Steve Webb

Torsten Bell

Guy Opperman

Steve Webb has some skin in this game. He knew how to hang about to see things through

Steve hung around for very nearly five years as Pensions Minister and it might be argued that he was too good to be fired but a Liberal who could not be promoted. Webb , like Bell came from a think-tank and like Bell, came to the job with a big reputation in pensions.

But Bells and Webbs are hard to find and I don’t think there is a replacement for Bell who could slot into place overnight. After Bell came the short stays of Altmann and Harrington and after the equally long lasting Opperman we got four prime ministers none of which stayed long enough to understand what pensions needed.

People tell me that much of the Pension Schemes Act were half-written by the time Bell arrived in post, this may be the case but I don’t suppose that we would have neither have got a Bill or an Act into place without a pretty committed Pensions Minister.

What happens to Torsten Bell , were he to be promoted from Pensions Minister, then we would be reminded of what we had lost.

My interest, the changing CDC  has taken on its vital second stage and we have been promised a third stage “Retirement” CDC (rather than workplace CDC) and have the draft of legislation by the end of the year ( a promise Bell made to my question in March this year). There is secondary legislation to be written , submitted to parliament and debated before any of the measures of the Pension Schemes Act impacts on what pensions do.

This is a difficult legacy for Bell to leave a successor and my hope is that Bell has a role going forward that allows him (from his elevated role) to be on hand to sort out problems for his successor.

I don’t think anyone should stand in the way of Torsten Bell’s progress career wise. We have been privilidged to have had him for the two years he’s been in place. Not many Ministers have stuck the job for as long as he has.  Few have progressed their careers when leaving the role.

Webb and Opperman are both (in different ways) making their mark in pensions but outside of parliament.

Gregg McClymont, who was Webb’s opposition when he was in post is the one who springs to mind, being an opposition pensions minister is hardly going to win you friends when presenting your CV.

The other Pension Minister I should not leave out is Ros Altmann who remains not just an advocate of better pensions but a formidable voice in the House of Lords.

That puts in perspective the importance of having a good pensions minister, I was not interested in politics when selling personal pensions but the 10 Labour ministers that preceded Steve Webb had some good uns. Andy Young is old enough to remind me of the last Minister before Bell to see in and out a Pensions Commission. Whether we see Bell in place as Pensions Minister when Pensions Commission delivers its final report looks as unlikely as seeing Keir Starmer around for the report.

This report was put in place by Bell and I said last year when the Commission opened that it was kicking the “too hard” into the long grass so that the Pension Schemes Bill and CDC could be enacted and implemented. I had a vague hope that Bell would stick around to see CDC, Pension Schemes Act and Pension Commission report over the line and I still do.

To get so much from a Minister in one parliamentary term deserves applause. Torsten Bell has achieved 2/3 of his big jobs for private pensions in two years and we should be thankful.

NEXT and WAS don’t go well in the same sentence. Can Aegon really go anywhere but “legacy”?

There are two matters in my mind. The first is how this impacts on Aegon’s clients. Aegon is what became of Scottish Equitable which was , for a while, a very reputable life company in the IFA market. It paid high for its business and IFA’s loved getting up to 150% of Lautro, but it was not to last. Aegon took on the mutual and Aegon has never quite made it in any private pension market. It is not an oh so fashionable bulk annuity or retail pension provider.

It has a master trust but is neither quite there in workplace pensions and will have to eat its personal pensions to get fat enough to make the 2030 and 2035 cuts as Aegon is not winning employers to it as an occupational muti-employer provider. Aegon has disparaged CDC following a bad time with the Dutch version. In short I cannot see Aegon doesn’t have a legacy that clients can reach out to, the glory days of Scottish Equitable are over and no replacement has been found.

The second worry I have for Aegon is , as Gordon Aiken is pointing out, the life company has some very much more dynamic competitors. Lloyds Bank is clearly going to support the lame duck of a master trust it owns with Scottish Widows.  Forcing the Lloyds Bank Staff work pension into its arms without much glee from what I can see from Lloyd’s Bank staff. All the same , it will give Scottish Widows some relevance as a master trust and with Scottish Widows having a huge book of legacy personal pensions, they will not have problems with scale- not with an override at their disposal to move personal pension pots into the master trust.

As for Standard Life and Phoenix, this is a business that appears a bit skint at present but it is the only one to have the capacity to write annuity business. To Standard Life, Aegon will look a legacy business as it moves forward on many fronts, I’m not so sure it’s got the appetite for more of Britain and especially Scotland’s heritage but as mentioned above, it is very good at it.

Is Aegon really the prize I grew up when I started out in the 1980s? What has happened to see it hung out to dry by a company to be named in future TransAmerica?

Are Aegon’s top staff going to hang about a company that has made it known it wants to receive offers by February of next year? The investment business is not coming with the life company and this does not sound a happy company to be travelling with.

https://www.bloomberg.com/news/articles/2025-12-10/dutch-insurer-aegon-moving-to-us-to-rebrand-as-transamerica

“After 20 years in the savings industry, it’s no surprise I have a healthy retirement fund. So if I’m taking my lump sum early, should you do the same?”

Tom McPhail

Thursday October 02 2025, 12.05pm, The Times

Thank you Times and Lang Cat

and more serenity, courage and wisdom here….

Michael Mainelli – “DC pensions – the biggest lie in finance!”

A recent City Mayor called the DC pension the biggest lie in finance, he is right but the statement may not be applicable for long – thanks to Nest – who look like being the first DC pension provider.

I published a sly pension on a Friday afternoon when most sensible people were watching the golf and/or having an early drink. I think it’s the most explosive blog I’ve published in a while because it focusses on the DC pension as a new entity which does not look like an annuity (although buying annuities to cover longevity past 85 and it is backed by money which is borrowed from the DWP and ultimately you and me). It is , as one of my readers puts it- “a social pension”. This is already getting the hairs on people’s backs up.

Byron McKeeby is back to his hobby horse that Nest has been underperforming more aggressively invested pension saving pots, but that is by the by. More interesting is the challenge to Nest’s capacity to stand behind pensions for its 14m savers. Byron (an alias) has this to say (my response in red)

The balance sheet still shows net liabilities of £913m.

NEST (National Employment Savings Trust) is expected to fully repay its loan to the Department for Work and Pensions (DWP) by 2038.

The scheme has already begun repaying the loan and delivered its first profit, as reported in its latest annual report. The loans are expected to be repaid from protected surpluses in future years. This is factored in to the pension plans; protection of payments will happen concurrent to repayment of loans.

The NAO audit report only confirms “ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.”

Unlike PLCs, which usually provide a viability statement going out five years, Nest’s own going concern statements go no further, although they refer to forecast estimates which, for example, assert that the DWP loan will be repaid to the UK government ahead of the repayment profile outlined within the loan agreement.

We assume that there is more money coming in because there is more money in pots than (conservatively) expected. More not less Byron!

Perhaps there is scope to repay some or all of these fixed loans earlier after all?

It looks as if there is scope but would you repay loans when they are at fixed interest rates lower than you can get from your money in the bank?

But in the meantime the WACC interest rate is creeping up ever so slightly. This suggests the first instalment repayments, as I’d expect, for the oldest loan tranches with lower interest rates ruling at the time of peak quantitative easing?

I’d agree with that, but is this material?

Further analysis of the DWP loans is not given in the annual report, unless I have missed it. The document, like so many these days, is nearly 140 pages with lots of suitably diverse photos throughout, yet the financial statements don’t appear till page 100.

More analysis of Nest’s liquidity, which is expected of pension schemes under the proposed new SORP, would help this reader.

And we have only just begun to think about the whole question of DC provider’s capacity to provide the covenant for the pensions. Will others apply to do the same or will external capital be required (capital backed journey plans are central to the superfund regime, will DC pensions be governed by superfund rules or will they be given special treatment as DC pensions? Nest seem to be getting on with things, they have begun procuring the longevity insurance that suggests they aren’t awaiting a stack of secondary legislation, they are looking to get on with things NOW!

It looks to me that Nest has been working with whoever in the DWP and Treasury wanted to see DC pots turn to pensions through decumulation pensions.

Nest do not seem to be shy about what is going on. Paul Todd is around on 29th July to answer questions on Pension PlayPen and I will be making sure they are asked, because these questions about capital (and Byron’s moans about performance) need to be heard.

There is another confusion which needs to be ironed out and here I am quite clear that the market is getting it wrong and Nest getting it right.

The purchase of a bulk annuity backstop to protect the pension from longevity of pensions (a blessed thing for people by the way) is going to be paid for by Nest out of its reserves and is insurance for Nest. It is quite usual for defined benefit pensions to take out such insurance as it limits its liabilities for a fixed amount of money which Nest say it has calculated. Those of 85 won’t feel any difference, they will not be asked to sign paperwork, they won’t need to go for medicals, this is between Nest and the insurer and the only difference for pensioners (85+) is that they won’t be able to take a capital sum out in exchange for losing future income (losing pension freedom). This is explained in the earlier blog.

My friend John Mather thinks that at 85 people are kicked out of the pension – this is wrong and it is a misconception that has been created by the pension press. Here is John

The fundamental contradiction in age-limited pensions needs to be killed off a temporary annuity does not cut it. . A pension that terminates at age 85 fundamentally violates the basic principle of retirement income security – that it should provide guaranteed income for life, regardless of how long that life may be.

The proposal becomes even more problematic when you consider the demographics. If 30-50% of the current working population will live beyond age 85, this means that potentially half of all pension recipients would face a complete loss of their primary retirement income precisely when they are most vulnerable – at advanced ages when they have no ability to return to work, when healthcare costs typically peak, and when they may need expensive care services.

I can only say it again, that is not what Nest’s pension will do. Nest will provide a social pension which people can opt-out of till they get to 85. I very much doubt that there will be a rush for cash leading up to 85 or that the cash offered – after 20+ years of pensions have been pai- will be large. Nevertheless, people who so treasure pension freedom can exercise it under the rules spelt out to me.

The lie of the DC pension which we face today could be a thing of the past, thanks to Nest, thanks to the Pension Schemes Bill and thanks to existing rules that Nest are using. Paul Todd is adamant that Nest are right and if they are right , others may follow where the door is open. People can choose to do nothing and default into a DC pension, they can choose to be in a DC pension, they need no longer be in an annuity. Annuities play a part of the answer “an insurance against people living too long” but they are only a part of the pension and of no importance to the pensioner who never gets to buy one.

A 10 Year Infrastructure Strategy?

Or financial engineering to reboot PFI with limited impact?

Thomas Aubrey & Con Keating

When any new government strategy is published, it’s easy to be bamboozled by the government’s good intentions to fix things – alongside big investment numbers that inevitably are referenced to make the strategy look impressive. While governments do generally have good intentions even if they get things wrong, the referenced big numbers are rarely that relevant.

For example, the government claims it is funding at least £725 billion for infrastructure over the next decade. This number seems to be merely the cumulative investment across all departments and regions over time. But what matters for future growth is additional investment. Furthermore, claims beyond what has been allocated in the Spending Review should mostly be ignored as, if the economy does not perform well and there is less inclination to raise taxes, spending may be cut. In addition, future parliaments can overturn such commitments which is the reality of relying on central government funding for projects.

Indeed, one reason why the UK’s investment has been so much lower than most other OECD countries is because of its excessive centralisation of financing investment. This is not the norm across Europe where they invest far more in infrastructure and housing than the UK. This centralisation has enabled the UK government to continually chop and change the spending allocations as the economy is buffeted by external factors.

What ultimately matters though is whether the central financing strategy will improve delivery, and that analysis should be based on practical examples where it has worked either in the UK or in countries that have similar characteristics to the UK. While there are some positive aspects to the Infrastructure Strategy, there are also some serious concerns when it comes to governance, delivery and above all value for money for tax payers.

Let’s start with the positives.

First, the operational reforms across the planning system in the planning and infrastructure bill should deliver a faster, more flexible permissions regime for major infrastructure. In addition, it should reduce delays from Judicial Reviews of major infrastructure.

Second the shift towards integrating physical social infrastructure across different sectors and geographies to address both national and local needs is welcome. The strategy recognises that homes must be connected to water, wastewater, energy, transport and digital networks and that without this infrastructure, the homes that the country needs will not be delivered.

Third there is a recognition that the regulation of private infrastructure including water and electricity needs to change to encourage more investment.

Finally, the government has indeed increased capital investment. March’s Spring Statement indicated the government would invest an additional £2bn per year on top of the £20bn per year allocated in the Autumn budget over the next five years. In addition, the government has developed its Financial Transaction Control Framework (FTCF) with the aim of leveraging public expenditure to crowd in private capital. However, given the scale of the infrastructure deficit, which according to EY, is a shortfall of over £700bn the additional investment is unlikely to be as transformative as it appears.

This is where the positives end. The report remains weak on a number of important areas.

First, its response to criticism by the National Audit Office (NAO) that Whitehall has a governance problem appears to be additional bureaucratic oversight. The proposed solution in the Strategy is to embed the newly formed National Infrastructure and Service Transformation Authority (NISTA) into projects “to provide enhanced assurance” which “will complement departmental control”. This is alongside “implementing a bespoke approach to governance and funding for current and future mega projects” set out by the Office for Value for Money. But this approach ignores one of the most important principles in improving governance, which is that the delivery body must also be responsible for funding – typically referred to as ‘skin in the game’. An additional governance layer can be introduced by the delivery body financing directly from the capital market as investors will constantly assess progress and risk, with market prices signalling concerns, anticipating success or failure.

Instead, the government continues to rely on centralised financing for delivery agents who have limited skin in the game and who effectively utilise the OPM principle (other people’s money), which is not widely recognised as a driver of good governance. Indeed, poor delivery is one reason why the UK public finances are under so much pressure as so much public money is wasted as continues to be amply demonstrated by HS2.

Second while the intention of the Strategy is to integrate transport with housing, the allocation of  the £15.6 bn transport investment was not closely integrated with housing. Hence housing becomes a potential additional benefit rather than a fully integrated component. So there needs to be a much better alignment of theory and practice.

This leads on to the biggest issue with the Strategy which is the financing of projects. While the government rightly recognises the essential role of private capital and the need to attract investment, the government seems to think its issues can be resolved if they can use public money to support private capital or what it calls a public private partnership (PPP). In essence, what the Labour government is doing is reviving the Private Finance Initiative (PFI) approach to investment. The PFI was closed down by the Conservative Government in 2018 as not being of sufficient value for money for taxpayers following severe NAO criticism.

The NAO’s recent report which synthesises prior learnings from PFI projects notes that the OECD “found no evidence of higher quality infrastructure being delivered in advanced OECD economies by using private finance as against public procurement.” Public Private Partnerships (PPPs) are usually delivered on-time and on-budget – but the costs are significantly higher.

This is because private finance is more expensive than public finance as investors expect to earn a premium for the risk taken. The NAO cautions the government to “consider how the risks and gains of investments can be shared equitably with private investors,” as private investors have received returns as high as 30% per annum. Despite the overall risk for investors on PPP projects being low, they deliver typical returns around 9% pa.

The risk is low because the government does most of the derisking  as project revenues are based on the availability of assets and the government underwrites the payment. In essence, the government derisks the project thereby enabling investors to meet their profit thresholds  For example, the NAO noted in its review of the Thames Tideway Tunnel that there are significant risks on the taxpayer if it goes into administration. Inevitably, some privately financed projects may fail which is why they are a contingent liability. This leads on to the important point on fiscal illusion and financial engineering of the government balance sheet.

Most private finance projects have been off balance sheet and hence are not included in the public sector finance statistics and therefore do not impact the fiscal rule. The NAO recommends the government to make decisions based on commercial and operational objectives, rather than using accounting classifications as a way to get round fiscal rules. Shifting immediate costs off balance sheet and committing public funds to long-term obligations “can obscure the future impact of government-funded PPP projects”, and often the government department ends up with a far more expensive project which is why many government departments have attempted to get out of their existing PFI contracts.

Although it is plausible that new PPP projects could work for smaller scale or discrete projects, it’s hard to see how this might work for say new urban extensions and the necessary infrastructure required to unlock large amounts of housing – a challenge that the New Towns Taskforce is currently grappling with. Indeed, the NAO has noted that between 1992 and 2018 when PFI operated, it only ever financed about 10% of the infrastructure – hence it is just not a scalable  solution. The government’s own numbers indicate that this new PPP grounded in the FTCF will provide only limited additional investment.

Financial Transactions (FTs) are described by the Government in the following way: FTs allow government to invest alongside the private sector, through equity investments, loans and guarantees. The five public financial institutions authorised are the National Wealth Fund, British Business Bank, UK Export Finance, National Housing Bank and Great British Energy. The financial capacity of these institutions is shown below which is taken from Table 2.1 in the 10 Year Strategy. Although the Strategy provides an additional capacity of £56bn over the next five years, the recent Spending Review forecasts that this will only result in an additional £26bn over the next five years, where an “appropriate risk-transfer can be achieved and value for money.”

An additional £26bn of capital investment is unlikely to generate much more than an additional £26bn from the private sector given that the FTCF is expected to be utilised only in cases where there is a market failure. Hence the leverage effects are unlikely to be that significant – assuming that the projects actually met the necessary criteria. This situation will be further complicated by the new Industrial Strategy and the demands of private sector investment.

If PPP / PFI projects are not scalable, the government needs to ask itself why is it betting on this approach? There is very little evidence there is a paucity of capital. What the UK has consistently lacked are good-quality, local and regional projects that generate a positive real return on capital. And this is largely because we don’t integrate our projects across the built environment and exploit funding sources such as land value capture. Instead the UK remains wedded to its overcentralised model of handing out grants.

In addition, the UK has diverged from internationally recognised accounting standards that were designed as part of the Maastricht criteria for eurozone governments to maintain fiscal discipline while supporting growth. This divergence means that where UK public corporations can self-fund their projects from private capital, they are considered to be on-balance sheet and therefore impact the fiscal rules – whereas in Europe they are rightly considered off-balance sheet. The reason why self-funded public corporation liabilities are considered off balance sheet is that they are a contingent liability – exactly the same as a PPP.

The UK treatment of public corporation contingent liabilities being on-balance sheet while PPP contingent liabilities are off-balance sheet is not only an inconsistent treatment of the recognised accounting rules, but it crucially constrains growth.

A comparison of the market funded contingent liabilities which is related to investment (as these liabilities have created assets) between the UK and France, Germany and the Netherlands is revealing. France, Germany and the Netherlands have many public corporations that issue debt for specific projects and are paid back by market sources of revenue, not taxation. This includes the debt of development banks such as BNG in the Netherlands and KfW in Germany which often provide long term infrastructure loans for projects. These banks fund themselves via the capital market. They are not funded by tax payers.

France, Germany and the Netherlands have market funded liabilities of between 68% -87% of GDP that in turn drives investment and growth without recourse to tax payers, and thereby reduces pressure on the public finances. In the UK, the liabilities are much lower at 33%, so just under half that of France. But this figure is largely a function of Nat West Group which at the time was deemed to be under public control. Without Nat West, the figure is just 2%.[1]

In essence, one of the most tried and tested ways of funding infrastructure investment to drive growth without placing additional pressures on tax payers and the public finances has been shut off for the UK. It is hard to fathom why the Treasury has gone down this route. Perhaps they believe that the European fiscal rules as set out in the Maastricht Criteria are reckless? But these fiscal rules were largely drawn up by the Bundesbank, and it would be hard to argue that the Bundesbank is a paragon of fiscal recklessness. Besides creating rules for the public finances, the other central pillar of the German social market economy is growth and the prioritisation of investment. This is what the Bundesbank successfully achieved in these rules, and the UK has subsequently rejected.

The decision by the Treasury to move these liabilities on-balance sheet is akin to making a unilateral decision for the UK banking system to have twice the capital requirements of European banks. This will constrain growth as banks will lend less. The data above indicates the UK has become an international accounting pariah of its own making, and one that deliberately constrains growth.

This low level of investment led the Treasury to develop the Financial Transactions Control Framework – which is largely a financial engineering tool to get around the problem of on-balance sheet classification that the government created by its unilateral decision on accounting standards. As described in Table 1, the Treasury has enabled government bodies to create financial transactions (FTs) – which must be backed by allocated departmental capital expenditure limits. The idea is to use these FTs to support its PPP and provide capital that in effect is matched by the private sector. The creation of the new fiscal rule (PSNFL) permits the Financial Transaction to come on balance sheet net of its liabilities, thereby placing less pressure on the fiscal rule. This looks a lot like financial engineering that is merely creating a fiscal illusion.

On the one hand as noted above, some limited additional investment is likely to come out of this financial engineering, but the scale of this investment is still constrained by existing departmental capital expenditure limits. So it will not be that transformational, and won’t be particularly useful when it comes to financing the next wave of new towns and urban extensions. These projects require large amounts of infrastructure to be installed upfront and the existing departmental capital expenditure limits will not enable this. This is why the last Conservative Government started pursuing the land value capture model as a strategy thereby accessing up to an additional £10bn per annum for infrastructure funding, unlocking new land for housing.

This strategy culminated in the transformational changes in the Levelling Up and Regeneration Act 2023 enabling development corporations to acquire land at values close to use value thereby enabling the successful new towns funding model. Development Corporations would in effect become public corporations that pay back their liabilities using hypothecated cash flows, and hence are a contingent liability – the same as PPP – assuming the UK decided to become compliant with internationally recognised accounting standards.

Alas, the Labour government appears to have rejected this policy, which is odd given it is the basis for the successful urban redevelopment across Europe over the last 50 years, as well as garden cities and new towns in the UK. Furthermore, this approach could have funded the East West Railway. But instead we are loading the tax payer with future liabilities, which will of course constrain growth.

Why the Labour government is so against public corporations raising debt using identified future cash flows to pay back private investors which is the model the Victorians used, is curious. Indeed, if the current Treasury rules were imposed on Victorian England then none of that infrastructure would have been built!

The chancellor could have unleashed billions in investment for large-scale urban extensions led by public corporations financed by private capital and funded by market agents by following internationally recognized accounting standards. Instead the government will continue with its centralized model of infrastructure investment via gilt financing which will not only curtail growth but will also place greater pressure on the public finances -alongside some clever financial engineering for good measure.

[1] It is worth noting that the Germany figure is somewhat inflated by its public sector banking system

Thomas Aubrey

Con Keating

I have been lying awake worrying about several pensions I know that are in an “end-game” that will lead them to firstly buy-in of annuities and then “buy-out” of the scheme by an insurance company with a “buy-out”. Such is the weight of opinion that ridding employers of their pension liabilities that there is little opposition from those whose pensions are to be swapped for promises from an insurance company.

My mind goes back to the early days of the mania for Defined Benefit transfers , let’s put an arbitrary date of 2015. Organisations such as Tideway had created a compelling case for “CETVs”  by making them free for people with defined benefit pensions to transfer to wealth management programs, the “free” was of course nothing of the sort, the cost of the operation was simply born by the money transferred which became an ongoing source of income for the wealth manager. This started as a program for the wealthy who would , for a range of reasons, prefer “wealth” to pension , but ended with disastrous transfers away from pensions , the most notorious of which was at Scunthorpe and Port Talbot.

We know the transfers from the British Steel Pension Scheme as a breakdown of good advice and its replacement by appalling behaviour by regulated advisers. I know because thanks to Al Rush I was witness, so was the BBC and the FT. It took the FCA a year till they had cottoned on to what was happening and it took Frank Field and his parliamentary group to show up their lethargy.

I bring it up, because it was the similarity between the failures with BSPS and other pension schemes and what appears to be going on with similarly well funded pensions today.

The seeming healthy state of pension schemes has led many companies to demand that their trustees release members from their fiduciary management and deliver the pensions to third parties. The third parties are not wealth managers but insurance companies but transfers are being made with equally little questioning of whether it is in the member’s long term interest. To buy out, a pension scheme needs to meet not just the buy-out price but the substantial costs of the transfer in terms of advisory fees. Much of this can – as with previous transfers, be borne by the fund and of course the transfers to insurers are meticulously within the regulations both for pension schemes and insurers. They have advantages to companies in terms of what shows on the balance sheets, everyone is a winner except….

Except that the cost of buy-out is born out of surplus funds to the need to run the scheme (known as technical provisions) and the question of who owns that surplus is conveniently being ignored in many cases with no discussion with deferred and active pensioners who might be beneficiaries of surplus paid to them. For instance they could get full inflation protection in years when inflation is high. While pension funds have trustees whose responsibility is to members to do what’s best for them, annuities are managed by insurance company who have no such obligation.

There are of course cases where annuities can be a better bet (for instance were a pension to go into the PPF because the sponsor can no longer afford it). There were also many cases where CETVs were taken rightly by people better suited by them. But many of the transfers that happened at Port Talbot and Scunthorpe should not have happened and there was no proper documentation from advisers to suggest they paid any interest for the member.

There is supposed to be an obligation on advisers involved with bulk transfers of members from pensions to annuities to explain the advice. This is known as TAS 300 and it is part of the internal regulations of the Institute and Faculty of Actuaries, I have written about it before so to summarise it is supposed to explain why (in such cases) a transfer is in the general interest, this has to include the interests of members. In the DWP’s response to questions from the Work and Pensions Committee makes its clear that it is concerned that surpluses are paid not just to advisers and back to sponsors but to members.

In my view there is insufficient attention being paid to the needs of members when buy-ins and then buy-outs are happening and I suspect that as with CETV transfers, the questions will too often arise after the transfer has happened. Though an institutional transfer of members benefits from a pension to an annuity may seem different to the taking of a CETV from a pension to a SIPP, the impact may be the same, a loss of a defined benefit with unconsidered upside to members.

I didn’t sleep much for the second part of last night and am still feeling concerned. This isn’t a nightmare, it is for real. Last year over £50bn transferred into annuities from DB plans in the name of “de-risking”. At some point, a consumer body, be it media, regulator, union or Government will ask very real questions about the benefit of bulk purchase annuities. I have been there once and I sense we are getting there again.

Advisers ought to be paying a lot of attention to producing TAS 300 reports and sponsors and trustees should be paying a lot of attention to what they say. Otherwise consumer bodies – arguing for the side of members – will come back to bite them.

The situation for development of pensions today (April 18th) is expectant but not active. We await the publication of a Pension Bill by our Minister and his DWP, this is some time to come in the next month and while it won’t be definitive, it will be a good way to steering the future. The PLSA Edinburgh speech and the questions answered by Torsten Bell tell me that this will not be a retail Bill for the DC industry but a Collective Bill. What I mean by “collective” is that it will concentrated on changes instituted by “default” and measures that people will need to opt-out or be impacted by.

We know that this will not be a Bill to take on the question of “adequacy” by increasing contributions demanded of employers/employees into workplace pensions. It will no doubt complete work on improving value for money assessment on the saving of pension pots but the major job of VFM is likely to be extended so that people see pensions as a lifetime experience of saving and spending their savings.

Here is likely to be the most radical impact for the pensions industry and it is where I am putting my personal efforts as Chair of AgeWage. AgeWage means a wage in later age – and my job is to help the schemes I work with to be that more efficiently and more effectively. I do not mean extend the work of wealth managers to become mass market – this will not be financially viable for them or viable for ordinary people.

I mean instead that helping DC and DB schemes that want to help their members to convert DC pots to pensions , to do so. In recent blogs I have emphasised that DB plans can – though embracing the idea of Shared Ambition Schemes (the with-profits partially guaranteed type) and through CDC (the non-guaranteed and pension ambitious type).

I hope that the DWP are reading this and TPR, it is not my intention to be subversive but to publicise the thinking of many people who I work with. Most notably Edi Truell who has converted his super trust , pension super fund to a Shared Ambition Scheme backed by capital from his financing background.

But I also see work in this space from a DB scheme run by Peter Cameron-Brown to offer whole life pension saving and potentially DC conversion to pensions at retirement.

And most importantly for the country, I see signs that Nest wants to convert to a Shared Ambition Plan for 13m of us!

This is very much “before the storm”. Most of this year has been for me about helping Edi reposition himself to be financier and investment guru, he has brought in Ken Hogg to manage the delivery and he is working with my good friend Mark Johnson on doing that.

We will be working with good people in actuarial (Derek Benstead) , in communicating with working people (Terry Pullinger) and in good governance (Sam Ashraf of PI who is Pension Super Haven Trustee. Our intention is to help firms as diffuse as mentioned above to deliver to members of occupational pensions and (regulators willing) to those whose wealth is in SIPPs (and shouldn’t be).

This is very much the calm before the storm. My colleagues in AgeWage are reaching out to others we admire in delivering solutions in the third decade of the 20th Century. I include Sam Seaton and Richard Smith (formerly of Money Hub), my friends at Collegia, an AI driven workplace pension for new companies and my very good friends at Retirement Line which I regard as one of Britain’s best run consumer companies offering value for money.

As many will know, I have spent much of my time in the past six months in hospital (Kings, UCL and Princess Grace). I have two afflictions , one to the brain resulting from a bicycling crash and one to my bowels resulting from an expanding prostate, embolisms on my lungs and chronic haemorrhoids.  Please bear with me when you meet me, I often make mistakes with words and am distracted by pain.

However, I am not going to stop in my quest to change our view of pensions in the years to come. It is not enough that we consider pension planning as ending when we want our money (when we abandon each other to pension freedom). Nor is it enough that we abandon measurement of the value we are getting for the money we commit to our later days.

Of course we need to find new and better way to measure value as we see more of our money invested in private markets and start thinking of pensions as “whole life” and not something that stops when we retire!

I am excited that the calm we are in right now, will burst into a savage storm of change when the Pension Bill/Act are upon us. Hopefully I will be fully recovered by then and you will still be reading my blogs- thank you.

It is one of the most curious and intriguing papers produced recently and it’s produced by Willis Tower’s Watson.

While DC savers remained in good shape , investing in long-standing assets which have returned growth, DB plans have suffered low returns from bonds and the disastrous fall in values that occurred when assets had to be sold off to meet calls in October 2022.

Here is a summary of what you can read in full here.  I’ll leave you to ask yourself whether DB has done well by taking risk off the table.

UK pension assets declined in value over the past year, the only major pension market to do so, according to the Thinking Ahead Institute’s latest Global Pension Assets Study. 

The UK remains the fourth largest pension market — after the US, Japan and Canada — but with a sizeable proportion of these assets in defined benefit (DB), rather than defined contribution (DC) schemes growth has been more muted when compared to other nations. 

Globally, pension assets rose by 4.9 per cent last year, to reach a record $58.5 trillion (£47.12 trillion). All major pension markets recorded positive growth apart from the UK, where the value of pension assets declined by 0.7 per cent over 2024.

The TIA said this decline is consistent with long term data. The UK recorded the slowest growth among the largest seven pension markets over the last decade, with its global share of pension assets declining from 8.8 per cent of the largest 22 markets in 2014, to 5.4 per cent in 2024.

Iain Clacher & Con Keating

A Response to the AgeWage blog
“Surpluses are Ephemeral”

The Pensions Regulator’s paper of January 27th “Estimated DB scheme universe funding splits and assets under management” offers the following asset, liability, and funding levels of the universe (4,818) of DB schemes.

Commencing with assets TPR offers, to which we have added the PPF asset estimate at September 2024.

Table 1: Overall Scheme Assets

at September 2024.

The lower value of PPF assets is consistent with earlier PPF estimates and in close approximation to the asset estimates produced by the quarterly ONS Financial Survey of Pension Schemes.

Our analysis of the previous periods of ONS and PPF data releases suggests that the PPF figures will over-estimate assets held by approximately 5% relative to the ONS survey results.

This would lead to an estimate of circa £1,106 billion, and the difference with TPR’s estimate would be staggering at £134 billion. This change alone would reduce the stated overall surplus from the £207 billion reported by TPR to just £73 billion.

As followers of our webinars and blogs here and for the Chartered Institute of Securities and Investment will know, we have also raised concerns over the large reductions in the Technical Provisions (TP) liability estimates produced by TPR in their most recent revisions of scheme data.

The March 2023 and 2024 data are shown in Table 2 below.

Table 2: March 2023 and 2024 liability estimates for TPR and PPF

TPR’s revisions to estimates of scheme liabilities at March 2023 was massive, a lowering of over £100 billion from their original estimate of TPs of £1203 billion to £1094 billion. There are also instabilities evident in these estimates over time. We show below the latest TPR liability estimates (September 2024) in Table 3 below.

Table 3: Liabilities at September 2024

The discount of the PPF liabilities estimate to TPR’s technical provisions estimate here is low, just 9%, when it would be expected to lie in the range 10%-15%.

We have also extracted the distribution of schemes from the distributional data supplied by TPR in their paper. The concerns we have with respect to both TPR’s estimate of assets and its estimates of liabilities allow us to recast TPR’s results reducing assets by £79 billion and increasing liabilities by £70 billion. This produces some very significant differences in funding levels and surpluses (as one would expect). We have used a uniform recasting across the distribution of schemes. While this may have effects on our results in distribution, it will not affect our results for overall effects.

Table 4: Recast overall surpluses September 2024

It is worth noting that there is an overall deficit on a low-dependency basis, implying that sponsors will face net demands for further deficit repair contributions nor will they have assets available for return to sponsors.

As Table 5 shows, the surpluses of schemes in surplus now decline heavily, and the declines increase in significance as the liability standard grows more onerous.

Table 5

Finally, in Table 6, we show the effects of this recasting on the numbers of schemes in surplus and deficit.

Table 6

While it seems a self-evident truth that recasting assets as lower and liabilities as higher will generate this result. This is to miss the point.

For TPR to still be overstating assets by many billions, despite having reduced their estimate of assets by many billions already, and at the same time unjustifiably reducing their liability estimates by such significant amounts, should be the subject of robust debate.

This would be true in normal times, but the return of surpluses, if they exist seems to be a significant part of emergent pensions policy and one of the areas where Treasury hopes to find a source of much needed investment.

This analysis challenges the widely held narrative that scheme surpluses are large enough, if made freely available, to make a material contribution to the investment problem. We do not believe they are.

By contrast, abandoning the pervasive culture of derisking and encouraging all schemes to invest fully in a diversified and productive manner would make the kind of difference that the Treasury is looking to achieve.

Sarah Smart is a pretty special person, chair of our Pensions Regulator she gave the VFM podcast 90  minutes of high power insights into herself and her role at the Pensions Regulator.

She has lived through the death of Fraser and she has found a way back. This was not talked about but I want to spell out the admiration I have for moving on, Fraser will be proud of her.

Fraser died up north as did my superintendent’s husband (Bishop of Oban). If I could set up a lunch with two other people it would be Jenny Smith and Sarah Smart. Learning how to live with the death of the one you love most is something I’d love to hear these two fine women talking of. As you can see from these photos, they are peas from the pod!

Sarah Smart

Jennifer Smith

I don’t really want to echo the podcast as what Sarah talks about should not be diluted by this blog, she is bloody good and once we’ve got over the football rubbish at outset , this is a well structured conversation and the discussion of VFM at the end is worth getting to.

Jennifer and Sarah both talk about diversity. They have different views on things to me and I learn from them. My wife/partner is now a trustee of our Wesleyan Chapel and she too has had to put up with a lot. She provides me with diversity and is another source of love

And what is critical to their success is that though they are knowledgeable about the Scriptures and the Regulator’s  downloads, they sing to large audiences messages of good will – dare I say it – yes I will – they deliver messages of joy.

I doubt that many people who spend time with the Pensions Regulator spend time with Jennifer Smith but I’d like to think that is you like the Chair of TPR , you will like this pod and listening to Jen telling immigrants to stand up for themselves and not be afraid of the society that can impress them.

Jennifer’s sermon is only a few minutes long, listen to it (as I have) after listening to the podcast, especially if you don’t spend much time in the company of good women with strong hearts!

Sarah and Jennifer – thanks!

This biography appears on the FNZ website;

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Shortly after he was ennobled, Sandy Leitch was rung by a Scottish journalist and asked what title he had chosen. ‘The Lord Leitch of Oakley’, he replied. The journalist burst out laughing, saying that not many people dared to admit they came from a place like that, let alone include it in a title.

Leitch was quick to put the journalist in his place. Granted, he said, the Fife coal mining village where he grew up was rough, tough and bleak, but it was a place of huge character and he was immensely proud to have spent his most formative years there.

Leitch never wavered from this view, and credited Oakley’s rugged, no-nonsense ethos for much of his success in later life.

The youngest of four children, Alexander Park Leitch was born in Blairhall, West Fife in 1947 to Donald Leitch and his wife Nancy (née Park). He was 18 months old when his father, a miner, died from Addison’s Disease at the age of 35, forcing his mother to work gruelling hours as a cleaner to make ends meet.

Throughout his boyhood Leitch experienced economic hardship and struggle. Brought up in a council house, he had to share a cramped bedroom with his brother and an alcoholic uncle. He wore makeshift clothes, never received any birthday presents, and as a child went on only one holiday — to a Butlins camp in Ayr.

Often left to his own devices, he loved exploring the magnificent countryside around Oakley and sharing adventures with larger-than-life characters. He saw this as his ‘Tom Sawyer’ period, and built his own bicycle so that he could explore other parts of Scotland. He shone at school, regularly topping his class of 40 pupils, and excelled at sport, especially football, which he briefly considered taking up professionally. Looking back, he felt fortunate to have been rejected as an apprentice professional, because he knew deep down that he was not good enough.

His Scottish ‘Higher’ results more than qualified him for university, but the family’s precarious finances ruled out further education. Instead, at the age of 17, he went to London and in 1965 he became a £12-a-week computer programmer with National Mutual Life.

Thanks as much to luck as to judgement, his choice of career was inspired. Industrial scale computing was still in its infancy, but the era of Harold Wilson’s ‘white heat of technology’ had dawned, and the computer revolution was about to take off. Ones and zeroes became his stock-in-trade as he threw himself into the world of computers and systems design. He is credited with having written the first ever life assurance ‘search engine’ program when he was 19. At 23 he was made the company’s Chief Systems Designer.

From National Mutual he moved to the fledgling Hambro Life, where he was responsible for designing all the company’s computer systems. He had an insatiable hunger to succeed. Colleagues described him as the most driven individual they had ever met, ‘a man with his eyes on the hills and his feet on the ground.’

He remained in the insurance industry for much of his career, becoming chief executive of Allied Dunbar in 1993 and of Zurich Financial Services in 1998. He represented the industry as Chairman of the Association of British Insurers. He became a director of BAT Industries, deputy chairman of Lloyds TSB (where he played a pivotal role in tackling the financial crash of 2007), and chairman of Bupa, Scottish Widows, and Intrinsic Financial Services. From 2012 he chaired the wealth management platform FNZ, helping to steer it from lowly beginnings to become a world leader in financial technology with $1.5 trillion in assets under administration.

Leitch was a natural and enthusiastic leader who led by example. People liked working for him. He had a fervent sense of moral responsibility, believing that the strong and successful had a duty to put something back into society. He devoted much of his time to charity and public service.

As chairman of the National Employment Panel for eight years, he was tasked with finding ways to get more people into sustainable jobs. He also worked closely with the Prince of Wales on several projects with Business in the Community, and on initiatives such as employee volunteers. He was presented with the Prince of Wales Ambassador Award for charitable work in 2001.

On one occasion the Prince invited Leitch to lunch at his Gloucestershire residence, Highgrove. There were seven or eight other guests, and during the meal there was a discussion about the Second World War and Winston Churchill, after which the guests chatted among themselves. Leitch turned to the elderly lady sitting next to him and asked if she had ever met Churchill. ‘He was my Father’, replied Mary Soames curtly.

A staunch admirer of Tony Blair, he was made a life peer in 2004. Although he always sat on the Labour benches, his loyalty to the party was pushed to the limit during the Corbyn era. Leitch was ‘New Labour’, believing that the creation of wealth was vital to deliver social justice and opportunity for all.

In 2005 he was tasked by the then Chancellor, Gordon Brown, to lead a review into the UK’s long-term skills needs. The Leitch Review of Skills concluded that Britain faced ‘a lingering decline in competitiveness, diminishing economic growth and a bleaker future for all’ unless skills were improved. Its recommendations placed skills at the heart of economic policy, and were widely seen as a defining landmark in the development of skills policy. He worked well with the Chancellor, who saw and valued his contribution to society. Brown said of him subsequently: ‘Many people who have not had the privilege of knowing Sandy, and many people who may not even know his name, have led more fulfilled lives as a result of all he has done and achieved.’

A man of immense energy, Leitch had numerous hobbies and interests. He was a trustee of the Philharmonia Orchestra and of the National Gallery of Scotland. He had a passion for antique collecting and fine malt whisky, and enjoyed painting, sculpting, writing poetry and listening to music. In his latter years he wrote widely, penning his life story for friends and family, and compiling a lavishly illustrated anthology of his boyhood adventures for the amusement of his children and grandchildren. Although an agnostic, he was deeply spiritual and hosted seminars about religion. One of his most treasured memories was of being blessed by the Dalai Lama during a visit to India.

He was a Freeman of the City of London and had an honorary doctorate in business administration. He was chancellor of Carnegie College.

By his first wife, Valerie Hodson, Leitch had three daughters. The marriage ended in divorce in 1992. By his second wife, Noelle Kristin Dowd, whom he married in 2003, he had a daughter and two sons, the boys being born when he was in his seventies. With Texas-born Noelle, who was 22 years his junior, he found lasting happiness. He described her as his best friend and soul-mate. The couple had homes in London, Oxfordshire and New Jersey.

Leitch suffered from ill-health for much of his adult life, and nearly died at the age of 32 when he was found to be suffering from sarcoidosis, a rare illness which plays havoc with the immune system. He overcame numerous life-threatening illnesses with determination and good humour. He was diagnosed with leukaemia in 2024. Death, he believed, should not be an all-consuming fear, but neither must its shadow be ignored. He concurred with St Benedict, who wrote 1,500 years ago: ‘Keep death daily before your eyes’.

Through sheer willpower and hard work, Leitch rose to become one of Britain’s leading businessmen, a peer of the realm, a social and spiritual thinker, a patron of the arts and a supporter of countless charities. His life was dogged by tragedy, sorrow and ill-health. Against the odds, he overcame obstacles with integrity, modesty, kindness and self-deprecating humour. He never forgot his humble Oakley roots.

It’s been a time since Con Keating and Iain Clacher have written on this blog . They have confined themselves of late to commenting on the disparity between the supposed assets in corporate DB pension schemes as estimated by TPR, PPF and ONS.

The short blog published yesterday asks a pertinent question

The most worrying aspect of the discrepancies is the Impact Assessment for the new low-dependency funding requirement was based on TPR figures. It seems that the new DB funding regime is likely to prove extremely costly to schemes, sponsors and the taxpayer. At the very least, some explanations are due.

In July, TPR published its DB funding code with Exceptions to this are where the Regulations provide that certain matters are to be specified by the draft Code, such as setting the duration in years (or other date), which defines when a scheme will reach significant maturity.that explained that the code is not written in stone but can be challenged, especially around the duration to significant maturity. (section 6.3)

Exceptions to this are where the Regulations provide that certain matters are to be specified by the draft Code, such as setting the duration in years (or other date), which defines when a scheme will reach significant maturity.

Government did not publish an impact assessment in July relying on an earlier statement which you can download here, or read for yourself

The assessment suggests that the intervention of the DB funding code will lighten the load on DB schemes by £20.6m per year (£300m over 10 years in the July explanation). Keating and Clacher’s point is that this is based on incomplete information.

Should the watchdog bite?

Another commentator on my blog points out that the DWP parliamentary watchdog has itself picked up on the discrepancy and is asking the same question

A Work and Pensions Select Committee report in March 2024 recommended that the PPF and TPR should work with the ONS to obtain more accurate results and publish these.

There seems to have been no public response to this recommendation.

TPR representatives are said to read these blogs, so why don’t they respond to Clacher and Keating?  What are they trying to hide?

TPR hid behind this (to me) feeble explanation in oral evidence to the WPC in November 2023:

“First of all, they are used for different purposes. The ONS uses a sample of schemes, around 10% to 15%. It tends to focus on the larger schemes, and it will look at the funding levels and the level of assets over recent periods. It will then use that data to effectively scale for the smaller pension schemes. It does not hold the data on the smaller pension schemes. We hold the data on all the pension schemes. That is why our numbers differ.”

PPF was more open than TPR and admitted this much to the WPC in writing in December 2023:

“We are clear in our 7800 index publications that we don’t hold enough data to capture the structural changes to asset allocations, nor to capture changes to in any leveraged LDI portfolios (these factors have been particularly pronounced since March 2022) and as a result, the impact on assets will often be less accurate than the ONS survey.”

This discrepancy has been known for some time. It has a material impact on the calculations within the DB funding code and the impact assessment of the Code’s implementation. The Code came into effect today.

I’m very pleased to see Hymans Robertson getting behind collective pensions in this way.

But I’d like them to go further and put money where their mouth is.

If CDC is going to happen, we are going to need people to do it and the market is crying out for a fiduciary manager to establish a CDC pension service for employers looking to offer semi- fined pensions for a defined contribution.

Hymans are calling for three things

Sadly, there is no promise from the consultancy to deliver a service if all this happens.

The report is in effect an endorsement of the whole of life CDC concept , demonstrating that solidarity across generations offers advantages over the decumulation only variety

As a concrete example, decumulation only CDC
schemes might have two or three times the sensitivity to
investment markets as whole of life CDC schemes. So for
any given market shock, the decumulation only members
will experience three times the impact on their pension
increases – both up and down – each year.

Herein the problem for all kinds of CDC. To get by with an investment driven approach, you need time and a duration of perhaps 30 rather than 15 years. But the funders of master trusts that look like being all that’s left of the DC market in 10 years time are not giving up the risk-free accumulation of the pot for  back-end of the risk-sharing cow.

The cost of every new unit of pension promise will vary
across members, and over time. In the simplest case,
members share that cost uncertainty in exchange for a
clear and constant rate of benefit accrual. But that
simplicity can create winners and losers

So long as there are savers winning out of accumulation only DC, there will be plenty of sceptics arguing that those purchasing units of pension promise are behind the curve and “losers”.

For whole of life, it’s a more involved question. To avoid
value transfer (ie the creation of winners and losers), you
would need to adjust the pension for each pound of
contributions in line with a member’s age, longevity
trends, and market conditions. So members would earn
different amounts of pension for the same contribution
amount over time. It’s an open question as to whether we
can do that in a way that doesn’t disengage members.

Unless you are very brave (or have an even braver adviser) , you aren’t going to switch to CDC unless you have a lot of confidence in the investment management of the arrangement. This is why the fiduciary approach seems to make sense, but would any consultancy put its long-term reputation on the line over the delivery of a successful CDC strategy?

Add to the mutability in investment performance , similar changes in longevity and changes in people’s take up of CDC (as opposed to other options) and Hymans recognises that some CDC winners will get 50% more than CDC losers. This is the scale of the inter-generational challenge and I suspect that this risk will not be one that anyone is prepared to take on.

But they should…

People should join CDC schemes because even the losers do better than the people who simply save and spend on their own. The real losers are those who are forced into income drawdown from a DC savings career, probably de-risked at some point into some totally inappropriate pre-retirement strategy.

Hymans model DC v CDC in terms of likely outcomes, while the best DC outcomes exceed the worst CDC outcomes, this overlap is pretty small

Hymans claim that its modelling suggests CDC can deliver up to 50% higher secure income for life than a typical DC scheme. But not for all members.

But this doesn’t cut much ice with the average saver I say it again , the trouble with CDC is that it simply doesn’t please anyone enough and displeases those who want certainty too much.

The only way CDC is going to happen at scale is if it is mandated as the auto-enrolment mechanism that the large master trusts switch to, or if one fiduciary manager takes a big bet on building the model. The Royal Mail model exists , though no-one (including Hymans) considers it optimal.

It remains to be seen who will take up that challenge – if anyone.

Business is wrong 

A thrilling big bang to start CISI’s autumn London season at CISI with Sir John Kay, FCSI(Hon) speaking on “The corporation in the 21^st century” at lunchtime on Thursday 19 September 2024 in the historic splendour of Merchant Taylor’s Hall in Threadneedle Street.

You can book your place at this event here

Sir John will be introduced by Michael Cole-Fontayn, CISI Chair and until recently Master Merchant Taylor. One of the twelve great livery companies of the City of London, Merchant Taylor’s was once the regulator and trade body of tailoring and its related industries within medieval London. As the world changed, so did Merchant Taylors’; over time it became a grant-making organisation whose members are driven to channel their collective good into volunteering, raising funds, or offering their time to support causes that can create transformative good to many lives.

With such a long history – which spans fires, wars, political upheavals and plagues – Merchant Taylors’ is a vibrant community, with members keen to play their part in all aspects of the Company’s activities. Through their shared history, Merchant Taylors gain a fascinating insight into London’s past and enjoy a unique connection to the City of London and the wider world. So we are delighted to be holding this important event in their wonderful Hall.

For generations, we have defined  a corporation as a business run by a  capitalist elite, that uses its accumulated  wealth to own the means of production  and exercise economic power. 

That is no longer the reality. In the  twenty-first century, our most desired  goods and services aren’t stacked in  warehouses or on container ships: they  appear on your screen, fit in your pocket  or occupy your head.  

But even as we consume more than ever  before, big business faces a crisis of  legitimacy. The pharmaceutical industry  creates life-saving vaccines but has lost  the trust of the public. The widening pay  gap between executives and employees  is destabilising our societies. Facebook  and Google have more customers than  any companies in history but are widely  reviled.  

John Kay, one of the greatest economists  of our time, describes how the pursuit of  shareholder value has destroyed some of  the leading companies of the twentieth  century. Incisive and provocative, this  book redefines successful commercial  activity and leadership, the knowledge  economy and what the future of the  modern corporation might be. 

Sir John Kay is one of Britain’s leading  economists. A Fellow of the British  Academy and Royal Society of  Edinburgh, he was the founding dean  of Oxford University’s Saïd Business  School and held a chair at London  Business School. He is a winner of the  Senior Wincott Award for Financial  Journalism for his Financial Times columns. Other People’s Money won  the Saltire Prize for non-fiction and  was shortlisted for the Orwell Prize  for Political Writing. His other books  include Obliquity, The Long and Short  of It, Greed is Dead (written with Paul  Collier) and Radical Uncertainty (with  Mervyn King).

‘A brilliant analysis of how business really  works. Informative, funny and full of deep  insights. It truly is a magnum opus’  Mervyn King

‘Few writers come close to matching Kay’s  analysis of what makes good businesses  succeed and bad businesses fail incredibly  expansive, and yet also with a depth  of argument you won’t often find in a  business text. A very entertaining read’  Evan Davis

Yesterday afternoon I sat and read by Nest annual pension statement and then all the documents that went into telling me what I could expect from it and I ended up writing a blog , throwing my hands up in the air in exasperation. There is plenty of lipstick but the pig is still a pig.

So, as one of the 13m you can call your own, here is my message to the trustees and funders of  Nest.

“I want my pension done for me”

This is not me being bolshy. Nest pensions is a pension company that provides workplace pensions and pensions to the self-employed and others who simply want a pension at the end of their working lives.

I am coming to the end of my working life, I have money with Nest and I want my pension. Instead of a pension promise, I get a statutory money purchase illustration which tells me what I can expect my pot to be and explains what kind of annuity people like me are expected to buy if we want to swap our pot for a guaranteed income.

I know what a pension is and I know it is not  a pot and it is not an annuity. I know what my pension cost me because when I had the chance to exchange part of my pension for a tax-free-cash-sum, I discovered the conversion rate of pension to pot was not in my favor.  I took 100% of the pension on offer rather than paying off my mortgage. I now have the challenge of living long enough to make that bet pay off!

Retirement Line offer the best annuity available on the open market

It took a little research and a lot of courage but I chose pension over pot then and I am about to do the same with my “Nest pension” and my “Legal and General pension”. I am in a new occupational pension scheme called Pension SuperHaven (PSH) which has been set up to accept transfers in from those who want to swap pots for pensions and when I ask PSH for a quote, I find that I get a much bigger lifetime income than I can get from an annuity.

A guaranteed income for life well in excess of the best annuity I can get from the open market plus the likelihood of bonuses payable on top.

What is more, Pension SuperHaven will give me a price fix on the pension I can get if I wait a year of five years or ten years, to get my money.

Unlike an estimate from a SMPI, I know what I’m going to get and I can work out from the numbers when I can stop work, what it will cost in terms of pension to pay off my mortgage and the cost of including my wife on the pension, building in pension increases or guaranteeing my family the price of purchasing the pension if I die before my pension has paid the principal.

Not only am I buying more income, but I’m buying into certainty and that is what I need to stop work. I am not retiring on the promise of a pot performing in line with SMPI assumptions! Pension SuperHaven does it for me.

The snag and how to de-snag it!

The snag is not with me, it is with my fellow 13m Nest savers who don’t work for and are a member of Pension SuperHaven occupational DB scheme.  These people cannot join PSH because of transfer rules set up to stop pension schemes liberating people from their pensions (theft not access).  These rules are in place for a reason though I, like PSIG’s Margaret Snowden think they are in need for revision (but let that lie).

My fellow 13m Nest savers cannot join Pension SuperHaven but they can join the PSH scheme if it is a trustee investment of Nest itself. We call this PSH inside and PSH inside Nest would allow the 13m people in Nest to have a PSH pension done for them when they came to the time of life when they wanted to convert pot to pension. At Nest, the normal time for this to happen is when the target date fund pays out, the 67th birthday at which point every Nest member could (and IMO should) be offered a Nest Pension – Nest’s cover of PSH inside.

If Mark Rowlands, who looks after Nest’s pension outcomes wants to give me a call about this , he can do so on 07785 377768 or he can mail henry.tapper@psf.capital.

We can discuss how I and 13m people like me , can get their pension done for them. I stand ready!

I am thinking about my future pension , this is because I have just got my Nest annual pension statement.

I turn to the Office of National Statistics to find out my life expectancy

Which tells me

So if I plan to spend my pot by 85 , there’s a real chance I could spend the last 15 years of my life skint.

My Nest statement is downloadable , so hear it is.

The key numbers for me are in the snip below. Like Richard Smith , I’ve pushed back my retirement date as far as I can so I can be invested for longer

My pot will have risen in 14 years from £21,000 to £29,000 -disappointing . By waiting till I’m 77, I cam expect a pension exchange rate of 10 to one. My pension needs to pay for 10 years for me to get my money back- that’s two years longer than my life expectancy. Patience doesn’t seem a virtue.

So I’m not happy to wait till 2038 and the numbers I have in my statement are no longer accurate anyway. Four months have passed between the date of calculation and the date of my statement. I wondered what would happen if I tried to calculate my prospective pension myself (based on the much higher value of my pension today)

I’m glad Nest offers me a chance to work out my pension for myself

The calculator tells me what my pot will be but it does not tell me the income that pot will provide. There is however

Here things start getting really difficult

Going back to the ONS calculator, I discover that were  I a woman I could expect to live till 87. So why am I getting the same retirement income calculation as my female equivalent.

And as I delve deeper into the information given me by Nest , I read

Ok – now I’m getting to the heart of the beast, TM1 is an actuarially agreed standard created by the Financial Reporting Council

The FRC offer a helpful podcast explaining how TM1 was created. It’s standardising things to make sure that the pension dashboards don’t cause more trouble than they solve.

Unfortunately, despite the optimism of the participants, I don’t think this podcast is going to make it to the top of the playlists.

Nest, tries help me too, publishing a document that talks me through how my projections are calculated from which the information above is taken. Download here

But has this information got me any further?

Well first of all, I am a little frustrated that I can’t get a more up to date statement. If I had used my most recent statement on July 1st, my numbers would be 16 months old ( a point raised by Richard in his article on dashboard readiness in Pension Week

Secondly, I recognise the need to give consistent projections but the consistency is about the anticipated returns on assets, not the asset allocation. This means that pots can be projected to grow faster if invested in racy assets than in boring safe assets. So my pension will show better if I am invested in racy assets as I’ve chosen to by pushing my target date out till 2038.

But I’m much more concerned about the projections of retirement income which seem to be encouraging me to take no tax free cash, guarantee my pension will be paid and not include increases  in my pension.

The 3.7% interest rate for me as a 74 year old is hardly generous, right now I can get an interest rate of  well over 6% as a 62 year old.

In short, I am none the wiser about what my future income is likely to be from my Nest pension. The SMPI methodology is hopeless in telling me what I am going to get. That is not its fault, there just is no such certainty in a world where we are targeting pots of wealth not pensions.

Can I do this myself?

Frankly , having tried my hardest to understand the assumptions that go into paying me a pension, I have absolutely no idea what is coming up or what I should do.

I can see that the FRC, Nest and the ONS are trying to help and I found out for myself most of what I needed to make sense of projections. But even if I can get consistent projections from my provider or via the dashboard, I have been given no idea about how to get the annuity which my projections are based on.

The Government is committed to delivering an obligation on the trustees of occupational pension schemes to provide a default means to turn pots to pensions but the complexity I’ve encountered means that there needs to be something way more obvious than the course of action suggested by the SMPI illustration.

700,000 people a year find themselves in this corridor of uncertainty asking the question, can I do my own pension. I fear that only a handful can say “yes”.

I enjoyed researching the answer to this one. Next year over 1 million low earners should get a letter from HMRC offering them free money – and it’s legit! https://t.co/Q2tTPH5JIJ

— Steve Webb (@stevewebb1) July 1, 2024

I am really pleased to see Steve Webb properly answering this question.

The Government has introduced a new pension top-up scheme for people on low income.

People earning less than the personal allowance of £12,570 do not get tax relief on pension contributions.

The new scheme will pay the tax relief into the bank accounts. Could you please explain how the scheme works?

I suspect that the person asking the question is rather better informed than most of the pension experts who I know, who have ignored the issue of “value for money” for low earning savers overpaying their AE contributions by 25%.

The biggest constituency, as I discussed with Sir Steve last week are savers accruing in the NHS and other public service pension schemes. The senior consultants upset about high marginal rates of tax when they exceed the annual allowance should spare a thought for part-time orderlies and medical staff who since 2014 have been denied their promised savings incentive because they pay no tax. Many of those consultants will have taken advantage of the relief at source loophole that enables their children to get these incentives on contributions made by parents through “relief at source”.

Despite high earners exploiting RAS, the majority of Daily Mail readers consider the payment of the same incentives to the genuinely low-waged an outrage

Such iniquities spring from the gap between the lower income tax threshold (£12,750) and the auto-enrolment contribution threshold (£10,000) earnings in this gap only get incentivised under RAS.  Some workplace pensions offer both RAS and Net Pay in one scheme. These include People’s Pension and (now) Smart. Legal & General offer separate schemes for low and high earners (the former uses RAS and the latter net pay). Nest uses RAS as will presumably NOW when it moves to the same operating system as Nest but the rest of the master trusts including Cushon, operate net pay schemes which discriminate against low earners. Almost all single employer occupational pension schemes , including all the DB schemes, operated net pay.

The journey to get incentives due but not paid to be refunded to savers has been nearly a decade in the travelling. The Net Pay Action Group, which has included net pay providers, activists and the very fine Low Income Tax Group (LITG) has been led by Ros Altmann and had two big wins. In 2019 it got a promise in the Conservative Manifesto to find a solution to the problem and in 2022 it got an agreement with the HMRC to repay the incentives to impacted pension savers. The refund will ignore all losses till April 2024 and will start paying out in the summer of 2025. Steve Webb picks up the story

The way the scheme will work is that at the end of 2024/25, HMRC will look at membership information from pension schemes which deliver tax relief through the Net Pay Arrangement.

It will identify workers who earn under the tax threshold (or only slightly above) and who made personal contributions into the scheme.

HMRC will then write out to them asking for bank details and will make a payment directly into their bank account (not into their pension).

The size of the payment will simply be the income tax due on the pension contribution.

So, for example, if someone has paid £500 into an occupational pension using the Net Pay Arrangement, HMRC will credit £100 into their bank account.

This means that they will end up with £500 in their pension but at a net cost of £400, the same as someone in a RAS scheme.

Smart readers will have spotted that the numbers of savers who apply for this freebie will depend on

1. People’s awareness of the opportunity; Sir Steve will doubtless be working with Martin Lewis to raise this.
2. The promotion of the scheme by HMRC
3. People being able to distinguish between this offer from HMRC and those of con-artists.

The irony of the net pay arrangement is that it represents the fulfillment of a Conservative promise which will provide tangible benefit to low earners. Meanwhile the largely fake savings surrounding the Triple Lock Plus initiative are stealing the limelight.

Labour will benefit from the bung, the Conservatives will never see implementation of the quadruple lock which will be remembered only by the most ardent pension geek.

The pension industry , other than those who supported the net pay action group, have not covered themselves with glory. Only now are the big master trusts getting round to adapting their systems , too late to recover the money lost by low earners since 2014.

It is a sad indictment of the experts I work with, that so few have considered value for money in terms of contribution efficiency . It is particularly sad to have seen so little interest in this issue by trade unions.

Perhaps  they  are more concerned getting  in extracting more money into the pension system , than ensuring that poorer savers are properly incentivised.

It will be interesting to see how this plays out next year.

uneasy bedfellows

On 16 November 2023, the UK Prudential Regulatory Authority (PRA) released draft measures to address perceived risks in the market for funded reinsurance, which is widely used as part of transactions that shift pension scheme liabilities to insurers.

What is funded reinsurance , why did the PRA issue the warning and should we be concerned for the future of our pension system – and our pensions? This blog sets out to address these questions from the point of view of the unfamiliar reader.

What is “funded reinsurance”.

Funded reinsurance is different from selling on an unwanted insurable risk (such as the risk of people living too long). Historically, large insurers such as Hanover and Munich have swapped longevity risk for an upfront premium with the assets backing the promise remaining with the insurer or pension scheme. The alternative is conventional risk pooling, where the members of the scheme insure themselves.

The PRA does not have a beef against conventional reinsurance but is worried when the risk is parcelled up with funds so that a proportion of the buy-out or remaining pension scheme is shipped out (outsourced). Funded reinsurance effectively buys out the buy-out and means that control of the “fund” passes to a Bermudan insurer. This is not what you’d expect to happen if you were a member of an occupational pension scheme in the UK.

Why is the PRA issuing warnings?

There appear to be three reasons

1. The PRA is worried that too much of the risk taken on by a UK insurer is concentrated with a small band of offshore insurers and that a domino effect might lead to a run on the market threatening the solvency of the UK insurer.
2. The PRA is worried that the quality of the promise of the reinsurers may not be all it should be. They see risk from the quality of  the “collateral” posted by counterparties
3. The PRA is worried that insurers are not planning for a “recapture” of the fund in the event of failure. This worry is both about the operational plan (getting the money back) and the reserving plan (if the money doesn’t come back.

Should pension schemes and pensioners be worried?

The Financial Times is not beating around the bush

Scoop from @iankmsmith Big UK life insurers tripled use of controversial reinsurance deals https://t.co/MBUtqkkvBJ via @ft

— Josephine Cumbo (@JosephineCumbo) May 27, 2024

The insurers may have hit treble top on new business volumes, but at what expense to the pension scheme and the pensioner? Most of the annuity risk is from buy-ins and still sits with the pension scheme. For now pensioners have full protection from the PPF

If the buy-in becomes a buy-out and transfers to the insurance company’s balance sheet, the member’s protection is from the untried and unfunded Financial Services Compensation Scheme (FSCS).

Here’s what Stephanie Hawthorne reckons to consumer protections

The risk from “recapture”

The FT quotes PIC, L&G and Phoenix as its sources for the tripling of funded reinsurance. Just and Aviva are also mentioned.

These organisations know how to manage risk and should be able to meet the PRA’s requirements on existing business. But the projections for demand for buy-out in the UK suggest that the temptation to cut corners in future is one that all of us should be concerned about.

In the article mentioned in the tweet above, the FT’s Ian Smith writes that trustees have expressed concern that

…a lack of transparency about funded reinsurance meant fund governors were handing over billions of pounds in scheme assets to life insurers whose financial structure, “they do not understand but are told is ‘iron clad’….

One trustee said

“In what fiduciary management world is it acceptable to give other people’s money to an entity where you don’t understand the risk . . . and that entity can transfer its liability to you to a third party without your agreement,”

Counterparty risk

Those familiar with Everton FC will know of 777 partners, the Private Equity firm looking to buy the club, they may not be so aware of 777 Re- its Bermudan reinsurance arm, set up in 2019 and now part of the half a trillion dollar industry overseen by the Bermuda Monetary Authority.

The new 777 Re was joining a rush to the island that put the Bermuda Monetary Authority, its financial regulator, in charge of more than half a trillion dollars in offloaded US life and annuity reserves by the end of 2021.

I would not expect any UK insurer to use 777 Re as a counterparty, but when there is sewage in the river, anyone can get sick.

Concentration risk

It has always seem presumptuous for the markets to assume that funded pensions – 70+ years in the making , can transfer the assumed risk in a matter of a few risks. Even if they wanted to offload assets and liabilities to the insurance sector, what makes us confident that there is a market for this level of risk or matching assets to reserve against it?

Rather than spreading the risks, accelerating buy-out risks concentrating risks around a few insurers and a large pool of reinsurance – one step removed from UK regulation.

At a time when both major political parties are looking to our £1.5tr DB pension assets to provide economic regeneration, the prospect of shipping large portions off to Bermuda looks politically inappropriate. Indeed, the point of “growth assets” in UK pensions is to get the growth in the UK to fund pensions in the future.

The use of funded reinsurance is as unlikely to get political support as regulatory support, if it continues to increase as it is currently doing.

All of which suggests that we take a long-hard look at buy-out and find ways to diversify the way we pay the pensions we have promised. There is of course space for annuities, and there is space for people to exercise their freedoms, but we need collective pensions too, we need CDC and we need pension schemes to pay members a wage for life with or without reinsurance.

Pretty disappointing https://t.co/MxBdHEwnuz pic.twitter.com/e1f0UtgHoM

— Henry Tapper (@henryhtapper) May 25, 2024

This is not a good look. The Labour party has yet to appoint a Shadow Pensions Minister following the recent resignation of Gill Furniss (for personal reasons).

Rachel Reeves is looking for pensions to fuel the Growth Agenda but she can’t control that agenda from the Treasury, she needs people getting down and dirty with the people who manage the £3 trillion invested for our retirement.

There are people who can do the job within the parliamentary party – most notably Stephen Timms, there are people in the Lords who could do the job (Bryn Davies and Jeannie Drake) and there are those in industry who could be elevated to the upper house to step up from shadow to actual pension minister (Gregg McClymont).

Sadly, Hilary Salt is otherwise committed

Right person – wrong party

I simply don’t understand why Labour is unable to have a pension spokesperson at this crucial junction. Maybe they were waiting for Liz Kendall (Shadow SOS at DWP) to get back from illness.

Hasnt Liz Kendall been on sick leave since then? Might just be waiting for her return. More likely to be appointing an actual minister now.

— Prospect Pension (@ProspectPension) May 25, 2024

I think she’s recovering from hip surgery (Angela Eagle stood in for her at DWP questions). There is already a trade union pension person sitting in the Lords and ready to serve! (But Bryn would try to bring back SERPS which would be far too radical 😉 )

— Prospect Pension (@ProspectPension) May 25, 2024

I’m pleased to see she is now back and speaking to Trevor Phillips about the triple lock this (Sunday) morning

.@TrevorPTweets: “Are you going to keep the triple lock on pensions?”@leicesterliz: “Yes.”#TrevorPhillips https://t.co/fhIHlpTGAF

📺 Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/FC6VRN9
VMJ

— Sky News (@SkyNews) May 26, 2024

But we need more than high level comment on the triple lock. We want to know some nitty-gritty, the stuff that people need to make sense of all the “pension” saving that they’re doing.  And the pension industry wants more than a promise that their will be a general review of pensions, the other side of a general election (what we’re getting now).

In short we  need the kind of manifesto pledges on pensions that allow us to plan for the future.  Labour is simply not delivering,

It’s not like the Trade Unions don’t care; they supply a good percentage of the member nominated trustees still populating trustee boards, they are the power behind CDC through the CWU and Unite Unions and collectivism is in their blood.

What is wrong with the parliamentary party? Where is the organisation within the wider Labour party to take the brilliant ideas of Chris Sier, Andy Tarrant, Con Keating and Terry Pullinger forward?

I am not a member of the Labour party but I’d be happy to join forces with them to promote a collective agenda against the prevailing pessimism of the past fourteen years.

So come on Labour , shape up your ideas and (if you haven’t got a better plan) contact me at henry@agewage.com – whoever you are!