We are midst-consultation on pension dashboards and there’s public enthusiasm for the project There’s industry consensus that the Single Financial Guidance Body (SFGB) will incubate its dashboard in a controlled environment and that commercial dashboards will follow. But proposals to tender the data architecture , putting one organisation or consortium as sole pension finder – is proving controversial
The Consultation proposes following a conventional procurement process. Unsurprisingly this issupported by the consortium that built the “dashboard-protoype” using the procurement model proposed in the consultation.
But a second proposal has emerged that would replace a single pension finder with a devolved obligation on each pension provider to build their own dashboard integration services, or cluster together around a new market of outsourced ‘integration service providers’.
Advocates of this second approach argue it would encourage innovation, create competition, be delivered faster and would not need a central procurement budget. They claim that by adopting theaccepted data architecture of open-banking. this approach would avoid anothercentral IT project for Governmentto stumble over.
They liken this devolved approach to the way that railway companies competed and collaborated with each other to produce Britain’s rail network in the 19th century.
The dilemma the Government faces is that having proposed dashboards it is reluctant to deliver them. Keepingthe first dashboard and governance within SFGB keeps governance tight,but does the infant SFGB want to manage the largest data integration project the UK financial services industry has ever seen?
The second proposal actually reverts tothe original vision for the dashboard (outlined by then Treasury Minister Simon Kirby) who advocated in 2016devolving responsibility to commercial providers and “delivering a prototype within months”.
Kirby may well have approved of calls from todays “Pentechs” that providers agree sign up to open their data to whatever standards are generally agreed (in return for gettingaccess to that data themselves).
Pentechs want instant commercialisation, so that whatever they build, they get to use at once.
they point out that having built a prototype, it’s time for the main event. They see the vetting of pension finders as a matter for the FCA who could use theexisting Account Info Service Provider permissions. Co-ordination of these permissions could be put in the hands of the Open Banking Implementation Entity
Since the dashboard was handed to the DWP, Kirby’s proposals have been reversed into a siding. The hope is that after the consultation , the dashboard will be back on the mainline. There is some hope that this will happen Speaking at the launch of the Dashboard consultation, John Govett (CEO of SFGB) stated his intention to deliver at high speed.The SFGB must realise that the process laid out in the consultation is quite the opposite of Kirby’s “dashboard within months”.Procuring a single pension finder risks perpetuating recent frustrations.
The industry consensus will undoubtedly be for a conventional approach, it is the line of least resistance for providers who will not be challenged with compulsion for at least three years.
However, consumer expectations are changing, and having been promised a dashboard – they are unlikely to be patient with the speed of delivery proposed in the consultation. The political imperative is to meet the expectations of the public and avoid another IT procurement shambles.
Speaking at the TISA conference, shortly after taking her new role at the DWP, Amber Rudd told her audience that she intended this to be a genuine debate with the Government in listening mode. She will certainly get that debate.
This is one of those blogs where my focus is on big Government – or policy – rather than the little things that go into making political strategy happen.
For a long time, as long as I’ve been working, there has been an expectation that the wages we get from our pensions and investments would cover around two thirds of our salary. This was what our parents and grandparents were told and though it didn’t always work out, it was what was on offer for a lifetime’s work in public service or from a private company with a pension scheme.
So I read this tweet with the shock that comes from listening to an old friend who you’ve been ignoring a while. Andy Young is an old friend and I have been – well – ignoring what he’s been saying. But I can’t for ever- not only has he been right throughout his career as one of the Government’s senior actuaries, but he is growing older with no loss of his acuity.
The simple fact is that we cannot save enough to provide the pensions people expect from the ages they want if their expectations are based on their parents and grandparents.
Why we can’t save enough is clear. There is not enough going into our bank accounts from our wage packets to let us live the lives we’ve promised ourselves and spend enough on our retirement to meet the promise bought by our parents and grandparents.
Either we get a lot more productive while we work so that we can afford to spend more on the future, or we change our futures to meet our diminished financial resource.
“I won’t be able to afford to retire” is a common theme from working people. Unpleasant as it sounds, pushing out retirement beyond that other great misconception – retirement age – is generally accepted by the working class (by which I mean the class of people still working).
But for those who cannot work?
The problems become acute when people stop working. I was alarmed to read this news from the ever-reliable Paul Lewis.
This change will affect many #WASPI and #1950swomen with older husbands on low incomes. Claim pension credit before 15 May if you even think you may be entitled. Also could affect higher rates of housing benefit and council tax reduction which currently apply if either over SPA. https://t.co/nCREjZEZWG
It’s no surprise to see the benefits for those below state pension age being eroded. The DWP get their money from the Treasury and the Treasury do not look kindly on anything that smacks of moral hazard. So those sleeping rough the next few (cold) nights should remember that they have no one to blame but themselves.
If you read those last two lines and thought that I’d turned into some far-right Gradgrind, then I’m a better impersonator of some of the Treasury mandarins I’ve met – than I thought!
It’s no laughing matter. If you have lost the will or capacity to work because you’ve become mentally or physically sick, learning that there is nothing coming your way by way of pension credit till you reach the state pension age is very bad news indeed. That what you had, may be taken away from you, because your partner is still to meet this arbitrary retirement age, will be doubly depressing.
These should not be hard times. For most of the people who read this blog – they are not hard times. This year will mark the 80th year since the outbreak of the last meaningful way this country waged. Since then we have been enjoying an extended peace dividend.
It worked for our parents and grandparents and if your are my age – it’s working for us but it doesn’t seem to be extending to the generations coming behind and the peace dividend doesn’t seem to be spread to those claiming benefits, who are seeing those benefits being eroded cut after cut.
I am asking myself – is this the society I want to be in? Do I want to see people’s expectations for older age being managed downwards. Do I want the threat of destitution on those who have saved nothing?
The answer – and this will appall many people – is no I don’t. I would rather see more spent on benefits than less and I would rather target my tax on alleviating destitution – which I see 30 yards from my front door on cold mornings like this, than return to a Victorian value set.
Managing pension expectations?
It seems that the pension expectations of pension millionaires can be understood and campaigned for by the Treasury.
It would seem that we still see pensions as important for some people – even if the 1.2m people who in 2019 will not get promised help with pension contributions – are to be ignored by the Treasury.
It is almost impossible to square this circle unless you believe in that Victorian value set which rewards the worthy and deplores the poor.
That is not how I want this fine country to manage pension expectations. We must look very hard at the way we are distributing the wealth of this country and make quite sure that the curse of destitution in old age does not spread.
Last Thursday, there was another meeting of the group of us, determined to keep up pressure to sort the problem of net-pay pension contributions this side of auto-enrolment’s next big phasing hike in April.
Just to rehearse the problem, if you are low-paid and in a net-pay pension scheme, your pension contributions could be 25% more expensive to you than if you are in a scheme where contributions get relief at source.
More than 1m people are expected to fall into this category and it could mean you paying more than £5pm to be in your pension. That may not sound a lot is you are full time and on a typical wage paid in the financial services industry but it is a significant extra cost for those on low earnings.
The discount on pension contributions was originally branded the “Government Incentive” to those not paying tax. That changed in 2015 when Government dropped the 4 +3 +1 approach to auto-enrolment – because it recognised that many would not get the “+1”. One of the reasons for this was the gap that was emerging between the minimum threshold for auto-enrolment (£10,000 from April 2019) and the minimum threshold for paying income tax – (£12,500 from April 2019). If in any tax year or any pay period in that tax year, your earnings exceed the pro-rated minimum threshold for auto-enrolment – you will be enrolled.
The discount was designed to ensure that the tax-system – which gives up to 45% off pension contributions for high-earners – gave back to the poorest savers. Net pay is financial inclusion in action and it’s working very well for most low earners
For instance , the incentive is paid out to members of occupational pension schemes like NEST and People’s Pension – which operate relief at source, as well aa to contract based personal pensions run by insurance companies and SIPP providers.
But it isn’t paid to you if you are in the vast majority of occupational schemes, that – mainly for administrative reasons, can’t afford to switch from net pay to relief at source. You don’t choose your job on the basis of the pension contribution structure it offers.
So whether you get the incentive or not is now a total lottery, it all depends on what type of scheme you are in.
It’s not right that over 1m people will not be getting their incentive in 2019 and the campaign group is led by Ros Altmann and includes Adrian Boulding of NOW and a number of organisations keen to right the wrong.
Some enlightened employers have recognised that if they run an occupational pension scheme that discriminates against the low-paid, then not only are you running the scheme inefficiently (by not picking up the free money from HMRC),.
This Thursday we heard an excellent presentation from Tesco, who alongside their pension partner, Legal & General, have created a system that means that everyone maximises out the tax advantages of pensions available to them as individuals. Higher earners can get their higher rate tax-relief paid to them up-front through salary sacrifice, while lower earners get their incentive through relief at source. There are complex triggers in place at payroll to make sure that those on low earnings don’t lose out from salary sacrifice (or that Tesco doesn’t accidentally pay them a nominal salary below the minimum wage.
This complex system can be put in place at Tesco because it has a workforce of 300,000 that makes it worth designing a bespoke solution. Tesco employs some of the best brains in Britain to make sure that everyone gets the right deal for them and this has meant a lot of bespoke coding of systems – especially around auto-enrolment and salary sacrifice.
Tesco’s pioneering approach could be adopted by other large employers with a large number of employees working part time and/or on minimum wages. It means disruption and expense but Tesco reckoned that it could bear that cost rather than see unfair discrimination against its low paid staff (the majority of whom are women).
But not every employer is a Tesco
What became obvious during the presentation , is that Tesco are at the top-end of good practice, they are in the right place. Many smaller employers do not have the resource to implement the system of triggers described to us by Tesco. Complex benefit structures aren’t cheap to design or implement.
This is the reason for the title of this blog. There is no solution to the net pay problem other than for HMRC to take the bull by the horns and create the coding that gives employees the incentives they have earned in a pay coding adjustment. The group is currently putting the final proofing on a proposal that will be re-submitted to HMRC which explains how this will work.
Practical steps to help Government out of the problem
Now is a particularly good time to approach Government as HMRC has already committed to making pay-coding adjustments to Scottish people paying income tax at the Scottish rates. We argue that if HMRC can do it for the Scots, they can do it for all UK tax-payers.
It may be that HMRC can do things by halves, which would make the bill more palatable for them. A very high number of those affected by the net-pay anomaly are in Government pension schemes. These could be carved out of any settlement and dealt with by separate negotiation.
It is no good pretending this problem isn’t here. It’s a big problem today and will get a lot bigger in April. It is no good Government departments passing the buck, the DWP and Treasury both have skin in the game and should both be involved in discussions on how to fix things.
The long-term impact of the net-pay anomaly are
the low paid may get priced out of auto-enrolment
the low paid will remain enrolled but not be able to afford to live properly
the low paid will be mobilised, either by private organisation or by some future Government to demand what they were promised and couldn’t get
Right now, the Government seem to have put this problem in the “too-hard” box and it seems that most employers running net-pay schemes have followed suit.
Well done Tesco for looking at this problem and putting in place a bespoke solution.
Come on HMRC, we are not all Tescos, you cannot rely on the private sector to get yourself out of this hole, you need to do some work on the net-pay anomaly right now.
The Work and Pension Select Committee is holding an inquiry into the way that pension transfer advice is charged for. This may seem an arcane subject but it’s not. As this blog has said many times, contingent charging was the lube that made the transfer market deposit up to £36.8bn into SIPPs and insured personal pensions in 2017 and over £10bn in the first quarter of 2018 alone.
The committee is calling for evidence of a link between contingent charging and the alleged mis- advice to over 50% of the estimated 200,000 people who transferred out over the past two years.
I know people who read this blog who took £1m + transfers from gold-plated de-risked DB schemes – some of which they de-risked themselves. They paid for that advice with their own money – and paid the VAT too – both of them. Why? Because they didn’t want to lock into some crappy advisory deal (one of them used that phrase), when they could manage their money better themselves.
That’s heroic stuff – those people make their money managing other people’s money, why shouldn’t they manage it themselves – one paid £10k + VAT and the other £8k +VAT – the VAT would not be recoverable.
Compare this pair with the people who transferred on average £400k from BSPS, they were not getting such good CETVs (typically 25 rather than 40 times the payment forsaken) but they paid nothing to get their money out – their fund paid it for them. They transferred out on a system called contingent charging which lubed the process and made it all “oh so easy”.
The W&P Select is calling for evidence. I can’t evidence myself. I refused to transfer my DB pension – I refused to take tax free cash – I am a Zurich Pensioner and I have no gilts!
My evidence is simple. If you can do better than a DB pension scheme, pay to have your head examined and pay the VAT – you may be right but the chances are you are deluded and a good adviser like Phil Billingham or Al Rush will tell you so.
If you have no cash but a big fat pension – like most of the people who were approached by Active Wealth, you should not be allowed to be seduced by a no win no fee transfer deal – promoted with a sausage and chips dinner. If you can’t pay the advisory charge (and the VAT) – you can’t have all your money in a CETV.
I know that Al Rush disagrees and points to special circumstances like single people with reduced life expectancy and a need for cash now. I have no doubt that there are people like this and no doubt that some have no money to pay for an upfront fee. But they are exceptional and I have no worry for exceptions to be dealt with via an exceptional process by exceptional advisers like Al.
There should be a process for quick release in dire circumstances and it’s the kind of process that could run through FOS, FSCS or even SFGB – a hardship committee could be set up.
To help the FCA with its next steps, we want to hear from anyone who has been affected by this issue. Have you, or someone you know, received taken advice about a defined benefit pension transfer? Did you have a good or a bad experience? Do you think this was driven by the financial adviser’s charging structure? If so, please tell us your story by Thursday 31 January 2019.
If you do not have personal experience of this issue, but have views on banning contingent charging, the Committee still wants to hear from you. In particular, relating to the following questions:
Does contingent charging increase the likelihood of unsuitable advice?
What would be the impact of a ban on contingent charging on consumers and firms and how could any negative effects be minimised?
Are there any alternative solutions that would remove conflicts of interest but avoid any possible negative impacts of an outright ban on contingent charging?
Although she doesn’t read my blogs, my Mum inspires many of them.
On Wednesday she had her second new knee in six months and is now an 86 year old bionic woman.
Thanks to the NHS, she has not just new knees but the incentive to go out and do what she has been doing longer than I can remember – be the rock that she is.
She lost her husband last year and she had been his rock, her social circle in Shaftesbury are in slow decline and cling to her for everything from a free taxi service to a listening ear when they are lonely. Her family adore her – for good reason – she is our rock.
The good news is that she was out of bed and walking around (just a little) yesterday. Her aim is to be ready to ramble in April – when we expect to see her “knees up mother Tapps”.
Cleaning her house
The generation that preceded mine, lived through the war, my mother was evacuated to America and saw boats in her convoy perish, she was spared and saw life beyond the confines of Welwyn Garden City and Hitchen where she was born and schooled. It has always amazed me that she never talks about her years as a child away from her mother and father, except with gratitude for the family that looked after her.
We are losing that generation that lived through the war and we should not let them pass on without thanking them for the stoicism that they’ve displayed when young and the magnanimity with which they pass on the lessons that those tough times taught them
In May , I am going to be talking with Bernard Rhodes at First Actuarial’s client conference. Bernard, like my Mum lived through the war years – he was evacuated to the East End of London from Europe and had it even tougher. If you are a First Actuarial client – you’ll be able to hear the man who founded the Clash, talk about how the war shaped him – and punk!
But a generation with more to do
You do not go through the pain of integrating your 86 year old body with two new knees unless you are optimistic about your life ahead.
My mother started her new life this morning , as she does every morning – I’ve never come accross anyone so darned optimistic. I think that – like Bernard – her fortitude was born out of struggling through those early years.
My Mum’s not giving up, she’s starting over – with new knees. Today or tomorrow she will be coming home to Shaftesbury, to the house she has lived in since 1960 – to be looked after by Rupert and Gregory – my two brothers – and by Albert- my youngest brother who lives not far away.
Mum and Olly
Also my son Olly – of whom my mother is most proud.
In my thoughts
Knees up Mother Tapps!
I am proud of my mother and father. I am particularly proud today of my mother. I’m also proud of my brothers for filling the vacuum in my mother’s life – after my father died.
How we look after our older friends, defines us.
I work in pensions, there is a social responsibility in what I do, to make the lives of those who like my mother – have every expectation of living to 100, to do so with the means to enjoy those later years.
At 86 – my mother is starting out again – with new knees – intent on doing good things and leading a good life. May that be a lesson to me and to anyone else who holds him or herself out as a pensions expert!
The Government is minded to tender a single contract to run a pension finder service. This is a regressive strategy which we need to say NO to.
Giving control of the pension dashboard’s central piece of architecture to a single organisation or even a consortium, will not be in the public’s interest. It risks one entity controlling not just the price of the service, but what the service delivers. It risks outage of the service with no back-up and it denies potential competitors the chance to innovate.
The only reason why Government would grant a monopoly to the provider of the pension finder service were there to be no demand for competition. There is demand for competition and there are plenty of competitors to the current front-runner for the pension finder contract.
Not only is there demand for competition, potential competitors but there are clear advantages to Government in not granting a monopoly. Just as at the start of auto-enrolment – when the DWP fervently wanted NEST to be given a monopoly as the workplace pensions, so today. The reason NEST was not given a monopoly was so that insurers and master trusts and even SIPP providers could compete for workplace business and create a dynamic innovative market. That is exactly what we’ve got.
One of the glories of the UK pension system is its diversity. Public and private pension schemes still provide defined benefits. We have a vibrant market for personal savings, a well developed wealth management industry. The large insurers operate master trusts and GPPs that compete with NEST and the non-insured master trusts, many of which are run by consultants.
To suppose that a single pension finder service will harmonise the competing forces is naive. There is no such harmony today nor is there likely to be tomorrow. Despite the opportunity to do so, most third party administrators have not signed up to the Origo transfer hub, they are showing no signs of wanting to be bullied into line for a single pension finder service.
There are local sensitivities at play which make the arguments for a single pension finder service untenable.
A better way of doing things
There is an alternative approach to the pension finder service which I am promoting. I call it the “tech-sprint” approach and it allows any competitor for the job of finding pensions to set out in a race for success. A tech-sprint would do away with the need for a central tender and would replace it by a genuine competition to get total coverage of the UK pension genome in the shortest possible time.
Let me make this a little less abstract. Let’s say that one particular data service has strong connections with insurers, then that data service provider naturally plugs into the APIs at the insurers, encouraging their adoption using its particular knowledge of that sector.
Another service provider is familiar to third party administrators and does a similar job in that sector
A third service provider works best with SIPP providers and the IFA community.
Each provider builds up expertise in its sector and is given the all important verification certificate to collect information that finds pensions and that later can deliver the more complex information that will populate dashboards.
An inquiry from a consumer may be initiated with a pension finder who is expert with insurers but may be passed on to other pension finder services. All the data is fed initially into one dashboard operated by the Single Financial Guidance Body. Once the concept has been proven , the commercial dashboards can use this diverse infrastructure in the same way.
One critical advantage of this approach is that it gives the weakest links in the dashboard project – those with the poor data and poor systems , the chance to work with pension finders who are sympathetic and can help.
Another advantage is that it keeps the threat of cartel-pricing at bay. A monopoly can too easily create a cartel (a rigged-market). It is human nature, if you’ve got a monopoly to sit back and stop pushing. Indeed my experience of these central tenders is that they are so exhausting – they leave all parties – winners and losers – disincentivise to push for better going forward.
An example of this was the procurement process that happened for the dashboard prototype in 2017. The winner excluded all the losers and then sat on the prototype which has gone nowhere. We are in danger of delivering exactly the same thing again in 2019.
The pensions dashboard is exciting – it captures the public’s imagination, it’s potentially a fantastic win for everybody. But to properly deliver it needs to be adopted by all providers as quickly as possible (ok we can let SIPP and EPPs opt-out if they choose).
But the timeframes envisaged by the industry are ludicrously long. Even if SFGB’s dashboard is up and running by the end of 2019, pension finder won’t be fully functional for 2-3 years after. We all know what happens to these timelines, we’ve already seen it happen with the feasibility study, just look at the delivery of CrossRail.
Where things get delivered to time is when they are powered by private sector innovation and competition. Look how the private sector found ways to auto-enrol 10m new savers through 1m new employers.
I am not having a go at those who want a single pension finder service, I thoroughly understand where they are and where they are coming from. I’ve had good meetings with Origo and suspect that it will be top dog where multiple pension finder services are in play. But I can’t support Origo, or any other single pension finder.
The biggest danger is that we will sleep-walk into a monopoly; which is why you’ll be hearing a lot more noise from me and my mates on this!
It was only a headline as I hadn’t learned you had to add text.
10 years on and with well over a million reads, it’s time to take a step back and work out what my blog is actually about.
The masthead says it’s the blog of the Pension PlayPen and it’s about restoring confidence in pensions. The Pension PlayPen was something I devised with Marianne Elliot (now MD of Redington) back in 2007 and was conceived as an online club for people who wanted to pay their own way in corporate entertainment.
In the meantime, the Pension PlayPen has become a means for companies to choose workplace pensions, has entered into t tripartite arrangement with Sage (along with First Actuarial) and has built into a linked in group of some 10,000 of us – interested in making pensions better.
I’m asking myself two questions, whether independently of Pension PlayPen , people have the prospect of better pensions now , than they did ten years ago. I don’t think there is anyone asking that question in academic circles – perhaps one for a PHD or maybe best left to the PPI. The second question , which is one to ask myself, is whether the blog and the activity behind it, has restored any confidence – made things any better.
What has got better?
There are a whole lot more savers today than there were at Christmas 2008 – auto-enrolment has seen to that. The current AE saving rate isn’t great- still not much more than the contributions we made to SERPS. The rate will go up in April when most of us will pay 4% – about 1m of us will bay 5% because they have low earnings and won’t get the promised tax incentives. Clearly that kind of economic injustice is acceptable in 2018, which shows that while coverage is better, the taxation on pension contributions remains the same – pretty shabby.
We have a genuine alternative to annuities for those who don’t have the money for income drawdown. A great number of the blogs I wrote in the first five years were about the fate of people who were buying into annuities at artificially depressed rates. I contributed to several radio and TV programs which insisted on calling this an annuity rip-off – it wasn’t. The large annuity providers opened their books and showed that margins on guaranteed annuities weren’t high (in fact value for money on annuities was good). The damage came from negative real yields which people were buying into as the default.
The major change in taxation did not come (as expected) on contributions, but on claim. We can now spend our retirement savings as we like and we have a strengthened Government guidance system to help us do this wisely. The apparatus that was put in place over the period to give people help – is bing merged in the new year into the Single Financial Guidance Body. The major task for SFGB- other than integrating the disparate parts of Pension Wise – will be to deliver a pensions dashboard to people’s expectations.
The change in taxation and the introduction of auto-enrolment have both been policy successes. The delivery of the Pensions Dashboard has so far been an unmitigated disaster, though we now have a chance to turn things around.
One area where we have seen genuine improvement is in pensions governance. The Office of Fair Trading Report into workplace pensions published in 2014 painted a picture of poor governance among insurers, if they had looked harder – they’d have seen poor governance among occupational DC schemes – including master trusts.
Over the past five years we have seen a number of initiatives that have improved governance
The establishment of IGCs and GAAs to oversee the behaviour of insurers and the managers of SIPPs active in providing workplace pensions
The extension of the Master Trust Assurance Framework into what now looks like a proper governance framework for occupational DC schemes.
The work of the IPB in getting to grips with legacy charges
The consultations on cost transparency leading to the delivery of reporting templates by the IDWG
The CMA study into the working of investment consultants
What has deteriorated?
Apart from calling for an alternative to the annuity trap, a change in contributory tax relief and promoting auto-enrolment, this blog has also been concerned with the state of defined benefit pensions. I come from a DC background, I was self-employed for my first 10 years as a financial adviser and the hansom pension I get from Zurich is a fluke.
I have held since I took out my first savings policy when I was 17, that long-term saving is best. I cashed in that policy to pay for the deposit on my first flat when I was 25. When I started this year I had around £800,000 in retirement savings, around half a million in pensions- I finish the year down around £200,000 but still cheerful. Because I have the security of a DB pension in payment and the prospect of a state pension in only ten years, I am comfortable to ride out the financial storm of 2018.
I would not be so comfortable if I’d taken a transfer value, as I thought of doing before taking my pension in November 2017. I could have added to the £36.8bn transferred out of DC. DB schemes have deteriorated in the past ten years. Whether through employer sponsored “de-risking” or through member initiated transfers, much of the benefit has been exchanged for what Steve Webb used to call “sexy-cash”. I don’t think there is anything sexy about what is happening to defined benefit schemes and I see problems piling up down the road for the transfers taken in the past three years. The majority of those transfers should not have happened. There has been a sustained failure by the Regulators to get to grips with defined benefit pensions, the current plans to slice and dice benefits so that we can have super funds – looks a pretty feeble response to the demise of our once proud pensions industry.
Where there is hope is in the prospect that we may be able to convert some of our DC saving into non-guaranteed scheme pensions through a mechanism we call CDC. Though the first CDC scheme will actually replace both a DC and DB scheme (Royal Mail), I see hope for savers down the line – especially if schemes can be set up to exchange DC savings for CDC scheme pensions. While these scheme pensions won’t be as secure as annuities or defined benefit pensions, they’ll be a lot more secure than DC drawdown.
Right now the deterioration of DB schemes (other than in the public sector) has not given rise to the expected innovation for DC savers – certainly in how they spend their savings.
Despite attempts (thanks Aon) to turn off the Tapp, no-one has been able to shut me up and I’m not done with blogging yet.
But I will be moving my AgeWage related blogs to my new website http://www.agewage.com – which is going to be much more about helping people with pension problems (we call it our digital TPAS).
In terms of changing the world, I’d like to think that this blog has supported what I have been doing at First Actuarial, Pension PlayPen and latterly at AgeWage. I hope that it may have nudged some policyholders and regulators into better places – especially regards the taxation of DC claims (freedoms), the impending legislative changes on CDC, the coverage of AE and the improvements in DC governance.
We can look back and see genuine improvements – the abolition of active member discounts, the adoption of the 0.75% charge cap on workplace pensions and the introduction of the RDR have all given consumers a better deal from their pension savings.
But there are still big holes in pensions policy. The central questions of the FAMR and the Retirement Outcomes Review remain unanswered. The SFGB will not fill the gap in advice that leaves 94% of us unadvised on what to do with our pension savings.
We have no answer to the disqualification of over 1m people from promised savings incentives due to the “net-pay anomaly”. We still have a system of contingent charging for transfers which results in advisers being incentivised to say “yes” to pension transfers that shouldn’t happen.
Defined Benefit schemes continue to close and to set their sights on buy-out (or the PPF) when they should be staying open. The system of best estimate based funding promoted by First Actuarial is largely ignored in favour of gilts plus valuations marking liabilities to market and creating phoney pension deficits.
In conclusion there is still much to do – and far too little done. We have an opportunity in 2019 to nail pension dashboards and deliver better information to people sorely in need of proper help in sorting out their pension arrangements.
We have the opportunity over the next ten years to stem the tide of closing defined benefit schemes and we can start re-building collective pension schemes from the money invested into DC workplace plans through auto-enrolment and properly funded employer schemes. We can stem transfers by banning contingent charging and we can start building on the great work done by TPAS in the past ten years in providing proper mass-market pension advice.
All this is yet to come. Keep reading – and I’ll keep writing.
Perhaps we are getting a little complacent about opt-outs?
The FT has published research showing that opt-outs from the NHS pension scheme are running at 5 times the rate of opt-outs from the Local Government Scheme. When I first read the article, I thought of a group of Harley Street consultants I’d presented to in November, many of them had opted out of the NHS for tax reasons, they had issues with the annual allowance and lifetime allowance. Rich people’s problems don’t interest me that much -I’d talked with these people about investing in EIS, the person before me had gripped them with a presentation on how they could hang on to wealth in a divorce.
But opt-outs from rich doctors are only a part of the story.
Yes, higher pay and lower pension makes good sense for many people, we should support them not stand in their way https://t.co/MdFtiF3oRf
It’s easy to sympathise with Oxleas who made an attempt to gain a competitive advantage over other NHS trusts by offering more now for less tomorrow.
But this is a very trappy argument. The NHS is Britain’s largest employer and the universality of its pension scheme has for generations held firm. Allowing individual trusts to compete for labour on higher take home is deeply irresponsible if it means those on low incomes are deprived of later life benefits. The principle of pension solidarity is strong in the NHS. Oxleas didn’t run this campaign for long and for good reason.
Opting out on “affordability grounds” is bad news
There clearly is a point where people cannot afford to be a member of a pension scheme. If you want to follow the affordability argument through, here’s some data from a chap I haven’t come accross before – who’s talking a lot of sense on linked in.
He’s called Vinay Jayarami – here’s what he wrote on a post started by SteveWebb on the NHS opt-out issue.
Proof that we have an affordability problem – not just a savings problem
I read Adam Carolan‘s post “How to plan your income” on Medium. I really liked his simple yet effective approach, and felt it could help a great number of people live better futures.
It got me thinking — just how many people might such a framework apply to? So I did a bit of work.
I started with the £5,000 per month net income “straw man” Adam used. I went here to see what that might equate to in terms of pre-tax annual income. This is what I found.
So it would take a pre-tax annual income of £92,000 to create £5,000 per month in net income.
Then I asked myself, how many people in the U.K. have a pre-tax annual income of £92,000 or more? I went here to find the answer, and this is what I found.
So it turns out less than three people out of every 100 people in the U.K. have a pre-tax annual income of more than £92,000.
I do realise Adam used the £5,000 figure only as an example.
So I said, what does this look like for a median Millennial in the U.K.? I assumed a 30-year-old male, because I discovered here that a 30-year-old male is likely to earn more than a 30-year-old female. I used the median because I figured:
(1) this would make the analysis relevant to at least 50 of 100 people, instead of just 2–3 out of 100 people, and
(2) if I used the average (the “mean”) it may be skewed by people who are very high earners
Drawing from public sources of information on median income and median expenses by category, I used the Money Advice Service’s online Budget Planner and came up with this:
This confirmed my belief that for a vast majority of U.K. households, the problem isn’t just a savings problem, it is an affordability problem.
People aren’t (only) saving too little because of their behavioural habits, but for the most part they are saving too little because it turns out there simply isn’t enough left after they pay what’s due in Adam’s first bucket, “fixed costs”.
This problem cannot, in my opinion, be solved for most people by addressing the savings and budgeting side of the equation alone. Even if you look at the investing side, the problem remains, because if you cannot save, you cannot invest.
Clever approaches such as the one Adam describes (and I really like it) can help 2–3 people in a hundred (i.e. those in the top 2–3% of income) save more intelligently to provide for their future. But for the rest of us, I believe it needs a dramatically different solution.
That solution, in my opinion, requires a fundamental re-think of policy around these four key pillars:
(1) the individual or household
(2) the financial services industry
(3) the employer (in the case of those who are not self-employed), and
(4) the government
I will write about my view on this in more detail when I can. Until then, thank you to Adam Carolan for making me think.
Pricing pension contributions out
Here is Steve Webb commenting on Linked in.
The rate of opt outs from the NHS pension scheme is a real worry – and most workers may not realise quite how much they are giving up. I strongly suspect female employees in particular are jeopardising their retirement prospects.
Steve Webb hints that the victims of high contributions are those most vulnerable – low-paid females who have traditionally opted-out of pensions. From the FT article, I suspect that the Royal London research cannot prove the link to high female opt-outs, but it is – more than probably – here is what Jo Cumbo actually reports
Royal London, a pension provider, has calculated the opt-out, or quit, rate for the NHS scheme is about 16 per cent, based on the 245,561 people who stopped saving into it between 2015 and 2017. This compares with an opt-out rate for other schemes of 3.4 per cent for teachers, 1.45 per cent for the civil service and 0.04 per cent for the armed forces, according to data obtained by Royal London through freedom of information request
I suspect that the 7-9% contribution rate is indeed jeopardising people’s retirement prospects – especially those who are finding budgeting a problem. More bad news is on its way as the Government Actuary demands a greater contribution from NHS employers to meet what it considers a greater strain on the national exchequer.
Something has to give and if it’s not HM Treasury – it has to be the total reward of the NHS employee, more of the reward will have to be paid to pensions, less to wages.
The only way out of this is a restructuring of the benefit basis of the scheme itself, something that would take years to achieve and would require some pretty robust negotiation. I am not sure we are at this stage yet.
A wake up call
The news of increased opt-out rates from the NHS pension scheme is a wake up call. As I started this article, so I’ll finish – perhaps we are becoming a little complacent, auto-enrolment cannot nudge people into personal insolvency (“Oh dear – you’re spending more than’s coming in”).
A scheme design with a 16% opt-out rate is a failing scheme . The cause of the failure may be under-promotion, deliberate action (see Oxleas) or just a badly designed scheme.
I hope that the work done by Royal London (and the promotion by the FT) will lead to employers, unions and those who manage the scheme itself, looking at this problem with some urgency.
If they want some ideas on how to kick off that debate, they should look at the debate on social media – which is posing some fundamental questions by way of an agenda.
I’ve never quite understood the obsession with getting members to contribute either. If an employer decides that pension is a worthwhile benefit then make it non-contributory. Members can top-up with their own contributions elsewhere or give them a scheme to do so if you want.
Imagine going into a bank to withdraw money and being told to get advice before doing so. Imagine being told that the cost of that advice would run to many thousands of pounds. I very much doubt anyone would be prepared to pay the bank’s or an independent adviser to make regular or irregular withdrawals, If I was faced with that bill – I’d exercise my right to close the bank account down and withdraw the lot.
“Withdrawing the lot” is what a lot of people over 55 with drawdown pots are doing. They are doing so because being landed with a socking great advice bill is what will happen to them when they ask for their money back. In cashing in their pensions- they are usually donating money unnecessarily to HMRC.
People feel they are facing Hobson’s choice – pay an adviser or pay the taxman – many are choosing the latter. It doesn’t need to be so – people could in future chosse to be paid a pension – that’s what the Royal Mail workforce did.
It’s not just us punters who are getting confused!
“You make a separate point about access to advice. This is interesting because one of they key differences between CDC and DC with drawdown is (I thought) the need for advice. The latter gives a lot of choice to the member, including the all-important draw rate and the dependent risk approach. These choices require the involvement of an an adviser (preferably the investment manager itself) in developing collaboratively and iteratively the right definition of the individual utility that the retirement plan must seek to maximise, including any constraints, time preferences and valued optionality. The whole point of CDC is that it proposes to trade off this rich customisation, and its advice requirement, for a collective definition of utility and for a single set of constraints that operate for all. If CDC itself generates a need for advice, that affects the trade off significantly.
It would be interesting to know what advice you think is necessary, at what points it arises and whether this is regulated personal advice requiring a recommendation.
The point of the last question is that we are very much interested in the concept of informing personal selection without making a recommendation. This is currently incompatible with EU regulation which, because of the cost implications, is a key obstacle to supporting personal responsibility economically for all.”
For the record, I don’t see a CDC scheme as generating anyneedfor financialadvice,people get paid a pension – simple.
There are no personal decisions to take about an “all important draw rate”, no “dependent risk approach”, all the things summed up the phrase “rich customisation” aren’t part of a CDC pension scheme – or any pension scheme for that matter. The collective approach is one size fits all and proud of it.
If you want “rich customisation”, I guess you’ve got to pay for it. You’ve got to pay an adviser to tell you how to get your money back – it’s not hard to see why no more than 6% of us are paying advisers to calculate the draw rate under the dependent risk approach.
Five reasons why advised drawdown cannot work for the mass market.
There aren’t enough advisers – the RDR decimated adviser numbers when it became impossible to make a living flogging commission based products. What was left were about 25,000 advisers who want to get paid to advise – not enough to advise the millions needing help with spending their savings over the next few years
The remaining advisers are typically wealth managers – the last thing that the 25k advisers want is to be advising on draw rates under the dependent risk approach. They want to be managing wealth, typically for the next generation. While most do cash-flow planning – it is typically for the wealthy.
The fixed cost of advice is prohibitive – the opportunity cost of providing “rich customisation” is enormous, advisers are making big money out of wealth management and pay large regulatory fees , payments to FSCS , software licences and the like – the fixed costs of advice make it a minority sport.
The advisory business model is ad-valorem; to keep costs down, advisers charge your drawdown fund, not you. You pay out of an untaxed fund and the payment’s “VAT free” – the trouble is you need a six figure drawdown pot to pay an adviser’s retainer – the average drawdown pot is around £40,000.
People don’t want advice – they want a pension. This trumps the lot, people do not want to have regular meetings with an adviser (even if they were free) because people want a simple wage in retirement that comes to them every month till they die.
Rich customisation – my arse.
The reason why more than 140,000 postal workers voted 9 to 1 to ditch their individual DC plan in favour of CDC was that they saw their job as coming with a pension. They did not buy rich customisation or the dependent risk approach. I very much doubt any of those 140,000 postal workers wants to pay for financial advice on how to draw down the money due to them in retirement.
Even if there were advisers to help them, even if the advice was within their means and even if they had built up enough in their pots to enable the adviser to take them on under “ad-valorem”, the postal workers would rather have gone on strike.
The postal workers turned down choice and if they’d been able to understand this sentence- they’d probably have quoted it as the reason why
“These choices require the involvement of an an adviser (preferably the investment manager itself) in developing collaboratively and iteratively the right definition of the individual utility that the retirement plan must seek to maximise, including any constraints, time preferences and valued optionality”.
The paper below is one of two that models what happens when CDC hits bad markets. I guess this one could be likened to launching a lifeboat into a stormy sea. CDC makes headway – but it’s tough. Imagine you’d put to DC in a less robust craft….
The modelling reinforces work produced by Aon illustrated in this chart (thanks to Kevin Wesbroom)
CDC – Early Days
This note considers the early days of a CDC scheme, the first ten years. It commences with just ten active members, but rises to a total membership of 13 by year 10. Contributions of 15% of pensionable salary are paid by each member and the award is 1/60th of final salary from age 65.
In particular we are interested in the effects of poor returns arising in these early years.
The contributions made, and the value of the total members’ equitable interest based on these awards are shown in table 1.
The rate of return on these targeted pensions is 5.57%. This is the objective rate to be achieved or surpassed by the investment portfolio. Next, we choose a set of random returns for the portfolio as we are most interested in the effects of poor returns, we choose the sequence shown below in table 2:
This sequence has an arithmetic average return of 4.58% and volatility of 17.7%. This sequence would not usually be considered adequate to achieve the required 5.57% of the target promises. The unpromising nature of this return sequence may be further illustrated by inspection of the evolution of both the arithmetic and geometric returns over the period – table 3.
Certainly, there are grounds here for considering replacing the fund manager as throughout this period trustees were consistently making new awards at rates of return in excess of 5%.
The extent of this mismatch between award rates and investment returns may be illustrated by comparing cumulative value generated by the rate of growth required (5.57%) with that achieved by the portfolio. Table 4
However, the scheme benefits from pound cost averaging, as contributions are made in each year. Table 5 illustrates these effects. This shows the actual deficits experienced together with the internal rate of return to that point in time. The averaging effect drives the experienced rate of return up to 7.25% in year ten. The table also shows the cure period associated with a deficit value
The simple rule for cutting is that the benefits must be cut if a deficit has not been cured within a period calculated as 1/deficit, expressed in years. In this case the deficit arising in year 3, 30.6% has not been cured after three years have elapsed. This triggers a cut in the interests of all members in year six equal to the deficit at that time (19.8%). This brings the fund and portfolio back into equilibrium. This is shown as table 6.
It is clear that the cut could be fully reinstated after year 10, and still leave the scheme in surplus. However, if this reinstatement is effected, pensioners in payment would have lost out in terms of the pensions they had received during the period when the cut was in effect.
Implementation of risk-sharing is discussed in a separate blog.
This post’s by PensionBee. I know it’s an advert but it’s exactly what is needed right now. I wrote earlier today about how we can make pensions more interesting and fun and that’s exactly what Romi, Clare and their beekeepers are doing . I look forward to doing a lot of work with them in 2019.
In just over 30 years, the government estimates there’ll be around 50 million dormant pension pots, worth over £750bn. That’s a hell of a lot of money in forgotten pensions for Brits to be leaving to their pension providers! Unfortunately people don’t always know that they’re missing a pension, especially if they don’t remember to take a pension with them whenever they change jobs.
The best place to start is at the very beginning. If you’re unsure if you’ve started a pension and left it behind when you’ve moved onto a new job, it could be worth contacting your former employers to enquire what pension schemes, if any, they had set up back then. To keep things simple, work through your CV, from your oldest positions to the most recent, and get in touch with the respective HR departments.
Get in touch with the respective HR departments
You should expect to be asked some questions about when you were employed and potentially your employee or payroll number which you should be able to find on any old payslips or correspondence. Your former employer won’t be able to confirm that you were part of their workplace pension scheme, but they will be able to tell you if one existed and who manages it, which will take you nicely to step 2.
2. Contact your pension provider(s)
Hopefully you’ll have found out the details of some pension providers from your old employers, or you may already know that you have an old pension with a specific provider. You can give them a call to confirm if you are a member of any pensions that they manage. It’s likely they’ll ask you for information like your date of birth and National Insurance number to confirm your identity, however additional information may be required for security purposes such as an address history.
3. Use the Pension Tracing Service
If you have an old workplace or personal pension that you’ve lost track of there’s another way you can try to track it down. The government has a free database that lists the details of companies and personal pension scheme providers. You can search the Pension Tracing Service to find the names and contact details for your pension providers. The Pension Tracing Service is available online, by telephone or by post.
4. Get a new pension and enlist the help of your new provider
Once you’ve established where your pensions are, it’s important to consider how they’re performing and if you could be doing more with your savings to increase the likelihood of a higher pension when you retire. To find out more, consider asking your pension provider the following questions about your missing pensions:
How much income is my pension likely to pay out at my predicted retirement date?
Are there any penalties payable if I move my pension to a different provider?
If you aren’t satisfied with the responses, you might want to consider looking for a pension that more closely matches your savings goals and attitude to risk. Bear in mind, though, that if you’re thinking about moving a defined benefit pension worth over £30,000 you’ll need to get advice from an IFA first. If you have a public sector pension that you’ve found through a teachers pension missing service, for example, you may not be allowed to move it and should check with your current provider for more information.
PensionBee can help you locate all of your old pensions
Some pension providers will offer to help you find your missing pensions, when you choose them for your new pension. This can be a relatively straightforward way of tracing missing pensions, without you having to do very much work yourself. All you’ll need to do is provide a few details and make up for lost time by catching up on any missed pension contributions.
PensionBee can help you locate all of your old pensions and transfer them into one simple online plan when you sign up. All we need is some basic information like a pension number or provider name and we’ll start looking, keeping you updated with what we find.
Combine all your pensions into a single, good value online plan
If you have old pensions with different providers it’s a good idea to consolidate them into one new plan. That way you won’t have to worry about forgetting about them in future and will have peace of mind that all of your pension money’s in one place with one clear balance. You’ll also have just one management fee to pay which could save you money overall.
And, if organising pension paperwork isn’t your strong suit, it makes sense to consider a digital pension that you can manage entirely online. In theory it’ll be harder to lose as it’ll be linked to your email address and with the most modern pensions, such as those offered by PensionBee, you can download an app straight to your phone. That means you’ll be able to see your current pot size and manage your pension contributions in just a few clicks.
I enter into the final days of the year, hoping to hear less of the e-words in 2019.
“Education” has been appropriated by the financial community as a way to endorse a value set that suits the financial community. Put in its simplest guise – financial education is “save – don’t spend”.
“Engagement” with this message has become the key purpose of everything from the zealots of financial well-being to the technocrats of the pension dashboard.
We engage to get educated and the result is supposed to be “financial well-being”. One thing you notice at Christmas is that people love to spend – especially on others, we are about to hear the debt counsellors who emerge every January to remind us of our folly. They’ll have us all burning calories in their financial gymnasium, exercising our austericals.
Thanks to this friendly tweep – who read this blog and posted this- couldn’t agree more!
If You Talk Above A Persons Level Of Financial Understanding They Will Blank Stare 5 Minutes In or Less pic.twitter.com/UNc3GPE7Oj
— C🔺C🔺: HR , Business,Strategic Manager,Branding (@STFUImTweetn0_o) December 28, 2018
Adult education is not something that’s done to you.
There are ways of getting money savvy that don’t involve being educated. At the First Actuarial conference in May, we’ll hear from impresario Bernard Rhodes, someone who manages his money as well as he managed The Clash and Dexy’s Midnight Runners.
Bernard reminds me that what he knows about money is what he’s taught himself. He’s keen to talk about how growing up in the East End, he prospered by getting smart. The conventional approach “engage and educate” didn’t apply to a Jewish refugee growing up in post-war Britain.
The truth is that saving is in the nation’s DNA, famously we are a nation of shopkeepers, keen to balance the books. That we have a low saving rate is because historically we have sunk our savings into meeting mortgage payments. To blame a working person for wasting their earnings not paying into pensions and ISAs, is to forget that much of the past thirty years, people scrimped and saved to have the security of their property.
Consequently we have generations at or in retirement with considerable financial security and with the means to set their families up when the time comes to pass the equity on.
These financial strategies are not taught but are learned. The financial savvy of the baby boomers has created mass affluence. We are not numpties for not saving into pensions and ISAs.
Simple is best
If the financial strategy of the boomers seems a bit simple, then remember that it has led to mass affluence and financial security in Britain as we have never seen it before. For those who “have”, Britain is a good place to live. It is those who do not have property rights who suffer.
The simple truth is that if you don’t own a property in Britain, you have to be smart on your feet. The prospect of property ownership for many millennials is based on inheritable wealth, Thatcher’s vision of property cascading through generations. The chances of buying your own property are limited for those on low incomes. Gone the days of easy credit, no deposits and high income to loan multiples. The entrepreneurial impulse to home ownership has been replaced by a sullen acceptance among the young that they’ll never have it so good.
In place of the home-owning dream, we are feeding people the lack-lustre dream of a well-funded workplace pension, of a security in retirement based on accumulated savings fostered in frugality. It’s not much of a vision.
Simple is best and pensions aren’t that simple, especially when you are expected to be your own actuary and investment consultant.
If simple is best – why make it so hard?
There is a mindset amongst those who rule the roost in financial policy that doing things for yourself is dangerous. The ideas of self-managed (non-advised) drawdown and of bringing all your little pots into one big pot are disturbing regulators and policy makers.
People are warned off “rules of thumb” and pointed towards financial advisers who will show you how complicated your decisions are.
The implications are that you need to be engaged and educated to understand the complexities of your financial position. Far from enjoying your wealth (as those building extensions to their now purchased houses are doing), we are told to worry about the minutiae of financial planning.
And it’s true, unless you have your wits about you, you will get conned out of much of your savings. That’s what’s happening to over a million people caught by the “net-pay anomaly”.
Many people’s drawdown payments in December and January will unwittingly involve encasement of units at well below true value as the stock-market lurches through a period of high volatility.
Put aside the perils of those deliberately trying to scam you our of your wealth. for most people, pensions are a financial minefield which they cross without guidance or self-confidence.
If simple is best – why do we make pensions so hard.
Mass market strategies need to be blindingly obvious.
The reason Martin Lewis says so little about pensions is that he specialises in the blindingly obvious. What he tells people is evidenced based – uncontroversial because it’s blindingly obvious.
“Save more for tomorrow” is a mass market strategy so long as it’s evidenced by older people enjoying spending more tomorrow. But the simple pensions enjoyed by my generation and those older than me, will not be enjoyed by those saving into workplace pensions. Unless – that is – we make those workplace pensions as easy to understand and as easy to spend as the pensions that get paid to our parents and grand-parents.
The success of occupational pensions was that the concept was blindingly simple, sign up and forget about it. This simple philosophy is exactly the opposite of “engage and educate”.
Young people I speak to are resentful not just that they aren’t on the housing ladder but that they don’t see any pension at the end of the saving, just a lot of confusion and very little that is blindingly obvious.
If we are to have retirement saving for all – we need that saving to translate into something as blindingly obvious as a wage in retirement – pay for life.
94% of us aren’t taking financial advice
Ask people if they are on top of their pensions and you won’t get many saying “I leave all that to my financial adviser” – very few do. Those who do are generally well served but they are the 6%.
If you are lucky enough to be expecting a pension , or being paid a pension -whether by an insurance company or by an occupational pension scheme – then you don’t need advice.
But if you aren’t that lucky – you probably do need advice, advice that is simply not available in a cost effective manner for the average working person.
It is these average working people who are being told to engage and get educated. They don’t want to, they don’t see the point and they don’t see getting engaged and educated about pensions as any fun at all.
Why the dashboard works
The one thing that everyone agrees on – the one mass-market strategy that genuinely gets people excited is the prospect of someone finding their pensions, listing them on a dashboard and giving them the chance to do something about their fractured and broken retirement arrangements.
Believe it or not – people think of a pensions dashboard as fun. They like it because it allows them to get savvy about what they know is an important part of their lives.
The dashboard works as a concept, it is as simple an idea as ideas get – it works for the mass market – for ordinary people who don’t want to have a degree in financial planning.
Or should work….
It is quite possible that we will not listen to the enthusiasm people have for the idea of a pensions dashboard but instead impose our own ideas about engagement and education on those who use it.
People simply want to know where their pensions are, what they’re worth and how the money has been getting on since they gave it away to a pension provider.
They do not want to be bashed about the head with messaging. They don’t want to be told about replacement ratios or shortfall calculations or all that guff that’s aimed at they’re giving more of their money to pension providers.
That can come later and if they want to explore that stuff.
Right now, people have been starved of information about their savings and have no way of telling what’s happened to their money – even where it is.
Let’s focus on giving people what they want and then see how they choose to take things forward.
The pensions dashboard will work if we let people work things out for themselves, it will fail dismally if we shoe-horn them into our idea of “engage and educate”.
Above all, the pension dashboard should be fun – like its title – it should be a simple tool to manage things for themselves. They don’t need your engagement – nor your engagement neither.
When I wrote this blog on Boxing Day about “coping with falling markets” – I did not explicitly make the link with CDC. The chart at the bottom of John’s tweet talks about the cost of closing open collective pensions and this is what John is picking up on.
Over the Christmas period I walked along several sections of the Somerset and Dorset Light Railway, some of the track closed down by Dr Beeching in the 1960s. It was a line that carried families down from Manchester to Bournemouth on the Pines Express.
Alan Pickering told me of travelling on to Weymouth and so to Jersey by pubic transport. Today we look to drive or fly, we have closed the rail option for good. Houses now are built where the lines were, stations converted or destroyed. It cost a lot to close the railways but the cost of getting them back as they were is too high to be considered.
I am nostalgic for the days when you could buy back your DC benefits for what was called a “scheme pension”, you either bought added years or you just swapped your DC pot for a pension , the rate of exchange being determined by trustees with the help of actuaries.
The cost of doing this is as prohibitive as reopening the lines Beeching shut. Some things are gone and no amount of nostalgia can bring them back.
But how does CDC help a saver in a falling market?
The reason why a trustee will not grant a guaranteed scheme pension for a cash input ( a transfer in) is because the grant of the guarantee is made at the expense of the scheme sponsor who will pick up the cost of the guarantee if things go wrong. This isn’t what employers are for- they provide jobs – they do not act as pseudo insurers, there are limits to the liabilities they will take on and universally employers have stopped paying scheme pensions on transfers in.
However, the same need not be said of a DC scheme, which can take transfers in without increasing the liability to the employer. In individual DC arrangements , a member currently has the choice of individual buy-out – swapping the pot for an annuity – or individual draw-down- where the individual is on the hook for managing the “nastiest problem in finance”, an income for life.
This is where CDC could help. CDC could pay scheme pensions to people transferring in DC pots. The scheme pensions would not be guaranteed by anyone, not by the scheme or a sponsor or by the member, the CDC scheme pension is prone to fall as well as rise – though by judicious management – the CDC trustees can protect members from the most heinous risks of drawdown and the scant annuities offered by insurers.
In direct answer to John’s question, CDC can continue to provide scheme pensions at times of falling market on the mutual principles on which it is set up. The mechanism for paying scheme pensions is typically the allocation of cash in to pay pensions out. Cash comes into a collective pensions from dividends, bond coupons, rents and new contributions. Cash flows out of CDC plans through the payment of cash sums (commutation) , the payment of transfer values and the payment of CDC scheme pensions.
Professor Leech is making the same point in his comment to the blog John’s reposted
The answer is that asset prices are characterised by excess volatility. Market prices – determined by the irrational exuberance of the stock market rather than economic fundamentals – are many times more volatile than the economic fundamentals such as dividends. An open pension scheme can ride out (short term) market volatility because it is the economic fundamentals in terms of investment income flows that matter.
This fundamental principle of collectivism, is what makes an open collective pension scheme so attractive. As with Dr Beeching and his railways, the problems for open collective pensions is when they become closed collective pension schemes.
The only time that assets would need to be realised from a CDC arrangement, was when there was insufficient coverage from cash-in to meet payments out. This is what’s known as a run on the fund.
We will not see CDC schemes taking transfers in any time soon.
The Friends of CDC are a patient lot. Some of us (Derek Benstead in particular) have been voices crying in the wilderness the best part of 20 years already.
The CDC consultation – on which many of us are working – does not allow for transfers in or the setting up of schemes specifically to pay scheme pensions from DC pots. Both John and Andrew are right.
The consultation document recognises there may be other proposed types of CDC arrangement and intends to provide sufficient flexibility in regulation to accommodate alternative models and providers. (Para 74/75)
It may be that savers like me have to wait a decade to have scheme pensions paid from our DC pots. We may never get there!
But if we do not going on pointing out that at times like this (the S&P 500 was up 5% yesterday and has fallen many times that in the first part of December), people are being ruined by drawdown. CDC pensions , paid from a CDC fund at a rate determined by trustees on advice from actuaries are a half-way house between the perils of individual drawdown and the perils of a sponsor taking pension guarantees onto a balance sheet.
We may not see transfers in , any day soon; but logic suggests that the we will see them within the next 20 years. Anyone who is following the debate about default decumulation options from DC, will understand that the alternatives aren’t much more palatable than what’s on offer today.
Keep on pushing
Despite the obstacles to achieving CDC legislation, I am hopeful that in 2019 we will see the writing of the rules that in the next decade will allow the Royal Mail to run a CDC scheme. It is a start – and a decent start- but it is not the end.
There is no end – that is the message about pensions. We do not have to close collective schemes and when we do so – we cannot reopen them. We will keep on pushing to keep those schemes open – which are open, and open new schemes to replace those that are closed.
In the meantime we will keep on pushing to make sure that DC schemes run effeciently and they they are as well funded as can be. We do not just need need dramatic reform, we need better practice with what we have got.
A recognition that there is necessary risk in pensions
We cannot afford to run pensions on the yields we get from gilts – we can’t now – we never could. Providing pensions is not risk-free.
We need to find the correct balance between risk and reward. right now we are offering people only the binary choice of annuity and drawdown, we are not offering a balanced option.
For people to take a balanced pension, they must accept some of the risk, and market risk is part of it – but they do not have to suffer the extremes of annuity penury or the pounds cost ravaging of drawdown gone wrong.
It is a blessing that the first five years of auto-enrolment have seen world stock and bond markets rise. Low interest rates have had a lot to do with it, but we’ve also been in a period of comparative peace, the global risk register has been less to the fore, there has been plenty of money in company coffers, we have all done well.
But 2018 looks like being a poor one for investors and the year is ending in as state of chassis, brought on by a realisation that the phrase “we’ve never had it so good” uses the past tense.
Falling stock markets are historically a rich person’s problem, (the problem’s none the less real for that).
But increasing numbers of those who would not normally consider themselves investors – are investors now. I’m looking forward to the Radio 4 Moneybox Special on Saturday (29th Dec), when we’ll be hearing from the people from Port Talbot who have come into “wealth” by swapping a pension for cash – will be talking about what it’s like to become an investor overnight.
I suspect that many of those who will be on the program will have been learning financial resilience in the same way they have learned to cope with the rigours of working in heavy industry. But some will be struggling with the idea that they can lose more in a week than they take home in a year.
There’s no rationale to risk tolerance.
I have stood on the lawns of Cheltenham and watch Irish farmers blow a year’s savings on a horse that should have won. Value at Risk =100% and they know it- coming back year after year – for the year when they walk away with a fortune.
I’ve sat with people who’s entire savings are in cash, for no better reason than they’ve no appetite for risk and some of these people are those best placed to take it. The FCA report that the self invested personal pension market is awash with reckless conservatism, long-term money sitting in deposit accounts, smug to have got tax-breaks but useless in any economic sense.
People are not rational in their decision making, the national lottery distributes from the poor to worthy causes that include rowing – a past time of the rich. Part of this is moral hazard, as Springsteen sang “Mister one day when my numbers come in, I ain’t ever going to drive a used car” – my financial adviser friend- John Mather will advise me that neither the lottery of buying cars first hand – makes financial sense. That song has however summed up working class aspiration in the States for thirty years.
The impact of falling markets
£36.8 billion was turfed out of defined benefit pension schemes and exposed to market volatility in 2017, the first quarter of 2018 saw over £10 billion follow it.
It’s not a question of whether but how we cope with falling markets. My worry is that many won’t and that those least prepared for the shock of losing money will not be able to cope. But that is the middle class liberal in me. I know that people are tougher than my bleeding heart would have them and that the steel-workers who’ll read this will have thought this through.
I’m not writing this from Tai Bach but from comfortable Shaftesbury in North Dorset. I have no reason to worry for myself and no (economic) reason to worry for others. And yet I do – some would say too much.
I know that there are many in Government who worry too. I have met them. We have promised people the freedom to do as they like but have given them a knife to catch- when markets fall.
If people are drawing down after Christmas to pay for Christmas spending, they will draw down from markets in crisis and at prices that may not reflect the under-lying assets. In short they may be forced to sell low. The impact on the cashflow plans put to them by their advisers may be calamitous as “pound -cost – ravaging” sets in.
In my church we pray for the vulnerable. It is an entirely irrational thing to do, but we’ve always done it and always will.
Being concerned together seems to get results. Practical help arises from collective meditation and our collective articulation of the problem.
This is the way that people cope – by coming together. Ironically it is exactly how occupational pension schemes provide help – they bring people together.
That is why people like Derek Benstead, Hilary Salt and those others I work with at First Actuarial campaign for open collective pension plans. They help people to cope with periods of financial adversity.
As I look forward to 2019 and back on the past five years, I am increasingly convinced that they are right. We do not cope well on our own, we need to do things together
It makes a lot of sense – not just of why we get bubbles, but how- succesful businesses can be created out of the vacuum when a bubble bursts.
When people invest in Tech – including Fintech, they are investing in the technology – not the business model. When a business adopts the technology to deliver to a societal need – then you have a sustainable business and a sustainable business model.
Thanks to JOHN ELKINGTON AND RICHARD JOHNSON for the insight.
Technology doesn’t transform markets, business models do.
When humanity encounters a shiny new technology and senses its potential, we usually glibly assume that the world will instantaneously jump aboard and surf the resulting wave of change.
Anyone who has experienced at least one of these wave peaks knows what typically happens next: We crash into the “Trough of Disillusionment.” More than a couple of times over the decades, we have turned up at the doors of once-unstoppable businesses to find their founders sitting among the smoldering debris.
It may seem an idiotic question, but why, time and again, is the Gartner Hype Cycle–a theory of technology adoption developed by advisory firm Gartner–correct? The answer, of course, is that our species keeps falling into the same trap.
Why do we keep getting this wrong? The answer seems clear. We favor technologies over business models, imbibing the Kool-Aid a long time before the hard slog to turn the concept into something customers will actually buy has begun.In a previous article, we explored the entrepreneurial mindset needed to solve the world’s largest, most mind-numbing problems. Those who rise to the challenge, we conclude, will claim a generous slice of future markets.
And yet, a good deal of effort is still needed to turn most emerging technologies into sustainable wealth creation engines. In our experience, anyone who still wants to kick off a discussion about long-term wealth creation by focusing on the business case for addressing the world’s biggest unmet needs is likely to find themselves paddling along well behind the next big wave, very likely missing it entirely.
By contrast, tomorrow’s market leaders are the ones already sketching a new business model on the proverbial napkin. Business models are what connects a technology’s potential with real market needs and consumer demand.
Simply put, business models eat the business case for breakfast.
Recall how solar panels took off. True, the price of photovoltaic cells had been falling exponentially since the 1970s. But it wasn’t until 2008 when the concept of “zero-money-down” solar (leased and managed rooftop solar) was introduced that we saw an equally exponential increase in the number of solar roof installations. The new model gave solar power the edge over grid energy.
To get a better grip on the implications, we have been talking to some of the world’s top change agents as part of our Project Breakthrough Initiative for the UN Global Compact. Some of the insights on breakthrough business model innovation are distilled in this video:
Here are three takeaways:
BREAKTHROUGH BUSINESS MODELS MEET UNMET NEEDS
Generally, unmet needs are unmet for a good reason: People aren’t able—or willing—to pay the market rate for a solution. That fact may be easy to overlook when you’re dealing with a few hundred people in a rural community or an urban slum, but when you’re dealing with billions of people around the world, Houston, we have an opportunity.
Clayton Christensen’s theory of disruptive innovation highlights that needs are often left unmet not because they can’t be met, but because the incumbents have been innovating at the high end of the market, chasing ever larger margins. It is the role of the disruptor, then, to meet the needs of those who have been ignored–and steal market share from the incumbent.
As digitalization proceeds at unprecedented speed and scale, the marginal cost of delivering a whole range of goods and services will plummet. This opens up a huge opportunity to create affordable solutions to huge, previously overlooked market needs.
One example is the insurance company BIMA, featured in the video. BIMA specializes in using mobile technology to bring potentially life-changing insurance to the previously uninsured, worldwide. Today the company reports that it is registering over 600,000 new customers a month.
BREAKTHROUGH BUSINESS MODELS BLOW THE DOORS OFF INCUMBENTS
Big business is struggling. At the current churn rate, 50% of S&P 500 companies will cease to exist over the next 50 years. But where there are losers there are also winners.
So what will the next generation of winners look like? Will they be clones of Facebook or Uber? Maybe, but it looks increasingly likely that many of tomorrow’s business success stories will have sustainability at their core.
A recent report by the Generation Foundation (the advocacy arm of the investment firm cofounded by Al Gore) argues that sustainability has become fundamental for growth.
The two key opportunities are to make goods and services accessible to those who hitherto didn’t have access to them—and to replace resource-intensive products and services with ones that are radically more efficient.
In practice, this often requires companies to rethink where they draw their own boundaries. When we interviewed Francesco Starace, CEO of the multinational energy company Enel, he told us that they had for too long viewed energy as a stand-alone value.
But as he went on to say, “energy alone is nothing. This means we should understand what other people, and other pieces of society, need from us. That part is more difficult. You have to understand the many missing parts, that, for decades, you have ignored.”
Today, Enel is the world’s leading renewable energy producer, but it acknowledges that modern energy systems, like modern data systems, do not work best when centrally managed. So, through their Open Power approach, they are exploring the role they will play in a future where their customers produce, store, and manage their own energy.
BREAKTHROUGH BUSINESS MODELS DON’T TRY TO HOG THE FUTURE
There is good reason to believe that the change we have seen over the last decade will be dwarfed by what happens next. One key feature of what’s headed our way is a shift away from ownership. As the Internet of Things grows exponentially, it will become ever easier to share resources in real time.
Rachel Botsman, a leading expert, told us, sharing-economy business models take a wide range of unused assets and unlock their value by matching “needs” with “haves,” radically boosting both efficiency and access.
And the process has only just begun. As Botsman continued to say, “in terms of impact, and in terms of different sectors realizing that this isn’t just a technology trend, but a transformation in how we utilise assets and the flow of value and trust, I literally think we’re on day one.”
The pace of change could take us all by surprise. Take transport. Think-tank RethinkX predicts that, once ride-d is combined with autonomous electric vehicles (AEVs), the costs of accessing mobility services as and when you need them will be so much lower than the costs associated with owning a car that consumer behavior will shift very quickly. Within 10 years of regulatory approval for AEVs they predict ‘transport-as-a-service will account for 95% of U.S. passenger miles.
So those hype cycle charts are great at indicating where we are on the various tech cycles. But remember that business models are they key to determining which technologies take off–and which crash and burn.
2018 was a mixed year for those looking for better pensions.
On the plus side, we are finally getting auto-enrolment. The predicted increase in opt-outs didn’t happen, when member contributions tripled, we look forward to 2019 with eqanimity.
On the plus side – we now have the possibility of a queen’s speech with meaningful reform from the DB White Paper and the CDC and Pension Dashboard consultations.
On the plus side, DB schemes appear better funded, though only at the cost of massive employer contributions which might otherwise have been deployed lifting the country out of austerity.
But I will look back at this year as another wasted year.
Austerity is still here – look to the streets.
I am in Shaftesbury where I was born, my father died this year, dying in Salisbury, a town that was in virtual lock-down at the time. We live with the threat of terror around us, Gatwick is closed by a drone, a crime with a million victims and no perpetrator.
The sole Christian institution in Shaftesbury that is growing, reaches out to the community through a food bank. Even in rural north Dorset, there are signs of poverty everywhere. The old and those on benefits have less, there are less police, less ambulances, less school places per capita. The library, such as it is, has few new books.
After 8 years of austerity the fabric of rural towns like Shaftesbury continues to deteriorate. In real terms people are poorer than they were ten years ago.
2018 was supposed to be the year we turned austerity off, but what I see in Shaftesbury , I see in other British towns small and large – and I see it most of all in London, where the divide between those making money and those squeezed for money is greatest. The disgrace of Grenfell lingers on our conscience.
Instead of tackling destitution we argue about BREXIT
In the little things of pensions to the great disaster of social inequality, the conscience of our country has been turned off.
It is apparently acceptable for over 1m people to be denied a promised Government because the Treasury cannot be bothered to put in the software to pay it – I refer not to the net-pay anomaly, but to the net pay scandal.
Equally – it is apparently acceptable for people to be sleeping rough on our streets this Christmas – in greater numbers than ever.
My friend – @GlesgaBrighton has been collecting examples of the current state of the nation. Here are a few from his timeline.
So, it’s been a hellish week. The family business was started by my grandad after the war. Most employees have been with us for a long time.
I did not want to run it, was happy enough in the City, but when my uncle retired someone had to.
He catches the Zeitgeist. There is a deep unease in this country at present and it’s founded in our failure to tackle the inequality that has grown since the financial crash of 2008.
The poor have paid and are still paying for the behaviour of the rich. Meanwhile our Government is locked in an internal argument which is irrelevant to the problems of poverty.
I am a Christian – this will not do
Whether you come at this question with Christian faith – as I do, or with other religious faith – or with no faith at all (like Paul Lewis), our common sense of decency to our fellow men and women commands us to cry out against social justice and do what we can to right it.
I have tried it from all political angles, in my youth I was a Liberal Party Agent, my political hero(one) is Angela Rayner, I am a member of the Tory Party because I thought I could be most effective from within. But I realise that if I have influence it is through my blog.
Ten years old and still campaigning.
Next week, my blog will be ten years old, I have posted over 3,500 times and the blog has been read over 1m times. There are better writers to read, but I like to think that my voice has become my own and authentic.
I’ve actually found myself through my blogging. I mean by that – that when I re-read stuff I’ve written over this period of my life – I start to make sense of me.
I’m a f@*ked up idiot like everybody else – I’ve fallen from grace many times and there are many who’ve pointed that out.
But I’ve found my authentic voice and that’s important to me. I have an identity – I know who I am and people know what it is that I stand for.
Goodbye and good riddance?
2019 may well be worse than 2018, things can get worse before they get better. As I write, I see no way out of this BREXIT mess, nor do I see how we can close the food banks down and get people off the street.
In parochial terms , I see no way to reform the pensions system to make it work for those who have less till we accept we keep our promises on things like Government incentives.
I don’t see a way forward for the pension dashboard unless we rest it from the oligarchy of dasboard-istas who would centralise control around a single pension finder service controlled by the usual suspects.
I don’t see a way back to fully funded collective pensions, till people recognise that DC is not right for the mass of this population who cannot turn capital into an income for life (the process of paying a pension).
I want to say goodbye and good riddance to all this but I can’t. We can be shot of 2018, but its baggage is carried into the new year.
But it’s Christmas and it’s time to wish each other well
Those people who read this blog, and go to TTF meetings, and come to Pension PlayPen lunches are a proper community of people who do give a toss about making things better.
We may not be able to change the big things- BREXIT being the biggest – but we can attend to the little things.
I guess I’m spoiled for choice. When I go back to work on 27th December, I can choose to go to a First Actuarial office, work in an IOD workspace, check in with Regus or use one of the two WeWork offices I have a card for.
WeWork is making a difference to the way I work and the way my businesses work.
On grounds of convenience – WeWork, situated adjacent to Boris Bike stands within 5 minutes cycle of home and 2 minutes from the gym, WeWork Moorgate and Devonshire Square do the trick
On grounds of cost – WeWork – I am currently paying around £450 pm to host meetings – get high-speed broadband and have a desk in the heart of a city. The comparable costs of setting up my own office or renting workspace from Regus are off the scale.
On grounds of service – people who arrive to meet me at WeWorks inevitably have a smile on their face, that is because WeWork staff treat me and my guests as VIPs – and they do that to all the 300 or so companies with whom I share space.
On grounds of fun – the people I work with are hugely productive. We are a boot-strapping start up and we live in WeWork not just during the day, but well into the evening and early in the morning, that’s because it’s more fun to be at work than be at home. Oh and we work week-ends to – because we can!
Olly and Ritesh in WeWork
On grounds of pets – WeWork encourages people to bring (well-behaved) animals to work. I bring my son. Many people bring dogs, cats – tortoises and rabbits. Why not?
WeWork is an experience like no other. It allows me to share my skills with thousands of people who need to get to know AE and pensions, I get help from other start ups and a few established companies about GDPR, wrapping Christmas presents and raising money. I go to talks in the evening and lunchtime, I have breakfast with people I don’t know and I drink beer with them when I know them.
This immersive experience does not restrict me wearing a suit to work when I need to, nor doses it stop turning up in my gym kit (before not after).
I just read this article that suggests WeWork is over valued compared to other property companies (like Regus). I can’t comment on the numbers, but I have this to say. The valuations of organisations like WeWork are ultimately driven by customer experience. My experience of WeWork is good, better than Regus – much better than IOD – much much better than sitting in an old school single office environment.
On the 7th Floor of WeWork Moorgate (where I work) is Citibank. If I move to the new WeWork offices in Wilson Street , I will work alongside Microsoft developers. These large organisations see that they can attract and keep brilliant graduates by offering them a workspace that works for them.
We Work differently these days, we work from laptops and phones with data that sits not on physical servers but in the cloud. We meet people for coffee or drink beer with them.
We want to enjoy our work and feel good about our workspaces. The people I work with do just that – but they do it much more easily at WeWorks than elsewhere.
I think the valuation of WeWorks is based on people like me turning away from traditional workplaces and for replications of those workplaces (as Regus offers). People like me – and there are many 50+ workers in both our City offices – are voting with their feet.
Yesterday I wrote about the importance of delivering a dashboard competitively. To sum my argument up, I think that those prepared to supply the technology needed to find people’s pensions should not compete for the work through a Government led “procurement process” but through a tech-sprint, where they prove to themselves, to Government and to their key customers – us pension savers – they can do the job accurately and at a competitive price.
I am not arguing to sabotage the concept of a single not for profit dashboard set within the new Single Financial Guidance Body, that is a useful first step. Nor am I arguing against a governance body set up by the SFGB to establish processes and controls to minimise risks of things going wrong. I accept the SFGB as the initial home of the dashboard and governance committee. But I am going against the consultation suggestion that there is just one pension finder service.
In this blog, I explain the benefits of competition between pension finder services to consumers and set out the principles by which these services can work together to deliver us our pension information, quicker, cheaper and with greater focus on the needs of ordinary people.
There is nothing so laborious as a Government led procurement process. Things happen consecutively, not in parallel, once appointed – the pace of development is dictated not by competition but by timelines agreed by all. Inevitably these timelines are conservative, they do not encourage entrepreneurship, things arrive late – or to deadlines which are way too slow.
Consumers are keen to find their £20bn lost money, to see all their pension pots on one screen, to get on with managing these pots to provide them with financial security in later life. Having wasted a lot of time already, they will not tolerate yet more buraucracy.
If anyone is under any illusion that the pension finder service will be free, then they are nuts. The cost of development and of management will be passed on to those benefiting from the dashboard. In the first place the costs will be picked up by levies on the industry, but these will be passed on to ordinary consumers. It is easy for these costs to be worked into Annual Management Charges or the hidden costs of managing pensions, but that doesn’t make them costs born by the consumer.
Transparency is the best disinfectant, if we are not to have a scandal down the line we need to be open about costs incurred.
Giving the pension finder service to a single organisation risks giving that organisation the right to set the price. If the price is set by Government, the price will either be too high or too low, if too high, the single service will plead it cannot do the work and force a change in pricing structure (see what is happening with price controls in the energy sector). Alternatively, if the price is too high, the pension finder -even if not for profit – will be as happy as Cedric the Pig.
The only way to ensure a competitive price is to put competition to work. This is why NEST is not the only workplace pension provider. Competition is thriving in workplace pensions because NEST were not given a state monopoly.
As I wrote in my blog “no man cometh unto the dashboard but by me“, restricting the plumbing to just one organisation assumes only one way to deliver information. It’s the pension finder’s way or do it yourself – with the pension finder able to tell providers to refer all private requests to them.
People have different needs – they want to find different things. Similarly, pension providers need different approaches. A defined benefit scheme’s administrators see dashboards in a different way to those of a self invested personal pension. The problems of providing data from a legacy insured system are quite different than from a modern database run by a recently started master trust. Different pension finder services will relate to these problems in different ways, some better than others.
In time, the dashboards will become more or less relevant to differing groups of consumers as dashboard focus on their needs and the needs of the pension administrators who supply the data. This focus needs innovation and that innovation flows from diversity and competition. It is unlikely to happen because of a single approach which is inherently generalist and unfocussed.
We can have competition and collaboration
It’s often noted that we have in Britain a very complex pension system with people having a lot of different pension pots and pension rights.
Some people think that we need a single pension finder service to bring everything together. But this is not what happens in other areas of competition. The introduction of open banking is a case in point. Banks now collaborate and compete in equal measure. The customers are well served by this, getting data more quickly, more cheaply and with much greater focus on their needs. We are already enjoying faster payments and integrated statements (Lloyds and Scottish Widows for instance).
Agreeing to work with open data standards, the retail banks have opened competition to Challenger Banks who they are now working with – and learning from. This is because the Challenger Banks are doing things quicker, cheaper and with greater focus.
When I see PensionBee and People’s Pension join Orio and the ABI, I see a willingness from those who challenge traditional ways of doing things in pensions wanting to work with traditional providers.
I want to be a part of a revolution not an evolution in pension information. We cannot move forward at the pace people want by doing things as we always have, that means repeating yesterday’s mistakes. Instead we need to move forward by working together competitively.
The way it can work
A long time ago, Britain built a rail network which we still use today. It was based on common standards (track width etc) but it spawned massive innovation both in terms of network coverage and in the delivery of “customer journeys”.
The innovators sometimes had to bite their lip and accept second best (Brunel’s broad gauge for instance), but for the most part- the innovators won through and it is they who we remember today.
The dashboard can work through a similar combination of innovation, consensus, collaboration and consensus.
I am quite sure that if we had set up in the 1830s a single rail network to deliver a rail system, most of the magnificent lines that we enjoy today would not have been built. A Government appointed railway governance body would not have accepted the challenge of a tunnel, a viaduct – of building a railway accross a bog like Rannoch Moor.
People do crazy things and often screw up. But in screwing up, they learn and do things better next time.
The way the dashboard can work is by letting people loose, by allowing them to sprint towards a target and sort each other out. By helping them to help each other so that everybody wins.
the action or manner of governing a state, organization, etc.
“a more responsive system of governance will be required”
“what, shall King Henry be a pupil still, under the surly Gloucester’s governance ?”
It has morphed from “rule or control” to a “manner of governing” in an etymological fudge-slide.
One of the things that happened in 2018 which scares the life out of big corporations was the Data Protection Act. Among other things it gives ordinary people to have the data others hold on them made available to them in machine readable format.
In terms of “rule and control” , this means putting us back in charge of what is rightfully ours. That is why GDPR – for all the moaning – is fundamentally good news for the consumer.
When it comes to pensions, what DP18 and the GDPR do, is to give us the right to our data in the way we want it presented.
What the Pensions Dashboard does is make the provision of that data easy, so we can see all our data in one place at the press of a key, a swipe of our screen.
Governance and freedom of information are uneasy bedfellows.
It is natural for those in Government to want to control and rule. It is natural that they will side with organisations that will help them control and rule. This is why the Government is reluctant to give us free access to our data.
Instead of allowing the market to get on with the solution, Government is inventing elaborate systems to rule and control the provision of our data to us – the data we have a right to under DP18.
Here is the current Governance plan
If you read the Government Consultation paper which doubles up as a feasibility study, you see that the plans for “Rule and Control” involve setting up a single dashboard with a single data transmitter – the Pension Finding Service or PFS.
In time, and only after the PFS has been allowed to dictate its terms, other dashboards will be allowed to ask for data, but those requests must be through the PFS who authorise them.
In short, the consumer gets very little say in what he or she asks for, everything is determined by the Chair of the SFGB and its constituent parts.
This is how bureaucracy stifles innovation.
How governance was rested from an oligarchy
Britain long ago recognised that giving absolute power to one entity (the monarchy) was a bad thing . Through a series of insurrections, power was rested from an absolute monarchy and distributed to the people through a process now known as democracy.
Britain’s success has always been founded on our pragmatic distribution of power and devolvement of authority to the people who do the work. So when we had an industrial revolution, it was bottom up. France and others tried to impose an industrial revolution from Government down and it didn’t work. The people didn’t buy it, industry was stifled, the entrepreneurs fled to England and prospered!
In today’s terms – the oligarchy is not so much the Government but something called the pension industry. You can see them lined up at the top of this picture.
At the top of the tree – owning the dashboards are the big beast providers – and the Government’s Money Advice Service (soon to be the SFGB). These are the guys who rule and control. To their right are the financial advisers who those who rule and control may allow to share in the spoils.
Nowhere in this picture is there any representation of the consumer. That is because in the technical architecture and the governance of the pension dashboard , the consumer is represented by those who rule and control.
Your pension – your rights!
If you allow this “governance model” to happen , then the pension dashboard will not be about what you want to see – your right under DPA18, it will be about what the dashboards want you to see. The dashboards will control what you see because they will control the governance and they will control the single pipe through which data requests flow – the Pension Finder Service.
Not only will they control what you see, but – as the only player – they will control the price you pay to see your data. They will have ultimate control of when the dashboard is working and when it is down for maintenance so they’ll also control opening hours.
The pensions industry would have you believe that this is “open pensions” but it is not. There may be open data standards – but they are only open to the Pension Finder Service and the organisations they sub-contract to – to do the dirtier plumbing
The big fib in all this is contained in the promotion of Open Pensions
The Pensions Dashboard architecture introduces a central trust anchor and authorisation server component that enables the consumer to control consent to access their data and also delegate access to third parties.
This may sound like putting the consumer in control but it isn’t. The consumer authorises just once, but has no real choice about who are his or her agents in this. That choice is determined by others, people who know best.
The only choice that a consumer gets is the choice of having their data delivered – it is that stark – take it or leave it.
Why this matters.
There are a number of things that people want to know about their pensions.
The first is what they are worth
The second is how to get their money back
The third is how much they’re paying to have their money looked after
The fourth is what is happening with their money while it is away
The fifth is how their money has done in terms of interest earned.
When these questions are answered, consumers (like you and me) then may ask the question what do I do next and this may result in them concluding they would like their money back, it may even result in them wanting to put more money away.
But that is for the consumer to decide.
The current thinking of all those with whom I speak on the dashboard from the pensions industry is that we need strong governance so that people make the right decisions and those decisions will be about saving more into the pots managed by the pensions industry.
Which is why all this matters. If you want any kind of independent view of what you have got, if you want straight answers to your real questions, then you need to have a dashboard independent of the pensions industry, a dashboard run for you and not for them.
We need genuinely independent governance – genuinely independent pension finders and dashboards which play to the ordinary person – not special interest groups within the pension industry.
We need to rest “rule and control” back from the pensions industry and give it to those who are genuinely on the consumer’s side.
The diagram is not the one that appears in the Pension Consultation to describe the dashboard architecture, that one’s sanitised.
Here the architecture does not appear so brutal but it is the same.
Because the Pension Finder incorporates the identity service, no data can flow to the dashboards from the providers (down the bottom unless the request has been verified by the identity service . This is what is meant by the interface that “authorises subsequent access”,
The biggest land grab since Lebensraum
But the grand design of the single pension finder service is seen more ambitious. According to a document I was provided by one of candidates for the pension finder service (PFS), its key features will include
A single point of integration for Dashboards, Providers and other entities that are approved to participate in the Dashboard System
A trust anchor for consumer and delegate authentication , (a trust anchor is an authoritative entity for which trust is assumed and not derived- Ed) in this instance the PFS authenticates who is sending messages.
A cost effective and and effecient service for orchestrating the “Find of Pensions and authorising subsequent access to the Pension data that has been found (eg for valuations)
A centralised consumer consent process for authorising access to their data for both Dashboards and delegates (e.g. Financial Advisers) who request access to the consumer data
The foundation for an Industry Attribute Hub that will initially provide the “find” of Pensions and atomisation services and which would also be extended to cover other long-term savings produce and business processes where attributes need to be found and shared
Let me re-word these points to make it clear just what they imply
Those awarded the PFS contract will
Be in control of the integration of all parties participating in the dashboard
Control the messaging between them
Have control of all data requests for values and other consumer information
Control delegated authorities (note these are already defined as to Financial Advisers)
Have rights to unlimited scope creep into ISAs and anything else that the PFS wishes to annexe.
There are many more pages of bullets outlining the Proposed Approach how the Trust Anchor would work, how delegate authorities would be controlled and how a single PFS is “robust, flexible and future-proof”. I would share the presentation but I was only handed it in paper format.
The presentation ends with a number of diagrams that show how untenable anything but a single pension finder service is. There is even a table showing feature by feature how open pensions are incompatible with open banking’s architectural features.
It is clear that as much distance must be placed between open banking and open pensions as possible. If we were to apply the experience of open banking to the pension dashboard we would not start with a single PFS but with multiple comprehensive PFS’.
Come off it!
I don’t pretend to understand all the technology at play here, but I can see a land-grab and I know what happens when you grant a licence to control everything to one organisation.
The arguments put forward to support a monopoly are all spurious – all taken from the project fear manual and none based on the evidence of Open Banking.
A single PFS would speed things up
Remember the space race? The only way you get a race is with runners, giving one organisation a monopoly wouldn’t make for a race, it would make for a CrossRail style cock-up.
A single PFS would be more secure
The presentation suggests that a single PFS would provide the “narrowest attack vector” and that increasing the numbers of PFS would “widen the attack vector”. I have no idea why this is, it simply appears to be ripped from the “Project Fear” manual.
A single PFS would be cheaper
Multiple PFS would multiply the costs , the cost of assurance would increase as there would be multiple costs of assurance, multiple consents would increase complexity and therefore cost. Again I can see no reason why any of this should be true
A single dashboard would be more complex
This is based on there being a phased approach to the introduction of dashboards, There is also an argument about consistency – where one dashboard could produce different results than another, there is another argument that proliferation of dashboards would present issues for funding . All of these arguments come from deep within the manual of project fear but don’t stand up to any scrutiny in a digital world.
Freedom from Complete Control
If you think that giving one organisation total control over all the data that flows through the dashboard you have a different view of competition and markets to me.
Doing so risks
being held to fortune on delivery timescales
outage of the service with no back up
no protection over cost over-runs
being at one organisations mercy over what data you could get
having no say in the development of the dashboard.
In short we would be handing Complete Control to the Pension Finder Service. If you want to know what that feels like, you should watch this video from the Clash
In addition to safeguarding the rising state pension, we will continue to support the successful expansion of auto-enrolled pensions, enabling more people to increase their retirement income with help from their employers and government; we will continue to extend auto-enrolment to small employers and make it available to the self-employed (Conservative Manifesto 2017 – p 64)
Here are the preferences of the self-employed – the output of the study the Government commissioned on the self-employed
As Jo Cumbo reports on twitter – this breaking news is not news at all
The Govt is to trial new behavioral methods to nudge the self employed into pension saving.
As forecast yesterday, there are no plans for any harder measures to boost pension saving among this group, inc using the tax system to get the self employed into pension schemes.
The reality of the report is that the Government are going to duck the thorny issue of auto-enrolment for the self-employed.
Statement of the bleeding obvious
The work done by Ipsos-Mori is good enough. It follows the well-trodden path of segmenting the self employed into various types from the “can’t get a proper job” through to the professional elite. There are plenty of useful charts which no doubt will be inserted into power points delivered by pension professionals who have no more will to change things than the Government.
I am not surprised that most self-employed see saving into a pension as not a very clever option.
Nor do I find it surprising to see the thinking behind these numbers
The question of framing comes into this. If you frame a question , as Ipsos-MORI seem to have done – so that “pension” becomes “wealth in retirement” – you get answers that respond to that framing. People who see retirement in terms of what has happened to them or their parents, will see property as a good deal.
But you can’t buy a sausage with a brick, something that is pretty important if you consider retirement as an extended period when you are not receiving an income from work.
An ill-defined problem
If the exam question Ipsos-MORI set out to answer was “how do we give the self-employed” what they want, then the report goes a long way to answering it.
If the exam question is re-set as; “are the self-employed doing themselves any favours” then the answer might be quite different.
And if the question is “are the self-employed doing the rest of us any favours” the answer is different again.
The self-employed are major beneficiaries of the Single State Pension. Many will get the benefits coming from SERPS without paying the national insurance contributions.
They exist in a tax and NI advantaged bubble which those with the skill-set to exploit it – exploit. Those who know their way around – use pensions to increase their wealth
The poorest self-employed can’t save as they have no means to save – either financial or in terms of an auto-enrolment mechanism.
In the middle are those who – having gone their own way on employment – see no reason to be part of the private pension system either.
None of which makes much sense in answering the question “are they doing themselves any favours” – they are where they are.
But it makes it clear when answering the question “are the self-employed doing the rest of us any favours” – that they aren’t.
What should be done?
If the self-employed are allowed to go their own way, they will – in my opinion – become a burden on the tax-payer in years to come (and indeed today). The reliance on houses and businesses to pay replacement income in retirement seems to me – misguided. Their perception of pensions – and I’ve read the report in detail – seems often to be wrong. Their grasp of financial planning seems – overall- to be weak. On almost every count I see the majority of self-employed as doing themselves no favours – nor the employed any favours.
The Government remedy seems to be feeble in extreme. Despite the recommendation’s of Jamie Jenkins, Steve Webb and Matthew Taylor for real action on the self-employed, it seems we are left with a few nudges as Government strategy. Nudge doesn’t work as a way of getting people into pension saving unless the default position is “save”.
Doing it the other way is like trying to push a van up a hill – with the handbrake on.
Those of us who have been involved in auto-enrolment know Charles as the quiet man who made it happen.
Not one for the limelight, there is little known of Charles before he joined the Regulator in 2011. Here’s what he’s put about himself on Linked In
“Charles was appointed Chief Executive of the Money Advice Service in June 2017.
Charles spent six years prior to this as Executive Director of Automatic Enrolment at the Pensions Regulator (TPR) where he was responsible for the successful UK roll-out of this programme, working alongside DWP. In his time at TPR, the automatic enrolment programme led to over 7.5 million workers newly saving into a workplace pension from over 500,000 employers.
Charles was awarded an OBE in 2017 for services to workplace pension reform.
He has spent much of his career setting up and leading major change programmes in both the private and public sectors in the UK and overseas.
Charles is also a trustee of South Somerset Citizens Advice.”
Although Charles is from Bath (a neighbour of Steve Webb) he has a flat in Brighton and when he left tPR for the Money Advice Service, it was felt by those who knew him – that he’d be back.
A man to manage change
Like John Govett at the Single Finance Guidance Body, Charles is not a pensions geek. Indeed his qualifications are as a management (change) consultant. He speaks feelingly of his time setting up tPR on the blog he wrote when leaving tPR to (temporarily) manage the Money Advice Service as it was subsumed into the Single Guidance Body.
It was as I was coming back to Brighton from my home in Somerset last weekend that it finally dawned on me.
This would be my last Sunday commute back to Brighton as an employee of TPR, a place I feel proud and passionate to have worked at for over 10 years.
To say TPR has changed since I started would be something of an understatement. When I first set foot in Trafalgar Place in 2005 as part of the team that would create TPR out of its predecessor organisation OPRA, there were around 200 members of staff – about a third of the people we still house in the same building complex today. After a short spell working elsewhere I returned to TPR in January 2008 to bring the Employer Compliance Regime team, who were then part of DWP, down to Brighton. Our remit? To set up and launch a programme that would give all employees access to a workplace pension. It would be called ‘automatic enrolment’.
There were six of us in a ground floor room at Napier House, faced with some enormous challenges. The first of these was to support DWP on what the legislation would actually look like. The fact that over half of the original team still work at TPR has been a real positive for the organisation, giving us a real understanding of the intricacies of AE law (I honestly believe there is nothing that Gillian McNamara does not know about workplace pensions and automatic enrolment), and a solid continuity of knowledge as the team has expanded.
The biggest challenge, once we had got our heads around the legislation, was how we were going to roll it out. We had many discussions with our stakeholders, NEST and the DWP, and were all in agreement that the implementation could not be a big bang with all employers going live at the same time…this was certainly going to be a disaster. We would need to introduce the changes in a controlled and measured way. But how? I believe that the staging approach which was ultimately adopted, starting with the largest employers and setting the tone, was the single most important decision we made – and, even in retrospect, the right one. Yes, it created a profile that looked like a mountain range to climb, but with careful planning and great care even the highest mountains can be climbed.
With change of the size of the AE programme there are always large risks, the biggest of which was how small employers would behave. Because of this unknown quantity, we insisted on the creation of a test group of employers – known as ‘pathfinder’, who we would monitor throughout the process to see how they fared and from which we could refine our approaches. It was from this learning that we developed our duties checker and five simple steps. This was hugely beneficial to employers. It was also hugely beneficial for the industry – the pension providers, advisers and payroll bureau all of whom could understand how employers would react to AE and then adapt their processes.
Subsequent employers have all benefited from this, and those employers in this test group also benefited from the huge attention that was placed on them.
The fundamental building block of AE is known as ‘nudge theory’, and we’ve worked hard with the government’s behavioural insights team to make it work for our programme. It doesn’t just involve harnessing inertia – although that is a key element of AE – it’s also about getting the tone and messaging right in our letters, so employers feel like they’re doing the right thing, and that everyone else is too.
Rarely does someone leave so unassumingly. Charles is someone who puts the work first and himself second, this is his strength and he will need it.
An immediate challenge from Frank Field.
If anyone believes Charles’ current low-profile can be maintained, then they need to understand the nature of the role he is taking on.
Charles’ predecessor, Lesley Titcomb is the object of Frank Field’s opprobrium and many feel that it was Field’s implacable hostility to the Pensions Regulator that led to her resignation. As a tPR lifer, Charles is clearly going to have no easier time from the Work and Pensions Select Committee, than did Lesley.
I am not sure whether this approach is either right or fair, but it is the reality that Charles Counsell faces and the issues around DB funding and in particular the Regulator’s behaviour towards failing DB sponsors that will be most under public scrutiny.
One of our own
But tPR is not just about DB funding. To the world outside the DB bubble, the Pensions Regulator is about workplace pensions and their management through auto-enrolment.
To the 1m + employers who participate in auto-enrolment, the Pensions Regulator is the boss.
This subtle change in pensions dynamics is missed by many who are close to DB.
To those who work in and with payroll, to the business advisors of the SMEs who drive auto-enrolment and to the workplace pensions themselves – Charles Counsell is “one of their own”.
A boring choice?
Appointing Charles Counsell as the CEO of the Pensions Regulator is a safe choice. Charles is not contentious – as Steve Webb is and would be. He is not a “new broom”, as Frank Field wanted and he’s certainly not the headline grabber.
Like John Govett at SFGB, Charles Counsell is a change management man. Someone who works from the inside to make things happen well.
Whether he can break from pupae to butterfly and promote the Pensions Regulator as Lesley Titcomb has, is his and tPR’s challenge. His appointment should give David Fairs space to get on with his agenda of policy change , I am sure he will need the support of those within Napier House and will get it. Charles Counsell will lead a well-functioning management team.
I expect that he will get the support of those who know how effective he has been in establishing auto-enrolment. I notice he has already garnered some support from Adrian Boulding (see comments).
But whether he will win the support of the wider pensions community – is still to be tested.
In almost every conversation I have had about the purpose of a pension dashboard, up comes the word “engagement”.
Engagement has become the horse to the savings cart, “you can’t expect people to save more unless you’ve engaged them with their savings” is the usual cry of the dashboard-istas.
But all the evidence is that we engage with our pensions not when we’re saving, but when we want to spend our savings. The crudest examination of TPAS enquiries shows that most people are querying claims – not asking for help on how much to spend.
It is only in the marketing departments of the pension saving institutions that dashboards are seen as a means to get people to save more. Government happily subscribes to that myth as it gets them out of worrying about the auto-enrolment rate, the demise of properly funded DB pensions and the ongoing worries over the state’s in retirement liabilities – most particularly issues to do with long-term care.
But it simply isn’t the case that the dashboard is there to help people save more. The prospect of a pensions dashboard is appealing because it helps us to spend our savings.
We are not helping people spend their savings
If you speak to pension pricing actuaries, they will refer to paying you back your savings as a “claim”, they will tell you about the “cost of claim” and they will look bleak.
Frankly, reducing the cost of claim, is greatly to be desired – if you are a pensions pricing actuary. The easiest way to reduce the cost of claim is to reduce claims. It is unsurprising that we are now hearing about the advantages of pensions as inheritable wealth, the cost of claim of paying a pension as a death benefit is very low, and the value of maintaining the pot under your management till death do it part – is very high. You do not need to be a behavioural economist to see that pension providers are rather keener to promote saving than spending and rather keener to promote pensions as a source of inheritable wealth than as a wage for life.
We are not helping people to spend their retirement savings because it is easier and more profitable not to.
The dashboard needs to come with a steering wheel
I will persist with my mnemonic AGE.
A is for Assist (helping people find their pension), G is for guiding people to sensible spending strategies and E is for equipping people to get their money back. The point of the dashboard – for anyone over 50 is primarily to get you retirement ready. AgeWage will get people ready for retirement, it will assist, guide and equip to spend.
People are not mugs, they know the value of compound interest, they know that they should do their saving when they are young and that is why the highest level of AE opt-out is among the over 50s, the over 50’s – who are prime customers for the dashboards are not playing catch-up with pension saving, they are thinking about making the most of what they’ve got.
To extend the metaphor, they aren’t interested in the dashboard so much as the car – they want the steering equipment and they want a financial satnav and they want it now.
It is not irresponsible to meet this need. It is deeply responsible. One of the biggest causes of pension mistrust among ordinary people is the fear that they won’t get their money back. The sooner the pensions industry stops talking about paying people their money in negative terms (claim) and starts promoting the value of what people have – the better.
Making spending easier
In case anyone hadn’t noticed, we are in an era of “faster payments”. If you want to pay someone money, you can request a same day transfer from your bank account and that money will arrive in someone else’s bank accounts that day.
But “faster payments” aren’t talked about by pension companies. When I visit pension admin centres, I am shocked to see customer’s birth certificates being used to verify a payment. We still talk of service standards to pay a claim of 10 working days – that’s no faster a payment than happened 25 years ago. Insurance companies and master trusts have spent a fortune on modelling tools to help us save more, but invested very little in making it easy to get our money.
What is more, when I read the IGC reports every April, I see very little attention being given to “claims experience”. The IGCs seem to be as blind to the problem as everyone else. When I talk to DC trustees about how they promote “claims”, they look at me blankly, I am talking about tomorrow’s problem.
But paying people back their money is not tomorrow’s problem, it’s the problem that most people have with pensions today.
We have got to make it easier for people to spend their pensions – it’s a matter of trust.
If we make it easy to spend, people will choose to save.
Mark Scantlebury and Vincent Franklin, the people who started Quietroom, tell the story of working with the Halifax through the credit crunch in 2008/9. The bank called in Quietroom to arrest the outflow of savings following the collapse of Northern Rock and Bradford and Bingley.
Quietroom turned the situation round, not by making it harder for people to take their money, but by training Halifax staff to make it easier. The perverse consequence was that people stopped trying to withdraw their savings and started trusting their bank a little more.
The pensions dashboard is likely to improve engagement and trust in pensions, but it will do so because it will make pensions accessible for people to spend. As with the Halifax, so with Pensions, a simple and open approach to helping people spend their money should result in people seeing the point of pensions.
Promoting pension spending
We’ve just come through ten years of austerity. The watchwords have all been negative “prudence”, “belt tightening” , “caution”. Whether it be the corporate balance sheet or our pension savings account, there is plenty of cash around.
We have become so risk-averse over the past ten years, that this article is probably considered treacherous!
But I believe that now is the time to promote the pension dashboard as the way to learn to spend our pensions, not another ruse to get us to save more.
The joy of having a regular monthly income to pay the bills is mine. I have a pension, I chose to work- I don’t have to. I still save and though my savings have gone down in 2018, I still invest for the future. I can honestly say that pensions make me happy and allow me to live life the way I want to. That is because I have financial independence from work – my pension makes me self-sufficient.
We aspire to a world without work!
We save to get this self-sufficiency – we want the freedom not to have to work.
The pensions dashboard can assist, guide and equip us for a world without work – which is what most people want!
“Sick in the head”? The phrase doesn’t quite work for Tina – a 38 year old Mum who suffered from post-natal depression and then found her life and critical illness insurances 30% more expensive than if she hadn’t declared it. (£26 per month became £34 per month).
Tina came across as self-aware, articulate and yes – self-confident. Anyone less sick in the head you couldn’t hope to listen to. You can test my judgement by listening to Moneybox (Tina’s is the first item).
Tina’s objection was to being declared potentially sick in the head, when she had made a full recovery. The provider (s) she approached were explicit in why Tina had to pay more for her policy. Her beef was that she hadn’t been warned of the risk (and I guess that she’s now on a register of “impaired lives” – though the program didn’t explore this).
Tina made a wider point that the lack of transparency is unlikely to increase take up of life and critical cover by those with ” pre-existing mental health issues”. I’m with her on this, people need to know whether they’re more likely to be sick again and if so – accept that they need to pay more for cover. If the answer is “no” – the solution is not to avoid the issue – but to underwrite and treat Tina as having a “clean bill of health”.
Tina and baby Dora
Transparency in life insurance
Increasingly the underwriting of insurance is becoming more mechanistic and less discretionary. What that means is that you should be able to test your likely premium online (as it seems Tina did). Critically, you should be able to declare your medical history anonymously and find out which insurers are prepared to underwrite you for what you’ve declared.
Johnny Timpson, a friend of this blog, came on Moneybox, representing the insurers. He explained that this question is currently under review by the insurance industry. He pointed out that without underwriting (declaring this stuff), premiums would go up for everyone. The question is whether Tina should have been able to shop around anonymously and get the best rate for her.
It seems that price comparison sites cannot do this (yet). To repeat a statement from the program by another insurance spokesperson
“It’s better to speak to a specialist insurer or broker direct , something that price comparison websites are far less able to do”
Where the program became contentious was over this question of signposting.
Johnny also referred people like Tina to specialist risk advisers (a type of financial adviser) who can guide people through the particular risks.
I must say, I didn’t pick up on the matter to which some very good IFAs took offence
Totally agree with you – Not only is he wrong, but it’s an irresponsible thing for @AdamShawBiz to say. Who else but an adviser is going to guide someone through the minefield of applying for impaired life cover?
Being sound in mind and body, Tina probably felt that she could guide herself through the minefield of applying for life and critical life-cover online.
The question is whether the fault lies with Adam Shaw as the IFAs are suggesting, or with the application process of comparison sites.
Here I have a dilemma that touches not just this debate- but the more general debate over life expectancy.
What is the price of being sick in the head?
Back in the day both Eagle Star and Allied Dunbar were owned by British and American Tobacco. Though Eagle Star’s advertised life insurance rates were generally worse than Allied Dunbar’s , smokers found they got cheaper cover from Eagle Star because Allied Dunbar applied a 30% rating (increase of premium) , if you declared you smoked. The shareholders of BAT were up in arms about smoker ratings as they implied cigarettes could harm your health. Ultimately, this was one of the reasons BAT sold on the life companies to Zurich.
In the short term, brokers may be able to navigate people who have a history of mental illness to insurers who don’t “rate” them. Because of the less strenuous underwriting, the premiums (like Eagle Stars back in the day) are likely to look more expensive – but they could turn out the cheapest (as Eagle Star’s did for smokers).
Tina, being totally recovered and feeling that her depression was a “one-off” would no doubt want to go for the lowest premium for her circumstances. She is effectively waiting for the price comparison sites to catch up to the standards of the IFAs who can apply the human judgement needed to avoid Tina’s predicament (she is now known as an impaired life to all insurers).
But in the long-term, as we understand data better, post natal depression of the type Tina suffered will get better understood – as will its signposting risks of future illness with the life-threatening properties that some mental illnesses carry.
The truth is that we don’t know the price of being sick in the head and so long as we don’t, people like Tina can insure with insurers that don’t rate them and avoid insurers who do. Or at least they could if they had the information upfront.
Insurance works the other way too
If Tina was applying for an annuity – rather than life insurance – she might find some annuity providers taking a view on her medical history and giving her a better income for the rest of her life as an “impaired life”.
There is however a cogitative bias in our DNA which stops us telling people some aspects of our medical condition and I fear that declarations of mental conditions is right at the top of the list of undeclared conditions. That is because people are ashamed of being sick in the head.
Anyone who watched the brilliant article on mental illness in the horse racing industry, will understand how hard it is for professionals of any description to declare mental illnesses and society is doing exactly the right thing today, in getting rid of the stigma of being sick in the head.
🔊 SOUND ON 🔊
Sports psychologist and former CEO of the PJA, Michael Caulfield, joined us in the studio for a discussion on mental health in racing pic.twitter.com/N39xPW81vf
If we are to take mental health issues seriously, we are going to have to work out the price of being sick in the head , not just today, but on our future mortality and morbidity (the chance of getting sick in the head again and the chance of it killing you).
If some mental conditions (Tina’s may be one) are acute but not chronic – those conditions can be excluded (as Tina wants). If they are indicative of a chronic (ongoing) condition, then they should not be excluded.
The minefield of impaired lives (referred to by Dennis Hall) arises from there being no certainty on this – and this arises from their being too little research on the long-term prognosis for people like Tina.
In the short-term , so long as the opportunity to arbitrage against insurers is around – then using an insurance broker is cost-effective. But I suspect that in the long-term – most people will want to compare the market using well “compare the market”. After all, if you can get this sorted out without the heartache of discussing sensitive matters with a stranger – you probably would.
Should the price of being sick in the head include extra financial advice?
Which puts the ball in the court of the comparison sites to get their underwriting more transparent and more user-friendly. If they did, then Tina and many like her, would be able to get on with insuring their and their family’s futures a little easier.
As with pensions, requiring people to pay advisers to tell them what to do, is more likely to exclude people from advice than anything else! 94% of us choose not to pay for financial advice – which suggests that on-line solutions are the way forward. The price of being sick in the head need not include the cost of using an insurance broker.
In a vigorous debate at DWP HQ, two quite different approaches to finding pensions emerged. This blog helps people to understand what the debate is about and why it matters to everyone.
It matters because there is some £20bn. lost and because much of the rest of the money in DC seems so distant from its owners – that it might as well be. Putting people back in touch with their money is what makes the pension dashboard such an attractive thing.
The received idea
The Government is minded to award a contract to a firm or consortium of firms to deliver the pension finder service that is a key part of the pensions dashboard.
While the department recognises the commercial opportunities created by multiple dashboards, it believes that there should only be a single PFS which, as a matter of principle, is run on a non-profit basis and with strong governance. The industry delivery group will need to decide how best to deliver a PFS and how it can adapt to changes in approach over time.
The arguments for a single (closed) pension finder service are four
The proponents, principally the organisations who have been expecting to be awarded the contract to deliver argue that a single pension finder service would be
Less burdensome on pension providers.
All these arguments are intuitively right. When I say “intuitive” I mean they feel they are right without conscious reasoning.
Those who argue that the market will dictate the right number of pension finder services, do so from a more cerebral position.
During the meeting it became clear that the intuitive approach, attractive as it seems, has logical inconsistencies and the potential to deliver a second rate service at a high cost.
Arguments against a single pension service
There were a number of people in the room who were expert on the development and delivery of open banking.
There was no credible argument as to why a single pension dashboard would be more secure.
They pointed out that the pension finder service is not in itself a dashboard, it just points to where people’s pension rights exists. For a pension finder service to really work, it will have to authenticate (verify) who people are and then ask all providers whether they have pension rights for that person.
This means building what’s called a “technical architecture” that allows a message to be sent to all regulated pension providers included by compulsion from Government legislation.
This interrogation does not need any manual intervention , the request is made electronically through an API – which is a digital gateway to the data a provider holds secure. Think of the API as a password protection system which once passes gives free access to search.
The argument against a single pension service is that you do not have to restrict the number of people looking for data (pension finding) – the market will do that. But whether the search is by Pension Finder A or Pension Finder B makes no difference to the security of the system.
So long as any pension finder service adopts the protocols and data standards laid down at outset, it is hard to see what a single pension finder service delivers in extra-security.
Arguments were put forward in the meeting that the number of pension providers and pension pots made pension finding very complicated. This is currently true, but that’s because there is no way to search the pension genome for people’s records. What you are actually searching for – (a combination of name, national insurance number and date of birth for instance) is very straightforward.
The hard bit is to get every data manager to adopt the API and allow the pension finder services in to have its look around. Actually, finding pensions should be very simple as long as a single data standard is adopted. So it has proved in open banking.
Again, the intuitive argument – “pensions are complicated- let’s not make them more complicated”, sounds good – but it’s not based on any rational argument. It is no more complicated having four search engines looking for data than one, it is only more complicated if they look for data in different ways.
Again – intuitively you’d think that building one big search engine to find pensions would be cheaper than building four or five. But again there is little logic behind this. What is expensive is the adoption of the APIs and the cleansing of the data needed to make sure pensions are findable.
And there are important arguments here in favour of a number of pension dashboards.
Firstly, granting a monopoly to one national service is precisely what Governments don’t do. We don’t have one Gas Company, one Rail Network, one Internet Provider one Workplace Pension. If we did – the public would demand its break-up. These monopolies happen only when there is no alternative – for instance there is no alternative to one lifeboat rescue system.
It is very hard to see how granting a monopoly to one pension finding consortium can be in the long-term interest of the consumer.
It is also very probable that the one provider will for some time fail to deliver value for money. We know that things go wrong with all Information Technology and that outages occur in service, Sometimes these are planned, the pension finder service would need to go offline for maintenance and upgrades. Sometimes outages are unplanned, as happened recently to 02’s internet service, When things go wrong for a national provider , such as a single pension finder, things would go wrong in a big way,
Not only does a single service risk people having to pay more (through levies) but it risks delivering less and creating frustration.
Less trouble for providers
This fourth argument – which overlaps with the argument about complexity, quickly falls away when you fully understand that what is proposed is a straight through process.
Providers will no more know they are being searched for data than I know that you have read this blog!
The trouble for providers comes when people discover mistakes in the data they see or when they can’t find the data because it is mis-recorded or because the search engine is down.
What I think is behind this concern is that providers feel more comfortable dealing with a pension finder service run by their own. It is true that a single pension finder service would be run by “the usual suspects” rather than “challengers”.
To name names, the usual suspects in the room were Origo , Equiniti and ITM and the challengers were Pension Bee, Pension Sync and Altus.
Amusingly – one of the usual suspects referred to the challengers as “any old Tom, Dick and Harry”. You can guess how this went down.
Normally consultations are pretty boring – take the CDC one. Most matters have been decided and the consultation tweaks the tail of legislation.
With the Dashboard consultation I am not so sure. The debate on a single pension finder service gets to the heart of deliver, asking questions of who the dashboard is for and what protection the consumer really has.
In the fascinating debate had between the Fintechs , I saw precisely the dialectic I had expected. On the one hand, the established players looking to deliver as they wanted and on the other – the challengers – looking to move things on.
The mood music within the DWP is I sense changing, the Pensions Minister has been spotted in Pension Bee’s offices, the DWP are opening itself up to these debates and genuinely listening.
If I was wanting to take a bet on this , I would keep my money in my pocket. The Consultation has given the single pension finder service a big tick – based on intuition, but momentum is with the challengers – who are mounting better arguments and delivering with greater fire-power.
I am off to Westminster this morning to meet the new boss of the Single Finance Guidance Body. We’re not going to be talking dashboards – he’s in dashboard purdah till the consultation’s over. My agenda is AGE – Assist-Guide-Equip.
I don’t presume to think for everyone, or talk for anyone but myself, but personally I think we’re rather ignoring the role the state has and will play in helping ordinary people figure out their financial futures – especially the part of the future where money stops coming in from work and starts coming in from pensions.
We underestimate the importance of this transition, we believe because we feel we can work for ever, that it will always be thus. But it isn’t. Many people find in their fifties that the opportunities and will to keep making money diminish. As John Cooper-Clark wrote of ageing bikers “Tyres are knackered, knackers are tired”.
Preparing for the longest holiday we’ll ever take
The realities of our older years are difficult to think about. The deterioration of mind and body is complimented by the joys of reminiscence, the peace of final years that should be devoid of stress – a time to enjoy families. While we have been mentored by parents and in the workplace, in retirement we are the mentors, the people others turn to.
It’s difficult to think about because there is no career path – all of us are on our own. Which is why a little guidance along the way is very helpful.
In my current thinking , I’m interested in how we help people into this new stage of life and particularly how we prepare them for the financial side of things.
I am sure that the majority of us will not be well-prepared, we’ll muddle through and look back and regret financial decisions we took that were not thought through. The decisions we take in our fourties, fifties and sixties about debt, savings and protecting ourselves and our families can and should last us a lifetime. That’s why I’m interested in simple concepts like the AgeWage- the replacement income we provide ourselves in our later years.
Bringing the Single Financial Guidance Body into being
We are now but a fortnight away from the arrival of a new name in financial guidance. SFGB doesn’t have any obvious resonance, it is a name not a brand – it inherits the brands of MAS and TPAS and most of the people who worked there, but it has to forge a new identity and relevance – which – it’s hoped – will make it the obvious place for us to go for assistance, guidance and to be equipped for later life.
John Govett is the new CEO, I want him to know that I’m rooting for him and for the SFGB. It’s a national resource and I want it to be known nationally. I will promote it.
At the same time, I will need it- as I needed TPAS – for myself and for the many customers of Pension PlayPen and AgeWage who need personal financial guidance and help for staff who often turn to their employers first.
John Govett has the job of making SFGB the next step for millions of us – who may start our exploration of the future tentatively – needing the kind of mentor that they’ve had all their lives – but won’t have in the future.
John has a lot of responsibility on his shoulders and he could do with support. I will be speaking with him this morning about how he can rely on mine and how I hope I can rely on his organisation.
The need for universal relevance
The Government has made some changes to the way we can organise our futures.
We have a state pension that pays out a single amount from a different time. Understanding how this fundamental building block of the AgeWage works is a challenge for us and for SFGB
We have new ways to spend our pension savings – PensionsWise (or whatever it will become) was set up to help us understand what pension freedoms mean and give us next steps in using them
We have matters we don’t like to think of, the implications of failing health, the changes to the way we plan for this are yet to be announced but the strain on the NHS and younger generations is getting greater – the SFGB can help us here too.
I haven’t mentioned the dashboard , and I won’t in this piece any more than to say that the DWP’s current plan is that SFGB is where the dashboard will sit, at least for the first few years till commercial dashboards are unleashed on the poor unsuspecting public!
The current thinking appears to be that the Pension Dashboard becomes the first new deliverable of SFGB. This should make it universally relevant as Pension Freedoms should have made PensionWise relevant. That only 1 in 10 of us use our shot at PensionWise is a mark of failure not success. The dashboard (and PensionWise) should do better.
We need SFGB to be universally relevant, pensions and pension saving and debt management and long-term care funding should be things that all of us think about and prepare for. Of course not all of us will, but we can and should do better.
Yesterday’s Moneybox with Lesley Curwen was a cracker. It brought together the voices of a number of investors together with the views of Michelle Cracknell, Chris Sier and Gina Miller. All were clear and interesting
But the best contribution came from Jeff Houston , Secretary of the LGPS Advisory Boardad who cited the West Midlands Pension Fund and made the issue real. West Midlands thought it was paying £11m but discovered it was paying £90m in investment fees. It has subsequently brought this cost down by £30m. The £30m saving is being put to work keeping the streets of Wolverhampton clean, the libraries of Dudley open.
High charges are pants, as indicated by the pant-like illustration given us on the MoneyBox website!
In total the LGPS pays £1bn in fees (Jeff admitted even this may not be the whole iceberg), While Jeff ruled out suing fund managers – he promised some tough conversations to come.
The council tax payers and those benefiting from the services of local authorities in the West Midland have a lot to thank those running the fund. All over Britain pension funds are waking up to the fact that they can not only know how much they’re paying for costs and charges and (where they find they are overpaying) save their fund and its sponsors money.
This seemed pretty real to me,
Making money real for ordinary savers
The work done by Chris Sier is interesting to Jeff and to those running the big DB pensions that many of us are fortunate enough to still be in.
But it doesn’t really do it for the man or woman on the street (even Chris admitted he was bored by looking at the IDWG template).
What really matters to ordinary people , as has been confirmed by many surveys, is how much money they have to spend when they reach later years. This means comparing more than the minutiae but the total impact of what people pay and what they get for their money.
The only way we can compare what we’ve had as value and paid as money is against what others are getting and paying. This is called by the industry “benchmarking”.
We do this all the time, look at the way we shop in supermarkets, or compare costs on Money Supermarket, or consider the value of a Christmas Tree on a market stall. We need a reference point before making a buying decision.
A chap came on Moneybox who had been trying to work out the costs of his Scottish Amicable Policy but said he’d got nowhere. Michelle Cracknell rightly pointed out that if you’ve got an old policy – review it.
But Chris Sier explained that trying to work out the internal rate of return on his pension was really hard and even when he’d worked out what he’d got from his money, he had no comparator with someone else’s return.
It was again left to Jeff Houston to tell us that by publishing the costs of actual charges of each of the funds run by members of the LGPS, he was giving his members the way to compare the value they are getting for their money.
Until we can compare how we are doing with other savers using a single means of comparison, ordinary savers who take their own risks, will be at a disadvantage.
This seems pants to me!
It can be done
Let’s go back to the idea of Chris Sier’s that we measure our pensions by how our contributions have done (using the internal rate of return of our contributions).
What if every IGC and every Trustee and every SIPP provider and every Insurer with a load of legacy pensions agreed to publish an internal rate of return on your pension pot, based on the contributions, the growth and the amounts deducted from your pension?
What if, instead of this being an abstract number – it was presented to you against the internal rate of return against a fund invested in an average way – an average asset allocation, average fund management – average costs?
Suppose that instead of presenting you with a 14 page spreadsheet or even a 14 page pension illustration, this information was presented to you on your phone as a single number between 1 and 100 with the average set at 50 and your score being above or below that?
Doesn’t that sound the kind of thing that we should be trying to do? Does that sound pants?
I decided to spend the long journey home reading the People of the Abyss by Jack London – an account of London’s time with “vagrants” in London at the turn of the 20th Century. It is harrowing and desperate stuff, few of the people he lived with were likely to live long and London is constantly referring to his capacity to go back to “white clean sheets” – while vagrants had no hope of immediate or future comfort.
We still have people in the abyss of despair, living day to day to avoid death. I walk past them on the streets of the City, they bed down on my doorstep, I watch the callous behaviour we meet out to them on my TV. The problem is not abstract – it’s a real crisis every Christmas.
A couple of years back I spent a few days with today’s vagrants – who suffer a little less for Crisis at Christmas’ work. Many of the people I saw were so outside the mainstream that they were not drawing the benefits they were entitled to. These included the state pension. The abyss is deep and for some it is hard for people to find the help to get what they are entitled to.
120 years ago , policemen used to roam London at night moving vagrants on so they could not sleep. They had to sleep during the day because they did not sleep at night. So the vagrants could not work and were excluded from hope.
We all have a responsibility for stopping people falling into the abyss. The abyss will not go away, it is the hopelessness that we call despair. Many of the people I see are in that abyss and we can only make their lives a little better by being kind to them.
But we can and must stop people giving up hope and dignity and entering into that state of hopelessness from which it is so hard to get out.
A beautiful and contemplative day
For me yesterday was beautiful, sad and tender. My mother heard that she can have a second knee operation which gives her the hope of rambling the Dorset hills again.
I sat on the other side of the aisle from a young man who was taking someone I assumed to be his grandfather out for a day on the train. It turned out the old man was just someone the young man was doing a favour to. What a fantastic act of kindness.
Reading Jack London’s “the People of the Abyss”, thinking of how my 86 year old mother will not give up hope and watching the unlikely couple across the aisle from me made me want to do my job even more.
How this touches pensions
As some of you may have read, I’ve been writing answers to readers questions in the Times. Most of the readers don’t have rich people’s problems. The one I have this week is from a lady who has £3,000 in retirement savings and is 59. I nearly wrote “only £3,000”, but that wouldn’t be right. This lady wants to start voluntary saving now.
The £100 a month she can save can be magicked to £125 by the Government incentive even if she doesn’t pay tax. She is self-employed and poor but she can invest in the NEST default which is an investment fit for a king. She can use the money she has saved in a bank account to pay off what’s left of her mortgage and boost what she can save for the future. She will have a house and a state pension in 7 years and she’ll have made the most of the little she has.
When people turn their minds to it, they can make a little go a long way. The problem is that many people like this lady, don’t have the hope to do something about their finances and get dragged into a financial abyss.
We live at a time when we talk about financial inclusion, demand people take financial advice and exclude 94% of the population from the kind of robust support they need to plan their finances. The financial exclusion practiced today is unintentional but very real.
When I wrote my response to the Times, I felt the hand of an unseen compliance officer telling me not to provide her with a definitive course of action, but if I can’t – who can?
Jack London didn’t take no for an answer, he went to the People of the Abyss and he heard what they were saying and he wrote about it and people read what he was saying.
Jack London was one brick in a road that led to a welfare state that means that the kind of horror he wrote about is much rarer than today
But people still die on the streets and they are usually old and financially excluded from what we enjoy. That can’t be right – we have to find a way to make homelessness a thing of the past. We have to help people manage their finances to include them in the benefits us lucky ones enjoy.
This blog is written for employers and advisers who have used or assisted with the ITM eAsE link to L&G’s workplace savings Plan. You are where you are – here is some context and some thoughts on your position]
For many years the L&G workplace savings plan was the #1 choice for small businesses looking to offer a personal pension solution to staff through auto-enrolment.
L&G more or less wrote the book in 2012 with both their group personal pension plan and its mastertrust; employers such as Marks & Spencer, Boots and Asda signed up. More recently Tesco has joined them. Attractively priced and offering the support of an impressive investment operation (LGIM), L&G continues to service its large and medium sized customers well.
L&G pioneered the IGC, setting up before others, funding the IGC to run annual meetings with employers and offering a degree of transparency through its chair statements that set it apart. Governance on its master trust was and is equally impressive.
The strategy of leading the charge on auto-enrolment seemed consistent from CEO Nigel Wilson down. L&G had a strong social purpose and spoke out on it. It was the first organisation to offer a credible default that took responsible investment seriously.
I am a Legal and General investor, investing in Future World, I have been described both within L&G and without as an advocate for their way of doing things. As regards the kind of company I work for (with 300 employees and strong employer contributions), L&G is a standout operation.
But not all employers are large and loaded.
One of the deals that L&G won on the way to becoming a dominant force in UK workplace pensions was a contract with the Federation of Small businesses. The FSB is an important trade body to smaller companies, those with less than 50 employers. These employers are often paternalistic and take their pension obligations seriously. Many small employers contracted with L&G because it was the default provider for the FSB, either with the FSB’s financial services arm or with other employers.
Because L&G remained a stand-out workplace pension, it was often the choice for smaller businesses using Pension PlayPen, the online “choose a pension” service offered by me – with analytics from First Actuarial.
But somewhere, somehow, Legal and General as a life assurance company started to change. The management of the company shifted from the pragmatic customer focus of Kingswood to the more abstract wold of Legal and General Investment Management. The IGC – once led by Paul Trickett with members from the life company who knew small businesses changed too. Now the IGC is heavily focussed on investment and so is L&G pensions management.
There was a problem with workplace pensions; the smaller employers that had arrived from the FSB and through Pension PlayPen and a number of solid IFAs, were being offered a deal that did not meet LGIM’s target margins. A decision was taken to cut costs by automating service.
Over the last three years , the direct support offered to small employers and their business advisers by L&G has turned from excellent to virtually non-existent. Instead of contracting directly with employers to provide payroll with a supported service, new customers were required to use one of two external payroll interfaces. The first Pensionsync offers a link between employers and L&G which is free to use and works well. The second – is offered at a cost by ITM and though it has had some problems, has generally done the job.
A risky strategy
I have warned – on this blog and at IGC meetings – that the dependency on external software to solve a core issue for auto-enrolment – the payroll interface – is a big business risk for both L&G and its employers.
We have now seen one of the two providers crystallise that risk. ITM – who offer the “eAsE” interface will be ramping up its prices by a huge percentage at the end of January.
This risk was anticipated by Sage and other large payroll software suppliers – wary of the consequences of a failure or change in strategic direction. They demanded a direct interface with L&G and would not endorse any middleware approach
ITM is not failing, but since its MBO last year it is changing its direction. It clearly wants to make eAsE profitable in its own right and will argue that this huge price rise is justifiable on that basis.
But it leaves small employers contracting with L&G through Ease with a problem. Here is that problem, as described to me by one IFA with a large book of clients using L&G through eAsE.
As you know, it has been a painful journey to get to this stage:
Tie up with ITM and PensionSync
Subsequently 18+ months of issues with the ITM system itself
For a client who left a Payroll Bureau who had an ITM license, L&G would open up their old ‘Manage my Scheme’ service to allow employers to continue to administering schemes, although it would take 6 months to setup access.
L&G then further removed the ability to allow an employer to use the old L&G ‘Manage my Scheme’ service for employers who left a payroll bureaux who had a license of ITM. Despite older employers who setup in the pre-ITM era being able to continue to use.
An employer also couldn’t switch to a PensionSync enabled solution as L&G refused to take action despite pressure from Will, Chris and the team.
Essentially rendering their scheme redundant.
Ability removed for us to speak to anyone at L&G regarding clients plans with an email helpline the only method moving forwards.
Final nail in the coffin, ITM revamped pricing structure, alternatively a very tight timeline to make other arrangements by 31st January.
Essentially if the new increased upfront payment is not made by 31st Dec, all ITM L&G schemes redundant at end of January.
Thinking aloud, three positive outcomes (or minimum expectations from L&G) would be:
In event of needing to transfer scheme to alternative provider
Assistance in form of apology letter we can provide to employers explaining the decisions they have made to help manage a smooth transition.
Contribution towards our and/or employer costs associated with transferring to alternative arrangements.
Allow ITM employers to access old Manage My Scheme service within the designated timeline or contribution towards increased ITM fees
Here we would require guarantees from both L&G regarding the longevity of this solution and thus over the longer term I think I would prefer the former solution.
Finally, we are (an IFA) with 200 or so L&G schemes but I suspect the changes are impacting the FSB Workplace Benefits/IFS Employee Benefits who were also sucked down the ITM route.
A test of L&G’s metal
This kind of thing happens. L&G were not aware of the action of ITM and might argue that ITM is an independent organisation whose pricing is no business of theirs. I am pleased to see that the initial response of L&G management so far has been positive. They have recognised that this is their business problem and promised action.
The positive approach adopted by the IFA above is an obvious course to follow.
This is an opportunity for the IGC to exert some control. While the cost of auto-enrolment itself – fall to the employer – when those costs become intolerable, the consequences can fall on the member. High operational costs for auto-enrolment mean less in the kitty to fund the pensions. In extreme circumstances – they can curtail the activities of the business.
The fundamental problem goes back to the decision by L&G to move from a supported to an unsupported approach to small employers. This is not the time to argue whether promises were broken, but it is a time when attention has to be made to the matter in hand.
The ITM eAsE issue needs to be addressed immediately. January is a tough month for payroll and especially for the accountants who run payroll bureaux. This is not the best time to reorganise auto-enrolment and L&G must recognise some responsibility to rectify.
EAsE was and remains an endorsed solution. If that solution is no longer tenable for employers, it is imperative L&G takes back control of the payroll interface.
“As an industry we have a duty of care to support people in their decisions, to ensure they get the retirement they want, need and deserve. Providers, like ourselves, need to do more to help engage consumers and guide them to making better decisions”.
The collective intake of breath that greeted the eventual publication of the Government’s feasibility study and consultation paper was palpable.
Now – a week on – perhaps we can stop congratulating each other and get on with delivering a service that people need and want.
There are two outstanding matters to be addressed
There are £20bn DC assets lost and unclaimed today in Britain
There are going to be 50m abandoned pension pots by 2050.
At a Governmental level , these matters spell trouble for a retirement savings system.
For pension providers it spells an increasingly expensive claims experience
For ordinary people it means frustration and delusionment with a savings system that seems keen to take their money and not to give it back.
Off to see the wizard!
This morning I am off to DWP HQ for a workshop on how the dashboards will be delivered. Except dashboards plural won’t be available in any meaningful way for 3-4 years after the pilot dashboard is up and running – and the pilot won’t be up and running till the back end of next year at earliest. I have heard these timescales described as challenging – given that the dashboard project kicked off in 2016 – I disagree.
If you could find your pensions, the dashboard could give people a chance to do something about abandoned pots, but finding them doesn’t look particularly easy.
Although there are plenty of numbers in the consultation document – nobody really knows how many pots are out there. We know that NEST has 7.1m, Now 1.8m and People’s 4m. The IGCs typically look after 1m pots and there are around 25 of them (including the GARs which should be IGCs. That leaves the unchartered waters – the 40,000 or so DC single employer DC schemes, the £400bn of non-workplace “legacy”DC and the SIPPS which are about the one part of the system that should be getting advice.
What is clear today is that the challenges in terms of data sharing needed to find pensions are very similar to the challenges the banking industry was facing then,
The essential message of the paper was this
The most effective way to promote competition is to ensure independent ownership and control
This call (and many like it) led to the intervention of the Competition and Markets Authority and to the break up of cosy relationships between those in the payment business.
The Pensions Minister – in his paper – repeatedly references this work but confusingly suggests that we can learn the lessons from Faster Payments – only once we’ve made the mistakes that Open Banking avoided.
Of course Pension Ministers are wizards, they can change things – and change things for the better. I’m going to the DWP this morning to see a Pension Wizard and I’m going to point all this out.
Dashboards that can help
I’m also lining up a meeting with the new CEO of the Single Financial Guidance Body – John Govett.
He’s now got the tricky problem of having to deliver a service that people want , not the service that the financial services industry seems to think they need.
My experience with TPAS is that what most people want – when they seek guidance is assistance in finding pensions , guidance as to what to do with them and the equipment to get on and do the job.
Dashboards that can help will do all these things, but a dashboard that doesn’t help will become an albatross around the SFGB’s neck.
The consultation is sub-titled “working together with the consumer”. It is not entitled “how the pensions industry and Government can maintain the status quo for a few years more”.
I will prevail upon Mr Govett to look beyond the end of the ABI’s nose for solutions to his problems. The SFGB is a delivery mechanism, it should not be turned into a governance body. The SFGB should be looking at new solutions to old problems , not old solutions to problems that don’t exist.
To this final point, the industry consensus that dashboards are a way to increase the amount people save is totally wrong. The dashboards are a way to help ordinary people find and then spend the money they have saved. Like with TPAS, the vast majority of pension custom that the SFGB will get will be from people close enough to retirement for pensions to be real.
We do not want to be told to save more (opt-out rates for the over 50s are the highest of any cohort), we want assistance guidance and the equipment to spend our money.
So I will be telling Mr Opperman and Mr Govett the same thing. We want our dashboard and we want it now. We don’t want it delivered old skool, we want it delivered proper digital. We don’t want lectures on saving more, we want equipment to spend better.
The campaign for proper dashboards is just beginning.
The retirement riddle is that the choices people are taken since the pension freedoms of 2014 aren’t making them happy, well or putting them in control.
I have to say I found some of Demos’ analysis baffling. It included “behavioural bias” – limited annuity purchases are plausible due to psychological or behavioural bias”. I’m not quite sure what this means but I’m totally sure that the following statement is incomprehensible to all but the most ardent behavioural scientist.
Hyperbolic discounting. “When people assign values to future pay-outs, the discount rate used to evaluate intertemporal choice is not fixed but varies in line with the length of the delay period, size and signs of the benefits. This effect is called hyperbolic discounting and is interpreted as ‘temporal myopia’.
I think it’s simpler than that, I think people can see a bad deal a mile off. Investing their life savings into gilts with negative real returns is not a good way of providing a wage for life.
The report falls short in convincing us that people should be buying annuities. Given the choice of not buying an annuity, most people take that choice – whether in the UK, the US or America. Only in Switzerland are annuities popular, but that’s because they offer artificially inflated rates by a Government determined to get people to insure against old age.
“The retirement income riddle” is still a good work
Despite some very obscure passages and a pretty dreadful introduction, the second half of the report is very good indeed. This is because it focusses not on academic research (see above) but on conversations with ordinary pensioners, some of whom are relying on an annuity and some on income drawdown,
If their research is correct, low earners do not feel as happy when they drawdown as they do when they have a secure income. The Demos people’s findings are interesting, if a little worrying.
People on drawdown find it harder to take financial decisionsPeople on drawdown are less happy
and people in drawdown don’t feel in control
This is worrying because of the £36.8bn which came out of DB last year – most is in drawdown.
This is worrying because 500,000 people a year are exercising their pension freedoms and very few are buying annuities (for good reason)
This is worrying because – as the report says about 20 times in its final section, there is precious little support available to people – and when it is available – it is not exactly going down a storm (only 10% of those eligible have been for their Pension Wise interview).
The report concludes on a sobering note.
As an industry we have a duty of care to support people in their decisions, to ensure they get the retirement they want, need and deserve. Providers, like ourselves, need to do more to help engage consumers and guide them to making better decisions. We hope this report, and our supporting activity with colleagues in the industry, enables this.
There is a more fundamental problem. People do not trust their provider to give them independent advice any more than they trust their annuity products.
Along with Al Rush, Jo Cumbo , Michelle Cracknell – I was interviewed yesterday by the BBC Moneybox team for a Christmas special on pension transfers.
It’s always good doing these things as it forces you to say what you really think.
Yesterday I found myself talking abut the curse of contingent charging which – like Paul Lewis – I consider as commission by another name.
In this I disagree with Al Rush who uses contingent charging to help what I consider “vulnerable customers” with special needs for cash rather than income.
Although I know that good advisers use contingent charging (including advisers on this thread), I think those advisers do so because of the wish to do the right thing for the client. Contingent charging – in extreme cases – could be justified if the customer was “vulnerable”.
For Al, the opportunity to charge contingently allows him to advise people on their DB pension rights in a way that he couldn’t if he had to demand a cheque upfront.
So when I wrote a blog on this earlier in the week, I was struggling with the conflict between “financial inclusion” and “consumer protection”. Frankly 9 times out of 10, I would argue that if you haven’t got the cash to pay for advice, you don’t have the cash to take the risks of pension drawdown.
In the past, providers employed “inspectors” to mark introducers homework. Regulators now do this. Especially where advice is given on a contingent charge, the advice must be spotless. https://t.co/OIKomTDzNM
Nic Millar pulled me up on “spotless” – (of course all advice should be spotless), I should have said “proportionate”. The FCA are rightly worried that the proportion of those who pay a contingent charge and are worried about the advice is much lower than those who pay for the advice independently. In one sense the risks of taking a transfer should be disproportionally promoted to those paying by a contingent charge. The Transfer Value Comparator should be posted at the front of any suitability report paid for by a contingent charge.
The other relevance of the word “proportion” is to do with numbers paying for advice out of the fund. In my view, the numbers out of all proportion to the need. The need for contingent charging is a “special need”.
Examples of vulnerability “medically diagnosed shortened life expectancy” “Extreme and urgent debt relief (where access to DB money – not possible) De-minimis pensions forsaken (CETV <£50k. – cash drawdown clearly tax-preferable for low income family.
As part of our review of the 18 firms’ processes we reviewed the advice they gave on 154 transfers. Our suitability findings were as follows:
suitable: 74 (48.1%)
unsuitable: 45 (29.2%)
unclear: 35 (22.7%)
These results are little different from their findings in 2017 and compare unfavourably with their research into retirement income advice where over 90% of advice was deemed suitable.
IFAs know what they are doing and what they are doing is providing unsuitable or unclear advice over half the time.
Can we really pretend that the disproportionate incidence of poor advice is down to IFA ignorance or lack of talent? I don’t think it’s that. I think the reason that IFAs get it wrong is that they have to distort things to get paid.
This is the problem with contingent charging, it distorts good quality advisers into poor quality advisers, it is storing up problems for the future and that the FCA has yet to address this problem – is worrying. The door has been left open for the FCA to ban conditional charging – I have called for that draconian action in the past
I am now going to change my position. I think it enough for the FCA require anyone who is requiring conditional charging to be deemed a “vulnerable customer”.
This is because I agree with Andrew Warwick-Thompson
Contingent charging for DB transfer advice encourages poor decision making by both parties. It suggests to consumers that advice on a particularly complex financial decision isn’t worth paying for, and incentivises advisors to recommend only one course of action.
but I see the needs of Al Rush. By making contingent charging available only to those with special needs, advisers will have to make sure the advice is proportionate to the special needs of the customer, the PI insurer and the regulator. There is one final point to consider – tax.
Of course the contingent charge deprives the exchequer of VAT and the money taken from the fund defeats the purpose of pension tax relief as it decreases rather than increases the amount available to provide a pension. I can see no fiscal justification for a contingent charge
Right now – contingent charging is being used as a tax-dodge for higher rate tax payers, I can hardly see “wealthy clients” who can pay their taxes, being allowed to escape them through a regulatory loop-hole.
If the fact-find reveals that a client has the means to pay for advice, then the option of a contingent charge should not be available.
This rumour has sparked a twitter storm among those who think Steve Webb is conflicted in potentially exercising the powers of the Pensions Regulator on policies he initiated as pensions minister.
Exclusive: Sir Steve Webb, the former pensions minister, is in talks to become the next chief executive of The Pensions Regulator as the incumbent, Lesley Titcomb, prepares to step down. https://t.co/cwzKwnPmWt
Personally I see any conflicts as manageable. It is after all tPR who advise the minister on policy in the first place. It’s an open secret who in tPR advised Steve when he was minister and as that person is influential in Government policy today, we might logically consider him conflicted too.
Following this path, we would have no-one talking to anyone; a state of affairs that would be quite the opposite of good Government. The pension policy successes of the past ten years have resulted from open government – the failures from the diffidence of civil-servants and politicians to get things done.
The assumption that Steve Webb should play no further part in the governance of pensions is silly, we don’t have many people of Steve’s calibre and he’d make a good pensions regulator.
I’m not sure I want him as my pensions regulator for two reasons. Firstly there are others who could do the job – probably as well and secondly Steve is doing a very good job where he is – at Royal London. But that does not mean Steve shouldn’t be considered for the job of CEO of the Pensions Regulator.
The good that they do
Conflicts between those in public life are most apparent when they look to monetise their experience in private life. Steve is doing just this at Royal London, Gregg McClymont at B&CE and Ros Altmann at PensionSync are all being paid not just for their experience but for their influence.
Do we object to those who have served as MPs (or in Ros’ case as an active Baroness) influencing as lobbyists? All three are very vocal, very prominent in public debate and are all getting things done. Steve’s petition, Gregg’s work on health issues for builders and Ros’ campaigning on net-pay are examples of the practical application of influence for the public good. There is a dividend in having former politicians in the private sector, they move things along.
We may feel awkward that they are leveraging their positions in Government for personal gain but I think the judgement should not be “Whether” they do this – but “how” they do this. As they are opinion formers, they need to be challenged and I have challenged them on this blog.
In the case of these three, all are quite accountable, all engage in debate and all three have been highly effective in their work. The proof is in the pudding and the pudding tastes good.
The good they might do
There are examples of conflicts that go un-reported which worry me more. I worry when I see senior civil servants from both FCA and tPR working within consultancies and influencing the course of policy through what can only be called “insider knowledge”. I have made these points in relation to the RAA of BSPS (as an example). There are plenty of civil servants who have served time in Brighton or Canary Wharf who could be tempted to arbitrage against regulatory weakness for commercial gain. We should call that out.
Does this mean that we should stop figures as disparate as Rory Percival and Andrew Warwick-Thompson from doing the work they are doing – NO!
We need experience in the private sector , but we need transparency. What we can’t have is the kind of kiss and tell relationships between former regulators and those currently in the job. I don’t think there is a lot of this about because we generally have the controls with the regulators to stop it. We also have scrutiny from the media, social and otherwise.
The good they will do
Someone will take on Lesley Titcomb’s role when she leaves in the spring of 2019. There are several candidates and I doubt that many will be life-long civil servants. I expect to see people who have worked in the private sector prominent in the selection proceedure.
I am pleased that Steve is being mentioned, not least because imagining him in Lesley’s place, makes me realise that she leaves big shoes to fill. She succeeded Bill Galvin who is now CEO of USS ( a highly political role). I hope that Lesley can do more work in the public sector but would feel comfortable working with or competing against her in a commercial role.
The jobs that people like Caroline Rookes , Charles Counsell and Michelle Cracknell do is important to pensions. All three will I think be under-employed in months to come. All three will be looking at how they can make a difference without creating conflicts for themselves.
People like these don’t get to the positions they’ve enjoyed without having done good work. Their potential to do more is great. We should not be stopping them applying for roles on the basis that they are conflicted, we should be asking them how they will manage those conflicts.
We don’t have such a talent pool that we can discard the talented on the basis that they’ve done their bit. If they have a bit more to give – we should be grateful!
The report, sponsored by Which? explores UK charges for pension schemes against those in the US, Australia, the Netherlands and Sweden.
It’s not headline grabbing stuff – but it is good to hear a Dutch pension expert praise the system of cost disclosure developed by the IDWG. The Dutch of course got there first, but they are now acknowledging that we are using second mover advantage to learn from their mistakes. Jacqueline Lommen explicitly linked recent work on both cost disclosure and collective DC as examples of the progress Britain is making. This may not yet be reflected in popular sentiment, but (at least in some areas) Britain is getting back on its feet.
From the table above, we can see one of the difficulties with the omni charge AMC that has been the standard way of disclosing costs to savers in the UK.
Individuals get a rough idea of what they are paying from the AMC (rough because it doesn’t include transaction costs) but they’ve no idea what the omni charge AMC is paying for. Enlightened providers, such as L&G have followed the European and American models and split admin and investment costs.
In the UK – this has been seen a dangerous disclosure, NEST tell us that they cannot tell us what they are paying for outsourced fund management because they have put themselves under a voluntary NDA not to.
I have has numerous conversations with People’s Pension about how much of the 50bps they charge members goes to pay State Street (their fund managers), how much meets People’s running costs and how much is kept back by B&CE to recover the costs of setting up People’s pension nearly 10 years ago.
Since I haven’t had an answer, I am guessing that the split for People’s is 2-15- 33. If People’s want to come clean with the real numbers – I’ll be happy to publish them.
Winning the peace means building on the disclosures we have and pressing home the advantage. Not everyone will want to know what People’s or NEST are paying away to external service providers, what they are holding back to recover costs and what their internal running costs are – but people like me will keep asking. Sooner or later we will be able to benchmark the efficiency of these organisations and rate them for the sustainability of their propositions.
That’s one of the peace dividends!
How much do we pay to spend a penny?
So far, we have focussed on getting people a good deal on their savings, but have done little to disclose what people are paying in the spending phase of their DC pension.
This is worrying as many of us will need to spend our retirement pot over as many years as we saved and – while we were fully aware while we were saving – we are likely to become more vulnerable as we grow older – and mentally tired.
The idea that we pay to spend our pennies is not one that occurs to most people, but we do. There is no charge cap on that spending either and the costs of getting our money are far from easy to understand.
Without the data, it is hard for me to write with authority on this. It would be great if PPI could follow up with a similar report telling us the international comparisons between the cost of our drawdown system and the costs people pay to spend a pension penny in Sweden, USA and the Netherlands.
Not much chance of peace this morning!
I am going to make my way down to Westminster this morning, to witness the spectacle of Frank Field interrogating Colin Meech and Jonathan Lipkin at the Work and Pensions Select Committee.
It’s likely to be a lively affair. Colin is like the Japanese soldier who will still be fighting his war- many years after the rest of us went home. Jonathan will be there to provide him with a target!
Frank will have to go some to beat the outstanding chairmanship of Laurie Edmans and the brilliance of both panel and audience in the debate that followed. Thanks to Lawrence Churchill in particular – whose insights partly inspired this blog. I cannot say more as we were under the beastly Chatham House rule.
I am however able to post this slide which shows just how far we have come since the bad old days.
What the consumer will get is pretty much what the DWP and the pensions industry wanted. There will be multiple dashboards – but not yet.
“The evidence would suggest that starting with a single, non-commercial dashboard, hosted by the SFGB, is likely to reduce the potential for confusion and help to establish consumer trust”. (this statement – 205 – appears in bold in the printed document but not so – in the digital version)
Since the Single Financial Guidance Body has yet to start its work, I am not sure what the evidence is for the efficacy of a single, non-commercial dashboard. It’s true that in Australia, dashboard is a euphemism for a marketing device and it’s also true that European dashboards have been centralised and successful. But there is no evidence at all that a dashboard will work in the UK because it is non-commercial – or single.
Indeed – the Government’s attempts to make pension guidance digital to date – through the Money Advice Service – have been singularly unsuccessful.
John was at yesterday’s event. He told the audience he was keen to get on with it. I wish him good luck, the impact of the transition to SFGB has so far been to keep project dashboard waiting for the best part of the year – while we await his and his Chair’s arrival.
I say this in the absence of any other excuse for the appalling delays in delivering this digital project.
Giving the SFGB first shot at a dashboard is like opening a motorway with a convoy of tractors.
Confusion over open standards
There was throughout the meeting, a confusion by the extent to which Government could adopt the open standards (the pensions equivalent of the CMA9) that could give us “open pensions”.
There are sections of the document which show the same confusion. P198 states (in bold in the paper copy)
In order to harness innovation and maximise consumer engagement, an open standards approach that allows for multiple dashboards is the right way forward.
but it doesn’t have the courage of its convictions (P209)
While the department recognises the commercial opportunities created by multiple dashboards, it believes that there should be a single Pension Finder Service which is run on a non-profit basis and with strong governance.
Lord share my data – but not yet!
While the CMA got banks to share data through a system of APIs, the DWP has decided that pensions are too hard for that and resorts to “industry positions”.
In a section entitled “a dashboard section for everyone” there are paragraph after paragraph warning against individuals having direct access to their own data.
Again there are contradictions everywhere . In P195 we read (again in bold)
“It is important that for consumers, the provision of their basic information is free to access”
but consumers – especially those with low levels of financial literacy are not to be given access to information without the provision of that information being regulated and it coming with a dollop of guidance – if not full financial advice.
The result of all this uncertainty at the policy end is this ridiculously unwieldy governance structure which will atrophy open pensions into a monolithic bureaucracy that will MAS look agile.
And what will all this cost?
We were promised a feasibility study, but this study has no numbers. There is no attaching cost forecast, no financial justification – nothing to tell us what the cost of all this bureaucracy will be.
The Government is making great play of the £5m the Treasury has given the DWP to provide a hyperlink to the existing state pension forecast service. But finding the £20bn that has gone missing, displaying up to 50m abandoned pots and regulating the whole process as outlined in the paper is going to be a mammoth undertaking.
The cost of all this will – other than the £5m fall on the pensions industry through increased levies.
These levies are unlikely to be paid out of margin, they will be passed on to consumers through higher charges. Another example of pensions abhorring a vacuum. Where costs are likely to fall – let’s find a new way to weigh our pension saving down with added cost.
I am not sure how to best describe the feeling within the room. It was split between relief from the politicians and civil servants in the room that they had got something over the line and got people like me off their back, the PLSA, ABI , Which all of whom seem to think that what we have is a good outcome, and me, Romi Savova and Ian Mckenna, who see this as a hopeless waste of time and money – an opportunity wasted.
Thankfully there was at least one journalist in the room who was prepared to call the Emperor’s new clothes.
Multiple dashboards, with information from *most* pension schemes, no commitments towards legislation, and first dashboard in 2019 – Govt couldn’t be more vague even if it tried.
People have been given an expectation that they will be able to find their pensions and see their pension income and pots in one place. People will not want to wait for the SFGB to organise itself to deliver something in 2019.
In answer to question VI and VII of the consultation, I very much doubt that most people would wait another five years to see the majority of their data in one place.
Our expectation is that schemes such as Master Trusts will be able to supply data from 2019/20. Is this achievable? Are other scheme types in a position to supply data in this timeframe?
Do you agree that 3-4 years from the introduction of the first public facing dashboards is a reasonable timeframe for the majority of eligible schemes to be supplying their data to dashboards?
My question to the Minister was this.
“When I went to the first public meeting on the Dashboard, I was 54. I am not 57. Should I be waiting till I am 62 to see my data in one place?”
In a year when we have seen the successful implementation of open banking and Faster Payments, when HMRC continues to roll out Real Time Information and is demanding we make tax digital, pensions are moving at a snail’s pace.
The ABI, PLSA and Which will be embedded into the delivery function of a dashboard. The DPW will Chair its steering group. To all intents and purposes – nothing has changed. The State is in no position to facilitate delivery – as has been proved by the last three wasted years.
Now yet another Governmental Body has been placed between people and their data, the SFGB.
Bureaucracy is killing the dashboard and with it people’s hopes to get their pensions back.
I cannot support this approach to the governance and the delivery of the dashboard. It will cost people more than it delivers, it is unwieldy, unimaginative and deeply patronising to ordinary people.
People deserve their data now – not to the timetable of the pensions industry and Government.
It is clear that the Pensions Dashboard is going to happen – the question is whether it will provide us with open pensions or be the love-child of pension- industry in-breeding.
A social start
It is encouraging that DWP are organising this using social media site “Eventbrite”. It suggests that whatever comes out of this morning, will at least have been launched using social tools. That it’s a private pensions event may smack of Sir Humphrey but the registration process got things off in the right direction. That I was invited is another step in the right direction.
I will be scooting (or Boris-Biking) back from Portcullis House to Bank for a slightly delayed Pension Play Pen lunch (we shall kick off at 1pm subject to me finding a rack for the beast). Details here Please join me for lunch if you want to get a first hand recounting of whatever in the meeting, I’m able to talk about!
Why we need open pensions.
If you read yesterday’s blog, you’ll know that the concept of the Dashboard put forward by Frank Field in his letter to Guy Opperman is the opposite of “open pensions”.
The demands for compulsory data clearance, a Government led governance body, regulatory permissions to run dashboards and worst of all a single pension finder service will be resisted – at least by me – and by all those who want to see open pensions.
We call on the Government to consider data and cash transmission between pensions as the way they did banking in 2016/17.
The system advocated by the ABI and others that seems so successfully to have lobbied the W&P Select Committee would decrease competition leading to higher prices for the consumer. We would pay dearly for a single pension finder monopoly – whoever it was given to.
The cowardly justification for the atrophication of open pensions into what these people want is fear of scamming. Those who claim to be anti-scamming are quite happy to see its continuation – albeit in offshore havens such as the Isle of Man. If you don’t know what I’ m talking about , read Angie Brooks’ excellent new blog “Long Term Savings Pig” which names the names.
We heard precisely the same scare stories from the retail banks prior to the introduction of the CMA9. We were told that open banking would be a scammers charter, a year on and most of those spreading that message are trying to buy-up the challenger banks.
If they aren’t careful, the Starlings and Monzos and Revoluts will end up eating them.
The Queen of Open Pensions will be there.
I’m very pleased to find out that Romi Samova, the Queen Bee – will also be at the “private pension meeting”. Like me, she has no interest in keeping open pensions private, no interest in closed room roundtables and no time for procrastination.
Like me, she is shocked by the delays that have precluded firms like hers from developing the tools to help people find the £20bn in lost pensions.
Like me, she is anxious that the pot-proliferation that could see (using the DWP’s own estimates) 50 million abandoned pots by 2050.
Like me, she wants to see genuine support for the 94% of us not taking financial advice. What she is doing with her Bee-Keepers is a model for that kind of genuine support.
The exclusion of Romi Samova from the Round Table held for the Work and Pensions Select Committee is a crime against the entrepreneur, a spoke in the hub of innovation and an affront to the consumerism that Romi stands for.
Not a time to hold back
When people hear about the scale of the problem, they are shocked. Shortly before the meeting this morning, I will be on BBC radio explaining to the good people of Hereford and Worcester how it came about that one of their listeners lost his or her pension. When I quoted the PPI estimate that there is not one lost pension but £20bn of them, the program producer nearly fell off her chair!
I will not press the negative, I will point to the future and hopefully a brighter future for those of us baffled by the pension system.
To get open pensions, we need open practices. We need open meeting not closed round-tables, we need a proper consultation- as promised by Amber Rudd at the TISA conference but two weeks ago.
Most of all we need a Government not pledged to the lobby of those who want to keep pensions closed. I trust that in Guy Opperman and Amber Rudd – we have two politicians with the consumer – not the pensions industry – in mind.
How can I afford to go on holiday for the rest of my life?
It’s an awkward question that most of us put off till it’s too late. It’s why there’s all this talk of pension dashboards, the Government wants us to think more about retiring.
The trouble is we find it hard to get the information we need and even if we have the information, it’s hard to make sense of it. Even if we want to make plans, we don’t get a lot of help.
94% of us don’t have a financial adviser and only about one in ten of us use the Government’s offer of free financial guidance from PensionWise. We aren’t good at getting help!
And we’re losing out, experts reckon there’s £20bn. of unclaimed pension money sloshing around our financial system. Things are getting worse, by 2050 the Government think there could be 50 million abandoned pension pots.
Something’s got to be done to help ordinary people organise their retirement money and make the most of their savings. People want to be told the truth, not the truth dressed up to suit.
That’s why we started AgeWage
AgeWage is set up to help millions of savers find their pensions, organise their money and spend it. We’re not here to tell people off for not saving enough , we’re about giving people practical help with what economist called “the nastiest hardest problem in finance!
What we do is get data from the people who manage your money, we use this data to tell you useful things – how much you’ve saved, how your savings have done and how you can organise your savings for the future so you can spend them with confidence.
Depending on what interests you, we’ll answer other questions like “how much am I paying for pensions”, “how green is my pension” or “how can I bring all my pots together”
We will give you this information to your phone or – if you prefer – to your computer.
One of our advisers said the AGE stands for “assist-guide-equip”, we aim to get people “retirement ready” if that makes sense.
We won’t charge you for doing this , you pay quite enough for pensions as it is! The people who manage your money want to pay us to give you this support and the Government is supporting and helping us.
What are we doing?
We are raising quite a lot of money, a couple of million quid to be exact. We’re doing this from lot’s or ordinary people – not just from financiers. We’ll spend the money on the kind of digital things that turns Fintech into Pentech. But we’re also setting up support so you can speak with people who do know about pensions.
We’re setting up the deals with the people who look after your pension money so that you can see AgeWage scores on the stuff they send you each year.
And we’re going to spend some time in something called the FCA sandbox, where we’ll be working out how to best show you your information.
Why am I telling you about this?
We want AgeWage to become a household word which you think about when you start worrying about the future. We don’t want to sell you investments, tell you to save more or charge you hidden fees on what you’ve got.
We’d like you to know where we’re coming from and what we’re up to. If you want a piece of the action, we’ve worked out a way for you to invest in a clever way. If you fancy yourself a pension expert and have some time on your hands, perhaps you’d like to join our support team.
If you want to find out more – email email@example.com
This morning I will be on local radio with five minutes to answer this question.
The question’s prompted by a listener to Hereford and Worcester Radio who is sure he/she had a pension with someone somewhere but can’t remember much more than that.
It’s a nagging doubt that many of us have that we have money with someone but have no way of finding it. I have the same problem with betting accounts, I know that I have money with Sunderlands, Bet365, Jennings and others – accounts that I set up on the train down to Cheltenham to get that free bet, accounts I used once and never again.
I am sure that professional gamblers will look at me with the contempt that many will look at the person from Hereford or Worcester – how can people be so dumb?
I have moved beyond that question. According to the Pension Policy Institute , there is £20,000,000,000 of other people’s money swilling about in pension trusts, in the troughs of life insurance companies or “managed” in “self-invested” personal pensions. The person from Hereford or Worcester is not alone.
As a bit of a joke, the Sun newspaper and I did a do-it-yourself dashboard this summer where – instead of using a professional pension finding service like Origo or Experian, you tried to do it yourself. I don’t know if the Sun ever published the article digitally, but I took a snap of our DIY dashboard pension finding service at the time. It looked like this.
Do it now!
As you can see – once you go through steps 1-7, you are on to step eight – get on with it. “Things will get more expensive the longer you leave it!” I think when we were doing this, we expected to see the results of the DWP’s feasibility study any day, that was June – this is the last day in November.
Funnily enough, I’ve got a meeting in my diary for 11 am on Monday 3rd December – to meet the Pensions Minister in the rather scary Portcullis House. I don’t know if it will be “off with the blogger’s head” or an announcement on something. Could it be that the DWP are actually going to be doing something about publishing the feasibility study that should have been published in March?
Should I tell the person from Hereford or Worcester not to do anything now but wait till the DWP tell us that following the publication of the feasibility study they are now going to launch a feasibility study as to whether there should be one dashboard or many – whether the job of pension finding is going to get any easier?
Or should I just say what Sun readers were being told in June, that a pensions dashboard may help in the future , but that you haven’t got time to waste watching Government fannying around sorting it out?
Don’t let your pensions get in the way of politics!
I think I’ll resist slagging-off the Pensions Minister, Portcullis House sounds the kind of place you might not find your way out of in a hurry.
Instead, I’ll suggest that the ABI and the DWP have got this all sewn up, and that you’ll be hearing from them later, once the consultation has been completed. In the meantime they can play Pension Snakes and Ladders on this natty little board we’ve designed for you.
After all £20bn is just a drop in the ocean compared to the amount of extra revenues the Treasury will make from Pension Freedoms.
Politics is much more fun than pensions, especially for politicians – so person from Hereford and Worcester – you’re just going to have to figure it our for yourself!
I’m quoting Al Rush from the Facebook post he made yesterday evening following the meetings of steelworkers with MPs and Regulators yesterday.
Al’s message to the steelmen
Sometimes, in my line of work, it can be dispiriting to work for people who are greedy to the point of unreasonableness. Sometimes, when you are putting together something for people and it comes off, it can be quietly satisfying. Yesterday eclipsed everything because not only was I in a room where we achieved the latter, but we all achieved it for people for whom the former couldn’t be more further removed.
I was, as always, struck by you being as respectful, proud and as …dignified as you always are. James, my son, said to me afterwards, “Nat (his other half) has an Uncle Mick who works at the Scunthorpe plant and they’re all exactly like him except it’s rugby not football”. And it was meant as a 100% compliment. Chris, you said to me “We’re simple men”. You’re not – you’re ‘just’ straight down the line blokes who expected to be treated as you would treat others.
What’s nice about this is that you’re now able to do the stuff I know that some of you wanted to do – give the wife a decent Xmas, get married, slip a few grand to the kids so they can buy a house, pay off the mortgage etc. It also means that you can weather the current financial buffeting a little better by not dipping into investments, and that you might be able to fund any follow up action via Philippa with a far easier mind.
It was vital that you took the fight to London because you had to be seen to be fearless in the face of adversity and yet another knockback, and you had to be seen to be willing to have the controlled aggression, endurance and the stamina twelve months on, to mount up into your car’s and trains, and head east to take the fight to them, on their home ground. It also sent a string message to the legal representatives of anyone who may be the focus of later legal action “Don’t mess with us, we want a peaceful and quiet life, but it would be fatal for you to mistake our quietness for weakness”.
This morning, Philippa has organised a conference call with Henry and me to discuss the most pressing priority – namely present a case to FSCS within the next week to justify fine tuning the discount rate. So, life goes on. And so will your case. Ultimately, I’m sure, justice will continue to prevail. For now, slip back into cruise mode, take the long view, be prepared for long periods of seeming inactivity, be prepared to step up to the plate again when needed but above all.. just enjoy a Christmas with your families and loved ones.
But, it was an honour to go into battle with you and for you, and although rifles were loaded and cocked, it was an honour to win without a shot being fired. You were superb, and Wayne’s final word on your behalf summed it up perfectly. See some of you next week. I apologise for bumping some of you back a week. Someone put this on my Facebook page yesterday – I was gobsmacked.. I can’t believe we did it all in two weeks.
I was an observer, I posted after that I was gobsmacked – I really was. Most of all I was gobsmacked that at a day’s notice, the FCA, tPR, FSCS and so many members of parliament turned up, waited and then engaged. That goes for the press too.
FSCS has agreed to review the compensation amounts they’ve suggested to steel men. They’ve agreed to do that within seven days, which is why we are gathering evidence now.
The main lever that will change compensation is the discount rate at which the loss is calculated. The rate used at the moment is 3.7% and is the general rate used on all transfers. During the meeting – FSCS suggested there might be special reasons for using a lower rate for steelworkers, which would increase compensation for this group.
A large number of IFAs and pension experts have been tweeting on this subject and they include Al Cunningham, who was present yesterday. All the tweets were constructive and together they present a balanced view. The cost of any FSCS claim will be largely met by these IFAs, their balanced view is most important.
At the nub of the problem is the issue of guarantees lost and the risk of over-compensation. If you take the view that the loss of certainty is key to the argument, then you would go for a risk free rate of 1.7-1.8% (the gilt rate). If you take the view that this would be giving those who’ve transferred the chance to game FSCS – then you stick with 3.7%. Old arguments are resurfacing from the days of mass miss-selling redress in the nineties.
FSCS is not a generous compensator. Some Steel Men have lost over £200,000 (as much to do with adviser incompetence as greed). The maximum pay-out on existing claims is £50,000. Though claims can increase to £85,000 from April, this is only for new claims.
So the liability for the Steel Men is capped. But the wider implications are obvious. My personal view is that the £38.6 bn that flowed out of DB schemes last year – was a disaster. The FCA consistently advise that a substantial amount of this money should not have moved and as it moved – for the most part – under advice. Redress will be expensive.
Necessarily the redress will be paid for by good advisers as well as bad and for good providers as well as bad. This is partly why good IFAs are so angry.
But the deeper reason for good IFAs to be angry is written into the post of Al’s. I wish Al, Chive and the wider IFA community the best.
I wish the Steel Men proper compensation – which needs to go beyond FSCS limits. Sadly, most of the IFAs involved in the worst excesses of what happened at BSPS, will not have sufficient resources or insurance, to properly pay. This is why it is vital that FSCS pays what it can – and without demur.
I’m very encouraged by this – from Al and the Steel men’s lawyer – Phillipa Hann.
This morning, around 15 Port Talbot steelworkers will make their way from Paddington to Westminster to meet MPs – keen to help them in their pension plight. They will be greeted at the Cromwell Gate by a lot of media attention. Their fight, for proper compensation from the Financial Services Compensation Scheme, their leader- Al Rush.
The story is about steel men doing things together. That’s how they’ve always done things, it was what made them such an easy target for Active Wealth – one out – all out.
The nearly 8000 people who left the British Steel Pension Scheme did not end up in the same place. Their savings are now dispersed accross a wide range of funds , a number of SIPPs with many different advisers. Though the works have stayed open, the workers are no longer in one scheme. They have come together because they share in one grievance, which they will take to parliament today.
It is a sad way for their experience of collective pensions to end. But these are resilient people and we hope that today will bring them compensation.
There is another way
While the events in South Wales last year, showed how collective trust can be abused, events in Central London yesterday showed quite the opposite.
Royal Mail Group and CWU – the Communications Union unveiled their anticipated Collective DC pension design to guests and advisers.
Note that the advisers in question worked together collectively in support of the CWU and Royal Mail- who worked together in support of the 140,000 staff at Royal Mail.
They were not giving up on a pension – or as Terry Pullinger calls it – “a wage for life”.
Collectively we need income in later life.
Much as I like Damion Stancombe, I want no part in his world view. He works for a pension consultancy- but he tells the world he is done with pensions.
Sorry it is me done with pensions. I can’t square the lie. The darling couple on the beach, the post war fantasy it’s all going to be all ok. Work longer accept less, raise the welfare bar to something above poverty level and support those that can’t work. God I am depressed…
Damian, if you wanted to be impressed rather than be depressed, you should have been at the RSA clubhouse yesterday!
If you walk down Whitehall to the Cromwell Gate this morning, you will – at 9 am, see the steel men – led by Al , with a retinue of supporters (including me), entering parliament.
There may only be 15 steel men this morning, but they have come a mighty long way both physically and metaphorically. To a great extent – they have come that way because of the leadership shown by Al Rush and a few other people who have not given up on pensions.
I raise my glass to those who are coming together!
As I head off accross town in a few minutes, my thoughts are for the steel men, my hopes are for the postal workers and my determination is that I am not giving up on pensions.
Collectively, we’re not selling any post-war fantasy, we’re selling the idea of a wage for life. I am a pensions man- proud of it. I work for a pension consultancy – proud of that. I run two businesses, Pension PlayPen and AgeWage – proud of that too!
As this is a private response, I want to talk about how CDC could help me (and people like me – who I know are struggling with how to spend their pension pot).
I am very supportive of CDC schemes and pleased that the Government are trying to help Royal Mail establish a CDC scheme for its staff. The needs of the 140,000 postal workers are primary, but the legislation must consider the millions of UK workers, saving primarily into DC pots, for whom CDC could be equally welcome.
To illustrate the needs of these people, I will talk about my own situation- the choices I have taken to date and the decisions I am deferring in the hope that I can exchange my DC pot for a CDC pension in due course.
We need a default way to spend our retirement savings.
My response is made as a 57 year old man with a DC pot, hoping in time that this pot can be paid to me as a wage for the rest of my life. This perspective may prove helpful in the shaping of regulation as there are many like me.
During the calendar year 2018, my DC pot fell in value by 14%. On one day in December my pot fell by 3.5%. Because I have not crystallised any of my DC savings, these are paper losses. However, many of the people who I have met through helping the Port Talbot steelworkers are now reliant on their DC pots for income, many have stopped work and are using their pots – transferred from the British Steel Pension Scheme – to drawdown the income they no longer get from work. Most are too young to receive a state pension.
in 2017 – nearly £37bn was transferred from DB schemes to private pots. If people wanted to buy back the guaranteed income they have given up using current annuity rates, they would find their pots woefully short. Collective schemes are more effecient at providing pensions than individual annuities. Those who have transferred out of DB pots have given up a lifetime benefit – often without proper consideration of what they have lost.
When I reached 55, I had the chance to draw my DB pension or to take a transfer. I chose to draw my pension and did not take commutation. During the calendar year 2018, my DB pension increased according to scheme rules, I have an inflation protected wage in retirement, paid as long as I live and beyond – to my partner.
Had I taken advice that I was given and transferred my DB pension into my DC pension pot, I would be now sitting on a paper loss of a further £200,000.
I know the value of a wage in retirement. I see pensioners who have regular income from a pension.But I also see those who have given up DB pensions and I see people who have never had a DB pension. A recent study by Demos for Legal and General shows that people with certain income in retirement are happier and better able to take financial decisions.
I expect, as I grow older – and I have a life expectancy of around 30 years – to value my pension more each year.
As for my DC pot, I will almost certainly take my tax free cash entitlement but I am expectant that at some future point, I will be able to either purchase an annuity or transfer my money into a CDC pension. I do not want the responsibility of providing myself with a wage for life from my pension savings.
From the quotations I am being shown from people who are looking to transfer, I can see that an annuity will be too expensive a way to provide me an income. Were I in a position to choose between an annuity and a scheme pension from a CDC scheme, I would almost certainly choose a wage in retirement from a CDC scheme.
I say this as a “pensions expert”, but you do not have to be a pensions expert to know that income drawdown from an invested pot is perilous and swapping pot for annuity is expensive.
Despite having pension freedoms, people are baffled by the choices they face at retirement. The options of annuity and drawdown are often replaced by “cash-out”, where people – frustrated by the complex problems they are presented with simply put their pension money in a bank account – and pay a great deal of tax in the process.
According to recent FCA surveys, only 6% of Britains are taking financial advice at retirement. I have studied the Pension Advisory Service’s inquiries and find that around a quarter of injuries contain the word advice while only one in fifty contain a request for guidance.
The message from people of my generation – those most in need of an urgent solution to the problem of how to spend our savings, is that we need to be advised of a default retirement solution
Whatever this consultation enables, it must not disable the ability of people like me to transfer in benefits in due course.
Immediate ambition of the consultation
I am very pleased with the consultation. CDC should
Provide a savings and income in retirement option within one package that is potentially attractive to those people uncomfortable making complex financial decisions at the point of retirement
Enable the sharing of longevity risk between members, thus providing each individual member with an element of longevity protection without the cost of accessing the insurance market
This is precisely what is needed; the consultation continues
A CDC scheme
May achieve greater scale than some non-pooled schemes and be able to invest at lower cost as a result. The recent emergence of master trusts in the individual Defined Contribution (DC) space has already shown some of the benefits of scale.
(A CDC scheme) may allow the trustees to adopt an investment allocation which is tilted towards a higher proportion of higher return assets over the member’s lifetime than may be usual in an individual Defined Contribution scheme, although the emergence of the draw-down market may see trends in the individual DC space follow a similar path over time.
I have some comments on the following statements regarding delivery.
Scope for discretion
In addition, given the complexity of CDC schemes compared to individual DC schemes, we feel it is appropriate for the former to be required to appoint a scheme actuary.
The judgement on “the complexity of CDC schemes” is made from an operational perspective. From the perspective of an individual, CDC schemes shouldn’t seem complex. I would prefer the language to focus on the ambition of CDC schemes. CDC schemes aim to help people to spend as well as save, this increased ambition is why CDC schemes need an actuary.
The role of an actuary should be limited to ensuring that the mechanism of the CDC scheme is working properly. Most importantly the mechanism governing the distribution of income and adjustments to it. As the consultation points out, this mechanism should not be based on actuarial discretion but clearly defined scheme rules
To help ensure this operates in an impartial way, our view is that this adjustment should be based on a mechanism set out in scheme rules, rather than trustee discretion.
These rules – as I understand it – would be based on actuarial assumptions and these assumptions can be adjusted from time to time. This is what gives a British CDC approach, the capacity to operate without buffers.
On balance, we favour a ‘best estimate’ approach with no in-built buffers which potentially dilute decisions on benefit adjustment.
A scheme actuary acts as a weather forecaster and the tone of the document is precisely right when it outlines this role as follows
Once a CDC scheme is up and running, we will expect the annual actuarial valuation process to consider emerging risks and threats, and to look at whether these risks significantly impact on the probability of projected benefits being met to an extent that calls into question the viability of the scheme
In Section 54 of the document , I find the following statement
Clearly, actuarial assessment and estimate is central to the provision of CDC benefits.
On the face of it, making a CDC scheme “rules based” and mechanistic, reduces the role of actuarial discretion. The central thrust of the communication of how CDC works must be to explain why the expertise of an actuary is still needed. The essential message is that from time to time the assumptions embedded in the rules will need to be changed, but the rules themselves are designed to endure. This is the communication challenge in essence
Scope for decumulation only schemes?
The consultation makes clear that there are relatively few employers who will consider CDC an option immediately. It offers hope to smaller employers and a little hope to the people who need a way to convert savings to an income for life
We recognise that interest in CDC provision may expand beyond the large employers that are likely to establish and sponsor the initial tranche of CDC schemes, so we will include provision in the legislation to enable us to make provision for such additional requirements as might be needed.
We do not intend to permit decumulation-only CDC schemes at this stage, although this is something we may consider in future
This is unfortunately worded. It supposes that CDC schemes are inherently tied to the workplace. However – most people – as they approach retirement, see little link between their DC pot and their employer. The majority of their savings will be outside the workplace.
The consultation suggests that the Royal Mail scheme will allow “transfers in”, but only to those accruing benefits.
But what of those postal workers who have left service and want to bring their retirement pots to Royal Mail, the reason for them not to take transfers into the CDC scheme is unclear.
Farcically, somebody like me, could take up a contract with Royal Mail, be enrolled into the CDC after a month’s service and then aggregate all my pensions to the CDC scheme. I could leave a month later.
I don’t think the paper properly explains the link between the payment of benefits and time at work. I don’t see any particular reason for a CDC scheme to demand that someone has to be actively accruing to transfer in pots from elsewhere, and I don’t see any practical reason why Royal Mail couldn’t admit people to its CDC scheme who aren’t employees of Royal Mail.
Scope for investment
Imposing a charge cap on CDC will come as a blow to some investment managers who might consider the provision of patient capital, an opportunity – not just for members – but for their firms.
I can see the argument for an unconstrained approach to investment but I don’t think that it stacks up in the context of a scheme where members are expected to take the downside risk of non-performance, lack of liquidity and the failure of an investment.
I also see a strong argument for CDC schemes to be normalised as another workplace pension – suitable for large employers auto-enrolling their members.
I am pleased to see that the charge cap would include the cost of actuaries. Not only will this mean that actuarial fees will need to be disclosed to members, but it means that they will be subject to commercial pressure. They will be sharing a share of a limited budget and competing for that share
I am also pleased by the consultations intention to test charges accross the scheme rather than to particular parts of the scheme. While there will be some groups of members who will benefit more (from professional fees for instance) than others, the nature of a CDC scheme is to pool all risks – in this case costs are risks
We therefore intend that charge cap compliance as it applies to CDC schemes should be determined by one test applied to the whole of the scheme’s CDC benefits
Scope for transfers out
Transfer out will be worked out as a notional share of the fund
The member’s ‘best estimate’ share of the total fund would in effect be determined as part of each annual valuation, adapted by the scheme actuary to determine the transfer value
I am comfortable with this approach. The scheme would have discretion to establish some kind of money-purchase underpin (a nominal value for the share of the fund) or base the CETV on the present value of the target benefit (using the standard methodology applied in DB)
Scope for people to change their mind
What the paper doesn’t cover- but should – is the opportunity for people to transfer benefits out of a CDC scheme – when in payment. As this is not currently possible for DB in payment, the consultation may have overlooked this point. But a CDC Scheme is not a DB scheme, there are good reasons for allowing people to transfer-out in payment, though schemes rules must be written to ensure that this does not damage the fund
These are the questions the DWP are asking. Each question is answered.
Are there other ways in which the introduction of CDC Schemes would give rise to different impacts on individuals in relation to one of the protected characteristics?
The scope of the consultation could have been wider, it could have covered opportunities for smaller employers and for individuals not in employment that has a CDC scheme. However, the paper is about delivering something in short order and people like me – who want more now – will have to wait!
I see this as fair (but unfortunate).
Do you agree that CDC benefits should be classified in legislation as a type of money purchase benefit?
Absolutely yes! Anything else would make the risk of CDC benefits reverting to an employer’s balance sheet too great for any employer to consider it over other existing options.
Are there any other areas where the current money purchase requirements do not fit, are inappropriate or could cause unintended consequences?
Not as far as I am aware.
Do you agree that the initial CDC schemes should be required to meet the conditions described above?
Is there a minimum membership size for CDC scheme below which a scheme could not be viewed as having sufficient scale to effectively pool longevity risk to the benefit of the membership?
There probably is, but we are unlikely to ever test this. I see no reason to prescribe on size, the market will do that for Government
Do you agree with the proposed approach to TKU for CDC schemes?
Yes. CDC requires less rather than more pensions knowledge and understanding, hopefully TKU will be more based on common sense than specialist knowledge
Are there any additional TKU requirements that should be placed on the trustees in CDC schemes?
Are there any TKU requirements that should be relaxed for the trustees of CDC schemes?
Yes – many of the issues relating to accounting for schemes on a mark to market basis, fall away.
Which of the 2 AE tests would be more appropriate for CDC schemes, and how might either test best be modified to better fit CDC schemes?
The DC test is more appropriate. CDC should not operate with contributions below the AE threshold. Setting the test against benefits opens the door to unintended consequences.
What issues might arise from having no in-built capital buffers in the scheme design?
Financial economists will moan that at given times, schemes may look inadequately funded on a mark to market basis. These same economists will lambast CDC for inter-generational inequalities if buffers exist. It’s a case of not being able to please all of the people all the time.
How can schemes best communicate with members to ensure they understand the risk that their benefits could go down as well as up, even when in payment?
By being quite transparent and making this agility the strength of the scheme – not its weakness. Think bridges.
What additional issues may arise from using a best estimate basis for valuation, and how should those issues be addressed?
Best estimates are entirely appropriate for the valuation of proposed benefits. The arguments will be around assumptions used, but this is what pension experts do. As far as ordinary people are concerned, the best estimate approach is intuitively right.
Should we restrict CDC scheme designs to those schemes which would be sustainable without continuing employer contributions?
No – to do so would be to lock the door on decumulation only schemes. These won’t happen right now – but shouldn’t be excluded by primary legislation.
We would welcome feedback on how best to manage risk generally going forwards.
The PPF is probably the best model to look at!
Does the proposed CDC scheme framework, as set out in this consultation document, address concerns about risk transfer between generations? We welcome thoughts on any other measures that could also address this.
The document does a good job on this
We would welcome thoughts on appropriate wind up triggers and how best to manage associated risks.
If a CDC scheme is to be wound up, it should be up to the members to decide how the scheme’s assets are distributed.
Are there any elements of the proposed regime that it is not appropriate to apply to CDC schemes?
Are there any additional authorisation requirements that should be placed on CDC schemes?
Yes – most of the DB rules and almost all the guidance on DB solvency
Are there any other investment requirements that should be required in addition to those proposed above?
Are there any other disclosure of information requirements that should be required in addition to those proposed above?
The important thing is to test membership knowledge and understanding, this is the TKU that really matters.
Do you agree that CDC schemes should be administered under the requirements for money purchase benefits, but with added requirements to appoint a scheme actuary and carry out annual valuations?
Yes – they should be administered using rules based systems. Smart ledgers and other features of the blockchain will take over from centralised databases in time. We will watch with interest how the RM CDC trustees go about this.
Do you agree that CDC benefits should be subject to a similar cap to the automatic enrolment charge cap?
Yes – reluctantly.
Do you agree with the proposal that charge cap compliance should be assessed on the value of the whole scheme’s assets?
What would be an appropriate approach to handling transfers out of or into CDC pension schemes?
It should be left to the schemes discretion whether to allow transfers out in retirement, but this should not be prohibited by legislation.
Transfers could be calculated with reference to notional asset shares or with reference to targeted benefits
Should transfers be restricted in any way – for example, to take account of the sustainability of the fund?
They should be subject to the same kind or reductions that happen in DB schemes – if being paid with reference to prospective benefits.
This blog calls on Whitbread to pay the incentive outstanding to many of their staff before the sale of Costa to Coca Cola. If Whitbread refuses to do so, the Pensions Regulator should block the sale. If Whitbread wants to claim back the money paid on behalf of HMRC – it should join the campaign to sort the net pay anomaly and do so on behalf of everyone who believes a pension promise is not for breaking.
The £3.9bn sale of Costa Coffee to Coca-Cola could hit baristas’ retirement savings.
The Pensions Regulator has been warned that thousands of low-paid staff at Costa owner Whitbread have lost out on hundreds of pounds in tax breaks because of the type of pension they are enrolled in.
Henry Tapper, a director of pension firm First Actuarial, believes that once Coca-Cola takes over Costa’s scheme, workers will have their losses locked in, leaving them unable to claim them back.
He believes the company and its pension trustees could face a class action by workers when they realise they have been deprived of tax breaks.
Tapper said: “At the moment, the cost of restitution for these workers is quite small. The regulator needs to intervene to ask Whitbread for a special contribution to plug the hole for its lowest-paid workers. It won’t take long for a top-quality lawyer to realise that they could put forward a class action to get compensation.”
When the Sunday Times writes an article, especially when its published in its business section, that article is read. The Sunday Times has more clout than Henry Tapper by some way! The article continues.
As part of the sale of Costa to Coca-Cola, the Pensions Regulator is monitoring what happens to the Whitbread defined-benefit scheme, which has a deficit of about £320m. Whitbread has pledged to use cash from the sale to reduce the black hole.
Defined-contribution schemes are usually waved through in takeovers because it is impossible for the funds to have a deficit. However, a problem has arisen with so-called net pay schemes, which deduct pension contributions before tax is deducted. With these, workers earning more than the auto-enrolment threshold of £10,000, but less than the £11,850 personal allowance, miss out on government tax relief top-ups because they do not pay income tax.
About 1.2m workers in the UK are thought to be affected by this loophole.
The Pensions Regulator said it provided assistance to companies to help them decide which pension to pick for employees. “It is for employers to choose a pension scheme that is suitable for their staff,” it said, “including giving consideration to tax relief.”
Whitbread said it could not comment on the Costa scheme after the sale to Coca-Cola, “as we are currently in a pensions consultation with those employees”.
The Pensions Regulator has read the blog, I have spoken with it about the blog, they have dismissed it. Which is why I am pleased that the Sunday Times has picked up on this matter.
Treating baristas fairly.
The cost to the pension pot of not getting the Government Incentive is around £34 this year, it goes up to £64 next year. Most baristas don’t know they’re being short-changed- why would they? I wonder if the pension consultation with staff concerned has picked up on this issue, I’ve never met a Costa employee who knew about it.
If you go to the Whitbread Pension website, the issue doesn’t appear as a frequently asked question. Whatever the search term I used – I could find no mention of the issue.
Try it yourself
Sadly Costa baristas don’t read my blog, but some of them read the Sunday Times and some of them have enough nouse to come together and demand they get the extra money paid into their pension accounts before it is too late. Costa can’t pay the money to their pensions if they are no longer in Costa’s employ.
Meanwhile, the Pensions Regulator – which has a statutory duty of care to protect the members of all pension schemes, whether the mighty Whitbread Defined Benefit plan or the humble Whitbread workplace pension – should take note.
It is not good enough to dismiss the “net pay scandal” as an anomaly. If short-changing baristas is swept under the table, the issue will reappear, as the GMP equalisation issue reappeared, several years down the line.
At a recent payroll conference, the Pensions Regulator tried to blame small employers with impacted staff, for choosing the wrong master trust. It is true that the Pensions Regulator’s website does give some guidance on this issue, but it is buried several screens deep on its website. Most employers – like most baristas- don’t have a clue there is an issue. I am pleased to say that the delegates- mainly payroll managers – were in no mood to be berated for choosing to join the wrong scheme. If tPR thinks it can divert the problem onto small employers and master trusts it should think again.
After all, the largest employer operating net pay schemes – and the employer with the biggest liability in Britain – is the UK Government.
Why action on Costa is needed now.
It is going to cost the pensions industry £15bn to sort out GMP equalisation, it will cost a whole lot more to sort out the “net pay anomaly” – unless something is done about it now.
Now is the time to do something about it. HMRC are doing something about the anomalies surrounding tax-relief for Scottish people with local income tax issues, they can do something about the net-pay anomaly now.
If they do, it will sort out the problems for those auto-enrolled into workplace pensions going forward. As for the problems of the past, for many – the damage has been done, it is very hard to see how those denied their incentives will be compensated through their pensions, this leaves companies vulnerable- as I say in my article – to class actions from impacted employees.
When there is a corporate event – and the sale of Costa by Whitbread to Coca Cola is a £3.9bn corporate event, then the problem crystallises. That is what is happening now.
Thankfully, the Sunday Times has picked up on my blog in time. Thankfully that is , for the Costa baristas, but – more importantly – for the 1.2m other low paid workers who are in net pay schemes and risk being short-changed.
These are people- to coin the phrase – “just getting by”. They are not the people who the pensions industry cares much about – as can be seen by John Ralfe’s comment. But collectively, they are powerful.
The PLSA are at last waking up to an issue that must be acutely embarrassing to them. Consultants are also embarrassed -we have heard virtually nothing from them on the anomaly thus far. In 2015 I warned them.
But I suspect the tide is turning.
It only takes the Pensions Regulator to accept that the money owed to the low-paid auto-enrolled is real money.
It only takes HMRC to accept that the promise of 4+3+1 was made to everyone enrolled into workplace pensions – whether they paid tax or not. It only takes the Whitbread pension consultation to raise this issue with Whitbread with some hope of support from those who have a statutory objective to protect their pensions –
for things to change.
This blog calls on Whitbread to pay the incentive outstanding to many of their staff before the sale of Costa to Coca Cola. If Whitbread refuses to do so, the Pensions Regulator should block the sale. If Whitbread wants to claim back the money paid on behalf of HMRC – it should join the campaign to sort the net pay anomaly and do so on behalf of everyone who believes a pension promise is not for breaking.
Am I getting value for money from my workplace pension?
is a different question to
Did I get value for money from my workplace pension?
the difference is more than one of present and past tense.
The first question requires a subjective assessment of the processes, costs, charges and utility of the workplace pension in the eyes of the expert
The second question is a matter of fact and can be answered yes or no, with reference to a benchmark of “how others have done”.
Too early to say?
Since IGCs (and latterly trustees of DC workplace plans) have had to make a value for money statement, there has been too little time to amass sufficient data to assess whether people have indeed had value.
Of the major IGCs , only Prudential have decided to test value for money by looking at the outcomes people have actually had. The vast majority of IGCs have preferred to answer the question in the present – using some kind of balanced scorecard of the value offered to members and the money they have paid for it.
This methodology has been largely discredited by the general research carried out by NMG in 2016/17 which found that ordinary people really didn’t give a hoot for any of the attributes of a workplace pension other than its capacity to deliver results at the end of the day. This suggests that outcomes based value for money assessment knock qualitative assessments into a cocked hat.
We are now getting to a point where most workplace pensions have been auto-enrolling members for at least five years, the argument that we cannot measure outcomes because we have insufficient data is becoming weaker by the day.
Do they mean me?
Most people aren’t interested in general statements about value for money. That is why there is never any comment in the press along the lines of “XYZ IGC Chair says XYZ has delivered value for money”. You might as well say that the sun rose this morning.
People are very interested when you tell them that based on their personal outcome , they got or didn’t get value for money from their workplace pension.
When we analysed my workplace pension – which I’ve had since 2012 – this is what we found.
This told me that relative to an average experience, I had scored 76/100. This number was not based on anything but the value of my pot against the money I had paid for it. It’s only comparator was the value I would have got , for the same contribution set, had I invested in a typical way.
I can tell myself that I had value for money and can remember that score of 76 which I can compare with other value for money scores from my other workplace pensions.
Do they mean me? You bet they do! This is my value for money score.
The challenge to workplace pension providers.
The question “did I get value for money” , begs a personalised answer. It is not answered by a generalised answer around whether I am getting value for money, it isn’t properly answered by a “people like you got value for money” answer. People actually want to know about themselves.
We ask people to engage with their workplace pensions, but if they ask a specific question about “how they’ve done’, we give them performance charts based on metrics that have nothing to do with them (and which are generally designed for experts).
If I submitted a subject access request to Legal and General this morning, they would give me all the information I needed to give myself an AgeWage score. I can download from my website my contribution history which shows all the money that went in and all the money taken out of my policy since I started giving money to them.
If every policyholder with a Legal and General Worksave Pension did the same, I suspect that it’s robust machinery would hold up. But the same might not be said of other workplace pension providers and certainly could not be said of older pension systems.
The challenge to workplace pension providers is that every one of their policyholders or members, could – at any time – ask for all the information that it holds on them in digital format.
Indeed an IGC or Trustee could make such a request on behalf of its policyholders or members.
While it is doubtful that the Data Protection Act would make a bulk request on behalf of members legally enforceable, the duties of a Trustee or IGC Chair include making a value for money declaration to all policyholders/members.
The fact is that we are not getting individual value for money assessments not because they can’t be done, but because right now, providers are unwilling to do the work. It could be added that the IGC/Trustee chairs have yet to have seen anyone prepared to help them get this information.
Assuming that we have landed on a methodology for doing the work, assuming that telling people how they’ve done is valuable to them and assuming the regulators see individual value for money scoring as valuable, then this expression of value for money looks likely to catch on.
If it isn’t adopted by IGCs and Trustees – it may mean individual subject access requests being made on an industrial scale. This is a challenge to workplace pension providers.
Making meaningful disclosures
These words are directed at those in fiduciary control of IGCs and DC Trustee Boards (especially master trusts and the larger single occupational schemes).
GDPR and in particular the Data Protection Act 2018, give your customers rights to see their data in a digitally readable format.
Organisations should know what they’ve got and where it is, what they’ve done and why. Staff must have time, resources and training for creating and filing records.’
‘Organisations also need to make sure they have the appropriate technologies going forward to ensure that digital information is properly managed in the future.
That means technologies that can help to organise and search existing digitally stored data, as well as helping with disposition. Skills in digital management of records must be stepped up to meet these needs.
Simply saying it was “too hard” or “too expensive” to provide this data will not be good enough, either for the Government or for the people.
If we are to make disclosures about value for money, then they need to be specific and outcomes based. That will mean providing benchmarked statements of value for money similar to the one I’ve pictured. Either these can be provided piecemeal through individually generated subject access requests or they can be provided wholesale, through trustees and IGCs.
I would ask you , as you lead up to your next round of statements, to consider the implications of GDPR on disclosures and ask yourselves where you stand in your duties to members to properly answer the question
“Am I getting value for money?”
but also – the more difficult question
“Did I get value for money from my workplace pension?”
It is 100 years since the Great War ended. It is a Sunday and my church will start the morning service 15 minutes only so we can stand in silence together and remember.
There is nothing good to remember about people dying in conflict. As Wilfred Owen put it, we remember
The pity of war, the pity war distilled
It is not just the Great War that ended 100 years ago today that we remember but we remember the sacrifice of all those who have died in conflict before and since, people who gave their lives for their country or were simply caught up in someone else’s war.
Today is also my birthday, I popped out of my mother’s tummy shortly after 11 am on the 11th November 1961. My father who helped in my delivery , reminded my mother that she did not respect the two minute silence.
I feel awkward linking my birthday with so awesome a collective memory as that we have today.
But I take some courage from knowing that I was one of the first children who grew up without war and without national service, without rationing, without the threat of invasion.
That we are now sufficiently confident of peace in Europe, that we can think of leaving the union , tells me that war is no longer an existential threat to people living in this country.
There are those in Yemen , Syria and many other places on the planet who cannot live this luxuriously. That we do is in part – because we remember. We are keeping our promise , mindful of the grim foreboding present in the phrase “lest we forget”.
This is the 57th time my birthday has been celebrated, it is a memorable day right now because of social media as much as anything!
But today is about remembering the dead more than the living. My charmed life is built on the lasting peace that came out of the horrors of two great wars. For all our worries about global annihilation, we have not fired a nuclear weapon in anger since 1945.
This is a truly amazing thing. Proof of the inter-dependency of nation upon nation. Though we have and have had wars, we have learned that our capacity to work together out does our inclination to invade and subject.
Whether I will live to die a peaceful death remains to be seen, it is something devoutly to be wished for, it is what I will be praying for this morning.
I wish for myself and for others many more peaceful remembrance days.
It didn’t take long for the ripples from the Lloyds Bank GMP equalisation ruling to reach the crazy land of pension transfers. Within a few days of the Judge Morgan’s verdict we hear that thousands of people are having their pension transfers delayed while Trustees work out what to do (or in this case – what not to do).
No one has yet shown me a scenario where the ruling could decrease a transfer value. I stand to be corrected on this, but the issue for the trustees is not about “claw-back”.
The sums involved where someone is due more pension due to the Lloyds ruling are small. We’ve estimated the maximum capital payment at around £3,000. In the context of an average CETV of £450,000, we are not talking major adjustments.
Reports that the cash payment of “trivial” pensions are also being stalled (e.g. those so small that they can just be paid out as cash) suggests some trustees are just putting out a blanket ban on pay-outs.
Second- some more general thoughts on trustee behaviour in these cases.
It seems right that when faced with the consequences of something they don’t understand in the first place, that those in charge slam on the breaks.
Here’s glamorous Chantal Thompson of Baker and Mackenzie
“We understand that one firm is saying that trustees should not proceed with transfers until benefits have been equalised, albeit that there is likely to be a considerable amount of work required to equalise all GMPs under a scheme,”
It’s not clear whether the “firm” is an actuarial consultant or a firm of lawyers, either way it appears to be influential.
I thought the job of the adviser – who seems to be behind this – was to help Trustees to understand the consequences of the ruling on their scheme. It should not be hard to work out that if a transfer payment is made and there’s more to come, then more can be paid to where the first lot of money went.
In which case, a simple message sent to anyone in midst of transfer saying
“we may want to pay you some more as a result of this Lloyds thing – do you want the original amount now or do you want to wait till we’ve sorted things out to get your transfer”.
When in doubt – do nowt?
No doubt the “advice” came with a risk warning that – should transfers not be halted – there was a risk to the trustees (and pass-on risk to the sponsor).
But there’s an equal and opposite risk in this, which is the risk of putting the backs up of the members you’re trying to serve.
If you ban transfers, even for a few weeks, there will be people who don’t get their transfers paid in the six months window of a transfer value, people who may have to re-start the transfer process at great expense to all concerned.
So doing nothing is not a risk-free action at all. It just smacks of ignorance-induced panic.
Common sense needs to be applied
The word “pragmatic” used to appear in First Actuarial’s promotion of itself; we’ve rather stopped using it in favour of “common sense” and other phrases like “common decency” and ever “treating our customers fairly”.
I really don’t think that people who are currently going through the quite traumatic process of taking a pension transfer, should be made to pay for the ignorance of trustees of the impact of the Lloyds Ruling on their scheme.
The risk of under payment is small and can be dealt with in a common sense way as I’ve indicated above.
As for insurers refusing to accept transfers paid without GMP’s being equalised, this is even harder to understand. Is the thought that accepting the bulk of money today with the balance to come, too hard for an insurer to administer? What is the risk to the receiving personal pension?
I know that some pretty smart people who work in pensions read this blog and perhaps someone might like to contact me to tell me why the system is grinding to a halt? Is it the actuarial equivalent of the wrong kind of snow, or is there something that I’ve missed.
While I can understand Trustees and Personal Pension Providers being cautious, surely the solution is to take advice rather than slam on the brakes!
What of transfers past?
We know that £36.8bn flew out the DB door last year, the vast majority of the money transferred contained an allowance for GMPs given up. We also know that the Lloyds ruling could cost occupational schemes a further £15bn in increased liabilities. What we don’t know is whether the liability for those who have taken transfers (and signed away all rights) , who should have had the “windfall” of GMP equalisation included in their payment.
Nor do we know if the bulk buy out of members (where members signed away nothing), lays the onus to equalise (and meet the equalisation cost) on the people who insured the buy-out or the people who paid for the insurance (the trustees). The same could be said for other consolidations.
I don’t see anyone holding up the payment of pensions in November till the impact of this question is fully absorbed. That could be the precedent for the payment of CETVs.
So I am in the camp of Charles Cowling of JLT when he tells the FT
“Our current view is that we should continue paying transfer values on a ‘business as usual’ basis — recognising that top-ups may be necessary at a later date once GMP equalisation is sorted,”
We need to treat people fairly. If we do, many of the problems that beset advisers – whether personal or corporate, in terms of Professional Indemnity Insurance, simply go away.
Or to put it more succinctly
Morality and prudence need to work together , not compete.
Once a year, everyone at First Actuarial comes together in one place to work and play for a day. This is the day.
Most of us choose where we want to work and if we don’t like it, we go and work somewhere else. I’ve been at First Actuarial nine years now and I’m not going anywhere.
It’s not done to advertise your company as a good place to work on a blog. But I feel like doing just that this morning. It’s very rare that a small company can have done so much in its fourteen years , it’s not done to boast about your company’s achievements – but though I own no share of First Actuarial, I feel that it is “my company” and one that I can be proud of.
Yesterday I spent an afternoon and an evening with Allianz , my colleague Derek Benstead and other friends of CDC. I credit the CDC consultation paper that arrived this week to the deal done between Royal Mail and CWU. Not to put too fine a point of it, Hilary Salt, my boss – was at the heart of that deal. First Actuarial are making a difference.
I spent some time with Mike (the Bazooka) Otsuka. First Actuarial advise the university unions and it was with their advice that helped the USS stay open. First Actuarial has been a key influencer in the debate over the future of USS and by extension many other defined benefit schemes.
Each month we publish our FAB Index, which tells a very different picture about the state of pension solvency than the doom-ridden analyses of many of our competitors. Many of the schemes we advise use a best estimates approach to scheme funding and though there is plenty of prudence built into our valuations, we have moved the dial for many trustees and employers who see the advantages of long-term investing over a flightpath to buy-out.
But we are pragmatic and when employers and trustees decide that they are looking to offload their pension obligations to an insurer, we help our clients to prepare for and execute the deal. While we have strong convictions, we are not dogmatic. Our pragmatism arises from those who founded the company, all knowing what it’s like to own and run their own business.
It is this entrepreneurial spirit which is what I value most about First Actuarial. It not only allows me to work with those who own the company on business decisions but allows those Founders to share in the entrepreneurial work I do with Pension PlayPen and now AgeWage.
My job at First Actuarial is to help develop its business. I am allowed to write my own job description and execute independently. From time to time that means that we are out of step – when this happens we have frank discussions which get quickly resolved and we move on.
I cannot think of any other professional practice that is so accommodating towards their employees as First Actuarial. It really is a pleasure to work for our Founders and with nearly 300 other souls who by and large – feel as I do.
This year, by dint of others merging, us doing what we do as usual and thanks to a fair number of new clients coming to us , we are listed among the top ten consultancies in the UK. That’s quite an achievement for a firm that started from scratch in 2004. Credit to the 9 Founders who started out and who still run the shop
Why I’m writing this….
I’m not paid to write this, I write this because today is our special day and I hope that as well as my regular readers, some of my colleagues who don’t normally read my blog, will read this.
I hope that you, whether you work for First Actuarial or another organisation – or yourself – or if you don’t work – find some inspiration from these few words. It really is a great pleasure to work for First Actuarial, I’d like to think that First Actuarial feel the same about me. Can you say the same?
If you can, then you should thank your lucky stars. If you can’t then either you should set about changing the way you work, and if you can’t do that – maybe you should think about where you work!
Working for the wrong company is soul destroying, if you can’t properly say your as proud of your employment as I am of mine – do something about it!
Is the DB Pensions Manager a dying breed due to industry trends?
My average peer is 15-20 years my Senior… it seems that “Pensions Management” is becoming stagnant as Large Employers bet on “age” rather than what an individual bring to the table . “Age” aka years in the industry don’t always get the job done, if you always do what you always have done you will always get the same outcomes… passion, drive, a can do attitude, rolling up your sleeves at times, charisma and great relationships gets the job done…. is it time the Industry look past “age” and more about added value and the dynamic new blood can bring to even bigger PLC’s out there, so much talent out there get put on the back burner when they are the real movers and shakers (MORE than capable to manage large and complex Scheme very well) that will reinvigorate much needed energy into our Industry … the top end loop seem to have become stale … just my two pence worth; not a criticism …more so an observation… having worked for major corporations over my 20 year career I’ve “seen” most prob. more in my career than my Avg. Peer yet my “age profile” may not reference that … is it time for new perspective in our Industry?
I live with a Pensions Manager, who became Pension Director at what was then Britain’s largest pension scheme (BT) when she was 32. I remember meeting her with her colleague who was 20 years her senior – but her subordinate. I made the double mistake of assuming he was the boss because he was older and male. I have not been allowed to forget that!
Stella joined BT in 1997. Would BT appoint a 32 year old woman with only a consultancy background today? I suspect not. Would a 32 year old consultant put herself forward for the job – very unlikely. The fact is that DB pension management has atrophied as DB pension schemes have atrophied. Take a look at this diagram
What happens when you close collective benefit schemes is that pension managers become risk managers rather than benefit managers; that’s because pensions are seen in terms of liability management and not of reward.
The economic utility of pension management is at a stage of the cycle that so devalues the role of a pensions management that no millennial but a supreme optimist, would want to do the job – with a hope of making a career out of it.
Hope for the pension minded!
Last Wednesday I had a drink with Jon Millidge, the Reward Director of Royal Mail. With him was RM’s DB pension manager, Douglas Hamilton. Speaking with them I heard the phrase “what’s happening at Royal Mail is bl**dy brilliant”. What they were referring to wasn’t the state of RM’s share price, challenging the existential threat of Amazon and the internet or even staying strike free. What was being referred to was the pension scheme.
For the first time in a decade, I hear a Reward Director refer to an open collective scheme as “brilliant”.
The enthusiasm with which Royal Mail’s senior management have taken to CDC is something to behold. They talk of it as a way of rewarding posties who have given there careers for relatively low wages but a decent wage in retirement. That equation seemed busted and the CWU and other unions were prepared to go on strike to keep it in place.
That Royal Mail and their 140,000+ workforce are looking at pensions positively says a lot – not just for its pensions management but its unions and for the far-sighted attitude that led to them challenging the conventional wisdom and re-establishing a collective pension scheme – albeit without guarantees.
This week – let’s hope they get their reward
This week is when we hope that the anticipated DWP consultation on CDC will get itself over the line. There have been many headwinds, many created by the pension industry concerned that CDC challenges their consensus. That consensus has led to posts like the one I started this blog with.
The dynamic new blood will return to pensions when pensions return to doing what they say on the packet. A pension is a reward granted to someone out of a lifetime of earnings – some of which is re-allocated to a wage in retirement.
A pension is not a big pot of money which can be drawn down with absolute freedom. Good as a big pot of money is – it is not a pension!
Pensions management is just that, the allocation of capital to paying people a wage for life. I hope that on Tuesday November 6th, we will hear how the pensions industry moves from the “closed scheme problem” to a new bright future. If I didn’t believe that this could be the case, I wouldn’t have been a Friend of CDC all this time! Hopefully George and the many dynamic would-be pension managers that he talks of, will be rewarded by a pension option that focusses on benefits rather than risk.
By the end of this year, the Pensions Advisory Service will be no more, subsumed into the Single Guidance Body. By the end of spring, their vibrant “third world” offices in Belgrave Road will be empty.
Whether the goodwill that TPAS has built up can be transferred to the new organisation is open to doubt. What Michelle Cracknell and her team have built up has been quite remarkable. The word of TPAS is authorative and personal, it’s guidance but instructive guidance that has led many of us down the right path. TPAS has resolved disputes and soothed the savaged brow of many a baffled saver, many a baffled pensioner too.
What I ask of Government
I have written before that bringing together a failing institution (the Money Advice Service) with a successful one (TPAS) should be a processing of levelling up. Instead we see a levelling down. In its initial vision , Simon Kirby – the former Treasury Minister and Richard Harrington the last (in every sense of the word) Pension Minister, laid out its task.
Back in 2016, when the plan for the SGB was announced, Simon Kirby, said:
We want to help people take charge of their finances, and make the financial decisions that are right for them. This new body will ensure that help is readily available for people who need to access debt advice, information on their pensions or guidance on other money matters.
And the (full) Minister for Pensions, Richard Harrington, said:
We want to ensure that everyone has access to high quality and impartial financial guidance, to help them make the most of their hard earned savings
This new single body will be a place people can go for free, impartial financial guidance, and I look forward to hearing people’s views on our proposals.
Specifically – as far as pensions are concerned this means “guidance and information on matters relating to occupational or personal pensions, accessing defined contribution pots, and planning for retirement”.
You can hear the painful discussions about these statements, the arguments over the semantics of “advice and guidance”. There are the nods to the consumer and our “hard earned savings” and a nod to IFA in “impartial financial guidance” but there really is nothing – nor has there been anything since – that suggests anything other than a re-arranging of the deckchairs on the Titanic.
The Titanic is the failed monolith at Holborn Circus, the Money Advice Service. The Government’s intention is to lash TPAS to the sinking wreck in the hope of salvage, the fear is that the bigger ship will drag TPAS down with it.
I cannot ask of Government that it reverses its decision, but I do ask of the new Chair and CEO of the Single Guidance Body, that they understand that TPAS worked and MAS didn’t. If they understand this, they will respect the work that TPAS does , the culture it has created and respect the vision TPAS had for expanding its work.
What I ask of the pension industry
Firstly I hope that the outgoing CEO of TPAS will be recognised as she leaves service at the end of the year. I don’t know what the going rate is for gongs, but now looks a good time to nominate her for any honours going. The benches of the House of Lords have been cruelly denuded of pension talent this year. We can but hope.
Secondly, I hope that we will learn from what TPAS has and is doing. It is necessarily constrained – both financially and in terms of its terms of reference. There is much that can be done commercially that TPAS couldn’t do, but what TPAS could do is to demonstrate that it always acted in the public’s interest. The phrase “independent” really does apply to TPAS.
I see there scope for the work of TPAS to be taken forward with the help of technology so that much of what it does can be replaced by digital services. I suspect that this would have been the plan at TPAS had it been given time and money.
I also see scope for the private sector to push harder at the boundary between advice and guidance. Simon Kirby vowed we would have access to information on our pensions via a pensions dashboard around the time the SGB was announced
Two years on we are still nowhere near having a pensions dashboard. The likelihood of that happening when needed recedes by the day. For people do not even have a proper way to find their pensions, let alone work out how they’ve done and what they can do with them, is ludicrous.
Here’s how things have detoriated.
But instead of addressing the simple issue originally discussed the various bodies who have sat on the various working committees have connived to make such hard work of giving people what they want , that we are now bogged down in the most obscure of pension arguments.
Thirdly, I ask of the pensions industry is to stop making such hard work of it. Leave ordinary people alone so that they can see their savings pot in one place, work out if they’re any good and take action so they can spend the money as suits them.
I say the same of guidance, we need to cut through all the complexity and get back to the questions people really want answering – how much have I got, how’s it doing and what should I do with it.
We will miss the Pensions Advisory Service because it always kept its eye on the ball and – despite having the expertise to deal with the most common of issues – it was always able to help people toward answering those simple questions.
There is an acknowledgement in the call for compulsion on providers to release data they hold on you and me, that some providers will be reluctant to play.
We are told why.
Firstly – and most importantly – providers are not comfortable with the quality of the data they hold and sense that exposing their data to requests which they cannot intercept and deal with manually, could mean they unwittingly deceive their customers as to their pension entitlements. This is the same for those offering pensions (DB) as those offering pots that can buy pensions (DC).
There is also a fear that the data held by legacy providers cannot be provided in real time in machine readable format. The data may be held on systems not designed to produce the outputs that dashboards can read, some data is still held on microfiche (we are told).
There may be a third reason, fear of change – though I haven’t heard this articulated. The adoption of 21st century data technologies scares the living daylights out of some people, especially those who have not been updating their systems since the last century. The fear of change is natural, it is unknown unknowns that drive it.
But it’s always someone else…
Yesterday I was in the audience at an Asset TV IFA event which I assume will be broadcast soon. There were some good people on the panel representing the views of the hubbies and the fintechs but all professing that their (modern) systems could link to dashboards via APIs without any great trouble.
As usual, the problem was outside the room.
The people outside the room seem to operate their own dark-web. I assume they congregate in darkened rooms and weep secretly that their cosy world of non-disclosure will be brought to an end by a crazed Government intent on getting them to display what they hold on their clients (as required by DPA 18) soon to be reinforced by the 2019 Pensions Bill.
No – I don’t subscribe to that fantasy either – I made it up because I don’t know who is telling Government that their data is too dirty, their systems too archaic and their mindset too 20th century – to play with a dashboard.
Whoever these people are – they were not in the TV Studio I was in, nor have they been in the dashboard meeting I have been in – nor are they represented by the insurers I talk to day to day.
I suspect that there are a lot less people who will need to be compelled to supply data than is thought.
Nudging things along
While I suspect that there are relatively few pension providers who do not want to play, I suspect that most providers, when auditing their multiple systems recognise that some parts of their estate will be dashboard ready sooner than others.
The question for these providers, as was explicitly mentioned at yesterday’s session, is what will nudge providers toward dashboard readiness faster.
Here I have a positive suggestion. I suggest that the Internal Governance Committees and GAAs and Trustee Boards of pension providers take it upon themselves to oversee the project plans of their providers to ensure that policyholders and members get the data they need – in as clean a form as possible – in real time- and soon.
I am not into prescribing when, I would much rather that compulsion was an unused backstop – voluntary compliance with a service that is already demanded by the Data Protection Act, shouldn’t need compulsion at all.
The IGCs have already proved once that they can nudge insurers into good sense. The IPB project has meant that us consumers – so long as we are 55, need not pay more than 1% of our fund to transfer away from a legacy product. IGC’s are now looking for a new challenge and this could and should be it.
If data is the new currency- why can’t we see ours?
We know that data is valuable – we know that everyone from banks to supermarkets relies on information about us to help them sell their wares. In many ways we give our data away too cheaply.
But the lack of information available to us in real time about our pensions really is something else. It seems almost impossible to understand how organisations that are paid millions of pounds to look after our money , continue to extract fees without updating their systems so that we can see what’s going on as the Data Protection Act demands.
The basic consumer rights to information on us are denied, not because of any secrecy laws but because of the incompetence and under-investment of pension providers over the years.
A call upon the IGCs and Trustees
The IGCs know this above everyone else. And they are in place to put the consumer back in charge. How can consumers know they are getting value for money when it is such a palaver to even know what they own?
We have the 2019 IGC statements coming up, most are being written right now. I wonder how many will focus on the rights of people to their data?
At yesterday’s meeting, I didn’t hear one IFA or platform provider talk of the consumer fiduciaries. They are not even in the equation. They are hardly mentioned in the Pension Dashboard consultation. Yet they are the chosen instrument for change for tPR and FCA when it comes to disclosure to members. The IGC and Trustee Chair statements are the only documents that have to be made available to DC savers – relating to the running of their schemes.
So I call on IGC and Trustee chairs to pay attention to Data Protection Act 2018 and to read the Pension Dashboard Consultation and to ensure that what is in law and about to be in law, is reflected in the goals of the IGCs and Trustee boards in coming years.
They are our champions, let’s make sure we know what we expect from them.
The highest level of opt-outs from Auto-Enrolment is amongst the over 50’s. According to data I’ve seen , one of the reasons given is that this group are comfortable that the equity in their properties and the rental income they are getting, is their pension. This strategy has been highly popular over the past decades and there are many more property millionaires than people with a million pounds in their pensions, But this is only a part of the story.
The conclusion of the article is that if you want to generate a long-term income for yourself – in excess of the state pension, you’d be better off investing in a portfolio of income producing shares and take your replacement wages from the dividends.
All I would add is that for the ordinary person, using the tax-advantaged pension saving route, rather than direct investment, is probably more practical. The chief feature I enjoy about workplace pensions is that money comes from my salary into my pension pot and there is nothing I need to do between now and when I want my money back.
The Motley Fool investor is not like me, he wants to get involved with stock-picking and the like – he is what Emma Douglas used to call a Badger, most of us are inquisitive but passive bears or simply rabbits! Nonetheless – I share his concerns.
Is buy to let a bad investment?
It’s certainly a time consuming investment and for most landlords I know, it can all too easily move from investment to full time job. Some people like property management but most would rather outsource it to an estate agent. As soon as you cease being the property manager, you start incurring intermediary fees and that’s where those original projections start coming unstuck. Property isn’t easy or cheap to manage and as the article points out, the income from a rented property is far from certain.
But it is still income and that’s what’s needed if you are getting too old to get income from your day-job.
Where I am concerned is that most buy to let investors measure the success of their endeavours not in terms of the net income (income after expenses) but in terms of the capital value of their properties (valuation less debt). There is a lot more debt out there than there should be and if the cost of servicing the debt (the mortgage) goes up, then the net income falls and all that’s left to rely on is the valuation – the ability to create liquidity by selling the house.
If the liquidity in the house falls, (and property values are falling), then buy to let owners are faced with some serious problems. Reduced income, high levels of debt and little liquidity (unless you want to sell or can remortgage in a falling market.
I’d say that buy-to-let is a great way of generating long term income- but you need to be in it for the long-term. If there is a rush to exit buy-to-let, then those caught in the crush may get harmed.
So my advice to anyone who is relying on their buy to lets for their pension is to hold on. I would strongly suggest that you create liquidity through saving into a pension rather than relying on the liquidity of your properties and I’d be thinking about reducing your reliance on your property portfolio to solve all your problems.
Houses, sausages and pensions
You can’t buy a sausage with a brick and relying just on bricks and mortar to pay your wages in retirement is a bad strategy.
If you’re one of the over 50’s who’s opted out of auto-enrolment because your houses are your pension – it’s time to opt back in. The employer contribution goes up to a minimum of 3% of pensionable earnings in April and that’s money you shouldn’t turn down.
Judging from the replies, most people are shrugging their shoulders and getting on with it.
The people who are talking about BREXIT – seem as sick of it as the people coming and going in WeWork Moorgate. Infact I met one MP yesterday at Prospect the Union who was quite candid about his state of mind.
In expressing my exasperation with the situation, I am not dismissing the work of those on either side who passionately campaign in one direction or other, I admire Gina Miller and Ros Altmann for their categorical support of remaining, my own partner is as categoric in an opposite view. But like the vast majority of people I know, I’d rather discuss stuff that I can be a part of – and I feel excluded from the BREXIT debate.
I love this image of a Plowman, getting on with his life, while Icarus falls from the sky, his wings collapsing having soared too close to the sky. Auden wrote a great poem about it which has stayed with me since school.
In Breughel’s Icarus, for instance: how everything turns away
Quite leisurely from the disaster; the ploughman may
Have heard the splash, the forsaken cry,
But for him it was not an important failure; the sun shone
As it had to on the white legs disappearing into the green
Water, and the expensive delicate ship that must have seen
Something amazing, a boy falling out of the sky,
Had somewhere to get to and sailed calmly on.
For Paul. Ros and Gina, the events unfurling in Westminster today may be the focus of attention, the rest of us will turn on the news tonight to find out what has or hasn’t been accomplished and then have supper or go to bed.
We had our say, we know what we voted and we know that the country split pretty well 50 -50 but that “leave” won. Now we are leaving, but it seems – not on the best of terms.
We’re being told that the Prime Minister says that parliament will be held to account for whatever happens next and she is right. I can remember us joining the EEC and I remember drinking beer with Nigel Farage in the Westminster Arms hearing him talk of leaving it. I have met with Gina and Ros a few times in the past couple of years but I’ve never discussed BREXIT with them or anybody else. It is not something that I can get involved with – I have devolved the decision to Paul Masterson and 650 other MPs and by their fruits they will be judged. Theresa May, as she usually is – is right.
But is it right to have no view?
That I can’t be bothered to take sides on this issue isn’t unusual. That meeting at Prospect didn’t take a view on what was going on in Westminster, we were too busy trying to figure out how CDC might improve the pension saving experience of hundreds of thousands of ordinary people.
I don’t know what Paul Masterson’s view on BREXIT is and I don’t want to know, that he is keen enough to turn up at our meeting and (as a conservative politician), speak on behalf of collective pension provision is enough.
We’ll keep plowing, while those who are trying to fly high, risk doing an Icarus and falling fast to their nemesis!
The fallen Icarus – wings clipped when he flew too close to the sun
I can’t say that no view is a good view, but I’d rather be the Ploughman than Icarus.
The original Mary Poppins hit London just as the financial shackles of post-war austerity were coming off and its unremitting cheerfulness suggests that even the run on the bank which nearly brings disaster. Of course we are coming out of the slump caused by the banking crisis and the remke is set just a few years after the great depression
And if that 1960s audience had opted to save their pocket money, points out Paul Johnson of the IFS, it would have stood them in very good stead since the stock market has performed extremely well in the 50 years since then, one reason the baby boomer generation has done so well.
Cheerful doom-monger that he is, Johnson goes on to point out that we’ll never have it so good (again)..
That doesn’t mean it still holds true. “Now, saving is not [worth] a great deal,” says Mr Johnson. Interest rates are so low it’s almost impossible to save enough for your retirement, he reckons.
So what would be a better take-home message for today’s generation?
“Passing your exams,” says Mr Johnson. “Get yourself the sort of education that gets you a high-paying job. That’s probably the best advice if you want to be better off.”
I’m not sure that Paul Johnson has any more idea of how successful the next 50 years will be for investors than they had in the 1960s, anticipating how the world will look in 2069 is not a gainful occupation, it will certainly not make you better off. We are best off focussing on our immediate futures and – as Johnson says, preparing to make the money to pay tomorrow’s bills.
Get rich slow
Perhaps the one message that comes from the passage of time, is that no matter how many depressions and crashes and world wars we endure, we come out alright in the end, providing we don’t just feed the birds (the original metaphor for spendthrift behaviour in Mary Poppins).
The maintenance of a savings culture, and in particular the creation of a pensions culture has been a feature of our post-war economy. We have created a means of insuring our money lasts as long as we do and despite serious concerns over the future of our geriatric healthcare and the cessation of defined benefit pension schemes, we are slowly getting richer -individually and collectively.
What is not happening – and perhaps this is what Paul Johnson is really getting at – is that we are becoming more productive. Per capita productivity in Britain is not increasing as was expected and this may be because we are not getting ourselves the sort of education that makes the country better off.
A spoonful of sugar
IF the financial economics of Mary Poppins 1 and 2 are flawed, then is Johnson right to be so curmudgeonly about saving for the future? Should we be be feeding the birds rather than the City with what we earn?
Johnson himself seems amused by the episode.
Never thought I’d be quoted in context of Mary Poppins. But your best investment is definitely your own education and skills.
I think he’s right on our needing to invest first in ourselves. I suspect he knows that his doom- ridden prognosis for our children’s retirement finances is based on their getting better off.
Just as we have a habit of outliving previous generations, so I suspect our children will get in the habit of out-earning us, outsaving us and ultimately spawning further generations who will do the same to them.
A spoonful of sugar is always a good idea, especially when you’ve got timesheets and a self assessment form to fill in – on a cold and windy January Sunday!
I don’t normally go for corporate cheese – but this statement – clipped from the linked in feed did make sense and got me thinking.
I’m in the middle of the second round of fund raising for AgeWage and here you move from talking to friends and family to the wider world – the crowd.
As AgeWage doesn’t have anything to prove its concept, it is going to rely entirely on its perceived integrity so I hope that people share Leena Nair’s view and that they get our purpose before we deliver our product.
When a business is “boot-strapping” it is relying on its own resources, the time and energy of its founders, but most ambitious businesses need to grow at pace and that’s why they go to the market to get funds. Going to the market in this country is incredibly easy, we have an advanced system of crowd-funding which creates liquidity for start-ups, there are funds that invest in start-ups and all manner of platforms to advertise yourself to potential investors.
And there is a huge appetite among investors to put money to work, which is where “purpose”, becomes important – whether you are Unilever or AgeWage.
It’s generally held that these are uncertain times, though I have never lived through certain times nor do I expect to. The extraordinary is ordinary in the context of history, if it isn’t Trump or Brexit disrupting normal, it’s a global war, a financial crash, a tech boom or global warming. We will talk ourselves into feeling we are in uncertain times whatever.
And Leena Nair is right to link “purpose” to the uncertainty we feel. It is not enough for a business to be agile and pragmatic and opportunistic (those are the tactical values that keep us strong). Businesses must have a clear objective at their heart. I think of Unilever and I get it as a brand and I get Leena Nair as a person.
If you go on Linked In and check-out Leena Nair, this is what she tells you
“My purpose is to Ignite the Human Spark to build a Better Business and a Better World” #morehuman
I’m being told by the people I’m pitching to that I am a Fintech. I don’t mind that – financial technology will change things and things need changing. But the purpose behind AgeWage is my purpose and it’s #morehuman. I want people to feel good about getting old – I want them to understand their later life finances and take control of them. Fintech helps us get there – but the people are what matter.
Reading the article behind Leena Nair’s picture, I got a load of boring statistics about how Unilever’s purpose campaign is adding value – the kind of corporate stuff that is required of CHROs (if you can’t measure it …).
But this is true and it’s as true for Unilever as it is for a start up.
I truly believe that to thrive the ONLY thing we as a business must stay rigid on is staying true to our core beliefs and our purpose.
No one more human than Con Keating
Yesterday I heard that my very good friend – Con Keating – has had a heart attack. Con’s purpose in life is the same as mine – I’d like to achieve what he has achieved by the time I reach 70.
You will be pleased to know that Con is suffeciently recovered to have been making a nuisance of himself in the coronary ward of Coventry Hospital, and – all being well – he will make a full recovery.
If he has found some wi-fi on his ward he may even be reading this – in which case he can take solace in his obligations on Monday being covered!
There is no one on the planet who has more humanity than Con- he is a constant source of strength to me, our business and to the many people I know who know and admire him.
Eye on the ball, what is happening is a shift from a pensions culture to a savings culture, people are being nudged into saving with no idea of the consequences. As one senior NEST employee told a DG conference on Wednesday, people saving into the Government pension scheme expect a Government pension. Eye on the ball!
– Workplace pension membership recorded another strong year of growth in 2017, driven by Master Trusts where memberships grew by 2.8 million in the year.
– BUT overall pension contribution rates in the market continued to be low, at less than 6%
We grossly over estimate the value of our workplace savings and underestimate the power of the state. Especially for lower-earners, the rises in the single state pension are of more value than contributions into workplace pensions,
– 3 of the biggest pension providers, with over half of the 9.3m savers with “lifestyled” pensions, announced design updates to align
legacy products more closely with “pension freedom” retirement choices
This “pensions triage is nothing more than window dressing. Preparing people for a decision they have yet to make is second guessing, we need a default position for those wishing to get their money back which doesn’t involve cashing pensions out, buying annuities or entering into unadvised drawdown.
– Since the start of 2016, 32 firms have chosen to stop providing
pension transfer advice or have decided to limit their pension transfer activity – after FCA intervention
Whatever the numbers, the key finding from the FCA is that more than half of these transfers shouldn’t have happened, the FCA has the remedy at hand to control the flow so that only those paying up front for advice get the opportunity to swap pension for a cash equivalent.
– The number of savers fully cashing in their pensions rose by 6% in 2017
– Around 55% took full cash withdrawals, 30% took drawdown, and 10-15%
chose an annuity
– Of the 55% cashing in their pensions, around half shifted the cash to ISA investments or to a back account
The FCA should be asking themselves how much of the £36.8bn that came out of DB in 2017 found its way into workplace pensions and why the vast majority transferred to non-workplace products. It’s not just an advisory issue, workplace pensions aren’t generally seen as suitable – why not
– Since the start of 2016, 32 firms have chosen to stop providing
pension transfer advice or have decided to limit their pension transfer activity – after FCA intervention