Over 55 and still paying commission on your pension?!*!

It may surprise you, but I am still paying commission to Allied Dunbar on a pension I took out in 1986 and stopped paying into in 1989.

That commission works out as a 3.5% pa charge on the units I purchased in the first two years of my contract and I am still paying that 3.5% as I type – 31 years since the point of sale (the only point of contact i had with the advisor).

Most personal pensions sold between the mid 1970s till RDR in 2012 were sold with this kind of charging structure and it is only now, when the units have matured to a decent value, that we are paying companies like Allied Dunbar (now Zurich) the money back.

Until very recently, there was no way out of paying these charges, my personal pension has a contractual term that runs to my 60th birthday so the transfer value of my pension assumed a clip of around 20% (the value of those 3.5% deductions over the last 5+ years of my investment). Allied Dunbar simply took the money by right (read the small print).;

However, and this is very important if you are reading this and have a personal pension, everything changed a couple of years ago when the Government capped the amount that can be taken by the insurance company as an early transfer penalty at 1% of the amount you have saved. For me this has meant that my transfer value has shot up since my 55th birthday by around 19%!

My uplift is particularly high because I stopped paying into my personal pension after less than three years, but I wasn’t alone in that, the “lapse rate” on the type of contract I was in – especially among younger people -was high. Back then , as soon as you worked for a company with an occupational pension, you either gave up your works pension rights or had to stop paying into your personal pension

Not everybody knows that!

The Government’s early transfer cap recognises that most people with high transfer penalties never got the advice the charge on those early units was there to pay for and many of us stopped paying into the pension because we got a job that had a works pension.

However, not everybody knows that they don’t have to pay these extortionate charges and that they can transfer away with only a 1% penalty.

One of the reasons for that is the peculiar reluctance of some insurers to tell people they have this option! Funny that!

Yesterday I received a letter from Zurich (who have taken over Allied Dunbar) telling me about my retirement options.


Actually, one of my retirement options would be to transfer my money into a new style contract with Zurich where instead of paying the 3.5% penalty charge each year, I’d pay no penalty charge at all!

Unsurprisingly, the bulk of my money is not with Zurich and I intend to consolidate the Zurich pot into my main personal pension which is with another company.

Not a lot of people know they can now do this  – which is the point of this blog!

Better late than never

I’m pleased to have got the letter, earlier in the year I’d heard a rumour that Zurich weren’t honouring the 1% exit penalty guarantee. It was only a rumour but it might explain why these retirement options were sent to me over 10 months after my 55th birthday.

In the meantime, I’ve been paying 3.5% pa of “plan value” to Zurich for nothing at all. This pisses me off.

I’ve asked Zurich to look into why there is a delay and if I don’t get a proper answer I will escalate to the Independent Governance Committee. Actually I have already escalated this issue previously (poor old Laurie Edmunds), so I’ll be reminding him that Zurich are lagging.

It’s better that I get the offer to move my money late than never, but I wonder how many other Zurich policyholders have really clocked the significance of the 1% offer and how many simply opt to cash the money out (as advertised in the letter).

In my case, cashing out would have crystallised my money purchase allowance, reducing my capacity to pay future contributions from £10k to 4k pa (not a lot of people know that either.

Tricky things pensions- particularly tricky when you have small legacy pots.


One option – Pension Bee

romi savova

Pension Bee’s Romi Savova


If you want to know more about your options to consolidate, you might do worse than speak to Pension Bee which you can do by picking up your smart phone and dialling 020 3457 8444

This is not a paid for thing, there are hundreds of great IFAs who can help you here and other services which I’m sure rival Pension Bee’s. But I’ve recently been doing some due diligence on Pension Bee and can give them the thumbs up! Good people!

Posted in pensions | Tagged , , , , | 3 Comments

A battle won – not yet the war; FCA demands cost disclosure.


Another step towards transparency



I get worried by premature announcements of victory. The battle to get proper cost disclosure is a long one , hostilities commenced properly with the OFT report on workplace pensions in 2014. This reminded Government that we know nothing about what we buy (even if we buy on behalf of others).


The OFT were explicit; we should know what we are paying for.


Now, three years later, the FCA have agreed with the OFT and yesterday made it clear it expects this to happen from January 3rd 2018.  While I am pleased that Policy Statement PS17/20 finally allows IGCs and Trustees to carry out their duty to properly report on the value for money “operators” are getting from their investment suppliers, this is not the result we might assume from the FT’s Headline “Victory for workplace pension savers over hidden charges”.

“Operators” is another term for “provider” and means the body that runs the workplace pension. Operators do not manage money themselves, they sub-contract to insurers who sub-contract to fund managers who sub-contract to brokers and dealers etc.). Occasionally the chain is shortened (NEST for instance do not generally use insurers to wrap funds) but the complexity of the various relationships means that (until now) , not even the IGCs and Trustees have no real idea how much “slippage” there is between what fund performance gross of costs and net of costs should be.

In practice it will enable IGCs and Trustees to get this answer when they send their fund managers a questionnaire (template courtesy of the Chris Sier disclosure committee). The answer will allow the IGC to establish the money that members are paying to have their fund managers. Hopefully the IGCs and Trustees will be able to add this to the charge made to the Operator to discover how much of the member charge is going on investment and how much is being retained by the operator to pay for other things (including the “member experience”).

Let’s be clear, members will not be allowed to see how much of their AMC is being spent on fund management. That number is still firmly locked behind an iron door locked by a non-disclosure agreement – unless you actually declare it (which L&G and Aegon do).

We will have to wait till the second quarter of 2018 before the FCA even begin to consult on what will be declared to members. Meanwhile we can hope that the DWP are intending to consult on member disclosure somewhat sooner. Even so , members cannot expect to see what they are paying for transactions for some time and there seems to be no plan to force operators to disclose what their Investment Management Agreements tell us about the cost of fund services they are purchasing from the fund managers or insurers.

In short, PS17/20 is another tiny step towards proper disclosure, but in itself, it will do little but empower fiduciaries such as IGCs and Trustees to be a little tougher on operators to be a little tougher on fund managers. This is not a great victory for savers of workplace pensions.  That hopefully will come later – let’s set a tentative target for the war to be over by 2020.


Having met with B&CE’s head of policy yesterday afternoon, I can confirm that its publication of the Peoples Pension’s “slippage” costs yesterday morning (within minutes of the FCA’s announcement – was a pure coincidence. Indeed, had it not been for a health problem with a member of said head’s family, B&CE would have beaten the FCA to the mark.

B&CE will be happy to know that , having followed the FCA’s original “slippage” methodology, the numbers they have published are pretty well the numbers they should be delivering to the Peoples Pension’s Trustees for analysis prior to the next Chair’s Statement, an event so pregnant with expectation that neither the Head of Policy or I could remember when it is. I have spent 30 minutes this morning searching Google, the Peoples Pension website and my own records for the latest Chair Statement from Steve Delo (trustee chair). I have drawn a blank.

So I think it most unlikely that the People’s Pension holds much store by the Annual Statement by its trustee chair and David Farrar – heading the trustee disclosure working group at the DWP, might like to ponder about disclosing anything via a trustee chair’s statement which is presumably available on request and after the production of a stamped addressed envelope to B&CE Towers – Crawley.

Having had my groan at the total nonsense that is trustee disclosure in workplace pensions, I will now applaud B&CE for getting State Street to produce the numbers and for presenting the numbers in a sensible way so that people like me (as well as the reticent trustees) can see them.  They are here


First the headline number 0.04%

Transaction costs

Total transaction costs in the People’s Pension default fund from 1 Jan 2016 to 31 December 2016 were 0.04%. This is a combination of explicit and implicit costs as outlined below.

Here are the Explicit costs  -0.01%

These can be broken down to 0.01% explicit costs (e.g. brokerage fees, stamp duty and custodian fees). This is the figure which can be compared with figures disclosed by other pension schemes.

Here are the Implicit costs- 0.03%

These are  the difference between the mid-market price and the actual price e.g. due to the effect on price of placing the bid/making the sale). These have been calculated following the methodology set out by the FCA in its consultation, and now adopted (almost entirely) into FCA rules. B&CE are not aware that any other pension scheme has reported implicit costs yet.

I’d agree, no other pension scheme has reported not just what the costs are, but how they were worked out.

What’s more B&CE have also published the anti-dilution levy figures and their stock-lending figures (see my countless blogs about this!!).

So full marks to B&CE for disclosure, State Street for disclosure and People’s Pension for disclosure. If this lot can do it, so can any workplace pension provider!

The Pension Plowman challenge


I  set myself this challenge. I challenge myself to make sure that by the end of this decade, every workplace pension is publishing not just the transaction costs of the funds used, but the costs to the operators paid to the fund managers.

I  set myself a second challenge. I challenge myself to produce a league table of these disclosures from every workplace pension analysed by http://www.pensionplaypen.com and even those we do not analyse as they don’t want to be on this platform.

I set myself a third challenge to collect consistent performance statistics and publish them alongside the transaction cost figures together with risk-adjusted performance figures showing the true value delivered by the fund managers.

Finally, I set myself the challenge of aggregating these numbers into a league table of workplace pension providers , showing costs, performance and the value for money of the default fund of each workplace pension so that people can see if their “operator is getting value for money.

I will not stop there!

Once I have got a league table showing the value for money that the operator is getting, I will take the final step towards establishing whether members are getting value for money. This will mean analysing the difference between what the operator is paying for funds and what the member is paying as a member charge for the workplace pension.

The difference is what the member is paying for the experience of being looked after by NEST, L&G, Peoples Pension etc. That cost too deserves a value for money number.

I will not cease from mental toil, until I have produced a second league table that shows what I consider “value for money” from this residual charge. Indeed I will only lay down my plough when I can show people not just the value being got on their behalf on their investments and the value they are getting from their operator as “member experience”.

I will lay down my plough when I can get an agreed number from the IGCs , Trustees and Operators of workplace pension called the “value for money score”, which I can publish against every workplace pension in one big fat league table showing all the other scores like “goals for and against” in the football table.


I will set myself the target of this happening by the end of the decade because

  •  Ordinary people deserve to know whether their money is being properly managed
  • Operators need to be held to account
  • IGCs and Trustees need to benchmark their operator’s performance
  • Government (especially the Regulators)  need to benchmark performance
  • There needs to be a proper way of switching from one provider to another if things go wrong – with an audit trail of “why”
  • Fund managers , operators , trustees, IGCs all need to be held to account if we are to create and maintain confidence in workplace pensions.

Transparency is the best disinfectant, this is what transparency in workplace pensions looks like. If you don’t want transparency and don’t agree in the challenge I am setting myself, you are free to tell me why not!

Nobody has yet had a vision like my vision, no-one has seen the whole picture and dared to write it down as I am writing it down now.  This has been a challenge and I am proud that I can write this down – four years into the Pension PlayPen project, because I really believe that together we can get this done!


I want to be writing in January 2020 about that single league table that properly compares every aspect of the performance of a workplace pension and does so in a single “value for money score”! I want that table to be available to every person saving into a workplace pension and to all those who are considering doing so.

I hope that by then , we will be as one with my vision! Then the war will be won!

war won

War won!







Posted in auto-enrolment, pensions | Tagged , , , , , | 6 Comments

It’s not “advice v guidance”; it’s “advice v selling”.



Me and the Minister (“where’s the camera?”)

I have in my hand a little A5 leaflet from the Pensions Advisory Service , entitled Advice and Guidance ; Recognising the difference. I will try to get an electronic link to it but for now you’ll have to take my word for it that it’s key points are


  • People use the terms of “advice” even when they understand that they are receiving guidance as “guidance” is not a familiar word used by people.
  • People do understand that “guidance” does not provide a definitive course of action  and report a high level of satisfaction with guidance
  • There is little to be achieved in redefining the terms especially as customers understand then a guider says “we cannot tell you what to do”.
  • Over 34 years, The Pensions Advisory Service has not had any issues with customers claiming that it had given advice showing that customers do understand the difference.
  • The scope of guidance that is delivered by an independent & impartial organisation can take people up to the “decide and buy” moment,
  • There are issues with access and trust in regulated financial advice

Reading this – it is quite obvious that the public see financial advice and guidance as exactly the same thing – and a good thing. The public see the selling of financial products disguised as advice or guidance as a bad thing and as mutton dressed as lamb.

Organisations that have no product to sell , such as TPAS, MAS and the yet to be created Single Financial Guidance Body, will be the better trusted for it.

Mutton dressed as lamb

I have in my other hand, an article in Financial Adviser containing a question from Mr Hill of Hargreaves Lansdown to the Pensions Minister.

“We see a number of employers now care a lot more about the financial welfare of their employees.

“With the introduction of the Lifetime Isa we now see companies thinking beyond auto-enrolment and thinking about that option as well.

“As things get ever more complicated, you mention guidance and not advice.

“With the Financial Advice Market Review there was a lot of talk about guidance rather than advice.

“We for one would love to help a lot more people engage with their savings but the regulatory environment is very much geared towards advice. It doesn’t allow us to have that sort of conversation.

“What role do you think the Department for Work & Pensions can play in engaging with that debate so when people ask us questions we can really, really help?”

I have a great deal of sympathy with Guy Opperman for being flummoxed by this question. He batted it away with some tosh about further consultations and the get out of jail card.

“At the moment it is probably best to describe that it is a guidance body rather than specific advice.”

But let’s look at this question for what it is, an attempt by Hargreaves Lansdown to get the Pensions Minister to sanction selling of an HL product (lifetime ISA) to employees – as an alternative to workplace pensions, under the guise of “financial guidance”.

What HL want to do in the workplace – and what most financial educationalists do – is to provide a veneer of guidance and then flog you a financial product. Typically this is a SIPP into which you can tip all your pension savings but it could be all kinds of stuff that pays the financial educationalist an annuity income stream through some kind of profit share from the member’s pot or premiums.

This is not advice or guidance – it is selling. It is financial mutton dressed up as financial lamb, precisely what the RDR was designed to get rid of and precisely what vertical integration allows. The longer that firms such as Hargreaves Lansdown sell advice, guidance and education and deliver wealth management products, the public will rightly be confused.

As far as I can see, Guy Opperman is a man of the people, for he knows nothing – and knowing nothing – doesn’t trust HL one inch.


Traumatised advisers

I had the great pleasure of being on the golf course yesterday , with my colleagues from First Actuarial and some of our clients, it was indeed the First Actuarial golf day. I will not let the opportunity go by to praise myself for winning the tournament with 37 Stapleford points.

Henry and Tim

Me and Mr Jones (where’s the camera?)


Going home on the train, I discovered 71 tweets on my timeline moaning about yesterday’s article which praised Paul Lewis for rubbishing the artificial distinction between guidance and advice in exactly the terms of the TPAS leaflet (see above).

Of course Paul, who is rather more experienced than our Pensions Minister (and would make a good Pensions Minister), was rather more incisive in his comments. He knows very well that “advice” is a word that has been purloined by financial advisers to provide them with a commodity that they can sell. Not only can advisers charge for providing a definitive course of action but they can scream at anyone who dares to advise people about money. It’s very “get off my land!”

The arguments were of the “would you trust heart surgery to a hospital porter” variety , with the implication that anyone wanting to know their financial options were in imminent danger of a pecuniary heart attack. Sorry guys- this doesn’t wash. The great unwashed – of whom I am one – want simple and easy advice on what I can do with my money , what the tax implications of those decisions are and what the costs of using advisers, fund managers and other financial intermediaries are likely to be.

Once we have this sort of information , we can “decide and buy”. The precise decision on what we buy may well involve Hargreaves Lansdown, we may want some of the information from Hargreaves Lansdown, but I suspect most of us are sensible enough not to put our heads into the lion’s mouth until we are quite sure the lion is a tame and benevolent lion. Asking a lion if he or she is benevolent may solicit a positive response, but that trust is not always to be trusted.


It’s not advice v guidance that bothers us, it’s advice v selling

It’s a lot simpler to someone outside the advice/guidance loop than to the likes of Chris Hill of HL.

Until the sale of advice stops being cross-subsidised by the sale of vertically integrated product, financial advice/guidance/education will remain sullied. Those organisations who charge for guidance are really giving advice and vice-versa, as long as no product is involved, it really doesn’t matter what we call the service.

But whether we are charging or not charging for advice/guidance/education and being compensated by the revenues from the products we recommend, we are not advising, we are selling. That is why Chris Hill is wrong and Paul Lewis is right and why The Pensions Advisory Service should be handing Guy Opperman a copy of “Advice and Guidance; recognising the difference”. It is a very subtle piece of work.


We support TPAS and what it is doing






Posted in advice gap, alvin hall, annuity, pensions | 3 Comments

FCA -If you’re looking for innovation….get real!

The FCA says it has found precious little evidence of innovation from its Retirement Outcome Review. I am not surprised, judging by the people who it invites to its “workshops”, it is looking in the wrong places. It is necessary to talk to entrepreneurs like Romi Savova of Pensions Bee and Anthony Morrow of Evestor if you want innovation. Neither was at the workshop, they should have been.

Last week, I was in a stern meeting with NEST’s COO and Romi Savova where Romi agree to help NEST to re-think its current strategy to transfers-out ( which take on average 49 days).

morrow 2

Savova innovator


Yesterday, Anthony Morrow wrote me a request to contribute to the debate which he did on my blog – advising the 5000. Here is that comment.

As you know Henry, I share your frustrations and anger at the Industry’s continued refusal to create a solution to the “advice gap”. I choose the word “refusal” carefully because that is what it is. There are no regulatory or operational reasons why providers and/or advisory businesses cannot deliver a proposition that would provide financial advice to all members of the public regardless of age or wealth.

There are only commercial reasons and to suggest otherwise is wildly disingenuous.

The lobbying for the FCA to introduce a new category terms “guidance” is essentially the Industry saying, “we want to manage their money but we don’t want to have to take on any risk of providing them with advice – do something about it and give us a safe harbour.” That is why we are seeing so many non-advised solutions coming on board apparently to satisfy customer demand because people don’t want advice.

I have no idea how these surveys are carried out and the questions framed but the idea of people with little wealth and experience choosing to turn down the offer of advice so that they can make their own decisions is fanciful. Rather they do not want to pay the fees that are quoted now for that advice. That is a very different question.

I cannot think of one scenario where I, as the lay person, would turn down advice from an expert so that I could make my own decisions based on the content of a few website pages regardless of how shiny they were or beautiful they looked in an App. It is as ridiculous as it is irresponsible to think that.

In fact the subject of retirement option is so complex that the Industry deems it necessary to create an advanced examination on the subject for those advisers who are active in this area to take. Yet somehow we seem to think a large swathe of the public, many of whom are being faced, in the example of D transfers, with sums far greater than possibly their entire asset base, can make these decisions on their own.

The problem is that we are too used to feasting on rich pickings of fat margins and too chastened by past experiences of mis-selling to want anything different.

How many firms who say that it is unviable to deliver a service to the mass-market have actually tried to build one? Is it not that to deliver this service, addressing the very real concerns about the level of fees, would mean they would have to make less money than the status-quo and therefore why bother?

When me and Duncan started the concept of evestor almost two years ago we only had two clear objectives:

Widen the availability of financial advice to everyone regardless of age and wealth
Lower the cost of financial advice to make it affordable for everyone

In the 3 months we have been launched we have achieved that with a client base that ranges from 18 to 81 and investments from £5 per month to over £100,000.

We have provided through the system over 1,000 recommendations of which over 70% were not to invest either because of debt levels, lack of rainy day funds or no capacity for loss. The incremental cost of those recommendations in negligible beyond the R&D of the build itself and the maintenance. Arguments contingent charging are predicated on being unable to manage conflicts of interest and also ignore totally how else those with more modest means should receive advice.

Our access to humans via webchat or through qualified adviser virtual meetings have made a massive difference in the customer experience as it provides customers with a level of comfort and validation to make those decisions. As your article notes there are some areas of finance that are very difficult to articulate completely to the lay person via digital-only medium. Our hybrid approach deals with this.

We have concentrated on accumulation only at the moment but will be launching a decumulation service very shortly including DB transfers which we will be bringing in within the same pricing model as our standard model e.g. no initial fee and a total ongoing cost of less than 50bps. We can do this because we have very efficient systems and realistic expectation on long-term profitability.

There are no doubts in my mind that the 5,000 can be fed but first we have to want to feed them.


Morrow – innovator

Yesterday was also notable for the publication of a very radical blog from Paul Lewis


Like Anthony, Paul is fed up with the hi-jacking of the “advice-word” by Financial Advisers who are monetizing it to the exclusion of those who cannot or will not pay a premium for conviction.

Paul Lewis

Lewis -innovator


There is of course “advice” in both the Money Advice Service and the Pensions Advisory Service. As Michelle Cracknell, CEO of the latter commented to me after reading Paul’s article, the debate is not about a “real world problem”. She’s published an excellent pamphlet “Advice and Guidance – recognising the difference” – as part of TPAS’ Insight Fact File series.

This is getting to the nub of the problem. To innovate, we need to take a step back as Romi, Anthony, Paul and Michelle are all doing and ground their thinking in what people need “in the real world”.

So many of the problems that the FCA identify, including the hang-up about advice and guidance , disappear in the real world in which we live our lives, save our money and plan our retirements.

morrow 3

Cracknell – innovator


Re-connecting with the real world means looking in places that the FCA are not currently looking, it does not get a mention at Retirement Outcome Workshops, as I found out to my great frustration!

Posted in pensions | Tagged , , , , , , , | 4 Comments

FCA- Outcomes for DC savers will improve when we resume sharing risk!


The FCA has asked for response to it’s Retirement Outcome review, NEST have shared their response with the FT which reports  NEST saying that, without “the right support structures in place”, it was “extremely concerned” its 5m members may run out of money in later life, be hit by high charges or overpay tax….that, while the market was still evolving following the 2015 shake-up, there was “no evidence” of its ability to deliver an outcome that would work well for its growing membership of largely low earners.

 “We agree with the FCA’s conclusion that the retirement market does not work for many savers, particularly those on small to average incomes, who don’t tend to seek advice, shop around or feel confident making financial decisions…. We believe our members risk paying more in charges and taxes, missing out on investment growth and most worryingly, either running out of money too soon or underspending their pots without the right support structures in place.”

Gavin Perera-Betts, chief customer officer at NEST.

NEST said it was important for the FCA to explore “possible intervention”, and in particular remedies that protected less engaged consumers with smaller pots.

“While we welcome innovation in the market, there is no evidence that the needs of the mass market — representative of Nest’s membership — will be addressed,”…..“We strongly support the introduction of guided investment paths with minimum standards of governance which meets the needs of our mass market.”

NEST v the rest

I’ve had a recent meeting with Gavin and neither he – nor NEST – appear to have any agenda other than that of the consumer. Charges of conflicts between NEST’s commercial value and the value it offers its savers do not come into it.

I’ve also been at an FCA retirement outcomes workshop where NEST was represented, there I saw a variety of providers with strongly held views, most of which were argued from self-interest.

I say we should listen to NEST above the market, if we are following a consumerist agenda. However, NEST’s insights need to be tested by the often contrary positions adopted by those with alternative agenda.

I have made my own submission to the FCA (late) which I am not publishing here. The last time I pre-published my views, they were disallowed. Presumably this will not happen to NEST – that would be a shame! (I suspect that the FT published NEST’s views after Close of Business on Friday – deadline day).

What people say they want depends on how you ask the question!

We all know that “framing” is critical and that independent research depends on open questions that do not solicit a biased response. This is why  FCA research has greater integrity than provider research.

This is what the FCA have found.

.consumer 2

This is the product architecture at people’s disposal. Over half the pension pots went down the “take the whole pot” route on the extreme right of decumulation.

consumer options

This is where the withdrawn money went

consumer 3

My conclusion is simple; if you ask people they can have “pension freedom”, they will say “yes”. The alternative is “pension bondage/servitude” which is not attractive.

If you ask people do they want an ongoing “wage in retirement”, as the CWU are asking 130,000 postal workers, the likelihood you will also get the answer


This is behavioural science stuff. There is a more difficult question for Government which is “do people act in their own best interest?”. If you are a true free- marketer, your answer is likely to be “yes”, but most people appear to believe in Government intervention. This stops us jumping traffic lights and imposes order on our behaviour so we do not become a menace to others.

This concept of reasonable force applied by Government goes back to John Stuart Mill.


We need to take reasonable force, because as Addison said “inclination will at length come over to reason.

voice of reasonI suspect that both the CWU and the FCA are right. The FCA are right in observing that people when offered freedom – take it – without knowing what to do with it.

However when asked if they need a wage in retirement , people say they do, without doing much about it.

What are we going to do about it?

Frankly we can spend a lot of time dancing on a pin. The FCA require a lot of responses but I am by-passing all the niceties and cutting to the quick.

I am asking the FCA’s question “what are we going to do about the fact that people cannot get a wage in retirement from pension freedoms?”

Here are the FCA’s current conclusions about the market.

consumer 4

An analysis that ignores risk sharing

This is fundamentally flawed analysis resulting from a myopic view of the market. If the FCA was broaden its thinking, it would discover that the vast majority of retirement income in this country comes from risk-sharing

The State Pension is paid from collective taxation and provides a universal solution based on agreed rules, signed off by parliament.

Occupational DB plans, including  the pensions paid out in the public sector depends on what the Pensions Regulator calls integrated risk management, risk sharing between sponsors (employer or the taxpayer), trustees and members.

Even annuities are based on risk sharing with those annuitants who die early subsidising those who live long, with insurance companies taking up the slack through their reserves.

Until recently, with-profits was the primary tool by which people could plan a half-way certain outcome from their retirement savings. This depends on investment risk-sharing, some with profits policies actually pooled longevity risk. It is interesting that with-profits policies are once again finding favour for “decumulation” with the Prudential reviving its fortunes and Aviva following suit.

The remedies that the FCA discussed at the meeting I attended , all assumed that the solution was the empowerment of the individual to take the complex decisions presented to them.

consumer optionsWhile we experts know the options , can we really expect ordinary people to understand these options – unless they have them explained and explored by an adviser?

The idea that a robo-adviser is going to be bold enough to prescribe such complicated solutions as flexi-access drawdown or hybrid solutions depending on blended products is “difficult”!

There have to be easier ways of providing people with a wage in retirement! I stood up in the meeting with the FCA and declared my simple remedy.

It is that the FCA recommend to the current Pensions Minister that he instructs the DWP to recommence drafting of the secondary legislation for the defined ambition pensions envisaged by Steve Webb and legislated for in Pensions Act 2015.

The FCA may have noticed that the “innovation” in the market has been slim because those planning to offer collective decumulation products using risk-sharing , have been denied that right by the cancellation of the legislative drafting by Ros Altmann, soon after she arrived in office.

Would NEST agree with me?

I don’t want to put words into Gavin Perera-Betts mouth, but I suspect that the conclusions NEST is coming to privately is that the guided investment paths which NEST sees as providing the infrastructure for decision making for their customers need to include a simple option called “a wage in retirement”.

To me that requires some entity to contract to pay pensions to people in return for their retirement savings. That entity could be NEST or it could be a specialist decumulation scheme into which money was paid or it could even be an insurance company offering risk pooling as insurance companies used to do. The Pension Insurance Corporation do just this, so do other specialist buy-out insurers.

But their is currently no bridge between the world of the institutional buy-out insurers and the retail retirement income specialists.

NEST could build such a bridge and be the sponsor of innovation, they could work with specialists in risk pooling to provide a scheme pension option into which their customers could default.

But NEST cannot do this without Government help, it would need the capacity to offer pensions without guarantees based purely on its best endeavours and the co-operation of its membership who were prepared to share the risk.

Not just NEST, but any number of scaled master trusts could do that and the insurers could do it either through their master trusts or through with-profit annuity structures (albeit with greater transparency and with limited property rights).

Why are these “remedies” not on the FCA’s list?

I discovered why at the FCA workshop I attended. When my group was asked for innovation and I proposed the solution outlined above I was put in my place very firmly by the FCA representative who told me I was exceeding the scope of the Retirement Outcomes Review!

It is perfectly obvious to me, after attending the meeting, that the review is simply not considering risk-sharing as a potential solution. This seems to me more out of prejudice against risk-sharing than out of any logic. My mind returns to Addison.

We cannot force the pace on this, only point out that the end-game in this argument will see reason prevail – it always does -given time!

voice of reason

Posted in CDC, pensions | Tagged , , , , , | 4 Comments

We need more than “A pin-stickers guide to workplace pensions”.

pin sticker.PNG

Steve Bee once told me that all workplace pensions are the same.  In the context of the conversation (getting small employers to chose the right one), I knew what he meant, it is as hard for small employers to pick a winning pension provider as for me to pick the winner of the grand national.

The point of pension governance is not to guarantee winners but to reduce the chance of your horse falling and ensuring you get a run for your money. That may sound brutal, but it is clear to me that there will be market failures in the workplace pension and the first thing we can hope for is that we have no fatalities.

That is why it is important that we have the FCA and PFA ensuring that the insurance companies participating in the workplace are solvent and why large parts of the Pension Schemes Bill 2016 were given over to giving powers to the Pensions Regulator to oversee the running of trust based workplace pensions (most especially multi-employer master-trusts).

But to continue the horse racing analogy, most punters want more than a horse that makes it to the finishing line, they want that “run for their money”, the elusive hope – that their horse will make it to the winners enclosure rather than sloping back to the stables “an also-ran”.

Not all horses can be winners every race, but over the course of a horse’s career, you’d hope he or she would spend some time as a success. So with workplace pensions, we cannot expect our “Workie” to be number one every time , we can expect it to be a consistent performer. That is what we pay our providers for. That is how we measure value for the money we put to keeping our “funds in training”.

Ok, so I’ve pushed this racing conceit as far as it can go. The matter arising is just who the average Joe is relying on for his information and what responsibility should be placed on the army of intermediaries that stand between him and the management of his money.

Despite the thousands of pages that now sit on the Pensions Regulator’s website, there is little consensus on the “fiduciary obligation”.  The FCA’s main thrust at present is to create sufficient disclosures to ensure people can make informed decisions. The FCA define the people who should be in the know as “institutional investors”, the Asset Management Market Study tells us an institutional investor is ”

An investing legal entity which pools money from various sources to make investments.

That definition could apply as much to an employer as to an asset manager or pension provider and that is the problem. The democratisation of pensions brought about by auto-enrolment has brought over one million new employers into the equation. Each has had, as part of the employer duties, the obligation to choose a workplace pensions. But it is unclear what that choice leads to by way of further obligations.

At one extreme, an employer might be considered to had a “duty of care” towards its staff. This implies some kind of responsibility to ensure that bad things don’t happen and that the employer uses “best endeavours” to ensure outcomes of all the saving are as good as possible. This definition was trialled by the Labour Party in a draft amendment to the Pension Schemes Bill but rejected by the Government on the grounds that provided the employer chose a qualifying workplace pension with due consideration to the guidance on the Pensions Regulator’s website, it could feel satisfied it had done its duty.

At the other extreme is Steve Bee’s assertion that all workplace pensions are the same and that no amount of pension governance can reduce the chances of failure or improve the chance of success.

Is there an implied obligation of good faith?

We have two legal avenues which can help us. The first concerns the implied obligation of good faith from employer to employee.

For this, I turn to a much quoted statement in a judgement by  Sir Nicolas Browne-Wilkinson VC  in 1991 on the Imperial Tobacco pension dispute

In every contract of employment there is an implied term:

“that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee;” Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666, 670, approved by the Court of Appeal in Lewis v Motorworld Garages Ltd [1986] ICR 157.

I will call this implied term “the implied obligation of good faith.” In my judgment, that obligation of an employer applies as much to the exercise of his rights and powers under a pension scheme as they do to the other rights and powers of an employer. Say, in purported exercise of its right to give or withhold consent, the company were to say, capriciously, that it would consent to an increase in the pension benefits of members of union A but not of the members of union B. In my judgment, the members of union B would have a good claim in contract for breach of the implied obligation of good faith: see Mihlenstedt v Barclays Bank International Ltd [1989] IRLR 522, 525, 531, paras 12, 64 and 70.

In my judgment, it is not necessary to found such a claim in contract alone. Construed against the background of the contract of employment, in my judgment the pension trust deed and rules themselves are to be taken as being impliedly subject to the limitation that the rights and powers of the company can only be exercised in accordance with the implied obligation of good faith.

The judgement has been heavily relied upon in recent judgements concerning IBM and the BBC and is relevant here.


Does the employer have a duty to provide staff with pension information?

Again, I have to play the barrack-room lawyer as precious little has been said on this subject (so far).

But it is likely, as the balances of workplace pension pots start to exceed the cost of the cars of those who own them (a generally accepted measure of engagement!) that people who have been saving, will want to know a little about where their money is invested.

The case law surrounding the employer’s obligations in this respect centres on a judgement made in favour of a certain Dr Scally. The key principles of the Scally judgement have been laid out for us by Eversheds (who have asked me to point out that this is not a legal opinion)

in Scally v Southern Health and Social Services Board (1991), the House of Lords held that an employer has an implied contractual duty to take reasonable steps to inform an employee of a contractual term in order for them to take advantage of it where:

  • the terms of the contract have not been negotiated with the individual but result from negotiation with a representative body or are otherwise incorporated by reference
  • the particular term in question makes available a valuable right contingent upon the individual taking action to avail himself of its benefit, and
  • the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention


Dr Scally was disadvantaged by not being able to make pension decisions because his employer did not give him the basis on which to take the decision.

Picking winners.

Clearly employers should not be held responsible for the member outcome – that is why we have not established workplace pensions as a defined benefit. But equally clearly (to me), there is an implied obligation on employers to do their best. There is also a clear duty on employers to make available relevant information for staff.

We are woefully lacking in the information we need to decide whether the workplace pension in which we are investing is going to be a winner.

The Government are taking steps to ensure that proper disclosures are made which enable that information to be available.

However, it is one thing to disclose, it is another to get those disclosures noticed. Greater clarity is needed to ensure that people can pay attention to their pension.

Worth reading if you want more on this;

Employer’s duty to provide information to employees about pensions.

So who IS accountable for your pension returns?

Why employers must understand the value for money of their workplace pension





Posted in pensions | Tagged , , , , | Leave a comment

Resistance is futile! The FCA give the bully boys their marching orders

For you Tommy                                                 For you Tommy zee war is over!

So the investment consultants are to be marched off to Stalug Luft CMA, for prolonged interrogation and indefinite detainment.

Happily I have no pretentions to be an investment consultant and so can stand by the road as I see them – hands on heads – gloomily trudge away.

Not a moment too soon. I am frankly happy reading the FCA’s  determination to make a market investigation review to the CMA re; Investment Consultants.


This review is based on feedback to the FCA which resulted in the Asset Management Market study; especially

FCA CMA3The tone of the Final Decision is uncompromising and frankly belligerent. It marks a turning point in the balance of power between institutional investment (largely self-regulated) and the rest of the advisory world (largely regulated).

No longer will the big three consultants – Aon, Mercer and WTW be able to laud it over their clients, their competition and the Regulator.  The days of our being subject to their overblown arrogance are coming to an end. Judging by the tens of thousands of readers of “Same old Watsons- taking the p**s“, I am not alone in feeling this way.

These big three , who between them control 60% of the market , thought they could speak for all investment consultants. They were wrong. The smaller consultants, who to my mind bring value , innovation and common sense to their customers, distanced themselves from the Undertaking in Lieu. The tide has gone out and the big three are left standing naked.

This is a good day for Transparency (well done Andy), it is a good day for the FCA, it is a good day for the small investment consultancies,  but most of all it is a good day for the clients of those investment consultants who have not been getting value for money.


Posted in pensions | Tagged , , , , , | Leave a comment

WASPI’s drowning out another minority – those who stayed “in”.


There is a second WASPI petition.

There’s a new #WASPI petition – please sign it! Currently at 11k signatures… How soon 100k? https://t.co/ijhUQohWtk

— Sarah Pennells(@Savvy_Woman) September 13, 2017

The WASPI women are well organised and have a widening support base. They will eventually get a settlement – they represent a broad spread of women disadvantaged by state pension reform – and they are articulate.

There are however other losers from the changes in state pensions. The WASPI claim is against changes in the state pension age flagged well before the move to a single state pension was announced. It is a separate matter to the inequalities created by the merging of the foundation pension and the second state pension in 2016. But, the loud-hailer being used by the WASPI women, is drowning out the meek voices of a much larger group who have no voice.

This blog explains.

I have for this, John Greenwood , who for the past five years has been campaigning for a silent majority of under-pensioned employees who for the past thirty years (since 1987) have chosen to stay in the state earnings related pension (more recently S2P). These people have built up entitlements to SERPS/S2P which will be all but lost when they draw their pensions.

By contrast, those who put two fingers up to SERPS and S2P and chose to contract out via an appropriate personal pension , could  have the same entitlement to the single state pension as they would have done had they stayed in. I am one such person, I know from my state forecast that providing I earn national insurance credits till I am 64, the pension pot I got from my SERPS/S2P rebate will be free money – a reward from the Government for not trusting the Government.

This state of affairs may – in absolute terms – have no losers. Because of the improvements in the single state pension, many people who stayed in will get at least the amount they were forecast back in the day, because of the triple-lock and because of the general upgrading of pensions for those retiring after 2016. But in relative terms , they may feel they have been shafted. John is one of those people.

The sums involved

It’s generally reckoned that with average investment performance and rebates against the full amount of the earnings band against which APP rebates were paid, that someone contracted out from 1987 to today into a personal pension, would have a pot of £100,000. It could be a lot higher with good pot husbandry,

That is an eye-watering amount for someone like John, who tells me he has relatively little private pension rights elsewhere.

Of course, most people will not have nearly this amount,

  • They may not have a full earnings record to maximise input
  • They may have been contracted out for a time through occupational pension schemes  (DB or DC)
  • They may have chosen to contract back in when the initial Government incentive wore out and rebates stopped looking attractive.

But even if you had contracted out rights through an occupational pension, those rights (GMP or protected rights) should be added to your APP to give you a true feeling as to how blessed you are, compared to the likes of John.

John’s decision to trust the Government was expensive, his loyalty cost him £100,000. John rightly considers himself a loser – for his loyalty.

So why is there no WASPI equivalent for those who stayed in?

There are a number of answers to that. The first is that there are very few people who have done the research John Greenwood has done and very few who are financially literate enough to articulate what has happened to him – as he does.

Secondly, there is very little coming out of Government about this problem. The DWP do not want to be fighting another front. WASPI are loud enough.

Thirdly, and this point may anger John, the silent majority will simply accept what they are given and not make a fuss. This is the case for the vast majority of women who are impacted by the cliff-edge in state pension ages for mature women. It will certainly be the case for those who did not vote with their APPs back in the day, sticking two fingers up to Government.

Fourthly, WASPI is a clearly defined group of women between such ages. WASPI is nore than a grievance group, it’s a lifestyle thing.

Finally, we have to accept that in any radical change to state pension reform and both the changes to state retirement age and the change to a single state pension age are radical, there will be winners and losers.

As Andrew Young comments, the self employed win, those who stayed in lose. And there are upsides for those who contract out as this great insight from David Robbins shows.


I suspect that the case that John’s lot – those who stayed contracted in- is at least as strong as that of the WASPI women, but it is very hard to argue that most of those people like John, retiring today have been disadvantaged. While it is very easy for a woman to show that she has been disadvantaged by losing years of pension payments (which happen to be the very years they are now living).

WASPI has produced a cohort of pension experts among women who till the WASPI problem came to light, took no interest in pensions. We will wait and see if a similar group forms for those who remained contracted in. I would not bet against it.

John on the state pension at the Pension Network last week, he spoke under the Chatham House rule but is happy for me to report him as he has made his position public in corporate adviser. If you want to get the full story from a professional journalist, follow these links.




Posted in pensions | Tagged , , , , | 7 Comments

Good from NOW – poor from HMRC


Our response so far


That we should still be talking about the “net-pay anomaly” shows how little the debate has move on in a year.

For most people losing out on their promised incentives for saving into a workplace pension , “anomaly” is not a normal word. I’d replace it with “rip-off” because that’s what HMRC are doing to thousands of people who most need a small boost to their pension savings. “Anomalies” belong to the world of Government and Industry affairs.

A year ago, the union Prospect wrote to the then Treasury Minister David Gauke asking that the “anomaly” get sorted out. This was the response they gotNOW RAS

Well, the auto-enrolment review in 2017 is soon to publish its findings. David Gauke, as the DWP’s Minister of State is responsible for the delivery of that review. The 2017-18 tax year is only a few months away and I for one am not prepared to tolerate poor people, promised a Government incentive to save, being denied that incentive by poor administration.

HMRC have not paid this proper attention so far, fortunately- one (and only one) occupational pension scheme has stepped up to the mark. Well done NOW Pensions,

“How far that candle spreads its beams, so shines “a good deed in a naughty world!”


A very good question! It is not just the smaller master trusts that operate on Net Pay, it is the bulk of occupational pension schemes run on a DC basis. SHAME ON THEM.


The net pay anomaly came about because of Government policy. It is the Government’s incentive at stake, it is for the Government as well as the private sector to work to an immediate solution.


Good for NOW Pensions. 2016/17 sorted if you’re with them. But what about 2017/18 when the employee minimum contribution triples? Will NOW be able to afford that? Is it fair that we rely on them to come up with the goods on behalf of the UK tax-payer. IT IS NOT!

The net-pay rip-off has gone on far too long. The auto-enrolment review had better have a work-a-round in it for the net pay schemes – (perhaps a subsidy on the admin costs of moving to RAS?). If this is simply kicked into the long-grass it has the potential to become a major scandal – which is the last thing the pensions industry needs right now.


Posted in auto-enrolment, pensions | Tagged , , , , , , | Leave a comment

(s)Carey pensions!

Thanks to Angie Brooks for bring to our attention a very disturbing matter relating to Carey Pensions.

“Careys” will be known to those working in the early days of auto-enrolment for providing auto-enrolment shells into which various entrepreneurial fund managers could launch fund solutions. Little survives of the various master trusts which were offered. These pensions did not appear on http://www.pensionplaypen.com nor on the Pension Regulator’s list of pensions with the MAF

But Carey Pensions are best known to IFAs as a SIPP provider who will offer contract based pension wrappers for entrepreneurial fund managers launching fund solutions.

Whether under trust or as a contract based pension, Carey administrate investments and keep member records to help the fund managers get the tax benefits from UK pension legislation.

What is not so well known about Carey is why they carry the name.

This is taken from the website of the Islamic Pension Trust, one of the many master trusts operated by Carey.

Carey Pensions is part of Carey Group which traces its origins back over 40 years and whose principle shareholders are ten partners of one of the largest international law firms in the Channel Islands, Carey Olsen.

The link between the Carey Group and Carey Pensions is clear from the pension link from the Carey Group website. However a search for Carey Group on the Carey Pensions website reveals little, the “about us” section makes no mention of the legal parentage.

Carey Group states on their website

Carey Group have historical links to, but are independent from, the leading offshore law firm Carey Olsen. Our principal shareholders are a number of past and present partners of Carey Olsen in Guernsey

I am not sure what legal status “historical links” implies, but from a reputational point of view, the link between Carey Pensions , Carey Group and Carey Olsen is both obvious and obscure, a legal paradox!

Which is odd, because the  parentage is ssuch that any small business such as Carey Pensions  should be proud of. Its Wikipedia entry points out that .

The Corporate Advisers Rankings Guide places Carey Olsen in the top five law firms by the number of London Stock Exchange (LSE) and AIM clients it advises. It is the only offshore law firm to be ranked alongside UK legal advisers in the top five. (Source: The Corporate Advisers Rankings Guide, January 2016 report

All of which would lead you to believe that Carey Pensions would leverage its historical links  to attract high net worth customers confident they would be treated impeccably.

Why so shy?

The shyness of Carey Pensions about their links to Carey Group and to Carey Olsen may be explained by the local problems it is experiencing with the UK financial ombudsman.

This was the subject of a BBC investigation by the You and Yours team which produced a program last month which you can listen to here (17 minutes on).

Below is the excellent reporting of Citywire’s Jack Gilbert T/AS New Model Adviser  (Jack runs Jo Cumbo close as investigative pensions journalist of the year)

The BBC You and Yours programme reported that the FOS is considering 77 claims against Carey Pensions and 24 provisional decisions have been made ruling in favour of the client and against the Sipp firm.

A FOS spokeswoman added ‘our investigations are ongoing and we haven’t issued any final decisions’.

These rulings concern the due diligence carried out by Carey Pensions on the unregulated introducer, which was selling investments in an unregulated investment scheme investing in Store First storage pods.

The BBC report also said the Financial Services Authority, predecessor to the Financial Conduct Authority, had previously issued a warning about one of the introducers involved in passing business to Carey Pensions.

Carey Pensions has been offering some of these investors settlement offers lower than the expected FOS compensation payouts.

One investor told You and Yours that Carey Pensions’ solicitors sent him a letter trying to convince him to settle.

Earlier in the year the Sipp firm reported a loss of f £153,800 in 2016 due to complaints and legal cases. The firm’s chief executive Christine Hallett confirmed these legal cases relate to the settlement cases.

Hallett said her firm has offered settlements to ‘resolve some members’ complaints on a confidential basis with no admission of liability’.

‘Any offers were made taking into account the individual’s circumstances and were presented in an open, honest, fair and reasonable manner,’ Hallett said.

‘The FOS has visibility of all ongoing complaints against Carey dealt with by its service, including any settlement offers made for complaints presently before FOS. We are aware that the FOS has been in dialogue with a number of members in respect of the offers we have made.’

Hallett said she ‘fundamentally disagrees with some of the findings of the FOS’ provisional decisions’.

New Model Adviser® asked Hallett why she was not appealing the decisions rather than paying settlements.

‘We are appealing but that is running in tandem and that could go on for a long time,’ she said. ‘We have made a decision to try and be fair and reasonable to the client. At the end of the day we are doing things with our legal advice and PI insurance advice.’

A spokeswoman from the FOS said: ‘If we’re made aware that a firm is seeking to bypass us to make offers, and especially if they are offering consumers less than we have or might recommend, we’ll refer them to the regulator.’

I suspect that Carey Pensions have good legal advisers – don’t you?

I suspect that they are very good at keeping bad news out of the public eye and that the letter mentioned by Jack and featured in the broadcast might well be sufficient grounds for FOS to refer Carey Pensions to the regulator.

It is not just the regulator that Carey Pensions should be mindful of. Hugh James, a top 100 solicitor themselves , have picked up on the commercial opportunity of advising others who have used the Carey SIPP and dodgy investments.

Carey Pensions UK has reportedly sent threatening letters to its investors in an attempt to prevent adverse Financial Ombudsman Service (FOS) decisions from being reported in the public domain.

It is has been reported by BBC Radio 4 that Carey Pensions UK is facing 24 preliminary decisions from FOS which suggest they are liable for losses incurred by investors as a result of their pension transfers.

It is understood that the decisions relate to complaints by pension investors who say they were persuaded to transfer their traditional pensions and to invest in highly speculative investments, such as self-storage units, by unregulated companies.

Following a report in October 2010, the Financial Conduct Authority (FCA) issued a warning in respect of Mr Terrence Wright, the man at the centre of a number of the unregulated companies involved. According to the BBC Radio 4 report, CareyPensions UK failed to heed this warning and continued to accept business from those companies that Mr Wright had an interest in.

Following their recent investigation, BBC Radio 4’S “YOU&YOURS” has reported that CareyPensions UK has been sending “long and threatening“ letters to their investors, claiming that the 24 FOS decisions mentioned above, are wrong and that they could face losing all of their money if they were to proceed with their complaints.

In the same report by “YOU&YOURS” it was stated that CareyPensions UK has been offering smaller but very quick cash settlements on the basis that the FOS complaints are withdrawn and no final decision is made public.

Further, it is believed, that these quick cash settlements come with a condition that the investor enters in to a non-disclosure agreement, effectively ‘gagging’ him or her.

Just what the partners of Carey Olsen make of all this is anybody’s guess, unsurprisingly they are keeping their heads down.  Just what the legal liabilities between Carey Pensions, the Carey Group and Carey Olsen are is also unclear.

What is very clear is that Carey Pensions is in a first rate mess and risks damaging the unsullied reputations of the Carey name.

What is also clear is that Carey Pensions and by extension its parents are doing nothing to restore confidence and a lot to increase distrust in SIPPs and UK pensions in general.

Carey 3

Hope so

Posted in dc pensions, drawdown, Henry Tapper blog, London, pensions | Tagged , , , , , , | Leave a comment

Sexy cash in a vibrant market? You ain’t seen nothing yet!


I’m not quite sure why Money Marketing is reporting man of the people Steve Webb as re-phrasing Bachman-Turner Overdrive’s famous phrase, this way

Steve Webb: DB transfer demand? You’ve not seen anything yet

Steve is not a linguistic pedant and can throw a few literary shapes when called upon . Get on down Sir Stevie- get with the beat!

The pilgrim has progressed

Actually this story is not about transfers but about DB schemes, Frank Field’s “great British success story”, that have been put out to pasture by corporate UK to the point where transfer values are the only rights that many people remain interested in.

Steve Webb has been a pension champion for thirty years. Now the pilgrim has progressed, like Saul – he has been blinded by the light!

The Damascene conversion


Steve! Steve! – why persecutest thou me?

Webb comments are on the back of a joint report from Royal London and LCP into the transfer market. I’ve focussed before on findings from LCP about the acceleration of transfer quotes and the feedback from IFAs about why people would prefer money in a SIPP or even a bank account to rights from an occupational pension.

But let’s look at this the other way round. Why is it that the lure of what Webb in a previous incarnation denigrated as “sexy-cash“, has become acceptable to him, to Royal London and to hundreds of thousands of occupational pension members?

When Steve Webb stood up in front of the NAPF congregation and railed at Boots for incentivising cash transfers, he was speaking to the converted. “Congregation” is the right word for the delegates who showed reverend awe for Webb’s oratory.

But within two years, pension freedoms were upon us and shortly after, a Damascene conversion had overtaken Sir Steve and cash was king. A year later and Steve was booted out of parliament (for no fault of his own) and into the tender clutches of Phil Loney- Royal London’s CEO.

From Church to Casino, the pilgrim  progressed the path to perdition.

Phil Loney

Sexy-cash ATM

Perdition at least for support of the principal of an income for life. I sat adjacent to a Royal London rep at a recent FCA workshop where we considered the future of retirement income. Like every other person in the room (but me), he showed no appetite for the risk-sharing that has characterised private pension provision for the past 70 years.

Instead, he participated, as did we all, in discussions on defaults, pathways, guidance and advice through the minefield of individual decumulation. The paradigm in which the FCA Retirement Income Study is being carried out, has nothing to do with pensions and everything to do with sexy-cash

Wallowing in sexy-cash

At one stage in his article in Money Marketing, Webb actually gloats at the tsunami of money coming the way of financial advisers (and Royal London).

Suppose the typical deferred pension is worth a relatively modest £5,000 per year and that schemes offer a multiple of 30 times the annual pension as a lump sum.

Multiplying £5,000 times 30 for five million people suggests total potential transfer values for deferred members could approach three quarters of a trillion pounds.

But for Steve Webb, there is now only one villain in this piece. It is not the wicked ETV incentiviser, but the occupational pension scheme trustees, trying to follow Webb’s instructions and keep sexy-cash at bay!

A recent survey by LCP found….only around 30 per cent of schemes routinely provided transfer values as part of retirement communications. So at the point when members are most engaged in looking at their retirement options, the majority of schemes are still not giving them basic information about the value of the rights they already hold.

Time to restore confidence in pensions

Let’s be clear, occupational pension schemes were not set up to provide CETVs, the right to a cash equivalent transfer value was created for those few people who had special circumstances that made “cashing-out” a valuable option.

The mass market migration to SIPPs – envisaged in Steve Webb’s article is not the sign of a “vibrant market” but a vision of utter chaos. As providers freely admitted to the FCA, while “wealth management” is vibrant, it is not geared for managing pensions for those with a £150,000 transfer value (see above). People who jump out of occupational pensions will have short term solvency of which they may never have dreamed – sexy-cash indeed.

But the “relatively modest” £5,000 they have forsaken is an inflation protected right to an income for life which will become increasingly valuable to pensioners whose capacity for loss and ability to manage complex financial matters, diminished with time.

The risks of the flight to cash are simply not under consideration, instead Webb finished his article

the scale of these (DB) entitlements suggests there will be enough people for whom transfers are worth serious consideration to make sure this market remains vibrant for some time to come.

The real problem with Webb’s oratory (putting aside the awful headline) is that it is inciting ordinary people to take rash decisions based on incomplete information, fear and the herd instincts that he so decried only five years ago!

What is needed is a counter to this. What we need is someone to stand up for the value of a wage for life. I am delighted every time I see another CWU tweet advertising more postal workers saying “yes” to a proper pension and “no” to a cash balance.

I hope Steve Webb has time to tune in to this tonight


Supping with the devil?

LCP are supping with the devil and they know it. They should be wary of seductive sexy-cash and wary of Steve Webb’s oratory if they too are not to be dragged into the slough of despond.

We need pension champions not drawdown chumps. I fear that Steve is becoming a drawdown fantasist and that he is legitimising the wholesale dismantling of private sector pensions in favour of an uncertain and unformed future.

There is no vibrant market for most of those taking their CETVs. The FCA know this and Steve knows this too. The exercise of freedoms, to use another biblical parable, is akin to the eating of the forbidden fruit.

I fear that Steve is talking our way out of Eden.

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

Are bonds “suitable” assets to meet the promises of a pension plan?

bonds and equities.png

“recrudescent Ralfe syndrome”



Pension funds are struggling to find suitable assets in which to invest, says Pat Race of KPMG in an article in FTfm. The headline of the article is that “North American Pension Funds grow assets faster than their global peers.

Nobody would point to US DB plans as a model for the rest of the world, they have huge deficits and scant protection for members, but the article points to the growth coming from the strength of the yankee dollar and the investment of the funds in growth assets (e.g. equities).

The article also quotes WTW’s Roger Urwin  citing Japan’s $1.2tn Government Pension Investment Fund as an example of an investor that had improved returns after a shift in strategy. In 2014, the GPIF signalled a change into riskier assets and away from low-yielding bonds. Assets held by the world’s largest pension fund have since hit a record high.

What is suitable about bonds?

Clearly bonds are a suitable asset to buy if you want to back up a promise you are making. If you have promised to pay a school fees program for your grandchild and you know the size of the liability, then you can buy bonds which will pay the exact amount as long as the credit is good – I understand that, and I understand that the more you pay for the bonds, the more likely it is that the credit is good.

It’s easy enough for a predicable payment over five years (the school fees) but it’s harder for an unpredictable payment in 40 years time, especially if the size of the payment varies on things as strange as average life expectancy.

This is why, investors of yore, decided that the most sensible way of meeting their promises was betting on the growth of their economy by investing in things getting better. This broad philosophic concept translated into assuming that equities would grow in value as companies prospered in a growing economy. The idea of diversification took hold as people realised that simply investing in a local economy meant putting too many eggs in one basket.

Diversification into bonds and alternative assets happened because of the changing nature of the liabilities – which became more pressing as our pension funds grew, but there was not – until recently – that perception that pension funds were finite and that payments would come to an end.

While bonds are a suitable way to match promises for school fees, where the child’s education finishes and other’s does not begin, they are not suitable for pension funds where thousands of new members are created just as thousands die.

The internal rate of return

The most interesting part of the management of a pension scheme is how the promises are made in the first place. It is a general maxim you do not make promises you cannot keep, though we may not have made them, we must assume that the defined benefit promises made by those older than us, were meant to be kept and that people assumed that the original investment strategies were meant to fund them in full.

Con Keating, who is a “bonds man” spends a lot of time thinking about how those founding fathers assessed their capacity to meet the promises and has come up with a word “accrual” which he uses to explain the long-term internal rate of return that the founders would have needed to pay in full.

That return assumed a regular payment from the sponsors of the plan (employer and member) and a consistent treatment of assets by the Government (tax). This was part of the deal. By and large the deal has been broken, tax on equities was introduced by Gordon Brown, employers took contribution holidays and members are now being asked to pick up a higher proportion of the original “accrual rate”.

Employer representatives (such as unions) are right to point to the past and ask why today it is those who have broken the promises, who are calling the shots. The internal rate of return (as Con keeps telling us) , is not “time variant” ; it is the same today as it has always been. It should be what values people’s property rights (nowadays measured as transfer values) and it should be the measure which – when properly applied, values the obligations of employers to their pension schemes (and so to its members).

A long-term obligation

I often hear people (mainly those in Reward) wondering why so much company money is spent on the pensions of people who have left, as if those people were no business of the company any more.

This is to misunderstand the basis on which the original promises were made. As with marriage vows , so with pension promises, they may be severed for the future but they apply forever – for the period of the marriage.

I am no fan of divorce but -as a twice divorced man – I believe absolutely in the sanctity of the promises I made when I married and of my legal obligations when I got divorced.

Those who think that deferred members of pension schemes can be treated as second class members are greatly mistaken. The Government found against the “active member discount” precisely because past members of a pension arrangement do not lose rights when they leave a job (unless in extreme circumstances such as gross misconduct).

The rights bestowed on us, once vested, are inalienable. The attempts to retrofit changes (perhaps with the exception of the mucking about between RPI and CPI, have failed). A promise is a promise.

Why then, when we expect the nature of the original promise, do we not respect the way the promise was meant to be repaid? Why did we have contribution holidays, why should de-risking involve members getting lower benefits or paying higher contributions?

When most of these promises were made -in the middle of last century, no-one could have imagined the economic situation today. I expect most people then would marvel at our lifestyles today and the capacity of employers to pay staff to meet them.

I suspect that the promises made in those days, for all the increases in life expectancy, were realistic then and are realistic today.

What has changed is the means we employ to meet them. We have stopped looking to the future with courage and optimism and started thinking of failure. We assume the deficits we imagine are real and that they cannot be staunched. We believe investing in real assets is reckless and should not be done. We have so collapsed our view of what a pension scheme can do, that we can find no suitable assets with which to do it!

Pensions are long-term obligations which can only be met by long-term thinking and long-term investment! Bonds are not part of the long-term equation and are not suitable as the base with which to run a forward-thinking pension scheme.


Comments very welcome!

Posted in advice gap, pensions, Popcorn Pensions | Tagged , , , , , , | Leave a comment

Transparency as disinfectant

transparency9Wherever possible – organisations should aspire to be transparent in their dealings, sharing information with all stakeholders.

Bank wins by being straight with customers

Making information difficult to access causes problems. My friends at Quietroom tell the story of how, early in the company’s history, it was called in to stem outflows from the Halifax Bank in the wake of the crisis engulfing Bradford & Bingley, Northern Rock and others. Quietroom’s advice was for the Bank to stop making it difficult to access their money and to make the information on how to transfer money away easy to find and use. The Bank now credit Quietroom with helping it retain up to £500m of assets.

These lessons could be well learned by master trusts and other occupational DC schemes who rank low on Pension Bee’s Robin Hood Index. It is best to be helpful!

I’d love to properly report this morning’s debate at the Pensions Network, but it’s under the Chatham House rule. More tomorrow, if I allow myself to be reported!

FCA fails to disclose its disclosure committee

It wasn’t very helpful for me sitting in the lobby of the FCA and watching the members of the Disclosure Committee make their way past me. I am not bound to secrecy as to who they are but they are. After a lengthy wait since the announcement of Chris Sier as Chair, it is time the composition of the committee and its terms of reference was made public.

It is time that we had a proper debate about what the outcomes of the Committee’s work should be. Running a committee that is trying to improve disclosure behind closed doors is asking for trouble!

USS concedes its members can see the consultation on its 2017 valuation

A small victory for public disclosure was won yesterday when the USS conceded when the widely disseminated consultation on the 2017 actuarial valuation could be read by members. Its content has of course been on this blog in the early part of the week, though out of respect for both the Trustees and the members , I took down the information which I had thought to have been in the public domain.

I will re-post when time allows. Trying to manage an announcement on a consultation via a press release is a risky strategy. The PR has gone wrong and Jo Cumbo has every right to be cross that she was only able to publish partial information while a proportion of her readership were party to a bigger picture.


No harm has been done by publishing this information; as one member (who runs an actuarial course wryly commented.


Clearly this was an attempt to spin that went wrong. The website 38 degrees smartly ran a campaign to get 1000 people to demand the paper be made available to members.


I expect by the time you press the link, the target will have been attained.

I’m informed that essentially the same thing happened in 2014/5 at the last valuation when many institutions released the paper (though not with USS permission). It only takes one employer to treat the consultation as a public document for the edifice to collapse. Let’s hope that by 2020, the USS Trustees will have moved on.

I have only one of a number of blogs with an interest in the issues surrounding our large DB schemes. Those issues were given a still sharper edge by yesterday’s announcement with regards the BA pension scheme.

Transparency as disinfectant

Clearly the way that information is absorbed is changing. Sitting in a room in Docklands hearing about Wake Up Packs being sent to savers approaching retirement with the FCA, I wondered whether many in pensions actually know that digital information exists!

Social media doesn’t just ask for transparency, it creates transparency. Whether it be the FCA, the USS or back in the day – the Halifax Bank – transparency tends to be a disinfectant that cleans up rather than muddies wounds.



Posted in accountants, actuaries, advice gap, pensions | Tagged , , | 2 Comments

Don’t make the teachers pay


uss3I am  sad to read that “academics face a big rise in their pension payments”. That’s the headline in the FT and it may be true.

Another set of spurious numbers?

The University Superannuation Scheme has completed it’s three yearly (triennial) valuation and concluded that though the deficit of the scheme has fallen from £5.4bn to £5.1bn over the past three years, that’s because it got lucky on its investments. The trustees conclude that they can’t expect to get lucky again, that future investment returns are likely to be lower than those baked into current assumptions so there’s going to have to be a whole lot more paid in to the scheme.

I am in the fortunate position of not being an “expert”, so I can ask some non-expert questions about this.

The first is why the trustees reckon the deficit is c£5bn, while the accounting deficit, which Frank Field is het up about – is over £17bn? And why is the deficit now £5bn and not the recently reported £10bn (recent consultation document)


I think I know the answer to this, it’s because the accounting deficit assumes the scheme is invested in bonds (which it isn’t) and assumes a return on assets which will be lower than can reasonably be assumed, using the scheme’s current asset allocation  (not bonds but growth seeking assets likely to perform better in the wrong term).

Either way, is the £5bn deficit any more real than the £17bn deficit, mightn’t there be another view of the assets (as stated in recent USS strategy docs) that has the scheme in surplus (certainly what happens if you use the FABI methodology).

Bottom line is that the deficit is what you want it to be and depends on the level of “prudence” you want to apply to what is actually going on. If you applied the scheme return of 13%pa over the past five years as your future discount rate, I expect the USS could pay off the National Debt by 2050.

Have the trustees been listening to Chicken Licken?

The second is why the trustees have got into a blue funk about their future investment returns. Are they (a) planning to switch the fund into bonds, surrendering the prospect of future growth (as the Royal Mail Pension Scheme has so disastrously done), or (b) assumed that the current yields on real assets is likely to fall (the UK stock market currently provides a dividend yield of 3.5% – a number that has hardly changed in the past 30 years.   Or (c) something different from either of these things.

I don’t know what the trustee’s pessimism is all about. Are they assuming the worst from Brexit or do they have a crystal ball that sees one of those North Korean rockets spraying radiation over the western world. I hear the clucking of Chicken Licken – is the sky actually about to fall on our heads? Once again, I do not type as an actuary, I type as a weirded out member of the public.

My feeling is that the USS trustees are under pressure to adopt a more conservative investment strategy and to be more pessimistic about the returns they’ll get (a+b). What the motivation for this is, I don’t know, but I don’t suspect that it’s being driven by the members. If there is a (c) – I suspect it’s “c” for control, something employers feel they need to have absolutely.

Why should the members pay more?

If there’s one statement in the FT article that seems to carry the weight of common sense, it is that of Sally Hunt, general secretary of the University and College Union

 “The USS is a healthy scheme which makes more money than it pays out and is forecast to continue to do so,”

Frank Field, as he fulminates over the iniquity of the USS’ supposed deficit, should take a step back and listen to what Sally is saying. She is not saying her members are disgusted by the running of the scheme, she is not saying they are worried by the supposed deficit, she is saying that she, as the member’s representative, is perfectly happy with the scheme.

The University teachers and researchers and everyone else in the USS scheme do not want to pay more into the scheme (according to Sally Hunt)

 any move by USS to simply increase costs or reduce benefits for members, who have already seen their pensions cut twice since 2011, will risk leaving it far behind the alternative Teachers’ Pension Scheme and will be opposed with all means at our disposal

I fear the worst when I read this statement from the employer’s body, University UK

“More than ever, universities believe that achieving long-term stability of pension provision is critical and that cost and risk must be better controlled.”

The Universities want to be considered businesses, part and parcel of this is putting pensions in lock-down. They may not be able to “freeze the scheme” as they could if they were a private sector employer. They want control – that is all they want.

They now appear to be pursuing a tactic of starving the members out, requiring an ever higher contribution rate from members which will break them. That may give them control of the “chicken-licken pension risk”, but at what price?

Let the teachers have their say

The long-term stability of the University is based on the goodwill of its staff, As Sally Hunt says, there is no talk of closing the unfunded teachers pension scheme run by the Government. University staff can properly ask just why it is in the long-term interest of anyone to apply the short-term view of the scheme implicit in the phoney deficits being touted by employers.

I speak not as a member of the scheme, nor as an actuarial or investment expert, but as an ordinary person who is seeing confidence in the USS being wrecked. I do not fully understand the numbers, or the motivations of those who are demanding teachers pay more, but I am quite sure that it is the members and their representatives who s have most say in this. After all it is their retirements which this is about.

chicken licken



Since writing this blog the disclosure of information has moved on

Sheffield University has done a great job putting all the documents surrounding the 2017 valuation in one place.





Something of a coup for a small group who have been pressing for disclosure – all this is now in the public domain.


Posted in accountants, actuaries, advice gap, pensions | Tagged , , , , , , | 7 Comments

“Pension contributions triple in April!” – is that what you’ll tell your staff?

keep calm and auto-enrol

A lot of small employers we talk to are keen to work out “what happens next” with auto-enrolment. Understandably they want to model the cash-flow implications for their businesses and evolve a communication program as part of the reward strategy

What happens next for most employers is an increase in minimum pension contributions from 1 to 2% from April 2018 and from 2 to 3% a year later.

Contributions for most of the estimated 9m new employees “in” workplace pensions will jump in from 1 to 3% in 2018 and from 3 to 5% in 2019.

But it’s not quite as simple as that! You need to understand how this will work out in practice and that depends!

It depends on the type of workplace pension scheme you use

the employee may not actually see the full impact of the contribution as a payroll deduction. If the workplace pension operates under the “relief at source” or RAS rules, the employee deduction is 20% less than the amount received (the rest is clawed back from HMRC by the provider). If the scheme operates under “net pay”, then tax-relief is granted according to the employee’s tax band.

TIP 1; So before you start talking to your staff about the impact of the pension contribution increase in 2018, you had better understand what the taxation basis of your pension scheme is.

If you have staff who are in the workplace pension scheme but below the nil-rate band for tax, you will not get tax relief on your contribution. But if you are a nil-rate tax-payer and in a relief at source scheme, you will get the equivalent of tax-relief (which the Government calls “an incentive”).

While the financial impact of the incentive is negligible on 1% of earnings, it is progressively more important as contributions treble and then increase fivefold.

The higher rate tax-payer (HRT) has also a different tax-treatment depending on whether he or she is in a net-pay or RAS scheme. If in a net-pay scheme, tax relief will be given in full as a matter of course, but in a RAS scheme, the HRT is responsible for claiming the top slice of tax back through self-assessment or through a pay-coding adjustment. This is fiddly and is why a lot of old-fashioned schemes operate on a net pay basis.

TIP 2; different messages are needed for staff in net-pay and RAS schemes.

If you find you have a number of staff in a net-pay scheme who are getting no tax-relief, you should seriously consider whether such a scheme is right for your low earners. The opposite may be true if your workforce are generally higher rate tax-payers.


It depends on your staff’s capacity to pay more

Whatever messaging you put out to staff about the impending increases in pension contributions has to be sensitive to the auto-enrolment regulations. Strict penalties apply to employers who are seen to be frightening staff out of their workplace pensions and that is precisely what you may be doing if you phrase your communications in the wrong way. Warning staff that their contributions will be “tripling in 2018” runs just such a risk!

TIP 3; be wary of scaring the horses!


It depends on what the net impact on your staff’s pay-packet will be.

In practice, for those staff most vulnerable to small fluctuations in take-home, the immediate impact of the changes in 2018 and 2019 will be mitigated not just by tax relief/incentives but by broader changes in payroll deductions in the months and years to come.


The graph bellow shows a simulation

Estimate of change in net pay at phasing



It is based on an extrapolation of taxation trends and previous indications by the Chancellor of the direction of travel for personal taxation thresholds / bands etc.


There are a lot of unknowns, including the tax, NI and QE banding thresholds for the next two financial years – some of which will be more certain after the Autumn Statement and once the DWP Secretary of State sets the AE thresholds for next year.


The chart is for members of a legal min Qualifying Earnings banded scheme, using RAS, and shows the combined impact of tax, NI and the phased increase in contributions.


The chart doesn’t show the National Living Wage or UK average earnings values over time, so the lines may move a bit, as and when those change.


What it shows is if my “finger in the air guestimate” it at all accurate, a full time worker, on below average wages, could see their net pay go down by £20 a month or less, each time the pension contribution increase comes into effect.


TIP 4; if you’re going to talk numbers – make sure the numbers are accurate – talk to an expert and do some modelling


Put like that, it is unlikely that most low earners will even notice the impact of the increased contribution.



  • Putting together a communication strategy for April 2018/19 has to take account your basis of pension taxation
  • If you’re got the wrong basis of taxation for your staff, you should look again at your pension provider and at ways to remedy the situation
  • You should take care not to scare the horses with tales of woe about pension contributions
  • You should consider talking to an expert on the net impact of auto-enrolment phasing on your net reward.
Posted in auto-enrolment, pensions | Tagged , , , , | 2 Comments

LCP and Royal London; helping us make better retirement decisions


LCP and Royal London have produced a joint report on



You can read it here

The Main findings are


The LCP Breakfast Briefing

I had the pleasure of visiting my old friends at LCP at (for me) their new offices in Wigmore Street. LCP are good guys, a true partnership focussing on problems that brainy actuaries can solve.

There were two brilliant presentations, the slides for which have been shared and can be accessed here

The room was packed- even at 8.30am on a late August morning! Some said it was to hear Steve Webb but most of the people I met were here as trustees or sponsors of DB schemes – keen to do more for their members.

Jonathan Camfield and Steve Webb whizzed through their presentations with great aplomb and we could have had an hour’s worth of questions. I haven’t been so engaged since the Great Pension Transfer Debate we had in Peterborough earlier this summer

The bulk of the briefing (and the paper) explored the explosion of transfer activity,


the increase in the take up of quotes


and the increasing size of average pots


Linked to the older demographic of transferors


Royal London findings


Steve Webb of Royal London presented their survey of 800 financial advisers. It confirmed the findings of LCP and found distribution of CETVs as a multiple of pension given up to be averaging on 25-30 times


Steve Webb was very keen to point out the sophistication of the decision making.


I wasn’t convinced that the reasons IFAs found for people transferring were typical of all those who transfer. IFAs tend to deal with the wealthier members, many small transfers will be for debt clearance and purchase of consumer durables.

The people I am more used to talking to , would rather discuss pensions with Martin Lewis or at the Citizens Advice Bureau with an IFA, I reckon most would be overjoyed to have enough money in the bank not to have to worry about the next utility.

Steve knows these people, they hang around Thornbury and Yate in great numbers. I am sure they miss him as an MP as  much as we miss him as a Pension Minister.

I am quite sure that Steve’s average constituent would not have quite those reasons to transfer!

Which brings us on to ….

Partial transfers

The majority of Steve Webb’s presentation was taken up with a call to make partial transfers mandatory (like CETVs),

LCP were keen to distance themselves from this and suggested it might become best practice when TPR publish new guidance to coincide with the outcome of the FCA’ Retirement Income Review.

I sat next to the FCA representative at the event (we talked about the impact of the Scally judgement and whether employers and trustees were at risk of being sued by staff for not advertising early retirement options.

I got the impression that partial transfers are not particularly high on anyone’s list of priorities. They will join the post 2020 Brexit policy queue.

IMHO we would be better served campaigning for the right to take tax free cash from a DB scheme at any time after 55 (and independently of the taking of the pension). Frankly that is the one pension freedom that isn’t on offer – and should be!


After words

After the breakfast meeting , I had the chance to chat to Jonathan, my old friend Bart and several others.

It was really good to meet with such good people who – while sadly not working for my own firm – sing from the same hymn sheet! I am hugely proud to work with First Actuarial, but if I ever worked for another consultancy – it would be one with the value set of LCP.

Many thanks to them and Royal London for a splendid, thought provoking and genuinely inspirational report and briefing,

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

“Going halves on DB” – the argument for (and against) partial transfers.

(Rival) consultancy LCP and insurer Royal London have joined up to produce a paper calling for it to be mandatory for trustees to provide members with the option to take part of their DB pension as pension and part as a cash equivalent transfer.

I haven’t read the paper, just the report on it which you can read here. I am hoping to go to LCP’s event, which you can sign up to here. The gist of the arguments in favour have already been published in an earlier paper with insurer LV that you can read here.

In case the people who pay my wages think I am a fifth columnist for LCP, I’ll add that Steve Webb, co-author of the LCP work has spoken with First Actuarial on this subject at the Great British Transfer Debate;  we are keen to promote constructive debate and like LCP – are looking at this from both the Scheme and the Member’s point of view!

So why should Trustees (and sponsors) have to go to the bother?

There is no doubt that there will be administrative problems producing bespoke quotes for members who want to look at their DB benefits as an hybrid.

A part of me says this is not worth the candle. Members can already get a proportion of their DB benefit commuted for cash and small DB rights can be totally commuted as a matter of course.

This paper is calling for more; it’s saying that the “all or nothing” regime that five out of six pension trustee boards impose on members is making for poorer decision making at member level. The argument is that members should be free to exercise a higher degree of freedom than is available through commutation as part of their pension planning. Trustees should be forced to provide transfer values for all or part of the DB benefit.

There is an administrative cost to this and tomorrow I will see LCP’s numbers. We have looked at the numbers too and we think the cost is significant. That cost will have to be passed on to employers.

I suspect that the business case made to employers will be that higher levels of transfer are worth the candle. Bosses are accounting for DB liabilities using an accounting standard that inflates the liability, the CETV is calculated according to “best estimates” and pays out a lower value. In most cases, CETVs (when taken) relieve the balance sheet and make lives easier for bosses.

From the public policy perspective – is this part of the freedoms?

To an extent, I agree. In principal, people should have absolute property rights on their pension benefits, as they do on anything else they own. But pension rights are different. People have no property rights on unfunded state pensions (such as the civil service scheme or indeed the State Pension – that we all enjoy).

The only DB pensions that give a right to a cash equivalent transfer value (CETV) are those that are funded (most of which are in the private sector). Even then you only get a right to a CETV before your pension comes into payment. Partial transfers will only be available to a proportion of those with DB benefits and this could be seen as divisive.

I’d say that it extends the freedoms but only to a lucky few. We will need to work hard to manage expectations – split transfers are a small step and not a game-changer.

Is going halves on DB really in the member’s interest?

Here is my thinking on the demand for CETVs among those with deferred DB rights.

Unwanted awareness?

Most people who have the freedom to “cash out” using a CETV , do not use that freedom. I did not exercise any freedom – I didn’t even take my tax-free cash, because I knew the value of my Zurich pension was always going to be higher to me than the value of having £1m + in an invested pension pot (for which I was responsible).

The question is whether I might have been happy enough with a £300k or £500k pot. I suspect that I would have preferred not to be tempted (but I am a pensions geek!)

I am not the only person who has become a pensioner since April 2015. We should remember that any legislation passed won’t unwind decisions like mine! There will  be some pensioners who will complain they were unfairly treated because they didn’t get a split CETV and were never advised they could have got one if they’d waited.

Industry self-interest?

You’ll notice that my CETV was huge and the argument seems to be focussing on those of us lucky enough to have big CETVs. Presumably we are those lucky enough to have financial advisers to look at all this for us and we probably have a SIPP with Royal London or LV or some such organisation.

There certainly is a lot of sell-side vested interest in loosening up the transfer rules and this adds (a little) to my fear of freedom.

“The scammers slice”

What adds a lot to my concern, is the possibility of split transfers where the transferable amount is below the non-advisory limit (£30,000).If this were allowed, it would mean that all kind of scoundrels could slice off a small slither of pension – up to £30k into some ne’er-do-well investment scam, beneath the regulatory radar.

There seems general agreement that split transfers should be limited to larger transfer values – I’d go further and say that the minimum split must be above £30k and therefore advised.

A complexity too-far?

I’m quite sure the majority of people who have DB rights will still take DB pensions. The numbers that can afford to look at CETVs in detail are relatively small, the numbers who will be able to afford the detailed advice needed to get the precise mix of DB and DC rights – smaller still.

From the member’s perspective , I wonder if split transfers is just a complexity too-far. I suspect that I am not alone in not wanting to be aware of my options to cash-out!  To an extent you could argue that we are creating an “unwanted awareness” here.

I want split CETVS but….

Provided the cost of publishing CETVs on all DB statements and split transfers as an option (the paper calls for both) is not too high- I am in favour. I will find out what the cost is tomorrow, thanks to LCP for giving me a (cheeky) place!

I’m not sure that split transfers need to be mandated, I think they could be encouraged and incentivised. But I’m keeping an open mind on this.

In the final analysis, the interests of members, of schemes and of sponsors all need to be aligned to make the business case for CETVs work.

Finding that alignment is going to be hard, I suspect that it will come down to whether offering a split CETV improves the overall value of the DB pension scheme.

I expect that if you give people options to manage their pension as they like , then you give people the ownership of their pension. Doing this restores confidence in pensions, which might be the measure of value we are grasping for.







Posted in pensions | Tagged , , , , , , , , | 2 Comments

Now – is not the time for interim leadership!


In – Clutterbuck


The news that Morten Nilsson is leaving NOW: pensions is disappointing. Morten is one of the most decent men I have worked with. His conviction and vision have made NOW a distinctive proposition for employers choosing a workplace pension for auto-enrolment.

His departure comes at a desperately bad time, in the middle of the final phase of auto-enrolment staging. That phase will be done by October after which we are moving on

Troy Clutterbuck is  now interim CEO. His background is with Jardine Lloyd Thompson  (JLT) , NOW‘s current administrators. Having lasted 7 years, Nilsson is booted out with the finishing post in sight.

It’s not just the manner of Nilsson’s departure but the lack of a successor and the appointment of an interim that baffles me.

The press release makes it clear that Nilsson was pushed out by its Board, NOW‘s problems are administrative . I find the interim succession hard to understand.

NOW’s problems are to do with outsourced administration.

Morten and NOW’s problems had their genesis in its conception in 2011. NOW fundamentally misunderstood UK employers and took as its model the unbundled occupational scheme , administered by a third party contractor and relying on a contribution system that from an operational and taxation perspective looked back rather than forward.

It’s genesis was overseen by occupational pension experts, its trustees were and continue to be “old school” , it applied for and got every accreditation the PLSA and ICAEW could sell it. It was to no avail, NOW for all its good intentions has been in a hopeless mess, sold short by the experts who simply didn’t understand employers who weren’t in the occupational club.

Worst of all, it lumbered itself with administrators who could not operate tax relief at source. Consequently, a high proportion of its low earners get no tax incentives as they pay no tax. Meanwhile, NOW’s principal rivals, NEST, People’s Pension and all the insurers operating GPPs, adopted relief of source for everyone.

To begin with, no-one noticed, very few people were auto-enrolled who did not pay tax, but as the auto-enrolment threshold flat-lined and the nil-rate tax threshold went up, more and more non-tax payers were caught in the nil incentive trap.

This might be alright for occupational schemes set up to reward high earning employees (with little thought for the low-earner) but it went against the grain for Trustees who included former union man John Monks and indeed Morten Nilsson.

Alone among the occupational schemes operating a net pay scheme, NOW decided to credit its low paid members with the tax relief they were missing out on. This is costing them a pretty penny today but this will rise to thrice that pretty penny next April (five times in April 2019) ; there is no sign of concession from HMRC or movement from administrator JLT.

The inability of NOW to find a work round with JLT to the net-pay problem means that NOW are operating at an enormous commercial disadvantage to their rivals and as employee contributions rocket, the current business model looks untenable. It should not be like this, others have found a way. It is very hard to understand why NOW and JLT haven’t.

JLT own the operating system on which NOW’s administration sits – it is called Profund. The particular version of that operating system it uses is Profund Open. It would seem that JLT and NOW cannot come to commercial terms to adapt Profund Open to offer relief at source tax relief.

Zurich pensions operate relief at source pensions, the software it was built on is Profund Open. JLT purchased Profund Open after Zurich had adapted Open to operate relief at source. I do not understand why Open can be used by Zurich for relief at source but not by any other of JLT’s DC customers.

Troy Clutterbcck, interim CEO of NOW:Pensions may, we hope, have some more influence on JLT than his predecessor. We are told with pride that

Troy has been with NOW: Pensions since August 2016 joining as CFO from Jardine Lloyd Thompson Group where, during a 15 year career with the firm, he held a number of key roles including CFO UK Employee Benefits and Commercial Director, Latin America and Canada

But there is no certainty in this. JLT are one of the largest administrators of net pay workplace pensions, they only operate that way (Zurich is not a JLT customer having obtained its own version of Profund code when JLT bought Profund out of receivership). My suspicion is that JLT have bigger issues to worry about than the lowly paid NOW members.

JLT don’t hear their PLSA members complaining. Net pay is great for higher rate taxpayers. Decision makers are higher rate tax payers. There is a systemic bias towards net pay, a bias that only Nilsson was prepared to challenge.

It seems that the majority of occupational schemes are in denial that there even is a problem. Trustees presumably turn their telescopes to the blind eye and “see no ships”. An odd way to exercise their duty of care!

I am equally surprised that employers participating in net pay schemes are not considering the risks they are taking. The Scally duty makes it clear that an employer should be giving information to staff about the workplace pension scheme.

Are employers making staff in net pay occupational schemes aware that they are not getting the incentives they should be getting? Perhaps both trustees and advisers seek safety in numbers – that is a dangerous game – a dangerous game for their advisers too.

So far – no good!

So far, NOW’s decision to pay the incentives out of shareholder funds has kept NOW on the right side of the moral argument. But does Nilsson’s departure and the handing of the reins to a former CFO of JLT employee benefits , fill me with delight? – IT DOES NOT!

While I hear that NOW’s trustees are happy with JLT’s capacity to meet their service levels, the fact remains that nearly three years into the contract, JLT are still not operating the tax system on Profund Open that Zurich has been running since 2001. There is something seriously amiss here.

I will be watching with interest what NOW’s policy is towards paying the incentives now that Clutterbuck is in charge.

It is not just the tax relief issue – NOW’s administration is still failing in other ways

NOW were cited by Pension Bee as taking on average 45 days to complete the transfer of money away from them. They tell me they have recently adopted the Origo “Options” platform service –  we can hope to see times reducing to the Origo standard of 12 days.

There are still residual problems for NOW, sorting out the mess created by the sloppy handover from the outsourced administrator before JLT (Xafinity). These complications are – we are told – compounded by issues relating to contribution administration caused by a partnership with yet another third party – Staff care.

It is this legacy of maladministration that forced NOW to remove itself from the Pension Regulator’s buy-list, a humiliation that may have been career terminating for Nilsson.

I am told by NOW trustees that they do not see JLT as the problem, but it is NOW’s primary administrator. With administrative gurus on its board (such as Jocelyn Blackwell) it is time NOW trustees came out with a clear action plan to remedy the whole blinking mess.

One thing is for sure, until NOW get a grip on administration and tax incentives – its problems are far from over. Sacking the head coach and director of football rarely works , I very much doubt it will work at NOW either.,

If NOW is the time for change , may that change be decisive

As for leadership, I cannot see the game plan. Why is Nilsson losing his job now? Why is there no clear successor? Why is a JLT man the interim?

Troy Clutterbuck brings to the job a career history that is unfortunately enmeshed with NOW’s problems. Let us hope that the Trustees impose themselves upon this mess and take action. If there must be change – may that change be decisive.

It would be helpful if whoever succeeds Nilsson, can clearly demonstrate separation from the administrative legacy and show determination to give its Trustees control of its  operations.

For too long, NOW has looked backwards and not forwards, it needs to re-find itself in a pension landscape dominated by new employers, by new advisers and by power-brokers who could not tell you what PLSA, PMI , PQM or PQMR stood for.


out – Nilsson








Posted in pensions | Leave a comment

Don’t take micro employers for granted; Auto-Enrolment depends on them.

pitch and canvas.PNG

Pitch and canvas – a Cheshire glamping business with a top boss

Apprentice levy ≠auto-enrolment!

Blink and you miss it but at around 35 minutes into this morning’s “Wake up to Money” Mickey Clarke suggests to Suzanne Miller that Pitch and Canvas her start-up glamping business didn’t have to worry about auto-enrolment!

He confused  the Apprentice levy – (which you don’t pay till your pay bill is £3m)  with auto-enrolment- (which happens as soon as you get a staging date – or from October this year, as soon as you have eligible workers).

The Apprentice Levy and Auto-Enrolment  are not the same thing!

Why this matters is that SMEs like mine and Suzanne can, will and are getting fined for not following the auto-enrolment compliance journey. We can ignore the apprentice levy (for now) but we cannot ignore auto-enrolment.

Suzanne corrected Mickey but the message was still not clear and I worry that many small business owners will pick up on the implicit message that auto-enrolment – like the Apprentice levy

Let’s hope  Wake up to Money do a piece in the next couple of weeks about what employers are liable to pay auto-enrolment contributions and when?

While I’m on the subject, here’s a very angry note I got shortly  from a payroll lady

I’ve just been working on finance projections for our church café. Based on the Methodist living wage that I mentioned we should be paying £8.45 p.h plus have to fund pension from July for 2 Full Time staff that double in April then triple in 2019. Pension costs alone will cost us over £8K from April 2019 even if we don’t increase the FT rate which isn’t ethical if we give the Part Time staff £8.45 p.h, so it’s probably going to be about £10K  p.a for pensions we weren’t paying before without even adding in the increased salaries themselves.  

We’ve got to sell 66,250 items just to pay for the salary and pensions and put our prices up. That’s the reality of AE.

And I have another message from the Dad of a café owner – equally enraged by the burden of auto-enrolment who is demanding the Government help his daughter out with the upfront costs.

Why am I writing this?

Because a lot of people are assuming that auto-enrolment is a done deal and will be painless from now on. It is not painless, it is an absolute pain in the neck for small businesses.

What’s more , if these employers do not comply, they will get the full wrath of the Pensions Regulator upon them.

We should not take auto-enrolment for granted, we should not confuse it with the Apprenticeship levy and we should be very mindful that it is these small employers on whom so much depends!


suzanne miller

The impressive Suzanne Miller

Posted in pensions | Tagged , , , , , | Leave a comment

A Pension Food Bank for the DC saver


Ok – so it’s not a big news week for pensions , but well done Jack Gilbert of Citywire’s New Model Adviser for getting a meet with Frank Field, and well reported on what I can only call a “welcome scoop!”

Silly season.PNG

Field is influential as he chairs the Commons DWP Select Committee, a group of MPs who inform DWP policy teams on what the nation considers the key pension issues.

He has been pre-occupied of late with DB pension deficits and the reasons for them. The latest black ho?le he’s looking into is at the University Superannuation Scheme about which this blog has said enough. BHS and Tata Steel have previously got the Field treatment. He is nothing if not vigorous and effective.

He is also selective, Field chose not to get involved in the Transparency of Charges debate , despite being approached by the TTF, he may have seen the FCA were already acting, the point is that he is not “rent a cause” and the Select Committee picks its issues wisely.

So what of alternative DC?

It’s a good title, collective DC is currently on the shelf so a quick re-brand is opportune. Make no mistake, what Field is getting at is precisely what this blog is getting at. That currently there is no satisfactory way to bring small pots into one collective pot and get the advantages of mutual insurance into play. I don’t need to mince my words, the old DB schemes were mutual insurers, they were not dependent on employer sponsorship, they brought people’s money together and distributed that money according to the best endeavours of trustees, as a wage for life.

A wage for life – a pension; not a sum of money in the bank or building society but a replacement income when work runs out. These are the terms of reference for ordinary people who do not lie awake at night worrying about the penal effects of the MPAA, AA, LTA and of issues of inheritable wealth.

Ordinary people work for a lifetime and then have a reasonable expectation of affording to retire. This expectation has been diminished with the demise of DB accrual but accelerated by the improvements in DC pensions and the auto-enrolment funding regime.

Alternative DC is – as Field articulates it to Jack – a means to give back pensions to pension savers who are not served well by the current regime.

Judging by the comments after Jack’s piece, IFA’s do not have much time for alternative solutions. But they should!

What is Field actually saying?

Here’s what he said to Jack.


Field is not alone, I was in a meeting with one of our largest master trusts yesterday when we were exploring exactly this. While there is not appetite (as yet) to mutually insure longevity, there is a great deal of interest in extending the economies of scale that large master trusts can pass on to savers, both as they save and as they spend their savings.

Nor should this be limited to master trusts, Alliance Bernstein has shown that through it’s Retirement Bridge, that pooling can be carried out through target date funds and that these funds can be used to pay income as well as collect it.

These are trial runs at a greater event, one that we may not see for a decade. But to get to a point where people can pour their DC savings into a collective pool and get a wage for life – is only dependent on the DWP completing the legislation that sits on the shelf and on the pension industry having the courage of its conviction.

The gain-sayers, who are extremely vocal, will of course have nothing but freedom. Freedom with the absence of direction is the playground that advisers can thrive in but they must accept that the playground is exclusive. Those with less than £100,000 in pension savings (many advisers would have this at £250k) do not get into the playground, get no advice and are forced to scavenge for best annuity rates or cobble together a drawdown strategy with little help from anyone.

Frankly ordinary people, for whom Field has spent a life of service, are getting nothing whatsoever out of pension freedoms other than the freedom to f**k their later- life finances.


To say I welcome Field’s interest in “alternative DC” is to underestimate matters! I am simply overjoyed to see Frank Field MP, without prompting , pick up on this matter. I suspect, by the terms of his engagement that he has spoken to or re-read the work of David Pitt Watson.

David’s seminal study – Towards Tomorrow Investor is now a few years old and some of the economies of that 30% saving figure are already baked into the new workplace pensions, but the bulk of them are not.

There is still the great job ahead of us of helping all the money that is saved in DC -especially through auto-enrolment to be spent and enjoyed. It is not for people to have to become their own CIO and actuary, nor for people to have to employ such people, it is for those of us in the pension industry to find an “alternative DC” that does this for them.

I more than welcome Frank Field’s words, I jump at them with the intensity of this starving man in a Food Bank.

starving man.png



Posted in accountants, actuaries, Pension Freedoms, pension playpen, pensions | Tagged , , , | 1 Comment

“We dislike pensions but we don’t distrust them”- thoughts from comrade Gregg!


The bearded City Slicker

One of the pleasures of living in the City of London is the early evening beer with City slickers.

City slicker Gregg McClymont and I had a pint or two in the Fine Line last night and caught up after his swanky Italian holiday.

Before I blow Gregg’s socialist credentials entirely, I’d point out our conversation was  about the universal minimum wage, a fairer state pension, a tax on the imputed rental on residential property and how we can reduce corporate debt in favour of equity.

But then the conversation detoriated into pensions. Gregg referred me to a recent column of his in Money Marketing, which I had not read. I’ve read it now and will read this column again- Gregg is a good commentator.

Like this article, you have to read through some treacle to get to the main event. He’s talking about the recent “Retirement Income” study from the FCA and remarks

In the footnotes of its paper, the FCA cites conversations with regulators in Australia, the US, New Zealand, Denmark and Ireland.

But only Australia is mentioned in the body of work, with positive noises made about the proposal that pension schemes (known as “supers”) default members at retirement into hybrid products which combine income drawdown and deferred annuities.

Gregg goes on to point out that though the Australians are trying to impose pensions on those with Super Accounts (everybody), there is yet no evidence of success.

Obama similarly tried to impose annuities on 401k accounts but this, like his Fiduciary rule, has been knocked on the head.

Only in Denmark, where the deferred annuity has never gone away, is there systematic “pensioning” of retirement savings.

Gregg, who has considerable empathy, spotted the struggle within the paper to fit a round peg in a square hole. Much as the FCA want to point to international experience to demonstrate that pension freedoms will lead to a lasting settlement of the retirement income crisis, they can find little or no solid evidence.

Perhaps this is why the fruits of the FCA’s discussions with these national regulators go undiscussed. There are simply no lessons to be learned from the US, New Zealand and Ireland learned regarding good decumulation practice

Gregg and his wingman Andy Tarrant, have been publishing international synopsis for some time. They conclude that it is only where there is massive state intervention (as in Switzerland where the state subsidises annuity rate) do DC pots morph into pensions.

Gregg concludes that the public dislikes pension – but distinguishes dislike from distrust.

I dislike the gym , but trust working out to restore me to my former slim self.

I dislike going to Church, but go because I feel spiritually cleansed for doing so.

Deferring income rather than spending capital – is only another example.

I could go on, most of the things that are good for us , involve not doing something that is immediately more pleasurable.

If we can learn one big lesson from auto-enrolment is that the public need some form of incentivisation to save in an orderly fashion. In the case of AE it has been the organisation of that saving around employers who have created the savings apparatus (and partially sponsored our savings – albeit at the expense of wage increases). We have accepted this tough love – 9 out of 10 of us have not spat out the dummy.

I suspect that precisely the same would apply to the imposition of a default pension mechanism. There are two features of such a mechanism that appear to me critical

  1. the right to opt out (and exert property rights)
  2. the removal of the guarantees that throttle the conversion rate from cash to pension

As regards property rights, the Government know very well that the irreversible decision taken by those purchasing an annuity is too hard for most people to make (unless they have no choice). That is why Osborne was applauded by all sides for stating that no one would (post freedoms) ever have to purchase an annuity again. It is why the Government tried to create a secondary annuity market, so that those who had purchased an annuity could reassert their property rights and cash out.

The first lesson is that any pension system imposed by of a default would needs have an escape button allowing people to have a Cash Equivalent Transfer Value – on request and the right to take it.

As regards guarantees, we need to really nail the cost of a guarantee and to explain to ordinary people that they don’t come cheap. If people were offered a scheme pension without guarantees and an annuity with guarantees, the first question they would ask is why the scheme pension is so much higher – the answer could be – because it has no guarantee.

People could then be able to look into just how much risk they were taking on with an unguaranteed pension paid from one great big pension pot (I am of course talking of a collective pot). They could then make an informed choice based on their tolerance for future uncertainty.

In practice,  just as 90% of people chose with profit endowments over non profit endowments, so 90% of people would default into a non-guaranteed scheme pension rather than buy an annuity or go it alone with a SIPP drawdown.

The second lesson is that the only acceptable alternative to a guaranteed annuity, SIPP style drawdown or cash-out is what we used to call as scheme pension paid at a rate determined by actuaries without the certainty of a guarantee.

For the one international comparator that the FCA ignored was Britain, which for a great deal of the time since the war , has operated such scheme pensions, un-guaranteed but paid with the best endeavours of trustees. Often these pensions have been paid with minimal sponsorship from employers.

Before I am hit with the John Ralfe mallet, let me point out that the reason these schemes are now generally in deficit is because of accounting standards measuring valuations, on a best estimate basis, these schemes are still solvent and – left to pay out the pensions without interference, the vast majority of pension schemes would meet their obligations.

This final paragraph may so enrage John that this may be my last blog, but I firmly believe it to be true!

John Ralfe

John Ralfe – with beard


The FCA – as they explore retirement income, should look at how defined benefit schemes developed in Britain between 1950 and the turn of the last century and ask itself if it might have something to learn from the collective experience. Then they should look at the other great success story, auto-enrolment and ask whether that too might teach us something about auto-enrolment.

Gregg McClymont’s fine article hints at the solutions and I – with my size 12 hobnails- am merely drawing the conclusions that I am sure he has come to himself!


Gregg- Pre-beard


Britain needs a default decumulator, it needs to give scheme pensions with property rights and it needs to make it quite clear that we cannot expect absolute certainty of income from private sector pensions.





Posted in actuaries, pensions | Tagged , , , , , | 5 Comments

Small employers are sorting the pension problem – but they need some help!


Sage auto-enrol

There are a lot of organisations taking the credit for auto-enrolment and it’s true it has worked because Government , providers and business advisers have worked together.

But the heavy lifting has been done by getting on for a million small employers who are now participating in workplace pension plans – and enthusiastically too.

I have mentioned before how I and a group of providers spoke to a packed meeting of small employers at the Sage Summit. Without exception, these employers put up their hands in agreement that they felt a duty of care to their staff to source and maintain a good workplace pension.

Legally, this may be defined as an implied obligation of good faith, but I prefer the good old fashioned phrase “they cared”.

Employers care and they will have to care a lot more from April when their obligations to contribute to their staff’s pension pot double. They will have to find 50% as much again in April 2019 and at each stage they will have to take more from member’s pay packets.

We should not underestimate how much we owe to employers for embracing auto-enrolment compliance and paying the first 1%. The increases will come at a time of low wage growth for higher paid employees but substantial increases in the minimum and living wages. In short, employers are having to shoulder the burden of regulatory changes from business at usual. Let’s be clear, there has not been a massive hike in productivity, coping with these changes will be born from the boss’ and other shareholder’s pockets.

These bosses are not rich magnates of the Lord Snooty variety, but ordinary men and women who have been employing others on their own account. They deserve the title institutional investors for they pool other’s contributions and send them for investment (the FCA’s current definition).

As we have required them to adopt the new employer’s duty, so we should empower them to help their staff as pension champions. I use the word “champion” to differentiate the task from “experts and expertise”.

It is within employer’s capacity to promote the idea of workplace pension saving. It is also possible for employers to signpost certain functions of the Pension system that are available to members

  • TPAS, a free to use pension advisory service , able to answer member questions, signpost next steps and even help with disputes.
  • Pension Wise– an extension of this service for those at or about the point where they wish to convert from pension savers to pension pot spenders
  • Pension Dashboards – coming soon – information hubs able to bring together personal information to enable individuals to consolidate digital info on what they have by way of pots and rights
  • Pension Consolidators – services able to physically manage the pots into one great big pot
  • Pension Governance – the reports of IGCs, Trustees and others relating to the performance of the workplace pension

There are many other important services offered to members which I could add to the list, but you get the gist. All of these services offer valuable additional support to the members of workplace pensions and can be promoted by employers , if employers knew how to do this.

I see the job of the pension industry, not to spend time selling rivals  to these “free to use”  services, but to enable employers to plug in to what is already there.

This is a radically different business model for advisers. With the exception of pension consolidators, who have more in common with providers than advisers, all of the services fall outside the established IFA/EBC vertically integrated business models.

That is not to say that financial advisers cannot run their wealth management businesses as an adjunct to the corporate services they promote, nor that the traditional need for longer term tax advice, business and personal protection and indeed the basics of financial planning cannot be sold as part of a wider package.

But the focus of corporate advice for SMEs has to be the need of employers for the free to use services that make their lives easier.

I see the natural conduit for such information as those who provide payroll services , the organisers as the payroll software providers and the managers of the process, those forward thinking advisers who will build on the business relationships established through the first stage of auto-enrolment staging.

None of this is very remarkable when you think about it in terms of business process. However, it will take a remarkable change in the current organisation of pension advisory business architecture. It will mean that relationships with IGC, Trustees,  TPAS, governance specialists and regulators will needs be much more agile – capable of responding to changes in demand and able to promote demand through proactive initiatives.

It will mean to a relative disempowerment of the employee benefit consultant and corporate adviser from being the first port of call for advisers. For the scale of employers already managing workplace pension participation is so much greater than the capacity of pension advisors , that it is inevitable that individual relationships between advisers and these new “institutional investors” will be relatively rare.

Instead , we will see “pay as you need” services being promoted through payroll to small employers with advisers becoming a common resource. For the most part, advisers will only be needed where the answers cannot be provided from the free to use service providers listed above.

Before I am accused of being a traitor to advisers (again), let me finish by saying that the expertise held within the pension advisor framework is incredibly valuable, so valuable that it needs to be spread rather than focussed purely on a small sector of the employer market- that well served today.

We can only do that by collaborating with the sources of business information that SMEs already use, and building out from there.

Our expertise will be needed collaboratively and in collaboration we will find a place in this brave new world where everyone is doing the auto-enrolment thing.

keep calm and auto-enrol



Posted in auto-enrolment, Big Government, pensions | Tagged , , , , , | Leave a comment

It’s the most decent people getting scammed


One of the most common things you hear from those who have been ripped-off is a sense of personal guilt. Often this is a stronger emotion than anger.

Why people should feel guilty about their gullibility cannot be answered using logic. The people I meet who have been scammed are neither stupid or ignorant, they are decent people who take others at their word. There is more than personal guilt in their regret, there is a sense of hopelessness as those who have scammed them have undermined the value system underpinning their lives.

This is, of course, not unique to being scammed. Any violation of property – physical or intellectual, can induce a similar regret that manifests itself both in guilt and anger, but most sadly in the former.

The trust in a value system (often based in a religious faith) is both a solace and a vulnerability.  It is a theme explored extensively by Shakespeare, one day I would like to write about the collective breakdowns of Shakespeare’s  heroes – Timon, Lear, Othello – good men; Ophelia , Hermione – good women. For all the inexplicability of the breakdown of their value sets is explored in terms of behaviours.

Sadly, the behaviours of those who are scammed, mirrors the behaviours of Shakespeare’s character. Typically they react to the breakdown of their values by violent self-harm though there are occasions – (such as  that of Hermione in the Winter’s Tale) that characters win through.

News that the Government is once again tackling cold-calling, is good. Cutting off the root of the problem – the unsolicited approach, either through email, telephone or text – is a first step. I was recently sent a list of 22,000 names, addresses, email addresses and telephones that has been circulating. I hope that the Pensions Regulator will be able to contact those on this risk – if not to warn them, to get first hand experience of how they’ve been treated.

The lead generation business is filthy, unregulated and the source of joy only for scammers. It should be throttled.

The scammers cannot be stopped, even in prison you can scam. We can only make the rewards of scamming less easy and the penalties, more exacting.

Those who are most easily scammed are those with strong value systems and a high degree of trust. They are also people who do not properly understand the value of their pension.

The scammer preys upon the intangibility of pensions and on the irrational fear people have that a pension promise will not be met. Undermining our pension system with the scaremongering that has surrounded many recent pension cases, has made the scammers task immeasurably easier.

The concept of liberation has precisely the connotations that the scammer thrive on; pensions are not in captivity, though inaccessible they are very real. We have a duty to emphasise the reality of a wage to life.

Some may say that I am taking the situation too seriously. The people who I speak to at FCA and HMRC point to the £43m reported to have been stolen since April 2015 as a drop in the ocean to what has survived intact.  I don’t believe the £43m figure (being a gross under-estimate) but even were it correct, we cannot relegate scamming to the accidental calamity cupboard.

The point is that scamming impacts all with pension rights, it reduces confident and creates further vulnerability on which the scammers feed.  It must be stopped, for it is causing untold misery to those who lose and great uncertainty to the rest of us.

Thanks to Angie Brooks, I have been involved a little, but it is Angie and her brilliant team who are doing most. They now have support of the Pensions Regulator and the Pensions Advisory Service, but they need general support throughout the pensions world.

Thanks too to Darren Cooke who has made this cold-calling ban happen.

There is much ordinary pension people like us can do – awareness is important , but sensitivity is critical too.

Above all, we must look kindly on the scammed and not foster their sense of self-loathing. All too often, they are victims of their own decency.







Posted in pensions | 2 Comments

When ESG knocked at the White House

Trump trump.png

What has happened in America this week has surprised and delighted me. Donald Trump’s two advisory committees, staffed from the Chief Executives of big American business have been disbanded, or more properly disbanded themselves. The strategy and policy forum and the manufacturing council are “no more” because of opposition to President Trump’s position on white supremacy.

I hope that nobody reading this blog, thinks that white people are superior to people of other coloured skins or deserving of any greater privileges. While we might concede the historical fact that white people on both sides of the Atlantic had and still have better opportunities, our moral compass is now firmly pointed at equality. For that reason we can delight to see that Ken Frazier, CEO of Merck is a black-skinned man.ken frazier

Today I will be on my boat alongside 12 people , the majority of whom will be of Asian origin. They are as welcome to my boat and to the delights of the Thames as my own family (who have never been to Asia!)

Charlottesville is incomprehensible to me, other than as an historical abstraction. Arguments about the moral code of General Lee, of slavery and of the “rights” of the Klu Klux Klan, have no place in a forward thinking democracy like the UK or the US. And yet these codes , behaviours and values are validated by President Trump, implicitly and explicitly.

This was too much for the great and the good. For all their support of Trump’s business agenda, the executives could not simply laugh Trump’s behaviour off as “politics”.

John Flannery, the new chief executive of General Electric, told staff that the white supremacist march in Charlottesville

“could not be further from the values that we hold dear”.

Jamie Dimon, chairman of JPMorgan, wrote to the bank’s staff:

“It is a leader’s role, in business or government, to bring people together, not tear them apart.”

These leaders did not cite their Environment Social and Governance code, they didn’t have to. But that they had such a code meant that they could not do other than walk away from Trump’s condolence of racism.

Those who have campaigned for the adoption of ethical codes within businesses, can be rightly proud this weekend. For the adoption of the values within those codes has ensured that the president can no longer rely on naked economics but will have to respect capital as a force opposed to lowest common denominator populism.

Trump’s gamble seems a stupid one. Firms like Merck, General Electric and JP Morgan trade throughout the world. While Trump wants to put America first, these organisations have to listen and put their views second. It is hard to see Jamie Dimon talking to European analysts about the importance of ESG , if he was validating the behaviour of a racist bigot.

We will now have to see what the loss of this validation means to Trump’s administration. If corporate America rebels against Charlottesville, will it rebel about the USA’s withdrawal from the Paris Accord? Or the postponement of fiduciary regulations in financial services?

I am reminded of the reign of King Charles I which began with the support of parliament and ended with the King losing his head. Like President Trump, Charles’ legitimacy – which Charles deemed absolute – was questioned, opposed and ultimately brutally terminated because of what we can now see as the causes of the English Civil War. I do not want to see Trump beheaded or even impeached, I want him to govern according to the corporate code that governs corporate America.

Ironically, Trump’s core constituency of support, now looks as politically isolated as economically abandoned. Trump is finding that an attempt to reimpose a world of confederate values simply doesn’t wash in an America that put slavery and white supremacy behind it some time ago. Any thought of recidivism is blocked by the economic reality that corporate America cannot go it alone.

The values of  wider global governance  trump Trump.

obama obama.PNG






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

Taking care of the “social” in housing.


Paying for the improvements in our social housing, to improve safety is going to be expensive. You wonder where the money will come from, or at least I did till I read a good article by Merryn Somerset-Webb in the FT.

In it, Merryn argues that the net is tightening on Britain’s private landlords, many of whom are not registered for tax with HMRC.

Buy-to-let evasion could be costing the Treasury £150m, but HMRC is fighting back

She takes an example …..

For a hint of what this means in practice, look to Newham. The London borough runs a property licensing scheme and has 27,000 registered landlords on its lists.

But when it gave HMRC the names of those landlords for some simple analysis it was found that almost half (13,000) are not registered for self-assessment. This doesn’t necessarily mean all of them are not paying tax on their rents. Small amounts due can be collected via PAYE and some properties will be owned by companies or trusts and separately accounted for.

But even if you make allowances for this and assume that, say, 10,000 rather than 13,000 landlords are not properly declaring rent, there is clearly something of a problem here. Use the average rent in the area (just over £16,000 a year) and £166m of gross rent is not being declared.

Assume a 10 per cent profit margin and an average tax rate of 30 per cent (some will be 20 per cent payers and some 40 per cent) and HMRC is down £4.8m in revenues in one London borough alone.

I am sure many of us are implicitly making the link between the tax that isn’t being paid by private landlords and the lack of proper funding for the maintenance of our public housing stock.

The FT article goes on to talk about various initiatives at HMRC, including better surveillance, tougher penalties for those found out and ensuring that those licensed to rent a house , are registered with HMRC. (Those of us familiar with pensions will hope that those licensed by HMRC to operate a pension will soon be registered with a toothsome regulator)!

Merryn concludes that of her column is asking the question “how should the private investor best conduct himself” and concludes

Given the potential downside of being a ghost or a moonlighter, these days a large part of the answer has to be “honestly”.

The lure of property rental

I have a great deal of time for David Hargreaves who argues that direct  property investment is the way for individuals to cut out the middlemen and directly link the investment of their savings to the real economy.

david hargreaves.png

David Hargreaves in action


He’s on record on this blog and at various pension play pen lunches arguing that the best self-invested pension is the rental stream ordinary people can get by owning buy-to-let properties.

David is not just a bright guy, but he’s an honest one and I’m sure he isn’t thinking that the way to get rich quick is to avoid paying HMRC what they’re due.

There are over a million private landlords who agree with David and are relying on private rental income,

Of course there are risks, especially where the money invested is borrowed, but it is hard to argue that for those prepared to be properly organised – and go about this business properly – being a private landlord can be a very good way of replacing income as you grow older.

Taking care of the “social” in housing

Merryn stopped short of making an explicit link between the social aspects of the housing market (“social housing” for short) and the entrepreneurial impulse that leads to us becoming private landlords. Whether it is through Airbnb or as a Robbie Fowler style private property mogul, we have responsibilities to our tenants, the local community and indeed to the tax-payer.

We are keen to lambast local authorities like Kensington and Chelsea for not doing their job and turning a blind eye to the safety of their most vulnerable citizens. Perhaps we should be taking care that we the private landlords we are, know or are surrounded by, are raising their game too?

Posted in pensions | Tagged , , , , , | 3 Comments

Paul Lewis; you are awful – but I like you!

I was shocked to read – as I scrolled though my digital FT this morning – Paul Lewis telling me “employers should pay more into pensions”.  He argues that “miserly contributions into defined contribution schemes are storing up trouble”.

I had sat yesterday evening in a meeting where it was explained that the increase in auto-enrolment contributions plus compliance with the new minimum wage, would cause employers either to reduce their workforces or to delay taking people on.

The employers in question, were seeing labour costs rise – but not productivity.

Reading through the article, I realised just how hard it must be to understand workplace pensions , if your workplace is your living room.

Paul, like many people I know, is excited about the possibilities of the Pension Dashboard which will show us for the first time how much our employers are putting into our pensions.

Even more excitingly!

“When (the dashboard) moves beyond its prototype — the aim is 2019 — we will be able to see how completely inadequate our savings are with just a few clicks of a mouse”.

Paul then tells us we can’t see the value of our employer’s pension contributions online.  This is the point at which my credulity breaks.

For I am confused. Firstly, my payslip tells me what my employer has contributed to my pension, I have a website that tells me when that money has been received by my workplace pension provider and I can get a state pension forecast by going through my Government gateway. In my case, everything but a few very old scraps of pensions can be found by me online- I just have to remember all the passwords!

The pensions dashboard may tell me how much my employer will be paying into my pension but I know the answer, just as I know my salary.

Paul is self-employed , has no-one paying into his pension and no salary. If Paul is contributing into a pension as a self-employed person, he needs to look to his bank statements.

The myth that employers are paying less into pensions

Warming to his theme, Paul turns his ire on the paucity of employer contributions , quoting a graph that we have seen before, it is an Office of National Statistics production.

total pension

But this chart is misleading, The claret boxes show the average cost as a percentage of payroll of a DB arrangement and the rhubarb box the average payment into a DC scheme. I won’t go into the DB calculations as they are complicated by regular and deficit contributions, but most DB sponsoring employers looking at the claret boxes will say they understate their cost.
As for the fall in the DC contributions, this is  down to including a whole load of employees who previously didn’t qualify for a pension -typically at the minimum contribution rate.
If you previously had 1000 people to whom you were paying 10% , you might now have another 1000 to whom you were paying 1% meaning you have 2000 to whom you pay pensions with an average contribution of around 5.5%.
As an employer you are paying more in total, but on average you are paying less per member of your pension scheme.

The point is that most employers are paying more into pensions than ever before!

Something has changed in the way thinks about work and pensions

Workplace pensions are now the norm – 83% agree with this statement; 80% think workplace pensions are good for us – 79% think that being required to pay more would be good for us.

I could go on and rubbish some more of what Paul is saying , but that would be very foolish and wrong. That Paul is confused is obvious. He is confused in the nicest possible way. He need not feel guilty for being confused as he is coming at workplace pensions as ordinary people do – and ordinary people are much more confused than he is.

Something has changed not just for workers but for bosses.

The point is, that employer pension provision was, until recently , a minority sport where a huge amount of corporate resources were pin-pointed at those in a DB scheme (or in the replacement DC scheme) and the rest got nothing.
And if you are working for one of Britain’s 1m + employers who are in the process of setting up a workplace pension , you were getting nothing and now the “miserly” contributions that are kicking in are part of the Government’s great success story. We are starting from a high base for the few- and working down and no base for the many and working up.
Paul’s dashboard may show the many that they have a lot of catching up to do but that cannot be the fault of the employers. Employers run businesses not pension schemes, pension arrangements should be incidental to the business, but of course many take over the business (the current DB problem).
Workplace pensions are an employer cost, they do little to help employers run businesses. The increases in workplace pension costs in April 2018 and April 2019 will see most employer contributions double and then triple. Employers reading Paul’s article may be asking

“what more do you want me to do?”.

The importance of Paul getting it wrong

If Paul can be so wrong about dashboards, and employer costs then what must his readership be thinking?

Paul’s misconceptions are based on good intentions; but pointing the finger at employers as the solution to the pension problem is to miss the point. If employers pay more in pension they pay less in salaries or bonuses or benefits – or they simply cut jobs.

Only increased productivity can drive sustainable real wage growth and no amount of digital dashboards will change that.

The problems of inadequate retirement income cannot be placed solely at the doors of employers, nor can they be solved to giving people easier access to information on their pension rights and savings.

The only way out of the problem we have to day is the one we are employing, a slow nudge into adequacy which will take many years (if not decades) to complete. Employers are incredibly onside with regards auto-enrolment.  The vast majority have complied and will continue to comply with what they have been asked to do. Many have done more.

Employers need guidance as to what to pay and that’s what they are getting. It may not be enough yet -we are not Australia, but we’re getting there.

Posted in advice gap, pensions | Tagged , , , , | 20 Comments

Reaching the places advice cannot reach



Only a handful of pension providers have adapted their systems to allow people to use the Pension Advice Allowance.

The pension advice allowance, introduced in April, allows pension savers to take £500 tax-free from their retirement funds to help pay for the costs of financial advice.

The providers not planning to offer this service cite a lack of demand either from advisers or from their clients to pay for advice this way. I have spoken to a few advisers and the consensus confirms a reluctance to get involved.

It would seem that setting a cap of £500 on the tax-break is seen as setting a cap on the cost of advice. Few advisers submit bills to clients which are less than £500. Then again , few advisers submit bills, most make their money from ad valorem fees from “money under advice”. The bill is a cumbersome means of alerting customers to the true cost of advice. The pension advice allowance is perilously close to being a bill.

Not only does direct disclosure upset the frictionless charging of “ad valorems” but it creates unwelcome administrative complexities between providers and advisers. Providers need to evidence that the money is for work carried out on the provider’s product and verifying this can be problematic. The policing of this service will only be called into question when it is abused, quite properly some providers consider this a risk with little reward.

But beyond the commercial considerations, there is a wider and more important question here. Are the people who the Government want to take and pay for financial advice, interested in doing so.  It is easy for white-collar civil servants and those in think-tanks to suppose they should, but there is little evidence that many of the 7m new pension savers we have in this country share that view. The only time that ordinary people pay professionals substantial amounts is when buying a property. The conventions surrounding a property purchase include substantial up front payments of which a professional bill is only one. We are a long way from any such convention at retirement.

This is of critical importance to understand. While we consider where we live our property, we do not consider our state pension our property , nor the string of payments from an annuity or indeed the payment of an occupational pension. This is because we do not have the rights to sell on the pension.

The pension freedoms have created a property market in deferred pensions, whether the pension is explicit (the defined benefit) or implicit (the defined contribution) and in making decisions whether to swap DC for annuity or maintain DB as a pension, we are taking decisions every bit as momentous as purchasing a property,

Indeed it could be argued that the chances of buying a dud property because of lack of conveyancing are a lot lower than the chances of investing in a pension scam without advice. A recent report by the Financial Conduct Authority found many over-55s making the most of the pension freedoms were acting without the help of an adviser, were at risk of high charges or poor decisions.

The obvious conclusion is that anyone taking decisions on their pension property rights should be required to use a regulated adviser just as anyone making a house purchase is required to use a solicitor.

There is a strong case to make those taking pension decision take professional advice

Yet we know this will not happen. It won’t happen for political reasons (it would be very unpopular) and it won’t happen because there aren’t enough advisers to go round.

Even if Government mandated that a decent slice of a pension pot (say £2500) could be used to get advice, nothing much would change (other than those already tax-relief advantaged would get yet more tax exemptions.

I am a former financial adviser and I can see no possible way of making compulsory financial advice at retirement work.

There is a stronger case for making at retirement decisions easier.

The obvious answer to the problems considered by the FCA in the Financial Advice Market Review (and the recent research mentioned above) is to make it easier for people to make good if not brilliant financial decisions.

We cannot all be our own Warren Buffets, our own chief investment officers. Most of us want to swap the money we have saved for a sensible plan to spend it. The annuity used to be a no-brainer product but it no longer makes sense – for most people. It has stopped being the default product just as Defined Benefit Schemes are no longer the default retirement savings plan.

We have replaced the old certainties, discredited as they are perceived to be, with the freedom to do what you want, but no framework in which to take those decisions (despite the best efforts of Pensions Wise).

It is time to look at the failure to role out the Pension Advice Allowance, not as a failure of providers and advisers but a failure of the system. It simply should not need a professional adviser to lay out at retirement options in a way that makes one a default.

We need a better product for those who do not want to pay for advice, a product that instinctively makes sense for the masses (like me) who do not want a DIY approach to retirement planning. I believe such a product is out there waiting to be built. It is not called “annuity”, “bank account” or “SIPP drawdown”, it is called a pension.

Posted in actuaries, advice gap, pensions | Tagged , , , , | 4 Comments

NEWS- Saving into a pension is what we WANT to do!

Mr Pension

Well you may not find it news, but I do. I started out in 1984 selling pension policies to people who I met in Oxford Street and again at their homes. These people were promised ridiculous returns (13% pa on the Lautro illustrations), told nothing about costs and few will even get back what they put in because of commission paid to me for my labours. To put it in perspective , my tax returns for my first three years had me earning below the nil-rate band – this activity profited no-one – except the insurance companies.

Now things are different. Ipsos-MORI were told to ask around 1600 adults in the UK , the kind of adults I was talking to – back in the day –  if they felt saving into a pension was a normal thing to do.ipsos

DWP - norm

83%  now say it is the normal thing to do, only 4% think it abnormal (the rest had no view). This represents a sea-change since 1984 when the idea that ordinary working people should be making plans for their retirement was greeted with blank disbelief by most of my would be customers. You were either in a works scheme or you would be on the state.

Ipsos MORI also asked if people thought saving into a workplace pension was a good thing for them.ipsos

DWP -norm2

80% thought it would be , only 7% objected – roughly equivalent to the opt-out rate. Not only do people think it is the “norm”, they think saving into a workplace pension is good for them. Confidence in saving into workplace pensions is much higher than I could ever have conceived 33 years ago!

Finally Ipsos MORI asked whether people thought it would be good to see a hike in their savings into a workplace pension (something that will be happening in a few months).ipsos

dwp norm3

Once more, the numbers are positive with 79% saying they thought this financial medicine would do them good . Only 6% disagreed with a slightly higher number of people not having an opinion.

This may not be news to you – but it’s news to me!

That people feel this way into pensions at this stage of the auto-enrolment implementation is incredibly good news. Not only do people think saving is the norm, but they think it is good for them and they are even sanguine about being nudged into higher levels of saving. If I was Charlotte Clark, head of the DWP’s pension strategy team I would be patting myself on the back.

There is a really important point here , not just for politicians but for all the stakeholders who are involved in auto enrolment.

Employers be aware, your staff see saving into these workplace pensions as a positive, this is your chance to capitalise and maximise your return on the investment you and they are making in their financial futures.

Business advisers be aware, dissing auto-enrolment and the employer duties is yesterday’s news. It is no longer clever to be cynical, the experiment is working and now is the time to encourage your clients to take a positive view about auto-enrolment.

Providers be aware, you and your trustees/IGCs are pushing at an open door. Your customers are with you not against you. You do not have to be on the defensive, now is the time to agree with your customers – this thing is working.

The message is getting through

When you are starting out on getting fit, you do not look to Daley Thompson’s fitness plan. You start slowly and build, you could be a wannabe Daley Thompson but the chances are you’re just trying to cut down on the flab and not get out of breath doing up your shoelaces!

Most of us are at the “first month going down the gym” stage of pension saving, we don’t have the full fitness regime and we know it, we know more is to come but we know at least that we are on our way.

Steve Webb was on the radio this morning talking about how it’s going to get tougher in April 2018 and 2019. It will get tougher, but then we are already in training.

I am proud to be involved in pensions, proud especially to be involved in helping employers set up and run workplace pensions. I and our business partners have great plans and we are going to use the next few months before April 2018 to raise a positive awareness among employers, business advisers and staff about what is happening.

I thought that would be a challenge, but reading those charts from IPSOS MORI, I think it is a challenge which we can rise to!




Posted in auto-enrolment, pensions | Tagged , , , , | 3 Comments

BSPS2 – a superior kind of lifeboat?

British Steel

The news that members of the British Steel Pension Scheme will have the choice between swapping their pension rights for participation in the Pension Protection Fund of a new Pension Scheme (code-named BSPS2) has been well flagged.

It might seem Hobson’s choice, neither are as likely to offer quite the same benefits as staying in the original scheme but that will not, it seems , be an option.

On the face of it , people should look to the upside potential of BSPS2 to pay more but there are some (see previous blogs on this matter) for whom the PPF will give better commutation and early retirement factors ) – in particular those in an uncertain corridor prior to retirement (the so called high-lows).

There is a simply excellent analysis of the knowns and the unknowns (and thankfully no speculation on the unknown unknowns) which appears in Professional Pensions. Stephanie Baxter has clearly been given some advance notice as this piece of writing is both detailed and extremely clear.

It suggests that the messaging to members (as well as to the pension professionals) is likely to be clear vivid and real. I had some peripheral involvement in briefing those who are involved in this and know that the Trustees are not stinting in ensuring that as many members as possible take not just an informed choice, but a choice that they understand and recognise as right for them.

This is no mean undertaking, there are 130,000 people in this scheme, 80,000 are pensioners , only a relatively small number still work for Tata Steel and there are over 100 pensioners who are over 100. The challenge of dealing with a diverse set of decision makers , for whom every decision is potentially life-changing , should not be downplayed.

For those still working for the new merged company that emerges from the current negotiations , there will be a right to a pension contribution from the employer but no defined pension rights arising. Steel workers will have to face further uncertainty with regards to their future service which is unfortunate. The future offered in British Steel (to Nigel) was one of certain outcomes after a long and arduous working life. It never included the kind of choices that members will have to make on pension technicalities today and on investment probabilities tomorrow.

I don’t want to make a political statement , but I sense that the Regulated Apportionment Arrangement that grants Tata a high level of immunity from future pension risk, is a very complicated way of doing a simple thing.

It would have been easier, as it would for the postal workers at the Royal Mail, those working at Halcrow and Hoover Candy and the former shop workers at BHS, if a “target pension” could have established along Dutch or Canadian lines. Such arrangements put trust in the long-term capacity of the world economy to deliver returns capable of paying incomes for so long as those incomes need to be paid. Of course those incomes cannot be guaranteed, if there is no sponsor willing to pay for the guarantee, but there is sufficient flexibility in the conditionality of benefits in these foreign models to offer impacted members, not just some certainty on past benefits but greater certainty on future benefits.

We still have the opportunity to write up the secondary legislation from Pensions Act 2015 to make these kind of arrangements an option for the trustees of large schemes such as those mentioned above, I hope that the forthcoming DB white paper may look again at those options.

Jumping ship

Sadly, the reports I have heard, including from some BSPS trustees, is that there are many BSPS members who have cried a plague on all their houses and have or are voting with their feet to be out of either arrangement. “Factory-gating” is rife, with lead-generators seeing plenty of interests in the services of anyone who is prepared to adviser on Cash Equivalent Transfer Values (CETV). The fear is that some of those prepared to advise, are in no position to advise.

One thing is for sure, that the Trustees of BSPS are taking the plight of their members very seriously. If members decide to take a CETV, they had best take it before their rights are transferred to BSPS 2 (there will be no opportunity to take a CETV from the PPF). But I hope that many members will recognise the huge burden they will be taking on paying their own wage in retirement.

The BSPS was commonly regarded as one of the best managed pension schemes in the country with low administrative costs, an excellent pension investment function and with the very best advisers. None of this should change as BSPS moves into BSPS2 and it would be a great shame if heart ruled head in decision making.

The Trustees are clearly doing a great job in outlining options. Clearly they hope that the majority of members will not jump ship (while recognising that for some – taking a CETV will be their best option). I wish them well in their task of presenting these hard choices to people who should never have had to make them.

The great sorrow is that it has come to this.


Posted in pensions | Tagged , , , , , , , | 2 Comments

Pot follows member (unless we want to keep it where it is).


In a statement this week on the sluggish service standards of firms administrating our Defined Contribution occupational pension schemes, the PLSA concluded

The median transfer time is 11 days, and although some are much longer1, this is principally due to the need to combat fraud risks and achieve appropriate oversight. Whilst the speed of a transfer is one element that a trustee must consider, ensuring the transfer occurs safely and that members get the maximum benefit from their savings is of greater importance. In an environment where pension scams are occurring at an unprecedented level, a degree of caution on the part of occupational schemes should be welcomed.

The PLSA use statistics cleverly. As this table shows, the transfers completed by Pension Bee last month were typically completed in around 12 days. But these were the transfers which used the Origo system where due diligence is a priori and does not need to slow down the process.

In a survey published on the same day as the PLSA’s statement, Pension Bee published the second iteration of its Robin Hood Index, showing who was sharing and who was lagging.

robin hood

Pension Bee’s Robin Hood Index


With the exception of Aegon (which I will return to), all of the pension providers offering  “manual” services were at least twice as long in transferring and the worst offenders getting on for four times longer than those using the automated Origo service.


So what is going on?

Value for money in pensions is mostly about investment outcomes but partly about the customer experience. If people are trying to move away from Willis Towers Watson, NEST, NOW, Aon Hewitt and Capita they are getting a bad customer experience.

If this could be explained by these organisations offering due diligence on the destination of the transfer (as the PLSA) would have us believe, I would accept that this compensates the customer. However there is no evidence to suggest that there is a higher level of due diligence from the administrators of the occupational pension schemes (the manual ones). Origo offer the following statement concerning members of their options club.

To clarify, Origo does due diligence on potential joiners to the Options Transfers service to see if we are happy to contract with them to supply the service. This is in no way intended to replace each providers due diligence responsibility on for the individual transfers they conduct with counterparties (on or off Options). Options is simply the online system to make these transfers happen quickly.

You can choose to do whatever level of due diligence you are happy with on your transfer counterparties, ongoing or one-off, as can the all the other companies on Options too. The individual transfer/don’t transfer responsibility sits with the ceding and receiving providers/administrators/schemes, based on their own due diligence.

Pension Bee are one of the options on Origo as are all the others using an automated process.

There are two exceptions worthy of note. People’s Pension is an occupational pension using Origo and automated process and Aegon uses Origo and has chosen to turn off automation to Pension Bee – (Infact it appears to be turning off transfers to Pension Bee).

Having to wait an average of 51 days to get a DC transfer paid?

The disparity between manual (43 days) and automated (12 days) suggests that the manual system defended by the PLSA simply isn’t fit for purpose. As Pension Bee are a member of the Origo Club, they should not need another month’s due diligence every time an occupational pension is requested money.

I conclude that the problem is not with due diligence (which for all for obvious exceptions – the scams) is a red herring, the problem is in the passing of pieces of paper by post from one post box to another. This is precisely what Pension Bee and others report is going on.

My own personal experience bears this out, when I consolidated my DC pots , those using the Origo hub were transferred in days, the rest in months. That was two years ago but nothing much seems to have changed.

Tom McPhail, who led the PLSA/ABI research, has come to a very different conclusion to the PLSA.mcphail

“Sooner or later we are all going to have to find solutions to this challenge of how we serve our customers. It is far better that we work out the solutions for ourselves that work best for us, rather than having them imposed on us by the regulators.”

He claims that in the joint working group he chaired

“We’ve had lots of GPP, technology solution and SIPP providers coming along to the workshops. The bit that’s missing at the moment, and where we don’t have enough representation, is from the occupational pensions sector, which interestingly is quite often where the longest delays occur.”

Occupational schemes and their administrators are clearly not giving their problem much attention.


It is understandable – from a commercial basis – that commercial master trusts and even non-commercial occupational pension schemes do not want to invest in processes that lose them assets and thus revenues/members.aegon-logo

Understandable but not condonable. Respecting the wishes of members, whether they stay or go is part of “treating customers fairly”. In some cases, such as NEST, who only started offering transfers-out in April this year, I’m prepared to give the benefit of the doubt.

But something very different appears to be happening at Aegon. As has been reported in the FT, Aegon appears to have drawn up the bridge and stopped transferring money to Pension Bee.

We are conducting due diligence in this area for an organisation representing thousands of small businesses whose employees are looking for a good customer experience. As part of this we have been looking at Pension Bee’s Robin Hood transfer index and this has led us to ask Pension Bee what is gong on.

What we are discovering  is deeply worrying. It appears that Aegon, despite their being in the same transfer club as Pension Bee, is imposing a transfer ban on monies flowing out of its products towards the Bee.

I have written to Aegon and its IGC for clarification as to why this is, but have a pile of documents in my inbox that leaves me in no doubt that the requests of customers are not being executed with no reason given to customer or to new provider.

This is not restoring confidence in pensions

Whether it be due to underinvestment, laziness or over-zealous due diligence, it appears occupational pension schemes are seriously lagging SIPP and GPP providers (and Peoples Pension) using automated transfer processes. I do not buy the PLSA’s due diligence arguments which look like a smokescreen to me.

What is happening at Aegon is a mystery, but the longer I wait for a reply from the company and the IGC, the more suspicious I am that Pension Bee is being blocked for no good reason.

Due Diligence on Pension Bee is not hard to do, their’s is a simple proposition which is backed by the FCA, HMRC and Origo.

The general direction of travel is towards pots following members. If they get stuck the cost of maintaining small pots falls either on the providers (with the capacity to improve things being reduced) or on the members (as happens at NOW pensions – whose deferred members with small pots can suffer up to 10% pa charges on their funds.

The Origo initiative (which I thoroughly support) allows pots to follow members by creating a club of providers who work together to make this happen quickly and efficiently.

Occupational pension schemes should look to be joining that club, as People’s Pension has. If they do not work with Origo but continue to have slow transfer times they should be called to account.

If Origo members turn on other members of the club for no obvious reason then they should be referred to the FCA for not treating customers fairly. This is what Aegon’s current behaviour runs the danger of doing.


NB outcome 6

Posted in advice gap, pensions | Tagged , , , , | 2 Comments

Why employers must understand the value for money of their workplace pension

good faith 3


Among the remedies leading from the FCA’s Asset Management Market Study was a clear recommendation

…that both industry and investor representatives agree a standardised template of costs and charges and we propose to ask an independent person to convene a group of relevant stakeholders to develop this further.

Following this, we will work with these stakeholders to consider whether any other actions are necessary to ensure that institutional investors get the information they need to make effective decisions


I want to focus on that second paragraph and in particular the definition, in this context of “institutional investors”

Within the glossary of terms in the Appendix of the document, the FCA defines

Institutional investor An investing legal entity which pools money from various sources to make investments.

But this is not particularly helpful. The legal entity might be thought to be an insurer or the trustees of an occupational scheme (such as a mastertrust). It might equally be thought an employer who pools the contributions of various staff and sends them to a provider to be invested.

The difference is critical as it defines who the work that the independent person leading this group is for. We know that leader is Dr Chris Sier and if there is one person I want to direct that question to, it is him.

The employer’s obligation of good faith

I think that Dr Sier is working not just for the insurers and master trust providers – and their fiduciaries – the trustees and IGCs; but also for the 1 million plus employers who will have set up access to workplace pensions for their staff as a result of auto-enrolment.

The auto-enrolment regulations define an employer as the legal entity responsible not just for choosing the workplace pension for staff but for pooling and passing contributions to the provider of investment services, each payroll period.

I define these employers however small and disengaged as “institutional investors” on the grounds of their doing exactly what the FCA define institutional investors as doing- investing “other people’s money”.

I do not justify them as institutional investors on  grounds of their knowledge.

The OFT in 2014 made it clear that employers are singularly poor at “getting pensions”


It is better argued that of all institutional investors, they are least able to carry out their duties under auto-enrolment because they are so ill-informed.

The institutional investor -defined by an obligation of good faith to others

We cannot define employers as institutional investors on the ground of their pension or investment knowledge. We need another definition.

For this, I turn to a much quoted statement in a judgement by  Sir Nicolas Browne-Wilkinson VC  in 1991 on the Imperial Tobacco pension dispute

In every contract of employment there is an implied term:

“that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee;” Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666, 670, approved by the Court of Appeal in Lewis v Motorworld Garages Ltd [1986] ICR 157.

I will call this implied term “the implied obligation of good faith.” In my judgment, that obligation of an employer applies as much to the exercise of his rights and powers under a pension scheme as they do to the other rights and powers of an employer. Say, in purported exercise of its right to give or withhold consent, the company were to say, capriciously, that it would consent to an increase in the pension benefits of members of union A but not of the members of union B. In my judgment, the members of union B would have a good claim in contract for breach of the implied obligation of good faith: see Mihlenstedt v Barclays Bank International Ltd [1989] IRLR 522, 525, 531, paras 12, 64 and 70.

In my judgment, it is not necessary to found such a claim in contract alone. Construed against the background of the contract of employment, in my judgment the pension trust deed and rules themselves are to be taken as being impliedly subject to the limitation that the rights and powers of the company can only be exercised in accordance with the implied obligation of good faith.

The judgement has been heavily relied upon in recent judgements concerning IBM and the BBC and is relevant here.

I regard employers as institutional investors as they take decisions on behalf of others (their staff) about the workplace pension available to those staff. They are responsible for pooling contributions for investment and they have an implied obligation of good faith to do this properly.

So long as this obligation of good faith exists, the work of Dr Sier must be to ensure that not just the providers trustees and IGCs know what is going on, but so do the employers who participate in workplace pensions.

Why does this matter?

Some will argue that since the IGCs and Trustees know the matter of Dr Sier’s endeavours, there need be no further disclosure. To some extent this was the position that the OFT adopted in 2014. In 2014, the reporting of value and money in workplace pensions was not even at base camp, there was a mountain to climb. We are now approaching the top of the mountain and the FCA are wanting to report a single charge that does capture the costs within the fund


The OFT did not (I suspect) suppose that over three years after the publication of its report, we would still be working on how to present costs to IGCs, trustees, employers and members. They could not have anticipated how IGCs and trustees would be operating today and how auto-enrolment would have gone. Overall, things have gone better than planned and the confidence of the FCA’s position in approving a single charge reflects a feeling that consumers can and should be aware of what they are paying. This goes beyond the position that was adopted by the OFT and I applaud it.

It does not make sense to present a single charge, inclusive of transaction costs,  to the public, but not make clear how that charge has been calculated and what is in it.

Nor is it responsible simply to report “money” – “value” by way of what’s been delivered, also needs to be reported. Not just simple fund returns but risk-adjusted returns that show what has been achieved with the money spent. That is how people can assess value for money.

It matters that employers can follow the argument and while they may be guided by trustees and IGCs over whether they are getting value for money, they are responsible – in the final call for the pooling of contributions and where they go. This is their “implied obligation of good faith”.

To deny employers the status of institutional investors and to simply report “money” and “value” to IGCs and trustees is to leave employers with obligations but no means to fulfil them.

“A legal and moral obligation of good faith”

I have made this argument many times before, and I have wanted them extended. Dr Sier will be aware of the amendments of the Pension Schemes Bill proposed by Alex Cunningham , the shadow pension minister earlier this year. I have written up the debate as it appeared in Hansard.

I had argued that the phrase “duty of care” should have been used in the subsequent Act to ensure that employers paid attention to the pension. In the end, both the Government and Opposition agreed to drop the amendment but the debate assumed that the employer’s obligation of good faith was implicit.

My worry is that – should the definition of “institutional investor” only include those “experts” responsible for the investment of the money (and its over site), ordinary employers will have no means to find out what is going on with the workplace pensions into which employees will be paying 8% and upwards of band earnings.

This may be what the “experts” see as desirable, but it is not what ordinary employers should see as in their interests. They are ultimately carrying an obligation of good faith and need to be able to exercise their judgement as to where the money they pool goes.

They have an obligation of good faith to their staff and we must empower them to use it.



good faith2

Another way of putting it!



Posted in actuaries, advice gap, NEST, pensions | Tagged , , , , | Leave a comment

“Pot follows member”? Who are you kidding? Pension Bee blows the lid on DC transfers.


We’ve had fuss about how hard it is to move your bank account, we’ve had fuss about how hard it is to switch utility supplier, but how hard is it to merge your pension accounts so that your pot follows you from job to job?

It all depends on how efficient your pension provider is in managing the “transfer-out” of funds and – believe it or not- some pension providers not only make it operationally difficult, they still can charge massive exit penalties. If you want to see evidence – you can link to Pension Bee’s website.  If you want to find out more from Pensions Bee, then you can read their blog on the matter here.

Pension Bee are a fintech led by an ex Goldman Sachs whizz Romi Savova.

romi savova

Romi Savocva – Pension Bee CEO


They have analysed over 1800 recent transfers they have executed for ordinary savers who have come to their site to bring their pots together. As soon as they read their research I cycled down to their South London HQ to get the full picture. This is not the full picture- the full picture is much worse- but more of that later!

robin hood


[1] AMC: annual management charge; electronic: using industry platform Origo; manual: paper transfer forms
[2] PensionBee’s fee transparency rating: 5 = very good. Fees visible on the paperwork. 4= generally good. Enough information given to calculate fees from the paperwork fast. 3= spotty. Requires a calculator. 2 = leaves a lot to be desired. Requires a calculator, a google search and occasionally a phone call. 1 = not available unless specifically requested over post or extremely complicated to calculate from available info.
[3] The charge is calculated as a proportion of the pension pot and where the charge exceeds the pension pot – i.e. is over 100% – it is expected to result in an extinguishment (account closure) of the pot.
[4] All data for Now:Pensions is based on deferred members (i.e. those not paying in contributions) earning over £18,000. Active members are subject to different fees and charges. Fees as a % of the pension will be lower as the pension pot grows through contributions.

Why does this matter?

Well it shows that your chances of getting your pot to follow you (at a reasonable distance) diminish the further you go away from a hard core of insurers who have a reasonable service standard of 12 days. These insurers use the Origo clearing service which Pension Bee says is working fine.

Where the problems lie, is with the third party administrators who do things for providers (clearly at their own pace). These include

Tata consultancy services – NEST

Jardine Lloyd Thompson (JLT) -NOW

Willis Towers Watson – WTW Lifesight

Capita – Capita Atlas

Aon Hewitt – Aon Hewitt master trust

(If you want something done slowly – use an established actuarial consultancy and their admin!).

This matters because people expect better, because money that sits around for 50 days is not being invested as the member wants and because these delays are bringing pensions into disrepute!

It’s no wonder people feel so remote from their money, if it takes them 50 days+ to move it!

NEST v People’s pension

NEST – it would seem -operate a lipstick on a pig pseudo digital service which requires the member to download and print-off a transfer form which then has to be sent by post from one party to another! What is this about? NEST tell me they want to be 100% digital but that noble aim seems to be abandoned when a member wants to transfer away – funny that!

Peoples – who are another occupational pension scheme, subscribe to Origo and are obviously doing a great job.

It makes a difference

Perhaps someone could tell NEST, NOW, WTW, Aon, Capita and I suspect Mercer who also administer their own master trust but didn’t have any TVs through Pension BEE in this period.

My friends at Quietroom tell the story of how they staunched outflows from Halifax Bank during the 2008 banking crisis. The Bank had put up barriers to exit (sounds familiar?) and this was not working. Quietroom tore down the barriers and the transfers dried up. I suspect that if you want to prove yourself worthy of being a long-term pension provider, you show the confidence to let people walk away easily.

I suggest that a few of the TPAs with 50 day turn-a-rounds, have a word with Quietroom!

Independent corroboration from Hargreaves Lansdown.

Coincidental to the publication of Pension Bee’s Robin Hood index, Hargreaves Lansdown’s Tom McPhail was in the press citing the same conclusions from work he and others are doing in a joint ABI/PLSA working group.


Tom McPhail- Hargreaves Lansdown



The group is finding it is the GPP  and SIPP providers using Origo and similar clearers who are delivering the goods, while occupational pensions (including the master trusts) are lagging (turn around times quoted are similar to those of Pension Bee’s survey.

What this means?

As a result of this research, http://www.pensionplaypen.com will be revising its metrics to accommodate a further score on provider’s performance in transferring out funds.

Employers and members need to know that they can take their money from one master trust to another or from master trust to GPP or SIPP within reasonable service times.

We have already contacted some of the worst performing providers about their behaviour and will be writing to both the trustee chairs and IGC chairs where problems are obvious. This includes writing to organisations where high exit fees persist

Once more the master trust assurance framework, which is supposed to be ensuring good administrative practice is shown to be a chocolate tea-pot. TPR and ICAEW please note. We will be writing to tPR and ICAEW asking how they square MAR certification with the results achieved by most of the master trusts.

Pension Bee have also alerted us of particular problems with one insurer who seems to be putting up the shutters on all transfers out – more on this to come.

If you have a horror story of a DC to DC transfer experience, please drop a comment into the box below. The gap between good and bad is too wide, there needs to be a raising of the bar and this needs to happen without more ado.

Posted in advice gap, pensions | Tagged , , , , , , | 2 Comments

Pension Dashboards need clear next steps


pensions dashboardThe stock market keeps going up, our DC pensions keep going up, every morning I have a peek at my private pension dashboard with L&G and go whoop! There may never be such a time as this morning to enthuse about “engagement”!

This morning I’m meeting with a policy chap about the new breed of pension dashboards which we’ll be able to use from 2019 which will allow us to look at all of our pensions in one place , I dribble with anticipation.

If you detect a degree of cynicism in my tone, you are an expert reader! You are right! Stock-markets won’t always be touching record highs and when we get to 2019 we will still have precious more to do with all this money we’ve saved than we do now. There is no clear and definitive course of action for the clueless and until we build some form of collective decumulator which manages risks and costs and provides a pooled solution to longevity, we will be stuck with the current triage – “blow it, draw it down or give it to an insurer in exchange for a lifetime income”.

Blowing it means a big tax bill and a lifetime of poverty, drawdown means big advisory bills and uncertainty of outcomes and the annuity- well we all know that “nobody need ever buy an annuity again” – a ringing endorsement if ever there was one!

Dashboards and the workplace

I’ve noticed in Government projects like the Pensions Dashboard have generally succeeded because employers or their agents have adopted them. The three most recent examples are making tax digital, real time information and pensions auto-enrolment.

The supply chain has been simple, Government driving change, software companies delivering the means and employers and their business advisers adopting.

It will, I predict, be the same with the dashboard. Payroll software companies are already alert to the gap between what people want by way of pension information and what they are getting.

Organisations like Sage are already gearing up to do this and the dashboard will help. What’s more important, if the dashboard can be embedded into the BAU processes of HR and payroll then they will have fulfilled a key purpose, of engaging employers and employees with pensions as more than a matter of compliance.

A big if…

The two dependencies standing between the vision of pension dashboards and the reality are

  1. That they get used
  2. That they lead people to good outcomes

We may think that consolidation (aggregation) of small pots into a big pot is a third , but I really don’t see much to be gained from having one big pot unless that big pot does the business.

Dashboards need to be part of employer BAU as a springboard to individual engagement. But to have useful purpose , they must signpost clear next steps – a definitive course of action as simple as the annuity – but a lot more effective.

The alternative is that the Government accept that they are simply making the lives of wealth managers a lot easier.

In truth, all that Government is doing currently is establishing data standards for the wealth managers to use to pool our disparate pots.

To move toward a coherent workplace solution that helps people spend their savings as easily as build them, they need to pay attention to those not currently targeted by wealth managers. These people will not want wealth management at all, they will want a wage in retirement – from the state – and from their pension savings.

It is now up to the Government to turn its thinking to this much more ambitious project!


Posted in pensions | 5 Comments

How do we value our large DB plans?



Today’s Pension Play Pen lunch (at the Hydrant pub not the Counting House) will discuss how best we value our large DB plans.

What do we mean by large DB plans?

I guess there are a number of big DB schemes that we could discuss….

How about the PPF, which claims to be on a path to self-sufficiency but which many believe is already there! Is it pleading poverty to get its levy or is its very conservative valuation methodology necessary?pension protection fund

How about British Steel- probably the best run pension scheme in the land, which is closing its doors and re-opening as BSPS2 for members who want to avoid going into the PPF. Was all the fuss really necessary, could BSPS1 have soldiered on and paid its benefits had it not been treated (for valuation purposes) as a basket case?Tata workers

Then there’s Royal Mail, whose pension scheme was topped up only a few years ago to be fully solvent but which closed for future accrual in 2017, triggering considerable unrest among its members. Continuing to accrue in the old scheme’s gilt-heavy investment structure would have cost 52% of salary. Royal Mail don’t want to offer their membership a “wage in retirement” as they say this is too risky. Instead – they want to offer members cash at retirement so they can be free!  Have we valued Royal Mail out of pensions?Royal Mail 4

Oh and let’s not forget BHS which has become a cause celebre for Frank Field and the DWP select committee. Like BSPS’, its membership are being kicked out of BHS1 into either a weaker BHS2 or the PPF. Was all the fuss about a bust pension scheme, or just a tra-la-la about a weak employer covenant.

A woman walks past a BHS store in Leicester

Last but by no means least, we’ll be discussing the mighty University Superannuation Scheme, which is – according to the bearded wonder – on the rocks. That’s if you value it on a gilts + basis where there is a socking -great deficit. But the fund isn’t invested in gilts and as its report and accounts confirms, if the fund was valued using a discount rate reflecting the expected performance of the actual assets, it would have a £3.5m surplus.uss3

Indeed, using a best estimates approach to valuing pension schemes, albeit an approach that assumed that people actually wanted pensions and trustees were prepared to pay them, then  all the above mentioned schemes would look a whole lot healthier!

Accountants welcome!

I hope for a very diverse discussion, it would be great to have advocates for the gilts plus valuation method and for best estimates. Obviously I am biased, I work for First Actuarial which produces #FABI, the best estimate index but I’ll be in the independent chair. So if you’re sitting at your desk in one of our big pension consultancies or if your name is John Ralfe, get down to the Monument for 12.30!

Calling time on willy-waggling!

I also want this to be more than willy waggling- we want some female in the room – which as we all know is emotionally astute and usually right! Please ladies – come along!

Bigging up da yoof!

I’d love to see some young people – (e.g. under 40) in the room. Pensions cannot become an old soaks preserve. We need those who are currently denied the security of DB to be wise to both its faults and its merits. We can’t let DB go the way of rare-breed pigs. I don’t want a scheme pension being paraded around the financial services showground in 2050 as a curiosity!

DB virgins come on down!

Finally, I’d like to see people who know nothing at all about discount rates, DB valuations and the dynamics of scheme funding in the room! We need some common sense. We are all scarred with some kind of prejudice. We need some DB virgins!


It’s not the Counting House, it is the Hydrant pub where we are meeting.

Follow this link for directions – it’s right by Monument station.

If you go to the Counting House, you will meet a bunch of builders; the place is being redecorated, I will try to get a redirection service at the door if your habitual satnav takes you there – but think Hydrant!

We meet 12 for 12.30 and we’ll wrap up by 1.45 with networking after. The bill will be divided as usual, be prepared for a £15-20 hit to the pocket though you can opt-out if you are skint or don’t want to cross-subsidise the dipsomaniacs!



Posted in Pension Freedoms, pension playpen, pensions, Pensions Regulator | Tagged , , , | 3 Comments

Who will champion DC savers?

A barista at work in Costa Coffee.

I hear a lot of DB experts at conferences talking about transferring their “skill-set” for the benefit of DC savers; they want to transport their language – diversified growth funds, liability driven investment and glide-paths into the lingua franca of the DC saver. They are interested in the creation of synthetic annuities and they advocate we study behavioural economics. They have ways of controlling the herd of us DC savers using default investments, contributions and decumulators.

These people are so far from the thoughts and aspirations of ordinary working people and even to the bosses participating in workplace pensions, who know little to nothing about such things. They don’t need to transfer their existing skill-set, they need to learn a new set of skills. They might consider the job of a Costa Coffee Barista,

The arrogance of these people in supposing the world should follow them is breath taking. This is the generation of advisers who has turned DB from a great British Success Story, to its current state. They have found no alternative solution to the issues of our living longer, our desire for certainty and our financial ineptitude than to transfer all these risks away from organisations who can share them onto individuals who most certainly don’t understand them and can’t manage them even if they do.

Technical superiority makes me spit with rage

There is nothing that so riles me as when these experts preach to us about some pension technicality which we don’t get, when the bigger picture is that there is a world of unfairness the technical experts are happy to persist.

I see this in the WASPI debate, I saw it in the arcane arguments played out by barristers in the Royal Courts (re ARK) and I saw it again yesterday.

It was Lesley Williams , former chair of PLSA and head of pensions at Whitbread who first pointed out to me that non-tax payers cannot get tax-relief.  Whitbread own Premier Inn and Costa Coffee – hence my tagging baristas.


Lesley Williams


The same comment was made on my blog yesterday. It is a comment that is technically right but wrong from every other perspective.

Let’s be clear, when the Government announced the auto-enrolment contribution scales, they very properly laid it out like this;

The employer pays 3%, the worker plays 4% and the Government pays 1%.

The 1% the Government pays is not tax-relief, it is an incentive for people to participate and is open to non tax-payers as well as tax-payers. It may be thought of as tax-relief by the PLSA but it is a right for those who save , not those who pay tax.

We are in the process of disincentivising a whole raft of people who are saving (often for the first time) into pensions by simply not keeping our promises. Those people may not have found out yet, but they will. When they do, don’t expect them to be quiet. Let me explain…..

When Auto-enrolment was first mooted back in 2005, the nil rate income tax band was close to the auto-enrolment contribution threshold. Since then the AE threshold has lagged meaning many people are enrolled when they pay no tax. When low-earners have an exceptional pay period (overtime, bonus etc.), they become eligible for auto-enrolment for that pay period and – unless carefully managed- they may find themselves enrolled for good (unless they opt-out).

For these reasons, a very large number of non-tax-payers are currently in workplace pensions “unconsciously”. Some more choose to be in pensions because they are entitled to participate in an employer’s scheme or because – while not eligible to be enrolled , they are both entitled to be in a scheme and eligible for an employer’s contribution.

Technically, employers are under no obligation to make sure that these non-taxpayers get their incentive, but the moral superiority of these experts in denying low-earners the right to it (on the grounds that they are not tax-payers) is despicable.

That the PLSA , the PMI and the other leading pensions trade bodies have failed to champion the iniquity of low-earners being denied what the Government is offering them is frankly a dereliction of their stated aims. As I wrote yesterday, low-earners are least served by the current system of tax-relief.

The current system allows high earners to get a tax-rebate at up to 45% of earnings, more than twice the Government incentive being denied so many low earners. The vast majority of tax-relief goes to high-earners because they have the net disposable income to fund pensions to the max. While the Government has trimmed some of these tax-perks, they still prevail for most of the pension rich.

It is despicable that years after the “net-pay” problem emerged, large occupational schemes and many multi-employer workplace pensions continue to take contributions from non-tax payers and not credit them with the Government incentive.

I do not buy the argument that setting up systems to operate under the “relief at source” regime is not cost-effective. NOW pensions have campaigned for a work-round and – not being successful – have paid the incentives for the Government (it being a net pay scheme). In the meantime, the large occupational pension schemes that deny low-earners their incentive have twiddled their thumbs and relied on the “if you don’t pay tax, you don’t get tax-relief” argument.

It’s specious, bogus , arrogant and despicable and that – to me –  is indisputable.

So who is championing the low-earner?

The answer is not the unions, who seem to be disconnected with DC pensions if they aren’t called NEST.

The answer is a Tory Baroness called Ros Altmann.

Whether you like or loathe Ros, you cannot deny that she has consistently championed the rights of the low-earners to get their promised incentive.

I applaud her for this and will use this blog to back her up. It is absolutely ludicrous that large employers and workplace pensions (operating under the master trust assurance framework) can be allowed to operate net-pay DC arrangements without compensating members for the incentive or switching to relief at source.

The Pensions Regulator has issued feeble warnings on its website but have been absolutely supine in pressing trustees and employers to treat low-earning members fairly.

They too are in on the act; they may be technically right but the Regulator and its boss the DWP (wakey wakey Charlotte) proving absolutely hopeless in this matter. Like the PLSA and PMI and other pension trade bodies, the Pensions Regulator has chosen to ignore the plight of its poorest and most vulnerable stakeholders – SHAME ON tPR.

Who is championing DC savers?

There are plenty of champions for the DC super-rich, those who use SIPP platforms, have advisers and need to worry about LTA , AA and MPAA issues.

But there is no champion of the average DC member, unless it be the IGC chairs and members. Ironically they have no stakeholders in net-pay schemes as they govern purely relief at source pensions. It is the trustees of occupational pension schemes who should be championing DC savers and I have not heard a dickey-bird from one trustee on this issue,

The answer is that nobody is championing the rights of DC savers but Ros, and a few people like me and Kate Upcraft and Andy Agethangelous and his Transparency task force. None of the “experts” give a monkeys.

If you want their money, you lah-de-dah conference experts spouting your nonsense about DC LDI and the like, why don’t you look to issues like this? If you really think that your company’s DGF can add value, why don’t you show some intent by talking about this? You sell DGFs as defaults for schemes like Whitbread while their low-earning  Baristas can lose out on a 12.5% contribution kicker.

If we can’t fulfil on our basic job of administrating the Government incentives to our most vulnerable members, what right have we to consider ourselves pension experts at all?

barista 2

you deserve better!

Posted in dc pensions, pension playpen, pensions | Tagged , , , , , , | 16 Comments

Four ways to harvest what auto-enrolment has sown!


For the past year, we have been thinking about where to position Pension Playpen to help small businesses with their workplace pension. We’ve worked out that small businesses taking on pensions for the first time will need help in four areas.

  1. A way to see and display how the workplace pension is doing
  2. A way to compare value offered by workplace pensions
  3. A means to remedy problems when they arise
  4. Day to day support and occasional intervention from independent experts

To use a farming analogy, it is one thing to sew a field with corn, it is another to harvest it. Auto-enrolment has sown the field but that field could quickly become full of weeds and eventually barren unless it is given care with maintenance.

See and display

Employers need to get timely, relevant information on their workplace pension at least once a quarter. As well as a little narrative, employers tell us they want to know how the default fund has performed both over the quarter how the quarter impacts longer term performance numbers. When I speak about adjusting these numbers for the amount of investment risk managers take, most employers get it. Employers want these numbers delivered so simply that they can share them with all their staff “see and display”.

Compare and contrast

Employers are telling us they want to feel proud of the workplace pension they have chosen and take ownership of that decision. It may not be a pension scheme they set up, but employers still feel that the scheme in which they participate is their company, workplace or “works” scheme.

In taking ownership of the choice of workplace pensions, employers are telling us they want to see their choice vindicated over time by the delivery of superior value, lower costs and better value for money  both for them as employers and them as members.

Repair or replace

One employer told us that she’d been surprised to hear her workplace pension described as a vehicle. She said that if she bought a car, she’d expect it to be serviced once a year , repaired from time to time and either upgraded or replaced regularly.

While in practice, the incidence of renovation or replacement of pensions may be rare, that employers can see a way to do this, is seen as a positive. Just as with cars, utilities, bank accounts, payroll and accounting software, “switch-ability” is an important positive for employers.

Independent and effective

Employers we are speaking to are moving away from an advisory to a support model. Rather than control the decisions that employees make with regards contributions and investments, they want to have access to information and facilitate their staff through independent helplines.

The point of human interaction is to give confidence to both employers and staff on pension decisions, not to advise on a definitive course of action. Advice may become necessary but we found there was a primary need for effective information and sign-posting; advice was a secondary need.

Delivery of  independent support

In our conversations with small employers, we have seen a consistent frustration over the past three years with the availability of independent support.

While good workplace pension providers have offered workplace support, employers find it hard to work out what is fact and what is marketing. We shouldn’t forget the OFT’s conclusion from their report in 2014.


There will soon be over one million more employers with workplace pensions than there were only three years ago. But the knowledge of workplace pensions has progressed little further than an understanding that employers have a duty to set one up. Frankly the engagement is at the kindergarten level provided to them as Workie.

WorkieWith contributions increasing from 2 to 5% in April 2018 and from 5-8% 12 months later, demand from workers to know more about Workie will increase. Some of those workers will be the owners and senior managers themselves, they will be driven both by self-interest and by a wish to keep their colleagues happy.

The delivery of the support that employers need is not currently in any business plan I have read. It is not in the terms of reference of the current auto-enrolment review nor is it a service that I see business advisers, IFAs or EBCs gearing up for. In short, I see a market failure looming.

There is one solution that – when put to small businesses – makes immediate sense. Currently the support they get for pensions is provided through the auto-enrolment or pension modules from their payroll and accountancy software providers. Organisations such as Sage, Iris, Moneysoft, Star, QTAC, Bond, BrightPay, Payroo (Able) and MyPaye have stepped up to the plate and helped people to auto-enrolment compliance. They are the trusted support.

It is high-time that credit was given to these organisations and consideration given to providing them with the tools to deliver the four services provided above.

In considering the shortfalls in support to small employers, organisations like http://www.pensionplaypen.com can deliver those tools, effectively, independently and at a mass-market price that will appeal to other stakeholders.

Posted in accountants, auto-enrolment, NEST, now, pensions | Tagged , , , , , | 1 Comment

From Denham to Sier – a 1% world!


You know how sometimes a little fact gets stuck in your head for no apparent reason?

Back in 1998, I was reading an article by the then Pensions Minister John Denham. He stated that if we could reduce the annual management costs of pensions from 2% to 1% we could improve outcomes in retirement by 27%. Maybe he didn’t say “outcomes”, that word is a recent interpolation.

I think he may have pointed out that 27% more in the pension pot was like a 27% pay rise for the rest of your life, or at least a 27% better pension. Anyway this 27% number stuck in my brain and it’s still there. In fact it is the key number when I ask myself why I’m bothering with pension governance.

Actually, we are getting close to a 1% world, stakeholder pensions thought they’d got us there, but we bounced back to 1.5% and – if you counted in all the hidden costs, we may have been buying some stakeholder product at close to 2%pa.

The cap on workplace pensions meant that so long as you stuck with the default, you paid no more than 0.75%  by way of an annual management charge but of course this did not include all the hidden costs within the fund which might still bounce you back above 1%. And of course your boss might be hit with a load of direct and indirect fees meaning the total cost of your pension was a lot higher than what you were paying.

I did not think we would get to a position where we really knew what we were paying for workplace pensions -until yesterday.

Chris Sier

Dr Chris Sier has been appointed by the FCA to chair its working group on disclosure of costs and charges for institutional investors.

If that seems complicated, it isn’t. Chris Sier is a wonderfully uncomplicated former policeman who has a big brain and a moral compass set firmly in the direction of “good”.

He is someone who is motivated by good – he is good – Dr Chris Sier is a good man.

Which means that we will see good things coming out of the working group. We will get good data to work with when analysing the value of workplace pensions, we will get proper numbers on the costs of managing our money and we will be able to make value for money assessments on workplace pensions – at last!

That Chris was asked and accepted this task is a good thing and I am full of hope that at last I will be able to think of 1% pensions as a reality.

For Chris to succeed we are going to have to tear down all the bad things that stand in the way of knowing what we are getting. We are going to have to tear down the Non-Disclosure-Agreements and the anti-benchmarking clauses and all the nonsense that comes from those who say we over-value price comparison.

It takes someone as big and honest and good as Dr Chris Sier to make this happen. Until I heard he had the job, I did not believe it would happen – but I am finally believing that the 1% world that John Denham talked of 20 years ago – is going to happen!

And with it – we will carry on restoring confidence in pensions.


A 1% world with 27% better pensions

Posted in accountants, advice gap, pensions | Tagged , , , , , , | 3 Comments

Why we should be proud to invest our savings in real assets!

'Really? We've only been here thirty minutes? Heck, it seems like an eternity.'

Investment consultants need to take the long-view!


My blog yesterday on USS attracted a lot of attention on social media and some interesting comment.

This from Ros Altmann – a blog in its own right;

Excellent piece Henry.

There is insufficient differentiation in this DB debate between open and closed schemes and of course the exceptional situation with respect to interest rates that currently prevails.

Long-term investment for long-term liabilities is a prudent approach, as long as the investments and risks are properly understood and managed.

The Bank of England’s pension scheme gives an indication of what has happened if schemes invest wholly in gilts – its pension fund fell into deficit and its contributions had to rise from around 25% to over 50% of staff salary.

This is a live ‘case study’ for those who suggest DB schemes should invest only in ‘safe’ or ‘matching’ assets.

Gilts do not match pension liabilities – they are an approximation. There remains a mis-match as they do not move with longevity, lpi or salary inflation and, of course, if starting from a deficit position then just ‘matching’ is not sufficient anyway.

Outperformance of the liabilities is required. Diversifying sources of risk and return, which can expect to outperform ‘low-risk’ bonds is likely to offer better long-term prospects for USS.

You rightly point this out and I do hope this receives plenty of ‘likes’! Well said Henry.

Anyone who follows my tweets knows that we don’t always agree, this was a  welcome point of harmony!

What we are agreeing on is the time horizons of differing types of investors and that there can’t be a one size fits all approach to the way we fund our financial futures.

We can take lessons from history; one lesson is that in the short-term, for instance over the years following the recent financial crisis, bonds can provide a better real return than equities.

gilts v equities 2

But to suggest from this that bonds are better than equities, is to ignore the longer term trend.

gilts v equities

I suspect that what lies behind these tweets from  well respected investment consultants is an unwillingness to engage in pensions much beyond the end of this decade.

gilts v equities 3

I am not going off on a discourse into the rights and wrongs of debt and equity (when Con Keating gets his internet access back, we can expect to hear from him on that).

But I think the statement that bonds are better for all needs to be challenged.

Investing in a company’s debt, like investing in index-linked debt is to me a misnomer. You are not investing, you are providing finance which is not the same thing. That finance is finite, investing in equity is infinite. Universities, Governments and even some private companies are to me infinite- they have no obvious end.

We have chosen to make some of our pension schemes “finite” with strategies that plan to end the pension scheme in a certain number of years. But we have also agreed that some pension schemes will continue on infinitely – the University Superannuation Scheme is such a scheme.

This concept of an infinite scheme should not frighten us, any more than the state pension should frighten us. We cannot assume that the world comes to an end when we do , this is a very myopic approach! We have to assume that the USS will outlive us and hopefully out live our children.

Bonds have a limited duration

The only thing I would add to Ros’ analysis is that bonds, which are effectively IOUs – demand repayment. At some point the bond comes to an end – it is finite.

If you are invested in bonds – as the Bank of England is and as the old Royal Mail pension scheme is, then you provide very high security for a group of people. The Bank of England have feathered the nest of one group of staff, but another group are now having to pay for the 50% of salary going into the pension scheme. That group has to be those left working at the bank.

Precisely the same thing has happened at the Royal Mail which has secured past benefits but is too finding it will have to pay 50%+ to accrue further – using a bond based strategy,

The Bank of England can of course pay pensions and people as it likes, the Royal Mail can’t. The end result of the Royal Mail’s excursion into the “bonds for all” strategy has been the closure of the scheme and industrial unrest. If this is what the investment consultants call “better for all” , I am glad I am not an investment consultant.

I stand by my tweet.gilts v equities 4

You cannot own a loan

People talk about owning a debt portfolio but that is nonsense. Owning bonds is not like owning a share of an organisation, you are not the real owner and you have no voting rights.

If you own equity you have a stake and a say in that enterprise. We need people to take the long-term view of ownership so that companies can invest and become more productive.

If ordinary people are going to understand investment, it is not through the bond markets – leave  that to the bankers (and the investment consultants).

Pension schemes need to invest in some debt (as Ros points out) but this should be balanced by investment in the long-term future of our companies and our economy, only equities allows us to participate in this long-term growth and that is why over the long-term, equity holders get rewarded by a premium of better returns.

If we are ever to restore confidence in our pensions, we must leave behind the short-term shallow thinking that assumes such rot as that because bonds have returned more than equities over 10 years, they are better all round.

You cannot invest in a bond, you cannot own a bond, you can only benefit from a bond. The ownership and investment opportunities lie with real assets; this is where the majority of USS’ investment fund is invested and where most of us have our pension savings.

We should be proud to be investing in our and our world’s future.

Posted in actuaries, infrastucture, investment, pensions, Treasury | Tagged , , , , , , , | 2 Comments

Is the University Superranuation Scheme suffering fantasy deficits?

fantasy deficit

First the big picture

Universities aren’t going away, nor are the people who teach in them, administrate them and provide the infrastructure that keeps them going.

Many of our universities have survived wars, plagues, great fires as well as many stock-market recessions. People have taught and been taught since the renaissance.

Now the little picture

It is being suggested, because of the financial deficit imputed to the USS pension scheme, that the foundations of our university system are under threat.

The latest financial reports from USS have made it to the front page.

Academics would have to contribute more to their retirement or have future pensions diluted, which would be strongly resisted, (John Ralfe) said. Alternatively, student fees would have to be raised, or more money would have to be diverted from teaching, he added.

John leaves us in no doubt

“The danger that USS poses to the future financial health of UK universities is hugely underestimated”

John is an expert in delivering bad news and the bare numbers give him plenty of ammunition. Using the gilt based valuation technology favoured by accountants , the deficit on the scheme has increased by £7bn in the last year to £16.5bn.

What is surprising is the next line  In the year to March 31, USS’s assets rose by 21 per cent to £60bn, but its liabilities increased by 33 per cent to £77.5bn.

What is going on?

The question I (and I hope you) are asking is how a pension scheme’s liabilities can jump 33% in a single year.

Are all those University staff living a third longer?

The answer is “no”, the nature of the liability is the same, same people with longevity increases probably flattening.

What is going on is a fiddling of the numbers about which we have heard very little. Sure interest rates have remained low and with the gilt rates – which drive accounting valuations, but I have seen no explanation why they should have driven a 33% rise in liabilities.

Bill Galvin, the USS CEO blames investment returns

 “All we’re in a position to say now is that it is likely that investment returns will be lower than they were assumed to be in 2014 and that will put up the cost of future contributions.”

I find this equally confusing. Apparently , the in-house investment team under-performed its benchmark over the period by 2% but still returned 21% growth on assets.

What kind or investment return was USS looking for? Presumably a return that could exceed the 33% increase in liabilities? In a low-inflation, low-growth environment this looks like a Herculean task?

To the ordinary reader, none of this stacks up. To assume this is leading to teachers being laid off and students paying higher fees is a big jump. People deserve a better explanation.

A better explanation.

Let’s look into the report and accounts and see what’s going on. Here is how the money in the Scheme is invested.USS1

You can see that the majority of the assets are directly managed with only around 20% invested in pooled funds. this should be good news if you have an eye for costs, but these numbers don’t give you the real reason for that 21% return. The reason for that was that the fund was invested 45% in equities, 34% in alternatives and only 15% in bonds (2015 figures).

Ironically, the under-performance was stated to be because the fund was under “invested” in index-linked gilts. I put invested in inverted commas – these gilts aren’t really an asset and their stellar performance last year is down to technical issues such as supply and demand the impact of ongoing quantitative easing.

The point to be made about the scheme, is that it appears appropriately invested for the future, a future where universities will continue to operate, teach and research. Back in 2006, when the fund was much more heavily invested in equities, John Ralfe predicted disaster. Here is what has happened (I exclude the latest returns already discussed)

2006 15.8%
2007 5.5%
2008 -37.0%
2009 26.5%
2010 15.1%
2011 2.1%
2012 16.0%
2013 32.4%
2014 13.7%
2015 1.4%
2016 11.9%

Equities have had one awful year (2008) and a number of good years. The overall impact of being invested in equities over this time will be to keep the fund invested in real assets that profit from real growth in global productivity.

We are currently working on scenarios which John would be happier with. What would have happened if USS had been more heavily invested in bonds in 2006 and what if we valued the fund relative to the actual assets it held, rather than how those assets would behave if they were gilts.

Talking of which…

Here is what has happened to the liabilities


From this, you can see that the contributions made to the scheme more or less cancelled out the accrual of new benefits (disappointing as some of those contributions were supposed to be reducing the imputed deficit.

You can also see that by far the biggest factor in the increase in the deficit was the “effect of market conditions on liabilities. This is getting to the nub of the 33% increase in liabilities. I am a simple man, nearly £8bn increase seems more than technical! What is going on?


FABI explains a lot!

FABI July 17

What First Actuarial’s FAB index does is explain that while all this “technical” stuff is going on, the real state of schemes improved from 2006 to 2017 because assets grew faster than liabilities (when you stop being technical about it).

In the real world, the USS did not increase its liabilities by 33% last year but it did increase its asset base by 21%.

The USS, unlike a lot of corporately sponsored schemes is not on a road to buy out, its members will still be teaching in 2117 and the scheme should still be operating indefinitely! We do not stop universities because of technical issues with pension scheme valuations.

The long-term future of the fund is bright so long as it takes a long-term view. The one thing that might stop that long-term view is the kind of panic measures being advocated by John Ralfe and others. We do not need to sack teachers, or increase fees – we need to see the deficit as what it is – “technical”.

This cry of pain from John Ralfe and the pedlars of gloom is crying wolf!



Here is something else.

Before I exonerate the management of USS, you might like to read this table. There haven’t been many pay-rises in the universities in the past decade, these figures make for uncomfortable reading.

The USS need to be better about messaging and explain just why the highly paid individuals working for it – are seeing such big wage-hikes.


Posted in accountants, actuaries, advice gap, pensions, Public sector pensions | Tagged , , , , | 14 Comments

Planning for a noble and quick death?


The wealth management perspective


The FT has been doing some research about what motivates people to swap a pension for drawdown. The sample may not have been big but they’re drawing a strange conclusion.


The superiority of the death benefits within drawdown are primarily to do with their fiscal treatment – the amount of tax payable.

Jo is concerned that fiscal advantage today may not last


The example given is the former steel worker about whom I have written a recent blog.


Jo makes her feelings known in that final comment “Didn’t think…”. A similar point is made by our friend Christopher Lean – writing as an IFA


Two separate issues but one general argument

There are two issues that Jo and Christopher are pointing to.

  1. Whatever the short-term fiscal advantages of drawdown, these are subject to change and cannot be relied on.
  2. The fundamental issue – of insurance against living too long, is addressed by a pension but is not addressed by drawdown.

But the demand for a cash settlement at death (inheritance) rather than a continuing income for a surviving spouse or partner is a key driver in people take money out of pensions. The IFAs know this and advise to the prejudice. I am not condemning IFAs giving people what they want, but I question whether what people want is going to happen.

People want a noble death but often get a slow decline

In her research into attitudes to ageing, Dr Debora Price has found that people are reluctant to think about themselves as dependent in old age. Cogitative impairment (going ga-ga) and physical decline (including the embarrassment of incontinence) are not the kind of things we want to read about, think about or plan for.

Yet these things will be realities for many people and unless there is a plan B, for the possibility that death will not take us nobly and cleanly, the chances are we’ll be ill-prepared.

Here is a photo of two friends of mine, the parents of a college friend, Audrey and JackJOC8

One of these two is much frailer than the other, but because of the support of their daughter, their love for one another and the financial security of  proper pensions, they can travel in a style they could not have dreamed of when children.

Like my friend, I have elderly parents who are declining physically and mentally and like my friend I am incredibly proud and happy when I see them happy. I know that many older people are not happy much, I visit many care homes and have sat in dementia wards.

Beyond these homes and wards are those who sit alone at home with little support and little means to get out and about. There’s is not a noble life.

Like most people still in the middle of life, I am tempted to think of old age in terms of euthanasia; to do what my Grandma did, go happily to bed one night and not wake up.

But for most of us – when we get to later life, the will to survive and fight death will kick in.

What worries me is that we are creating a generation of people retiring now who will have no plans to live long and an exit strategy that says “die young and nobly”.

The financial conflicts comes when someone with a diminishing drawdown pot wishes to spend but is guilty of reducing the inheritance.

Or worse, when the savings put aside run out and it is the house and not the pension that pays for care.

Worse still, when the partner who had the pension and cashed it in, has nothing left to leave the spouse when he dies – no cash – no residual pension.

Does anyone talk about this when “financial planning”?

It is a very tough thing to talk about incontinence and dementia to a 57 year old former steel-worker. It is tough to talk about the consequences of living too long. My colleague Mark is in his late forties and has a gran who is 99, she is in receipt of her husband’s steel-workers pension and very happy to be.

I wonder if this happy scenario will play out with the 57 year old ex-steelworker Jo Cumbo interviewed.

I suspect that there was an element of out of sight – out of mind, about the consequences of not dying nobly. But when there is an elephant in the room, that elephant often creates consequences and not usually good ones.

When occupational pensions were designed, they were not designed to give people inheritable wealth, they were designed as a social insurance against the consequences of living too long. This message has been lost. We now believe that a pension pot of £250,000 makes us wealthy- able to retire- it doesn’t.Joc10.PNG

We need a more realistic approach to later life planning, one that does not pander to our natural aversion to thinking of physical and cogitative decline, of what it’s like to live in an incapacitated state and what part insurance plays in managing the financial risks.

While Jo was concentrating on the fiscal risks of tax-rules changing, she was also touching on the issues raised in this blog, and by Christopher Lean and by Debora Price. I join my name to that list.

The future is not all about yomping on coastal cliffs , leisurely cruises and even lovely days out on the train.

Our futures may and probably will involve an adaption to decreased mobility, mental agility and financial security. We can’t do much about one and two, but we can plan for financial security and I don’t think this current rush to cashing out pensions, is the way to do it.

Posted in Facebook, First Actuarial, pensions, twitter | Tagged , , , , , , | 3 Comments

Why should frustration blight the pension promise?

I have been following a series of tweets from Jo Cumbo; they concern an interview with a man who has recently “encashed” his pension with the cash being invested in a drawdown product. He is 57, has worked for British Steel and he is confused.


So why was this ex steel-worker wanting out of his final salary pension?


There is no sense of how he feels towards his former employer but it’s clear he had little regard for the pension he had given up.

Infact – it turns out that the decision he has taken has worked out well so far and his money has doubled (he is on the “right side”)

bsps jo c3

Here is someone who has lost his livelihood and is looking for certainty. Ironically he has swapped the certainty of his defined benefit for an investment about which he knows nothing. Had this man been invested through the financial crisis , who knows what his predicament might be now. The only certainty would be trauma.

The only certainty from “stressed” markets  is trauma

This is great campaigning journalism  by our leading pension journalist. The series of tweets asked me to consider what my reaction might be were I in this man’s hoes.

That he had built a six figure sum and subsequently doubled his money suggests he had worked for much of his life in steel. That he had taken financial advice and made a decision based on what was right for his wife and children suggests a responsible man. That he knew nothing about where the money went but had trusted his advisor suggests a respect for the advisor and his profession. I think it fair to conclude that Jo was speaking to a very decent man.

There is nothing in Jo’s account to suppose that his planned inheritance will happen soon, he is living on his tax-free cash and – at 57- has his taxed savings intact. If markets continue to do well he may draw down less than the growth on his fund, he may well be able to provide himself with a replacement wage for life and even leave money for his family when he dies.

But there are a lot of “ifs ” here and his trust is in a mechanism he knows nothing about, he is flying by wire and in a passenger seat.

There are 130,000 people in the British Steel Pension Scheme, most of them are pensioners but well over 40,000 are still to draw their pensions and could well take the option this man took.

The British Steel Pension Scheme is commonly thought of as one – if not the – best run pension scheme in the private sector. Last year it returned 19.1% on its investments and though it runs a small deficit it has some of the lowest per capita operating costs of any funded pension scheme in the land.

As is well known, the Scheme will close soon and its deferred members can choose to migrate to a new British Steel Scheme, transfer away to a personal pension scheme- or- if they do nothing – have their benefits paid by the pension protection fund.

What we can be sure of, is that these choices are not easy, as I have written on this blog before, there are occasions when the PPF may represent the best option though many will choose to keep their money managed by the trustees and their investment team.

I am happy to report that these members are getting the care and consideration they deserve and that both the Scheme and its sponsor are acting in a responsible way to make sure that where decisions are taken , they are taken with blind faith but with deliberation.

The new scheme has secured a considerable cash injection and a stake in the continuing business run by Tata, this is a tremendous improvement on the original position faced by those in the scheme.  in particular the pensioners have very much to gain from continued participation in a private rather than a PPF paid pension.

For a very large number of the 130,000 British Steel Pension Scheme members, there is considerable certainty about their pension rights.

Our job’s to restore confidence in pensions

It is incumbent, not just on our journalists, but on all those who know about pensions, to point to the security offered by occupational pension schemes as a source of comfort to those whose jobs and pensions have been “at risk”.

This message is  too little heard ; it is the still small voice of calm in the hubbub of “pension freedoms”.

I totally “get” how the gentleman Jo spoke to came to his decision. He did so because he had lost all emotional attachment to his pension scheme having lost his future with British Steel. This man voted with his feet – whether out of frustration and anger, out of fear, or out of trust for his advisor. He certainly did not understand the decision cerebrally.

Our job, and I mean by “our” everyone who can subscribe to my wish to “restore confidence in pensions, is to promote the certainty of a well run pension scheme over the “hit and miss” situation this gentleman now finds himself.

That is not to say that transfers do not have a place, but there is no place for the confusion described so well by Jo. People either need to know what they are doing when managing for themselves of have confidence in those who manage money for them.

This gentleman seems neither to have confidence in what he has or what is lost. I suspect in both cases he should be reassured.



Posted in pensions | Tagged , , , , , | 6 Comments

“NOW and then” ; why one big master trust is “off the list”!


News that one of the “big three master trusts ” was closing a significant door to new business, came as a surprise to auto-enrolment practitioners. NOW claimed to have voluntarily withdrawn itself from the Pension Regulator’s master trust assurance list, meaning it could no longer market itself to employers choosing a workplace pension through tPR’s website. The Pensions Regulator left us in no doubt that NOW jumped before it was pushed.

Nicola Parish, TPR’s Executive Director of Frontline Regulation, said:

“Those in the master trust marketplace should be in no doubt that we will act if we become concerned about the way schemes are being run, no matter the size of the scheme involved.

“Schemes have a responsibility to meet specific criteria required to remain on the master trust assurance list. If a scheme fails to meet the criteria, we will consider removing it from the list.”

Let’s first establish this does not mean that NOW pensions are a sitting duck for other providers and advisers to blow out of the water. Where NOW pensions is operating properly, there is no cause for concern, many employers report a strong relationship with NOW and have no complaints about it.

NOW is not going to resign its status as an occupational master trust and intends to soldier on till it has put its house together. We will continue to promote NOW so long as we are clear that the intent is real. Do not expect to see me change my back-pack.

NOW are clear about what has happened

Largely as a result of NOW: Pensions’ change of third party administrator, it has experienced some delays processing contributions for a small percentage of clients.

NOW: Pensions has kept The Pensions Regulator fully updated regarding these historic issues and accept that getting these schemes up to date has taken longer than it should due to the complexity of some of the cases, the poor quality data that was sometimes involved and the systems used

Morten Nilsson, NOW’s CEO told the market yesterday

“We feel that while we work to resolve these historic issues and ensure that every scheme is up to date, it’s appropriate to withdraw from the list. We are confident that this work will be completed shortly. Providing our clients and members the best possible service remains our top priority.”

and he accepted that the blame should be shared by NOW itself.

“We should have been more proactive in our communications with affected clients and members regarding these issues and apologise wholeheartedly to those we have let down. In this instance, we have fallen short of the standard of service we aim to provide.”

Our verdict

The Pension PlayPen has since 2013 promoted NOW pensions as a force for good. We like its aims , its management and its governance and we have downgraded its operational capacity with regret.

In our view, NOW has suffered from not having a proprietary administrative platform and from a lack of support from the third party administrators it has chosen to work with. In particular, the decision to move from Equiniti to JLT in the middle of the auto-enrolment staging process now looks a bad one. We were not happy with this decision at the time and I made our view clear to Morton himself.

The problem has been compounded by NOW’s failure to build out to payroll in a consistent way. It has employed a number of systems to collect premiums, some internal some from third party providers. The third party “middleware” providers have not proved as robust as was needed.

The best word to describe the systems architecture on which NOW relies as “messy”.

If this describes the problem – what is the solution?

I have put in bold , one phrase of NOW’s press release which I would challenge. NOW does not have “historic issues” in any meaningful sense, it opened its doors to coincide with the start of auto-enrolment back in 2012, five years is not – in pensions terms- sufficient to justify “historical”.

When you start with a clean slate, you would expect that slate to be clean five years later, but within a couple of years of opening its doors, NOW discovered it had the wrong administrative partner. It seems to have consistently listened to “expert views” on how the problem could be managed out using external partners and the Trustees have let the situation detoriate to a point where it has been forced to close its doors.

The sad truth is that the Trustee board, NOW management and its external service providers have lived in the past and not built for the future. The structures put in place to administer NOW pensions are in conventional terms the right structures, but auto-enrolment demanded more than a rehearsal of what had come before. NOW have only realised this recently.

The solution now is to take back control of its data and this will require recourse to NOW’s parent, the largely state owned Danish pension provider ATP. The Trustees need to be making it clear that NOW has the support of its Danish parent and if it cannot do this, it should be speaking to its members with its concerns.

NOW has over the past two years, been building a large internal operation out of its office in Nottingham and its own auto enrolment site to upload payroll files called the NOW: Pensions Gateway. The feedback from employers using this new service is better but it has not been able to put right the problems of the past.

The cost of restitution of DC problems such as NOW has will be extremely high; we call on NOW’s Trustees to confirm they have confidence that this cost will be met and to be transparent with members, participating employers and their advisers about how this will be done and when.

Apologies are not enough

The plans that NOW are putting in place to restore members to the position they should have been in, prior to the wholesale breakdown of the contribution process before , during and following the transition between administrators, need to be open to scrutiny, not just by the Pensions Regulator, but by all the stakeholders participating in the master-trust.

These plans need to be backed up by a cost analysis and a commitment from the Danish parent that where these costs cannot be met from UK revenues, they will be met from ATP’s reserves.

If such a plan isn’t forthcoming, the public has a reasonable expectation that NOW;pensions be put up for sale and if necessary be required to merge with another occupational master-trust with the capacity and commercial will to take on its problems.

Thankfully, as a longstop, we now have the provisions of the Pension Schemes Act 2017. These should ensure that if NOW cannot sort itself out, force majeure can be applied by Government to put members right. The Bill was enacted as one of the last acts of the last Government and a good thing too.

What of the Master Trust Assurance Framework?

This statement from Nilsson should cause considerable embarrassment to the ICAEW and tPR- joint authors of the MAF.

“NOW: Pensions has always been a huge supporter of the master trust assurance framework and was one of the first providers to adopt it. We’ve since completed the framework three times and remain committed to it.

Despite NOW’s early adoption and maintenance of its MAF status, it has seemingly lost control of a good part of its administration. One wonders what the MAF actually does to protect members from poor controls and administrative malpractice.

This is a question not for NOW, who must get on with putting its house in order, but for the Pensions Regulator which uses MAF as its primary means to promote good quality pensions. As we have said many times at Pension PlayPen, obtaining the MAF is not a sufficient achievement to warrant the promotion that the Pensions Regulator has given to the 23 schemes that hold it.

The Pensions Regulator needs to look at its own choose a pension pages and establish what responsibility it has for NOW’s current failings.

now 2018

Thanks Damian Stancombe and Barnett Waddingham

Posted in now, pensions | Tagged , , , , , | 3 Comments

What can men do to reduce gender pay inequality?


For a start they can stop “welcoming this discussion” and blathering other related clichés!

If men welcomed a serious discussion on gender pay equality, we’d have been having them regularly since equal pay for both gender (for the same job) became compulsory in 1975.

Very few people in work today were working in 1975, that means that most men have worked their entire lifetimes with pay structures and work culture biased towards them. We men have done very little about this as we make the rules of the game and re-assert those rules every time decisions on hire and reward occur.

If we are honest, us men don’t welcome this discussion at all. It is not something we earnestly consider on the golf course or on the terraces or at the pub or whatever male preserve we retire to. We are quite comfortable with the status quo and we don’t welcome the prospect that our employer may “un-turn some stones” in April 2018 at all.

In case you are not aware, April 2018 is the deadline for employers with over 250 staff to produce reports on pay equality within the organisation. The reports won’t go as far as the BBC report which reveals individual pay – instead it will report on each quartile of the workforce. There are loopholes for reward directors to consult and I understand that smart reporting is already on the agenda of smart reward consulting. That said – it looks like most employers will to some extent do a BBC. The aggregate data is going to be collected by Government and some sense made of it.

This is the first step in a process where evidence not hearsay drives change. If people don’t think that transparency matters then they should look at financial services and the changes that occurring as we get to learn what we pay to have our financial affairs managed.

The second step will be interesting. Will transparency in itself bring change or will we have change thrust upon us.

The answer to that question is , in my opinion, in the title of this blog. This is an issue not just for women but for men and it needs men to consider what they can do to ensure women are properly paid.

In all I read and listen to, the problem seems to get broken down (by women) into two compartments.

There are structural problems within organisations that mean that pay is biased towards men. Some of these biases are biological, it is women who bear most of the trauma of childbirth and who naturally are suited to nurturing very young children.women 2 It is entirely reasonable for women to take time off to have children but (and I hear this a lot from childless women) it is not reasonable that they get financially rewarded for having a family in the workplace.

The non-biological reasons for male biased pay structures are less easy to discuss. Whether it be the agent system at the BBC, or collective bargaining through unions or the lobbying that goes on in some organisations to secure pay rises, the system of reward seems still biased in men’s favour. Perhaps this is changing as we slowly see more women on Remuneration Committees , in senior HR positions and on executive boards, but it is a slow process and not enough has been done to change corporate structures in the past 42 years.

It is hard for men to discuss this for cultural reasons. Stroppy men are seen as driven and focussed, stroppy women still too often labelled “immature or menopausal”. The capacity for women to assert their point of view in the workplace is limited. Even in the Pension PlayPen lunches we run every month, it is hard to get women to turn up and assert their points of view. I chair these lunches and am wondering whether it would be better to offer the chair as a matter of course to any woman who makes it to the meeting.

I think the word “offer” or “ask” appropriate. Too often we “senior” men assume responsibilities and assert our points of view with no regard for the points of view of others “in the room”. I mean “in the room” both literally and metaphorically. I don’t sense that we often consider matters from any viewpoint than our own, because culturally that is the well-established “normal”.

What can men do?

To break down both the structural and cultural barriers that exist, we need transparency in gender pay data, we need women to have more of a voice and we need to have men aware that they should be offering women the right to assert their position in the workplace.

Even with all this, there is no certainty that the pace of change towards pay equality will improve, but I think there is every chance that we are at a tipping point where the new normal will be to assume change is needed.

Men are going to have to take this on board and take a step backwards. It seems to me that this is going to be as hard for them as it will be for women to take a step forward. However, the initiative to publish gender pay equality statistics within organisations which has already begun and which will gather pace over the next nine months, is going to catalyse change.

Men need to be aware of this and accept that it heralds a real change which will be most unwelcome in the short term. We have much to lose by way of power and  pay, we have little to gain – in the short-term . But in the the long-term, I believe that re-basing the reward structures within our workplaces to comply with the 1975 act is more than a legal necessity, it is an economic necessity. We under-employ women in our society and pay is only part of it.

The sooner we can harness the power of women to lead, the more productive and happier our workforces will become!

women 3


Posted in economics, leadership, pension playpen, pensions | Tagged , , , , , , | 5 Comments

Clarification needed on CETV volumes.


The FT published a number yesterday – £100 million. It is the amount that pensions  administrator JLT are paying out in transfer values every month. It looks a large number. Mischievously I suggested that might be revenue to JLT rather than the money processed. What followed was a long and constructive discussion on the responsibilities of trustees towards members looking to transfer cash away from DB plans.

My suggestion was not entirely facetious. The  information I am getting from my contacts in large pension schemes is that at least two schemes are seeing CETVs leaving the scheme at more than £250m. That means these schemes have lost more than £1bn in assets (and liabilities) this calendar year – already,

I have no source to corroborate this so you will have to take my evidence as anecdotal. Any journalist that wants to know the schemes will not get names.

My point in raising this is that the estimates so far (from the big three actuarial consultants – Mercer, Willis Towers Watson and Aon) suggests that since April 2015, the aggregate amount leaving schemes from transfers is around £50bn. I would suggest the number is considerably higher than that.

The best way to get these numbers is from scheme accounts and particularly the numbers within the FRS102 accounts that organisations are required to provide to account for the impact of the pension scheme on their financial position.

In terms of FRS reporting, the extent of CETV transfers will not be under-reported. CETVs are good news for the balance sheet; they represent liabilities leaving the scheme on a more favourable  basis than their book value. That does not mean the CETVs aren’t fair value, it just means that “book value” carries a degree of prudence in it that is not included in the transfer value calculation.

So the higher the aggregate CETV number, the better the news for the company’s balance sheet. There is a useful piece of work for any researcher out there and that is to identify the trend in CETV reporting within FRS102 pension reports of the large companies.

I suspect it will show the following

  1. That CETV activity is highest where the membership of a scheme is financially aware. Despite scammers praying on vulnerable unaware members, most money flows into sophisticated products such as SIPPs and as a result of paid-for advice.
  2. That CETV activity is highest where employers are financially strong and capable of locking down liabilities with gilt and corporate bond orientated investment strategies. These strategies give best-estimate CETVs using gilts + discount rates that make for very attractive valuations
  3. That CETV activity is particularly focussed in schemes sponsored by financial institutions (banks and insurance companies) where a combination of (1) and (2) are in play.

If , as my anecdotal evidence suggests, some of these schemes are transferring out money at a rate of £3bn a year each, then estimates of the total CETV run rate may well be considerably north of the £20-25bn pa that is currently knocking around.

If I am right, we will only really understand the nature of this exodus retrospectively. Worryingly, there is no means to reverse the trend, CETVs are a one way valve (unless we return to the restitution practices that followed the pension mis-selling crisis following the introduction of personal pensions.

Is there a problem?

In the short term, there is not a problem. Corporate balance sheets will benefit from CETV activity (see above), individuals will have unheralded liquidity and the economy should benefit from the spending of pension cash “liberated”.

The problem is not in the short-term. The problems is that the savings consumed today are not around to pay tomorrow’s bills. They cannot be used to pay for long-term healthcare and will mean that there is a greater dependency on social security and the NHS in years to come.

In terms of Big Government, an escalation of voluntary transfers out of DB schemes of the proportions I suspect we are currently seeing , is worrying. It would take the Institute of Fiscal Studies, the Pension Policy Institute (or similar) to confirm this hypothesis and I hope that someone, as I type is working on just such a project.

What happens to the money?

The utility of the money set aside to pay pensions is currently a matter for occupational pension trustees. If transferred the money will be invested at the discretion of individuals with the help of wealth managers, financial advisers and the asset managers they recommend.

Money invested, as opposed to that spent on lifestyle items, is likely to be spread more diversely than were it to have stayed in occupational schemes. It may be invested wisely or it may be squandered in stupid or even unscrupulous investments but it will not be money focussed on the purchase of pensions – as is the case with occupational schemes.

The money that has left occupational pensions is – if the CETV levels are as high as I suppose- likely to change the long-term investment strategies devised meticulously by investment consultants. The financial models that actuaries use to predict cash flows from pension schemes did not predict as much as 5% of liabilities of the scheme being called upon in a year to pay CETVs.

The immediate call for cash will mean a partial unravelling of the meticulously crafted LDI strategies most large schemes have in place and this will prove expensive. This cost will be born by the trustees and passed on to sponsors by way of demands for improved funding. Hopefully this will be forthcoming – the sponsors having benefited from the FRS102 improvement – however, accounting benefits are short-term and the legacy of CETVs is long-term. I worry that CETVs may weaken the financial position for those who stay and the patience of scheme sponsors who will benefit now and pay later.

Is this thought through?

I observe as an outsider and not as a scheme actuary or an investment adviser. I am not a pension trustee either.

In my view, there is a disconnect between what is happening at ground zero (by which I mean at the level of individual financial advisers who are being overwhelmed by demand to transfer); and what is happening at the top of the tower block (by which I mean the trustees, their advisers and those commentating on the situation). I would put on the very top of the tower the Government and its Regulators.

I suspect that there is an absence of strategic thinking about what the staggering outflows from occupational defined benefit pension schemes actually means.

When those at the top of the tower have caught up with those at ground zero, we may find that much of the damage to scheme infrastructure and indeed the long-term social security strategy of Government has been done.

Instead of pensions – we have pension freedoms – a massive reflationary exercise where long-term money is swapped for short-term consumption; where fund managers and advisers are handed a windfall of billions of pounds and where the consumer- the member or (in future) , the policyholder, is unaware of quite what’s happened.

This may be for the best – but I don’t think it’s thought through. We usually found that the unexpected consequences of badly thought-through pension policy, are not good.



Posted in pensions | Tagged , , , , , | Leave a comment

Is the mood music on DB transfers changing?

mood music.png

The irrational exuberance that characterised the FT’s pension transfer seminar in the spring may have marked a high-water mark in the rush to liberate. Martin Woolf and Merryn Somerset-Webb urged us to take our pension in our own hands (or swap it for a pile of cash). Clear hosted an event that included Ros Altmann recommending we negotiated with scheme actuaries to get ourselves a deal and some fund managers sponsoring proceedings suggested that 8% pa was an achievable return on a sustainable basis.

It is small wonder that money has haemorrhaged from some of our largest pension schemes, especially those in the bank and insurance sectors. I know of two schemes where exiting money exceeds £250m a month. These flows are materially effecting established investment strategies and are troubling trustees in more ways than one.

This morning I’m reading a more circumspect tone in FT publications. This may be because Jo Cumbo has reasserted her control of the pensions agenda (she was off for the spring extravaganza) or it may be because CETVs have come off their November 2016 highs (some prospect of an interest rate rise on the distant horizon). But the primary driver for sobriety has been the belated attention of the FCA in the risks attaching to taking £50bn out of gold-plated DB schemes and punting the proceeds on the red (well that may be a little unfair on the markets but..).

This morning’s article by Jo is indeed entitled “Rush to cash in pensions spurs FCA’s scrutiny” and is a run through the various events of the past few weeks that suggest that today is “after the goldrush”.

Some advisers have opted to slow down and some to close down. Organisations offering out-sourced transfer advisory services (where the outsourcer takes no responsibility for where the money goes) have been told to shut up shop- at least for the moment.

I’m quoted by Justin Cash in Money Marketing offering the rationale

“The critical thing people seem to be missing out on is the FCA is very keen to hold advisers to account for the outcomes of the advice that’s given. It is saying it’s not enough just to give the transfer value analysis calculation. You have got to be clear the recommendation leads to a positive outcome.

“The FCA knows there’s a crisis going on. But the danger is the market is already travelling at 80 miles an hour, and the regulator is seeing if it’s possible to pull on the handbrake.”

If only I could be that eloquent!

The Tide turns

Personally I look back to the Great British Transfer Debate as an inflection point. To have the best part of 300 interested parties assembled in an aircraft hanger out of Peterborough on a hot day in June was testament to an industry that knew. We knew that something big is going on and that there was far too little debate on what this £50bn dam-buster meant.

The meeting has seen conflicting positions find common ground (I have made my peace with Tideway Investments) and it’s seen a greater appreciation among advisers of actuaries and vice-versa. There is sufficient memory of the late 80s and early 90s mis-selling epidemic for all parties to be wary.

This month is scams awareness month. The scammers are hard at it – probably promoting scams awareness month to the people they are scamming. Angie Brooks and a few other souls are outing the networks of the villains , preventing fraud by promoting vigilance. But they acknowledge they are lone voices , (we could not even ban cold-calling with the legislation awaiting the button to be pressed).

We need to be aware not just of scams but of the risks inherent in swapping the protections of collective pensions for the uncertain rewards of pension freedom. The FCA’s recent paper on the subject questions a market which has seen little innovation since the freedoms (unfortunately reminding us that the attempts to create innovation in Steve Webb’s “garden of many flowers” suffered a savage dose of DDT from his successor.

Risk-sharing is the obvious way to construct a default and this does not necessarily mean sharing risk with Government or employer. Risk-pooling in this country has a long and noble tradition in our acceptance of mutuality, social insurance and wider risk pooling. It is quite possible that the new mutual – NEST, Peoples, NOW and their many smaller counterparts , can find ways to allow us to share risk between ourselves. This is the origin of all insurance.

Why the mood music is changing

For the mood music to properly change we need more than the prohibition that is the outward sign of the FCA’s current concern. We need recognition that for a very large number of us, the concept of the self-managed pension is simply too ambitious. The reason that we leave pensions to experts is that they are complex things which require a skill-set beyond most of us.

mood music 2

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

Austerity keeps life “nasty, brutish and short”.



leviathan 2


An actuary friend of mine writes to me

If we adjust the State Pension Age ahead of time, then it depends on assumptions for future improvement – (as adjustments follow a formula).

And right now as you know and I assume your actuaries discuss, future improvements are very debatable.

My suspicion is that the growing number of older people (which will happen for sure whatever happens with future mortality) will inevitably lead to a reduction is average resources devoted to the elderly.

As we pay lower pensions, we will find future longevity less than currently produced by the models and prudent modellers.

Perhaps people who model are reluctant to change rather than prudent


This argument can be simplified. What my friend is saying that the less money is put aside to pay for the lifestyle and health needs of those growing old tomorrow, the shorter “our tomorrows” will be.

This position is pretty radical. But we are seeing radical things happening elsewhere. Paul Johnson and the IFS are showing that for the first time, there are generations of us coming through who will have saved less and accumulated less wealth on their own account than the generation that preceded them.

The link between financial security and the capacity to go on living is proven. It is fundamental to actuarial longevity assumptions and is to some extent the reason that DB schemes are a victim of their own success.

If you are in receipt of a pension, you are financially motivated to live longer, if you are spending out of capital, it’s CARPE DIEM. Pension Freedoms not only bring up front tax-revenues, they curb the capacity of people to fund late age – they are a killing mechanism.

Austerity up – longevity down.

What my friend is hinting at, is that it is in the interests of those who are running this country’s finances, to impose austerity on us in retirement, to keep longevity down. His final point is that this is not actuarial prudence at work, but a deliberate exploitation of actuarial conservatism to beat the actuaries at their own game.

John Cridland based his recommendations on data published by the Office of National Statistics in 2015. The data will have been collected well before 2015.

Latest actuarial projections use more recent data and suggest that there has been a noticeable reduction in the speed at which longevity is increasing. Commentators are now directly linking this slow-down to the austerity measures in place to combat the economic problems created by the financial crash (now nearly 10 years ago).

The Labour party response to the decision to increase SPA for 6m of us is to call it “an unwelcome extension of austerity”. No doubt Philip Hammond could counter this by pointing to Greece where no curbs were placed on state pension promises leading to the disasters that have occurred to current living standards.

The only alternative I can see to the impact of austerity on old age is a sea-change in pension policy and an end to the current system of reverse redistribution.

At the moment the vast majority of pension wealth is held by a small proportion of pensioners and those saving for retirement. This has a lot to do with the distribution of incomes but the inequality is enhanced by an unfair regressive taxation system that distributes the vast majority of tax relief on pension saving to those who have most to save (and most saved).

I am not in favour of tinkering with pension taxes (as might happen with further changes to the lifetime and annual allowance. Figures in the FT show that for all the noise the Lifetime Allowance is yielding negligible revenues.

lta tax

The cost of pension contribution tax relief is measured in billions – not millions.

What the Government appears to be doing, which appears to me unfair, is to subsidise the retirement of the wealthy, through a free tax-ride on pension saving; at the same time they are imposing ever greater restrictions on the payment of the state pension (as witnessed by the implementation of John Cridland’s recommendations this week.

My friend is pointing out that by ignoring signs that austerity is already reducing life expectancy and using actuarial modelling from another time, the Government is recklessly taking away a year of retirement from those 6m people who are already facing a substantial drop in retirement income (relative to current pensioners).

Nasty, brutish and short

The Cridland report talk of “longevity” and “healthy longevity” independently. The truth is that we are heading for greater inequality in retirement living standards between the haves and the “have-nots”. The haves have healthy longevity and the have-nots don’t.

This Government,  by refusing to reform private pension tax relief is forced to reduce state pensions. This is grossly unfair to those on low incomes and ensures that a high proportion of them will be consigned to what we could call “unhealthy longevity”. The non-actuarial term is a life “nasty, brutish and short”.

That phrase has been knocking around a couple of centuries. When it was coined life expectancy in some parts of this country was under 30 years so its application today is relative. Government intervention has ensured that none of us in Britain live life in the state of nature,

However, in intent, the continued policy of “pension austerity” pursued by this Government can be seen as part of an inglorious tradition in this country of ensuring that the poor remain living shorter lives than the rich.

That is not something as a nation which we should be proud of – or should tolerate.

Aside | Posted on by | Tagged , , , , , , | 1 Comment

How do you annoy a wealth manager?

Question; how do you annoy a wealth manager?

Answer; ask him about his fund supermarket.

fund supermarket


It may offend your local wealth manager (aka IFA) but that’s what Reuters call these funds platforms the FCA are investigating and if you believe Platforum, most customers (oops clients) asked what a platform was for, replied to get access to funds at knock down prices- avoiding the IFA in the process.

FCA platform model 2

“Paying less in fees than using a professional adviser”

People seem to see Fund Supermarkets as being on their side in getting a good deal on funds.


AJ Bell are campaigning to offer advisers the right to rebates of fund management fees rather than receive lower prices for funds as platform managers. This surprised me as I assumed that the economics of aggregation were dependent on economies of scale. Platforms with billions under management should be best plnaced to drive down price but (according to Hugo T and Stanley Kirk- this is not the case)

Independent platforms (not vertically integrated or ‘closet integrated’) can’t get a better deal for the end client if they have no influence over the funds flow…..The number of advisers or DFMs who choose that fund is independent of the platform so why would a fund manager allow access to a lower shareclass however large the funds on the platform? That’s what the FCA are going to find out after their studies

This sounds like a classic case of divide and rule; fund managers don’t like giving blanket discounts and were platform managers absolved of responsibility to negotiate price then advisers would have a fat wedge of cash to rebate against upfront fees. We would only be an inch from commission again with fund managers able to jack up fees and  offer massive cash discounts so that the adviser can advise for free.

If the FCA are serious about helping the consumer to win, we have to curb the  power of the advisers to manipulate rebates in their favour. We all now how food supermarkets have been required to make pricing clearer, perhaps the real reason wealth managers hate the term “fund supermarket” is that it reminds customers (oops Clients) about the importance of price.

fund supermarket 2



Posted in advice gap, pensions | Tagged , , , , | 3 Comments

Who wins from platforms?



I enjoyed reading the FCA’s Terms of Reference for its Platform Market Study, it posed many questions and I’m looking forward to the answers. Few investors properly understand what platforms are , what they do and  how much they cost. The aim of the study according to the FCA’s Christopher Woolard is tied up in this statement.

Platforms have the potential to generate significant benefits for consumers and we want to ensure consumers are receiving these benefits in practice.


The “significant benefits of platforms to consumers”

As far as consumers are concerned, the benefits of platforms are various and there is little consensus on what they’re really bringing to the party.

FCA platform model 2

Platforum Consumer Insights, Figure 42 (January 2017)


I would read into these findings that when pressed, more people would point to “security” than “feeling in control” but that the general sense of having investments organised is what makes the packaging of funds on a platform – so attractive.

I don’t see this as a financial benefit, it’s the benefit of empowerment. Platforms empower consumers to “pay less in fees than using a professional adviser and to manage investments independently of an adviser”. These are the financial benefits deriving from platforms.

The least valuable aspects of platforms are the tools and information they offer. These are still valued but they are the means to an end – the end is first of all control and security and secondly money saving. The capacity to be a funds expert , to move money and to have online valuations is only contributory to the main event.

Why and how people buy platforms.

From the evidence selected by the FCA, we can see those investing in platforms as predominately middle aged or in early retirement.

FCA platform 4

age bands of platform users (platforum)


They are income rich

FCA platform 7

household income of platform users (platforum)


And wealthy

FCA platform 8

Net disposable capital of platform users (platforum)


This is precisely the demographic that made the Equitable Life and were so let down by the Equitable. This market study is exploring precisely the issues that the FSA should have been looking at in the 1990s.

If you were to ask the Equitable policyholders before its crash why they invested with that Society, I would be surprised if the answers were much different to those given for choosing platforms (online services excepted)

FCA platform model 3

why people chose platforms (platforum)


And indeed, Hargreaves Lansdowne has the same trust from platform users as the Equitable had in the day.

FCA platform 9

non advised assets on platforms (£bn)

As in the 1990s, one non-advised provider dominates the sector that challenges conventional advised propositions.

FCA platform 10

Advised assets on platforms (£bn)


I am not saying that Hargreaves Lansdown has any of the structural flaws of the Equitable, but I would guess that the comparison between the two has been noted by the FCA.

Who wins from platforms?

Platforms are a profitable business (look at Hargreaves Lansdown’s share price). They are the means that fund managers get their products to the wealthy and they are the way that technology providers have skin in the assets game.

There is a cost to all this and the security and control that platforms offer, comes at a price. The FCA survey mentions the word “value” 49 times. Christopher Woollard must be wondering just how to measure the value that all this money spent on platforms brings.

We can safely assume that the financial services industry is doing very nicely out of platforms.

But at a time when Vanguard are under-cutting the non-advised price of Hargreaves Lansdown by more than half, can Woollard be sure that platforms are really “passing on the benefits to the consumer in practice”?

I suspect that it will be a lot harder to intervene in this market than we might think. The demographic that platforms serve is the Equitable demographic, now the Hargreaves Lansdown customer base. These people do not want Government protection until the balloon bursts, then they form Action Groups and lobby for their money back. It is a particularly insidious form of Moral Hazard.

But precisely for this reason, I would urge Woollard and his team to press on and really test whether these platforms are providing value, or whether they have become the means of ensuring wealth is redistributed from the mass affluent to the financial services industry.

Posted in advice gap, pensions | Tagged , , , , , , | 6 Comments

Postmen want to strike – is it any wonder?

postman sad

Maybe it’s because they’ve been reading the FCA’s report on Retirement Outcomes. Maybe the FCA have been talking with them. Either way, the 140,000 postal workers in the Royal Mail scheme don’t want a pension when they pack up their postbags, they want a pension.

Or as they eloquently put it, they want a “retirement wage”.

Yesterday I asked the Pension Regulator’s panel if they really stood for pensions or whether they championed retirement saving or financial wellness in later life or just “pension freedom”. I got a robust and very feisty answer from Nicola Parish. She was old school, she stood up for pensions.

In which case, I rather hope that she will be rooting for the CWU and their members in their conversation with Royal Mail and get behind its proposals, handily laid out here by my colleague, Hilary Salt of  First Actuarial.

Is it so unreasonable that the postal workers should want to receive more pension for each year they work with the Post Office.  That was and is the deal they sign up to. There is nothing in postmen’s contracts about “drawing down investments”, “buying annuities” or “cashing out”. The promise is for a wage in retirement commensurate with the time worked and the amount earned.

Are you watching FCA?

In case you hadn’t noticed, the FCA have been digging at the pensions industry for not coming up with innovative solutions. They may feel miffed that the CWU solution does not involve robots, dashboards or digital tools. They may feel sorry that the CWU is reinvigorating an old idea, using pension language to explain matters and adopting an investment strategy which is very simple.

This innovative approach is as close as a defined benefit scheme can get to being a defined contribution. It could only get closer if it was a CDC scheme, which it would have been had the Government not abandoned the secondary legislation for such arrangements a few months after enacting the primary rules.

The only reason that this proposal is not more innovative is because the Government has slammed the door in the face of the innovation that would have allayed the fears of  Royal Mail and their uber-cautious actuarial advisers.

But it is quite innovative enough. The proposal has been stress-tested and it survived the punishment it was put through. The assets are designed to meet the liabilities and not the other way round. The liabilities can be flexed so that the contribution rate remains steady (in line with the current funding rate from the Royal Mail).

FCA, you should read, understand and wonder that such innovation can exist in such parched a landscape. You could help – so could the DWP and tPR and the accounting standards board. We should not be valuing the liabilities of such a proposal against a corporate bond discount rate (for FRS102 purposes). We should not be requiring the pension to be guaranteed. We should allow members to have property rights even when the pension is in payment.

These are the very things that would have been allowed had we had CDC rules in place, instead of them gathering dust in a DWP filing cabinet.

Postmen are fed up – we all are

The FT is fed up, we are fed up, the FCA is fed up  , the CWU is fed up and the postmen are fed up.

Digital tools are not enough – dashboards are not enough, we do not need robots to tell us how to manage our investment drawdown and we don’t need a big pile of cash on deposit

The 140,000 postal workers in the Royal Mail scheme don’t want a saving scheme that just provides a lump sum when they pack up their postbags, they want a pension.


Posted in advice gap, pensions | Tagged , , , | 1 Comment

Innovative pensions for the mass of us!

In its Retirement Outcome Review (interim report), the FCA were clear on  evidence of a problem


The blame lies not with thick consumers but with lack of competition

If competition is not working effectively and consumers make uninformed retirement income decisions this could lead to different types of harm, such as:

  1. paying more in charges and/or tax
  2. choosing unsuitable investment strategies
  3. missing out on valuable benefits (eg employer pension contributions) or investment growth
  4. running out of pensions savings sooner than expected

We will carry out further work to assess the harm these emerging issues may cause.

In the full report, the FCA point out that

Stakeholders identified several barriers to innovation, including the pace of political change, lack of demand from consumers for new innovative products, overall consumer inertia and lack of engagement and small pot sizes of the current cohort of retirees

The FCA issue a threat to the private market

If the market fails to deliver innovative products for mass market consumers, there may be scope for NEST to fill an important gap.

NEST have published their own blue print, which while limited in scope, offers the mass market who cannot afford advisory fees to drawdown or the limitations of a guaranteed annuity – an alternative. You can read the details in section 14 (NEST blueprint)

The relevance of collective solutions

Until recently, a collective occupational pension was accessible only to employers. However, recent legislation (PO/08) has meant that individuals can choose to invest in master-trusts (if the master trust allows), independently of their employer.

What the FCA and NEST have in mind, is for individuals who have built up a retirement pot (rather than a “DB” right to a pension) to transfer that money into NEST for NEST to pay what amounts to a scheme pension to that person.

Personally I find NEST’s blue-print a little unambitious, it does not employ the kind of collective pooling which it could, but it does embrace many of the principles of Collective Defined Contribution Schemes (CDC) , that could counter the market problems outlined by the FCA.

NEST is structurally no different from any other master-trust, if NEST can take such money, so can the 70 odd master trusts currently being used for DC purposes in the UK.

Is the NEST Blue-Print fit for purpose?

The difference between what NEST is offering in its Blue-print, and what defined benefits offer seems small but is massively important. A defined benefit scheme is managed to provide a pension ( a regular series of payments) till the death of the pensioner (or sometimes a surviving spouse/partner).

Occupational schemes can offer to pay till death because they pool the risks so that people who die sooner subsidise those who die later. This is life insurance in reverse.

NEST cannot currently offer its own pooling and therefore proposes to rely on the annuity market to offer individual annuity products to those getting to advanced years. This creates a cliff-edge which is likely to be seen as a bad thing by ordinary people used to being looked after by seamless products like the state pension and occupational DB schemes.

Even if NEST was to implement its Blue-Print, I don’t think the proposals to annuitize at a set age (say 75) would meet with popular approval.

Why doesn’t NEST just offer scheme pensions like DB schemes?

The DB occupational pension scheme offers certain guarantees, most importantly the guaranteed that there will always be enough money in the great big pot , to pay all the pensions. Traditionally, occupational schemes have had to have a sponsor willing to top up that pot in the case of it not being big-enough to meet the guarantees.

But recently, a new type of collective pension has emerged that aims to be self-sufficient of future funding. Such a pension relies either on an initial injection of cash (BHS2, British Steel Pension Scheme 2) or income from a business it takes over (Kodak) or from pre-funding by the rest of occupational schemes (PPF). Another model is being put forward by the CWU to the Royal Mail which scales down the guarantees of a DB scheme till the sponsor can almost see it like a DC scheme.

All of these models will provide people with scheme pensions (the kind of pensions that last as long as you do but are paid from the central pot rather than by an insurance company as an annuity.

What’s stopping NEST from joining in?

Here is the problem NEST and other occupational DC plans currently have in providing the kind of scheme pension that people want (a pension for life).

As soon as a DC pension promises to pay a pension for life, it becomes a DB pension. NEST cannot be a DB pension nor can NOW or Peoples Pension or Blue Sky or any of the others.

The only way they can take on this kind of obligation is by dropping the guarantees and by moving to a “best endeavours” approach. This would be possible if legislation ,enacted in the Pensions Act 2015, was completed in its detail.

But in 2015, this detailed drafting work was stopped because the Government did not see the need for a new kind of third-way pension scheme. DB might be dead, but employers would not commit to a non-guaranteed version – for fear that at a later date, they became on the hook for promises made on a best-endeavours basis.

This line of reasoning was flawed. It was not employers that the DWP should have been talking to, it was employees and even the self-employed. Infact all the people who are struggling now to know what to do with their pension pots.

These people would benefit from NEST or any of its rivals paying scheme pensions without guarantees. It is precisely the system under which defined benefit pensions were established in the fifties to the late 1980s.  People paid into pensions with the hope of getting their pension paid in full but without the guarantees that were introduced from 1987 onwards.

Can people stand any degree of uncertainty?

We have yet to test the market on this question. Currently people are given a binary choice between certainty (annuity) and uncertainty (drawdown of various kinds).

The non-guaranteed scheme pension provides a higher level of certainty than drawdown but a lower level than annuity. It depends on mortality pooling (the principle that those who die sooner subsidise those who die later), it depends on actuarial prudence and it depends on increased efficiency from pooled investments and pooled administration.

It should not be dependent on capital markets (hedge funds, derivatives and other exotics), scheme pensions should be payable through a clear mechanism which has transparency throughout. Money invested should be transparently invested, the funding position of the great big pot should be totally clear and there should be clear rules about exiting the arrangement so that people who wanted to transfer away, knew in advance how they would be treated.

This kind of scheme can be arranged quite easily on paper, but it cannot currently be put into place, because the secondary regulations, which began to be drafted in 2015, have yet to be completed. I’ve spoken to the people who started the job and they reckon there is two to three years of work left to be done.

Next steps

I nearly typed “NEST steps”,

The FCA are worried there is no innovation, there is no real innovation in the mass market because there is no regulatory space in which to innovate.

In the short-term, master trusts  like BlueSky and Salvus are already offering the NEST Blue-Print through Alliance Bernstein’s Retirement Bridge product. The FCA could see innovation at work. But these products  are still  not offering what people really need which is a scheme pension payable for life (without guarantees on how much).

The FCA need to test whether people will accept more pension ( than an annuity will give) for less certainty. They need to do their market research not on companies but on people.

If they find that people are prepared to give up some certainty (particularly about guaranteed pension increases but also about the fundamental floor of income from the scheme pension), then they should allow products to be built to meet this demand.

This will mean allowing the products to be developed in lock-step with the regulation, so we have a reasonable chance of delivering scheme pensions to the mass market in the early part of the next decade.

If we do not do this work now, then we will continue to come up with partial unsatisfactory solutions which don’t provide people with a real alternative to drawdown or annuities (being a combination of both).

I urge Big Government – as the Pensions Regulator, the FCA, the DWP and the Treasury to take these next steps , resume work on the Defined Ambition regulations, consult with the occupational master trusts and most importantly , start the work of managing expectations of what people can expect in the complicated risk/reward trade offs explored in this blog.

Posted in advice gap, auto-enrolment, DWP, pensions | Tagged , , , , , , , | 7 Comments

AA and LTA – a small price for the rich to pay.

feather bedding

Taxation for the pension rich


The Telegraph have unearthed some research that suggests that the average extra tax paid by the pension super-rich is £46,332.

HMRC’s figures show that the total amount of tax paid by people whose pension savings rise above the lifetime limit has jumped by 33pc in 12 months to £120m.

While comparatively small numbers of investors are paying this penal tax so far, their numbers are growing. The average tax bill for those affected is an astonishing £46,332.

Gradual cuts to the amount you can save into a pension over your lifetime, now £1m and down from £1.8m at its peak, have come at the same time as stock markets surged. In the 2016-17 tax year alone, 2,590 people had to pay tax because their savings broke through the £1m limit.

These numbers are so tiny as to make me think that more money has gone to financial advisers to pay for AA/LTA anti-avoidance than has come back to us tax-payers. These taxes are financial speed-bumps, but not much more.Rich tax

The alternative to these speed-bumps are the road-closures that could result from the radical tax-reform considered by George Osborne but rejected to keep us in Europe (ho ho ho). These reforms ranged from the straightforward restriction of tax-relief to basic rate tax to the full monty of a shift to TEE. I have written at length about the economics behind the more radical steps. They remain extremely attractive to those struggling to keep Britain on the path towards fiscal rectitude.

Steve Webb has been in the papers, suggesting that Phil Hammond might decide to return to the radical course. I suspect that this is no more than the usual “scare the shit out of policyholders to get the funds in before budget day” scam. But perhaps the year we spent consulting on how a more fair pension taxation system could be created, had some positive effect, at least in getting in new premiums.

Higher rate tax-payers are so cossetted by the UK tax-system that they should be very cross with the Telegraph for reminding politicians just how much they are getting away with. Our redistributive tax system sits ill with the regressive taxation of pensions that gives to the have and gives nothing to the have-nots.

If we are to feel sorry for the pension super-rich with their £46k AA/LTA bills, how much more sorry should we feel for those who have no pension savings and miss out on the meagre incentives that they should by law be getting.

The Telegraph should pay more attention to the NET-PAY scandal and keep its lips shut about the feather-bedding of its well-heeled readers.



Posted in pensions | Tagged , , , , | 5 Comments

I wonder about schools rugby.


As I wondered around my old school – Bryanston – I felt nostalgia for the late 70s (when I was a pupil), wonder for the educational business I was being shown and fright at the conclusions I was drawing with regards school sport – especially rugby.

Rugby is , and always has been, the showcase for a public school’s prowess. An unbeaten rugby team can be  as important as culture or academic record (especially to us Dads).

Last year Bryanston diagnosed 54 children as having had a concussion while at school of whom 90% were injured playing rugby. As the stock of rugby players is only 170, this suggests that getting on for 30% of boys will be concussed every year. As it takes three weeks to go through the testing and rehabilitation from concussion, this seems an unsustainable situation.

At the lecture on head injuries I attended someone asked how these figures compared, there are no comparisons, until recently no-one kept records, most concussions were un-reported and many untreated.

It is entirely right that the school is leading the way – it has a full time sports physio and is not shy of reporting the facts to parents. I noticed a lot of women in the lecture I attended and spoke to a few after, they shared my feelings.

I played two years in the first fifteen back in the 70s, lost one match and were considered stars, today’s team is not so successful, one coach I spoke to suggested this may be linked to a style of rugby it is playing which attempts to reduce the level of hard contact that leads to concussion.

I am pleased to hear that the school is considering offering football as an alternative to rugby for boys who prefer it, I have seen how this works in other schools, while it is likely to reduce the competitiveness of the school rugby team, I suspect many boys (like my son) would opt for football – not least to play a full season of sport.

I was tempted looking back at my time , to consider today’s children over-protected. But I have a cousin who is a paraplegic from rugby related injuries and we will never know how many of my generation suffer from lack of diagnosis of trauma from head damage.

Bryanston 4

Malcom and Sally Green


Part of the recuperation from concussion is at least three days when the child cannot look at LCD screens, I imagine this will be a greater trauma to the child than the concussion itself! Speaking to my old coach – Malcolm Green – he reminded me that in my five years at the school, I did not miss one match through injury.

We had a serious conversation as to whether this was a matter of personal resilience, mis-diagnosis or due to the nature of the rugby being played now and then.

I don’t know the answer to that question, but for those of us lucky enough to reunite after nearly 40 years, the camaraderie of the years we played remains. Rugby is an extraordinary game to play, I have never enjoyed a team-sport more.

I hope that the efforts of schools like Bryanston will help shape school sport to ensure that rugby does not become a menace but continues to give the pleasure it gave to me , Malcolm and this lot.



And then again, there’s always rowing!

Bryanston Buffaloes.jpg

Posted in pensions | Tagged , , , , | 3 Comments

Merryn is right, we should expect more from workplace pensions.


This blog is a sharp rap across the knuckles to the providers of workplace pensions whose “member propositions” are woeful. Coward that I am, I have to ride shotgun on the coach and horses driven by Merryn Somerset-Webb in the FT. For those who don’t subscribe, here is a flavour of Merryn’s complaint.

 They offer products you can’t criticise too much. They charge headline prices that most don’t recognise as particularly high. And they provide all the information they are legally required to provide — even though much of this is in a place that I doubt the majority of people will bother to reach

It seems odd to criticise the operators of work place pensions for mediocrity; but when you consider these guys have been dished up the tastiest steak sandwich of a business proposition since pension saving began, maybe not.

Back in the day, I remember operators being fearful, they sat in rooms with civil servants and wondered whether auto-enrolment was for them. A few said no it wasn’t (the Prudential among them), most spent a little money on compliance systems and hoped their personal pensions could stand the strain. The new kids on the block used second hand technology for the land-grab. NEST got itself an unlimited loan and bought solutions from the market that work, NOW didn’t – and didn’t. Peoples Pension got it more right than any and continues to do so.

The market was waiting for an innovator, the closest it has got has been Smart Pensions, which is now swimming around like an adolescent shark, taking a bite at any fish in the ocean. It is as close as the market has come to being a Fintech operating in the workplace pension space.

Close but no cigar!cigar

Last night, I returned a miscall from Nudge to NEST, the guy from NEST had given the guy from Nudge, my number by mistake! It seemed an appropriate end to a week in which I’d been told that NEST could not get the business justification to use Origo for transferring out members. Impact – members wanting to transfer out of NEST are waiting close to 50 days , rather than the 10 – if they adopted the Origo standard!

We all know what good looks like, we have good apps on our phone which allow us to do our banking. This week I upgraded my Virgin Trains ticket using Seatfrog which allowed me to bid against other passengers for the big seats at the front, it took a minute using my handset.

But not one workplace pension, not even Smart, offers punters an app to see our funds. Most of the insurers will give us little calculators , but none will allow us to see what is going on. It’s not impossible, most of the SIPP providers give their wealthy customers the right. L&G offer an app if you’re in a SIPP but a clunky log-on to a website – if you’re in economy class (the workplace pension).

Workplace pensions talk a good game , they look close to getting it right, but – as Merryn points out- they opt every time for mediocrity.

Lipstick on a pig

lipstick on a pig

I think it easy to see why. The business of pensions administration has yet to embrace the 21st century. The distributive ledger technology which is pervading insurance and banking, has not been adopted by pension administrators.

Instead, they re-use last year’s chassis and fob us off with snazzy interiors.

Until the chassis of our workplace pensions, by which I mean the databases that keep our records, are upgraded to the requisite technology to meet today’s best practice, workplace pensions will continue to be expensive for operators to manage and unhelpful for us to use.

A root and branch upgrade in the back offices of the operators is overdue. I have spoken to one or two and they know who they are. I will single out Smart since they have new management. Smart- if you are reading this, it is time you stopped being clever and started being brilliant. If you want to beat the big boys, now is the time to show leadership.

For now – your proposition – like those of your competitors – is no more than lipstick on a pig!



We should expect more!

The level of expectation is so low because we have no consumer champions. The IGCs and the Trustees of these master trusts are busy talking among themselves about whether they are offering value for money. If you want to see what a good member experience is, look at your phone, look at Pension Bee, look at Money Hub, look at Seatfrog (where you get train upgrades).

We don’t want fancy apps, we want real time information – easily accessible and easy to use. We want to be able to pay money in with a touch of a screen, we want to draw money out with a touch of a screen. We want to transfer our money as easily as we can switch with U-switch.

We don’t know we want these things because the level of expectation set by the IGCs and Trustees , is benchmarked against each other and not against what is a brilliant member experience.

We are now only a few months away from the next round of IGC chair statements, which will once again say that “in our opinion, xyz is offering value for money”. This statement will beg the overwhelming question “against what?” and once again the answer will not be forthcoming.

We should expect more and we will demand more. What we want is investment in new technology to make these lipstick on a pig, admin systems into world-class databases offering members world class service. Until we get that service, we are right to agree with Merryn.

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

Helping older people with money


old men 2

I’m pleased to see the FCA publishing a paper on the particular problems older people  have with financial services, I haven’t read it all , only the summary (which I can summarise as the paper does)!

older savers

The summary rightly points out that as we get older we get testier, less patient , less attentive and more vulnerable to poor decision making. I discover that as a 55 year old, I am in the FCA’s sites as an older worker. I have to admit to some poor decision making;  spending time in futile conversations about financial empowerment for the old being high on that list.

Elderly people in this country – what this paper refers to as the “65, to 75” and the “75s to 85s” differ only from younger oldies like me in decreasing cogitative faculties. I see no evidence that they worry less about money , nor that they are less able to take decisions, they just seem to take worse decisions.

We curse our elderly with financial decisions that they do not want to make. At one extreme, the elderly are vulnerable to scams and at the other end, they just make mistakes (I have written lately about King Lear and the mistakes he made with property).

We are exponentially increasing the problems for older people by asking them to manage their financial affairs through investment vehicles which become increasingly tedious to operate. We are now reaching that stage in the maturity of SIPPs where we can see just how helpful they are to the elderly.

I would welcome an FCA study into how well mature SIPPs are meeting the needs of those in their 80s, whether they are being controlled by younger generations as a source of inherited wealth, whether they have diminished through badly managed drawdowns (pound cost ravaging) or whether they are now meeting the expenditure needs of their owners.

My guess is that the self-invested personal pension is the last thing that someone whose mental faculties are declining, wants or needs to manage.workplace pensions

Which begs the question, why is so much of FCA policy – at least that relating to Retirement Outcomes, ignoring the messages of this paper?

We have, since early days, recognised that what gives elderly people comfort is the certainty of budgeting around an income. It is what they have had to do throughout their working life.  Assuming that we can budget from sluicing a capital reservoir is a dangerous assumption. nobody has yet worked out how to do this – even the experts.

So instead of giving people a couple of hundred thousand pounds at state retirement age and telling them to get on with it, we give them a weekly wage of up to £160 p.w. and people love it – it is their state pension and it is real.

If the FCA can learn anything from the paper they have commissioned, I hope it is that the older we get, the less we value the pension freedoms and the more they want a wage for life. They should leave the glass towers of Canary Wharf and walk down to Poplar or Bow or Plaistow or Stratford and talk to elderly people on the street.

For much as I like to see the FCA publishing papers like this, the reality of old age can only properly be understood by spending time with elderly people.

old people

Posted in pensions | Tagged , , , , , , | 3 Comments

Would a shift from bonds to growth assets keep the USS afloat? – Mike Otsuka

otsuka pig

Image: IKON


Michael Otsuka is Professor of Philosophy at the London School of Economics. He has also served as the pensions officer for the LSE’s UCU branch. This article originally appeared on Wonkhe.com, the home of higher education policy, people and politics; http://wonkhe.com/blogs/would-a-shift-from-bonds-to-growth-assets-keep-the-uss-afloat/

This article is published in full below

Last week, two key documents entered the public domain that cast light on the current triennial valuation of the USS. On Tuesday, the University of Sheffield publicly posted the 58-page proposed Actuarial Valuation that USS had released to employers at the beginning of the month for consultation. On Friday, the Universities and Colleges Union (UCU), which formally represents the interests of scheme members, posted a 16-page response by their actuarial advisors at First Actuarial.

USS maintains that, to continue to provide the same level of pension benefits, contributions would need to increase from the current 26% (18% employer plus 8% employee) of salaries to a much higher rate of 32.6%. As 18% and 8% are widely regarded as the upper limits of what employers and employees are willing to pay, the implication of USS’s proposed valuation is deep cuts in defined benefit pensions.

First Actuarial presents a very different picture. They argue that USS can prudently continue to provide the current level of benefits without increasing contributions at all. In other words: keep calm and carry on.

What accounts for this difference in perspective? To answer this question, I need to say a few words about an actuarial valuation of a pension scheme.

The valuation serves two purposes: (1) to establish whether the £60 bn of assets in the pension fund as of the 31 March 2017 valuation date are sufficient to pay for defined benefit pensions that have been promised up to that date (past promises), and (2) to set the level of employer and employee contributions that will be required going forward to make and later fulfil new pensions promises (future promises).

Under the current scheme rules, annual employer and employee contributions on all salaries below £55,550 give rise to the following promise: lifetime pension payments in retirement worth 1/75th of each year’s salary, revalued for inflation.

The difference between USS and First Actuarial is rooted in the fact that contributions made during the working lives of scheme members need to be invested and to achieve positive real returns, to cover these promises in retirement. If they are simply deposited into an interest-free savings account, they will fall short.

First Actuarial calculates that contributions for past promises need to be invested, so they grow by 1.36% per annum in real terms (i.e., beyond the CPI rate of inflation) to reach the ‘break even’ point of covering all past promises. This is similar to the required rate of return that Con Keating reports as having been told that USS itself has calculated.

First Actuarial also calculates that contributions going forward for future promises will need to grow at a somewhat greater rate—by 1.85% per annum in real terms—to reach the break-even point of covering those new promises. Since this break-even rate is 36% higher than the break-even rate for past promises, this figure is corroborated by USS’s statement that the cost of providing future promises is now about 35% greater than the cost of providing past promises.

So far, therefore, USS and First Actuarial are on the same page: they are in agreement regarding the investment returns that are required to meet both past and future pension promises.

They are, however, in deep disagreement over investment strategy and choice.

USS describes its current portfolio as “broadly half in equities, one-third in bonds and the balance in infrastructure, property and other assets.” First Actuarial maintains that the pension fund should remain at least as heavily invested as it now is in growth assets such as equity and property. They also note that the “best estimate expected return on UK and overseas equities and property is well above [the higher break-even rate of] CPI + 1.85%. The USS in-house team, the scheme actuary, the actuaries advising UUK and ourselves all agree on this.”

The best estimate is one that the scheme will meet or exceed 50% of the time. The regulations, however, require that pensions promises be funded on a prudent basis, involving a greater than 50% chance of success. In line with others, USS construes prudence as requiring a two-in-three, or 67%, chance of success.

USS maintains that its current portfolio has a 67% chance of achieving no more than 0.53% below CPI per annum (i.e., negative real returns) over the next ten years. Such a pessimistic forecast is largely down to the currently extremely low expected return on bonds, in which USS is now one-third invested.

USS believes, however, that economic conditions will have returned to a more normal equilibrium by the end of the coming decade, at which point bond yields will have reverted to their higher 2014 levels. From that point and for two further decades, the current portfolio will have a 67% chance of achieving a return of 2.8% above CPI per annum. If therefore, we average over these three decades, the current portfolio has a 67% chance of achieving returns of 1.69% above CPI per annum.

This is slightly below the higher break-even rate of CPI + 1.85% for future pension promises.

First Actuarial would maintain that there is a simple solution to this problem: rebalance the portfolio so that it is somewhat more heavily weighted towards equity and property and other growth assets. There are various shifts in that direction that would, even by the lights of USS’s investment team, have a prudently adjusted 67% rather than 50% of meeting all future promises.

USS would probably respond that even a two-in-three chance of success isn’t prudent enough for a portfolio so weighted towards equities and property. This is because the returns on such growth assets are more volatile and variable than the returns on bonds. Hence a one-third chance of failure might involve catastrophic downsides that would be unacceptable in the case of equities and property but not bonds.

First Actuarial has a rejoinder to this challenge, which appeals to the cash flow analysis of the scheme that they develop in their paper. Their view is that for an open, ongoing, scheme such as USS—uniquely grounded in an enduring multi-employer sector of well-established and often venerable universities—the risk of investment in equities and property is minimal. This is because incoming contributions plus a modest level of investment income from growth assets will be sufficient to meet all pension promises in any given year, for at least the next 50 years. Hence the scheme is protected against the disinvestment risk of having to sell equities or property at an inopportune time. Since one can hold these assets over the long run, one can be confident of being able, over decades, to reap returns that comfortably exceed the break-even rates.

USS offers a very different approach to the investment of contributions. In accordance with their much-discussed ‘Test 1’, they call for a rebalancing of the portfolio in the opposite direction—towards bonds and other ‘liability-driven investments’ (LDI). These investments have a much lower expected return than equities and property. But this cost is thought to be outweighed by the security provided by the fact that their cash flows more precisely match the cash flows of the liabilities (in this case, the promised pensions). A long-dated index-linked government bond, for example, offers guaranteed regular payments revalued by inflation over a long number of years, in a manner that relatively closely approximates the shape of pension payments.

Therefore, even though USS maintains that their current growth-weighted portfolio will have a 67% chance of achieving CPI + 2.8% ten years from now (which is well above both breakeven rates), their Test 1 mandates a shift from years 11-20 out of that growth portfolio and into one weighted towards bonds and other LDI. The shift to LDI will be sufficiently great that, by year 20 and thereafter, USS estimate that the portfolio will have a two-thirds chance of achieving a return of no greater than CPI + 1.7%, which is below the break-even rate for future pension promises. When, moreover, one combines this with the dismal returns that USS forecasts during the first ten years, we arrive at the low figure of CPI + 1.14% as the average return per annum that USS expects its portfolio to have a two-thirds chance of achieving over the next thirty years. This figure is below the break-even rate for past as well as future pension promises.

In comparing USS’s approach to investment with First Actuarial’s, the following question arises: According to USS’s own best estimates, the expected 30 year returns on growth assets such as equity and property are 3.64% and 3.23% above CPI respectively, whereas the expected return on LDI such as index-linked bonds is CPI minus 0.76%. Therefore, even if cash flows from growth assets track pensions liabilities less well than cash flows from LDI, the fact that the expected total volume of cash flows from growth assets is much higher than the expected total volume of cash flows from equivalently priced LDI ensures that the liabilities will be covered, even on a prudent rather than a best estimate basis. Why match pensions liabilities with a small stream of income that has the same shape as the liabilities rather than fund them from a less well matched but large stream of income that should more than cover the liabilities, whatever the mismatch?

The soundness of any call in future weeks for cuts to defined benefit pensions will turn on the presence or absence of a compelling answer to this question.

 The Ongoing debates

There are two debates on USS running in parallel, the first is a public debate, of which Mike’s comments are a part, the other is a private debate between employers and the USS. The tension created between the very public and very private natures of these conversations is evident in Josephine Cumbo’s article in the FT.

Sam Marsh , from Sheffield University’s Maths school, has collected a petition of 1600 signatories which has been sent to Bill Galvin , CEO of USS – you can read the covering letter from the link on this tweet.

 I intend to post relevant material that appears in the public domain as a record of this discussion.  The quality of the debate is of course high, since the participants are familiar with the subject. First Actuarial, of which I am of course a Director, continue to participate – advising the UCU. Derek Benstead, who comments below, is a colleague at First Actuarial and an author of the First Actuarial report mentioned by Mike.

Derek Benstead of First Actuarial comments on Mike Otsuka’s article.

I like this article very much. It seems to me that you have studied both sides of the argument then tried hard to present both sides in a fair and balanced way.

A few comments if I may (from the author of the First Actuarial report to UCU).

The 32.6% cost of future benefits is only temporary, it reduces over the first 10 years by 5.3%, everything else being equal. A benefit cut judged on the 32.6% would need to be 2/3 reinstated by the end of the 10 years, everything else being equal. Changing benefits at every valuation is not a sensible way to run a scheme. Benefit changes need to be much rarer than that.

You wrote “First Actuarial also calculates that contributions going forward for future promises will need to grow at a somewhat greater rate—by 1.85% per annum in real terms—to reach the break-even point of covering those new promises. Since this break-even rate is 36% higher than the break-even rate for past promises, this figure is corroborated by USS’s statement that the cost of providing future promises is now about 35% greater than the cost of providing past promises.”

The similarity of the 36% and 35% is coincidental, there isn’t a link between the two. The “breakeven” discount rate values the past benefits at the asset value and it values the future benefits at the contribution rate. The difference in breakeven rates for past and future means there are proportionately more assets relative to past benefits than there are contributions to meet future benefits. The increase in the USS’s costing of future service is due to their reduction of the discount rate in the costing from 2014 to 2017.

You wrote “Why match pensions liabilities with a small stream of income that has the same shape as the liabilities rather than fund them from a less well matched but large stream of income that should more than cover the liabilities, whatever the mismatch?”

You’re right to conclude this is the critical question. I could expand it a little:

“Why match pensions liabilities with a small stream of income that is definitely too little to pay the benefits and requires more contributions rather than fund them from a less well matched but large stream of income that should more than cover the liabilities, whatever the mismatch?”

The critical task is to make benefit payments more certain, not to make the investment returns more certain. I hope that people will understand from our cash flow analysis that the fears of the proponents of bonds and Liability Driven Investment are exaggerated.

The employers sponsoring the USS should be interested in business efficiency, the cheapest way of getting a job done properly. The alternatives of running down the USS and going to Defined Contribution or to the Teachers Pension Scheme (TPS) will result in higher contributions from employers than carrying on with a sensibly invested USS.

The original purpose of starting a trust pension scheme is to invest it productively to the benefit of the employer’s contributions and members’ benefits. To invest in low risk / low return assets will definitely put the employers’ contributions up, and/or members’ benefits down, making the USS a poor reward in comparison with the TPS. DC has poor pension outcomes at current annuity rates, making DC a poor reward in comparison with TPS, unless the employers put in higher contributions than they do to USS. Closing USS would result in a loss of contribution cash flow, triggering a need to invest in bonds to provide for net cash outflow, resulting in lower investment return and higher deficit contributions to the USS for employers, in addition to contributions to whatever new scheme they institute. The best way forward for the employers is to ensure the USS is run to meet employers’ and members’ needs.

Posted in pensions | Tagged , , , , , | Leave a comment

Advising the 5,000; so where are the loaves and fishes?

Five thousand 3

The mass market of people retiring over the next few years  no default means to spend their money and no access to suitably priced advice. That is the conclusion of the FCA consultation on Retirement Outcomes that has just closed.

I have talked about the need to innovate new risk-sharing product. I am now looking at advice.

The FCA’s view as stated in the document is

consumer 4

I have written to the FCA , suggesting that this is analysis ignores the impact of its own agencies, the Money Advice Service, Pension Wise and the Pensions Advisory Service.

£75m has been spent on the vanity project that is Pension Wise since it started up in 2015. Despite all the advertising , it has delivered relatively little compared to TPAS on which only £11m has been spent.

Anyone who has been live to the issues surrounding Retirement Outcomes will be aware of the tireless work of Michelle Cracknell, TPAS’ CEO and her team.  It is extraordinary that the FCA do not recognise that – despite the failure of Pension Wise, TPAS continue to enjoy the support and respect of everyone who uses them.

TPAS is the great unsung hero of the Pension Freedoms and has done more to help ordinary people than any other Government agency.five thousand 2

Learning from TPAS.

TPAS does not do fancy modellers and does not offer robo-advice. Instead it offers people the chance to talk on the phone or on a web-chat