Earlier this year AgeWage ran a series of snap polls which proved popular enough!

We have spent the past six months asking people what they want to know about their workplace pensions and they tell us that once they’ve found them and found out what they’re worth, what they want to know is whether they’ve had value for their money. This blog looks at how the value for money assessment has evolved since the OFT demanded IGCs be set up to tell people the VFM they were getting.

It’s not gone well has it?

People outside of pensions think that people in pensions are making a meal of value for money.

If you look at the various definitions of value for money or “moneys worth” used in this blog- you’ll see they are very simple – and can be universally applied.

If you look around the practical ways value for money is assessed, you find examples which simplify complicated things into formulae that people understand.

This is what’s behind Frank Field’s frustration when he complains in a recent paper on transparency that

We repeatedly heard in evidence that there is no clear definition of what good value for money means for pension schemes. Perceptions of value for money will vary depending on the perspective being considered and attitudes to risk, return, costs and other factors

He ends up calling for an

“agreed definition of what is meant by value for money in the pensions industry. Although individual schemes will need to vary their value for money goals, without agreed definitions it is not possible to make effective comparisons”.

In practical terms he questions whether what we do at the moment works and he calls for an immediate review of Value For Money practices

The review should assess whether or not this requirement leads to better scheme focus on achieving value for money and better communication to scheme members about value for money.

So let’s look at how VFM is being used elsewhere. I’ve been looking around and the first thing I’ve notices is that…

VFM is a lot simpler than pension people think

The way that people estimate value for money is by a simple analysis of inputs and outputs. Take football, you want to know who is delivering value for money, take goals v salary

Actually, best value for money last season came from two south coast heroes, Callum Wilson – who’s goals cost Bournemouth around £148,000 and Brighton’s Glenn Murray who only cost £122,000 a goal.

Purists may point to a host of other factors, but this is what matters for Talksport listeners……..

Now let’s move on to how Government does Value For Money assessments for what it buys

Government procurement may look complicated

Comparing outputs and inputs

But in practice, it’s very simple.

A local authority sets up a new programme to reduce litter dropping. One of its early steps is to agree with stakeholders a set of outcomes for the programme. The effectiveness of the programme is to be judged on the extent to which it reaches its outcomes in a year.

In this case, the programme achieves 97% of its outcomes and councillors declare they have ‘come within a whisker of winning the battle against litter’. The programme was effective.

However, the programme cost more than expected and overspent its budget by 25 per cent. This was because the programme managers allowed costs to over-run in their drive to meet the outcome. The programme was not economical.

The cost over-run prompts a review of the service. This concludes that, outcome for outcome, it was more expensive than similar programmes in neighbouring areas. The programme was not efficient.

If programme objectives had been exceeded sufficiently, the programme may have been cost-effective despite the overspend. However, programme managers could still be criticised for exceeding the budget.

The most disadvantaged parts of the area were also those with the biggest litter problems and these neighbourhoods improved more, from a lower base, than wealthier places. The programme was equitable.

So how have pensions people got in such a mess?

The idea of using value for money assessments in pensions to ensure people are protected from rip-offs has been around a long-time. The Stakeholder Price Cap was introduced so that the money we paid for our pension management was capped at 1% of the amount under management. These early price cap set the tone for VFM debating and by the time the Office of Fair Trading reported on rip-off workplace pensions in 2014, this idea for VFM had  already taken root.

Here are some slides delivered by Sandy Trust to the Institute and Faculty of Actuaries.

Sandy starts by saying that VFM is in the eye of the beholder, quoting trip advisor.

but concludes it can’t be as simple as all that…

It is at this point that the member’s view of VFM is replaced by that of various Government organisations (office of Fair Trading, National Audit Office, Financial Conduct Authority and The Pensions Regulator).

The conclusion is that VFM in pensions (especially pension savings schemes) is already out of control, it cannot make its mind up whose perspective it’s measuring, it’s complex , it’s expensive to measure and there is little clarity of approach.

In short it presents an opportunity to actuaries to “help customers and in so doing help themselves”. 

Sadly value for money has not helped savers – though it is helping actuaries 

We now are in a position that every DC  trust and contract based work place pension must report on value for money in its own way, through the formulae of IGCs, GAAs and Trustees with the help of their advisers – typically the actuaries who sat in the room listening to Sandy.

Far from simplifying pensions , VFM has become one of the most complicated areas of pensions.

• Some providers use returns based formulae such as CPI +3% (Adopted by the Prudential)
• Some providers use a balanced scorecard, assessing each aspect of the workplace pension either using numbers or the “red orange green” or RAG rating system.
• Others seem to have abandoned all objective reasoning and adopted a “let’s give our lot a tick for VFM and go down the pub approach.

It’s time we listened – not to ourselves – not to Government – but to the savers

In 2017, in a rare moment of unity, the heads of the various IGCs clubbed together and got a project underway led by NMG. The report produced what its co-ordinators – Sackers – described as

some interesting and unexpected insights into how members perceive value for money when it comes to pensions.

The overwhelming insight – that dwarfed all others was that for ordinary people

Perceptions of what value for money means focus around ‘good returns’:  In the online survey this was the top rated attribute; the workshops revealed this is much broader than investment returns but is perceived by members as achieving a good outcome at retirement.

This isn’t complicated at all. It goes back to the simple examples we looked at earlier.

1. Goals for money
2. Litter for money
3. Holiday for money

So why not “money for money”? 

What members said they wanted as their VFM measure was very simple. They wanted to know the amount that they got at retirement compared with the amount saved.

The pensions industry has refused to address that simple request

“Value for member”

Instead of a simple way of calculating the amount of money out for the amount of money in , we have decided once again that members cannot have what they want, they must now have a new metric called “value for member”.

This is a clever ruse that perverts the simple idea of “money in – money out” and returns us to an abstruse formula that no”member” or any other kind of saver, will either understand or be interested in. Value for member requires trustees to

assess the extent to which those charges and transaction costs represent good value for members. Trustees are required to detail the level of charges and transaction costs under their scheme and explain the outcome of their good value assessment in a new Chair’s annual governance statement.

We are back in the cul-de-sac we explored earlier with the OFT/NAO/FCA/TPR/IFOA alphabet soup. This time we can add in the PLSA, who in conjunction with the Investment Association have come up with this new way for actuaries and others to make money – at the expense of value for money.

Why we can’t have what savers want?

Savers have had precious little say in what they consider value for money from the pension saving schemes they choose to join or choose not to opt-out of.

Instead of what they want, they get what the OFT/NAO/FCA/TPR/IFOA/PLSA/IA think they want. Which is exactly what the pensions industry wants but nothing to do with what savers said they wanted (when asked).

What savers want is to know how their savings have done. They want an answer that is simple, ideally simple enough to be expressed in a score or ranking.

They want to understand that score or ranking  as how they’ve done relative to the average person and that is all they want.

They do not want a detailed attribution analysis that looks at costs and charges, risk and return, details the quality of comms, at retirement options and a host of other “features” of the pension plan.

They want a simple way of assessing their pension savings and how it’s done.

Why can’t we give them it?

I’ve divided this blog into two- the first bit’s for the people who have charge of defined benefit schemes and relates to the DC savings plans that members can use to supplement their pensions (AVCs).

The second bit’s for the members, but it will probably be helpful for those in charge – who may be members – and may have the job of explaining these complicated things in simple terms.

I recently had to make decisions on the AVCs I paid, and much of this relates to my personal experiences. I was lucky, I had plenty of help.

I am not a tax expert and I don’t know my way around all the arcane rules that govern AVCs ( the older the more complicated) but there are people who do , who are there to help you and this article is here to help those people who might otherwise google – stick to the true and trusted sources – your scheme administrators, your trustees and the Government helplines that really are impartial/

This bit’s for trustees and DB sponsors

Back in the day when corporate benefits structures were about defined benefit pension schemes, additional voluntary contributions were considered very important.

To those who have paid them, they still are.

But the focus has shifted and nowadays the AVC schemes set up in the last quarter of last century are consigned to the legacy cupboard.

Trustees have got better things to worry about, like keeping tPR and the sponsor happy.

But the money in these AVC schemes with the likes of Prudential, Standard Life, Aegon, Aviva and the Equitable Life is still the trustee’s responsibility, they own the policies not the members and they have a fiduciary duty to ensure these schemes are giving value for money. Increasingly the DWP – through tPR – is looking at value for money as the primary concern of trustees looking after DC benefits.

In its recent investigation of transparency, the DWP’s Work and Pensions Committee called for a definition of value for money that could be applied across all DC pension pots. We have given a lot of thought to what that definition should be.

What “value for money” means to members

The two things that concern someone saving into a DC pot (AVC or otherwise) are money-in and money-out. Money goes into the pots by way of regular and special contributions, in the case of AVCs from payroll. Money comes out of AVCs into annuities, as cash (sometimes tax-free) or into personal pensions which are used for drawdown.

Value for Money is a measure of what happens between “in and out” and is best measured as the internal rate of return achieved uniquely by each contributor. Each contribution history is unique as is the output – the net asset value – or in the case of with-profits investments, the plan value.

But simply giving a member his or her internal rate of return (IRR) is meaningless unless it is compared to a benchmark. If benchmarked, the IRR can show whether the AVC has done better or worse than average, what the value for money has been.

Creating the benchmark and a VFM score

Until now, no organisation has created a meaningful benchmark, against which to measure the internal rate of return of AVCs for VFM purposes.

Which is where AgeWage comes in. We have co-created a benchmark with Morningstar , the rating agency. We have used indices going back to 1997 and fund-baskets before then, to create a daily price track representing the fluctuations of a typical DC pension fund going back to 1980. Investing a contribution history into this price track creates an alternative IRR, being what the average AVC saver would have got.

We are able to calibrate the difference between “achieved and average” to create a score out of 100 – with 100 being outstanding and 0 being dire.

Better still, the universe of data we have already built up makes this score comparable to the VFM members may have got from other pension contributions, for instance into workplace or stakeholder pensions, even DC pensions in payment.

What AgeWage scores mean to trustees

Trustees running DC schemes (which we take to include DC AVC plans), have a fiduciary duty to get value for their members contributions (money)

Their care on this matter is likely to be scrutinised by tPR. 

Trustees are vulnerable to criticism and even censure – if they have no regard to member’s voluntary contributions.

But more important than “compliance” with regulation, we believe that the reputation of trustees as upholding member’s interests is of critical importance, especially where those trustees are under pressure to add value

This bit’s for members

I’m surprised by how little attention is paid to helping members of DB plans with their AVC pot. I’m quoting here from a guide given us by the Prudential.

Currently, from age 55, you have a number of options to choose from when you decide to take the money in your AVC pot. You may need to move your AVC pot to another pension to access some of these options or to access them when you prefer.

• Take flexible cash or incomeYou can do this by moving your money into a drawdown plan. In most cases you can take up to 25% of your money tax-free, you’ll need to do this at the start. You can then dip in and out when you like or take a regular income. This may be subject to income tax.

• Get a guaranteed income for life
  You can buy an annuity – it pays you an income (a bit like a salary) and is guaranteed for life. These payments may be subject to income tax. In most cases you can take 25% of the money in cash, tax-free. You’ll need to do this at the start and you need to take the rest as income.

• Cash in your pot all at once
  You can take your AVC pot as a single lump sum. Normally the first 25% is tax-free but the rest may be subject to income tax.

• Take your cash in stages
  You can leave the money in your AVC pot and take out cash lump sums whenever you need to – until it’s all gone or you decide to do something else. You decide when and how much to take out. Every time you take money from your AVC pot, the first 25% is usually tax-free and the rest may be subject to income tax.

• Leave your pot where it is
  You don’t normally have to start taking money from your pot when you turn 55. It’s not a deadline to act.

• Take more than one optionYou don’t have to choose one option – you can take a combination of some or all of them over time.

Now tax is the hard bit. You can of course take tax free cash from your defined benefit plan – but this means you have to swap pension for cash- like you do when you take a pension transfer. The exchange rate between cash and pension is down to what the trustees (advised by their actuaries) choose to offer you. Some may be generous and only charge you a pound of lifetime income to get £30 cash, some can be stingy and charge you a pound of lifetime pension to get £15 cash. It’s all down to what actuaries call commutation factors.

If you have a really generous set of trustees, they will let you use your AVC pot to fund your tax free cash meaning you don’t have to “commute” cash for pension. This is almost always a good thing to do.

The “almost” bit refers to AVCs which can be exchanged for an annuity at a preferential rate – what is known as a “guaranteed annuity rate” or GAR. If you see any mention of such things in your AVC literature you should check out what the GAR deal is with your pension manager or with the insurance company who offers the AVC (there should be contact details on the communication.

So what about this 25% tax-free cash option?

If you can’t swap your AVCs for tax free cash, (because the scheme rules don’t) allow, you can usually take your AVCs as a lump sum or transfer to a personal pension. In either case you should be able to get a quarter of your AVCs as tax free cash.

But you need to check with your scheme to make sure that you don’t fall foul of one of many very complicated bits of tax legislation that surrounds these old style pensions.

Where can I get help (that doesn’t cost an arm and a leg)

I don’t mean to sound biased but I strongly suggest that if you have any doubts about tax, you speak first to your scheme and see if they have advisers who can help you. Most do and most will allow you to understand the complexities of the situation using advice that is paid for – not by you – but by the trustees (and ultimately by your employer).

You can also get help from the Pensions Advisory Service that is now part of the Money and Pensions Service (MAPS).

Their  pension helplines are open from 9am to 5pm, Monday to Friday.

They are available on webchat from 9am to 6:20pm.

Theye are closed on public holidays.

Pensions Helpline: 0800 011 3797
Overseas helpline: +44207 932 5780

Helpline for Self Employed: 0345 602 7021

I don’t think enough attention is getting paid to credit risk in the debate on contingent charging.

Clients of IFAs sign up to Terms of Business that typically offer a means of remuneration for the IFA from the money that the IFA is advising on. Where there is no money, such as in the purchase of life insurance, or other protection products , there is a commission payable by the insurer. Either way, there is certainty of getting paid which is why IFAs like their creditors to be funds and insurers rather than their clients.

This is not always the case. IFAs who have wealthy clients find they are used to writing cheques and paying VAT on professional services. So contingent charging is less needed in certain circles. However, given the choice of paying VAT on the service or not, I know which I would choose.

So the system reverts to contingent charging as the line of least resistance. IFAs do not want to spend a lot of time chasing creditors, insurers and the operators of fund platforms make good creditors who pay on time and are easily chased when they don’t.

So what if we move to fee charging for all?

The argument that is given for retaining contingent charging is that it promotes advice to a much wider range of potential clients. In practice, advisers would not do business with clients who potentially didn’t pay their bills.

Direct fees are not only more transparent, they are more expensive (as they are typically loaded with VAT) and they are paid for out of taxed income, rather than out of a tax-exempt fund (pension) or a loaded premium of a life policy.  Direct fees are painful and they don’t always get paid.

There is a side of me that says “welcome to the real world” till I realise that actuarial consultancies (like most large law firms) don’t have private client departments – other than for the super-wealthy.

The problem is not so simple as it appears. IFAs are necessarily dealing with private clients and we have around 25,000 of them in the UK. Without contingent charging, I imagine it wouldn’t just be the breadth of advice that would suffer, it would be the number of advisers – capacity.

Alternatives

This has been the central problem of the RDR and it isn’t going away. The FCA recognise that there are hardship cases where advice is needed and can’t be paid for up front – hence the carve outs in CP19/25. Al Rush has argued for them and I agree.

The question is where do you draw the line.

At what point do you accept that independent financial advice is a luxury item beyond the means of most people (who will have to make do with DIY management – unadvised drawdown- the purchase of commission paying products like equity-release and annuities?

I don’t have a problem with an advisory market that targets IFA as a premium service that is bloody expensive but worth it.

I don’t have a problem with the idea of an annuity broker like Retirement Line who declares its commissions upfront.

I do have a problem with the idea of “free advice” that is “mutton dressed as lamb” product selling.

If this sounds regressive – perhaps it is.

The fable that IFA should be available to all is both unrealistic and actually harmful. That’s because of the credit risk of running a mass market fee-based service and the perils of contingent charging.

Much better to split out IFA as a fee charging service that requires VAT to be paid on the fees and for the fees to be paid out of taxed income.

Anything else is not IFA  – it is advice that is product dependent.

The improvement in standards of IFA since the RDR is self-evident. There is now a mass-affluent market which it can serve on the basis of charging fees without tax subsidy.

If that means that some of the business plans of IFAs – predicated on serving another part of the market using contingent charging have to be withdrawn – so be it. They were rubbish business plans which carried the potential for consumer detriment and therefore regulatory and political risk

For years IFAs have ignored the regulatory risks of contingent charging.

Now those risks are being exposed, many networks will suffer, some small advisers will go out of business. The numbers of IFAs will reduce as will turnover. Profits will also reduce.

All of this is necessary because the IFA has to move onto a more sustainable remuneration model if he or she is to be considered as a provider of a professional service rather than a product salesman.

For confident IFAs like David Penney, an upfront fee charging model is no problem

It is having the confidence to do this, and the confidence in your client to pay the fee, which is key. You probably look at this more confidently than Paul Feeney. If I felt comfortable of an 80% recovery rate I would be charging fees, otherwise, as a businessman, I’d go CC.

— Pension Plowman (@henryhtapper) August 2, 2019

But most IFAs and IFA networks cannot be confident of a high fee recovery rate. The credit risk of unpaid invoices looks immense and taking the step beyond contingent charging too daunting.

The pain of taking that step cannot be underestimated and that is why contingent charging is the issue it is.

IFAs will only get paid by direct fees, if they are considered worth it. Most IFAs are worth it, contingent charging has had its day and so have the financial advisers  who can’t live without it.

Contrary to all the rumours – Guy Opperman and Amber Rudd are still in position and Britain has some unexpected continuity in its pension policy making. I was asked last week to comment to a group of civil servants on whether I was happy with the leadership we were getting and I replied I was. I am not sure that was the answer that the group were expecting but it is genuine.

Opperman and Rudd can at least claim they have not done too much wrong. This is a rather weak statement , but Opperman has at least avoided the banana-skins.

Delighted to continue as Minister for Pensions + #FinancialInclusion. We have achieved so much
– #AutoEnrollment at 8% for 10 million +📈
– championing #PensionsDashboard💻
– introducing #ESG to tackle the #ClimateEmergency🍃
More to do, now let’s keep moving forward ➡

— Guy Opperman (@GuyOpperman) July 26, 2019

A qualified welcome

I say this in a qualified way. Guy Opperman cannot be thought of as creative, the policies he has adopted have been winners (auto-enrolment) and he has stayed clear of taking on challenges (net pay anomaly, Pensions credit). He has supported the dashboard , but getting on for 9 months after its relaunch we have yet to see tangible evidence of progress.

The much trumpeted amalgamation of TPAS and MAS into MAPS (formerly SFGB) has run aground with the unexplained departure of its CEO, still tweeting about local issues (other than pensions). No new CEO has been announced and its chair Hector Saintz seems to be ruling that particular roost. It’s hard to get excited by an organisation in “listening mode” with such internal disruption.

When it comes to giving the public better pensions information, we are told that 3% of state pension forecasts delivered digitally are materially wrong. The problem seems to relate to years of underpayment of NI for those in contracted out occupational pensions. Most of these people are close enough to retirement for this to be a material issue.

A Treasury branch line?

It’s hard not to feel that the price for continuity has been paid by a dilution of the DWP’s ministerial influence. Opperman took his post as an “under-secretary” of State, a downgraded role. Now we hear Amber Rudd’s role includes being minister for equality. As if sorting out work and pensions wasn’t enough.

Because work and pensions isn’t a complex and varied brief on its own 🤦🏻‍♀️ https://t.co/gNXDFgzVA2

— Maria Espadinha (@Maria_Espadinha) July 24, 2019

We heard last week from Amber Rudd , relying to Nigel Mills on issues arising from Standard Life’s £31m fine for stitching up savers with small DC pots

It seems that the DWP have cottoned on to the problem that the Treasury’s FCA has been failing to solve for the past fiver years . The FAMR has not found ways to help those with small DC pots to get advice – what makes us think the DWP will be any different?

Last week, Lloyds Banking Group’s main union Accord, accused LBG of selling advice to its customers but denying it to its own staff. Demands on employers to do more to solve the consumer issues arising from Pension Freedoms are growing.  Has the DWP got a credible policy (beyond “encouraging Mid-Life MOT’s”, to tackle the growing problem of people retiring without access to substantive help with their pension options?

The DWP must be collective and creative

The fact is that the scope of DWP’s regulator – TPR – is limited to fining employers over auto-enrolment breaches and the trustees of occupational pensions for breaches of institutional rules. There is simply no D2C element in DWP’s control.  At best the DWP is an advisor to the Treasury, at worst – it is a branch-line where unwanted engines and rolling stock are sent to work out their days.

If Rudd and Opperman are to prove themselves in the pensions space, they have got to prove themselves as more than the Treasury’s poodles and the champions of legacy pension policies.

That means coming up with meaningful mass market solutions. By meaningful, I mean CDC and not a sexy but frivolous extension to Pensions Wise that is branded  “mid-life MOT”.

Time to return to the dashboard?

The only opportunities that DWP have to make a real contribution to the UX of pensions are in the provision of mass market spending plans (CDC) and the means to see and manage multiple pension pots and rights on a digital dashboard.

The problems that beset the pensions dashboard are well known. The Government wants to have a 21st century product but are frightened of the consequences of adopting open pensions.  They are – they say – laying the foundations of a strong and stable dashboard by appointing their own to manage the project within MAPS.

Last week the dashboard issued requests from the wider industry to person the pension dashboard steering group. Why this has taken so long I don’t know, what we can be pretty sure of is that it will be a consensual group that will deliver more strong governance and lots of prescription around what the dashboard cannot do.

This will have the impact of centralising the dashboard around the ABI’s agenda , ensuring that the dashboard serves as a consolidator for what we have – rather than as a means to what we could have.

There are plenty of people outside the usual suspects who could put themselves forward to create a dashboard that really worked, but whether they have the appetite to risk once again being ignored in favour of a conservative consensus. Without wider Governmental support the dashboard project remains for me – a pipe dream. It has much more the look of Universal Credit than Auto-enrolment.

So why am I happy?

I am happy in a resigned way. Losing Amber Rudd and Guy Opperman would have lost us our Pension Bill and with it, the chance of developing collective DC pensions which I see as the way out of the problems pension freedoms are bringing us.

It would also mean starting again with the Pensions Dashboard which undoubtedly would be subject to yet another review from an incoming ministerial team.

As for the third plank of the Pensions Bill, legislation to help DB pensions consolidate, I am not so concerned. If it has to be sacrificed in return for legislation on CDC and the Dashboard, so be it.

The Pensions Bill remains the one tangible outcome of Guy Opperman’s tenure so far. If you take the time to go through the claims in the DWP’s video, it is hard to see beyond the Dashboard and CDC as areas where Government can make a genuine difference

https://www.ftadviser.com/pensions/2019/07/25/rudd-mulls-advice-options-for-savers-with-small-pensions/

Other matters , such as the requirement for Trustees to make statements about their policy on ESG are little more than inclusion of pensions in a societal shift. Meaningful work is being done in the DWP regarding pension disclosures , but I sense these will need the FCA’s adoption to move the dial on how we see “Value for Money”

The dashboard and CDC are the big-ticket items and without Opperman and Rudd at the helm, both would have been subject to further delays.

In case you missed it, Standard Life was fined £30m for allowing its staff to abuse the trust of its customers and sell them annuities that paid them a lower pension than they could get elsewhere.

The fine would have been £40m but through a plea-bargain, Standard Life got 25% off.

You might think that Standard Life could treat their captive customers how they liked and that “caveat emptor” applied but you would be wrong.

The FCA operates under the principle that insurers treat their customers fairly and by denying their customers the benefit of open market and enhanced annuities, Standard Life failed.

This was not a “cock-up”. This went on  between 1 July 2008 and 31 May 2016, it was a systemic feature of the Standard Life business model.

Those who campaigned to get these sharp practices banned have long memories and undiminished passion.

Blood now boiling.

“Mad March” bonuses to flog annuities. Sickening. pic.twitter.com/y81mH9JRdm

— James Coney (@jimconey) July 23, 2019

But who will be accountable for this crass behaviour?

No one will be blamed

Since 2016 Standard life has passed through an intermediary stage as Standard Life Aberdeen before becoming a part of the Phoenix Group. The head of its workplace pension division became a non-executive Director of Phoenix before being appointed last month as CEO of Royal London

The head honcho – Alan Nish is now on the audit committee of HSBC bank where he’s also a non-executive director.

Other senior executives of Standard Life hold equally important roles in the insurance sector and the degree of personal accountability for what has happened appears to be zero.

The last person standing is current Standard Life CEO, Susan McInnes  . Susan is not a Standard Life person, she has worked at Phoenix Group for ten years but only took on her role with Standard late last year. She is playing a straight bat as she should.

No single person will be fingered for the way that Standard life preyed on customers with limited financial capability and a trust in the Standard Life brand. The bill will be picked up by Phoenix shareholders and the affair could be swept under the carpet as something that “wouldn’t happen today”.

I think we have to pragmatically accept this and make sure this does not happen again.

Let’s take a step back – this was an abuse or trust.

Standard Life aren’t any old insurance company. Although Standard Life Assurance only set up shop in 2005, Standard Life as a mutual traces its roots back to 1825 as it proudly boasts to those who are part of its advisory network – 1825.

As with Equitable Life, the probity of Standard Life was based on its mutual roots and its longevity. As with Equitable Life, this probity is being tarnished by its behaviour around post retirement options. The annuity problems at Equitable were different than those at Standard Life but when push comes to shove, the customer was mis-sold at both.

Standard Life abused the trust that it had created over nearly 200 years.

We cannot say this wouldn’t happen again today. We are responsible for making sure it doesn’t and that means taking a look at what happened and learning lessons.

Any difference between Equitable and Standard Life?

The main difference in accountability between Equitable and Standard Life was that the former’s management team managed the flack and took it themselves. I don’t say this exonerates Roy Ransom and his team, but at least they faced their music.

I don’t see any of the Standard Life team who were at the wheel between 2008 and 2016, being called to account for the way the company set up, managed and profited from the sale of Standard Life annuities and this worries me.

But it doesn’t worry me as much as the thought that annuities and other at retirement products are still being mis-sold today.

Very different for some

Not all at the coal-face can walk away from the problems they create.

For  UK regulated financial advisers, the option to walk away from the advice they have given -for instance on pension transfers – is not available. They can rightly ask why this is not the case for executives of insurance companies.

And the annuity brokers who were cut out of the chance to offer whole of market annuity advice can only watch on.

Insurers, advisers and brokers all have a part to play in promoting good decisions at retirement. We should be working with Pensions Wise and MAPS to ensure that vulnerable people go to places where they are treated fairly.

I know the Equitable whistle-blowers – they were heroes, those who blew the whistle on Standard Life must have been brave too.

I don’t think we can expect the FCA to be able to spot every rogue advisor in the UK (and abroad). It is up to those of us who are involved in helping people taking decisions at retirement to make sure they don’t end up in the hands of Equitable or Standard Life style practices.

Could this happen again?

As I have said on this blog before, I  am deeply uncomfortable about the way some occupational pension schemes offer no guidance to members approaching retirement.

There are good annuity brokers out there, Retirement Line and the Hub being two.

But Trustees and large employers who run their own occupational trusts are reluctant to point their staff to such brokers, worried about the implications to them of signposting a “wrong option”.

But as long as they aren’t signposting the open market option and offering a link or a phone number to a reputable annuity broker, they run the risk of staff falling into the hands of scammers – or perhaps other direct sales forces who may be behaving like Standard Life (dd).

So yes – absolutely – this could happen again.

How you can protect your members and staff from poor annuity purchasing

Part of the problem at Standard Life was down to a failure of employers with Standard Life Workplace Pensions to properly flag the value of the open market option and of getting a medically underwitten annuity.

If you are involved with an occupational pension scheme which has a DC section (including DC AVCs) or a workplace GPP you are welcome to come to one of four summer seminars I am running in WeWork Moorgate

We  will be addressing this issue and introducing Retirement Line as a straightforward way of ensuring the problems which happened at Standard Life, don’t happen to your staff/members.

You can sign up to one of these seminars which are on 13th, 14th of August and 28th and 29th of August using this link SIGN UP HERE

Most people don’t take financial advice and many who buy annuities still do so without the expertise displayed by Retirement Lined and other reputable brokers.

We cannot pretend that the problems at Standard Life won’t reoccur. So long as we have vulnerable people with limited financial capability, we will have people ripped off at retirement.

So it is up to the people who run the reward, HR, pension and general management functions that operate workplace pensions to step up to the plate and make sure that what happened at Standard Life for 8 years – does not happen again.

Come to my seminar on how we can take responsibility – click here

The world’s most pampered think tank?

Released from the bondage of the catheter, yesterday I made the short way from Tapper towers to the offices of JP Morgan for a day with NEST Insight.

NESTinsight is a think tank, this might conjure up a vision of a lonely platonist in hist tower but it’s not quite that spartan. NEST Insight’s conference was supported not just by JP Morgan but by Vanguard, Invesco and its research by LGIM. I was getting gratitude fatigue well before the end of Will Sandbrook’s opening address.

looks like we’ve also got be grateful to @LGIM for research delivered by Jo Phillips of @NESTInsight #nestinsight19 – is there anyone left to whom I shouldn’t be grateful?

— Pension Plowman (@henryhtapper) July 4, 2019

There is a serious point here, good as it is that NEST Insight is not making further inroads into NEST’s £1,200,000,000 taxpayer loan, we’ve got to remember that it is blowing the research budgets, not just of the financial services companies sponsoring, but of a lot of other research projects that do not have NEST’s glamour. Be careful what you spend guys.

This is highly hypocritical of me as I spent whatever time off I had wolfing down the posh nosh, making up for three days of hospital food (thanks JP).

Universal pension credits?

The “context” of the event was given us by Will Sandbrook but while he spoke news broke of a rather alarming statistic which rather put the valiant efforts of NEST to get us to save more in the shade.

Latest National Statistics estimate that 60 per cent of those eligible for Pension Credit are in receipt of it. https://t.co/4XE5BJQqOG

— Josephine Cumbo (@JosephineCumbo) 4 July 2019

The reality of life in Britain today is that only 6 out of 10 people so poor as to need a top up to their state pension – are claiming. There were noises off about the pride of the working class not wishing to pick up means tested benefits, that’s Orwellian bollocks. Four out of ten people don’t claim pension benefits because they don’t know they can or they don’t know how to.

If the Government really want to help alleviate poverty in older age, they need to concentrate on the here and now, not just the future. We may become sufficient in time – thanks to Sidecars and behavioural economics but there are desperately poor people in Britain right now who should be auto-enrolled into pension credits.

Perhaps a bit of NEST Insight’s budget could be spent working out why – in the 21st century- with RTI and universal credit – we cannot get the right money into the right hands at the right time

Universal pension credits – my arse!

Enough moaning!

The rest of the gig was good. I particularly enjoyed the lunchtime session with Madeline Quinlan (despite me calling her out for telling us we should be “making the self-employed save”.

The work NEST is doing with IPSE and the DWP to work out what is the solution to Matthew Taylor’s problem is going down the right paths. I wish it was going quicker but this is a big big project and the thorough research looks proper to me.

What @nestpensions can do for the self-employed #nestinsight19 pic.twitter.com/JpCtlAWybj

— Pension Plowman (@henryhtapper) July 4, 2019

I’m hoping that this research will be in the public domain before too long. It is vital that we get the self-employed back interested in pensions (though not at the expense of them losing their entrepreneurial instincts!

Good to see women to the fore.

There were some good panel sessions and for the first time in my memory – a four member panel without a man in sight.

Not sure if this is über diverse or not but it’s one hell of a panel @nestinsight ⁦@nestpensions⁩ #nestinsigh19 pic.twitter.com/FSyfDHzR6w

— Pension Plowman (@henryhtapper) July 4, 2019

You’ll have to follow my tweets for details of this and other sessions.

A good day and – despite my moans – a worthy day

We need the kind of thinking that the programme gave us, we need to think about behaviour and triggers and how to change things in a big way with small nudges.

We need to challenge NEST Insight, which is prone to being too much in the industry’s pocket. We need to challenge the DWP for getting flabby – thinking NEST Insight is doing its job.

Most of all, we don’t need to be complacent. Those 10.5m savers, 7m of whom have got NEST accounts are looking for decent outcomes. It’s one thing to save, it’s another to be financially capable of managing a wage in retirement.

If people can’t even get as far as picking up their pension credits, we know we have a lot more to do- by way of defaults – than we are doing today.

After nearly 12 years of monthly lunches, I have decided to discontinue the Pension Play Pension Lunch. There will be no lunch on Monday July 1st so please do not go to the Counting House.

12 years is a long time. It was Robert Gardner who suggested we had a monthly dining club and the first lunches were held upstairs in the Dining Room of the City University Club.

We switched to the Counting House later that in 2007 and they have been terrific hosts ever since. I’d like to thank the various managers and army of waiting staff who’ve looked after us over the years.

Recently we’ve seen a fall in numbers and though the discussions have been no less vigorous, I must admit to my becoming a little jaded.

So I’ve decided to knock the lunches on the head for the summer and consider whether we may launch new AgeWage lunches in the autumn! I’d like a new venue, perhaps the WeWork I work in in Moorgate. Any ideas to henry@agewage.com.

My biggest thanks are to you, the loyal Pension PlayPen lunchers who’ve been such a pleasure to each other and to me.

We will meet again!

In my experience, sometimes charges aren’t brought to the individual’s attention at all, and thousands per year are paid from their pension fund to an ‘adviser’ who never meets the client again! No advice, no contact, huge charges. https://t.co/WCxyR70Psh

— Laura Robinson (@L_A_Robinson8) 22 June 2019

Laura makes a good point and it’s one that goes to the heart of the retail distribution review.

Money paid to financial advisers should be for advice. Where an adviser charges ongoing fees for advice, there must be ongoing advice.

Currently, the mechanism for paying for advice is for the client to request that the advisory fee is no longer paid, but this is a mechanism that relies on the client being aware of the process and self confident enough to turn the fees off.

Why we need lawyers to get involved is that, as with PPI, most people don’t understand the process and even when they can see what to do, are nervous about doing it.

To put it bluntly, ordinary people are out of their depth.

Hitting the nail on the head.

I don’t know Laura Robinson or her firm – Thrings , but she clearly understands things from her client’s point of view and is refreshingly blunt in her views.

I just don’t think it gets spotted all that often; the average person doesn’t have a clue whether their adviser is meeting regulatory requirements. Some advisers prey on that lack of understanding. I’m seeing a lot of it in Port Talbot right now.

— Laura Robinson (@L_A_Robinson8) 22 June 2019

The only reason most of the Port Talbot steel men met with an adviser was to get the IFA to take on the responsibilities of the Trustees.

I refer back to this poll done by steel workers by steel workers in September 2017. “Take their pot and let their IFA manage it”

Most steel men I spoke to at the time thought of IFAs as some kind of independent trustees – they knew only the trustee model as all the wealth they had ever had was managed in BSPS by trustees.

I hope so too. Al is doing an absolutely fantastic job. Conveyor-belt clients is absolutely the right term, we’ve seen around 200 cases, not one of them should have transferred out, and not one of them was treated fairly.

— Laura Robinson (@L_A_Robinson8) 22 June 2019

There is an important point to be made here. BSPS Trustees were a free service that steel-workers took for granted. They simply weren’t prepared for the fees of wealth-management because many of them had no experience of paying professional fees.

It is sad that their only experience of paying fees may be  to advisers who have gone away.

Advisers – good and bad.

The wealth management model is good for people who understand wealth. These are people who have solicitors, accountants or at least know how professional fees work.

The wealth management model is absolutely wrong for people who don’t understand professional fees , don’t know how professional practices work and who are daunted by challenging their advisers when they realise they aren’t getting value for money.

Despite this , many financial advisers continue to extract large fees from these vulnerable people and they can do so through a frictionless process known as “contingent charging”.

Contingent charging works just like PPI but on a massively larger scale. It is a buy now – pay later scheme where the cost of the service isn’t felt by the customer till the money in the pension pot starts running out.

Contingent charging preys on the lack of knowledge, experience and confidence among blue-collar workers and others who may have money but have no experience of “wealth”.

We cannot regulate to stop financial advisers taking advantage of contingent charging (or indeed ongoing adviser charging). We can legislate to stop contingent charging and we should do – the FCA could write this into their secondary legislation now – though I fear it is way too late.

As for advisor charging, I think the onus is on the advisor to justify the fee , not for the client to estimate if they are getting value for money. I do not think that the majority of adviser fees are easy to turn off.  Turning off fees depends on the capacity of clients to understand what they have bought and as Laura’s tweets demonstrate – most of her clients just don’t have the competence , expertise and confidence to contradict the advice of advisers – which is to pay for advice.

IFAs are asking to be treated as professionals

Haha. No idea! I’m not sure I deserve a special title, I’m just pleased to be helping where I can, giving the steel workers proper legal advice. Sadly, they’re facing another round of scandal from the claims management companies swooping into the area.

— Laura Robinson (@L_A_Robinson8) 22 June 2019

Most IFAs I know are every bit as professional as lawyers and accountants. Indeed many lawyers, as Laura points out, have swapped advice for ambulance chasing and turned themselves into the kind of transaction-based  pariahs that the worst IFAs are being accused of.

Some vulnerable clients may lose as much to dodgy legal practices as dodgy IFAs.

And this is where we have to take a step back and ask just what is going on. We have a system of occupational pension schemes where those who work for certain companies get rewarded with a wage for life.

This system is disrupted by IFAs who take money through contingent fees on the basis they will do what Trustees did – which – in the steelworkers mind – is manage the pension pot.

And then it all falls apart when the steelworkers find that their IFAs are nothing like the trustees, that their is no highly experienced CIO managing their money, no actuary ensuring there is enough in the pot, nobody – nobody at all – acting in their interest.

This is why the FCA are so concerned

The fundamental problem at the heart of the transfer problem is that almost half of the people who are transferring (FCA number) should not be exchanging the fiduciary promises of their occupational pension scheme for the open market.

I’ll leave the last word of this blog to Stefan, who is a former steelworker and someone who has done more than most to protect his colleagues from financial harm.

Yes we saw the claims companies appearing on Google searches very early in 2018. Sharks sensing blood.

Please know steelworkers in our groups value the work you and others are doing to help our colleagues who have lost so much through mis-selling and high charges.

— Stefan (@SZaitschenko) 22 June 2019

Reform the payment of pension tax relief to ensure that no low earners miss out

We call on Government to ensure no low earners miss out on the tax top up on their pension contributions. We estimate that this issue hurts the living standards of nearly 2 million pension savers. Government should act to ensure low earners in all types of pension schemes receive pension tax relief

Petition

SIGN HERE

• Created byAdrian Charles Boulding
• Deadline14 December 2019All petitions run for 6 months

Adrian Boulding