Polarised or bi-polar? DB transfers today.

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Smith and Rush – voices of reason in a disturbed world.

Back in November, I reported on Ruston Smith’s initiative at Tesco to provide his colleagues with help finding the right type of adviser. AgeWage had been helping Ruston promote this to other firms earlier in the year and I’m glad to see a report from Jo Cumbo on how all this is taking shape.

Screenshot 2020-02-20 at 05.43.51Of course it shouldn’t have to be like this

The conduct of IFA’s is part of the scrutiny of the Financial Conduct Authority who have powers to stop rogue advisers practicing. The FCA are effectively protecting the Financial Services Compensation Scheme which is funded (amongst others) by IFAs. There should be checks and balances in place so that Tescos and large employers with DB schemes, do not have to spend money on extra protection.

But it is like this because we have not resolved the philosophical conundrum of giving people “freedom and choice” with their retirement money and protecting them from being “their own worst enemy.”

Say it quietly but many of the people who shout loudly about stopping transfers for others, have or are taking transfers for themselves.

If you  had a DB transfer pot – what would you do?

I’m quoting again from Dunstan Thomas’ recent research.

One in 10 (10 per cent) of those with DB pensions recorded a pension value in excess of £700,000, whereas just two per cent of those with DC pensions had a value over that same threshold.

Despite (or perhaps because of) generous DB valuations over recent years, demand for DB to DC transfers amongst Gen Xers remains strong: nearly two thirds (63 per cent) of those still in DB policies are considering whole or partial DB to DC pensions transfers in order to access some of these savings from the age of 55.

Merryn Somerset Webb’s famous proclamation that as a grown-up FT journalist she’d take a DB transfer if she had one is either famous or infamous depending on which camp you sit in.

And people aren’t stupid. Every time a major employer reports bad news and their share price slumps, pension departments see a spike of transfer requests from former employees (and even the odd active employee) finding their way to the door. The higher your pension , the higher your loss if your scheme goes into the PPF and once the PPF assessment starts, it is too late to get your money out.

People who know, do their own covenant assessments on the sponsors of the schemes they are in. Ironically they are doing precisely what people like Stephen Soper, who heads PWC’s pension risk team, are telling trustees to do and if they take the CETV because their covenant assessment tells them the risk of staying in the scheme is too great, they are taking precisely the decision that led to over £3bn leaving the British Steel Pension Scheme during Time to Choose.

So when is a good transfer a bad transfer?

Perhaps the person I’d most like to ask this question of would be Stephen. Stephen was at one time the director of The Pensions Regulator’s DB team, when he left for PWC , one of his first jobs was to act for Tata in setting up the Regulatory Apportionment Agreement that created the steelworkers “Time to Choose”.

He is now quoted in the FT as organising a way to protect members from choosing the wrong way

“I have recently met with several FTSE 100 and indeed some non-public entities as well who, motivated by the British Steel situation and the FCA’s recent findings of extensive mis-selling, are keen to find ways to ensure their members receive good advice as they enter retirement,”

At least some good has come of the debacle in Teeside and Port Talbot when steelworkers were forced to make choices with little or help at all.

The Regulator has still to intervene by implementing a ban on contingent charging . The  insurance market is refusing or “loading” insurance on many advisers actively facilitating DB transfers. The impact of Professional indemnity Insurance on the availability of advice is documented here.

Whether the insurance market is doing the regulation or regulators driving the insurance market is a matter for debate.

It would be nice to draw a line in the sand but…

Next Thursday, bus-loads of former BSPS members who took their transfers and are now claiming compensation for the poor advice they got, will arrive at Westminster to explain how the FSCS scheme is failing to help them. They are being organised by Al Rush who has spent over two years actually clearing up the mess.

The steelworkers heard yesterday that one of the advisers at the most notorious of the advisers (Active Wealth Management) has finally been stopped trading by the FCA.

Al is quoted in Professional Adviser

“This is a damning indictment on many levels, and exposes in harsh and unblinking focus the disgraceful behaviour [steelworkers] were exposed to.

“I hope that this ruling strikes fear into the hearts of others who seek to benefit from their industrialised processes which subordinate the needs, wishes and feelings of decent hard working steelworkers to their own selfish requirements.”


Andrew Deeney , MD of Fortuna

But the ruling against Andrew Deeney and Fortuna has happened in 2020. Since 1992, Linked In shows Deeney having worked for 10 different financial advisors including Allied Dunbar and St James Place. He worked for various parts of Darren Reynolds Active group between 2014 and then bought Darren Reynolds’ clients for £5,000 to become MD of Fortuna.

As far as I can see, he has been authorised by the FCA and its predecessors on each occasion.

Fortuna is now appealing against various determinations by the FCA including that he oversaw the inappropriate sales of high risk bonds and continued charging Darren Reynolds’ clients fees for which no service was offered.

Is it any wonder that Professional Adviser are backing a  campaign to protect financial advisers from the consequences of such behaviour – the inevitable hike in FSCS levies that will follow?

Polarised or bi-polar?

In  polarised positions, two parties look at one problem and take radically different views. I think it’s fair to say that Merryn and the FCA’s stated views on pension transfers are polarised.

Bi-polar behaviour  shows people swinging from one position to another, seemingly irrationally. For many people who may benefit professionally from transfers (including the sponsors of DB schemes), the needle swings between supporting and decrying pension transfers. The £3.2bn that left BSPS through CETVs made BSPS2 the stronger, but the FCA claim that £20bn that has left DB to DC has made people’s retirement planning weaker.

I am not saying that people like Stephen Soper are showing signs of schizophrenia. Stephen is a calm  and deeply serious. But he is having to ride two horse at the same time. Firms like PWC have promoted de-risking through the promotion of enhanced Transfer Values (ETVs) and have stood back and watched as advisers who have executed these plans have had their permissions taken away.

Now he is overseeing the actions of those people who in another environment  he would have sort employment for – doing much the same thing. His firm which benefited from setting up the  BSPS RAA – is now set to benefit from clearing up its fall-out.

This can’t be good for the moral or mental health of practitioners, regulators and most of all the bus-load of BSPS casualties arriving in Westminster next Thursday.

This leaves FSCS, who’s every claim is a battle ground between those requiring justice and those unwilling to pay for it.

It leaves the FCA who are charged with making advice available, but have to shut down firms like Fortuna.

And we see firms like Tesco, trying to do the right things by members but risking being seen to “promote transfers” by some and “restrict advisers: by others.

Ruston Smith is of course in the thick of it. Thankfully he’s pretty level headed and will keep a sense of humour where everyone else is losing their’s!

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It’s not the customers who needs to change – it’s the advice they get.



If you don’t take advice – you’re not alone!

Just eight per cent of the 2,011 39-54-year olds captured in the nationwide ‘Generation X Retirement Prospects’ study commissioned by pensions specialist fintech company Dunstan Thomas, have consulted an Independent Financial Adviser in the last 12 months.

These findings accord with AgeWage’s research and that of the FCA (who have reported a small increase in the use of financial advisers since we published their “94%” number.

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That 92% of people approaching the seismic changes in their work and finances, don’t seek professional help, is a worry.

The statistic prompts two questions “Where do they get help” and “is that help good enough”.

In this blog I pick up on the things that Dunstan Thomas find matter to Generation X; there are things which should matter to them – such as retirement planning – which they are not finding help with.

My conclusion is that it is not GenX that needs to change, but the support we give them.

Often we need to give support to people without intervening in their lives. Remote digital support is what many of the 92% seem to prefer.

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Saving blind

Nearly half (48 per cent) of female and over a third (34 per cent) of male Gen Xers had never heard of Pension Freedoms before responding to the survey. A further 30 per cent had heard of it but knew nothing about it at all.

Put another way, at least two thirds of savers are saving blind. What is worse, they are confused by saving and investing and don’t know which of the two they are doing.

The survey asked 51-54 year olds what their pension intentions were

54 per cent had no plans to touch the pension for the next five years

Dunstan Thomas comments “these need to ensure their savings are properly invested for growth rather than left in cash as many are today”.

The opportunity cost of not investing over a five year period is obvious. Unless (like Paul Lewis) you have a conviction for a nil-risk, negligible return cash strategy , you need to know what your pension is doing (get to know your pension).

But do we really need a financial adviser to get to know our pensions – should pensions really be that hard? I was looking at L&G’s recent proto-type for their investment pathway guidance and felt that 92% of their customers would be better off for it!

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The challenge facing MAPS

This may be from a framing bias in the research, but what is odd is that the Money and Pensions Service plays no part in the study. Despite the Money Advisce Service and The Pensions Advisory Service having been around for more than a decade (and Pensions Wise getting on 5 years), these “arms length bodies” have not been embraced by the general public as their port in a storm.

Nearly half (44 per cent) don’t consult anyone at all! A fifth (21 per cent) of Gen Xers source supporting financial information from online financial comparison sites like MoneySupermarket.com; while 13 per cent rely on the national media’s personal finance pages; and the same percentage go to friends and family for more information.

For MAPS to be relevant, it is going to have to become a touchstone for much more than pensions and debt, it will need to reach the parts MoneySupermarket doesn’t reach.

Influence over advice

It would seem that most people are taking decisions influenced by people they trust. These influencers are few and far between in pensions.

There are now about 30 “go to” spokespeople for the popular press including Ros Altmann, John Ralfe and SteveWebb. Since Michelle Cracknell left TPAS, there has been no consumer champion within Government. Government has withdrawn from influencing consumer decision making – increasingly hiding behind “guidance” and information as risk-mitigators.

This has left an opportunity for IFAs to become influential on pensions and investment just as Martin Lewis is influential on savings and debt.

But this is not happening.

An information vacuum on pensions

The absence of an authoritative advisory service (as the Pensions Advisory Service set out to be), means that Gen Xers are being starved of the information they need to become their own pension experts.

Dunstan Thomas’ survey paints a grim picture for Gen X

“The closure of large swathes of the DB market; AE coming too late for older Gen Xers; together with changing working practices and demographics; and lower levels of access to financial advice post-RDR, are all major factors influencing Gen Xers’ retirement saving levels.

The result: only about five per cent of 39-54-year olds are on track to fully fund even moderate retirement lifestyles and 25 per cent of them stated they had no savings or investments at all.”

Contrasting with much greater clarity on non-pension savings

As I mentioned in my previous blog on the Dunstan Thomas survey, the much more radical finding is that most people are much clearer about their other retirement plans, than they are about their pensions .

Average additional (non-pensions) savings for the three-quarters of Gen Xers that have savings are £71,591 each; 39-54 year olds with total household income exceeding £5,000 per month have average non-pension savings and investments amounting to £223,000.

A tenth (11 per cent) of high-income households bringing in more than £5,000 a month after tax have at least one Buy-to-Let property to their name. Three per cent of those with household monthly take home pay exceeding £4,000 per month hold Peer-to-Peer Lending-linked investments and 17 per cent of that same income group hold Stock and Shares ISAs.

42 per cent anticipating receiving an inheritance before they retire, nearly one in ten (nine per cent) will ‘not be able to retire at all’ until they receive that inheritance. A further third (34 per cent) think that their inheritance is ‘a fairly important factor’ in supporting their retirement income and only 12 per cent felt it was insignificant.

And work is much more a feature of retirement than “retirement” would suggest. Over half (53 per cent) of Gen Xers think they will ‘probably’ take a part-time paid job in semi-retirement and more than a quarter (27 per cent) have decided they will ‘definitely’ do so if they can secure paid part-time work.

Larger numbers of people are prepared to work part-time to make ends meet in lower income groups – a third (33 per cent) of those with a total household take home pay of under £2,000 per month are ‘definitely planning to take part-time employment’ when their core job finishes.

Who needs financial advice?

For most people “financial advice” in a regulated sense, is pretty low in importance.

What people need is help understanding where to get work in retirement, how to look after their parents (and guard their inheritance) and how to manage their income from their house(s).

The Dunstan Thomas survey is telling us that Gen Xers are influenced by what they read and watch. They look out for people like Martin Lewis and Ros Altmann as touchstones and follow what they say, much more than regulated advisers.

My personal view is that the Independent Financial Advisor no longer speaks to the common man, but to the 8% who are wealthy enough to need their technical skills.

But there is a large market of people at or approaching retirement who see their pension pots as a small part of their retirement plan and are looking for help establishing a retirement plan which meets their and their family’s lifestyle needs.

This kind of assistance can be funded by fees paid where referrals are made (including fees for introductions to advisors). But the assistance must be “free” at the point of delivery and needs to be accessible via the kind of technology that best suits the customer.

It is not the customer that needs to change – it is the nature of the advice.

pay advice

We want to  pin down what we are going to do

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Our right to dream of a fairer deal for older people.

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My Mum – approaching her 10th decade

It’s been another brutal week in politics. I’m glad that the pensions team in place at the start of it – remain in place at the end of it.  I’m pleased  that Guy Opperman remains our pensions minister. As my old friend Bill Whitehead used to say ” March’s real budget is at Cheltenham”

This blog is  directed towards people who think that the private sector has no wider goals than the maximisation of profit. It’s also a thank you to my Mum and Dad who provide me with the energy to keep at it – I am 58 and have 30 years more work to do – to match them!

Guy Opperman now sets out with the prospect of becoming Britain’s longest serving pensions minister.  I hope that he and his team get to read from me and others, that we can have a fairer, more inclusive deal for those in later life, by working together – private and public sector as one.

Aligning pensions with our environmental goals

Last week also saw an amendment to the budget, announced by Teresa Coffey that puts pensions at the heart of the Government’s  ambitions to curb the impact of climate change.

I don’t think the Pension Schemes Bill amendment an “unwelcome innovation”. If we are to be at the centre of the agenda, we need to be working with Government to ensure the £2tr of assets we control contribute to the UK’s climate change targets. I hope that others will say the same at the PLSA’s investment conference next Month in Edinburgh. We should remember that only a few months later, the world will meet in Glasgow for #COP26.

It is for the PLSA to back down on its objections to the amendment and for Government to ensure it is working with the pensions industry on this – not against it.

Aligning state benefits with our social goals.

There is consensus between all parties that the societal impact of pension policy must be to provide everyone with a reasonable income in retirement. During the week we heard good news about the state of our National Insurance Fund which I hope will lead to the extension of the “triple lock” on state pension increases – at least until the end of this parliamentary term.

There are still hard issues to address. They include the issues of the WASPI women which await the verdict of the Parliamentary Ombudsman. The current surplus in the National Insurance Fund could only cover around 10% of the cost of Labour’s election proposals, a full retro-fitted solution would cover a lot more than £87bn. I don’t see the WASPI issue as done – because there is no effective opposition. The wider issue is (as John cogently puts it) – what #WASPI solution do we support.

There are other issues arising from the Cridland report, mortality – happily – continues to improve (eg we are living longer) and we need to address not just the issues of when we draw our pensions , but the availability of work for those who haven’t saved enough to stop working.

And we need to keep looking at how the pensions we are entitled to, interact with benefits under pension credit. We cannot have cliff edges where people fall off benefits because they were unaware of the consequences of their financial decisions.

If our social goals are to be fair to everyone in later age, we need to find new ways to deliver the guidance to those who don’t participate in the benefits of private pensions.

I was careful there to neither use “inclusion” or “exclusion”. We need to treat later life poverty in an apolitical way , accepting that much of it is self-induced but accepting that deprivation in old age is unacceptable to us.

Getting our later life health issues funded

We cannot go on for ever, believing that taxation can meet the rising cost to the NHS and local authorities of the detoriating health of older people.

We put too great a burden on those who come behind if we do. The Baby Boomers are a bulge in population and also in prosperity. We need to accept that we need to meet our own bills when we can. I support a system of pre-funded care and I think insurers such as Legal and General , who are looking at immediate care annuities are on the money.

We need to start thinking much earlier how we protect our children from us becoming a burden on us as well as finding ways of capping the costs of long term care for those already in the final stages of their lives.

I look to Government to work with the private sector on solutions to this. There is plenty of t work being done by academics, charities and by the NHS DOHand DWP, but we need to see a national plan emerge.

Bringing private pensions to the party

The vast majority of private pensions wealth is concentrated in the hands of a relatively small part of the population. If you exclude the great unfunded pension schemes run by government, second pillar pensions in this country (whether DB or DC) are a “rich man’s game”.

But they still account for more than £2trillion pounds of money currently invested , mostly in the UK. As mentioned above, this money is some extent social capital and a large part of it can be accounted for as “tax-forsaken”. This is why the Government has every right to intervene in its management.

Government has also got every right to determine how the £40bn of tax and national insurance it forsakes each year, is distributed. It is not a subsidy for the pensions industry, nor is it there to preserve the current status quo.

Where the tax-system creaks (as it does with the Annual Allowance and its taper) then some maintenance wok is in order. But if, once peaking behind the immediate symptom , the diagnosis is that there is a more fundamental issue with pension tax relief, then more radical surgery will be required.

Less subsidy – more incentive

There is an argument that we need to reduce the £40bn subsidy to pension savings. I think that argument ties in with the need to redirect money towards sorting out the issues we have with long-term care. I would support a reduction in pension tax-relief if it meant we dealt properly with the cost of social and medical care for the elderly.

There is another argument , which is no less pressing, that the money we allocate to incentivising those who need to save is actually subsidising the saving of those who don’t.

I would support moves to a flat rate TET system (with proper incentives) or a full TEE system (with proper transition). I do not think the current EET system is sustainable. Though it looks good in principle (David Robbins), in practice it is delivering 50% of the cost of pension tax-relief to 10% of people who need it most. The current system needs radical change.

A right to dream


My Dad – a trustworthy GP and local politician

I have found myself – without really meaning to – writing my own manifesto for change. I have a right to dream and – as one of the lucky ones who is well pensioned – I feel I have a responsibility to those who aren’t. This is my father in me.

I also have the means to pursue a dream of delivering the support to those of my age, so they make the right decisions on how to organise their later life finances. This is what I intend to do with AgeWage.

That right to dream of making a difference is something that I hold dear and it’s something I discuss with my small team and the wider team of advisers who help AgeWage. I hope that very soon we will be able to put some of our grand ideas into action and I will be writing a lot more about this in the next few weeks




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Guy Opperman stays our pension minister

This is not me lobbying  , this is me speaking as I find it.

It is good for pensions in general but specifically for the pensions dashboard, CDC and for ESG in our schemes.

And he’s a horse-loving amateur jockey to boot!

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Robin Hood , the Sheriff and the King


Just as we thought we were set for some uninterrupted Government, the Chancellor and the Prime Minister fall out within a month of a much delayed budget.

Just how much of the prepared budget belonged to Sajid Javid and how much to Dominic Cummings we’ll never know. What we do know is that the new budget will be delivered by Rishi Sunak who knows a bit about funds, comes from the charmed world of elite public schools and helped to save his village pub as a crowd-funder.

I have no idea of what is going on and whether this will delay whatever was going to be announced in the budget. But I’m with Jo Cumbo in thinking that the resignation will make it less rather than more likely that we will have radical tax reform (which may be why the FT is writing an article a day demanding it).

Claer Barrett’s opinion piece,   which appears in today’s FT, hopes the re-shuffle will buy more time for the consequences of “radical” tax reform to sink in. The trouble is that you can’t save £10m in tax-reform without it hurting someone and – as this blog has said again and again- flat-rate tax relief is not going to happen. It will have to a flat rate incentive paid mitigate the pain of TEE but a flat rate incentive is “TEE with a bung” unless it’s “TET with a bung”.

Claer quotes our old mate Will Aitken explaining why simply reducing tax relief for the higher rate tax-payers will lead to an exodus to non-contributory salary sacrifice arrangements which will lose HMT even more revenue (as they’ll not be collecting a lot of NI or income tax). It was only the prospect (presumably leadked to the FT of the bung being set at 20% rather than 30 or 33% – when this all got rather alarming!

Is this the Osborne funk (pt II)?

Famously, George Osborne ducked radical reform of pension tax-relief in 2016, not to scare back-benchers. Cummings and Johnson can’t have the same fears today but perhaps they are feeling some “uptown funk” and perhaps Javid was a little too much like the genuine reformer (who’s Dad drove a bus).

But this speculation will be sorted out by March 11th , when we’ll find out whether the Wickamist alternative is prepared to see through reform or not.

Those who argue he will have to find the money from some way will consider the £10bn plan a tax-raid.  Those who think Javid was genuinely trying to move the system from subsidy to the rich to incentive to the poor, will think Javid a latter-day Robin Hood.

We will wait to see if we get radical reform – or a consultation leading to radical reform in the second 2020 budget in the autumn) . If we get neither and we get some tinkering with the taper and mealy mouthed promise on the net-pay issue, we will be able to characterise Cummings as the Sheriff of Nottingham and Boris Johnson as King John.

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Are you a Betamax or VHS Trustee?

It’s been an interesting week for pension trustees. It began with an announcement from the Pensions Regulator that it was not going to require schemes to employ a pension trustee, continued with the amendment of the Pension Schemes Bill that could require trustees to be mandated to display the carbon footprint of a scheme (and change things if it isn’t progressing in the right direction) and ends with the announcement that they will have not one but two professional accreditation services to sign up to.

On this final point there is an obvious question, one asked by the editor in chief of Professional Pensions

Why two?

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As I understand it, the Association of Professional Pension Trustees which has heretonow been seen as part of the PMI is now divorcing  the PMI.  The relationship is still advertised on the PMI website but I understand we will not be seeing the two organisations as one for long. By the time you press this link – it may be broken

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My understanding that the cause of the schism was the APPT’s wish to offer accreditation bundled with a membership of the APPT while the PMI saw accreditation as a standalone service. In short, the answer to Jonathan’s question is that we have two accreditation regimes because the APPT and PMI have fallen out with each other over the commercials.

Unfortunate timing

It is unfortunate for trustees who are seeking to deem themselves more professional, that this should happen at this time . The job of pension trusteeship is highly valued by the Pensions Regulator and by those who manage pension schemes. In many cases , the professional trustee is instrumental to the scheme’s existence. This is the case with DB (where the existential threat is the loss of the employer covenant) and in DC where the threat is the failure to gain or the capacity to lose master trust authorisation.

I am not interested in , and in no position to, apportion blame or praise to either the PMI or APPT, but at a time when we are looking to consolidate, the creation of two rival accreditations is particularly unfortunate.

Like London busses, actuarial institutes, darts federations and of course video formats, two isn’t better than one and time will consolidate.

For now, we have to accept that a choice of accreditation is better than no accreditation but on Valentine’s Day, I’m sorry to report that the PMI and APPT appear to have fallen out of love with each other.


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Triple lock? – easy!

With a deft tweet , former Pensions Minister Steve Webb wakes us up to a startling economic revelation.

Trevor Llanwarne’s grim warning

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Trevor Llanwarne

In the last quinquennial review of the fund , the previous Government Actuary warned that by 2020 we might have to unwind the triple lock.

The triple-lock turbocharges state pension increases so that we can gradually align our state pension with the kind of benefits people expect from a first world country

Trevor Llanwarne (the then Government Actuary) warned that  the National Insurance Fund might not get further hand-outs from the Treasury to meet state pension obligations. He implied that we would have to start thinking of auto-enrolment as a way-out of re-rating our state pension to something we could be proud of.

You can read all about this in blogs I wrote at the time.

Martin Clarke’s brighter vision

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Martin Clarke

Martin Clarke presents an altogether brighter view of the future in his report to parliament on the current state of the fund.

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You don’t have to be a Government Actuary to see that things have taken a much rosier turn than anyone expected in 2015.

So what has happened?

Well the last 5 years have been good years for work and pensions, good years (unsurprisingly) for the Department of Work and Pensions.

Far from going back to the Treasury for more money, the Treasury (GAD) are now telling the DWP that the outlook for the next five years is set fair.Screenshot 2020-02-13 at 08.59.43

Gloomsters can point to darker clouds on the horizon after 2025 as we continue to feel the impact of higher numbers in retirement and lower numbers in work, but we are in the happy position of building up a positive (notional) balance on the national insurance fund, which should go a long way to improving the lot of those who most rely on the state pension – those on low retirement incomes.

What has happened to effect this happy turnaround is that we have had full employment and reasonable wage growth,  receipts of national insurance have boomed accordingly.

The projections forward show that we will have more than 6 months coverage from reserves to meet any shortfall in fallow years to come.

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I don’t want to overdo this but..

Predictions of the demise of the triple-lock are premature. We will get a state pension which looks a credit to our benefit system, assuming we hold our nerve and we don’t listen to the gloomsters and naysayers (I am conscious that I should be wearing a blond wig in saying this).

Sorry Steve but you have to fall in line with the Government Actuary right now!

We have moved on – thanks Karen!

I look forward to Martin Clarke’s first quinquennial with relish and hope that it can paint a rather happier picture than the one we created for ourselves in 2015.

A happier prospect for those retiring.

For as long as I have been studying announcements on the state of our future pension finances, I have been assailed by gloom and doom.

Thanks Martin Clarke for your upbeat assessment of our current position, your cautiously optimistic view of the next five years and your relatively relaxed view of what follows.

I don’t want rose-tinted spectacles but neither do I want a blindfold! This reports opens our eyes to a much happier picture of public pension finances than we could ever have imagined five or ten years ago.

We should be very happy.

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Martin Clarke

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London’s calling to #PASA2020

I can’t remember walking out of a pensions conference and into a punk gig but that’s what yesterday felt like when I left the PASA conference and walked into the Museum of London.

I was 17 when the album came out and my girlfriend bought me it for my 18th birthday.

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I loved the picture of Paul Simenon smashing his bass on the cover. I didn’t think I’d ever see the bass.

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You can remix songs on the album, you can read Joe Strummer’s notebooks (London Calling was first Called “the Iceage is coming”

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There are Penny Junor photos of the band – wherever you look.

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and you get to see the clothes the band wore

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It’s like being in their changing room

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For anyone lucky enough to see the band at that time , this exhibition will bring back memories.  I welled up as I stood here

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Thanks Joe, Mick, Paul and Topper. Thanks to the people who curated this and to the Museum of London.

And thanks to Kim, Lesley, Margaret and the other good people of PASA for running their event next to this great exhibition.

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It wouldn’t be right not to have the songs on this blog; here’s the whole four sides, slap on your cans, settle down and emerge in an hour a better person.

The exhibition is on till April 19th 2020.

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Now it’s a Pension “Green” Bill

Green pensions


The Government has introduced  radical new amendments to the Pension Schemes Bill  which allows it to force effective governance and disclosure of climate risk by occupational pensions schemes.

What’s “radical” is that these amendments give the DWP the power to lay regulations that change the way pension schemes invest.

I am told that while there is no immediate change to requirements, the DWP expect by this summer to be consulting on detailed  regulations which will include requirements proportionate to the size of scheme and proposed timings for compliance.

This will be highly controversial and has clearly been trailed to the pensions lobby. Writing in the FT , a couple of hours after the amendments were published, Jo Cumbo could report the PLSA  (representing schemes with 20m members) as commenting.

“We fully support initiatives that help pension schemes with assessing climate change risks,

However, parts of these new amendments appear to go significantly beyond current requirement for schemes to disclose what they are doing on scheme investment around climate change and would give unprecedented new powers to government bodies to interfere and request changes to private sector schemes’ investment strategies. If that’s the case it would set a dangerous precedent and be wholly inappropriate.”

This is no time for the PLSA to be arguing legal precedents. As I have been writing for three years, trustees and IGCs have been mealy-mouthed on their responsibilities towards the planet, preferring to hide behind legal niceties than take action as active shareholders.

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My initial impression is that this is an over-reaction from the PLSA, this is not an amendment that gives Government anything like the powers the PLSA suggest.

But clearly the Government has had enough of this shambolic procrastination and is giving itself the powers to enforce change.

Everything about these amendments suggests they have no doubt that they will get popular support for them, support they hope to be recognised by parliament.

It is a dramatic intervention

Here are the amendments, as clipped from the parliamentary website. You can read all the amendments in the bill for yourselves here

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The Bill suggests regulations that would require each scheme to have its own carbon footprint (4.1 (3) b and c).

It suggests that trustees will have to adjust their investment strategy if the assessment of the scheme’s contribution to climate risk is below target.

It implies a radical overhaul of the mandates set out to fund and asset managers to ensure trustee and manager compliance.

This is why the Bill’s amendments are controversial and this is why they need popular support.

Why this matters

Britain is to a large degree owned by its pension funds. Our companies, the money they borrow, the properties they rent and the infrastructure they use are part of our pension portfolios. Whether these are owned in funds that determine our outcomes (DC pension funds) or funds where employers take the risk (DB pension funds) is secondary.

Of more importance is that if Britain is to play a part in the global plan laid down in the Paris accord, it is going to have to manage itself better. In recent blogs, especially my blog about the lack of “passive activism“, I contend that fund managers have been allowed to pay lip-service to ESG. Rather than embracing the principles of sustainability, many managers have green- washed and they’ve been allowed to by trustees and IGCs who frankly haven’t been doing their job

Recently UKSIF -the UK Sustainable Investment and Finance Association (UKSIF), found that only one-third of trustees had complied with the new rules on trustees to disclose their ESG strategy. These rules are well short of what the DWP is proposing.

So far, the fiduciaries and managers that organisations like the PLSA and ABI represent have moved too slowly for Britain to have any chance of playing the part in decreasing global warming, we have promised.

The interests of Britain and more importantly the planet are well served by these amendments. I am surprised and delighted to see them in the Bill and hope that they will be in the forthcoming Pension Schemes Act.

If these amendments are enacted – the Act should be known not as the Pension Scheme Act but the “Green Pensions Act”

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A good day for master trusts

master trust3

Small DC schemes, bumped off the road.

The FT run a scoop this morning, predicting that today the Pensions Regulator will withdraw its proposals to require small DC plans to be run by “professional trustees” and urging  that most of the 8000 single occupational trust based DC plans merge with larger schemes.

The consultation response, due out today

This is a rare and happy case of the Pensions Regulator listening to the market. TPR’s original idea was to fly in professional trustees to run small occupational DC plans but it has now worked out that there are too few of these trustees to go round. In my experience there are very few pension professionals capable of governing DC plans which are a very different beast to manage than the Defined benefit schemes which are what PTs do properly.

Employers who wish to maintain self-determination in their DC plans will find that increasingly hard. Opportunities to self-manage investment strategies as participating employers within master trusts depend on the scale you bring to the trust; Tescos yes, the Frying tonight fish and chip shop- no. Similarly insurers are increasingly wary of advised defaults within their GPPs.  The proliferation of “best ideas” defaults that seemed such a good idea twenty years ago is now being reversed as advisers withdraw and IGCs and GAAs question the value that advised default investment strategies bring to members.

A good day for master trusts.

While the bulk of the 29,000 occupational DC schemes overseen by tPR are there for the interests of the owners of owner managed businesses (and are unlikely to be impacted by this), there are sufficient members and assets in the rump of single occupational DC plans to make an appreciable difference to commercial master trusts.

The smaller plans like Creative’s, Salvus and the Nations Pension are driven by entrepreneurial business people who will drive change through at the bottom end of the market. The larger consultancy owned mastertrusts  –  offered by Mercer, Aon and Willis Towers Watson (and to a degree Capita) will pitch to the larger occupational pension schemes.

All of the above have the advantage of being owned by consultancies, giving them access to employers who have traditionally engaged the parent for advisory and governance services.

They will compete against the stand alone master trusts which don’t offer vertically integrated investment propositions but are supported by strong parents. Smart (now largely owned by asset managers), NOW (Cardano), Nest (tax-payer) and People’s (the not for profits insurer B&CE) and BluSky (owned by Unite and JIB) are the key players in this section of the mastertrust market.

Finally there are the insurers, Aviva, Scottish Widows, L&G , Phoenix Standard Life and Aegon, all of whom have their own master trusts designed to compete against the consultancy and stand alone models.

This is a very strong part of the market and – since the authorisation process has been completed, it represents tPR’s new best hope of ridding itself of one of its most intractable problems (the single employer DC plan).

Will workplace GPPs be winners?

I think it unlikely that GPPs will pick up much of the fall-out from the dismantling of these 8000 DC plans.

There is little appetite among employers to pay benefit consultants to set up individual plans instead of trust based schemes, especially where a zero cost, zero risk alternative is readily available through the master trust market.

There are a few specialist providers such as Hargreaves Lansdown and Royal London who have value propositions that may appeal, but these require either high levels of conviction in self selection (Hargreaves Lansdown) or a wish to engage workplace advice (Royal London). Most insurers seem content to ride both horses with the master trust being the first string.

I don’t see GPPs winning out of this, this is a big win for master trusts.

A bad day for trustees?

I am sorry to see the concept of trusteeship undermined but I do not see professional trustees (whether corporate or individual) as solving the appalling standards of administration, communication and investment to be found in many of the schemes the Pension Regulator’s targeting.

Too often it’s been assumed that the skills of DB and DC trustees are interchangeable but they’re not. I’ve met a lot of professional trustees who purport to be targeting DC appointments who have neither experience or competence. DC trustee boards are usually ineffectual and simply divert employer resources away from the proper sponsorship of the DC plan (diluting the contribution rate).

There aren’t going to be many DC trustees going forward leaving many trustees looking to create a portfolio career having to find opportunities as fund NEDs , IGC members or sticking with what most know best – DB.

The FT also report that TPR have given up on

“their plans to force schemes to report the steps they had taken to improve the diversity of trustee boards after concerns were raised in its consultation that the measure could put off experienced and qualified individuals for applying for trustee roles”.


Actually today’s announcement will consolidate trusteeship as  well as consolidating DC plans. The Pensions Regulator appears to be accepting that trusteeship is a sinecure for the lifetime pension professional. The door is being gently closed on efforts to bring though new blood, occupational pension trusteeship will increasingly become a club that requires a long CV.

Where the big-stick approach is probably right.

I sympathise with the protests of Ros Altmann as made in the FT

“It is very disappointing that the regulator does not feel it is vital for pension schemes to have at least one professional trustee on its board. There are so many schemes whose standards of governance are lower than should be acceptable and just having a non-binding industry best practice standard will not ensure those who most need to improve will actually adopt the best practice,”

I don’t think tPR disagrees, the challenge for tPR is to be suffeciently brutal on failing DC schemes that they make it their business to fold as quickly as possible. The challenge for them in their closing days will be to select the right master trust for their members and ensure a smooth and effecient winding up of the trust.

It is not professional trustees that have had their day, it is the majority of DC trustee boards. The shame is that in losing these boards, we lose many good member nominated and corporate appointed trustees. These will be missed, sadly they are too few and too dispersed to amount to a reason to persist with the majority of the schemes they govern.


master trust 2

Comes from scale

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2020 Lady Lucy boating schedule


Once again, Lady Lucy is out on the river for most of the summer. I have two types of tickets.

Everyone can come to the weekend events (including extended trips on bank holidays). You and your family, friends and pets can come out on any of the days marked as free on the general boating schedule which can be found here.

Lady Lucy 2020 boating schedule


I am also doing all five days of Henley again. Wednesday is taken by my friend Mr James Biggs who organises his own party. The rest of the week can be booked here


Lady Lucy at Henley – 2020

There is a waiting list for all days so put your name down if the event is shown as full.

This great video shows you how the boat looks when on the river.

I very much hope to see you this summer, please contact me if you have any questions.

lady lucy latest

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Getting Smarter about how we retire

It’s important to get innovation into the workplace pensions we rely on. Smart has now got around half a million of us saving into its pension scheme and you can read more at http://www.smart.co/innovation .

Of course innovation for innovation’s sake is just smartypants showing-off . But where providers are looking to make it easier for take tough choices like what to do with our money when we retire, there’s a lot a firm like Smart can do.

AgeWage has been working with Smart on how Smart’s savers can understand their investments and get smart with how they manage their later life finances.

Levelling up

New firms like Pension Bee and Smart, can help more established firms like State Street and Legal and General – which own stakes in them. These partnerships are obvious.

Not so obvious is the capacity of these newcomers to show the wider market the art of the possible. I was very disappointed to see last week, the FCA accepting it isn’t currently possible to tell people how much they are paying for their pension management. I had a couple of providers phoning me up telling me I was wrong and the FCA was right.

But I notice that not all providers felt they couldn’t comply and Pension Bee said they could have told their policyholders the cost of all their funds. We shouldn’t let “can’t” dictate to “can”. This goes for the pension dashboard too.

It’s not just the new kids – ask Phoenix!

Phoenix who own Standard Life and a host of legacy pension books are (with the assimilation of ReAssure) holding more of our pension pots than any other life company in the UK.

Last autumn I spoke with their customer services Director , David Woolletts about Phoenix’s plans to improve things for savers. These include trying to find all policyholder’s emails and migrating old books of business from companies like Abbey Life onto new platforms managed by Diligentia (the Tata owned NEST record keeper).

This is how we migrate to a position where we can all see our data on request in real time and make decisions on how we manage our later life finances with the help of the devices we do everything else with.

Getting Smarter

We need to work with and get behind the kind of initiatives advertised here by Smart and promoted by Phoenix and many others. I have had similar conversations with Jackie Lieper at Scottish Widows and Peter Jackson at L&G. Aviva has its digital garage and I have meetings planned with Aegon. Many of the smaller master trusts like Salvus and Bluesky have been hugely supportive of AgeWage’s drive to understand the nation’s savings pots.

We are getting smarter and we will get to a point where real time information , passing through APIs will become the new normal.  I have written recently that I hope to see a race to the top on this kind of connectivity and I see plenty of evidence that pension providers are getting there.

Of course there will be those who lag and I worry particularly about the consultancies who do not have the resource or the incentive to operate open pensions as third party administrators.

We are getting smarter – but sometimes  too slowly!


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Are passive managers giving value for our money?

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These “big three” collectively vote 25% of the shares of the SP500

In the debate about what we get for the money we pay to fund managers , we tend to think of passive managers, not as managers – but as funds.

We can of course get access to indices by buying ETFs which reduce the cost of getting a market return to the package of derivatives within the ETF. But most of us buy passive funds , run by passive fund managers who charge us many times the cost of the derivative for something that ostensibly does the same thing. I’ve long wondered “what do passive managers actually do?”. I work accross the road from Legal and General, Britain’s largest fund manager and often nip in to their reception to read their papers.

When I chat with my friends there , they get very earnest about stewardship and explain to me that what a passive fund manager actually does is act as our steward – ensuring that the companies whose debt and equity we invest in , do what they say they do “on the packet”.

I have listened to these arguments respectfully , I was once lectured by Alastair Ross-Goobey for questioning whether this stewardship actually happened or whether his company (Hermes) just enjoyed a lot of good lunches with corporate managers. The lecture was very old school, it really wasn’t my place to question what he was doing.

My deference to passive managers appears to have been misplaced. I spent time yesterday (when I could have been watching the rugby) reading a very long paper

As the article is 118 pages long , I can’t publish it all on here, but you can download it from this link

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The article supports a view expressed in the Financial Times earlier this month that the Big Three passive managers are routinely ignoring the voting instructions of their proxies and missing out on chances to govern well. That article comes out or research by Share Action for charities voting their funds.

Here is the “abstract” that gives you a flavour of what goes on in the next 100 pages

Index funds own an increasingly large proportion of American public companies. The stewardship decisions of index fund managers— how they monitor, vote, and engage with their portfolio companies— can be expected to have a profound impact on the governance and performance of public companies and the economy.

Understanding index fund stewardship, and how policymaking can improve it, is thus
critical for corporate law scholarship. In this Article we contribute to such understanding by providing a comprehensive theoretical, empirical, and policy analysis of index fund stewardship.

We begin by putting forward an agency-costs theory of index fund incentives. Stewardship decisions by index funds depend not just on the interests of index fund investors but also on the incentives of index fund managers. Our agency-costs analysis shows that index fund managers have strong incentives to

(i) underinvest in stewardship and
(ii) defer excessively to the preferences and positions of corporate managers.

We then provide an empirical analysis of the full range of stewardship activities that index funds do and do not undertake, focusing on the three largest index fund managers, which we collectively refer to as the “Big Three.”

We analyze four dimensions of the Big Three’s stewardship activities:

  1. the limited personnel time they devote to stewardship regarding most of their portfolio companies;
  2. the small minority of portfolio companies with which they have any private
  3. their focus on divergences from governance principles
  4. and their limited attention to other issues that could be significant for their investors; and their pro-management voting patterns.

We also empirically investigate five ways in which the Big Three could fail to undertake adequate stewardship: the limited attention they pay to financial underperformance; their lack of involvement in the selection of directors and lack of attention to important director characteristics; their failure to take actions that would bring about governance changes that are desirable according to their own governance principles; their decision to stay on the sidelines regarding corporate governance reforms; and their avoidance of involvement in consequential securities litigation.

We show that this body of evidence is, on the whole, consistent with the incentive problems that our agency costs framework identifies.
Finally, we put forward a set of reforms that policymakers should consider in order to address the incentives of index fund managers to underinvest in stewardship, their incentives to be excessively deferential to corporate managers, and the continuing rise of index investing.

We also discuss how our analysis should reorient important ongoing debates regarding common ownership and hedge fund activism.
The policy measures we put forward, and the beneficial role of hedge fund activism, can partly but not fully address the incentive problems that we analyze and document. These problems are expected to remain a significant aspect of the corporate governance landscape and should be the subject of close attention by policymakers, market
participants, and scholars.

So what  do we get from studying the “Big Three” American passive managers?

Well – they don’t seem to be investing much in stewardship at all

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In the most extreme case of SSGA (State Street Global Investors) require each stewardship person to steward over 1000 companies,

Allocating $300,000 to pay each of these stewards, the total cost of running stewardship is a tiny fraction of revenues generated

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and relative to the $bn invested in companies you can see huge variances between the best (BlackRock) and Vanguard and SSGA who vie with each other for the wooden spoon.

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Whether you are looking at these big three beasts through the lens of human resource, financial resource of investment as a percentage of funds under stewardship, we do not appear to get a lot of value for our money.

These numbers may explain why the stewardship of the big three appears to be failing in its objectives (and why I was right to ask the question of Alastair Ross-Goobey).

So what about the UK?

In the UK , the big three American managers are supplemented by Legal and General and a few smaller players (much of the passive fund management for NEST is done by UBS).

The passive funds themselves now have governance boards and those who invest in the passive funds, amongst them the workplace pensions, have their governance boards and the FCA and tP{R are charged with governing the governors.

So why has there never been anything in any of the governance papers I have read, that has asked whether we are getting value for the money we pay for passive FUND MANAGEMENT?

I use the capitals, because I want to know the answer to the question I put to Alastair Ross-Goobey 25 years ago

“What do passive fund managers do all day?”

I am not a trustee, and so long as I keep on asking questions like that, I am unlikely to be one ever.

It seems to me that passive managers in the big three US firms don’t do much stewardship. Which is odd and disappointing. To quote Bebchuk and Hirst

In a recent empirical study, The Specter of the Giant Three, we document that the Big Three collectively vote about 25% of the shares in all S&P 500 companies that each holds a position of 5% or more in a large number of companies;

 and that the proportion of equities held by index funds has risen dramatically over the past two decades and can be expected to continue growing strongly.

 Furthermore, extrapolating from past trends, we estimate in that article that the average proportion of shares in S&P 500 companies voted by the Big Three could reach as much as 40% within two decades and that the Big Three could thus evolve into what we term the “Giant Three.”

Over to our fiduciaries.

The work done by Bebchuk and Hurst was originally published in November 2018, since when much has happened in corporate governance, most importantly the explosion of interest amongst the public in ESG.

By way of example, Pension Bee, one of Britain’s progressive pension providers has decided to conduct a major governance review on their managers _ L&G, SSgA and BlackRock, to ensure that they are getting value for their policyholders.

I hope that the article by Bebchuk and Hurst will be informing them as they try to get better value for their policyholder’s money. I hope that People’s Pension will be asking SSgA about the amount of money spent on their 4.5m members’ savings, to get better value from their savers. I hope that NEST and NOW and Smart are doing the same.

I hope that the IGCs, busy preparing their April reports , will be considering this year, what stewardship is actually going on in the funds they offer to those in workplace pensions and – this year – to those spending the money from their workplace pension pots.

And I hope that the FCA, DWP and tPR teams who are working on VFM regulation (especially as it touches ESG) will be asking the passive managers just what is going on at the passive managers. I’d like to think that Chris Woollard , as he moves from running the competitions and markets division of the FCA, to running the FCA itself, will be ensuring that it is not just the active managers who are kept under beady scrutiny.

Thanks to Emmy Labovitch

I was cursing Emmy yesterday, for destroying my enjoyment of the rugby and the boxing in the evening. She’d sent me the document and I couldn’t help read it. It is written in horrible American legalese, the sentences are long and complex and the arguments tortuous, but if you get a chance to read it for yourself- do.

Emmy keeps me honest, as good fiduciaries should, the PPF and many other British institutions are better off for her. This blog’s for you Emmy!

You can download the article – from this link

Or you can look at an abbreviated version of the paper via this slideshow

Posted in advice gap, age wage, FCA, pensions | 2 Comments

Treasury flies a pension kite on a stormy weekend

For as long as I’ve been advising on pensions, the weeks running up to the budget have been filled with rumours of draconian reductions in the subsidies available to the rich to featherbed their retirement.

This FT story has the Chancellor restricting tax relief to 20%, which has been discussed ad infinitum on social media but which is easier to talk about than do.

The only way you can do this is to take away tax relief altogether and replace it with a flat rate incentive, which – while it feels like the same thing, is quite different. There are implications for national insurance which is almost as big a tax for employers as corporation tax.

Many employers already operate non contributory schemes and many more  operate salary sacrifice schemes which allow staff to choose to swap salary for pension to reduce national insurance. If the Chancellor isn’t very careful, he risks driving all fully-witted employers towards salary sacrifice.

The mechanisms around paying pensions are complicated and I doubt that there is sufficient resource within the Treasury to properly model the cost of the mooted switch to a flat rate contribution of 20% by March. Get this wrong and Sajid Javid and the Treasury risk a humiliating climb down , akin to that suffered by his predecessor over social care.

So why the FT story?

The FT do not fly kites, my sources tell me that there is a working party in the Treasury who are working on reforms to the pension incentive system that costs close to £40bn a year. But you’d expect that. There is clearly not enough in the piggy bank to pay for the extravagant promises of the Conservative manifesto without breaking the tight rules set on borrowing, the only alternative to borrowing more, is taxing more and squeezing pension tax reliefs is the easiest policy to justify in terms of social equality. 50% of that £40bn goes to the 10% highest earners.

The alternative to taxing us more on contributions is to tax investment growth or reduce the twin perks at retirement – the 25% tax free cash sum and the break that allows us to get pension income free of national insurance payments. I suspect that there’s sufficient financial planning  based on the tax free sum for it be considered an entitlement. It is hard to take away what is considered an entitlement using a cliff edge. Anything other than a cliff-edge cut would see the immediate cashing out of remaining tax-free cash accross the board, leading to chaos and justified accusations of financial vandalism.

Extending the scope of national insurance to cover pensions in payment looks a more likely means of recovering some of that £40bn.

Rather than consider the FT story as idle speculation on a quiet Friday, I’d see it as the first stage in the softening up of the FT readership to a consultation process that will result in an announcement in the autumn budget. There is presumably enough juice left in the plans that were ditched in 2016 when the Daily Mail told George Osborne he wouldn’t have a back-bench to support him if he pressed ahead.

This is not the FT flying a kite, but the Treasury. It’s going to be a stormy weekend, let’s see how that kite survives it!

Posted in age wage, pensions, Politics, Treasury, welfare | Tagged , , , | 3 Comments

If we can do it for baked beans… we can do it for pensions

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Not so long ago, the then pensions minister likened choosing a workplace pension to choosing baked beans. There are many brands of beans on the shelf at different prices. Shoppers buy not on money, but value for money. They have high-level information about calories and ingredients and more detailed information about additives. They also have memory of previous purchases and how they played with family/customers.

“Choosing pensions , whether we are employers or individuals should be no harder than choosing our brand of baked beans”  – I think that sums up Steve Webb’s argument.

In practice it is very difficult to make meaningful comparisons between the value we get from our different pension pots and it’s pretty tough for employers to work out whether the workplace pension they chose when staging auto-enrolment is doing what it said on the packet.

I am told this was the message of Edwin Schooling Latter when talking on behalf of the FCA at Just Retirement’s. (Sadly I was presenting elsewhere and got to the conference late).

Why can’t we know what we are buying?

This was also a week when the FCA delayed the disclosure of the “additives” on the pension can of beans.  For more details, read earlier blogs

Of course not everyone reads about the emulsifiers on a baked bean can, for me it is enough to know that information is available to me. But many do, and people notice if this information isn’t there.

The pensions equivalent of “additives” are the costs we pay for the management of assets, the hidden ingredients that can be as damaging to our wealth as nutritional additives are to our health.

And what about experience?

We will buy baked beans many times but we make meaningful purchasing decisions on pensions only once or twice in a lifetime. Our experience of our pension is controlled by the marketing of the pension provider, not by the good the pension did us.

Schooling-Latter’s point was, as I understand it. that we should have a way of comparing experience of a pension pot in a reasonable way.

By the end of today, my little start up will have explored the experience of 1 million pension pots, establishing the internal rate of return achieved on each and comparing this to a benchmark we have established with Morningstar.

We know which workplace pensions have delivered good outcomes and which are yet to do so. We don’t have detailed information on why , but from the conversations we are having with fiduciaries, providers and employers, we are beginning to understand what has worked over the past twenty years and what hasn’t.

With the co-operation of legacy providers, we hope to explore the ocean depths and do similar work on pension data going back to 1980 (we have a little- not enough).

We hope , through this work, to help first fiduciaries and then savers understand what has happened to their savings. How the savings have been influenced by the growth strategies of providers and how de-risking has contributed to or taken away from saver’s outcomes. We will also be able to see the impact not just of overt charges (AMCs and so on) but of the additional costs of the additives.

Finding out how your savers have done.

We are dedicated to confidentiality, if you are managing or have fiduciary duties over a book of people’s savings, we will analyse that book on an anonymous basis and we will only share your data with you.

The big data set we are creating, based on 1m + ratings, is expected to swell beyond 5 million by the end of the year, we will share this big data with Big Government because we want people like Edwin Schooling Latter that the private sector can help and partly because we want to counter the negativity of many in influence who think that allowing people to see what they are buying – might do them harm.

We do not have to have a list of additives and their contribution to performance listed in large print on the label (the label would indeed need be too big). But we can find ways of letting this information be shared at point of sale in a conspicuous way.

PS20/02 fails to find that way, I blame myself. I should have responded vigorously to the consultation with an AgeWage solution that I am now clear about. All is not too late and if IGCs, trustees, providers and employers want to know how AgeWage can report to them on the impact of cost and charges , you need only mail me at henry@agewage.com and we will analyse your data for free and deliver you an AgeWage report showing you what has actually happened with your savers.

I will also show you how we intend to develop our service to help the savers understand their workplace savings and compare them with savings in other pension pots.

If we can do it for baked beans – we can do it for pensions

AgeWage evolve 2







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“State of the Pension” address


After doing a 30 minute address to to CIPP in 10 minutes, I’ve been called back to do another one – only this time I’m first on – which means I could gab on for ages and make sure no one got a coffee break.

You can see my slides here.

I’ve tried to keep things simple this morning and talk about what I know, which is what people are talking about. I’m dividing my talk into three Technology, Investment and Tax.

The state of the pension idea sadly didn’t make it into my slides. I thought Trump was really good the way he presented rubbish. Other orators have pulled off the same trick, it seldom ends well.

My state of the pension address is aimed at an audience of payroll experts who do the heavy lifting for pensions. I don’t want to paint a picture of pensions in crisis (they aren’t) but of pensions in change.

I wrote down Technology – Investment – Tax as the three things that need to change. If it takes some seaside humour to remember a talk, I’ll stoop that low.

Technology -Supporting the tough decisions at retirement

The big shift which the actuaries are picking up on is actually 40 years old this year. If you count the accession of Margaret Thatcher in 1979 as the start of market liberalism, then we have been dumping risk on ourselves for four decades.

The climax of this process was the announcement by George Osborne that no-one would have to buy a pension (annuity) again. Instead we have the opportunity to do our own AgeWage with the help of Pensions Wise, a diminishing band of IFAs (wealth managers) and some half-baked technology that could come out of the oven a pension dashboard.

When I bought my first wi-fi, I was told that my “system” was only as good as the weakest link. Our pension system’s weakest link is the support given to those with DC pots as they convert them to retirement plans.

One great change that is going to happen if we are to convert saving success (auto-enrolment) into pensions success will be the successful introduction of investment pathways. I do not think there is sufficient support for ordinary people in the “strait of Hormuz” between the calm savings waters of the Persian Gulf and the Indian Ocean of later life.

The only solution I can see to the job of engaging and supporting people through this process is through new technology. We should not consider ourselves suffeciently financially adept to work out what to do by reading up or by talking to Pensions Wise, we need to be able to see what happens to our finances using tools we can download from the cloud onto the founts of all wisdom, our phones , tablets, lap and desktops.

The dashboard can find us our pensions but we need tools to shape our pension pots into retirement plans.

Investment – getting people involved with what our money does.

We cannot become a nation of Warren Buffett, but we can learn from our own sages. Martin Lewis doesn’t do investment but he can show us how it differs from saving

We are  all investors. When we discover this we are like the poet that doesn’t know it, like the fool in the French comedy who delights in discovering he is speaking “prose”.

We invest our pensions but we know not where, or how or why. When we wake up to the fact that our money could be doing good or bad, we are anxious it does good. When we stop to think what the cost of doing good might be , we’re not so sure. When we discover that our investment can do good and help us retire, we start thinking like investors. Hopefully more of us will act like investors, that’s what gets things changed.

Taxation – wrong money – wrong people – wrong time

Another great change that needs to happen is to the pension taxation system. I admire David Robbins’ defence of the purity of EET but he is alone in offering an intellectual apology for the current system. For most of us the current pension taxation system is practically bust, delivering the wrong money to the wrong people at the wrong time

There is  practical reason to leave pension taxation alone; that is that changing it will cause huge transitional problems which the nation will not like. Those paying higher rate tax  will absolutely hate change.

We have one of those windows to make change happen, right now. The alignment of a new strong Government, a new start on Europe and a clean sheet of paper makes radical change to the pension taxation system more likely than at any time in the last decade.

The State of Pension – restoring or creating confidence

Payroll people have every right to be sick of pensions. They have had to do the heavy lifting on auto-enrolment and they’ve had precious little thanks for it. It’s payroll who deliver the key messages to people on their pensions – they make and signal the deductions that keep us saving and investing.

They are becoming – faut de mieux – the “go to” people in organisations  for information on the workplace pensions chosen by employers. They can deliver the messages on investment – if only we let them.

But for now, we are still telling those who manage our pensions that they cannot talk about pensions – that in telling people where to go for information, they are offering advice. While we should be empowering payroll to be our advocates , we are cowering them into compliance with regulatory “project fear”.

The way we restore confidence in pensions is not by droning on about judicial disputes like Mcleod and Sargent, or the case of WASPI, this is just noice. We don’t empower people by going on about GMP equalisation , de-risking . governance diversification and all the other things pension people like to talk about between themselves.

What we need to do is to make pensions relevant to the way we live our lives today.

  1. We need to make technology work for pensions – so that people have ways to get information about their savings and how to spend them
  2. We need to turn savers into investors by helping them understand what happens to their money
  3. We need to find a way to make pension taxation an incentive to save rather than a subsidy to savers.

Payroll can unlock workplace pensions to millions of new savers. Payroll do technology that pension people don’t. Payroll know how workers think and interact with them every day; if given the chance they can explain how investing works. Finally, payroll are the collectors of our taxes, working with HMRC using Real Time Information.

Winning the hearts and minds of payroll to be pension ambassadors is high on my wish-list when I think how to restore or create confidence in pensions.


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Workplace GPPs, incompetence not governance drives policy.

The argument in a nutshell nutshell

The FCA has decided to relax rules that would have made the management of workplace group personal pensions very difficult. These GPPs are run by insurers and a few GSIPP operators (Hargreaves Lansdown most prominently). They had argued that their products weren’t meant for this kind of disclosure and the FCA listened and agreed.

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I actually agree with the argument that the GPP and GSIPP operators are putting forward. However I disagree with the relaxation of disclosure requirements. It is not disclosure that is wrong, it is the product. It is not disclosure that should change, it is the product.

Why so many funds?

The tend towards unlimited fund choice goes back to the early 1990s when the concept of open architecture first took hold. Actuaries worked out that you could make as much money out of a product reinsuring someone else’s fund and offering it at your price on your platform as manufacturing the fund yourself. Organisations such as Skandia realised that insurers were better as fund distributors than asset managers and sold the public what we might now called “platform as a service”.

The regulators looked kindly on this, not digging too deeply into the commercials , but seeing unlimited choice accross from broad range of asset managers as a “good thing” for consumers.

The reality was quite different. The underlying funds were loosely wrapped by insurers but execution could be awful. The performance gap between the underlying fund and the insurer’s (reinsured) version could be 1% pa or more. The crimes against the consumer were manifold

  • Extra fees for the wrapper
  • Poor execution (most purchases were arranged over a fax machine)
  • Contributions kept in suspense accounts
  • Liquidity held in the wrapper (rather than the fund)

These problems could be magnified when the consumer was presented with a fund of funds where contributions could trickle through a variety of structures , each with dilution levies that sucked the lifeblood out of any performance gains.

These open architecture platforms soon became a racket and gave rise to a new , cleaner form of open architecture offered by technology focussed platforms such as FNZ, Transact and Cofunds which sped up transactions , cut down on costs and reduced the need for reinsurance.  These new light-touch platforms were adopted by SIPP providers like AJ Bell and Hargreaves Lansdown which quickly improved standards all round.

Well not quite “all round”. So long as advisers could be paid commission, the old style GPPs were valuable – at least to those who sold them. There became an art for insurers in paying advisers through complicated charging structures that meant insurers remained attractive – even when their products weren’t. The most artful of these structures was the ‘active member discount” which was basically a tax on people who changed jobs.

When the commission gravy train hit the buffers at the end of 2012, commission continued to be paid on products sold prior to the introduction of RDR and it wasn’t until 2014 that the charge cap and the abolition of the heinous “active member discount” saw workplace pensions become “safe havens”.

By then , advisers had all put disappeared from the workplace. Without commission on new sales, advisers stopped selling or advising on GPPs. The huge fund ranges which had been set up to give advisors something to talk to policyholders about, remained and do so to this day. They are an obscene relic to three decades of mis-management which has had everything to do with volumes and margin and nothing to do with value for money.

Insurers an SIPP providers will now try to bury the bad news about legacy funds in IGC reports (which they’ll do their best to make sure no one will read). Even if people do read them, there’s no certainty the IGCs will present the information. Read the 2019 OMW IGC report as testament.

Why people like me , Ros Altmann and Jo Cumbo are angry

The workplace providers who lobbied against proper disclosure on these funds are being lazy. These outlying legacy funds serve no useful purpose, like the Rump Parliament they are hanging around for no good reason, I am reminded of Oliver Cromwell’s speech

Ye sordid prostitutes have you not defil’d this sacred place, and turn’d the Lord’s temple into a den of thieves, by your immoral principles and wicked practices? Ye are grown intolerably odious to the whole nation; you were deputed here by the people to get grievances redress’d, are yourselves gone! So! Take away that shining bauble there, and lock up the doors.

In the name of God, go!”

That is the speech that the FCA should have made to the insurers and SIPP providers, replacing MPs with “non-disclosed funds”.

To my friend Tom McPhail who is trying to quietly usher us away from the scene of the crime,

I would be Cromwell

“Is there a single virtue now remaining amongst you? Is there one vice you do not possess? Ye have no more religion than my horse; gold is your God; which of you have not barter’d your conscience for bribes? Is there a man amongst you that has the least care for the good of the Commonwealth?”

For Tom knows that if a precedent can be set in this Policy Statement that allows platform providers to plead “too hard, too heavy” here, they can plead this elsewhere.

We are angry because platforms and fund managers are given a licence here to duck disclosures elsewhere. If they have licence, so do advisers operating DFMs and so 15 years hard work getting to MIFID II and PRIIPS is undermined. If this is the shape of post Brexit regulation to come, then I will have none of it – nor I suspect will Ros or Jo.

Between them , the IGCs and the FCA could have done for the GPP fund legacy what they did for exit charges. Instead the FCA has let incompetence and laziness drive regulatory policy and it’s a damned shame.


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Pension incentives – a foundation for change.

At the time of posting, Tom has already had a mammoth response

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If you are reading this on Tuesday Am 4th Feb, you can add your views but the numbers look consistent whenever I’ve looked. People think the taxpayer should be incentivising not subsidising saving.

Thanks to Tom for getting us this insight, it is of course what the Treasury were thinking when they launched their last consultation on tax relief – subtitled “an incentive to save”.

There may be a wide variety of reasons people prefer “incentive” to s”subsidy” but I suspect they can mostly be put in the “leg-up not hand-out” bucket.

Time for a concerted voice?

Since the general election, it’s felt like we’ve come out of a Narnian hibernation. Everyone is expressing the need for reform that has pent up in three and a half years of policy winter and the will for change is emerging on blogs and other social media rather than from Government.

It seems  we are ready to debate, though not yet ready to get behind one remedy for what we consider a broken system.

I hope that what will emerge out of this noise will be someone authoritative who will take personal responsibility for bringing consensus.

This will mean establishing, as Tom is doing, the basic principles. If we can agree that saving is an incentive, then that can be a touchstone. Similarly if we can agree (as Darren Philp was arguing) that the Government should have outcomes in mind , then we can think of the behavioural impact of changes on different savers and target the right outcomes.

Retirement saving does not happen in a vacuum, the impact of greater saving has to be viewed in the context of our benefits system, the cost of meeting the health needs of an ageing population and the wealth tied up in non income generating assets such as our houses.

Finally, we need to understand the impact of change not just on those in retirement (increasing) , but on those still working (decreasing). How can we best distribute the cost of retirement savings incentives? What levers are best pulled, and what released?

Let us go back to the 2015 consultation.

It is within the power of Government to create a system of savings incentives targets a certain set of outcomes , at a pre-agreed cost which is spread between various interested groups fairly.

But for this to happen we need the consensus to be created independent of the vested interests of the pensions industry.

If this debate is conducted properly , it will be conducted by people who can genuinely be thought independent, people who the public can trust and who parliament will respect.

Such people exist and they are people who are making themselves known on social media. They are talking amongst themselves because they know now is a time for change.

I very much hope that an independent consensus will emerge as a result of these experts doing the hard work needed to address the big questions being raised.

No one comes to the table without some baggage, but it is the job of leaders to ensure the cleanliness of the process so that whatever emerges from these discussions has value.

I think that the Government Consultation on savings incentives in 2015/16 is the starting point, that the questions asked in that document are still relevant five years on and that all that has changed since then, is the successful completion of auto-enrolment and enhancements in technology that give HMRC improved powers of implementation.

The long-term trends towards freedom of choice and away from collective solutions persist. The absence of support for those making life-changing choices about how they want their savings paid to them remains an issue.

Above all, the fundamental issue, identified by Tom remains. The tax system is currently subsidising saving for those who have money to save, it is not incentivising saving for the needy. We are actually excluding 1.7m of the needy from incentives through the net-pay anomaly while 50% of the cost of tax-relief , goes to 10% who need incentives least.

Pension incentives – a foundation for change

I had long thought that the answers would come from Government and that the voices of those outside of Westminster would not get heard.

My opinion is changing as I understand that Government does not have the resource to find those answers by itself and that there remain institutions set up and maintained by the private sector that can help resolve what appear intractable problems.

Of course there are conflicts (as mentioned) but there are ways of driving through conflicts where the will for change exceeds the inertia to retain. The case for reform of the current pension tax-relief system was well made by Tom McPhail in a letter he published and is republished here.

So strong is the case for reform, that I see it as inevitable. The exact shape of reform is down to Government to legislate , but the foundations for the Government’s decisions can be established by the people who are governed.

I suggest that now is the time to have a people’s cabinet – dedicated to establishing the foundations of tax-reform – speaking to Government as all great campaigning movements do, with respect and with authority.

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“A pension at 15?” – maybe not!

It’s fun keeping my brain attuned to other people’s pension problems for the Times. I’m glad I did this one with my friend Ros Altmann. Thanks to David Byers for this cerebral nutrition!


Tina Foxall, 51, a school exam invigilator from the West Midlands, wants to start investing £50 a month for her son, who is 15.

She has been so dismayed by the appalling interest rates on offer from high street savings accounts that she is considering ignoring them completely and simply starting a pension for him instead, but is not sure how to do it.

“Starting to save for him in a pension would give him an amazing start in life,” she says.

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Illustration ELISSA FLYNN

“But I don’t know how you start a pension for a child. What would be the most tax-efficient way of doing this?”

Tina would also like to know about any competitive tax-efficient savings accounts that she might have missed.

She is not willing to take great risks with her investment and would like anything she pays into to be covered by the Financial Services Compensation Scheme (FSCS) although she is interested in hearing about stock market options. She also wants an account that he could not touch until he is at least 18.

Our experts recommend
With any pension, the money that you put in is boosted by the government. A Junior Sipp works exactly like a self-invested personal pension (Sipp). The holder, who must be under 18, can benefit from tax relief of 20 per cent on contributions. Parents or legal guardians can pay in up to £2,880 a year, which will be topped up by £720 from the government to a total contribution level of £3,600, says Henry Tapper, the founder of Age Wage, a pensions advisory service.

He believes that a pension may not be the most effective way to invest for a 15-year-old, given that he will be able to get the money only when he is 55. If Tina would like him to have access to it at 18, Tapper suggests a government-backed Junior Isa. The best rate is from Coventry Building Society, at 3.6 per cent — the ninth consecutive year that Coventry has topped the tables.

Junior Isas, just like the adult versions, are tax-free savings vehicles. Parents, grandparents and friends can put a total of £4,368 into a Junior Isa for a child each year.

As with adult Isas, the money can be invested in cash or stocks and shares, or both. You can hold only one of each type at any one time — one cash Junior Isa and one stocks and shares Junior Isa — but you can switch your account to a new company as often as you like. If an authorised investment company goes into default and is unable to pay claims against it, the FSCS will cover up to £50,000 of your investment. It will protect up to £85,000 held in a regulated savings account.

Screenshot 2020-02-03 at 14.39.25

Tina Foxall wants to invest £50 a month for her son

Baroness Altmann, a former pensions minister who is now a consultant, suggests that Tina could pay into a Lifetime Isa for her son once he turns 18. The government-backed products aim to encourage people under the age of 40 to save for a first home or retirement by offering a 25 per cent bonus (up to £1,000 a year) on anything saved. If you use the money before you are 60 for anything other than a first home worth up to £450,000, you have to pay a penalty that more than cancels out your bonus.

“A Lifetime Isa would gain an extra £12.50 for every £50 invested monthly — but the minimum age is 18,” she says.

There are also some relatively competitive interest rates elsewhere in the junior savings market. Halifax’s kids’ savers account pays 4.5 per cent, fixed for a year, on deposits of between £10 and £100 a month, but doesn’t allow withdrawals.

“Most children’s savings accounts have an upper age limit of 15, so if Tina wants to go for this option, she needs to open the account before his 16th birthday,” says Rebecca O’Connor from Royal London, an insurer.

“The rates on these accounts usually last a year before reducing down to less than 1 per cent. So she should then move the money to whichever is the highest paying account on the market to maximise interest payments.”

For an ultra-safe alternative, Baroness Altmann suggests Premium Bonds. “They pay no interest, but monthly prize draws give the chance to win £25 to £1 million,” she says. “Premium Bonds are completely guaranteed by the government, so they can be cashed in with confidence in the future. She can buy them online through the NS&I website, by phone or by post.”


Taken from The Times – Portfolio


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From Blackfriars to Port Talbot

My favorite John Ralfe article is called “don’t cash in your final salary pension” and it contains this passage.

If you are wealthy enough — to the extent that there is no risk of running out of enough money before you and your spouse die, no matter what — then the pension guarantees are worth little and it may be sensible to cash in.

But most people are not so wealthy and their pension is a large part of their overall retirement wealth, so those guarantees are very valuable.

Despite eye-watering multiples for cashing in, do not think now is a clever time to take the money and invest in equities. The higher expected return of equities versus bonds is just the reward for the risk of holding equities. It is not a guaranteed “free lunch” or a “loyalty bonus” for long-term investors.”

John wrote his article shortly after Merryn Somerset Webb had written “If I had a final salary pension, I’d cash it in” and distinguished FT columnist Martin Woolfe had told us he’d done just that.

How can we reconcile our leading financial paper on the one hand advocating pension liberation and on the other filing report after report on the dangerous consequences?How can Jo Cumbo and Merryn Somerset Webb be colleagues?

Transfer windows

Last Friday was Brexit day, it was also #transferdeadlineday, the last day football clubs can transfer players in the “January window”.

Merryn’s article, written in 2016, argued that the opportunity for what John called “eye-watering multiples for cashing in” could be “the last gift you’ll ever get from the bond bull market”. As it turns out , the bond market continues to give us 40+ times multiples (a £10,000 pa pension often gives a transfer value of £400,000 or more) but the incidence of people transferring is falling fast.

The window for transferring is closing but not because the bond market is running out of steam, but because insurance companies are refusing cover (at economic rates) to financial advisors who want to advise on these transfers.

Insurers see the incidence of claims as too high and this is based on evidence of future claims they will be getting from the FCA and actual claims being upheld through FSCS.

The FT reported on the latest FCA statements on pension transfers and I reminded the FCA that in 2016 they had brought this issues to their public’s notice.

Jo Cumbo was upset by this , thinking I was accusing the FT of hypocrisy.

and again

For the upset, Jo – sorry.

Should the FT be charged with double standards?  OF COURSE NOT

It was not just Merry and Martin who were raising awareness, Ros Altmann did too. Ros’ position was clear and precisely the position that John Ralfe was advocating

If you are wealthy enough — to the extent that there is no risk of running out of enough money before you and your spouse die, no matter what — then the pension guarantees are worth little and it may be sensible to cash in.

Minutes after I had juxtaposed Merryn and Jo’s articles, I was speaking at the Institute and Faculty of Actuary’s Great Risk Transfer Debate to a hall full of actuaries some of whom had taken CETVs themselves.

I made it clear in my closing remarks that it was quite possible to support both Merryn and Jo’s positions for precisely the reasons laid out by John Ralfe.

Could I really accuse Ros Altmann, who has done more than anyone in Britain to publicise the need to protect the financially vulnerable, of deliberately provoking the practices the FT are now stopping?

Ros is quoted in Jo’s article in the FT this week

Screenshot 2020-02-02 at 07.36.17

Almann’s position is consistent and so is Cumbo’s. What I told the actuaries was that they had every right to take on risk if they could manage that risk. However , where risk is transferred without proper explanation and due regard to the consequences, the risk transfer is BAD.

Horses for courses

I know of steelworkers, (Rich Caddy is an example), who knew the risk they were taking and are explicit in praising their adviser for allowing them the right to their money. The level of financial capability evidenced on the Facebook pages of the steelworkers is increasing and clearly some who took transfers are growing into the task of managing their money.

There are similarly people (like me) , quite capable of managing a CETV who chose not to. I prefer not to worry about the markets but to get paid a regular income and there are many like me.

“Financial Capability” is not the only measurement of suitability. Many successful entrepreneurs are deeply cautious retirement planners because they take their risks elsewhere. They may be brilliant in business but cautious on the home front. This is how I understand Paul Lewis’ decision to keep his retirement funds in cash.

The opportunity cost of not “investing” are enormous, but so is the deep satisfaction of knowing the money will be there, year after year. For me, it is another reason to stay healthy!

Rich Caddy and I are friends, but our behaviours are different. Rich has had a steady job in the steel-works and will have a retirement where he will play the markets, for me , it’s the other way around (without the steel works).


From Blackfriars to Port Talbot

Jo’s offices are a few yards from St Paul’s and a couple of hundred yards from where I’m writing this blog.

Port Talbot is a long way away from the City of London but Jo managed to make the steelworker’s pension decisions real to those in pensions.

Merryn and Jo represent two ends of the spectrum of this debate. Merryn advocates financial freedom for those who can handle it and Jo writes about the impact of dumping risk on those who have no means to handle it.

Society is not equal, we need Merryn and Jo, we need John Ralfe and Ros Altmann too.

Most of all, we need a proper understanding of this great risk transfer that has seen £80 bn flow from collective pensions  to the personal management of individual citizens.

Thankfully , the IFOA are on the case and I hope that the debate they have started will lead to a better understanding of how we can travel from Blackfriars to Port Talbot and back again!

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My ethics are my own

Screenshot 2020-02-01 at 08.56.08

I appear to be under fire on twitter for claiming I am investing ethically by purchasing units in the LGIM FutureWorld fund.

I am aware that this fund is not strictly an ethical fund and that my investment isn’t an “ethical investment” according to the definitions dished out by the FCA and reinforced by trade bodies such as the Investment Association and the PLSA.

But as the LGIM Future World fund meets my criteria for ethical investment and my ethics are my own , I will stay with it.  I don’t think “ethical” should go the way of “advice” and become the property of  regulated experts.

I suspect that the controversy over this fund begins because Pension Bee, that offer FutureWorld on their fund platform, have written to LGIM , asking for an explanation as to why the fund invests in Shell.

Shell have responded to the open letter from Pension Bee with their open letter back. I like the transparency ,

Can we invest money ourselves to meet our ethics?

For most of us , this is unlikely. It is possible to purchase a licence to Morningstar’s Sustainalytics. 

It is possible to subscribe to various feeds such as Sarah Wilson’s Minerva,  Julia Dreblow’s  SRI services   orAlan McDougall and Tom Powdrill’s PIRC

With all this research to hand , you could build your own portfolio of stocks and/or funds and claim to be executing your ideas self-suffeciently.

However most of us will need to take advice from an expert if we are to really crack this. It would appear that IFAs like David Penny and Al Cunningham are now expert enough on what is ethical investment, to put themselves forward for this on twitter and I thoroughly recommend them

They do not have any divine rights on “good and evil” so you will have to work out with them how far you want ethics to guide you in your stock or fund selection and to what extent you are going to “outsource execution” to these fine fellows.

For those who want their investments fine-tuned, there is nothing better than an high class IFA like Al or David Penny.

But for the ordinary investor like me….

I have gone another route , a collective route. I have looked at a few funds which claim to do what I want to them and I have selected FutureWorld because I get it at a very good rate, it is convenient for me to use and because the fund managers are round the corner from where I work and I can have a coffee with them from time to time.

Do people know what they want?

When I became an IFA back in the early 1980s , I found that it was easy to sell the Friends Provident Stewardship Fund because the people I talked with were often Methodist Ministers. They were attracted to this fund for obvious reasons.

35 years later, people are still choosing funds out of conviction. I was pleased to see the results of Pension Bee’s research of 2000 of their policyholders. A sample of the findings were posted on Twitter



What these tweets tell me is that many people have strong ethical convictions that drive what they want from their investments.

If Pension Bee are to be believed, their conviction is not being matched by the courage of fund managers which appears to be lacking.

I hope that Pension Bee will find a way to offer funds to their investors that meet their investors expectations so that they do not have to consult with experts.

Because the vast majority of people who invest with Pensions Bee or (like me) in Legal and General Workplace Pensions, rely on Pension Bee and L&G to present them with funds that do what they want.

This is why we have fund governance

While I have found LGIM excellent at providing the fund choices I want, I have (of late) found L&G’s platform governance deficient and I’ve said so both to its executive and to its IGC.

Pension Bee appear to be doing what L&G and their IGC is not doing , which is talking to its savers about what they want.

I may find out in the past few months this has changed, and I look forward to reading the IGC’s Chair’s Statement in April to prove me wrong. But right now I think I prefer Pension Bee’s approach to fund governance and if they offer me better fund governance than L&G, I may move to Pension Bee for LGIM fund management in future.

My ethics are my own, and so is my money!


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What are those actuaries up to now?

Screenshot 2020-02-01 at 05.58.54

“The Great Risk Transfer” baffled the journalists who were conspicuous by their absence at this breakfast meeting.

Pension Age reported “IFoA to investigate transferring of risk onto consumers” as if the actuaries were campaigning  for Which?

Professional Pensions reported the “IFoA launches investigation into DC”

IPE, while accurately reporting the title “UK actuarial body to dig into ‘the great risk transfer’, thought actuaries were excavating “the trend for financial planning risk to be transferred from institutions to individuals”.

Infact , the actuaries have been troubled for some time by the prevailing trend to individualise risk taking. To my shame I had been ignoring correspondence fro them, thinking it was promotional material when in fact it was asking for my opinion.

Here is an extract from a letter last year

The Presidential team here at the Institute and Faculty of Actuaries (IFoA) recently identified that there appears to be an ongoing trend for the transfer of various risks from governments and institutions to individuals, a trend which lies behind a range of relevant issues for the actuarial profession, such as:

  •         Pension accumulation – the shift from DB to DC provision and transfer of investment risk

  • Pension decumulation – the Freedom and Choice agenda and transfer of longevity risk

  • General insurance – the granular pricing of products leading to a reduction in pooling

  • Social care – lack of protection against the risk of catastrophic care costs

  • Investment – prevalence of non-advised decision-making leaving individuals exposed

Like the journalists, I was missing the point. The IfOA were not just investigating the symptoms, they were after the cause. The big question is

Why are we dumping risk on individuals which we used to shoulder collectively?

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Myra Harrison gave us a political insight

In a captivating video, Myra Harrison gave us a perspective from down under, putting the question in a political context. She identified five prevailing trends

DB/DC; As individuals we need to take a greater responsibility for capital accumulation

Long term care; Governments are looking to offload responsibility for social and medical care of the elderly onto the elderly and their families

Gig economy; employers are moving away from security of employment , offering short-term contracts or work under self-employment

Back to work; an expectation that those out of work have responsibility to find work , rather than have work found for them

Privatisation ; an acceptance that the private sector has an increasing role to play in healthcare

Harrison characterised this trend as a “rejection of structural explanations for behavioural explanations”, the new social contract was being driven by market liberalism.

For Harrison, this trend started in the late eighties and continues to this day, I was sitting next to one of the architects of CDC, he looked depressed.

Is big data “Mitigating risk” or “leading us down the garden path”?

There were further presentations on promoting numeracy and on what Pensions Wise was doing nudging people towards better outcomes. Unfortunately the numeracy presentation was undermined by the answer to one of the exam questions being wrong (if you are presenting to actuaries get your maths right) and the MAPS presentation was spoiled by the granular information being unreadably small. As with so much that has come out of MAPS, we were denied the detail.

Much better were the presentations from the floor which told us what was being discussed at each table. These reverted to the practical issues confronting actuaries today (see above) but also covered concerns that big data could be abused, nudging us to harm. Actuaries voiced concern that much insurance purchasing was through inadequate web-based searches and that regulation was not keeping up.

One actuary went so far as to claim that “greed” was short-circuiting the proper use of information.

What are these actuaries up to now?

Between now and the end of April, these actuaries are going to be setting down their concerns and what we can do to mitigate the risks they see in this long-term trend towards “the democratisation of risk”.

Having been absolutely hopeless in responding to calls to help shape the agenda, I will try to do better and both promote their efforts and add my (non-actuarial) tuppence worth.

I think the people who turned up on a January Friday morning to discuss this topic are heroes and the best hope that society has of getting some top-class thinking on a subject that is so big, the journalists can’t get their head round it, so obvious that we wonder why we’ve never thought before in this joined up way.

Whether you are an actuary or not, you are invited to add your thoughts to their call for evidence


(I’ve done mine and it only takes a few minutes)

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More argy-bargy in pension’s tax-trenches


Blessed are the peacemakers, until they wade into a debate on tax-relief. The saintly Darren Philp , maybe picking up from comments from ex DWP govt actuary Andy Young, tried to change the debate.

To summarise his argument, he suggests we start with a given objective, perhaps to get everyone to the retirement living wage (PLSA one) and work backwards to the solution that gets us nearest that. This is along the lines of papers from Demos in the 1990s on compulsion which tried to define the minimum people should live on in older  age to be self-sufficient. At the time Demos was talking about compulsory savings, now we are talking about savings incentives (we live in a kinder age).

I had thought that Darren’s placatory paper would soothe the savage brow of commentators such as David Robbins, Stuart Fowler and of course John Ralfe. Infact it inflamed the debate to bush-fire ferocity.

I was initially fooled by the ambiguity of David’s syntax into thinking he didn’t like the tax treatment of pensions, but then spotted that 1/X which takes you to ten microblog thread explaining why

What then happens is ugly and only for die-hard aficionados of this debate. John Ralfe comes in with a two-footed tackle , Robbins retaliates and about 50 tweets later, the debate ends when Robbins throws a bucket of cold water in JR’s face

What  David and John fell out about (and why it matters)

To make the argument clear I am going to have to use my words not David’s and I apologise in advance if I have read him wrong.

David has spotted that John’s argument for flat rate incentives of 30% on all pension contributions are in fact giving with one hand, after the other hand has taken away all the tax-relief in the first place.

What happens is that you find yourself paying anything between 0 and 45% more in tax on all the money going into your pension whoever pays it. That isn’t an incentive , it’s a tax grab and John is actually describing the T in TEE.

The incentive is that the taxman will then pay back this money into your pension at a flat-rate of 30% meaning that  (unless everyone’s salaries are jiggled about) you actually get 30% more into your pension than you did before.

But of course everyone’s salaries would have to be jiggled about because people would object to having reduced take homes.

David is saying that this would be a “Sales pitch” played on the British public designed to dress mutton up as lamb.

David is of a view that you either stick with what we’ve got (his favoured option) or move to a full TEE system (which so far only I have advocated).

It is of course extremely unkind on John to suggest he has anything in common with Ros Altmann and David should be censored for pressing the nuclear button.

What David is doing, is showing what John’s approach actually does. It gives the Treasury a lever to regulate the loss to the revenue from pension incentives by allowing it to raise or lower the 30% figure. 35% makes us all happy, 25% makes us sad.

And of course HMRC still get their pound of flesh when we retire (at least 75% of it.

What John is describing could be a transitional arrangement to TET, David’s summary point

So John Ralfe is much closer to TEE than he’d like us to think..

If anyone has read my blogs on all this, they’ll know I am much closer to John (and Ros’) position than John would like to think. Paying flat rate incentives is just a way of making TET acceptable and to get to TEE, you just reduce the incentive and give more tax at the back end.

Where Ros Altmann falls out with me, is that I don’t have such a problem with this as she does. She tells me that this would mean the end of pensions with everyone cashing out day one, I say that the money comes out tax free – but only if it comes out as a pension.

Where I differ from David Robbins  (and where I agree with just about everyone else) is that I don’t think the current EET (with NI relief on the T) is just or sustainable. It is not directing all this lost tax-revenue at those who need incentivising but at those who don’t.

Which leads me back to the start of the conversation and the pacific Darren Philp. Surely he is right to take up Andy Young’s challenge to Tom McPhail

As Darren says, there is no easy – publicly acceptable – answer to the issues around pension tax-relief. I like Darren’s approach and think the best way for the Treasury would be to model what would happen using EET, TEE and John’s incentivised TET with the benchmark being getting everyone to say 75% of the Retirement Living Wage.

If Gareth Morgan is right and 50% of deemed pension income comes from the tax system, then the model is going to have to be comprehensive and include all the costs of later life, including the impact of not charging NI,  the components of UC, the State Pension and of course the strain on the NHS and social care of an ageing demographic.

I’m not one to sympathise with the Treasury, but that’s a pretty big model!



Posted in advice gap, age wage, pensions, Treasury | Tagged , , , , , , , | 2 Comments

Pension transfers- actuaries have nothing to crow about.


I am cross that an established firm of actuaries get on the front page of the FT for kicking IFAs for their advice on pension transfers

Mark van den Berghen, principal and senior consulting actuary at Buck, a consulting firm that lodged the FOI last year, said: “This latest information from the FCA is alarming and should worry all involved — providers, advisers, and scheme members.”

I get crosser still when Buck’s MD, sees this observation as a cause for celebration on linked in.

Screenshot 2020-01-29 at 05.50.46

I have read Buck’s research which falls into the “no shit Sherlock” bucket.

Buck’s FOI request shows that the current system may be producing outcomes that are unlikely to be in the best interests of the majority scheme members. With many of these members switching from DB schemes to DC schemes, it’s likely they will be exposing themselves to investment and longevity risks which could impact their standard of living in retirement.

Actuaries know about investment and longevity risks and they are at their best when they explain these things to us , as Stuart Macdonald has been doing on twitter this week

Actuaries are at their worst when they hold their nose over the behaviour of others , when that behaviour was as a consequence of failings in the system which result from actuarial assumptions being applied and not explained.

Such is the case with Pension Transfers.

If you go to  http://www.finalsalarytransfer.com  , a site run by Tideway Investments, you can input your defined benefit pension and find out the likely range or transfer values.

Screenshot 2020-01-29 at 05.58.43

You might well ask why something so simple as a pension of £10,000 a year might attract such a wide variety of transfer values. Clicking on the left hand box gives you a partial explanation.

Transfer values are individually calculated by your scheme’s actuaries and values will vary from person to person and scheme to scheme, so we have given a range within which most transfer values should fall. As a guide to where you might be in the range:

  • The nearer you are to retirement the higher up the range you should be

  • The more generous the annual increases to your pension in deferment and in payment and the larger the widow/er’s benefit, the higher up the range you should be

  • If you are in a funded state-backed scheme, your transfer value will likely be lower down the range

  • If your scheme has a large deficit, your transfer value could be significantly lower

  • If you are in an unfunded state scheme, you will not be offered a transfer value.

Actually, the biggest factor driving the transfer value is the discount rate used to establish how much money the actuary needs to set aside to meet the future promise. That discount rate can vary from the gilt rate to the return on equities and – because of the way compounding interest works, can mean that a scheme that invests in equities gives low transfer values and one which invests in gilts, gives high transfer values.

When a scheme moves from an equity to a gilt based investment strategy (when it goes defensive and “de-risks”, transfer values shoot up. This is what happened at the British Steel Pension Scheme in March 2017. Some steelworkers found their transfer value almost doubling – and they didn’t get why.

People who had taken transfer values at the lower rate, started moaning that their mates with the same benefit, were getting more than they were. The confusion that ensued snowballed into a crisis in Port Talbot and in Teeside.

Around this time I started writing articles on how transfer values worked, this led to Al Rush asking me to explain things at a workshop run by my actuarial colleagues at First Actuarial. What started as a meeting in a hotel ended up being the first Great British Transfer Debate in an aircraft hanger outside Peterborough.

At this even, my then colleague Alan Smith, explained how transfer values worked and to this day, this is the only such lecture I have heard being offered by the actuarial profession to IFAs .

The failure of the actuarial profession

As the Great Pension Transfer Debate was going on, I was trying to talk to the BSPS trustees about the trouble that I and others (including Al Rush and John Ralfe) could see coming. We had been invited onto the pages of the steelworkers Facebook pages where we found steelworkers trying to make sense of what was going on. At first it looked likely that BSPS would go into the PPF, then a deal was done that would allow a second BSPS to emerge and workers were asked to choose between going into the PPF or BSPS2.

But most workers were much more interested in news that they had a third option, news that came their way from IFAs who were explaining this option, often in a very bad way.

Here is a little poll carried out by one steel man on the Facebook page , in October 2017 – around the time their “Time to Choose” period began.

poll bsps

Unfortunately, my proposal to the Trustees of BSPS were rejected. They were  that a transfer helpline be established and that resources be pumped into explaining transfer values and why they might not be the best thing for members to take,

Instead, BSPS, following a tendering process, set up a guidance helpline which could not deal with pension transfer issues. Ironically, the firm appointed to provide this guidance has now been stopped by the FCA from giving the transfer advice it was best known for. The tendering process was established and run by a firm of actuaries.

Speaking to the then Chair of BSPS, some months on from Time to Choose, I asked why it hadn’t occurred to the Trustees that so many members were minded to transfer, he pointed to his years of running the scheme where transfers were unheard of.

Why are defined benefit transfers so high?

I have written blogs on this many times and it always come back to the same thing. It is because most defined pension schemes have de-risked to a point where the discount rates have fallen to a level where the transfer values are often a multiple of 40 times the pension forsaken.

The Trustees supposedly choose the investment strategy but they are often strong-armed into de-risking as a result of zealous actuaries and zealous regulators who see their jobs of maintaining scheme solvency as the big thing. This is why BSPS de-risked.

So the reason why DB transfers are so high is because of the advice of actuaries and the reason why Mercer now estimate £80bn has transferred out of DB schemes in the last 5 years is because IFAs have advised that the money can go. Undoubtedly the FCA are right and a lot of that money shouldn’t have gone- for a whole load of reasons.

But in all this, I do not see where Buck Consultants or almost any of their rivals were actively involved advising members or their advisers or indeed the trustees and the sponsoring employers of what was going on.

Actuaries not doing their job

Yesterday I published a blog by a couple of IFAs which contained the following statement.

Our experience of large actuarial firms has been that they purported to advise the rank and file of the say 2700 employees of the large Lincoln company that they provided pensions to. The problem was that they failed to communicate with, let alone understand, the individual members and only ever consulted with the top management of that company

This is what happened at BSPS and what has happened to countless DB schemes which have collectively shed £80bn.

For actuaries to point fingers at IFAs from ivory towers is wrong and it makes me mad. For them to congratulate each other on getting onto the front page of the FT for pointing to the open stable door, beggars belief.

They had the power to guard that door and they and the trustees could and should have done more to protect those members who took transfer values against their interests, from doing so.

Sure the FCA could have done more by micro-managing the process, sure the Pensions Regulator should have understood the consequences of de-risking at member level and sure a lot of IFAs were greedy and opportunistic.

I worked for a firm of actuaries and even First Actuarial could have done more.  Actuaries simply failed at their job – which is to get people’s pensions paid.

Actuaries have nothing to crow about when it comes to what we have seen happen. They should accept their share of the blame and be contrite, they should not seek to promote themselves, as Buck are doing, on the back of a “wise after the event” report.

crow 2

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Will IGC’s be stung into action by the Bee?



I’m pleased to see that research conducted by PensionBee,  has revealed a rapidly emerging mainstream consensus among 2000 of their customers regarding where – and how – they want their money invested.

Screenshot 2020-01-28 at 05.51.39

Over 80% of those surveyed want  transparency about which companies their pensions are invested in, along with information about their business activities. More than half of respondents across all age groups would prefer to balance making money with creating positive social outcomes, while a further 16% of all respondents would get behind entirely removing companies that focus solely on profit at the expense of social outcomes.

  • 61% of consumers would like to see an active screening approach towards tobacco companies, with more than half of those (35% in total) favouring outright removal. This is consistent across all age groups and particularly pronounced among women (74% vs. 57% of men).


  • 63% of consumers advocate for investing in an ‘engage with consequences’ approach when it comes to oil companies, with 15% favouring outright removal and 21% opting for a do-nothing approach.

  • 61% of consumers want providers to remove companies investing in banned weapons from their pensions. This is consistent across age groups, but the preference is higher amongst women (82% vs. 53% for men).

  • 65% of consumers would like pension providers to engage on their behalf, both privately (33%) and through public voting (32%) while a further 12% advocated for a straight removal of companies based on ethical concerns.

In addition to revealing an overall desire among savers for a more transparent approach to pensions investments, the findings also indicate that younger savers are more inclined to take decisive action, with 44% of savers aged 30 and under favouring outright removal of companies that are accused of breaking international laws (vs. 35% of those over the age of 50). The data also indicates that women are more prone to making ethics-driven decisions, as evidenced by 82% of female respondents opting to remove all companies that make banned weapons.


How is the pensions industry doing so far?

Auto Enrolment has led to a £400 billion boom in pension saving, with 13.3 million UK employees now actively invested in a workplace pension. An estimated 90% of these savers have automatically invested in a “default” fund selected by their employer.

Share Actions’s research has shown that pension providers and trustees have paid scant attention to the environmental, social and governance preferences of their members, including climate change and international conventions on human rights.

PensionBee’s research shows a growing gap between the views of modern pension savers and mainstream default pension products.

It’s a shame that the Government ditched a mandatory requirement for trustees to survey pension savers on their investment values . Judging by Pension Bee’s survey, it  removed a critical catalyst for change.

thumbs down

At least one company’s listening!

It looks like Pension Bee aren’t just going to put this research on the shelf. CEO Romi Savova clearly’s in no mood to sit on her hands

Pension investments have the ability to transform the world we live in while generating healthy returns for savers. We are ready to kickstart the necessary change and will be considering appropriate actions for our investment plans following these survey results.”

and Pension Bee’s Clare Reilly continues in the same vein

Our customers have made their voice clear: pension savers should benefit financially and socially from their investments. We do not want government reforms for environmental and social concerns to be reflected in pensions to become a tick-box exercise

Screenshot 2020-01-28 at 05.51.39

A message to trustee -IGC and GAA chairs

Last year’s round of reports saw plenty of talk and pretty little action on responsible investment.

You should be requiring the platform , fund and asset managers you oversee to be clear about their intentions to adapt to the new world we are living in.

At the same time you should be doing what Pension Bee have done, and talk to savers about what they want

Where there are options to upgrade to a more responsible approach, these  should be tested  to see whether adopting them would have a positive, negative or neutral impact on saver’s outcomes.

You should be reporting back to your savers on options for developing defaults.

I know , from talking to progressive providers, that much of this is being done, but there is still much to do.

My analysis of this year’s IGC reports will focus on whether these conversations are being had and what will be done in 2020, to ensure that by April 2021, responsible investing will be embedded in all workplace pension defaults.

Screenshot 2020-01-28 at 05.51.39

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

Regulator fines Regulator


Robin Ellison

Robin Ellison has too refined a mind and too fine a writing style, for his thoughts to be left languishing on Linked in. Not since the days of John Quarrell has there been such a dissenting voice, speaking against  the  scope-creep of regulation.

This beautiful article mocks our masters with Robin’s usual gentle irreverence. He is beyond hoping for change and yet must return to his theme another time. 

Schadenfreude has a bad name; it is not usually gracious to delight in another’s misfortune.

But a broadcast on BBC Radio 4 January 26 2020 (Something understood) on the topic suggests that there are times when it is acceptable, and now might just be one of them.

The FCA is having a bad time at the moment; it has lost its chief executive, it has been ordered to pay for an error on its register which caused serious loss to an IFA, and now it needs to write to 160,000 people about their DB pension transfers because around 80% of the advice given was sub-optimal (ie ‘bad’) (FCA on pension transfers)

But worse, much worse than this, was the £2,000 fine it has had to pay to The Pensions Regulator because its Chairman’s Statement on its pension fund was also sub-optimal. The size of the fine is relevant – it is the highest that can be imposed. For trivial breaches the minimum £500 is the norm; £2,000 suggests the breach was very serious indeed.

Of course, the FCA could always appeal – and they would almost certainly be successful. A judge in the First-tier Tribunal at the end of 2018 suggested that the legislation empowering TPR to impose fines was probably invalid. The decision for some reason is not on the usual case-law websites but I’m happy to make copies available on request (see Moore Stephens Master Trust v The Pensions Regulator [2019] 050 PBLR (018), 14 December 2018).

The sight of one regulator fining another regulator is in some ways delicious to observe. But it also makes the point that there is now no reputational cost to a fine. If even regulators are fined, fines are simply a normal incident of running a pension scheme.

How much better it would have been if one regulator had had a coffee with another regulator or pension trustee chairman and suggested that next year the statement should be better, and explained what it thought what the fault was.

This sanction is simply grandstanding, and brings regulation into disrepute. The FCA is entitled to whinge, but it also is guilty itself of grandstanding; it has issued a ‘Dear CEO’ letter complaining that firms are giving unsuitable advice, not preventing consumers from falling victim to pension and investment scams, not encouraging their clients to claim from the ombudsman and charging excessive fees.

What has the FCA been doing since 1986? It may be that consumers would be better off to relinquish trust in the regulator to protect them, and take out a subscription to Which? instead. It would be cheaper and more effective.

Meanwhile just to continue the note on pensions and the arts: Mick Herron (a friend) has just published ‘The Catch’ in the States, one in a very successful series of thrillers. The hero, of course, is a part-time pensions administrator. Pensions and spies have a long-standing connection, remember Bruce Willis falling in love with his pensions administrator in the Red and Red 2 movies? What is is about pensions administrators that makes them so attractive?

Finally, back to the FCA. It has set out a list of complaints against the asset management industry (Siobhan Riding, City watchdog targets asset managers, FT, 23 January 2020) following the Woodford imbroglio and concentrating on liquidity mismatches. It is inevitable that regulators fight the last war, but an article in the same issue of the FT (Joe Rennison, Meet the new bond kings, FT Big Read, January 23 2020) explains how computerised portfolio trading fixes liquidity issues. Problem solved.

Screenshot 2020-01-27 at 06.11.35

Posted in age wage, FCA, pensions | Tagged , , , , | 2 Comments

FCA’s stick is out, let’s see some carrot!

carrot stick horse

What’s happening at the FCA

In January, the FCA have published a series of letters making it clear where its focus will be in a new “post Brexit” decade. The timing is important as the FCA is not only facing change as we decouple from European supervision but facing the challenge of changing CEO. We now know that Chris Woollard will be interim CEO following the imminent departure of Andrew Bailey, we do not know if that appointment will be permanent but Chris represents continuity with the past and as head of the Competition and Markets division has had influence over almost all aspects of the FCA. His appointment has been greeted well.

There have been three Dear CEO letters,

  1. To the general insurance market; this is a reminder about the risks of bad conduct and seems aimed at the culture in general insurance firms. From my experience this has a lot to do with alcohol and the old school tie.
  2. To financial advisers; this is the strongest statement yet on behaviour around DB transfers. The FCA seems to have worked out that going forward, PI insurers will do its dirty work for them, the question is about the past. Many advisory firms face an uncertain future over advice given on transfers and this letter will be giving them little comfort.
  3. To asset managersthis blog has noted that the asset management industry has got away quite lightly following the damning 2017 Asset Management Market Review. This third letter makes it clear that the FCA is still on the case and lists a number of areas in which asset managers are failing.

I suspect that these letters are designed to be read not just by authorised firms , but by European Regulators keen that Britain does not decouple too far and allow Britain to become a regulatory back-door for poor practice,

I’m pleased to read these letters , they are strongly worded but even in tone. They are timely and are clearly being read.

Taking on vested interests

I was particularly pleased to read the Asset Management Portfolio Letter

Asset Managers have privately considered themselves too important to the UK economy to be much concerned with regulators, let alone local regulators. This letter talks about key risks of harm that Asset Managers pose to their customers or the markets in which they operate.

Harm comes as a result of failings in five areas

  1. Overall standards of governance, particularly at the level of the regulated entity, generally fall below our expectations.
  2. Funds offered to retail investors in the UK do not consistently deliver good value
  3. Asset Managers fail  to identify and manage conflicts of interest.
  4. They have made inadequate investment in technology
  5. (Lack of) operational resilience has led to deficient systems which could cause harm to market integrity or loss of sensitive data.

And this is just for starters.

Moving on to specifics, the FCA (clearly with Woodford in mind focus on failings in liquidity management.

They find weaknesses in the implementation of new governance structures and point to the Senior Managers Certification Regime (SMCR) as a way of delivering high standards of governance (not a compliance tick-box exercise);

They are demanding that these governance structures complete value assessments on the funds they oversee to weed out funds which charge for what they are not giving (closet trackers)

They are looking at the role of Authorised Corporate Directors (ACDs) ,such as Link (which oversaw Woodford) and Gallium (which has overseen entities like the Vega algorithm and Strand Capital (well known to British Steel transferees). It is especially interested in the conflicts of interest that arise when an ACD

“cannot oversee the fund properly because, for example, it is concerned to avoid a loss of revenue from the investment manager if it were to offer more assertive challenge”

The letter also tells asset managers to get on with transitioning away from Libor benchmarks and to invest in the systems that allow proper reporting on items such as MIFID II. We hope that the 2020 IGC reports will not contain another round of remonstrances concerning the non-availability of data from fund managers on what funds were actually costing saving money into them.

Put together , this is as powerful statement of intent as we have seen since the publication of the AMMR and this bodes well for greater transparency in future.

It has to be noted however that there is little in this letter that wasn’t in the AMMR and we are over two years on. Now is the time to name and shame the managers that are doing harm to the public and doing harm to asset management.

Why we should be behind this strong approach

There is a very real fear that as we leave Europe, the FCA drops its gloves and allows the consumer to get it between the eyes. Britain cannot become an offshore back-door to bad practice. There are plenty of asset managers who see “regulatory arbitrage” as part of their business model and we cannot become a “soft touch”.

The shift towards greater transparency is all about data management. If asset managers feel they can continue to play tiny violins over Mifid II reporting , then not only will they hold up the work of trustees and IGCs in protecting consumers, they will give a cue to those managing pension funds to join the string section.

The pensions dashboard is a prime example of a consumer driven project which is being held up because of lack of investment in systems. Harm is happening and third party administrators and in-house admin teams should not be able to point to deficiencies elsewhere as precedent for their own failing.

The average margin of asset managers was stated as 36% by the FCA in its AMMR, there is ample money in the asset management industry to pay for an overhaul of systems to deliver. Where asset managers lead, we hope others will follow. We live in an era of open banking, we want open finance and the FCA can demand the asset management gets on with it.

2019 was a year of scandal for retail asset managers. Woodford showed how easy it could be for a “name” manager to run a multi-billion pound asset management business without proper regard to solvency, the ACD was hopeless as have been other retail ACDs. These failures suggest failings in independent governance in these funds and deficiencies among platforms in understanding what they were offering (indeed promoting) to retail customers.

The FCA’s approach is impressive but…

Taken together , these three letters are impressive. But they depend , to be effective on the FCA enforcing the remedies in its many initiatives.

These cannot be enforced in isolation, they need a willingness on the part of general insurance, financial advisers and asset managers to want to comply and to whistle-blow on bad behaviour.

The FCA must work with the good to eliminate the bad and encourage those who are doing good things by holding them up as an example.

Sticks work,  carrots work too!

carrot and stick

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Open pensions; – the opportunity …and the threat.

Screenshot 2020-01-25 at 06.10.42

Darren Philp’s a passionate guy and you should read his piece in Professional Pensions on how we should allow the Pension Dashboard to be part of the open finance initiative.

He even has a Mary Poppins moment

Apps and aggregators,

tools and calculators…

can all help people more effectively manage their lifetime finances.

We need to embrace this way of thinking otherwise we risk becoming irrelevant.

Darren is pictured (above) in the games room at Smart pensions, I’ve been there myself. Behind him are the great 19th Century mansions of the West London elite (and the coachman’s mews) he’s facing a wall of Smart tech that represents Smart’s engagement with the Open Finance technology.

It is not just Smart, there are plenty of financial technology firms that are finding ways to be relevant

Pension Bee has shown how by ceaselessly championing the customer’s right to their data, they can build a business based on the principles of the dashboard. Data aggregation leads to pots of money flowing into the Pensions Bee Sipp.

Penfold recently raised £2m from the market to deliver digitally pensions for the self-employed

Software as a service providers like Abaka and MoneyHub are delivering new ways for leviathans HSBC and Mercer , to become relevant to their customers. Andy Cheseldine, who’s chair of both Smart and HSBC master trust, joke about how we – technologically challenged as we are, are inextricably bound up in this Fintech revolution.

The enterprise platforms that began with FNZ and Transact and have developed to Embark and Diligentia are enabling the sharing of data by migrating books of poorly hed and managed data to new open-source enviornments.

There are new players in the advisory space , Open Money , Nutmeg, Wealth Wizards and Multiply AI are developing nudge technologies that guide people towards suitable products. This is surely the direction of travel for investment pathways.

PensionSync have led the way in linking payroll to pension providers making “data transfer by spreadsheet” a dirty phrased.

And from the depths of academic thinking, voices as various as Con Keating, Iain Clacher and Chris Sier are looking at applications of the blockchain in the administration of pensions – using smart contracts.

The free-flow of data

Data is the new money; I sat in a juice bar last night and watched the people ahead of me pay for their drinks, I was one of the few people who used a card, most were paying with their phones.

For a large part of the population, money seldom touches their wallets, many don’t have wallets or purses, the advances in fast payments mean that a swipe of the phone can transfer money in PayPal into a flat white, without any visualisation of the three one pound coins my Mum would have found at the bottom of her handbag.

It is this world that Darren is pointing too and it is the people I was watching that Darren is referring to when he writes

Open banking has started to revolutionise how we manage our finances. This will only continue as providers of financial services realise that they risk being quickly overtaken if they are not delivering what people want and need.

People want to see the value of their accounts on phones and they want to spend the money they have in their accounts as they like.

The idea of pension freedom is ultimately, people capacity to spend from their pension account and budget based on their spending patterns using the tools that are available to us on open banking apps like  Starling, Revolut and Monzo. MoneyHub is a classic example of how people can regulate their spending to ensure that they remain solvent.

It is small wonder that MoneyHub is partnering Mercer in delivering an app to those who have money in Mercer administered DC plans. MoneyHub is managing the slow adoption of API technology which, once the pension dashboard becomes a reality, will become the norm.

Here is Darren again

Those in the industry that are trying to unnecessarily lock down the content of the dashboard, or who are arguing for only a single dashboard, are outdated and behind the times. It is time we really start delivering for the current and, importantly, the next generation of savers, otherwise we risk pensions becoming increasingly irrelevant.

When will open data go mainstream for pensions?

Darren isn’t a lone voice. Emma Douglas, who runs L&G’s DC pension business (and is also a NED at Smart) is also to be found writing in the pages of Professional Pensions.

Screenshot 2020-01-25 at 07.02.02…the mass of data stored by pension providers is often fragmented and split across multiple formats. However, developing tech can help scheme managers to bring different data sources together, analyse data and predict future trends, ultimately helping them to run schemes more efficiently. Legal & General, for example, has moved 2.4 billion rows of data since starting its own project to create a cloud-based digital platform for pensions – and this only covers a third of our book of business.

It is encouraging that Phoenix are also looking to migrate the multiple formats of their data onto the Diligentia Platform, making it possible to plug and play apps from a single data source. Surely this is the way forward for the pensions dashboard. Phoenix will, on the acquisition of ReAsssure, own the majority of the UK’s pension back-book, including L&G’s.

You can now see your Scottish Widows pension on your Lloyds Bank statement and see aggregated data on your banking app. Scottish Widows are already aggregating to their parent and pioneering the technology that can link them to the dashboard

Super aggregators like L&G, Scottish Widows and Phoenix will speed up the pace at which we can move towards a pensions dashboard. I sense that those at the top of Phoenix, including new CEO, Andy Briggs, get it. I know that Nigel Wilson gets it and I have a good insight into what is happening in the upper reaches of Lloyds Banking Group – they get open finance too

Who will be at the back?

We have seen with the adoption of ESG (and to an extent open-banking) , how quickly an esoteric idea can go mainstream. I suspect that we are already witnessing the start of open pensions on an industrial scale.

Firms like Smart, Pension Bee, Multiply AI, Open Money, MoneyHub, Abaka, Wealth Wizards, Nutmeg and indeed AgeWage are in the van and will hopefully be rewarded for pioneering.

L&G , Phoenix and Scottish Widows are mobilising their data and won’t be far away. Aviva has its digital garage in Hoxton and where others go, the likes of Royal London m Aegon and Prudential will follow.

But there is a third article on data in Professional Pensions that hints that there are many pension providers at the back. Guy Opperman, the Pensions Minister warns

Screenshot 2020-01-25 at 07.02.32 “Schemes can’t just wait for legislation, they need to improve their data quality now so that it is ready. [The] dashboard will help savers, therefore it’s in everyone’s interest that pension schemes are getting accurate, up-to-date information in place to help ensure the new services work well.”

Behind the progressive few, is a vast hinterland of pension administrators who are not thinking of the future, they are thinking of their short-term financial futures and not investing in the new technologies that can free up their data.

The genii is out of the bottle. Up and down Britain, fintechs are opening up finance and opening up pensions. Digital Dashboards are not the exclusive property of MAPS but available to anyone who has a phone, a tablet or  a laptop or a PC.

If you are not making your data available to data aggregators, it is not they but you who will be looking foolish

You  will increasingly be isolated from progressive providers. Apps like MoneyHub and AgeWage will show data only partially available on their dashboards. People will get fed up with the laggards that can’t show data.

Screenshot 2020-01-25 at 07.07.44

An AgeWage dashboard (incomplete)

People will want better than to see incomplete information with whited out areas on their apps , waiting laggard administrators to respond to data requests , weeks in arrears of those who offer on-line access.

People will take commercial decisions on the basis of expediency and move money away from pension providers who do not offer them the benefits of open pensions.

They want to see their dashboards, complete in real time and till we get to this point, pensions will continue to be the poor relation of open banking , indeed open finance/

Screenshot 2020-01-25 at 07.07.19

How we’d like people to see their pensions, with complete relevant information

Thanks to Professional Pensions

It’s a journalistic coup on behalf of Professional Pensions to bring together three articles that show a prevailing zeitgeist.

Those of us who are campaigning for better access to data salute and thank you!

Posted in advice gap, age wage, open pensions, pensions | Tagged , , , , , | Leave a comment

Retirement’s also about debt

If you look at the Trustee board for StepChange, Britain’s largest charity dealing with the impact of debt, you will see three people familiar to the pension community

Sue Lewis (right) – now a trustee of People’s Pension and formerly of the FCA’s consumer panel

Helen Dean(center) – CEO of NEST

Lesley Titcomb (left) – formerly CEO of The Pensions Regulator.

It is very good that pensions people are doing this work and a reminder to me that retirement for many people, is very much about dealing with debt.

Any blog that is about retirement, should remember that getting old doesn’t stop you getting into debt. For me, as I build AgeWage, StepChange is a reminder that dealing with debt are as much a part of the AgeWage as managing savings.

Problem debt and the social security system

Adam Butler and Josie Waner of Stepchange have written an excellent report on how social security payments , made through the Universal Credit system, are not helping those in extreme poverty.

The headline statement in the report has been reported in the Guardian

Like the pension taxation system, Universal credit seems to have been devised to rob from the poor to feed the rich.

Screenshot 2020-01-24 at 07.34.01

These are shocking statistics and Adam and Josie’s report pins the cause of much of their client’s pain on Universal Credit.

In particular it is the wait for Universal Credit to arrive that causes the most hardship.

Screenshot 2020-01-24 at 07.56.48

And the report tells us that the newly introduced early payment loans are simply spreading the pain .adding to a list of deductions that the DWP can make from Universal Credit.

Screenshot 2020-01-24 at 08.00.03

Including everyone?

Not only does Universal Credit make life harder for those out of work, it makes it bloody for those in work.

Gareth Morgan – who does more than anyone I know in the private sector , to help us understand the complexities of social security has written passionately about how Universal Credit unfairly taxes the poorest.

Here is Gareth’s blog on the fate of the £300 Christmas bonus given to staff at Greggs https://benefitsinthefuture.com/greggs-300-bonus-or-booby-prize/ .

I post it again (in full), to remind me (and I hope you) that when we think about saving for retirement, we can forget there are those who can’t save and for those, the prospect of meeting debt, not spending savings, is their prospect for later age.

Greggs £300, bonus or booby prize? – By Gareth Morgan

Greggs, the well-known bakers, have been in the news this week because they are giving their staff a bonus because of good financial results. It’s always good seeing employers rewarding staff, and Greggs already have a generous profit-sharing scheme.

They’ve basically just handed £7m back to the govt.

I have two questions about this. The first, widely shared as can be seen from a number of comments to the tweet above, is ‘how much will people actually get in their pocket?‘.

This is the same question, in many ways, as my post a few days ago about the increase in the National Living Wage; https://benefitsinthefuture.com/national-living-wage-cui-bono/ . It’s the problem of what is called Marginal Deduction Rate, or perhaps more accurately, the effective marginal tax rate. That is the amount of money taken away from the extra earnings or bonus by such things as tax, National Insurance (NI), reduction in state benefits, reduction in local benefits, and the loss of other means-tested entitlements, such as free prescriptions because of low income.

This can be a very complex calculation. It also depends a great deal upon individual circumstances. There are some relatively straightforward parts of such a calculation; for example, a 20% deduction for income tax where somebody’s earnings are above the personal allowance level and a similar assessment for NI. It gets more complicated when looking at Universal Credit which depends not only upon what’s left after tax and NI but upon the personal details which are used to assess the benefit, where some people will have different amounts of earnings that are disregarded, so that the extra may have more, or less, effect. Some people may find that the extra leaves them with less benefit, while others may find that they lose their entitlement altogether, and might have done so with even a smaller increase. The causal chain continues with local benefits, such as Council Tax Reduction, dependent upon the Universal Credit result and low income or ‘passported‘ entitlements following on again.

Universal Credit, in particular, is affected by this kind of bonus payment, because it uses when the payment is made in its calculation and doesn’t spread the impact over a year. That magnifies the problem for many people.

Unlike my figures for the National Living Wage note, where I was looking at the government’s assumptions for people in full-time work, Greggs staff may have a wide range of hours of work and pay scales. Some of them may have earnings above the tax or NI thresholds, while others may not. Some may be claiming Universal Credit, while others may not, etc. etc. The value of the bonus to different people will be worth different amounts.

What I have tried to do, is to break down the effects of tax, NI and benefits in a way which might offer some illustrations of the results.

First, what happens to people whose existing overall earnings, averaged over a year, will be above or below the tax and NI thresholds. I’m using the 2019/2020 figures throughout.

Earnings below the tax and national insurance thresholds. Less than £165.55 a week, (£8,632 a year). Earnings between the tax and national insurance thresholds. More than £165.55 a week, (£8,632 a year) but less than £239.07 a week (£12,500 a year) Earnings above both thresholds. More than £239.07 a week (£12,500 a year)
No deduction NI deducted at 12% NI deducted at 12% and tax deducted at 20%.
Bonus £300 £300 £300
After deduction £300 £264 £204

I am, of course, ignoring the more complicated, but very real, cases where the bonus takes people’s earnings above threshold values, so there is a part deduction, and where people are taxed at different rates for various reasons. I’m also not taking any account of pension contributions here.

If people are not receiving, or entitled to, any benefits then that will be the end result for those people. That often applies to people with higher earnings, or partners with higher earnings. Many Greggs staff, as pointed out in the tweet above, will be claiming benefits and increasingly that benefit will be Universal Credit. That introduces another stage and another serious problem.

As pointed out earlier, Universal Credit, unlike the legacy Working Tax Credit it’s replacing, looks at earnings, including bonuses, when they are paid and not averaged over a year. That means that the bonus paid this month reduces the Universal Credit paid next month.

Universal Credit, unlike other legacy benefits such as Job Seekers Allowance, does allow people to keep some of the extra earnings, including bonuses, that they get. It lets them keep 37% of the extra. The government claws back the other 63%. That gives the following result.

Earnings below the tax and national insurance thresholds. Earnings between the tax and national insurance thresholds. Earnings above both thresholds.
Bonus £300 £300 £300
After deduction £300 £264 £204
Universal Credit Reduction £189 £166.32 £128.52
Worker £111 £97.68 £75,48

The reduction figures apply to those people who don’t have any disregarded earnings for Universal Credit, called Work Allowances, or whose earnings are already higher than those allowances. If people’s earnings are below those work allowance figures, and they have children or disabilities, then some of the net bonus will also be disregarded.

It’s striking though that roughly two-thirds to three-quarters of the bonus, for those people on income support, is being taken by the government.

Whatever the amounts that are taken into account, they will affect the Universal Credit the following month. They will be added to the existing earnings to recalculate entitlement. Universal Credit already has problems with the way it assesses monthly earnings figures. People paid weekly, as is common with low paid or part-time employment, will find that sometimes five paydays taken into account and sometimes four, with very serious effects ( see https://benefitsinthefuture.com/universal-credit-and-patterns-of-earning/ ).

Universal Credit is not a high-paying benefit; benefit caps, rent caps, limits on the number of children supported, sanctions as well as the freeze on the level of benefits for the last four years have driven down the real level of support. That means that often it does not take a big increase in earnings to stop entitlement altogether.

If that happens then people must claim the benefit again in the following month, using a shortened process. If they don’t, or aren’t able to for some reason, then their benefit won’t restart.

If they’re also claiming Council Tax Reduction then that will be reduced as well and, because for most local authorities it’s linked to Universal Credit, if Universal Credit stops then Council Tax Reduction can be thrown into confusion. It’s not possible to illustrate the effects of the bonus as there are different rules across the country.

Greggs generosity to their employees might seem, in practice, to be generosity to the government. Not only is the bulk of this bonus money likely to end up in the pockets of central or local government but Greggs will be paying an additional 13.8%, or £41.40 by way of extra Employers National Insurance contributions, although there will be a corporation tax offset to take into account.

So, to my second question, is there a better way to reward employees?

While a bonus is probably administratively simpler, because it doesn’t require much individual consideration, there are other alternatives that might be more welcome, once the real value of the bonus is taken into account. Additional holiday entitlement or pension contributions spring to mind. A bonus sacrifice into their workplace pension would save most National Insurance, for example. Pension contributions are disregarded completely from Universal Credit.

While the bonus clearly isn’t a booby prize, it’s still depressing that a government which talks non-stop about work incentives and encouraging people to work longer and earn more, still insists on grabbing as much as they can of any increase that people get.


The gimlet-eyed Gareth Morgan

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Looking at it Robin Powell’s way

I’ve long admired the journalist Robin Powell for his clear insights. Lately he’s taken to writing little stories to illustrate the points he is making. He has written a series of pieces , the rest of which you can find at the bottom of this blog.

Here’s one to give you a taste…

Investors can often find themselves tempted to second-guess their own approach, and tweak their investments in response to ever-changing market news. This blog illustrates the often-overlooked importance of patience within the investing process.


Two children decided to compete to see who could grow the most luxurious garden. Both Peter and Paula prepared the ground, laid down the seeds and watered the soil. Three years later, Peter’s garden had barely grown, while Paula’s flourished.

What was the difference? Peter was impatient. Coming back the next week after planting the seeds he was disappointed there was little movement. He decided to dig it all up and start again. Paula added water and fertiliser and waited.

This cycle continued over the years. Peter decided at one point there was not enough sun, so chopped down an overhanging tree. The soil dried up under the full sun and baked hard. Paula decided to leave well enough alone with her garden.



The difference in approach between these two aspiring gardeners is evident every day in the share market. Many investors, having assembled their portfolios, insist on fiddling. They respond to news, second-guess themselves and churn their holdings.

The Peters of the investment world chase past returns, pick up on investment fashions and are impatient for quick results. The Paulas leave their asset to grow, knowing that compounding will do much of their work for them.

Of course, this isn’t to say the second group of investors are totally passive. They come back every six months or so and do some pruning in the form of rebalancing. They water, weed and fertilise the investment garden with new cash as it comes to hand.

But the more successful gardeners are systematic in their approach. They focus on the basic elements and what is within their control. For the most part, they let nature take its course. And they exercise discipline along the way.

Look At It This Way is a series of monthly articles where we demystify the complexities of investing through illustrative metaphors. Take a look at the previous entries:

Shift your focus away from passing showers

It’s not over till its over

What is the “all-roads vehicle” of investing?

What we mean by sunk costs

Ask the audience

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“What do people want?” – a question for IGCs

what people want


The saddest statement I heard last year was from an adviser who told a room

“we have given up reporting on outcomes, outcomes always disappoint”.

It is not just IFA’s who don’t like to report on the outcomes of our saving and investment. Over the five years I have been analysing IGC chair statements, I have only seen one (the Prudential) which has addressed the very simple question

“are we providing value for our policyholder’s money”

Instead, they pursue ever more extravagant frameworks which break down the concept of value for money into categories such as administration, engagement, security of assets and many more. This is like reporting on a car in terms of its carburettor and exhaust systems, rather than on whether it is a pleasure to own.

The function of a workplace pension scheme is to take money earned in the workplace and return it to savers at the end of their working careers. Ultimately, these workplace schemes are judged by savers on whether they achieved that function well or badly.

The problem people have is that they have no way of knowing what has happened to their money , nor how it has grown while in the charge of others. But people – when given that information on their savings , become very interested. To use the word that IGC’s like to use, they become “engaged”.

We don’t engage with carburettors and exhaust systems

Confident car manufacturers allow people to test drive their cars, they allow journalists to rate the car for a range of things that allow people to assess the value they get for their money. They are prepared to submit their products to close scrutiny, knowing that the verdict may be damning.

This transparent approach doesn’t extend to financial services and especially pensions. The thought of telling his clients about “outputs”, was too much for the adviser and the task of telling savers about the outputs of their investments seems to overwhelm IGCs (and equally trustees).

Instead, they produce reports that talk about nuts and bolts, carburettors and exhausts, but don’t assess the main function of a workplace pension at all.

In 2017, the majority of IGCs commissioned NMG to tell them what people wanted to know. NMG presented people with choices about comms and engagement and administration and security and all of these things were considered important but not as important as one thing – the amount of money at the end of the savings period. What people wanted to know was how much they would get from their pension saving.

So what about charges?

People do want to know how much has been taken out of their pension schemes to pay for the scheme’s management. But they don’t need this information as a matter of course, it’s the kind of thing you ask if you are “looking into something” and for the most part, they’ll want to know the detailed information is available, they would like a headline pounds shillings and pence number on what they’ve paid.

I know that I paid £1190 last year for L&G to manage my  pension and I know i incurred some extra costs for transactions that amounted to around £100 in total, I could work this out by looking at my online statement and studying the numbers at the back of the IGC report.

You might think that was a lot to pay (and I’d agree), but I think I got value for that money too, mainly because I know a great deal of that money went on paying people at L&G to make sure my money was invested in a responsible way. When I looked into things, I was pleasantly surprised.

What people want.

In five years of thinking about VFM, I’ve boiled down the question “what do people want” to two things. They want to know what they are going to get and they want to know what they’re paying to get it. That converts in pension speak to outcomes and charges,

People – when presented with two numbers – one the value of their pot and two , what they’ve paid for its management , have one further simple question

“is that good?”

That is the question that IGCs need to answer, and so far (with the exception of the Prudential) none of them have answerer it. Because none of them have a benchmark for what good might be.

What people want is either a benchmark return (the Prudential CPI +4% for example) or a “relative benchmark” – “how have other people like me done?”

The AgeWage score is simply answering that question, it tells people , in a single number , how you have done relative to how other people just like you, have done elsewhere.

Is that good? I think it is very good. I think it tells the truth in an transparent way and I hope that some IGCs will, as they prepare their 2019/20 reports, snd me a mail. It generally takes me two weeks to issue a report to IGCs on how people have done using our scoring system.

For Trustees – the same.

For employers – the same

And if you are an ordinary saver in a workplace pension or if you have your money in a SIPP or an old-fashioned personal pension , I would like to hear from you too. Because we are hoping to conduct a trial of these scores for individuals with the FCA – later this year and are looking for guineau pigs!

what people want 2

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What is MAPS actually going to do over the next 10 years?

Screenshot 2020-01-22 at 08.09.51

A great high level vision – but who’ll do the work?

I haven’t got a lot to say about MAPS’ UK Strategy for Financial Wellbeing – published yesterday.  Having read it , I’m not sure how it is going to help me as a person, business owner as part of British society. It is a statement of intent to improve the financial wellness of the British population but beyond setting the agenda for change, I struggle to find much in the strategy document that helps us understand how change will come about.

I feel a little disappointed.  I would have liked to have felt more comfortable knowing the part that Pension Wise and the Pension Dashboard would play in improving things. On Pension Wise there is nothing (but an acknowledgement that it contributed to what MAPS “listened to”). The Dashboard gets mentioned but in a “hypothetical” set of suggestions.

The big picture for pensions

MAPS reckons that about 45% (23.6m)  of the working population feel it is ready to retire. Over the next 10 years it wants this to increase to 28.6m and it’s going to do another Wellness survey in 2030 to see if this worked out.

Screenshot 2020-01-22 at 07.28.13

I suspect this will be one of those surveys that will allow Government to blame the private sector if nothing changes and take all the glory for itself , if it does.  Frankly there is too little accountability on MAPS for creating change for this goal to justify MAPS being at the heart of things for 10 more years.

The little picture for pensions

Screenshot 2020-01-22 at 07.27.01

This is something we can all sign up to, but how is this going to happen?

Screenshot 2020-01-22 at 07.39.11

What is conspicuously missing from this statement is the role of Pension Wise as the instrument of change. The emphasis on MAPS’ function seems to have changed from delivering guidance to influencing how others deliver guidance.

I am suspicious about this, it seems that MAPS rather than being a resource, is becoming an extension of the regulatory perimetre of the FCA (and the unmentioned Pension Regulator).

I confess to being totally baffled by why people would use life events like “parental leave” or “divorce” to use the pensions dashboard. The obvious point at which the pensions dashboard becomes relevant is at retirement, the obvious questions are “where’s my money gone?” and “how’s it done?”

While MAPS has been “listening” organisations like the PLSA have been delivering standards such as the Retirement Living Wage initiative. The TTF recently set up a meeting with UKAS to look at how standards for Value for Money could work. I hope that MAPS will respond better to the TTF initiative in 2020 than it did in 2019.

I can think of no other instance where a Government body has been given what amounts to a year off, to “blue sky” and come back with so little by way of positive suggestions.

So what will MAPS actually do?

Apart from trying to control how the dashboard will be used and acting as an extension of the FCA’s interference in product design, the answer seems to be about influence.

As if we didn’t have enough noise from the think-tanks , MAPS wants to join in. Its “Activation Period” will see MAPS becoming a convenor for all the people who like talking about pensions. A sort of off-line twitter if you will.

Screenshot 2020-01-22 at 07.52.02

How this adds up to getting 5m more people capable of turning pension pots into retirement plans is not clear. Simply telling people to work harder is easy enough, doing the work is a lot more painful. MAPS doesn’t seem accountable in any way for the delivery of the 5m extra engaged pension savers, nice work if you can get it.

If I was going to market with this as a business plan, I would be sent away to come back with something that had a much clearer focus on delivery.

MAPS is setting out to take a great deal of public money from the levy in order to set up a think tank, oversee the delivery of the dashboard and to work with “industry” to make it more effective.

This is normally the function of consultants and we have quite enough of them,

Where is the leader?

Screenshot 2020-01-22 at 08.00.55

This document is being delivered three months behind schedule by an acting CEO , replacing the previous CEO who left in the middle of last year after 6 months in post.

The dashboard , which was supposed to be doing stuff by now, looks like it won’t be doing stuff till 2021 at the earliest.

Meanwhile TPAS and Pensions Wise, the two strike forces of MAPS’ pension strategy, are barely mentioned and instead we have an amorphous set of “hypothetical suggestions” which seem to tread on the toes of other arms length bodies, regulators and Government itself.

My question is simple – can we expect better of the next decade, or are we resigned to paying for this?

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Are you saving or investing?

Martin Lewis is bang on the money, we save with the expectation of certain outcomes and we invest , speculating on getting more than from saving, with the potential for less.

If you think this is motherhood and apple pie, watch the rest of the program. Most people confuse the two, which is part of the problem with scamming and certainly something for the FCA and insurers to worry about as they prepare for investment pathways, (some of which are more like savings pathways

Savings pathways?

The investment pathways (4 of them) are laid out in 3.2 of the FCA’s PS19/21

Option 1: I have no plans to touch my money in the next 5 years

Option 2: I plan to use my money to set up a guaranteed income (annuity) within the next 5 years

Option 3: I plan to start taking my money as a long-term income within the next 5 years d

Option 4: I plan to take out all my money within the next 5 years

Option one focusses on investment, while two , three and four point towards more certain outcomes and might aim to provide “de-risked” outcomes. Options two and four are more to do with savings and might be called savings pathways.

Is CDC a savings pathway?

Supposing the Government gives CDC the go ahead, the likeliest development of the concept (in the view of many) is not to replace DC as a way of investing for the future , but to provide a super-pathway for people who don’t want to select one of the four pathways above.

You might like to call it an investment super pathway, as your underlying assets are invested and can go down as well as up, but being “collective” this risk is spread accross a large number of people and (to a degree) over time. This provides an income that sits somewhere between option two and three of the FCA’s investment pathway.

Aon and others have – in their work with people at retirement – found that around 60% of people, when asked what they want at retirement  – described something that looks like an annuity – but which is neither called “annuity”, nor based on “annuity rates”.

We will get investment pathways – will we get a CDC savings  pathway?

To answer this question, it’s worth reminding ourselves of the warnings that Martin Lewis gives on savings. He reminds us that the rates we get on our savings aren’t generally fixed and will vary. Fixed rate deals run out and people cannot have certainty for ever.  (Of course that’s what an annuity gives you,)

The unique feature of an annuity is that it is a super-savings product as it insures the rate you get against the reserves of an insurance company. You don’t get that kind of promise from banks.

Nor would you get that kind of promise from a CDC savings pathway, the rate you would get determines the wage you get in retirement and we all know that our wages can go down as well as up and don’t always keep up with inflation.

We don’t think of our wage as speculative, we don’t ask our bosses for a guarantee that our wages won’t go down, we accept that in work, as in everything else, shit happens.

The key to CDC – is its appeal to the saver in us

If you watch Martin Lewis’ Money Show, you see people he talks to, who instinctively get saving (Martin founded Money Saving Expert).

They are ordinary people who may like a flutter but wouldn’t “put the house on it”. They probably reflect the views of those who don’t take financial advice, use investment platforms and they are people who get disturbed about the idea of putting their retirement into an investment pathway where their savings are at risk.

The key to CDC will be whether it can convince these people that CDC schemes provide a wage in retirement that feels like its based on “savings” , not “investment” but gives an income that is rather more like what they’d expect from an investment.

CDC aims to appeal to the saver in us, but to hold out the hope of investment linked returns, based on us doing this together. This communal endeavour is something that has been around in the UK a long time. It is what David Pitt-Watson bases his arguments for CDC on. It is why CDC has been championed by the unions as a better way of doing DC.

Ironically, CDC was first introduced by a Liberal (SteveWebb) and reintroduced by a Tory pension minister (Guy Opperman). It has the support of the Labour party, politically it is a highly popular way forward. Politicians think that CDC is a popular policy waiting to happen, it appeals to the saver in us.


I think at the heart of the professional discomfort with CDC is this confusion people have between the certainty of saving and the speculation of investment.

We know that people, when faced with choices they don’t understand, generally go for certainty (even if that leads to being scammed). Is CDC just another such scam or can those (like Royal Mail) prepared to give it a chance, convince the general public that this “collective” thing – actually works?

Can CDC be sustained over time, accross political changes – as the state pension has lasted? Can CDC survive the inevitable financial crashes that will beset it over the next ten decades and still be a force in 2120?

These questions cannot be answered on a blog, they can only be tested in real life. Royal Mail are giving it a go and the reaction of the postal workers to CDC – as opposed to investment pathways has been encouraging.

Those postal workers have the right not to go down the CDC route , take their savings to a SIPP and invest them. They may prefer cash in their bank account or even an annuity to the communal endeavour of the CDC plan.

Am I a saver or investor?

Of course I am both, I need to save for the things I need to spend money on right now and I need to invest for the things I need to spend money on in years to come.

Most people get this and most people, when they come to think of their pensions, accept that their money is invested and stick with “the default investment option”. Of those who opt-out, some may feel that investment is not for them but I suspect most simply don’t want to or can’t save.

Yesterday MAPS launched its blueprint to get more of us saving and helping 5m people to take retirement decisions. I think it’s an admirable vision. It looks as is MAPS is going to rely for the delivery of that vision, very much on the private sector (talk of Pension Wise is minimal).

If we are going to see pension pots turned into retirement plans, we are going to have to help people take those decisions outside of MAPS. That means putting more reliance on insurers and SIPP providers to offer investment pathways, more reliance on advisers to help people through the more difficult pathways and a huge effort on behalf of occupational schemes (most of all the master trusts) to help people through the “strait of Hormuz”.

Martin Lewis is not a pension expert, he’s about savings. Perhaps we should come a little towards him and start talking the language of savers, the language his viewing public understands best.

I am an investor in my head and a saver in my heart!



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Treating savers as investors.


Considering the importance that pension providers place on winning new business, it isn’t surprising they find keeping it so unglamorous,

The banner headlines that get reported internally and externally are new business wins, they are what excite the executive and shareholders, but the new business opportunities arise because of deficiencies in the service, the breaking of promises at point of sale and the failure of providers to engage the people who really matter, those saving or investing for retirement.

I speak as one who spent many years selling Eagle Star and Zurich and I suspect our success was based on the failure of rivals (especially the Equitable Life). The Equitable failed to meet the promises they made (their service was second to none), but many other providers in those days were prepared to put out the flags to win business and had no concept of customer servicing as an extension of “sales”.

For this reason, many established players were reduced to closure, I think of the great names of the time , including RSA, Prudential, Threadneedle, Schroders and Invesco, all of whom ceased writing new business when the cost of sale could not be justified by the profitability of the existing client banks.

What has changed?

We are down to a handful of insurers competing in the workplace for new mandates, the master trusts are hoovering up new business, typically on a service led proposition that appeals to employers because it is payroll rather than investment led.

The arrival of auto-enrolment has shifted the value proposition towards “ease of use” and away from “investment performance” to a point where the dial may have swung too far. I suspect that many of the reward managers who are seeing millions a month disappearing to a workplace pension, are beginning to wonder what value they are getting for their money.

My suspicion is based on several requests I have had to collect data on behalf of employer governance committees by large organisations struggling to get the performance data they want to make a value for money assessment for themselves.

This coupled with inadequate reporting to those staff saving or investing for the future, means they struggle to report on the progress of this line of corporate expenditure to their boards. This is a problem for the Reward function.

It is a symptom of a chronic problem; pension providers – of all shades – under invest in ongoing service which leads to employers getting disillusioned by  the service on offer, re-tendering and ultimately moving providers. This process is fatal, as witnessed by the casualty rate of pension providers in the last 20 years.

Not enough has changed!

Treating these customers fairly (TCF)

We are now nearly two years on from the launch of GDPR and we are aware of the difference between compliant and non-compliant data. However, we are still finding data requests made by individuals being turned down on a variety of spurious reasons and we’re finding that employers are not being given access to anonymised data on the plans  that they sponsor , on the basis that it “isn’t their data”.

Whether the plan is trust or contract based, employers do not have a right to see personal data. However, if they are to have confidence in the provider’s ongoing capacity to deliver, they have a right to know how savers and investors are doing.

Treating savers as investors – part of TCF

I am particularly keen that those who are saving for their financial futures are made aware that they are actually “invested”. This distinction isn’t always clear to savers. If you aren’t clear of the distinction, watch last night’s edition of Martin Lewis’ TV show where he makes it absolutely clear – saving is where you get a promised return and investing is where you take a risk and get what the market gives you.

If, as surveys show, many people saving into workplace pension , do not consider themselves investors, then those people who are sponsoring these schemes have a right to be concerned about the performance of people’s investments.

Because if something goes wrong, as went wrong with the Equitable and to some extent , some recent absolute return funds , then it is the employer who is on the front-line of staff complaints.

The data requests I see being denied some of Britain’s largest employers are requests to see how individual pension pots have performed and the employers I am talking to want to see how they have performed relative to other invested pots, and how they have performed relative to cash (the risk free rate).

They want to see whether it is worth their employees investing with the provider they have chosen and whether it is worth them investing at all. These are reasonable questions for non-pension experts to ask and questions that providers should be able to answer. If they cannot answer these questions, then there is no point in governance.

Employers are the proxy for their staff in asking this question , they are part of TCF.

And what should employers tell their staff?

In an ideal world, an employer would be able to point staff to an IGC or Trustee chair statement and give that as evidence of the value the saver got for their money.

But that isn’t happening and we need to ask why. While the IGC does a behind the scenes job for the saver, it doesn’t have front line duties like employers. Employers don’t use IGC reports because they don’t talk to their workforce, they are too general, too high up “the ladder of abstraction”.

Some employers want to share value for money reports with their staff and (in my experience), they would rather tell staff “how it is”, than let them continue under the illusion that they are carrying no investment risk.

Because they know what good governance looks like – good governance is about telling it like it is, especially to the people taking the risk.

So we at AgeWage are going further, and suggesting that value for money reporting should not stop at the employer governance committee. We think that employers should be asking their trustees and the providers themselves , to make full disclosure of how their staff’s savings or  investments have done.

They need to make the distinction between savings and investments , as Martin Lewis does and – where employees are taking investment risk, they need to make them aware that this is what they are doing.

They need to make sure their staff know what is going on with their pension savings or investments in good times and in bad.



Posted in advice gap, pensions | Leave a comment

Three little pots went to market


The point of this blog is to show

1. One way of avoiding the damaging impact of the MPAA on future saving

2. The depth of knowledge needed to make good at retirement decisions (especially where there is no adviser

3. To advertise the availability of TPAS to provide guidance (a service I’m hoping  to offer  through AgeWage).

The problem’s becoming “pension non grata”,

If you’re in your fifties and have been saving into pensions all you life, you may have a number of pension pots and you may want to give yourself a bit of financial relief by taking some money now and taking your income now.

But if you do this the wrong way, and many are doing just this, you run the risk of nobbling your capacity to save for the rest of your life – by triggering the money purchase annual allowance which caps tax-relief on all pension contributions at £4,000.

I wrote about this problem yesterday, because I feel that the tax-rules are so complicated that they need to get some explanation and because I think the rules around MPAA are so obscure that many people may have triggered the MPAA, not reported doing so and are in danger of HMRC catching up with them.

I would be grateful to hear from people in pensions administration about how much MPAA disclosure is going on and whether they are finding ways to police matters for the HMRC. The people I’ve spoken to so far consider this a tax elephant roaming the room.

Either the elephant is sent off (and we are let off), or the room could get very messy.

Ways round the problem (aka “bodged jobs”)

“Bodged jobs” – or “partial mitigation” as lawyers call them are based on special circumstances that can allow you to take your pension pot (s) without triggering the MPAA.

The simplest is to stick  to cashing in small  (£10,000 or less) pots. What I had forgotten is that you can do this up to three times – where the pension pot is a “contract-based pension” (one where you have a policy with an insurer or account with a SIPP- they included personal and stakeholder pensions).

Weirdly, if you have small pension pots (<£10k) from occupational pensions, then there is no limit to the number of small pots you can cash in without triggering the MPAA.

I had no idea how this rule came about , but writing on my blog yesterday, Ros Altmann explained that the idea came from the Treasury.

Don’t forget there is the three pots rule – and if people are using this rule to withdraw fully three small pension funds worth below £10,000 each will not trigger the MPAA and may be a reasonable decision, especially as people may use the money to recycle back into pensions and get another load of tax relief and tax free cash.

I pointed this loophole out to the Treasury in 2015, but they seemed to believe they could live with the tax leakage – but obviously they didn’t want this widely known so that not too many people use this advantage..

I am constantly amazed that many people still don’t know about this rule. But, that means drawing inferences from the number of pots that are fully withdrawn, without knowing whether they are valued at less than £10,000, means we cannot know the true impact of pension freedoms on other pension savers for whom withdrawing their entire pension savings would, of course, be really bad news.

I wonder whether the data exist by size of pot?

The three pot rule (and the even crazier small pot exemption for occupational pension schemes mean that those who want to bus their pensions and really get into “recycling (see Ros’ comments), can do so by creating lots of small pots.

I am not advocating this kind of behaviour as it is a bodged job, but if you are a “recyclist” you may already be splitting up big pension pots into satellite pension pots to cash out, so you can continue to enjoy a £40,000 annual allowance, funded in part by the proceeds of the small pots.

Clever? Bloody stupid if you ask me, but a tax-specialist will tell you this kind of thing works and is the kind of way rich people can get double tax-relief on the same money.

I wouldn’t go so far as to imply that “somebody in the Treasury” was dishing out tips in (Nigel Farage’s)  pub, but if he or she did, this is a beauty.

Three little pots went to market

Big picture stuff now.

The tax rules that had to be put place to combat abuse of the 2006 pension simplifications and the 2015 pension freedoms, are now so complicated that they only really benefit pension advisers and those rich enough to afford to employ them. Simple and free they are not.

The three pots rule, is only one of the ways to bodge freedoms to make pension saving a branch of tax avoidance. There is all kind of stuff you can do around the AA and LTA, and if you are worried you are paying more than £40k pa or have pensions worth more than £1m, you should stop reading this blog and go talk to John Mather (introductions on request). John will tell  you the rules – he won’t give you advice – he’s an upmarket version of TPAS).

Personal pensions were designed to be simple enough to be used by ordinary people without the need for advice. Occupational pensions were designed for the same purpose.

That I am having to spend more time worrying about not giving you  advice, than writing these words shows how big and bad the piggies UX has got.


TPAS to the rescue

As I’ve mentioned earlier, I am actively considering how the “three little piggy user experience” can be transformed into small pot pathways for those with cashflow issues in their fifties. It’s the kind of help I’d like Agewage to give people (digitally).

But most people will want someone to talk them through the kind of problems I’ve been referring to in this blog (and yesterday’s blog)

TPAS cares about your problems and has people who are paid to give you detailed guidance on what you can and cannot do on issues such as “trivial commutation, MPAA avoidance and the three pot rule”

So once again, if you are worried…

…to read all the hideous detail, including your responsibilities to tell everyone what you’ve done, here are the rules courtesy of the Prudential’s tech team.

If you are lucky enough to have someone at work who looks after pensions, speak to them and ask whether you will have a problem going forward (or possibly with non-disclosure).

In any event, it is worth giving TPAS (part of the Money and Pensions Service) a ring, to make sure you are doing the right thing. You  can get to them in working hours on

0800 011 3797

Posted in advice gap, age wage, Big Government, pensions | Tagged , , , , , , , , | 3 Comments

Dip into your pension at 55 and you could be “pension non grata”.


Banged up in the pension -gulag

Most people know they can draw the money in their pension pot from 55, and because they can – they do.

Very few sustainable drawdown plans are established by people in their fifties and very few annuities. 55% of annuities were taken out by people over 65. Only a few people under 65 swap their pension for an annuity and they shouldn’t have to worry for you!

The people who this article is for are the 72% of pension savers (around half a million of us) who access their plans for cash – not to pay themselves a wage in retirement. These are the people using “pension freedom” and generally they are “drawing down”.

When we look at what is actually meant by “drawdown” for those under 65 we find it looks rather like “fully withdrawing cash”, and very often all that is initially being withdrawn is the tax-free cash

Although the FCA data doesn’t tell us the proportion of people cashing in their pension plans at 55, they have this data elsewhere. The more detailed Retirement Outcomes review published in 2017 focussed on the behaviours of younger retirees.

Accessing pension pots early has become ‘the new norm’. Almost three quarters (72%) of pots that have been accessed are by consumers under 65. Most are choosing to take lump sums rather than a regular income. Over half (53%) of pots accessed have been fully withdrawn. However the fully withdrawn pots are mostly small with 90% below £30,000, and 94% of consumers making full withdrawals had other sources of retirement income in addition to the state pension.

This article looks at those people who have dipped into their pension and are at risk of making themselves “pension non-grata”, they are the people who carry on working after they’ve raided their pension savings pot and stay saving to  SIPPs and workplace pensions.

Very few of us stop working at 55, but many of us risk wrecking our financial planning for want of properly understanding pension taxation. This article shows why.

We are looking at work and pensions the wrong way round

The key findings of the Turner report included the insight that we will need to work longer.

The people crystallising their pensions in their fifties, are not just cutting short the accumulation of savings in tax-priviledged, low-charging default investments, they are cutting off the oxygen line to future saving.

The Money Purchase Annual Allowance will prevent them ever again saving more than £4000 pa into a pension , without punitive taxation.

But our fifties and sixties are years when we generally stay in work, stay in workplace pensions and have high disposable income as liabilities for families decreased. Statistics from the ONS suggest falling levels of unemployment and economic inactivity for those in the 55- 75 age group.

These twenty years could well be the most economically active years of our lives but they are being lost to meaningful pension contributions by those who thought that taking some cash out of their pension in their mid fifties was ok – especially if it was tax-free cash.

That cash mayn’t be so “tax-free” after all

Let’s think of this from your point of view . You have the average pension pot of £40,000 and you’re having your 55th birthday.

You crystallise some money  ( £10,000) out of your pension pot today . You’re told this doesn’t impact your take home pay and doesn’t create  a tax-bill at the end of the year -(its your tax-free cash).

Oh- and  you take a couple of thousand on top under flexi-access drawdown – you are told you will pay tax on that.

But you may not have been told that now you are “pension non-grata”. By taking that £2,000 (it would be the same if it was £2), you have triggered the money purchase annual allowance and that could be a nightmare to you, for the rest of your working life.

Let’s see how this works out as your case study

You are on £50,000 pa and you are in a pension scheme where 10% of your pay goes into a workplace pension. Because you’ve triggered the MPAA,  you now  have to tell payroll that you can only get tax-relief on the first £4000 of your contribution, the other £1000 gets no tax-relief and that any private savings you are making into pensions will also lose their tax relief.

To repeat; – the moment you paid yourself under flexi-access drawdown that £2000, you triggered the MPAA and “crystallised” your pension and a potential tax-nightmare.

Indeed, if you are saving privately it is your duty to stop or tell them to give you no tax relief. Failure to do so will incur a fine (90 days after crystallisation ) of £300 and a massive penalty of £60 a day for each further day of non payment.

And the impact of this restriction  is not just for this year, you are going to be caught by this Money Purchase Annual Allowance, every year for the rest of your life.

Taking that £15,000 has effectively neutered your savings productivity for ever and cut you off from the oxygen not just of higher rate relief but any relief , for all but the first £4,000 you and your employer  put in your pot each year.

And you weren’t thinking of retiring anyway!

You were told your pension was like a bank account, you had the freedom of having your money when you liked, but no one told you the rules – read the rules from the link at the end of this piece and you’ll see why – they are complicated;

You cannot run back to your pension provider with the £12,000 and say have it back, because £8,000 of that will be hurt by the MPAA and it won’t make a blind bit of difference to HMRC to whom you are  “pension non grata“.

£50,000 pa isn’t that high an income for someone at the peak of their career and 10% isn’t that high a pension contribution. Imagine the impact on someone earning twice that with a “catch-up” pension contribution of £20,000 a year. Imagine the impact of taking money from your pension and finding that your contribution has been tax-restricted by 90%. The annual allowance shrinks when you take £10,000 or more out of your pot from £40,000 to £4,000.

For all the people who thought their retirement planning could be caught up in the last 10-20 years of their lives, crystallising your pension in your fifties makes you “pension non-grata”.

Yet another unworkable tax?

We are getting used to hearing about pension taxes causing problems , for everyone from highly paid doctors to people on minimum wage caught by the “net pay anomaly”

We don’t have statistics on the number of people who have been caught by the MPAA. Steve Webb tried to get them but was told by HMRC they had no idea of the amount of non-compliance.

Despite the real time information system being in place in large parts of the tax-system, pensions appear to be living in a digital stone age.

In response to Steve Webb’s freedom of information (FOI) request  HMRC confessed that while it has access to information within the scope of the request, it ‘would exceed the FOI act cost limit’ to find out and it was therefore ‘not obliged’ to comply.

HMRC said it would breach the limit because it would need to extract all of the information and go through each individual case to identify an exact figure.

If this tax is working, we don’t know how and nor- it seems – do HMRC!

The new norm?

If , as the FCA observed in the Retirement Outcomes Review, “accessing pension pots early has become ‘the new norm’. then almost three quarters of us savers , have cut ourselves off from  tax-incentives for future savings.

I know that many of us will not be thinking of saving £4000 per annum ourselves, but if we are in a workplace pension scheme, we have to include the employer’s contribution as well. That means that many of those 72% of people who have crystallised their pensions will be running foul of HMRC – that might even be you.

The “New Norm” may include the biggest pension tax mess yet, but then again it might not – who knows – it’s all so incredibly complicated.

If this is what you want from pensions , fine. You are probably a tax-expert, a financial adviser or both. But if you are reading this as a non-pension person, you may well be saying to yourself – if this is freedom, I’d rather be locked up!


Pension non-grata

What to do if you’re worried

If you want to read all the hideous detail, including your responsibilities to tell everyone what you’ve done, here are the rules courtesy of the Prudential’s tech team.

If you are lucky enough to have someone at work who looks after pensions, speak to them and ask whether you will have a problem going forward (or possibly with non-disclosure).

In any event, it is worth giving TPAS (part of the Money and Pensions Service) a ring, to make sure you are doing the right thing. You  can get to them in working hours on

0800 011 3797

Posted in annuity, pensions | Tagged , , , , , | 4 Comments

Who cares about old company pension pots?

not workplace pensions

In this article I look at the legacy of old company pension schemes, set up by employers for staff as an alternative to defined benefit schemes. In a report in 2018, the Pensions Regulator looked at these schemes and found that most of the problems were with small schemes which had little or no value to employers. I call these schemes company pensions, most pre-date the arrival of auto-enrolment in 2012 and the workplace pensions that dominate the market today.

Do employers have proper choice when choosing a pension for their staff?

We are now two years on from the end of the auto-enrolment staging period , it is getting on for eight years since staging began and, other than the loss of a few minor contenders, the make-up of those offering services to employers is much as it was when Smart entered the market in 2015.

NOW Pensions wobbled, Salvus and Carey went to the wire on authorisation and Legal & General radically restricted its market by not taking small employers. But only SuperTrust had to withdraw its application for authorisation. Contrary to expectations – there remains a wide range of providers competing for the 10.5m new members from 1m new employers, as well for those schemes set up in advance of auto-enrolment by mature employers.

Employers can now choose from 37 authorised master trusts which have more than £36bn  in assets under management between them, 16 million memberships, and total financial reserves of £524m.

They can choose from 5 insurers, Aviva, L&G, Aegon, Standard Life, Royal London and Scottish Widows who offer Group Personal Pensions as workplace pensions and there remain a handful of SIPP providers , most notably Hargreaves Lansdown, who offer SIPPs to employers under auto-enrolment.

There is a proper choice for employers choosing workplace pensions today

A market increasingly dominated by master trusts.

The trend towards consolidation continues. The master trusts that did not apply for authorisation are being absorbed into larger master trusts.

HSBC has been authorised as a master trust but has yet to state its intentions for new business. It is generally assumed it will seed with the HSBC staff scheme and there’s considerable speculation as to where it will predate. HSBC may well disrupt the existing order but has yet to show its hand.

Master trusts have the capacity to absorb new business through bulk transfer where deals can be signed off by employers and trustees without the consent of the transferred members. Groups of Personal Pensions (GPP’s) cannot transfer pots from one provider to another without member consent. Setting up a new GPP involves setting up a new policy for each member of staff, for consolidation to happen, each pot needs to transfer at the individual policyholder’s consent.

When it comes to consolidation (which is the commercial driver for change) it is the master-trusts and not the GPPs which are on the front row of the grid. The last time that HSBC made a predatory play was as a personal pension provider – some fifteen years ago – times have changed.

… for most employers with a failing scheme, master trusts will be the obvious answer

How are master trusts competing?

There are large numbers of workplace pension schemes which look inefficient and ripe for consolidation. The competition for consolidation is driven by consultancy owned master trusts, primarily those of Aon, Willis Towers Watson and Mercer, but followed by a range of others – including Salvus, Creative , Atlas and Nations owned by Goddard Perry,  CBS, Capita and XPS respectively.

These schemes are today building their business plans around expansion. They see the low hanging fruit as the 41,000 occupational pension schemes established as DC plans and maintained by employers under their own trusts.

For the workforces of large employers like Tesco, competition is fierce. But for the fat and long tail of legacy DC schemes (including GPPs), I already see the likelihood  of market failure

My worry is once again about the consultants (and to some degree the insurers) . They compete for these schemes like whales compete for plancton, they open up their mouths and the schemes swim in , primarily because the employers have used the consultancies as advisers or have no adviser and are in the hands of the insurers.

Insurers are keen to compete with their master trusts. Aviva, Scottish Widows, Legal and General and Aegon all have master trusts and HSBC will join them.

NEST, People’s Pension , Smart and NOW are potentially competitive in this plancton hoover-up. However they don’t have the pre-existing relationships of the consultants and insurers and may struggle to repeat in the hoover-up what they achieved during the staging of auto-enrolment – when they had most of the market to themselves.

The big four, are either suffering from indigestion – from a surfeit of new business in the past eight years, or (in the case of Smart) looking abroad.

Competition for old DC company pensions is more likely to come from younger entrants than the big four

How far does competition go?

What I haven’t seen develop in the UK is a utility that puts the employer in control of the purchasing decision.

If an employer wants to tender the scheme it has established (occupational or GPP), it is pretty well bound to use a consultant. But most consultants would rather compete as providers of master trusts than as the organisers of tenders. Those few consultants who are independent of master trusts (Hymans Robertson, LCP, First Actuarial and the accountancy practices) are likely to prosper where competitive tendering is going on. But much of the acquisition of “plancton” is not going through the competitive tendering process. DC schemes are simply passing into the mouths of consultants like Krill.

I suspect that the mistakes of fiduciary managers in the DB space are being repeated and very much hope that tPR and FCA will have a look at what is going on – especially where schemes are unloved, employers uninterested and the money of members is a secondary consideration.

In such cases – the secondary market for failing DC schemes may  not always be competitive.

What needs to change?

The Pensions Regulator recognises that many occupational pension schemes are unfit to meet today’s challenges. Many are overly-expensive, poorly governed and badly managed. They are struggling to deliver value for money to members, to comply with rules for tougher disclosures and worst of all, they often have poor data controls meaning many members may not have accurate records. These problems will come out when these schemes are mandated to participate in the digital data-sharing with the pensions dashboard

For such employers to be in control, three things need to happen

  1. Employers need to recognise (or be told) that the schemes they set up , are their responsibility
  2. Where employers aren’t prepared to sponsor their own scheme they need to access a secondary market of providers  which enables employers to tender their schemes to the benefit of members.
  3. Someone needs to set up such a tendering facility on-line for the benefit of employers, members and competition.
  4. For orphaned schemes (where the employer is no more), tPR needs to become the tenderer and should use this service.

Access to a competitive secondary market for employers wishing to dispose of their DC pension schemes is limited.

Lessons to be learned

Millions of us have pension pots in schemes run by former employers. These schemes are hard to find and harder to get information on. Many of these schemes are ripe for change and they will be absorbed into master-trusts.

Members will have very little say in the matter and there is insufficient impulsion on employers to get a good deal for our money. This is a recipe for poor practice and it is easy to see competition failing as it did with fiduciary management.

The FCA and tPR should look into the market and in particular the tendering process for schemes where the employer is reluctant to pay fees.

There is a market opportunity for the industry to set up a tendering utility for the disposal of failing DC schemes into viable authorised master trusts.

not workplace pensions

Posted in pensions | Leave a comment

Steve Webb, LCP and Royal London


Silent witness

Most people who know Steve Webb now knows he works for Royal London, but many people who know that won’t know Lane Clark and Peacock. Why does Britain’s longest serving pensions minister find his CV so varied? Where is the continuity?

It’s cheeky of me to assume Sir Steve’s motivation, but i think he is following what he sees as goodness, and goodness knows there’s not a lot of it about. There aren’t many people I know in pensions that exude goodness, Phil Loney, the former CEO of Royal London was one of them. Steve and Phil are both Christians and though they do not evangelise at work, they are clearly driven by the same conviction.

I do not know of any strong Christian conviction at LCP , but of all the pension consultancies , it has a culture of kindness. Bob Scott and others see to that. LCP is very successful and like Royal London, makes sure its staff are properly rewarded, there is a strong inclusiveness about their culture. They were the first and to my knowledge only pension consultancy to give an employee the chance to change gender. LCP don’t just tolerate diversity, they promote it.

LCP are progressive not just in what they say and what they do. They are silent witness to the values that I know Steve and Phil stick to.

This is why I am not surprised to see Steve Webb joining Lane Clark and Peacock and why I am happy he has.

Though my first loyalties are to my former employer , First Actuarial, a rival in some ways to LCP, LCP is a firm I like to see prosper and this marriage of a good man and a good firm can only be good for pensions.



Posted in pensions, steve webb | Tagged , , , , | Leave a comment

Answering customer’s questions means knowing what those questions are

In this blog I talk about the failings of the financial services industry – the pensions industry in particular – to answer the questions people have. I look at this at three levels – at big data level – through the lens of a pensions dashboard, at the employer level, through the frustrations they can find getting data about their workplace pensions and at the personal level, getting the data we need to work out if we’re getting value for our money.


Big data talk

I was in conversation last night with Gavin Littlejohn, who’s well know in open finance circles as the Founder of the Financial Data and Technology Association. He’s created a global network of organisations participating in the open sharing of data in banking and he’s one of the drivers behind the FCA’s open finance initiative, about which I’ve written lots.

Gavin’s take on the pension dashboard is simple. It is not going well.

Rumours were confirmed that yet another senior figure involved in the delivery of the dashboard has been sacked. The scope of the dashboard is now reduced to pretty much finding pensions and even that limited ambition is not expected to deliver anything until 2022 and nothing substantial till at least 2025. My worst fears are being realised and there is not much that worthy souls like Chris Currie and Guy Opperman can do about it.

The public have simple questions ; they want to know who is managing their pension pots, what their pots are worth, how their savings have done and what their options are going forward.

Meanwhile the insurance industry seems to thing our questions are

  • what will our pension pots be worth when the schemes mature
  • what will they buy us in terms of an insurance annuity
  • how much must I save to be alright
  • where do I sign to pay more

Meanwhile in a basement room in Clerkenwell

While I had dinner with Gavin, I had lunch with Andy Angethangelou and a symposium of pension communicators and their clients keen to work out how to be more transparent.

My answer was simple, talk to people about what they want to talk about and give them facts. Do not talk to people about what you want to talk about and speculate.

The pensions dashboard is a case in point. people want answers to their questions not to be told what they should be thinking by the ABI.

Andy likes to show a chart which sees Financial services languishing at 58% on the Edelmann Trust Index and Technology prevailing at the other end of his scale with 78% of people trusting the data they get , generated by machines.

The lesson is pretty simple, the dashboard should be communicating facts delivered by technology, not marketing delivered by insurers.

Answering the question

On numerous occasions over the past nine months, I have seen individuals ,trustees, employers and even IGCs asking for data and being denied it. My favorite response was from one data controller who suggested that the client was asking the wrong question. The question that the individual should have been asking is how much more she should be paying , not what had happened to her money she started investing nearly 20 years ago.

Past performance may not be a guide to the future but it is a good guide to the past, and most of us want answers as to what has happened to our money and whether decisions taken on our behalf worked out.

I fear that people have been cowered into believing that knowing past performance is not only irrelevant but actually damaging to them.

Most shockingly of all, there is a school of thought amongst insurers running GPPs that the people who appointed them and pay the money to them (the sponsoring employers) are not entitled to know how the money they’ve collected and sent, has done.

Their questions are repulsed with statements that include

  • It’s not your data – even though the data they are asking for is anonymised
  • It’s not your business – even though the employer has set up a governance committee

It is within employer’s call to sack providers and appoint  another provider to run its workplace pension.

It can justify doing so by telling impacted staff that the incumbent provider does not want to share the data which can enable it (the employer) to independently assess performance. In short it can tell its staff the insurer will not answer the question.

A simple lesson in communication

I had a conversation earlier this week with Ros Altmann and congratulated her on her idea for a birthday card which fell on the mat in a brightly coloured envelope and gave the recipient a birthday surprise, a meaningful simplified pension statement.

I expressed admiration for the idea but expressed scepticism that insurers would change their systems to issue statements to delight the customer rather than the scheme/plan renewal date. Ros sadly agreed, such a move was unlikely to happen.

Organising what we say to people around when they want to hear from us is not something that is in most pension communicator’s DNA, people get what we want to tell them when we want to tell it.

“Knowing what those questions are…”

The gap between what people want from a dashboard and what insurers want to tell them is wide. People want access to data and their money, insurers want more of their money and are prepared to sit on the data people ask for.

The simplified pension statement should include a statement in “pounds, shillings and pence” of how much has been charged them for managing their money. As Ruston Smith of Tesco says, “people – when they get a shopping bill itemising what they’ve bought, expect the cost of those items to appear at the bottom”.

Unbelievably, most simplified pension statements don’t contain this information and the Government is still having to consult on whether they should. The answer given by the pension industry to that consultation will be interesting. The consensus so far is that if we told people the cost of saving, they’d stop saving. I doubt people stop shopping at Tesco when they see their shopping bill, unless they can see they could buy the same items cheaper elsewhere. The dashboard has an answer for that too.

Value for money

The pensions industry has convinced itself, the regulators and the sponsors of the workplace pensions they manage, that it is too hard to give people an assessment of the value they’ve provided for the money invested and instead of answering that question, they’ve chosen to answer another question.

The question they have chosen is “do we think we have provided value for money?”. They have set up IGCs which are packed with experts and those IGCs have agreed with the providers (on every occasion but one – pace Virgin Money)  that value for money has been given.

The bar for “value for money” has been set so low that everyone has jumped over it. That is because the question has been answered by the people setting the question!

When individuals were asked how they measured the value they got for their money, they replied that it should be measure on the outcome in their pension pot. (NMG 2017).

Once again the question people ask and the answer they get are quite different.

We will only get to a the answer to people’s legitimate question “how have I done” when we tell them how they have done. That doesn’t mean delivering a factsheet with gross and net performance figures but it means delivering the return that person got on their money and even more importantly, the return they got relative to the average return, so they can see if they have done well or badly.

That is their value for money figure and it happens to be their AgeWage score. Frankly until we start answering the questions people have with facts not speculation, with history not speculation and with total honesty, we aren’t being much help.

AgeWage evolve 2


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Let the Lady speak for me (on Brexit)

Ros altmann pic
I was a silent remainer. I have been a Liberal most of my life, voted Liberal in #GE2019 and am proud to know Ros Altmann and Gina Miller as friends.

Yesterday I bowed in front of the Throne in the House of Lords, Ros Altmann beside me and saw this great place of parliamentary democracy for the first time.

Last night, shedelivered this short but powerful speech wishing the Lords not to stand in the way of Brexit. It was the right response. She quoted Martin Luther-King

“We must accept finite disappointment and live with infinite hope”

She spoke for me too.

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Retirement plans meet people’s needs (not what we want to sell them)


This is a blog about Gareth Morgan, Greggs and about how we meet the needs of all people in retirement, not just the sufficient

Here is Gareth’s blog – AgeWage will be integrating Gareth’s analytics into our work on retirement plans. If  you are a provider , consultant or reward strategist, we hope you do too!

Greggs £300 – Bonus or Booby Prize?

by  on January 11, 2020


Greggs, the well-known bakers, have been in the news this week because they are giving their staff a bonus because of good financial results. It’s always good seeing employers rewarding staff, and Greggs already have a generous profit-sharing scheme.


They’ve basically just handed £7m back to the govt.

I have two questions about this. The first, widely shared as can be seen from a number of comments to the tweet above, is ‘how much will people actually get in their pocket?‘.

This is the same question, in many ways, as my post a few days ago about the increase in the National Living Wage; https://benefitsinthefuture.com/national-living-wage-cui-bono/ . It’s the problem of what is called Marginal Deduction Rate, or perhaps more accurately, the effective marginal tax rate. That is the amount of money taken away from the extra earnings or bonus by such things as tax, National Insurance (NI), reduction in state benefits, reduction in local benefits, and the loss of other means-tested entitlements, such as free prescriptions because of low income.

This can be a very complex calculation. It also depends a great deal upon individual circumstances. There are some relatively straightforward parts of such a calculation; for example, a 20% deduction for income tax where somebody’s earnings are above the personal allowance level and a similar assessment for NI. It gets more complicated when looking at Universal Credit which depends not only upon what’s left after tax and NI but upon the personal details which are used to assess the benefit, where some people will have different amounts of earnings that are disregarded, so that the extra may have more, or less, effect. Some people may find that the extra leaves them with less benefit, while others may find that they lose their entitlement altogether, and might have done so with even a smaller increase. The causal chain continues with local benefits, such as Council Tax Reduction, dependent upon the Universal Credit result and low income or ‘passported‘ entitlements following on again.

Universal Credit, in particular, is affected by this kind of bonus payment, because it uses “when the payment is made” in its calculation and doesn’t spread the impact over a year. That magnifies the problem for many people.

Unlike my figures for the National Living Wage note, where I was looking at the government’s assumptions for people in full-time work, Greggs staff may have a wide range of hours of work and pay scales. Some of them may have earnings above the tax or NI thresholds, while others may not. Some may be claiming Universal Credit, while others may not, etc. etc. The value of the bonus to different people will be worth different amounts.

What I have tried to do, is to break down the effects of tax, NI and benefits in a way which might offer some illustrations of the results.

First, what happens to people whose existing overall earnings, averaged over a year, will be above or below the tax and NI thresholds. I’m using the 2019/2020 figures throughout.

Earnings below the tax and national insurance thresholds. Less than £165.55 a week, (£8,632 a year). Earnings between the tax and national insurance thresholds. More than £165.55 a week, (£8,632 a year) but less than £239.07 a week (£12,500 a year) Earnings above both thresholds. More than £239.07 a week (£12,500 a year)
No deduction NI deducted at 12% NI deducted at 12% and tax deducted at 20%.
Bonus £300 £300 £300
After deduction £300 £264 £204

I am, of course, ignoring the more complicated, but very real, cases where the bonus takes people’s earnings above threshold values, so there is a part deduction, and where people are taxed at different rates for various reasons. I’m also not taking any account of pension contributions here.

If people are not receiving, or entitled to, any benefits then that will be the end result for those people. That often applies to people with higher earnings, or partners with higher earnings. Many Greggs staff, as pointed out in the tweet above, will be claiming benefits and increasingly that benefit will be Universal Credit. That introduces another stage and another serious problem.

As pointed out earlier, Universal Credit, unlike the legacy Working Tax Credit it’s replacing, looks at earnings, including bonuses, when they are paid and not averaged over a year. That means that the bonus paid this month reduces the Universal Credit paid next month.

Universal Credit, unlike other legacy benefits such as Job Seekers Allowance, does allow people to keep some of the extra earnings, including bonuses, that they get. It lets them keep 37% of the extra. The government claws back the other 63%. That gives the following result.

Earnings below the tax and national insurance thresholds. Earnings between the tax and national insurance thresholds. Earnings above both thresholds.
Bonus £300 £300 £300
After deduction £300 £264 £204
Universal Credit Reduction £189 £166.32 £128.52
Worker £111 £97.68 £75,48

The reduction figures apply to those people who don’t have any disregarded earnings for Universal Credit, called Work Allowances, or whose earnings are already higher than those allowances. If people’s earnings are below those work allowance figures, and they have children or disabilities, then some of the net bonus will also be disregarded.

It’s striking though that roughly two-thirds to three-quarters of the bonus, for those people on income support, is being taken by the government.

Whatever the amounts that are taken into account, they will affect the Universal Credit the following month. They will be added to the existing earnings to recalculate entitlement. Universal Credit already has problems with the way it assesses monthly earnings figures. People paid weekly, as is common with low paid or part-time employment, will find that sometimes five paydays taken into account and sometimes four, with very serious effects ( see https://benefitsinthefuture.com/universal-credit-and-patterns-of-earning/ ).

Universal Credit is not a high-paying benefit; benefit caps, rent caps, limits on the number of children supported, sanctions as well as the freeze on the level of benefits for the last four years have driven down the real level of support. That means that often it does not take a big increase in earnings to stop entitlement altogether.

If that happens then people must claim the benefit again in the following month, using a shortened process. If they don’t, or aren’t able to for some reason, then their benefit won’t restart.

If they’re also claiming Council Tax Reduction then that will be reduced as well and, because for most local authorities it’s linked to Universal Credit, if Universal Credit stops then Council Tax Reduction can be thrown into confusion. It’s not possible to illustrate the effects of the bonus as there are different rules across the country.

Greggs generosity to their employees might seem, in practice, to be generosity to the government. Not only is the bulk of this bonus money likely to end up in the pockets of central or local government but Greggs will be paying an additional 13.8%, or £41.40 by way of extra Employers National Insurance contributions, although there will be a corporation tax offset to take into account.

So, to my second question, is there a better way to reward employees?

While a bonus is probably administratively simpler, because it doesn’t require much individual consideration, there are other alternatives that might be more welcome, once the real value of the bonus is taken into account. Additional holiday entitlement or pension contributions spring to mind. A bonus sacrifice into their workplace pension would save most National Insurance, for example. Pension contributions are disregarded completely from Universal Credit.ferret 2

While the bonus clearly isn’t a booby prize, it’s still depressing that a government which talks non-stop about work incentives and encouraging people to work longer and earn more, still insists on grabbing as much as they can of any increase that people get.

Retirement plans should focus on what people need…

My retirement plan is to stay healthy, wealthy and wise. It involves me finding the right balance of work, play and support from my financial investments. If I was not as lucky as I am, it might include further support from the state. Pensions play a part, my property might play a part and my businesses may still be supporting me into my later years.

To stay healthy I am changing my nutrition, cutting down on alcohol and participating in a range of fitness activities including travelling around London on Santander Bikes.

As we revise the AgeWage business plan for the next five years, I am coming under pressure to focus on the “monetisables”.  I am clear that there are a number of financial products that lie at the end of user journeys which could make us profitable immediately. All we need to do is to drive out profit and AgeWage could become a leading lead-generator for the financial services industry. 

It’s not going to happen! We are in the business of helping people turn pension pots into retirement plans and that means offering services to people that reward them rather than us.

Yesterday I visited my old friend Ben Jupp, with whom I and Steve Bee worked in the mid nineties. 25 years later Ben is a Director of Social Finance, an organistion that spends money on integrating not for profit services like the NHS into the retirement plans of the UK population. I will be writing a lot more about this because occupational health should be about the NHS as well as BUPA and Axa PPP.

I also read a fine piece of writing by my friend Gareth (the Ferret) Morgan, probably Britain’s greatest expert on how the package of benefits collectively known as Universal Credit (UC) integrate with our private finances. While I have a lot of respect for organisations such as AgeUK, who provide help from charitable status, I find in Gareth’s entrepreneurial zeal , a spirit that chimes with what I am doing at AgeWage.

It is right that Gareth’s Ferret Systems gets the commercial reward it deserves and the reason for including this blog of Gareth’s on mine, is to encourage readers who take decisions on reward , to think of how the reward they offer plays out, not just to executives but to those in the workforce on low pay.


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Hey teachers, leave the kids to learn

kings cambridge

I’m not writing as a pensions expert or actuary (I’m neither). I’m writing as a parent of a 22 year old completing the Cambridge Geography Tripos. He , and his contemporaries are facing considerable disruption to the teaching they’ve paid for.

I don”t know any students who aren’t supporting their teacher’s right to a decent pension at a fair price and I don’t see bleating about VFM for the student loan they are extending. Students have been tolerant of the poor deal they have got and I’m proud of my son for his tolerance.

But there comes a time when someone has to stand up and say enough is enough and that should not be the students but people like me – so here goes.

The hard line of the UCU’s Left is now the dominant force of the University College Union’s policy making. This doesn’t give moderates much room for manoeuvre. UCU left’s positions appear to include demanding the USS executive resigns or is sacked. This is not how to resolve  the dispute. Nor is its vilification of the JEP for not demanding Bill Galvin’s head upon a platter. I am far from happy about the influence of militant left-wingers on the UCU

But the JEP, ably led by Joanne Segars, has produced a strongly worded report that should be giving the UCU confidence. The UCU has in Jo O’Grady a powerful leader. The cards are stacking up in their favour, why risk further unnecessary action by adopting such a confrontational approach. The answer appears to be a return to 1967.

And time is the UCU’s friend,  USS are still suffeciently invested in real assets for it to have benefited from the recent market upswing. Future valuations may look a lot more rosey, especially if the current Government adopts an inflationary economic strategy that drives down USS liabilities.

But surely the clinching argument for some peace and quiet is the progress that has already been made by the UCU in winning the intellectual argument. As an open scheme there is no rationale for the proposed de-risking strategy that has caused so much strife.

CDC lifecycle

I can, as a former First Actuarial employee, point to the absolute good sense of exploiting the sweet spot that USS is and will remain in.

USS should remain invested in real assets, teachers should remain teaching and the long-suffering students should be allowed to complete this year without further disruption.

Cambridge colleges


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Pension tax-relief – a fact based argument for change.

Screenshot 2020-01-12 at 08.26.34.png


The change I am suggesting would turn pension taxation on its head, it would mean pension contributions would be taxed at more than 60% for high earners but that the lowest earners would be exempt from pension taxation.  Pension providers would need to pay attention to their low-earners who would become more valuable to them, providers whose models were focussed on wealth management would suffer from these proposals. Read to the end to understand why I see such change as needed.

In recent articles, I , Ros Altmann and Jo Cumbo have been grappling with pension tax reform. There are three solutions to the issues.

The first is to deny there is a problem , or at least to put off accepting we need to tackle the problem (this sounds familiar in the context of climate change).

The second is to look at a partial solution, the solution favoured by unlikely bedfellows in John Ralfe and Ros Altmann, here the key is to limit tax relief to a flat incentive.

The third is what I propose which is a phased transition from the current system where contributions get incentivised to a system where pensions are paid tax free.

In this blog, I look at the available numbers, published by the Government – that show us – on an accounting basis, how the amount that Government loses in tax relief exceeds the amount it rakes in from taxing pension saving by £35.4 bn (2017). Ros Altmann estimates that the real cost today has gone up since then to around £50bn, but I’ll stick with the lower estimate, as detailed below.

Screenshot 2020-01-11 at 16.07.31

The table has been converted to a graph which shows where the £35.4 bn is lost

Screenshot 2020-01-11 at 16.36.53

DB funding costs best part of £18bn,

The graph shows that the biggest cost by far, is the £18bn a year lost in tax revenues from employers with occupational pension schemes. This may seem odd to those who see pensions through the lens of auto-enrolment where employers pay 3% of a band of earnings and employees 5%. But in 2017 the rate was still 1+1. and more importantly, the weight of pension contributions is still with DB schemes. The deficit contributions to keep DB going are enormous, the ONS estimated that the 360 largest DB plans paid £13.5bn in special contributions in 2018 (and they paid ongoing contributions and the PPF levy on top).

DC costs to the pension system are smaller but growing

But we should also be aware that ongoing contributions to Defined benefit schemes dwarf what’s going into workplace DC plans.

Screenshot 2020-01-12 at 06.36.23.png

Look out for the yellow and blue blocks on the right to shoot up as the 2018 and 2019 numbers come in, that’s when the real cost of auto-enrolment to the Treasury arrives.

Lates estimates from the Treasury suggest the  cost of income tax relief for registered pension schemes in 2019/2020 will be  £20.4bn, (“income” covers personal income and corporation tax). Most of this increase is expected to come from DC

Why national insurance is so important

People and employers pay national insurance on salary and bonuses but not on pensions in payment.  Employers do not pay national insurance on contributions to pensions. Although national insurance is not a headline grabber (like income and corporation tax) it forms a big part of the £35.4bn gap between what Govt. gives up and what it grabs back



The figures in Table 6 at the top , need no graph, in terms of “give and grab”, the Government gives up £16bn in national insurance and grabs nothing back. National Insurance makes up nearly half of the gap between give and grab.

Although Table 6 is the last complete figures , we do have provisional data. The latest data from the tax office reveals national insurance relief for employer pension contributions will amount to £18.7bn, higher than the 2018/19 figure of £17.4bn, and the 2014/15 figure of  £13.8bn figure.

So what can Government do?

On the face of it, the ongoing cost of funding DB and the cost to the exchequer of lost NI revenues are the two biggest ticket items,  The DC costs are yet to feed through.

The current plan is to cap the amount of contributions that those with high net disposable incomes can make and punitively tax breaches . This is through the annual allowance, the taper and to some extent the money purchase annual allowance.  Coupled with a cap on the value of lifetime pensions benefits this has produced an increased “grab” from the wealthy illustrated below.



Screenshot 2020-01-11 at 16.43.25

But these breaches aren’t really netting much in “grab” compared with the “give” elsewhere.

What the Government has to do is to find a way to stop giving away so much upfront and boost the impact of the “give” by not grabbing back in retirement.

The reason for this is that 50% of the benefit of the current “give” is going to 10% of the population and the 90% of the rest of us , are sharing in only half that £35.4bn giveaway.

The beneficiaries of that big employer spend are those still getting DB accrual and those benefiting from DB pensions that increase each year. There is an argument that DB pensions should be liable to national insurance by way of “grab” . I don’t see such a measure as being popular, but it may be a short-term fix to keep the show on the road and pay for removing the annual allowance taper. These tinkerings are not the long-term solution

Making DB accrual benefit low-earners most.

What  needs to happen is that we need to gradually remove all the perks of accruing DB (both in the private and public sector) and charge those who are in receipt of DB accrual the cost of both the income tax and national insurance give , in exchange for paying this accrual tax free at retirement. This can be done , not by increasing payroll taxes but by offsetting the upfront tax and NI reliefs by a promise that this part of the DB accrual will be paid tax free – effectively a tax-exempt pension.

Why this works is that it redistributes the incentives to stay in to those who pay small amounts of tax and NI and takes away from those who are the big winners today, those 10% of top earners who are scooping the pool.

Preventing DC becoming a national insurance arbitrage.

As for DC, we have to be aware that most DC contributions will ultimately be paid by employers

Screenshot 2020-01-11 at 16.39.36

Employers are cottoning on to salary sacrifice/exchange and can see that they can boost pension contributions by up to a quarter by simply paying employee contributions in lieu of salary.

This graph shows how fast the switch is happening and when the vast new cohort of employers (1m +) who have recently set up workplace plans, cotton on to this, the amount of personal contributions will fall further.

If Government chooses to cap tax- relief on personal contributions to the lower rate , they will see that blue line accelerate towards zero as employer contributions protect all employees from income tax (as well as NI).

This is why a flat-rate solutions as proposed by most pension experts is flawed.

As with DB, the solution is to treat pension contributions as tax- able and liable to national insurance as if they were a benefit in kind. In the short- term, contributions could carry on getting tax-relief but would be “docked” by providers who would send the tax and national insurance  on  to HMRC.

This could mean that a higher rate tax-payer would only get around 39 p invested for £1 received by the provider. (45% income tax + 2% employee national insurance and 13.8% employer national insurance would be returned).

By contrast, 100% of the contributions for those on the lowest earnings (below both tax and national insurance thresholds would be invested.

Both the highest and lowest earners would see 100% of their savings available to them in retirement tax free, but the lower earner would benefit to the tune of 61p in the pound over his or her wealthy colleagues.

Impact on pension savings

The impact of my proposals will be extremely unpopular with most people reading this blog, who will benefit from the status quo and could stomach a flat rate incentive system.

Not only will it dramatically reduce pensions for the rich but it will slash revenue projections for many pension providers that depend for their profitability on an ad-valorem fee on wealth. Put simply , it will turn round the pensions value propositions from rich to poor, from wealth management to social insurance.

One test of this Government will be to see whether they will actually sort out pension tax relief as dramatically as  I propose. I propose that if they do, they look at incentivising people to convert their pension pots into pensions by providing tax-breaks to CDC schemes to manage people’s pensions as an alternative  to annuity, drawdown or simply cashing out the pot and putting the money in the bank.

The incentives for CDC provision could be equally geared to benefit those with small transfers so that the Government can make CDC viable for everybody, with the option for the wealthy to go their own way without imperilling the CDC scheme. As I have mentioned earlier, the first national CDC scheme could be seeded by the PPF and run by the PPF’s outstanding investment and operational teams.

I believe that in the long-term, my proposals will strengthen the UK pension system and return it to its former state of being the envy of the world. It will make pensions more inclusive and more relevant. Instead of being a “tax-wrapper” , the DC pension pot will become measurable by the CDC pension it can buy. DB pensions accrual will be valued for whom it is valuable and will increasingly be swapped for a CDC benefit based on a defined contribution.

Those who these proposals would benefit, won’t realise at first just how much they will get from this change. Those 1.7m people caught in the net-pay rip-off , don’t know how they are being ripped-off and have no voice. Those caught by the taper are the other way round, they have a loud voice and get their way.

But – with proper promotion, I believe these proposals will receive popular support. It will take a lot of time, energy and bravery to see these proposals through and the people who have most to lose from these proposals are going to be a huge barrier to change.

Those who will see the value of their future DB accrual , their future DC savings reduced, will not like my proposals. They will argue that it will destroy confidence in the pension system and many will opt-out and prefer to be paid salary in lieu.

Impact on employers

But employers will not be impacted by my proposals and will be under no obligation to feather-bed these cuts in top-earners pensions. As this system would be imposed on a national basis, the high-earners wanting out would need to find a country where they could get better. As far as I am aware, no country is currently giving away more in tax relief to the wealthy than Britain, so they will be hard pushed.

Employers will not be taxed  on their DB funding (or indeed on special contributions), they will not be impacted by the administration of the tax rebating which will fall to pension administrators not payroll.

My proposals should be welcomed by employers and their trade bodies , the CBI and the FSB alike.

Impact on the Health Service

My proposals will generate a substantial reduction in the cost of pension tax relief. It will especially negate the cost of tax-free cash (all future accrual or savings to pensions will be tax-free). The money saved can be recycled to encouraging the use of CDC pensions and to help pay for the cost of long-term care of our fast dementing  and physically detoriating elderly. This proposal will go some way towards increasing the £230bn a year we spend on the NHS.



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Time to stop dissing Robo-Advice?

science 2

In a brilliant article , which you may be quick enough to access via this link, the FT’s Damian Fantano explores what is going on with robo-advice – or what robo-advisers like to call “putting the AI into financial advice”.

My take, and the thrust of this article, is that we can already see in the new ways of doing things, a way to navigate what seems complicated – so that it becomes simple.

What “artificial intelligence” is supposed to do is to lead you from screen to screen with the deftest of nudges to a leading question, that question leads to you making a financial decision.

There is nothing new about the “user journey”. TS Eliot explores one at the beginning of the Lovesong of J Alred Prufrock

Let us go, through certain half-deserted streets,
Streets that follow like a tedious argument
Of insidious intent
To lead you to an overwhelming question …
Clearly tired of beating around the bush, Prufrock blurts out
Oh, do not ask, “What is it?”
Let us go and make our visit.
What Robo- Advice should do – is allow ordinary people who do not want to see a financial advisor in person to get on with it.

People know what’s going on…

In its call for input on RDR and FAMR in May last year, the FCA sounded confident

There was a statistically significant increase in the number of people taking regulated financial advice since 2017, with an additional 1.3m people taking advice. There was also a significant increase in the use of guidance services, and automated-advice services, to help with financial planning decisions.

In the detail of their findings it’s clear people are confident too

Of people who have not taken regulated financial advice in the last 12 months, but whose circumstances suggest there may be a need for advice (defined as people who have at least £10,000 in savings and/or investments):

– the most frequent reason (50% of responses) was that they did not feel they had a need to use an adviser during this time

– a further 37% said they felt able to decide what to do with their own money (significantly higher than the 28% who said the same in 2017)

– less than 1% said they had not been able to find an adviser,

2% they did not know how to find an adviser

and 5% said they had doubts about whether they could find an adviser suitable for them

Is lack of advice really the problem?

On the face of it – there doesn’t sound like a huge unsatisfied market here. People are making their way through the streets and taking on the “overwhelming questions” with their own resources.

The answer to that question is that it depends where you look. If you read the FT you are looking in the right place, you generally have more than £10,000 in “savings and investments” and the people who consult the AI – advisers featured in the article are financial journalists who are very aware of what is going on.

This is Damian Fanato’s personal experience

Screenshot 2020-01-10 at 06.56.10.png