CETVs; the flight from quality


Both the Times and the Financial Times report today on the anticipated voluntary withdrawals from Britain’s DB pensions through cash equivalent transfer values (CETVs).

The FT, relying on Mercer as a source, estimate the withdrawals to be as much as £50bn since April 2015, the Times estimate £45m. Aon and Towers Watson estimate CETV activity up 15 and 10 times since 2014 (the Aon figure just refers to high value transfers). There is sufficient corroboration of these numbers to suggest that there is a significant “flight from quality” and that the 210,000 people Mercer estimate have taken CETVs are many more than previous tPR estimates.

It would be good to have official figures, but we have little but the estimate from tPR that 80,000 people transferred in the last year.

Not all schemes are seeing transfers at the same rate. The evidence we have suggests that the money is being pulled  from banks and insurers whose schemes pay high CETVs (their scheme investment strategies are conservative, investing in gilts creating discount rates that pay particularly juicy multiples of pension forsaken).

And it’s clear that there are  separate markets. There is a highly advised market where white collar staff are paying as much as £10,000 in advance  for a passport for their CETV to go where they like. There is a mid-market where money is flowing into solutions of the adviser’s choosing with fees contingent on these scheme being used and there is a bargain basement market where money is flowing into any old tat with very little proper advice ( very small DB transfers don’t need a passport).

I’m not writing here about the reducing  quality of advice, it has been a subject of many recent blogs. I am questioning why the spectacle of this huge shift of pension wealth is only now being publicised.

An undercover operation

I don’t subscribe to a conspiracy theory. Despite this blog shouting about this for a couple of years, my writing has been speculative, based on anecdote and frankly it does not carry the weight of an FT or Times.

But what is more surprising is that this shift has not been picked up on the radar of the Regulators as a major financial risk. For the FCA, the risk is potentially bad consumer outcomes; for the Pensions Regulator, the risk is the further destabilisation of the defined benefit occupational pension schemes for whom £50bn in outflows is a material loss.

In the short-term, many consultants, trustees and especially plan sponsors can celebrate that £50bn as a quick win. The money that voluntarily leaves a scheme is valued using a best-estimate discount rate that is likely to be higher than the discount rate used to account for the underlying liability in the FRS102 accounts. That means that CETVs are giving corporate balance sheets a healthy short-term windfall.

We know of circumstances where these windfalls are not only being booked retrospectively but being accounted for on a forward basis – the assumption being they can be accounted for today, on the expectation they will happen tomorrow. This is  particularly good news for the short-term targets of the C-club (bonuses all round).

Put another way – if , as the Pension Institute claim, there are 1000 DB schemes in a “stressed state”, why are only a handful reducing CETVs through an insufficiency report?

It is hardly surprising that a “don’t rock the boat” attitude is prevalent, the C-club need as little disturbance to the current transfer deluge as possible. This is one of the reasons for the low profile given to this trend.



I believe there is something else at play here. I suspect that the people who are supposed to be managing DB schemes are hopelessly conflicted and embarrassed about it. I know many investment consultants who sheepishly own up to have recently taken transfers and I have seen swathes of long-serving senior executives who are following suit. There’s definitely a “don’t shout about it or there’ll all want one” feel about this exodus.

Why it can become professionally embarrassing is that the plans set up by the said advisers and senior execs (either trustees or close to trustees) are playing into their hands. These highly loaded bond based investment strategies are what gives rise to the high transfer values in the first place.

Worse, the advisers and trustees have locked schemes into such strategies through the purchase of contracts for difference (derivatives) that can greatly increase the scheme’s exposure to bonds through gearing ( a process known as Liability Driven Investment of LDI).

But if the current trend continues, then many of these strategies will have to be adjusted and potentially even unwound, to create the liquidity to pay all the transfers. I know of one scheme that had a cash call of £250m in March from unanticipated transfers.

The problem is , as John Ralfe is pointing out to anyone who listens, a lot deeper than the admin hassle of having to arrange the transfer. We have an unanticipated risk to a scheme’s investment strategy.

The key word here is “unanticipated”. What happens when you want to keep transfers quiet is you neglect to write their likely impact into your investment strategy – here is the conflict and the embarrassment.

No victimless crime – a cancer within.

I have given up on “win-win” , let alone “win-win-win”. In financial markets, for every winner there is a loser. The winners in the CETV game are the advisers, wealth managers and a few very lucky people who can afford advice to get into the right products for their privileged circumstances. There is a further immediate winner- which is HMRC who stands to pick up penal taxes through LTA and AA busting quite apart from the penalties it can meet out on unauthorised payments through scams (see ARC).

The losers are those who end up in the wrong financial products, or no product at all. The losers are the trustees  that see their pension schemes convert to cashpoints. The losers are future generations of  corporate executives who have to manage the consequences of the current CETV bonanza.

The losers are the non or poorly advised who quickly find the cashpoint has no “repeat” button.

The losers are future generations of savers who are losing the rights to good quality occupational pension provision as the infrastructure is dismantled through this “flight from quality”.flight 2

Calling time on this nonsense

The FCA consultation on transfers published this week proposes we no longer denigrate the CETV and promote it to having equal status to the scheme pension. This will be loudly applauded in the boardrooms of asset managers, DB corporate sponsors and both instructional and retail advisers. It is a fundamentally stupid thing for the FCA to have done.

The damage of losing scheme pensions in favour of swollen cash balances will haunt us for decades to come. Those like Merryn and Ros who pander to populist cash-craving will be called to account for their public statements

ros abused

There is nothing this blog can do to stem the tide of nonsense transfers. I can say for myself that I ignored my CETV last year and now draw a scheme pension (I even ignored my tax-free cash in favour of more scheme pension ). I am lucky to have had this choice.

I called time on the nonsense of my £1m + CETV because I could see no long-term value in it. I want an income that lasts as long as I do, one that protects me and my family against the consequences of growing really old. I want a pension like my Dad’s and his Dad’s and I wish that my Mum and her Mum had had one too!

The corrosion of DB schemes by this mania for freedom is bad news for society and it is time that more people said so. The arguments for short-termism are everywhere (see above). The prudent arguments of decent people like my colleague Alan Smith are less appealing but a lot more serious.

Posted in actuaries, advice gap, pensions, Treasury | Tagged , , , , , , | 3 Comments

@theFCA- #transfers-NOT GOOD ENOUGH


The FCA has produced a measured, thought-through but ultimately facile paper on transfer advice.

The FCA did not make it to the Great Pensions Transfer Debate and it is just as well that this paper was published after not before the 19th June.

For the paper really does little to protect the consumer, causes considerable disruption and fails to address the issues of those who have set up and run occupational pension schemes. If we had read it before going to Peterborough, I doubt our conference would have been as optimistic as it was.

This paper is a missed opportunity and here are 5 reasons why!

Here are the five things which should have been in the consultation but aren’t.

  1. A firm statement on contingent fees. The paper is silent, the FCA are pointing to COBS but AJ Bell are reporting over 50% of IFAs are effectively taking advice as commission from their in-house investment solutions
  2. Encouragement for trustees and scheme administrators to help IFAs through the creation of a single template questionnaire . Most of the timing problems on transfers come from non-standardised questionnaires.
  3. Encouragement for trustees to allow scheme rules to provide partial transfers so IfAs can split CETVs with an amount remaining for scheme pensions and the balance available for greater freedom
  4. Inclusion of adverts (digital or otherwise) promoting transfers as financial promotions (whether from lead generators or not)
  5. Prohibition on the use of leads generated from unregulated firms as a source of transfer business.

The FCA’s paper, which you can read here, is out of touch with the reality of today’s market.

Money is flowing out of occupational schemes at a destructive rate. One scheme which I am connected with is reporting outflows of £250m per month. Such flows are destabilising the investment  strategies of DB schemes, creating a severe strain on pension scheme administrators and destabilising the confidence of many people in the schemes they are relying on.

Much of the money flowing out of DB is doing so regardless of critical yields. I have in my possession three reports that have been forwarded me where the critical yields are in excess of 8%, one in excess of 10%. Add to these yields the costs of investment in full-priced SIPPS and you are needing over 12% pa or a return 10% over inflation to meet the scheme guarantees! And yet these reports are recommending transfer.

To suppose that the scoundrels who write this bullshit are going to be any more responsible because they assess covenants and use stochastic modelling is to be naïve in extreme. The abuse of customers which is rife abroad and bad enough at home will not be solved by requiring advisers to use more sophisticated report writing services.

This week, a group of good people have been in the high court listening to the arguments of QC as to what should become of what is left of their pension scheme. The scheme is called ARC and when they finally know what is theirs , they will move on to find out what they will have to pay in excess tax to get their benefits. The only people not in court are the villains who set Arc up, they are in Spain and similar – and they are still setting inappropriate pension schemes up and cajoling new cohorts of innocent decent people into them.

In the meantime, the funnels into which people’s retirement dreams disappear, are still open wide.



Google Ads , Facebook and the digital advisers of all the tabloids are selling digital space. This one sits on the Daily Mirror site , here’s one from Financial Advisor .co .uk

Ros Altmann, the scammers new best friend!

Worst of all, these very sites are now aping Ros Altmann, our former pension minister endorsing the liberation of guaranteed benefits. Ros has been quick to hail the FCA’s paper in a blog. 

But sadly Ros’ list looks  just a more sophisticated version of the scammers list! 


She is delighted that the FCA are no longer discouraging IFAs from rescuing people from failing DB plans but “waking up to the new landscape for pension transfers”.

The new landscape is one that most IFAs are very familiar with, it is the apple held out by Eve to Adam, delicious and offering untold knowledge. It is an apple that only too easily could see IFAs banished from Eden.

The last time Ros piped up on transfers she was widely broadcast . Look out for her latest blog to be abused in a similar way

ros abused.PNG

Careless talk…


Far from protecting consumers , with this paper, the FCA have just opened the door for the scammers and invited them to the table.

Where are you when you’re needed Ros?

Ros did not come to Peterborough for the Great Pension Debate. If she had, she would have heard close to 300 people involved on a day to day basis with transfer calculation/advice and administration thinking about the decisions “diversely, responsibly and capably”. I chaired and listened – I was hugely impressed.

Ros has not been seen at the High Court or spent time with those whose pensions have been ripped from them and who now face bankruptcy either from the trustees (much of the pension is out on loan) or from HMRC, who want 45% of invested monies, monies which are mostly gone).

Ros does not spend time with pension administrators or pension managers having to cope with the huge flows out of schemes created by what sometimes seems like panic-transferring.

Nor will she have to live with the long-term consequences of these transfers. The drawdowns that dry-up though poor strategies, high execution costs and unrealistic withdrawal rates. There are great advisers who will manage their businesses for 20 years and hand them on to other great advisers, but it is hard to pick them today.

In reality , most of the money coming out of CETVs is being invested in SIPPS which are likely to become destitute of good management over time. This is the awful prospect facing those who pay for advice on the cheap and accept the twaddle that charges don’t matter.

By ignoring these harsh realities, Ros and the FCA and the Treasury are allowing the conditions to spread that have led to the carnage in the nineties, have pension victims in the  high court today, and will doubtless lead to countless disappointed retirees in decades to come.

When doing nothing pays

There is another way of managing people’s money. It does not involve taking a CETV, it doesn’t even involve looking at a CETV, it simply involves people taking a scheme pension for the rest of their lives.

Instead of listening to scaremongering about BHS and Tata, people with defined benefits could ask their Trustees for a clear statement about the likelihood of their scheme paying benefits in full. They might even ask the Trustees for its most recent employer covenant assessment – or at least the edited highlights without confidentialities broken.

They would almost certainly find that their Trustees are well advised, that the scheme is either in surplus or has a proper deficit recovery plan and they may even find themselves being asked to become a trustee.

Instead of the provocative calls to actions from the scammers (which echo the blogs that Ros writes) people could see how much care and attention is paid to the management of the schemes from which they will get paid their pension. Far from being the greedy beneficiaries of your money, most trustees are unpaid and are acting out of a sense of duty. Those professional trustees who are paid are extremely accountable.

As for the FCA’s paper, it is an exercise in irrelevance. Everything in that paper is rehearsing what good advisers already know and do. Meanwhile scoundrels are doing untold damage and the FCA and tPR seem powerless to do much about it.

Another opportunity missed.

Posted in pensions | 3 Comments

A single guidance service


The simple idea of merging the functions of The Pension Advisory Service, Money Advice Service and Pensions Wise under a single “Guidance” banner makes a lot of sense. It acknowledges that the current situation is working too well and supposes that a reorganised super-service could do a lot better.

Earlier this year, the DWP released its Christian Ronaldo, Charles Counsell from auto-enrolment duties to take over at the Money Advice Service.


Charles Counsell


Charles is an organiser, someone who gets things done very well, he has done a great job (and got a gong) for fixing auto-enrolment, now he looks set to do the same with guidance.

Charles’ masculine virtues as a fixer are complimented by TPAS’ Michelle Cracknell, who has transformed TPAS on next to no budget through a different intelligence. If Counsell is Ronaldo, she is the instinctively brilliant Messi!

In many ways this should compliment Counsell’s , the fear is there may only be one space at the top.

How and who the re-organisation of guidance is achieved, we will find out over the next twelve months, but I am comfortable that with Counsell and Cracknell at the helm, this will happen and that we will see a new simple service that the public will use.

How will it be used?

The current approach is reactive. Guidance is given to people at the point when retirement becomes real, when they have to start taking decisions on accumulated savings and pension rights.

At the Great Pension Transfer Debate, Cracknell told the audience her vision was that good savings practice needed to be instilled in the young and that they could educate their parents. It’s an interesting thought and one I have never heard articulated in that way.

Actually, by the time you get to Pensions Wise, you are either financially self-sufficient, in which case you turn to the Government for validation, or you are needing to be told what to do. MAS, TPAS, CAB and Pensions Wise cannot tell you what to do, they can only sign-post you to someone who can. The “someone who can” generally needs paying for carrying the responsibility of delivering a definitive course of action.

The new service, if it is to work is going to have confidence in the advisory process and financial advisers are going to have confidence in the new service.

In my opinion, there is a lack of confidence either way which is what Counsell and Cracknell are going to have to fix.

Guidance and Advice

I am a firm believer in getting people to understand the difference between the two. Guidance is about empowering people to take a decision for themselves and advice is about taking the decision for them. You should not pay for guidance, it is free, it is on the internet, the Government can stick some people on phones and web-chat but they are really only improving on the web-based service.

Advice is something different, it is as different as sitting with a priest in a confessional compared to listening to a sermon.

If we see no value in advice , it is either because we are self-sufficient or because we have no trust in the “confessional” process of financial planning or of its sister “wealth management”.

I think a critical function of a guidance service is to establish in the minds of those using it whether they see value in advice, and if they do, how and where to get it.

Making progress?

The Retail Distribution Review cleansed the advisory process by reducing advisor numbers and focussing minds on financial planning rather than the sale of financial products. We now have less advisors who are better qualified to give advice.

What we have is progress. What we don’t have is a public that is educated to look after itself. The talks on behaviour, most notably from Michelle Cracknell and Greg Davies pointed to our instinctive bias’ towards lazy decisions.

A current example is a survey by AJ Bell, published yesterday. It  shows  that 50 per cent of advisers conducting DB transfers are getting clients to pay for them by paying a percentage of the transfer value. This means advisers only receive payment if the transfer goes ahead (into their “wealth solution).

This is a case (IMO) of the RDR taking one step forward , and (half) the advisory community taking two steps back. The argument for this kind of product driven advice is made on this blog by one of its major proponents.

IMO the arguments for contingent charging are “recidivist”. -advocating  the habitual and repeated relapse into bad habits! Behaviourists will point out that water tends to flow downhill, or as Tideway point out “the earth is not flat”.

Progress through leadership

The DB transfer debate we had on Tuesday showed me that there is a genuine wish among a large group of IFAs not to be recidivist. There was little or no appetite in the room to go back to a pre-RDR state of play.

There was considerable support for the triage or segmentation of Pensions Wise customers between those who needed support but could take their own decisions (guidance) and those who needed to outsource decision making (taking advice).

I would call the group who assembled at the DB debate, thought leaders. They were looking for a way to conduct transfer advice safely and to ensure that everyone got enough guidance to feel comfortable in their own skin.

Of course the conference could not deliver such reassurance, it showed that there are large numbers of people who will go to the Government for guidance, find they need advice and end up taking decisions based on the inherent bias’ of the adviser’s charging system.

But there were sufficient numbers of advisers in the room to give me confidence that progress has been made and we will not slide back into pre-RDR days.

In which case, I hope that those who lead the guidance will feel more confidence in those giving the advice. As to whether this works the other way round, I have more concern. Advisers cannot expect the new guidance  to be a “lead-generation service” unless they are prepared to offer advice to all. That means finding ways of offering a simple recommendation at an affordable price (less than £500).

But if the new service can feel that there are advisers who can provide bulk advice to the parts of the market that FAMR is addressing (e.g. the middle market), then guidance and advice can work together to provide something very valuable.

That can only happen if IFAs show considerable leadership and decide between themselves not to relapse into bad habits but to pursue the tough road to professionalism.

Time for IFAs and those delivering guidance to work together.

Now it is time for senior IFAs to show that leadership, that is the best chance we have to make the new guidance service work. Michelle Cracknell and Charles Counsell have a tremendous opportunity to work with IFAs, I hope they will take it.

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

Don’t get strung up on pension ministers!


Guy Opperman – our new Pension Minister?

News that Richard Harrington is leaving his post as Pension Minister for BEIS shouldn’t surprise readers of this blog. The move had been heavily flagged in the DWP and tPR even before the election, @Richard4Watford put “pensions first” for his 9 months as pension minister but the BEIS job is a promotion, we all take promotions.

There may be people in pensions who mourn the demotion of the job title from full to junior minister. There may be people who point to the rapid turnover both of pension ministers and shadow ministers as indicating the post has little point. They would (IMO) be right.

In running the state pension system, any Government is running huge amounts of risk which they cannot easily control. Linking the state pension age to mortality is the easiest way to control that risk but there are others. Auto-enrolment is a way to reduce dependency on welfare among those at the bottom of the  financial ladder.  Get that right and we are reducing dependency on future generations to pay for generation x, y and z’s retirement spending.

Pension Ministers do not decide these big ticket items, these are decided in Treasury and agreed within the Cabinet. The Pension Minister is merely the mouthpiece for what Philip Hammond , David Gauke et al determine.

Guy Opperman

Harrovian, Guy Opperman appears to be our new Pension Minister though Jo Cumbo reports that the responsibilities of the new DWP ministers Guy Opperman and Caroline Dineage are to be confirmed in due course.

It seems silly to speculate on what we are about to receive, not just because it’s unclear who is doing what but also because neither will be doing a lot very soon.

Unlike Steve Webb, who came to the office a full-on pension expert or Ros Altmann who certainly knew what she wanted, the new appointments have to learn on the job. It is possible, as Gregg McClymont showed, to do this. But it takes a full parliamentary term and it takes a view of the current job which would make it one to aspire to.

Humbled in Iceland

So I’m not wasting valuable time worrying about the propensity of Guy or Caroline to do the job. Instead I will be wondering around the middle of Iceland.

This may result in you hearing rather less from me than you are wont from now to Sunday.

And if anyone wonders why Iceland, then I hope to explain next week!


caroline Dineage

Caroline Dineage could also do the job – she understands how to run a small business


Posted in advice gap, auto-enrolment, pensions, Politics | Tagged , | 3 Comments

You want (pension) engagement? Ask Corbyn!

Corbyn result

That didn’t happen by accident



How do you get youngsters interested in politics?

How do you get youngsters interested in pensions?

One and the same question IMO.

Instead of sitting in “blue-sky” meetings, maybe we should be looking at what successful politicians have done to get people  off their backsides and into the voting booth.

There have been three recent examples where political leaders have captured the imagination of millions – Farage – Trump – Corbyn. These are people who have had far more difficult products to sell than “saving money”, they’ve had to sell a reason for participating in a democratic process they may never have engaged with in their lives!

Farage got disaffected white British workers (especially male voters) to vote.

Trump got disaffected white American workers (especially male voters) to vote.

Corbyn got young British people (especially students) to vote.

Where do you learn how they did it?

Go to you tube.

Farage’s speech (which has nearly 400k views) spells it out

“If it wasn’t for Youtube in 2007-2008, I’d be nowhere.. nobody has made better use of social media than me … the broadcasters and the media in the wake of 2016 have got to press the reset button …because you are probably talking to less than half the country!”

Trump’s team  have picked up on this. Corbyn’s team has picked up on this. The fact is that Snapchat, Buzzfeed, Facebook, Twitter and Youtube have had more influence on British Politics than the BBC and the Daily Mail. Farage’s point is that conventional media is reinforcing the bias’ of the conventional voter – the affluent, elderly British metropolitan middle class. Farage’s point is that it is this isolated group who now totally dominate those working in the media. It is a very large echo chamber – but an echo chamber no less.

Now let’s put PLSA into the Youtube search engine. Where Trump and Corbyn and Farage get 100,000 views for sneezing, the PLSA can’t muster 300 views for a conversation by young people about why young people aren’t saving.

The only pensions organisation that has come close to getting popular viewing is the DWP with its auto-enrolment promotions. This simple video has got 150,000 hits

while this short clip gets over half a million views

I’m not claiming I’ve got the answers – but I know that google analytics is the key to understanding why our pensions industry is failing to get the message across and why the DWP and tPR can.

Is this a social or a commercial issue?

Well it’s both. If we want to see our commercial pensions prosper we need the money of young savers. If we want to spread the load of older-age dependency from the state to private pensions, we need the money of young savers.

But the financial services industry is not adapting very well. Here in this weekend’s FT is an article entitled “slow adoption of technology hurts asset managers“. It reveals asset managers as slow to adapt as the Conservative Party.

This is how the asset management industry sees the threats to its existing business model


The FT reports that Google has  commissioned research on how it could enter the asset management industry while Facebook recently received regulatory approval from the Central Bank of Ireland allowing it to operate a payments service.

Not only is social media grabbing the eyeballs, it is looking to grab the money.

Change or die

If you go back and watch the Nigel Farage video at the top of the blog, you will hear him warn the media moguls in the room, that if they don’t change, they will become irrelevant. That was in 2016.

In the first half of 2017, Jeremy Corbyn revitalised a tired Labour Party into an animated and interesting protest group. He did so with the worst set of policies ever put before a British electorate but he did so with the power of the new media. He delivered what the Conservatives couldn’t, he delivered to the people who get their news from Facebook, who watch youtube on their phones as they go to work.

If pensions want to talk to the people with whom it has no engagement, it is going to need to find new ways to deliver its message. Because right now we look about as good at talking to these people as the Conservatives.

Our brand new stand.PNG

Further research?







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

If you see bad advice – say something!

whistle blowing



I was very pleased to read Natalie Holt’s article in Money Marketing, we need a better way to deal with bad advice. It deals with public perceptions of financial advisers and is uncompromising.

The reality of advice is lost every single time poor advice is given, every time an unsuitable unregulated investment is sold, and every time a firm is declared in default by the FSCS.

“The reality of advice” is an interesting phrase. Can advice be unreal? Or is Natalie saying that people stop feeling they are getting advice when they see their advisers closed down for selling dodgy products?

I guess “good advice” makes the concept of an “advice profession” a reality.

I don’t entirely buy that. I work in an area of financial advice (advice to trustees and employers about workplace pensions) which considers itself professional. We have rogue firms that deliver poor advice and we have individuals and even firms struck off by our professional body (the institute and faculty of actuaries) and our regulators.

By and large the profession is self-regulating, when bad practice is spotted , it is reported. This anonymous whistle-blowing is  taken very seriously and is used sparingly and not vindictively. Generally it works.

I see no comparable mechanism in retail financial advice. But there is no comparable body (to the IfOA) that all advisers subscribe to. The Law Society, the BMA, the ICAEW, professions have professional bodies that issue codes of best practice and dish out discipline where necessary.

Where Natalie’s argument falters, is in supposing the problem lies with FSCS. The Financial Services Compensation Scheme is a means of redress for customers that are ripped off, it is not a trade body with a code of best practice to which retail financial advisors sign up.

If FSCS became a member organisation, like the IFOA then I can see IFAs whistle-blowing to it , as actuaries whistle-blow to the IFoA. But for that two things need to happen.

  1. Financial advisers need to be clear about what they are and where they are conflicted
  2. There must be a clear process by which IFAs can whistle-blow on bad practice, not to gain commercial advantage but to prevent their profession being brought into disrepute.

Saying it like it is

Over the ten years I’ve been writing this blog, I have often written of bad practice. I complained about the unfairness of active member discounts, citing a particular case where bad practice would bring shame on workplace pensions.

More recently I have pointed the finger at vertically integrated master trusts, fiduciary management and the general trend among actuarial and employee benefit advisors to double up fund management fees (with little VfM).

Most recently , I am pointing out the dangers of “conditional pricing” of advice on transfers, where IFAs advise for free so long as they get wealth management fees.

What is consistent is the insidious trend among advisers (of whatever hue) to ignore conflict of interests and to tell it “how it isn’t”. Active member discounts were a way of cross-subsidising employer fees by charging them to deferred member pots. Vertically integrated master-trusts/fiduciary management and manager of managers are all ways of collecting advisory fees via the “ad-valorem” back-door. Conditional pricing is simply a way of taking commission from a SIPP instead of charging a fee.

If we want a profession that is trusted by the general public, then financial advisers (including investment consultants and actuaries pretending to be asset managers) must not just be clear about how they charge but make it clear they do not consider un-transparent charging structures acceptable.

The conflicts of interest created by making consultants shop-keepers , manufacturers as well as financial advisers are obvious. But they are never called.

Natalie points to the recent claim on FSCS from a collapsed firm, Central Investment Services, that had been selling unregulated investments which have proved worthless.

Here is just one of the comments in the article in her paper she is referring to;

He does what he does and then disappears, leaving customers in the lurch. There are three potential sources of redress: the PI insurance, the assets of the firm and the compensation scheme. (Richard Hobbs

This firm traded in the UK, it had the support of a reputable platform (Nucleus) in which it had a share-holding. There is nothing to suppose that there are not man other IFAs doing precisely the same.

It really is time that when the kind of behaviours that firms like Central Investment Services are discovered, they are stopped at source. If IFAs know of bad practice, they should have a way of reporting on it to their trade body (perhaps FSCS could become this), before a crisis develops.

In the meantime I will go on blogging about what good looks like, the evils occasioned by conflicts of interest and the necessity for bad practice to be exposed before it does the damage.

The message is certainly getting through. My highest read blog this year is on just such a theme. My recent blog on conditional pricing is in the top five (you can’t read it as the firm I am criticising are threatening legal sanctions). We all know this is important stuff, it is not enough to read about it, we really need to take action against the bad apples before they infect the barrel.

So I would add this blog as my comment to Natalie. The answer to the problem is not in more regulation, it is in good advisers refusing to tolerate bad practice. We need pre-emptive action as “a better way to deal with bad advice”.



Posted in accountants, actuaries, advice gap, pensions | Tagged , , , , , | 5 Comments

(D) electable ironies

bucket head

Mr Bucket Head’s 15 seconds of fame


Mr Bucket Head wore the stand out costume of the evening.

Theresa May dressed up like a Fish Finger but was outdone by Mr FishFinger,

fish finger

Mr Fish Finger lurks behind Tim Farron


Photos courtesy of Chris Chivers.

Of more moment is this brilliant comment posted on this blog by Colin (the Eagle)

The Democratic Unionist Party now look like the Tories preferred coalition partners. The DUP, which is the biggest Unionist (ie pro-UK) party in Northern Ireland, are often treated as though they are just the same as the other Unionist party they have essentially replaced – the Ulster Unionists.

The DUP are another thing entirely. They have strong historical links with Loyalist paramilitary groups. Specifically, the terrorist group Ulster Resistance was founded by a collection of people who went on to be prominent DUP politicians.

For the Tories to end an election campaign which they spent attacking Corbyn for his alleged links to former Northern Irish terrorists by going into coalition with a party founded by former Northern Irish terrorists would be a deep irony.

May in pocket

Commissioned by G Osborne

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Immortal but not immutable – the never ending Tory.

I have not had such a violent reaction to a blog this year as to “this blogger’s a reluctant Tory“. It clearly deserves this.angie 6The Tories aren’t going away, as Prospect quipped – they are the never ending Tory.

They may be immortal but they are not immutable and there are people within that party who both want change and are open to new ideas.

I know this also to be the case with other parties, the Labour party has views on pensions much closer to mine, I would not want to change them.

So if there is such a thing as a tactical dissenter, that is me. I would rather not lie about my intentions and I would like people to know that when  I put an X against the execrable Mark Field, conservative candidate for City and Westminster, it will be with the greatest of reluctance.

I may be saying “good-bye” to many good friendships as I press “publish” on this one. Here goes….


Foot note

– more positively – read this!  http://www.itv.com/news/2017-06-07/real-politics-is-back-out-with-the-bland-easy-choices/

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This blogger’s a reluctant Tory


Some year’s ago, Mrs May reminded the Conservatives that some people thought them the nasty party, this election she’s reminded us that they are the hapless party. They have been opposed by a Labour Party who’s policies are under-costed (IFS reckon they will add £75bn to Governmental spending( and under provisioned, (IFS reckon that at best Labour’s tax changes will bring in £50bn).

The Labour party have not even talked about stopping the Tory’s planned cuts in benefits – the impact of which would run into further tens of billions of pounds.

Instead of debating the management of our economy in and out of Europe, the Conservatives have allowed the election to have been fought as a popularity contest between May and Corbyn – which Corbyn has won hands down. They have taken on one serious issue and have u-turned on it .  For the rest, the Conservatives have simply trotted out slogans which the general public have dismissed with the scorn they deserve.

Whoever has been advising Mrs May on how to run this campaign has done a terrible job and should hang their heads in shame. May herself should never be so exposed as she has been. She has allowed herself to be hung out to dry, she can do so much better, as witnessed by her performances in parliament.

A reluctant conservative

I am voting conservative reluctantly. My natural inclination is to vote Liberal or Labour but I am voting for an agenda that the country has already agreed , the Brexit agenda.

As virtually no policy was announced in the manifesto – other than the aborted policy on social care (which I agreed with), I am not voting conservative on policy grounds. I am simply unable to come to terms with Labour policy and unable to think what a Liberal vote would mean – at a time when the country has voted to leave Europe.

I suspect that the Conservatives will win – because the Labour party will not be able to get its voters out (the kids who didn’t vote remain). I suspect that the Conservatives will win because they own the voters and Labour own the votes of those who stay at home.

If Labour can mobilise its votes then they can win. The poll’s margin for error is considerable, the polls only measure voting intentions – not the intentions to vote. Good intentions are not enough if you never make it to the booth.

But if the Labour party wins this election, it is because it has mobilised a class of people who have been de-energised from politics for some time and they will deserve our support for doing so. There are decent people in that party – including pension people like Rayner and Cunningham who I will support.

If Labour wins I will support them, but what if neither party wins. What if there is no majority. Heavens! I can see no alternative but another bloody election.

We need another election like a hole in the head.

Cameron will be remembered as the bungling idiot who led us unnecessarily out of Europe, May may be remembered as the lady who u-turned getting out of a cul-de-sac.

Either way, the Conservatives since 2015 have been hapless. They have proved themselves a party that cannot govern themselves or others.

They have imposed politics on our lives three times in two years. With politics has come horror.

We need to get on with our lives- we do not need another election and we need to led out of Europe.

Can we do without a Conservative Government? Sadly I think not,

For all this- I will be at the Conservative party in October, listening and wondering how Conservatism works for me, for pensions and for my country.

Whether they are a party in or out of Government by then I do not know. I can only conclude that they are the better of two evils.

Essential reading

Quietroom’ s analysis of the election manifestos; not an analysis of the policy, but of how ideas are conveyed  https://quietroom.co.uk/general/manifesto-gets-vote/

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Pension Transfers; tread softly- for you tread on their dreams.

Tata pensions

Had I the heaven’s embroidered cloths,
Enwrought with golden and silver light,
The blue and the dim and the dark cloths
Of night and light and the half-light;
I would spread the cloths under your feet:
But I, being poor, have only my dreams;
I have spread my dreams under your feet;
Tread softly because you tread on my dreams.

W. B. Yeats

Over the second half of the year, a number of  occupational schemes migrate status. Some , like BHS will enter the PPF or at least the PPF’s ante-room.

One or two more will migrate into a Regulatory Apportionment Arrangement (RAA) which you can read about here.

The British Steel Pension Scheme (BSPS), currently sponsored by Tata is well down the road to becoming an RAA, the Hoover Candy scheme has recently been granted permission to move into an RAA.

So members of migrating schemes are faced with choices which present closing windows of opportunity. You do not need to be a behavioural scientist to know the power of the “buy now while stocks last” close.

I was not surprised to read in the FT another highly responsible article on pension transfers from Jo Cumbo , which published this statement from BSPS Trustees.

“The number of transfers completed during the year to March 31 2017 was 482 (the comparative figure for the previous year was 170).”……: “Included within the figure of 482 would be a very small number of current and former senior managers, consistent with the numbers overall.”

Management showing proper restraint

The wording is precise and correct. Trustees are mindful of the Ilford Ruling where the Regulator ruled against well-informed pension scheme members taking advantage of un-reduced transfer values prior to a corporate insolvency sending their scheme into the PPF. This is behind the defensive positioning of scheme and sponsor.

Tata declined to comment. But it is understood that no senior executives involved in talks over separating the pension fund have transferred their pensions. The pension scheme trustees, comprised of both company and member-nominated representatives, also declined to say if any of these representatives had transferred their pensions over the past year.

Schemes that are properly managed and governed

Schemes like BSPS and Hoover Candy operate to a high standard of governance. That standard – we would hope – would be maintained, whatever happened to the member’s benefits.

There is no reason to suppose that the RAAs set up for Hoover Candy and BSPS won’t be run as well as the current schemes. Nor is there any reason to fear the PPF. As I have written recently, there are some members who may – because of personal reasons, be better suited by being in the PPF than an RAA or even the original scheme.

Restraint needed from advisers

I have had some fairly vitriolic comment from some IFAs who point out that it is a no-brainer for members heading for the PPF to “cash out” and take a CETV.

Part of this may be a natural revulsion with the 10% haircut in immediate pension that members take on PPF migration. But John Ralfe is right when he tells the FT

“BSPS has improved its cash transfer values in the last few months, to reflect the scheme’s lower risk investment strategy. The fact that a member transferring now gets more cash, may explain the marked increase in the number of people transferring.”

Infact, the numbers of transfers mentioned by the BSPS Trustees are in line with figures we have seen elsewhere. I do not think they spell out a rush for the door.

There are 126,000 people who have or will have pensions from the BSPS, of them 33,000 are able to cash-out their pensions. 482 is a very small percentage of the potential CETC population.

I have not seen equivalent figures for Hoover Candy or indeed BHS or any of the other schemes in the PPF assessment period. However I would be surprised if there has been a rush to any door.

The more strident wing of the advisory community who consider pension freedoms not only a right but a universal opportunity should also show restraint

Restrained cautioned by employee representatives

I very much liked the comments of Community- the steelworker’s union.

“Steelworkers have already made tough choices necessary to secure the future of their industry, and the ongoing uncertainty about the future of the BSPS is extremely difficult for scheme members.

Tata workers

“All scheme members must be given the choice ….and this must be delivered. “We would urge members to think carefully before making long-term decisions regarding their pension.”

It is hard for those of us in white-collar jobs with the security of a liquid job market to imagine what losing your job in  Port Talbot is like. I remember speaking to a group of Allied Steel and Wire workers in Cardiff in the mid nineties, the loss of their pension on top of the loss of their jobs left them doubly desolated.

Nowadays , available pension security is higher, but insecurity among steel-workers must be high- as Community point out.

It will require great restraint and understanding among financial advisers talking with BSPS members, to remember that however easy we may see for a CETV to add value, it is not going to replace the security of a BSPS, BSPS RAA or a PPF pension.

Indeed, the options available after taking a CETV are all potentially loaded with future insecurity.

“We would urge members to think carefully before making long-term decisions regarding their pension.”



Further reading

The FT article Tata Workers cash in Final Salary Plans can be found here; https://www.ft.com/content/78cfbc0c-46c9-11e7-8519-9f94ee97d996

If you are an IFA and want to consider these issues in greater depth, come to the Great Pension Transfer debate at the East of England Showground near Peterborough on June 19th. The event is free and will attract over 300 IFAs to listen to Rory Percival, Steve Webb, Gregg McClymont, Alan Smith, Michelle Cracknell and many others.  You can still book a free place using this link

Had I the heaven’s embroidered cloths,
Enwrought with golden and silver light,
The blue and the dim and the dark cloths
Of night and light and the half-light;
I would spread the cloths under your feet:
But I, being poor, have only my dreams;
I have spread my dreams under your feet;
Tread softly because you tread on my dreams.

W. B. Yeats

Tata Scunthorpe









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The time is right for pension price disclosure.

price 1

Last week I went to the FCA to discuss price disclosure with the Regulator. The time is right for people to understand what they pay to have their pension managed.

I am one of the few people who gets information on what I am paying to own a pension fund. That is because I get a statement each month telling me how much money is in my pot , what I am paying for investment management, what is being spent on transactions and what is being spent on giving me and my employer a good experience (call it administration).

Here is my disclosure

  Fund charge % Slippage % Admin Charge % Total Funds Cost of ownership pm £
Multi Asset Fund 0.13 0.06 0.18 400,000 123
Global Equity Fixed Weights 0.10 0.02 0.18 400,000 100

This is a “before” and “after” comparison. In May I moved from the more cost Multi-Asset Fund to the Global Equity Fund. I moved because I did not want to be invested in anything other than equities – it was helpful in making the decision to know I would be paying less in transaction costs.

The decision was not this binary, other choices were available, but once I’d got to the point when I wanted to move funds, this table was helpful. Please don’t tell me I lost the value of multi-asset diversification (I know that)- I simply didn’t need bond returns in my pension fund.

I am my IGC

Independent Governance Committees, when deciding whether their members are getting value for money need to have the same fundamental management information.

They have not one but two questions to ask

  1. Is there provider getting value for money from its investment management and administration suppliers (whether in or out of house).
  2. Is the member getting value for money from the provider.

These are not the same question but the two are inter-related.

I am my own independent governance decision, I have to decide whether to stay with L&G  and then what fund I used as the Henry Tapper default.

My means of benchmarking whether I am getting value for money on costs and charges is to look at what the market is offering me elsewhere. I have found that I could invest using the  Vanguard admin platform and the cost of ownership would be roughly the same. Except I can’t do this for my workplace pension. If I go anywhere other than Vanguard, my costs go up. So my decision is to keep my money on the L&G platform

Then I have to decide from a range of fund options available from L&G where to put my money; if I make no choice, I use MAF , I chose a similar fund to MAF that was more focussed on equities. This was because I have a 30 year time horizon and have no immediate liabilities to meet from this money (I’m still working).

I have told myself, that relative to the market as a whole, I am getting value for money. This could change. The fund I was in and the new fund have about £2bn in them, the L&G platform maybe manages £10bn. But NEST will be managing £500 bn on its platform within my time horizon. Once NEST has paid off its debt (2038)- assuming it stays not for profit – it may offer members better value for money than L&G.

As my own IGC, I will keep a watching brief on NEST and other top workplace pension providers to make sure I continue to get the best deal for me.


Very few people will pay as much attention to their pension as me. Most people will outsource the decisions I take for myself to

  1. Their Financial adviser – for personal decisions
  2. Their Employer – for the choice of workplace pension
  3. Their IGC of master trustee – for the governance of that choice.

Most people will trust their employer to be choosing in their best interest  and their IGC or master-trustee to keep their workplace pension provider honest.

Most people would be shocked to know that most employers and even the super- buyers at IGC and master-trustee level, are buying with imperfect decision. They don’t know how well the investments you are making are working and how much they are costing.

This simply isn’t good enough

To decide if you are getting value for money , you don’t just need to know how much value and money you are getting, but how much you could be getting elsewhere. My explanation of my own decision making shows the process I had to go through , to get to where I am.

But employers don’t know what their staff are getting as VFM as they (generally) don’t have the MI from the IGC to see. Even if they knew the cost and the value of their workplace pension, they would have no way of evaluating those costs and values unless they could make a comparison with the other choices.

price 3

IGCs can’t even (generally) disclose their own costs and value let alone disclose how their provider is doing compared with others. There are a number of reasons for this.

  1. They can’t get the MI from their own providers because they are blocked by a non-disclosure-agreement (NDA)
  2. They have the information but can’t share it because of the terms of the NDA.
  3. They can share it but they can’t compare it as other IGCs are bound by NDAs.
  4. They simply don’t want to share information to protect their provider and/or its suppliers.

I have been canvassing the opinions of IGC chairs on disclosure and have  found them split between the four camps. I am pretty close to outing those IGCs who would not meet with me (one agreed to meet with me so long as we did not discuss benchmarking, two did not reply and three told me to go away).

The rest of the IGC chairs expressed frustration that they could not get the information they needed to make a decision on Vfm as I did, or that they could not publish their work because of NDA restrictions.

price 5

What is needed

What we need are Vfm scores properly compared in league tables that allow IGCs and Master Trustees, employers and members of workplace pensions to see what they are getting.

At the moment there is no way of getting this. To change this we need the FCA to empower and require those tasked with measuring Vfm to do so in a consistent published fashion.

That means ignoring NDAs and disclosing what is really going on at the pricing level, within the providers, IGCs oversee.

We are remarkably close to being able to do that, but “close” is not good enough!

price 2

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Pension Risk Sharing – they’re all at it but us!

Oh dear!

News that the Japanese have gone all defined ambition did not go down well. Infact it went down like Japanese Knotweed at the Chelsea Flower Show.

This is not surprising; to the pension purists, the arrival of schemes that walk the middle way between DB and DC would sully their pension landscape. Those who seek to profit from the back-end of DC, especially the insurers and SIPP providers looking to “decumulate” our savings, collective risk-sharing is a direct threat to their business model. To the pension experts, led by  John Ralfe, anything not backed by gilt or a high-grade corporate bond, is heresy.

Ralfe’s arguments are intellectual and founded in economic theory, the insurer’s behavioural and founded in commercial greed. Both are deeply and widely held.

It is ironic that news of the Japanese risk-sharing plans is brought to us by Willis Towers Watson (WTW) who are perhaps the UK’s most powerful exponents of pension de-risking (AKA extinction of private DB liabilities over time).

I have published two widely distributed blogs on here criticising WTW and this will not be a third. Well done WTW for publishing developments in Japan and in particular for this paragraph from its report.

Companies should start to analyze how they may take advantage of this new opportunity, including potential implications for the company (e.g., cost, accounting) as well as for participants

That had WTW’s former UK guru spluttering

Of course the current Government couldn’t and didn’t. Within months of the passing of the Pension Act 2015, then Pension Minister Ros Altmann stopped the secondary legislation for risk-sharing schemes. We have Defined Ambition in principle but not in practice.

This under-reported U-turn has meant that instead of having risk-sharing both in accumulation and decumulation, we have the binary choice between DB and DC that creates the industrial conflict between Royal Mail and the CWU. It is why BSPS is having to set up a DC scheme for its veteran employees. It is why no new hires in the private sector get a defined benefit accrual.

It means that we have thousands of people taking choices on their “pension freedoms” without proper advice. We have people becoming their own CIO and actuarial functionary who are financially witless. We have pension scammers, industrial scale panic-selling of DB transfers and a public who has never been so excited/confused/vulnerable.

The failure of the British Government to see through the legislation set in place by the Coalition, that would have allowed us to risk share as the Canadians and Dutch do – and the Japanese will do by the end of the year – is a great lost opportunity. Ros Altmann has a lot to answer for -as I keep telling her.

All is not lost.

If I was the CWU, I would be printing out that WTW article and distributing it to every member of the Royal Mail Board. If I could get an audience with Moya Green, the Royal Mail’s brilliant (female) CEO, this article of WTW’s would be the first thing I’d put under her nose!

The CWU’s proposal to  Royal Mail do not rely on any of the half-completed regulations for DA, they use existing regulations to minimise the risks to Royal Mail of offering future DB accrual and scheme pensions to Royal Mail employees. To all intents and purposes they offer Royal Mail a CDC scheme.

All is not lost- if Royal Mail can have the courage that the Japanese have, if they can – in place of strife – share pension risk.

Further reading

Here- again – is the link to WTW’s excellent report; WTW doing just what a global consultancy should be doing – thank-you!

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Ever wondered where those “pension leads” come from?

Many financial advisers buy “pension leads”. These are hot prospects keen to take action to change their financial circumstances. Many of these leads are legitimately sourced, but many aren’t.

If you spend time on Linked in or Twitter or Facebook, you will see adverts that look like this.

pension services 1

The headline says that you will get “trusted advice”, but if you go to the site , you discover something different. This is what you are eventually told.

In accordance with the Financial Services and Markets Act 2000, Pension Services do not provide any financial advice whatsoever. We are simply a lead generation website that puts you in touch with a pension review expert.

This is how the “business model’ works

1) We will give you call once you have submitted your contact details and pension size to us via the contact website form
2) We arrange a meeting with yourself, as we have IFA and pension review experts based all around the UK
3) We meet with you and discuss your pension, we provide honest advice and it maybe a case of leaving your pension where it is if it performing well.
4) In most cases our customers tend to want to release cash, this could be an option for you depending on your age, and we will discuss this option with you, but if you do not quality for this then we can discuss other options during your free pension review.
5) We then answer any questions or concerns you may have during our meeting and pension review with you

What you’ve just read is the small print. The advisers are “FSA” advisers, though there is no reference to FSA or FCA authorisation anywhere on the site.

Here is the large print. It is aimed at the most vulnerable in society, those with no financial education, with debt and without the wit to spot what is implausible to well-educated and financially literate people.

The people who have written the following advert have no knowledge of pensions but worse – they have no knowledge of morality. They are no better than common criminals.

Pension service

So just who is buying leads from Pension-Services? I suspect that it is not the kind of IFA who is booked into the Great Pension Debate. I suspect it is the kind of cold-caller who we have exposed working out of Geneva.

Lead sourcing of this kind fuels the boiler-rooms of Europe and sends money out of good quality approved pensions into the SIPPS that invest in Capita Oak , Trafalgar and the host of other scams exposed by Angie Brooks, Chris Lean and others.store first

Legitimised by you – sold in your name!

Almost every part of the pensions industry is misrepresented by Pensions

These are the providers they “work with”pension services 2

I had originally thought that these might be the recipients of money liberated from elsewhere, but Pension-Services are far bolder than that!

pension services 3

There are warnings against scammers and the Pension Regulators Scorpion makes numerous appearances – associated with some remarkable mumbo-jumbo about human behaviour!Pension services 4.PNG

The aforementioned FSA advisers are your protection against the diabolical liberties occasioned by “pension scammers” who can “sell your pension”, “cash in your pension chips” etc..

Where confusion reigns , the scammer gains

This is the souk where philosophy , regulators and insurance are thrown together. It is a financial services car-boot sale. It is Bartholomew Fair.

But we are all implicated. Insurance companies, Regulators, Financial Advisers (I didn’t see actuaries but I’m sure they were there somewhere!).

This confusion is legitimised by our acquiescence. So long as websites like this can be publicised on social media alongside legitimate propositions, they will send out leads to Geneva or Malta – or (heaven help us) some UK based boiler-room operation.

People will “trust-bust” and HMRC will chase after them for the 55% tax-charge – after all the initial money has been stolen. People will lose their life-savings and we will complain that this should never have happened.

Wake up and smell the coffee people, this website is being advertised on linked-in and Facebook as you read this blog

We are all complicit if we do not take action.

I am taking action in writing this blog, you may wish to write to your contacts at the FCA and tPR and ask them politely to chase these scammers down.

What I would like to see is where these leads generated are being sent, who is buying them and who is providing the “FSA advice” promised on http://www.pension-services.com .

For this is the origination of the scamming industry and if we can kill-off this nonsense, we can starve the rest of them of their oxygen


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How real is your pension deficit?

How real is my pension deficit?

How real is my pension deficit?

How real is my pension deficit?

How real is my pension deficit?

 We get a lot of questions on this issue!
Pension scheme deficits continue to make the headlines and many companies will be approaching their 2017 actuarial valuations with trepidation. However, behind the headlines it is not all doom and gloom for UK pension schemes. Asset values are up and the expected pension payments from schemes are largely unchanged.
First Actuarial Best-estimate Index (or FAB Index for short) has generated a significant amount of interest amongst the pensions industry – and has even been quoted in Parliament and the Government’s recent green paper. The FAB Index is calculated assuming the UK’s 6,000 DB pension schemes continue to pay out benefits as they fall due and allowing for our best estimate of the future investment returns they will earn on their assets. This best-estimate measure is important to consider when setting a DB pension scheme’s financial strategy. The FAB index consistently shows a surplus of more than £250bn, so many companies will be wondering how real is their pension scheme deficit and why are they being asked to contribute more money?
Our webinar will provide practical guidance on how to approach your next valuation, including:
  • assessing whether your existing funding methodology reflects your long term strategy;
  • why the “gilts plus” model for setting discount rates is now being challenged;
  • how to consider whether you have the right amount of prudence in your funding strategy; and
  • an update on non-cash funding options.
The webinar will start at 11am on Tuesday 20 June and will be presented by Peter Shellswell and Sam Mullock. It will last around 40 minutes and will be of interest to finance directors, financial controllers, trustees and anybody with defined benefit scheme responsibilities.
Book your place on our webinar please visit:


We hope that you can join us. For any questions please email webinars@firstactuarial.co.uk.
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ARE CETVs being “panic sold” OR NOT?


To his credit, James Baxter of Tideway (who I have criticised in a recent blog for selling not advising) , has posted a reasoned response. The key matter for me is whether members of DB schemes are being panicked out of them by the prospect of falling CETV rates. I post my views in my response to James’ self defence. Reading both comments – lengthy as they are, may be helpful in understanding the fundamental dynamics of the great transfer debate. I post both James’ comment and my response without further comment, if you haven’t read the blog in question – it is linked here


Its a shame you did not come to the conference and hear the talk and subsequent Q&A session that put these slides into context.

I agree with your comment that CETVs are non negotiable. We speculate that the reductions in values offered in the schemes mentioned is down to increased outflows through the transfer option and trustees obligations. If you have a better explanation I would be keen to hear it.
The BA scheme reduction was announced in their ‘Trustee’ news letter which can be read hear:
This pre announcement caused a rush for the exit door…not us. RBS gave no notice to their changes in the summer of ’15 , SGN made a similar announcement at the end of 16 for a forward date with the same panic effect on members as the BA announcement. Again nothing to do with Tideway, but as an adviser active in this space we get to deal with these panicked members.

The panic in members is also caused by the likes of Tata, BHS and the media not Tideway. To the contrary we spend time reassuring members of FTSE 100 blue chip company schemes with resilient covenants, that in fact their benefits are going to be paid in full and fear of this is certainly not a reason to consider a transfer.

I’m sure if we met Henry, aside from establishing a shared love of boats you would quickly recognise that we are one of the good guys. We have a great website, issue plain English guides and work hard on our PR. Aside from this we do no selling. All our advisers are employed on generous basic salaries without any incentives around specific cases or business volumes. All our inquiries are in bound from members who have usually read our guides, thought about there options and have sensible plans and ideas as to how to take advantage of pension freedoms and a generous CETV. We facilitate transfers to DIY platforms, other wealth managers and advisers as well as offering an end to end service for those who want that. Our 1% contingent fee is both competitive and hugely popular with consumers, it actually makes it easy for them to pull out at any time if they decide to stick with the scheme benefits and some do as you would see if you read the testimonials on our website. We are absolutely not pushy and do get a huge amount of repeat business from schemes where we have become the trusted firm to use.

Mercers are now predicting around 40% of DB actives and deferreds will want to transfer. The Pensions Regulator tells us that probably 80,000 members transferred in the 12 months to 31/3/17, Tideway has completed around 1% of these by volume and 2% by value. We are not alone in meeting an increasing level of customer demand.

How many DC pensioners are buying index linked annuities at NRD these days? Not many, and quite correctly. Who given the choice would lock in capital at today’s annuity rates and can predict that the income they will need in their 60’s will be the same in their 80’s and 90’s. That’s assuming they can any way afford an indexed annuity to meet their age 60’s and 70’s income need, most are a country mile away.

I lost both my parents before age 75, my parents in law in their mid 80’s can live on two state pensions per month quite happily and have a DB benefit to spare, but just had a £25,000 stair lift fitted after one fell and broke a hip, try doing that on a defined benefit. My 95 year old next door neighbour gets three visits a day at home costing in excess of £2,000 a week, again try doing that on a defined benefit. I think I have a pretty good comprehension of what retirement looks like.

Fixed life time incomes bought at today’s interest for 60 year old’s are unlikely to prove fit for purpose. It therefore should surprise no one, especially an actuary, that 50 to 60 year old’s offered such large sums of money will prefer flexible access to a conservatively invested fund over an annuity.


James Baxter




I didn’t come to the event because the thick end of £700 and a day not consulting is too rich for my blood. Al Rush has arranged a conference for practitioner which is free on 19th June and I’ll be going to that.

The question about panic buying and selling on the “buy now while high CETVs last” is in the front of my mind. Ironically, the volatility in CETVs is now linked to the gilt rate as many schemes use best estimate valuations for schemes with little diversification.

Those schemes with a balanced investment approach – eg – a decent proportion of growth assets produce lower and less volatile CETVs.

Smart advisers can focus on schemes with high gilt allocations and be pretty sure of a low critical yield on the TVAS. These schemes look like annuities because they are preparing for a buy-out into a bulk annuity. But that high CETV reflects the high level of security in the ceding scheme.

Ironically, the schemes which are still “investing” are producing lower CETVs , because they are using higher discount rates ( on a best estimate basis). For these schemes, there’s a lot less CETV volatility (the virtue of diversification) – so they get less transfers.

If there is a fundamental for the  “panic sale”, it is that the gilt curve moves against transferors, but this is speculative in the extreme. High CETVs are high for a reason, they reflect the security being given up. The cost of that security is not a discretionary calculation, the decision to take a CETV should not be based on whether the transfer is a good or bad deal but on the fundamentals of someone’s financial planning.

I appreciate you know some old people but are you going to be around for thirty years for those in their fifties to really need you? I question whether the decisions being taken by most transferors are properly considered. Whether they have a proper understanding of the duration of retirement and the liabilities of later life.

Posted in pensions | 3 Comments

Proper information gets value for our money.

value for money
In this weekend’s FT, Merryn Somerset-Webb asks us to imagine ourselves a Government strapped for cash to meet rising costs of social care and struggling to find a source of revenues.

.. late last year Britain’s Financial Conduct Authority established that the average profit margin of UK based asset management companies is 36 per cent against an All-Share average of a mere 16 per cent — you have no taxation-related way to get at it.

The article stops short of calling for the dementia tax to be levied on asset managers, but suggests that cost transparency could in time lead to a redistribution of wealth from the City to Care, via the savings pots of Britain’s savers.

It is vision that will find favour with those in the Transparency Task Force but it is a vision not a policy, there are – as Merryn’s article points out, various caps already in place but there is no rule that says that savers cannot invest in high charging fund management schemes, nor will there be. It is simply unenforceable.

There are alternatives; the Government can – and in my view should, promote a simple value for money measure to show the chances of a high and low cost manager achieving and out-achieving. The trick is to use data wisely.

We need data

Data is out there and it can show comparative performance accurately; there is however no trusted source for that data to cover all the options a consumer has. For instance, there is no way of properly comparing the performance of NEST, People’s Pension and NOW against the performance of L&G, Standard Life and Aviva. The Data isn’t marshalled!

Data is out there and it can show the risk taken to achieve results. comparative performance data can be organised on a risk-adjusted basis to show the value that you are paying for- though no such mechanism currently exists.

Data is also out there to show the true cost of fund management, the money lost through “slippage” and direct fees that cannot be recovered by the consumer because it is in the hands of the fund management “industry”.

Data that is organised

If the data is out there – can we find a way of organising it? I think the answer is “yes”, though whoever does that organisation will need a leg-up from the regulators- the market cannot be expected to organise itself and the Government cannot hope philanthropy to achieve such a mammoth undertaking. There has to be intervention, if not in further capping, than in ensuring there is proper benchmarking with results open to all.

The benchmarking of rivals, whether sports teams, or financial services providers is a brutal way of showing who is cutting the mustard. Football managers are sacked for comparative under-performance but fund managers are able to prosper even when they are shown to be performing battle.

Last week, some big-wig at F&C kicked up a stink when Morningstar downgraded his fund for having high charges (the multi-asset funds do). He argued that he should be judged on a more sophisticated measure (perhaps he is). The problem is that consumers have no access to the conversation – it happens in the private pages of financial journals.

And when Vanguard very publicly launch a service which brings the cost of fund management down by between two and three times, this important information is also buried.

The truth is that fund managers and pension providers fear benchmarking almost as much as they fear price-capping. Both leave bad practice exposed, price-capping is simply an extension of the competitive pressure created by benchmarking.

Data that is available

But back to Merryn’s argument.

If we are to have a price-capped funds business then we will have imposed a control of a beast for a while, but the beast will break out of its pen – using its creativity to defeat the regulators , rather than benefit consumers.

If we go the benchmarking route, we need to have popular awareness of what good looks like and general enthusiasm for getting value for money from the financial services purchased. We have to recognise that most of us will not have the interest or the capacity to choose for ourselves, we will need advisers, trustees, consultants and IGCs to do this for us. And they will need the data organised in a proper way with the help of Government.

The distribution of digestible data is critical to the transfer of value.

The means of getting information to the people who take decisions is changing. The Government is making it possible for people to see information about their investments through pension dashboards, I am seeing interest among those who organise payroll data (the software suppliers) in providing information on the workplace pensions they help manage to employers and their advisers.

The chances are that by the end of the decade we will have access to the kind of performance data that will expose the weak managers and promote the strong.

I think that this is the way forward – and I suspect that Merryn agrees. Price caps are there for breaking, but if we have savvy consumers we have a mechanism to keep a lid on back practice that cannot be broken.

I hope that with the help of others, we can provide a lasting means of transferring the value that sits with the City to the care we must pay for in the coming decades.


Further reading

Merryn Somerset Webb’s article; Cap asset management fees to free up cash for social care


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Tideway – we’ll resume this conversation on June 19th!



The original blog published here has been the subject of certain threats by Tideway Investments both to me and to my employers.

I have no intention of letting this blog get in the way of my daily work by defending  the positions it takes in courts of law.

I would remind readers that what I write, I write in my own time, in my own name and though I will refer to my work with my employers, this blog is nothing to do with them. So please do not go whingeing on as if it was!

If you want to read what Tideway is saying, the links is below; if you want to read what the Pension Regulator is saying, the link is below.

It is unfortunate that the excellent debate – which you can find in the comments to this blog, has been curtailed by these threats, however it will be renewed later this month.

If you would like to be a part of the Great Pension Transfer Debate on June 19th – you can do so via this link! Free speech assured!



Tideway’s guide to Final Salary (why not “defined benefit”?) transfers. https://www.finalsalarytransfer.com/Uploads/1435150910Tideway-Guide-to-Final-Salary-Pension-Transfers.pdf

FT article on active members transferring living funds; https://www.ft.com/content/4c94c112-3f96-11e7-82b6-896b95f30f58

Money Observer article; http://www.moneyobserver.com/our-analysis/pension-dilemma-659000-today-or-22000-year-life





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Pension scams; too little-too late?


Angie Brooks -pensions’ Mother Theresa


News from the Serious Fraud Office that they are at last on to the gang of financial thugs behind Capita Oak and the network of related frauds, will come as scant comfort to those who have been robbed and are now facing a tax-bill for the robbery.

If ever there was a case of two speed financial regulation, it is this.

Moving in top gear and way ahead of the peloton Ms Angie Brooks and her Pension Life website which has for several years been whistle-blowing on the activities of the scammers.

Moving in the peloton, the various parties to Project Bloom, all chatting between themselves and disregarding Ms Brooks’ alerts.

Now at last the heat is being turned on the SFO, not least by a Government threatening to abolish it. One wonders if this belated consultation on scamming is anything more than a gesture.

Here is what one brave woman is doing

Below a redacted letter issued by Angie Brooks to solicitors protecting the interests of those now under investigation.


I am afraid a continuation of your refusal to engage with this matter is no longer an option as this is now a criminal case.

The Serious Fraud Office is now seeking statements from victims of Trafalgar MAF because this investment scam is linked to the Store First, Capita Oak, Henley and Westminster pension scams through James Hadley who was the promoter and distributor behind all of them.
STM accepted hundreds of transfers from Hadley’s unlicensed firm Global Partners Limited (which later changed its name to The Pensions Reporter) in the full knowledge that neither Hadley nor his firm were either licensed or qualified to provide pension transfer or investment advice.  Further, STM then accepted investments into Trafalgar MAF in the full knowledge that Hadley was the investment manager of the fund.
Can you now please come to the table and deal with this.  A number of victims feel that STM has been complicit in facilitating financial crime – while at the same time depriving the investors of any information or updates on the fund.  There has been no news for far too long and this is no longer acceptable.
I am meeting another trustee firm (who travelled from Malta to Spain to meet me) to sort out another matter today, and will call you towards the end of the week.  I trust you will put all the investors in the picture regarding this at the AGM tomorrow.  Shares have now been purchased on behalf of the Trafalgar victims so that their right to be kept in the loop is clearly established.
Regards, Angie

Here is what the SFO have finally come up with

The Serious Fraud Office has today announced that it is urging storage pod investment scheme investors in the Capita Oak Pension and Henley Retirement Benefit schemes, self-invested personal pensions (SIPPs) “as well as [investors in] other storage pod investment schemes” to get in touch, as it is launching an investigation.

Also included in the investigation are the Westminster Pension Scheme and Trafalgar Multi Asset Fund, which invested in other types of products, the SFO said in a statement on its website.

More than a thousand individual investors are thought to have been affected by the alleged frauds involving these schemes, including those who invested their pension funds, the SFO said in its statement. It said the amounts invested totaled over £120m (US$156m, €139m).

“The SFO encourages members of the public who have invested in these schemes over the period 2011 to 2017 to complete a questionnaire, which is available here,” the SFO statement adds.

scamproof scorpion

The Scorpion campaign that is now used by the scammers in their marketing documents!

We have worked with tPR and have reported schemes to Action Fraud. We have never had any feedback (or indeed acknowledgement) of our work. Our (Pension PlayPen, Henry Tapper and First Actuarial’s) efforts have been as enthusiasts for good pensions.

But we find that what we’ve experienced is amplified many times over abroad. Following the work of Ms Brooks , Christopher Lean, Darren Cooke and the others who have made it their life work to stop the scammers, I cannot but feel a deep revulsion for the way they have been ignored and insulted by the UK authorities.

Justice delayed – but Angie is as strong as ever.

Angie and her team of helpers have every right to feel aggrieved, but they’re not. Instead they are taking the belated help they’re getting and pulling the peloton along.
At last she has the co-operation of the Pensions Regulator (the excellent Lesley Titcomb) and on June 19th, I intend the 300 or so IFAs attending the Great DB debate to give Angie a standing ovation.
She should be a Dame.

Further reading

There are quite a few blogs on here about how the scammers are operating. But if you want to see Angie at work, go to her website
Above , just some of Angies’ images – visually representing the venal forces she fights!
For a wider perspective on why we are not so hot on financial fraud read this excellent paper.
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DB pension heading for the PPF? – Read this!



Here are some things you didn’t know about the Pension Protection Fund (PPF). If you are in a pension scheme heading in that direction you should read this!

While most people think it would be an unmitigated disaster to see their pension scheme fail and their benefits sink beneath the waves, the PPF lifeboat can – in certain circumstances – provide not just a lifeboat, but a wonderful alternative. It could be like being washed up on a desert island! desert


It’s all about “actuarial equivalence” applied to tax-free- cash commutation” and “early retirement factors”!

If that last sentence hasn’t blown your mind, then read on as it should get easier.


Actuarial science made simple!

In theory every calculation that an actuary does should be fair and provide equivalent benefits to one party as it does to the other.

In practice this doesn’t always happen. Actuaries have a number of ways of calculating things which can skew “fairness” in the direction of one party or another.

One such case is the calculation of how much pension you have to give up to get a pound’s worth of tax free cash.

Another is the amount of pension you can get if you retire early

Have a look at this tasty little table – cooked up by Nicole – actuarial doyenne of our Basingstoke office.

She’s compared a “model scheme”- one she’s prepared earlier, with the benefits you’d get if the scheme sunk and the PPF came along a life boat.


So what does this tell us?

Well it shows that if you waited till 65, you’d have done better in your private scheme, so long as you weren’t taking your tax-free-cash

And it also shows you’d be better off using the Pension Protection Fund if you retired early, even if you took all your benefits at 60 as pension

Using her ace actuarial skills, Nicole can show you’d get more tax-free-cash out of the PPF whether you retired at 60 or 65.

What’s more you’d get a larger residual pension from the PPF – even though you’ve taken more tax free cash!

True you’d give your spouse a smaller pension if you conked out day one  but even then the value of the package of benefits offered you by the PPF would be higher at 65 and at 60 .


All benefit were created equivalent but some are more equivalent than others!

The PPF actuarial factors for swapping pension for cash are around 26;1 whether you’re going cash to pension or pension to cash.

But the actuarial factors for the private scheme swapping (commuting) pension for cash are 12;1 reducing both the value of taking tax-free-cash and the value of your pension if you retired early.

Now of course Nicole’s model scheme is one that proves the point and not all schemes have the same differential between their “commutation factors”. Sometimes, the PPF won’t look as good! There are all kinds of bells and whistles that might be offered by a private scheme that aren’t offered by Nicole’s model scheme and all of this could make the private scheme more attractive.

And if you are a high-roller with a big fat pension the PPF will not be nearly as much fun – even if you were in Nicole’s model scheme.


The point is you should not despair if you are heading for the PPF lifeboat!

Infact if you were to call into our Basingstoke and spoke with Nicole, she would be able to explain all kinds of things about defined benefit schemes that neither you or I knew (unless you too were a Doyenne).

Things are not always as they seem in the Alice in Wonderland world of actuarial science!

And actuaries are not always what you thought they’d be – especially when they are doyennes!



Why does this matter?

This matters a lot if you are about to go into the PPF and it matters even more if you are faced with the choice of going into the PPF or staying in the scheme you’re already in.

That was the choice that faced Kodak Scheme members a couple of years ago and it’ll be the choice of British Steel Pension Scheme members in the next few months.

It is almost impossible to get your head round how actuarial equivalence can provide such a odd results.

I am not an actuary but I know enough about money to know this is really important.  People should not be taking decisions without knowing how all this works .

Unfortunately – people take decisions on what kind of pension they want (or don’t want) all the time often without the basic information needed to make a choice.

If you feel strongly about this -you should talk to The Pension Advisory Service or Pension Wise (if you are over 50).

If you want more help, you can contact henry.h.tapper@firstactuarial.co.uk and I may be able to find you someone to talk to, who really understands these things.



Posted in de-risking, pensions, workplace pensions | Tagged , , , , , | 2 Comments

If you don’t know who’s paying, it’s probably you.


victomlessThe last few days have seen a reality check on who’s paying for the long term care of our elderly. Now I read this morning a report by the Resolution Foundation on who’s  paying for the deficit reduction plans for Defined Benefit pensions (hint- it isn’t the shareholder).

There is a simple truth at work here. If you don’t know who’s paying – it’s probably you!

As with care so with pensions

In the case of care, if the costs of residential and home care for the elderly, aren’t met from within the family unit, they call on local authorities, the NHS and ultimately on general taxation. The cost of funding is felt in closed libraries, the loss of cottage hospitals – all kinds of little projects that councils and the NHS have to cut back on. In the end, the cost is born by a future generation of tax-payer who must put up with less or pay more.

Resolution found that

“by far the biggest driver of the increase in non-wage payment increase in 2016 – was employer pension contributions”

That those picking up the tab are unlikely to be those benefiting

“With 85 per cent of DB schemes closed to new members and 35 percent also closed to future accrual, the population with most to gain from closing scheme deficits is likely to have limited overlap with the population affected by any reduction in dividend payments, investment or pay”

That the bill is (in part) being picked up by current workers

With the £19 billion relative increase in DB deficit payments that we have identified in 2016 being roughly equivalent to 2.5 per cent of the UK’s total wage bill, the implication is that such employer contributions are lowering average employee pay by between 0.2 per cent and 0.3 per cent.

And that

in the region of 10 per cent of the £19 billion elevation in special (deficit) payments can be directly associated with lower hourly pay

Resolution admits to not having completed the research on where the rest of the impact falls, but it does not appear to have hit dividend payments or executive pay.

It concludes

there is a significant negative effect (with a coefficient of 0.22 per cent) for those who have never been members when we concentrate on employees in the bottom quarter of the pay distribution

In short, the people paying for pension deficits, include those who have never paid for them – to a significant degree.

The clever win , the ignorant lose

What is clear both from the Resolution report on pension funding shortfall and from what is emerging about social care funding shortfalls, is that costs that are incurred by the better off (those who live long enough to fully enjoy DB pensions are also major beneficiaries of residential and home care) are being born by all parts of the workforce and indeed the wider society.

Those who instinctively opposed Conservative manifesto pledges, should be careful to think what the alternative of those with wealth meeting their costs actually is.

Those who are driving our defined benefit schemes along the grind-path to buy-out, should be aware of the wider impact of doing so on the workforce. I don’t here just mean the Pensions Regulator, the immediate enforcers of deficit reduction plans, but the PPF (with the extortionate levy which should be included in any “special contribution” calculation).

The ultimate beneficiaries of the pre-funding of defined benefit funding are

  1. the shareholder who is released from balance sheet misery
  2. the buy-out insurer (or PPF where deficit funding can be afforded)
  3. the DB scheme member whose interests are prioritised.

Arbitrary funding policies make matters worse

The arbitrary apportionment of cost of both pension scheme liabilities and long term care funding is made worse by the lack of consistency with which subsidisation is applied.

Let’s take first long-term care. There is ample research (see below) that the extent a family can seek relief from the direct cost of an elderly member falling into dependency is a post-code lottery. Steve Webb is rightly talking in a BBC article this morning about the disparity between Authorities in the application of cost deferment, but the Kings Foundation has found more worrying disparities between Authorities willingness to pay against the means test.

These reports point to growing skill among those wealthy and educated enough to know, to work of “game” the system for their own benefit. If you are skilled in understanding care funding, it is possible to get high subsidies, if you are not, you may pay the lot – even if you have relatively little to pay. The situation is analogous to the abuse of Church School education – which is monopolised by the children of the affluent – who wish to get a public school education at someone else’s expense.

As for pension deficits, the speed at which these are paid off depends on the willingness of employers to absorb the pain and their capacity to pass the pain on through low-risk activities such as reductions in pay and benefits to the current workforce. It is clear that employers will do anything within their power, including hugely expensive incentivisation of individual transfers, to get DB pensions off the balance sheet and the immediate expense can be justified to shareholders in terms of improvements to the balance sheet.

But the reality of such de-risking is not just a loss of value to members but a cost to the reward budget. As with care costs, there is a subsidisation of pension de-risking by those who are least likely to benefit.

No victimless crimes

The analogies I am drawing between care costs and DB pension costs are relevant to the current political debate. My general rule is that if you don’t know who’s paying, it’s probably you, applies. The clever people avoid paying and pass the costs on to the ignorant.

Some would argue that the answer is in social insurance but as with pensions, so with long-term care, social insurance can all too easily be gamed by those who have, at the expense of those who haven’t.

The current system of means testing long term care has been changed not by the shift in the means test from £23,500 to £100,000 but by the removal of the Cameron/Dilnot cap of £72,000 meaning that those with most to pay now have most to lose. This is undoubtedly fairer and though there is a lot of detail to be decided upon, it’s very much more transparent.

With transparency comes many benefits. At the moment, opacity is benefiting the clever and the rich, in the future we will pay for what we use, with a bar of £100k below which the inheritance cannot fall.

Many poor people will look at the bar and laugh at it as unattainable. For them long-term care need now have no fear. It is theirs by right.


In the few hours between publishing this blog this morning and publishing an update, the Conservative position has changed. As with National Insurance for the self employed. As for the review of pension tax relief, it seems that finding an owner for our long-term care costs, is back in the sidings of general taxation.


Further reading

Resolution Foundation – The Pay Deficit – http://www.resolutionfoundation.org/app/uploads/2017/05/The-pay-deficit.pdf

BBC article on arbitrary apportionment of care costs; http://www.bbc.co.uk/news/election-2017-39995648

The Local Government Association 2016 State of the Nation report on social care funding:  http://www.local.gov.uk/documents/10180/7632544/1+24+ASCF+state+of+the+nation+2016_WEB.pdf/e5943f2d-4dbd-41a8-b73e-da0c7209ec12

The King’s Fund is a highly (probably the most) credible think-tank commentator on the issue: https://www.kingsfund.org.uk/topics/social-care  – for their publications see: https://www.kingsfund.org.uk/publications/?f%5B0%5D=im_field_health_topic%3A27 .

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Tory plans for pensions (with impressive opinions for boss/pub/partner)


impress boss/mates/partner with this DIY assemblage

Replace the current State Pension ‘Triple Lock’ with a new ‘Double Lock’ by 2020 – ensuring rises are in line with earnings or inflation. The ‘Triple Lock’ will be maintained until then.

Frankly , most people didn’t expect triple-lock to survive to 2020; we’re all sorry to see it go as it helped poor people most. Not a vote-winner and shows how strong May feels about her chances (or that she’s an honest politician?)

Continue to support the successful expansion of auto-enrolment to smaller employers and make it available to the self-employed.

Great – making auto-enrolment available to the self-employed begs some important questions, not least about how the national insurance system works. There is no way to put the genuinely self-employed on payroll – another collection system needs to be found. Step forward DWP?

Give The Pensions Regulator (TPR) increased powers to scrutinise and fine arrangements that threaten the solvency of company pension schemes.

Frank Field firing up Theresa (as he has with the self-employed and auto-enrolment). Intervention may be needed – it is good to see tPR being recognised as potential policemen; under Lesley Titcomb tPR could be a force to be reckoned with.

Consider a new criminal offence for company directors who recklessly put at risk the ability of a pension scheme to meet its obligations.

Wrong priority, the priority is to put the likes of Steven Ward and the serial pension scammers behind bars. The manifesto is silent on increasing enforcement against them.

Introduction of means testing for Winter Fuel Payments for pensioners.

The right policy, tricky and expensive to set the means-test but it’s got to be done – despite the howls.

Warning**** Warning****Warning****Warning*****

Cut out and keep in top-pocket; use in executive briefings or to make yourself sound authoritative down the pub.

Don’t expose to too much scrutiny – most of this is half-baked at the moment!

half baked

please no jokes about what this reminds you of

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“Look after yourselves” – tough plans for the ageing-affluent.


The nice bits



Ditching Dilnot’s cap

Ditching Andrew Dilnot’s proposed cap on the amount we pay for our long-term later life care is the biggest attack on wealth I can remember. Protecting personal assets at £100,000 is scant comfort when the average residential home costs more than £50,000 pa and the wealth of most elderly couples (including housing) is several times £100,000. The proposals for long-term care costs will be seen as a living inheritance tax,

Whatever my politics (and I am thoroughly confused what they are called), my instinct is for social justice. My instinct tells me that the alternative to “pay for yourself ” – social insurance – is not the answer. Those who have the means to pay – should pay for themselves.

My instinct tells me that not only have the wealthy, the greatest means to pay, but they have the greatest need for the really expensive care – residential and home-based. Put simply, they die slower.

Social insurance is a tax that spreads the cost across all of society. If implemented for later-life care, those who used social care most and had most means to pay for it, would be subsidised by those who have less use of it and have less means to pay. THAT IS NOT FAIR.

The generational knock-on

One of the unspoken aspects of many baby-boomer’s financial planning is the expectation of inheritance. We laugh uneasily at jokes about Charles awaiting his crown because his wait mirrors our wait for our inheritance, our share of our parent’s estate. Over the years, a windfall can become a “right”. There are many people of my age who have not just anticipated but virtually spent the money coming their way when their parents pass on the estate.

This expectation has been fuelled by successive Governments (especially Conservative) who have clung to the mantra of wealth cascading down the generations. These same politicians have been kicking the cost of healthcare down the road. It’s 10 years since the Dilnot report, the subsequent reports have been read and filed, but until the Conservative Manifesto, no politician has been brave enough to face up to the very real issues of a weakening – if not dementing – older population.

I applaud the Conservatives for confronting the issue head on. It is what the serious commentators such as Paul Lewis and Ros Altmann have been calling for and it is what we now have.

Why now?

I suspect that the answer is part political and part idealistic.

Pragmatically, there has never been an election in recent times that gives the Conservatives such headroom for bad news. The votes lost by declaring this bad news are votes that can afford by Conservative Central Office.

Idealistically, Theresa May has shown a consistency since taking office of standing up for the less well off. This cannot be done simply by pleasing everyone, it requires the comfortable to pay more. She has appointed people to advise her in number ten who have social equality like “Blackpool” in the little stick of Blackpool rock.

From what I can see – this is uncompassionate conservatism – neither patronising nor ingratiating. But it seems right. The alternative – the Cameron/Osborne version of Conservatism, happily ducked this issue – as it did the issue of pension taxation, as a vote-loser which could be the next Government’s problem.

That kind of opportunistic politics belongs to Malcolm Tucker but not to a strong Government acting with integrity. We waved goodbye to Cameron/Osborne because they were weak in integrity though long on smarm.

We cannot have it both ways.

Those of us who are better off cannot have it both ways. We cannot have the privileges of better pensions , our own houses and more health and social care at the expense of other generations and even those within our generation who are unlikely to have such property rights or such claims on the NHS and Local Government.

The promise that no-one has to sell their house to meet their long-term care costs is a good promise. I assume it will mean that debts accumulating from home-based and residential care can become a charge on a property, to be met- like inheritance tax- at the point of death

This system creates a much greater certainty in the planning of public finances and it has the right social consequence. It ensures that surviving partners can continue to live in their home and it enables the next generation to plan for the bib bill coming.

Taking on your parent’s debt

There is a generation of people in this country who are coming into cash as never before, they are those in their forties to sixties who have accumulated wealth coming from pensions and properties which have risen in value inexorably over the past 20 years. To this portfolio of wealth, they have anticipated the arrival of inheritances unencumbered by debt.

The Tory Manifesto is a wake-up call to this lucky generation. The care of their parents is not another nanny-state hand-out , as our university educations were. It comes at a price, and now we are going to have to think what that price is.

Not before time.

long term care

The immediate reality

Further reading

For a broad overview of the issues,  this OECD report is  a good start: http://www.oecd.org/els/health-systems/help-wanted-9789264097759-en.htm .

You can see all the OECD publications on long term care here: http://www.oecd.org/els/health-systems/long-term-care.htm.

For the UK perspective, the best report to read is the now 5-year old Dilnot Commission: (Fairer Care Funding)



The Local Government Association 2016 State of the Nation report on social care funding:  http://www.local.gov.uk/documents/10180/7632544/1+24+ASCF+state+of+the+nation+2016_WEB.pdf/e5943f2d-4dbd-41a8-b73e-da0c7209ec12


The King’s Fund is a highly (probably the most) credible think-tank commentator on the issue: https://www.kingsfund.org.uk/topics/social-care  – for their publications see: https://www.kingsfund.org.uk/publications/?f%5B0%5D=im_field_health_topic%3A27 . The King’s Fund have a ‘reading list’ facility on their website us a very useful and up to date resource on the future of funding social care, here it is: http://kingsfund.koha-ptfs.eu/cgi-bin/koha/opac-shelves.pl?op=view&shelfnumber=104&sortfield=copyrightdate&direction=desc&_ga=1.152591609.1199701175.1490893892


The PSSRU is the leading academic consortium that investigates social care and has produced some excellent research: http://www.pssru.ac.uk/

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Tory Theresa gets tough on pensioners.

THERESA May will end the triple lock on pensions and use the money saved to help younger workers instead.

It will be one of the most controversial parts of the Tory election manifesto being unveiled by the PM.

She will scrap a system that has seen OAPs’ cash shoot up for seven years.

Under it, the state pension rises by the rate of inflation, average earnings or 2.5 per cent a year – whichever is the highest.

The move – introduced by former Tory PM David Cameron in 2010 – has increased payments by £1,100 annually, while working age Brits’ pay has flat-lined since the financial crash in 2008.

Theresa May,  is set for a large majority according to the polls

Now that pensioners are more comfortable, Mrs May will insist it is time the nation tackles the growing gap in wealth between the generations.

She is expected to argue that pensioners’ income is now on average £20 a week higher than working age Brits.

But as both Labour and the Lib Dems have already committed to keeping the Triple Lock, the PM’s bold move will ignite a furious row.

A senior Tory source said: “Scrapping the Triple Lock will cause us some pain, but it is the right thing to do for the country.

“Theresa is confident that she can persuade people about that, and most people agree we need to rebalance between the generations.”

In another controversial move, Mrs May will also scrap the Tories’ tax lock.

Introduced two years ago by her predecessor Mr Cameron, the law forbids the government from raising income tax, VAT or national insurance contributions.

But the PM has already ruled out hiking VAT and will again today recommit to the Tories income tax cuts promises from the 2015 election.

That leaves Chancellor Philip Hammond free to raise NICs, and make another attempt to hike the hated tax on self-employed – the tax raid on White Van Man he was forced to abandon after the Budget in March.

But Mrs May will carry on with the party’s promise to raise the basic rate income tax free personal allowance to £12,500 and the higher-rate to £50,000 by 2020.

Planned Corporation Tax cuts will also stay, moving from today’s 19% rate down to 17% in 2020.

The Tories manifesto will also:

See also ; https://www.theguardian.com/society/2017/may/17/theresa-may-conservative-tory-policy-older-people-pay-for-social-care?CMP=Share_iOSApp_Other

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Tata puts pensions first


Though the details of Tata’s offer to the members of the British Steel Pension Scheme (BSPS) are only sketchy , it is clear that they are focussed on members getting “PPF+” on existing benefits and a defined benefit pension against future service.

The deal looks similar to that offered to members of  Royal Mail’s scheme and looks- as Steve Webb says to Professional Pensions

“a much better solution than the idea of a ‘zombie’ pension scheme with no sponsoring employer or a special deal done for one pension scheme, which was the government’s original plan last year.  The potential impact on the PPF is now much reduced and many pensioners will get a better outcome than they would have done”

Not the deal some expected

The deal will confuse those who saw the options open to the Regulator as binary “Zombie of Lifeboat”. Writing in the FT John Ralfe asserted in April

The regulator can only approve a deal if it meant the pension scheme got more cash than if Tata Steel UK simply went bust, and the pension scheme got its share of assets as an unsecured creditor, and by calling any guarantees from group companies.

Under the proposed deal Tata Steel would pay £550m into BSPS as well as provide it with a 33% stake in Tata Steel UK.

Tata Steel UK has also agreed that following the RAA it would sponsor a new scheme and would offer members of the BSPS an option to transfer into this new scheme.

This is a far cry from the £1.5bn cash injection that John supposed the PPF would demand to keep BSPS from its clutches.

The PPF’s new rules for zombie schemes — cleverly designed to minimise its risk — mean the British Steel Pension Scheme would have to start with a surplus against the assets needed to pay the PPF level of benefits.

In December 2015 the pension scheme had a £1.5bn PPF deficit, which will be at least that today. For the pension fund to qualify as a zombie scheme, Tata Steel would have to inject at least £1.5bn cash, and possibly a lot more, depending on the cushion the PPF requires.

How will members and their representatives react?

Tata states in its latest accounts that the deal has been agreed in principle with both the Pensions Regulator and the Pension Protection Fund but that it is subject to approval of the stakeholders of the new RAA.  Tata concludes that there is

“presently no certainty with regards to the eventual existence, size, terms or form of the new scheme”.

The new scheme would have lower future annual increases for pensioners and deferred members than the BSPS but offer better than PPF benefits as well as significantly less risk for Tata.

Importantly, the BSPS Trustee chairman Allan Johnson is recommending the terms of the new arrangement to members. This is no tick in the corporate box, Tata is one of the best run pension schemes in Britain, it’s operating costs per member at £63 are amongst the lowest to its sponsor.  Members have every reason to consider Johnson has been acting- as a trustee should, in their best interests.

No pre-pack

To what extent Tata are sponsoring the new scheme – as opposed to setting it up and walking away – is unclear. That is presumably the quid per quo for not stumping up the £1.5bn that the PPF are said to have originally demanded for an RAA solution.

But the matter is not open and shut and members appear to be free to choose the PPF instead (as they were in the Kodak case – where the business similarly became an asset of the scheme).

John Ralfe, writing in the FT in April, claims that all 70,000 members already drawing a pension, and many of those wanting to take early retirement, would be no better off, and around 6,000 would be worse off than going into the PPF.

TPR also point out that should the RAA fail, the impact on the PPF could be much worse than the current “deficit” it calculates for the scheme.

What is clear is that Tata are avoiding going into administration and “pre-packing” its pension liabilities into the PPF. This is surely a step in the right direction.

BSPS – a healthy scheme

As I’ve mentioned above, BSPS is a well run scheme, it has low operating costs and a relatively low PPF deficit to its £15bn size. As we pointed out last month, this PPF deficit is actually a surplus if considered using the FABI basis of valuation.

In April First Actuarial wrote on this blog

reports of an offer by Tata Steel to make a one-off payment of £520m into its £15bn UK pension scheme – the British Steel Pension Scheme (BSPS) – have been criticised as not going far enough to plug its funding deficit nor sufficiently protecting the Pension Protection Fund, with suggestions that its funding deficit could increase to as much as £2bn at its 2017 actuarial valuation.

Tata workers

First Actuarial have estimated that using assumptions in line with those used for the FAB Index, the BSPS could easily have a surplus of £2bn calculated on a best-estimate basis. Whilst not necessarily suitable for funding purposes, it does demonstrate that more context needs to be given when reporting on the financial position of UK pension schemes.

It would have been a great shame if the BSPS had gone into the PPF, because so much of it is good. That it looks like staying outside the PPF (at least for members who choose to stay in the RAA) is also good.

It is good that Tata are agreeing to risk sharing and that PPF and tPR are finding a way for that to happen.

It is good that the Trustees are a party to this solution and recommending it.

Let the members decide

Finally it is good that the make or break of this deal is in the hands of the members. It is clear they will be taking more of the risk themselves, at least in having to cover the shortfall between what they would have got and the terms of the new arrangements.

Some will argue- as John has argued- that the PPF presents a safer harbour and that reliance on a private arrangement is too risky.

The employer representatives (the Unions) could say no collectively. But ultimately it will be down to individual members to decide what is best for them; which – provided the choices are clearly laid out- is good for them.

FT article “It’s Zombie versus Lifeboat” by John Ralfe (April) here; https://www.ft.com/content/5019a6de-250d-11e7-8691-d5f7e0cd0a16

Professional Pensions article on the RAA deal (May) here;  http://www.professionalpensions.com/professional-pensions/news/3010222/british-steel-pension-scheme-moves-step-closer-to-raa-after-terms-agreed


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“No more junkets if you cut our margins” – IFAs warned.


Delegates at PIMS 2017, a floating holiday for Financial Planners (and journalists), seem have  been threatened .

“Platforms will struggle to cut charges without affecting existing services”, Seven Investment Management (7IM) head of platform Verona Smith told advisers (including New Model Adviser to whom I’m grateful for this reporting!

‘I get asked all the time where platform fees are going. The answer is they are going only one way and that is not up,’ she said.

‘But the service I am going to give you is not a service you or your client is going to like if we put the platform fee down.

‘If you want me to halve the platform fee, then don’t expect the phone to be picked up after one ring.’

The threat is hardly veiled!

PIMS claims to support “financial planners” , but a cursory inspection of its sponsors suggests that it is really about wealth management. wealth.PNG

Make no mistake, PIMS is an aquatic trade show.

The context!

Here is what a typical day aboard the cruise-liner Aurora looks like for PIMS delegates

7.45am Pre-arranged breakfast meeting  with a supplier and fellow delegates
9am Mixture of conference sessions, supplier meetings and requested free time
1.15pm Pre-arranged lunch meeting with a supplier and fellow delegates
2.45pm Mixture of conference sessions, supplier meetings and requested free time
6.30pm Free time or an activity
8.30pm Pre-arranged dinner meeting with a supplier and fellow delegates
10.30pm Post dinner drinks and evening entertainment

While you toy with the negotiations around “requested free time” and speculate what kind of evening entertainment begins at 10.30, you can only marvel at the IFA’s complicity.

The main advantage of a cruise ship (for the suppliers) is that you cannot get off, other advantages include limited capacity to make phone calls and with a bit of luck, no access to the internet.

Delegates are sitting ducks for “suppliers” .

The threat itself

I am struggling to understand what an intermediary needs by way of “service ” from a fund manager like 7IM. If its measure is the number of rings an adviser needs to speak to Veronica, then advisers need not quake in their Church’s.

Coincidentally, a paper arrived in my inbox yesterday from a research organisation called Cicero, that directly addressed the question of service, not just the service that IFAs get from suppliers but the service they give to their clients.

Surprisingly, IFAs don’t seem particularly keen to embrace technology

cicero 1.PNG

Less than half the IFAs questioned saw much value in a higher level of technological integration with their “high net worth” clients.

Apparently the HNWs backed this up.

Cicero 2

The threat for IFAs is not from clients demanding new ways of doing things, the IFAs get this. The threat is that 7IM will stop picking the phone up after one ring. By extension they might even stop junketing IFAs on cruise liners while telling them this unpalatable message.

What of the customer?

In April the Financial Conduct Authority (FCA) announced it would review the platform market after it identified a number of concerns about competition in the space.

The regulator said it would look at ‘complex charging structures’ on platforms and examine whether platforms were able to put pressure on asset management charges.

By extension , it will be reviewing the users of platforms (the IFAs) to see what competition is happening. I doubt that the FCA will be asking how many rings an IFA has to wait to speak to their 7IM agent.

Instead , the FCA may be asking some of the questions asked in the Cicero Report “Distribution and Technology – the role of technology across the advice chain”.

The report concludes that the advice “industry” has no real long-term choice other than embrace technology.

“Millennials are living their advice on-line and that’s where they are going for advice”.

Which isn’t quite true, as by the time the millennials have built (or inherited)  the wealth to replace the current client bank, the advisers will be retired.

I think this is the real message for Christopher Woollard at the FCA. The current interests of clients and advisers is aligned. They want a comfy time where the phone is picked up in one ring, where no-one puts too much pressure on price so that a long and healthy retirement beckons.

If this is the message that IFAs are allowing to go to the FCA – and the Cicero paper was to have been discussed by Woollard (till Purdah came down) – then neither 7IM or the platform managers or the IFAs that use these platforms , has a leg to stand on.

Because the one thing that none of these discussions addresses , is the investment outcomes for the people whose wealth (or savings) are being managed.

Vanguard are reported to be about to launch a service where the total cost of ownership for a fund will be 0.3% pa (30bps). The reports are in the FT- a link is included at the end of the blog. While Vanguard will not disrupt the trusted relationship of IFA/client, it will attract the large number of non-advised HNW customers who are fee conscious. Increasingly the old style, high-priced advised platforms and funds will struggle to compete for these new customers.

Service must be digital – prices must be slashed and outcomes improved

The state of the wealth management marking is truly shocking. Compared to the deal being offered members by NEST , L&G and other workplace providers, the platforms are expensive and hopelessly intermediated. With a few exceptions, they need advisers to operate them and PIMS 2017 shows that nothing much has changed since the early 1990s (when I went on one of these cruises myself).

There is an alternative for IFAs keen to learn and create best practice. An example is the Great Pension Transfer debate which has been set up for IFAs by IFAs and features a great line up at an accessible venue and has no sponsorship from “suppliers”. There’s a link to the Great Pension Transfer debate below.

7IM provide a link to the two events, as the idea for the Pension Transfer Debate was born from the FT conference in April at which 7IM were both sponsor and speaker. So appalled were some delegates at the lack of technical knowledge and balance from some of the speakers that they decided to set their own event up – for their own learning.

The 200+ IFAs who have already signed up will be joined by many more before June 19th. If you are an IFA and you are fed up with being junketed, then maybe the Great Pension Transfer Debate is for you.

A word of warning though, there is no telephone to pick up. To register, you’ll have to do things digitally – it’s the only way to keep costs down and get standards up!

Places at the Great Pension Transfer Debate can still be reserved at https://www.eventbrite.co.uk/e/the-great-pension-transfer-debate-tickets-33888509444?aff=eac

PIMS 2017; cutting prices will reduce service ,7IM warn – New Model Adviser – http://citywire.co.uk/new-model-adviser/news/pims-2017-cutting-platform-charges-will-hit-service-7im-warns/a1016610?re=46660&ea=390363&utm_source=BulkEmail_NMA_Daily_Summary&utm_medium=BulkEmail_NMA_Daily_Summary&utm_campaign=BulkEmail_NMA_Daily_Summary

FT report on the new Vanguard platform that looks like slashing the cost of fund ownership;  https://www.ft.com/content/6821ce50-3976-11e7-821a-6027b8a20f23


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Actuaries – many ears here to listen!


“And if they’ve got anything to say
There’s many black ears here to listen” – Joe Strummer

I am glad that I had a go at the actuarial experts arguing in the FT.  It didn’t change the way  people behaved yesterday – (although several hundred people appear to have spent time reading it) – but  it solicited comments from some of the FT signatories – and some from people not on the list who are supposed to be on holiday!

Perhaps we’ll have to extend the definition of “professional” to someone who reads relevant blogs while lying by the pool – actuarially speaking!

It was left to an actuary close to the Plowman to put into words what I suspect the IfoA committee really wanted to say.

The actuaries letter was wimpish.

What it should have said was.

We deplore the PWC press release with its deliberately misleading figures.

Although the ft obtained a quote from one actuary saying the assumptions were extreme, we are disappointed that the ft nevertheless see fit to publish the essence of it with a ludicrously provocative title.

The facts are
Population mortality does not appear to be improving as fast as previously expected.
Mortality of better off individuals IS improving at roughly the expected rate.
Mortality of worse off individuals is improving at a significantly lower rate.
DB pension liabilities are very much weighted to the better off.

So EVEN IF the mortality change is not a blip, and we recognise the uncertainty, most of the DB liabilities seem likely to be UNAFFECTED by the population change.

Experience of individual pension schemes differ.

It has long been recognised that there is a significant difference between “Lives” and “amounts” mortality, i.e. People with higher pensions (or annuities) tend to have lower mortality) so it is dangerous to naively use lives experience for valuing pension liabilities. And very naive to use population experience.

It is particularly misleading to go on to assume such incorrectly derived lower mortality will continue in future and publish grossly misleading numbers.

It is not good enough to justify it in footnotes and to treat it simply as an arithmetical exercise.

At the very least it should be made clear that it is not what is expected and something like “best real world estimates” published at the same time. . And of course such real world best estimates need to be properly based on reality and proper analysis of the data.

Of course my correspondent was constrained ;- I recognise that there are rules governing how actuaries conduct themselves that prevent them from saying these things “out loud” – (the real world?).

Peter Tompkins argued “There is no purpose in turning this into an argument” but the cat was out the bag..

Here’s another private message

Hopefully not too many years until people feel able to make such statements publicly. Who knows, one of the retired old boys still might.

In the meantime, you are going to have to have your actuarial argument -sorry “debate” on this blog, and as nobody reads the comments, here are the “real world” thoughts of a very angry Stuart Macdonald, (more please!)

I am sorry to hear that you found the simple and concise letter to the FT to be silly.

As you will be well aware, many of the signatories have both professional accountabilities and obligations to their employers, whose approval of public statements may be required. This can lead to more mitigated language than might otherwise be the case.

Perhaps you will find my personal response, sent on the day of the PWC press release, to be more to your taste.

Of course there is some healthy debate within the actuarial profession about likely future mortality. This is right and proper and to be encouraged. A consensus on something as uncertain as life expectancy, which will be influenced by unknown medical advances and social changes over the coming decades, would be foolish and, I’d argue, dangerous.

However, still more dangerous in my view is putting into the public domain, the idea that a 200 year history of mortality improvement has forever ended, life expectancies have peaked, and pension liabilities can be reduced by 15%. A statistical model used by expert practitioners to calculate uncertainty around life expectancy forecasts suggests that there is less than a 1% chance of the PWC scenario materialising.

Scheme trustees and senior executives at sponsoring employers, who may never have had to subject themselves to the detail of actuarial reports, had sight of these headlines. Indeed several of the signatories has already fielded questions from such individuals by the time the letter was submitted. Hence in my view it was right for members of the profession to respond quickly, in the same forum, using such language as all were able to sign up to, in order to mitigate the impact of the initial press statement.

PWC had every right to point out what the financial impact of no further increase in life expectancy might be. Just as Professor Aubrey de Grey has a right to speculate that we might live to be 1000. However, by presenting such a scenario as their updated forecast, rather than acknowldgeing that it is one possible but extreme outcome, they risked misleading people.

As you might encourage, my comments here are spontaneous, unchecked and made in a personal capacity. They are not the necessarily views of my employer, the actuarial profession or the other signatories to the “silly” letter.

If 750m people can collectively focus on the Eurovision Song Contest for 3 hours, I think that a few hundred can spend a few minutes (the morning after) thinking about what the Continuous Mortality Investigation is telling us about social equality, defined benefit schemes and indeed the way conventional and social media are interacting.

Jo Cumbo seems to have got some collateral damage from all parties, but she was the only person prepared to run this story. Not only did she run it, but she ran it without the help of the moaners who wrote the letter. My message to the signatories

You may call the debate unbalanced – but where were you?

Actuaries do not have a right to a hearing, PWC took an extreme position with CMI data and got the debate going, the letter did not incite further debate, it stifled it – until this blog asked what the letter was all about.

Let’s hope that the actuarial profession moves away from “mitigatory language” to using the “real world” language; away from professional disputes about the interpretation of data to a public debate on what is really going on with the CMI statistics.

As I said in my blog yesterday, now is the time for the actuarial profession to be making meaningful statements when people are actually listening. This data informs our thinking on DB plans, on social and residential care, on the state pension age and on the affordability of the triple lock.

The British electorate is waiting to hear from you, what are you saying?

White youth, black youth
Better find another solution
Why not phone up Robin Hood
And ask him for some wealth distribution

Joe Strummer – (White Man) in Hammersmith Palais


Jo Cumbo’s original article (loathe it or love it) is here; https://www.ft.com/content/f8a44b1a-33b8-11e7-bce4-9023f8c0fd2e

I’m pleased with my FT subscription which is value for money; you can buy here  https://sub.ft.com/spa2_5/?ftcamp=subs/sem/allsub_psp/ppc/search/acquisition&utm_source=ppc&utm_medium=sem&utm_term=allsub_psp&utm_campaign=search&segid=0300566&utm_uk=WSMAAZ

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Actuaries! Talk with us – don’t argue with each other.


Arrogant and self obsessed! How we see actuaries


There’s a  silly letter in the FT this week which I print in full.


Jo Cumbo’s report “Mortality update bodes well for pension deficits” (May 4) refers to an assertion by PwC that slowing mortality improvements could reduce UK defined benefit pension scheme liabilities by £310bn, which is about 15 per cent of their estimated total liability of £2tn.

In our opinion, this is a relatively extreme outcome and would be widely viewed as such among UK actuaries.

We feel it is potentially misleading to refer to liability reductions of 15 per cent without placing such estimates in a proper context.

Andrew Cairns, Professor, Heriot-Watt University

Deborah Cooper, Risk and Professionalism Leader, Mercer

Cobus Daneel, Consulting Actuary (Retirement), Willis Towers Watson

Sacha Dhamani, Head of Longevity, Prudential

Matthew Edwards, Head of Longevity/Mortality (Insurance), Willis Towers Watson

Matthew Fletcher, Longevity Consultant, Aon Hewitt

Tim Gordon, Head of Longevity, Aon Hewitt

Dave Grimshaw, Head of Longevity Consulting, Barnett Waddingham

Steve Haberman, Professor of Actuarial Science, Cass Business School

Stuart McDonald, Head of Longevity, Lloyds Banking Group

Kevin O’Regan, Head of Longevity and Portfolio Reinsurance, PartnerRe

Brian Ridsdale

Peter Tompkins Actuarial Consultant

To which I  make three observations

  1. What is said , is said badly – “a relatively extreme outcome” – relative to what?  “Potentially misleading” – either the 15% figure is misleading or it isn’t – you’ve just told us it is so why caveat? The first sentence is too long, the use of the subjunctive in the second sentence drains the statement of any vivacity.
  2. What isn’t said is what the reader wants to hear – the article leads nowhere.
  3. The bulk of the copy is used to list the actuaries and their ridiculous titles.

This kind of letter does nothing but bring actuaries into disrepute. They have slagged off PWC (Raj Modhi) but to what end? If they wanted to put PWC’s comment into context, they could have used the space they wasted with their list of titles. They have showed they cannot make a point simply , they have wasted an opportunity to educate the readers of the FT’s letter column.

Is 15% or £320m too high?

Our actuaries at First Actuarial have been asking this same question. They were asking it before PWC put it in the FT , because I asked for them to comment on it.

I  have been banging away about the changes to the IFOA’s continuous mortality research ever since Douglas Anderson mentioned them to me 5 months ago (they agree with Vita Life’s own research). You know this if you read this blog.

Their general feeling is that 15% is too high, the reduction in the rate of increase in life expectancy is probably a blip and will be explained as an anomaly in time, it is too early to reduce pension scheme liabilities (certainly by 15%).  That is a reasonable position to adopt – “wait and see” is a prudent policy when you are dealing with problems that have durations measured in decades.

But that is their opinion and the conversation is “ongoing”! It is a conversation we are having with our clients and with Government and with anyone who will have it with us in formal and social media! It is a great conversation to have.


Is this worth this public attention?

You bet it is! What the actuaries are arguing about has immediate impact

Your State Pension Age – recently reviewed by John Cridland – depends on the outcome of this debate; the Government were supposed to report on Cridland (the deadline was last week), it is such a hot potato – they have left it in the oven till after the election.

The triple lock – one of the key issues of this election, may be more affordable it PWC are right – the IFoA CMI tables are key to this issue.

The Royal Mail – is in dispute with its 130,000 staff and the CWU as to whether it continue to promise them a pension for life – or just a sum of cash at retirement.

The PPF/ Tata Steel/BHS/ Cluttons/ Bernard Matthews and the Pensions Regulator are engaged in complex and sometimes acrimonious disputes over the affordability of the pensions promised by the employers in the middle of that sandwich.

Everything from our wages to our council tax bills is impacted by the collective  life expectancy of the 60 million of us who live in Britain. It is not just our propensity to die (mortality) that is in question, it is our propensity to detoriates in health as we close in on death (morbidity). Understanding what our liabilities are for ourselves , our children and our parents is critical to how we manage the public finances.

Time these actuaries stopped arguing among themselves!

This is not PWC’s fault. Raj has put some good stuff into the papers and has aroused a public debate. The silly letter looks no more than a marker for internal squabbles at the Institute and Faculty of Actuaries. The debate is more important than to be conducted behind the IFOA’s closed doors.

This blog is open to any actuary who wants to put forward a point of view about this which is framed in language that ordinary people can understand. It is also open to Con Keating!

I will continue to look at the affordability of old age in my articles – offering an “inexpert” view.

Actuaries should be taking the debate to us

All these views will be shared with anyone who reads this blog and I expect most of them will contradict each other. That is not a bad thing. What is bad is for actuaries to complain about “relatively extreme outcomes” and “proper context” without any explanation of what they mean – as if their disagreement meant something to those outside their magic circle.

There are many ways to get people engaged with these questions, you can comment to the newspapers, or blog, or tweet, or you can do work with trustees and employers and you can even explain these things to ordinary working people through financial education sessions.

But please actuaries – don’t belittle yourselves again -with your silly letters to the FT!


An actuary who isn’t on the list!


You can read the silly letter in its original context here  https://www.ft.com/content/ee61cf36-3630-11e7-bce4-9023f8c0fd2e

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NEST’s duty to tell us how it spends our money.

This article is about the costs NEST is incurring, not to criticise those costs, but to publicise them as benchmarks to drive other provider costs down.

I had the privilege yesterday of having lunch with Richard Lockwood, NEST’s Finance Director. I was in the mood to talk costs as I spent the rest of the day at Accountex. Much as I enjoyed Accountex, the discussion with Richard was the highlight of the day.

Richard’s background is as a financial controller, Kingfisher, Home Retail and World Duty Free. He came to NEST because he knew about scale and cost control.


The word that re-occurred throughout the meeting was “obsession”; clearly the guy is obsessed by measurement. The grand plan, as outlined by Robert Devereux to the Parliamentary Committee, is his plan, his measurement of NEST’s current debt, projections of future debt and the longer term projection of NEST self-sufficiency (2038) are his. They are based on an understanding of the unit costs of keeping records, interfacing with employers and members and investing the money. Clearly there are variables and it wasn’t until he had reasonable certainty on those variables that he could happily  publicise these projections .

The numbers were with the DWP last October and were only disclosed to Parliament some six months later. This suggests the political sensitivity surrounding them.

Measurement and accountability were themes that impressed me.


However, I remain less impressed by NEST’s arguments about its social purpose which still appeared muddled.  NEST has always declared itself to be operating in a new space where standards are set because no service has existed before. We might call this “greenfield”.

The major expense that Richard incurs is the payment of Tata- who manage NEST admin. The contract with Tata was re-negotiated in 2016 and runs to 2023. We do not know the terms of that contract but I got the impression there is not much about it that doesn’t sit at the front of Richard’s head.

The other expenses, associated with marketing NEST and investing NEST’s money are similarly not open to public scrutiny but , as our conversation had it, part of the NEST obsession with value.


Here the conflict between public service and commercial enterprise is most acute. NEST’s scale (both now but particularly projected) enable it to target economies in record keeping, administration and investment administration and money management, that should be ground-breaking.

Unlike many of their competitors, NEST do not carry the corporate overhead of legacy business nor need it share the unrewarded costs of re-using legacy systems and processes. NEST is greenfield and can – like other newly established master-trusts, take advantage of the latest technology to minimise outgoings.

This it has done; NEST is lean and mean and should have the lowest unit costs of any DC workplace pension provider. So why isn’t it publishing these costs as the aspirational benchmark for its rivals? If NEST is providing a public service, it should be helping to drive down not just its own costs but those of workplace pensions as a whole.

This also goes for investment costs which (I am sorry to say) are still undisclosed , sitting behind NDAs which NEST- unaccountably – entered into at the point it set up. It is high time that these external costs were revealed. The argument that NEST secured super-low deals with UBS, State Street and others- on the basis that it would keep the prices secret should cut no ice with anyone.

  1. It is in the public interest to know what “best prices” are from these providers.
  2. Without knowing what NEST is paying, we cannot assess value for money
  3. NEST should be leading and not acquiescing to “common practice”.

If common practice is to keep fees hid, then we can have no progress on Vfm nor can we move towards lower fees for workplace pension provision. The annual management charge, which includes not just investment costs but marketing , governance and administrative outgoings, is no measure of NEST’s value or the money it is spending. It has no practical value in assessing value for money. To do that, NEST’s trustees must know and report on the efficiency of each aspect of NEST’s costs at something of the obsessive intensity as Richard Lockwood.

It is simply not enough for the general public to be told that all in the garden is rosy, we need to see the garden, the roses – and (where necessary) the compost. When I say “we”, I mean those people who are trying to assess what good looks like – that includes consultants, but also NEST’s competitors and the outsourced suppliers who should be benchmarking their costs against NEST’s.

Until NEST reveals what it is paying, there will be no NEST standard for us to measure investment management, investment administration, record keeping , marketing and governance costs against.

We need the same obsession that Richard Lockwood has with cost control , to be displayed in cost disclosure.

For NEST is not like other providers, as it keeps telling us, it gets its new business on a massive inertia pitch – it is the Government supplier and is hovering up employers at a rate of 1200 a day (a disclosure NEST is happy to make).

It should have nothing to hide and – since it is enjoying the munificence of a tax-payer subsidised loan, it should be putting back into the workplace pension community , the information that community needs to benchmark costs and lower them.

NEST has been in the past guilty of going it alone (most notably in not helping to create a joint industry standard for data-interfaces). PAPDIS came too late because PAPDIS and the NEST data standard should have been one standard.

The same could be said about value for money reporting. Instead of going it alone in the obsession with costs, NEST should be sharing its cost reduction measures with its rivals, to drive overall efficiencies’ through workplace pensions.

Instead Richard still mouthed the old platitudes about market practice which have prevented consumers from getting fair value as long as I have been working in pensions.

Let’s be clear. NEST must tell its suppliers that it is abandoning its NDAs and publishing its unit costs for administration and the costs it is incurring for fund management and administration. If it cannot do this, it should ask Government to step in and break the contractual terms with its suppliers that are preventing it.

Nothing less can do. There can be no concession to the commercial interests of the market when the market has failed us so long. The Asset Management Market Review, the Office of Fair Trading report and the Retail Distribution Review have pointed to market failure in financial services – some things have changed, but market failure persists.

NEST owes us £539 million of favours and that number increases to £1,218,000,000 by 2026. That is money that has been and will be spent by NEST’s members, they have to pay it back, they have a right to know that that money is well spent. I have no doubt, knowing NEST quite well, that it is well spent. What I don’t know is how well spent and those numbers become the greenfield benchmark to which other providers can aspire.




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“So why aren’t there more women in pensions?” – Jess Jones

“If women were in charge, the 2008 financial crisis wouldn’t have happened”- Christine Lagarde.

 So why aren’t there more women in pensions?


I’m a 23-year-old woman who works at Quietroom, a communications consultancy. As a relative outsider to the pensions world, I was looking forward to this month’s Pension Playpen lunch, which was asking: why aren’t there more women in pensions?

I wanted to know how diversity was being talked about in an industry which seems to be run by men. So I was relieved and pleasantly surprised by an hour long discussion which was insightful, respectful, and where female voices were heard loud and clear.

Why is diversity important in the first place?

One of the ideas we kept coming back to was that diversity leads to better decisions. When people with different perspectives and backgrounds tackle a problem, they think about it for longer, and more carefully. They have to consider how it will affect people who aren’t like them.

We talked about studies which looked into how different groups handle a problem-solving task. A group of 4 friends will have a great time doing it, and report that they did brilliantly. But as it turns out, their success rate is a lot lower than the groups which had to swap a friend for a stranger. These groups may have had less fun, and a less easy ride reaching a consensus, but introducing a different perspective made for better results. Disagreement and difference leads to better decisions. Familiarity and homogeny leads to decisions which are more rash, more selfish, and replicate what’s gone before. Which brings me to the financial crisis.

‘Women have different ways of taking risksof ruminating a bit more before they jump to conclusions’ (Christine Lagarde)

There’s good reason to think that it wouldn’t have happened with women in charge. Women tend to consider more facts when assessing risks or opportunities. Which means women tend to take less risks. And if we know anything about the financial crisis, it’s that it was the result of some short-sighted, arrogant and reckless decisions.

You might think this would bode well for women in the financial industry. In the aftermath of near financial ruin, brought on by misplaced confidence, it would probably make sense to embrace an approach which was more deliberative. More measured. Less typically ‘male’.

But it seems that the ability to take risks is a key part of getting ahead in this industry. By ‘taking risks’, I don’t mean investing massive amounts of money into mortgage-backed securities on the shaky assumption that house prices weren’t likely to decline, sparking a chain of events which led to the near collapse of world’s financial system. No, the kinds of risks we talked about were things like applying for a job even if you don’t meet all the entry requirements. One of us mentioned a study which shows that men will apply for a job if they meet 60% of the requirements, whereas women will only apply if they meet 100% of the requirements.

‘If I don’t know about something I’ll know it by tomorrow. Therefore I do know everything about everything’ (Scott from The Apprentice)

Another personal risk you might take day-to-day is speaking to someone even if there’s a chance they’re not interested in what you have to say. The women in the room shared experiences of everything from board meetings to my philosophy seminars from undergraduate days, and our suspicions were confirmed – in most settings, men tend to dominate discussions, at the expense of women who have valuable things to say.

Being averse to this kind of risk – the kind of risk we take when we choose to suggest an idea in a meeting at the risk of not being taking seriously – affects the kinds of job roles women are seen (and see themselves), as being able to do.

For example, think about the traits we typically think a good salesperson has. Confident. Persistent. Willing to do almost anything to secure the sale. Doesn’t take no for an answer. In other words, all the risk-embracing traits women are trained from birth not to exhibit.

‘Such a nasty woman’ (Donald Trump)

And who could really blame us. Look at any example of a woman who’s progressed to the dizzy heights of management, or leading a country, and once you get past the analysis of the skirt she’s wearing that day you’ll find a slurry of commentary about her character. ‘Bossy’, ‘ruthless’, ‘abrasive’, and ‘hard to work with’ are common choices to describe women who have dared to step above their station.

So it seems we can do no right. If we quietly and competently get on with our job, we don’t progress. (One of us talked about her frustration at time and time again seeing younger, less qualified men overtake her in her company). And if we do muster up the confidence to chase a promotion – and manage to be picked over men who have been referred through a boys’ club recruitment process – then we’re bloody difficult.

As we reached the end of the discussion, it was clear it had gone well. We all agreed that the time had flown by. Discussions like this, which identify the problems which are holding women back in their careers, are becoming more and more common. What we need to do now more than ever is figure out how we’re going to fix them.

Share your experiences

Having these kinds of conversations brings things that are hidden in plain sight into public scrutiny. The more they’re talked about, the quicker these practices will become unacceptable. So please join in the conversation.

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WTW-you don’t “de-risk”; you transfer risk!

In late March, Willis Towers Watson (WTW) published a survey of the choices made by 170,000 members of occupational defined benefit schemes.

This is the question the survey sets out to answer

“What choices have pension members made since the dawn of pension flexibility?”

I urge you to read it. It is the best research I have yet read into what is really happening to DB member benefits .

But it is flawed in its conclusion and the flaw can be found in the language of the question . “Dawn” is a loaded word -it implies positive change , which is all  rosy stuff. But all that dawns isn’t rosy and the report doesn’t provide the balance that the debate over member choices need.


Need or want? Pension or cash?

In this article I argue that trustees are being corralled into providing what people think they want – not what they need.

Flexibility is what most members want, that means cash not pensions. WTW report recent cash equivalent transfers (CETVs)  up ten times on pre 2014 budget levels.



Whereas in the past, consultants had to organise Enhanced Transfer Value (ETV)  “exercises” to inflate transfer values beyond their best estimate valuation, they are now having to martial IFAs to convert enquiries into actual transfers.

The IFA is now part of the de-risking armoury as he or she is now converting over half of enquiries – up from a third only a year ago.


WTW conclude that with transfer values at all time highs, the demand for financial advice from members wanting out is being met by financial advisers eager to manage the money. A more sombre note is sounded for the future. Where Transfers fall in value, the appetite for members to pay for financial advice may also fall.

Without advice , there can be no transfers (other than for “trivial” pension rights).  This leads to bizarre speculation.



Schemes – as opposed to scheme sponsors (employers) are in the business of paying pensions. They may outsource the payment to an insurer but the member outcome is the same – a lifetime income.

It is bizarre that schemes are now expected to pay for advisers to winkle transfers that provide people with flexibilities – but not necessarily pensions. I say “necessarily” because it seems many of the people taking CETVs who had been surveyed told WTW they had or would be buying a private annuity with the money.


RTO =Retirement Transfer Option



This suggests that people are exercising choice not just to get cash but to get the shape of income they want. Certainly you can get a higher initial income from a level annuity than from a scheme pension but an escalating scheme pension soon catches up. If people think they are getting value from an individual level annuity as opposed to a scheme pension then they have an odd understanding. Bizarre!

Even more bizarre is the supposition that Trustees will want to sponsor advice so that people make choices like that. If they have any form of conviction in their acting in their member’s best interests, they should be asking whether the outcomes of the transfers are likely to match the scheme pensions given up.

Do Trustees care?

At the beginning of the report, WTW produce a wheel of options available to schemes to offload liabilities and “de-risk”.WTW5But it leaves out the most obvious de-risking tool at the trustee’s disposal; cash commutation factors.

While most schemes offer CETVs in excess of 30 times (sometimes 40 times) the pension given up, you receive tax-free cash (if you take that option) “commuted” at as low as ten pounds cash to one pound pension given up.

People take their tax-free cash from their defined benefit schemes on terms up to 75% worse than offered on CETVs. Trustees sanction this anomaly because people will take tax-free cash on almost any terms. Scheme solvency is being propped up by the outrageous commutation factors being offered and there is a conspiracy of silence about it.

That is one reason why tax-free cash commutation figures don’t appear on the de-risking wheel.

Trustees do care, they care about the solvency of their schemes. But they don’t care that commutation factors may be ripping off members taking tax-free cash and they can justify this by saying they want people to take pensions not cash.

What they cannot do is justify “de-risking” by getting people to take freedom over pension as that is entirely not what a trustee is about. If tax-free cash is an incitement to be feckless with your pension rights, so are pension freedoms.

This is bizarre, WTW are encouraging trustees to behave in precisely the way they have been preaching against for the past forty years. What is more, they are operating a dual system of exchanges where pension to CETV is valued at four times pension to tax-free cash. There is simply no actuarial or moral basis for this.

Trustees should care about this. They are being advised to become opportunistic dismantlers of the schemes they run. They are being put in an awkward position with their members and sooner or later they will find themselves either being challenged for not giving fair value on commutation or over-egging CETVs – or both.

Not “de-risking”- “risk transfer”.

Trustees must act with a duty of care and should be very careful about the way they discharge their pension obligations. Some of the money that flows from DB schemes simply lines the pockets of scammers, Much of the money is being wasted on inefficient and inappropriate drawdown products, some is being taken as cash with high tax-bills to come. Some is even being used to purchase annuities that cannot be as effective as scheme pensions. All the money flowing out of occupational pensions is transferring risk from schemes to members. Much of the value is transferring from members to agents.

While many members will happily accept the risks – and be able to manage them – many won’t. The mass migration of members -evidenced by the ten-fold increase in transfers and the eighteen fold increase in transfer monies, suggests that the flood gates have been set to open.

I fear for this risk- which is now in the hands of people who the OFT have described as quite disengaged.


WTW’s report is excellent, I urge you to read it, it is the most important statement made to date on what is going on. But it is misguided in concluding that what it calls “de-risking” is a win-win-win.

WTW 6If it looks too good to be true – it probably is too good to be true. WTW would do well to think back to the days when they said the same kind of things about Equitable Life.


The Willis Towers Watson survey is here https://www.willistowerswatson.com/en/insights/2017/03/DB-member-choice-survey-2017?platform=hootsuite

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Isn’t life looking up for our DB Plans?


Say it quietly but the outlook for our defined benefit pension schemes is improving. Members , trustees and sponsoring employers can be heartened by five concurrent signals – all of which suggest that the cataclysm predicted last year by Cass Business School and others , is proving “fake news”.

  1. Mortality is improving but not as fast as we’d expected
  2. Equity markets are buoyant and bond markets stable
  3. Costs of management are falling
  4. The PPF is thriving
  5. Accounting deficits will benefit from high levels of CETV take-up.

Corporate confidence

Taken together, the pressures on schemes should reduce. Trustees could regain their mojo to invest for the long-term and resist de-risking.

Consumer confidence

Members may regain confidence to stay put and employers may get some balance sheet relief (and lower cash demands from recovery plans). There are a lot of conditional here, but this is a blog not an economic forecast.

Let’s take each signal and test my case;

Firstly mortality.

Hymans Robertson, who share data from their Club Vita project, started talking last year of a slowdown in what seemed an inexorable improvement in British life expectancy. This improvement is baked into most actuarial tables so any adjustment would reduce the valuation of scheme liabilities.

Now the Actuaries own institute has confirmed that

“Recent population data has highlighted that, since 2011, the rate at which mortality is improving has been slower than in previous years”.

The figures suggest that men aged 65 will now live another 22.2 years, down from 22.8 years in 2013. Women aged 65 will now live for a further 24.1 years, down from 25.1 years in 2013.

Actuarial firms vary in predicting the impact of these numbers , Mercer and Aon are cautious and talk of adjustments in liabilities of 1-2%, PWC are more optimistic and suggest they could slice £310bn off UK pension liabilities, reducing their calculation of  deficits by 15%. Whatever the impact, there is consensus that this will be positive for immediate triennial valuations.

What of markets?

For all the talk of terrorism, populism and unprecedented uncertainty, the markets have improved. Equity markets in the UK and abroad are at or are close to record levels. This should not be seen as odd, markets are supposed to rise over the longer term as productivity increases.

The fundamentals that drive improved productivity – digitalisation, better education , low wage costs and up-skilling are all working towards higher valuations for company equity and lower risks of bond defaults. The low inflation world in which we currently live may create problems in terms of pension scheme liabilities, but it has meant there is plenty of cash in company coffers to meet cash calls.

Management costs

There is substantial fat in the management fees paid by occupational pension schemes. This is recognised by the FCA’ Asset Management Market Study which sees Trustees over-paying for both asset management and for investment consultancy fees.

The obvious targets for cost reductions are in alternatives. Last year Chris Hitchen claimed a deep dive into the way “alternatives” managers were rewarded  saved the Railway Pension Scheme more than £100 million a year on fees.

Large funds such as the British Steel Pension Scheme and notably the PPF, have insourced investment management from fund managers , making notable savings that have been passed on in improved investment performance to ease the road to self-sufficiency.

Smaller schemes have been able to negotiate fees with asset managers as they see deals available through platforms such as Mobius. Consultancies like my own, that work with schemes with less than £100m in assets have been adopting a rigorous approach to fee negotiation often moving large swathes of actively managed money into passive investments. The greater transparency in the market has given trustees confidence not to take things lying down. There is still scope for considerably greater efficiency in scheme management.

A thriving PPF

The current levy consultation being carried out by the Pension Protection Fund has allowed us to see a fund where management costs are reducing, risk is more fairly assessed and investment strategies are working. The PPF’s aim is to reduce the period till it is self-sufficient but this needs to be balanced by the strain of the levy on corporate P/L.

The levy’s trend is downward. A thriving PPF not only means a better safety net but a cheaper one too.

A word of caution; the PPF can be too cautious and we warn against it drinking its own kool-aid; the levy is too high, self-sufficiency reserving is being set at absurd levels and the investment strategy of the fund is ill-suited to its long-term aims, but in terms of current strain, a thriving PPF can only reduce the burden of DB pensions on employers.

High CETV take-up.

The current CETV bonanza has been variously billed as the salvation of the retail funds industry, the making of SIPPs and a risk-free windfall for deferred members of DB plans.

FABI graph

best estimates v risk free

Actually, CETVs are calculated to be cost neutral at best estimate valuations. Since best estimate valuations are much more favourable than accounting valuations (where liabilities are measured at the risk-free rate), there is almost always a windfall to the employer when a CETV is taken. This is a notional windfall and the long-term impact of seeing a scheme reduce in size is questionable, but employers will be able to book substantial improvements FRS 120 pension numbers as CETVs continue. Indeed many employers have already started booking them, some several years in advance.

Something to write home about

Taken together, the five signals of improvements in DB pension funding are something to write (home) about.  It’s much easier to make headlines by doing the Cassandra bit and no doubt JLT will continue to warn employers of the toxicity of their pension schemes for years to come.

However, if I was a trustee or even an employer, I would be sleeping a lot easier today than a couple of years back when all I had to hear was woe!

First Actuarial will continue to publish its FAB index showing that while not all in the garden in rosy, we are a lot better off than the Cassandras would have us. John Ralfe apart, there is an acceptance that pension schemes invest for the long term because they have long-term liabilities. The long-term outlook for the global economy is positive (unless you are Chicken Licken) and it even seems we have over- cooked some of our mortality assumptions. The costs of running a pension scheme should be falling as should PPF levies.

Which begs the question – why are so many people choosing to leave what appear to be perfectly good defined benefit pension schemes?

Further reading;

Shift in life expectancy promises £310bn cut to pensions deficit – FT; https://www.ft.com/content/77fa62fe-2feb-11e7-9555-23ef563ecf9a

IFoA CMI mortality projections (March 2017) ; https://www.actuaries.org.uk/news-and-insights/media-centre/media-releases-and-statements/cmi-mortality-projections-model-2016-launched

A huge pension fund hired an investigator to work out where it was getting screwed; http://uk.businessinsider.com/railway-pension-saved-money-on-hedge-fund-fees-hired-investigator-2016-3


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Bad language gives pensions a bad name.

bad language.png

Yesterday a financial journalist called about a confusing e-mail she had seen showing changes to a friend’s pension plan The letter was trying to explain how the friend’s fund management would change – to give her freedom and choice in spending her savings.


Here is the original;

Changes to your XYZ GPP Default Fund Strategy

Following the changes in pension legislation with regards to pension freedoms it is becoming clear more people are no longer purchasing annuities in such quantities as has historically been the case. An Annuity was previously the most common way in which you could secure a pension income for life with an Insurance Company.

The current XYZ GPP Default Fund Strategy is an Annuity Targeting strategy. Scottish Widows Investment Governance Committee and our own XYZ Governance Committee feel this is not a safe assumption for members any longer, and seek to change your current default fund to target Flexible Access. Flexible Access allows members to choose how they wish to draw their pension funds through retirement.

The only difference between the two investment strategies is what happens to your pension fund 5 years before your chosen retirement date, (normally age 65), with the new approach keeping more of your fund invested. The graphic below displays the asset mix of your current default strategy and your future strategy at your normal retirement date:sun chart 2.PNG

As you are more than 5 years from your plans Normal Retirement Age and because you have yet to enter the latter stage of the retirement glide path your pension fund will change to target Flexible Access from June 2017. Please note this will not affect your asset mix or risk profile of your pension scheme until 5 years from your Normal Retirement Age and there is no change to the plans charges.

Further details on this change will be sent to you directly from Scottish Widows to your home address during May. This letter will explain the changes in more detail and also gives you 60 days to consider and inform Scottish Widows if you do not want to proceed with the change to the new default strategy in June.

Here is my translation

A change to the way your pension money is managed (as you get older).

This is to do with the management of the money that xyz pay into your Scottish Widows Group Personal Pension (GPP for short)

In the past, you swapped your pension savings for something called an annuity. This paid you a guaranteed income till you died. In 2014 George Osborne brought in “pension freedoms” which mean you can now do what you like with your pension savings

Your pension savings are managed by Scottish Widows, their “independent governance committee” suggest they change the way your money is managed as you get older. The Xyz Governance Committee agrees with their idea.

So from June 2017, Scottish Widows will manage your money differently as you get close to the end of your career. (If you haven’t told us differently, we assume that you will want to start spending your savings at 65).

In the past, Scottish Widows would have managed your savings to help you buy an annuity. Now they will manage your money to help you keep your options open.

The earliest you can start spending your money is 55- if you want to have access to start spending your pension money from before 65, tell us and Scottish Widows will manage money to suit you.

If you don’t know when you’re retiring, sit back. When you get to 50 you can have a conversation about all this with a pension expert from the Government’s Pension Wise team. They can give you guidance on what to do.

Remember – the longer you hold off spending your savings – the further your savings will go!

If you are interested in investment, the diagram below shows you how what this change will mean to the way your money is managed by Scottish Widows before and after the changes.

sun chart 2

“Annuity Targeting” means helping you to buy an annuity and “flexible access” is the technical term for “keeping your options open”. Annuity is before and flexible access is after the changes.

If you don’t like either way of managing your money, you can choose a do-it- yourself approach. You can either do this with the help of a financial adviser (who may charge you) or without. Be careful – managing your pension money needs skill and experience.

Scottish Widows will be sending you more details on all this to your home address. If you don’t want these changes to happen, you’ll be able to opt-out. If you want to tell Scottish Widows you want to take your money earlier- or later – than 65, now would be a good time. If you want to do the management yourself, now is a good time to take charge.

You’ll have 60 days after you get the letter to tell Scottish Widows what you want, but if you are happy with the changes, you won’t have to do anything.

The original may be compliant it is “bad language”.

I won’t expose the EBC (as this might compromise the employer and my source). I have urged the journalist to campaign against shoddy communication.

I am sure that the original is compliant and my version isn’t, but if we continue to pump out badly written garbage to thousands of people at a time, is it any wonder that pensions get a bad name.

The EBC claims to be good at talking to staff and I know it can be, but this is not good – this is rubbish – we expect and demand better. I do hope that the journalist who works for one of the top papers in the land, will pursue this.

Similar examples of pensions bad language can be put in the comments boxes below!

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Royal Mail’s pension; kick out the experts


It was all going so well…

A wage in retirement – not a dump of cash

At the back end of last week,  Royal Mail rejected the CWU’s proposal to establish a new defined benefit scheme designed to keep posties accruing a pension based on career average earnings.

Instead , they put forward a proposal to provide a defined lump sum at retirement and leave to posties to DIY their retirement income – an arrangement known as “cash balance”.

As the CWU’s principal request was that their members continued to build rights to a pension, it met the offer of cash with disdain

 “Royal Mail have released a Press Statement today which is both premature and arrogant.  It is an example of the closed-minded, idea redundant mentality that the CWU are up against.  It beggars belief that the company really do consider that this mutant Defined Contribution proposal is in any way an adequate response to the work and imagination that the Union have put into our Wage in Retirement Scheme proposal.

“The CWU have pragmatically responded to the pension challenges of our time and do not believe that the concept of a wage in retirement Defined Benefit arrangement is dead.  We have been growing intellectual and moral support for our efforts and we will not be deterred in our campaign to ensure dignity and security in retirement for our members.  In the face of conventional wisdom, dogma and shareholder self-interest, we become more resolute and this negotiation is far from over.”

Experts have got us here

The CWU will do more than negotiate;  the CWU’s conference on Tuesday endorsed

“an immediate ballot for strike action”

if Royal Mail tried to impose its plans or failed to “positively respond” to the CWU’s proposals by August.

Whoever is advising  Royal Mail is underestimating the CWU’s persistence and not listening to what it is asking for.

The experts are telling Royal Mail that there is “too much risk” in its proposals. These experts managed to convert a fully funded final salary scheme into a closed to accrual final salary scheme in a few short years. They did so by investing in what are laughingly called “risk-free” assets – the bonds and gilts that make up 90% of the now closed pension plan.

This strategy has led to 90,000 postmen losing future accrual to a final salary scheme, a further 40,000 having no option but rights to a DC scheme, a PR disaster for its human resources department and a massive hit to its share price as investors contemplate what an autumn strike will do to the P/L and balance sheet.

Please tell me which part of the “de-risking” of the pension scheme has reduced risk?

What’s done is done, the CWU are not disputing that the anticipated 52% of payroll cost of keeping accrual going is sustainable. It has moved on, the experts haven’t.

If you’re in a hole…

The experts have got us here, it seems that they want to dig us out.

Royal Mail claim that the plans are too risky. This is based on the banker’s view of pensions – that pensions are a commodity that can be valued and traded – but have no intrinsic merit.

The CWU’s proposals suppose that over time, an investment in equities will not just pay dividends to meet immediate cash-flows (e.g. people’s pensions) but will grow at a faster rate of inflation (the equity risk premium). In the long-term (which is the term that pensions are paid) there is nothing risky about equity based pension plans.

The FAB index demonstrates that if we valued pensions as pensions and not as tradable commodities, we would take less rather than more risk by investing in equities.

What is more , there is a  massive “kicker” to going the equity route, one that could return Royal Mail to its current business plan and away from a disastrous strike.

In return for taking the short-term volatility that comes with equity valuations, Royal Mail get

  1. 130,000 workers with the prospect of a decent pension
  2. A happy and consequently more productive workforce
  3. A happy HR department that can manage recruitment and retention better
  4. A contented union
  5. A share price reflecting Royal Mail’s business plan and not impending disaster

There is no denying that in terms of the annual valuations of pension scheme assets and liabilities (FRS120), a growth driven pension plan will present more volatility than a cash plan, but the CWU’s members want pensions not cash (for all the shouting about freedoms).

These ordinary people are worried than when they lay down their postbags, they will be reliant on the state pension and their works pension.

The CWU have given Royal Mail a get out of jail card, where the cash flow cost of the new pension is projected to remain at the current pension cost of 17% of salary. It has also given Royal Mail the chance to be a progressive employer.

Royal Mail’s expert advisers consider this too risky.  They do so with bankers hats on. They do not understand pensions, people or productivity. Their definition of risk is confined to the spreadsheets they analyse- they are not expert in anything else.

Intellectual and moral support

The intellectual support for this proposal comes the likes of Hilary Salt and Derek Benstead – individuals who understand people , pensions and have a wider view of risk than the bankers who advise Royal Mail could credit.

I will lend the moral support. The promises that have been made to generations of posties have been for pensions , not cash. Royal Mail has agreed to share risk with members in a joint enterprise that makes the early mornings and the yapping dogs worth it.

Kick the experts out

If one of the bankers advising Royal Mail could spend a month doing the job of a postman, they would understand that there is more to life than a spreadsheet and more to a pension than a cash balance.cash balance

Further reading

ROYAL MAIL’S APPROACH TO PENSIONS IS INTELLECTUALLY BORING, MORALLY SICKENING AND AN INSULT TO ITS EMPLOYEES SAYS CWU ; read the CWU’s scintillating press release in full here; http://www.cwu.org/media/press-releases/2017/april/28/royal-mail-s-approach-to-pensions-is-intellectually-boring-morally-sickening-and-an-insult-to-its-employees-says-cwu/

FT comment on both Royal Mail’s and CWU’s press statements; https://www.ft.com/content/3aabfa72-2c10-11e7-9ec8-168383da43b7

Royal Mail’s press statement putting forward its cash balance proposal http://www.royalmailgroup.com/royal-mail-%E2%80%93-2018-pension-review-update

I’m posting the relevant section complete with hints at the “appropriate investment strategy” that this proposal will require (cash for cash).

Member benefits built up until April 2012 are backed by Government. Benefits built up between 2012 and 2018 are backed by the Plan’s assets. From 1 April 2018 the Defined Benefit cash balance scheme would provide members with a guaranteed lump sum at retirement. Members would be guaranteed to receive the total value of the contributions paid towards their lump sum up to retirement. In addition, discretionary increases would be applied up to retirement, subject to the investment performance of the scheme. Once applied, these increases would also be guaranteed.

Having reviewed matters with its actuarial advisers, the Company believes that the risk to the Company of the proposed Defined Benefit cash balance scheme would be materially lower than under the current Plan. The Company would also take steps to manage risk further through an appropriate investment strategy and a proportion of the Company contributions would be held as a pension risk reserve for additional security.

Royal Mail’s initial statement in January, announcing its intention to close the final salary plan;  http://www.royalmailgroup.com/media/press-releases/royal-mail-begins-consultation-active-members-royal-mail-pension-plan-part-2018

Pensions resurgent! – comment on the Royal Mail on this blog

The CWU pension proposals-Your questions answered- comment on the Royal Mail on this blog


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Real money and real people need real regulation.


I am an admirer of Angie Brooks, though my opinion of her is not shared by Andrew Warwick- Thompson of the Pension Regulator.

Angie and Andrew see pension scams in different ways. This evening I talked with Angie about her clients , those she at 63 is fighting for – one has just died of cancer. Angie engages with the problems with passion , with emotion and with great humour.

I sense that those robbed out of their pension funds by the scammers of Spain, Switzerland and Eastern Europe are real people with real money and are deserving of real regulation. Angie has won the respect of people like me because she really cares.

The Regulator needs to get real

By comparison Andrew Warwick-Thompson , (Tinky-Winky in Angie’s world) has an image problem. Here are two quotes taken from a recent review commissioned by tPR supremo Lesley Titcomb

scams 1

which contrasts with this

Scams 2

I think you can guess where Angie is on this

scams 3.PNG

Quite apart from the vivacity of her tweets, Angie is spot on. Here is the substance of tPR’s press release.

The Pensions Regulator (TPR) is warning pension savers, trustees and administrators of the danger of rogue individuals using scamming techniques, after taking action to prohibit the trustees of 5G Futures Pension scheme.

A notice published today by TPR (PDF, 230kb, 6 pages) confirms that John Garry Williams (also known as Garry John Williams) and Susan Lynn Huxley have been prohibited from being trustees of pension schemes with immediate effect on the grounds that neither are a fit or proper person to hold the position, citing a lack of integrity, competence and capability.

Angie has been advising anyone who will listen about the 5G Futures Pension scheme as she has warned against Steven Ward and his scams and many, many more. She does not use legal language, she uses the language of a mother, of a friend and of a carer and that is what the Pensions Regulator can learn.

Real money is stolen from real people and we need more than the press release from the Pension Regulator can offer.

No hostages to fortune

I wrote to Lesley Titcomb about this, this morning saying exactly this. Within 30 minutes, I was talking with the press office who were explaining the limits of the Pensions Regulator’s powers.

It is worth stating again that the Pensions Regulator can only act against trustees and they cannot take criminal proceedings on their own. They need to work alongside the police and action fraud; – to use Angie’s terminology, they have the heat-resistance of a chocolate teapot. If you can’t stand the heat, stay out of this kitchen – at the very least don’t willy-waggle in front of the scammers – they will laugh.

We need a regulator with balls. I hope she will pardon me for saying so, but Lesley Titcomb is that kind of regulator and I wish that she will get real.

We want the personal intense passion from the Regulator that we get from Angie Brooks.

Time to change the tone.

On Thursday afternoon, Andrew Warwick-Thompson produced a speech that would have stunned Angie Brookes. It was funny, passionate and angry. Ok – I was the butt of his joke , but this was this guy at the top of his game and even if he is ducking the forced consolidation of lame-duck DC trusts, Warwick-Thompson had the better of me.

A couple of years back, he was threatening Angie with lawyers and legal action , for doing what Angie does, protecting others.

I want more of the new Regulator, speaking not to a bunch of industry has-beens, but to the scammers and the victims of scams. I want a real regulator speaking with the authentic voice of a Titcomb and a Brooks.

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Why we’re forever blowing (transfer) bubbles!




It’s a shame that Alistair Cunningham’s thought-piece on behavioural bias’ encouraging herds of us to “cash-out” our DB pensions, is behind a pay-wall.

If you are an FT subscriber you can use the link at the end of this article. If you aren’t you’ll have to make do with my synopsis and further thoughts.

Al concludes

It is concerning that the unscrupulous are meeting with the unwise, and the biases that we all share assist the worst possible outcomes, when most individuals should be leaving their final salary pensions untouched.

The article concerns itself with the difficulty of not taking a transfer value. It deals with the dynamics of the adviser/client relationship. The 100% year on year rise in CETV take-up (Xafinity consulting), is having a material impact on the way defined benefit schemes invest and their impact on corporate balance sheets.

One large pension scheme I have dealings with is reporting transfer requests at over £1bn a month, these are materially impacting not just the cash-flow planning of the scheme but its investment strategy. The potential “profit” from restating  FRS120 liabilities after dispensing with CETVs on a “best estimate” basis, looks like a CFO windfall.

Put in lay-man’s terms. CETVs are calculated using a discount rate that reflects the actual asset allocation of the defined benefit schemes. Pensions are accounted for on company balance sheets using a discount rate based on corporate bond yields. Every CETV paid out will reduce scheme liabilities by more than the recognised cost of those liabilities on the balance sheet (unless the scheme is purely invested in bonds!).

We are hearing stories of employers who are not only booking historic gains but booking projected gains based on estimates of the CETV take up in 2017 and beyond. Some employers are booking these CETVs years in advance with whopping great financial windfalls appearing in the 2017 accounts.

Small wonder that we are hearing little from employers or their groups about the phenomenal increase in CETV activity.

The Trustee’s duty of care is to the member

The pension trustee’s duty of care is not to the employer but to the member. For all the talk of “integrated risk management” – this continues to be the case. If I can get the FT to all me to publish Alistair’s arguments in full, I will as they should be in trustee board packs throughout the year; but here they are in summary

Behavioural finance tells us that humans make decisions in ways that reflect their biases, and may not always operate with robot-like logic.

The prospect of poor decision-making is particularly prevalent in complex decisions, especially when they are made infrequently and are irreversible.

Transfer values have gone up in the last year. Individuals “anchor” – retaining recent values in mind, creating a bias towards transferring now.

People assume that falls in transfer values will represent a “missed opportunity” not a change in the costs of providing the defined benefit (pension).

Herd thinking is driving group-think, if it’s good for my colleague it is good for me. The traditional bias towards staying in a scheme can quickly be flipped.

There is a behavioural bias towards over-confidence, people make heroic assumptions about their investment returns while discounting the impact of future inflation.

Eight years into low inflation and an investment bull market, there’s a temptation for advisers to be complicit with this over-confidence, especially when they are the likely managers of the capital generated by the transfers. We are too used to real returns of 6% + over inflation to remember these are unusually high.

Alistair talks of availability bias, by which he means our fetish for freedom. The lure of a huge capital reservoir rather than a prescribed income stream is vivid and real. The reality of retirement is a drop in income to a floor of £155 p.w. (max). This is not so easy to visualise.

Add to these bias’ the “regret risk” of an irrevocable decision either to stay (and see CETVs fall with gilt rates) or leave (and see CETVs fall below return expectations) and the angst posed by consideration of the DB transfer option just grows!

Alistair also identifies risks surrounding a lack of pension education – especially among the well-educated professional classes. Pensions are different from other financial products, they need a lot of engagement; many professional clients allow their wider expertise to over-rule the need for personal due diligence – they take decisions instinctively and get pensions decisions wrong.

This is where confirmation bias kicks in, people who have a pre-determined instinct are saying “don’t convince me with the facts – my mind’s made up”. This can lead to an assumption – even when an adviser is against transferring – that “he would say that wouldn’t he”.

Finally Alistair points out that hindsight bias only ever works one way – to blame someone else when things go wrong! “You should have known” is such an easy phrase to throw at someone with deep pockets (or a liability insurance policy).

The momentum trade is hard to stop

The DB pension trustee is the guardian of a member’s best interests. But when the member is being presented with such an attractive offer as a CETV that tells him he will live for 40 or more years, the momentum to take the CETV can be unstoppable.

The DB pension trustee is not only arguing against all the behavioural bias’ that Alistair points out, but he’s arguing against the immediate interests of his sponsor (the employer). The reticence of the Pensions Regulator to get involved in this discussion has left such authorities as Ros Altmann to increase the momentum to switch.

Indeed , the former pensions minister was even found encouraging delegates at the latest DB conference to negotiate CETVs higher. Let’s be clear, the transfer value is not negotiable – its calculation is agreed by the trustees with help from the actuaries and should reflect the cost to the scheme of the liability given up. IT IS FORMULAIC. It is not to be challenged. ROS ALTMANN IS WRONG TO UNDERMINE THE TRUSTEE’s calculations, she is only adding to the confirmation bias’ that pre-exists in members minds and her encouragement to negotiate is deeply irresponsible.

There remains one further reason that CETV’s are challenged and this is not a challenge to the CETV. It is the deplorable practice among some high earners of seeking compensation from the scheme or employer, for the fiscal implications of taking a CETV,

For those who have pensions of up to £50,000 pa, there is no liability to a 55% pension taxation rate on their pension. But if you take a CETV of £1m + there is. A CETV calculated at 40 times the pension could see someone with a pension of £25,001 paying higher rate tax.

We are now hearing of employees approaching trustees and employers for compensation for breaching their lifetime allowance, because they have or will be taking their CETV.

If proof of the mad-house state of thinking among DB members is needed, that such a practice is even being talked about, is that proof.




You can read Alistair’s article in full from this link (if you are an FT subscriber)



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“Ease of use” or “value for money”?

lewis price

Paul Lewis, above all other financial journalists is the master of the 140 character tweet. Here is one of his very best, embedded in a conversation with Louise Cooper.

The genius is in the “compete mainly on rhetoric and ease of use”

Rhetoric –  my definition “persuasive without sincerity”.

Ease of use – well read the recent blog by Julius Pursaill which argues, as Paul does, that confusing a nice ride with value for money can only maintain the status quo.

Value for money is about outcomes and not the member experience.

No vfm in wealth management

I’m not getting dragged into a debate on the vfm of wealth management propositions. Relative to what can be purchased from NEST, Peoples, L&G and Aviva as workplace pensions, the cost of investing through wealth platforms is outrageous.

They can only justify themselves through rhetoric and ease of use, but the harsh winds of an FCA review into platform charging, are already blowing at their door.

But as Louise Cooper points out at the top of the page, these platforms are still bringing in more than is going out the door; and – so long as all parties are paid on funds under management – a year when markets inflate by 15% means a 15% revenue rise all round. Nice work if you can get  it, and plenty can.

People pay a high price for platforms, portals and for the leather sofas. The people who pay for this kind of “stockbroker” wealth management are at least avoiding the scammers, Angie Brooks and Chris Lean are busy cleaning up after those who don’t. There is “ease of use” and “rhetoric” among the scammers too.

Why are workplace pensions different?

The Government has taken control of the workplace pension market and made it efficient. Out has gone consultancy charging and commission, in have come IGCs, the controls of the Pensions Bill (Act) and the price cap.

The value for money debate within workplace pensions is arguing over the hidden costs of workplace pensions, these costs don’t add up to a row of beans relative to the money that is being frittered away on wealth management!

Workplace pensions are different because they are products that employers have to have. There is no rhetoric in auto-enrolment and for us “ease of use” is about the efficiency of the process, not a frictionless sluice for management fees.

Let’s do a road test comparing St James Place Wealth Management platform and L&G’s Workplace Pension Savings Plan.

This is what I paid my workplace pension provider last month to manage c £400k of money in global equities.


That £46.80 included the cost of the investment platform, L&G’s workplace pension policy costs as well as the 0.1% I’m paying for my fund (0.12% with slippage costs).

slippage 2I know what the slippage costs are because L&G have published them for this fund through its IGC report.

My total costs on my workplace pension are no more than the £46.12 in AMC and £6.67 in slippage (£52.79 in total).

Price shoot out

Now lets do the maths on £400,000 in that St James Place fund

up to 5% on the way in – £20,000

1.85% a year  – £7,400 or £617 pm

6% exit fee year one -£24,000

Slippage – no idea.

Ok so you are unlikely to take your money away in the first year but that 6% only tapers to 0% in year 6, you are effectively locked in to 5x £7400 = £37,000 of management fees (uprated by the market performance). Add to that upfront costs of up to £20,000 and the cost comparison between investing with St James Place and L&G workplace pension savings plan (over five years)  looks like

SJP  £37000 +initial +slippage against L&G’s £3,100 all in.

It looks even worse for SJP over 4, 3, 2 and 1 years.

The choice is yours – “rhetoric and ease of use” or “value for money”.

Take your pick.

Thanks Paul.






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NEST’s dirty laundry on the line!

nest debt

The NEST Debt mountain


Thanks to First Actuarial for producing this chart for this blog.

Here’s how to read

In 2010 when NEST opened , it had no assets – it  had quite a lot of debt (£134m* from setting up days as PADA) so lets assume it started life two years before with PADA.

By March 2017 its debt had increased to £539m (with assets of around £1.6bn – the first time reported assets exceeded debt).

Sometime around the end of 2017 NEST will break through the £600m 10 year loan offered by the DWP and will be into bigger loan territory.

Around 2026, NEST’s debt will peak at a whopping £1,218,000,000. That is how much money it will have to recoup from its customers before it can reduce its charges.

By 2026, NEST will have assets that NEST estimate as  in a range with assets growing to £12-17bn by 2020  and £50-60bn by 2026.

Contributions are expected to be in the region of £4-5bn a year by 2020, rising to £6-7bn a year by 2026.

Over the next 12 years NEST will reduce the debt by £100m a year from 0.3% of its assets and from 1.8% of its contributions.

By 2038 it will be debt free, ten years earlier than the last projected date when this might happen (2048)

After 2038 (28 years into its operation) NEST will be able to reduce its charges to members.

Clearly there is a high degree of dependency on these figures on the growth of contributions and assets. 0.3% of £1bn is £3m. At £60bn you have total revenue to repay debt of £180m pa (from a 0.3% charge).  With£7bn in contributions have total revenue with which to clear debt of £126m pa with a 1.8% charge. I am taking figures at the top of the range of estimates.

Assuming NEST have fixed overheads (and that means its fund managers are not getting a percentage of the fund (ad valorem) then the bulk of the revenue will be available for debt repayment as we move towards 2038.

The acceleration of debt repayment is very much back end loaded towards 2038 at which point NEST’s assets will need to be an awful lot bigger for NEST to be debt free.

This is possible but the potential for NEST’s assets to be up less than 25% of the most optimistic numbers, suggests that 2026 and 2038 are moveable feasts!

 Is this value for money?

The tax payer subsidy for NEST is the loan – Robert Devereux, senior civil servant at the DWP has written to the Public Accounts Committee making the subsidy clear

nest grant

What’s important to note is that while the loan is subsidised, the principal and interest are repaid by policyholders. The NEST charging structure is not expected to change for the first 28 years of NEST’s trading.

So the debt and its interest are matters for NEST’s members (and the participating employers who put them into NEST).

2048 is NEST’s backstop, the latest promised date at which the loan can be repaid (40 years after the setting up of PADA). There is a very real possibility, if assets do not grow as expected that some people will be saving for a lifetime in NEST and always repaying the “initial cost” of NEST.

Will this have been value for money? I think that there will be considerable pressure on the fees of commercial providers competing with NEST and that NEST- stuck with its 2010 fee structure will have to fight hard to justify its charges.

Along with some flannel about 5 star Defaqto ratings, NEST make the case for these charges in a note sent out with the latest projections.

We’ve also published some data (available on the NEST website) setting out some key facts about our members which shows we are playing the role intended for us.

It’s true, NEST have been dumped the worst schemes in the market, the schemes that other providers are happy not to have on their books and schemes that only a truly low-cost provider (which NEST operationally is) could manage.

Infact, while asset and contributions are relatively small, NEST is very good value for money. It charges employers nothing for the loss-making service it has provided for 7 years and will be providing over the next 9. Members are getting great investment returns which we see as sustainable. Provided you are prepared to deal on NEST’s terms , NEST’s customer service works well.

The question is not so much VFM today but of VFM – relative to its competition in the period after 2026. That NEST has not defrayed its costs till then by charging employers set up fees (as most of its rivals have) may seriously compromises VFM for members as NEST matures.

NEST still on track – (just about).

As an insurer of last resort for the auto-enrolment, Government will be pleased that NEST is still able to conjure a financial case for its staying within its financial boundaries.

These financial boundaries were set out in the the State Aid case  presented to the European Union by William Hague in 2010.

There is much in this document to look back on , not least an estimate that the cost of selling a personal pension (then) was £800.

NEST justification by Hague

The majority of the document is a justification for the Government subsidising NEST (against the rules of the EU). The critical table to which the DWP and NEST refer is this one.NEST costs

Although NEST do not explicitly say this, I suspect that they are in low volume low cost territory. Volumes (eg contributions and assets) are lower because of the push back in staging time tables and higher levels of competition than expected. Costs are lower because NEST really has got its act together as a digital operator.

The EU State Aid case is summed up by this one statement early in the document

NEST scale

There is nothing within the documents I have seen, that suggests that Robert Devereux is being devious. We are dealing here with a great deal of debt created by an organisation that has got its costs under control and is currently operating very well.

However, NEST has a debt overhang which is considerably bigger than its rivals and it has no way of recovering that debt – other than from its members. In the very long term (post 2038-2048) I can see scope for NEST to reduce those charges but I see no scope before then. NEST will start looking uncompetitive from the mid 2020s and employers who have young workforces, should be thinking about the implications in 20 or 30 years time.

While I’m pleased that NEST has got its dirty washing out , it’s still an unpleasant sight and carries a slightly unpleasant smell!


Further reading

You can access a copy of the Robert Devereux letter to the Public Accounts Committee here.   http://www.parliament.uk/documents/commons-committees/public-accounts/Correspondence/2015-20-Parliament/Correspondence-dwp-National-Employment-Savings-Trust-200417.pdf

You can read William Hague’s case to the EU for state aid for NEST here; http://ec.europa.eu/competition/state_aid/cases/230348/230348_1194905_107_2.pdf

You can read NEST’s justification for spending all this money here;http://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/NEST-in-numbers_April_2017,PDF.pdf

* The 2010 State Aid case contains this cash flow projection for the first few years of NEST – showing £132-8m costs incurred before NEST opened its doors

NEST estimate of total costs

I doubt that the total estimate of costs to date (£856-938m) is far-out, the £539m assumes some initial revenue (maybe £350-400m), these may be lower than expected. There has clearly been a higher burn than expected, as that £600m loan cap was supposed to take NEST through its first 10 years to 2020

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Forever Young – final 3 – thanks for voting “Andy”!


stop press*****stop press*****stop press*****stop press*****stop press


This article asked you to vote for Andy – you did and he’s in the last three as our most influential pension’s person! Thanks to everyone for this – Andy didn’t make the original long-list and had to be appended! This shows that the cream rises to the top!


For no good reason, I was sitting at the back of a minibus speeding up an Icelandic mountain where a bright-eyed Scotsman engaged me in conversation over the fundamentals of European pensions. By the end of the day we’d seen Jo Stieglitz carried out of his skidoo with a broken leg, eaten smoked puffin and covered all three of the OECD’s pillars.

Who this “Andy” was, I didn’t know. I did know that he worked for the Government, was an actuary and spent much of his time on assignment to Ayia Napa, Reykjavik and other rave capitals (this was the early 90s).

Today Andrew Young OBE is a candidate to be recognised as the person who has made the greatest contribution to UK pensions over the past 20 years.


Voting closes at 5pm today (25 April).  Details are on the link at the bottom but to cut a long link short, all you have to do is send an email to jonathan.stapleton@incisivemedia.com with “Andy Young gets my vote” in the header.

Remember – voting closes at 5pm today – tomorrow your vote may not be counted!

Voting for Andy, you’ll be recognising the technical architect of the PPF, the author of the Young report on FAS and the man who brought Tony Blair to power

The final achievement is tenuous , but Andy did supply the numbers for Peter Lilly’s abortive “Basic Pension Plus” , which as everyone knows, made the conservatives unelectable – things only got better! Andy shaped not just pension policy , but the shape of British politics!

Following the Jags

Andy supports Partick Thistle. Now you may ask  writing a blog for a Partick Thistle supporter is a worthwhile activity.  It illustrates what I love about him!

If the Jags are the alternative to the Glasgow old firm,   Young is the alternative to the pension establishment. He is that very British kind of genius – the iconoclast.

Amazingly, a man who refuses to touch his forelock to anyone, has been relied on by successive pension ministers for his judgement, acumen and good maths.

Andy Young has a moral compass, whose aim is true, Ministers have come to rely on that. He is Partick not Celtic – and certainly not Rangers!

Evidenced based

When the Financial Assistance scheme  (FAS) was set up in 2004 it offered minimal compensation to pensioners. It was the Young report that The Government finally announces £2.9bn rescue package for pensioners. This boosted the compensation available to 130,000 workers and bridged the gap till the Pension Protection Fund (PPF) took over.

Andy was chief architect of the PPF and a passionate defender of the lifeboat. It has been an extraordinary success story. Without it, the reputation of pensions in this country and abroad would have been severely damaged. With it, those in ailing occupational DB schemes have comfort and those in failed schemes comfort. The PPF may not be perfect, but it works and its foundations and superstructure were designed and overseen by Andy Young.


If you are on twitter, follow Andy on this handle. Not only will you get vigorous views on our current pension system but you’ll have an iconoclast’s view of world music from Springsteen to Jimmy Lafave

Andy still works as a strategist for the Pensions Regulator, if you speak with the youngsters who know him, they will tell you he knows more of the Brighton music scene than they do.

His wife Sara, his huge number of kids and his fan club (of which I am a member) know Andy as 67 young. He is a man of infinite compassion and good humour and a man who when angry – cannot be stopped!

Andy was given an OBE in this year’s honours, unlike others in financial services, this scarcely got a mention (even in tPR’s own press release). But nobody more deserved the honour and no honour could have given me more happiness.

So put your feet up, slap on the cans and listen to Bob singing of my good friend !

Details of the competition and other candidates can be found from this link.


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Winning and losing IGCs – class of 2017!

With (almost) all the known IGC reports in, it’s time to see how the reports of 2017 stacked up against 2016. Apologies that the links in the table don’t work, my formatting skills are poor and I’ve included the links in the Directory below this picture.

IGC2 all


Who are the winners?

In general , the standard of report writing has improved from 2016 to 2017 and two of last year’s losers (Aviva and Hargreaves Lansdown have been particularly improved.

The quality of the IGC reports from the legacy providers continues to impress, it is frustrating that the SIPP providers operating in the workplace are late in reporting (Hargeaves excepted).

Who are the losers?

The Scottish insurers continue to lag L&G and Aviva. It was a shame that Royal London’s report was a mess as they are clearly trying very hard to get it right. I ought to point out that Royal London appear to be working as hard as anyone and their team are engaging with value for money – read Julius Pursaill’s recent blog as evidence. All the same, the big four of Standard Life, Aegon, Scottish Widows and Royal London need to pull their socks up with April 2018 reporting.

Favourite report?

There were three reports that stood out this year. L&G for its pioneering work on disclosure, Aviva for its fresh feel and engagement with ESG and Virgin Money, who again show what can be done to engage jaded customers! For its improvement on last year, my favourite report in 2017 is Aviva’s.

What of the GAA’s?

The Governance Advisory Arrangements (GAA) are the IGC’s kid brothers and there are lots of them. I have written about them in 2016 and will do a round up of the 2017 reports in May. You can see who’s who by following this link (Guardian is now part of ReAssure). You can read about the destitute world of the GAA here.

What of the Master Trusts?

The Master Trusts (MT) also have to provide Chair statements but they have a longer timeframe. I will be trying to keep track of these statements but if any MT provider wants to send in their statements for scrutiny, I will be most grateful.

Like the IGCs, the MTs also have to report on value for money, unlike the IGCs , they don’t have budgets. We are relying on the IGCs to progress matters, not least because most of the energy is coming from the FCA (rather than the Pensions Regulator).

What about those links?

Here are the links that i couldn’t activate above.  Choose my review of the reports using this list (please report links that don’t work). The reports themselves are on the Tinyurl to the right.

If you know of an insurer that has published an IGC report that we do not track, please send details.


Royal London                                                             http://tinyurl.com/mrthsaq
Prudential                                                                   http://tinyurl.com/koaoo5k
Legal & General                                                         http://tinyurl.com/lccnpke
Scottish Widows                                                        http://tinyurl.com/k83quv9
Aviva                                                                            http://tinyurl.com/n7rr6v6
Friends Life                                                                 http://tinyurl.com/n7rr6v6
Aegon                                                                           http://tinyurl.com/mgsfok2
Zurich Assurance                                                       http://tinyurl.com/k7fcc3q
Standard Life                                                              http://tinyurl.com/n69wfbv
Asset Managers
Fidelity                                                                        http://tinyurl.com/mawd4gu
BlackRock                                                                    http://tinyurl.com/mgdx47y
Legacy providers
Old Mutual                                                                 http://tinyurl.com/lbxunoz
Abbey Life                                                                  http://tinyurl.com/nxclr75
ReAssure                                                                     http://tinyurl.com/lcwfnvp
Virgin Money                                                             http://tinyurl.com/nx48ksc
Phoenix                                                                       http://tinyurl.com/ldjc7ov

B&CE                                                                            http://tinyurl.com/lxy7r43

New breed SIPPs
HL Vantage                                                                http://tinyurl.com/n4hyzdj
True Potential                                                            http://tinyurl.com/kfq778c
Intelligent Money                                                      not published yet
Posted in IGC, pensions | Tagged , , , , , | 4 Comments

Are pension advice tax-exemptions washed-up?

washed up


Snapped up or washed up – what’ll be left of the Finance bill?

Here’s some correspondence from one of my most reliable correspondents.

We’ve been told that the current finance bill (longest in history) will now be rushed through in three days not three months.
This either means no scrutiny or debate on stuff that’s currently wrong as drafted like the ‘off payroll’ new rules or that big chunks will be dropped and they’ll just do the bare minimum to allow tax and Ni to be collected legally rather than rely on the deadline embedded in the PCTA (provisional collection of taxes act 1968) of six months and five days.
So for example the increased tax exemption on pensions advice could fall by the wayside to be regurgitated in a second finance bill later this year (assuming a Tory re-election so policies remain as now). This is a bit tricky if you’ve already relied on it as an employer as no one in government is likely to make you aware you’ve now provided a taxable benefit!
Purdah also just means yet another month (we’ve just had one month from 22nd Feb to 20th march) when we are cut off from any stakeholder engagement and given business as usual is falling apart that’s not a good place to be

(Perhaps coincidentally), a commons briefing paper was published on the scrutiny process used on the pension bill on April 13th (less than a week before the Snap Election announcement).

It is designed for MPs and has strong words for the (lack of) parliamentary scrutiny given the budget at the best of times. It quotes the Tax Law Review Committee’s 2003 conclusion.


More than a decade later, we are seeing the most brutal termination of political debate in living memory.

Over the next couple of weeks we will see social media keeping us informed of the reversal of policies on which we have been advising clients in good faith.wash 2

This brutal demolition of process demands public protest.

We are living in brutal times. The normal rules of parliamentary democracy are being thrown out to clear the decks for our BREXIT negotiating position.

Attempts to provide useful information to clients about the policy agenda will have to be caveated by “subject to the Brexit negotiations”.

This was never in the “remain” or “leave” script. This is something new and this brutality towards the normal processes of Government is leaving a lot of us cold.

Frankly, politicians are paid to Govern, to manage the political process according to rules established over centuries. The consultations which we “the people” respond to supplement that process. Ordinary people can influence bills through amendments and (as this blog shows) , if you are prepared to state your position effectively, you can have an influence on the rules that govern us.

The defenders of these processes are the people – as well as the politicians – I am deeply concerned – as my correspondent is – that policy is being managed in this way.

This is no way to govern.

washed up 2

You can read Antony Seely’s research paper “the budget and the finance bill” here.



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Snap elections – people – and policy! #GE17

snap 2Snapping people

The cost of a snap general election will be highest for the politicians, their advisers  and their families who lose their livelihoods on June 8th. It is tough on MPs, especially those who joined since the 5 year term was introduced. Yesterday over 500 (potential) turkeys voted for Christmas (the SNP abstained and 13 objected).

It’s a poor return on human capital, when you commit to a five year term and get just over 40% of it. Not that most of those in Government are taking much of a risk. Our pensions minister has a 10,000 majority in Watford and it would take a major banana skin or a messianic performance from an alternative leader to see him not resume his place in a new Government. But the personal disruption is still there and for many MP’s in marginal constituencies, May will have pressed the nuclear button. Snap elections can snap careers and hurt colleagues and their families.

Get snappy!get snappy

When I was sitting in the Pension Minister’s office, minutes after May’s announcement, the first thought was for the Pensions Bill, sitting somewhere in Buckingham Palace, awaiting Royal Assent. Infact it comes down to getting Her Majesty to put pen to paper. I wonder if she is asked to read the small print.

I got the impression that Royal Assent would be granted, not just to this Bill but to the more immediately important Finance Bill, without which the country cannot be properly run.

However, the Government’s requirement to publish its plans for the state retirement age is a rather more tricky matter. Steve Webb, who yesterday confirmed that a replacement parliamentary candidate has been found for his former constituency, ruled himself out of returning to Westminster. webb

But he continues to be pensions best political commentator pointing out that on the state pension, the Government has a legal duty (under the 2014 Pensions Act) to respond to the recently completed review of the state pension age by May 7th 2017. Webb commented

The prospect of an imminent election probably means an aggresesive timetable with twenty-somethings working into their seventies is off the table for now.

By an odd coincidence, following our meeting, the Pensions Minister was off for lunch to say thank you to  John Cridland, I hope that the snap election does not snap the good work of the Cridland review (or of the work GAD has done) to help us understand what pensions we can afford to pay ourselves- and when.

There will be a lot of people in Whitehall “getting snappy”.

Snapping policy


Jo Cumbo, writing in the FT points out that disruption injures the progress of reports in progress. We have a Green Paper on Defined Benefits , an Auto-Enrolment review (including a review of the inclusiveness of the charge cap), the FCA are due to publish their formulation for calculating costs and charges in the early summer and Matthew Taylor is in the middle of his research on the gig-economy.

The progress of all these initiatives could be disrupted by a change of Government and will be stalled as civil servants, policy wonks and politicians wait to see the snap elections outcome.

This is nicely summed up by the instructions given to Civil Servants and those who advise MPs around “Purdah”. This is from the 2015 instructions which were re-issued on April 10th prior to the May local elections (a rather more publication following this week’s development).


It is unlikely that we will see any great developments that have a political dimension in the next seven weeks. This is why Steve Webb felt an aggressive statement on the state pension age was unlikely and this is why we will definitely not be seeing very much mor of our Ministers – in a ministerial capacity, this side of the second week of June.

Snap chat

So if your event has a minister as keynote, take note. If you are planning around a firm policy announcement by May 7th, take note. And if you are a civil servant, you had better be on the phone to Buckingham Palace or Windsor Castle, chivvying your monarch into signing mode!

I wonder if she does electronic signatures.snap 3

Further reading

Royal London paper on the snap general election  https://www.royallondon.com/about/media/news/2017/april/what-does-the-snap-general- election-mean-for-our-pensions-steve-webb-royal-london/?amp%3Bepslanguage=en

FT article (Jo Cumbo) on the snap general election https://www.ft.com/content/07a05fd4-2520-11e7-8691-d5f7e0cd0a16?desktop=true&segmentId=d8d3e364-5197-20eb-17cf-2437841d178a#myft:notification:instant-email:content:headline:html

Addendum – problems with the reading of the 2017 Finance Bill

I’m grateful to Susan Ball, head of National Employer’s Advisory Services for these thoughts on the progress of the Finance Bill

The up and coming election is likely to have a big impact on the Finance Bill 2017 currently going through the parliament.

The second reading was on 18th April with what should then have been a normal progression through the houses and Royal assent in July. See http://services.parliament.uk/bills/2016-17/financeno2.html

But Parliament has to be dissolved 25 working days before Polling Day. This means that Parliament will be dissolved on Wednesday 3 May.

The House may Prorogue (suspend but not dissolve) before then. The Leader of the House indicated on 18 April that talks regarding prorogation will follow the motion passed yesterday.

Normally the House of Commons will spend most of a day (or more) on a stage of a bill. However, during the wash-up, when several bills need to be considered in two or three days this is not possible.

So this wash-up could occur next week and we will then know what happens or what is left of the Finance Bill 2017.  At 762 pages the Finance Bill is currently the longest on record.

We have to hope that they decide there is only a need to pass a basic Finance Bill before the election, containing those measures essential to the current tax system and that most other measures are left out.

But they may not take that view for areas which came into force from 6th April 2017. So we are in real great danger of having the “off payroll in public sector” legislation and “Optional Remuneration (OpRA)” or salary exchange rules past without any of the normal scrutiny, with no detailed guidance from HMRC and major areas of uncertainty.

Lets hope parliament does take a sensible approach and drops them until the post election Finance Bill giving time for the problem areas to be properly ironed out or if that is not possible moves the start date to 6th April 2018 to allow time for organisations to deal with the major changes and HMRC to issue detailed guidance  rather than acting at in haste ….

You can read the original of Susan’s comments at https://www.linkedin.com/feed/

Posted in dc pensions, pensions, Pensions Regulator, Popcorn Pensions, Public sector pensions, workplace pensions | Tagged , , , , , , , , , , | 3 Comments

What a “strong mandate” means for pensions.


Since the range of outcomes considered by the bookies ranges from “strong” to “weak” conservative majority, I’m putting my money on the Liberals getting an overall majority (only 25-1 with William Hill). That seems the likeliest alternative outcome and I’ve suggested to @stevewebb1 that he gives uncle Phil six weeks notice (is he still on probation?) and get on the stump in Thornbury and Yate.

I have a side bet with Alex Cunningham, the shadow pension minister and can do a reasonable impersonation of the Vicar of Bray if the country decides Jeremy Corbyn is the man to negotiate us through Brexit.

And this is law, I will maintainvicar of bray
Unto my Dying Day, Sir.
That whatsoever King may reign,
I will be the Vicar of Bray, Sir!

Opportunism or agility?

There is nothing that so enrages those with political conviction as fragrant opportunism. The “u-turn” from our prime minister enrages everyone, especially the Guardian (see Rafael Behr’s article on “game-playing” – link at the bottom).

There must have been a political barometer (maybe an app) that May could consult which determined the point at which the opposition were so weak that they wouldn’t even oppose this fragrant violation of 5 year parliaments (a policy May herself voted in).

The barometer seems to have swung into “fair times ahead” as she sat in Snowdonia admiring those just getting by, going by. By happenstance I was in Maidenhead over Easter – her constituency. You don’t get many slate mines in Maidenhead and you don’t get many three star restaurants in Festiniog!

beeching 2

George Osborne

To the point

You don’t get much credit for raising taxes if you are a Tory. Osborne couldn’t raise taxes on pensions because his own back-benchers wouldn’t let him. He thought that his back-benchers would deliver a Remain vote and forgot that a referendum includes people outside “the village”.

The fact remains that our economy owes money and all the rules laid down by Osborne have been cast aside (ostensibly to help those getting by – but in reality to get the Government by). There is nothing wrong with that – the chaos of last summer needed someone to get on with things. Now that things have calmed down, Hammond can be given some head-room to tax the self-employed, pension the self-employed and include Matthew Taylor’s missing millions into the “real economy” – e.g. tax UBER/Deliveroo etc as major employers.

All this was going through my mind, and I imagine the Pension Minister’s mind, as we drank tea in Caxton House yesterday.

Those with extreme memories will remember that in 2015, the Treasury embarked on a major review of the taxation of pensions which resulted in the implementation of the Lifetime ISA – hardly a good return on human capital employed. The plans for a restructuring of pension taxation still sit on the Treasury’s X drive; (fake news-hackers) and the fundamentals remain exactly the same as this time last year, when they were put there.

The idea would have been to ditch the current Heath-Robinson system of LTAs and AAs and PIPs and tapers for a simple system where you paid tax on the way in and paid less tax on the way out. This could all have been achieved with the help of devices within the taxation system that allowed the Treasury to clip your pension , shave your pot and recover what he liked by means of Real Time Information and payroll.

The Treasury managed a similar exercise when they switched RPI pensions to CPI pensions a couple of years ago. The lessons of “pension deficit de-risking” can be applied to “budget deficit de-risking”, you don’t miss what you never had.  Gordon Brown managed it, why not Philip Hammond!

Will reform of pension taxation happen?

One of the benefits of Brexit to a weak Government is it takes eyes off the ball. The ball had been bobbling around in the fiscal penalty area for some time and is now in the safe hands of goalkeeper Phil.  He is however close to having it for more than ten seconds and I predict that by the Autumn Statement, Phil is going to have to put the ball back in play.

Whether the pension taxation system is still at the front of the reform queue is an interesting question. Theresa’s constituents in Maidenhead looked prime targets for a higher rate haircut if not a reversal of taxation fortune. But this is silly talk. May and Hammond will do exactly what is best for Brexit – which is what they’ll be judged by.

Those just getting by will continue to feel the longer term impact of the austerity reforms brought in by evil (and now very rich) uncle George and perhaps this will be enough to right things. The OECD revised Britain’s GDP growth up to 2% for the year and Hammond may be able to argue that there is enough momentum in the economy for pension tax-perks to be spared.

The triple-lock seems doomed.

The manifesto pledge to keep the triple-lock till 2020 can now be restructured and I fear it will. I would be very sad to see it go as it is by far and away the fairest way of redistributing economic capital to the retiring poor.

It has survived longer than some thought but it is a benefit that costs more than it earns in political capital. By comparison, auto-enrolment and the pension dashboard are cheap to run and earn Government fame and favour at home and abroad.

A strong mandate means a swing to the right

Mrs Crankie, whingeing in Jock-land is right, given their heads, May and Hammond would pursue the agenda that best suited the short-term success of BREXIT over everything else. Managing that little baby will define her time in Government.

I am far from certain that annoying higher-rate tax-payers, by simplifying the taxation system serves her cause (she and her colleagues are major beneficiaries of the pension taxation system). If she was a politician who was driven by conviction , she would see through pension taxation reform and keep the triple lock, that is what you do if you want to help those just getting by.

But yesterday’s move shows her at best agile and at worst shamelessly opportunistic. Which suggests that the rich will continue to get their tax-privileges’ from pensions and the poor will get no further benefits from the triple-lock.

I would be happy to be proved wrong!



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Meeting the Pensions Minister

Tomorrow (18th April) I get to meet the Pensions Minister, which I’m excited about.

I’d written to Richard Harrington a few weeks ago, after an amendment to the Pension Schemes Bill had been thrown out. I’d helped the Labour Party prepare the amendment which wanted it explicit in legislation that an “employer had a duty of care to its staff to choose a suitable workplace pension”.

Employers have a number of such duties, mainly in the area of health and safety. ACAS produce a simple explanation of them which you can read here http://tinyurl.com/qe5m9q4.

But extending the duty of care to a staff’s financial well-being is another matter. The Government, in arguing against the amendment, explained that the Pensions Regulator gave employers some help in choosing a pension and providing that a choice was made following the Regulator’s guidelines, there was really no need for further employee protection.

A duty of care or an act of good faith?

Speaking with various lawyers on a conference call arranged by the Transparency Task Force, I was surprised to be told that what I was wanting was for employers to act in good faith (rather than to exercise a duty of care).

I’d be grateful for any lawyer or legal expert to explain the precise difference, but from what I can read, acting in good faith is a rather less onerous obligation than “a duty of care”.

Frankly, the degree of the obligation is secondary to their being an obligation. What I am concerned about is that no thought is being put into the choice of workplace pensions, a choice that should be made by an employer.  How we ask employers to engage with the choice of pensions is important. It is about getting the best outcomes for staff, as well as avoiding the worst.

The knowledge gap on workplace pensions

In my view, the capacity of staff to make reasonable decisions for themselves is extremely low. This is also the opinion of the OFT.OFT

The OFT was writing in 2014, when auto-enrolment was impacting larger employers with in-house pension expertise or a budget to access external advice.

Today there is generally no pension expertise among employers staging and only a minimal budget to understand what makes for a suitable workplace pension.

What of tomorrow?

I am confident that the vast majority of workplace pensions in place today are fit for purpose and are suitable for the needs of most employers. There are a few bad apples which surface from time to time (myworkplacepension being the latest). I do not expect any of the large workplace pensions to go belly up, but I do expect there will be grievances from classes of employees who feel they were offered the wrong scheme.

  1. Employees on low earnings saving into schemes from which they can get on government incentive (tax relief)
  2. Employees who are denied an investment option that meets their religious or moral make-up.
  3. Employees who are invested in a workplace pension which (for whatever reason) deteriorates in quality and falls behind others.

When all you can judge a workplace pension on is it’s promise for the future, then there are few immediate differentiators (net pay v RAS and  investment options are examples).

But if we develop a comprehensive and consistent value for money scoring system that allows ordinary people to compare the progress of their investment in one workplace pension against another, then people will become much more interested in why an employer chose one pension over another.

Creating a way to compare pensions,

I write a lot about IGCs and Trustee Chairs and the important role they have in assessing their workplace pensions for value for money. So far they have failed to come up with a coherent measure to benchmark each scheme against another.

I am keen to create such a measure and to publicise how each workplace pension is performing against it. This is how I wish to develop the work we have already done on scheme selection ( http://www.pensionplaypen.com) .

But creating a transparent performance comparator will be controversial. For it will need to show performance, explain performance and explain what is holding performance back. One thing we know from the research done by the IGCs over the past 12 months is that people will judge their workplace pensions by outcomes.

The IGCs and other fiduciaries of workplace pensions need to publish and explain outcomes as soon as possible.

Employers should become very interested in these value for money scores and the components that go into them. They will determine whether they backed a title contender of a relegation struggler.

Employees should get interested too (as they are in countries with mature compulsory saving systems). Australia and America both have intense interest by all parties to Super and 401k plans.

The state of today

We know that when we – as employers- choose a workplace pension for our staff, we are doing so on their behalf.

When I asked a group of 170 employers at Sage Summit earlier this month, whether they felt they had a duty to choose a suitable pension, every one put up their hand, not one said it was not their business.

And yet the vast majority of decisions being taken today, are being taken blind. The Pensions Regulator’s choose a pension pages do not even demand that the reason for the choice is documented. The majority of employers who I spoke to after the Sage event admitted to not feeling confident why they made the choice they did. Only two I spoke to had documented why they’d chosen as they had (and they’d had to because they’d used Pension PlayPen!).

The truth is that most employers are buying blind, having no clue as to why they are buying one pension over another and they have anxiety that they are not exercising any duty of care- or good faith – at all!


Meeting the Minister

I have two objectives when meeting Richard Harrington;

The first is to impress upon him the bind that auto-enrolment is putting on employers with regards the selection of the workplace pension.

The second is to inform and engage him in the importance of transparent information that allows employers and members to compare the value for money of one workplace pension against another.

The two matters are inter-related; the first is a matter for the Pensions Regulator, the second for the FCA. In as much as the Pensions Minister’s remit is to make the auto-enrolment project work, it is critical that both regulators work together. My hope is that I can help pull regulation together to improve engagement both from employers and those who work for them.

If you have any comments on this , or matters that you think I should be bringing to the Pension Minister’s attention, drop me a line at henry.tapper@pensionplaypen.com or add a comment below.

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A pensions dashboard brings its own risk.

A need for pension

I am keen not to pour cold water on the pensions dashboard, but I am not having it promoted as the game-changer to savings behaviour. The pensions dashboard is what Martin Clarke, the Government Actuary, refers to as ” a mechanism to deliver policy objectives” in his recent blog on adjusting the state pension age.

It is clear to me that most people still consider the state retirement age as the point when “we are allowed to retire”. The reports of both GAD and John Cridland link the state retirement age not to when we’d like to retire but when the nation can afford us to retire – and subsidise retirement with state paid income.

The most important numbers to be delivered through the pension dashboard will not be from the private sector but from the DWP, indicating our state pension entitlements – what and when.

From what I have seen of prototypes, these numbers will continue to be delivered as income and not as a capital sum. There is no plan to offer a CETV on the state pension. People may be interested to fantasise about their state pension’s replacement cost but this has no more value than accelerating all our earnings since we started work and boasting that our lifetime income capitalised runs to £xm.

No matter how painful it is to ignore capital and think of lifetime income, we need to do the maths this way. We cannot allow the dashboard to become a placebo where a projected capital sum deludes us into a false sense of future prosperity. Retirement saving is a lot harder than 1% of band earnings, it’s a major endeavour, as important as going to work, paying the rent or mortgage and bringing up our families.

A need for enterprise

We have taken a decision, unlike many of our peer group of retirement saving nations, to make the dashboard a commercial enterprise that can be offered by any number of organisations as a means to promote their purposes. I agree with this, the state is not good at promoting itself as a pension provider, viewing our retirement savings holistically is a good idea and there is plenty of incentive to pension providers to promote their dashboards as a means of increasing pension flows their way.

Since we have three sponsors (the OECD pillars) in our pension system, let’s hope that these commercial dashboards will properly promote not just the state and the individual’s role, but the part played by employers in delivering pension outcomes. By commercialising the delivery of the dashboard, there is a good chance that employers can be brought to the party, their contribution recognised and their engagement with their employee’s pension encouraged.

Martin Clarke 4

However, in passing the dashboard to those promoting pension savings for commercial end, we need to be mindful of the risks this brings.

  1. There is a risk that by adopting uniform projections of private pensions, people are led to believe that outcomes are automatic. They are not, they depend on the quality of investment and the costs deducted.
  2. There is a further risk that providers will consider the dashboard an excuse not to invest in product but to focus purely on marketing their ease of saving
  3. There is a regulatory risk that the Government will take their focus away from the value for money agenda, wowed by the wonders of Fintech.

As regards the difference in outcomes from investment and costs, the dashboard needs to be developed in conjunction with reporting on how providers are actually doing. We need league tables that tell us accurately how each provider’s default investment option has performed, the risk taken to get that performance and the slippage from gross to net performance that indicates the cost of investment. We need , in short a “value for money” score, independently calculated with the stamp of the regulators upon it.

When it comes to product, we need the IGCs and trustee chairs to step up and provide dispassionate evaluation of the progress of each provider in delivering value and reducing costs. Providers must understand that the IGCs and trustees are their consciences and not an extension of their marketing arms.

When it comes to Government, we need as much attention paid by the Treasury team, lining up at Fintech conferences, to good governance as sexy promotion. It is only too easy for the Treasury to continue to bag short-term acclaim at the expense of what happens in decades to come.

And a need for circumspection

There is a lot of good coming out of the dashboard. It will make for cleaner data, it will push pension providers forward to embrace the Fintech dividend of higher individual engagement and it should lead to aggregation of savings into better product.

But we need to be circumspect and not allow the noise of the Digital Garage, to disguise the serious task ahead of us in turning Britain from a savings laggard to an example of a balanced society with a sustainable retirement savings culture.

Further reading –

Government report on last week’s tech sprint; https://www.gov.uk/government/news/winners-of-pensions-dashboard-techsprint-revealed-as-fintech-week-2017-draws-to-a-close

Daily Mail article showing examples of pensions dashboards; http://www.thisismoney.co.uk/money/pensions/article-4364904/Pension-dashboard-showing-savings-2019.html

Martin Clarke’s blog about pension adequacy and the state pension age; https://www.gov.uk/government/publications/periodic-review-of-rules-about-state-pension-age

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Slow and steady – the Zurich IGC


Laurie Edmans, Zurich’s IGC chair is a laid-back man. It shows in the IGC report that is considered and unhurried. It is a very good read as a deliberation on value for money though it is rather short on action – which for policyholders like me – is something of a let-down!

Zurich’s IGC is contrarian. To it and Zurich’s credit, it is made up only of independents with no Zurich staff on the committee. It was also unusual last year in going it alone to find out what people wanted from their workplace pension and how they’d consider value for money. It would seem that though Zurich did not participate in the NMG survey, their work reached similar conclusions


From the 2017 Zurich IGC

What can Zurich do?

It is clear that Zurich can do considerably more to influence the outcomes on money they receive than determine the contributions themselves. Having been head of sales at Zurich, I know how keen Zurich are to see higher contributions per member – it is a key commercial metric. It aligns with what is in the long-term interests of policyholders  (despite conflicts with short term debt/housing).

However Zurich can do little to influence the contribution rates to their workplace pensions from employers and employees, this is the gift of employers, employees and to a degree advisers. The report admits this.

By comparison, there is a great deal Zurich can do to improve outcomes of their policyholder. This includes reducing legacy costs with a minimum of 1% exit fees for those over 55. As a legacy policyholder (over 55), I’m not impressed that Zurich’s conversation with the Regulator about reducing these exit penalties is “still open”.

More importantly for those actively saving into new workplace pensions are whether the Zurich investment options are providing value for money. We have no way of knowing this as the IGC has not even been able to get the data necessary to publish transaction charges. In a very sinister statement Edmans writeszurich4

Clearly a number of managers are not coming quietly, the journey to a transparent world will be a long one. It is a shame that Zurich ran out of time to publish the findings of Zurich’s first report – especially as we are now two years in!

Better late than never?

Zurich’s IGC also received the final report from their market researchers too late to apply it to the five principles that it had come with go determine value for money. I agree that the principles are split between hygiene factors (compliance and customer service levels) and “value attributes” . Hygiene factors form (for Zurich) the platform on which value attributes are judged and without them , any idea of value is a nonsense.

I am impressed by the IGCs principle that value for money should not just be considered in isolation but should be benchmarked against other workplace pensions. This is progressive, radical thinking. For all its dilatoriness, this report gets down to some serious thinking.

This is slow and steady stuff, a little too slow and steady for me, but at least it is coherent and consistent. The tone of the report is serious, there is no attempt here to big-up Zurich and though the relationship with the company seems harmonious, the IGC is clearly keeping itself at arms length. I like the tone of the report and give it a green.

I am not too sure that this is an effective report. Everything seems about to happen, As far as I can make out, some of the stuff that hasn’t happened, is now in breach of the new exit penalties rules. While there is some tough talking in the Report, there is not a lot of action. Sadly I have to call this report ineffective and will give it a red.

Finally, the work done on value money is good work. The money and time spent on consumer research has given the IGC the five principles and a basis for assessing vFM.

The degree to which Zurich can be held responsible for the “light-bulb moment” that will illuminate to ordinary people the need to change their (saving) ways – is debatable.

The degree to which Zurich can manage “value attributes” is easier to judge. Let’s hope that the final formula that the IGC arrives at, weights what can be measured rather higher than what can’t.

I think that Zurich IGC’s have taken not just their own understanding, but our general understanding a little further. The split between hygiene factors and value attributes is sensible and the emphasis on benchmarking disruptive. The narrowing down of value to the two essentials of return and engagement, may be something of a breakthrough.

I am happy to give the IGC’s work on vFM a green, even if we are light of any evidence that Zurich is supplying it!

You can find the Zurich IGC report here; https://www.zurich.co.uk/en/about-us/independent-governance-committee

IGC zurich.PNG

The Zurich IGC

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A time to be angry

royal mail

This makes me angry


I got angry yesterday…

I was on a conference call with a couple of lawyers arguing about the technical difference between a “duty of care” and the need to “act in good faith”. Apparently the semantics let an employer off the hook for the outcomes of its workplace pension!

When I asked a group of 150 employers in a room at Sage Summit whether they felt they had a duty of care towards their staff 150 put up their hands to say “yes”.

I’m angry that employers are being plied with the “all pension schemes are the same” – “no one can be blamed for choosing NEST” and “you shouldn’t get involved” arguments.

If you believe your staff are your greatest asset, you care about how they are paid and how they save.

I was in the room with the most pacific colleague! That person in the room with me got angry with the casuistry – righteous anger is  infectious!

Postal workers are angry

Royal Mail 4

The 140,000 postal workers are angry too. They were told when the Government privatised their company 7 years ago they would remain in a defined benefit pension scheme. Money was put in that scheme to make it viable, seven years later that scheme is being closed because to keep it open would cost over 50% of payroll.

Nobody wants 50% of pay to go into a pension, we’ve got to pay today’s bills too and if I were a postie, I wouldn’t be argued that this pension scheme should stay open. But I’d be seriously angry that it has gone from fully funded to unfundable in such a short time! We all know the reasons, the trustees thought slamming funds into bonds was a risk free strategy, they were wrong, look at the share price in the past six months.Royal Mai7

No one wins from this; the decision of the trustees to secure existing pensions has been a disaster not just for City investors but for the share options of Royal Mail staff, the job prospects of Royal Mail staff and for the postal service we rely on.

The posties should be angry, very angry.

In place of strife

The solution that the Royal Mail has come up with is clearly not pacifying the postal workers.

Nor will the advice of John Ralfe;

“Closing the DB scheme was inevitable to reduce RM’s costs and risk. Rather than trying to stop it, the CWU should be negotiating a more generous DC replacement”

Had the Royal Mail adopted a typical bond/equity mix rather than the slam-dunk into bonds, it would not have been inevitable that the scheme would have become unfundable for future accrual. But put the past aside, the old scheme is closed, good riddance to its niggardly strategies.

But DC is not the only option open to the Royal Mail, the FT reports (alongside John’s advice) that the Royal Mail has proposed

 “a less generous, but commonplace, defined contribution scheme in which workers take responsibility for investing and drawing income from their retirement fund”

but the Communication Workers Union (CWU) have put forward a compromise proposal

Royal Mail considers union’s pitch for ‘new kind’ of pension plan

CWU says its proposal would strike a fairer balance over sharing some financial risks

The CWU proposal would keep the current (not the increased) funding level of the DB plan, making the new plan DC for funding purposes. It would float the benefits so that – in future, things like the level of indexation of pensions weren’t guaranteed.

So it’s good to see the Royal Mail tell the FT

“We continue to work closely with our unions on a sustainable and affordable solution for the provision of future pension benefits.”

It ain’t necessarily so

We’ve got used to being told by experts that we must sit back and accept the lowest common denominator.

But the Gershwins wrote “it ain’t necessarily so” in the aftermath of the great recession to counter the heterodoxy that people should take it lying down!

Here is the cut verse of the song, that I sing to myself when I’m told that shit happens,

Way back in 5000 B.C.
Ole Adam an’ Eve had to flee
Sure, dey did dat deed in
De Garden of Eden
But why chasterize you an’ me?

Employers should have a duty of care to their staff (no matter what the lawyers say!)

The Royal Mail should negotiate for a more certain solution (no matter what John Ralfe says)

The DWP/tPR should pursue Philip Green/Rutland Partners and all the other shitesters who want to make money restructuring pension obligations into the PPF.

I could (and won’t) go on.

It ain’t necessarily so, but you won’t hear anyone singing that song – that’s because the voices of the 140,000 postal workers and their union are marginalised as “disruptive”.

It seems ok to be disruptive if you are a trendy Fintech, but not so if you’re fighting for your employment and pension rights.

As my friend Hilary Salt points out;

royal mail 9

The 140,000 postal workers should be very angry with those who argue DC is the only option.

It ain’t necessarily so – and it’s time that they and  their union – got a little more airtime!

Read more (and get an FT sub!)

Read about the DB closure and the strike threat here; https://www.ft.com/content/936f47e0-201c-11e7-a454-ab04428977f9

Read about the CWU alternative proposal here; https://www.ft.com/content/465fcda4-05bd-11e7-aa5b-6bb07f5c8e12

Read the latest news on Private Equity pre-packing pension rights into the PPF here; https://www.ft.com/content/f9126af2-2051-11e7-a454-ab04428977f9

Get angry!




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Ombudsman 1 – Freedom 0

pensions ombudsman

It would seem that Mr T (neither of the A-team or of this blog) has been sent packing by the Pensions Ombudsman.

Mr T sued Standard Life’s staff pension trustees to max-up his CETV. He did so using an online portal which gave him sight of what his CETV might have been, had he applied for it on that day.

The Ombudsman’s view is that the quote you get is what you’re offered according to the scheme rules and you shouldn’t be driving yourself and everyone else mad pointing out that the CETV would have been higher every time the valuation discount rate changed.

Let’s hope that that sets a few  ground- rules.

  1. On-line portals to CETVs are not a good idea; the ABI have mentioned that the pensions dashboard might offer on-line CETVs that go up and down like the bishop’s knickers. This is a terrible idea and would lead to chaos.
  2. Defined Benefit schemes are not unit-linked insurance policies, you cannot have a daily price, no matter how much you’d like to.
  3. Pension Freedom is folly if it supposes that you can turn pension to cash with any accuracy.

Mr T is a chancer and he’s been told to push off; but he’s a smart chancer, playing the insurer at its own game.  Standard Life will be major beneficiaries this year of the “dash for cash” promoted by Ros Altmann and the FT’s senior journalists.

I spoke to one CIO this week who is having to unpick the trustee’s investment strategy to create the extra liquidity needed to pay the anticipated transfers, we are talking here of billion pound adjustments.

I hear reports that FRS 102 accounts in 2017 are starting to show an adjustment for anticipated transfer values which will show an immediate windfall to the balance sheet. (CETVs pay out benefits on a best-estimate rather than a risk-free discount rate).

In short, Mr T is only doing what everyone else is doing; legitimate financial looting. The CIO sees the cost in terms of transaction costs, but if you’re a CFO valuing your scheme at the risk-free rate, you rather like Mr T.

Even at the highest possible CETV, Mr T is still taking out of the scheme less than the cost you’ve put on his staying in it!


The Standard Life pension trustees will breathe a sigh of relief. Had Mr T won, they could have been on the hook for unlimited CETV quotes , capturing every adjustment to the scheme discount rate. At £500 a pop (First Actuarial estimate), CETV quotes don’t come cheap and they form part of scheme expenses. The cost of the extra administration and the additional cost of paying out the highest ever CETV puts strain on the scheme funding and reduces other member’s benefits. The trustees will be thanking the Ombudsman.

Standard Life won’t be so pleased. The cost of paying out highest ever CETVs to Mr T would have  been lower than Mr T’s liabilities in the company’s accounts. Worse, the constituency of transferors that might have signed up to Standard Life personal pensions will be diminished.

But let’s be clear about this; the promise made to Mr T when he joined Standard Life was for a defined benefit pension, the property rights to a CETV were never the main event. Standard Life have complied with their disclosures and according to the Pension Ombudsman

There is no evidence to support that he has been financially disadvantaged as a result of the alleged maladministration

The message to pension schemes is clear. On line valuations of CETVs may sound good but they can create confusion and frustration for members and have the potential for all kinds of legal battles when the variations in CETVs become clear. Trustees should resist any attempt to twist their arms to provide such things as part of the pension dashboard project.

The message to members is clear, your CETV is a function of discount rates that you cannot control or second-guess. There is an element of discount-rate lottery in taking a CETV but that is in the system and the system cannot be gamed.

The message to employers is that DB schemes are not open-doors to pension freedoms and that much as employers would like to kiss goodbye to pension liabilities, the interests of remaining pensioners are not suited by Mr T’s games. In the long-term, over-payment of CETVs and the administrative chaos of unfettered CETVs is not good for you as a business.

The message to Government is that, no matter how much you may want everything on your pension dashboard to be as simple as a Cash Isa, pensions are different. If we follow further down the road of the cash equivalent pension, how long till we pay the State Pension as a taxed lump sum?

Mr T

There is an excellent report of the judgement here ;


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With dementia in mind.

hsbc.PNGWhy don’t we design financial services for the elderly with dementia in mind?

The needs and capabilities of those in their eighties and nineties can be quite different from those in their sixties and seventies. We would not treat a twenty year old as we would someone past fifty, but that’s what the services we design for the elderly try to do.

I worry that “financial inclusion” is a term that excludes the cognitively frail, those whose mental faculties are not suited to making complex financial decisions. These people grow out of the products they buy when in mental supremacy but for them their can be little or no financial planning.

The info graphic at the top of the page describes the life events (as HSBC see them). It only excludes the upsetting issues of later life, cogitative decline,  the need for social care and physical incapacity.

I mention HSBC as Francesca McDonagh (head of retail banking) was on “wake up to money” this morning talking about the need to do more for the dementing.

It is good that HSBC are taking a lead in this; I will be finding out more about their 3 year project with Age Concern today.

Learning about it

There is a lot of research into old age. Organisations like the International Longevity Centre, the Kings Fund and more widely the OECD have grabbed data (especially in the UK) so we know the scale and shape of the problem.

I am being asked by my firm to help our staff better understand the financial needs of those in old age and what we can do to help those acutely in need of help and those of us who are preparing ourselves.

I’ve found that many of the staff I’m told to help are much more aware and advanced than I am. I spoke with two colleagues on Monday one of whom has power of attorney for her parent and another is managing the complexities of having one parent dementing while the other has incapacity issues.

Their work for their parents is making a huge difference not just to their parents quality of life, but to the cohesion of the family as a whole.

I’ve decided that whatever academic study I do, must take second place to better understanding the needs of those who are experiencing decline and those who care for them.

Doing something about it

The pension freedoms which so resonate with those of us in the middle part of our lives can become a burden as we grow older.

I struggle with Ros Altmann’s argument that exchanging income for capital in your sixties, makes for financial security in later life dependency. The management of “wealth” as a means to meet care costs is fraught with risk, it needs an acceleration of the drawdown to meet an uncertain liability. The chances of converting capital to the income needed to meet long-term care successfully are slim.

But we continue to consider the possession of “wealth” in the form of a capital reservoir, as the best insurance against the cost of residential or nursing home care.

I would like to place a moratorium on the transfer from income producing pensions to capital rich/income poor drawdown policies. I’d like those advisers who currently ponder critical yields to consider what plan B looks like.

Such a plan would need to consider the  questions posed by Lennon and Mcartney

Give me your answer, fill in a form
Mine for evermore
Will you still need me, will you still feed me
When I’m sixty-four?

Fifty years on and sixty has become eighty, but how many of us are planning for a time when we can’t tie up our shoelaces, let alone manage sequential risk?

An inequality of opportunity?

I worry too about who will benefit from benefits. Speaking with my friend Dr Rob Buckle (chief scientist at the MRC), he pointed out that my work in helping our staff become aware of how to plan for extreme old age, was part of a process that ensures that the well-educated and affluent can jump to the front of the queue.

His point was that super-vulnerability occurs with people who suffer physical or mental incapacity but have not had the awareness to pre-plan and do not have the support networks to have others help them out.

Ironically, the financial awareness I am promoting, may be extending social inequality and consigning the most vulnerable to the back of the queue.

An insurable event?

Not everyone loses their marbles and people run marathons in their nineties. We do not know our financial needs in later life. This uncertainty makes insurance an option. The simplest insurance is to put your finances in a state that they can easily be managed by you in all but extreme dementia, this argues for keeping financial planning simple, focussing on products that have clear outcomes and need little management.

The second insurance is to create a social network of family and friends who are likely to survive you. To turn this around, a simple insurance for someone with parents in retirement is to start talking early about matters such as power of attorney, the provision of duplicate bank statements and the “what ifs” that go with losing physical or mental capacity.

Fraud prevention

The vulnerability of the old to financial fraud is a huge worry. A third of those dementing live alone, the telephone is their link to the outside world but it is a friend to the scammers.

The incidence of financial crime perpetrated against the elderly is appalling. It is low-profile crime but it causes immense anguish.

We need to pursue the scammers, but we also need to find ways to make those who live alone, or who are on their own for long periods, less vulnerable.

A change of mind set

Spending time with elderly parents, talking with people actively engaged in managing dementia, reading about the subject, makes me aware that I am still too distant from the realities of later retirement.

I am sure I am not alone. We idealise retirement as a string of dream holidays, days on the golf-course and the whimsy of “when I’m 64”.

But the darker, lonelier side of retirement is ignored. That info graphic of our life events typifies how we exclude the possibility of needing care, possibilities that turn to likelihood as we grow into extreme old age.

While I don’t agree with her “fetish for freedom”, I applaud Ros Altmann for promoting the problems in her work as a politician , in her speeches and in her writing. She is adept at grasping the agenda of ordinary people. She is right to be talking about this difficult subject.

However, the hard miles on understanding old age (gerontology) are being put in by such dedicated academics as Dr Debora Price, who has helped me with a reading list I am ploughing through!

These are links to the documents I have found particularly useful so far


Further reading

For a broad overview of the issues,  this OECD report is  a good start: http://www.oecd.org/els/health-systems/help-wanted-9789264097759-en.htm .

You can see all the OECD publications on long term care here: http://www.oecd.org/els/health-systems/long-term-care.htm.

For the UK perspective, the best report to read is the now 5-year old Dilnot Commission: (Fairer Care Funding)



The Local Government Association 2016 State of the Nation report on social care funding:  http://www.local.gov.uk/documents/10180/7632544/1+24+ASCF+state+of+the+nation+2016_WEB.pdf/e5943f2d-4dbd-41a8-b73e-da0c7209ec12


The King’s Fund is a highly (probably the most) credible think-tank commentator on the issue: https://www.kingsfund.org.uk/topics/social-care  – for their publications see: https://www.kingsfund.org.uk/publications/?f%5B0%5D=im_field_health_topic%3A27 . The King’s Fund have a ‘reading list’ facility on their website us a very useful and up to date resource on the future of funding social care, here it is: http://kingsfund.koha-ptfs.eu/cgi-bin/koha/opac-shelves.pl?op=view&shelfnumber=104&sortfield=copyrightdate&direction=desc&_ga=1.152591609.1199701175.1490893892


The PSSRU is the leading academic consortium that investigates social care and has produced some excellent research: http://www.pssru.ac.uk/


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Keith Popplewell – Yorick’s sorry tale.


Alas poor Keith .. I knew him…

When I joined Eagle Star in 1995, Keith was the  star turn, an exceptional speaker, a mine of technical information and a bon viveur, Keith was a sales director’s dream.

And like any showman, he was crying inside, I saw the vulnerability then, and loved him for it.

I am sad to hear that Keith’s business failed and that he failed his clients in a sorry way. I don’t know how pensions best practice translated into transferring life savings into Store Pods. Something went very wrong.

The 8% guaranteed return offered by Store First (through Capital Oak) is – in retrospect – the classic pension fraud. It was marketed by Keith’s Liverpool sales team at his Pension Office.  If you listen to the BBC article on Store First – you can hear how Keith Popplewell became part of a scam.

Now Keith has been publicly humiliated and can no longer practice as a financial adviser. For those scammed the punishment will cannot be harsh enough. (pace Angie Brooks).

The FCA’s judgement against Keith comes in a week when those who have invested in the Capita Oak schemes he promoted, get tax-demands from HMRC for pension liberation. Whatever sorrow I have for Keith, is tempered by my sympathy for the victims of the investments he signed-off.

I lost touch with Keith in around 2005. I would like to give him the comfort that the Keith Popplewell I remember – was quite splendid.

Keith of course is not the only casualty of the time. John Quarrell and his wife Sue have similarly fallen from their public pedestal. They too, vulnerable and generous to a fault.

Though the Freedom SIPP was not itself  fraudulent, it too became a pension nightmare. Some freedom – little pension.

Are John and Keith similarly the product of their own celebrity?

Alas poor Yorick

Hamlet takes up the skull….

Alas, poor Yorick! I knew him, Horatio: a fellow
of infinite jest, of most excellent fancy: he hath
borne me on his back a thousand times; and now, how
abhorred in my imagination it is! my gorge rims at
it. Here hung those lips that I have kissed I know
not how oft. Where be your gibes now? your
gambols? your songs? your flashes of merriment,
that were wont to set the table on a roar? Not one
now, to mock your own grinning? quite chap-fallen?

Many will read of Keith and of others and take some miserable delight that they are not like him. Though Hamlet understands that Yorick’s skull is no different than the others dug up in the graveyard – no different from how he’ll soon present his head. The mournful tone is not just for Yorick, it’s an elegy for us all.

But Yorick’s skull is different to Hamlet, it reminds him, as Keith reminds me, of a life that was once well led.


Keith’s linked in profile, sits – derelict – it reads like an epitaph

I was voted financial services personality of the year 1999 to 2001 before becoming semi-retired.

And a  reminder of happier times

Activities and Societies: Publisher of school magazine School Brass Band and concert choir School 1st XI Football

The vanity of human wishes

After putting down the skull, Hamlet’s thoughts turn to the vanity of fame. Hamlet’s tragedy is that he never sees a point to living sufficient to keep him out of harm’s way.

He dies a pointless death.

I don’t know what Keith is doing now, hopefully he finds some comfort from semi-retirement, he has a wife (cited in the case), he has kids and I  imagine he is still bringing happiness to those close to him, (for all the bad advice he has given).

Like thousands of others, Keith brought something to my job back in the nineties and no-one has done the same since. Sitting with him at the bar in the early hours, I remember his humanity, not his technical wizardry.

So – here is to you Keith Popplewell!  While I hate what became of your career, I cherish what I remember of you. Like Hamlet, I cherish the memory and mourn what has become of you.

Let’s hope that Keith can sit back and retire, let’s hope he find a little more point to life than Hamlet.

store first

Further reading

This article from Money Marketing in 2001, gives a flavour of the affection in which Keith was held.


If you want to find out about Store First investments and the damage it and its sales team did; listen here  http://www.bbc.co.uk/programmes/b06r0b4b

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Don’t blame pensions for corporate mismanagement

Pre packs.PNG

The FT has come up with some excellent research on why pensions find their way into the Pension Protection Fund. It has discovered that a substantial proportion of the so-called “pension failures” over the past ten years, resulted from sale and re-purchase arrangements (known as pre-packs).  Pre-packs exploit a loophole in the 2005 Enterprise Act which allows management to walk away from pension liabilities through corporate restructuring.

A total of £3.8bn of pension liabilities have “gone to Croydon” home of the PPF. The  haircut people take on their pensions entering the PPF is around 20%, so this amounts to a real loss to ordinary people of around £750m. Pre-packs are not crimes but they’re not victimless either.

The vilification of defined benefit pension schemes.

There has grown up a kind of thinking, inspired by management consultancies , that considers the defined benefit pension scheme a toxic threat to the balance sheet, to the P/L and to cash-flow. Extending this train of logic, pensions can be blamed for lack of investment , lack of productivity and a long-term loss of shareholder value. Since the architects of the pension schemes are several generations removed from a company’s current management and ownership, it is quite safe to blame the pension for everything,

For managers and owners who have no interest but shareholder-value, the DB pension scheme can easily become an asset to be exploited; if a corporate valuation is weighed down by a pension deficit, then transferring (dumping) the problem on someone else, immediately releases cash for the shareholders.

This is the corporate equivalent of fly-tipping. And yet it goes on under our noses (as the chart shows).

Why deficits are over-egged

It is in the interests of those for those who “de-risking” corporate balance sheets to talk up pension deficits. The propaganda war against pensions is being won by the major consultancies who bombard us every month with numbers based on the cost of winding up our pension system, because that is high on their agenda.

There is more than a hint of jealousy at play. The pensions that are paid are not being paid to the new managers and owners but to previous managers and owners (who were responsible for the architecture of the arrangements). Current managers and owners argue that they are only evening things out.

But this is to ignore those people who do not benefit from pre-packs at all, the ordinary pension scheme member who loses pension rights – at the shareholder and current management’s expense.

Put in this context, the incessant noise about pension scheme deficits is a direct attack on the rights of a generation of workers whose compensation was based on a company pension promise.

What can be done about this?

There’s no doubt that for many smaller companies, some form of de-risking of pension liabilities is right. The steps that most firms have taken- closing for new hires and now for future accruals, may well have been necessary. But what is happening now is going beyond reasonable and it must end.

As the FABI Index shows, the estimates of deficit that come from valuing pension schemes in worst-case scenarios, are wildly at odds with the valuations that take a more progressive view of the economy.

If we were to value GDP growth on the basis of gloomy pension forecasts, we would pre-pack the UK!

The first step in ensuring that DB schemes are not fly-tipped into the PPF is to make those who sponsor them (both employers and employees) aware that there are more ways to value a pension than against a risk-free discount rate.

The second step is for all interested parties, shareholders, members and trustees to align interests to ensure that no one party is allowed to dominate decision making (this is the idea behind the Pensions Regulator’s integrated risk management framework).

The final step is for pensions to be protected against the corporate vandalism, examples of which are quoted in the FT info graphic.

Turning the tide

It is really encouraging that responsible journalists are bringing this to general attention. Thanks to the FT (who I have been quite rude enough to in one week!).

There is no need to give anyone extra-powers. Gaming the PPF is an offence as is abuse of the Enterprise Act. What is needed is greater awareness, not just within government but without.

The tide will be turned when people sit back and ask – “if not pensions what?”

Dismantling the pension apparatus that made a generation secure has happened, other generations will not benefit as the baby-boomers will. That decision has been taken. But no decision has been taken on how the risk will be shared going forward.

Already we are seeing signs that the ultimate model of de-risking “pension freedoms” may be – for ordinary people – a cracked model.

There are dissenting voices (even in pensions) arguing that the pooling of collective pensions to provide long-term economic capital, should make pensions a source of productivity games (rather than the scapegoat for productivity stagnation).

The reasons that the majority of pension schemes go into the PPF is not usually bad pension management, it is poor corporate strategy and poor execution of that strategy.

Pensions are a convenient scapegoat for failures elsewhere. “Risk transfers” may look plausible in the boardroom but they impact the long-term finances of those on whom the company’s prosperity has been built. It is simply not good enough to use pensions as a trampoline for “value extraction”. A line must be drawn and not crossed and I hope that line is being drawn today.

silent night

pension miscreant


The pension research in the Financial Times, on which this article is based , can be found at https://www.ft.com/content/f3f574fa-0f2c-11e7-a88c-50ba212dce4d

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FABI continues on its boring way


First Actuarial’s Best estimate (FAB) Index improved in May, showing a month-end surplus of £295bn across the 6,000 UK defined benefit schemes.

Whilst it might not grab the headlines, the FAB Index provides the voice of reason in demonstrating that the best estimate position of the UK’s defined benefit schemes is in good health, with a gradual upward trend as a result of Trustees and employers funding schemes in a sensible and prudent manner.

The technical bit…

Over the month to 31 May 2017, the FAB Index improved, with the surplus in the UK’s 6,000 defined benefit (DB) pension schemes increasing from £287bn to £295bn.

The deficit on the PPF 7800 index also improved slightly over May from £245.6bn to £232.3bn.

These are the underlying numbers used to calculate the FAB Index over the last 3 months


The overall investment return required for the UK’s 6,000 DB pension schemes to be 100% funded on a best-estimate basis – the so called ‘breakeven’ (real) investment return – has remained at around minus 0.8% pa. That is, a nominal rate of just 2.8% pa.

The assumptions underlying the FAB Index are shown below:

Assumptions Expected



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Pension promises- “second hand not second rate”.

There’s an old Elvis Costello song (Senior Service) which talks about the DWP

They took me in the office and they told me very carefully
The way that I could benefit from death and disability

I thought of it as I endured 90 minutes of the pension senior service pontificating on how occupational schemes could get out of their pension obligations by agreeing with the Pensions Regulator they were “stressed”.

Apparently “second best solutions” are now all the rage with economists, Costello wrote about people shouting out against them (back in 1979)

Though it may be second hand
It’s by no means second rate

and describes accepting second-best in the chorus

Senior service
Junior dissatisfaction
It’s a breath you took too late
It’s a death that’s worse than fate

A series of second-best “get-outs” from the PPI

I am generally a fan of the PPI, but I am not a fan of its response to the DWP’s DB Green Paper. It presents a series of second best solutions from the senior service to manage “junior dissatisfaction”.

Trustees should have access to a streamlined RAA if they conclude, based on actuarial and covenant advice, that full benefits are unlikely to be paid, that insolvency is likely, and that the result is better than insolvency.

Which will be interpreted by employers as a union-friendly alternative to wind-up , with none of the expense of proper wind-up or ignominy of a “pre-pack” into the PPF.

“TPR should collect additional funding data to create an ‘early warning system’ of schemes in stress and, to do this, we propose it uses a general purpose measure for large funds and a mechanical measure for screening smaller funds”.

What is this doing that is not already being done by Experian for the PPF. The proposal risks creating a “senior service” of schemes with options for larger schemes to negotiate special privileges while smaller schemes are subject to “mechanical screening” – presumably with minimal interaction. This two tier approach will please those who want small schemes consolidated but does nothing for the efforts of the sponsors and trustees of those schemes.

TPR should require all ‘stressed’ schemes to employ a professional trustee

Although professional trustees do a lot of good, they can be a hindrance to a well governed scheme. The implication that stressed schemes need more professional trusteeship is based on what? If I was a trustee of a “stressed” scheme, I would expect the decision on the trustee board’s composition to be a matter of discussion with the sponsor. IMO- the Pensions Regulator neither needs nor wants powers to intervene in this way.

Giving TPR new powers – to alter indexation, alter benefits and interview stakeholders – would help deliver second-best outcomes.

The senior service at the end of the document, reveals its final solution.

Giving tPR such power would hand consultants who focus on “de-risking” an opportunity to lobby that all their clients were “stressed schemes”, that all their clients could not afford current benefit promises and that tPR, rather than the sponsor, should be the agent for benefit reductions.

Sponsors would be able to play dead till the scheme was “second-bested” and make a lazarus-style recovery thereafter. No need for a pre-pack, just lie doggo for a couple of months.

All this from a fundamentally flawed valuation premise.

I dispute David Blake’s assessment that there are 1000 schemes in the terminal ward and that 600 of them show no hope of recovery. The assumptions made are based on the PPF valuation method which is not suitable for schemes with long-term aspirations to pay pensions.

It is only appropriate for measuring schemes through the lens of the PPF – which is looking for schemes with short-term risks of becoming insolvent. The reason so many schemes appear weak is not because of poor trusteeship or high costs but because they are being measured using a valuation system which is skewed by the impact of QE.

Sooner or later we will move away from negative gilt yields and deficits will reduce. Sooner of later schemes will revert to using best-estimate valuations and deficits will reduce. Sooner or later, employers will return to their original premise that they are in the business of staying employers and that part of the employment contracts, they are in the business of honouring pension promises.

We do not have to have second-best pensions. The PPI should not be suggesting that we do. The PPF is the safety net, there may be ways of making the safety net better (the report may have good ideas on this) but there is no reason to have a variety of safety nets.

Second-hand, not second rate.

The promises that trustees and employers make today are second-hand, generally they did not make those promises. It is all too easy for inherited promises to be neither “owned or met”.

We are at risk of offering trustees and employers a variety of signals, collectively confusing. Let’s keep it simple. Binary is not necessarily bad. You either pay out on your pension promise or you go bust.

That is a message that I would get behind, it keeps the eye on the ball. Let’s make sure that every pension payment is paid in full and stop wasting time on second-best solutions.

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The Earth isn’t flat. How contingent fees can deliver the best outcome for customers – Peter Doherty


“This article has been sent me by Peter Doherty, CIO of Tideway Investment Partners  It makes the case for fees for transfer advice only to be charged in the event of a completed transfer and not in the case of Tideway providing  free guidance which results in a DB scheme member deciding not to transfer out. This does not represent the views of Henry Tapper, mine are already published. But it puts forward the opposite case, one that I am happy to post on this blog. Infact I am grateful to Peter for this well-argued position.




There has been plenty of criticism directed towards advisers who charge contingent fees. I believe that this criticism is wholly misplaced and that in fact for many transactions, non-contingent fees are likely to deliver worse outcomes for customers.

Furthermore, it is easy to show that non-contingent fees generate a much higher total fee pool for advisers than contingent fees and with no additional benefit to customers.


Understanding incentives

The single most frequent and (sometimes only) criticism of contingent charging is that this creates an incentive structure whereby advisers entice customers to do something they otherwise would not and should not do.

Implied in this criticism is a degradation of the quality of advice in exchange for a fee. The narrative is: “Mr Smith should not have done XYZ. He would not have done so but he was pressured into it by his adviser who was only interested in getting the transaction fee. As a result, Mr Smith received poor and inappropriate advice”.

This criticism and related supposition are deeply flawed and here is why:

Commoditised activities

A fee for professional advice or a professional service can be thought of in two ways. The first and only way considered by contingent fee critics is as a payment for a process that ends immediately, at the point of transaction closure. There is no reasonable expectation of any future interaction with the customer and the probability of any future claim or challenge arising from the advice or service is negligible. These are what I call “commoditised activities”

Commoditised Activities include high frequency, lower value tasks such as conveyancing and SME audits and fees for these activities have collapsed in recent years. Templates and software cover off a large part of the work.

Accountants, Solicitors, IFA’s and others are battling this commoditisation and many are losing. Some professions such as Actuaries and Fund Managers have been somewhat protected by oligopolies, where no one market participant breaks rank and materially lowers the fees charged. But the trend is clear for everyone: fees are collapsing for low value, routine activities.

Value-added activities

A fee can also be thought of as an insurance policy against future claims arising. Looking at a fee this way immediately neutralises the criticism that contingent fees drive poor advice. For high-value, higher risk, compliance-heavy complex advice, it is not an act of altruism to get the best outcome for the customer – it is the only way to rationally behave as an adviser. Of course, advisers who are not smart enough to work out that they are building up a stream of future liabilities by giving poor advice may continue to do so. But thoughtful, high quality advice is a way to deliver the best outcome for the customer and minimise the risk of future adverse claims. This is an alignment of interests, not a conflict, between the adviser and the customer.

Charging on a percentage basis is also entirely rational: the size of the fee is aligned to the size of the transaction.

Why non-contingent fees for DB Transfers are a terrible idea

Now that we better understand the breakdown of fees into “commoditised” and “value-added” components, it is obvious that for DB Transfers a non-contingent fee structure would simply increase the total fee pool for advisers.

In a world where everyone pays the same fee irrespective of transferring or not, the fee charged for completing a DB Transfer would not go down. That fee is paid for detailed and complex advice around an irreversible transaction and, as described above, represents an insurance policy against future claims. With non-contingent fees the whole DB Transfer population – the scheme members – could only be worse off.

Under the logic of non-contingent charging, the fee for doing nothing must be the same as for doing something, otherwise there is an explicit subsidy and that is not allowed either. So, all that would happen with the introduction of non-contingent fees is that thousands of customers would be charged thousands of pounds for “not doing something“.

Does anyone think that equality and fairness comes from charging someone £ 10,000 to make no change to their financial circumstances? That cannot be right.


The full picture is a balanced one and at Tideway we think we have the balance about right.

As an alternative to charging people for deciding to do nothing, Tideway provides free education, guidance and as many meetings and additional information as is necessary for a person and their family to come to an informed decision about a DB Transfer.

We have direct experience in dozens of cases, involving CETVs of up to £ 3 million, where we have met potential transferors and spouses on several occasions and have provided multiple scenarios of future outcomes. For a variety of reasons, people then make a decision to stay put, either “for now” (and to revisit the transfer option later) or “forever” (by taking benefits now).

We are very happy for those people and support their decision to hold off from transferring out.

Over the past two years, Tideway estimates that:

    • About 30% of the people making an initial DB transfer enquiry to us have gone on to transfer out
    • Some 70 % of people making contact with us have had some combination of free guidance, a free initial appraisal and a free advice report and have not transferred through us. They have either not transferred or have gone elsewhere to transfer.

Tideway’s DB Transfer process is clear:

    • We provide free advice, a free initial appraisal and a free Transfer Report
    • We give people time to consider their options and do not chase them
    • We never use cold call leads – interested individuals contact us via referrals or our website
    • Our advisers are not paid commission, but a basic salary regardless of the number of completed cases

We are proud of these processes and are genuinely un-phased by having worked for free with hundreds of people who in the end did not become customers of ours.

Who is promoting the view that non-contingent fees are best?

You have to ask yourself where the drive to charge people for doing nothing comes from.

One possibility is that some firms or professions are not prepared to do anything for free. Every hour, every phone call, every email must be accounted for and charged for. What could be better than a high volume of low-risk “advice” via phone email and in person, all charged out to cover overheads and generate risk-free profit? That is a real risk for customers.

Another angle is that those crying out about contingent fees are in one way or another paid by DB Schemes. The longer the DB schemes stay in business and the bigger they are, the higher the total fee pool. Every DB transfer out represents a small but real reduction in the future fee pool.

If DB scheme members are going to be charged a fee for not doing a transaction, many of them will not bother to ask or find out what their options are. That cannot be in customers’ best interests.

Peter Doherty

Managing Partner and CIO

Tideway Investment Partners LLP


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Diverse, responsible and capable; the UK IFA is in good shape @ #pensiondebate


It took me till yesterday’s Great Pension Transfer Debate to properly understand the strength of our personal financial advisory profession. Nearly 250 IFAs gave up a day to learn and share experience advising clients about their defined benefit rights. The feedback I got as chair was that this was not a wasted day; the feedback I give as chair is that this was an enlightenment for me (and I suspect many of my colleagues on the corporate side of the fence).

The success of the conference  suggests that the organically created days like this one, are more valued than events dominated by a house view of a sponsor. There was no IFA trade body, no corporate marketing team and no product placement in solid eight hours of debate.

That said, this needed Royal London (who paid for the sound and vision), Aberdeen who helped out on premises , lang cat who organised  the support before and  on the day and First Actuarial who did the teas and biscuits!

But the spontaneous cheers at the end of the day were for one man, Al Rush @raf_ifa whose idea was this and who had the enthusiasm, friendship and spirit to bring us all to the table. Al’s told me he wants no reward for the day, all that I can give him is the thanks he deserves

No quiet event!

I chaired the day which was a wonderful privilege! The job was a doddle as not one of the presentations was weak and many quite outstanding. My favourite was Gregg McClymont’s – delivered from a soapbox in the break-out area to delegates queuing or eating their lunch. I sense that Gregg felt he struggled, he certainly had a lot of external noise to get over, but he delivered as is he was at the despatch box at the Commons!

If Gregg had to contend with extraneous noise, others had to deal with an audience that took little for granted. Well done John Ralfe for not giving an inch in his barmy views! John’s refusal to concede an equity premium is a marvel to behold, his “equity magic beans” a joy!

Things were no quieter on the web. The event’s hashtag #pensiondebate spent the whole day trending on twitter and much of the afternoon at #2. It dislodged everything but #heatwaveuk !

Heatwave – phew what a scorcher!

I admire the stoicism of the audience- the room was naturally ventilated but had no air-conditioning. The energy on stage was matched by a barrage of questions that greeted each new speaker. Each session was a debate and the panel session at the end , was a marvel! Eugene, Al Cunningham and Gill Cardy led but there seemed hardly a person in the room who had not made a personal contribution in one of the best sessions of the day.


Speakers galore


Particular thanks go to  Alan Smith  and Rory Percival who created the foundations for the day with two measured and thoughtful sessions on the actuarial basis for CETV valuations and the current developments at the FCA.

This is not to downplay the showcase contributions by Abraham and Gregg Davies on sustainability and behaviouralism. But they would not have had the freedom to be brilliant without the platform developed earlier.

Michelle Cracknell delivered a beautifully poised session on external perceptions of advisors , using audio clips and posted comments from “customers” outside the bubble. As an ex-IFA and current actuary, Michelle is the real deal and probably carries more affection and respect than any other pension civil servant. Talking of which it was good to see the DWP spending the day with us – most appreciated!

Webb’s wonder

I sat next to Steve Webb in the afternoon , before and after his session. He spoke for 20 minutes and took questions for 40 – how we miss him in parliament.

His big idea is to offer partial transfers. He has the support of First Actuarial – overtly given on the day by Alan Smith.

It is up to organisations such as First Actuarial to convey to Trustees the value to members of a flexible approach where part of a defined benefit pension can be taken as pension, and part released to be drawn-down more flexibly.

This isn’t quite Webb’s wonder, the idea has been knocking around for a couple of years, but this is the first time I have heard it explained in the context of financial planning and it gets my support to. It needs a Steve Webb to take this forward. Let’s hope that the new Ministerial team at the DWP get to hear of it.

To happen , we need tPR’s support and that needs a general consent that partial CETVs can be accommodated into scheme rules and easily administrated. Nothing suggests we need new legislation, just a new approach!

The post RDR IFA

There may be less IFAs, but those who have survived the RDR are prospering. The car-park wasn’t full of swank, you couldn’t imagine the majority of the audience swilling whisky in the club-house. This was a deadly serious day when everyone got stuck in.

I was hugely impressed with what I saw and look forward to revivals of the energy and spirit that brought so many good people together.

I had started my day grieving at the insanity of religious hate crimes but finished it travelling home with Fiona Tait, now of Intelligent Pensions. She embodies the new spirit of diversity, responsibility and capability that underpinned this conference. We wish Intelligent Pensions well as it reorganises its offering.

Al rush

Get yourself some sleep Al, you did great!


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We are not liabilities!


pension transfer debate


Travelling up from London to the East of England Showground for the Great British Transfer Debate.

Al built it – we came!

Struggling with technology after my phone was claimed by Europe’s biggest glacier , 200 miles east of Reykjavik.

Reading Jo Cumbo’s excellent report on the shrinkage of defined benefit pension liabilities as people walk off with transfers.

But most of all, thinking of the  hate that infected the minds of people to drive a van into pious muslims observing an important religious ceremony.

Above all this is love

People are what the Great Pension Transfer Debate is about. We cannot allow the debate to be reduced to a discussion on liabilities. People are what the great religions of the world are about, we cannot destroy people’s lives in the name of religion or as act of intolerance of another’s views.

As I have written many times, the answer is love. Al Rush built the Great British Transfer debate to spread the love, to educate himself and his fellow advisers, to improve the quality of advice available to members.

These things are co-joined by a love and respect for each other. If we lose that love and respect, then driving a van into a group of people at prayer may seem alright.

If we lose that love then we turn the members of pension schemes into liabilities and their later lives are measured in the scales of a transfer analysis mechanism.

Let’s make it a theme for today that people are not liabilities, we are not sales targets any   more than we are targets for vans, lorries, knives and the like. We are- and will remain – people – to love and be loved.



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Tomorrow – the Great British Pension Transfer Debate!


Putting together the Great Pension Transfer Debate with Al Rush has been the most rewarding part of my job these  past few weeks. This is mostly because of Al, who sums up for me not just the Great British IFA but the  Great British male, and I say this with total respect for the women at the Debate.

Al came to me in late April for some help understanding how transfers worked, he wanted some education. I’m happy to say that whatever he is getting out of the Debate will be matched by what I learn and what those in corporate and trustee advice can learn. Make no mistakes, this is a meeting of equals, the Debate has already shown that.
Al has worked on the if you build it principle;-and he has built it – and we have come in our hundreds to the East of England Showground. We haven’t come to network, or to gorge on corporate freebies, we’ve come to learn – and to learn from each other. That was Al’s vision in April and nothing has changed since – except the logistical challenge.
So let’s hear it for Al, who has got 300 people to sign up to a day out of the office , in pursuit of better client outcomes.
I think we need to define what “better outcomes” means, and this is one of the areas where corporate advisers can do some learning.
We” start with abstractions such as “member” and move up the ladder of abstraction till a member is a “liability”.
Members of occupational pension schemes may be a balance sheet liability, but they are look, smell and talk like ordinary people.
Ordinary people differ – just look around you, we are one of the most diverse nations on earth. We have different aspirations, some of us live for adventure, some of us fear it. Some of us want to control our money, some want someone to manage it for them.
We are united in our common fear of old age but will meet its challenges in quite different ways. IFAs understand this diversity, many of us who work for sponsors and Trustees of DB schemes don’t.
I hope that the Great Pension Transfer Debate will have as a theme both the diversity of people wants and needs and the commonality of purpose we have to meet them. This dynamic of a common purpose but  diversity of needs will I hope underpin today.
Which is why we have put together a program that brings together experts and experience from diverse backgrounds
Steve Webb and Gregg McClymont have each represented 70,000 voters from Thornbury and Yate near Bristol to Cumbernauld near Glasgow. Personally I wish they still did – thought Royal London and Aberdeen would disagree!
They became Minister and Shadow Pension Minister at what we knew at the time would be a parliament of revival of UK pensions.
The reformed state pension, the roll out of the first part of auto-enrolment and the introduction of the pension freedoms happened on their watch and though they have fiercely different views, I cannot remember a time when pensions and politics were more vivid and real than when they were locking horns!
Rory Percival is IFAs Regulator- or should I say former regulator- like Gregg and Steve he has lost little in translation. There can be no doubt that it is the FCA who are the kingmakers and executioners.
Rory will today give us an insight into the FCA’s mindset. For many in this room , the FCA are perceived as part of the problem; I think those of us who interact more with the Pensions Regulator will bing a different perspective. Frustrating as Regulators are , we must work with them and not against them.
John Ralfe is unashamedly a corporate adviser- though I’m happy to say our firm works with him in his capacity as a DB scheme trustee.  John has that rare capacity to express his views succinctly, twitter is his natural habitat. I don’t agree with him most of the time but that brings me to the second dynamic of this event.
There is a fundamental disagreements between the “experts” as to whether letting people leave defined benefit schemes is a good thing for trustees and scheme sponsors.
John has historically been on the side of de-risking. Schemes should feel happy to lose liabilities (members) . Expect the contrary view to be held by actuaries in the room, two of whom are speaking.
Alan Smith is a Scheme Actuary, meaning he advises trustees on funding levels and funding rates. First Actuarial are in the business of managing schemes out over time.
The other actuary speaking is Michelle Cracknell, CEO of The Pension Advice Service. Michelle has the distinction of also knowing life as a registered IFA. Michelle will be speaking on the public perception of IFAs
And that brings us nicely to the third dynamic of the day. I will frame this simply with a question

“are transfers advised or sold?”

I am sure that Michelle will explore how the public reacts to IFA behaviour

The IFA’s view

So much for the institutional experts. Who will be looking at IFA behaviour? Michelle may be sitting on both sides of the fence but Abraham Okusanya is very much a practicing IFA.
His job is to find a sustainable withdrawal rate on drawdown and that means establishing an optimal investment strategy to take into account the diversity of people’s wants and needs.
Following Abraham will be Gregg Davies who will be looking at the behavioural aspects of client decision making. While Abraham is studying numbers, Gregg studies the diverse traits of human behaviour, to help clients make  optimal choices. Al tells me he is particularly looking forward to hearing Gregg, I take him at his word.
Finally, we have three practicing IFAs sitting on a panel, due to sickness, we are re-arranging this panel but it’ll include offshore specialist Eugene Neagu and IFA guru Gill Cardy.
Our aim in putting together the IFA speaker line-up was to focus on the final dynamic of the day, again summed up in a simple question “are IFAs liable for the outcomes of their advice”.
Critical to this debate is the phrase “duty of care”, to what extent do IFAs have a duty of care for the client’s outcome or is the advice stand-alone?
There are a number of further questions arising out of this fundamental question, most of them surrounding the management of the proceeds, but also issues to tax, inheritance and of course cashflow analysis.
For me, as Chair, this is the most interesting part of the day. I am now an observer not a practitioner, but have been an IFA in the eighties and nineties and know instinctively the conflicts that arise in managing your own practice.
How IFAs deal with these conflicts is perhaps the most interesting aspect of a very interesting day.


There are still a few places available for the day – if you would like to come here is the link  






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If GCHQ have a strategy, and the M.O.D. insist on it, why wouldn’t Pension Trustees adopt it too?

This blog is from Mark Bambury, a fine actuary who I worked with 12 years ago. It raises important questions about how we protect our data.

Lessons from history

I have some papers at home from my French wife’s Great Grandfather; a cavalry officer who is receiving advice and orders from his government, dated November 1914, early in the first World War. They are fascinating reading, and as a strategic risk and pensions investment professional, I admire greatly the thought process in the letter.

The Minister of War calculates the losses in the trenches, and concludes that with the current status quo, and German technology, France will run out of man-power faster than Germany. He recognizes that France is in a bad place strategically, but then offers an audacious long term solution. The order is given to circulate the men at the front to enable meetings with “wives and girlfriends” regularly enough to ensure a steady future supply of soldiers. Arguably, avoiding a “generational gap” that helped France later in the second world war.

For me, the papers encapsulate many concepts that pension professionals will recognise; a quantification of future scenarios/outcomes; gauging the impact of technology; understanding asset management and growth; and thinking in generational timeframes. There is also a practical solution to a problem, and time is not lost in implementation.

We are on a different battlefield today, and I use the term advisedly. This is one of the reasons why GCHQ are behind the Cyber Essetntials scheme (C.E). I am concerned that the kind of letter written in 1914 has not yet filtered down to our industry. CE provides a checklist of actions, designed and updated by GCHQ for organisations to stay safe in todays’ connected world. Getting CE certified means that one is protected from up to 80% of common on-line threats.

To return to the military theme, the M.O.D. are taking this one step further by insisting that all suppliers carry “CE plus” certification. They are also insisting that this is done quickly. The worry that they are addressing is that the “baddies” can enter your systems indirectly through a weak link in the supply chain. Trustees should read that last sentence twice. The MOD mandate cyber essentials plus to their suppliers, even given the big names and professionalism of those involved. Where is the push from the pension community to do the same? And when did you last map your supply chain? We will come back to this point as we are still at the thin end of the wedge.

If someone was looking after my money, I would want them to meet this minimum CE standard. (Or insist on a benchmark that can’t be underperformed if you prefer the investment management parlance). Especially as certification is a low-cost exercise with no performance drag issues, and that there is even the opportunity to reduce insurance premiums. Obviously, for most managers, banks and so on this exercise should be both second nature and one would hope an easy hurdle to jump. But we are looking for weak links, and forcing CE plus compliance on those that we deal with this will flush these out.

I mentioned the thin edge of the wedge earlier on, as we must overlay cyber security with a true, non-trustee influenced compliance issue. We are currently legally obliged to comply with the new general data protection regulations (GDPR). We will be open to punitive fines from May 2018. In the corporate world, this is up to 20% of global turnover. Lawyers that I talk to discuss lighthouse prosecutions on the horizon; I would not want this to fall on the pension industry. I don’t think that trust based structures were at the heart of the legislation design, and I could see a proverbial and unproductive bun fight between stakeholders if there is a pensions failure. As an aside, and contrary to popular belief, the current Brexit debate does not make a legal difference here. The work needed to be CE certified and GDPR compliant overlap; actions needed are complementary but are not the same.

If our French Minister of War in 1914, was writing today, what would he order? He would be calculating future outcomes, however long term and uncertain, and be striving to understand the impact of technology. He would also keep his eye on his assets’ health and growth, and develop practical solutions to perceived weakness. If he could have seen the number and extent of cyber and IT related issues that we have to deal with today, I could see his well-oiled moustache twitching with impatience to implement his strategy, and insist that everyone uses their positions of power to make things change yesterday.

With the benefit of hindsight, the French Government needed a little bit of help from some friends to sway things. No bad thing to have friends, and that’s what GCHQ is offering to the pensions industry.

To be clear, I do not work for GCHQ, but I can point anyone interested in the right direction to help work through GDPR and Cyber Essentials. There are other service providers available to do this too, but in the grander scheme this is not important, let’s just keep each other safe on the current battlefield.

If you want to contact Mark Bambury to find out more about his work, he can be reached at Mark Bambury mark.bambury@gmx.com


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