GAD shows you can’t take “company” out of “company pensions” #TATA


More pre-referendum shenanigans revealed

So the mysterious volte face by the Government over the Tata Steel pensions rescue package is a mystery no more.

The FT, led by super-snooper Jo Cumbo have unearthed the GAD submission to the DWP consultation on solutions to the Tata Steel pension problem. It turns out that “if it looks too good to be true, it probably is too good to be true”. Like so much of the lazy slapdash thinking that characterised the Remain obsessed Cameron Government, the Tata Steel rescue plan was a sop to kick a long term problem into the short grass.

It looks like the grass just got cut.

The FT claim to have seen the Government Actuary’s Department’s analysis which suggests that even with the reduced liability (and benefits) proposed, there would have needed to be an injection of £3-4bn to protect the security of member’s rights.

That  £3-4bn is what the ongoing support of a company like Tata ( or another taking on the pension scheme) is worth to members. Put another way, it’s the price of sufficiency.

Which is why defined benefit schemes need an ongoing sponsor. They simply don’t run themselves, they need recourse to emergency cash when times get hard – they are not sufficient (without a huge was of notes in their back pocket).

Pensions need companies  like kids need parents.

I think of my lucky son, off to College with the surety of the bank of Mum and Dad to back him up. He may never go for that emergency loan but he knows that were he to, he’d have a 99% chance of getting it. Those students who don’t have recourse to Mum and Dad have to get credit from the market (i.e ..the Banks or worse).

Of course my son doesn’t value his Dad’s solvency; we never value what we’ve got till it’s gone and I’ve made provision to make sure he has financial protection whatever happens to me. But were he to put a value on the support I may or may not give him, he would realise that it provides him with the peace of mind to carry out his studies without going mad with worry.

The business of running a pension scheme without a sponsor is  tough like going through university not knowing who will pay the next term’s bills.

The PPF, BSPS and risk

The PPF is one of Britain’s financial light-bulb moments. It is a well-run fund which invests prudently and manages its liabilities as it does its administration- with precision.

Sources close to the PPF (Rubenstein et al.) aren’t getting perturbed by the imminent arrival of BSPS. Infact, I hear they relish the opportunity to take on a scheme in good shape in all but parentage. There will never be a time when the PPF will be better placed to take on such liabilities.

If I had the choice as a member of the British Steel Pension Scheme of 100% certainty of reduced benefits being paid by the PPF or a 50% chance of (reduced) benefits being paid in full by not going into the PPF – I would have a reasonable choice to make. I could work out the risk and compare it to the drop in benefits (from the PPF) and make my choice.

The problem is that until GAD came along, both Government and the Trustees of the BSPS were telling anyone who’d listen that the original proposals were “low-risk”.

This is what GAD told the consultation on June 13th (ten days before the referendum).

“To eliminate most of the risk of the scheme being unable to meet its (reduced) liabilities in the absence of any sponsor support (ie self sufficiency) would require additional assets which we have estimated to be in the region of £3-£4bn,”


Political footballs?

Along with the radical plans for redistributing tax relief (which should have been part of this year’s budget), talking tough on pension deficits wasn’t part of the pre-referendum agenda.

may cameron.jpeg


The expressions of Theresa May and David Cameron  suggest zero personal empathy. Perhaps she knew the mess she knew he was leaving her on pensions!

The Government Actuary, like the PPF is a Government institution that works. It was put in place precisely so we did not have to bend the law of the land for political expediency.

The 130,000 members of the BSPS are probably in a better place in the PPF than in the BSPS. According to the FT, GAD told the DWP

” the proposal was “broadly consistent” with a “50:50 expectation” of being able to pay members’ benefits in full, with “no additional reserves to manage materialisation of risks in future.”


Transparency is key

It is now nearly October, in the intervening three months, the 130,000 members of BSPS have heard very little about their pensions. We are told that talks are ongoing between Tata and German steel-maker Thyssen-Krupp. Talks are also ongoing with the unions.

In my opinion, the Government had no business floating the idea of a “low-risk” solution to the problem- till it had had the risk assessment from its own actuaries. That assessment came and the referendum went and it was only in the last few weeks that the plans for a sufficient BSPS have been shelved,

We now know why they were shelved. These plans were not “low-risk), no matter how the Government and the Trustees spun them.

People’s pensions are too important to be treated as political footballs. I don’t know how many votes this fake rescue plan won Remain but if it was one – it was one too many.

People deserve honesty from Government and that GAD report should have been put in the public domain on June 13th, not leaked through the FT on September 25th.


the law of diminishing u-turns


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Too Expensive to Keep? Is it time to break our promises to the baby boomers?

In a stunning lecture delivered without notes to a “senior” audience at the Oxford and Cambridge Club last night, Paul Johnson helped us ask these questions of ourselves.

For his audience was by and large – precisely the entitled class who had already won in the current generation game. In this blog I lay out Paul’s argument , hoping that it will fall on younger ears who may be in time to do something about the injustices we are heaping upon our children!

Baby Seals

Paul set out his argument by establishing

  1. the current uneven distribution of wealth inter and intra generations
  2. why the wealth inequalities matter
  3. a policy framework for doing something about unfair inequalities

1. Wealth today

98-9% of the population find themselves in the same position with regards the wealth of others as they were 25 years ago.

For the very top earners , income rose sharply in the first decade of the century but has levelled off in the past five years.

Divides in wealth inequality are most obvious within a generation, the differences between one generation and another are less easy to see.

The most dramatic social change we have seen in the past 35 years has been in the reduction in pension poverty. In 1980, one third of pensioners were in poverty, today the number is less than half that. Real incomes of pensioners have increased every year in the last 25 and in 2011, for the first time- the average income of people over 65 exceed the average for working age people.

This is new and – according to Johnson – quite unexpected.

Johnson ascribes this phenomenon to three causes

  1. Increased pay out in State Pensions (Johnson called them benefits but I think most of us consider them entitlements). Added to these pensions, many people get means tested benefits – largely introduced by the last Labour Government.
  2. The maturation of high quality occupational pensions
  3. Reduced housing costs for owner occupiers who have paid off their mortgages.

The likely boom in retirement incomes is likely to persist for at least ten years as us baby boomers pick up all the wealth.

2.Why this matters (and is a cause for concern)

Younger people have seen no real wage increases since 2008 and household incomes have hardly changed in the last 12 years.

But while current earnings have stagnated, the prospect of future wealth has diminished. Less than 2% of 20-30 year olds are currently accruing defined benefits in a pension scheme.

What makes this worse is that people in their 20s and 30s are half as likely to be home owners than the 20-30 year olds of 30 years ago.

Those in the middle quintile of earnings are now more likely to look downwards towards those in low earnings than aspire to those in higher earnings.

For the first time since the war we have DOWNWARD SOCIAL MOBILITY

State Pensions and the failure of SERPS

State pensions for those retiring after 2030 are likely to be less generous (than planned). The State Earnings Related Pension introduced in 1978 was 35 years in its disintroduction and has proved a public policy disaster.

Those not in a good occupational scheme are now relying on personal savings to boulster retirement. But savings are not productive. Those saving on deposit have now seen 6-7 years of no growth. With real interest rates less than 0%, people need to save in excess of 50% of their earnings to match the benefits of a good quality occupational scheme.

Relative to the destruction of defined benefits and their replacement by defined contribution pensions, changes to state pensions don’t make much difference.

The housing haves and have nots

The inequalities between the haves (homeowners) and have nots (renters) are greater still. Johnson pointed to an unfair tax stystem as making housing inequality worse. Council tax and Stamp Duty are preventing people from moving house.Monetary policy has widened the gap between the haves and have nots.

The collapse of DB workplace pensions

Nobody expected the promises made in the last century to prove so expensive. In the 1970s policy makers talked about a decrease in life expectancy.Instead we have seen life expectancy increase by 9 years in the last 40.

The expected returns in world stock markets have not – since 2000- materialised.

Together with low interest rates, these unexpected economic factors have increased the value of our defined benefit pension pounds by 40%.

Taken together , defined benefit pensions now seem a massive policy mistake. the cost of maintaining the defined benefit promises (using current accounting methods) has to come from somewhere. It is being met by those (not) enjoying low DC contributions and from the decreased dividends from private companies struggling to pay deficit bills.

3. A new policy framework?

In future the rich will be those who inherit the wealth of the current baby boomers. We are looking at a return to ancestral wealth and a social oligarchy of the wealthy.

Johnson calls into question the sanctity of the promises made to the boomers. There are precedents for Government to move the cheese (within the “reasonable ambit of policy”).

  • For 30 years state pensions were not indexed against wages causing our basic state pension to become “nugatory” (Michael Portillo)
  • The recent change switching occupational pensions in payment from RPI to CIP will be the most significant reduction in the value of Public Service Pensions ever
  • The changes in state pension age – where introduced gradually – have been socially acceptable.

For Johnson, these changes are “annoying but not unreasonable”. For him we can have too much certainty; the rights of past savers should not be protected at the expense of future savers.

Maxwell’s fraud paradoxically made for guaranteed pension payments which companies can no longer afford. The passing of large occupational schemes into the PPF is becoming a weekly occurrence.

Our expectation to the sanctity of a guaranteed occupational pension, like our “right” to future winter fuel allowance, free education , low taxes- is fallacious.

More risk sharing needed

Johnson talked feelingly about the need for trust (both in terms of trustees and in the trust people put in them to do the right thing).

He called for an end to the bifurcation between DB and DC , where those in DB have a right to everything and those in DC have a right to what’s left over.

Similarly with housing, where Johnson called for a reform in the current taxation policy – especially the ham-fisted attempts of this Government to limit tax-relief on buy-to-let.

He called for politicians to resist the pressure “to make bad policy decisions” (though I had to admit I did not hear Johnson talk about what the good policy decisions would be). In the context of risk sharing, I assume this would involve a change to benefit those outside of house ownership.

Johnson called for a change in the taxation of DC pensions , especially what he called the free inheritability of monies from those who die before 75. He berated the National Insurance reliefs given to company contributions to workplace pensions

In conclusion

Johnson’s (generally) brilliant analysis of the inequalities building up between generations ended with three conclusions.

  1. Those (nearly all) of us in the room who were baby boomers are the fortunate generation
  2. Government policy has had unintended consequences which have favoured the old at the expense of the young
  3. The impact on future taxes has yet to be seen but is unlikely to be a happy one

You can read all about Paul Johnson here.



Paul Johnson

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My pension fund manager – reassuringly boring.


I’ve worked out what I want from the person who runs my pension fund – I want them to be busy doing nothing. That’s more or less what Martin Dietz is doing running the Legal and General Multi-Asset Fund which is the default for it’s workplace pension.

Some people have commented on here that I could be more ambitious than to use a default fund for my money. But I say show them another way I can get exposure to 11,500 different stocks all over the world for a management fee of 0.13%.

I’d hooked up with Martin on Linked In as I’d seen him on my fund factsheet. I’d asked if he’d like to meet an investor in his fund and he’d kindly obliged. We met at a posh cafe in the City.

Here’s a rough transcript of my agenda and what Martin told me. I hope that it’s a reasonable record and that my epithet “reassuringly boring” will be  taken as a compliment. I am not looking for pyrotechnics, I want steady growth and limited drawdown.

I wanted to know from a personal and professional viewpoint his and LGIMs viewpoint on a number questions

  1. How does the targeting of MAF at DC savers affect the way you manage the fund?
  2. What are your private benchmarks for success with this fund?
  3. What are the main jobs you have to do as manager of the fund?
  4. How do you interact with the funds into which MAF invests?
  5. Do you see MAF as suitable for all stages of a DC saver’s journey
  6. Is MAF LGIM’s optimum fund for drawdown?
  7. Why don’t we hear about capacity issues with MAF (as we do with GARS and other rivals)?
  8. Do you share the group’s aims of social purpose?
  9. Do you see yourself adopting the ideas behind Nigel Wilson’s Beveridge 2.0 initiative?
  10. What interaction do you have with your IGC?

Here’s how the conversation went

How does the targeting of MAF at DC savers affect the way you manage the fund?

“To give you an example- before BREXIT I wrote to advisers explaining that though I expected Britain to “remain”, the fund was positioned to benefit from leaving. The economic harm of leaving would be softened for investors but they couldn’t expect the fund to pick up the full benefit of remain vote. I wrote this note to help people explain the fund’s behaviour. My thinking was that DC investors probably had enough to lose from BREXIT without their pension being at risk”

What are your private benchmarks for success with this fund?

“I want people to get an equity like return in the good times and have protection from equity performance in bad times. Currently the fund is providing a return that is around 3% less than the equity return – but equities have been the best performing sector of the market”.

What are the main jobs you have to do as manager of the fund?

“Firstly, I look at improving the diversification of the fund by investigating new funds, where we don’t have a fund I want, I help create the fund. For instance, we are looking at a way to access BBB credit funds

Secondly I look to increase the efficiency of the investment strategy by optimising the asset allocation

Thirdly I work on minimising the costs of the fund. This has been easy so far as we have been a small and growing fund but now the fund is valued at more than £2.6bn I expect transaction costs to increase though only to a few basis points.”

What are the restrictions you have in investing in funds?

“I won’t involve MAF in active fund management as it hasn’t got the budget (as a result of the charge cap). The fund is invested only in LGIM funds”

Do you see MAF as suitable for all stages of a DC saver’s journey?

“I’m aware of LGIM’s target date funds which move money from high to low volatile funds over a saver’s lifetime. We look to provide a consistent style of fund management which is very simple for investors to understand”.

Is MAF LGIM’s optimum fund for drawdown?

“There is another fund within the LGIM range (specifically the Retirement Income Multi Asset Fund (RIMA) which are used as defaults for drawdown, this aims to minimise the exceptional loss that can occur when a drawdown happens when the fund is severely depressed. However, we are comfortable with MAF being used for drawdown”.

Why don’t we hear about capacity issues with MAF (as we do with GARS and other rivals)?

“MAF is not invested in derivatives and invests according to market capacity. This gives it the highest level of liquidity- in other words it cannot run out of capacity to invest.”

Do you share your Group’s aims of social purpose?

“The work of our ESG and Stewardship team is to improve the performance of all stocks (MAF invests in 11,500 different stocks). Most of this work is in the UK but the Stewardship team is working more and more on overseas equities. We benefit from their work and decisions on where to allocate money are informed by their research on what markets show best governance”.

Do you see yourself adopting the ideas behind Nigel Wilson’s Beveridge 2.0 initiative?

“Not at the moment! The Diversified version of the MAF does have direct property holdings which may follow the approach the Group is using in the investment of Group Funds. But at the moment, our CEO’s vision for the future is not adopted in MAF.”

What interaction do you have with your IGC?

“I have to present the fund’s ongoing appropriateness once a year to the Chair but I am more accountable to the IGC’s investment consultant. Dean Wetton who asks a lot of searching questions and is vocal in challenging changes to the fund that might not be in member’s interests”

Refreshingly boring

It was good to have breakfast with Martin, he forms part of a team but he spoke of MAF with great ownership and some passion. He told me his own pension money is invested there.

The question of whether a single fund can be right for all investors all of the time is a difficult one. But with the total charges on the fund still at 0.13% and with the fund grown from nothing to £2.6bn in under four years, he is clearly managing a compelling proposition.

Martin is very clear on his objectives, very precise in his language and extremely modest in managing expectations. A big bet from the Diversified version of the fund ended in a 10bp gain from up weighting property.

The very good year we are having with the fund (relative to the ABI45/85 sector average) reflects the BREXIT positioning and the fund’s lack of property exposure.

Martin is the least demonstrative fund manager I have ever met. He seems to make a virtue out of being boring which I suspect is exactly what the L&G MAF needs.

Here’s that pre-Brexit briefing in full




Multi-Asset update: EU referendum. For use by direct LGIM clients and consultants only. For the avoidance of doubt, this communication does not seek (and is not to be regarded as seeking) in any way to influence the outcome of the EU referendum. It is being provided to help clients and intermediaries assess the potential impact of the referendum on their investments.


LGIM Diversified Fund (DF) and Multi-Asset Fund (MAF) update Dear Investors / Consultants,   We are now approaching the UK referendum on EU membership on 23 June 2016. We expect that there will be an elevated level of market volatility both on and after the referendum date as currency and asset markets price in the referendum result.

Any kind of market concerns about UK economic growth, regardless of the result of the UK referendum, could be expected to result in a sell-off in sterling and a decline in UK asset prices. This includes commercial property and equities, although profits of multi-national companies may benefit from a fall in sterling. Similarly, looser monetary policy – to support the UK economy – could be expected to drive down short-term bond yields.

For the majority of UK pension investors, we anticipate that a decline in domestic economic conditions could have negative implications – a reduction in non-investment income for DC investors and a weaker covenant for DB schemes. In addition, we typically expect that any decline in sterling could feed through into imported inflation, thus eroding an investor’s purchasing power.   We believe that the LGIM Diversified and LGIM Multi-Asset Funds are suitably positioned for the elevated level of risk expected at the end of June.

Firstly, we implement an asset allocation that is designed to be diversified across geographical regions, targeting around 20% of overall market risk in UK assets. We therefore expect that the Funds’ underlying assets will show a limited degree of sensitivity to any UK-specific risks.

Secondly, the Funds hold structural exposure to foreign currency of around 50%. In our opinion, holding foreign currency is a suitable way of aiming to provide investors with good results in those scenarios when financial markets predict a negative environment for the domestic economy.   As with every protection strategy, the Funds’ exposure to foreign currencies comes with potential downside if domestic economic risks don’t materialise.

Our current assessment is that sterling may be trading around 5% below its fair value (compared to a trade-weighted currency basket). On the other hand, sterling may fall an additional 10-15% in a negative economic scenario. In line with the Funds’ investment philosophy, we do not look to implement active investment views in the Diversified or Multi-Asset Funds on an on-going basis. At the same time, we are committed to reviewing and potentially adjusting the Funds’ asset allocation to adapt to any structural changes in markets.

Our assessment is that the Funds’ currency positioning implies potential downside of around 2.5% for the Funds versus potential upside of 5-7.5% if the Funds had 100% sterling exposure. With a view to the economic risks borne by the underlying investors and the long-term focus of the Funds, this performance trade-off seems appropriate to us.



Yours, Multi-Asset team


Key risks Investing in financial markets exposes investors to risk. These Funds invest in a wide range of asset classes, typically by investing in other funds. While this diversification aims to lower risk, each asset class has risks that may impact the value of the Fund. Any objective or target will be treated as a target only and should not be considered as an assurance or guarantee of performance of the Fund or any part of it.Further details (including relevant risk factors and fund specific risks) are available in the Description of Funds document, which can be obtained from your usual LGIM contact or by visiting



  Multi-Asset update: EU referendum



Legal & General Investment Management Limited (Company Number: 02091894) is registered in England and Wales and has its registered office at One Coleman Street, London, EC2R 5AA (“LGIM”). The information contained in this e-mail is strictly confidential and may be subject to legal privilege or protected by other legal rights. Access, copying or re-use of this e-mail (or any part thereof) by anyone other than the intended recipient is strictly prohibited. If you are not the intended recipient of this e-mail, please notify the sender immediately and delete all copies from your computer. To the extent permitted by law we do not accept any liability for any virus infection, malware or for the transmission of harmful content through this e-mail. LGIM reserves the right to monitor, and retain e-mails as permitted by applicable law.

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A lunchtime lesson about pensions for millennials – Guest Blog- Claer Barrett

This blog is from Claer Barrett, it was first published in the FT and is Claer’s contribution to Pension Awareness Day. I share it on this because a) it is brilliant, b)Clear has asked it to be shared and c) I wish I could have written this myself. The blurb says that you need to pay for high quality journalism and I agree- that’s what you get in the FT – thanks Clear, Jo, Naomi and all the FT writers for making me more aware of what really matters in pensions.




My eldest stepson started his first “proper” job this month, and as part of his induction day was given a pack of indecipherable bumph about the company pension scheme (note: more time was spent on the health and safety briefing outlining the dangers of using a glass staircase in reception than the necessity to save for retirement). He had a week to decide whether he wanted to sign up or not.

Fortunately, his stepmum knows a thing or two about this sort of dilemma, so we FaceTimed. The principal fact that had stuck in his mind was a negative one: “Saying yes to the pension means I will have to give up a percentage of my pay.” Most millennials, with the looming prospect of student loan repayments, could easily say no to the company pension for this reason. So I tried to do a better job than his employer had by explaining why pensions rock.

A pension, I said, is a bit like a supermarket “meal deal” that you might buy for your lunch. There are three components. There’s the money you put in (the sandwich) which gets topped up with money your employer puts in (the drink) and money from tax relief (the crisps or carrot sticks). So you might have to pay for the sandwich now, but you’re effectively getting the other two elements thrown in.

Now for the price. When my stepson got his job, we had used the excellent website to work out his monthly net pay so he could determine what kind of flatshare he could afford. He was horrified about how much would be lost to tax and national insurance. (Welcome to the club, son.)

The thought of paying 6 per cent of his gross salary into a pension he would not be able to tap into for about four decades seemed a bad deal. The calculator can show the impact of pension deductions (and student loan repayments) on his monthly take-home pay. However, it can’t show you what else is added on. For this, try the pension contributions calculator from the Money Advice Service. It adds up the value of the three “ingredients” — your contribution, your employers’ contribution and the tax relief.

You are lucky, I said, that your employer is prepared to match your 6 per cent contribution. And looking at the totals, he could see instantly that for little more than the cost of buying a supermarket meal deal every day, he would be getting quite a lot of his dough back. One thing to bear in mind with the carrot sticks (the tax relief) is that you will eventually have to pay some tax when you start drawing your pension, I said. But the magic “houmous” on the carrot stick is that your pension savings can grow tax free until then.

Once they’ve cracked how much their total contributions are worth, younger workers are better placed to judge if next year’s Lifetime Isa for the under-40s is for them. This account will give you a government bonus of 25 per cent on a maximum annual contribution of £4,000 (so £1,000 of free money). However, you can only gain access to this money — and the bonus — when you buy your first home, or turn 60. Otherwise, heavy penalties apply.

For those planning on using the Lisa as a pension, a company scheme (assuming you have access to one) will almost certainly be better.

Not everyone will get a matched contribution of 6 per cent. Some being offered Auto Enrolment pensions will get the equivalent of the supermarket “basics” range: you pay in 1 per cent, which your employer matches with an equally paltry 1 per cent. But it’s a start, and the level of minimum contributions will slowly rise.

His next question was what happens to the pension if he left the company.

Group of teenagers sitting outdoors using their mobile phones©iStock

Most millennials, facing the prospect of student loan repayments, could easily say no to the company pension for this reason

Young people today can expect to have 12-15 separate employers in their lifetime, creating the administrative burden of multiple pension pots. As I know from personal experience, trying to consolidate them is a total pain. I have deciphered enough of the jargon to see that my new pension provider has a more favourable fee structure than my old one. But moving my money over has required several trees’ worth of forms, delays and enforced listening to Vivaldi as I wait on hold to chase things up.

There are lots of clever people who cannot understand the complexity of the UK pensions system — Andy Haldane, chief economist at the Bank of England, for one. So it’s encouraging to see the government is trying to do something about it. Plans for the Pensions Dashboard were revealed this week, which will enable savers to see their pensions from 11 of the biggest personal and workplace pension providers in one place by 2019.

This is undoubtedly a good idea. But already, providers are bleating that they cannot possibly be expected to provide all of the data needed for us to clearly compare the type of funds and amounts we are being charged. Judging by my own experiences, the government is right to demand better. Those paying into a company pension have no way of choosing the provider — we have to accept the choice our employer has made for us. If we want to compare and switch at a later date, this process should be as uncomplicated as possible.

Pension providers would do well to remember that it is our money we are paying them to look after. If they can show us they’re doing a great job, we will be more likely to consolidate our pots with them.


First appearing here   


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Where next for pensions transparency?


As illegal drugs to your health so hidden charges to your finances

Imagine that you were tasked to prevent drugs coming into this country. Would you

  1. ask the driver if he had drugs in his vehicle and wave him through if he told you “no”
  2. set up a random search mechanism to show you were trying
  3. instigate a robust process that ensured that all vehicles entering the country were checked with deterrents of imprisonment for those found with narcotics.

Of course the answer would depend on how much you wanted to stop the drugs traffic and what your resource was to do so.

It seems that the pernicious effect of hidden charges does to your finances what illicit drugs do to your health.

What is missing is a robust framework to sniff them out and proper penalties against those who sell products that smuggle charges in through non-disclosure.


Putting the momentum of the TTF to good purpose

The Transparency Task Force had its day in the Committee Room 8 of the House of Commons and it had a goodly attendance from policy strategist from the public and private sectors. We heard that part two of the pensions charge cap would be announced in 2017 (though not as expected in Q1), we heard of further delays in the publication of the FCA’s Market Review which is now due to publish a final consultation in H1 2017 and we heard a number of speakers

  •  Shirin Taghizadeh, Head of Pension Charges, The DWP
  • Becky Young, Manager, Wholesale and Inv. Competition, the FCA
  • Robin Finer, Head of Department, Competition, the FCA
  • Louise Sivyer, Policy Lead, Regulatory Policy Directorate, TPR
  • David Pitt-Watson, Executive Fellow, London Business School
  • Daniel Godfrey, Independent Director and Advisor (and former Chief Executive of IA)
  • Ralph Frank, CEO UK (DC), Cardano
  • Margaret Snowdon OBE, Chairman, PAS
  • Henry Tapper, Founder, Pension PlayPen
  • Peter Glancy, Head of Policy , Scottish Widows

With Government deadlines slipping and with the collapse of anything meaningful coming our of PRIPS , change looks further away than at any time over the last 12 months.

What is needed is a boot up the backside to get consumer interests , rather than the interests of our asset management , platform and advisory industries, to the fore.

The next step is to lobby the DWP Select Committee and its Chair Frank Field.

Here is the letter we intend to send them.

We are a coalition of interested parties looking to help protect the interests of the UK’s pensions-saving public through full disclosure on all the costs and charges they are paying. Hidden costs are damaging because they:-

1. Reduce the net amount pension savers are able to accumulate. Auto enrolment has created an even greater burden of responsibility to treat pension savers fairly and openly. This is a social justice issue.

2. Prevent the market working efficiently; markets need to know true costs to be efficient. The ‘invisible hand’ is ‘being kept in its pocket’ as it were, stopping the public getting the value for money they deserve

3. Inhibit pension scheme trustees and IGCs from carrying out their duties efficiently, because ‘you can’t manage what you can’t measure; and you can’t measure what you can’t see’. This is a governance failure.

4. Lead to adverse publicity. The public’s confidence in the pensions sector is falling; it needs to stop falling ‘below the point of no return’ . There is a serious and systemic risk of this happening

Pension scheme costs are surrounded by complexity, opacity and obfuscation. This is morally wrong, wholly unjustified and of great concern to all saver-centric market participants. Your Committee is uniquely placed to look into the matter in a constructive and inclusive way that will ‘join up all the regulatory dots’’.

In so doing your Committee will encourage the UK’s pensions and investment sector to move out of denial (where that’s necessary) and work supportively with all regulatory bodies to find a sensible set of sustainable solutions that help protect the interests of the UK’s pensions-saving public.


What the DWP Select Committee needs to do

Joining the regulatory dots is perhaps too weak.. we need definite action.

Right now, charges are stowed within the financial products we buy that eat away at the return we can expect to a degree that can make long-term saving  unrewarding. A typical advised funds platform established within a SIPP takes 2.6% pa of your money before hidden fund charges. If we add to that the typical hidden charges within an active fund, the total cost of ownership of money on a funds platform can be over 4% pa. With expected long-term returns on real assets running at around 5%, this is clearly unsustainable.

This is the most extreme and egregious waste of wealth and the more effecient fund platforms charge a lot less.

Workplace pensions are capped at an annual management charge of 0.75% pa.  But the total cost of ownership can be higher as many intermediaries can levy their costs directly to the fund and by-pass the AMC. Similarly, practices such as stock lending can see profits being diverted from the beneficial owners of a fund to the managers of the fund.depriving the owners of what should be theirs.

There is no body properly checking the vehicles we save into to make sure that charges aren’t hidden in the back of the lorry and we are adopting an “ask the driver” policy. Drivers don’t tend to admit they have drugs on board and pension product providers won’t admit that their products carry hidden charges.

The charge cap (part one) has gone some way to stopping the abuses we see from fund platforms but it has “scotch’d the snake not killed it”. I said in 2014 that the real test of the Government’s intent to stamp out profiteering from workplace pensions was to introduce a proper inclusive charge cap.

The DWP look timid and are allowing timescales to slip. I want the DWP Select Committee to be firm. No recidivism, the charge cap needs to include hidden charges and we need a proper way to police it.

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Double Bill; dashboard+transparency


You wait a summer for the pension policy bus and then two come together!

This morning’s the Treasury big reveal when they’ll be rolling out plans for the pension dashboard at Aviva’s Digital Garage in “trending Hoxton”.

This afternoon’s the world’s first ever Transparency Summit held within the walls of Westminster.

There’s a pleasing symmetry; the Treasury’s coming to an outpost of modernity in the financial services sector while the TTF has more in common with Wat Tyler, a sort of peasant’s revolt against king and robber barons.

While we know the agenda for the mainstream fund managers lies elsewhere (see recent blogs), today’s debates will be focussing on what ordinary people have been calling for. a clear view of what they own and a clear view on what they’re paying to have it managed.

Pension agitprop

transparency symposium

Both the pensions dashboard and pensions transparency are issues that are low on the agenda for the fund managers and investment consultants. The PLSA , which has  for the past three decades managed the pension industry’s relationship with the FCA has only marginal impact on the debate.

Instead, it has been those industry figures with the agility and energy to consult, congregate and publicise their point of view, who are turning heads in the lobby.

The TTF has managed what it has through the endeavour and courage of Andy Agethangelou backed by dedicated campaigners including Chris Siers, Con Keating ,David Pitt-Watson,  Ralph Frank and Colin Meech. The major PR firms have not been part of the TTF lobby and the industry trade bodies, most importantly the Investment Association, have become a trampoline to launch the TTF to public awareness.

Here’s a video of TTF head honcho Andy Agethangelou spreading awareness. Thanks to Robin Powell of the Evidenced Based Investor for this;


Skilful use of the press and social media has trumped the established methods of the Westminster village. Those attending the meeting this afternoon include a number of decision makers in Government, Andy and his colleagues are greatly to be congratulated.

The Digital lobby


I mentioned in my blogs last week, how the innovation of Fintech seemed to be passing the asset management and investment consultancy industry by. Delivering information to people – preferably via hand-held devices , has become a preoccupation of the digital lobby.

Whether it be the scrapers such as Moneyhub and Intelliflo , or the plumbers like Altus and Pensionsync or the insurers like Aviva, there’s a hustling mob of digitally savvy , entrepreneurially minded individuals who are every bit as dynamic as the TTF. Good on the Treasury for listening and choosing to make their announcements not in Whitehall but in London’s beating Fintech heart.

I don’t know what to expect from this morning , but I am a lot more hopeful that there will be deliverables, when I’m heading to Hoxton!

Why today’s important

Tower Bridge Thames Reflection and London City Skyline

The City from the other side

Today’s events are significant in a number of ways.

They tell me that innovation in pensions is coming from the upwardly thrusting – consumer driven – independents , rather than the established consultants and asset managers.

They also tell me that the Government is listening to these new voices and promoting their ideas to the fore. Shocking as it may seem to the establishment  for us not to have a Minister of State in charge of pensions, it is doubly shocking to see the only interview Richard Harrington has given so far was to Money Marketing (a retail trade mag).

The retailisation of pensions  from a DB culture to a world of freedom and choice, has caught the established players on the wrong foot. As I found last week, there is precious little innovation coming from the traditional asset managers and investment consultants. Sitting as I do within a traditional consultancy, I know how hard it is for us to reinvent ourselves as relevant to this new retail environment.

But we must.

Today is a litmus test of the Government’s position on two of the great issues of today. It is a litmus test of where the pension industry is heading in terms of its future relevance.

I look forward to reporting more in 24 hours.


Sponsoring the TTF today


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Anger and remorse – how do they help?



I have two important engagements next week. On Monday afternoon I will stand up at the TTF event in Westminster and ask those in Government to do more for workplace pensions and on Wednesday I’ll host a session at L&G’s DC Conference where we will be looking at how to make change happen.

I hope they go better than the blog I wrote after my last speaking slot, where I tore into my co-speakers for being lazily all the same. My blog caused a lot of angst among the conference organisers and has probably annoyed the sponsors. The net result is that I have  lost a useful platform to talk about positives and widened the divide between my position and that of the asset managers and investment consultants.

I have been trying to discover where I went wrong.

Of course some will say I was right to speak my mind but it’s clear it was not good etiquette to bite the hand that fed me. Thinking about how your comments will land is part of the craft of communication.

The first lesson is that feeling right does not give you the right to shout about it!

The second lesson is that people’s feelings matter and while it is sometimes worth kicking an obstinate and brutish thug in the shins, collateral damage has to be avoided.

The third issue relates to the use of anger itself. Examining why I get angry (and I get angry a lot) , I identify two reasons; the first is the frustration with things getting in the way and the second is because I think that my anger can get things changed.

Both are very selfish motivations, in the sense that they are about me, and I think of those people who don’t get angry – or at least exert more control than I do, and I see a sublimation of that selfishness.


I was troubled  by last night’s episode of Coronation Street last night, in which David Platt vowed to stay angry about the death of his wife and was seen plotting revenge against the accomplices of the killer. David has become an avenging fury , using anger as a means of working through his troubles. Bearing in mind the senseless killing of his wife, it is hard not to sympathise.

And yet you sense regret will follow his anger. Cutting off a young girl’s hair- as David has just done to someone bullying his niece is one thing, but we all know the scope and depth of David’s wrath.



The very public spat between two factions of the TTF is an example of anger working in different ways. Andy Agethangelou -who has kept his feelings to himself- has continued to champion Transparency and made this conference happen. Undoubtedly it will be a good conference and will do more good than can be achieved by continuing to be angry with his pact with the Investment Association. This is why I am going and supporting Andy, I cannot be angry with him despite my feelings of anger about his earlier behaviour.

As regards the L&G meeting, I suspect that some of the people I have criticised last week will be there. Will my anger – expressed in the blog- make any difference- I very much doubt it. It brings me only remorse. As with arguments with the IA, there is little to be gained from regret, better to have apologised, learned a lesson and move on.

When our panel met last week , we spent some time discussing how the change we had brought , had happened. It had not happened because of our anger that things were wrong but because of our desire for things to be right. Our conversation was about how we had made things better.

Those who historically have created most change- Ghandi, Mandela, Martin Luther King have changed things because they had a dream, their anger drove them to take positive action. I sense that David Platt- who has no end game other than revenge- will see his anger destroying himself.

Looking back at my anger over the conference and how it created negativity, I can see where I went wrong. Rather than put distance between myself and other speakers, I could and should have worked to bring those speakers to me. This is how Andy has got past the problems his alignment with the IA created. It is how I intend to meet the challenges of next week


I share this blog because I know that many, like me , suffer bouts of anger and feel remorse when that anger spills over and creates unexpected consequences.

Yeats wrote

The best lack all conviction, while the worst
Are full of passionate intensity.

But the world he was talking about was a broken world anticipating apolcalypitic and destructive change

And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

For me passionate conviction is what makes for positive change; we do not live in a broken world but a world that can be mended.

Mending things doesn’t mean breaking things on the way, it takes a different kind of anger than David Platt’s – one that channels effort into making things better.

I hope that is what will happen for Andy Agethangelou and Tom Tugendhaut on Monday and with those people with whom we debate on Wednesday.


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Floundering in the dark – the PP DC Conference


De profundis

It was a beautiful day and it was a great hotel. But I left the Professional Pensions Defined Contribution Conference profoundly depressed. Perhaps I needed  lux in tenebris (see the progress that is being made elsewhere). The problems created by “Freedom and Choice” appeared – at least yesterday – ineluctable.

The problem for the conference going consultancy fraternity (and sorority) is that no-one is making money out of DC consultancy. But this is a function of the current inefficiencies with which we are managing DC – these inefficiencies must be addressed.

We heard from a number of asset managers telling us what Joe Public thought and we gathered that Joe (and Joanne) were totally confused about what to do with their pension pots and had deep reservations about the advice they were getting.

We heard about various solutions put forward by the sponsors of this conference, all of which involved using their services and we heard from the Pensions Regulator, Andrew Warwick-Thompson about what the Government was doing to put things right.

The quality of the debate was poor

Considering the Conference was about thought leadership, we saw and heard very little all day that could be considered emotionally or intellectually challenging.

This was not the fault of the conference organisers – this was down to us – the audience and the speakers.

There was no new thinking about how we might bring the costs of delivering pensions down. No one talked about payments, no one discussed the blockchain and there was no discussion around non-conventional investment structures (ETFs for retail or mutual pooling for collective DC).

In terms of innovatory thinking, this was one of the weakest events I have attended in the past five years.

Why the quality of the debate was poor

This was a conference about making money out of DC. It talked about improving DC outcomes but the consumer was not in the room- save through vox pop videos which we viewed as if the people featured were fairground attractions.

The solutions on offer all hinged on finding ways to help people spend their retirement funds. There was virtually no interest in the savings process which now appears to have been handed over to the “auto-enrolment lot”. The fund managers see money in the accumulated assets.

So we heard from Hymans Robertson about how investment consultants can design decumulation defaults and Aon about what people want in retirement and we heard from Schroders about how diversification can reduce financial ruin and Alliance Bernstein about TDFs and we heard from Intelligent Pensions about how we should all be paying financial advisers to sort this out for us. Oh and we heard from a firm of lawyers about how complicated things are (as if we needed that after 8 hours of complication).

We must do better than this – at the very least we owe this to the conference organisers.

We need profound change to get us back into the light

  1. We need to radically overhaul governance so we start focussing DC not just on delivering good outcomes, but on investment strategies that people can understand
  2. We need to forget this silly talk about freedom and choice and focus on producing collective default mechanisms for the mass of people who don’t want freedom but want a good pension
  3. We need to have a proper discussion on risk which gets past guarantees and looks pragmatically at what level of certainty people are prepared to accept
  4. We need to explore and adopt new technology such as Blockchain, such as messaging and such as digital payments and get beyond the current delivery mechanisms which rival the Houses of Parliament for decrepitude.
  5. We need to look at the regulatory structures of DB and DC and see how a third way can be established (as legislated for in PA15).

We get what we ask for – we asked for more of the same and that’s what we got!

I don’t blame Professional Pensions for the poor quality of yesterday. People turn up to these events knowing full well what the agenda will be and they demand more of the same.

We will continue to have conferences like this for the foreseeable future until we think bigger than the immediate ROI from participating

They are constrained by the lack of innovation within their organisations; the answers to making money all revert to taking a slice of the AUM and therefore the answer is always around asset management.

Infact yesterday was a blindingly well organised event. Thanks to Milly and her crew!

I presented late and the interaction with the audience was a little thin.  I guess having had a free breakfast, lunch and tea, not many of the delegates felt much point in staying!

Thanks to those who did!



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Whatever happened to the reform of pension tax relief?


George now travels by train (thanks Sophie)

The Government’s plans to resolve the injustices of the Pension Tax Relief system appear to have been ditched. Announced in the budget of 2015, expected in that year’s autumn statement and postponed in the months running up to this year’s budge, they now appear a casualty of BREXIT.

For those who don’t remember, they were officially postponed because of the market uncertainty we saw at the beginning of the year. The market is now back to record levels but there is no talk of reigniting the radical reform being worked on by the Treasury.

Of course the real reason that tax-relief was ducked, was to give the Remain campaign a clear run. Of the many thins for Osborne and Cameron to regret, shelving good policy for political expediency will be an after thought. You always got the impression that under Osborne, pensions was a political football to kick around the yard. The kids are out of the yard now- BAU means more unfairness.

The football’s back in the cupboard.

The Government is pressing ahead with its plans for a Lifetime ISA, though the enthusiasm seems thin. Yesterday – at last – we got the detailed regulations for this product, so asset managers and insurers can get on with building the thing.

It’s a bit of an unwelcome smell for those of us who are getting on with implementing the main event- auto-enrolment. I am not in the DWP Select Committee/Ros Altmann camp of seeing the Lifetime ISA doing a lot of harm.I just with that Treasury time was put to better use.

We have terrible anomalies in our pension tax system.

  1. People who are due tax relief (or Government Incentive if we have to call it that) AREN’T GETTING IT
  2. Some people who have saved all their lives now find themselves paying penal taxation rates on income in retirement of over £35,000
  3. Meanwhile, people can have pensions five times that and pay less tax.

The blog’s not long enough to fully explain, but in synopsis; we are denying thousands of people auto-enrolled and choosing to be in occupational pension schemes (that operate under net-pay) even basic rate tax relief.

Meanwhile, those still in defined benefit pension schemes are protected to the point that pensions apartheid becomes more vivid and real every day.

The taxation system that governs pensions is fundamentally flawed so that the pension wealthy get away with blue murder while the pension poor remain so.

There was a need for tax reform- that need has not gone away.

We may have a downgraded pension minister, the Treasury may have the keys to the political football cupboard, reform may be postponed to meet the new agenda.

But the people who are pensions poor will remain pension poor and those who are wealthy will just get wealthier.

The Lifetime ISA is a confusing irrelevance.

Without Altmann in Government, there is no-one saying these things, but these things need to be said.


Posted in advice gap, annuity, auto-enrolment, pensions | Tagged , , , , | 2 Comments

Tax-subsidies on retirement advice; a waste of public funds!

true cost

The Government intends to extend tax breaks on pensions to allow those with pension pots to use them to pay for advice. The details are in this consultation document.

The fundamental premise is that taking financial advice on retirement matters from an authorised adviser is a good thing and should be encouraged with tax-payer money.

There are three fundamental challenges to this premise

  1. Advice has already been subsidised through the commission system on a large amount of money in these DC pension pots
  2. This further subsidy could encourage bad behaviours among advisers
  3. The money being spent,would better be spent simplifying pensions so the need for advice fell away.

  1. The taxpayer has already subsidised advice

Commission was paid on most advised pension products since the seventies and it meant that pension policyholders paid for advice from tax-advantaged savings. There were savings in tax and in VAT. The system of default commissions was banned post RDR and the banning of consultancy charging. Nowadays people have to opt-in to the payment of commissions rather than “negotiate out”.

The reason for this (according to the RDR) was to improve member outcomes, in practice it has also meant that many advisers have left the industry. It’s feared that there is more consumer detriment in not having readily accessible advice than in having funds raided to pay for advice.

In my opinion, the argument that contracts that have already been charged for advice, could be charged again – because the original adviser’s not around to deliver value for money- is totally fallacious. This proposal is an abuse of the tax-payer’s funds.

2. This measure could encourage bad behaviours

I was an adviser for 11 years, the last of them I was a Regulated Adviser. I know the business. Strategists within financial advisory firms will be looking at these regulations and seeing opportunities. The majority will be looking responsibly, but a minority will see this as a thieves charter.

Churn and burn

The measures encourage churning. Financial advisers who are advising on products that do not offer adviser charging are already churning funds to products that are. We see this mostly with workplace pensions, where money is switched out of cheap defaults into expensive alternative investment strategies (from which adviser charges are taken).

The new proposals will encourage advisers to transfer funds from low-cost products into other products that will allow these advisor charges to be taken. The switch of products will create costs which will be member borne, the advice will reduce the potential pension further and the residual investment product has the potential to deliver more “value” to the adviser- especially where the adviser is taking money for managing the product (the vertically integrated master-trust.

De-risking DB schemes

Taken with the increased allowance to employers to offer up to £500 of advice as a non-taxable benefit in kind, the new £500 pension-grab means that an adviser can take up to £1,000 per member without tax-detriment to employer or member.

This makes de-risking of DB plans through advised ETV and PIE exercises very much more financially lucrative to the adviser – and a lot more attractive to the employer (who typically funds advice).

The measure under discussion is effectively a tax-subsidy on the dismantling of DB schemes by financial advisors. High transfer values (occasioned by low bond yields) make the emotional lure of “sexy-cash” irresistible to many. But those who sell their DB pension rights or exchange increases for cash are – ironically – creating the need for more advice.

The advantage for an adviser -who is (under the proposals) able to come back for second and even third dibs of tax-advantaged cash grabs- will prove hugely attractive to advisers and all too easy an option for those with pension pots.

Abuse of the 55% tax rate.

Much of the privately held wealth in pensions is now in pots which are – or will be – above the Lifetime Allowance (at whatever protection level). An easy way of reducing 55% tax problems is for those with these liabilities to pay off taxable funds to advisers.

This will mean that those who need tax-relief most- the pension wealthy will be able to get advice discounted at 55% , while those who are most in need of basic help, may not even get basic rate tax assistance on the money drawn from their pension.

As usual, the pension taxation system, regressive as it is, works against the intentions of Government Policy – which is to deliver advice to the parts of the market for whom it is currently inaccessible -eg those on median and low incomes.

On all three grounds- I see the consequences of the Government proposals as working against the stated aims of the FAMR. I see the proposals as causing yet more product churn, I see further weakening of the DB system and I see the measures being used as a tax loophole for the wealthy and not a tax- assistance for those on meagre incomes


3. This is sticking plaster on a festering wound.

The consultation calls for marketing assistance to promote this new measure. I don’t think the IFA sector will have too much trouble promoting this for themselves without further expense of Government money.

The granting of further tax privileges on already tax-priviledged money is an admission of guilt from those who designed our pension system. They are charged with delivering- over decades- a tax and regulatory system so complex that we need advice to take decisions not just on how to save for retirement , but how to spend our savings.

Rather than having a simple system of taxation applying to all, we now have a wide variety of tax treatments applying to differing claims on our retirement savings. The reason we have to take advice is to avoid becoming a tax-muppet. But to give tax back to people paying to reduce their muppertometry is the logic of the madhouse

Instead we should be investing Government funds in creating simple solutions to the problems of spending our money which rely on the payment of regular income streams, rather than the unlimited freedoms which appear to be the current default.

The sooner the Government accept that most people want a simple and easy way of getting a pension when they retire, rather than endless decisions and expensive advice – the better.

In short

If you haven’t read any of the 1000 words above and want a quick soundbite here it is

The proposal to further subsidise advice on retirement savings is ill-conceived and will be ill-executed. The Government is barking up the wrong tree. It should be focussing on making spending our savings better through encouraging better products.

Posted in advice gap, consultant, dc pensions, de-risking, defined ambition, pensions | Tagged , , , , , , , , | 4 Comments

We don’t need financial chauffeurs- we need driverless pensions.


Paul Lewis helps you find a good financial adviser

In his article “Find a good financial advisor”, Paul Lewis argues that most people do not need a financial advisor at all, and for those who insist on one, there are probably only around 4,500 independent, certified advisers that are worth finding.

The best part of half a million people reaching the age of pension consent (55) this year. The proportion of the population in the “drawdown zone” is in excess of 10m and it will grow as our indigenous nation gets older.

Paul is simply pointing out a market dynamic, if supply is there to meet demand, then the estimated demand for advice is either very low – or there is a massive under-supply.

Advice for all – reduced pensions all round?

The Government has taken a different view. Having given us the freedom to do what we like with our pension pot, they now feel we should be taking advice on how to do it and that it is a worthwhile use of taxpayer’s money to subsidise that advice with tax relief.

They have issued a consultation asking us to confirm the sanity of this madness

The logic is that of the madhouse as is the maths. Here is a worked example.

John has a pension pot of £40,000 with a guaranteed minimum pension of £8,000 per annum.

John takes advice using the Pensions Advice Allowance, also reducing the pension pot to £39,500.

John retires and begins receiving his guaranteed minimum income of £8,000 per year, just as he would have done if he had not used the Pensions Advice Allowance.

This means that the actual value of John’s pension has not decreased.

The FCA rules allow firms to reduce part of the client’s rights under the retail investment product to pay the adviser charge. This means that there is, in principle, no FCA barrier to firms offering the allowance for products with guaranteed features.

Essentially, a firm could pay the adviser £500, as long as the firm is able to reduce the underlying value of the individual’s future benefits accordingly. However, it is administratively difficult to determine what an appropriate reduction to the client’s benefits in exchange for the £500 would be.

The first question is why would John want to pay anyone £500 to be advised he will be getting £8,000 a year in benefit.

The second question is how anyone -even under the most extraordinary benign economic conditions can guarantee £8,000 a year from a £40,000 pot.

The third question is why it is administratively easy to reduce a pot of £40,000 by 1/80th but not a pension of £8,000 a year by 1/80th.

The example is so specious – it calls into question what the purpose of this consultation is.

An obsession with financial empowerment

Of the 40m of us adults fit to drive a car, the vast majority of us hold a licence suggesting we are fit and proper to do so. Only a small number of us understands how a car works.

Around the same proportion of those in retirement know how their pension works.

We do not need lesson in car mechanics to drive a car and we don’t need a financial advisor to receive a pension. However, were we to make the car complicated enough that it was unsafe to drive without additional driving lessons, it could be argued we need a mechanic to teach us how to drive that particular car.

We are building pension strategies that need pension advisers while we are building cars to be driverless. We are obsessed with employing people to solve problems that should not exist. For most people pensions should be like driverless cars, far from needing advice , they should get us from A to B with zero intervention on our part (or anyone else’s).

Building driverless pensions

Of course people will tell you that you can buy an annuity, as if that was a driverless pension. But buying a guarantee of future financial misery is like investing in a car with a siezed up engine. Yes you will be guaranteed that car will never cause any damage- but that’s because the car can’t get you from A to B.

The point of a driverless car is not that it is driverless, it is that it allows people to get on with their lives while travelling from A to B (and it certainly does not mean hiring a chauffeur).

We can build driverless cars and yes we can build adviser less pensions. Infact most people will get a driverless pension from the state. If John, in the example above , wanted to – he could convert his £40,000 and get a little over £1000 a year in extra pension. or he could look for a higher target (without the guarantees). But to do so he would probably have to pay an adviser the £500 a year that the Government consultation is suggesting is a reasonable price for mid-market financial advice.

The economics of the madhouse suggest that any financial advantage in John taking advice, would be eliminated by the cost of the advice. He would be paying a chauffeur to drive his car – hardly within the pocket of the average working person.

The lunacy of our pension system

The FAMR has got caught up in the fallacious logic that has driven the life insurance industry for decades. The assumption is that there will be advisers so the pension products are built complex. The complex products are built but nobody want to pay for the advice. The products become driverless and crash. The Government then recruits an army of financial chauffeurs to keep us all safe.

Paul Lewis didn’t need a thousand words to sum this up.

Screen Shot 2016-09-01 at 06.43.55.png

and don’t get him started on pension dashboards!

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An Apple a day, 700 reasons not to stay!

horse apple

General angst, everywhere but here!

There are a lot of people getting very angry about the EU’s determination that Apple should be paying Euro 13bn in tax to the Irish Government.

Apple aren’t happy at the prospect of corporate profits being slashed

Ireland isn’t happy at having to “eat its seed potatoes” ( a harsh reference to the potato famine)

The United States isn’t happy that not just Apple but the many other companies using Ireland as a tax haven, may find themselves paying as much to the Irish Government as they’d have been paying in the States.

Everyone is very unhappy indeed when they think of Britain, grinning at the prospect of being able to offer Apple and its likes the same sweetheart deals offered by Ireland- with their being nothing anyone can do about it.

The negative capability we reap from BREXIT

This is the negative capability of BREXIT. By which I mean the capacity of Britain to profit from the problems it leaves behind.  One of the forgotten problems (certainly in the debate we’ve just had) is Ireland. From Celtic Tiger to a property bankrupt, Ireland has swung from boom and bust with an agility only matched by Iceland. But unlike Iceland, Ireland is not self determining.

Now Ireland has found its legs, the EU is keen to put an end to the support mechanism that has got it back on its feet. Whether the analogy is to  “eating seed potatoes” or to the kicking away of crutches, Ireland does not feel it is ready and the EU reckons it is milking it.

As for Apple, it is not alone in being brought in line with other more established businesses. Airbnb is under fire in London this morning for non-disclosure of the rental patterns of its landlords (my block of flats is turning into an Airbnb hostel). Uber is seeing its profits slashed as traditional cabbies fight back, demanding a level playing field.

Nor is it alone as a US corporation  operating in Ireland.

The list of major firms operating in the Republic includes Intel, Boston Scientific, Dell, Pfizer, Google, Hewlett Packard,Linked in Facebook and Johnson and Johnson.

Ireland has benefited from $277bn (£182bn) of US direct foreign investment in the past two decades – gaining more from American firms than Brazil, Russia, India and China combined.

Ireland is riding two horse, the US corporates and the EU’s subsidies. Unlike Britain, Ireland does not have the economic confidence to ditch either. The idea of Ireland exiting the EU to keep its sweetheart deals will fill the ordinary Irish person with dread, the thought of losing those deals, will fill the Treasury with dread.

To put this in perspective, the taxes it would charge Apple to comply with the EU would more than double its corporate tax revenues. The chances of it retaining that windfall for any time are rated as zero

Given the choice, where would you choose to register your company?

I’d wager that of the 700 US companies currently registered in Ireland , the vast majority would sooner be registered in the UK, if we could offer the same sweetheart deals. Even if we offered our current eye-watering low rates of corporation taxes against the EU prescribed rates to be imposed on Apple, we would be deluged with inward investment.

The EU has handed those who voted BREXIT a remarkable validation for their decision. The bet on freeing ourselves from the inherent weaknesses of the European Union (the weaker members) looks like it may pay off.

Meanwhile Germany and France may be realising that for all the tough talking they are promising, they are playing with a diminished set of cards, their hands are looking a lot less strong and the capacity of the UK to play its aces, all the higher.

Where would you like to live and work ?

If I worked for one of the 700 US companies in Ireland, I would choose to work in Great Britain for a whole load of reasons but mostly because Britain is Great and Ireland (I’m afraid isn’t).

That may be a nationalistic statement that gets the likes of Con Keating’s neck-hairs standing up but I note that even Con is living in Britain and not Ireland. The diaspora – the Irish brain drain- continues.

If I was Ireland, I’d align myself with my old master. But that might be a little Gladstonian for 6 am on a summer’s morning in Newcastle!

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We took the plunge, now we must swim

Thames 7


I doubt if SoftBank had launched its take over bid for  ARM holdings today rather in the weeks following the referendum, it would have found life so easy.

Recent comments from Theresa May suggest that Britain will, for the first time in three decades, be prepared to intervene on behalf of long-term stakeholders (e.g. everyone but the traders).

Meanwhile, ARM’s employees and the companies that depend on ARM will have to hold their breath and hope that SoftBank’s promises are worth more than “the paper they are written on” (which Paul Myners doubts).

This morning we heard that the EU are going to twist the Irish Government’s arms to collect up to $19bn worth of back taxes from Apple. The Taoiseach will be in the happy position of getting a huge windfall for winning , and an Iphone for life if he wins!

But Ireland’s status as a corporate tax-haven for American companies looks challenged, and Britain looks the new Tiger economy, self-determining and self-confident. The question is “how much do we value British ownership?”.

Take Sage and L&G

I have dealings with two British companies of which we – as a nation- should be very proud. L&G is a great fund manager with a strong social purpose – it is an ok life company lacking much purpose. But together it is a challenger to its less upright competitors -BlackRock and State Street and (as Vanguard) it actually manages assets.

Sage is an amazing organisation that has vision and scope. It is a market leader for payroll and accountancy software and is increasingly moving into applications of its business model in education and (say it quietly) pensions. It is not just big in the UK , it is big all over, Sage North America is a challenger.

But how valued are these two great companies? Are Stephen Kelly and Nigel Wilson the household names they would be in other companies? I doubt that more than a handful of people for whom they are not CEO- know who they are?

We do not value our business leaders but worse- we do not value our businesses- until it is too late. When was the last time that we heard Big Government – Our PM and Chancellor – really banging the drum for British owned companies. I am not talking about trade delegations, I am talking about promoting the importance of these organisations to Britain’s economic progress and pride.

And what about succession?

An important point was made by a commentator on Wake up to Money. The reason we have no young pretenders to ARM’s crown, is that when a British start-up emerges from its chrysalis, it is not floating as a British company, it – typically – is part of the private equity of a fund manager’s portfolio or becomes a subsidiary of an overseas parent.

There is a fine line between nationalism and protectionism. I don’t claim that Britain has all the answers. But I strongly believe we should back ourselves as business leaders, owners and managers so that those who work within our organisations feel a sense of common social purpose.

We are succeeding from being a member of the EU to being Britain alone. We are stepping up to the plate- ready or not. The decision has been taken and though I doubt Nigel Wilson or Stephen Kelly welcomed the choice we made, they have been on the front foot ever since, talking up their companies and talking up Britain’s capacity to deliver great products and services to the world.

We jumped- now we must swim

Whether we know how to swim or not, Britain has jumped in at the deep end. We can flounder or we can apply ourselves to learning the rules of the pool.

I hope that ARM will not set a precedent for Sage and L&G. I hope that the next incubating ARM is in pupation and that behind it – many start ups – Pension PlayPen among them, are speaking with greater confidence. Britain should be a place that attracts overseas investment and I hope we see more Nissans and Hondas setting up and delivering. But I want us to have our own global businesses that we can admire and love as we admire our Olympic champions.

Being Great isn’t about being little Englanders, our greatness is largely about our diversity. When I walk the streets of London, Leeds or Slough I see a diverse nation and I see our prosperity being increased because our immigrant population – whether Eastern European, Caribbean, African or Asian, has the capacity to set up and succeed.

They jumped and they swam. So must the rest of us!


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Is “too much” money the root of all evil?

I had a very odd conversation with my partner last night while watching the Human League at Windsor racecourse – hooray! The Human League are nothing to do with this blog though I now discover they suffered from having too much money from the success of DARE.


Phil Oakey- nothing to do with the argument of this blog – but wonderful last night- xx Phil!


But back to the track of this blog…

My partner is sad because she does not know what to do with all her possessions, in particular a large house in Eton and its chattels. There is no sentimental attachment to the place, the chattels are expensive but bring us no joy, I say rent it- sell it – for heaven’s sake don’t worry about it. She worries about it.

For the amount she pays in council tax, service charge, mortgage and repairs , we could stay in five star hotels around Eton – for all the time we live at the place.

Even writing about it is probably a security risk (to those thinking of trying a little burglary, break into this place and you are on the top 10 British most wanted list).

Windsor from Eton

House with a view

So I have proved, without any doubt, that owning property does not bring happiness, nor does it bring rent if- like my partner – you consider the depreciation of the asset outweighs the income stream (anal I know). to someone who considers the sharing of the asset the only use of the asset ( Lady Lucy), this is odd. But this is another symptom of the price of things getting in the way of the value of things.

The boatyard where Lady Lucy is moored, is full of trophy boats that get driven maybe once a year if that. The idea of owning a boat seemed a good idea a few years ago but then the skittish imagination of the super-rich playboy moved on and the boat sits forlorn on its mooring.

So I have proved without any doubt, that the gf is not alone in not being able to use her money for general utility (enjoyment?) and makes herself unhappy thinking about the options she has and why none of them is without risk.

The very fine fellow who runs Hermes, Sacker Nusseibeh, has this to say about how rich people are (over) paid.

Executive pay is “out of kilter” and has gone “well beyond” reasonable levels according to a top City chief who believes astronomical bonuses “haven’t worked” because they have not made bosses perform better.




The Telegraph articleThe Telegraph articleThe Telegraph article from which the above is taken goes on to explain Sacker’s view

“The Anglo-Saxon model of giving lots of shares and a high degree of bonuses hasn’t worked and people have lost faith in business leadership,”

“Pay for top management has gone way beyond what it was before in relation to everyone else. Over the last 20 years the way people who run big businesses see their rewards has changed. It used to be a bit like mainland Europe where part of the reward is a prestigious position in society.”

Sacker goes on to argue that Hermes, when it pays bonuses – pays them for being nice. He claims this is not facetious, he just likes people to be decent, honest and behave properly towards each other.


This really brings us back to Philip Green and the problems with BHS, are at root the problem Philip Green has with all his money. The money is currently tied up in super yachts and an extravagant lifestyle. This is making Green worried , just as my gf is worried, because the property is causing him more trouble than it is worth.

Green’s standing in society is as a pariah. No one likes him and he cares. He aspires to the prestigious position in society that he thought could be bought with the dividends that otherwise would have been used to shore up his business and his pension scheme.

A number of people who I like, respect and would go out drinking earn around £5m a year, take Phil Loney and Nigel Wilson, bosses of Royal Mutual and L&G respectively.

Does the extra 90% of their pay packet that is paid into frippery , make them happy? I very much doubt it. One of the reasons I like them is that they seem to be getting on with life and doing the right thing (rather than swanning it in Monaco). They seem to cope with having too much money.


I know that both read this blog and I’d be interested to hear their views on whether the money they are being paid would be better used ensuring they have a prestigious position in society. Do they think they can have both? Or are they- like my gf and most of the people I know with too much money- is a surfeit of money the root of all evil?


money evil


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Sagacity – Be a Pension Hero

Sage have chosen and chosen wisely

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I’m proud to see Pension PlayPen’s logo sitting next to Sage’s. I’m proud of Sage for promoting those employers who pay attention to their pension as Pension Heroes.

Be a Pension Hero

Whether you are a Sage Customer or not, you should know about and use Pension PlayPen to help you and your clients through auto-enrolment.

Check out why Britain’s #1 Payroll and Accountancy Software promotes We’re only a click away.

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What is this Pension PlayPen?


When people ask me what I do, I tell them -if they’re in the Pension business- that I am a Director of First Actuarial. If they are not, I tell them I founded a company called Pension PlayPen – to restore confidence in pensions.

There are more than 8000 people in a Linked In group called Pension PlayPen and every week around 5000 people read about 10,000 articles on the Pension PlayPen blog.

But that’s only touching the surface! What I’m about is helping create the conditions for confidence in pensions to be restored. That needs more than words- that needs actions.

This blog is about what Pension PlayPen is doing this very moment to help small employers make informed choices about the workplace pension they offer staff as part of auto-enrolment!

Why we need Pension PlayPen!

We need Pension PlayPen because people are being fed a constant diet of negative stuff about saving for retirement

pensions crisis

negative stuff

And this negativity continues from the very people who should be whooping pensions up

My  monthly update arrived from the Pensions Regulator yesterday. I opened it and found this video

The video lists a number of things an employer “has” to have and “needs” to do to choose a pension.

It promises to provide help in making the choice but at no point in its 65 seconds does it mention anything to do with the member. You would think that the only reason for choosing a pension was to avoid the wrath of the Pensions Regulator.

This video defines the Pension PlayPen by what it is not!

Or to be more positive, it reminds me to remind the 1.5m employers choosing a pension as part of auto-enrolment that workplace pensions are the means to transfer money earned today into money spent tomorrow.

The Pension PlayPen is designed to maximise the efficiency of that process by ensuring that;-

  1. Employers do the right thing by the Pension Regulator (compliance)
  2. Employers do the right thing for themselves (by choosing a Workie that works for them
  3. Employers do the right thing for their staff (by choosing a Workie that delivers in years to come).

The Pensions Regulator’s video promises to make it easy to choose a pension but that promise is broken. Go to their choose a pension webpageGo to their choose a pension webpage and try “find a scheme yourself

This is what you get

Unless you want to use an existing pension scheme for automatic enrolment, you’ll need to find a scheme yourself or get help from your accountant or a financial adviser.

Find a scheme yourself

You should look at different schemes before you decide which is suitable for you and your staff. Some of the options are listed below.

If you have staff who don’t pay income tax, it’s important to check that the scheme uses ‘relief at source’ to add tax relief from the government. You should also know what to look for in a pension scheme – such as whether it will accept all your staff, how much it will cost and whether it will work with your payroll.

Some providers have had their pension schemes independently reviewed, while others are regulated by the Financial Conduct Authority.

The following schemes have said they are open to small employers:

This is simply inadequate to help any employer (whether they know about pensions or not, choose a pension.

The criteria “open to small employers” is meaningless. I could add 20 more Workies that say that, some of which are very good, some utter rubbish.

Employers choosing from this list are buying a pig in a poke. But the price of getting this decision wrong will be paid not by the employer, but by the employer’s staff for decades to come.

The way to restore confidence in pensions

Auto-enrolment has restored confidence in pensions , Pension PlayPen restores confidence in pensions.

We started Pension PlayPen as a way to choose auto-enrolment pensions , more or less when auto-enrolment began back in 2012, we opened for business in November 2013 and since then we’ve helped over 4000 employers choose a pension and twice that number assess their workforce and work out how to set up auto-enrolment.

We have won the confidence of some of the largest payroll software companies in Britain, many accountants use us for all their clients. We are used by IFAs and payroll bureaux and we get a huge number of employers using our system without any help at all.

The cost of getting a fully compliant pension (£199+vat)  is a fraction of what people pay elsewhere. This video, which we produced for Sage (where we are embedded) explains how we go about our work.


Inspiring employers to really help their staff

My hope is that people will start to think like we do at the Pension PlayPen, choosing a pension not because they “have to” or “need to” but because they “want to”.

Providing your staff with a workplace pension which can help them retire in dignity is one of the best bits of being an employer.

We shouldn’t be selling the choice of workplace pension as a chore. We shouldn’t be using NEST because the Government tells us it’s “their scheme”.

We should be engaging our hearts and minds in choosing the most important financial plan some of our staff will ever have.

With Pensions fit for heroes

I have saved all my working life and have amassed what seems a huge amount of money (to me). I am happy to say that I will be able to have a pension when I am 60 of nearly £50,000 a year for the rest of my life. I’ll be getting another £7,500 pa +++ when I get to 67.

I want other people to look forward to their later years with the financial confidence that I do.

I know they won’t get there by saving 1% of band earnings, but it is a start.

If we can build on the platform we have created, millions of people who would have relied on nothing more than state benefits, will have the chance of having a workplace pension that pays out meaningful amounts.

This is the great thing about auto-enrolment. The great thing about auto-enrolment is not the high compliance rates from employers, or the success of payroll integration or even the low opt-out rates (all of which are good).

The great thing about auto-enrolment is that millions of people who weren’t saving for retirement, are saving for retirement. These people are the heroes that make our economy work, they may not be in the news, but they make our country tick.

These people are often no more than “getting by” , but they are now putting money by.

Let’s make sure we provide them with workplace pensions that are worth the sacrifice they are making.


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A little bit of anarchy does you good


Noah – the anarchist.

I’m grateful to my Swedish friend Per Andelius for finding this. Provenance has kindly been provided by readers (see comments).

In game theory, the “price of anarchy” describes how individuals acting in their own self-interest within a larger system tend to reduce that larger system’s efficiency. It is a ubiquitous phenomenon, one that almost all of us confront, in some form, on a regular basis.

For example, if you are a city planner in charge of traffic management, there are two ways you can address traffic flows in your city. Generally, a centralized, top-down approach – one that comprehends the entire system, identifies choke points, and makes changes to eliminate them – will be more efficient than simply letting individual drivers make their own choices on the road, with the assumption that these choices, in aggregate, will lead to an acceptable outcome. The first approach reduces the cost of anarchy and makes better use of all available information.

The world today is awash in data. In 2015, mankind produced as much information as was created in all previous years of human civilization. Every time we send a message, make a call, or complete a transaction, we leave digital traces. We are quickly approaching what Italian writer Italo Calvino presciently called the “memory of the world”: a full digital copy of our physical universe.

As the Internet expands into new realms of physical space through the Internet of Things, the price of anarchy will become a crucial metric in our society, and the temptation to eliminate it with the power of big data analytics will grow stronger.

Examples of this abound. Consider the familiar act of buying a book online through Amazon. Amazon has a mountain of information about all of its users – from their profiles to their search histories to the sentences they highlight in e-books – which it uses to predict what they might want to buy next. As in all forms of centralized artificial intelligence, past patterns are used to forecast future ones. Amazon can look at the last ten books you purchased and, with increasing accuracy, suggest what you might want to read next.

But here we should consider what is lost when we reduce the level of anarchy. The most meaningful book you should read after those previous ten is not one that fits neatly into an established pattern, but rather one that surprises or challenges you to look at the world in a different way.

Contrary to the traffic-flow scenario described above, optimized suggestions – which often amount to a self-fulfilling prophecy of your next purchase – might not be the best paradigm for online book browsing. Big data can multiply our options while filtering out things we don’t want to see, but there is something to be said for discovering that 11th book through pure serendipity.

What is true of book buying is also true for many other systems that are being digitized, such as our cities and societies. Centralized municipal systems now use algorithms to monitor urban infrastructure, from traffic lights and subway use, to waste disposal and energy delivery. Many mayors worldwide are fascinated by the idea of a central control room, such as Rio de Janeiro’s IBM-designed operations center, where city managers can respond to new information in real time.

But with centralized algorithms coming to manage every facet of society, data-driven technocracy is threatening to overwhelm innovation and democracy. This outcome should be avoided at all costs. Decentralized decision-making is crucial for the enrichment of society. Data-driven optimization, conversely, derives solutions from a predetermined paradigm, which, in its current form, often excludes the transformational or counterintuitive ideas that propel humanity forward.

A certain amount of randomness in our lives allows for new ideas or modes of thinking that would otherwise be missed. And, on a macro scale, it is necessary for life itself. If nature had used predictive algorithms that prevented random mutation in the replication of DNA, our planet would probably still be at the stage of a very optimized single-cell organism.

Decentralised decision-making can create synergies between human and machine intelligence through processes of natural and artificial co-evolution. Distributed intelligence might sometimes reduce efficiency in the short term, but it will ultimately lead to a more creative, diverse, and resilient society. The price of anarchy is a price well worth paying if we want to preserve innovation through serendipity. 


Noah’s sometimes right

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It’s good to be Great.


Britain look like beating the medal tally they achieved as a home competitor. In medal terms they will be either second or third most successful competitor on this most elevated of world stages. So why should anyone question a little triumphalism. Why should I fee a little guilty about jingoism?

The short answer is that I shouldn’t.

I shouldn’t be ashamed to be competitive.

Those people who dislike competition have their own reasons. There are loads of great non-competitive things to do like join in Shakespeare 400 or watch some proms or walk in the hills . We have these Olympics once every four years and they are not a burden!

I shouldn’t be ashamed to be British – Great British.

The people who won our 60 something medals, and those who didn’t but performed with such credit show an astonishing diversity. I don’t want to pick out names, but you only have to think of the interviews to realise that the national lottery has made winning at sport , something that anyone can do. Our Olympic success was not honed on the playing grounds of Eton, we had centers of excellence around the country , our winners were as female as male, class, creed and colour has been no obstacle to Great British success.

Britain has turned itself in the past three Olympics from hapless to losers to ruthless winners.

I should be proud to be British – Great British

Whatever we voted in the Referendum, we are heading out of the European Union and will have to stand on our own two feet. For all the problems this will cause, there are new and unexplored opportunities. We will best exploit these opportunities if we are confident – proud even,

I have no problem with Theresa May making political capital out of this success, I don’t mean party political capital- this is nothing to do with Conservative politics, I mean a wider sense of national pride based on the real positives we have experienced over the past weeks.

I like to see areas like Manchester and Yorkshire boast their regional roots, but I’m also happy that these medals were won under a Great British flag that meant you were as much a part of the team if you were from Northern Ireland as England , from Scotland as from Wales. I don’t even stop to ask which regions contributed most – that is not relevant in such a team performance.

The political capital that Theresa May collects will be badly needed over the rest of her term in power and beyond,

Going it alone

I spent yesterday on my boat with a bunch of Brazilians and Italians – a wonderful day despite the weather. Of course I was proud of our performance but they were too.

Our global standing in the world in every sense is enhanced by our sporting prowess (and by the way we conduct ourselves), Our conduct in these games has been awesome.

We have not put the boot into Rio for its shortfalls, rightly so. But the achievement of London 2012 looks the greater for what has often seemed pretty shambolic. We created London 2012 in the four years after the economic collapse and delivered in the teeth of the odds.

Now we are taking on another great challenge, to go it alone without the help of our European trading partners and there can be better statement of intent as to how we go about it than our performance at the 2016 Olympics.

There is a fine line between jingoism and patriotism and we cannot allow ourselves to think there is merit in isolating ourselves. The spirit of the Olympics, like that of the Commonwealth, European and World games should be inclusive. But within the terms of the competition, to be winners, as we are, is something to be very proud of.

I am proud to be British and Great British and incredibly grateful to the dedication of our athletes, the coaches and all the volunteers that make me- and the Nation- feel this way!

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“Transparency – your tide is coming in!”


canute 6

King Canute was a wise king, he died (where I was born) in Shaftesbury, he was a Viking who became our Christian king,  he taught his court that he could not hold back the waves and that there was a greater force that controlled the tide.  Shaftesbury is the highest hilltop town in England.


The British fund management industry and in particular their trade body the Investment Association are building sand-castles on the shoreline and hoping the tide won’t come in.


The tide is technology, it is coming in – what next?

Here is  Oliver Wyman’s prognosis for the growth of the blockchain  (rather more bullish than Robeco’s recent report which I talked about earlier in the month).

In this wave, distributed ledger technology and smart contracts will likely be used in combination to store and share core transaction data.

Distributed ledgers can enable a data environment in which asset managers track their investments, develop products and provide client services.

Given the real-time nature of data transmitted via blockchain, up-to-the-minute risk and performance analytics can be made available to clients. Investors will be able to access their own transactional data through direct ledger connectivity or via vendor-provided interfaces in real-time, providing a new means of self-service reporting.

We expect these Wave 2 applications to be developed in stages and to begin to be adopted in the next two to five years.

Initial pilots may run in parallel with existing processes to minimize any unwanted effects on clients. As the overall ecosystem and end users build up their confidence in the distributed ledger solution, we will see volumes begin to migrate.

Over time, redundant back- and middle-office data infrastructure can be retired, cutting costs.

The really important paragraphs (to Transparency of costs and charges) are the first and last paragraphs.

Distributed ledgers ( of which the Blockchain is one) keep records. They do so in real time, records are immutable , nothing can be hidden. They will result in a more transparent view of what we are paying for funds. As a result we will have a reliable source of data for the “money” element of “value for money”.

This technology will also drive down the cost of intermediation by making back and mid office infrastructure redundant.

Not just funds but fund administration and member record keeping systems will adopt the new distributed ledger technology. I am urging those that will listen to wake up to this and not sink more money into shoring up our sandcastles.

But people are worried, people taught to look at change in terms of risk, see the disruption of our “business as usual” as a threat not an opportunity.

Depending on you glass full/empty perspective, this either means moving people from costing money to adding value, or it means mass redundancies. The immediate impact of Christmas , is not best left to turkey.

The tide is coming in -either you rejoice or you fret

Anyway the new distributive ledger technology will reduce the cost of providing pensions. Let’s think about the positive implications

  1. We will be able to know that any charge cap is a cap on what we pay, not what pension providers want us to think we pay
  2. Pension providers will become more efficient and either hideously rich or a lot cheaper for their customers
  3. People’s confidence in workplace pensions will be increased, they may start to be trusted by the “mass of the market”.

The vision of the Pension Plowman

There are other consequent benefits for other parts of the market. For those running de-risking programs the liability driven investment algorithms will be commoditised, the expensive investment consultancy fraternity will have to hand in their notice and go and do something productive (Redstart for instance).

In the City, the trading floors can become excellent five aside football pitches.

The Investment Association will become a proud flag bearer for a new self confidant asset management industry that makes its money from managing assets – not trading them.

The tens and thousands of people , released from staring at computer screens all day, will be free to do something constructive with the rest of their lives.

Some of this is fanciful, but it is a fancy devoutly to be hoped for.

King Canute was a wise king, he saw that he could not withstand the inevitable impact of the tide and taught others the same lesson.

He got wet doing so – and is often remembered as foolish – simply for getting wet.


But those in the know, see him as something of a hero!





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Very “interest”-ing

For millions of savers, the most important piece of financial news over the past few weeks has not been about the impact of bond yields on pension liabilities or their mortgage interest payments or the state of the stock market. It has been the announcement from Santander yesterday that it is cutting the interest rate on its 1-2-3 account from 3% to 1%. In advertising terms – Jessica Ennis-Hill has gone from gold to silver.

Screen Shot 2016-08-16 at 06.04.11

Some of my readers may find Martin Lewis’ reporting a little over the topMartin Lewis’ reporting a little over the top. But he is read by more ordinary people in a day, than this blog is read in a year.

Money Saving Expert (MSE) is the first place for financial information (and education) for those who don’t rely on financial advisers and this is his advice for savers.

“Many millions of savers across the UK will feel like they’ve been kicked in the teeth. Santander 123 has been a beacon, shining out for those with a decent chunk of cash, as at 3% it pays decent interest. Now it’s halving that, meaning for those with £20,000 saved, it drops from roughly £600 to £300 a year.

Both Lewis’ – Martin and Paul, realise that their readership are more interested in savings rates than mortgage rates and both refuse to endorse the payment of dividends from shares as a way of increasing the income a saver receives.

This is ,of course, because they understand that savers cannot live with the idea that their capital is at risk from a downturn in profits (or that the source of the dividend payments may go out of business).

“Interest”-ing indeed.

Just as savers are digesting Santander’s move, so institutional investors are mulling over a report published this morning from the actuaries LCP. This tells us that companies have been paying too much interest (dividends) and suggest that the money might better have been paid into pensions (though pension schemes rely in part on high dividends to pay out pensions!

The report is timely as it reminds us that had Philip Green spent BHS profits on bolstering the pension, jobs and pensions might still be intact. In BHS’ case – not even other pension funds benefited from the dividends which simply went to buy the Green family a good lifestyle.

The institutional debate is about priorities and the headline from the LCP report is that UK companies pay five times as much to shareholders as they do to their pension schemes.

For hardliners like John Ralfe, any thought that the guarantees within pension schemes could be weakened (as proposed for Tata Steel) is unthinkable

“Why should pension scheme members lose out when shareholders continue to be paid cash dividends? It can only be fair to members if dividends are stopped and they can only start again once the full RPI lost is paid to pension scheme members.


So Santander is being pilloried by Martin Lewis for not paying enough interest on 123 while corporates are being pilloried for paying too much interest – ALL IN THE SAME DAY!

I’ve said it once and I’ll say it again, the proper place for pensions to be invested is in assets linked to the economic prosperity of pensioners. Sticking money into 123 is all very well but the interest is subject to the vagaries of a Bank’s marketing policy.

Companies have a duty to reward shareholders first and their pension schemes should share in the economic prosperity of our companies through dividends. Pension Schemes should not be strapped to the arbitrary returns of the debt market as their sole source of income (much as John Ralfe would like that).

Pension Funds should be free to own equities; executives should be free to reward shareholders with dividends (unless in special circumstances such as BHS, there is no general share ownership). Private Investors should wake up to the fact that they are retired for a long time and that depending on savings accounts such as 123 , is a risky long-term proposition.

Not confusing at all – it’s all about time.

Einstein called time the fourth dimension, time (or duration as investment people call it) is the key dimension for investment. Savers have time to be invested in shares which deliver steady returns through dividends. Unless they need the capital, in which case they are not long-term investors, they can afford to ride out the ups and downs of the stock-market.

Like pension funds, savers looking for interest need to think beyond cash or gilts and consider shares.

Pension funds are being herded into a cul-de-sac where all they can invest in is cash and bonds and they are missing out on dividends as a means of staying solvent. We need to target good outcomes – we cannot guarantee them

Savers are being herded into accounts like 123 and anywhere else where rates are high. They would be better off investing over the long term in blue chip stocks paying regular dividend incomes.

The “Far Off”

Everything comes down to the extent of your vision. If you go to to the Georgia O’Keefe exhibition at the Tate, then you can see how she paints what she calls the “far off”. The Far Off for O’Keefe seems to be a landscape concept , though you sense as you walk the rooms that she is also talking about old age and the spiritual speculation on what happens on the other side.

These are precisely the considerations that we should be having about our long-term savings, especially about our pension savings.

Encouraging investment for the “far-off” means investing in things- investing in the means of production – in land, physical property, infrastructure, businesses and intellectual property. It doesn’t mean jumping from one high interest account to another, or trying to pin the tail on the donkey by tying pension schemes up in derivative contracts designed to limit the downside of interest rate rises (aka LDI).

The Far-off is fundamental- we are all living longer- durations are increasing. We are increasingly investing for the “near-term” – a function of mark to market accounting , capital preservation, loss aversion – investor funk – CALL IT WHAT YOU LIKE!

A new vision needed

I will say it again, we need a new vision for retirement investing which allows people to benefit from the long-term growth in economic prosperity, which aligns investment to company performance so that one fuels another.

This cannot be achieved by rate hopping or by LDI, it requires people to accept capital to be at risk and that pension schemes can- at times- live with more risk than is currently acceptable. It may even mean that some pension promises are conditional on stock market conditions (principally the size of pension increases).

Whether our aim is to make DC savings more certain, or DB schemes more sustainable, we need a new vision which allows investors to benefit from equities with the security that comes from collective endeavour.

I am a Friend of CDC, this is part of the vision of the Pension Plowman. Throw your computer at the wall, if you don’t agree (or better still- comment).

We need the debate.


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Pension Transfer Offers – should you take yours?



I urge you to listen this excellent podcast (skip to 1 minute to avoid the ad). It’s led by Jo Cumbo and has the thoughts of a couple of IFAs (who I don’t know). At 13 minutes long it can only touch the surface of a busy subject.

Pension transfer values have never been higher and occupational defined benefits pension schemes have never been more under pressure. Pension Scheme Administrators are being inundated by transfer value requests, resulting primarily from financial advice suggesting there may never be a better time to get out.

If you want to get the chapter and verse you can go to the Money Advice Service who have a lot of not very snappy stuff which you can access here.

But you are reading this blog to get insider insights and my personal views so please read this first!

My view is that there are a lot more reasons to be careful than are stated in the Podcast, the MAS advice or by (most) financial advisers.

A common myth (dispelled)

Unfortunately the Podcast perpetuates a common myth that at CashEquivalent Transfer Value of a defined benefit pension comes from the employer. It doesn’t – it comes from the trustees and that’s a very different thing. The IFA may have made a slip of the tongue but he should have got it right. What an employer and trustee consider “fair value” can be quite different things.

The trustees answers to the members, the employer to shareholders (or equivalent). The trustees’ idea of fair value is likely to be more member friendly!

Everything I say about CETVs is predicated by my view that they are fair value- even if they may not be a good idea.

Most of us swap pension for tax-free cash without a thought.

People often think that the only way you can take a cash equivalent to your pension , is by taking a full transfer (CETV). This is wrong. Most people in defined benefit schemes take tax free cash ; generally this is considered a no-brainer, but it isn’t.

As the Podcast says (rather often), CETVs are very attractive now as they can offer a cash equivalent valued at 40 times the pension. This reflects the fair value of what is being given up. However the rate of exchange between pension and tax-free cash can be as low as 10 times the value of the pension.  People take tax free cash because it is tax free, but if you are giving up 50% + of the value of your pension for the privilege, you should be asking yourself  “is it worth it”.

If you have been paying AVCs , you may be able to take the AVCs as cash, in which case you should get fair value on the AVCs.  Don’t forget you can still get 25% tax fee cash from any pensions you have built up in DC pensions (workplace or otherwise).

Swapping pension for tax-free cash may be a good idea, but very often it isn’t.

What about the special offers?

From time to time , members of defined benefit pension plans are made special offers to give up their pension. Most people know about Enhanced Transfer Values, where the trustees are allowed (with general agreement from the employer) to increase the transfer values for a limited period. A lot of people have taken these values  in the past (and a lot of advisers would be very nervous if those who did realised what the normal transfer value would have risen to , if they hadn’t).

Another type of special offer is known as “pension increase exchange”. Here the special offer is a transfer or even a cash payment made available in exchange for the member giving up increases on a pension. Since increases on pensions are currently very low , these look very attractive offers (though you are taking a bet that inflation doesn’t take off in the future).

The important thing to remember is that however attractive the cash equivalent, what is being given up is the certainty of the money being paid. There is no certainty that you will be able to manage your money better than the trustees and beat them at their game, indeed the cards are stacked against you.

As the podcast states, the fair value relates to the average person. While no-one likes to think they are average, there are very few people who can predict that they will have below average life expectancy in their sixties and a lot of people who take the wrong bets on their marital status pre and post retirement. Certainty comes at a premium and that premium has a much higher value than those marketing “special offers” imply.

The IFA who likes you to consider , “Good value as an individual and relevant to your personal circumstances”, may be preying on our natural tendency to underestimate how long we will live and our dependent’s need for dependent’s benefits.

Special offers usually come with a catch – why else would you be being sold them?


What about the employer covenant?

It’s generally thought that where someone has a large defined benefit, they are most at risk from being in an occupational DB pension. This is based on the reduction in benefits they’d suffer if the scheme went into the pension protection fund.

But this is a very simplistic view. For a pension to be large enough to be reduced it needs to be £30k pa or more. But a CETV on £30kpa pension is likely to be more than £1m – the current Lifetime Allowance. What you may be doing  by swapping an uncertain pension for certain cash equivalence is increasing the certainty of paying 55% tax. Your pension – so long as it stays that, is valued at 20 times the pension for LTA purposes, your CETV is valued at 40 times.

The disparity may be even bigger with some early retirement pensions which are even more valuable as CETVs but still get the very low 20 times valuation against the Lifetime Allowance.

The scaremongering over BHS will panic some people into taking CETVs.

CETVs may reduce the risk of a clip from the PPF, but they exchange it for the certainty of punitive taxation on the unprotected transfer.


Don’t panic – stay put and only move if you have special circumstances.

One of my college friends (an actuary) has recently died. He spent the last few years of his life living off a CETV which he drew down at a tremendous rate. He knew what he was doing, he knew he was dying.

He is the exception that proves the rule

The perversity of pension freedoms is that they encourage to live hard die young, pensions encourage us to live healthily and long.

People who jump to get the current high transfer values are probably right in thinking they won’t go higher (though interest rates could fall and push them up). But a decision taken in 2016, may have implications for you in 2056.

Please don’t be panicked into taking a CETV , sacrificing your pension increases or even taking tax-free cash. Think about your long-term future, try to think of yourself as average (or better) and think of your family.

Finally – take this advice – which I give you for free -as no-one else will give it you!

The best way to maximise your pension is to have one and stay healthy!

I have no intention of dying young if I can help it and will be buying pension, taking my defined benefits as pension and I won’t be exchanging any pension for tax-free cash.

I consider my pension an excellent incentive not to over-drink, smoke or be lazy in retirement.

If you want to be really savvy and have a pension or an annuity, for heaven’s sake stay fit and don’t put your health unnecessarily at risk.

Jo’s produced a full article on this which you can find at

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Mark Carney v Barononess Altmann

In the Bank’s corner – Mark Carney

Bank of England

In the Saver’s corner – Baroness Altmann

  • Monetary policy is not helping ordinary people and low rates may be doing more harm than good
  • Ordinary savers are being hung out to dry and pension problems have worsened
  • Government should issue more high interest 65+ guaranteed growth bonds – but for all age groups

The latest decision by the Bank of England to cut base rate from 0.5% to 0.25%, as well as expanding Quantitative Easing by £60billion, is supposedly designed to boost the economy.  But millions of savers and pensioners are suffering serious potential income shortfalls as a result of this policy.

I believe the damaging side-effects of low interest rates have been under-estimated.  Not only are significant sections of the population being hit near-term, the consequences for the medium and longer term are also negative.

Bring back special savers’ bonds:   As the banks no longer want or need ordinary savers’ money, the Government could offer better interest rates directly.  Bringing back the special savings bonds that were issued from January to May 2015 for the over 65s, but this time for all age groups, would prove popular.  They had market-beating interest rates of 2.5% or 4% and were the most successful financial product for years.  A new issue of such bonds, but not just limited to older savers would reward savers for setting money aside.  This is vital if we are to sustain a savings culture in this country.  Until a few weeks ago, the Bank of England had been suggesting the next move in rates would be upwards – signalling some relief for savers after years of misery.  Now that rates have fallen even further instead, the authorities need to consider the impact on prudent people who want to provide for their own future.  The Government also needs to consider how to help companies that are struggling with rising pension deficits.  Issuing special bonds for pension funds, offering to underpin investments in infrastructure and housing, would be direct ways of helping alleviate the damage of monetary measures.  The Government needs to find ways to offset the negative side-effects of the Bank of England’s latest moves.

What is the damage to savers?  With interest rates staying so low for so long, and rates continually falling further, savings incentives and savers’ incomes across the economy are being destroyed.  This has two damaging consequences which could actually weaken economic growth.

Lower savings income means savers save less and spend less:  Firstly, many people who have saved over the years for their future are facing further income falls.  This may cause them to cut spending, especially if they are in retirement and cannot see a way for their income to increase in future.  Indeed, many savings account interest rates are being reduced by more than the 0.25% rate cut.  Banks and building societies do not need to attract savers now, as the Bank of England’s decision to introduce its new Term Funding Scheme gives the banks cheap money directly from the Bank of England instead.

Destroying saving incentives for younger generations:  Secondly, many people are deciding it is not worth bothering to save as the returns are so tiny.  People who might have saved but decide not to bother will be poorer in future.  Young people are losing the savings culture that the current older generations often grew up with.  Modern societies still need savers, especially as life expectancy increases and the population is aging rapidly.  This lack of savings, and potentially higher borrowing risks damaging growth in future.

What is the damage to pensions?  Again there are two damaging consequences for pensions, both of which are likely to weaken growth.

Rising annuity costs means less pension for life:  Firstly, as interest rates are pushed lower, the costs of buying an annuity have soared.  People looking to lock into a guaranteed lifetime income will be offered much less pension than ever before.  Even if the value of their pension fund has increase a bit, the cost of annuities has usually risen by much more.  And, of course, once they lock into an annuity for life their income will never recover, even if rates rise in future.  So pensioners will have less money to spend, which is hardly an expansionary policy.

Pension deficits weaken company growth prospects and reduce pension contributions for younger workers:  Secondly, employers who are running final salary-type Defined Benefit pension schemes are facing much higher deficits as a result of the expansion of QE.  As gilt yields fall further, employer pension liabilities have soared.  Just today, the Pension Protection Fund PPF7800 index announced that its measure of pension deficits rose last month to around £400billion.  It will rise further this month as a result of the extra QE.  This will weaken the employers sponsoring such pension schemes, damaging their business prospects, potentially preventing them from investing or borrowing to fund growth and sapping corporate resources away from both their business and employment expansion.  As most private sector final salary-type schemes are now closed, the rising deficits are likely to mean employers have less money to spend on providing good pension contributions for those workers who do not belong to these schemes, – usually younger employees.

Monetary policy is too focussed on financial institutions and borrowing:  Monetary policy seems to be overlooking the negative consequences on households (and parts of the corporate sector).

Low rates do not necessarily help mortgage holders and QE has led to rising rental costs:  Typically, if short-term interest rates fall, borrowers’ incomes increase, and they are expected to spend more (or even borrow more to finance extra spending).  However, falling base rates may not help borrowers as much as expected.  Mortgage payments are a major element of household borrowing, but around half of mortgages are on fixed rates, so they do not benefit from the base rate cut to 0.25%.  Indeed, the other element of monetary policy – QE – has damaged especially younger people because it has caused rising property prices.  Ordinary people have to either take out a much larger mortgage to get on the housing ladder, or must pay much more in rent.  So monetary policy has made them worse off.

The Government could help offset damaging impacts of monetary measures:  Because these changes in Bank of England policy have many potentially harmful side-effects, the latest loosening of monetary policy may need to be offset by fiscal measures.   Certainly, the transmission mechanisms of lower interest rates are very indirect – relying on sellers of bonds to boost asset prices or stimulate extra borrowing.  More direct help is likely to have a better outcome.  The indirect stimulus cannot be relied upon to prevent an economic slowdown, while direct measures to increase household incomes and spending, as well as helping offset the effects of rising pension deficits, will be more beneficial to the British people.

This blog first appeared here 

This is a binary decision – which approach do you favour -and why?

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Your ten point checklist when choosing a pension


Feeling a little helpless?


The law says you have to choose a workplace pension for your auto-enrolment eligible staff. But it doesn’t say how! The Pensions Regulator’s website, while excellent on auto-enrolment compliance, is pretty hopeless in helping you choose a pension.

So we thought we’d produce this handy “cut and paste” guide to choosing a pension, which can sit on any adviser or accountant’s website!

Feel free to share!



The decision you make may have consequences – this ten-point checklist gives you some quick pointers to the kind of pension scheme you should have.

If you want to make an informed choice then we suggest using www, which not only helps you choose, but provides you with an audit trail and actuarial certification of the decision you’ve taken


What to watch out for What you can do about it


Pension providers who don’t want your business Check with who you are talking with that you qualify for their service. Do a workforce assessment (you can do one for free at; share this with your provider.


Though some pension providers say they take everyone –it is best to check – even NEST doesn’t take everyone (See 6 below)


Earning patterns

Low earners with variable earnings and high earners with tax issues


If you have high earners with complicated tax affairs

If you have low earners who pay no tax beware schemes that operate a net pay arrangement (you may deprive staff of tax-relief



Talk with your high-earners about tax-relief , they may need advice and could benefit from a net pay scheme


Age profile

Mature staff with a long CV





Young tech savvy staff

Mature staff may have a number of “deferred pensions”, they would benefit from a scheme where they can bring their pots together and use the scheme to get pension freedoms.


If your staff are mainly young and tech-savvy ,look at tech-friendly schemes which offer phone friendly web-services


Pension experts

Pension gurus on the payroll! Bring them into the decision making process and make sure you have a way to compare all the schemes they’ll ask you to look at!

Payroll issues

Complex payroll periods



Offshore payroll

Speak with your payroll software suppliers, you may find they can point you to payroll friendly providers.

Payroll software companies have huge experience and will  want to help


Declare this to any provider you talk to, Many (including NEST) will only take money from UK bank accounts

6. Financial education Staff wanting guidance and education at work Some providers will allow members to pay for financial advice from their pension fund (adviser charging).


Other providers offer pension training either face to face or thorough distance learning within the standard price. Members cannot be forced to pay for financial advice as this would be considered “commission” and is banned


Special offers

Trade memberships Your or your adviser’s trade association may have special terms with some providers. Examples include the FSB, the ICB and trade bodies for seafarers, charities and social housing organisations.


Even hairdressers have their own “special deal”. Beware , not all these deals are as special as they make out!



Existing workplace pension(s) Take great care. Ask your existing provider if your scheme can be used for auto-enrolment and don’t assume it can. Even if it can, it may not be your best bet, shop around before committing.


If you choose a new provider, check you can move the old scheme into the new one and whether this can be done without getting every member’s consent,



Day traders on your staff Talk with your staff, you may have an investment guru (or someone who fancies himself one!) There are some schemes that have sections for self-investment.

Personal Service Workers

People eligible for a pension contribution you don’t even pay! Just because you’ve assessed those on your payroll, doesn’t mean you’ve assessed your workforce. You need to check your contractors to make sure they don’t merit membership.


Be sure to tell your provider if you find personal service workers, they may not want to include them which could invalidate your scheme as a qualifying workplace pension


And here are a few questions we are asked all the time!


Should I take independent financial advice?

In an ideal world you should pay for face to face with an independent financial adviser, but they are few and far between and regulated advice is expensive. You can get a 95% solution from a robo-adviser at a fraction of the cost.

How can I stay out of trouble if I don’t?

The main thing is that you know what you are buying for your staff and can explain the basis of your decision. You cannot predict whether the pension you choose will work out the best but if you have a proper audit trail of how you chose the pension, you should be thanked by your staff and stay safe from the risks of litigation.


Will we as an employer be giving advice to our staff?

So long as you don’t tell your staff what to do, you are safe. Choosing a workplace pension for your staff is not regarded by either the Pensions Regulator or the Financial Conduct Authority as a “Regulated Activity”.


What can we tell our staff?

The Pensions Regulator is keen that you promote your workplace pension and encourage pension saving. We recommend that you produce a report for your staff to see that tells them how you made your choice. We also recommend you get your decision certified by a professional such as an actuary so that your staff know you’ve followed due process. Both the report and certificate are part of the service offered by


For illustration only – these rating are historic and not to be relied on today!

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The charges of the light brigade

light brigade 1

Charge for the guns he said



The publication by the Investment Association of a report that puts hidden costs in funds on a par with the Loch Ness Monster has been met with elation by fund managers and derision by their customers.


Robin’s right; I remember the pressure on Eagle Star in the early 90s not to introduce “non-smoker” rates on life policies. It was – according to then owner BAT – an admission of a clear link between smoking and death!

In our office we had a sign which thanked us for smoking and cigarettes were freely available from silver canisters on the boardroom table. I remember presenting at one trustee meeting and having difficulty seeing the other end of the table for smoke.

If Hubris increases proportionate to the imminence of calamity, then the days of charging opacity are numbered!

But let’s apply some simple emotional intelligence to the IA’s behaviour. The Investment Association is a member’s association; it is the voice of the members and can say what the members would like to say but cannot.

The guffaw that emanated from 23 Camomile Street when the presser was launched would have resonated through the marketing departments of any number of London and Edinburgh fund managers.

“This is precisely what members pay their subs for- well done the lads for sticking two fingers up to the cheese eating surrender monkeys at the TTF”.

It’s a dangerous card to play.

Dangerous because the “empirical evidence” that the IA underpins its arguments on , is largely discredited. To take an example, the methodology behind Fitz Partner’s Portfolio Turnover Rate (PTR) calculations was rejected by those designing MIFID 1 and has never resurfaced. Calculating PTRs as the lower of the buys and sells went out with the ark.

I will leave it to Con Keating to properly demolish the creaky bark. I’ll focus on it’s kelson.

The IA claim that for an average charge of 1.59%, the aggregated fund manager produces 0.71% outperformance. That means that more than twice as much value is retained by the agents as is returned to the owners. I cannot think of any other industry that prides itself in charging twice as much for a service as it delivers in value.

Even if we were to accept these figures (which nobody outside of the IA’s membership and tame consultants will), this is an admission not a boast.

Only in the surreal world of fund management can managers claim value for money on this basis. VFM, relative to what? Presumably relative to the 2 and 20 hedge fund managers that they aspire to be

A dangerous game

light brigade 2

Lipkin and co have had their fun, the riotous fun of the press release is followed by the hangover and the question

“what have we done?”.

What the IA has done is tied itself to some pathetically inadequate research which provides selective data through an archaic methodology to give the troops a lift.

But they have exposed themselves as a lobbying outfit that has no authority, no integrity and no place in the policy debate. The FCA should look at this shabby document with contempt. The tPR should hang its head in shame that it points those reading its DC Code to the Investment Association’s 2012 Voluntary Code of Conduct.

The Investment Association have no earned authority, no integrity and have no place at the policy debate. Those who sit on the IA’s Advisory Board should stand up, resign and walk away. The Board is a sham and the new Code which the IA has yet to publish is already discredited. It has no place in the policy debate, should have no influence on IGCs, Trustees Boards or in the DWP’s deliberation on what the charge cap v2 shold be.

The IA is playing a dangerous game of bluff and is being called.

It’s strength is its weakness

The Investment Association has always called upon the solidarity of its membership to provide the powerful lobby to ensure it retained control of the costs and charges debate. It relied either on a Labour Government with insufficient gumption to take them on, or a Conservative Government with too many fingers in their pie.

It would seem that the current Government has decided to be on the side of those “just getting by”. The British Fund Management industry is many things but it is not “just getting by”.

The Investment Association’s membership is not the fantastic success story it thinks it is. It has got rich by charging twice as much as it has delivered value. It has done so for years because no-one knows where it takes its money. Now people know where the money is going (and we’ve seen the hidden charges), the game is up.

Like the tobacco industry in the 60’s and 70’s the IA has failed in the last decade to put its house in order. Instead it has made itself the pariah of those it serves. Like the tobacco industry in the following two decades, it will see itself having to re-organise, accept lower margins and adopt the new technologies that it is currently ignoring.

Ideas like the Blockchain which are almost unknown in fund management circles, will make the current inefficiencies a thing of the past. But it will also make thousands of those who work in funds redundant and will render the IA a shadow of its former self

Sometime in the “autumn”, the FCA will publish its market review of the fund management industry and those consultants who serve it. I expect that review to adopt a more sombre tone than the IA press release and for it to be greeted with rather less hilarity by the IA membership than this summertime jape.

For the money that pays for the petrol in the tanks of the Ferraris, is earned by people who are just getting by.


Into the valley of death

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The weight of a nation v the next Philip Green


The DWP Select Committee, currently the only centre of pension’s expertise in the House of Commons, has called for written evidence on Defined benefit (DB) pensions regulation by the Pensions Regulator (TPR), including:

  • the adequacy of regulatory powers, including anti-avoidance provisions

  • the application of those powers, including in specific cases other than BHS

  • the level and prioritisation of resources

  • whether a greater emphasis on supervision and pro-active regulation would be appropriate

  • whether specific additional measures for private companies or companies with complex and multi-national group structures are required

  • the pre-clearance system, including whether it is adequate for particular transactions including the disposal of companies with DB schemes

  • powers relating to scheme recovery plans

  • the impact of the TPR’s regulatory approach on commercial decision-making and the operation of employers

It also calls for submissions about The Pension Protection Fund (PPF), including:

  • the sustainability of the Pension Protection Fund
  • the fairness of the PPF levy system and its impact on businesses and scheme members

The role and powers of pension scheme trustees

Relationships between TPR, PPF, trustees and sponsoring employers

The balance between meeting pension obligations and ensuring the ongoing viability of sponsoring employers, including:

  • TPR’s objective to “minimise any adverse impact on the sustainable growth of an employer”
  • whether the current framework is generating inter-generationally fair outcomes
  • whether the current wider environment, including very low interest rates, warrants an exceptional approach

In each instance, recommendations of potential improvements are particularly welcome.

We can submit our views through the Pension Protection Fund and Pensions Regulator inquiry page.

This is a matter of national importance and the DWP select committee is fit for its purpose.

This is how democracy should work and I hope that those reading this will apply their mental resources and their experience to the task.

My thinking is this. We have a Pension Regulator that knows the scope of its powers and has shown that at time, such as in the negotiations with BHS, its powers are limited.

One of the questions is whether we should reform the powers of the Pension Regulator, or reform the system of corporate governance that allowed tPR to be given the run around.

Another question is how those , like Green and Chappell who game the system, are gamed by society. I use the word “game” as anyone who can employ unlimited legal and financial advice – can play the system.

If we applaud such behaviour by reading magazines displaying the protagonists on their super yachts, we are endorsing the “winner takes all” morality set of the wolf of Wall Street.

If we decide that the yacht owners are anti-social and that their lifestyles have been at the expense of thousands of former employers, then we need to do more than stop reading glossy lifestyle magazines.

What sanctions we can apply to Green and his like are unlikely to be financial, he has- in the eyes of the law- done little wrong, and whatever law we write, Green will find lawyers and financial advisers to subvert it.

A social contract

I think it more likely that we will create an environment where the likes of Greene cannot carry out their casual wealth transference, where behaviour of his kind, is so discouraged that it ceases to happen.

The open media we now has that means that from Jo Cumbo and the FT to the humblest tweeter, the questions that the DWP are asking are openly discussed, leads to answers that are democratically arrived at and carry the weight of a popular consensus.

I don’t mean mob rule, I do mean open Government. A social contract can arise from a society that is properly engaged in the subject at hand. If you include the millions of us who are benefiting from defined benefit schemes (either today or tomorrow) provided by the State, then every member of society has an interest in pensions.

The narrow sub-set of corporately sponsored defined pension schemes (such as BHS) actually cover a relatively small amount of the workforce and they are diminishing fast as the flow of future accrual slows to a trickle.

But the opportunity to redistribute wealth in the playful fashion employed by Green doesn’t end with these questions. You can read about the Gamification of the poor every day on this blog.

We cannot as a society decide that what Green does is bad, when we have an occupational DC industry that tolerates not paying Government Incentives to our poorest contributors.

The social contract I would argue for is one that – as Theresa May would have it- is on the side of those “just getting by”. For the contract would seek to redress the institutional bias that allows money to flow in one direction only.

The weight of a nation

If I can indulge in a moment’s patriotism, I am very proud of being British and having the opportunity to contribute to the DWP Select Committee’s call for evidence.

I don’t think that comment on this subject should be restricted to actuaries and other pension experts, though I suspect they will form the body of responses. I hope that those in retail financial services and more importantly those yet to receive or in receipt of pensions will contribute as participants in the retirement business.

So please – if you are reading this, look at those questions and ask yourselves whether you have views and- no matter how silly you may feel in doing it – make those views known.


He wants to hear from us

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So who gave Mark Carney the keys?

Mark Carney

The man with the keys

Ros Altmann, along with many others is concerned that a side-effect of the measures announced to bounce our economy out of  Brexit blues, will be to require employers to pump money into pensions and not into jobs, research and building new orders.

She’s right, but for all the wrong reasons. Pension Schemes should never have handed the Bank of England keys to their solvency in the first place. They should have stuck to the economic purpose of long-term investment and remained in equities.

Ironically, that is precisely what retail investors are doing in their retirement, choosing to live off the dividends (with limited capital drawdown) and avoiding the death star of annuities.

Of course “purists”, such as John Ralfe will continue to throw the text-book at trustees, demanding they match their liabilities with best fit assets (long term gilts and bonds) and trustees will continue to do so. Those forced to go down this route will either have protected  themselves through derivative based hedging programs, (in which they- to a degree-  immune to the QE virus) or they are now having to return to their sponsors with the biggest betting bowls yet. That’s where text-books get you.

Retail investors are driven by common sense.

We will not invest in annuities or buy long-term interest streams which only guarantee to lose us value in our money.

We will seek out opportunities to set our money to work. People want to invest in real things. They don’t want to invest in IOUs and have no ownership in what happens to their money. Investing in “debt instruments” is fundamentally not what most of us want to do.

I would rather own a house than own the string of interest payments being paid by the house-owner through a mortgage. The house is real, gives me enjoyment and allows me to add value to my investment through home improvements. Sod the text-book, my house makes me happy and owning someone’s mortgage doesn’t.

Institutional Investors have lost their emotional intelligence.

Time was when asset managers managed assets, took pride in ownership and sought to increase the value of the asset through good stewardship. This still goes on in places. If you speak to a good property manager he or she will tell you of how they’ve improved the value of the properties through being good landlords. If you talk to good equity managers they will tell you that the dialogue they have with the senior managers or companies they own is constructive and will point to areas where they have improved the long-term outlook not just for themselves – but for other share holders.

This is akin to the way I run my house, or my business- even if that business has no other shareholder than me.

When a pension scheme sets out to immunise itself from the artificial volatility of its liabilities, it enters into artificial contracts with banks and with counter parties that it knows nothing about. It has no control of where the money goes, its sole interest is in the property rights of pieces of paper.

Don’t employers need pension freedoms too?

Bosses reading the tales of woe from our pension experts, may ask themselves why their businesses aren’t allowed the pension freedoms that private people get.

Why should employers have to invest in annuities (which is what these gilt-based investment programs degenerate into)?

Why shouldn’t they be given the freedom to invest in real things which give returns linked to the value of economic production and can’t be messed about with by Mark Carney and the Bank of England?

Why shouldn’t pensions be restored as a means of long-term investment finance for businesses trying to provide long-term returns for their shareholders?

Why must everything be about debt, why can’t we invest in the future through equity?

No freedom if you’re guaranteeing benefits!

The awkward truth is that the guarantees offered by defined benefit schemes are too valuable to give up. The guarantees would have to be given up by the people who have to take the decisions to give them up. And turkeys don’t vote for Christmas.

So not only do the pension promises line the pockets of the few, but they take money from the many. Nowhere is this more the case than in the vast pension inequalities between the public and private sectors. The private sector, through the taxes it pays from its enterprise, guarantees the pensions of those in the public sector.

These guarantees are not part of the social contract. They are not written down in some economic bible at the dawn of capitalism, they have emerged over the past 25 years to protect the interests of those with defined benefit promises.

I question their validity.

A move to promises not guarantees is long overdue

Last summer, Ros Altmann stopped the construction of the legislation that would have enabled CDC to happen. CDC is a halfway house between DC and DB that might have allowed employers limited pension freedoms. It has long been considered a way of strengthening the DC promise (something employers are reluctant to do). But in parts of Europe and Canada, it is used as a way of rebalancing the pension contracts between sponsor and beneficiary.

As people involved in pension investment know, Canada and the Netherlands and other countries that have the capacity to invest long-term in real things, have been busy buying real things. Hinkley Point is a case in point (for Canada read France and China).

I fear the vested interest in the valuable guarantees which underpin the pension of the rich will not allow us to follow those in Holland and Ontario into a sunnier world. But that should not stop us remembering that such a world exists.

Do I blame Mark Carney? I blame the prophets of Baal

Of course I don’t. The people I blame for the pickle pensions are in , are not those who set interest rates but those who have made our pension schemes slaves to them. I blame the bean-counting accountancy types who cannot see beyond the end of their mark to marketed noses!

I blame the economists who have given us fake laws and call them to Mount Carmel. These prophets of Baal have got us where we are now. They can’t blame Mark Carney for letting them down. They should be exposed for the false prophets they are.



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Pensions Minister in the house – shout out for Richard Harrington!

richard harrington 4

No shit bro!

A new man

In one of the lowest keys of appointments, Richard Harrington crept into the DWP as an under-secretary and inherited all the issues for rather less pay than he’d have got if he’d got the usual ministerial salary.

The pension industry took this as a  downgrade in the perception of Government of the pension problem.

Instead of a pension celeb, pensions got Richard Harrington, who nobody knew much about. Though he looks like he does a good job of “stand up”

Richard harrington 3

just like that

I asked Gregg McClymont of his view on Richard, and with typical candour Gregg gave him the thumbs up. He’d worked with Richard on a Government Finance Committee and found him a businessman, numerate and sharp of judgement. I also got the impression that (despite their political differences) , he liked the man.

This cheered me up (as does this photo of the man in the silver tux). There’s a comedian in there waiting to get out!

caroline nokes 2

gilt-edged humour

A new approach?

money marketing

Richard Harrington hasn’t made much noise since his appointment , but he has given a statement to Natalie Holt of Money Marketing which you can read here. The statement claims to be in Richard Harrington’s own words though I very much doubt that’s the case. It’s carefully balanced not to offend and it covers all the areas of policy that Ros Altmann was tackling before her departure.

What is interesting is that either Richard or one of his policy team, chose to publish through a paper dedicated to IFAs and to others involved in retail financial services. It would have been possible to have spoken to the trade press read by trustees and their advisers.

Those in high places in the pension firmament will no doubt feel doubly snubbed. I don’t blame them, they have long regarded pension policy as something which they informed upon and those in retail fed from the crumbs at the table.

It looks as if that is changing. This is a good thing. We need some bottom up policy making. The people who need to be listened to right now are busy exploring payroll interfaces for auto-enrolment, considering how to use the Blockchain to bring down administration costs (and risks) and working on advising the millions of us trying to work our how to eke our pension pots into adequate income streams in retirement.

A new opportunity


Though we have lost a great campaigner in Ros Altmann, we have gained a minister who is an MP and one who has served in two Governments. I’d hope that his experience of how things work in Westminster will hold him in good stead.


He inherits the DWP Select Committee, under the formidable Frank Field, that is firing on all cylinders. I have great confidence in them, they are holding the DWP to account and Richard is going to get no easier ride than his predecessor did. They are asking the right questions.


i have great confidence in the DWP’s private policy team and though I don’t agree with everything they do (their over-promotion of NEST as a safe harbour, their failure to properly tackle net-pay), I am impressed with them collectively and individually. The head of Private Pension Policy (Charlotte Clark) is a Civil Servant of the highest calibre.

So – despite the noises of misery emanating from the pensions glitterati, I’m looking forward to having a new Pensions Minister in Richard Harrington.

  • The DWP tell me they are working towards a new charge cap in 2017 – bring that on.
  • They have called for help on the auto-enrolment review in 2017 – bring that on.
  • They are busy strengthening the protections we will get when investing in workplace pensions – bring the new Pensions Bill on.
  • They are calling for evidence on how to strengthen the effectiveness of tPR to minimise gaming against the PPF

select 2

Richard Harrington set out his task like this

As Pensions Minister my role is to ensure that pensions is at the top of this Government’s agenda. I am absolutely committed to this. The pensions industry has already done a fantastic job to get us to this point and I see my role very much to ensure our plans stay on track. I look forward to working with you all.

That seems a good place to pick up from where Ros Altmann left off.

fair pensions bucket

a touch of humour helps!

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If you’re going to do it – do it right (now) – yes L&G!


This blog (and the Pension Plowman) have been a fan of L&G for some years. We admire L&G  for its pioneering work on auto-enrolment, for its support of Pension PlayPen and for its work on engagement through what its CEO calls “Beveridge 2.0”.

LGIM, its fund management arm is a clean and transparent outfit that invests in managing its assets and takes SRI and ESG seriously.  We like its management , its ethos  (the commitment to ValueForMoney and we like the way it has gone about its business.

But… (and you knew there would be a “but” didn’t you!).

But I am confused and increasingly annoyed by the mixed messages it is sending to the market around its WorkSave pension and wonder if there are others who read this blog who feel the same way.

Early this year, L&G abandoned its come one come all attitude to scheme underwriting and stated that they would only accept new business application to its workplace pension (Worksave) if they were using links with pensionsync of ITM’s eAsE product. We could see the logic of this, it drove best practice in the market and reduced L&G’s operational costs.

But it was a radical strategy and, to work, needed a massive commitment to this new tech-based distribution. That commitment simply hasn’t arrived. The marketing support needed to make this strategy happen never arrived and what support is given to employers is reserved for a select group of employee benefit advisers and corporate IFAs who can still use the old on boarding route, that the market had been told was being closed.

One app for the rich……

A similarly half-hearted attitude is being displayed to product development. Yesterday we received an upbeat email (either because I am a member of the WorkSave pension or because we have established so many through Pension PlayPen. Here it is.

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(You can’t access the links from the picture , but you can see L&G’s site here.)

Just what “record-breaking registrations” means, I’m not sure. If it an internal benchmark that’s been beaten, then good – but I’m not sure there are any external records as in “the Guinness Book” for registrations to  an online pension portal – perhaps L&G will enlighten us.

The user experience (a case study)

More importantly, what is this mail leading us to? I went to the App Store where an L&G app was waiting for me (It’s called IPS Legal and General) and is supposed to make things simple like this.


I googled the service and found it offered everything I wanted from an online product.

I keyed in my account number but was rejected. I phoned various people at L&G and (after much holding) finally got through to someone in IT who laughed at my naivety.

Silly me- I’d been looking at an entirely different Legal & General personal pension, the one I could manage using a dedicated app!

So, feeling stupid, I went back to the email, “mobile optimisation of my Managed Account”. Well I’ve been looking at my pension on my mobile quite a lot recently, I’m trying to plan my spending plan as I’ll be 55 in 3 months. So I went on again and yes, it did look a little better

Trickett 4

The “optimised” managed account.

But I didn’t feel the service had been optimised.

All that had happened was that I could see things a little more clearly. This was L&G 1.0, what I could see of L&G IPS was 3.0!

I don’t know how rich you have to be to get the service upgrade (I’ve got just over £350k in my Managed Account), but for the £150 per month I’m paying L&G in operational charges, I would have thought I could have got the app!

I’d been sold some lipstick on a pig, some sausage not the sizzle. You don’t get second chances with web-engagement.


By the time I’d done all this, I’d wasted nearly two hours of my day and was thoroughly disillusioned. Far from engaging with my workplace pension on the move, I wanted to get on the phone to the people I know at L&G and tell them what a thoroughly disappointing experience I had had.

Ordinary punters don’t give web-services a second chance – do it right or don’t do it at all!

L&G – get your act together!

I didn’t have a go at the people I know , because I have a huge reservoir of goodwill for L&G, as mentioned at the top of the blog. I didn’t have a go to the people I spoke to at Kingswood as I know most of them too – and they are being closed down.

I really don’t want to deflate L&G, I want them to be as good as they can be- which is very good indeed.

But I have no time for this half-hearted and confusing approach both to distribution and product development. If you want to operate a hard-line distribution policy, don’t go cutting side-deals around the outside and embarrass your mainstream suppliers who are playing by your rules.

If you are going to operate personal pensions, don’t offer an app for one group and “web optimisation” for another. If you are going to take delivery seriously, then get some proper payment systems in place so people can spend what they have saved and if you want to be the market leader going forward, start engaging with the Blockchain.

And if you are reading this as an L&G member of staff, be assured that so will members of your IGC.

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Midsummer Madness as £3.5bn’s lost to real assets!


The Investment Association reported yesterday that jerks kneed £3,500,000,000 out of funds in June – “clearly Brexit has been unsettling, with property and equity funds particularly affected” – the report opined.

Well £2.8bn was lost from equity funds and £1.4bn from property ( a much higher proportion of a smaller funds market). The rest came from multi-asset funds (ironically marketed as a safe haven in times of volatility).

Fools – Fools – Fools

Of course the knee-jerking had horrible consequences, no sooner had the money flown than the market recovered. I haven’t seen a detailed analysis of market timing but you can be pretty sure that a combination of poor execution and panic selling meant that most of the retail money left at intra-day lows and that spreads (especially the dilution levies on property funds) were at their highest.

Look how the peak trading volumes at the end of June aligned with the sharpest dip in the market (FTSE 100)

Screen Shot 2016-08-03 at 07.07.30

So the financial markets will probably have had a good time and the punters will be looking at exaggerated losses. It is ever thus when the herd takes flight.

Who drove the cattle?

Closer inspection of the IA’s numbers suggests that the exodus from funds was organised by advisers.

For the five fund platforms that provide data to The Investment Association (Cofunds, Fidelity, Hargreaves Lansdown, Old Mutual Wealth and Transact) we saw a net retail ouflow of £684 million in June.

While the non advised regular contributions into personal pensions (principally via AE) continued as usual, ISAs from the above platforms saw a net outflow of £464m and  fund of funds £303m.

Meanwhile money continues to pour in. Fund platforms sold £7.8bn of funds in June with wealth managers and IFAs (managing wealth off platform) attracting £3.8bn of new money. By comparison – only £1.3bn arrived in funds directly from the customer.

It’s clear that the retail funds market is now owned and driven by financial advisers, whose monthly , weekly and sometimes daily newsletters are full of reasons to buy and sell on sentiment, rumour and sometimes on hard fact.

There is herding and a lot of it appears to be “jerking”. If I had given discretion to my wealth manager and found he or she had been dicking around with my portfolio around Brexit, I would like to know exactly what made the adviser think he could out-guess the market. If I have been in a diversified portfolio designed to withstand volatility, I’s want to know why my portfolio had been altered , at precisely the time I had needed its defensive properties to cut in.

Midsummer Madness

The big winners out of Brexit so far, are those invested in equities who remained in equities, those who had strategies and didn’t change them.

I am particularly worried that there may have been outflows from managed personal pensions (SIPPs) and that regular drawdown payments may have occurred at the very worst times. I am worried too that the vibes given to ordinary people about equities and property being “too dangerous” will result in a flight to cash.

Paul Lewis will probably point to this Midsummer Madness as further evidence that there is insufficient reward from equities to pay back the risk of disinvestment at the wrong time and I think he’s right. Unless people are prepared to ride out events like the referendum vote and not knee-jerk out of long-term investment strategies, they should never have invested into shares or property funds in the first place.

The Midsummer Madness is simply a symptom of a deep rooted mental insufficiency that is common not just in retail but all investors. “Knee-jerkism” should be prevented by advisers but – as the IA’s numbers tell us- most of the outflows came from fund platforms advised on by IFAs or from the Discretionary Funds managed directly by IFAs.

Why does nobody call this?

Nobody in the funds industry wants to call the problem of short-termism because the funds industry has never had it so good. Despite outflows of £3.5bn – the IA still reported that overall funds under management increased by nearly a Billion pounds in the month.

The IFAs are responsible for this massive surge of investment, nearly 50% of all retail funds are on IFA platforms and a further 34% in DFMs managed by IFAs. The direct investor is a rare breed.

The Fund Managers daren’t call the behaviour of IFAs for fear of reprisals (e.g. loss of distribution), instead they blame individual investors (who were cited as the panic sellers of property funds).

Individual investors are no longer the problem, the problem is the herd instinct of advisers who appear to be to get away with some pretty poor calls with iThoumpunity.

I would like to see some proper investigation by the fund managers (perhaps orchestrated by the Investment Association) into just who’s behaviours were responsible for the £3.5bn  sold out of funds at the end of June (see trading pattern at the bottom of this graph).

Screen Shot 2016-08-03 at 07.07.30

FTSE 100 – trading volume spike at BREXIT

Though it may not be easy for fund managers to say this, I think they will need – as insurers had to over pensions-  take some responsibility for the actions of their distributors.

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“Workie Vicit” – tPR on the state of AE

  Screen Shot 2016-08-01 at 06.40.26

The Pension Regulator has published its snappily entitled Automatic enrolment commentary and analysis report 2015/16

The first question I asked as I opened its 45 pages was “who’s it for?“. TPR’s primary stakeholder is the DWP which funds it and I guess the high level infographics are designed to please those in power who like to be fed good news. And there is good news.

The Pension Regulator is not being overwhelmed, it has a largely compliant employer-set, and though the trend is upwards, this is only to be expected as employers are both more numerous and less experienced (in pension matters). Here’s the iron fist infograph.

Screen Shot 2016-08-01 at 06.47.35

The table that really matters is the revised staging table. This is the one that Government , Providers and advisers are relying on to plan resource around.

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The revised estimate of staging employers differs radically from previous forecasts (tPR now estimate between 1.32m and 1.46m employers being subject to AE duties).

But although the total number of organisations to be bothered by Auto-Enrolment has decreased, there is little change in the number of employers who will need to put workers into a pension scheme, which will be up to 950,000.

The difference is in the numbers of employers reckoned to have eligible jobholders which turned out to be “owner directed” organisations with only the Owner as an employee. This group is excluded from auto-enrolment on the grounds of being “self-employed in disguise”. No doubt HMRC will continue to chip away at this group who are often thought”spurious” business owners by everyone and anyone.

It is a shame that we were sold a dummy, planning for these phantom stagers. TPR deserve some of the blame, though I suspect that they have relied rather too heavily on historic Governmental sources( ONS rather than RTI?).

One of the collateral benefits  of Auto-Enrolment is that we are getting a much better picture of how we work.

But although the total number of organisations to be bothered by Auto-Enrolment has decreased, there is little change in the number of employers who will need to put workers into a pension scheme, which will be up to 950,000.

The net impact of the work so far is to massively increase employer coverage; but the report is clear, the increase in employee coverage results from the low-hanging fruit in 2013-15. The impact of getting new employers involved has been less – the higher up the AE tree we climb.

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The immediate future is a voyage into the unknown; only a tiny proportion of the 450,000 employers staging in the next twelve months have ever had to choose a pension for their staff and the next infograph suggests why.

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So where’s the money going?

The big story here is that mastertrusts are becoming the bottom feeders of choice. Either out of deliberate strategy or from inexperience of the dynamics of small businesses), the insurers have gone from a position of strength (with nearly 40% of employers using GPPs

Screen Shot 2016-08-01 at 06.53.45

To a position of weakness with less than a quarter of new employers using GPPS

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To fully understand how much things have changed, look at these numbers which show how occupational schemes (non master trusts) and large GPPs are being swamped by NEST, People’s, NOW and the new kids like Smart. These numbers are for the past 12 months.

Screen Shot 2016-08-01 at 06.53.04

I’m not sure that all those employers who are now using Master Trusts are fully aware of the implications of their choice in terms of scheme security and member benefits. The numbers are massively skewed by the Government’s promotion of NEST as a quasi-default

I remain deeply concerned by the quality of the decision making by employers, the quality of advice and guidance coming from business advisers and the lack of attention being paid to the pension by the DWP (and the TPR). 

What the Government wants you to read!

TPR want you to read their headlines

·        66% of all employees are active members of a pension scheme, compared with just 47% in 2012.

·        From 16 October 2015 to 31 March 2016, 185,107 employers completed the online Duties Checker.

·   And they’d like you to know that nearly 100% of the various stakeholder are now aware of auto-enrolment and what its about     

90% of Employers are getting Workie

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Awareness and understanding of automatic enrolment is now almost universal amongst business advisers – and more than 9 out of 10 are now helping clients meet their duties

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and Charles Counsell has a right to be chirpy

·       This is the first employers’ survey since large numbers of small and micro employers have began to visit TPR’s website for help in meeting their duties. It’s great to see such positive feedback, with 79% of the employers who used our website finding all or most of what they needed.”

Who’s this for?

I started out asking who this report was for, and ended up thinking it was for people like me. People who need to plan to help employers , advisers and providers avoid a capacity crunch. It’s for the providers themselves, who can confirm their own experience against macro-data from the country as a whole, and its for the intermediaries, the software providers, their partnering accountants and book-keepers, their financial advisers.

The report accepts that Auto-Enrolment is now an almost entirely intermediated business, this report is not aimed at individual employers, though separate statistics I have seen suggest that there is a substantial DIY element among micros (who don’t want to pay their advisers a bean).

And yes, this report is for those who read reports for a living. Those who will use these results to opine on auto-enrolment , to some extent , this report is for global distribution, for the eyes of the world are on the success of our auto-enrolment project and for once, we’ve got a good news story on our hands.

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In line with expectations

But do we really understand the implications of the decisions made by employers?

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I will only feel comfortable with tPR reports , when they start focussing on employer and employee engagement with what they are buying into. That may take some years, but it’s the ultimate measure by which we can judge success.


Posted in accountants, advice gap, auto-enrolment, pensions | Tagged , , , , , , , , , | 1 Comment

Should we block the triple lock?


Ros Altmann speaks out (shock!)

We now have three former  pension ministers making a lot more noise than our current pension minister.

  1. Ros Altmann who we are now realising never should have done the jog
  2. Steve Webb who should be doing the job
  3. Gregg McClymont who had he been put on, to have proved most royally.

Baroness Altmann is fresh to the ranks but she’s lost no time in becoming pension spokesperson for well- er…Ros Altmann. Frankly , I’m more than happy to have Webb, McClymont and Altmann as our “Not Pension Policy Think Tank”. We have the strongest “non-ministerial pension team” in the world, and it’s entirely cross-party!

So here’s Ros at  7am on a Sunday morning speaking to Radio 5 live

We should have a double not a triple lock. She’d like to take away the 2.5% guarantee on pensions increase that she now calls a “political gimmick”. She points out that the triple lock hasn’t applied to other pension benefits such as S2P/SERPS and the pension credit.

She is right of course that the 2.5% doesn’t relate to anything and she’s also right in saying that this extra fillip to our future pensions has allowed us to catch up with where our state pension should be.

The impact of the triple lock , in a deflationary environment, means that the state pension could bankrupt the Government’s capacity to achieve other goals.

Altmann only wants the triple lock to be blocked from 2020 (the extent of the current promise).

Altmann has not discussed with Theresa May, but says the new Prime Minister “knows her views”. Altmann is challenging May to have the courage to take on this “deep seated issue” and to stop “hiding behind the triple lock” as a way of pacifying us wrinklies.

The triple lock impacts State Pension Age

Ros is of course absolutely entitled to raise this issue and raise this issue now. She has every right to speak out not just for pensioners but for pensions in general and anyone who has read the latest Quinquennial Review of the National Insurance Fund, can be in no doubt that we cannot afford to continue with the triple lock without  substantial grants to the DWP from the Treasury.

Unless of course we accelerate the increase in the State Pension Age.

Transparency = Honesty

This blog talks a lot about transparency, in Government transparency can be simplified to “honesty”. We have all the data that we need to analyse the cost of the triple lock in any number of economic scenarios and – of course- in all these scenarios , we could afford to prioritise real increases in older people’s pensions.

But it would be dishonest to rationalise the triple lock as anything other than robbing Peter to pay Paul.

Just as Ros Altmann was holding forth on Radio Five Live, Paul Lewis was tweeting

Ending state pension triple lock ‘obvious alternative’ to tax credit cuts said PMs new adviser  cost £6bn, can’t last

In the Sunday Times article Paul promotes,   Nick Timothy, the prime minister’s new joint chief of staff, is reported saying the “obvious alternative” to welfare cuts was to tackle the triple lock, which raises the state pension for 13m people by whichever is the highest: the growth in wages, inflation, or 2.5%.

nick timothy

Nick Timothy

Downing Street said this weekend that the lock had been a manifesto pledge and “that commitment still stands”. However, it leaves open the possibility of the Conservatives ending the lock at the 2020 election.

MAY we have honesty

The characteristic of the May supremacy that is most obvious is its brutal candour. I was critical on this blog about the way in which the Hinkley Point decision was postponed, but I couldn’t but be impressed by the leaked reports that this was because May did not like the idea.

At this time , with no obvious leadership elsewhere, May’s autocratic style may be the only way through the muddle.

May be be harsh, insensitive and frankly not very pleasant, but I would give up the soft values in return for some good honest decision making and some sensible policy.

The debate about the Triple Lock may be as simple as Paul Lewis, Ros Altmann and Nick Timothy make it sound. 2020 may be the natural break point for that weird 2.5% kicker.

But before we throw out the Triple Lock, let’s be honest about what stands upon the platform of the New State Pension system, that’s a pension taxation system that is grotesquely unfair to the poor.

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My triple lock

Savers – just getting by

For me, the price of abolishing the triple lock – which helps the poorest most, is to make private pensions work better for that demographic.

That’s the issue which May must face up to , if she wants to fulfill her commitment to helping those saving for their retirement and “just getting by”.

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Locks are very popular

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“The best way forward or the NEST way forward?”

If you are an employer and you have made a decision, there is no liability—that is clear in the legislation. If you have decided to go with NEST rather than NOW: or People’s, there is no liability that can fall on you as an employer”.

Charlotte Clark . head of private pension strategy-DWP

The Department have stated unambiguously that employers are not liable for their choice of AE pension scheme. Legal experts, however, have told us there could be grounds for legal action if employers cannot demonstrate due diligence. -Frank Field- Chair of DWP Select Committee

Every day we get employers coming to who have been told to use NEST. It is what the head of DWP’s private pension strategy team considers the safe option, it is “the Government Scheme” and it has already consumed some £460m of public money becoming what it is?

But what is NEST?

Is NEST the default option? Do employers who cannot make a choice find themselves in NEST? No they don’t.

Is NEST a safe harbour? Nowhere in legislation is there a statement that backs up what Charlotte Clark claims. Safe is not a safe harbour.

Is NEST the best pension, only time will tell, but NEST has some very distinct features that could make it better or worse than its rivals.

Compulsory Restrictions that make it different

NEST currently runs under a number of compulsory restrictions. It has had to adjust its charging structure from the mono-charge that prevailed since the introduction of stakeholder pensions. This was to satisfy the EU that it had a means to pay back its debt to the tax-payer and was not operating under an unfair competitive advantage.

Similarly, for the early years of its existence (and until April 2017), NEST has operated a no transfers in/no transfers out policy. It cannot take more than £4,900 in total contributions per member, per year.

Voluntary quirks that make it different

NEST operates a number of its services in a very non-consensual way.

  1. It’s default investment strategy is designed to dampen volatility for those with many years to retirement. This also dampens potential growth for youngsters. This reverse lifestyle is justified on a behavioural basis, it is assumed that were youngsters to find out their investments were volatile, they would give up on NEST, pension saving and go and do something different instead
  2. It does not have discretionary death benefits, so if you die with a NEST pot and have a reasonable amount of estate, your beneficiaries will pay IHT on your NEST pot, this would not be the case if you were in the usual discretionary trust operated by NEST’s rivals.
  3. NEST has chosen to be a relief at source and not a net pay scheme. By and large this favours those contributing on low earnings but is not as good for those on high earnings. Other mastertrusts (People’s and Supertrust) give employers the choice of tax regime and even the opportunity to split schemes.
  4. NEST deliberately operates a low-touch , hi-tech, member and employer support centre. It prides itself (rightly) in having extremely user-friendly self service support facilities. While this is laudable, it doesn’t suit all employers and employees. (see Pension PlayPen support surveys passim)
  5.  Nest (unlike some rivals)  will not (for money laundering reasons) accept employers with a non-UK bank account. This has been an issue for a number of employers with workers based in the UK but who have an overseas HQ . Employers in Ireland (with workers in Northern Ireland) and employers with off shore payrolls are typical of organisations which struggle to use Nest (thanks Kate Upcraft for this).

The general point is the same, all these distinguishing features are sensible and define NEST as “something different”. But they don’t necessarily make NEST better, NEST is right for a lot of employers but there are many employers for whom NEST is not right.

To argue as the DWP does that there can be no liability if an employer decides to go to NEST has no justification either in a legal or in common sense. 

Employer liability

In a very narrow sense, Charlotte Clark may be right, it is hard to see the Pension Regulator suing an employer for using NEST. But regulatory fines are only one part of the equation. Here’s a quick list of the potential litigants that could go to court against an employer over the choice of NEST

  • the employee claiming NEST was inappropriate for his or her needs
  • the employees as a class – claiming the employer failed to conduct due diligence
  • an employee’s representative – a union – acting on behalf of employees accross a group of employers
  • a purchaser of the business who has been given warranties that the workplace pension was chosen properly

To suppose that these risks are groundless is to ignore the evidence in the USA and other countries where just such litigation is happening today.

Employers face impairment in the value of their business , should litigation commence and they will suffer if employees feel aggrieved.

As for business advisers, while they cannot be sued by the Regulator for advice to use NEST, they should be heedful of the former Pension Minister who pointed out the DWP Select Committee that

anyone advising an employer would “be ill-advised” to formally recommend a scheme.

(Pension PlayPen doesn’t tell employers what to do, we help employers make and document their informed choice).

Commercial arguments that need to be thought about

If you had a choice between investing in an enterprise carrying £460m of repayable debt or one without, you would choose the

debt-free enterprise, purely on the grounds that the debt would need to be repaid before you saw your money back or earned any dividends.

There is a pervading argument that NEST’s debt doesn’t matter, that it is public money and that that money can be written off. I do not buy that argument, nor should Britain.

NEST has set its stall out as a commercial alternative to NOW, Peoples Pension and other workplace pensions and it has received grants (in addition to the debt) to meet its public service obligation.

There exists within NEST’s terms and conditions the right to take money from employers where NEST is unable to manage the relationship commercially without a fee. Employers entering NEST on the basis that “NEST is free” are being naive, uncommercial and if that is what they are being advised, we suggest they speak to their advisers about what they mean.

NEST is currently free to employers, but there is no certainty it will remain so. There is no plan to write off the debt and the National Audit Office are pressing NEST for a commercial plan that shows how it intends to repay the debt to the taxpayer.

Competitive arguments

Monopolies, especially Government monopolies are not seen – in our capitalist world as a good thing. There are some of my friends and colleagues who see the world through another lens and think that NEST should be a state monopoly but they are not democratically elected to decide on policy. Policy has been made in this country by those who were elected and that policy says that employers are required to choose a pension.

As a result of that requirement to choose, new providers came into the market and old ones stayed as workplace pension providers.

They are there to provide something different from NEST and they do.

They are there to be innovative and they are

They are there to keep NEST on its toes and they have.

Finally, they are there either to make their shareholders a profit or to deliver mutual benefits to all involved in the enterprise that supports the workplace pension. This they may or may not do.

To a large extent the capacity of those running non-Governmental pensions (without Government subsidy) depends on their being able to compete in an open market and not in a market skewed towards the Government Pension.

People’s rights

Finally there is a philosophical argument around choice. When Auto-Enrolment was first proposed, many of the decision makers in the DWP wanted there to be only one auto-enrolment pension- NEST.

I remember speaking to Hugh Pym, then chief economic reporter for the BBC in 2012 and him telling me his understanding was the only pension you could auto-enrol into was NEST.

The public often confuse auto-enrolment and NEST to the point that the DWP’s original vision has become self-fulfilling. It is true, many small firms are using NEST as their workplace pension provider for auto-enrolment.

But a very large number are choosing not to use NEST for a whole load of reasons.

  • Some take a very reasoned approach and choose another provider as better for their staff and their business
  • Others take an unreasoned approach and reject the idea of investing in a Government backed enterprise.
  • Others are ushered into other pensions by those with alliances with other providers

Whatever the reason for not choosing NEST, those who do, should not be told that they have created more liability for their businesses by doing so.

They are simply exercising their right to choose. A right that has been granted democratically by act of parliament and a right that should not be curtailed by the DWP.


It’s common sense that to make auto-enrolment to work over time, we need to get contribution levels up. It’s common sense that people will only accept more and more of their salary being siphoned into a workplace pension, if they trust that workplace pension.

The workplace pension is not chosen by the employee (whose money is invested) but by the employer. If the employer chooses NEST because he’s told it’s “no-risk” by his accountant or the Government, he hasn’t engaged in the positive aspects of saving for the future.

The employer will have trouble explaining why he chose NEST to staff and staff will have trouble working out why they should bother with this NEST pension about which the boss hasn’t a clue.

Employers are asked to choose a pension, not in a random way, nor on the basis of it being “no-risk” but as a fiduciary, acting in the best interests of staff. The DWP position is antithetical to engagement , it encourages employers to disengage with the workplace pension.

Whether this is out of blind loyalty to NEST or because the DWP is more interested in compliance than outcomes I don’t know, but either way, there is no tenable argument for dumbing down the employer’s decision in the way the DWP is doing.

A call to action to the DWP

Whether on philosophic grounds, commercial grounds, competitive grounds or purely on grounds of suitability, employers have the right to choose a pension. Not only have they the duty to choose a pension.

Though legislation does not say this, it is expected of employers – there being no reason why they wouldn’t – that they should try to choose the best pension for their staff and their business. This is because we regard the employer as having a fiduciary care of staff which extends to things such as staff welfare in the workplace, compliance with wage legislation, the collection of income tax and a host of other employer duties we could call “fiduciary”.

I have no idea why the DWP want to promote NEST as they are doing. I think it is wrong of them and I think the DWP Select Committee think so too.

Frank Field concludes the section of his Select Committee’s recent report with a call to action for the DWP,

We recommend DWP use their response to this report to make a clear and comprehensive statement about an employer’s potential liability. DWP should also confirm where liability will fall if a scheme performs badly or fails. This would provide reassurance to small and micro-employers choosing a scheme.

We hope that the new Pension Minister Richard Harrington is making that a priority and that he is shown this article as an argument for the promotion of choice in a more reasoned way.


Richard Harrington – the new Pension Minister


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Workie off balance-Frank to the rescue!

An everyday story of kleptocratic mismanagement

Here is an extract from the recently published conversation between the DWP Select Committee (Frank Field & Co) and the DWP (under new management).

You are always supposed to read the source material first, so I’ve laid it out as it was published. My little rant is set out at the bottom!

Selecting the right scheme

Employers are responsible for selecting the appropriate AE pension scheme for their employees.

Employers are free to choose any qualifying pension scheme that is willing to accept their custom in order to comply with their automatic enrolment duties. TPR told us that selecting a scheme is one of the most significant challenges for smaller employers:

Concerns include finding a scheme that will accept them, ensuring they make the best choice of scheme for their employees, addressing the risk of challenge from their staff if the scheme is not well run, and making sure that the scheme they choose works with their payroll software.57

32.CIPP highlighted a particular concern among employers about future legal action against them by employees if it appears they selected an inappropriate scheme or could not demonstrate they had taken adequate steps to choose an appropriate one.

58 The Minister (Ros Altmann) told us that anyone advising an employer would “be ill-advised” to formally recommend a scheme.

59 For the smaller employer, reliant upon their payroll bureau or external accountant, there is a distinct lack of clarity regarding where a potential liability for “advice” would fall. They assured us, however, that employers themselves would not be liable for poor scheme performance. Charlotte Clark said

“If you are an employer and you have made a decision, there is no liability—that is clear in the legislation. If you have decided to go with NEST rather than NOW: or People’s, there is no liability that can fall on you as an employer”.60

33.Whilst this answer appears definitive, legal experts suggested the situation may be more complicated. Tristan Mander, a pensions lawyer at Ward Hadaway, said “it would be unwise to interpret such a statement as providing a safe harbour for employers, as it only addresses one source of legal obligations”

.61 His view was that employers will need to be able to demonstrate that they took adequate steps to ensure they selected an appropriate pension scheme:

The courts are very unlikely to decide that arrangement B ought to have been chosen over arrangement A, as that is qualitative decision that is outside of their remit, but they are now likely to find that an employer failed in its duty to follow proper process in taking its decision and hence they will find the employer liable for any loss suffered directly as a result.62

34.Catherine McKenna, Global Head of Pensions at law firm Squire Patton Boggs, told us that there was uncertainty about who would compensate employees for poor scheme performance:

For example should it be the fund provider, the IGC [Independent Governance Committee] if they failed to identify and report poor governance or the employer for failing to appraise the IGC’s adequate monitoring of the default fund?63

She said that clarity was needed on where liability would fall and that DWP should confirm to employers that “engagement and compliance with the minimum governance standards is sufficient to discharge them of liability for poorly performing or failed default funds.”64

35.In her evidence to us the Minister said that employers needed to be very careful to choose a decent scheme for their employees.

65 Tristan Mander told us that “the need to suggest such due diligence implies by itself the potential for liability.”

66 He told us that employers need not go to extreme lengths in choosing a scheme but that they should exercise good decision-making hygiene, take proportionate steps and record their genuine attempts at finding the most appropriate arrangement to utilise, should anyone challenge their decision in future.67

36.The Department have stated unambiguously that employers are not liable for their choice of AE pension scheme. Legal experts, however, have told us there could be grounds for legal action if employers cannot demonstrate due diligence.

We recommend DWP use their response to this report to make a clear and comprehensive statement about an employer’s potential liability. DWP should also confirm where liability will fall if a scheme performs badly or fails. This would provide reassurance to small and micro-employers choosing a scheme.

Kleptocracy  at the DWP

I’ve read this a few times and come to the same conclusion on each occasion. Much as I like Charlotte Clark, she is dead wrong on this business of choosing a pension. I attribute this to an overly protective mother-hen relation with NEST.

NEST is the baby of the DWP and it’s midwives were Charlotte Clark and Helen Dean (now NEST CEO). I am not calling on either to “kill their baby”, but I don’t think she (or Helen)  are best placed to opine on NEST’s safe harbour status.

NEST is a good choice for most employers, a bad choice for some and for a very few, it may be the only choice.

It is not or the DWP to state If you have decided to go with NEST rather than NOW: or People’s, there is no liability that can fall on you as an employer.

That is not in the legislation and any employer who relies on that as an argument, will have “failed in its duty to follow proper process in taking its decision”.

The DWP have highlighted a flaw in the DWP’s approach to workplace pensions. It is the flaw that leads to the crumby choose a pension pages on tPR’s website. If the DWP doesn’t make it clear that there is material risk in not following due process, that NEST is not a safe harbour and that in many cases NEST is not the best choice, then it itself will be open to litigation.

Don’t let Workie become WASPI!

DWP should be only too aware – from the problems it has with WASPI -that sticking its head in the sand and hoping the problem will go away, is not the way to deal with the situation.

The DWP know perfectly well that the private sector is providing resource for employers to choose a pension in an appropriate way and that that resource is now readily available to employers at a reasonable cost.

Rather than stick by its pet scheme (NEST), the DWP should accept that NEST is just one of many good choices and promote choice rather than NEST as the big success story.

In doing so , they will be promoting the employer’s right to choose what is best for staff. This should lead to greater engagement by the employer in its “Workie” and this in turn should lead to greater promotion of workplace saving to employees.

The DWP Select Committee, Power in the darkness -right on!

Well done Frank Field and his gallant crew. Calling for clarification on choice is exactly the right thing to do. Well done for challenging the DWP’s mother hen act with their NEST egg. Well done to Tristan, Catherine , Andy and the CIPP and well done the former Minister.

The consequences of hundreds of thousands of employers sleep-walking into workplace pensions are unknown. Staff have a right to know not just where their money is invested, but why the employer made that choice.

It is difficult for civil servants, for whom gold plated pensions are laid on by the Government, to understand these dynamics, but not impossible. I hope that they will take up the challenge of the Select Committee and that, when they do, they will come and talk to Pension PlayPen.

Power in the darkness

Right on

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Get off your boat, get back to the Regulator, go and write a whacking big cheque.

Philip green

(Sir) Philip Green

A paraphrase of Frank Field’s advice to (Sir) Philip Green, after the publication of a damning report into the failure of governance that Green created in his 15 years in charge of BHS.

Here is his press comment

“One person, and one person alone, is really responsible for the BHS disaster. While Sir Philip Green signposted blame to every known player, the final responsibility for up to 11,000 job losses and a gigantic pension fund hole is his. His reputation as the king of retail lies in the ruins of BHS. His family took out of BHS and Arcadia a fortune beyond the dreams of avarice, and he’s still to make good his boast of ‘fixing’ the pension fund. What kind of man is it who can count his fortune in billions but does not know what decent behaviour is?”

The 60 page report published today by the joint DWP and BIS committees is not going to be the end of the matter. But painful as it sounds, about all that we as a nation can do to restitute the 11,000 jobholders and the 20,0000 in the BHS pension scheme, is take away Green’s knighthood.

Such is the danger of running business on trust and through trusts. The Pension Fund trust that Green sponsored is short a minimum of £570m and by 20th August all BHS stores will be standing empty. The cost of Green’s actions will be felt by those who have least while the boats keep coming, a new one only this month.

Social justice?

This is the first big test for Theresa May’s social justice agenda. If this is not social justice writ large accross the July sky – what is?

A failure of regulation?

Green was able legitimately to flout good corporate governance in return for an easy life in the South of France. He handed over BHS to Chappell with a minimum of fuss for the consequences and was able to do so without the Pension  Regulator even knowing. This came as a surprise to me as I had assumed that I’d supposed the company needed to get “clearance” for such a major change , apparently not.

The report criticises tPR for being slow (it took them four months to respond to BHS proposal for a 23 recovery period. But the report does not blame tPR for the mess nor its clear up. It points out

TPR is, however, yet to receive a single detailed proposal for resolution or an adequate offer to the schemes

Or a failure of corporate governance?

To my mind, the Pensions Regulator stood in a queue waiting her turn to speak. The rules that control the transfer of ownership to fit and proper people did not work. The damage was done well before we got to the pension scheme. Green and his lawyers had found a way to offload BHS and its debts and the law was his friend.

A failure of trust?

The actions of our corporate leaders are governed by an ancient system of trust law that assumes that businessmen will not behave like medieval robber barons. By and large it works and Britain benefits from the light touch.

However, when a Green or a Maxwell takes it in their mind to ignore fiduciary duties, it is dependent on those who are expert and can see what is going on to cry foul.

I know, from writing this blog, that should you point fingers at bad governance, you will get little praise and plenty of dirty looks. You do not get the help of the authorities, you get the attention of lawyers.

A need for a more open and transparent way of doing business.

I do not want to see Britain abandon its finely honed and well balanced system of corporate and pension governance. I want to see it strengthened by ensuring that more people can see what is going on and that bad actions can be exposed without the fear of threats.

We are a civilised country, we should be proud of it. Our country has no place for the vulgar and morally bankrupt Green. He and his Topshop models can pedaloo around the Med, but no decent British person will wish him luck.

We can look to Scandinavia to see better governance at work. We can look to some of our close neighbours in Europe, especially Germany and the Netherlands. Whether we are in the EU or not, we can work to bring our standards of transparent good governance to the standards of these countries.

We cannot and should not abandon the Greens. Field is right, this is not the end of the story. The consequences of their actions are felt by the ordinary people who were “getting by” and now are struggling.

I hope that we will see social justice at work and firm and decisive action taken from the top down. Over to you Theresa.


green shild stamps

Green sheld


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Wake up to the PPF!


It was good to oversleep and wake up not to the lark (metaphorical here in EC4), but to Alan Rubenstein purring about his Pension Protection Fund.

  • Pension Protection Fund figures published yesterday show the lifeboat scheme has £4.1bn surplus and a funding ratio of 116%.
  • The Pension Protection Fund now has £23.4bn in assets.
  • 10,005 new members entered the PPF in 2015/16, making a total of 225,500 deferred and pensioner members.
  • Between 1 April 2015 and 31 March 2016, 47 new schemes were brought into PPF with combined claims of £475.9m compared with £322m in 2014/15.
  • Of the £2.4bn total compensation the PPF has paid since it was established in 2005, £616m was paid out in 2015/16.
  • Despite this the PPF reckon “We are sufficiently robust to continue to pay compensation to pension scheme members who need it for as long as required”
  • The PPF forecasts it will achieve financial self-sufficiency by 2030 in 93 per cent of scenarios.

(thanks to Jo Cumbo’s twitter feed for this)

A benchmark for NEST

By any measure, the PPF is one of Britain’s pension success stories. One of the tasks ahead of new Pension Minister Nick Harrington is to explore the future of NEST. My views on what NEST should and shouldn’t do are set out in my response to its recent call for evidence.

Despite being in la maison du chien for my criticism of NEST’s CIO for fronting the IA Advisory Board, I hope that NEST regard me as one of their fans (I am). I want NEST to be as good as the PPF (it currently isn’t) and here are my suggestions for Nick Harrington, learned from the PPF.

  1. NEST needs a target for self-sufficiency, as adopted by the PPF. NEST currently owes the DWP £460m , that debt does not need to crystallise but it shouldn’t be written off (as NOW’s £50m loan from its Danish parent appears to have been). NEST needs a financial plan and a target for getting rid of its debt.
  2. The PPF is not dependent on intermediaries. It has brought its fund management in house , is not dependent on third party administration and has keen control on its strategy , costs and execution. The same cannot be said for NEST, which outsources its asset management, funds administration and member record keeping. NEST should consider following the PPF and maybe even merging its investment function with the PPF.
  3. The PPF’s reporting is clear , concise and focussed on the job in hand. NEST’s reporting is erratic and without the same focus. The simple measures with which the PPF reports (see above) are consistent and intelligible. NEST needs to develop a reporting structure with the same consistency and clarity.

The future of the PPF


Alan Rubenstien of PPF

Of course the PPF is not competing, it is complimenting. NEST on the other hand is competing for market share and competing hard.

Some industry commentators (Kevin Wesbroom at the fore) have suggested that the PPF should actually compete for the running of failing occupational pension schemes and be allowed to take over the management of the assets and liabilities of an occupational scheme and continue to receive funding from sponsors (and members).

The PPF has not jumped at the chance and there are many actuaries , investment consultants, administrators, lawyers, auditors, custodians etc. who would regard the opening of the PPF’s gates to live schemes as a step too far.

But I think more consideration should be given to this idea.The precedent has been set within the LGPS with the pooling of assets to create greater economies of scale. The inefficiencies of the large network of small DB plans is obvious, there is too much intermediation for the good of sponsor or member and the expensive infrastructure small schemes carry is at risk of breaking the back of scheme solvency.

The future of NEST

HElen dean nest

Helen Dean- CEO of NEST

With NEST , things are the other way round. While NEST has yet to achieve the efficiencies of the PPF it is trying to sell its way out of its public debt by taking on assets already in the private sector.

I believe that this is a good thing for it to do but not before it has

  1. Worked out its financial plan and set firm targets for absolute self-sufficiency (repayment of the debt)
  2. Reduced its intermediation by sacking most of its fund managers and bringing some or all of  its administration in-house
  3. Found a way to report to the market which is as clear and useful as the PPF.

I expect that there are a few other things it needs to do as well, such as getting rid of the lawyers who threaten me with Ultra Vires nonsense.

NEST could become Britain’s first and greatest collective “decumulator” of DC pots – or – to speak in English – our default way of spending our pension.

I wouldn’t be against that. The PPF has shown that a competently managed State Enterprise can succeed and NEST has all the makings of being the next PPF.

But it needs to be clear in purpose and (like the PPF) sensitive to the environment in which it operates. NEST is not (as is the PPF) one of one. It is one of many and competes for its inflows with some pretty good competition.

NEST’s USP is not that it is a better pension (it’s good but not that good) , it is that it carries the public service obligation (for which it has been given money).

Post April 2017, NEST will compete with the rest of the market . It has the advantage of having had £460m of our money as a loan and will continue to benefit from that money, however, like the PPF, it needs to prove it is worth the public’s money.

Thank goodness for the PPF

It was good to oversleep and good to be reminded of Alan Rubenstein’s good stewardship as I opened my ears!

It is good to have the PPF and it’s good to have NEST. NEST and PPF should be working closer and NEST should be sitting at the PPF’s feet and learning.

There is a strong argument for the two funds sharing services as well as best practice and I have a misty long term vision is to see pooling of assets between the two.

Most importantly , we should celebrate our successes and the PPF is one. If Richard Harrington want encouragement , he should be aware that it’s not just auto-enrolment’s that’s working.


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So when will Workie go robo?


Channel 4 did a Dispatches this week on the perils for employers in choosing a pension. I think I am off Dispatches’ Christmas Card list since telling them that annuities weren’t a rip-off at the back of 2013. In any event I wasn’t asked for my views, haven’t seen the program and am grateful to Husky Finance who appeared to have flown the flag for informed choice.

Regulatory pass the parcel!

On the same day the program was screened, I received a call from the FCA querying why I wished to take part in their “robo-advice”pilot. I explained that was a way to help small and micro employers choose a workplace pension and – as the decisions being taken, impacted individual people- I wanted to inform and be informed by what the FCA were up to.

The nice man from the FCA suggested I might better be having the conversation with tPR . I explained that the nice man at tPR had suggested I had the conversation with the FCA. In short, neither tPR or FCA see it as part of their regulatory remit to regulate what advice or guidance is given to small employers on how to choose a workplace pension.

Let’s not dumb down workplace pensions

The standard view of the workplace pension, is Workie, a giant cartoon character who is appearing on your screens interrupting BAU in car mechanics, hairdressers and public parks.

I like the awareness campaign, but this is not the warm up for the AE Olympics, this is the real thing. Every week some 50-100 employers choose a workplace pension using and they do not choose on fluffiness, hair colouration or ponderosity (ponderousness?).

Even at robo-prices (£199 folks), Pension PlayPen is ignored by most employers, the majority of whom are scooting off to the big master trusts without leaving any audit trail on how they came to take this retirement shaping decision for their staff.

It’s a bit like taking your maths exam and not showing your working. If you get the right answer- fine, but what if you don’t!

Employers choosing a Workie without showing their working are being dumb to themselves and exposing themselves to their current staff and future generations of staff as numpties.

So my view of workplace pensions and Workie aren’t quite congruent. I would like Workie to lead those about to stage auto-enrolment to places like Husky and Pension PlayPen so that people don’t get Workie- but the right Workie.

Pension choice is already digital- robo- it’s happening!

It is in the FCA’s and tPR’s best interests to study what is going on when employers make decision on workplace pensions. We now have anonymised data of tens of thousands of employers who have either used our workforce assessment (free) or our choose a pension service.

That data shows remarkable things about what employers value and why. It shows the time and effort that employers and their advisers take in making a decision and most importantly , it provides a big data-set on what decisions employers are actually taking.

Pension PlayPen  does not take money from insurers to be included, we cannot be accused of bribery as our research comes from an independent actuarial source- First Actuarial. Our choice process (algorithm) is independently audited and we have been subject to intense scrutiny as a result of third party due diligence.

We want tPR and the FCA to take Workie Robo and we’ll show them how. We are proud of our technology and we’re proud of the workplace pensions that sit on our platform.

People stop moaning – help is at hand.

I haven’t watched the program, but the thread on our linked in group started by the wonderful Steve Brice, suggests that the program moaned a lot about the lack of choice for employers – and means to make a choice.

I do not have a magic wand that can advertise Pension PlayPen to all 1.6m (my estimate) employers still to buy a Workie. I rely for publicity on those organisations that give a monkeys about employers getting the right workie. TPR continue to run a website which tells people choices are available but gives people no means to make that choice.

The FCA continue to run “Project Innovate”, the innovation hub, sandbox and whatever but their focus is on non-advised at retirement decision making 

If Dispatches cannot be bothered to talk to me- then I can’t be arsed to talk with them- they are supposed to be investigative journalists- i am not spending money (and putting prices up) to hire a PR team.

If the FCA cannot find a way to incorporate workplace pension decision making into Project Innovate, then I don’t think they are being innovatory at all!

And if tPR can’t take Workie-Robo, what chance the millions of employers they are supposed to be helping, making informed decisions?

Workie will go robo!

But in case anyone is in any doubt, Workie will go robo, it may not be thanks to Government , it certainly won’t be thanks to the investigative journalists of the Dispatches team, but it will be thanks to the vision of some very important people in payroll and accountancy.

Because there is no stopping auto-enrolment, nor auto-decision making on workplace pensions. Because – in the end – people will see sense and the right thing will happen.

Watch this blog – Workie will go robo very soon indeed.

taps on pension playpen


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No! Pension Minister!

caroline nokes 2

Our new parliamentary under-secretary Richard  Harrington


 Did she jump – was she pushed?

Speaking on Vanessa Feltz’s LBC show this morning  ( 1:17:20-1:31:21) , Ros Altmann said it was a bit of both.

The events since her “resignation” suggest that the role of Pensions Minister was a luxury Theresa May felt she could do without – there will be no pension minister going forward. This blog charts how events have turned out and suggests that the door is now open for the Treasury to take the P out of the DWP.


Baroness Ros Altmann, CBE

House of Lords, London SW1A 0PW

The Rt. Hon Theresa May

Prime Minister

10 Downing Street, London SW1A 0AA 15 July 2016

Dear Theresa,

Congratulations on your appointment as our new Prime Minister and I am so delighted that our country will have the benefit of your wisdom, good sense and experience.  I believe you have the qualities most needed – not least your determination to pursue policies in the long term interests of the country as a whole.

I am honoured and grateful to have had the opportunity to serve in Government and look forward to continuing to advise on pensions, finance and later life policies from the House of Lords benches.

As an economist and investment professional who has been involved in all aspects of pensions for nearly 40 years, I am at heart a policy expert, rather than a politician.  I have spent my entire career trying to help as many people as possible enjoy better later life incomes, encouraging consumer protection and social justice.  

As a Minister, I have tried to drive positive long-term changes on pensions from within Government and ameliorate some of the past mistakes which I have cautioned against.  Unfortunately over the past year, short-term political considerations, exacerbated by the EU referendum, have inhibited good policy-making.  As the country heads into uncharted waters, I would urge you and your new team to enable my successor to address some of the major policy reforms that are needed to improve pensions for the future.

It is vital that we continue to roll-out the successful auto-enrolment programme to ensure all employers offer pensions to their staff.  Regardless of the economic challenges, everyone will need to have some money set aside for later life and pensions are the best way to do so.  We must, too, address the crisis in social care funding and help people provide for potential care costs as well.  In order to help fund this, we should look to develop a ‘one nation’ lifetime pension.

A ‘one-nation’ pension – long overdue reform of pension tax relief:  Our present ineffective and complex incentive structure for pension saving costs over £40billion a year.  It favours the highest earners disproportionately, while leaving lower earners seriously disadvantaged.  We need a radical overhaul of incentives, which can offer more generous help than basic rate tax relief, but as a straightforward Government pension contribution for all, and would end the discrimination against Britain’s lowest earners who are forced to pay at least 20 per cent more for their pension than higher paid workers.  This ‘one nation’ pension would see withdrawals taxed in later life, so that people have a behavioural incentive not to spend the money too soon.

A major review of Defined Benefit pension scheme funding and affordability:  We must urgently assess the future of our Defined Benefit pension schemes.  Given the risks of diverting corporate resources to one favoured group of workers, the need to ensure adequate resources for younger generations’ pensions, the time is right to properly consider the issues facing employers trying to support Defined Benefit pension schemes and potential use of pension assets to boost economic growth.

Fair treatment for women and better communication on State Pensions:  On the issue of women’s state pension age, whilst I respect the democratic decision taken in 2011 by our Parliament, I am not convinced the Government adequately addressed the hardship facing women who have had their state pension age increased at relatively short notice.  They were not adequately informed.  I also believe we must devote resource to widely communicating and publicising the coming changes to state pension age for both men and women.

I remain deeply committed to helping our great country make better pensions policy for the British people and to planning ahead for the long-term future of our ageing population.  I stand ready to help my successor and to offer my policy expertise.   As you set a new course for our country at this very difficult time, I wish you every success.

Yours truly,

Ros Altmann

This is the Ros Altmann’s resignation letter. She will be succeeded by Richard Harrington


Her Ministerial obituary

I am very sorry to see Ros Altmann go, though she may be able to do as much good from the Lord’s benches as she was allowed to do from her position of office.
She was made to make policy but not as a politician. She made no policy in her fifteen months in office though the Pensions Bill is in the making.
During her tenure, she put on hold two of Steve Webb’s ideas, the Defined Ambition and Pot Follows Member initiative which stand like half completed buildings.
During her time , the New State Pension arrived and so did the problems for some women over state pension inequality.
During her time, companies with defined benefit schemes continued to fail.
The major reform she wanted to see, that of our pension taxation system, has not been put to parliament, instead there has been further strengthening of the ISA product with the LISA product.
The idea of a “one nation pension”, mentioned in her resignation letter appears to be flat rate, EET and still-born.
Like Ros herself, the one nation pension taxation system never found a voice. The statements she will be remembered for are those she made for herself, the first at the point when Ian Duncan-Smith resigned, the second at the point of her resignation.

Ros Altmann’s appointment – A brave experiment or a cynical stunt?

The experiment has failed but there are positives. The Pension Auto-Enrolment project continues to prosper, the PPF is going from strength to strength and we look to be making progress through the Treasury towards a pension dashboard.
There are a number of initiatives that struggle on , largely unloved, secondary annuities are still on the table, we are slowly working towards some definition of value for money with which we can measure the performance of our workplace pensions and the Pension Regulator’s DC code is moving forward governance of occupational schemes (including workplace master trusts).
But pensions are assailed by “bad ju-ju”, most especially by scammers looking to “liberate” our good pensions into their back pockets. Pension Wise exists but is not doing all that it set out to do and will need more help if it is to provide the first line of defence, let alone put pension savers on the front foot.
The FCA’s recently published terms of reference for the Retirement Outcomes Review show how un-joined up FCA and tPR regulation still is. The Treasury are more than ever in the ascendency and – as we suspected would happen at her appointment, Ros Altmann’s positioning has simply left the door open.

A smooth handover?


Taking the P from DWP

 As Paul’s tweet shows, there is  confusion about what happens next (suggesting that the DWP weren’t prepared for succession)
Ros Altmann’s departure would have left  the Pension Ministry to either Penny Mordaunt or Damian Hinds .  Despite reports in the pension press that Penny Mordaunt has the post, we were left waiting for an official announcement.
Penny is mainly known for jokes about cocks, appearing on Splash and for comments on Turkey’s likely joining the EU. She is to be Minister for the Disabled

Penny Mordaunt

Damian Hinds is either less or better known (possibly both), he is to be Minister for Employment
damian hinds

Damian Hinds

Caroline Nokes couldn’t get the job , but she is charged with welfare delivery and is an under-secretary.
caroline nokes

Caroline Nokes

Which leaves us with the extravagantly attired Richard Harrington -parliamentary under-secretary for pensions,  PENSION MINISTER! – but not a minister of state,

Richard Harrington

What pensions knowledge there is in parliament , is within the Pensions Select Committee and in the Lords but as the comments below point out, that’s not saying a lot.
In a well judged piece in the Daily Mail, Rachel Rickard-Strauss laments the loss of Altmann and expresses concern that Richard Harrington is not being given the leg up a full Minister of State would have got.
Let’s hope that Richard Harrington ,our new Pensions under-secretary will be supported by the excellent DWP policy team headed by Charlotte Clark. Just as we need an opposition to Conservatism, we need an opposition to the Treasury. Right now, we don’t have either.
Posted in pensions | Tagged , , , , , , , , , | 5 Comments

Walk walk walk – not talk talk talk


I have just read an article by Sophie Baxter that puts numbers to the failure of David Cameron to create a one nation Government. It explicitly draws parallels with Cameron’s oration to the nation on entering #10 six years ago. It may even remind us of the abstractions of Margaret Thatcher as she quote St Francis Assisi.

It excited that nervous sense of unease that developed in my stomach as I heard Theresa May talk last night about social justice. We have been here before and nothing much has changed.


I won’t rehearse Sophie’s arguments, but I will draw specifically on my experience of working in financial services in the years since the coalition.

For all the promises of a fairer and more consumer centric pension system, little has changed (for the better)

  • the great defined benefit schemes, forty years in the making, have crumbled as a result of low market returns, negative gilt yields and mark to market valuations
  • the annuity system that underpinned defined contributions has collapsed and been replaced with the freedom to take financial advice, be a fiscal muppet or try some DIY retirement income fix.
  • the costs of our pension saving remains unknown, know fraudsters stalk the savings of the most vulnerable, a financial institutions convicted of fraud administers our national retirement savings plan

Worst of all, our retirement savings system persists in offering tax hand outs to the rich and little or nothing to the poor. We give 45% tax relief to our wealthiest but we don’t even pay the promised savings incentives to the poorest in the net pay system.

This is allowed to happen by the great pension authorities, the DWP, tPR, PLSA, PMI and FCA.

Today the last of these, the FCA has published the terms of reference for its Retirement Outcomes Review.. We will be responding to it forcefully.

We can’t rely on the past to make good the future

Yesterday a senior member of the Investment Association wrote to me , hours before Theresa May got up to speak with these words.

I’ve never fully understood why and when it became so personal between you and the IA, but it’s a shame. 

It is not a shame. What is a shame is the abject lack of accountability of those like me who have been priviledged with a good education, inherited wealth and all that society could give, to help create a fair society for those who are coming behind us.

The point of the Transparency Task Force was not to cause civil insurrection , or to exercise the personal demons of Henry Tapper, but to make it easier for those who own the pension rights, whether insurers, trustees or private individuals – to understand and take control of the costs of money management.


What I have seen in Government (particularly since May 2015) is the failure of those in a position of power, to exercise that power for the benefit of what Theresa May yesterday called social justice.

The burning injustices that May referred to yesterday do not go away by having an easy time at the Investment Association. The difference between “just managing” and not managing , can be down to the amount taken out of our lifetime of savings. It can be down to not getting a Government incentive on your pension contributions, it can be down to having a proper plan to spend the money saved for retirement.

Since 2015, this Government has taken away the opportunity many of us  were giving our time to (at nobody’s expense but ourselves) to create a collective way for people without the means to pay for advice, without a DB pension, to avoid an annuity, cash or drawdown. I am referring to the blocking of progress towards a CDC solution for “decumulation”.

The aims to reform tax relief to make for a fairer means to spend our nations money were deferred from last year’s autumn statement to this year’s budget and then shelved in favour of not upsetting the public before the referendum.

The promise of a fair system of workplace pensions resulting from the OFT report has been all but extinguished with what little hope we had for a proper way of understanding value for money buried by a timid FCA, a plethora of greedy consultants and the dead hand of the Investment Association.

Braver and Stronger

If we are to have that fairer society that Theresa May talked of, we will need to be braver and stronger than we have been till now.

That means doing stuff, not talking about it. NEST should do something about lending their CIO to give credibility to the IA’s filibustering (rather than threatening me with Ultra Vires writs).

Ros Altmann should reinstate the CDC regulations writing so we can have a proper default for spending our DC pots by 2019.

Hammond should dust off the proposals left dusty on George Osborne’s top shelf and  institute a root and branch reform of the taxation system which so unfairly underpins pension saving.

Above all , we should turn the hearts and minds of our nation of small business to the advantages of workplace pensions, what it brings them as employers and how their staff can benefit from the work they do , the money they earn

This cannot be done with words, it must be done with actions. I will continue to do my bit through and through promoting the great work of my employer First Actuarial.

Do I think things can better?

They cannot get any worse than the disaster of the last 14 months.


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What rights do banking customers still have?


I received a letter out of the blue from Scott Miller, Head of Customer Services at Barclays. It’s a pro-forma and it included a new credit card, if it hadn’t, I’d have not read it.


Not so great I thought, so I looked this Scott Miller up on Linked In and found we had a number of people in common, so I sent him a linked in mail.


Over the last week I got a letter from you about my i24 card, which is now a Barclays Infinite Card.

I signed my agreement with another company but i24 transferred to you some years ago. Since the transfer, the original point of the card has been diminished to the point that it became just another credit card. I guess I stayed with you , because life is too complicated to change.

But your letter has prompted me to ask some questions.

Firstly , I am changing from mastercard to visa – I bought mastercard – what does this mean?

Secondly, I am going to have to change all my payment processes that depended on my using mastercard- this is very inconvenient – I did not ask for this – why must I do it?

Thirdly, what is happening to my existing benefits with i24 – travel lounge, insurance, cashback, concierge and is the amount I have to pay for Infinite the same as for i24?

I am sure that in my mail somewhere is the answer to these questions, but I don’t have time to read your unsolicited mail – whichI get every week. I want to be treated fairly and it may be that I am being treated fairly but I am confused.

I don’t want to ask questions to your Mumbai call operators with their telephone scripts , the call-backs that never come and their lack of accountability. I don’t have time to go through the complicated robotics to speak to the right person.

Instead I want to speak with you Scott Miller, Head of Customer Services and ask you what you think I will gain from having to switch to Infinite. So can you please call me on 07785 377768 or mail me at henry.h.tapper@gmail or simply respond to this linked in mail.

I am a keen blogger and have posted this mail to my site, I hope that we can conduct this correspondence in a pleasant way so that the more general issues I raise about TCF, the rights of customers and the capacity of us as individuals to deal with other individuals is maintained.

Perhaps we can also get linked in!

I haven’t heard back from Scott but I only sent this 5 minutes ago and it’s early in the morning. I will publish our correspondence as I genuinely don’t know what rights I have to what I bought or whether I am simply bound to accept whatever I am given (or hand back the card).

The interesting thing is that I don’t really see the point of retail banking going forward. PayPal is so much easier and I suspect cheaper. The reason I bought this card was I was told originally that if I had a problem I would not have to deal with an overseas call centre and that I’d get a personal service.

Those promises went out the window years ago, The new card- which looks identical to my First Direct debit card,was never part of the script.

Old skool banking

I’d like to think I was part of a banking revolution and that there was an upside to “infinite”, but Scott’s letter itemises only the payment protection insurance that all cards have by law. What makes me laugh is – despite me paying my bills by DD from my bank account, Barclays send me my cashback by cheque!

Here’s the latest one, together with a £50 note – just in case you don’t remember them either! (actually the note is really a serviette but don’t worry about it!


I had lunch with a nice man from the HSBC on Friday and we discussed the point of HSBC to retail customers. They have the excellent First Direct and I pointed out that First Direct do everything I want from a bank and more. I also pointed out how exasperated they get when they have to do things the HSBC way.

My conclusion is that big banking needs to become small banking. I love going to Metrobank, I look forward to speaking to First Direct and I very much hope I will be able to have a constructive conversation with Scott Miller to get answers to my questions.

If you have banking queries of this nature, I’d be interested to hear your views. Please post in comments so we can keep a little dossier. I am not saying Barclays is crap, but I suspect that what is happening to me, happens to a lot of people, and that we are made to feel like crap.

That’s not what should be happening, and Scott- I hope it’s something you can help put right!

Barclays cropped

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

Tactical transparency from the Investment Association


The Investment Association’s terms of reference


Professional Pensions reports that the Investment Association (IA) have appointed senior pension figures to advise the it on a new disclosure code for investment costs.

Helen Morrisey, the paper’s editor is optimistic

I’m sure the process will be challenging but I have no doubt this panel, which also includes representatives from the Local Government Association and the Transparency Task Force, are up to the job of helping to create something that enables schemes to have a truly informed view about what they are paying to who. I wish them luck!

I am not optimistic.

I would have sooner made Tony Blair editor of the Chilcott Report than put the IA in charge of a disclosure code for investment costs.

The Investment Association represent the interests of the fund management industry and (since its merger with the investment wing of the ABI) the insurers. It’s job is to represent its members interests and those interests are to generate profits for shareholders, bonuses for senior managers and to do so out of the funds of unit holders and policy holders.

There could be no clearer conflict of interest.

In order to absolve themselves from these conflicts , the IA are setting up an independent committee. Independence is critical for transparency but this committee is neither independent or transparent.

Firstly it needs an independent chair

Mark Fawcett , CIO of NEST is to be chair of this group, he is not the right person for the job.

I like Mark Fawcett – he is a clever man and I’ve endorsed him many times (see his Linked in profile). However he is not (IMO) – the person for this job.

His high profile role lends the IA advisory board a quasi-governmental authority. It has no authority, the IA is a lobbying association for the funds industry.

NEST is itself in need of greater transparency and I have been very critical of some decisions that it has taken – especially in its appointment of State Street as its funds administrator.

Mark cannot be both advisor on and consumer of an advisory code

Secondly it will be operating under a code of secrecy.

So far we have a press release

Independent Panel to Advise IA on next-generation disclosure for investment costs”

There’s a list of the great and the good to sit on the committee but nothing of any substance.

When Con Keating asked TTF supremo Andy Agethangelou for the committee’s terms of reference, Andy had to admit that he was bound to silence!

Can there be anything more absurd than a confidentiality agreement governing the leader of the Transparency Task Force? Andy appears to have signed his own gagging order against my advice.

Keep your friends close and your enemies closer.

So long as that confidentiality agreement is in place, Andy cannot represent the TTF in this, he can only represent himself, as he has no mandate from the TTF to speak for us.

Thirdly, the Investment Association are not to be trusted .

It is only a year since they booted out their own CEO- Daniel Godfrey– for demanding that the IA adopt a fully transparent code.  Daniel Godfrey is now in the FCA and hopefully will get more luck overseeing the production of the current market review into the funds industry!

The last time the IA put together a voluntary code (in 2012), standards of disclosure actually fell. It is now harder than ever for us to find out how much we are actually paying for fund management. I have little doubt, that with a fair wind, the IA would kick transparency not into touch, but over the fence and into the river.

This leopard has not changed its spots. It is a ruthless organisation that has a decades long history of obfuscation, filibustering and general bad behaviour. It is the enemy of good funds governance and should be excluded from any discussion over codes of conduct.

Too big for the private sector

Taken together, the appointment of Mark Fawcett as Chair, the secrecy surrounding the dealings of the committee and the appalling track record of the IA, make this Committee toxic. It does not have my support even though Andy Agethangelou, in all else -does.

The FCA are reported as wanting the private sector to sort this problem out for itself, but there is no way it can. Even with the TTF and financial consumer groups working together, we would be throwing peanuts at an elephant. The funds and insurance industry laugh at our puny efforts and patronise us with this committee to string the process out a few more years.

The only way that we will see true disclosure is by Government requiring it. It should form the basis of the new charge cap due to arrive in April 2017 (for workplace pensions), it should override MIFID and Prips (both of which look to be post-BREXIT irrelevances). Full disclosure should be the consequence of the call for evidence from the FCA in April 2015 and the outcome of the current market review of fund managers and investment consultants, currently drawing to a conclusion.

It took the Dutch Central Bank to make things happen in the Netherlands and it will take the FCA/Treasury/tPR/DWP to make things happen in the UK.

If any good comes out of this farcical initiative from the IA, it is to show how weak the private sector is in putting its house in order. We need Big Government to intervene, we need proper Regulation with a big R and we need it now.


The Investment Association’s terms of reference

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Property , liquidity and the merit of doing nothing

aviva 3

News that Standard Life , M&G (the Pru) and Aviva have put up the shutters on their property funds is dominating the headlines. We are used to being able to move our money around the market with “impunity”.

I put that “impunity” word in there , because the word is little understood and often misused. It means “without punishment” and if a property fund investor can sell units in a property fund without punishment, it is because of “liquidity”. Liquidity being created either by someone wanting to buy those units or by their being cash in the fund which can be drawn on to meet the demand for a cash pay-out.

What is happening now is that there are not as many buyers and sellers and there is insufficient cash in the fund to meet expected future pay-outs. Rather than sell properties, which is expensive and takes time, the three property fund managers have decided it’s time for a lock-in.

There is nothing wrong with this, there is nothing unusual about this, it should not be headline news- there should be no panic – no run on property and this should be reported responsibly. Let’s hope that people keep calm.



Philosophically, any investment confers property rights on the investor. In practice, most of us haven’t a clue what we own when we write a cheque in favour of a fund manager (did I really say “write a cheque”, that too is an archaic formulation designed to create physicality).

We do not know what we own and have no connection with the profits generated by our investments, we simply see statements telling us of our wealth.

The attraction of property is the tangibility of the investment. One commentator on Radio 5 this morning said that retail property investors are “emotional”, meaning- I think- that they buy and sell with their hearts. I think another word is “engaged”.

Engaged investors want to be in or out of an investment based on fear and greed, in times of greed they fear not being invested, in times of fear, they are greedy for the safety of cash, either way – engaged investors tend to be driven by emotion and they engage with their property rights (to buy and to sell).

It is this small group of engaged investors (and their advisors) who are creating the demand to sell property. I don’t have the numbers, but I suspect that the majority of selling is being done by the discretionary fund managers (DFMs) who buy and sell on behalf of their wealthy clients and use property funds as a form of diversification.

aviva investors


in times of fear, people get greedy for cash (except for Paul Lewis who is always greedy for cash). Now is a time of fear and some DFMs are trying to get liquid rather than holding property. This is odd, as the reason you diversify beyond debt and equities is to create a non-correlated source of return (property often rises when shares fall and vice versa).

I suspect that the reason for people seeking liquidity is that they are trying to beat the market by timing the withdrawal from “property” ahead of what is supposed to be a property crash. This flight to liquidity is exactly the opposite of what long-term investors are taught to do (see Warren Buffet/Terry Smith etc.).

This kind of herd like behaviour is precisely how people (or animals) get trampled on. It is why institutional investors sit on their hands and wait for the panic to subside.

Because when people get greedy for liquidity, the price to “get out” jumps. The cost of liquidity is seen in huge spreads between the buy and sell price. These spreads are no longer published, they are built into the unit price and materialise in your getting less for your unit sale than you imagined.

man from pru

the way we were


The value of doing nothing

There is currently great value in doing nothing, sitting on your hands, remaining calm. This is exactly because our emotions – our intuition – our sentimental side- says “get out”.

But the shopping centre in which your property fund invests isn’t going to stop collecting rents, the warehouse isn’t going to stop storing goods and that office block isn’t going to say goodbye to its tenants. Demand for retail/office/warehouse space may dip and prices may fall back, but the likes of Aviva, M&G and Standard Life aren’t investing in houses made out of straw, the big bad Brexit wolf isn’t going to blow these houses down.

The reason people should invest in property funds is because of the underlying value of property as a means of generating commercial or residential space which is useful for people to work or live in. That value remains – all that impacts short term volatility in the unit price is demand for work or living space.

The great advantage property funds have , is that people can envisage what it is the property fund invests in (even when the actual investment may no more than a derivative!). People know what they are buying into.

People have less ease understanding the purchase of an equity and even less understanding of how to value a bond. I wish that those who act as advisors to retail investors would be clearer about how investments work and about property rights. Too many wealthy people I talk to, tell me of their wealth managers capacity to “hedge”, diversify” and “leverage”. Too few can tell me where their wealth is invested.

I suspect if we knew where our money was, we would be more inclined to leave it there, for that is what investors, investees and the country needs. We need to understand the value of doing nothing.


Since this article was written, a number of other funds have been suspended including Columbia Threadneedle’s, Aberdeen’s and Hendersons’s.

One fund that hasn’t been suspended is LGIM’s. Here is what L&G has to say


Good Afternoon,

In light of recent news, we would like to take this opportunity to convey to our investors that the UK Property Fund remains well positioned in terms of liquidity and asset management initiatives.

Currently the Fund retains over 20% of its NAV in liquid assets – the majority of which is held in cash. In addition to this, the Fund has a pipeline of sales initiatives which will increase its cash position if needed and has a well-diversified investor base.

The UK Property Fund is managed by a very experienced team and continues to receive strong support from rating agencies and advisers alike.   We would like to invite you to join us for a webinar on Friday, 8 July from 9:30am when Matt Jarvis, Senior Fund Manager of the UK Property Fund will cover the following:

  • The current positioning of the UK Property Fund.
  • The Fund’s allocation to liquid assets.
  • Fair Value Pricing and why it is necessary.
  • Some recent examples of ongoing asset management initiatives within the portfolio.





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Brexit not AExit

keep calm and auto-enrol


Disruption of auto-enrolment happened way before the recent referendum and is set to continue as one of the many unintended consequences of a leave vote.

The ambitious legislative reforms put in place by the coalition’s pension minister Steve Webb were pruned only months into the new administration when Ros Altmann called time on Defined Ambition and Pot Follows Member. It was claimed that these policies had fallen victim to austerity (the DWP simply didn’t have the lawyers to go round) but many pension commentators sensed the dead hand of the Treasury and their obsession with the ISA as its savings plan of choice.


These fears proved correct when after a year of consultation, the Treasury announced it was binning its plans to reform the taxation of pensions in this year’s budget. The excuse this time was “market volatility”, though who now remembers the stock market turbulence of the first quarter? In reality, the Treasury were battening down the hatches in readiness for the June referendum. Talk in Westminster was that nothing radical could risk our continued membership of the EU.


So the first 14 months of the new administration has seen a retreat from the Coalition’s radical reforms, the deferral of the tough choices on tax-relief and now the breakdown of normal Government following a plebiscite that went horribly wrong.


What little cheer pensions have had, has been around the introduction of the new state pension, the ending of contracting out and a movement to a new simple way to understand state retirement benefits. And of course the continuing successful roll-out of auto-enrolment which is now entering its fourth year.


But all in the auto-enrolment garden isn’t rose, indeed some of the roses are thought to be developing canker which is why the DWP has been allowed a small but significant Pensions Bill. Ros Altmann is using the Bill as a chance to introduce some much needed regulation around small master trusts, many of which are seen as unfit for the purpose of carrying worker’s retirement dreams through the next four or five decades.


The smooth passage of this Bill to enactment in April 2017 looks like being the next in what is coming a queue of pension policies that don’t quite make it to implementation.


Pension legislation is front-end loaded with difficulty for politicians. It is very rare for a policy to give a quick win (pension freedoms being the exception that proves the rule). Typically, legislative change caused grief today and delivers well after the politicians term of office has expired.


Small wonder then that we currently have neither a pension minister or a shadow pension minister in the house of commons! The difficult truth is that pensions are the Treasury’s political football and Her Majesty’s opposition has been through three pension ministers in little more than a year.


So despite the heroic efforts of the accountancy and payroll professions to help Workie out, the research and development teams from the private and public sectors have been thwarted in creating a long-term solution to the structural issues that beset workplace pensions.


We still have pot proliferation rather than pots following members

We still have no mass market alternative to annuities

We still have no solution to the nonsense of net pay and relief at source taxation systems

We still have a plethora of master trusts with no obvious means of survival.


So the next time you are called upon to help an employer set up a workplace pensions (whether yours or a client), it’s worth considering just what the outcome of the great AE experiment is likely to be.


I share with the Government an enormous optimism for auto-enrolment’s potential, but I am growing tired of seeing the retirement plans of generations to come being put at risk by short-termism in Westminster.


The coalition government of 2010-15 was a golden era for workplace pensions, it looks like this Government will be reverse alchemists, turning gold to lead.


We have exited Europe through a series of political blunders. If we are not careful we will find ourselves out of love with auto-enrolment for failures of a similarly political nature.

Posted in auto-enrolment, Blogging, pensions | Tagged , , , , , , , , , , | 2 Comments

Women rock

It should come as no surprise to anybody that the two leading candidates for our next prime minister are women. Leadsom and May have survived the BREXIT disaster with their dignity intact and integrity intact.

I would have no worries having Andrea Leadsom as my Chancellor and Theresa May as my Prime Minister .  Leadsom would also make a good Prime Minister.  The idea of this country being governed by women comes as a pleasant prospect after the male dominated “debate” we have just had.

The enormous unlocked potential of female leadership has still to be properly recognised in this country. But as we move from a plutocracy to a meritocracy , we men cannot avoid the obvious conclusion that “women rock”.

My favourite BBC gaffe of recent days is their much tweeted comment


The world moves to the beat of the 19th and 20th centuries when women were subject to this kind of nonsense as a matter of course.

I want to listen to women because they bring a fresh intelligence to the male thought-hegemony that has dominated my world for my past 54 years.

And I am so immersed in that world that I continue to behave like Sid the Sexist, without knowing it! Angela Rayner – who this week is Shadow Secretary for Education, boxed my ears to referring to her as “Colin Meech’s woman” only last Tuesday!

One of the reasons that women rock- is that they can forgive and forget male idiocy like mine! We are all as bad as each other and need re-education!

And so for business as for politics?

Equate the boardroom with the cabinet and the door’s now open, we have yet to see the arrival of equal gender boardrooms but this is a matter of time. The equilibrium will happen as we move towards a meritocracy.

The idea that companies, like countries , can be managed by women, is slowly seeping into our DNA.

The glass ceiling is not being shattered, it is slowly being dismantled. This is not a revolution as I imagined it would be when I was at college, this is an evolutionary progression.

But political and business leadership are just the start. The deepest inequalities between men and woman persist in our social world – in the day to day decision making which regularly relegates the emotional intelligence of women to a distant second place.

Mea Culpa

For us men, recognising that women are natural leaders is not a natural activity. Many of us have sexism hard coded into our brains. We need new circuit boards but we are not going to get them overnight. Instead we are going to have to see the neurological plumbing re-arrange itself over time.

In the meantime- to my female readers – “mea culpa”! And to my male readers, here’s the message

“women rock”.

the sooner we can re-wire – the better!


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Back to business



It will be interesting, when the Pensions Regulator comes to publish its statistics, to see whether the past few days will represent a downward spike in engagement over auto-enrolment. Certainly our stats at Pension PlayPen suggest that less decisions were taken last week then for several weeks before – but ours is too small a sample.

Business needs rules, the source of the rules – Government- needs to be respected. The current failure of Government to govern is worrying. Such a lead can lead to a more general lawlessness.

Auto-enrolment is an ongoing process, we are still only in the foothills, the peaks of 2017 are in view but we don’t need to be dismissing the sherpas right now.

All over Britain , kids are taking exams at the end of term, soon we will be heading abroad and economic slowdown will continue through to September.

With this sense of unreality engendered by the situation in Westminster and in Europe, it is easy to see Britain taking the forebodings of Remain as a self-fulfilling prophecy. There will be nothing easier than to see Britain slip into recession, it doesn’t take any work at all!

I am attracted to business-like people and the talk of Andrea Leadsom is that of a business person. It is why I like Ros Altmann, not just as a person but as a Minister – she is business-like (an advantage she has over her predecessor).

It is now incumbent on those who have created this mess – the politicians – to get their heads down and really get to work. I am actually going to the Conservative Party conference in October and I look forward to seeing some work done there (unlike last year).

Right now – I am sitting on a boat – four miles East of Henley – awaiting day five of the regatta. The highlight (for me), the battle for the Princess Elizabeth Cup between George Osborne’s St Pauls School and David Cameron’s Eton.

While the toffs slug it out on the river, an army  of migrant workers will be serving the blazoured multitude on the bank. What a metaphor for where we are!

Here are the highlights of day four, including St Paul’s amazing comeback against Melbourne!



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The Coalition worked- this doesn’t!

A tale of two Governments

In 2010, after a shock result, Britain found itself Governed by a ConLib coalition. No one gave it much chance of working but it di, The Clegg/Cameron coalition brought considerable benefit to the country and was something of a “golden administration” for pensions.

In 2015 we had another election, this time it gave us a conservative majority (another shock). The markets reacted positively and we looked set fair for five stable years of further recovery from the financial crisis. HOW WRONG COULD WE BE.

The supposed weakness of the coalition was its strength, Nick Clegg and his team kept the conservative party focussing on what mattered – Britain – and away from local feuding.

Since the dissolution of the coalition we have had Britain has seen the most bitter internal division since the War of the Roses (I discount the Civil Was as that was fought on religious grounds). The disintegration of BAU Government over the past three months and the absurd “what do we do now” position we find ourselves in, is a consequence of an unwanted and unloved debate on a subject we know little about and cared less.

As with any war, the people who will be hurt most will be the civilian population and the most vulnerable were (and are) being hit hardest. I am writing to friends in my company who are of Eastern European debate to tell them they are wanted and wanted very much. But a substantial number of the people working in Britain today, will not get such comfort.

The efforts of society to drive out rascism and other forms of intolerance have been set back. It is now politically acceptable to blame the hard working for being hard working and to blame those who have risked much to work in Britain , for being foreign.

The decency of the coalition has been replaced by the new nastiness.

I sensed the change when I went to the Tory party conference last October. The ring of steel was surrounded by angry protestors, inside there was much drinking and self-congratulation but little progressive policy-making. Already the need to help the country had been replaced by a determination to “help yourself”.

As for pensions, instead of the social policy of Steve Webb, we had the “self-empowerment agenda of Harriet Baldwin. The Treasury had walked off with the trophy cabinet and were melting down the hard-won policies of CDC and pot aggregation in favour of dumbed down savings policies that had more do do with re-election than social purpose. The Pension Minister did not make it to Manchester, locked like Rapunzel in her Tower, the key in IDS’ pocket.


Altmann repressed

Can we learn this lesson?

The balancing influence of the Liberals on Conservatism kept the one nation, “all in it together” vision to the fore. Once it had been lost, the Conservatives disintegrated. Now they have no leadership, no vision and no short-term plan to get us out of the mess which their disastrously mis-managed referendum has got us into.

Sadly, rather than acknowledge the role of the Liberal party, the Conservatives decided not just to drop the pilot, but shoot him too. Almost all the great Liberal politicians of the coalition (Cable/Clegg/ Webb et al.) are now no more than commentators, not even commanding a seat in the house.

The ungrateful contempt with which coalition politics has been dismissed by this conservative administration, has no justification. For we can now look back at 2010-15 as a time when politics worked and look at the current Government as an example of how politics does not work.

I am a Liberal and a liberal. I believe in working together, of co-operation. I will support Tim Farron but I will also support this Government in any attempt it makes to reach out to those who it has so harmed and rebuild trust. I will support attempts to reach out to Europe, to Europeans working in Britain and to those who have voted in the referendum who now feel bewildered and betrayed.

Where’s George

George Osborne is lost, he has no credible position. He is the architect of his own downfall and his contemptuous attitude to the people of Britain renders him contemptible. He has only one word that I will listen to. That word is “sorry”. If he can admit he is sorry (as Cameron has) then – as Cameron has been, we can forgive and move on. We may even be able to move on with Osborne in charge of the money (he is competent if not trustworthy).

However, we cannot move on till we have checks on his behaviour. We cannot go back to the situation we have found ourselves in over the past year, where a Conservative Government behaves with such total disregard for the people of the country.

I hope that whatever is left of the Labour party, after they have had their playground fight, will regroup and come to the table. I hope that they will join hands with Tim Farron and the tiny rump of Liberal MPs and then go to Government and offer to help. We need something like a Government of National Unity at this time.

We need something like the coalition we enjoyed until so recently.



I’m afraid so

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A decision that may hurt the EU more.


My prodigal brother Albert (aka Mincer) has been advising his followers on twitter to bet on “leave” – notably over the days leading up to the referendum when we all had concluded “remain” a racing certainty.

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Screen Shot 2016-06-25 at 06.36.51

He was right and the bookies were wrong, so I decided to take a little more notice of his tweets and was struck by this which appeared yesterday.

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Will Europe implode?

Whatever the dream of the European Union, it has never been dreamed over here. Apparently one of Google’s most searched items yesterday was “what is the EU?”.

I very much doubt , if you asked the man in Lens/Augsburg or Pisa what the EU meant to him, you’d get much consistency (or substance). There seems to be a gap between the articulation of the dream in Strasburg and Brussels and the perception of the EU by those not living it.

The question is whether Britain will ignite lated Europhobia, draw the remaining 27 countries together or simply leave to massed indifference.

Judging by the reaction of European people both inside and outside of “dreamland”, indifference looks the least likely option. Many Brits will be surprised by how important they appear to be to the folks accross the channel.

Rather like active fund management, the EU is talked up as indispensable till a Warren Buffet comes along and shows just how unlikely it is to create value from an abstract notion.

Warren Buffet

But like active management, the EU has always been very useful as something to cheer when things go right and jeer when things go wrong. Blaming Brussels is a past-time not just of the Brits and (like active management) Brussels is a luxury item which diverts many from the fundamental problems of their local economies.

I think there is a good chance that calls from within the major European players (especially France and Italy) , for freedom from the perceived millstones of the weaker nation states, will grow louder.

Plebiscites, as Cameron has found are easy to grant but not so easy to control. The threat of contagion is very real and the damage may already have been done.

Will anything actually change?

The other part of Mincer’s tweet that has exercised me , is the question of change in the UK. Cameron has made it clear he doesn’t want to press any buttons to leave while at the helm and that he won’t leave the boat till October. That means that the deadline for exit is October 2018 at the earliest, which is a long time away, for those who want immediate freedom.

Much will depend on the respect that Cameron is given and if the UK Brexiteers are as keen to say goodbye to Cameron as Brussels is to Britain, then the timeframe may be shorter, but any thought of a decree absolute before this time 2018 looks unlikely.

At a formal level we will not be free from the EU for some time, the question is whether much will change in the meantime.

There is real fear among many recent immigrants I know , that their jobs and even their residency permissions may be terminated immediately. This is not fantastical. For all the words from Tory Grandees, it is the barking of UKIP and their everyday campaigners who cause this fear.

I very much hope that we will not turn upon our immigrant population and make them unwelcome. I am sure, in my genteel world, this won’t happen, but I’m not the one who feels threatened by them, my biggest worry is that we will make life so unpleasant for them, that they leave- and take our reputation for tolerance with them.

In practice, firms like mine have benefited from the influx of European graduates willing to work hard and be patient and they have brought standards up among our home-grown graduate intake. I can only speak as I find, our business would be the poorer without ready access to brilliant European students.

I suspect at the professional end of the immigrant job market, nothing is likely to change, but I fear for the livelihoods and lifestyles of those without professional qualifications, who may lose what little protection they currently have.

Power 4

And what of the multi-nationals?

JP Morgan and Airbus were quick to issue pre-prepared press releases threatening job cuts as “changes to business strategy”. We have got used to this kind of behaviour and I don’t think that the nation will be any more scared of corporate reprisals as they appear to have been by the punishment budget threatened by our (current) Chancellor.

Since we are likely to be staying in till October 2018+, knee-jerk closures look unlikely. Most large employers will sit on their hands and watch, changing strategy is an expensive business.

And what of Government?

Here we will see most change (IMO) but only in terms of the faces. The Tory party conference in 2016 will look very different from 2015 and is likely to be considerably less cocky.

George Osborne and his various strategies look to be pretty well underwater. If he is to be re-floated, he will need a very considerate cabinet and a tolerant public.

The big Treasury projects waiting to be enacted – the LISA/PISA/WISA plan, the changes to pension taxation – even the Treasury/FCA FAMR proposals, are all now under threat till we see what kind of Treasury we get going forward. Osborne was a controlling Treasurer with a considerable tenure, if he leaves, I doubt that his successor will drive these projects with the same vigour.


And what happens in the Treasury, will happen elsewhere. I suspect that there will be major change to reflect the failure of Project Fear and the shambolic state of UK Government since this disastrous referendum took over.

It is hard to remember that Nigel Farage has no political office and that the party he represents has only one representative in parliament (none in the Lords). Whatever his PR antics, Farage has little practical way to influence policy.

In practice then, I see inertia in public policy over the next three months and a great deal of noise from politicians. All this at a time when Britain should be at the height of policy making (a year in to a new parliamentary term).

The power we never thought we had

I haven’t heard of read this, but I sense that we have rather over-estimated the impact of BREXIT on Britain and underestimated it on Europe. We may well have done more harm to the EU than we have to ourselves.

This is not me being revisionist , I am sad we did not stay. But I am not going to complain, I am going to make the most of what the new world offers me and find opportunities.

I will not be listening going forward to any filibustering from the fund industry (or the regulators) about “waiting for Europe”. I will reach out to our friends in the Commonwealth , the US and the Far East with greater confidence and I will not be ashamed to show my passport at European airports.

We have decided and I agree to live in this new world. I suggest that we use the power that some of us did not realise we had, to best effect.




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All change – UK votes to leave


I write at 6 am, at exactly the point when “vote leave won”.

There will be many blogs written trying to make sense of the vote, this will not be one of them.

I voted remain and at mid-day yesterday, I was bragging that there was (on Betfair predicts) an 88% chance that I would win. I was so wrong!

At around mid-night, my partner and I accepted that the votes in Sunderland and Newcastle weren’t bucking a wider trend. my Betfair app was as out of keeping with the unfolding reality as I was!

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What is this?

This is the great kick in the whatnots that this country has been waiting to deliver to the ruling minority in Westminster and the City since it all went horribly wrong in 2008.

72% of us voted,  the biggest turn-outs being in the Brexit areas. This was no fluke, this was democracy in action.

The Scottish are already calling for independence and the right to maintain in Europe. So is Sinn Feinn.

The pound has fallen 10% overnight, the stock market is expected to follow suit. I have been walking the streets of the City, taxis are rushing people to their desks, this is a financial crisis.

My memory of the weekend is walking down streets in Thames Ditton where almost every detached property had a remain sticker in its window. The economic prospects for the wealth of the families within, now looks tarnished.

There was a rainbow breaking over Gateshead, the town that links Sunderland and Newcastle.

Whatever this is, this is democracy in action.

And for intergenerational fairness.

This table tells its own story, I don’t suspect we’ve heard the last of this.


And in Europe

This is a sad day for Europe.

The reality is that Europe feels it needs the UK rather more than the other way round. Ordinary families in Poland and other European countries are now in fear for the millions of their compatriots in the UK. No announcement has been made of their status as UK residents but  the tone of our debate has made them unwelcome.

Just how difficult this will be for the European super state is one of the great questions we now have to consider.

And for British politics

This has been a disastrous referendum, I said this yesterday and today. It has not been carried out in a decent way and it has massively backfired on its architects. It has not been good for the Labour party or the Unions and it is heartbreaking for the few remaining Liberals ( of whom I am one).

The new politics will be very different. We will have new leaders and we will have new policies.

Stop press+++ David Cameron resigns within an hour of announcement+++Stop press

Before this vote, George Osborne threatened us with a punishment budget if we voted as we did. The chance of him carrying out this threat look slim.

And for pensions

On 13th June 2016, Andrew Warwick-Thompson Head of Policy at the Pensions Regulator wrote to me rejecting my request to set up a meeting between him and leading figures in the Transparency Task Force.

We note that it is the FCA’s view that this (transparency) will be best achieved as a pan-European initiative (e.g. PRIPS, amongst others) as many UK investment managers operate across Europe, indeed many operate globally.

Pensions, as almost every area of public policy will now have to adjust to a new reality, that we are no longer subject to European initiatives  and are now self-determining.

The immediate impact of this vote on pension scheme deficits is likely to be mixed, assets will fall (disastrous for those in draw-down) but liabilities may fall too – if inflation kicks in.

Where do we go from here?

This is the political consequence of austerity. We have thrown out the post-war consensus in exchange for a very uncertain future.

We have no choice but to accept this astonishing development and we will have to move forward.

I am not going to shout in anger at the people who voted differently than me nor shout at Nigel Farage and others whose views I do not share.

Like tens of millions of others, I will go to work today and put in my shift.


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SMEs pay for pension advice -but not to IFAs


One of the oddest aspects of auto-enrolment is the disappearance of the IFA. There are exceptions of course but when it comes to the core enterprise of the IFA, advising , implementing and nurturing workplace pensions, the IFA is nowhere to be seen.

The much heralded army of small employers have arrived but most financial advisers are most inconspicuous. This has prompted one of my journalist friends to ask me in publicScreen Shot 2016-06-22 at 06.40.12

Behind this simple question were further questions

1)    Advisers are concerned about the margin crunch (and commission loss) on workplace pensions. So how can they deliver corporate advice on pensions and make it cost-effective?

2) What are the long-term benefits for advisers in engaging more with workplace pensions – and with younger workers in particular?

These are questions for the 2017 auto-enrolment review and they do not have simple answers. There is no switch that can turn  commission back on, and as I’ve written on this blog before, it is counter intuitive to spend money to get your staff to save money. Given the choice, most employers would sooner pay more into their employee’s pension pot.

How is the FCA answering these questions?

The Financial Advice Market Review is currently asking what help is needed from financial advisers and I do not hear concern about the lack of financial advice for small employers on workplace pensions as a major theme,

The average age of financial advisers is generally accepted as around 55, there are very few young advisers and a large proportion of those advising could better be called wealth managers than financial planners.

Indeed the idea of advising young savers how to build the pensions wealth that the next generation of financial advisers can manage is pretty well bottom of the agenda for most of the advisers I speak to. The customer , like the adviser, is advancing in years and is more interested in how to retain wealth than save more.

How is the Pension Regulator answering these questions?

The Pension Regulator issues an information pack to employers preparing to stage auto-enrolment, it includes this advice on choosing workplace pensions


If you press the link you will find this rather vague help when you click on “find an adviser”.

If you have an accountant, they may be able to help you find a scheme or a financial adviser that can help.

You can also use the Money Advice Service retirement adviser directory, which contains advisers who can help you choose a pension scheme for automatic enrolment.

To check if an adviser is authorised by the Financial Conduct Authority, search the FCA register.

Financial advisers are an afterthought for the Regulator.

Does this matter?

IFA’s off chasing the mass affluent’s wealth,

employers being nudged into NEST

and no questions being asked.

This is the shocking state of the market. The 1.5m employers currently considering their options are being given next to no help at all.

The Government has set up NEST which must accept all employers that ask to join it- other pension schemes are also available.

Does it matter- of course it matters. As Simony points out – there is virtually no engagement with NEST , nor with saving more than the minimum , nor with the outcomes of the choice which the employer has.

If we are to build a platform for future saving where employees and employers are happy to have substantial proportions of their earnings diverted into workplace pensions, then we need to get employers and employees engaged with where the money is going.

Where can this engagement come from?

I see no reason why IFAs will want to get involved in helping employers with choosing pensions or employees in saving into them, they are better off managing wealth.


Where I see interest in workplace pensions and in the business of pension planning is among those who pay us our salaries, whether in-house or through bureaux. Typically these people are not financial advisers though they are trusted by those who get paid by them over their money.

These people need to be empowered to talk with staff about how pensions work, what staff need to do to get proper pensions and how to go about doing this as efficiently as possible.

In trying to answer Simone’s questions , I realised that the next generation of financial advisors are not already in the workplace- and nobody knows it!

Employers pay for their staff to get paid, if pensions is deferred pay, they are already paying payroll for pensions. If an employer wants to engage with pensions it will be through payroll not through IFAs. Payroll are the new IFAs.

What needs to be done.

I firmly believe that the answer to the problems of engagement rests with payroll. At present payroll people are being given dismal messages by Government about pensions

The Government has set up NEST which must accept all employers that ask to join it- other pension schemes are also available.

It is time this message changed. It is time the Government started encouraging payroll to take the choice of pensions seriously and start selling the benefits of pension savings to their staff.

In my opinion, payroll is ready for this challenge.


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The still small voice of the (BHS) pensioner


A woman walks past a BHS store in Leicester

A woman walks past a BHS store in Leicester

I think back now to the people with whom I worked in BHS – by and large decent and hard-working folk, who had little prospect of ever being well-off unless they won the lottery or their Premium Bond came up.  Retailing often involves long and unsocial hours, and can include hard physical work of unloading boxes, moving counters and racks etc.  Those who worked in BHS did least a 40 hour week, often working at weekends and sometimes in the evenings, and were paid wages that were never going to make them rich – for many just above the living wage.  Yes, they did get a staff discount on merchandise they purchased from the store, but this was the one and only “perk”.  Many of the staff were, and are, women, and a considerable number were part-time, to fit in with family responsibilities.

I contrast therefore those who are now earning approximately £15,000 or £16,000 per annum with the £5m that Philip Green is reputed to have spent on one of his big birthday parties in an exotic foreign location.  The cost of such a party represents about 333 working years’ salary for a BHS member of staff.

Written evidence of Lin Macmillan to the BHS Enquiry

Worlds apart

Philip Green gave oral evidence to the enquiry last week, he seemed plausible, he made promises, he came across as a reasonable man who had been let down by Dominic Chappell. In the game of pass the parcel, he was keen to be part of a pension solution not the author of the problem.

But as Lin Macmillan’s evidence makes clear, the world of Philip Green is so far from that of most of his shop workers, that the Select Committees considering evidence have every reason to distrust Philip Green.

Yesterday Philip Green is reported to have taken possession of a £46m private jet 

Green jet


The abuse of office

If you look behind the curtain and listen to the Chair of the BHS pension trustees (I know him to be an upright man) then you see the almost impossible conflicts placed upon him and his colleague. Documents published yesterday show how the man to whom Green sold the pension scheme abused his trustees

Another document shows how the promises that Philip Green’s holding company, Arcadia, watered down the support it was giving its pension scheme (the document is structured as a succession of drafts, each of which shows the Arcadia covenant deteriorating.

Rather like God with Elijah, the still small voice speaks through the earthquake wind and fire. The truth resonates above the bluster.

Giving the members back their voice

The reason we are having this enquiry is so the voices of the trustees , pension scheme members and ordinary members of staff can be heard. Thanks to the Committee (and the FT’s  Jo Cumbo, who put these documents on twitter), I know the views of those who do not shout loud and do not have a lawyer to brief them on every nuance.

The BHS problem goes even deeper than the corporate values that have been broken, it goes to the heart of what we expect from business owners towards their staff.

At some stage last century, we decided we did not want unions in the private sector and we allowed their power to diminish to a point where they are all but an irrelevance in disputes like this.

Without the union’s voice, who will speak for the member, other than the trustees and the odd Lin Macmillan, who speaks as a member of the Kirk (the Church of Scotland)


Lin Macmillan

If it were not for Lin Macmillan you would not be reading this article and Philip Green would be a little more comfortable working out what he does next.

Society has a way of speaking through the earthquake, wind and fire. We know that through recent events in Yorkshire. We need to listen to the still small voice.

1 Kings 19:11-13King James Version (KJV)

11 And he said, Go forth, and stand upon the mount before the Lord. And, behold, the Lord passed by, and a great and strong wind rent the mountains, and brake in pieces the rocks before the Lord; but the Lord was not in the wind: and after the wind an earthquake; but the Lord was not in the earthquake:

12 And after the earthquake a fire; but the Lord was not in the fire: and after the fire a still small voice.

13 And it was so, when Elijah heard it, that he wrapped his face in his mantle, and went out, and stood in the entering in of the cave. And, behold, there came a voice unto him, and said, What doest thou here, Elijah?




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Don’t tell me “this feels momentous”


We need a leader not a loser

Does this feel momentous to you?

If we remain in the EU, as the bookies tell us we will, we will be  where we were before this sad sorry saga began, with diminished credibility. If we leave, we will be back at square one – as David Cameron put it last night. Either way, we will have lost and not just lost face, we have lost Jo Cox.

I will vote and vote with conviction and I urge you to do so, whatever your conviction. We owe Jo Cox that as her tribute.

Who wins out of this? Certainly not the political parties. If we remain, we have secured little by the referendum and if we leave we will have, according to our Chancellor, at best more austerity and at worst another recession. There is no sunny upland for us to aspire to either way.

Certainly not the economy, whatever structural faults which were present before  we put decision making on leave prior to the budget, are still present. We have lost time by biding time.

Certainly not the British people who have seen fractious debate tip over into violence at home and abroad. We have put on our worst face to the world and our credibility after this appalling debate is surely diminished as a nation. Both sides invoke the spirit of Churchill to their sides, but they might as well call on King John.

This civil war that benefits no-one

This horrendous three months of unnecessary civil war has been humourless (the court jesters – Farage and Johnson aren’t funny any more, “remain” is a bore.

It has also been confusing. We are being asked to vote with precision on statistics that nobody trusts. The institutions of business, the Bank of England , the CBI , the FSB and IOD are ignored as we decide this “momentous” decision on little more than the flip of a coin.

Nobody can feel happy taking a decision on something as momentous as our constitutional and economic future, with so little hard fact and so much overt prejudice to guide them.

I read this tweet and ask myself today- what I asked when the referendum was announced



I do not think we will get a satisfactory outcome on Friday of this week;-why?  I don’t think most of us will have voted with sufficient confidence to know whether our view has won or lost. In this world the best lack all conviction while the worst are filled with a passionate intensity.

I am told that by voting remain, I am failing to engage imaginatively with what leave might look like. But I see in leave the economic equivalence of an over-hasty divorce without even the pleasure of an adulterous alternative.

I am told by voting remain, that I am making a rational decision based on the economic and political success that being in the EU has brought us. But I see no-one within Government suggesting I enjoy that success. Instead I see airports in lock-down against terrorism and a country closing in on a decade of economic austerity.

We are terrorising ourselves out of the happiness we should be enjoying.  I would put up with more economic pain if I felt “leave” brought us together with the world. I would put up with loss of control if I felt remain led to harmony with ourselves and our neighbours.

Britain has changed but the conduct of this debate hasn’t

The British people deserve a leader who can deliver a State of the Union address that is inspirational and unificatory. We should be proud of our country, not ashamed of it.

Nowhere do I feel more ashamed than when I share the streets with people of so many countries of origin and cannot celebrate. Yesterday I was at that most British of institutions, a friendly cricket match, I was in the minority in speaking English as my first language but that did not lessen the experience! Indeed it made it better!

My friend Jenny went to Brixton market for her lunch yesterday for much the same pleasure. I work and play alongside people whose origin is diverse but I regard them all as as British as I am. Many of them came to this country at the time when Enoch Powell was anticipating rivers of blood- it hasn’t happened.


The level of debate

We need to feel comfortable in our new skin

To me, the way forward does not lie in our settlement with Europe, but in our settlement with ourselves. We have learn to feel comfortable in our skin, our new skin. Britain has moved on from the days following the war, and from our entry into the common market. We are a different place (in my view a much better place) than the country I grew up in in the 1970s.

To a large extent that is because we have been part of the world, not detached from it. This morning I heard this point made by Richard Scudamore, who is in charge of our Premier League. When we entered the Common Market in 1973, an immigrant footballer was almost unknown, today, our Premiership thrives and our national teams are full of players from every background.

Whether we stay in or leave the EU, nothing will change this week, we will still have failed to engage with the change that has happened in our society. I am voting not to pull up the drawbridge, but to open our country to the positive influence of global culture and a global economy.

I look to leadership, a moral spokesperson  – and she is dead.


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A sad year – when only Tories count.

investment consultant 3

I am going to the Conservative party conference, I am not going to the freak show in Liverpool and I don’t even know when the Liberals are convening.

I have limited time on my hands to understand Government but I want to spend some of it, talking with the people who manager our levers of power. I am a democrat who takes politics and the impact of policy seriously.

The Tories are meeting in Birmingham- which is good. It’s costing me £5.50 (Chiltern Line) to go there and £7.00 (peak time) to come back.

I intend to stay over a couple of nights and will be staying in a 12 bed dormitory in a hostel called Hatters, the cost of my three nights will be £67 which may sound cheap compared with the £1500+ quoted by the Conference Hotels  but at over £20 a night would be beyond the budget of many.

I am travelling and staying cheap to keep me a little grounded, but I know – from Manchester last year- that once inside the ring of steel, it will be champagnes and canapes all round.

Why am I going to the Conservative Party Conference?

investment consultant 2

  1. I run my own business and help run someone else’s business. Our businesses are at risk from political decisions which I hope to influence for the better.
  2. Many of my business associates are going – there are networking opportunities.
  3. I am involved in a number of not-for-profit organisations such as the Transparency Task Force and Friends of Auto-Enrolment whose voice will not otherwise be heard.
  4. I am genuinely curious about how the Conservative party works.

I will be representing City and Westminster Conservatives, I will be a delegate, I will be expected to support Conservative policy. I have the badge which cost me pretty well nothing.

Frankly I consider this an interesting use of my time and if all else fails, I will have two laptops and my independent wi-fi hot spot.

All the same I am feeling guilty as sin.

It is a sad state of affairs when there is no alternative to the Tories, but at this time there is – realistically – nothing I can do to help Liberals or Labour party change the things that matter to me.

I met with Frank Field in the Street two weeks ago, he had just come from #10 where he had been meeting with Theresa May who is supporting him getting fair working conditions for those working for Hermes (the messengers, not the share activists). I recognised the guilt he felt having to praise a Conservative Prime Minister for championing the rights of poorly paid workers.

It has been Ros Altmann, a Tory peer, who has spoken out against the ineptitude and self-serving nihilism of the Treasury in destroying pension policy over the term of this Government.

On the DWP Select Committee,  which I follow, it is Conservative MPs who speak for the people my business serves – the small companies, accountants and the workers who are enrolling or being enrolled.

Those organisations that represent the interests of small businesses in this country will be in Birmingham in force, the Federation of Small Businesses, the various chambers of commerce, the institutes representing accountants, book-keepers and payroll professionals and the service providers – the software suppliers and the pension providers.

I fear that like me, these organisations are only really focussing on the Conservative Party Conference.


The feeld of folke



These organisations are getting on with generating the wealth and seeing it distributed so it arrives in the hands of the right people at the right time. I too am part of that process.

My vision, like that of William Langland when he wrote of the Dream of Piers Plowman, is of people working harmoniously together. I do not want a financial services industry that serves itself, I want one that reaches out to the 1m new employers taking out workplace and the 800,000 employers who will stage and maybe join them later.

The voice for these employers will not be the lobbyists of the Banks and Fund Managers but the delegates who bother to turn up and hold their politicians to account. I am sick of a financial services industry that represents only the City and Canary Wharf. Though I work in financial services, my job is to restore confidence in pensions not to take the piss.

investment consultants 2

In earnest

So I’m going to Birmingham with a smile on my face but in deadly earnest. I will enjoy myself, behave reasonably and ask a lot of questions. I will meet and greet and I will make sure that I return on Thursday with a shed load of new things to think about, write about and do.

If you are reading this and going, please drop me a line on or call me on 07785 377768.

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Would you work with a robot?



Technology’s all very well till it bites you in the bum.


Imagine  Beth, Sally, Fiz and Sean facing up to a robo-panty stitcher in Underworld. If you don’t watch Coronation Street – Underworld’s Weatherfield’s top employer – thoughtNetflix appears to have impaired its recent productivity and its  human resource  is proving problematic.

If you think about what we do in payroll, we are increasingly at risk. Real Time Information introduced us to the Application Programming Interface and APIs are now as familiar as Apps. Without APIs , RTI would not have happened. Many argue that unless we can apply the same technology to auto-enrolment, that great project may yet fail.

But these interfaces are but an overture to the technology of the blockchain. Imagine a world where transactions do not have to be validated, where code is agreed at outset and disputes are unheard of. Nothing is checked and nothing reversed. This is the vision of efficiency that excites banks , regulators and software developers.

But what does it mean for those administrating payroll? It means simple choices, move up or move on.

I’m old enough to have done O-level English. Our set text was some novel by Thomas Hardy. I don’t remember much except one scene where the corn threshers are confronted by a machine that’s operated by two men. There are 20 threshers and none of them know how to manage the threshing machine.

The apocalyptic vision of mass redundancies was overplayed in 19th century agrarian England as threshers were re-deployed in more productive work. There was some displacement to towns and a lot of discomfort but automation led to a reduction in rural poverty and was a step towards the self sufficiency which saw us through two world wars.

Working with robots may be the only way that payroll will be able to meet the increasing demands being put upon it.

All the more reason for payroll administrators to “upskill” (that may be the first and last time I use that dreadful word!).

Payroll people have the opportunity to upskill in lots of ways but perhaps the easiest is knowledge sharing of “financial education” as the buzzphrase has it. Payroll people are the guardians of all kinds of financial secrets about how tax, national insurance and now pensions work.

Sharing these secrets is a lot harder than it sounds. The CIPP are pioneering training to convert payroll administrators and managers into financial educators.

I have been working  with the CIPP on a couple of pilot sessions  – you may have been to one yourself. If you have you will know about David Joy’s muppotometre and understand the Dominos Effect (as it effects the price of pizza. If you don’t have a clue what I’m talking about , then you should contact Vickie Graham of the CIPP for details!

Turning staff on to managing their finances better is more than an employee benefit. While at the top of the financial tree, issues may be about tax avoidance, for most workers, the primary issues are about paying the bills, avoiding pay-day loans and making sure the pension pot builds up. For most workers, the benefits of  financial education are about contentment. A happy worker is a productive worker , while financially destitute staff are likely to be less productive and more prone to the kind of illnesses that keep us from  work altogether.

So while robots are likely to take work from payroll and make unskilled administrators redundant, the challenge and the opportunities are also there. The payroll manager of today is the financial educator of the future.

We talk of the knowledge economy and nowhere do we need knowledge shared more than we do from our top pay rollers. For unlike the traditional providers of this information , payroll are trusted. The staff of Underworld depend on you!




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So Labour’s given us a choice-what’s wrong with that?

labour party

“gone are the days when your party can be any colour you like so long as it’s blue”

I am not going to the Labour party conference but I am going to the Conservative conference in Birmingham next week. I am not a conservative supporter but I am glad they are providing a functioning Government as we prepare for BREXIT.

I look forward to an alternative to Conservatism that gives the country a proper choice. In recent elections we have seen all three parties fighting for the same voters with similar policies and philosophies. I cannot forget how the Liberals flip-flopped between an alliance with conservatives and labour in May 2010. The coalition with the conservatives could as easily be a coalition with labour , for the philosophy of the ensuing Government.

The same could not be said for the parties led by Jeremy Corbyn and Theresa May. In terms of policy and philosophy, the Labour and Conservative Governments are again polarised and people are likely to have a real choice in the next election.

We now have a genuinely populist Labour party

I hope that Corbyn gets the support of his party. It is time that the parliamentary Labour party listened to the 500,000 people who are Labour members. If they do not want to listen to the results of their party’s vote , they should leave the party. They should join a third force in British politics and re-establish the Liberal Party to reflect their views.

I am not going to pledge my allegiance to any party other than the current party of Government which needs a good kick up the bum (which is why I’m going to the Conservative Conference). The last time I spoke my mind at at a Conservative Conference (last year) I found that many in the audience shared my views. Surely this is a way to influence things if you’re not a full-time politician.

The other way is to vote and to vote with conviction. I had difficulty voting with conviction for a Cameron led Conservative Party or a Milliband  led Labour Party – there was no choice so I voted for Tim Fallon and the Liberals as at least I knew what I was getting.

We now have a socialist party as a voting choice.

It seems that we now know what the Labour Party is about – Corbyn and O’Donnell are clear about that. Theresa May (so far) appears to be holding true to her promises in her first Downing Street Address. The Liberals are a party waiting to happen.

I suspect that I, like many others, am enjoying the new politics. I am enjoying the cut and thrust of debate based on policy and philosophy and not on cheap personality smears.

Labour may not be electable today, but populist policies have seen right-wingers like Farage and Trump achieve rather more than anyone thought.

I don’t see any reason why Corbyn cannot lead the Labour Party at the next election nor why Labour could not present a credible potential Government to the country in 2020.

There is a bias towards the status quo in politics; this makes the thought of a socialist Government unthinkable. But socialism is not dead either in the UK or in Europe and I very much welcome having a socialist party in Britain again.

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An algorithm cannot lie



An algorithm cannot lie; it will tell you what you set it to tell you with the data you fed it. It has no choice, it is entirely deterministic;- and yet algorithms can help you lie.

Let’s take a step back, what is an algorithm?

“a process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer”.

A few years back, I saw a problem.It was not (then) an immediate problem. Even now it is not an immediate problem, but I see it becoming an increasing problem as years pass by.

The problem was that while over a million employers will be required to choose a workplace pension , only a small number will have the independent means or access to an adviser – to choose in an informed way.

The problem was not that there isn’t a way of telling good from bad – or more specifically “suitable from unsuitable”, the problem was (and is) that getting people up to speed with the dynamics of that choice is extremely expensive.

The OFT pointed out firstly that pension plans are extremely complicated machines and secondly that people are poor buyers of these pensions. As the years have gone by, the number of in-house experts, IFAs and pension savvy business advisers has decreased while the number of employers has increased.

We saw this coming when in 2013 we constructed our business plan


The inflection point denoted by the orange marker was the point we thought demand for information would exceed advice. At the point of writing (September 16th) we are seeing a huge number of decisions being taken by employers staging this quarter , next quarter and (worryingly) last quarter.

The algorithm of pension choice

Over the past three years we have seen over 4000 employers choose a workplace pension using an algorithm we built in early 2013 and have refined since our launch that autumn.

We capture data from employers relating to their workforce which tells employers their cashflow liabilities and providers the potential profitability of offering a workplace pension. We capture more data which allows employers to see the attractiveness to them as employers of contracting with each workplace pension provider. Most ambitiously of all, we show employers the likelihood of each provider giving good pension outcomes to staff over their lifetimes.

Our algorithm cannot lie but can the market?

In a perfect market, our algorithm would be managed by our customers. There would be no need for advice as employers would balance the future needs of their staff against the exigencies of running their businesses in an optimal way.

This of course assumes that employers care equally for their staff’s long-term future as for short term profitability.  In a perfect market,we would simply run all employers through our system with minimal risk to ourselves because we were providing a monitor of decision making.

But this isn’t a perfect market. The major market distorter is NEST, the Government’s own scheme, which has spent getting on for £500m of tax-payers money creating a pension scheme which is (currently) free for employers to use and breathtakingly easy to set up and run.

We have set the algorithm within Pension PlayPen to reflect the enormous bargain employers get from surfing all this Government money and getting a free ride from NEST.

We have recently seen NEST’s ratings adjusted downwards by our independent provider analysts at First Actuarial. For the first time, NEST does not warrant a perfect score for the durability of its current offering.

There is real doubt over how the debt that NEST has accumulated will be repaid (other than through price increases to employers). There is concern about NEST’s investment strategy and concern that NEST has a poor range of options for people retiring from it. Our algorithm has been adjusted not by what the market is saying (the market is flocking to NEST), but what First Actuarial is saying (an increasing disquiet with NEST).

Pension PlayPen supports NEST’s ambitions to expand its market presence through aggregation. The link takes you to our submission to NEST’s current consultation. We were first out of the block saying that any expansion plans must include a clear statement on how and when money borrowed from the tax-payer would be repayed.

Or is beta better?

Anyone using can still use NEST as a top rated provider, but it is no longer a no-brainer. First Actuarial have exercised their right to intervene with conviction – breaking market beta and guiding employers towards a variety of provider solutions.

There are many, inside and outside Government, who would prefer NEST to become not just the default provider for the huge numbers of employers still to stage, but a “safe harbour”. Charlotte Clarks’ famous statement that “no employer could be blamed for choosing NEST” is an argument for just that.

Auto-enrolment operates on a default contribution structure, why not a default provider?

Who is running the algorithm of choice?

The Auto-Enrolment regulations are plain – employers choose the workplace pension for their staff. But who runs the algorithm of choice, the Government or the private sector. The market is distorted because the State wishes to be both provider and to run the algorithm of choice.

They can get away with this – and direct choice to NEST – only if there is no credible alternative. Paradoxically, organisations such as Pension PlayPen which intervene and get employers to think about what they are doing when choosing a pension for their staff- are competing not just with NEST but Charlotte Clark’s guidance (itself a primitive algorithm).

In as much as Charlotte is head of the DWP’ private pension strategy unit, we must take this seriously.

I have in the past – semi seriously – suggested that the Government nationalises The serious side of this comment is that it would formalise what Government what to do , which is to see the market behave in an orderly way. But the comic side of my comment is that the exuberance, wit and panache of our site would disappear as soon as it was subject to state intervention.

The Government relies on the private sector to deliver private pensions and the apparatus that supports them. This is precisely why it is not building the pension dashboard.

The Government should not be intervening in pension’s choice. Only £14m of the £460m + owed by NEST to the taxpayer can be written off as a grant to meet NEST’s public service obligation. The rest of the money is an overspend by NEST which will have to be reclaimed.

I find it very worrying that – despite the need for private interventions -such as that described above, the Pensions Regulator still refuses to promote those providing algorithms that help employers choose workplace pensions.

It is time that the Government stopped tinkering with MAF and fit and proper person rules and promoted real choice in the market, allowing its own pension scheme to be put in proper context.

The Government is trying to run the algorithm of choice through statements such as Charlotte’s and through the feeble choose a pension pages of tPR’s website but the are failing the market in doing so.

If is time the DWP and tPR accepted that the arbiters of what’s good  cannot be the providers of NEST.

noisy nest


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What’s the point of disclosure if it never gets seen?


Jo Cumbo has been writing some interesting pieces (  on how what we need to know about our retirement savings can be delivered to us as we want it. We get our shopping or our meals to our door if we pay Ocado or Deliveroo and – considering how much we pay for our pension plans, it’s not too much to expect the terms and conditions of our pension plans to be ready to read on our iphones.

Scottish Widows and Aviva, who are leading the charge into digital comms, are both quoted in Jo’s article. It would seem that the problem is not just with their lack of digital savvy but in the Regulator’s depleted digital toolbox.

By coincidence (or possibly as a result of mystery shopping from Jo Cumbo?) we received this webchat message on yesterday (sic)

We have paid for a scrutiny report that listed pension schemes suitable for our company. I just spoke with Aviva which are interested in eventually signing up with them however we would like to read their terms and conditions before hand. They advised us that you will be available to send us the terms an conditions.


An employer, doing do diligence on behalf of staff, should not need to visit a website, make a phone call and then get a letter to read what is a piece of static text. Something is very wrong when what the customer wants is turned into a game of pass the parcel.

Why insurance companies cannot disclose the key features of their products directly to people’s PCs – or better – their smartphones… why we still live in a world where insurers and intermediaries play pass the parcel… why we want to put off organisations trying to help staff to save – is a mystery.

There does not need to be a rulebook about this. There needs to be one rule. The rule is that if it is in the customer’s interest to have a request for information granted, it should be – in the most convenient way for the customer.

If there is any legal dispute about the matter, this rule should be applied. Disclosure should be accurate, speedy and helpful and that’s it.

Lawyers -get ready!

I would like the compliance departments of the workplace pension providers to take some time out and invite in some employers choosing workplace pensions and some “eligible jobholders”, some “entitled workers” and some “uneligible jobholders” and ask them what they wanted to know and how they wanted to see it.

The FCA are about to make some statement on this, probably as a result of one of the many consultations on the go at the moment. If anyone from the FCA is reading this and would like some introductions, I would be happy to link them to those who make requests like the one above.

This is not a marketing issue, it is about customer care. It is about restoring confidence in the pensions we use and it’s important.

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Transsubstantiation – more from Con Keating on DB funding!


Con Keating has produced a remarkable blog on the issues around DB funding –Anthony Hilton’s original piece continues to make waves it has received more comment – this is Con’s response. If you cannot access Dan Mikulskis’ comments via the link, they are appended to Anthony’s article

Doubtless Dan Mikulskis and his colleagues are sincere in their beliefs; the fervour of their defence of them is positively religious, and likely as well-founded an ideology.

Social psychologists use the theory of motivated beliefs to explain such behaviour. Motivated beliefs are quite distinct from the sociologists’ intrinsic and extrinsic motivation, which figure prominently in the analysis of trust.

Here, people still pursue their self-interest but may have multiple and sometimes conflicting goals. To quote Epley and Gilovich: “People generally reason their way to conclusions they favour, with their preferences influencing the way evidence is gathered, arguments are processed, and memories of past experience are recalled. Each of these processes can be affected in subtle ways by people’s motivations, leading to biased beliefs that feel objective (to them)”. As Oxford’s Tim Taylor has pointed out “The crucial point is that the process of gathering and processing information can systematically depart from accepted rational standards because one goal— a desire to persuade, agreement with a peer group, self-image, self-preservation—can commandeer attention and guide reasoning at the expense of accuracy.” There is more: “A person who recognizes that a set of beliefs is strongly held by a group of peers is likely to seek out and welcome information supporting those beliefs, while maintaining a much higher level of scepticism about contradictory information.

In this world view, control of the narrative and the suppression of progressive, ‘difficult’ journalists are routine.

Dan begins with the assertion that we face an “unprecedentedly difficult macroeconomic environment”. We face no such thing. In the 1970s we faced three-day working weeks, rolling electricity blackouts, petrol shortages and millions of days lost to strikes. There was serious, if sotto voce, talk of a military-backed coup; sterling required exchange controls and an IMF bail-out.

Private sector non-financial companies saw their returns on capital fall as low as 4%, in a year when inflation exceeded 12%. The FT index reached a low of 146, down 73% from its high. Gilt yields reached 17%, inflation over 20%. DB schemes had 11.4 million members, and their longevity was already increasing at post-millennium rates. Of course, there was a banking crisis, but no pensions crisis.

Since then, the rate of corporate insolvency has fallen dramatically, from nearly 2% annually to a recent 0.4%. Reassuringly, this means that the need for the PPF has never been lower. His assertion that sponsoring companies “face tough choices” when private sector returns on capital exceed 12% p.a. and dividend payments are an all-time record high has ‘truthiness’ but no more.

Dan takes exception to the idea that the discount rate should reflect the expected return on assets; so do I. In fact, Jon Danielsson and I, in meetings with regulators and in the columns of VOX-EU, argued extensively against the introduction of the ‘matching adjustment’ to the discount rate used in life company regulatory evaluations. Our views did not prevail, which means that there is an argument here, not used by Anthony Hilton, for a level playing-field.

But the use of gilts or AA corporate bonds is equally inappropriate. The use of a particular discount rate does not result in the transfer of the properties of the asset class from which it was derived to the pension liabilities being discounted. Using a risk-free rate does not confer risk-free-ness; that would require belief in financial transubstantiation.

In fact, as the concern is with corporate insolvency, the appropriate discount rate should be bankruptcy-consistent (admitted claims), not market-consistent. This rate is determined, at time of award, by the contribution made and the benefits promised. It is extremely stable, moving only as benefit projections are revised. It is part of the promise made by the company. Most importantly, it is equitable to other creditors. It paints a very different picture from gilt yields.

The obvious problem with assertions such as “Today’s unfortunate reality is that the defined benefit system in the UK is on average under-funded compared to the benefits it has promised”, is their self-referential circularity. This may be true under the current protocol, but lacks objective, independent supporting evidence. With a little more thought, we can see it is actually support for the use of the sponsor-promise based metric.

No charity is afforded journalists; the narrative has taken hold. It is past time to correct this, but, make no mistake, the motivated beliefs are well-entrenched.

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Is Yahoo insured?



As I listened to the accounts of Yahoo’s 500m users being hacked (purportedly by a foreign government), four questions came to mind

  1. Why hasn’t the Yahoo share price fallen more than a couple of percent?
  2. Did Verizen, it’s prospective purchaser know (and care) about this?
  3. Why has this taken two years to come out?
  4. With the reported cost of restitution reckoned at $100 per user, is cyber insurance in place to pick up the $50 bn dollar bill?

I run a cyber service called We are insured using Lloyds syndicates against hacking (inter alia). If we were not insured (and insurable), I would not be able to contract with the large organisations such as Sage for whom our capacity to meet claims of this type is critical.


If there is reasonable insurance, or capital reserving against the problems that may ensue from this hack, then the market may consider it of little consequence to Yahoo’s share price, Verizen will simply consider their value being purchased via the insurance (or reserves) and consumers can feel confident that any detriment will be met from the claim.

Similarly, customer of can feel confident that we are insured against the identifiable risks pertaining to running an online advisory business aiming to help customers make wise choices over workplace pensions.

BTW, they can- from this morning – benefit from our new web-optimised site. Check out and see the difference!

Due Diligence

My memories of due diligence carried out on us is of relentless enquiries of us, those who host our servers and of the various organisations we contract with. Primary due diligence needs to be carried out by the third party (in our case our partners- in Yahoo’s case its purchaser). The scale is different, the controls the same.

A breakthrough moment for each provider doing business with Pension PlayPen is the conversation with our insurers (or at least our excellent brokers – Lockton UK).  Insurers are our advocates, their readiness to insure us (at a discounted premium) is testament of their confidence in us. Their due diligence acts as the second line of defence for our partners.

For we are in unchartered waters. Our ship sails into the new found lands of Fintech and Robo-Advice and we cannot predict the outcomes, only pay for the protection we are not capitalised to provide from our own resources.



Were we not insured (or insurable) then our business model would be untested. I know that only a tiny minority of our businesses have taken out the cover we have and I am quite sure that few of the users of their services have stopped to ask the “what if?” questions that our major partners have.

I doubt that we ask those questions when using Google, Facebook or Yahoo.

I do not know if Yahoo is insured, but I am one of the 500m customers who has had an account with them over the past five years and I am quite sure that certain of my details are in the hands of people who could do me damage.


Whether Yahoo or Talk Talk or any other cyber provider can be fully insured or would want to disclose the extent of their insurance, is a moot point. It is arguably a greater risk to the insurer to publish you have the means to pay restitution since the new trend in cyber hacking is the holding of companies to ransom over the safe return of data.

But I suspect that in our day to day dealings with cyber-providers we would like the assurance of knowing that were a prang to occur, the provider (like any motorist) had the means to meet the claim.

Perhaps we should start thinking of the necessity, not the desirability of cyber insurance. Perhaps the numerous offices of Government considering themselves a part of our digital revolution, could initiate a review of the insurances and assurances in place for internet customers and think about developing a common means to insure us against the calamities ahead.


Let us hope that Yahoo is not one such calamity!




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Oblate spheroids and complete balls- guest blog from Con Keating.

Some would call it a storm in a tea-cup, some the great pension debate of our time. This morning I am publishing Anthony Hilton’s tirade against actuarial valuation methods, Dawid Konotey-Ahulu’s refutation and by way of synthesis, this article by Con Keating, regular guest blogger on this site.


Oblate spheroids and complete balls.

Dawid’s blog, in response to Anthony Hilton’s concerns with current pension accounting and management, is amusing, but it takes almost a thousand words to reach its first material issue with Anthony’s position. There is such a thing as taking a joke too far; and that seems an apposite description of the situation with DB pension schemes. For the avoidance of any doubt, I shall state my position here: I shall continue to think of the earth as an oblate spheroid, as I find Dawid’s circular arguments less than convincing.

Let us begin by unpacking: “Some of us prefer to believe, despite eloquent arguments to the contrary, that it is only by measuring and managing the pension scheme’s liabilities there can be any assurance of reaching a state of full funding; that a deep understanding of the complex relationship between assets and liabilities is the sole basis for an expectation of success.” The whole thrust of the disagreement and argument centres on the mismanagement of pension schemes arising from their mismeasurement under current protocols.

However, Dawid has also sneaked in the idea that full funding should be an objective. The promise has never been: I promise to pay you 1.5% of your final salary for life in retirement, and I promise to maintain a fund or any other such nonsense. The promise was clear; it was the right to an income in retirement. Why Dawid should specify full funding is not at all clear either, given that a fully-funded fund, were it unsupported, would have a fifty percent chance of failure prior to the discharge of all pensions. In common with many, Dawid persistently describes the present value of liabilities as the liabilities, an estimate however derived; a cynic might take this as an attempt to lend credibility to those figures.

The arrogance of that next “deep understanding” sentence is, at first sight, breath-taking, but of course becomes far less so when we realise that the complexities involved have been created by those who wish to ‘provide solutions’. The pension promise was made, and accepted, independently of any assets or investment. In fact, it is only by trying to match the sensitivities of the market value of assets to those of the present value of liabilities derived under bizarre protocols that these complexities are introduced, and of course, these are the illuminati of the protocol.

Dawid’s blog continues with: “We also believe that, by virtue of managing their assets against their liabilities, there is, right now, a select group of pension funds which find themselves well-funded and relatively untroubled by vicissitudinous and capricious markets. On the other hand, those pension funds that have not carefully measured and managed their assets against their liabilities, now find themselves in a dark and dangerous place.”  The self-referential nature of these assertions renders them fatally flawed and of no argumentative substance. Some pension schemes did some time ago buy into the matching of assets and the present value of liabilities under the current protocols, and it is reassuring that the illuminati were sufficiently competent that under these protocols they were successful. However, the immediate question is: at what cost were these successes achieved? The schemes in “dark and dangerous places” are in fact only in these places under these protocols and Dawid provides no objective evidence outside of these protocols that this is a dark or dangerous place.

The blog then invents some history:

Some background:

They did not do the math!

Companies that offered defined benefit pensions to their staff, had no idea when they first offered them, what it would actually cost to pay out those benefits. Amazing, but sadly true. Over the years, lots of people who worked for socially-minded companies like Tesco, British Airways, John Lewis, et al, accrued a stream of life-long pension benefits. Those benefits are linked to inflation – which has the effect of future-proofing them, and which is very, very expensive. All those benefits have to be paid out in due course and the numbers are mind-bogglingly enormous.

This is a rewriting of history; the new narrative. Companies, or rather their actuarial advisors, did do the mathematics at the time of award, and those awarding inflation linking explicitly considered this. Benefits have risen because of unexpected and sustained increasing longevity and the statutory requirement introduced to offer limited price inflation linking affected schemes which had not previously offered this. The agenda here is to maintain that DB pensions are now and always were unaffordably expensive; they were not and are not. Do the maths. In recent times the overwhelming majority of the increases in DB pension provision cost have in fact come about as a result of actions associated with liability ‘management’ such as closure to new members and future accrual.

The blog continues with a further narrative surrounding the equity risk premium, that is so tired from overuse that I will pass over it. It is notable that this section of the blog is illustrated with share prices rather than cumulative returns, which are nowhere near as alarming. It also shares the problem of being self-referential or circular.

“As I said, the essence of the problem was that across the board, well-meaning companies agreed to pay generous inflation-proof pensions without, as the Americans say, doing the math. To be fair, they did some basic math, but it was very basic and not, as the lawyers say, fit for purpose. Eventually, the math rules got changed, but by then, the lifelong benefit promises had been made.” No-one has changed the rules of mathematics; they did introduce an inappropriate, incorrect and pernicious protocol. Moreover, the mathematics done at the time of award was fit for purpose under the protocols and practices then prevailing.

Via their pension funds, our corporations now have huge obligations owed to millions of defined benefit pension plan members, and the brutal truth is that there are insufficient assets backing those liabilities. How do we know that? Because even a cursory measurement of those liabilities when mapped against the assets held by pension schemes shows that to be true. There is no accepted measurement basis on which UK defined benefit pension schemes look healthy.” There are at least four alternative protocols which might be employed for the analysis of pension schemes and their funds. For example, Paul Boyle, then CEO of the FRC, began a speech on this topic in 2009 by considering measurement in terms of future values rather than the discounted present value now employed. There are also many who employ cash flow analysis in the best traditional of financial analysis. We might also use the bankruptcy-consistent approach advocated in Keating, Settergren and Slater, ‘Keep your lid on: A financial analysts view of the cost and valuation of DB pension provision‘; this is certainly accepted as it is the process employed by the courts. Moreover, we should not forget that the Local Authority Pension Fund Forum obtained a formal opinion from Mr G Bompas QC which considers that the current protocol breaches the more fundamental requirement of company law that accounts should present a ‘true and fair’ view of affairs. In other words, the existing protocol is very far from accepted, and certainly not unique.

The blog continues with a bizarre meandering around rogue traders and suggests that a pension fund deficit is in some way equivalent to a short position in marketable securities or derivatives. This is complete nonsense; the company has promised to pay its former employees an income in retirement, no more, no less.

The continuation grows ever more strange: “We have a collective obligation to make absolutely certain that pension plans can pay those benefits. Inflation-linked and all.”  Where did that come from? Perhaps more importantly, how might any of the nostrums of the illuminati help that come about?

“Pension funds are fully responsible for taking decisive action to ensure they can pay everyone what they are due to receive”. This is simply not true; this is not a fiduciary or other obligation of scheme trustees. In any event, should the pension scheme be unable to meet pensions on time and in full, it has recourse to the sponsor employer.

That’s why pension funds have to be certain they can meet their obligations. That’s why they have to hedge their short long-dated, inflation-linked positions.” Pension funds have no such obligations; schemes might, under the most charitable of interpretations, but that sloppiness just typical of the prognostications of members of the illuminati. Truthiness is all. Note that now they have to hedge; a further untruth.

Those liability driven investment strategies which Mr Hilton so dislikes, are in fact the mechanism by which a pension fund can close out its short position in index linked cashflows, and invest in a diverse pool of assets which offer an attractive yield. That’s the whole point of a liability driven investment strategy. You get to close out that unmanageable short position!Dawid has failed to consider the sponsor position; most corporate sponsors are exposed to and gain from inflation. The net position between the limited price inflation of pensions and the full price inflation in the economy works to the advantage of these sponsors. In this regard, and many others, the protocols under which schemes are valued and now managed add to the real risks faced by a sponsor. The last sentence is most intriguing; the illuminati claim to be able to manage (close out) the unmanageable. This makes base metal into gold look viable.

But there are yet more internal inconsistencies such as “There is very little growth and no inflation to speak of.” which might equally be expressed as: so all the hedging of inflation about which the illuminati are so proud has been pointless. They have hedged a risk that has not materialised. But these illuminati don’t want to recognise the fact that one of the few things known about risk is that it means that more things may occur than will. Risk is the bogeyman with which to scare the children, or in this case, trustees.

Then of course, having criticised the equity risk premium at length; the blog would be failing if it didn’t include at least one free lunch: “On a point of detail, pension funds haven’t been restricted to purchasing government bonds in order to close out their short positions; there are many other instruments that achieve the same thing at a lower cost.” The advocates of the current protocol make much of the law of one price, but here that is directly breached.

The original Anthony Hilton article is far from perfect, but as a rebuttal, this blog is incoherent and inconsistent, to the point that it is difficult to dismiss the strongly denied self-interest. The most egregious of the claims made by Dawid is that without this approach, a generation of pensioners would be facing penury: “Rather, it is because we have believed passionately for well over a decade that the unforgivable sin is to allow an entire generation of elderly pensioners to sink into a mire of poverty.” The reality is that valuation and management under this protocol has led directly to, that is caused, the closure of pension schemes and significant harm to the companies that sponsored them and with that society’s well-being. The harm done by this protocol does not merely affect current members, it extends over the generations of as yet unborn who will not be offered defined benefit pensions. It has already diminished, and in many cases ruined, the retirement prospects of many millions of people.

Dawid’s rebuttal even offers a repugnant defence: “Ask the members of those pension funds that have finally reached full-funding and achieved the cherished buy-out whether they believe in managing the liabilities, and whether they are delighted their trustees opted to measure and manage their assets against those liabilities.” These are of course among the few that have profited from the protocol at the expense of their neighbours; these are the polluters who have poisoned the pensions environment for the world at large. I shall continue to view the world as an oblate spheroid and this rebuttal as complete balls.

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“MaybeThe Earth isn’t flat-perhaps it’s round” – guest blog from Dawid

This is the second of three blogs published this morning that all focus on the same thing, the funding of our Defined Benefit Schemes.

It’s written by Dawid Konotey-Ahulu, Founder of Redington and Mallowstreet. Anthony Hilton’s original can be found here, Con Keating’s synthesis of the two blogs can be found here.

This blog first appeared on Dawid’s “Just Saying” blog, you can read the original here

“The Earth is Flat”

The Flat Earth Society is a fabulous organisation dedicated to “unravelling the true mysteries of the universe and demonstrating that the earth is flat and that Round Earth doctrine is little more than an elaborate hoax.”



As the Flat Earth Society explains:

“Throughout the years it has become a duty of each Flat Earth Society member, to meet the common Round-Earther in open, avowed, and unyielding rebellion; to declare that his reign of error and confusion is over; and that henceforth, like a falling dynasty, he must shrink and disappear, leaving the throne and the kingdom of science and philosophy to those awakening intellects whose numbers are constantly increasing, and whose march is rapid and irresistible.”

Many of the thought-provoking  publications of Flat Earth thinkers are based on the work of the 19th century inventor and writer Samuel Rowbotham who, in 1849, published a 16-page pamphlet entitled Zetetic Astronomy: Earth Not a Globe. According to Rowbotham:

the earth is a flat disk centered at the North Pole and bounded along its southern edge by a wall of ice, with the sun, moon, planets, and stars only a few thousand miles above the surface of the earth.

Now, of course, that sort of thing is very easy to say, and readily dismissed, but the Flat Earth Society back up their assertionswith scientific reasoning and analysis as follows:

Perhaps the best example of flat earth proof is the Bedford Level Experiment. In short, this was an experiment performed many times on a six-mile stretch of water that proved the surface of the water to be flat. It did not conform to the curvature of the earth that round earth proponents teach.”


The Earth is not Flat, it’s Round

Notwithstanding Mr Rowbotham’s, nineteenth century, detailed, Bedford Level Experiment demonstrating beyond doubt that the earth is perfectly flat, some of us prefer to believe the contrary. That it is in fact spherical. That the sun does not circle the north pole; that the earth revolves around the sun.

The same is true of the pensions crisis. Some of us prefer to believe, despite eloquent arguments to the contrary, that it is only by measuring and managing the pension scheme’s liabilities there can be any assurance of reaching a state of full funding; that a deep understanding of the complex relationship between assets and liabilities is the sole basis for an expectation of success.

We also believe that, by virtue of managing their assets against their liabilities, there is, right now, a select group of pension funds which find themselves well-funded and relatively untroubled by vicissitudinous and capricious markets. On the other hand, those pension funds that have not carefully measured and managed their assets against their liabilities, now find themselves in a dark and dangerous place. Some of them have belatedly begun the process of hedging their pension fund liabilities and find themselves in a world of pain as they purchase insanely expensive assets to match/hedge their liabilities, (something they could and should have done years ago). It is this nightmare situation that has Mr Hilton and others foaming although, as I say, for entirely the wrong reasons.

Here is an explanation of why the management of liabilities by pension funds, far from being distorted and defying of logic, makes perfect, albeit increasingly painful, sense.

Some background:

They did not do the math!

Companies that offered defined benefit pensions to their staff, had no idea when they first offered them, what it wouldactually cost to pay out those benefits. Amazing, but sadly true. Over the years, lots of people who worked for socially-minded companies like Tesco, British Airways, John Lewis, et al, accrued a stream of life-long pension benefits. Those benefits are linked to inflation – which has the effect of future-proofing them, and which is very, very expensive. All those benefits have to be paid out in due course and the numbers are mind-bogglingly enormous.

But they believed the Equity Risk Premium would deliver them from Evil

The companies and their pension funds shared a general belief in something they called the Equity Risk Premium which they defined, in essence, as “a very significant return from a basket of equities, that always materializes over the long-term“. They took comfort in this belief, because it meant that provided they invested in the large basket of equities, they would, over the long-term, earn enough in dividends and equity price appreciation to pay out all the benefits they had promised to their workers. This was akin to taking on a large mortgage in the belief that over its life, you are bound to earn enough to make all the payments. It doesn’t work like that and, unfortunately, the Equity Risk Premium didn’t materialize in sufficient quantity. In fact, between 2000 and 2010, equities went nowhere. There was no Equity Risk Premium. It was the Lost Decade!

FTSE lost decade

It slowly became clear to corporations and pension funds that, far from being able to pay out their members in full and on time, the pension funds were almost certainly going to run out of money before they were able to make good their promises. They have all had to make additional contributions into their pension schemes and (as in the now notorious case of BHS) some corporations have gone bust leaving a pension fund with no visible means of support.

As I said, the essence of the problem was that across the board, well-meaning companies agreed to pay generous inflation-proof pensions without, as the Americans say, doing the math. To be fair, they did some basic math, but it was very basic and not, as the lawyers say, fit for purpose. Eventually, the math rules got changed, but by then, the lifelong benefit promises had been made.

These companies and their pension funds built up vast inflation linked liabilities

Via their pension funds, our corporations now have huge obligations owed to millions of defined benefit pension plan members, and the brutal truth is that there are insufficient assets backing those liabilities. How do we know that? Because even a cursory measurement of those liabilities when mapped against the assets held by pension schemes shows that to be true. There is no accepted measurement basis on which UK defined benefit pension schemes look healthy.

At this point, it is worth considering the Kweku Adoboli Principle.

The Kweku Adoboli Principle

Kweku Adoboli, you will recall, was the young maverick at UBS who, in 2011, cost the bank a fortune by putting on a series of “unauthorised trades”. Those trades cost the bank a cool £1.3 billion to unwind and wiped £2.7 billion from the bank’s share price which, I think you will agree, is going some. Now, here is the salient point: when UBS woke up to Kweku’s mischief, they unwound his transactions immediately and at immense cost. The cost was great, because Kweku had made huge, very specific, bets on the markets and hadn’t hedged his positions, i.e. taken equal and opposite positions by way of protection. UBS were obliged to close out each of Adoboli’s rogue trades and, as they did so, the market moved further and further away from them, i.e. it became increasingly expensive to unwind them. That’s what happens when you have to close out a gigantic short position.

Notice that UBS did not say to itself: it is going to cost us an arm and a leg to close out these transactions; instead, let’s invest in Mexican motorways, pork bellies and Indian hospitals because, in the long term, that strategy will generate enough cash to close out Kweku’s transactions. We won’t cover our short position – it’s just too expensive right now!

No. When a responsible bank (I know, I know) discovers that it has made unauthorised transactions, and now has a massive short position, it closes them out NO MATTER WHAT THE COST. Apologies for the big letters, but this is a major point. You can take a look at the SocGen equivalent for corroboration. They lost Euros 4.9 billion closing out an unauthorised short position.

In effect, pension funds have made a series of quasi-unauthorised transactions, not fraudulently, but in the sense that they collectively promised millions of people, long years of future-proofed pension payments that they didn’t hedge and they didn’t pre-calculate or properly provide for.

That’s a “short” position. You’re now short of long dated inflation linked cash flows. Many (not all) pension funds genuinely believed they could invest their way out of the short position, much as Kweku believed. But that approach hasn’t worked (due to various financial crises of one sort or another) and now, at great cost, they are finally closing out those gigantic short, long-dated, inflation-linked, positions!

The Kweku Adoboli Principle states that: If you make a contractual promise to make payments that you don’t hedge, there is a very high probability that you will come unstuck as the cost of closing out that short position soars.

The crux of Mr Hilton’s beef is that he believes it is, frankly, mad to cover the short position at current prices. As he puts it: “We forget at our peril that the calculations of pension solvency are an artificial construct“;

In effect, he is saying, “Forget about covering your short position. It’s too expensive. Invest, instead, in a range of high yielding assets and don’t lose sleep over that short position. It’s not even real! Anyone who tells you otherwise is leading you astray. Probably because they are enriching themselves by doing so.

But that reasoning is flawed

Millions of people are heavily reliant on receiving their pension in old age. They have toiled tirelessly for years in the expectation of a pension upon retirement. As they are likely to live for many years to come, they are going to need every penny, and more. We cannot, as a society or industry, risk a state of affairs in which people do not actually receive what was promised to them. An era of high-dependency in old age lies ahead.


We have a collective obligation to make absolutely certain that pension plans can pay those benefits. Inflation-linked and all. Pension funds are fully responsible for taking decisive action to ensure they can pay everyone what they are due to receive. Hundreds of billions of pounds’ worth of pensions are at stake. This is not optional – a failure to make those payments will result in an entire generation sliding into poverty with consequences too awful to contemplate.

That’s why pension funds have to be certain they can meet their obligations. That’s why they have to hedge their short long-dated, inflation-linked positions. Because if you don’t hedge a short position it has a way of spiralling out of control. Left to its own devices, a short position will take you out. Which is what Kweku and his erstwhile employers discovered. It is also what BHS and Tata Steel have discovered.

Those liability driven investment strategies which Mr Hilton so dislikes, are in fact the mechanism by which a pension fund can close out its short position in index linked cashflows, and invest in a diverse pool of assets which offer an attractive yield. That’s the whole point of a liability driven investment strategy. You get to close out that unmanageable short position!

It wasn’t always expensive

I am genuinely gutted that I have to write this blog. The simple, inconvenient truth, is that pension funds could have closed out their short, long-dated inflation-linked positions years ago. I wrote an article in 2003 explaining what to do. I wasn’t the only one. Lots of advisers and industry participants have been banging on for ages about the need to hedge pension liabilities, and the folly of relying solely on amazing asset-performance that materializes for a couple of years and then routinely fizzles out as yet another unforeseen financial crisis assails us.

That is the flaw in the Flat Earth Approach to Pension Risk Management. It misses the point that pension funds (owing to the promises they have made to their members), have no choice but to generate very significant returns, year after year after year after year after year. It may be hyperbole on the part of Mr Hilton, but it is plainly not true that a tweak to an assumption or two can make any deficit disappear. A more considered observation might be that “a tweak to an assumption or two significantly affects the calculation of the size of the liabilities” – but that doesn’t make the calculation “an artificial construct”. If you discount the liabilities using a high rate of return (as Mr Hilton implicitly advocates) you then have to generate that high rate of return every year, for the entire life of the pension plan – or you will run out of cash. And that metronomic consistency is almost impossible to achieve. There is very little growth and no inflation to speak of. QE hasn’t kick-started the economy to the extent everyone hoped and it seems we may be settling into an Ice Age of very low yields. The low rates used to calculate pension liabilities are simply a truthful reflection of the unfortunate fact that good, safe, “yield” is ludicrously hard to come by.

In 2003, it was perfectly possible to purchase long dated inflation linked bonds at an affordable price. I know that because Iwatched and helped several pension funds do so. Since then, it has just become more and more expensive to close out that position but that doesn’t mean you no longer need to close it out! This graph shows the relentlessly rising cost of purchasing a long-dated inflation linked gilt.


The cost of purchasing a long-dated inflation linked gilt – a steady rise for the last 13 years

On a point of detail, pension funds haven’t been restricted to purchasing government bonds in order to close out their short positions; there are many other instruments that achieve the same thing at a lower cost. But they all track the price of this instrument. It is the underlying benchmark against which all safe, long dated inflation linked cash-flows are measured.

To conclude, it is utterly wrong to suggest, as Mr Hilton does, that consultants, advisers and asset managers have over the years, advised pension schemes to hedge their liabilities, because it is so lucrative for them that even sane people think that they have  no choice but to follow the rules of a mad system“.  Rather, it is because we have believed passionately for well over a decade that the unforgivable sin is to allow an entire generation of elderly pensioners to sink into a mire of poverty.

Ask the members of those pension funds that have finally reached full-funding and achieved the cherished buy-out whether they believe in managing the liabilities, and whether they are delighted their trustees opted to measure and manage their assets against those liabilities. Then spend some time with members of all those pension funds that thought about hedging liabilities, but didn’t, because somehow the time never seemed right.

The earth isn’t flat; it’s round. And, ignoring the pension fund’s liabilities and hoping for the best isn’t sane; it’s pretty close to the opposite.



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