USS – the plot thickens!


Correspondence has emerged between the various macro-stakeholders in the USS “pension deficit”

The cast in order of appearance

Frank Field – Chair Elect of the Work and Pensions Committee.



Here he is kicking off correspondence in August with….



Lesley Titcomb – CEO of the Pensions Regulator.



Here is her response to Frank Field.



Field also writes to Professor Janet Beer at Universities UK (the sponsoring employer)

janet beer



And Janet Beer responds to Field on behalf of the employers.



Frank Field writes to David Eastwood, Chair of the USS

David Eastwood, Chair of the USS , responds to Field.

david eastwood



Taken together, this correspondence ,mainly in August 2017 forms an archive for future scholars trying to unravel the complex dynamics at play.

Frank Field – fresh from a bruising encounter with Philip Green of BHS is determined to be on top of the USS deficit,

Lesley Titcomb is determined to show Frank Field she is on the case and working hard to protect the PPF and the employer’s interests.

Field is critical of the Universities UK for inadequately funding USS and wants tuition fees ring-fenced.

Janet Beer hints that rather than put up tuition fees, Universities UK would prefer “benefit reform” ( a euphemism for pension cuts).

Field is critical of the USS’ management of the investment of the  scheme, it’s recovery plan and wants to know more about actuarial assumptions

David Eastwood defends the USS’ management’s transparent approach and hints that it is piggy in the middle.

Taken together, the correspondence displays how difficult it is to align the interests of the general public, employers and the managers of the scheme. The voice that is not heard in this debate is that of the members, who appear to be the stakeholder most likely to pick up the tab (by way of pension cuts).

The heart of the matter

Perhaps the most interesting letter is that from Lesley Titcomb to Frank Field in which she sets out the guiding principles that tPR’s past intervention prompted USS to adopt.

uss bull

These principles are open to challenge.

Take the first bullet;-  What does “proportionate” mean?  Given that DB pensions are not funded like insurers,   with no legislative standard other than “prudent”, what level of risk protection is reasonable/prudent for a scheme like USS? We now know that the Pensions Regulator is not prepared to accept the covenant assessments carried out by PWC and E&Y on UUK, so presumably tPR reckons itself the judge of prudence. This was never the Regulator’s role.

How exactly is USS pension risk measured?  The USS is an open scheme with liabilities already into the 22nd century.   Who defines the suitability of the risk measure and what is it?

Take the second bullet; what is meant by risk reduction? Pension cuts dressed up as “liability reduction exercises”? Why should tPR be intervening in what is fundamentally a matter of reward? The total compensation of those in the USS is the aggregate of pay and benefits, if benefits are reduced, does this not put upward pressure on pay? If so- where is the long-term gradual risk reduction going to be achieved?

Why is the Pensions Regulator taking such a proactive stance?

As mentioned above, the spectre of BHS runs through this correspondence. No one wants to be seen to be weak, everyone has to be on the front foot and so we have this extraordinary meddling.

Ironically, the losers in any pension dispute are the members who either see their benefits or their covenant reducing. The irony is that the members are hardly mentioned in this correspondence, they seem to rank lower than the interests of the tax-payer (who pays the student fees), the Universities, the USS (who have an a priori charge on the assets for their management) and of course the Regulator. The Regulator’s agenda – it appears – is primarily to protect the PPF, secondly to protect the sponsor and finally to protect members.

Here is the nub.

BHS, Tata Steel, Royal Mail, Halcrow have one thing in common, an employer with uncertain revenues and a weak business model. The USS is different, Universities are well funded, have strong cash-flow, excellent contingent assets and have no history of failure.

Both PWC and Ernst and Young considered the University’s covenant to be grade 1 (as good as it gets). TPR has disputed and is not yet prepared to accept the covenant assessments

It is hard with so much evidence to suggest that Universities UK cannot stand the risk, that the battle being fought is not about Universities going bust, or fees going up, but about USS members continuing to accrue a  defined benefit in retirement.

While I can understand the feelings of deprivation amongst those who are not accruing such a defined benefit, I do not agree with the principle of “beggar my neighbour”. For the same reason , I do not believe those who have fine houses should be forced to live in the annex and rent out the majority on affordable rents.

Fine pensions and fine houses are the privilege of a few but they are things that can be achieved by the many over time. They are things that people can work for. If we want to pull down our pension schemes, why not pull down fine houses too?

The alternative

The principle of “beggar my neighbour” that runs through much of the correspondence between the four parties in these discussions is mean-spirited and self-destructive. No one will win by transferring USS assets from equities to bonds.

In comparison, the £60bn of assets that the USS currently invests, are funding British industry, our infrastructure and doing so in a sustainable way.

No one will gain if the University staff go on strike, least of all those who pay tuition fees.

The tax-payer is the insurer of last resort of the maintenance of the University system and has been, one way or another since the 15th century.

It is an extraordinary thing, that the Pensions Regulator and the Universities themselves seem to have come to a pact which assume there can be no escalation in risk from pensions. For within the Pension Regulator’s letter to Frank Field we discover;-

USS bull 2

Instead of looking at the USS as a threat to the Universities’ future solvency, we should be adopting a “can do” approach – glorying in the taking on of 27,000 new members, exploring the flexibility of the scheme funding regime and looking at those £60bn assets as a tremendous opportunity.

For to look at pension liabilities as a threat, is to forget they represent the futures of millions of UK citizens which are the better for them. The mantra of risk-reduction hides a more fundamental issue, our workforce is relatively unproductive. If the best we can do to make our human resource more productive is to starve them of retirement income, we have no real understanding of personal motivation.

If we want to make Britain great again, we need to be a lot more ambitious in the way we deal with issues like the USS “pension deficit”.

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Portals for show, pensions for dough



dough 1

in the beginning!

The Pension Dashboard is under pressure. Having lost its sponsor, Simon Kirby MP in this summer’s election, early-day momentum is running out. The ABI are clearly fed up and are now calling for Government intervention if they are to continue their involvement. Such intervention would mean that those holding data on our pension rights would be required to feed this data to a central source – not so much a dashboard – more a “NEST board”. This idea of a public utility, sponsored and maintained by some NGO has been rejected in the past by a Government anxious to keep away from such a role. I can see little reason to suppose anything will change.


What options for the friends of the dashboard?

  1. They can continue with plan A and deliver protocols that enable private firms to aggregated data more easily (multi-dashboards)
  2. They can move to plan B and force the Government into intervention (as they are doing)
  3. They can accept that the dashboard itself will evolve over time and that the advantages of having a dashboard, engagement, aggregation and better value for money, will happen without their work,

What does recent history tell us?

Government intervention in data management is quite common. The Real Time Information (RTI) initiative has been a success in allowing HMRC to digitalise the payment of tax and improve the accuracy of collection and the speed of enforcement.

It is now embarking on GDPR which it hopes will better protect the consumer from being swamped with unwanted marketing or attacked by scams.

Both initiative address problems that go beyond the scope of the private sector, RTI is about improving state revenues and GDPR is about civil liberties. I find it hard to create a similar justification for further intervention in the creation of portals to aggregate the data from our various sources of retirement income.

dough 2

one great big pot



The recent history of auto-enrolment suggests that when called upon to impose a single protocol by which data was passed from employer to provider, the Government stayed out of it. What has emerged since are multiple types of API and CSV data transfer systems which – one imagines- will rationalise themselves over time. There remains a strong argument that Government could and should have intervened at the outset of auto-enrolment and implemented something akin to the PAPDIS standard, but in 2010, technology was not where it is today.

The sad fact is that – save in under-developed countries – as Estonia was and many African countries are, the state has great difficulty in imposing any kind of data standards for private industry, precisely because of the speed of change of technology.

My fear for the Pensions Dashboard is that by the time a set of protocols emerge, a new way of doing things will have emerged that will make them obsolete.

Where has there been private success?

I can see two initiatives from the financial services industry in my small part of the market, that have made a difference. The first is the work done by IDEA in creating a common way to administrate investments so that money is deployed to assets faster. This initiative happened because Legal and General got tired of waiting for consensus and created a market around itself.

The second is the Origo pension transfer club which operates a transfer standard meaning that between club members deals are done in about a fifth of the time were the club not used. Origo was set up by the ABI and the insurers and seems to be doing a very good job. I have been urging more master trusts to sign up to it (Peoples are there, Smart and NOW are nearly there and NEST is thinking about it).

A third initiative, the pension passport, is reported in the FT today.Passport The passport, trialled by insurer LV – and much promoted by Tom McPhail, is a super one-pager which gives people with simple pots a green light to aggregate money without the need of financial advice. It is warmly to be supported.

I am currently struggling to release a pot of money with Zurich to join the rest

of the money with L&G. I have to fill out lots of disclaimers confirming  that I know not of any impediment etc.

I have to get two sets of paper forms and send them to the right people and once I have waited a few more weeks , I hope that I can stop paying Zurich 4.25% pa for doing what L&G do for 0,1% pa.

It should not be this difficult, if my Zurich benefits had come with a passport, I am sure that I would have had all my money in one place at my 55th birthday, now nearly a year ago!

Where can we look for hope?

If all the pension dashboard had hoped to do was Plan A (create the protocols by which data aggregation could happen) then I was onside. This was how it was laid out to us by Simon Kirby (ex MP) in the Aviva Digital Garage last year.

Plan B looks a non-starter to me. I’m not saying my lot wouldn’t play (First Actuarial are fairly confident about the quality of our data and we aren’t technology luddites), however we would resist compulsion – as would all organisations with an obligation of good faith to members , trustees, employers and their rights.

We look at areas in the private sector where aggregation is occurring and we see plenty of slick organisations such as Pensions Bee, Evestor and Neyber making great strides. Portals such as MoneyHub already exist. Software providers such as Altus, Intelliflo and pensionsync are providing the technology for IFAs , payroll, schemes, insurers and the DWP to talk with each other. RTI is developing within the private sector at a rate.

Talking with former NEST supremo, Tim Jones at a CSFI event this week, I heard of the advances in cryptography that could allow for a new generation of data management products super ceding and indeed by-passing the block chain.

I don’t pretend to fully understand how these technologies will be applied , but I am quite clear that whatever Government builds for 2017 will be an anachronism by 2020.

Hope springs from the selective adoption of new technology applied to a proper understanding of what ordinary people want. The dashboard and the passport should be friends as they both help people to do what they need to do, organise their finances in retirement. We hope that the single guidance body – the revamp of TPAS, MAS and pension wise, will be able to properly promote dashboards and passports before too long.

Portals and pensions

I feel for those involved in the dashboard projects, especially for good people like Yvonne Braun of the ABI and Margaret Snowden of PASA. The dashboard is a good thing that will have collateral benefits in improving data quality and the speed at which pots follow members. The dashboard has the right aims and getting common data standards is a good thing.

However, I think that Plan B is unworkable and that calling for compulsion is an admission of defeat. I do not support compulsory data transfer. Portals are a means to get better pensions but they cannot become an end in themselves. We urgently need better pensions now, especially because of the new freedoms.

The ABI are – in calling for compulsion – diverting attention from where the dough is going – the pension. This may suit the ABI who have consistently blocked any innovation in pension payments , but it does not suit ordinary people who are less interested in portals than in having a good retirement.

Portals are for show but are ephemeral, pensions are for dough and for sustenance.

dough 3

You can do good things with dough






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Zurich and Widows, a sensible marriage?


I had better be careful here, my partner Stella is Group Pensions Director at Lloyds Banking Group and I am a Zurich pensioner and ex- head of sales of the Zurich workplace proposition. I have -as they say – skin in this marriage.

Yesterday Lloyds Banking Group announced they were purchasing Zurich’s corporate pension book (with £19bn of funds). 200 staff will TUPE from Zurich to Lloyds and as part of the deal Zurich will get some protection business passed its way from Lloyds.

Zurich corporate pensions – born in a conflict zone

Zurich corporate pensions book is now a part of a life company set up in 2004 called Zurich Assurance.

Zurich assurance is itself a reluctant love-child of Eagle Star, Allied Dunbar. It’s genesis was in a trade war over who owned the pension brand – with Threadneedle Asset Management the cuckoo in the love-nest. The entity has nothing of these ugly sisters, it was set up with minimal reserving as a bright blue unit-linked platform from which corporate pensions could be purchased. It has done very well.zurich ass


The back-story

I was in a small-team, well remembered for the remarkable Jon Poll, who saved Eagle Star’s corporate pension proposition from extinction and created a new proposition using the hi-portfolio administration system (Caroline Moore) and the newly created Profund Open record keeping system. This system is now used by NOW pensions and owned by JLT when Profund went bust in 2004. We were wise enough to ensure that in this eventuality, the code for their version of the software stayed with us.

It seems odd that what is now reported to be a £19bn business, only saw the light of day because when Zurich took over the shooting match from BAT, the big beasts of Allied Dunbar needed to put Threadneedle in its place. Emma Douglas and Mark Stanley, who were then running the Threadneedle DC proposition were thwarted in their ambitions by Sandy Leitch who could not cede to Threadneedle big beast Simon Davies.

Corporate decision making usually comes down to politics , personality and pride and that’s exactly how Zurich Assurance was created. Whatever the legal entity that has been sold by Zurich Insurance to Lloyds Banking Group, it is considerably more valuable than anyone ever considered it could be. Back then, corporate pensions played second fiddle to worksite marketing, auto-enrolment was not even a twinkle in the eye and the Allied Dunbar direct Salesforce were lobbying Government to lift the stakeholder cap so that they could be paid some initial  commission on pension sales.

How a neglected child grew up to great things

widow 2

The DC pension landscape at the turn of the millennium was still dominated by commission , with-profits, opacity and greed. We took the decision to head for the high-ground and at that time there were only a handful of actuarial consultancies acting in a transparent way. Bacon and Woodrow, Mercer and Watsons charged fees to set up AVCs and other “money purchase” plans and first Eagle Star and then Zurich were able to compete more because they did not present a commission proposition than because there was any great confidence in their capabilities.

But a replacement was needed for the Equitable Life and Eagle Star had stepped into the breach. Pioneering straight through processing of contributions, it had become the first DC provider to have used a CSV upload, reconciled by the client and a direct debit to pull contributions through. This simple methodology was to revolutionise contribution collection in the UK. It effectively outsourced error reconciliation back to the client. The savings this created  the profitability for further investment in the business.

It wasn’t till around 2005 that anyone at the top of  Zurich even noticed this fast-growing business. As with most success stories, it happened because of luck, insight and a lack of interference from the top. As soon as the potential for this little business unit was discovered I was booted out, Poll followed a few months later and Zurich became the corporate behemoth it is today.

Scottish Widows

You tend to characterise your relationship with huge entities like Widows through some personal anecdote. Mine relates to a time when we were negotiating for Scottish Widows to be promoted on I and a colleague were ushered through the hallowed halls of HO in Edinburgh up a broad staircase at every turn of which were corporate slogans advertising Scottish Widows’ intention to treat customers fairly.

When we were sat down in a magnificent boardroom we were told in no uncertain terms that we were not to offer on our site any better terms than their existing customers already had. We were asked to quote no terms at all to employers with Scottish Widows products! We looked at that statement “we treat all our customers fairly” and gasped!


Until recently, Scottish Widows were an organisation that had lost its moral compass, its pride in itself and any sense of independent direction. It is greatly to its credit that it has soldiered on and made a recovery. It is now a credible insurer angling for the affections of IFAs against local rivals Standard Life and Royal London. While Zurich took the decision to court the actuarial consultancies, Widows had stuck with the corporate IFAs and the larger retail IFAs and I would be surprised if Scottish Widows and Zurich often compete.

Marriage prospects

The bride and groom have very different pedigrees and appeal to different sets of friends. But I suspect they will get on alright, because their cultures are now aligned.

I left Zurich because I had no place in the corporatisation of what we had started. I am not the kind of guy who hosts tables at awards ceremonies, shakes hands on tradeshow stands or spends most of my working day in internal meetings. We parted company on good(ish) terms, I got a good pension and a nice boat, they got a business which they could grow,

Scottish Widows, owned by Lloyds Banking Group have really done nothing in the corporate space but waste money. Their disastrous forays into “portals” (my money works) the sale of SWIP to Aberdeen, the failed attempt to win 10,000 new schemes through auto-enrolment, have seen them fall down the league table of credible providers of corporate money works

But relative to the propositions of Barclays Life and HSBC Life, Scottish Widows is the last player standing.

Scottish Widows appear to have sensible management (not before time) and they have gone back to their roots with their bulk annuity business. As with Aviva and Friends, and Aegon and BlackRock, they will now have to promote parallel propositions under single ownership. Will these merge or be maintained separately -time and the market will tell.

Zurich customers should have nothing to fear from the change of ownership. Scottish Widows are unlikely to destroy £19bn of value (though crazier things have happened). Scottish Widows will keep the Zurich product as a flagship- if they have any sense. It may be rebranded, but I very much doubt there will be much interference.

I don’t think the Zurich product has ever had much appeal to IFAs, it paid no commission and it never tried to adapt itself for the SME market.

The big question is not about accumulation, but about the capacity to keep funds on the respective platforms into the spending (decumulation) phase. I am far from clear what the strategy for the two propositions will be going forward, but this is where synergies may be found that can work for both Widows and Zurich. A jointly manufactured decumulation proposition for the billions of pounds that will be liberated as the policyholders mature, is the key opportunity (and threat) for Lloyds Banking Group.

It is on how successfully Lloyds can marry and maintain the marriage through retirement, that the long-term success of this acquisition will be judged.



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Is NOW the time to transfer out?

NOW Trustees.PNG

Spot the newcomer!

I was talking last night to a senior financial journalist about NOW pensions. In the catalogue of actions that the Pensions Regulator can call upon, insisting on the inclusion of Dalriada Trustees, is perhaps the most alarming.

Dalriada is a private entity but is used by the FCA as an enforcer. Victims of the ARK pension scandal will know Dalriada well as one of its professional trustees is busy enforcing tax -claims against members who have received unauthorised payments.

Dalriada are the fiduciary equivalent of Rentokil.

So when we heard that Dalriada is being invited to join the NOW board, alarm bells started ringing. According to my friend, the invitation was at the behest of other trustees but so was NOW’s withdrawal from the favoured master trusts list on tPR’s website. It appears that the Trustee’s are coming quietly.

You will note from the infographic above, that Dalriada are there in corporate rather personal guise and do not have a “NOW pensions” soubriquet.

As my friend said “very odd”.

Close, but no Segar (yet)

In December, Joanne Segars, former pensions boss at the TUC,  ABI and PLSA will become a trustee. She joins a string of marquee signings, replacing John Monks (ex TUC ). supremo). Chris Daykin is a former Government Actuary, Nigel Waterson a former Shadow Pensions Minister while Jocelyn and Win are respectively admin. and investment gurus with “portfolio careers”.

Once again NOW will have gone for the sage institutional option. Segars managed to sell NOW a “PQM ready” sticker back in 2013, something they are still very proud of. NOW went on to be the first to purchase the MAF sticker, which pleased the ICAEW and PLSA. They have given the investment audit on their mono-fund to Redington, which will please the mallowstreet community.

“The team think deeply about portfolio construction and risk factor correlations. Particular attention is paid to volatility and stress scenarios where they use expected shortfall to measure risk. The strategy extensively utilises the ATP risk infrastructure.” – Redington 2017

NOW tick all the boxes.

The trouble is that they are not doing a very good job of running a pension scheme, which is what the Trustees should be very concerned about.

No space to list the train crashes at NOW

NOW’s problems are with their participating employers who- over a period of five years have had consistent problems with the collection and allocation of contributions from payroll to fully invested member pots. There are so many horror stories, I cannot list them for space- even were I able to mention the clients (which I should not).

Over this five year period, we have seen NOW’s rating for payroll interface plummet on the Pension PlayPen. Contrary to Redington’s view, First Actuarial’s rating of NOW as an investment organisation is a dim view. , which has been a staunch supporter of NOW’s noble ambitions, has bowed to the weight of evidence.

For all its promise, NOW has failed to deliver. It is Paris St Germain ,relegated to the Championship..

You cannot outsource the member experience – it is what you do

The problem is not just with marquee trustees. There is a real issue about the Commercial Board of NOW. Its Chair is a Danish banker (with a regulatory hat), its CEO was CFO of NOW’s chief administrative supplier and its sole non-exec is a former fund manager. None of these people has first hand experience of managing the funds of ordinary people.

now commercial.PNG

Like the marquee trustees (Blackwell excluded), these are people who see matters from the abstract cloud of policy or strategy , not with the eagle eye of the practitioner. The people who are getting their hands dirty are not in NOW;  NOW outsourced its operations to Xafinity, to Staffcare and latterly to JLT. NOW has listened to conventional wisdom that suggested “best in breed” third parties beat doing it yourself.

But this has meant NOW are two steps away from resolving any crisis. Whether it be the problems that forced it to swap administrators, or the outage when they did, or the disastrous relationship with a middleware supplier or the failure to get their administrator to operate relief at source or even the problems they’re having transferring members out, NOW seem to have no control of their suppliers.

It might be argued that NEST have a similar issue with TATA but NEST are different, they seem to have limitless money to throw at TATA and a payback period as flexible as the gusset on a tart’s knickers.

NOW the price goes up.

NOW has told us that they have embraced Origo and that in future , members wishing to transfer out to other Origo members, will be on the 10 day pathway to completion. I hope this is the case, as Pension Bee’s Robin Hood Index has NOW taking 5 times that standard to rid themselves of members who quit.

Deferred members of NOW with small pots should consider this. From April 2018 they will be paying £1.50 pm however small their funds. This is on top of the investment charge on their fund.

This is a substantial hike from the current member charge


NOW charges 2

And this comes on top of the charges to the employer for having them in their part of the NOW master trust.

NOW ongoing costs

If you are the fifth active member of your employer’s fund and you leave that employer, you are costing your Ex- employer, £7.50 pm + VAT.

It is not just in the interests of members to get out of the £1.50pm member charge, but in the interests of their employers. This is why Romi Savova, CEO of Pension Bee wrote me

If only it was possible to transfer out…

She was writing of the member’s experience getting NOW’s administrator’s to process transfers to third parties (including Pension Bee).

NOW argue that this (further) price hike, is to protect the richer members from cross-subsidies, but there is no corresponding price reduction for richer members. NOW is simply showing it has got its pricing wrong.

Taken with everything else that has gone wrong this year, this suggests worse may yet be to come.

Intentions good – implementation terrible

It is the inevitable conclusion. Marquee trustees, a non-executive commercial board and operations outsourced ineptly.

NOW is not a bad organisation, it is an incompetent one, one that consistently hides behind accreditations and the commendations of institutional partners. It is operating in a space where payroll is king and accountants the king-makers, but NOW is not able to build the APIs to the software through which their employers pay their staff.

They simply don’t have the confidence of the organisations who feed them – Sage especially.

NOW has lost the changing room.

NOW is a massive operator of workplace pensions, more than a million of us depend on NOW for future benefits. It is time it recognised that it simply isn’t in charge of itself. The appointment of Dalriada tells me that the Pensions Regulator has lost all patience.

Without a proper CEO, without trustees who have hands on experience of running a large pension scheme and with a commercial board about whom we know nothing, NOW should be putting itself into pre-pack mode. It should be talking now to its major competitors about handing over responsibility for the management of these pots to another trust.

There are several master trusts who would relish the challenge of turning NOW round and I hope that they are talking right now.

Employers should start considering their participation in this master trust, deferred members should seriously consider transferring out asap.

The Pensions Regulator is making it clear it has lost patience, NOW so do I.



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Finger in the dyke stuff! DC pricing is just too leaky Jon!

Jon Stapleton


It’s a mug’s game Jon!

Jonathan Stapleton has written a deliberatively provocative piece in Professional Pensions which will be applauded by the operators of workplace pensions but is going to get short shrift from me.


You can read  Jonathan’s opinions here.

The gist of Jonathan’s argument is that price pressures on providers is forcing them to skimp on the quality of the investment default.

The pressure to reduce costs has not only meant payback periods for providers have been extended but also that the amount of money available for the investment content in the default offerings of these schemes has been squeezed ever further.

Members opting for a default offering in any major scheme are unlikely to receive anything more sophisticated than a passive lifestyle default. And, given that over 95% of people choose the default, this matters, especially at a time when the next financial crisis could be just around the corner.

Perhaps the time has come for us to adopt a different tack. To start choosing value for money over cost alone and, dare I say, paying more for our DC schemes.

Yes, members want low cost, and they don’t want to be ripped off by providers; but they also want a quality investment offering that will be robust in all market conditions.

I write as someone who has his entire DC wealth in a FTSE 50:50 global equity index tracking fund which I am paying 0.1% + 0.02% transaction charges. Jon might argue that I know the price of everything and the value of nothing. I would argue that I see no point in paying higher fees unless I have evidence of value. Other than NEST, I see no evidence of any particular value in the market. But as regular readers know, I am working on changing that so that we can compare apples with oranges using value for money scoring.

When we have accurate data that reflects performance over reasonable periods of time, then we can start assessing the validity of Jon’s assertion that you can buy funds robust in all market conditions.

The next financial crisis could always be just around the corner, like Chicken Licken’, we could assume the sky is about to fall on our head and no doubt it will.

chicken licken

Mark to market DC


In my short working career , the equity market has fallen on my head several times and I fully expect it to do so again. As a 55 year old expecting to crystallise in not less than ten years, I am under no delusions!

But as the conservatives will find out if they sack Mrs May, it’s one thing throwing out the incumbent, it’s another finding an alternative.

My first message to Jon Stapleton is that equities remain the best long-term growth assets and there is precious little point in paying for diversification if you have no immediate liabilities.

carsten -chicken

Nurture your chickens instead



Pricing pressure is fundamentally downwards

While I challenge Jon’s premise that paying more for fund management will increase value as unproven, I further challenge the assumption in his article that the operator’s  “fixed” costs and margins, that make up the majority of the AMC are “fixed” at all.

nest debt

and where does the line go after 2038?


He points to NEST which will continue to accrue debt till 2029 at which point it will owe the DWP £1.2bn He does not mention that in a few short years following 2029, NEST will pay all that debt off and then become the biggest cash cow Government has ever owned.

Well that’s what the NEST projections tell us, and this of course assumes that NEST costs remain constant and that pricing remains constant too.

But of course NEST’s current fixed costs are likely to change over time and I have to conclude that they will fall, as will all providers’. Here’s why.

  1. the adoption of distributive ledger technology; as NEST’s former CEO Tim Jones tells me, pension administration has yet to grasp let alone adopt the benefits of the block chain.  When it does, the manual processes that cost NEST and its competitors the bulk of its record keeping fees will fall away, making records more secure, easier to access and a whole lot cheaper to manage.
  2. the increasing ability of the public to self-serve; NEST – like most of its peers does not run an app to give members instant access to their pot and the capacity to manage it. This is because it has not yet confidence in the security and accuracy of its records (see 1 above). Following improvements in record keeping, operators will be able to pick up on people’s increasing capacity to do simple things for themselves. Assisted by artificially intelligent bots, taught by machine learning, we can – in time – self-serve!
  3. taking out the slack in fund management; the 36% margins enjoyed by fund managers and their cronies are not sustainable. Greater transparency caused by regulatory and consumer pressures (bravo to the TTF) mean that both the AMCs and the fund expenses of all pension funds are going to come down. This can either mean we get more for the same money (if Jon’s belief in buying robustness is proven) or that what we are currently paying fund managers will reduce. As we have no way of knowing what we are paying for fund managers (see my bleating about NDAs) , we currently cannot put pressure on fund management margins but that is going to change and very soon.
  4. Consolidation drives scale and reduces prices (eventually). Right now BlackRock is owned by Aegon, Friends is owned by Aviva and pretty soon we expect Zurich to be owned by Scottish Widows. The smaller master-trusts are queuing up to be bought by bigger master-trusts, the only question is whether they have earned a price. We will see a contraction in choice but this will create greater scale and – in a market in which the CMA are taking a great interest, this will ultimately benefit the consumer.

Jon Stapleton is right to point to a short-term increase in the operator’s prices. NOW pensions is putting up the fixed costs charged to deferred members as it claims these costs are subsidised by the richer members. This is of course hog-wash, were it true we would see richer members seeing a decrease in charges, which is not happening. NOW is trying to stabilise its current financial position.

Hardly any pension providers are making any money out of auto-enrolment but that is not the same as “workplace pensions”.  The biggest DC schemes such as LBG, JP Morgan and HSBC now have billions in assets and present fund managers with fabulous long-term income streams. The bundled players such as Zurich, Standard Life, Legal and General and Fidelity who got in early and captured the elite DC market ten to twenty years ago are now very profitable indeed.

nest debt

Profitability after 2038 will be huge (under lifetime pricing)


As the NEST chart shows, once you have reached a certain size, the operators of DC pensions can make huge amounts of money. Assuming that is, that people like me don’t go pissing on their bonfire and driving costs down. Why the operators are so resolutely against benchmarking, refuse to lift NDAs and write me stroppy letters when I write this kind of blog, is that their vision of “lifetime pricing” is complete baloney (and they know it).

We do expect the operators to finance the early part of a DC pension’s charges. We expect them to reserve for this or to explicitly state their borrowing (NEST). Even the non-insured master trusts are going to have to partially reserve within the next few months. We also expect for operators to recover the costs of this financing later in the contract and I am happy to see numbers which show them doing this.

But we do not expect to see the kind of profiteering that has been going on among the insurers on legacy DC (I am still paying 4.25%pa on the capital units of my Allied Dunbar pension bought in 1985).

Instead we expect to see prices for DC coming down as the massive surge in profits in the NEST projection, feed through.

nest debt

The long-term profitability of NEST is immense


Workplace pensions are not here to provide the shareholders of insurance companies with windfall profits in the ten or twenty years time. They are here to provide members with good outcomes. A 1% pa reduction in charges over the lifetime of a contract means a 27% improvement in outcomes for consumers.

Right now, workplace pensions may be costing the shareholders, their pleasure is downstream, but they should not expect a gold-rush – unless they get the ongoing patronage of a munificent financial press, regulator, CMA and of bloggers like me!


ear ear!






Posted in auto-enrolment, dc pensions, de-risking, Debt, NEST, now, pensions | Tagged , , , , , | 2 Comments

Normalising pension saving for everyone


The TUC is publishing this morning important research into inclusion. Since our new pensions minister has included “inclusion” in his title, I hope he is reading it!

Six in 10 workers in the UK agriculture and hospitality sectors are not saving into a workplace pension, according to new research which has sparked fresh calls for ministers to act.

The research … found 908,000 of those working in hospitality, such as pubs, clubs and hotels, were not enrolled in a company retirement fund — equivalent to 59 per cent of the sector’s workforce. (Jo Cumbo -FT)

The numbers need a little understanding. Many of the 908,000 will be working part time and have full time jobs elsewhere, many are students who are typically outside the auto-enrolment wage bands and there are many workers who are migrant from aboard and not properly part of our national labour force.

Which points to a larger question. Do we consider being part of a workplace pension a condition of work?

The gathered consensus

The ipsos Mori research published earlier this autumn suggests that we do. 73% of a large survey of low-paid employees said that being in a pension scheme was now normal, very nearly 70% were looking forward to being nudged into higher contributions. Considering the very large numbers of don’t know/don’t cares in any survey, these show considerable support among those most financially vulnerable – to paying money towards their own retirement.

It is very good to see the TUC promoting the need to include these people into workplace pensions. It demonstrates a degree of support from all parts of the labour market for greater self-reliance. This is not me making a political point, it is me observing that there is now general trust in UK financial services to deliver good outcomes for those with the least to contribute. Credit where credit is due, as a result of better industry practice and Government intervention, the TUC is countenancing using the private sector as the means to baluster the welfare state.  Guy Opperman – please take note.

We are used to a war between our major political parties on policy matters. But no such war exists within pension policy. Indeed, I have been in a room and heard Carolyn Fairburn of the CBI speak with feeling of her admiration for the work of Frances O’Grady of the TUC. Not only is there considerably less friction in Westminster, there is considerably less friction on policy matters such as this, within the representatives of worker and employer rights.agriculture 3

The auto-enrolment review

We are weeks if not days away from the publication of the Government’s auto-enrolment review. Last week, at his one appearance at the Conservative Party Conference, our Pension Minister, Guy Opperman, spelt out his support for greater inclusion in auto-enrolment. There has never been a time of such political and social consensus. Now is the time to extend the scope of auto-enrolment to embrace the young, those with small earnings and the workers who are excluded through self-employment.

Normalising pensions

I am not a fan of compulsory private pensions, we have compulsory national insurance which is a lever for Government to improve state pensions through the national insurance rate.

I am a big fan of inclusion, but it has to be voluntary inclusion, at least in as much as people need the right to say “no” (and opt-out or cessate). That is why I think auto-enrolment is the right policy for Britain (pace David Harris)

I don’t think we should try and second guess those who work in the hospitality industry. There are some genuinely low earners who some would have paying off debt rather than saving. Inclusion would require a few migrant workers to have small orphaned pots when they return to their countries of origin, and there will be quite a few in this group who will opt-out having no reason to be saving (and knowing it). But none of this is good reason not to include the bulk of this group in the “saving habit”.

A nation proud to save!

Blimey, I seem to be writing Guy Opperman’s headlines for him! Actually, I think this headline is the political equivalent in my own “restoring confidence in pensions”. Saving is a habit- a good habit – like going to the gym, not picking one’s nose and saying “thank you”. It is just good manners.

People who don’t save are not quite part of society and should be aspiring to save because it is the grown up thing to (like not picking your nose).

We are getting to a point where we have savings vehicles which are fit for purpose. We are beginning to think about the spending equivalents in our new “post annuity” world.

We have 9m people who are new-savers and we have very few employers who are deliberately non-compliant in helping them to do so. We have payroll organisations like Sage who are looking at how to help things stay this way. The nay-sayers like the IOD have piped down. There is a consensus that saving into workplace pensions is a good thing.

So I hope that if you are reading this Mr Minister, you will have the courage to listen to the numbers from the TUC and that you will have the courage to use the auto-enrolment review to extend the scope of auto-enrolment.

For this is the best chance the Government may ever get.

agriculture 2


Posted in auto-enrolment, pensions | Tagged , , , , , , | 5 Comments

Pensions entering no-man’s land

member 2

We are in an unprecedented situation. We now have around 1,000,000 employers participating in workplace pensions operated either under trust or contract by a small group of providers (with a long tail).

I think it highly unlikely that more than a handful of these providers are in trouble , the majority of the small master trusts are preparing themselves to be consolidated by those with deep pockets (the insurers) or big ambition (the non-insured master trusts + Peoples Pension).

I would number the providers who genuinely expect to be operating independently as at not more than ten. What this tells me is that there are around ten organisations serious about providing workplace pensions. Many will be running multiple offerings; Legal and General are already treating Smart pensions as their “Torro Rosso”, Aegon are taking a double bet having bought BlackRock and the market expects Scottish Widows to make an announcement over Zurich any day soon.  Smart and Peoples are openly acquisitive and NOW, BlueSky and Salvus aspire to be.

So we have the extraordinary prospect of having the vast majority of those 1m employers relying on the operators of a handful of operators. Equally unprecedented- neither these employers nor the millions of new savers have any advisers at all.

There are two schools of thought about the need for advice. Large employers have always assumed that their schemes should be advised but that staff can be looked after by their own trustees or by the insurers (who have devoted considerable resource to workplace education/selling). The large scheme school of thought supposes that internal resource will be enough.

The second school of thought, that which has prevailed among our various retail regulators since 1987, is that employees are not sufficiently educated to be left to their own devices and that small employers should be regarded as no better.

So far we have got by using what Share Action has described as the “triple default”. That means a uniform contribution rate, a uniform investment fund and a uniform recourse to advice/governance (non-advised).

This is fine so long as the sums in individual pots are sufficiently small and the contributions nugatory. However, turn up the heat on contributions and see the pots growing to meaningful amounts and the principal of Brownian motion applies. If your physics lessons are a distant memory, let me remind you. As molecules heat up, they bounce about and start jumping up and down. This causes a change in the state of the substance in which the molecules sit. So with workplace pensions.

The current un-advised and remotely governed state of workplace pensions is fit for current purpose. But it is not going to be right in three or four years time and even in a shorter time frame, many of the medium sized employers that staged 2014-16 will have to do some thinking.

Because my experience is that people will want answers to simple questions like “how is my pension doing?” and they do not want a bland assertion from a trustee or IGC that they are getting value for money. People will want some evidence, not just that the pension is working , but that it’s working at least as well as the alternatives.

People don’t expect to be winning the league every year but most would expect to be at least mid-table. If we do not see comparative information emerging then people will start making noise (angry molecules).

It strikes me that there is early mover advantage here. By which I mean that there is advantage for someone in creating a general utility that collects the various performance and cost feeds needed to create value for money scores and display the information in a single place.

This sounds simple enough but there is a more general problem which relates to independence. It does not sit well for providers such as NEST producing such performance tables. What is needed is an independent entity to take charge and distribute the performance utility at scale.

I have considered the various options, IFAs, accountants, the Pension Regulator. For varying reasons, none of these works. IFAs are busy doing other (important) things, accountants really don’t want to be seen as pension governance experts and the Pensions Regulator is decidedly awkward at these kind of things (See the choices pages on its website).

There is only one option that fits the bill and that’s the software companies that deliver the payroll and accounting software to SMEs. They are principally Sage (which has around half the private market, IRIS, Moneysoft, Star, Able, Qtac, Xero, myPAye, Inuit, and a long tail. There is also a smaller opportunity for the high-end payrolls (Cintra, SDworx, MoorePay, MHR, Northgate etc.

The opportunity is with these organisations who have a one off opportunity to create partnerships with organisations able to deliver performance analytics, independent employer and member helplines and switching facilities.

If any strategists within the payroll software organisations are reading this, they might want to contact me with some more information. I can be reached at

member 3



Posted in pensions | 2 Comments

The FCA is quite right to be worried about DB transfers.

FCA 78.jpg

The FCA has published an interesting blog entitled Our work on DB transfers. The nub of its findings follow

Since October 2015 we have reviewed a total of 88 DB transfers where the recommendation was to transfer. Out of these, we found that:

  • 47% were suitable
  • 17% were unsuitable
  • 36% where it was unclear if the recommendation was suitable

We also considered the suitability of the recommended product and fund and found that:

  • 35% were suitable
  • 24% were unsuitable
  • 40% were unclear

The proportion of suitable cases was much lower than we found in the wider advisory market for pensions advice, e.g. our Assessing Suitability Review found that 90% of pensions accumulation advice, and 91% of retirement income advice, was suitable.

This is not a surprise to me, I read the stuff that comes to me from advisers and I’m shocked.

Tideway Investments have been delivering nonsense to the Daily Telegraph

tideway 12


This is rotten advice. In the summer, I had cause to censure Tideway for similar rubbish. Tideway threatened to sue me for defamation, then they asked for help which my firm offered, the offer has not been taken up and here they are talking absolute drivel to the Telegraph readers.

stephen ward 2

James Baxter



Tideway are a vertically integrated adviser who makes money from the investment of the proceeds of the transferred money. The fees payable for advice are contingent on the money being invested in products on which Tideway takes a management fee.  The potential conflicts of interest are immense. We expect the highest integrity from such firms and this half-baked clap-trap is deeply worrying.

If you are worried about that!

I am now getting a stream of educational material from Sam Instone of AES International. Sam is keen to keep me on the right side of the financial thugs who rip off people like me when we choose to expatriate our pension savings to offshore financial havens.

Sam has a whole library of anti-scamming manuals you can access here. You should trust him, as he tells us we can.

Sam Instone, CEO at AES International, is passionate about positive change and ensuring expat investors get the best results

For AES International, the question is not whether to transfer (that’s assumed) but how to avoid being ripped off once you get your money offshore.

transfer 10

One would be forgiven for asking just what is wrong with leaving the money to be paid from a UK occupational pension. I wonder what the FCA makes of all this.

Actually, who needs regulators when we’ve got AES International cleaning up?





There is something not quite right about Sam or AES International, for all his fine talk, the brilliant PR and the endorsements from the Economist and even (for a while) the evidenced based investor Robin Powell.

stephen ward 3

Sam Instone

AES International , Sam’s firm was once a front for Premier Pension Solutions, the firm of Stephen Ward. Together, Stephen and Sam managed  the victims of the ARK Pension Fraud into financial ruin. The Times ran the story in 2014,   If you haven’t a subscription , you can read it here. Sam claims there is no link


“We had nothing to do with the Ark scheme and we earned a negligible amount from our tied agency with PPS. We have no legal responsibility for what has occurred here.”

But I am not so sure. Investigative work by Angie Brooks, published on her website, suggests that the links between the two firms were pretty strong!


Stephen Ward


Stephen Ward is another model citizen. Stephen actually wrote the G60 book that those of us who studied to be transfer experts in the 1990s.  Today, you can still hire him to speak! I wonder if he talks about the fate of those people to invest in ARK.

And then there’s lead generation!

Ever wondered how people end up on those cold calling lists? Well look no further than which just sits there waiting for people to google “can I cash in my pension at 35?”. This site has been reported more times than I was at school! But it still sits up on the web with a whole range of advice for the most vulnerable.

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“No” is slightly shorter than “yes”


The FCA have a lot of work to do

There is a lot of clap-trap being spoken about pension transfers. If it was no more than clap-trap, there would be little cause to worry. But this clap-trap translates into people taking life-changing financial decisions.

One defining moment of my year was the meeting I had with Lesley Titcomb and the victims of the ARK pension fraud. The subsequent private meetings and the little  time I spent in the Royal Court have left an indelible mark on me.

We cannot take risks with people’s retirement savings as we are allowing risk to be taken today. The statistics quoted by the FCA, the appalling nonsense coming from Tideway and the lurking presence of notorious scammers such as Stephen Ward point in the same direction. The general public cannot trust financial advice so long as these are the standards  some of them present.

Another defining moment was the congregation of nearly 300 IFAs in a shed outside of Peterborough – all investing a day of their time to get better at transfer advice.

I’m into raising standards and I loved the Great Pensions Debate. I despise poor quality advice and detest scamming. We should be very worried about the evidence that the FCA are digging up – even if it is from only 88 cases.  It is critical that those who are in the process of transferring benefits from defined benefit schemes , really scrutinise the advice they are getting as clearly – it is not all great!

sam instone


Posted in accountants, Middle East, pensions, QROPS | Tagged , , , , , , , , , | 7 Comments

@CIPP_UK – “grafters not shafters!” – thx.


CIPP_ACE17_AWARDS (img_9888)_Lifetime achievment-PENSIONS_Henry Tapper (accepted by Jason Davenport).jpg

cropped-playpensnip1.pngI woke up this morning to lots of messages telling me I’d won an award! Not just any award but a lifetime achievement award from an organisation I have a lot of respect for – the CIPP, who had their annual conference in Chepstow yesterday.

While I was whizzing back to London from Newcastle, the CIPP and Trevor Mcdonald gave me this prize and I am so happy!

Coincidentally , I am even more happy as it looks like the work that I really want to do for tens of thousands of small employers is going to happen , thanks to a herbaceous software company in the North East!

ht lifetime achievment

McDoughnut, Graham and Hammond!



Not everything that happens with money – happens in London!

Are you getting a theme here? The CIPP are based in Solihull, I was in Newcastle and McDoughnut and co were in Wales. The word “London” refers only to where the action wasn’t! In case anyone reading this blog thinks that London’s where the heavy lifting goes on, think again! I got messages from Frome (thanks Jim Parsons)and Reading (thanks Hayley). Infact, almost everyone (quiet Liz) who I work with in payroll is out of town!

Because payroll isn’t very glamorous and doesn’t hang out in the Ned of an evening and doesn’t do awards in the Grosvenor House or the Dorchester.

But payroll makes pensions go round and if you don’t believe that, look at the compliance figures for auto-enrolment. When I was with the herbaceous software people I was studying a survey of thousands of their clients about pensions awareness. It was encouraging to discuss strategy based not on the likely impact on assets under management but on how we could better reach the millions of people paid by this firm.

The CIPP is the oil that keeps the payroll industry (including the software companies) grinding!


Grafters – not shafters!

Pension people can only aspire to the productivity of payroll. I know from five years of working with payroll people that they are grafters and not shafters.

Payroll – probably the most accountable profession in the world

There is something very simple about getting payroll right., it is- that if you don’t- you are sacked. There is no black or white in payroll. it’s right first time or out you go. That means that treating customers fairly is not an aspiration but a pre-requisite of the job.

Yes, payroll software companies are commercial and so are those who use the software, whether in-house or within a bureau. But the 36% margins achieved by the asset managers are not achieved in the competitive market of payroll. I doubt that most owners of the bureaux I work with, would tolerate any of their suppliers achieving such profitability, nor would they consider such margins for themselves as reasonable.

If the FCA wanted to set a benchmark against which to judge the asset management industry, they could do worse than look at payroll.

I am really happy to have been recognised for trying to help pensions and to help payroll.cipp22

The CIPP are great people and I value the CIPP’s recognition above that of any other trade body, as they are at the heart of what is good about payroll.

On Wednesday, I heard our Prime Minister croak that she would dedicate the rest of her term in office to making Britain a nation of house-owner again. That wasn’t much of a promise, the longevity of her term was undermined by the minute she stood on the podium!

McDoughnut my hero!


Last night, I missed out on collecting the award from Trevor (a teenage hero thanks to Lenny Henry) and I’m bloody glad I didn’t make any such foolish pledges myself.


I run the Pension PlayPen, we’re here to restore confidence in Pensions. I work for First Actuarial, the best pension consultancy in Britain. I am proud as punch that the CIPP think I’m doing a good job -I think they’re doing a great job too!







Posted in Payroll, pension playpen, pensions | Tagged , , , , , | 6 Comments

A geriatric convention led by a consumptive.


The one thing you do not want to solicit when delivering a prime ministerial address to your party, is pity. But that was the overwhelming response to Theresa May’s speech yesterday (at least from delegates). Elsewhere the verdict was harsher, Alistair Campbell commented that anyone can be prepared through medication to speak for an hour without coughing, fierce questions have been thrown at the party Chairman for the failures in security that allowed Lee Nelson access to the podium. The disintegrating lettering above May’s head is too embarrassing for (internal) comment.

I got a very bad feeling from the Tory party conference. The average age of the Conservative members is 72 and we weren’t far off that average yesterday. There was a lethargy just in moving from room to room. The die-hards never ceased telling anyone who listened how long they had been coming but the only new delegate I met turned out to be there because he’d just been elected an MP.

If I am painting a picture of bungling incompetence, of lethargy and a lack of challenge, then so did Theresa May. Her apology to the party was for not offering the nation change but continuity. This is the whole basis of the Conservative offering to the nation and if she is saying it is not enough, then we need to judge her on a different measure.

If the change that Theresa May is suggesting is to take on the housing market and make home ownership available to young people then she is going to have to commit much more in funds than the £2bn pledged yesterday. At a press briefing afterwards, she is reported to admitting that this added up to only 25,000 new homes. This is not nearly enough to justify her claim to be dedicating her time as Prime Minister to this project.

The other change she mentioned in her speech is a return to intervention in the energy markets. Whether this is a good or bad thing I don’t know, but it is no more than what has been promised before, it seems to be no more than a sop to those in the hall and their peers, for whom a winter fuel crisis is a perennial possibility.

As a delegate, I sensed I should be more supportive, and I did spontaneously stand up (unlike Boris Johnson) to applaud May when her cough got so bad she had to take a break. I did feel the general pity (you would have had to have been heartless not to respond at a personal level), but I didn’t leave the hall feeling much confidence that Theresa May will be effective in months to come.

The CBI were quick with a broadly supportive response, but having been at their reception the night before, my memory was of Carolyn Fairburn’s final remark to Damian Green “we need to grow our way out of austerity”. This is a distinctly different statement than anything that came from Philip Hammond or Theresa May.

There is no big economic idea to get Britain going, the big ideas are parked as minds focus on how to manage the BREXIT. Meanwhile , the Labour party are full of big ideas and are attracting to their conferences the young thinkers who used to turn up at Conservative conferences.

Instead of marking the beginning of something different, May’s speech merely emphasised the paucity of energy and enthusiasm within the Conservative party at the moment.  They are still the party of Government , but I wonder for how long.


Posted in pensions | 2 Comments

What I’ll ask the Pensions Minister today (if I can find him).


Calling Guy Opperman MP,  Minister for pensions and inclusion,

“are you out there?”

I’m on my way up to Manchester clutching an email from your office saying you want to meet me, I will be at (y)our conference for the next two days and I’d really like to know what (y)our views are on the current state of pensions.

Here they are;

  1. We’ve recently revamped the State Pension , in the process there have been winners and losers. Among the losers have been those who have stayed contracted in to SERPS/S2P – can you forgive them envy for those who contracted-out , will get the same single state pension and up to £100k as an additional pot- funded by national insurance rebates?
  2. You inherited the work of John Cridland on the State Retirement Age, it included a recommendation for a mid life review for people to engage with their later life income needs and rights. Has anything been done to take this idea forward? There are many angry women who point to the absence of any such engagement over state pension increases for WASPI, do you see an opportunity here to be proactive?
  3. The Corporate Defined Benefit sector is in turmoil with large employers ratting on their pension promises left right and centre. What is the Government going to do to maintain the balance between the employer’s obligations of good faith to members and their wider obligations to their shareholders and staff not in their DB plans?
  4. We want investment of pension funds to do more, both for members and society. What part will the DWP be playing in the regulation of pension investments? Will you be telling us soon what you expect from occupational schemes by way of disclosures and have you anything to add on the questions of value for money?
  5. Next year we expect to see a new body providing public sponsored “guidance”, do  you know what’s happening in at TPAS/MAS and CAB and do you have a plan to get people to engage with this new body?
  6. The FCA are consulting on Retirement Outcomes and the difference between advice and guidance. They are calling for innovation. We had innovatory approaches we were planning following Pension Act 2015 but we’ve never had the regulatory plans to take them forward.  Will you answer the Labour Party’s call and recommence the secondary regulation to allow us to provide people with collective ways of spending their pots?
  7. The Pensions Dashboard seems to be lacking a sponsor, since Simon lost his seat in Brighton. Will you step up and champion the single view technology proposed by the Treasury, or at least give occupational schemes a steer on progress?
  8. The auto-enrolment review is rolling along, I see you’ve included “inclusion” in your title, will you be adopting the recommendations of the Taylor report and taking steps to include the self-employed and others who fall outside the AE net?
  9. Are you aware of the problems that low  paid people in occupational schemes have in getting the promised Government incentive to save? Unless the Scheme opts to use the “relief at source” method, low paid people are missing out on incentives through no fault of their own. Are there any plans to right this wrong?
  10. You’ll be aware I’m sure, that billions of pounds will flow out of DB occupational pension schemes as CETVs. Are you comfortable with what is happening? Do you have any plans to clarify the basis of transfer to ensure that transfer values seem more equitable and how do you respond to your predecessor’s calls for  mandated split transfers?
  11. Finally, I hope I don’t need to remind you that much of the money flowing out of well managed pension funds, ends up in poorly managed funds – some of which are scams. Do you support the ban on cold-calling and have you any further measures in the pipeline to protect the vulnerable people who fall prey to poor advice and outright fraud?

I appreciate this is a long list of questions, but as we haven’t heard anything from you on Government policy since you took over from Richard Harrington earlier in the year, it seems we’ve all had to sit behind your learning curve. At the last party conference, I listened to Richard Harrington telling me I’d have to be patient as I wouldn’t get much sense from him till next year. Well he’s moved on and will you be saying the same thing to me this year?

I’m all for elected officials making policy decisions and support your being Pensions Minister, but your visibility is required and I very much hope you or a member of your team will be able to get in touch. My number is 07785 377768 and I’ll be in Manchester from 9 am this morning as party delegate for City and Westminster.


Posted in #WASPI, pensions | Tagged , , , , , , , | 6 Comments

Not the time to butcher teacher’s pension benefits.


My little break in France was rather spoiled when I read Jo Cumbo’s articles on the potential “remedies”  Universities UK are considering to correct their supposed pension funding deficit.

For those who can’t follow this link, these include

  • Lowering the salary cap against which DB benefits are earned for £55k to as low as £20k
  • Replacing the  DB benefit with a DC benefit (for capped earnings)
  • Fiddling with the commutation factors to give people less pension for taking tax free cash
  • Lowering the accrual level (the rate at which defined benefits build up)
  • Upping member’s contribution rates (again).

All this only three years after the same type of cuts were inflicted on the hapless members.

Whoever is Jo’s source, we can assume it is reliable. Whether the source is on the Union side (UCU) and is meant as a warning shot or from Universities UK (a softener upper?) is not material, the “remedies” are all about the teachers taking the medicine.

Is the patient sick?

The false diagnosis is something every doctor has to be wary of. The symptoms of the USS’ malady are not clear. Under one funding measure, the scheme is in deficit, another in surplus. The professed aim of the scheme – to be self sufficient (Test one) suggests that the employer’s covenant cannot be relied on, yet the last covenant assessment suggested the covenant is of the highest quality.

The assumptions that the deficit will worsen are linked to the scheme’s intention to reduce its exposure to the type of investment that could return it to good health. In short, there are a mass of contradictions in the messaging from the most recent valuation that make it anything but clear that the USS needs remedy at all.

Is now the time for surgery?

Some would argue that what is intended is not surgery but butchery, but that is to look at worst case scenarios.

The timing of the current valuation is critical. There are two potential factors that could radically change the funding position. The first is whether the recent changes picked up in UK actuaries Continuing Mortality Investigation are sustained, the second is whether Mark Carney’s promise of a rise in UK interest rates is imminent and substantial.

The CMI numbers suggest that UK longevity may be flattening and that some of the assumptions baked into the liability valuation may be over-cooked, this would argue that the deficit may be less serious than stated. We will have to wait a few years to test this one!

But the second factor, a sharp and immediate rise in UK interest rates, could make any decision based on a 2017 liability valuation, look very silly indeed.

The value of doing nothing.

There is a bias within management culture, to make a difference. Whatever the assets you are managing, the bias towards change reflects the vanity of believing you know better (or at least have better information). But there are plenty of examples to suggest that it is those organisations who start with a plan and stick with it , who outperform those who tack left and right towards their goal.

There is tremendous risk in Universities UK making radical changes to the pension scheme. Most obviously there is the threat of large-scale industrial action, but secondly there is the possibility of a long-term detoriation in the morale, quality and output of our teaching profession. We chose to pay university staff a mixture of wages and deferred wages for a reason. It is to give them the financial security not to worry about their future. If we want our teachers fighting for security, then we can give them a DC benefit, but that was never the idea.

I am a tax-payer and I have a son at University, I am not happy to see my taxes and my son’s contributions to his education dissipated in such a detoriation in teaching standards.

For the record, I do not think these remedies are necessary, I do not think the patient’s sickness is chronic and I do think that left to itself, the USS would return to good health over time. This is not the time – in my opinion- to butcher benefits.



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First Actuarial- proud to work for you!



I had a nice surprise over breakfast; whizzing through my emails I found that while I’ve gone on holiday, they’ve issued a FAB press release!

50:50 claim by PLSA is “dangerously misleading” says First Actuarial

First Actuarial chastises the Pensions and Lifetime Savings Association (PLSA) for its irresponsible claim that “three million members in the weakest schemes only have a 50:50 chance of receiving their full benefits”.

The PLSA also claims that, despite employers spending £120 billion over the last 10 years in special contributions, deficits have remained at over £400 billion. In contrast, First Actuarial’s Best Estimate (FAB) Index improved again in August, with a month-end surplus of £316bn and a funding ratio of 126% across the 6,000 UK defined benefit schemes.

First Actuarial Partner Rob Hammond said:

It is dangerously misleading of the PLSA to claim that there is only a 50:50 chance that some three million members will receive full benefits. And quoting multi-billion pound deficits, without proper context, risks unduly harming confidence in pensions for employers and members.

“Our FAB Index suggests there is a 50:50 chance that the 6,000 UK defined benefit pension schemes have a surplus of over £300 billion. And this is before allowing for scheduled payments of the order of a further £100 billion in place under existing recovery plans.

“So, opinions clearly vary. The problem with the PLSA claim is that it has been presented as fact, when it is simply an opinion – an opinion which could have grave consequences if misinterpreted.”

Hammond added:

“This careless scaremongering plays into the hands of pension scammers who will use it to dupe people away from perfectly sound DB pension schemes.”




The technical bit…

Over the month to 31 August 2017, the FAB Index improved, with the surplus in the UK’s 6,000 defined benefit (DB) pension schemes increasing from £308bn to £316bn.

On the other hand, the deficit on the PPF 7800 index deteriorated over August from £180.1bn to £220.4bn.

These are the underlying numbers used to calculate the FAB Index.

FAB Index over the last 3 months Assets Liabilities Surplus Funding Ratio ‘Breakeven’ (real) investment return
31 August 2017 £1,553bn £1,237bn £316bn 126% -0.8% pa
31 July 2017 £1,525bn £1,217bn £308bn 125% -0.7% pa
30 June 2017 £1,515bn £1,214bn £301bn 125% -0.6% pa

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 means the schemes need an overall actual (nominal) return of 2.8% pa for the assets to meet the liabilities.

The assumptions underlying the FAB Index are shown below:

Assumptions Expected future inflation (RPI) Expected future inflation (CPI) Weighted-average investment return
31 August 2017 3.6% pa 2.6% pa 4.0% pa
31 July 2017 3.6% pa 2.6% pa 4.1% pa
30 June 2017 3.6% pa 2.6% pa 4.2% pa


FAB index

The FAB Index is calculated using publicly available data underlying the PPF 7800 Index which aggregates the funding position of 5,794 UK DB pension schemes on a section 179 basis, together with data taken from The Purple Book, jointly published by the PPF and the Pensions Regulator.

The FAB Index is updated on a monthly basis, providing a comparator measure of the financial position of UK DB pension schemes.FAB sept




 First Actuarial

I joined First Actuarial nearly eight years ago. It has been a great eight years! Not only have they paid me well but they’ve allowed me to blog as Henry Tapper and supported the Pension Play Pen.

Pension consultancies come in for a lot of stick, but I’d exempt my lot from general criticism. They say what they think and they think deeply. This press release echoes similar comments made on my blog. This is not always the case and we’ve had some famous stand-offs over things that I have written.

But I’m very proud that after so long, we still are friends and that things are set to stay that way. I hope that you feel this way about your employer’s – it makes one hell of a difference!


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“Glass half-full please!”

cheers 1

what do you think?

Glass half empty

Imagine you are heading the motor industry’s trade body and you put out a statement telling the public that small cars are unsafe. It would be true in as much as tanks rarely come off worse in road crashes, but it would be pretty tough on small cars and their manufacturers.

This week, the PLSA put out a statement that was supposed to tell us that pension schemes with weak covenants weren’t safe. This is not what the public is hearing, they are hearing that defined benefit pension schemes aren’t safe, in fact they are hearing that giving your money to someone else for 40 or more years, isn’t a safe thing to do.

What the PLSA has done, amounts to a public relations disaster, that it did it to promote a solution which has no obvious advantages will make it a commercial disaster, the PLSA have alienated still further a large part of its membership. If I had a weak pension covenant , I would not be weakening it further sponsoring such talk.

Glass half full

I don’t sponsor a DB scheme but I know if I did,  I would want my scheme to actively invest in making Britain more competitive, more productive and more secure.

The current DB regulatory regime, with its emphasis on integrated risk management, encourages a depressing downward spiral that encourages closure. Schemes have generally closed to new members, for future accrual to existing members and soon many will cease to invest, handing over their obligations to insurers or the PPF, the PLSA hope to jump the queue and accelerate the process.

This is not what the  employers who I do business with want, nor is it want ordinary people want, the Labour party – who seem rather more in touch with ordinary people – want something quite different.

What do ordinary people want?

I am reading a very well written paper by the Canadian Public Pension Leadership Council. It was published earlier this year and is called “The Pensions that People Want”, it is the result of a national survey. I don’t know how different Canadians are from the British but I suspect “not much”. These are the key findings of the survey.

The survey results give rise to a number of key findings:

    1. The features of pension and retirement income programs that are valued by respondents coincide with features of defined benefit (DB) plans and, within limits, respondents are prepared to pay more to improve the quality of their pension/ retirement savings plans.
    2. There is a great deal of variation among respondents in terms of the confidence they have in meeting their targets for retirement income and retirement age, with members of workplace pension plans and especially members of DB plans being more confident than others.
  • Canadians are finding ways to deal with inadequate retirement savings, including retiring later and working after retirement.
  • There is broad agreement among respondents that maintaining living standards in retirement is a key objective, but this objective is interpreted broadly to include income to deal with various contingencies over and above the regular consumption of goods and services.
  • The results cast doubt on retirement savings solutions based on individual choice of investments as they reveal little time is spent on retirement planning and self-assessed knowledge of retirement savings products is limited, as is confidence in managing retirement savings.





This is pretty much my view of the world and – if we take off our professional hats, I doubt that many of us really could argue against these findings.

Half full or half empty

We have a simple choice in this country, either we take the PLSA’s view which leads to the ultimate closure of the plans people want, or we take another view, perhaps the Labour Party view, which is looking for ways to keep DB plans open, perhaps on a different promise going forward, but with the emphasis on investment for the future.

It strikes me reading the Canadian study that younger people favour the Labour Party approach while older people favour locking everything down and pulling up the draw-bridge.

The young people I deal with – and I was with a room full of them yesterday morning (Share Action), consider pensions a matter of investment while the older people with whom I was with yesterday evening (CSFI) consider pensions a matter of banking and insurance. We need to keep the elderly comfortable but we need to invest for the future.

I believe we can do this using the kind of pension structures the Labour Party are advocating, and I work with much cleverer people than me , who can show that such structures are resilient and sustainable.

I am against the nihilistic determinism of the PLSA whose messages play well to the lucky few but offer no hope to those who come behind.

I am a man with his glass half full and I intend to fill that glass before too long. I do not support the PLSA, I do support the Labour Party’s pension policies and I intend to tell everyone I see in Manchester next week just that.

As for the Canadian study, wouldn’t it be good if we could run such a thing here?

Henry cheers


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“NO!” to the PLSA’s self-serving proposals



I write as Henry Tapper , not First Actuarial, First Actuarial is a member of the PLSA and will have its own response to its DB’s Taskforce’s Opportunities for Change. A timely response now can lead to a more considered response later. What are we to make of the occupational pension scheme’s trade body issuing the press with this headline?

Millions may lose promised pension payout?

and the subsequent statement

Three million savers in final-salary pension schemes only have a 50/50 chance of receiving the payouts they were promised

Were this a report issues by a scammer in Marbella, I would have been appalled but not surprised. That this report has been targeted at the BBC by the Pensions and Lifetime Savings Association is a disgrace.

Much as I disagree with John Ralfe on other matters, I join with him in roundly condemning the PLSA for self-serving sensationalism of the vilest kind. They are putting the colly-wobbles up literally millions of people expecting  a DB pension so that their plans for “superfunds” can get some traction.

Here is John Ralfe as quoted by the BBC

 John Ralfe described the superfund plan as “outrageous”. He said there was “no crisis in defined benefit pensions, so there is no need for crisis measures” owing to a well-funded lifeboat system for collapsed schemes.

“The PSLA is trying to undermine all the safeguards put in place for members since the 2004 Pensions Act. It wants to turn the clock back to the days when companies could walk away from their pensions without fully funding them,” he said.

The detailed analysis of the Taskforce’s proposals will follow. We know them to be based on assumptions that take a deeply pessimistic view of the future both in terms of the maths and of employer’s attitudes to funding pension promises.

The PLSA is struggling to find some meaning. I have suggested for some time that it decides who it is representing and do something about representing them. Instead , we can give the report a better headline

“It has not come to praise pensions but to bury them”

In 2015 George Osborne delivered a budget that told people that he’d have to set them free from buying a pension with their pension savings. The pension freedoms are understandably considered “Freedom from pensions” as a result.

These proposals are as ill thought through as Osborne’s, and quite as dangerous. They can properly be compared to the report of Richard Beeching and the Beeching report.

In the 1960s Dr Beeching concluded it was in the national interest to rationalise the rail network by scrapping all but the most used lines. In doing so he destroyed the travel infrastructure for many small towns and villages, the railways have never returned.

The scrapping of our small DB pensions in return for superfunds, breaks the link between employers and good quality provision in favour or precisely the false efficiencies that Beeching proposed.

Small turned out to be beautiful and today we have seen precisely the upturn in rail traffic that could have justified continuing with the original rail system. The scrapping of small DB schemes at a point when they are at a low ebb would be a national calamity and disgrace.

This deeply irresponsible report with its heinous promotion will throw fuel on the fire of the scammer’s endeavours, destabilise the thinking of ordinary people fearful of losing their pension schemes and create yet more political uncertainty.

Instead of proposing these ill-thought through superfunds, the PLSA should be working with sensible practitioners towards better forms of risk-sharing. They should be talking with Terry Pullinger of the CWU about how his members want to work with the Royal Mail to establish a scheme that can provide the postal workers with an affordable wage for life.

The PLSA could be talking with the Labour party about the proposals they are putting forward to take on the legislation established by the Coalition government to allow this risk-sharing to happen.

The PLSA could be promoting alternative means of funding DB schemes based on a more optimistic approach to paying pensions, they might even be promoting keeping DB schemes open! The FABI index is a boon to such a pensions view, the PLSA have chosen to ignore FABI, the unions proposals for the Royal Mail and the Labour Party’s proposals for risk sharing.

This is because they are paddling their own little canoe and not collaborating with anyone other than an elite group who run its DB taskforce.

I am genuinely saddened that the PLSA, which I have supported for many years, is now no more than a cheap adjunct of the pension de-risking industry. Whatever vision it had, has been exchanged for these sorry headlines and sorrier report.

A shame on the PLSA and its DB taskforce, this is no way to restore confidence in pensions.



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Labour adopts CDC for good retirement outcomes

Alex cunningham

Labour Shadow Pensions Minister- Alex Cunningham


This week , the Labour Party’s list of policies became one longer when shadow pension minister Alex Cunningham announced that reviving the mothballed secondary legislation to enable collective defined contribution schemes would happen under a future Labour Government.

A few months ago, such a statement would have been greeted with jocund merriment, but not in the current political climate. In case you haven’t realised, a future Labour Government is now odds on with most book-makers


I won’t go into why the Labour party are popular right now, but I’m going to explore why this policy is so deeply unpopular with the pension establishment.


Why John Lawson wants to keep things as they are

John Lawson is the ABI’s articulate roadblock to progress. Where he leads, other insurers follow – undoubtedly the ABI are digging out their dusty anti CDC propaganda. No need boys, it’s all here. Kevin Westbroom’s elegant destruction of the ABI’s previous arguments has lost none of its force over the past two years.

The ABI, John Lawson’s Aviva included, fear CDC for what it has done to them in Europe, it has returned value from the insurers to members of collective pensions. The current chaos presented to ordinary people at retirement is benefiting insurers who are supplying product without price controls and with little competition. It is a disorderly market in which only the suppliers are winning. Lawson would have it stay that way.

The ABI still own the debate – at least with the Treasury and the FCA

At a recent Retirement Outcomes workshop, I was a lone voice calling for innovation through the use of risk-sharing. I argued that the mass market of people with between £30k and £250k in pension savings were not served by the insurance industry. Neither drawdown or annuities were realistic products for the man or woman on the Clapham Omnibus.

To the shame of the FCA, my arguments were shouted down by a sneering triumvirate of Lawson, McPhail and Cameron, the wrecking crew employed to head off assaults to the status quo (aka innovation). The man from the FCA told me I was outside the scope of the current debate. Not now I’m not.

If a Labour Government get in, the cosy alliance between the Treasury, the FCA and the insurance and SIPP mafia will be challenged.

The Usual Suspects

The Usual Suspects calling for CDC include me, and I’m not a member of the Labour Party, in fact I am off to Manchester next week and will be banging the drum for CDC to any Conservative politician who can tell the difference between a pension and an ISA. I will be doing so as a Conservative Party representative for the City and Westminster (no less).

More generally, the usual suspects include Con Keating (University of Warwick), Hilary Salt and Derek Benstead (First Actuarial) , Kevin Westbroom (Aon), David Pitt-Watson (London Business School), Robin Ellison (Pinsent Masons)  and Tim Sharp (TUC). I’m proud to stand besides these people.

What we have in common is many years experience working with ordinary members of occupational pension schemes as financial advisers, union representatives, actuaries and academics. We are people who independent of insurance companies, SIPP providers and fund managers. We – the usual suspects – are not being paid to befriend CDC, we do so because we care about Retirement Outcomes.

We care enough to put up with the jibes of the insurers, the dismissal of the FCA and the insults of John Ralfe. We couldn’t care less.

CDC – no threat to workplace pensions – but the default way for us to spend our pension pot.

I have said it many times on this blog, the current workplace pension savings market is working, it could work a lot better, but it is functional, competitive and has the capacity to become “good”.

CDC is a huge threat to the ambitions of the insurers and SIPP providers who hope that the guided investment pathways, promoted by the FCA will lead to their coffers. It is in the interests of ordinary people that (as Alex Cunningham puts it)

CDC pensions give members higher and more certain pensions than would otherwise be available to them. They deliver a reliable base level of income during retirement which helps members plan for their retirement, that’s them planning and taking control

Spending our pension pots collectively protects against longevity risk and reduces cost.

This will not happen overnight

Because of the foolish decision by Ros Altmann to mothball CDC secondary legislation (in 2015) we will not now have the rules finished till (at earliest) 2020. That means that many people who could have enjoyed the fruits of a CDC pension will miss out. This is regrettable but inevitable.

If a Labour Government is returned in the next few months, then 2020 is a realistic timeframe for the legislation to be delivered and product to be developed, we might see the first CDC schemes in 2021-22.

The ABI and IA and all the usual vested interests will try to push these timeframes back and I still think we are most likely going to have to wait for up to ten years, to be able to buy into a  collective pension.

Nonetheless, it is hugely encouraging that the Shadow Minister for Pensions is taking the action he is and actively promoting CDC as Labour party policy.


There is an alternative use for CDC, as the logical replacement of Regulatory Apportionment Arrangements for schemes such as the Royal Mail, British Steel, Kodak, Halcrow, Hoover Candy and BHS. But that is another story and a different set of battles to fight!

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Con Keating; the purpose of a pension scheme

Con 8

This article is published with the kind permissions of Dr Keating and Professional Pensions (in which it first appeared).

Given its length and subject matter, Iain Clacher, Andrew Slater and I were surprised, and flattered, by the number of downloads – over one thousand – of our response to the DWP Green Paper, DB Pension Schemes: Security and Sustainability. Less satisfyingly, the majority of the comments, criticisms and questions we have received have concerned our first, and principal recommendation, which is that the precise role of defined benefit (DB) pension schemes, and their funds, be debated and determined. It was felt that our description of the issues of concern surrounding the purpose of a scheme and fund were just too sparse and scanty.

The truth is that the original version of the paper was one third longer than that finally submitted and published, which was itself longer than the consultation. Much of the material excised was concerned with an elaboration of some of these issues and their consequences. In this article, we shall attempt to precis some of the less well-trodden, but nonetheless important aspects.

It is a fundamental feature of English law, and many other legal systems, that a person’s debts and obligations cease to accrue on death. This holds for both natural and juridical persons. The obligations do not transfer to heirs and successors. This is often misleadingly, and incorrectly stated as ‘your debts die with you’, when in fact they crystallize and become payable, as the value accrued to date. It is self-evident that the person cannot perform the future actions promised; consideration of what might have been is clearly futile.

In other words, it is not the proper purpose of a company to make provision for events occurring after its insolvency. It is as misguided for a company to over-provide security for its pensions promises as it would be to the company to create and fund a trust for the payment of dividends to shareholders to take place after the company’s insolvency.

There is also an issue of equity among stakeholders to be considered. Favouring one class, pension beneficiaries, above all others, is inequitable. This holds true even if insolvency does not occur.

This raises some fundamental questions for both regulation and current practice. The specific questions arising range far and wide, from the trivial to the profound. They include valuation procedures taking present values of projected cash flows that arise after sponsor insolvency, to concepts such as the “self-sufficiency” of the scheme. The central regulatory themes of protecting beneficiary members and funding to reduce Pension Protection Fund exposure are deeply suspect, though well-intentioned.

A company should rightly be concerned with actions that continue or enhance its sustainability, which serves to the advantage of all stakeholders. As part of this process, honouring the due performance of its existing contracts and commitments is paramount. But not more.

The establishment of a trust to administer[1] the scheme raises further issues. The beneficiaries of an occupational pension scheme, current and past employees, are not the only members of the scheme. The employer sponsor is usually[2] the residual claimant to assets remaining after the discharge of all pension liabilities, and in this sense, it is also a member of the scheme having an interest in it, albeit of a different class. This means that the management objective of the trustees is compound. It is not simply to look after the interests of one class of member. In many regards, this is analogous to the standard situation of corporate finance, where creditors have fixed claims and the equity owners are the residual claimants. The most remote claimants, the equity owners have the most control.

The analogy is also helpful inasmuch as, analogously with stakeholders and the assets of a firm, members have an interest in the trust, not in its assets. In this regard, the strategy of transferring and encashing DB pensions enabled by so-called pension freedoms can be seen as a gross error of judgement. How could a company operate if its long-term creditors or equity holders could help themselves to the company’s assets at any point in time, at the sole discretion of those stakeholders?

There is an implicit return promised on the contributions made by both the employer and employees, which is defined and determined by the projected benefits payable. We refer to this as the contractual accrual rate. This is arguably the main occupational link. The employer underwrites any shortfalls from this rate. By equal part, as the residual claimant, it gains from returns on assets in excess of this rate. In all too much of the discussion around the risks of shortfalls, this fact gets scarcely a mention.

The sponsor is the bearer of the risk associated with the liability. The manner in which the asset portfolio is managed is the primary contributor to the sponsor’s risk exposure. It is only proper that it should therefore determine the asset allocation strategy of the fund, which contrasts sharply with the current legal position.

It is also worth distinguishing between real risks, that is to say the factors which increase the pensions ultimately payable and those arising from the measure used to reduce those liabilities to a present value. The former include longevity, and wage and price inflation, and the latter market interest rates. Changes to the expectations of the former alter the true cost of provision, the contractual accrual rate.

By contrast, changes in the valuation discount rate do not in and of themselves have to have cost implications. It is only when interim actions are based upon those valuations that this becomes the case. Unfortunately, solvency regulation, with its requirements for deficit repair contributions, operates in just such a manner. This is also true of cash equivalent transfer values – pensions freedoms have granted an attractive option to scheme members, which is integrally linked to the (actuarially utilised) discount rate. This is extremely costly to schemes in the current environment.

However, the true risk exposure of the sponsor is determined at the point of execution of the pension contract. In this regard, it is analogous to the fixing of a coupon at issuance for a debt instrument. Any actions by the sponsor to limit or modify this risk subsequently may only be properly done at the sponsor’s expense. Correctly, such actions should be conducted by and within the sponsor company, not the scheme.

A sponsor company may validly decide that it no longer wishes to bear the risk associated with its underwriting of the scheme, but in doing so, the costs incurred should be for its account, not members, not the scheme. Moreover, as these costs arise from a change in corporate risk preference or tolerance, they should not be classified as pensions or even labour costs.

It is disappointing to see some trustees accepting broad limitations on deficit repair contributions. Indeed, the idea that a sponsor may limit its exposure in absolute terms is anathema to the very root of a DB scheme. Once restricted, this is a defined contribution arrangement. In particular, it is inappropriate for the terms of new awards to contain elements of deficit repair; this would constitute subsidy of the sponsor’s cost liability by members.

The setting of extremely low expected return rates in the pricing of new award contributions is one, perhaps subtle, way of doing this. The risk exposure of the sponsor is relative to this rate and the use of a low expected return both limits the sponsor’s downside and increases their upside, to the detriment of beneficiary members.

There is a relation between the contractual accrual rate (and its scheme equivalent, the weighted average accrual rate) and the required rate of return on assets held necessary to meet all obligations as they fall due; it is the limiting case. This immediately gives rise to a measure of the performance of the sponsor. When the contractual accrual is above the required rate of return on assets held, the sponsor is outperforming its contractual obligations and when below, the sponsor is delinquent.

Why are we so concerned about these aspects of DB pensions when ‘everyone knows they are both unaffordable and dying. The future is DC’. The reasons are simple and many. The risk sharing and risk pooling of open ongoing DB schemes are powerful; depending upon the precise elements present, the efficiency of DB relative to DC lies between 30% and 100% above DC. Moreover, survey work shows that DB characteristics, not DC, are what individuals actually want in their pension. This preference for a predictable lifetime income is independent of the age of survey respondents. Contrary to the received wisdom, it is the younger cohorts who are most willing to pay more for a stable predictable lifetime income.

This is a sketch of some of the issues, omitted from our Green Paper response, which we believe need an open and frank debate. We would welcome it beginning.

Con Keating is head of research at Brighton Rock Group

[1] It has become common practice to use the existence of trustees to delegate to them responsibility for certain discretions regarding the pension obligation, for example pension increases, as specified in the governing documentation. But the trustees do not, in any sense, own the resultant obligation.

[2] This is the norm, but not universal. There will be some pension arrangements where it is not specified in governing documentation that the sponsor is a beneficiary of residual assets. But it is grey, as there is legislation which provides for a refund to the sponsor if the assets are considerably greater than the value placed on the pension obligation, although that legislation been reviewed or revised for quite some time.

Posted in pensions, Pensions Regulator, Retirement, risk | Tagged , , , , , | 4 Comments

Let these politicians do some work!

kick ass 2

We have had so many referendums and elections and leadership battles and cabinet reshuffles over the past two years, that politicians may have forgotten they are here to govern the country. We elect 650 people every five years to do a job of work, not to showboat from one media circus to another.

The party conferences this year seem particularly pointless. We are not due an election for four years , we are in the middle of an arcane dispute with Europe about how we extricate ourselves from the European Union and our economy continues to rack up debts as we continue with the current economic policy into a seventh year.

Ordinary people are worse off than they were in 2008, they are polarised between those who sit on fragile housing wealth and those who don’t, between those who have pension rights (the public sector worker) and those in the private sector (who have auto-enrolment).

The young are surly and live with the uncertain expectation of “wealth cascading through the generations”. As a nation we are unproductive, people are under-motivated, there is no big idea driving the nation forward.

If anyone has captured the public imagination, it is Jeremy Corbyn; he is admired for not changing his views since the 1970s. It could only be in a world bankrupt of any political spark that such a regressive outlook could inspire.

In such a vacuum of hope, even Vince Cable believes he has a chance to be Prime Minister.

We need politicians to do more work

The particular policy area in which most readers of this blog have an interest, is financial services and in particular the reform of our pension system.

This is an area in which much can be done to improve the lot of ordinary people. Unfunded pensions, especially the state second pension have been reshaped and probably need further reshaping to iron out some wrinkles (WASPI, the contracted in). But the big job has been done – probably Steve Webb’s biggest legacy.

Auto-enrolment is going well and though it faces big tests over the next three years, it has the support of the small businesses that we feared would not or could not participate.

The decline of our large DB schemes into the current mess is however a national disgrace and one that is directly attributable to a heavy-handed and unimaginative approach from Government. Not only has it resulted in a wholesale reduction in retirement prospects for a large proportion of the working population but it has seen productive capital diverted into non-productive investments – principally bonds.

I have table a request to speak at the Tory Party conference to excite the audience into considering the long-term renaissance that the better allocation of pension capital could bring. If we were to put the trillion pounds invested for our retirement in DB schemes to work, rather than to sleep, then pensions could become part of the solution – not the problem.

I very much doubt that I will be heard by the Tory grandees, but I will not be shy if I am! Pensions is an area where much can be done and it is not enough for us to sit and watch others, we need to show leadership to the politicians, otherwise they will do no work!

We need to work better – Productivity is all

As a nation we are unproductive, we sit around on our arses and moan too much. We moan at politicians for doing nothing and while we moan, matters get worse.

Successes – such as auto-enrolment – happen because politicians make rules that we can follow, this is proper Government. The reform of the funds industry being carried out by the FCA is proper Government and the work of CMA to prise open the hegemony of a few investment consultants will be the product of proper Government.

When I spend time with our pension management teams, I sense a zeal to do the right thing, whether to get scheme funding right, keep records accurately or talk to staff about their benefits and options. There is real pleasure in that productivity, our offices are happy places, the happier for being busy.

Productive work is what gives quotidian meaning to most ordinary people (me included). Without it, things would fall apart, the centre could not hold.

This is what we can teach those in Westminster, we want to be kept busy, we want to be industrious and produce! The current jaw-jaw about what we might or might not do is a distraction from what we should be doing – which is driving our nation forward as a single productive entity.

Pension policy is a part of that, but only one cog, I will be going to Manchester next week with some fire in my belly, determined to kick ass. Time to get pedalling again!

kick ass 3

Posted in pensions, Politics, Popcorn Pensions, Public sector pensions, Retirement | Tagged , , , , , , | 4 Comments

So you want to pay your own pension costs- do you?


A new twist to the Pension Transfer Debate has been introduced by Willis Towers Watson (WTW) at a seminar last Tuesday at their London offices.

At the event, consultants reported a ripple effect caused by the surge in members transferring out.

WTW have done their own research which shows that schemes are losing members fastest where CETVs are over £500k where members are engaging with the message “more cash now plus more flexibility overall”.

WTW’s message is that “facilitating paid-for impartial financial advice can dramatically increase the numbers transferring”.

WTW’s extensive data illustrates that only those members who are already informed about pensions and able to fund their own advice are able to access the flexibilities.

Through this series of logical steps (the ripple), WTW argue that extending the provision of financial advice to a wider section of scheme membership, could democratise transfers and accelerate the “Stampede to cash in ‘gold plated’ final salary plans” (FT headline).

At the same time, it could accelerate the stamped to buy-out of those same schemes, ridding UK Plc of the awkward problem of being partially accountable for its staff’s retirement experience. This after all is the long-term aim of the Regulator’s  “integrated risk management framework”.

Obstacles to transfers can easily be removed

Having established the case for financial advice from the member’s perspective, the seminar goes on to look at the impact of such a “stampede” from the scheme’s perspective.

In doing so , they counter four prevalent arguments

  1. The administration crunch for DB transfer analysis can be eased by bagging TVAS analysis resource using the scheme’s economies of scale
  2. The impact on assets following the departure of cash can be managed through employing top-notch investment consultants (step forward WTW)
  3. The lack of awareness of the honey-pot by less affluent members can be solved by better scheme communications (step forward WTW)
  4. And the DB transfer process can be streamlined by working through your scheme consultants to deliver excellent service through in-house IFAs.

And all this can be self-funding (at least for the scheme)

WTW estimate the administrative cost for an occupational pension scheme to pay a pension is £3,000. But if an IFA can get a member transferred out, that cost falls to £0.



The cost of getting an IFA to engage with a member is reckoned by WTW to be £900. WTW estimated that about two thirds of members would engage with an IFA with about half choosing to transfer out of the scheme after engagement. So a scheme might expect a third of members not to engage, a third to engage and do nothing and a third to engage and to transfer out. On this basis, the cost of transfer advice would more than be covered by the long-term administrative saving to the scheme.


I hope you get the picture. The message is clear. as long as trustees are prepared to meet the long-term impact on the scheme of investment strategy, projected cash flows and funding, WTW reckon that admin savings can fund the cost of reducing the membership of DB plans by a third.

So why would I want to pay my own pension costs?

It is clear that trustees like the idea of helping members to pension freedoms. Superficially they are fulfilling the dream of “more cash now plus more flexibility overall”. Employers are pretty keen on losing a third of their scheme liabilities, that’s a massive kicker to their balance sheet. In terms of reliance on the employer’s covenant, the trustees can demonstrate their journey plan is on track. The Pensions Regulator is watching integrated risk management in action! This is the classic win-win-win.

Beware “win-win-win”, there are no free lunches.

Sorry to poke a stick in the spokes, but there are losers here. Firstly, a third of members will have not only have lost their right to a wage for life , but lost their right to free pension administration (costing £3000) in the process. The cost of that administration should be reflected in the CETV though I have never heard an actuary mention it in the discount rate factors used to value pensions. I would welcome the views of any pension actuaries who can claim to factor in that £3000 into their CETV calculations.

My suspicion is that members who transfer are picking up this cost which is a fixed cost (not varying with the size of the transfer). So the lower the CETV, the higher these admin costs are as a percentage of the cash transferred.

This “£3000 admin cost” is truly  the cost of the pension – as a wage in retirement. For those in the Royal Mail scheme, it is one of the things you don’t get from a DC scheme or a cash-balance scheme, that you do get from a career average scheme.

I wonder how many TVAS style analysis, factor in the £3,000 admin saving to the scheme? I wonder how many SIPP drawdown plans are able to match the efficiency of a large occupational pension scheme in paying pensions? I wonder if those who cash out a SIPP for a big bank balance, ever consider what they have lost by way of the administrative structure of a pension wage for life?

Why would anyone want to give this up? Presumably the lure of “more cash now plus more flexibility overall”.

Not enough friction

The WTW seminar was entitled “DB Transfers; Seizing the Opportunity”. I remember going to a similarly entitled lecture given to me by Allied Dunbar in 1987.

The power of “more cash now plus more flexibility overall”, is so great that it could solve many of the problems with DB schemes overnight. By encouraging another third of members to take CETVs by using good scheme communications and employing IFAs, schemes can seize a massive opportunity for short-term gain.

However, the impact of that 1987 seminar is still being felt today by the millions of people outside pensions who were either mis-sold  or knew people who were mis-sold a dream that never materialised.

We need friction in the system and that needs to come from people asking serious questions about what we are doing. In my view, many occupational pension schemes are paying out transfer values which are too high, and many people are undervaluing the long-term benefit of a wage for life.

I do not think that the idea of encouraging transfers this way is good news at all. It smacks of all “win-win-wins”. The losers of these schemes are those who do not have the capacity to administer their own pensions or the means to pay others to do it for them.

WTW can point to the IFAs as capable of doing this, but I question the capacity of the IFA industry to manage the surge in DIY pensioners, that a frictionless system would create.

Pensions are hard, pension schemes are serious mechanisms that people seem to under-value. More questions should be being asked about the plans being put in place to dismantle them, for they are much easier to demolish than rebuild.


Posted in pensions | Tagged , , , , , , , , | 6 Comments

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

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

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

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

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

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

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

Not everybody knows that!

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

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

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

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


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

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

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

Better late than never

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

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

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

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

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

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


One option – Pension Bee

romi savova

Pension Bee’s Romi Savova


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

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

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

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


Another step towards transparency



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


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


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

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

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

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

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

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


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

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

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

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

First the headline number 0.04%

Transaction costs

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

Here are the Explicit costs  -0.01%

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

Here are the Implicit costs- 0.03%

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

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

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

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

The Pension Plowman challenge


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

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

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

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

I will not stop there!

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

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

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

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


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

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

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

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


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

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

war won

War won!







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

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



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

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


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

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

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

Mutton dressed as lamb

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

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

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

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

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

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

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

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

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

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

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

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

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


Traumatised advisers

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

Henry and Tim

Me and Mr Jones (where’s the camera?)


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

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

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

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


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

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

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

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


We support TPAS and what it is doing






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

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

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

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

morrow 2

Savova innovator


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Morrow – innovator

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


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

Paul Lewis

Lewis -innovator


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

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

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

morrow 3

Cracknell – innovator


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

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

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


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

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

Gavin Perera-Betts, chief customer officer at NEST.

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

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

NEST v the rest

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

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

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

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

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

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

This is what the FCA have found.

.consumer 2

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

consumer options

This is where the withdrawn money went

consumer 3

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

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


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

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


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

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

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

What are we going to do about it?

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

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

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

consumer 4

An analysis that ignores risk sharing

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

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

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

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

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

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

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

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

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

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

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

Would NEST agree with me?

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

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

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

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

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

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

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

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

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

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

voice of reason

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

pin sticker.PNG

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

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

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

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

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

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

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

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

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

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

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

Is there an implied obligation of good faith?

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

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

In every contract of employment there is an implied term:

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

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

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

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


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

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

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

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

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

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


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

Picking winners.

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

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

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

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

Worth reading if you want more on this;

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

So who IS accountable for your pension returns?

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





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

For you Tommy                                                 For you Tommy zee war is over!

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

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

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


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

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

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

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

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


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


There is a second WASPI petition.

There’s a new #WASPI petition – please sign it! Currently at 11k signatures… How soon 100k?

— Sarah Pennells(@Savvy_Woman) September 13, 2017

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

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

This blog explains.

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

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

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

The sums involved

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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Good from NOW – poor from HMRC


Our response so far


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

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

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

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

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

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


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


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


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

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


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(s)Carey pensions!

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

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

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

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

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

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

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

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

Carey Group states on their website

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

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

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

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

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

Why so shy?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Carey 3

Hope so

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


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

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

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

The pilgrim has progressed

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

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

The Damascene conversion


Steve! Steve! – why persecutest thou me?

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

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

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

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

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

Phil Loney

Sexy-cash ATM

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

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

Wallowing in sexy-cash

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

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

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

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

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

Time to restore confidence in pensions

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

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

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

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

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

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

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

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


Supping with the devil?

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

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

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

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

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

bonds and equities.png

“recrudescent Ralfe syndrome”



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

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

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

What is suitable about bonds?

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

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

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

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

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

The internal rate of return

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

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

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

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

A long-term obligation

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

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

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

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

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

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

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

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

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

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


Comments very welcome!

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Transparency as disinfectant

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

Bank wins by being straight with customers

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

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

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

FCA fails to disclose its disclosure committee

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

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

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

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

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


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


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


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

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

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

Transparency as disinfectant

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

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



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Don’t make the teachers pay


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

Another set of spurious numbers?

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

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

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


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

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

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

Have the trustees been listening to Chicken Licken?

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

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

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

Why should the members pay more?

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

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

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

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

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

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

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

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

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

Let the teachers have their say

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

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

chicken licken



Since writing this blog the disclosure of information has moved on

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



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


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

keep calm and auto-enrol

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

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

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

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

It depends on the type of workplace pension scheme you use

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

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

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

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

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

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

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


It depends on your staff’s capacity to pay more

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

TIP 3; be wary of scaring the horses!


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

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


The graph bellow shows a simulation

Estimate of change in net pay at phasing



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


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


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


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


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


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


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



  • Putting together a communication strategy for April 2018/19 has to take account your basis of pension taxation
  • If you’re got the wrong basis of taxation for your staff, you should look again at your pension provider and at ways to remedy the situation
  • You should take care not to scare the horses with tales of woe about pension contributions
  • You should consider talking to an expert on the net impact of auto-enrolment phasing on your net reward.
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LCP and Royal London; helping us make better retirement decisions


LCP and Royal London have produced a joint report on



You can read it here

The Main findings are


The LCP Breakfast Briefing

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

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

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

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

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


the increase in the take up of quotes


and the increasing size of average pots


Linked to the older demographic of transferors


Royal London findings


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


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


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

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

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

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

Which brings us on to ….

Partial transfers

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

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

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

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

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


After words

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Unwanted awareness?

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

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

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

Industry self-interest?

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

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

“The scammers slice”

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

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

A complexity too-far?

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

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

I want split CETVS but….

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

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

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

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

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







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Now – is not the time for interim leadership!


In – Clutterbuck


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

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

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

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

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

NOW’s problems are to do with outsourced administration.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So far – no good!

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

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

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

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

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

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

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

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

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

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

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

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

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

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


out – Nilsson








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

pitch and canvas.PNG

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

Apprentice levy ≠auto-enrolment!

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

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

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

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

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

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

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

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

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

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

Why am I writing this?

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

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

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


suzanne miller

The impressive Suzanne Miller

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A Pension Food Bank for the DC saver


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

Silly season.PNG

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

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

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

So what of alternative DC?

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

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

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

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

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

What is Field actually saying?

Here’s what he said to Jack.


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

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

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

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

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


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

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

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

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

starving man.png



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

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


The bearded City Slicker

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

John Ralfe

John Ralfe – with beard


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

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


Gregg- Pre-beard


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





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

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


Sage auto-enrol

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

keep calm and auto-enrol



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It’s the most decent people getting scammed


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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







Posted in pensions | 2 Comments

When ESG knocked at the White House

Trump trump.png

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The values of  wider global governance  trump Trump.

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Taking care of the “social” in housing.


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

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

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

She takes an example …..

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

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

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

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

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

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

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

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

The lure of property rental

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

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David Hargreaves in action


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

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

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

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

Taking care of the “social” in housing

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

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

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

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

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

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

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

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

Even more excitingly!

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

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

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

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

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

The myth that employers are paying less into pensions

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

total pension

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

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

Something has changed in the way thinks about work and pensions

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

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

Something has changed not just for workers but for bosses.

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

“what more do you want me to do?”.

The importance of Paul getting it wrong

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

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

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

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

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

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

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Reaching the places advice cannot reach



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mr Pension

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

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

DWP - norm

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

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

DWP -norm2

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

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

dwp norm3

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

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

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

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

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

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

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

The message is getting through

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

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

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

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

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




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BSPS2 – a superior kind of lifeboat?

British Steel

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

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

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

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

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

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

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

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

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

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

Jumping ship

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

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

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

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

The great sorrow is that it has come to this.


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


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

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

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

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

robin hood

Pension Bee’s Robin Hood Index


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


So what is going on?

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

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

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

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

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

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

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

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

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

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

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

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

He claims that in the joint working group he chaired

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

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


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

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

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

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

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

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

This is not restoring confidence in pensions

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

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

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

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

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

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

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


NB outcome 6

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

good faith 3


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

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

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


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

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

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

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

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

The employer’s obligation of good faith

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

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

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

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

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


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

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

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

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

In every contract of employment there is an implied term:

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

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

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

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

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

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

Why does this matter?

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


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

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

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

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

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

“A legal and moral obligation of good faith”

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

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

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

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

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



good faith2

Another way of putting it!



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With value for money – figures speak louder than words.

Pen and swordThe pen may be mightier than the sword but the spreadsheet trumps both.

Last week, JLT published some projections which showed that if the performance differential between lousy and top pension providers continued – you’d be able to buy a reasonably priced house at retirement, just by making the right choice.

The point’s well made, if you’re aiming to get employers to pay attention to the pension (which JLT were). I prefer to offer people a 25% lifetime wage rise for every 1% they can get themselves from their workplace pension. My version actually focusses people on the job in hand, but heh! – we’re all swimming to the same rock.

JLT and my point is the same, fractional difference in performance of a workplace pension default investment multiply over time to the difference between a good and bad outcome. While the “member experience” may put extra fuel in the car, it’s the engine’s performance that really counts.

Enough metaphors!

What we need is a way of looking at a whole load of different approaches to managing pension investments and find out which has worked so far (past performance), how much luck was involved (risk adjustment) and whether the price paid for risk adjusted past performance was worth it (value for money).

Words cannot do this, only numbers can.

The trouble is that we currently don’t have the numbers. We have no single database that stores the actual returns for different cohorts of workplace pension savers -even since the start of auto-enrolment. We have yet to even have the debate on how we create a common method for analysing that performance for risk, and while Dr Chris Sier and his team are close to establishing a common template to tell us how much we are paying for the management of our assets, we still don’t know what the platforms on which our money is managed , are paying in fees.

These are very serious deficiencies and it’s now nearly four years since the Office of Fair Trading called for a common system of value for money reporting. Imagine having to wait four years for the next version of the iPhone! With billions flowing into workplace pensions even at current rates and with the minimum contributions quadrupling over the next two years, we need to get on with a way of comparing workplace pensions by their likely outcomes, and that means comparing value for money (not a crude analysis of recent past performance).

So let’s see how this works.

Currently there is no database that captures both master trust and GPP default fund performance. Financial Express collates gross returns from the insurers but has no mechanism to capture trust based arrangements like NEST, NOW and other master trusts.

That is why the recent attempts to give snapshot performance figures first by Defaqto and more recently by Aspire, have been incomplete. A sustainable system does not rely on a third party to collect data but takes data from the source using a common template. As yet, no attempt has been made to do this (certainly for public consumption).

That is why I am hassling the data managers I know to be working on the cost and charges template, to consider the collection of performance metrics as well. Without perfect data on the gross returns funds have offered us, how can we get to “value”.

Similarly, without an understanding of the costs of managing the fund – (the drag on fund performance knows as the transaction cost) and the fees charged to operators (written down in investment management agreements), we have no idea of the “money”. I have written again and again that the AMC that is declared to members relates to the operator’s price of offering a workplace pension, I am interested in the fund manager’s price to the operator – for running the investment fund.

So the two key numbers – the performance and the true cost figure, are not available to us. However we can be reasonably sure that the market has got this in hand. If the Sier committee, as I believe it will, creates an environment where these numbers can be readily asked for, we will await only the regulatory measures to get this information ourselves.

In the meantime, we can have a meaningful discussion about how to better analyse “value” – risk-adjusting past performance to give us a forward looking measure that separates performance achieved by luck from that achieved by good practice.Pen and sword 2


Just for workplace pensions?

IFAs who are involved in wealth management may have spotted in this article a methodology that could equally be applied to the performance of model portfolios, DFMs and the other options put forward to manage wealth.

Of course workplace pensions are easier to measure, since they are simplified – offering only one default and fulfilling only one purpose, the accumulation of capital necessary to fund retirement.

But the method I am describing is simply a way of measuring financial outcomes, which – for financial services, is what governance is all about.

I don’t think that the Vfm methodology I am describing should be exclusive, I think it should be adopted by those managing the mightiest occupational schemes to the smallest SIPP.

We need to measure value for money to hold those who manage our money to account. It is called governance and whether that “we” is an IGC, Trustee, IFA, EBC, employer or ordinary punter, “we” should be able to see value for money scores that we can trust, compare and act upon.

We don’t have such a system of benchmarking yet but I am determined that we will. When we have vfm numbers for outcomes, then we can look at the costs of the member experience and the value we are getting from our operators, but that is much more to do with words. For now we should be staying close to our laptops.

pen and sword 3


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TPR- the price of pensions can fall as well as rise.


The Pensions Regulator appears to have forgotten one of the fundamental laws of gravity-  “what goes up, must come down”.

In consumer finance this translates into “the value of investments can fall as well as rise” and in the case of the USS, the solvency of a pension scheme can “rise as well as fall”.

Taking action based on recent results is a mugs game, past performance is no guide to the future, mean-reversion applies eventually and the USS deficit will – given time – revert to surplus.

This is because the USS pension fund is well-managed, because the Western Economy continues to grow and because the current interest rates, depressed artificially by Government policy, will eventually rise.

Why this cod-economics?

The FT have seen a letter, which they partially display, from the Pensions Regulator to the heads of the University Superannuation Scheme. The letter restates tPR’s recent mantra that a scheme is only as good as the sponsor’s covenant but then goes on to argue that the covenant is only as good as the scheme.

 TPR said a “key reason” for its weaker view was the “substantial increase” in the size of the scheme’s liabilities in recent years, which had outstripped the increase in the scheme’s assets between 2014 and 2017. – Jo Cumbo;

My first article on this subject expressed my “cod view” that universities are immutable. Oxford and Cambridge have survived not just the odd economic blip but several world and European wars, plagues and industrial revolutions! A little blip in funding caused by artificially depressed interest rates is not going to threaten our university system.

USS commissioned not one covenant assessment but two, the first from PWC and the second from E&Y. Both rated the covenant as strong. TPR wish to dispute this, according to my sources because they don’t think the Univerity’s £1.5m in free cashflows sufficiently covers the debt.

 “We take the view that there are issues with the sector’s ability to increase payments to the scheme, which might arise under realistic downside scenarios, to remove the deficit over an appropriate period.”

John Ralfe expresses surprise that I disagree with TPR

I find myself in good company.

TPR do not have a crystal ball to determine what the University’s financial position will be in years to come, the covenant assessments look at the situation today. We have to have some optimism for the future, what a dreary existence otherwise!

To suppose that the increase in liabilities that has  caused the deficit is indicative of things to come is as foolish as supposing that the current bull run in UK and overseas equities is going to last. The stock market is at a record high, interest rates are at a record low, the two don’t quite cancel each other out and the USS is showing a deficit. Turn the market scenario around, the USS could have less assets but greater solvency.

The only kind of past performance that can be used to consider pension liabilities is the long-term kind, which matches the duration of people’s lives. If we look at performance in terms of the past 70 years (e.g. post-war) then we get a rather better data-set, than what’s happened over the last couple of triennial valuations (e.g. since 2010).

A welcome leak

Whoever leaked this letter to the FT is to be thanked. The discussion over the USS’ capacity to meet its pension obligations in full, is one that impacts everyone who reads this blog. It matters to universities, students, future students and most of all it matters to those in the Scheme itself.

The Universities wish to play out the discussions in private, the members are keen not just to understand the numbers , but to actively participate. At a time when the pensions industry is bewailing a lack of “engagement” ,  the USS has a superfluity!

Ultimately, this discussion comes down to time. Those – like John Ralfe – who think in short time horizons, want this deficit nailed immediately and would happily move the USS to a DC accrual and its assets to bonds. Those who argue on this blog (Otsuka, Leach, Keating et al.) argue that time will work the deficit out. I side with the latter group because I see no end to Universities and no reason why they should reduce the quality of benefit promise.

The Pensions Regulator appears to me to be intervening unnecessarily and unhelpfully. Its obsession with the covenant is unhelpful, its chicken and egg confusion between covenant and deficit is unhelpful and its accusation that the statement that there are “many significant risks inherent in the funding statement” – self-evident to the point of banality.

A crucial point in the charge transparency debate, was when the Investment Association over-played its hand and likened hidden charges to “Nessie”. It may be that something similar happens here. The Pensions Regulator’s case is hugely diminished by the perverse logic of this letter.

If we want no risk- let’s return to individual annuities.

The FCA want us to consider innovation in our thinking about retirement outcomes, the Pensions Regulator would have no risk in defined benefit. If we want no risk, let us have individual annuities and scrap pension freedoms; if we want innovation let us have collective pensions and the non-advised solutions on which we relied till recently.

The answer does not lie in de-risking but in risk-sharing. De-risking simply shifts risk from one party (usually a sponsor) to another (the member). Risk sharing realigns the risks taken to meet the particular circumstances of the sponsor and the needs of the member.

  • In some cases, members are prepared to take 100% of the risk (the First Actuarial pension scheme is pure DC- at the moment)
  • In some cases , members accept they must take more risk than previously (the CWU’s proposals for the Royal Mail are a good example)
  • And in some cases, there is simply no case for changing the risk-sharing relationship.

I am not an actuary or a member – (I am a little bit a sponsor) of the USS. However, I can see with the cod eyes of a layman that the Universities represent a very strong covenant indeed and that members of the USS work for the universities because of that pension covenant.

The Pension Regulator, in this leaked letter, are intervening in a most unhelpful way, I can only sense that this aberration is because they are spooked by BHS. I hope that that the leaked letter will steel the resolve of those who take the long-term view. The USS management need all the support it can gets and the Universities need to know that they represent as good a covenant that can be offered – outside the public sector.

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