a particular liability. “Freedom and choice” changes that. They are now counterfactuals which create real costs. Make no mistake, both current accounting and actuarial valuation standards are counterfactuals, addressing the question: what would the present value of these liabilities be, if this rate applied. Neither is an appropriate method of valuation. As has been argued many times before, the appropriate discount rate is the implicit rate of return determined by the pension contract.

The public debate has been focussed on the desirability of taking scheme members taking transfers, and it appears that the desire to leave bequests to surviving spouses and children is a powerful motivating influence. This has always been a concern with annuities, and DB pensions are just deferred annuities – the prospect of outliving our resources or the optimal rate of consumption do not capture our imaginations in quite the same way that “losing” capital on death does. Regulatory intervention has been focussed almost exclusively on protection of member “rights” and benefits.

There has been no discussion of the fact that no “right” to scheme assets has ever existed – Professor Sir Roy Goode made the point, many decades ago, that scheme members have an interest in the trust, not its assets. Nor has there been any discussion of the fact that these transfer values are gross overstatements of the value of the pension promise made. The amount of the so-called “rights” that are being so diligently “protected” are extortionate, and the authorities have become the enforcers of these claims.

This raises the question: where does the Pensions Regulator sit in this. Unfortunately, their narrative treats valuations conducted under the discount rates specified in the Pensions Act as facts, as reality. This is just one of many problems which arise under the Regulator’s narrative (for an extensive deconstruction of that, see:  http://www.longfinance.net/publications.html )

Why is the Regulator not raising concerns over the costs to sponsor employers, given that it has a statutory objective which they describe as: “making sure employers balance the needs of their defined benefit pension scheme with growing their business”. In a single word: arrogance. As Iris Murdoch’s definition of humility – a selfless respect for reality – makes clear, this misplaced belief in the veracity of current valuations leads directly to arrogance. And if the Regulator is serious about achieving excellence, humility is necessary prerequisite.

In the meantime, finance directors must content themselves with the rather cold comfort that actuarial “valuations” are usually lower than their accounting standards counterpart, throwing up an accounting gain as well as a liability reduction when members exercise the option and transfer out. And this method of discharging liabilities is far cheaper than using the bulk annuity market.

[1] This calculation assumes perfect foresight with respect to longevity and inflation, and ignores ancillary benefits, such as death in service benefits.

This piece first appeared in Portfolio Institutional

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Welcome to Staberdeen!


The merger is done, the deals are won and we have a new investment house which

“provides asset management and investment solutions for clients and customers worldwide…. and also has a strong position in the pensions and savings market”.


Of course this is not about consumers, it is about two CEOs and some shareholders , very nervous as the markets knocked them about.

It is about the failure of GARS to prove Standard Life much more than a one-trick pony (and one spending too much times in the vets). It is about Aberdeen who found themselves subject to whatever the emerging markets threw at them, (which was a bucket of manure) .

It is about outflows and market share and being Scottish and about Skeogh and Gilbert and about the shareholders. It is about having George Osborne at your conference.

It is not about investors, savers, consumers.

But it is nonetheless good news. It ticks the 1+1=3 box to a degree and it keeps the crown jewels in Britain. It ensures that both organisations can do the good things, like ESG better. It means that Standard Life (remember the lifeco?) can stay strong in the workplace pension market and it creates an organisation that can compete globally for the big mandates.

Few would deny it isn’t a triumph for Martin Gilbert – who – as the photo shows- is the public face of the deal. The man has deals in his DNA and this is his big one. It’s not an ABN AMRO and Staberdeen aren’t an RBS, but this is to asset management – a deal of comparable order.

So I wish all at Staberdeen well. We would be well not to take all this stuff too seriously, it is after all happening at a pay-grade that most of us will never aspire to. But in so much as shareholders need to be fed with deals, investors need to have super-confidence in size and financial journalists have to have something to write about – a big deal!

Well done all. The details are here


These we have loved

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Britain leading the way (at last)

Mifid 11

The balance of regulatory geo-politics has changed

(did I really write that!)

I guess most baby boomers like me grew up thinking that (at least in matters financial), Britain could look to America for progressive policy and practice.

This is no longer the case. Not since Sabanes-Oxley has America given us a policy lead that we have adopted, the big steps in financial legislation, Priips, Mifid II and whatever will come out of the Asset Management Market Study, are European or British/European making.

I say this with pride. I still feel European in my attitude to financial matters, aligning myself with best practice alongside the Dutch, Scandinavians and Germans. If this sounds sweepingly northernist it is- the further I look towards the Mediterranean , the less enthralled I am with the European model.

The United States gets it wrong.

After this rare foray (for me) into geo-politics, I will try to re-ground the mother- ship in some instances. After a flirtation with transparency, the United States Labour Department has proposed an 18 months delay in the so-called i“fiduciary rule”.

This significantly increases the likelihood the Fiduciary Rule getting  diluted or destroyed. With it will go the hopes of American consumers getting of banning hidden fees, egregious commissions and conflicts of interest that cost savers billions of dollars a year.

The changes will be made in the “interests of savers” – less choice, higher regulatory costs leading to higher prices – well that’s what the financial lobby says. The regulators who drafted the fiduciary rule are now out of a job, the new regulators, appointed by Donald Trump, are – of course – in the pocket of the financial lobbyists. Any regulatory gain has to be supported by a consumer lobby at least as strong as the financial lobby and it appears that American consumerism is astonishingly weak. Trump appears to be getting away with it.

Britain gets it right

Meanwhile , precisely the opposite is happening here. Here we have a strong consumer lobby, not just championed by the Lewis’ and the Millers and Ros Altmann, but also a lobby within financial services, that has its most obvious manifestation in Andy Agethangelou’s transparency task-force. We should not underestimate the strength having Andy and his well organised and well spoken groups , gives to the FCA in its endeavours.

Against this new consumerism, the traditional financial lobby in the UK seems powerless, the Investment Association and the ABI are having to take a back-seat as Dr Chris Sier puts together his advisory group. This is absolutely right, the IA have shown time and time again a failure to promote policy that favours the consumer. Their legacy has been the 36% margin that the fund management can achieve at the consumer’s expense.

Not as simple as all that?

Of course it isn’t as black and white as that. We read today that two of the largest UK based Hedge Funds, Tudor and Howard Brevan, are to abandon Mifid and ride rough-shod over the reporting requirements it would place upon them. Presumably they feel, like RBS a decade a year ago, that they are above regulation, too powerful to fail and that they have no need to explain themselves.

These firms, and those like them, have no place managing our money and I hope that organisations like Share Action, the PLSA, PIRC and Manifest will make it clear where they are involved and lead investors in another direction.

So where did the news of these two come from? From the FT of course, who put this information into the public domain because we have a free press that is not in the pocket of the hedge funds and their advertising revenues and is aligned with the interests of the bulk of their readers, who are consumers and not suppliers of financial services.

Actually it really is as simple as that. We in Europe are better organised and more joined up and it really is harder for the financial services community to put one over on us. The 36% margins currently achieved by the fund management interests are not sustainable precisely because we have a free press, we can blog freely, we can set up transparency task-forces and we can empower Government and Regulators to stand up to the bully boys, both in fund management and in the investment advisory business.

Well I’m proud to be British (European)

I have grown up looking to the United States for a lead in financial matters, I no longer need to do this. I am now happily living in Britain, part of the British/European regulatory framework and I am proud to do so.






Looks like this lot have the same idea

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