Put up or shut up Otto – how are you paying back our money?

If you weren’t in Liverpool for last week’s PLSA conference, do not slit your wrists. You can watch the sessions on youtube.

If you want to hear how product providers see the challenges on them and us- from the remaining phases of auto-enrolment, you could do worse than spend a few minutes watching this.

By the by, if you are looking to chair a panel session, study Jo Cumbo’s chairing – it’s awesome.

NEST justifies its expansion plans


Otto in power mode

Send the slider to 25.45 ,and hear Otto Thoresen justifying NEST’s plans to create a default way of spending NEST pension pots over time.

Otto does a pretty good job of justifying a spend on building a spending product at the back of NEST and thinks he’s got away with it before he’s mugged by Moreton Nillson and Patrick Heath-Lay (CEOs of NOW pensions and People’s Pensions) on “competition issues”.

Of course he’s well rehearsed, we’ve seen this careful sidestep a few times this month and the next few minutes on the video show Otto under as much pressure as he’s had since appearing at the DWP Select Committee.


Or did the sidestep work?

Well not exactly! Heath-Lay and Nillson spoke expertly. Those listening could hear the annoyance both have for NEST’s evasion and exploitation of its privileged position. NEST really is trying to have its cake and eat it and the questions from the floor should have pinned Otto to the point – “where’s the money?”.

Having spent some time in the rather less precious context of the Battle of Ideas, where I was accused of being a paid up member of the Wankerati, I long for a proper discussion about “competition issues”.

The competition issue lurking in the room like an overfed elephant, was the £450m currently outstanding as NEST’s debt to the tax-payer. The late lamented national audit office is still waiting for a proper answer on how and when that money’s coming back.

As I have written on this blog, all future spend on NEST product must be predicated on NEST having a clear recovery plan so that within a reasonable number of years (no more than 20) we have our money back.

I suspect that the debt is rather more than the £450m in last year’ accounts and rather too close to the maximum drawdown prescribed by legislation of £600m. In any case, the financials of running pensions where the average pot size is £350 (Moreton Nillson’s number), suggests that NEST is going to have to put up its prices or reduce its costs.

Moreton and Patrick’s sub-text was clear, NEST is not going to reduce its costs by introducing a drawdown facility for existing customers. £350 does not buy a pension, it hardly buys you a week in Skegness.

A proper discussion of NEST’s finances is long overdue. It sounds like we have our chair (her offices face NEST’s) and it sounds like the people missing from the debate are members of the tax-payer’s alliance.

If we are to have open transparent pensions that people can trust, we cannot have NEST skulking about behaving in this clandestine way.

Put up or shut up Otto – how are you paying back the money!


A very nice man – but where’s the plan?

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Pensions for real – Even DC pensions!


All week we have been discussing how best to manage and measure Britain’s “pension deficits”. The FAB index which First Actuarial introduced last weekend has made quite an impression. My friend Rob Hammond will be on MoneyBox tomorrow lunchtime ; our press cutting box is crammed full of comments and articles about our radical proposition that UK pension funds could be as much as 133% funded.

The Pensions Regulator is now openly talking about a more balanced approach to scheme funding

The conversation has crossed continents, I got an email this morning from an American academic who had been listening to the arguments of Baroness Altmann and senior figures in the Bank of England about whether or not Quantitative Easing was the cause of our pension woes.

Here are her conclusions

My interest is primarily on the monetary links between debt (bond issuance) and pension schemes’ investments. At a very basic level after reading on the debate on the impact of QE on pensions, I’ve arrived at 3 rather obvious (?) conclusions:

1) indeed, not only have the lines that were meant to deliberately separate, in the late 1980s-early1990s, debt management from central banking become more blurred, but given QE’s arguably ambiguous (as per allowing different interpretations) impact on pensions, the BOE’s decision making process has become more politicized. In an aging society that under-saves (like most) and is contending with increased market volatility, perceived pension losses in the short term are subject to (over) reactions that cast monetary policy as necessarily distributive and likely detrimental.

2) at the root of the matter is this “ambiguity” (or, rather, lack so consensus) when it comes to actuarial estimates. DB pension schemes are running a deficit if calculations use traditional gilts plus or corporate bond yields to calculate discount rates. DB pension schemes are running an aggregate surplus if calculations use the new monthly First Actuarial Best estimate index, based on data underlying the PPF 7800 (as per a Professional Pensions piece – Oct 19). Even though I cannot appreciate the subtleties of this differentiation, it is clear (and ironic) that quantitative tools meant to produce some technical specificity have contributed to what are unquestionably very political disagreements. 

3) in a context marked by unconventional monetary policy,  pension funds and long-term bond issuances’ seminal co-dependence fuel increased skepticism about a regulatory framework that emphasizes de-risking for deficit-running DB schemes. This may (or may not) usher a call for more diversification as a way of life for schemes that tend to mimic each other’s investment strategies.

Whether any of this is either accurate or relevant I am not sure, Henry. My apologies if the lines above are still plagued with the amateurism of a new student of these very contextual dynamics. In any case, I shall remain a curious observer of the ways in which debt and pensions seem to endlessly challenge “conventional wisdom”  in unconventional ways.

Well I’d say that this is “accurate and relevant” to DB.

The lady was asking me whether it was accurate and relevant to DC. It is ironic that this has also been the week that we have jettisoned the (secondary annuity) baby with the bathwater .

My initial response to her question about the relevance of QE to DC was a little bland

DC is organised by consultants for large employers who do what they are told. There is very little variety between large employer schemes. 90% of investments are defaulted into a lifestyle fund which move from equities to bonds over time. These schemes make no effort to provide a pension, they rely on people exercising choices at a notional retirement age at which point they switch from saving to spending their pension pots.

Smaller companies do not have their own schemes, they participate in multi-employer master trusts or multi-employer contract based plans known as GPPs, the default investment options are similar to those for larger schemes though typically they are not so extravagant in investing in active funds nor as ambitious in asset allocation.

These smaller schemes aren’t advised upon, employers tend to sign up to mastertrusts or subscribe to GPPs without much thought or any due diligence. Very often they look for an IBM type safe harbour. The Government’s scheme (NEST) is often thought of as such a safe harbour.

The very largest of these multi-employer schemes – such as NEST and NOW are quite ambitious in their asset allocation strategies with clear investment philosophies, however most of the insurance schemes and smaller master trusts ape big company pension strategies.

Because there is so much defaulting and so little ambition, it is possible to say – without doing much research or gathering data, that UK DC is primarily invested in equity strategies for the accumulation of assets and bonds for the final years of accumulation (there is a phasing from one to another). Investment in alternative assets is very limited in DC – probably accounting for less than 5% of assets.


But encouraged by a positive response , I warmed to my theme

I agree with you about the spat over QE. Where QE has been destructive in the DC world has been in forcing down annuity rates so that people locked in to artificially low pensions with no restitution.

This situation was partially remedied when the Government removed the requirement for DC savers to annuitise the bulk of their pension pot, but “pension freedom” has been a shabby solution. There has been no alternative to the annuity except cash.

Most small savers have been cashing out and the bigger savers are attempting DIY drawdown with great peril of financial ruin. The construction of the investment portfolios for drawdown are often bizarre and usually far too expensive to achieve the stated objectives. 

We have been at the forefront of trying to create a lasting solution to the problems of how to spend your pension pot (we use the word decumulation). The same problems with bonds and equities persist. Some of my colleagues at First Actuarial have suggested that high allocations to equities – with a collective and long-term approach to investment – can achieve more than a high allocation to bonds.

This penchant for investment in real assets appears to be gaining ground in the new Government. A very important document called Beveridge 2.0 was written for Nigel Wilson by John Godfrey. Nigel is CEO of Legal and General, John was then his head of policy. John is now Head of Policy in the Cabinet Office – effectively Theresa May’s policy adviser. here it is http://www.slideshare.net/HenryTapper2/basis-for-beveridge-20

I listened to the new UK Pensions Minister’s recent address to the PLSA and was struck by it sounding like an articulation of what Wilson and Godfrey are saying. Essentially the message is that pensions have become too abstract as investments have been divorced from real things. People investing for themselves need to have some ownership. 

If I can see a way forward for people in the DC world that’s been thrust upon us, it’s in a re-connection with what they are investing in and in the production of a means for them to spend their savings that is not based on abstract and intangible products such as ‘annuity” and “drawdown”. People want pensions (the research tells us that- so do my friends – so do I) but they want confidence that pensions are “real”


For too long we have stood at the top of the ladder of abstraction exchanging derivatives with each other in the hope of magicking the problems of pensions away.

Pensions will only become adequate when people have confidence in them and save enough into pension plans so that those plans pay adequate income streams till the end of people’s lives. We need to make pensions real for people, investing in debt or cash deposits is not real, investing in companies and offices and shopping precincts and hospitals and housing is.

The debates around hedging out inflation and currency and interest rate risks are quite beyond the ordinary saver. They serve only to confuse and reduce confidence. We need to get back to the simple concepts of saving by deferring pay, investing in real assets and drawing pensions from collective pools using the social insurance that pension schemes can create.


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Con Keating on Pension Valuations

Mr Pension

Here’s one of two articles of Con’s he’s publishing here today; this appeared in Professional Pensions yesterday. Con reckoned he’d draw some flack and he’s been proved right (see the tweets at the end). But as Jonathan Stapleton points out, Con’s not the only one who sees a need for change.


After many years of festering in the background, the pension liability valuation arguments have recently flared up publicly again. A wide range of commentators has expressed disquiet with the status quo. The valuation of liabilities is fundamental to pensions management, and so is the nature of the problem.

Much of the debate, which is very much a dialogue of the deaf, consists of shouting around whether the yield on gilts, or the yield on AA corporate bonds, or the expected return on assets should be used. It should not surprise that this debate has found no resolution, as all are wrong.

It is surprising that discount rates of any kind should appear in the valuation of pension liabilities since they do not figure in determination of the pension payments promised and projected. Longevity, wages and earnings do, but not interest rates or yields. They also do not appear in contributions; they are a simple proportion of current pensionable salary. This has led to the correct description of interest rate hedging as hedging of the measure, the discount rate, not the liability itself.

It is worth examining the treatment of liability valuation in insolvency procedures; the courts have been valuing liabilities for a very long time. These operate from the ground up; the valuation of a liability, which is known as the admitted claim, consists of the principal originally advanced plus the accrued unpaid interest on the obligation. ‘Acceleration’ is not about bringing some projected, or even promised, future to the present but about making the principal previously advanced and unpaid accrued interest as originally promised under the terms of the obligation immediately due[1]. So the holder of a 10% coupon bond issued at par entering insolvency six months after the previous coupon was paid, now has a claim for the amount advanced, £100, plus unpaid but accrued interest of £5 (0.5*£10.00).

No creditor has any right to look to the future and base their claim on what might have been, even if such ‘might-have-beens’ were explicitly promised by the company. If that were possible, all creditors would have created visions of wishful ‘unicorns’ and become billionaires, and, as it implies no meaningful recoveries for the honest creditor, that would have the result that credit would simply be unaffordable or entirely unavailable for just about all. The debates and disputes over the equity risk premium and similar arguments around the use of the expected return on assets should be seen in this light.

Let us consider two zero coupon bonds, which mature at the same time five years from now. One was issued twenty years ago, at a price of £9.23, implying a yield to maturity of 10%. The second was issued ten years ago at £48.10, implying a yield to maturity of 5%. In insolvency, the admitted claim for the first would be £9.23 plus the accrued unpaid interest of £52.86 making a total of £62.09. For the second, the admitted claim consists of £48.10 plus the accrued unpaid interest of £32.25, making a total of £78.35. Here we have two claims which mature on the same date, with values today which differ markedly. These values retain the specific information of the company promises made in support of their issuance. Markets in distressed securities reflect these differences in their pricing. Any single discount rate, no matter how chosen, will return a single value for these two bonds, discarding information.

Pension liabilities may be valued in a similar way. The principal is the contribution made. Together with the projected value of benefits promised, this determines an accrual[2] rate. This is the rate of return which equates contribution with projected benefits. It is unique. It is fixed at time of award in just the same way that the rates of return of the zero coupon bonds were fixed at issuance. It does not gyrate with the animal spirits of any market or any portfolio of assets.

This makes explicit the fact that the cost to the corporate sponsor has two elements; the contribution made and the rate of accrual of that contribution, a fact which is usually lost on scheme members. In this view, the role of the pension fund is to offset or defease the accrual cost to the sponsor employer. The pension fund also serves as security for scheme members.

Pension liabilities may be valued without reference to or use of any external discount rate. Moreover, this valuation will retain all of the information implicit in the contributions and promises made by the sponsor employer. This proposed method reports accrued liabilities at the time of measurement, while current-employed protocols return a discounted present value of liabilities, of which there infinitely many. By any test, the accrual rate is objective; with market-consistency, the objectivity is in the process of selection, not the item selected.

The accrual rate possesses one further, but very important property; it is time-consistent. This means that if it were to be used to discount future benefits, it would return that same value as is calculated by accumulation from the contribution forward. Neither market-consistent yields nor expected asset returns are time consistent. Put another way, rates chosen in these ways will not return the correct value of the original contribution if used in a backwards projection. A consequence of this is that changes in the scheme valuation are unreliable, and form a very poor basis for any decision. Time-consistency is an important property if a company’s accounts are to satisfy their statutory requirement to be “true and fair”; most notably that earnings statements be accurate and reliable.

It is clear that the volatility of liabilities arises principally from its introduction through the discount rate utilised. The accrual rate may change, but that requires revision of the benefits projections, or of the contributions made.

The question which arises immediately is how wrong can these current methods be? I looked at a section of a particular DB scheme. The total liabilities projected amount to £365.29 million. Using a discount rate of 2% the present value of these liabilities amounts to £260.28 million. The scheme has assets, at market value, of £207.44 million, meaning that under the current convention, it is regarded as being 79.7% funded.

Going forward these assets need to earn a return of 3.58% to be sufficient to meet all benefit payment liabilities as projected. The portfolio of investments has achieved a return of 8.21% p.a. historically. The accrual rate implicit in the contributions made and awards of benefits outstanding was, and is 6.07%.

The accumulated or accrued value of the contributions made, the current, accurate value of scheme liabilities is £153.37 million. The level of funding of this, the commitment as originally made, albeit implicitly, is 135.5%. Put another way, the investment portfolio has done extremely well, exceeding the rate of accumulation promised, and with which we were comfortable, by a total of over 35% or £54.067 million.

The discrepancy between the ‘market-consistent’ discount rate based valuation and this rate of accrual method is £106.90 million, or 69.7% of the accurate liability. This is the magnitude of the error introduced by this ‘market-consistent’ discount rate. It is 29.27% of the total liabilities ultimately payable.

The amount which needs to be reported in order to satisfy the statutorily required ‘true and fair’ view of UK companies law is £153.37 million. It is the value which is equitable to other stakeholders, other creditors and shareholders. Clearly, the market-consistent present value of £260.28 million is materially different from this, and would fail any ‘true and fair’ view test.

While the error in this case is that ‘market-consistency’ overstates liabilities, the converse is also possible; in the 1970s when market yields were extremely high, had these conventions applied, the present value of liabilities would have been understated to similar, and sometimes larger, degree. With error on this scale, it is scarcely surprising that occupational defined benefit schemes are widely regarded as unaffordably expensive, and that perverse actions and management strategies should have been undertaken and adopted. Many of these actions have themselves raised the cost of the rump of occupational DB provision.

The current accounting or valuation practices have done more than any other genuine risk factor to destroy the UK occupational DB system; the current methods are simply not fit for purpose. Once we have resolved this, then and only then can we address scheme funding and member security properly.

I expect and await an onslaught of protests; I recognise that the vested interests are substantial.

[1] This abstracts from the ‘stay’ element of an insolvency proceeding which precludes action by a creditor to collect due amounts,

[2] This is quite distinct from the traditional use of the term accrual rate, which refers to the proportion of a pensionable salary payable in retirement, e.g.an accrual rate of 1.5% of, say, final salary for each year of service.




To prove Con’s point – the protests duly arrived. Thank goodness we have a strong and open press that will not be bullied in the shameless fashion detailed below.





Thank goodness for balanced journalists!




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“Why do we see pensions like that?” Assumptions behind the FAB Index


This week we published the FAB index (FABI) which shows the way we see the state of this nation’s defined benefit pensions. “We” means First Actuarial, I work for First Actuarial.

We want to paint a picture of the pensions landscape. If you go to a gallery and look at a Turner or a Constable, you immediately recognise a unique sensibility. Turner looked at the sky one way, Constable another; the same sky -different eyes!

Two actuaries can look at a state of affairs and judge how it will turn out differently, because they have different assumptions. Some of those assumptions are minute- collectively, all the small assumptions can make a big difference- especially over time. But sometimes the assumptions are paradigmatic; meaning that two actuaries are seeing things from the opposite ends of a telescope.

The paradigm shift in the way that First Actuarial is asking you to look at the issue of defined benefit pension funding is away from a world where we want to stop paying pensions as soon as possible, to one whether we want to continue to support pensions over time. Those who want to stop paying people’s pensions are the trustees and sponsors of defined benefit schemes who want to buy out their liabilities (or see them transfer to the protection fund). Those who want to keep them open are trustees and employers who see a benefit in paying pensions to people to the very last payment due!

We are trying to encourage people to see the payment of pensions to the very last payment as being preferential; from a societal, economic and personal basis!

But there is a temptation among those in the opposite camp, to think that we are twisting the facts, frigging the numbers and hiding our assumptions to make our position look better than it really is.

Now you didn’t ask Turner or Constable to write down why he saw clouds the way he did but you can ask an actuary why he sees the future the way he or she does. So for all the people on this blog and for all the journalists and for the civil servants and for the actuaries in the opposite camp, here are the assumptions that lie behind the blue lines.





Just Fab -remember!



The FAB Index is calculated using publically available data underlying the PPF 7800 Index which aggregates the funding position of 5,945 UK defined benefit pension funds on a section 179 basis, together with data taken from The Purple Book, jointly published by the Pension Protection Fund (“PPF”) and the Pensions Regulator (“tPR”).

The liabilities are calculated by switching the data underlying the PPF 7800 Index onto a set of assumptions derived using First Actuarial’s in-house “best estimate” assumptions (see below), and adjusted to allow for full scheme benefits.

First Actuarial’s in-house “best-estimate” assumptions as at 30 September 2016

The “best estimate” assumptions as at 30 September 2016 used in the FAB Index are described below. All of the assumptions exclude any allowance for prudence.

The discount rate is set equal to the weighted average of the expected future investment return on the assets actually held by the 5,945 DB pension funds included in the PPF 7800 Index, using the average asset allocation published in The Purple Book as weights.

As at 30 September 2016, the weighted average discount rate was as follows:

  Average asset allocation in total assets


Source: Figure 7.2, The Purple Book 2015, PPF and tPR

First Actuarial “best estimate” expected return as at 30 September 2016
Equities 33.0% 7.47%
Gilts and fixed interest 47.7% 1.53%
Insurance policies 0.1% 1.53%
Cash and deposits 3.5% 0.25%
Property 4.9% 7.47%
Hedge Funds 6.1% 7.47%
‘Other’ 4.7% 7.47%
Weighted average discount rate 100% 4.4%

Other key assumptions:

  First Actuarial “best estimate” assumption as at 30 September 2016
RPI 3.43%
CPI 2.43%
Post-retirement mortality 100% S2PA

CMI_2015 [1.25%]

Proportion married 85%

What should you make of that?

For the average Joe, like the Pension Plowman, it is hard to challenge these assumptions, because Joe has neither the data nor the analytic skills to do so. I expect that some actuaries will look at these numbers and challenge them as either too optimistic or too pessimistic, but there will be general accord that they are reasonable. Actuaries are reasonable people who do not take outrageous positions.

Why the blue line and the red line on the graph are so divergent is not because we are using different assumptions, not  because we are looking at the world in slightly different ways, like Turner and Constable.

It is because we see the social purpose of funding these defined  pensions as being  positive to our society, economy, to our way of life. We don’t see these pensions as socially divisive , a limiter on growth or as obstructing personal financial empowerment.

We want defined benefit pensions to have freedoms too!


In our opinion, the voices of those who want to see pensions level up to the quality of the best have been drowned by those who want them dumbed down to the worst. The risk transfer to DC has been badly handled so that we do now have a them and us culture.

In political terms , those “just getting by” aren’t getting enough of the pie and we’d like to see people looking at private pensions, the way we do – as making a meaningful contribution to people’s later life income. That cannot be achieved without efficient distributive structures (which these kind of pensions provide) or without a great deal of pay being deferred.

People and employers will not tolerate a great deal of pay being deferred unless they have confidence in the method of deferral. The Gilts + valuation methodology does not give employers  that confidence, it just gives them big bills. It does not give people big pensions, it loses them their jobs.

The only way we can return to the days of confidence in pensions – is by having confidence that pensions work. Consigning pension strategies to the shackles of the gilts + funding methodology that drives the red line is to put not just our pensions but our aspirations in chains.

We see the world as we do, because we want the world we live in – especially the world we are going to live in – to be a better place.


Targeting a better pension





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Doesn’t pension freedom extend to Defined Benefits?

The debate about the assumptions we use to decide the state of our defined benefit schemes is in full swing.

On the one hand you have those, like John Ralfe who use an approach which ensures that there’s always enough money in the pot to pay future pensions from an insurance company (a mega annuity policy covering everyone).

On the other hand you have those, like my colleagues at First Actuarial, who favour an approach which in the DC world we’d call  drawdown.

Of course it’s not quite as simple as that- but you get the picture.

Now when you’ve made a promise to people that the “annuity” will be at a defined level, somebody has to be on the hook for any shortfall between the price of the annuity and the amount in the pot to pay the pension. In practice defined benefit schemes don’t earmark parts of the great big pot to pay individual annuities. Actuaries value everyone’s benefit with one number and everyone’s pot as one pot. This is called pooling and is the basis of collective pensions.

Extremists dislike collectivism on principal. Collective pensions are crypto-Marxist wealth re- distributors. We’d all be better off making our way home. The stragglers at the back will be picked off by the wolves.

Extreme collectivists would have no competition but simply state benefits. There were attempts in the 70s to remove the private sector from providing pensions and to run one big national pot from the national insurance fund. Vestiges of this philosophy are still evident in the DWP and tPR’s championing of NEST.

As every, there is a happy medium that neither denies the merits of collectivism, nor disempowers people from making the best of it for themselves. I suspect that that’s what the pensions debate has been about since the War.

But I am , as my friend Vince puts it – talking from the top of the ladder of abstraction.

As regards the nitty-gritty, there have been calls for First Actuarial to provide the detail of how it has produced its FAB Index – how it has magically made DB pensions so much better off.


I am not a party to the detailed calculations. There are requests both on and off this blog for us to show our workings and I will supply the nitty-gritty to those who want it – on request. We are nothing if not transparent. But I only want to climb down that ladder one rung at a time.

Let me play you instead a debate being played out inside the mallowstreet wall-garden. I have kept the debate anonymous as it’s very Chatham House in there (you can report on what’s said but not saying it).

If you don’t want the technical argument, go to my summation below the quotes

Ralfean chappie

As you say, these regulatory numbers don’t drive Trustee action. On a TP (technical provisions-ed)  basis the cashflows are discounted by gilt (swap) yields a spread reflecting a conservative estimate of the assets’ expected return. A scheme only moves to gilts flat if they’re targeting buy-out, in which case you have to play by the insurer’s rules: if they discount at gilts flat, you should too.

As I said, I’m not sure Hilton understands risk in an asset-liability context.

Your points on sponsor strength and drawdown risk are well made. My colleague wrote a piece on that. To summarise: “Expected returns don’t pay benefits!”

An investment chappie

Hilton is quite correct, we don’t have to do it this way. We can build a growth investment portfolio which we expect will have a much higher return and we can discount on this higher basis – resulting is less money needed today. But there is no risk transfer involved. If something goes wrong with this investment strategy, the trustees have to look at going back to the employer covenant to make good. The employer also has to worry about how much damage the scheme could do to the company in the process.


First Actuarial chappie

I agree that TPR does not call for bond based discounting, and the funding regulations do not either. Nevertheless, a look at TPR’s Scheme Funding Statistics Appendix of June 2016, tables 4.1 and 4.2, show that average single effective discount rates for technical provisions have stayed remarkably close to gilt yield 1 % throughout. Although there is no requirement to follow gilt yields, it is clearly what most actuaries and trustees are doing.

If gilt based funding plans cause a problem, there’s an easy answer: stop preparing gilt based funding plans, it’s not required.

There are three arguments here

1. Investment returns don’t matter (the annuity approach)

2. We should move to a drawdown approach – if the employer can stand the risk of it going wrong. (drawdown without conviction)

3. We should trust the investment markets and have confidence (drawdown with conviction).

The Pension Plowman’s view.

I am in camp 3. I am about to enter drawdown with my own money – with conviction. I believe that with good husbandry , my drawdown plan can last me a lifetime and meet my financial needs.

The arguments put forward by FA chappie are no different. He is simply talking collectively and about other people’s money.

Here is FA chappie, a little later in the argument.

The funding regulations, as Simon and I have been pointing out, allow for the discount rate to be based on the expected return on the assets. The expected return on the assets is, by another name, the internal rate of return, which is the rate of return which values the expected income on the asset at the asset’s market value. The internal rate of return is a term which is accepted universally in all financially related professions: actuaries, accountants, surveyors, business managers, economists are all taught what an internal rate of return is.

Having worked with “gilts plus” and “internal rate of return” discount rates from before the SFO began, I’m confident that “gilts plus” is a rubbish model which is unsuitable for both long run planning of the cash flows of a pension scheme and for short term solvency valuations. And that an internal rate of return based discount rate provides a better model for long run planning.

We now have to deal with Einstein’s fourth dimension -time. As FA Chappie later accepts, you cant put a + to a gilts place funding model or use an internal rate of return if you are hoping to buy out tomorrow.

This is really the nub of it and I wish (as one Linked in poster put it) to “nip this argument in the butt!”. If you are pursuing a short-term strategy over pensions, then pensions become very expensive indeed as you have to value everything at annuity rates. Hence the deficits in PPF7800 (they’re even worse in the Hymans Robertson index).

If you are accepting that your pension scheme is going to be around for a decent length of time, then you can adopt an internal rate of return approach. .

FABI is adopting the internal rate of return approach because it is assuming that schemes are not looking to buy-out tomorrow but will continue till the last payment needs to be paid.

My view is that the problem is being caused by a rush to buy-out which is quite without economic justification. It is precisely the opposite view of John Ralfe’s.


Making sense of it all

If you’ve read this far, then you are probably an expert, but I hope there will have been a few amateurs (like me) who have followed me down this little road.

We have two views of the pensionworld – Ralfe’s and First Actuarial’s; they are very different views of the world.

John Ralfe wants to annuitize. We have conviction in drawdown.

John’s view tends to gilts- ours tends to equities.

It really isn’t any different to the conversations we are having as part of our personal pension freedoms.


Do you want to be free?



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Calm down – calm down! Pensions are in better shape than “they” think.


They think – we think!


Some weeks ago , Anthony Hilton, finance writer for the Evening Standard, used his common sense to question whether the deficit emerging at the Daily Mail Pension Trust (DMGT) was real.

The pensioners he represented did not seem any more of a liability than they had been three months before, they drew the same pension and drank the same beer. Why then were he and fellow trustees, being told they had become a whole lot more expensive.

In truth they were the same people, drawing the same pensions, but because the notional cost of buying gilts to match the expense of paying their pension had increased, the capacity of his pension fund to meet this demand had diminished.

Anthony saw no logic in this. He and his trustees didn’t want to buy gilts and didn’t want to measure their deficit using assets which were patently not fit for purpose.

Anthony’s common sense view is not one shared by the Pensions Regulator which wants schemes to be invested in and value liabilities in gilts . But this approach  comes at great expense to the employer, indeed at the risk of the jobs of  journalists and paper distributors, the organisers of the Ideal Home exhibition and all the others who work as part of Anthony’s enterprise.

Infact, demanding that liabilities be valued with reference to gilts is like setting the average lap-time for Silverstone in a tractor.

So the good people at First Actuarial decided to re-cut the numbers and look at the deficits of the occupational DB schemes in the Pension Protection Fund’s 7800 index , using more realistic investment returns.

It shows that if we allowed the trustees of our defined benefit pension funds to run their schemes using common sense, rather than the twisted logic of mark to market accounting, we could all calm down and relax. Pensions were supposed to bring comfort not angst!

Here’s what they have to say,  This is the first of a series of “FABI” reports, they’ll be producing to counter the professional doom-mongers making such hard work of pensions.


UK defined benefit (“DB”) pension funds probably have more than enough money to pay all their pensions due.

Today, First Actuarial launched its First Actuarial Best estimate Index (or “FAB Index” for short). The FAB Index shows the financial position of the UK’s 6,000 DB pension funds on a long-term basis allowing for realistic future investment returns.

At the moment, using realistic future investment returns, UK DB pension funds have never been better funded and have an aggregate surplus of around £358bn and an overall funding level of 133%.

The chart below shows the FAB Index plotted alongside the PPF 7800 Index, an index calculated by the Pension Protection Fund (“PPF”) to determine the aggregate level of Section 179 underfunding across all pension schemes in the UK eligible for PPF compensation in the event of employer insolvency.

FABI graph.png

As at 30 September 2016, the asset, liability, surplus/deficit and funding ratio of the PPF 7800 Index and the FAB Index were as follows:

10th September 2016 Assets Liabilities Surplus/(Deficit) Funding Ratio
PPF 7800 Index £1,450bn £1,869bn (£419bn) 78%
FAB Index £1,450bn 1,092bn £358bn 133%

Rob Hammond, Partner at First Actuarial said:

“Historical low gilt yields have led to historical reported deficit levels of DB pension funds. But, a reduction in gilt yields doesn’t necessarily translate into an increase in pension fund deficits, particularly if that pension fund doesn’t invest solely in gilts.

“The FAB Index is an attempt to provide a more realistic measure of the value of pension fund liabilities in an attempt to combat what we see as scaremongering within the pension industry and to help trustees better understand the true value of DB pension fund liabilities.

“Whilst we recognise that pension funds should be funded prudently, we challenge the traditional ‘gilts plus’ approach to valuing DB pension funds. This starts from a position that arguably bears no relation to the likely long-term cost of paying the pensions. Instead we would encourage trustees to consider a ‘best-estimate minus’ approach so that they can start from the expected return on the assets they actually hold and deduct an explicit margin for prudence.”

The FAB Index will be updated on a monthly basis, providing a comparator measure of the financial position of UK DB pension funds. all the assumptions for the blue lines are to be found in this blog.



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“The Gold Star DC Pension Plan” – awaiting conception!




That good chap Jonathan Stapleton  Jon Stapleton   who runs mags for Incisive has asked me for my view on what makes for a gold star DC pension scheme. I’ve submitted 150 words which I hope will find their way into a future edition of Workplace Savings and Benefits;

A gold star DC plan is one that delivers its promise to its sponsors. The plan converts regular contribution into a string of regular payments called a pension and a gold standard plan is one that does this effeciently. Efficiency means “no friction” (low charges, easy  contributions and prompt payments in decumulation). Gold Star also means “value” delivering market-beating performance , smoothed investment returns in drawdown and convenient interfaces for the sponsors (both employer and member)

“Gold Star” shouldn’t be defined in terms of sponsor contributions. The level of sponsorship is to do with the sponsor’s covenant – not the plan .The plan should encourage sustained contributions from sponsors by delivering efficiency and value.

A gold star pension plan achieves sustained support from sponsors so that it can make payments throughout retirement . A gold star plan ensures money does not run out either through annuitisation or through self-insurance.

I’m with the Americans in not using the word “scheme”, it’s not a word that has positive connotations elsewhere and “plan” is much better.

As I have a blog, I have the luxury of expanding whereas others, submitting their ideas may not (if you are offering Jon your thoughts – (or if you aren’t!)- perhaps you can put them in the comments boxes below

The big idea

Most quality standards on this subject – in particular the PLSA’s PQM – make the chief criteria for a good DC Pension Plan, the contribution of the sponsors (member and employer). This has caused the PQM to become a badge for a club of well heeled employers who can afford a reward strategy whether 10%+ of salary goes into a pension. Nice if you are in that position but not much good if you are one of 95% of employers who are not and may never be in that position.

The big idea is this

We can judge pension plans , not by their input but by the quality with which they transfer the input to the output. More specifically, by the quality of the promise made at outset and the pension plan’s ability to deliver on that promise over time.

This is my big picture idea of Value for Money.

Laurence Churchill has got it right as IGC of the Prudential Pension Plan. His benchmark for success is to achieve a set level of return for policyholders (after all costs). If – over time- the plan exceeds this return, it is achieving value for the money the Prudential is taking for managing the plan, if – over time – it isn’t – it isn’t! It is that simple.

The little ideas are these


Dave Brailsford

The Dave Brailsford way to make our cycling team successful was to set it a high level goal- win lots of medals – and then to focus on lots of little things that could be done well or badly , work out what “well” meant and do them well. Together, these little things made champions.

The gold star pension plan has to do all the little things well to achieve the big idea, the big idea is dependent on the little things but the big idea comes first.

Value  and efficiency

There are only two ways you can deliver profits to shareholders of a business. The first is to generate revenues and the second is to minimalise costs. The two need to work together  and whether we talk of them in pension plan terms as growth and risk control , alpha efficiency  or simply value for money, it’s the same thing. I used value and efficiency as they seemed the closest to an engineered process.

Value – as defined by growth comes in two forms – contributions from sponsors and investment growth (above what can be expected from the financial instrument employed).


Pension Plans can get more contributions from sponsors  by winning trust that the plan is worth using. Government can help here by giving the plan an even break – tax relief, the kicker of salary sacrifice, pension freedoms and so on. It can also keep sponsors minds on the plan by not introducing rival ideas like workplace ISAs.

People will put more money in when they see the Plan performing well. Unfortunately “well” is often defined as “going up in value” and clearly this can’t happen all the time without being invested in risk-free assets (which don’t help achieve the long term goal of a pension. So education about the long-term goal and the short-term issues of the stock market is part of the value that the Plan managers should be aiming to deliver.

That said, there is more to winning trust than lectures on the equity risk premium!


Fiona Dunsire

Fiona Dunsire – UK CEO of Mercer went on Wake up to Money this morning to tell listeners that the keys to getting people saving into the Gold Standard Pension Plan were to be purchased from UK Mercer. They took the form of individualised video statements where you were told the likely outcomes of your pension and invited to contribute more to make up shortfall. This is of course a very good idea though I suspect one that is beyond the means of all but Mercer clients!


More generally, the Gold Standard Pension Plan can aim to keep members informed of the value and the money being generated and given and taken and they can do so quite cheaply through the proper use of data and technology. It is unusual for this service not to be available, it is unusual for it to be generally used. Gold Standard Pension Plans will get the reporting on the progress of a plan and the models for shortfall calculations in the hands of members in a way that suits the hands of members and the pockets of sponsors.

Investments aligned to expectations


Critical to the delivery of the overall objective – the long term objective to deliver targeted outcomes, is the correct investment strategy. I do not mean the range of investment options but the investment strategy for those who do not want to choose their investment strategy.

I do not think there’s any doubt that the plan needs to be aligned to the investment strategy. If you choose a bond based strategy, you can expect smaller but more certain returns than an equity based strategy. If you want to provide an optimal strategy for everyone – you may want to diversify between the two and even use wider diversifiers. The point is that you should be able to demonstrate that the objectives of the Plan are in line with the strategy of the default investment.

Clearly the investment strategy needs to be aligned not just to the overall objective , but to the specific needs of each member, it must be dynamic to their lifecycles.

A Plan is for life, not just for saving

A DC pension plan that simply provides a cash sum to its participants is not a pension plan at all, it is a tax-incentivised savings plan and is ducking its primary responsibility, to offer participants a lifelong income (known as a pension).

As Pension Plans (Gold Star or not) become more mature, their capacity to provide a pension for life will be more scrutinised. Pension PlayPen is already downgrading a lot of DC schemes that are not taking up this challenge and we expect to see some real innovation in this area. At the moment we don’t see many Gold Star Pension Plans for those trying to spend their pots, we just see Pension Plans passing the buck to third parties.

Those advanced strategies – such as Alliance Bernstein’s Retirement Bridge – are still only half the way there – they still bale out into annuities rather than more ambitiously running scheme pensions, no one has yet tried to replicate the efficiency of DB pensions in payment.

To a large extent this is because DC Plans are suffering a collective failure of nerve, no-one is prepared to insure longevity , nor even establish self-insured mortality pools from the pots of the thousands of participants in some of our bigger plans.

I have yet to see a Gold Star DC Pension Plan. I will tell you when I do

target pensions


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(Positive) thoughts on the state pension


John Cridland (ex CBI)



The state pension , next to our capacity to work, is most of our greatest financial asset. Conservatively valued at £250,000, the new state pension of £155.65 p.w. is worth more than most new Lamborghinis. So why do we dismiss it as a pension Trabant?

Talking with the Pension Minister last week in Birmingham, I sensed he was embarrassed to hear that it’s purchasing power is almost ten times the median DC pension pot. For those just getting by, it is getting close to a safety net, indeed – when supported by other benefits – and the age-related personal allowance, the elderly can now enjoy tax free benefits from the State of which we should be proud.

This seems to me to be something to celebrate. That those benefits are no longer ours by right at 60 or 65 is a consequence of their revaluation. The Government’s continued commitment to the triple lock (at least until 2020) is in the teeth of austerity. We are doing something in Britain to reduce elderly poverty and I’m very glad we are.

The bill to the exchequer for pensions will be around £157bn in 2017 of which around £110bn will be directly from the state pension. This bill is estimated to rise regularly over the remainder of this parliament (as a result of the triple lock).

Is this fair?

For much of my working life I have been selling private pension saving because of the inadequacy of the state pension to replace lifestyle or even provide a safety net. The upgraded state pension (paid tax free to those relying on it) can no longer be dismissed as nugatory (Michael Portillo’s description).

But I am hearing people saying that this is unfair. Today John Cridland will be publishing his report into intergenerational fairness and I hope he does not reinforce the prevalent prejudice that our elderly are being treated too well.

There is, in most cultures, a wish to treat the most elderly with the most respect. Society works like that. This recent idea that baby boomers are all take take take is being used against those in retirement who were the children of the war years. The frugality of my parent’s generation was fashioned from rationing and their capacity to look death in the eye was shaped by the horror of living in Britain (or of evacuation) when your young life was under threat from a wayward bomb or a torpedo.

The obligation that a younger generation owes to those surviving from the generations above them is often referred to as “inter-generational solidarity”. It is earned by the older generation by preparing, nurturing and educating the young.

That I pay a marginally higher national insurance contribution or income tax payment to ensure that my parent’s generation enjoy higher standards of living in poverty seems entirely right.


Daniela Silcock- Pension Policy Insitute


Inter-generational and intra-generational solidarity

My friend Daniela Silcock is on the radio this morning (Radio 4 7.50 and 8.50 if you missed her on Wake up to Money explaining what the State Pension would look like if we were to pay it absolutely “fairly” between our generation. We would have to pay more to those with poor medical records than good ones, we’d pay people in Chelsea less than those in Walthamstow (there’s a 15 year difference in life expectancy), we’d pay more to men than women and we’d pay less to the well educated than those with no qualifications.

I suspect that Daniela has her tongue in cheek, it is ludicrous to suppose that a pension can be paid fairly. Even the most healthy, well educated female can die unexpectedly. If life is unfair, death is unfairer!

Which is why we regard the state pension as an insurance against living too long and not a right to a proportion of a national savings pension pot. This is what we mean by intra-generational solidarity- we accept some unfairness in the concept of national insurance.

Just as it is wrong for us to discriminate payments to our current pensioners, so it’s wrong for us to suppose that each generation coming along behind us should be treated progressively better. The increase of the state pension age is merely a reflection of the increases in the age at which we die (and stop getting our pensions).

The management of the increases in state pension age may not have been perfect (we all accept the WASPI anomaly) but the principal of linking state pension age to average mortality is a proper one reinforcing generational fairness and creating intergenerational solidarity.

Stop this unseemly bickering!

We have a job in hand which is to improve lifetime savings so that the state pension we receive is supplemented by proper lifetime pensions. For a diminishing number of us, the employer promise of a defined benefit remains but it is generally accepted that this cannot be a universal promise. The genuine unfairness of two people doing the same job – one on a proper DB pension and one with pence in the pot remains and is one that needs addressing. But I see little point in wasting energy levelling things down when there is an opportunity to make more of the workplace pensions we are setting up under auto-enrolment.

Whatever John Cridland’s report into the state pension age ends up saying, I hope that it will acknowledge that the state pension is valuable and becoming more so. The big picture is looking brighter despite the plight of the WASPI women and the remaining levels of pension poverty that still exist.

I hope that Cridland will make it clear that the financial  fate of pensioners to come is a  lot rosier than it was , without lulling any of us into a sense of security that it is what it should be. Our state pension needs supplementing by private pensions and those pensions should be properly funded throughout our working lifetime.

Our working lifetimes have to be longer as our non-working retirements are longer. There is nothing unfair about that.


intergenerational solidarity – medieval style

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It’s the L&G IGC forum – I’m not going for tea and biscuits.

tea and bisuits.jpg

L&G have championed the idea of the Independent Governance Committee. Before they were a twinkle in the FCA’s eye, L&G had got going and today is the third forum for members of their workplace pension plans.

I haven’t been before but I’m going today and I’m not going for the complimentary tea and biscuits. I’ve a number of questions to put to the IGC, not least when they expect to announce a new chair after “Tricky” Paul Trickett hoofed it to Aviva and resigned. Zurich has got itself a new chair of the staff pension scheme (David Sims replacing Tricky), the IGC should have their’s in place too.

So what’s bugging me? My workplace pension has had a great 2016, Martin Dietz called the Brexit vote and left the fund unhedged – getting default investors a nifty 7% currency kicker, our fund continues to be managed at an ultra-low 13bps (with perhaps 1bp dirty charges to be declared). What’s more L&G seem to have become flavour of the month in UK corporate governance circles, evidenced by former policy supremo – John Godfrey – making it to 10 Downing Street.

Shouldn’t I be smiling happily? Well no! I am arriving this morning with a shopping list of improvements to my Legal and General Workplace Pension that I want the IGC to take to the LGIM and LGAS and L&G Group.

My shopping list


I want to see some of this clever thinking at Group level (Beveridge 2 – infrastructure – long term income streams – ESG +SRI =social purpose) being introduced to the £2.7bn multi-assset fund (MAF) default.

I certainly want to see a version of MAF for those who are at the tipping point between saving and spending their pot and I want that a lot more thought through than the current options.

I’d also like to hear a coherent exposition of the Brexit protections that Martin Dietz and his boss John Roe have in place for us defaulters.


Spending my pot

I want to know what the plan is to help me spend my pot, what effort L&G are putting in to helping me treat my pension pot as my bank account and how L&G is engaging with new payment systems to make my life easier.


Administration and integration with payroll

I want to hear an update on how my workplace pension is being integrated with payroll using the pensionsync and eAsE links. I want to know what strategies L&G have as their plan B if these links don’t work and how L&G are planning to help my companies and the many others we’ve introduced to L&G , in bringing their enrolment costs down.



L&G costs are low, especially for medium sized employers; but how sustainable is this 50 bps price promise? Are L&G investing in the new technologies to replace the archaic systems on which the Workplace Pension Plan is housed? What are they doing in the Blue Sky areas such as the BlockChain? When can we expect to see genuine progress in modernising their creaking systems architecture?



Just how committed are L&G to the workplace. What is all this we hear about their taking a stake in a rival workplace pension provider (Smart). Is this a sign of them pulling out of the market or an admission that they cannot operate profitably in some sectors?


These may sound the questions of a hooligan,  I’d like to think that the hooligan and the constructive disruptor are the flip sides of the same coin. One man’s hooligan is another’s disruptor, but unless we get questions tabled and answered, I see little point in calling today’s event a forum.

Look forward to tomorrow’s blog when I hope to have answers to some – if not all – of my questions

Ever the optimist!






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How do we auto-enrol workers in the “gig economy”?



A gig economy is an environment where temporary positions are common and organizations contract with independent workers for short-term engagements. The trend toward a gig economy has begun

The consultancy McKinsey  reckon that some 162 million people in Europe and America work independently. That’s up to 30% of our working-age population. Official UK figures bear this out, with almost five million people in the UK employed in this way.

At one end of the British gig economy are firms like Deliveroo and Hermes. They rely on energetic youngsters to deliver everyday items like parcels and meals. Mckinsey reckon that about 70% of these independent workers are choosing this work-style either as their main job or to top up earnings. The other 30% are either “reluctant”, working this way faute de mieux, or so cash-strapped – this is all they can do to scratch a living.

Frank Field is concerned about the 30% who are in the gig economy because they have no other choice. He’s concerned because they are potentially exploitable and – as Chair of the Work and Pension Select Committee, he feels in the front line.

Frank Field is a Labour MP but he has taken his concerns to Theresa May and she had set up an enquiry – to be headed by another Labour stalwart, Matthew Taylor who heads the Royal Society of the Arts. The Taylor enquiry is going to look into the way we work and will have important messages for Payroll, Pensions and Auto-Enrolment.

Anyone who has been involved in auto-enrolment – whether in-house or as a service provider, knows the difficult surrounding Personal Service Workers, they are the independent workers who contract with employers to deliver services on an “occasional basis”. The point at which “occasional” tips them into being “workers for auto-enrolment is debatable. The Pensions Regulator asks you to test whether they “look, feel and smell like an employee”.

Among other things, the Taylor enquiry will be trying to establish a better definition for these workers. But as importantly, it needs to report on how these workers are served for the kind of benefits and protections that those in regular employment take for granted.

The answers the Taylor enquiry come up with may not make pleasant reading. Most Personal Service Workers do not benefit from a proper payroll system and most are missed from auto-enrolment altogether. Many are self-employed but no-one knows how many are registered with HMRC for tax and national insurance. The worry is that a large number, especially the 30% of independent workers, working this way out of desperation, are barely getting by on gross earnings.

The worry for employers who regularly pay these workers either through payroll or under invoice is that the income tax, national insurance and pension contributions that may be avoided today, become payable tomorrow, and very possibly retrospectively.

I have written to Matthew Taylor as a member of the RSA volunteering to help with the enquiry and I’m pleased to have had a very positive reply! I want Government to understand the problems not just for independent workers (of which my son is one) but of employers ( of which I am one) , of payroll and of pension providers.

Any enquiry that looks at this problem solely from the buy or sell side will fail. That’s why I’m pleased that conservative and labour politicians and thinkers are working together. I hope that payroll software companies, bureaux and in-house payroll managers will be at the centre of Taylor’s research. I hope too that Taylor will look at the adaptability of benefit providers – from flex to pensions – to ensure that these independent workers are integrated into the world of benefits – as part of the world of work.

A friend of mine showed me a pension statement of one of her clients recently. It showed daily contributions of between £6 three years ago and £9.50 today. I asked what drove the increase – the answer shocked , amazed and delighted. The pension company received payment equivalent to the amount the client would have paid for cigarettes, since he had given up. The amount was paid each day by Paypal into his workplace pension. What’s more the client was getting tax- relief at source from the Government!

Where one leads – others will surely follow!


Frank Field


Matthew Taylor


Theresa May

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My hour with Pension Wise (5 myths dispelled)


Pension Wise is in the news today as it is likely to form part of a new (yet to be named) single advisory organisation covering debt and pensions. 

At a time of uncertainty, I can add some certainty, the Pension Wise service I received through the Pension Advisory Service was certainly better than I had any reason to expect!

Here’s my story.

Being of an age (over 50) and considering options around my pensions and my pension pots, I phoned up Pension Wise to make an appointment.

Phone 0800 138 3944 to book a free appointment

I did so more in hope than expectation, assuming I would spend an hour ticking boxed before being told to see an IFA. It wasn’t like that at all, infact it busted every prejudice about the service I’d allowed to build up in my head. Here are those prejudices (myths) and why they’re bust.

Myth one – “It’s inconvenient”  – in truth it isn’t – it’s dead convenient

I was given two options, to have a meeting face to face or to do it over the phone. I chose “over the phone” because it was more convenient.  I got an appointment at 11.20- 12.00 and my (mobile) phone rang at 11.20 exactly.

Myth two- “it’s all about box-ticking” – in truth- while the meeting is structured- you don’t notice the process and the meeting is more of an adult conversation about money.

Like all good conversations , mine had a beginning, a middle and an end. We moved from getting to know each other, through the meat and two veg and so on to next steps. At no point in the conversation did I think we were wasting time or that my Pension Wise person was going through the motions

Myth three – you won’t get advice. I don’t care what they say- I felt I was advised.

Pension Wise define advice as “the provision of a definitive course of action”. It is true, I was not instructed what to do next. But I knew what to do next, I told myself that. I advised myself of my next steps and I’ve already taken them. Thanks to my guidance, I was able to take informed decisions on my own. I do not think I would have taken those decisions without my interview. Julian- my Pension Wise person, did not tell me what to do, but he made it easy for me to decide that for myself.

Myth four – it’s technical – it isn’t, it’s fun and easy

My financial affairs are complicated in terms of the people I look after, my health, my tax position, my future plans re work and in terms of what I want to spend in many decades I hope will pass between now and the day I die.

The technical matters- tax mainly -became so unimportant as I started thinking about the non-technical matters- most of which are listed above.  We get too frightened by doing the wrong thing to remember the right thing- which is to look at retirement positively, as I spent time with Julian, I started to visualise my retirement and how I could make the most of it. I can honestly say I have never done this before.

Myth five -you have to listen to a lot of nonsense.

I don’t remember much of what Julian said to me and suspect that there wasn’t much said. When I had a technical question he either answered it or put me on hold and came back with the answer from one of his colleagues. The point was that I was bouncing my ideas off Julian and Julian was doing most of the listening.

Having spent most of my life doing Julian’s job, I know that the answers are seldom with the person who’s supposed to be the expert, the answers are almost always with the person asking the questions. The combination of calm confidence and genuine interest I found in Julian made me listen to myself!

Why I recommend anyone over 50 to get a meeting with Pension Wise

The conclusions I came to about my own finances are not the subject of this blog. I’ve made a couple of mistakes in my planning which I am now putting right – these were the material outputs of the meeting. Less material but more a matter of approach, I now am confident of what I’m doing.

Julian was not a brilliant adviser, but he was a brilliant listener. He put me at ease throughout and allowed me to come to my own conclusions. He did not advise me, he let me advise myself. He used the structure of the meeting he had been taught, but I never felt I was part of a process. The meeting flew by and by the time we had finished we were twenty minutes over time. It was fun, the first thing I wanted to do when I had finished was to thank TPAS for making my Pension Wise meeting so rewarding.

As I’ve mentioned above, the meeting helped me to firm up my plans and on two minor points, to adjust them so that I don’t pay unnecessary amounts to the tax man and do have a simpler and easier time of it in the years ahead.

The best news of all is that I now have the TPAS number to call , if I need further help on pensions matters. I expect I’ll be calling them again soon!

Please make that call!

Everyone is different, I was a financial adviser myself for twenty years and I have been in pensions 33 years. I’ve saved hard all my life and will have a financially easy time of it in the years ahead. I don’t need to do much work if I don’t want to, but I am sure I will!

You may be just the opposite and thinking about Pension Wise with dread. I would advise you to make that call.

Because I had no expectation that Pension Wise could help and nearly didn’t bother. It helped me because my prejudices (my myths) all proved wrong.

I would be very surprised – should you have prejudices against Pension wise – if they weren’t wrong as well!


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Value for money – we have won a battle not a war.


The FCA Consultation Paper CP16/30″Transaction cost disclosure in workplace pensions” is a very good piece of work and allows IGCs and Trustees to know what their members are paying to have their pension pots managed.

It unlocks one of the doors to establishing whether members are getting value for money. But there is more that needs to be done before trustees and IGCs can say with confidence that their fund managers are offering value for money.

We will now know what members are paying.

Specifically, while they may know what their members are paying, they cannot tell if they are paying too much. In order for that to happen, they will need benchmarks on what a fair price is , not just on the hidden costs but on the overt costs too.

CP16/30 rightly points to a divergence between fund managers in pricing of stock lending. Some managers charge , some don’t- the amount of the charge varies. The suspicion is that the overt charge for fund management (born by the pension provider out of the AMC) can be subsidised by covert charges for stock lending (born by the members out of fund performance).

But are they paying too much?

Such cross subsidies are rife in the fund management industry. Fund performance can be skewed by loading costs onto legacy funds to boost the performance of the latest “star manager”. There is increasing evidence that NESSIE (what the Investment Association refer to as these “mythical” fund costs) is not only alive and well, but working in service for fund management marketing groups. While star fund managers get fund performance with a free ride- the costs they should have borne depress the price of legacy funds.

The need for benchmarks

So we need a pricing benchmark for overt charges – the basis point charge levied by managers to trustees and insurance companies running trust and contract based workplace pension plans.

And we need a separate benchmark for covert costs- the amount coming out of funds through transaction costs. The criticism that can be levied at the FCA’s approach is that it doesn’t allow transaction costs to be split between those that benefit the fund manager and those that benefit the other intermediaries taking a cut of your money. The FCA argue (rightly IMO) that it doesn’t really matter who takes the money, a cost is a cost.

I would argue that there are specific areas – such as stock lending, that IGCs and trustees should pay special attention too. The rights granted asset managers are in the Investment Managment Agreements and we may need a third benchmark to cover specific items where cost leakage is most prevalent.

The peculiar conflicts of master trusts.

IGCs and Trustees of non-commercial occupational DC pension schemes are relatively unconflicted. Their duty of care is to the member, they do not have any commercial skin in the game. Their only conflict arises if they become dependent on the grace and favour of the fund managers (sports tickets, so called educational dinners and the like).

But the Trustees of Master Trusts can be conflicted between the commercial pressures of those who pay them (and most master trust trustees are paid) and the interests of those for whom they act. I do not see sufficient separation on many master trust boards between the trustees and the pension providers. This is particularly the case in the smaller master trusts where the fight for commercial survival is most acute. Put simply, self-interest is most prominent when their is a threat to you getting paid!

I am very far from convinced that the governance of many master trusts is suffeciently robust for trustees to challenge the kind of cross subsidies mentioned above. This is most specifically about the use by some passive fund managers of member borne charges to subsidise provider born fees (Stock-lending and AMCs).

Winning battles not wars

Of course knowing that the commercial entity behind a workplace pension is getting the right price and controlling costs for themselves and for members is only half the story.

Those costs may be buying services that are benefiting members – or they may not. To understand the value arising from the costs incurred, trustees and IGCs need another set of benchmarks. These “value benchmarks” may sound very precarious but in fact they do exist and are being used in the Netherlands (along with the pricing benchmarks mentioned above).

It is possible to measure the positive impact of fund managers in terms of risk management and market out-performance and that is precisely what the Dutch Authorities do. If you want to see a presentation of these benchmarks  check the Novarca and IBI slides (10-12) in this presentation.

Low cost fund managers tend to outperform

The Dutch IBI transparency index (slide 12) shows that fund managers that have low overt charges and covert costs tend to outperform those which are more expensive. But this is not always the case.

Trustees and IGCs that feel comfortable that they have found a fund that consistently delivers more value for the money than another , are entitled to promote that fund to a default option for the workplace pension, subject to the cost of that fund – together with the other costs of managing the pension – not exceeding 0.75%.

The big question for Government is whether the new found transaction costs should be included in that 0.75% or whether these costs can be added. In my opinion, the evidence of managers with high charges and costs delivering extra value is very sketchy and the capacity of good workplace pensions to offer full services within 0.75% quite common.

For instance the L&G Multi Asset Fund (3) which is offered as the default investment option for L&G Workplace Pension Savers at 0.13% reckons to have transaction costs of 0.01% and has – I am told – no charge for stock lending. L&G could easily absorb the 0.01% extra charge into the total charge for the plan of 0.50% or put prices up to 0.51% – retain margins – and still be within the cap by 0.24%.

How do we know what the best price is?

As members of workplace pensions, we do not know what price funds are being offered to IGCs or trustees of commercial mastertrusts. I have asked and been told by the CIO of NEST that the fees paid by NEST to fund managers are subject to a non-discl0sure agreement (NDA). When  I asked why NEST signed the NDA I was told it was to protect the fund managers who might otherwise have to offer similar prices to other funds.

I find that practice to be anything but competitive. It means that NEST can cross subsidise its commercials against rivals such as Peoples and NOW and the insurance companies. I as an L&G policyholder could be paying more to keep NEST’s fund costs down- not a deal I see as very fair.

In practice, I do not believe that the non- disclosure of fund management fees works in anyone’s interests other than the fund managers. There is a best price out there and by “best” I mean the economic price that offers a fair margin to the manager and a fair cost to the provider and member. Determining what that price is cannot happen if everyone is buying blind. If – and I suspect this is the case – most trustees and IGCs have no idea what the best price for the funds being bought for their members is, then they are evaluating value of money with their finger in the air.

The case for a centralised pricing benchmark

novarca fca

The costs providers pay for funds is well below the price that retail investors pay for that same fund. That L&G MAF3 thing is being knocked out to SIPP punters at over three times what I’m paying.

I can understand that there is a difference between the retail and wholesale price. Workplace pensions should be picking up the wholesale price and passing it on to members with a small turn as margin.

I can understand why fund managers want to keep the institutional (wholesale) prices secret (would you be happy paying three times as much as a retail customer?). That is a whole different argument which SIPP customers need to have with their platform providers.

I’m arguing here for the people using workplace pensions (who are generally just getting by and not in the business of investing in SIPPs).

These people need proper protection by IGCs and Trustees. Those IGCs and Trustees, should be able to see the price their provider is paying for funds, against the best price for that fund – or at least that kind of fund.

The best price index cannot be managed by a vested interest such as the Investment Association. I would argue it cannot be entrusted with consultants who are now so embroiled in fiduciary management as to have generally lost any claim to independence.

The case for a centralised pricing index is strongest when that index is organised by Government with the help of truly independent experts – such as Novarca (who the FCA have already used). The Dutch Government have come up with this solution and we should follow suit.

It may not suit the fund management industry to have best prices generally available to trustees and IGCs and I am quite sure it will horrify the wealth managers who will have to justify the gap between retail and institutional pricing. But if we are going to do this Transparency thing properly, I see no other way than this.

Winning the war by siezing the day.

Before I heard Theresa May’s speech and before I spoke with members of her policy team, I did not believe that we could have an interventionist Government in the near future. Having spent time in Birmingham this week, I have changed my mind.

Not only do I see the publication of CP16/30 as a significant battle won , but I see an opportunity to nail the value for money thing and win the war. The time is now right, the ducks are lined up and I hope that the Transparency Task Force will seize the day.

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Walk on! A panegyric for May’s interventionism.



For ever?

This footpath is not a road – it is a footpath; it is not closed, it has been closed; it is not blocked by roadworks , the footpath is walkable but the pedestrian has to walk past some red tape. If Philip Hammond wants to know how we can increase productivity, he can start with councils like Basingstoke and Deane which close footpaths to pedestrians, drive traffic onto roads, create greater congestion and ultimately stink out the environment.

I have written about Basingstoke and Deane several times on this blog. It is a council only interested in macro projects like the John Lewis store below. If you want to know the reality behind the store read this – it’s about where we work!


Why they closed the footpath for a year!

Regulation is not supposed to close paths but to make them easier and safer to use. The footpath pictured has been closed for around 300 days of the last year. It’s closure has increased the travel to and from work at Basing View and Basingstoke station by around 20 minutes a day.

Government can regulate by investing in infrastructure that allows us to walk from A to B in a straight line.

The frustration voiced by Theresa May at the Tory Party Conference on Wednesday was on behalf of the millions of people who want to go about their daily work without this kind of nonsense. Reading my notes from her speech words and phrases spring out at me


“change has got to come”

“Government can be a force for good”

“if you believe you’re a citizen of the world , your’e a citizen of nothing”.


May referred to a “Global Britain” – an odd phrase; Britain is an island, we can only be global in the sense that we are apart from Europe but integrated with both Europe and the world as Britain. This means taking back devolved power (Sovereignty) but in May’s lexicon, exercising power.

“Change” happens in May’s world because of “intervention”, not because of forces beyond Government’s control. “Government can be a force for good”.

At a fringe meeting at the Conference, I asked the Pensions Minister what the capital value of the State Pension was. He could not answer me; I reminded him it was £250,000. I asked him what the average pot value was – he knew it to be today £30,000. By 2030, pots are expected to have grown in real terms to £49,000. If the triple lock remains for a fraction of that time – the real value of the state pension will be over £300,000. My point is Theresa May’s point – “Government can be a Force for Good”.

For all the hullaballoo about personal pensions over the past 30 years (they were established in 1987), the average personal pension pot (when we strip out the occupational DC pots) from the numbers – is less than £20,000. In pension terms that’s about £80 per month.

The State has been a Force for Good

force for good.png

So while most of us have been worrying about our personal pensions, our state pension has been building up behind us and is – typically worth nearly ten times what the average person’s been able to save for themselves.

To a very large extent that is due to the efficiency of the Pay as You Go state pension system and the hopeless inefficiency of personal pensions. It is because politicians chose to believe in market solutions, refused to intervene over commissions, hidden charges and overt product fees that in retrospect- make the eyes water.

Thankfully, there were civil servants who soldiered on with state pensions. Without the perseverance of the DWP/GAD/Treasury we would not have the capacity to promise people retiring today the Single State Pension – which for many people is there lifeline to financial security in later years.

Some are likening May to Thatcher but in terms of ideology, she is in exactly the opposite corner. The Pensions Minister gave me some spurious clap-trap about the State Pension being an £89bn pa drain on public funds. This is total nonsense, the State Pension is affordable because of Britain’s capacity to generate tax and national insurance and because of the National Insurance Fund which is a reserve that Government can fall back on. The State is merely an organiser, an unblocker of footpaths!

I concluded yesterday’s blog with a Steve Bee cartoon that suggests that what we get out of pensions is dependent on what we put in. Steve is right – but only 10% right. As Con Keating has pointed out to me, the other 90% of what we get out of pensions is down to investment gains – or in an unfunded environment, by the rate of revaluation of the pension promise.


Organising pension governance the FCA way

In the week that Theresa May made her great interventionist statement, the FCA published “Transaction cost disclosure in workplace pensions“. I don’t think the FCA paper will be remembered in the history books (though I do think that May’s speech will).

But I think that the FCA paper, is a revolution and it is a recognition that change has got to come and it recognises that Government can be a force for good – though interventionism.

Margaret Thatcher would have never wanted the FCA’s consultation to be published. She would have closed that road/footpath.

I spoke with someone close to May’s policy making on Tuesday night and asked him who he devised  the policy for. He was quite clear, the person he had been asked to think of when he put forward a policy was the person just getting by, the working person/family struggling to get from A to B because of the lack of help – because of the obstacles in his or her way.



Just getting by?

I get the idea. There is something absolutely right about intervening on behalf of the person just getting by. It is absolutely wrong to assume that global forces and a free market can bring this person to a comfort level we find acceptable. The person just getting by needs someone to clear away the signs that say “Road Closed” and be allowed to walk from A to B in a straight line.

The person just getting by needs to be able to see the footpath that leads to home ownership, to a secure retirement. He or she needs to feel confident that the health service will be both national and sufficient . He or she needs to feel confident that the family can be educated properly and have the same chances in life as those getting by with ease.

In short, the idea is social justice. But not a justice that is created by levelling everyone down through penal taxation of those who generate wealth, but justice by making those who should pay taxes – pay their taxes.

I believe (unlike it seems our Pension Minister) that we can afford our state pension bills, provided we grow our economy through increased production. I would say the same about health, housing and education. The Government can do a great deal and can help us be more productive.

To do so, it needs to pay attention to the real world we live in. I am pleased that it is appointing Matthew Taylor to look at the way we work and ask questions about the suitability of Government work policies.

It needs at the very micro-level, to get into the heads of the silly people who own the transport policy of Basingstoke and Deane that footpaths are there not to be dug up, but to be walked along, because that is how many people  get to work and pay their council tax.


other means of transport are available

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“Transaction cost disclosure in Workplace Pensions” – #FCA



Most people now have a DC workplace pension and if you haven’t got one you’re either very lucky (as you’re accruing a defined benefit) or one of the 6m marginal employees who are reckoned to be “entitled”, “non-eligible” or “self-employed”. (The Government is coming to your pension situation as part of Matthew Taylor’s workplace practice review).

You can read the document here  https://www.fca.org.uk/publication/consultation/cp16-30.pdf

Most people now have a DC workplace pension which is chosen by your employer and looked after either by trustees or independent governance committees (IGCs). The FCA- the Government’s principal financial enforcer has been uncomfortable about the protections ordinary consumers get for some time. The concern became stronger after the 2013 report by the OFT that concluded.


The OFT report recommended that people not being looked after by Trustees should have equivalent protection through IGCs and the IGCs have been up and running since April 2015. In April 2015 the IGCs reported that they couldn’t properly tell if workers were getting value for money from their workplace pensions because they couldn’t get the proper information out of the investment managers about how much people were actually paying to have their money managed.

I and various other people have been calling for better reporting of costs for some time now as these things matter. Now at long last, the FCA have produced suggestions on how the hidden costs of fund management can be reported consistently to IGCs and (for master trusts and single company pensions).

This matters and matters a lot. The FCA estimate the assets measurable by this proposal will rise from £320bn to £390bn over the next five years, tiny differences in costs measured by basis points (bp) of 0.01% can deliver enormous variations in the pensions we get – over time. These differences can define a good from a bad workplace pension as the costs that the FCA are examining are measurable and manageable. Getting these costs down is something within the grasp of fund managers. In theory getting costs under control is good all round


FCA CP16/30


But in practice, there is likely to be short-term opposition from many fund managers and their trade bodies. Greater disclosure does not just mean more work, but it means – for those with high costs – a lot of extra explaining. Where there is a charge cap , the Government might seek to include these extra costs within the cap, excluding high cost managers from offering services to  workplace pensions.

I hope that we do not have to exclude high cost managers through a cap, I hope we can instead measure whether their high costs produce value for the money. If it can proved they do, I would be happy to see high-cost funds being used by people for their retirement savings.

In order for IGCs and Trustees to work out value for money they will have to look both at the theory of what a fund manager is doing in the process of adding value and the practice. The practice is a lot easier, a simple examination of the track record of the fund’s performance can tell us how well the theory has turned into practice!

It may be that finding value from high charges proves very difficult. If this is the case then a simple charge cap that includes all the costs of investment will be useful. If high cost managers always under-perform and theory doesn’t turn into practice then we should do without high-cost managers.

In future blogs I intend to look in detail at the FCA consultation. It was a long time in the baking but the first reads suggest that it is likely to deliver the right level of information to help IGCs and Trustees determine whether value for money is being had.

If my first feelings are right and I will take steers from those in the Transparency Task Force better qualified to make that judgement, then the publication of this consultative document will be a big step in the right direction.

But – as Steve Bee’s cartoon points out – no matter how low the charges – the main determinant of what you get out of a workplace pension – is what you put in!


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Doesn’t “integrated risk management” set the bar askew?

bar too low.jpg

The buzz phrase for those involved in DB pension management is “Integrated Risk Management” or IRM – if you want to sound familiar with these things. The phrase is a good one as it focuses trustee’s minds on what really matters, paying the pensions. If he investment, benefit and funding strategies are all lined up , then the chances of managing the scheme to eventual solvency are a lot higher than if there’s no such plan.

But my worry when I hear actuaries and investment consultants talking about IRM is that they think of it as an organisation’s pension strategy. It isn’t – IRM only addresses the risks of a funded scheme collapsing under its liabilities and of it dragging its sponsor with it. This is only half the risk, the other half of the risk is that those working for the company and not benefiting from the promise- are forgotten about.

Put another way, considering risk only from the perspectives of the employer and trustee is to neglect the risks being left to the staff no longer benefiting from the promise.

The changing pension contract

The contract between employer -government and employee has – for generations – been about risk sharing. Beveridge brought in a system that allowed everyone the comfort of knowing the State would provide a basic level of support to relieve poverty. Beyond that employers could choose to what extent they wanted to raise expectations to their staff that retirement (if they worked with the employer) could be a better place. This contract was in turn based on risk being shared with the employer (both in terms of contributions and in terms of outcomes). The recent move away from risk sharing and toward risk polarisation has meant that those with a promise take no risk and those without a promise have no share in the employer’s covenant other than a defined contribution.

This shift was supposed to be eased by the financial empowerment of staff to do it for themselves. There were many theories about how staff were going to get savvy. They included the explosion in the numbers of financial advisers in the 80s and 90s, the arrival of easier to understand “stakeholder pensions”, the improved standards arising from the Retail Distribution and most recently the auto=enrolment project. None of these initiatives has yet managed the risk transfer that followed the closure of private sector defined benefit schemes.


“Integrated” should mean just that

In my view, an employer or a trustee board must be mndful of not just those in the scheme, but those staff excluded from the scheme. I exclude from this statement multi-employer master trusts and GPPs which have no  link with the employer covenant other than to ensure that contributions are being collected according to the given schedule.

For Defined Benefit schemes to properly call themselves “integrated” in their risk management, staff should properly be satisfied about what “integrated” means.

I am going beyond the limited remit of defined benefit consultancy and suggesting that a company is only integrated in its pension strategy when it can explain it to all staff in a single room without chagrin. I use that word as I am writing from France – the French have a much better vocabulary for shame and embarrassment than we do!

Very few trustees of a defined benefit scheme have concern for what goes on outside the scheme and most employers sponsoring defined benefits are beginning to regard the scheme as a toxic legacy of previous management. In short, neither employers or trustees are operating pension strategies that are integrated.

Total and deferred pay

For a more integrated approach to emerge, we need to get staff understanding both the concepts of total and deferred pay. Those who are in defined benefit schemes have higher expectations of deferred pay and those in defined contributions should have higher expectations of current total pay- precisely because they are not receiving the same promise of  deferred pay.

For larger employers, establish a reward strategy that fairly balances these concepts of deferred and total pay should not be too hard. It would necessarily mean that those accruing defined benefits would receive less immediate compensation and those outside the promise would receive more. This is particularly pertinent to the public sector where the suspicion is that there is no integration between total and deferred pay so that employees in defined benefit schemes have compensation benchmarked against those in the  private sector getting little or no deferred pay.

To use the language of risk rather than reward. Why should those who are managing their own retirement risks accept that his or her employer running an IRM, unless it can be proved that the risk that he or she is taking on, is being properly rewarded?

Conditional benefits or conditional pay?

We look as if we are about to look again at the idea of “conditional pension benefits”, with the “conditional” being about the employer’s capacity to pay the pension. Perhaps we should be looking at this , not by questioning the benefit promise, but the salary basis against which the promise has been made.

The only way that employers can properly claim to have agreed an integrated pension strategy with the trustees is to include total reward in the equation.


too low , too high or just askew?

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Allardyce- a fan’s eye’s view.

“Money corrupts and wads corrupt absolutely” – anonymous football fan – last night.




I heard about Sam Allardyce’s departure from the England Manager’s job while watching Cambridge United beat Yeovil Town in a Tuesday night league 2 fixture at the Abbey. Actually it’s not the Abbey anymore, the U’s sold their heritage to some Glass salesmen so they refer to where Abbey United used to play as the Cambs Glass Stadium, that too is part of the problem.

The only good thing to come out of Allardyce’s 67 days at the club was his leaving. I heard a vox pop on the radio asking whether the England manager should be accepted to be a saint. The answer is that the job of England Manager should be something you should be so proud to have, that the thought of taking questionable payments from questionable people would be out of the question. We don’t expect our managers to be saints , but we expect them not to be sluts.

To the question “he did nothing wrong”, the answer is that by taking this money , Allardyce broke not just his contract with the FA but his contract with the game, its players and its fans. His statement that he was “disappointed” rather than the hand-wringing apology we should have had, demonstrates what every fan knows, that it is money not the beautiful game , that most people in football are serving.

Let me give you two examples; one of what is good and one of what is bad with football today.

Firstly the good

As we were waiting for the game to start, Pat Custard – our greatest fan – offered us a Ferrero Rocher chocolate. She didn’t just offer us one, she offered all the fifty or so fans who were with us a chocolate. I don’t know who funded the chocolates but I rather think it was Pat. I don’t think she was being funded by Ferrero Rocher.





Secondly the bad

Cambridge United, like most clubs, take away fans for granted. In the end there were 98 of us.

At the Cambs Glass

  • away fans are not allowed to pre-purchase and get the home fans discounts
  • away fans cannot get discounted tickets by purchasing online
  • away fans face an 800 yard walk from their coaches, not much fun for our elder and less mobile supporters
  • away fans can’t buy beverages from official outlets but must pay inflated prices to a concession
  • away fans are subject to the taunts of the Cambridge United Youth team, whose potty mouthed abuse went un-noticed by the club – despite their lads being in club colours.

In short, we were treated like scum, as away fans often are.

British Football is awash with money but the fans never seem to benefit. Instead the money is retained by a small group of managers, agents and other hangers on (with a fair bit going to a few star players). The grass roots of the game is starved of money which is why Cambridge United cash-cow their heritage , their away supporters and probably a whole lot more.

The news in the Telegraph this morning is that 8 Premier Managers are implicated in taking bungs for player’s contracts.

Why this burn of the money coming into the game is so reprehensible – is not just because it leaves clubs in the lower leagues starved of cash but because it shows the absolute lack of any kind or moral compass (governance) at the top of the game.

Allardyce is reported to have been paid some £3m a year for the job. That is enough to satisfy anyone’s financial needs. That money, which came ultimately from the fans – was paid so that we had a full time manager focussing on making the English National team good again. Not “great” – “good” will do.

What an insult Allardyce’s behaviour is to the fans. If proven, and the Telegraph have a good record so far, then the behaviour of the other 8 managers is equally shocking.

The reason why these managers have multi-million pound contracts is partly because there are few of them good enough to do the job that well and partly because such money should focus their minds on getting great results on the pitch.

If great results off the pitch nclude taking questionable payments from questionable people, then fans have got a right to tell these managers to leave. The Football Supporters Trusts, which give fans places on the Board and a stake in clubs, should make it clear that fans expect managers to stick to the job they are paid to do.

We don’t need Saints, just people who think of the people who pay them

As we made our way home late last night and early this morning, my son and I talked about the game, ethics and his future. He will be going back to Cambridge in a couple of days to start as a student. His interests include questions around where the money goes and why there is such social injustice in this country.

The reason is that people like Sam Allardyce are seen to have done nothing wrong. It is good that he is out of a job, I hope any others found breaking their contracts with their clubs and the game will also be out of a job – very soon.

With money comes power, with power can come corruption, but it doesn’t have to be like that. With good governance, the corruption can be curbed. In a properly run club, as in a properly run business, those at the top are paid to set an example, not just at doing their job, but in everything they do.

Sam Allardyce should spend less time with shady agents and more time with the likes of Pat Custard and this lovely lot!

Nottingham Forest v Yeovil 180507

Yeovil Town fans celebrate

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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 www.lgim.com/descriptionoffunds



  Multi-Asset update: EU referendum



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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 thesalarycalculator.co.uk 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 http://www.pensionplaypen.com. 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.

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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 http://www.ft.com/money

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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,pensionplaypen.com 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 www.pensionplaypen.com); 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 http://www.pensionplaypen.com


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)

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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.

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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

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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.

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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 http://goo.gl/V4sYDe  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 http://www.pensionplaypen.com 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


Posted in accountants, auto-enrolment, NEST, now, pensions, Personal Accounts | Tagged , , , , , , , , , , , , , , | 2 Comments

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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Pensions Regulator on Pensions Bill (like)



This blog’s from Andrew Warwick-Thompson who is Policy Director at the Pensions Regulator. As he’s had a lot of say in how the Pensions Schemes Bill was created, I’d expect him to like it. All the same – it’s good to hear his “food for careful thought“.

Whenever a Regulator claims he is a huge fan of something – expect a “but” in the next clause! Master trusts are not excluded from this rule!


I welcome the Government’s introduction of the Pension Schemes Bill into Parliament today – actually, I am positively ecstatic that this bill has finally seen the light of day.

I am a huge fan of master trusts, but I have been calling for a tougher regime for the regulation of master trusts since I joined The Pensions Regulator (TPR) in 2013 – and some of my colleagues in Brighton have been calling for it for much longer than that.

So how can I say I am a fan of master trusts but be calling for tougher regulation at the same time?

Master trusts have proved their worth in successful defined contribution (DC) provision elsewhere in the world, notably in Australia. They offer consumers the benefits associated with high standards of governance and administration, professional scheme management, economies of scale for both administration and investment management, and leading edge communications tools.

They also have the potential to offer members a seamless, guided transition from accumulation into decumulation within the scheme – something I believe is of huge importance in the new environment of ‘pension flexibilities’ in the UK.

But there are problems. There are virtually no barriers to market entry in the UK. This has led to some people setting up master trusts who, frankly, are less than competent to run a pension scheme, or who have dubious motives.

TPR has also found schemes where there were significant issues with financial security and conflicts of interest, as well as business plans that were just not credible. Additionally, there’s a high risk of members’ pots being swallowed up in the event of a trust falling over and having to be wound up.

Another major concern is employers who had chosen a master trust for the purposes of fulfilling their automatic enrolment duties finding themselves in breach of those duties if the trust closes to new business.

The current position could damage the confidence employers and savers have in master trusts and indeed the wider public trust in the security of the pensions system. So there is a clear need for a tougher regulatory regime to protect the interests of both employers and consumers – and the new bill hits that nail directly on the head.

New and existing master trusts will now be required to be authorised by TPR based upon certain criteria being met. These include the fitness, propriety and integrity of both the trustees and other key parties involved with the operation of the trust. There will be a particular focus on the operational systems, processes and controls established within the master trust.

The master trust will also have to demonstrate that its business model is sustainable, that it has sufficient cash reserves to cover its operational costs, and that it has a ‘safe failure’ strategy, including reserves to cover the cost of its wind up without using members’ assets.

If these standards cannot be met  then authorisation will not be granted  and in cases where they are not maintained authorisation will be withdrawn. To enable our enforcement of these new standards TPR will have new powers of regular supervision and for setting reporting requirements.

I do not believe that those who already run or plan to operate a reputable, well run master trust should object to this new regulatory framework or find they are unable to meet the authorisation standards. Indeed, they should welcome the tougher regulatory regime because it is in nobody’s interests to have incompetent or criminally minded people operating in the pensions market.

I believe that what will emerge from this new regulatory regime is a master trust market capable of fulfilling its potential to be the cornerstone of a secure, sustainable and innovative DC savings and retirement market in the UK.

In fact, I anticipate that authorised master trusts will also offer sponsors of their own occupational DC schemes a credible alternative. There are many tens of thousands of DC schemes currently, far too many of which are struggling to meet adequate standards of governance and administration, and are unlikely to be able to provide value for money for their members. The consolidation of such schemes by authorised master trusts is likely to be in the best long-term interests of both their members and sponsors.

It is self-evident that employers generate economic growth through their business activities, not by running pension schemes. So is it even desirable that employers sponsor their own scheme, if they can instead outsource their employees’ pension provision to an authorised master trust or group personal pension plan?

Food for careful thought, I think, but for now, we should acknowledge this Bill as a significant step in the right direction towards our and the DWP’s goal of ensuring savers pension pots are as well looked after as they have the right to expect and deserve.

Andrew Warwick-Thompson
Executive Director for Regulatory Policy

This blog first appeared on the Pensions Regulator’s blog – you can read it there


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Was BHS a blessing?


At a rowdy debate at yesterday’s Battle of Ideas, my colleague Hilary Salt stoked the fires by claimed the fall of BHS was a milestone to improving British productivity. Nobody expressed disagreement – despite it being packed with left-wing thinkers.

Hilary’s argument went like this;

We should see the failure of BHS as a success. A zombie business that few people liked or shopped at, failed. Pension rights were (by and large) secured (by the PPF). Thousands of workers have been released from unproductive labour and a precedent has been set to other non-productive businesses – to pack it in.

Merryn Somerset Webb had set the seen, rehearsing the well known statistics about Britain’s productivity, relative to our European neighbours. Here are the latest ONS numbers.


Those speaking accounted for our lack of productivity in various ways

  1. Lack of Investment
  2. Disincentives to work full time (working credit system)
  3. Low interest rates propping up zombie businesses

Nobody mentioned pension schemes, but the drain on cash flows needed to meet Trustee demands for deficit payments may have something to do with the lack of investment.

In the context of this reasoning, the fall of BHS can be better understood. BHS suffered from too little investment, employed thousands of part time staff and struggled along as a cash cow for Philip Green’s family, because of QE.

This is not to say that losing your job at a BHS till isn’t a painful experience – it is. Especially in parts of the country where it is a less bad job than anything else on offer.

But it’s hard not to agree with the panel who concluded that the way forward for Britain in a post-Brexit economy was to improve productivity by investing for growth, increasing per capita productivity and increasing interest rates. Merryn made the point that British exporters had been handed a golden-goose in the devaluation of the currency and should be squeezing every golden-egg out – while they can.

Philip Mullan pointed out that tariffs or no tariffs, we would trade. The vie in the room was that Britain could swim and (were it down to us) it would not sink.


One of the things that I took from Battle of Britain was a sense of being accountable for helping Britain swim rather than sink. I spent much of the weekend engaging in a stream of debates on technology and ethics that covered (inter alia) driverless cars, the ethical dimension of , artificial intelligence, the Fintech revolution , virtual reality and even dating apps.

Almost every debate focussed on improving productivity, most focussed on the use of Blockchain as the means. I wrote last week that I see Blockchain, not as a means of putting people out of work, but as a way of increasing corporate profits so they can invest in new and better jobs (and the training for people to upskill to them).

I feel personally accountable for making this happen. I don’t know why I feel like a Blockchain evangelist – I can’t write the code and I don’t understand the processes which are being replaced, but I feel I can do something to excite the firms I work with from First Actuarial to L&G to adopt the new technology and improve productivity.

I don’t think there is much point in locking yourself in the Barbican all week-end if you aren’t going to get productive about what you’ve learned. I don’t want to see Britain sink post Brexit , I want to see it swim. I want to make the part of the world where I work more productive. I want to see the end of zombie practices (which I see plenty of when I go to our and other people’s offices), I will not be afraid to point this out to my colleagues and my collaborating employers.

I am proud that Pension PlayPen has already taken over 4000 employers to a good pension decision as part of auto-enrolment. I’m proud that they’ve taken decisions more productively and more economically than they would have done elsewise. I’m very proud that we’ve helped over 4000 employers have seen the value of valuing their choice of workplace pensions.

A very small cog

Being around brilliant people – from 15 to 80 – gives you a sense of your own lack of importance. There were people I met this weekend who were superior to me in intelligence, wit , articulacy, knowledge and application. I felt a very small cog indeed.

But that was and is salutary; it made me realise that not only was I accountable for change but that I was and am a small cog in a large machine – the enterprise engine of the nation.

I didn’t care if the people I spoke with were academics or business people, students or pensioners; I was too interested to bother with their status, I wanted their knowledge and to share in their enthusiasm.

I may be a little cog – but the mechanism is mighty and I’m determined to play my part! BHS was a dead business, those working for it – working unproductively. We need to change and change means getting rid of dead businesses and dead practices. It takes a few Hilary Salts to see that – articulate that – and change the way we work.

But I’m confident we have more than a few!

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Wankerati and proud of it. My day at the Battle of Ideas.

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I’m taking time out from slipping up and down the Thames on Lady Lucy to attend the Battle of Ideas . By the end of this weekend, I’ll have been to 10 debates on everything from “Are dating apps the end of romance” to discussion on political populism. I even got in a 90 minute nostalgia-fest on Rough Trade records last night.

If this sounds random – it is. The Battle of Ideas is a two day though-fest set in the warren of halls and cinemas in the City’s Barbican complex. Organised by the Institute of Ideas under their forthright leader Claire Fox, this festival has been around a long time. I’m a newbie to both the Institute and the Battle and I’m asking myself – “where have I been?”.

You might think this kind of event is packed out with middle aged academics in search of social purpose. You’d be partly right. But among the 2000+ delegates yesterday were a lot of students, quite a few school kids and a fair number of millennial, busy being happy – despite their “oppressed” status.

I learned a new word ‘Wankerati’ – of which James Delingpole is strangely proud. I met with my colleague Hilary Salt who was chairing and speaking all over the shop, I even got an invite to the Guildhall School’s production of the Crucible by way of after show relaxation.

The wonder of being there

Talking with those who’d flown in to London for the event, I realised just how lucky we are to live in a town- a land – thought be a world thought leader. I got to hear just how fortunate to have debates of this kind (rather than the Trump/Clinton kind). Best of all I found out what it means to spend two days arguing with people (in the nicest possible way)!

One of the themes of day one was the isolating impact of sitting at a computer studying blogs, playing minecraft or watching music on YouTube. It didn’t have to be said (though it was said – rather too often) that being in the company of other people – in real time – is clear vivid and real.

I spent most of the first half of the social media discussion I was insocial media discussion I was in , consulting twitter about Yeovil Town’s precarious defence of a 1-0 lead at Crewe Alexander. The lady next to me (who turned out to work for google) admonished me at the end “couldn’t that have waited”. Of course she was right – I nearly missed James Delingpole speaking to the “wankerati”. I did manage to hear a sociologist from DEMOS say Shitgibbon a number of times.

I suspect Delingpole was close to losing his nerve afterwards. He shouldn’t be.


I spoke with Frederika Roberts (panellist)- afterwards, resilience is a key attribute if you are going to be on twitter.

It was good that the man was as obnoxious in real life – I call that integrity!

“Got myself a walking, talking  – living troll!”

 Paul Lewis from studio to cinema

I also missed, my mate Rob Hammond on the radio, though I did bump into Paul Lewis – who was interviewing him – in the flesh. We ended up talking about Paul’s beard and whether he was morphing into the Ancient Mariner; from Wilkie Collins to Samuel Taylor – as i thought.

Paul was debating  whether the super-rich are heroes or vilains in Cinema 1 but i had to leg it half way through to discuss “the blockchain- what’s all the fuss about”.

Incidentally, if you want to hear David Blake and Rob hammering it out over actuarial assumptions , you only have to press this link.

Join the wankerati

Alternatively, you could come down to the Barbican today, or next year and be the next victim of Delimpole hate crime!

James Delingpole is a writer, author and broadcaster unfortunately best known as the sceptic who helped break the Climategate scandal. But actually, like almost everyone, he’s totally sick of the sterile, dishonest, global warming debate, which in fact is only interesting insofar as it’s a manifestation of the broader culture wars. The Culture Wars do matter very much – which is why James carries on fighting them. But frankly he’d be much happier spending all day shitposting on Twitter, writing the occasional novel, living off the generosity of some billionaire benefactor and foxhunting three times a week. Apparently he’s much nicer in real life than in print.

It takes all types to make a world!




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What the Pension Bill means


The 2016  Pensions Bill was published this week and it will have serious implications for single employer occupational schemes, small-mostly insured executive arrangements and for the burgeoning market for commercial mastertrusts. The Bill will also ensure that occupational schemes cannot short-change consumers through early redemption fees (bringing these schemes in line with personal pensions).

Measures outlined in the pensions bill  will see the Pensions Regulator given tough new powers. Master trusts will need to be authorised by the regulator before they can open for business, with those running the schemes subject to “fit and proper” person tests.

Master trusts will also be required to hold a capital buffer to cover wind up costs, if required, to ensure members’ pots are protected.

In short the pensions bill  will lead to rapid consolidation, a lot of work for advisers and a new landscape which will be more manageable, easier to regulate and better able to provide value for the consumer’s money.

Taken together with the work being done on transaction costs and charges, the forthcoming review of the charge cap and the more general review of auto-enrolment (all due to complete in 2017), this represents a substantial intervention by government in the market economics of UK DC pension provision.

“What took them so long?”

There is frustration , well articulated by a friend in the phrase “what took them so long?”. There could be further frustration as we can be sure that much of the impending change will be compromised by vested interest groups. We might be better ask “what’s taking so long”.

What is worrying is that most of the decisions of employers and individuals to send their money to master trusts goes undocumented. While the master trusts may be able to tell us who their participating employers are, the employers  have difficulty explaining why they made the choice they did. As for individuals using small master trusts to liberate their pensions, the chances are that the decision was taken inadvisedly and the money taken with the express intention of it never being returned.

Jo Cumbo, commenting in the FT asks

But why has the government allowed so many people to join schemes that may not be safe?

The fine line between a Government taking into account the interests of all stakeholders and a Government in the pocket of the IA and ABI, has frequently been crossed . The IA and ABI are to be congratulated for their effective lobbying on behalf of shareholders but not thanked by their customers. It is too early to say whether the May incarnation of this Government is more consumer than shareholder focussed , but my guess that it is – not least for the choices of advisers within the cabinet office.

We are more rather than less likely to see intervention from this May Government than from the Osborne/Cameron incarnation, which proved itself rather more interested in self preservation than government (with disastrous consequences).

The frustration expressed by my friend will continue but not unabated, I believe that the move towards less intermediation and more transparency (of which the transparency task force is a product) will ensure we have the governance framework to make the changes envisaged in the Pension Bill happen.

Specific issues.

If you want a quick synopsis of the Bill, read the DWP press release, I have read the Bill to make sure it does what’s said on the packet and it does.The five key areas where the Regulator will be given new powers will be to ensure that

  • persons involved in the scheme are fit and proper
  • that the scheme is financially sustainable
  • that the scheme funder meets certain requirements in order to provide assurance about their financial situation
  • systems and processes requirements, relating to the governance and administration of the scheme are sufficient
  • that the scheme has an adequate continuity strategy

There has been disquiet among the larger master trusts (most notably NOW pensions) that these measures stop short of requiring master trusts to put up initial capital (a pure barrier to entry) and that the adoption of the Master Trust Assurance Framework is not mandatory (the bigger master trusts would win here as they already have it).

I don’t share this disquiet. There is quite enough devil in the detail behind these requirements to make life hard to impossible for the flakey master trust.

How will change happen?

I see the majority of change being organic within the market. Those master trusts comfortable with operating within the new environment will scale up their sales teams and make it easy for those who aren’t to pack it in. They will probably get the support of IGCs who – while not officially responsible for insured occupational schemes, have a responsibility to consumers to ensure their insurers are treating customers fairly. The obligations on small schemes resulting from the new DC Code of Conduct have made master trusts look the obvious recipients of money from single occupational schemes.

There is a win-win here for the Regulator who simultaneously loses a lot of small problems and sees his few remaining big problems, funded to a level that makes them sustainable and capable of paying for the ongoing governance required.

The impact on the consultancy market will be positive. In the short term there will be plenty of work (even for actuaries!) but certainly for consultants. IFAs have more or less given up on corporate pensions or turned into corporate consultants specialising in this work. The loss of commission has made most IFAs seek solace in wealth management where their skills can still be rewarded.

When will change happen?

The controls will apply to those who are already in the market, as well as new entrants, and are expected to be in force by 2018. But interim measures should see savers protected until the new rules come into force.

The writing has been on the wall for many small master trusts and most small occupational schemes for some time. The Pensions Bill will be a catalyst for change and I would expect to see consolidation from now on. This is the organic change that I spoke of in the past section.

We can expect to see the Bill enacted from April 2017 and enforced immediately afterwards. The Pensions Regulator is already making noises about wanting to have more resources to go with her greater powers, the speed at which she gets them depends on the willingness of the Cabinet Office and Treasury to give the DWP the funds.

But the enforcement of the Bill will only be needed for that part of the market which has not organically changed.

I am intending to devote a considerable amount of my personal time to ensuring that organic change happens, for I know that it is long overdue. The underfunded master trusts are a menace, At best they represent a significant risk to consumers and regulators if they fail, at worst – they are the habitat for scammers who use “trust” as a front for fraud.

The small occupational pension schemes that abound (the Regulator reckons that – including small executive arrangements there are 46,000 of them) would be better off within the sustainable master trusts. There original purpose has long since been lost, their trustees are all but forgotten and their outcomes are dependent on fund structures that desperately need overhaul.

It can’t happen too soon!


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The Blockchain is boring – we aren’t!


If you read my blogs you’ll know that I see the Blockchain as boring and beautiful at the same time. It is boring because it creates a central purchasing ledger and it is beautiful because it puts millions of boring jobs at risk , freeing people up to go and do something more useful instead.

As disruptive technologies go, it is at the top of the list. But why is everyone so scared of it? I reckon most people see Blockchain as a threat – not because it is boring – but because they are. Face it, do you see Blockchain stealing your job? If you do- then you are doing  a boring job! If you want to carry on doing a boring job then the chances are won’t be because the Blockchain will have outsourced your job to a microchip.

If you see the possibility of doing something less boring than validating transactions , then good for you. May I introduce you to the wonderful world of leisure, or at least of creative work where you are not doing something boring but using your magnificent human intelligence to make the world a better place.

You may think I am being facetious, but I’m not. I really do think that people are a lot less boring than their jobs would lead us to believe. Furthermore, if people allowed themselves to believe that, they would be the interesting people their imaginations have always told them they are.

If you don’t know how the Blockchain works, and how it’s likely to blow up all the boring jobs over the next two decades, you can read all kinds of interesting articles (like this one on my blog) and find out.

When you’ve finished this article go to https://henrytapper.com/blockchain-explained/ The URLs so easy you can type it into your browser even if you’re reading this on paper!

If you do know how the Blockchain works try this;- instead of worrying about it, start using it! It is not a human intelligence – it is an artificial intelligence – you can be as rude to it as you like – it will still be your friend!

I spoke with the big boss of an insurance company the other day, she was complaining that her unit costs were too high and she couldn’t make any money out of small pension pots. I told her to scrap all her processes and replace them with the Blockchain. She asked what that would mean for her organisation. I told her she’d be employing about 10% of the people and the other 90% would go and do something more interesting instead.

I told her she’d be able to manage small pension pots profitably.

She said she’d think about it. I hope she has second thoughts!

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“Cash for kite marks?”- we should stick to “value for money”.



At the end of the Pension Minister’s rambling confession at the PLSA’s conference yesterday , he was called to dish out awards to the three occupational scheme which had got the PLSA’s new “Retirement Quality Mark”. The three were all commercial mastertrusts. One is the Nations Pension (Xafinity), another the Lifesight master trust (Willis Towers Watson ) and the third’s the L&G master trust.

It is hard to escape the conclusion that the RQM is just another way for the PLSA to make cash for kite marks – an extension of its range of commercial activities devised to denude employers and their advisers of money that might otherwise go to people’s pensions.

The Retirement Quality Mark is running a ping pong table on its stand at the PLSA exhibition and its website boasts events that include afternoon tea parties.

Enough said.


How many new PQMers were there this year?

While this is all very creative it is not very productive. There is no mention on the website on how much cash you have to fork out to get RQM accreditation. If it’s anything like the cost of PQM, PQM ready and the soon to be launched PQM distinction, then it will be too much for most non-commercial schemes.

The point of these kite marks is outlined in the PQM FAQs , the point is laudable- it should increase confidence in the pension scheme. But the PQM is not being taken up – as far as we can tell from its website  and the absence of PQM newbies on stage, there are no new PQM’ers this year.


The question of cost is an interesting one. The PQM website does not tell you the cost to apply and get PQM and clearly you need to add in internal management time to that overt amount. Reliable sources tell me that the cost of getting PQM is around £18,000. I don’t know whether this cost includes the marketing paraphernalia itemised below!

Pension Schemes have long been healthy trees to tap for sap. But pension schemes no longer have surpluses and defined contribution schemes often don’t even have marketing budgets. The employer struggles to absorb the extra costs of including new workers into the scheme (from auto-enrolment) and may be less than keen to sign up to a quality mark that ties him to an ongoing maintenance expense that includes a commitment to a high level of contributions for both staff and employer.

We know of at least one UK PLC which has withdrawn from the PQM because of the restrictions it places on its overall reward strategy.

But the problem for PQM is not the hard core of PLSA members who will pay cash for kite marks, but the legion pension schemes – trust and contract based, being set up for auto-enrolment. Of the quarter of a million employer arrangements set up this year, not one appeared on the PLSA stage yesterday.

The conclusion is that employers are ploughing every available penny into the funding and operation of the workplace pension and side-stepping the opportunity to pay the PLSA to tell them what a good scheme they have.

They are also ignoring the opportunity to buy at the PQM Shop where a free standing acrylic trophy can be yours for only £150


£150 (+vat!)


PQM under threat?- Perhaps it should be.

The PLSA has announced its intention to do a comprehensive governance review so it can remain (become?) relevant to the UK pension schemes it serves.

PLSA to undergo comprehensive governance review

I would suggest that it looks particularly closely at the various kite marks it is selling and ask itself whether they are doing more harm than good.

Employers need to know they are buying the right thing for their staff. Staff need to know that their employers have done the right thing for them.  They can ask an IFA who will refer them to a Defaqto rating or they can ask the PLSA – who will refer them to their own pension ratings site https://www.pensionsolution.co.uk/.

Other comparison sites are available but – as far as I know, none use the PQM or RQM or PQM plus or the PQM distinction award – to tell whether what they are buying really offers value for money. Of the 4000+employers who have signed up to workplace pensions via http://www.pensionplaypen.com , not one has asked about any of these kite marks in their due diligence.

Value for Money

Value for Money is what Trustees and Employers and workers should be looking for, from the pensions they run/buy/invest into.

Value for Money is something that IGCs and Trustees must consider by law. It is part of the Pensions Regulator’s and the FCA’s requirements to run a workplace pension. You can find out whether your trustees or IGC thinks you are getting VFM by reading their 2016 Chair Statements. If it subsequently turns out that you have got no value for money, you can point to these statements and ask what went wrong. You can hold your trustees or your IGC to account.

These governance mechanisms are there to help the consumer and they are doing so. Every master trust, single employer trust and GPP being used as a workplace pension has to issue a value for money statement once a year.

This is the way forward. Instead of spending a lot of money buying kite marks, employers should use every penny to pay their staff and pay their staff’s pensions into schemes that are Value for Money.


The RQM tea party

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Con Keating asks “what is the purpose of a Pension Fund?”



This article is designed to be read in conjunction with another article published this day. Both articles , together with details of First Actuarial’s FAB Index have been submitted to the DWP’s enquiry into DB deficits. They may also form part of a submission to the recently announced DWP Green Paper into the reform of DB regulations.


What is the purpose of a Pension Fund

In the course of preparing the earlier article on the valuation of corporate DB pension liabilities, discussions with pension professionals indicated that they hold a surprisingly wide range of views on this subject. Many questions appear to have passed unasked or at least not to have been considered widely or deeply. Why do companies opt for the institutional forms we observe; why do trustees accept the arrangements established? What are the costs and benefits of these and other possible arrangements; what motivates the choices made?

By way of starting point, it should be recognised that a sponsor might well retain contributions internally while making a DB pension promise. No fund is in fact necessary. Pensions are paid when due by the sponsor employer. The pension is offered by the sponsor employer as part of an employment contract, and this form of organisation would have the attraction of being simple and reflecting that basic commercial reality. There appear to be no tax or National Insurance obstacles. Some ‘unfunded’ schemes do exist in the UK, but they are almost invariably supplements to other arrangements which themselves assure adequate or even good retirement incomes; for the beneficiary, these are cream for the cake they already have.

In this arrangement the retained contributions constitute part of the capital base of the employer and are shown in company accounts as a book liability. They might serve to reduce a company’s indebtedness to banks or dependence on capital markets. The scale could be significant – for a mature scheme, with terms similar to those commonly observed in the DB world, these might amount to book liabilities of between four and six times the annual wage bill. This would be long-term finance, which may otherwise be either unavailable or unaffordable to the company.

Of course, for a mature scheme with a stable workforce, the payment of pensions to retired workers would place cash flow demands upon the company, and under plausible assumptions, these cash flow calls may lie in the range 30% – 60% of the annual wage bill. By virtue of its high predictability, this is surely manageable.

The objection that the liabilities reported in accounts would be highly volatile and overstate the true cost of this pension capital to the company under current accounting standards may be true and constitute an obstacle to their introduction now, but that objection does not explain why they did not exist in the past.

Most of the objections to the book-reserve arrangement centred on the failure of the sponsor, the likelihood of employer insolvency, and many stated that this was why pension funds existed. Almost none had any informed idea of the prevalence of insolvency among companies in the economy as a whole, or of the Pension Protection Fund’s experience. The few that did offer an opinion seemed to think that it was extremely high and a number cited the alarmist study from the Pensions Institute which forecast 1,000 insolvencies in the coming decade. If the current, low rate of insolvency (0.4% p.a. by number), which is reflected in the experience of the PPF, continues, this number is likely to be 250 insolvencies; a return to normal rates would see 350 occur, and it would take a rate of 1.8% for the projected 1,000 to occur. Such an insolvency rate is without sustained precedent in the post-war history of UK corporate finances. Those with experience of covenant review for their schemes expressed these judgements qualitatively rather quantitatively, using expressions such as good, poor, high or low.

Notwithstanding these observations, all were fully aware of the highly publicised difficulties of a few schemes. Given the catastrophic nature of sponsor insolvency, it is perhaps not surprising that perceptions might exceed and overemphasise the reality. While the prospect of insolvency should be and is a valid concern, this does not, in and of itself, warrant the creation and maintenance of a fund; other arrangements, such as pension indemnity assurance, may prove superior in any of a number of ways.

This form of book-reserve arrangement is common in Germany where there are some 93,000 insured schemes and in Sweden, where the mutual PRI-Pensionsgaranti provides this insurance to the book-reserve schemes of some 1500 corporate sponsors. Indeed, there are examples of precisely this type of arrangement occurring in the UK during the 1930s.

The cost of this insurance has historically been far lower than the costs of maintaining and administering a funded scheme; 0.3% of liabilities versus 2% of assets. These indemnity insurance arrangements pay the full benefits of scheme members, while funded schemes need to be funded to higher levels than full-funding of the best estimate of liabilities if they are to successfully run-off liabilities fully or execute a bulk annuitisation, post sponsor insolvency. With these costs of run-off or annuitisation in the range 120% – 140% of the best estimate of liabilities, this represents an additional annual cost of the order of a further 35 – 70 basis points annually. In reality, few schemes will be so well funded at the point of sponsor insolvency and in most cases members will suffer a reduction in pensions to the levels set by the PPF. Put another way, funding a DB pension scheme is at best an expensive way to mitigate the risk of sponsor insolvency and at worst incomplete.

Companies should, quite rightly, resist the efforts of trustees to fund to these higher levels and incur these extra costs, as should other stakeholders. It is only by consideration of the further effects of the presence of a funded scheme in the balance sheet and income statements that the management of a company may justify funding to such levels, and in general other stakeholders should continue to resist this. It is notable that the majority of these further effects stem from the use of market-consistent discounted present value liability accounting rather than a true and fair view of the company position.

While many other aspects of pension funds have been discussed in the academic and practitioner literature, these are incidental consequences of the existence of funds rather than motivations for their creation. Take the case of market liquidity: it is undoubtedly true that the presence of pension funds in traded securities markets enhances the liquidity of those markets for all. However, this particular benefit does not come without cost to the fund; by investing in liquid securities it is both paying the cost of liquidity and accepting the unique, high risks of the most actively traded securities in a market.

With this large a cost disparity between buying insurance cover and operating a pension fund, some additional motivation is needed to justify the wide-spread use of pension funds. Put simply, if the concern was merely with insolvency and its consequences, the scheme would simply buy pension indemnity and have this issue resolved cost-effectively and fully. Indeed, it seems likely, if these were the sole concerns and motivations, that we would by now have seen regulation of the credit standing and sustainability of companies permitted to offer authorised DB arrangements, as well as limitations on the generosity of benefits awarded by a company, notably with respect to the accrual rate embedded in awards. Indeed, if this were the complete motivation, the PPF would be expected to offer full, rather than reduced benefits to the members of schemes whose sponsor had failed.

“… when you have eliminated the impossible, whatever remains, however improbable, must be the truth”[1] This, then brings us to the sponsor employer. In the earlier companion to this article, Pension Liability Valuation, the two elements of the cost of DB provision, contribution and accrual rate cost, were distinguished. In contrast to the apparently popular and prevalent view that the pension fund exists to provide security to scheme members and to pay their pensions on time and in full, this article takes the position that the pension fund primarily exists to offset or defease the accrual cost of occupational DB provision to the sponsor employer, and only incidentally to offer a degree of security to members.

With this motivation for the existence of a fund, the responsibility and management of the fund rightly rests with its prime beneficiary, the corporate sponsor, and only secondarily with the trustees as the agents and representatives of scheme members. Moreover, this viewpoint goes far in explaining how the well-intentioned but fund and security-centric regulation could have so disastrously backfired and led to scheme closure and widespread cessation of provision of DB pensions. Finally, it would also explain many of the perversities of investment and scheme management that have developed in the past decade, and explain why schemes outside of these regulations and reporting standards have not embraced these techniques to anything like the same degree. With this worldview, the objective function for investment management is simplicity itself; it is to achieve sustainably the accrual rate or better, a well-defined target. Realisation of this accrual target objective, in turn, makes pensions secure for members, and facilitates the continuing provision of occupational DB pensions.



[1] Conan Doyle, The Sign of the Four.

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