Tideway – CETVs need advisors not salesmen.



Here is a statement from an article in “Money Observer”

“We have seen a number of large schemes, including British Airways, RBS and Scotia Gas Network (ex British Gas), make quite large downward adjustments as volumes of transfers increase typically 10-15 per cent. We think this is a function of the obligation on trustees not to pay out at rates that makes the funding worse for those who remain.”

The statement’s made by Tideway Investment Management’s James Baxter and it is quite wrong. As Baxter holds himself out to be head of “Private Client Advice”, this should set alarm bells ringing.

Trustees have no powers to control the way Transfer Values are calculated. They are calculated according to a best estimate of the value of the benefit given up. The value only varies with regards the discount rates agreed with scheme advisers (actuaries) and these are established every three years. Trustees do not meddle with transfer values.

They can enhance transfer values, but they cannot depress them – as the article suggests-to control flows. Where a scheme is in deficit it can reduce all transfers to reflect serious under-funding. This is following the commissioning of an insufficiency report. Issuing an insufficiency report on a scheme is a major operation and is rarely applied. You can read how hard it is in this detailed guidance from the Pensions Regulator. (sections 34-47) http://www.thepensionsregulator.gov.uk/guidance/guidance-transfer-values.aspx

If the schemes mentioned by Baxter have done so, this is the first I have heard about it.

In any event, it is not right to suggest that Trustees control CETVs using some actuarial mixing desk. It implies a “buy now while stocks last” approach to CETVs which is the opposite to the rational decision making which people should be making. I have heard similar comments from others that should know better.

Most prominently Ros Altmann famously told delegates at a recent FT transfer conference that members should press Trustees for better transfer rates – as if CETVs were negotiable. They are not.

Insistence that Trustees apply discretion on transfer values is wrong;

  • It implies that members can negotiate their CETVs – doing so is fruitless – it doesn’t work
  • It implies that trustees can – with agility – use CETVs to improve scheme funding – they cannot alter CETV pay-outs – other than through extremely clunky insufficiency reports.
  • It ignores the very complex set of member protections which – in my experience – are scrupulously applied by trustees and their advisers.
  • It frightens DB members into becoming  investors for the wrong reasons

Those who suggest otherwise are doing occupational pension schemes and their integrity a great dis-service and are creating a false market in transfer values. They should be called out. I am calling out Tideway Investment Partners for just this.

The provenance of Tideway

Tideway’s name keeps coming up in conversation , so I was interested to see a presentation from them appear in my inbox, excerpts from the presentation delivered to City of Westminster delegates to its DB to DC transfers conference on May 23rd are included below.

Tideway is a major player in CETVs – having released  £500m from DB Schemestideway 1

Unless you consider following the herd an end in itself, these are not credentials – but marketing statistics.

Tideway herd those who are driven by its marketing to investment  solutions

Tideway 2

The vast majority of these solutions involve Tideway Investment Management.

Tideway 3

And what is driving all this? TAX?

Tideway 4

And maybe “sales”; this is taken from Tideway’s “Guide to Final Salary Transfers”.

Tideway 7

If Tideway don’t get you to transfer, you don’t pay them a fee. You can draw your own conclusions as to the behavioural bias’ this can create.

A sales bias is endemic in Tideway’s culture

I am deeply sceptical about Tideway’s tax-driven approach, not least because of its Final Salary Transfer Guide which I have provided a link to at the bottom of the page. As can be seen from yesterday’s blog on the PPF v Private Scheme Benefits, the calculation of tax free cash from occupational schemes deserves deep analysis, not the facile and misleading calculations offered in the slide above – or indeed in the guide.

Returning to the City and Westminster presentation, there follows three “Monopoly” slides showing how transfers generally benefit the rich (wealth preservation), middle England (personal empowerment) and the poor (financial windfall). The presentation ends with a very woolly checklist.tideway 5

Should half a billion pounds of carefully nurtured DB investment be flowing through Tideway’s Private Client Advisors into Tideway’s funds? I am very sceptical.

A report in today’s FT suggests that an increasing number of people still accruing defined benefits are stopping accrual voluntarily and taking their money. I am very sceptical this is in their best interests.

How do we test people’s “appetite and capability” to manage extra risk and responsibility in advance? What qualification is in place to show they have this capacity?

How can people understand their planning objectives for later life when they have such a weak comprehension of what retirement will look like?

And what helps us understand that people have a “capacity and willingness to give up guarantees?”

Opportunism again.

Tideway creates a climate of fear and mistrust in the motives of Trustees. This allows questionable calculations about tax, future liabilities and investment returns to go unquestioned.

The hype being generated by Tideway’s Baxter, both in the Money Observer article and in the slides delivered to the City of Westminster Conference is  what caused trouble in the early days of personal pensions (1987-2000).

The system that is in place to produce CETVs is finely tuned to fairness, there are cases where transfers are the best option. Good advisers can explain complicated issues surrounding discount rates, insufficiency reports, early retirement and tax-free cash commutation. Members can take informed decisions and “cash out”.

But they are ill-served by the comments I am reading from James Baxter. I fear that he is not the only Private Client Adviser with limited understanding of defined benefits and an over-inflated sense of value in his own investment solutions.

Further reading

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

Pension Regulator guidance on how to calculate CETVs; http://www.thepensionsregulator.gov.uk/guidance/guidance-transfer-values.aspx

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

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



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Pension scams; too little-too late?


Angie Brooks -pensions’ Mother Theresa


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

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

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

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

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

Here is what one brave woman is doing

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


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

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

Here is what the SFO have finally come up with

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

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

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

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

scamproof scorpion

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

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

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

Justice delayed – but Angie is as strong as ever.

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

Further reading

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



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

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


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

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


Actuarial science made simple!

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

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

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

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

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

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


So what does this tell us?

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

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

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

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

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


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

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

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

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

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


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

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

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

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



Why does this matter?

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

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

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

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

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

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

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



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


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

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

As with care so with pensions

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

Resolution found that

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

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

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

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

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

And that

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

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

It concludes

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

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

The clever win , the ignorant lose

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

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

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

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

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

Arbitrary funding policies make matters worse

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

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

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

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

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

No victimless crimes

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

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

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

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

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


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


Further reading

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

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

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

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

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


impress boss/mates/partner with this DIY assemblage

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

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

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

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

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

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

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

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

Introduction of means testing for Winter Fuel Payments for pensioners.

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

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

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

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

half baked

please no jokes about what this reminds you of

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


The nice bits



Ditching Dilnot’s cap

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

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

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

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

The generational knock-on

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

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

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

Why now?

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

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

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

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

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

We cannot have it both ways.

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

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

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

Taking on your parent’s debt

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

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

Not before time.

long term care

The immediate reality

Further reading

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

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

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



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


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


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

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Tory Theresa gets tough on pensioners.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Tories manifesto will also:

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

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Tata puts pensions first


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

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

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

Not the deal some expected

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

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

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

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

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

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

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

How will members and their representatives react?

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

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

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

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

No pre-pack

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

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

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

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

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

BSPS – a healthy scheme

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

In April First Actuarial wrote on this blog

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

Tata workers

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

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

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

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

Let the members decide

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

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

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

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

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


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


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

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

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

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

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

The threat is hardly veiled!

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

Make no mistake, PIMS is an aquatic trade show.

The context!

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

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

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

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

Delegates are sitting ducks for “suppliers” .

The threat itself

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

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

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

cicero 1.PNG

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

Apparently the HNWs backed this up.

Cicero 2

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

What of the customer?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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Actuaries – many ears here to listen!


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

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

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

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

The actuaries letter was wimpish.

What it should have said was.

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

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

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

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

Experience of individual pension schemes differ.

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

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

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

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

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

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

Here’s another private message

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Strummer – (White Man) in Hammersmith Palais


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

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

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


Arrogant and self obsessed! How we see actuaries


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


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

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

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

Andrew Cairns, Professor, Heriot-Watt University

Deborah Cooper, Risk and Professionalism Leader, Mercer

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

Sacha Dhamani, Head of Longevity, Prudential

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

Matthew Fletcher, Longevity Consultant, Aon Hewitt

Tim Gordon, Head of Longevity, Aon Hewitt

Dave Grimshaw, Head of Longevity Consulting, Barnett Waddingham

Steve Haberman, Professor of Actuarial Science, Cass Business School

Stuart McDonald, Head of Longevity, Lloyds Banking Group

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

Brian Ridsdale

Peter Tompkins Actuarial Consultant

To which I  make three observations

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

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

Is 15% or £320m too high?

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

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

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

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


Is this worth this public attention?

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

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

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

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

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

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

Time these actuaries stopped arguing among themselves!

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

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

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

Actuaries should be taking the debate to us

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

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

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


An actuary who isn’t on the list!


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

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

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

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

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


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

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

Measurement and accountability were themes that impressed me.


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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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




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

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

 So why aren’t there more women in pensions?


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

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

Why is diversity important in the first place?

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

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

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

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

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

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

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

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

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

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

‘Such a nasty woman’ (Donald Trump)

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

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

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

Share your experiences

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

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

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

This is the question the survey sets out to answer

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

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

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


Need or want? Pension or cash?

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

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



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

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


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

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



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

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


RTO =Retirement Transfer Option



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

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

Do Trustees care?

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

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

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

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

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

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

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

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

Not “de-risking”- “risk transfer”.

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

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

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


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

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


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

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Isn’t life looking up for our DB Plans?


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

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

Corporate confidence

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

Consumer confidence

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

Let’s take each signal and test my case;

Firstly mortality.

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

Now the Actuaries own institute has confirmed that

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

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

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

What of markets?

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

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

Management costs

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

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

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

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

A thriving PPF

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

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

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

High CETV take-up.

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

FABI graph

best estimates v risk free

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

Something to write home about

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

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

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

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

Further reading;

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

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

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


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Bad language gives pensions a bad name.

bad language.png

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


Here is the original;

Changes to your XYZ GPP Default Fund Strategy

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

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

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

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

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

Here is my translation

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

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

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

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

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

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

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

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

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

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

sun chart 2

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

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

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

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

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

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

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

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

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

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Royal Mail’s pension; kick out the experts


It was all going so well…

A wage in retirement – not a dump of cash

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

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

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

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

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

Experts have got us here

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

“an immediate ballot for strike action”

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

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

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

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

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

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

If you’re in a hole…

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

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

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

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

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

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

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

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

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

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

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

Intellectual and moral support

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

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

Kick the experts out

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

Further reading

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

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

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

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

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

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

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

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

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


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Real money and real people need real regulation.


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

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

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

The Regulator needs to get real

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

scams 1

which contrasts with this

Scams 2

I think you can guess where Angie is on this

scams 3.PNG

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

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

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

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

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

No hostages to fortune

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

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

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

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

Time to change the tone.

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

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

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

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Why we’re forever blowing (transfer) bubbles!




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

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

Al concludes

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

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

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

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

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

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

The Trustee’s duty of care is to the member

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

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

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

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

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

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

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

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

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

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

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

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

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

The momentum trade is hard to stop

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

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

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

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

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

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

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




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



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“Ease of use” or “value for money”?

lewis price

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

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

Rhetoric –  my definition “persuasive without sincerity”.

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

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

No vfm in wealth management

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

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

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

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

Why are workplace pensions different?

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

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

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

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

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


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

slippage 2I know what the slippage costs are because L&G have published them for this fund through its IGC report.

My total costs on my workplace pension are no more than the £46.12 in AMC and £6.67 in slippage (£52.79 in total).

Price shoot out

Now lets do the maths on £400,000 in that St James Place fund

up to 5% on the way in – £20,000

1.85% a year  – £7,400 or £617 pm

6% exit fee year one -£24,000

Slippage – no idea.

Ok so you are unlikely to take your money away in the first year but that 6% only tapers to 0% in year 6, you are effectively locked in to 5x £7400 = £37,000 of management fees (uprated by the market performance). Add to that upfront costs of up to £20,000 and the cost comparison between investing with St James Place and L&G workplace pension savings plan (over five years)  looks like

SJP  £37000 +initial +slippage against L&G’s £3,100 all in.

It looks even worse for SJP over 4, 3, 2 and 1 years.

The choice is yours – “rhetoric and ease of use” or “value for money”.

Take your pick.

Thanks Paul.






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NEST’s dirty laundry on the line!

nest debt

The NEST Debt mountain


Thanks to First Actuarial for producing this chart for this blog.

Here’s how to read

In 2010 when NEST opened , it had no assets – it  had quite a lot of debt (£134m* from setting up days as PADA) so lets assume it started life two years before with PADA.

By March 2017 its debt had increased to £539m (with assets of around £1.6bn – the first time reported assets exceeded debt).

Sometime around the end of 2017 NEST will break through the £600m 10 year loan offered by the DWP and will be into bigger loan territory.

Around 2026, NEST’s debt will peak at a whopping £1,218,000,000. That is how much money it will have to recoup from its customers before it can reduce its charges.

By 2026, NEST will have assets that NEST estimate as  in a range with assets growing to £12-17bn by 2020  and £50-60bn by 2026.

Contributions are expected to be in the region of £4-5bn a year by 2020, rising to £6-7bn a year by 2026.

Over the next 12 years NEST will reduce the debt by £100m a year from 0.3% of its assets and from 1.8% of its contributions.

By 2038 it will be debt free, ten years earlier than the last projected date when this might happen (2048)

After 2038 (28 years into its operation) NEST will be able to reduce its charges to members.

Clearly there is a high degree of dependency on these figures on the growth of contributions and assets. 0.3% of £1bn is £3m. At £60bn you have total revenue to repay debt of £180m pa (from a 0.3% charge).  With£7bn in contributions have total revenue with which to clear debt of £126m pa with a 1.8% charge. I am taking figures at the top of the range of estimates.

Assuming NEST have fixed overheads (and that means its fund managers are not getting a percentage of the fund (ad valorem) then the bulk of the revenue will be available for debt repayment as we move towards 2038.

The acceleration of debt repayment is very much back end loaded towards 2038 at which point NEST’s assets will need to be an awful lot bigger for NEST to be debt free.

This is possible but the potential for NEST’s assets to be up less than 25% of the most optimistic numbers, suggests that 2026 and 2038 are moveable feasts!

 Is this value for money?

The tax payer subsidy for NEST is the loan – Robert Devereux, senior civil servant at the DWP has written to the Public Accounts Committee making the subsidy clear

nest grant

What’s important to note is that while the loan is subsidised, the principal and interest are repaid by policyholders. The NEST charging structure is not expected to change for the first 28 years of NEST’s trading.

So the debt and its interest are matters for NEST’s members (and the participating employers who put them into NEST).

2048 is NEST’s backstop, the latest promised date at which the loan can be repaid (40 years after the setting up of PADA). There is a very real possibility, if assets do not grow as expected that some people will be saving for a lifetime in NEST and always repaying the “initial cost” of NEST.

Will this have been value for money? I think that there will be considerable pressure on the fees of commercial providers competing with NEST and that NEST- stuck with its 2010 fee structure will have to fight hard to justify its charges.

Along with some flannel about 5 star Defaqto ratings, NEST make the case for these charges in a note sent out with the latest projections.

We’ve also published some data (available on the NEST website) setting out some key facts about our members which shows we are playing the role intended for us.

It’s true, NEST have been dumped the worst schemes in the market, the schemes that other providers are happy not to have on their books and schemes that only a truly low-cost provider (which NEST operationally is) could manage.

Infact, while asset and contributions are relatively small, NEST is very good value for money. It charges employers nothing for the loss-making service it has provided for 7 years and will be providing over the next 9. Members are getting great investment returns which we see as sustainable. Provided you are prepared to deal on NEST’s terms , NEST’s customer service works well.

The question is not so much VFM today but of VFM – relative to its competition in the period after 2026. That NEST has not defrayed its costs till then by charging employers set up fees (as most of its rivals have) may seriously compromises VFM for members as NEST matures.

NEST still on track – (just about).

As an insurer of last resort for the auto-enrolment, Government will be pleased that NEST is still able to conjure a financial case for its staying within its financial boundaries.

These financial boundaries were set out in the the State Aid case  presented to the European Union by William Hague in 2010.

There is much in this document to look back on , not least an estimate that the cost of selling a personal pension (then) was £800.

NEST justification by Hague

The majority of the document is a justification for the Government subsidising NEST (against the rules of the EU). The critical table to which the DWP and NEST refer is this one.NEST costs

Although NEST do not explicitly say this, I suspect that they are in low volume low cost territory. Volumes (eg contributions and assets) are lower because of the push back in staging time tables and higher levels of competition than expected. Costs are lower because NEST really has got its act together as a digital operator.

The EU State Aid case is summed up by this one statement early in the document

NEST scale

There is nothing within the documents I have seen, that suggests that Robert Devereux is being devious. We are dealing here with a great deal of debt created by an organisation that has got its costs under control and is currently operating very well.

However, NEST has a debt overhang which is considerably bigger than its rivals and it has no way of recovering that debt – other than from its members. In the very long term (post 2038-2048) I can see scope for NEST to reduce those charges but I see no scope before then. NEST will start looking uncompetitive from the mid 2020s and employers who have young workforces, should be thinking about the implications in 20 or 30 years time.

While I’m pleased that NEST has got its dirty washing out , it’s still an unpleasant sight and carries a slightly unpleasant smell!


Further reading

You can access a copy of the Robert Devereux letter to the Public Accounts Committee here.   http://www.parliament.uk/documents/commons-committees/public-accounts/Correspondence/2015-20-Parliament/Correspondence-dwp-National-Employment-Savings-Trust-200417.pdf

You can read William Hague’s case to the EU for state aid for NEST here; http://ec.europa.eu/competition/state_aid/cases/230348/230348_1194905_107_2.pdf

You can read NEST’s justification for spending all this money here;http://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/NEST-in-numbers_April_2017,PDF.pdf

* The 2010 State Aid case contains this cash flow projection for the first few years of NEST – showing £132-8m costs incurred before NEST opened its doors

NEST estimate of total costs

I doubt that the total estimate of costs to date (£856-938m) is far-out, the £539m assumes some initial revenue (maybe £350-400m), these may be lower than expected. There has clearly been a higher burn than expected, as that £600m loan cap was supposed to take NEST through its first 10 years to 2020

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Forever Young – final 3 – thanks for voting “Andy”!


stop press*****stop press*****stop press*****stop press*****stop press


This article asked you to vote for Andy – you did and he’s in the last three as our most influential pension’s person! Thanks to everyone for this – Andy didn’t make the original long-list and had to be appended! This shows that the cream rises to the top!


For no good reason, I was sitting at the back of a minibus speeding up an Icelandic mountain where a bright-eyed Scotsman engaged me in conversation over the fundamentals of European pensions. By the end of the day we’d seen Jo Stieglitz carried out of his skidoo with a broken leg, eaten smoked puffin and covered all three of the OECD’s pillars.

Who this “Andy” was, I didn’t know. I did know that he worked for the Government, was an actuary and spent much of his time on assignment to Ayia Napa, Reykjavik and other rave capitals (this was the early 90s).

Today Andrew Young OBE is a candidate to be recognised as the person who has made the greatest contribution to UK pensions over the past 20 years.


Voting closes at 5pm today (25 April).  Details are on the link at the bottom but to cut a long link short, all you have to do is send an email to jonathan.stapleton@incisivemedia.com with “Andy Young gets my vote” in the header.

Remember – voting closes at 5pm today – tomorrow your vote may not be counted!

Voting for Andy, you’ll be recognising the technical architect of the PPF, the author of the Young report on FAS and the man who brought Tony Blair to power

The final achievement is tenuous , but Andy did supply the numbers for Peter Lilly’s abortive “Basic Pension Plus” , which as everyone knows, made the conservatives unelectable – things only got better! Andy shaped not just pension policy , but the shape of British politics!

Following the Jags

Andy supports Partick Thistle. Now you may ask  writing a blog for a Partick Thistle supporter is a worthwhile activity.  It illustrates what I love about him!

If the Jags are the alternative to the Glasgow old firm,   Young is the alternative to the pension establishment. He is that very British kind of genius – the iconoclast.

Amazingly, a man who refuses to touch his forelock to anyone, has been relied on by successive pension ministers for his judgement, acumen and good maths.

Andy Young has a moral compass, whose aim is true, Ministers have come to rely on that. He is Partick not Celtic – and certainly not Rangers!

Evidenced based

When the Financial Assistance scheme  (FAS) was set up in 2004 it offered minimal compensation to pensioners. It was the Young report that The Government finally announces £2.9bn rescue package for pensioners. This boosted the compensation available to 130,000 workers and bridged the gap till the Pension Protection Fund (PPF) took over.

Andy was chief architect of the PPF and a passionate defender of the lifeboat. It has been an extraordinary success story. Without it, the reputation of pensions in this country and abroad would have been severely damaged. With it, those in ailing occupational DB schemes have comfort and those in failed schemes comfort. The PPF may not be perfect, but it works and its foundations and superstructure were designed and overseen by Andy Young.


If you are on twitter, follow Andy on this handle. Not only will you get vigorous views on our current pension system but you’ll have an iconoclast’s view of world music from Springsteen to Jimmy Lafave

Andy still works as a strategist for the Pensions Regulator, if you speak with the youngsters who know him, they will tell you he knows more of the Brighton music scene than they do.

His wife Sara, his huge number of kids and his fan club (of which I am a member) know Andy as 67 young. He is a man of infinite compassion and good humour and a man who when angry – cannot be stopped!

Andy was given an OBE in this year’s honours, unlike others in financial services, this scarcely got a mention (even in tPR’s own press release). But nobody more deserved the honour and no honour could have given me more happiness.

So put your feet up, slap on the cans and listen to Bob singing of my good friend !

Details of the competition and other candidates can be found from this link.


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Winning and losing IGCs – class of 2017!

With (almost) all the known IGC reports in, it’s time to see how the reports of 2017 stacked up against 2016. Apologies that the links in the table don’t work, my formatting skills are poor and I’ve included the links in the Directory below this picture.

IGC2 all


Who are the winners?

In general , the standard of report writing has improved from 2016 to 2017 and two of last year’s losers (Aviva and Hargreaves Lansdown have been particularly improved.

The quality of the IGC reports from the legacy providers continues to impress, it is frustrating that the SIPP providers operating in the workplace are late in reporting (Hargeaves excepted).

Who are the losers?

The Scottish insurers continue to lag L&G and Aviva. It was a shame that Royal London’s report was a mess as they are clearly trying very hard to get it right. I ought to point out that Royal London appear to be working as hard as anyone and their team are engaging with value for money – read Julius Pursaill’s recent blog as evidence. All the same, the big four of Standard Life, Aegon, Scottish Widows and Royal London need to pull their socks up with April 2018 reporting.

Favourite report?

There were three reports that stood out this year. L&G for its pioneering work on disclosure, Aviva for its fresh feel and engagement with ESG and Virgin Money, who again show what can be done to engage jaded customers! For its improvement on last year, my favourite report in 2017 is Aviva’s.

What of the GAA’s?

The Governance Advisory Arrangements (GAA) are the IGC’s kid brothers and there are lots of them. I have written about them in 2016 and will do a round up of the 2017 reports in May. You can see who’s who by following this link (Guardian is now part of ReAssure). You can read about the destitute world of the GAA here.

What of the Master Trusts?

The Master Trusts (MT) also have to provide Chair statements but they have a longer timeframe. I will be trying to keep track of these statements but if any MT provider wants to send in their statements for scrutiny, I will be most grateful.

Like the IGCs, the MTs also have to report on value for money, unlike the IGCs , they don’t have budgets. We are relying on the IGCs to progress matters, not least because most of the energy is coming from the FCA (rather than the Pensions Regulator).

What about those links?

Here are the links that i couldn’t activate above.  Choose my review of the reports using this list (please report links that don’t work). The reports themselves are on the Tinyurl to the right.

If you know of an insurer that has published an IGC report that we do not track, please send details.


Royal London                                                             http://tinyurl.com/mrthsaq
Prudential                                                                   http://tinyurl.com/koaoo5k
Legal & General                                                         http://tinyurl.com/lccnpke
Scottish Widows                                                        http://tinyurl.com/k83quv9
Aviva                                                                            http://tinyurl.com/n7rr6v6
Friends Life                                                                 http://tinyurl.com/n7rr6v6
Aegon                                                                           http://tinyurl.com/mgsfok2
Zurich Assurance                                                       http://tinyurl.com/k7fcc3q
Standard Life                                                              http://tinyurl.com/n69wfbv
Asset Managers
Fidelity                                                                        http://tinyurl.com/mawd4gu
BlackRock                                                                    http://tinyurl.com/mgdx47y
Legacy providers
Old Mutual                                                                 http://tinyurl.com/lbxunoz
Abbey Life                                                                  http://tinyurl.com/nxclr75
ReAssure                                                                     http://tinyurl.com/lcwfnvp
Virgin Money                                                             http://tinyurl.com/nx48ksc
Phoenix                                                                       http://tinyurl.com/ldjc7ov

B&CE                                                                            http://tinyurl.com/lxy7r43

New breed SIPPs
HL Vantage                                                                http://tinyurl.com/n4hyzdj
True Potential                                                            http://tinyurl.com/kfq778c
Intelligent Money                                                      not published yet
Posted in IGC, pensions | Tagged , , , , , | 4 Comments

Are pension advice tax-exemptions washed-up?

washed up


Snapped up or washed up – what’ll be left of the Finance bill?

Here’s some correspondence from one of my most reliable correspondents.

We’ve been told that the current finance bill (longest in history) will now be rushed through in three days not three months.
This either means no scrutiny or debate on stuff that’s currently wrong as drafted like the ‘off payroll’ new rules or that big chunks will be dropped and they’ll just do the bare minimum to allow tax and Ni to be collected legally rather than rely on the deadline embedded in the PCTA (provisional collection of taxes act 1968) of six months and five days.
So for example the increased tax exemption on pensions advice could fall by the wayside to be regurgitated in a second finance bill later this year (assuming a Tory re-election so policies remain as now). This is a bit tricky if you’ve already relied on it as an employer as no one in government is likely to make you aware you’ve now provided a taxable benefit!
Purdah also just means yet another month (we’ve just had one month from 22nd Feb to 20th march) when we are cut off from any stakeholder engagement and given business as usual is falling apart that’s not a good place to be

(Perhaps coincidentally), a commons briefing paper was published on the scrutiny process used on the pension bill on April 13th (less than a week before the Snap Election announcement).

It is designed for MPs and has strong words for the (lack of) parliamentary scrutiny given the budget at the best of times. It quotes the Tax Law Review Committee’s 2003 conclusion.


More than a decade later, we are seeing the most brutal termination of political debate in living memory.

Over the next couple of weeks we will see social media keeping us informed of the reversal of policies on which we have been advising clients in good faith.wash 2

This brutal demolition of process demands public protest.

We are living in brutal times. The normal rules of parliamentary democracy are being thrown out to clear the decks for our BREXIT negotiating position.

Attempts to provide useful information to clients about the policy agenda will have to be caveated by “subject to the Brexit negotiations”.

This was never in the “remain” or “leave” script. This is something new and this brutality towards the normal processes of Government is leaving a lot of us cold.

Frankly, politicians are paid to Govern, to manage the political process according to rules established over centuries. The consultations which we “the people” respond to supplement that process. Ordinary people can influence bills through amendments and (as this blog shows) , if you are prepared to state your position effectively, you can have an influence on the rules that govern us.

The defenders of these processes are the people – as well as the politicians – I am deeply concerned – as my correspondent is – that policy is being managed in this way.

This is no way to govern.

washed up 2

You can read Antony Seely’s research paper “the budget and the finance bill” here.



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Snap elections – people – and policy! #GE17

snap 2Snapping people

The cost of a snap general election will be highest for the politicians, their advisers  and their families who lose their livelihoods on June 8th. It is tough on MPs, especially those who joined since the 5 year term was introduced. Yesterday over 500 (potential) turkeys voted for Christmas (the SNP abstained and 13 objected).

It’s a poor return on human capital, when you commit to a five year term and get just over 40% of it. Not that most of those in Government are taking much of a risk. Our pensions minister has a 10,000 majority in Watford and it would take a major banana skin or a messianic performance from an alternative leader to see him not resume his place in a new Government. But the personal disruption is still there and for many MP’s in marginal constituencies, May will have pressed the nuclear button. Snap elections can snap careers and hurt colleagues and their families.

Get snappy!get snappy

When I was sitting in the Pension Minister’s office, minutes after May’s announcement, the first thought was for the Pensions Bill, sitting somewhere in Buckingham Palace, awaiting Royal Assent. Infact it comes down to getting Her Majesty to put pen to paper. I wonder if she is asked to read the small print.

I got the impression that Royal Assent would be granted, not just to this Bill but to the more immediately important Finance Bill, without which the country cannot be properly run.

However, the Government’s requirement to publish its plans for the state retirement age is a rather more tricky matter. Steve Webb, who yesterday confirmed that a replacement parliamentary candidate has been found for his former constituency, ruled himself out of returning to Westminster. webb

But he continues to be pensions best political commentator pointing out that on the state pension, the Government has a legal duty (under the 2014 Pensions Act) to respond to the recently completed review of the state pension age by May 7th 2017. Webb commented

The prospect of an imminent election probably means an aggresesive timetable with twenty-somethings working into their seventies is off the table for now.

By an odd coincidence, following our meeting, the Pensions Minister was off for lunch to say thank you to  John Cridland, I hope that the snap election does not snap the good work of the Cridland review (or of the work GAD has done) to help us understand what pensions we can afford to pay ourselves- and when.

There will be a lot of people in Whitehall “getting snappy”.

Snapping policy


Jo Cumbo, writing in the FT points out that disruption injures the progress of reports in progress. We have a Green Paper on Defined Benefits , an Auto-Enrolment review (including a review of the inclusiveness of the charge cap), the FCA are due to publish their formulation for calculating costs and charges in the early summer and Matthew Taylor is in the middle of his research on the gig-economy.

The progress of all these initiatives could be disrupted by a change of Government and will be stalled as civil servants, policy wonks and politicians wait to see the snap elections outcome.

This is nicely summed up by the instructions given to Civil Servants and those who advise MPs around “Purdah”. This is from the 2015 instructions which were re-issued on April 10th prior to the May local elections (a rather more publication following this week’s development).


It is unlikely that we will see any great developments that have a political dimension in the next seven weeks. This is why Steve Webb felt an aggressive statement on the state pension age was unlikely and this is why we will definitely not be seeing very much mor of our Ministers – in a ministerial capacity, this side of the second week of June.

Snap chat

So if your event has a minister as keynote, take note. If you are planning around a firm policy announcement by May 7th, take note. And if you are a civil servant, you had better be on the phone to Buckingham Palace or Windsor Castle, chivvying your monarch into signing mode!

I wonder if she does electronic signatures.snap 3

Further reading

Royal London paper on the snap general election  https://www.royallondon.com/about/media/news/2017/april/what-does-the-snap-general- election-mean-for-our-pensions-steve-webb-royal-london/?amp%3Bepslanguage=en

FT article (Jo Cumbo) on the snap general election https://www.ft.com/content/07a05fd4-2520-11e7-8691-d5f7e0cd0a16?desktop=true&segmentId=d8d3e364-5197-20eb-17cf-2437841d178a#myft:notification:instant-email:content:headline:html

Addendum – problems with the reading of the 2017 Finance Bill

I’m grateful to Susan Ball, head of National Employer’s Advisory Services for these thoughts on the progress of the Finance Bill

The up and coming election is likely to have a big impact on the Finance Bill 2017 currently going through the parliament.

The second reading was on 18th April with what should then have been a normal progression through the houses and Royal assent in July. See http://services.parliament.uk/bills/2016-17/financeno2.html

But Parliament has to be dissolved 25 working days before Polling Day. This means that Parliament will be dissolved on Wednesday 3 May.

The House may Prorogue (suspend but not dissolve) before then. The Leader of the House indicated on 18 April that talks regarding prorogation will follow the motion passed yesterday.

Normally the House of Commons will spend most of a day (or more) on a stage of a bill. However, during the wash-up, when several bills need to be considered in two or three days this is not possible.

So this wash-up could occur next week and we will then know what happens or what is left of the Finance Bill 2017.  At 762 pages the Finance Bill is currently the longest on record.

We have to hope that they decide there is only a need to pass a basic Finance Bill before the election, containing those measures essential to the current tax system and that most other measures are left out.

But they may not take that view for areas which came into force from 6th April 2017. So we are in real great danger of having the “off payroll in public sector” legislation and “Optional Remuneration (OpRA)” or salary exchange rules past without any of the normal scrutiny, with no detailed guidance from HMRC and major areas of uncertainty.

Lets hope parliament does take a sensible approach and drops them until the post election Finance Bill giving time for the problem areas to be properly ironed out or if that is not possible moves the start date to 6th April 2018 to allow time for organisations to deal with the major changes and HMRC to issue detailed guidance  rather than acting at in haste ….

You can read the original of Susan’s comments at https://www.linkedin.com/feed/

Posted in dc pensions, pensions, Pensions Regulator, Popcorn Pensions, Public sector pensions, workplace pensions | Tagged , , , , , , , , , , | 3 Comments

What a “strong mandate” means for pensions.


Since the range of outcomes considered by the bookies ranges from “strong” to “weak” conservative majority, I’m putting my money on the Liberals getting an overall majority (only 25-1 with William Hill). That seems the likeliest alternative outcome and I’ve suggested to @stevewebb1 that he gives uncle Phil six weeks notice (is he still on probation?) and get on the stump in Thornbury and Yate.

I have a side bet with Alex Cunningham, the shadow pension minister and can do a reasonable impersonation of the Vicar of Bray if the country decides Jeremy Corbyn is the man to negotiate us through Brexit.

And this is law, I will maintainvicar of bray
Unto my Dying Day, Sir.
That whatsoever King may reign,
I will be the Vicar of Bray, Sir!

Opportunism or agility?

There is nothing that so enrages those with political conviction as fragrant opportunism. The “u-turn” from our prime minister enrages everyone, especially the Guardian (see Rafael Behr’s article on “game-playing” – link at the bottom).

There must have been a political barometer (maybe an app) that May could consult which determined the point at which the opposition were so weak that they wouldn’t even oppose this fragrant violation of 5 year parliaments (a policy May herself voted in).

The barometer seems to have swung into “fair times ahead” as she sat in Snowdonia admiring those just getting by, going by. By happenstance I was in Maidenhead over Easter – her constituency. You don’t get many slate mines in Maidenhead and you don’t get many three star restaurants in Festiniog!

beeching 2

George Osborne

To the point

You don’t get much credit for raising taxes if you are a Tory. Osborne couldn’t raise taxes on pensions because his own back-benchers wouldn’t let him. He thought that his back-benchers would deliver a Remain vote and forgot that a referendum includes people outside “the village”.

The fact remains that our economy owes money and all the rules laid down by Osborne have been cast aside (ostensibly to help those getting by – but in reality to get the Government by). There is nothing wrong with that – the chaos of last summer needed someone to get on with things. Now that things have calmed down, Hammond can be given some head-room to tax the self-employed, pension the self-employed and include Matthew Taylor’s missing millions into the “real economy” – e.g. tax UBER/Deliveroo etc as major employers.

All this was going through my mind, and I imagine the Pension Minister’s mind, as we drank tea in Caxton House yesterday.

Those with extreme memories will remember that in 2015, the Treasury embarked on a major review of the taxation of pensions which resulted in the implementation of the Lifetime ISA – hardly a good return on human capital employed. The plans for a restructuring of pension taxation still sit on the Treasury’s X drive; (fake news-hackers) and the fundamentals remain exactly the same as this time last year, when they were put there.

The idea would have been to ditch the current Heath-Robinson system of LTAs and AAs and PIPs and tapers for a simple system where you paid tax on the way in and paid less tax on the way out. This could all have been achieved with the help of devices within the taxation system that allowed the Treasury to clip your pension , shave your pot and recover what he liked by means of Real Time Information and payroll.

The Treasury managed a similar exercise when they switched RPI pensions to CPI pensions a couple of years ago. The lessons of “pension deficit de-risking” can be applied to “budget deficit de-risking”, you don’t miss what you never had.  Gordon Brown managed it, why not Philip Hammond!

Will reform of pension taxation happen?

One of the benefits of Brexit to a weak Government is it takes eyes off the ball. The ball had been bobbling around in the fiscal penalty area for some time and is now in the safe hands of goalkeeper Phil.  He is however close to having it for more than ten seconds and I predict that by the Autumn Statement, Phil is going to have to put the ball back in play.

Whether the pension taxation system is still at the front of the reform queue is an interesting question. Theresa’s constituents in Maidenhead looked prime targets for a higher rate haircut if not a reversal of taxation fortune. But this is silly talk. May and Hammond will do exactly what is best for Brexit – which is what they’ll be judged by.

Those just getting by will continue to feel the longer term impact of the austerity reforms brought in by evil (and now very rich) uncle George and perhaps this will be enough to right things. The OECD revised Britain’s GDP growth up to 2% for the year and Hammond may be able to argue that there is enough momentum in the economy for pension tax-perks to be spared.

The triple-lock seems doomed.

The manifesto pledge to keep the triple-lock till 2020 can now be restructured and I fear it will. I would be very sad to see it go as it is by far and away the fairest way of redistributing economic capital to the retiring poor.

It has survived longer than some thought but it is a benefit that costs more than it earns in political capital. By comparison, auto-enrolment and the pension dashboard are cheap to run and earn Government fame and favour at home and abroad.

A strong mandate means a swing to the right

Mrs Crankie, whingeing in Jock-land is right, given their heads, May and Hammond would pursue the agenda that best suited the short-term success of BREXIT over everything else. Managing that little baby will define her time in Government.

I am far from certain that annoying higher-rate tax-payers, by simplifying the taxation system serves her cause (she and her colleagues are major beneficiaries of the pension taxation system). If she was a politician who was driven by conviction , she would see through pension taxation reform and keep the triple lock, that is what you do if you want to help those just getting by.

But yesterday’s move shows her at best agile and at worst shamelessly opportunistic. Which suggests that the rich will continue to get their tax-privileges’ from pensions and the poor will get no further benefits from the triple-lock.

I would be happy to be proved wrong!



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Meeting the Pensions Minister

Tomorrow (18th April) I get to meet the Pensions Minister, which I’m excited about.

I’d written to Richard Harrington a few weeks ago, after an amendment to the Pension Schemes Bill had been thrown out. I’d helped the Labour Party prepare the amendment which wanted it explicit in legislation that an “employer had a duty of care to its staff to choose a suitable workplace pension”.

Employers have a number of such duties, mainly in the area of health and safety. ACAS produce a simple explanation of them which you can read here http://tinyurl.com/qe5m9q4.

But extending the duty of care to a staff’s financial well-being is another matter. The Government, in arguing against the amendment, explained that the Pensions Regulator gave employers some help in choosing a pension and providing that a choice was made following the Regulator’s guidelines, there was really no need for further employee protection.

A duty of care or an act of good faith?

Speaking with various lawyers on a conference call arranged by the Transparency Task Force, I was surprised to be told that what I was wanting was for employers to act in good faith (rather than to exercise a duty of care).

I’d be grateful for any lawyer or legal expert to explain the precise difference, but from what I can read, acting in good faith is a rather less onerous obligation than “a duty of care”.

Frankly, the degree of the obligation is secondary to their being an obligation. What I am concerned about is that no thought is being put into the choice of workplace pensions, a choice that should be made by an employer.  How we ask employers to engage with the choice of pensions is important. It is about getting the best outcomes for staff, as well as avoiding the worst.

The knowledge gap on workplace pensions

In my view, the capacity of staff to make reasonable decisions for themselves is extremely low. This is also the opinion of the OFT.OFT

The OFT was writing in 2014, when auto-enrolment was impacting larger employers with in-house pension expertise or a budget to access external advice.

Today there is generally no pension expertise among employers staging and only a minimal budget to understand what makes for a suitable workplace pension.

What of tomorrow?

I am confident that the vast majority of workplace pensions in place today are fit for purpose and are suitable for the needs of most employers. There are a few bad apples which surface from time to time (myworkplacepension being the latest). I do not expect any of the large workplace pensions to go belly up, but I do expect there will be grievances from classes of employees who feel they were offered the wrong scheme.

  1. Employees on low earnings saving into schemes from which they can get on government incentive (tax relief)
  2. Employees who are denied an investment option that meets their religious or moral make-up.
  3. Employees who are invested in a workplace pension which (for whatever reason) deteriorates in quality and falls behind others.

When all you can judge a workplace pension on is it’s promise for the future, then there are few immediate differentiators (net pay v RAS and  investment options are examples).

But if we develop a comprehensive and consistent value for money scoring system that allows ordinary people to compare the progress of their investment in one workplace pension against another, then people will become much more interested in why an employer chose one pension over another.

Creating a way to compare pensions,

I write a lot about IGCs and Trustee Chairs and the important role they have in assessing their workplace pensions for value for money. So far they have failed to come up with a coherent measure to benchmark each scheme against another.

I am keen to create such a measure and to publicise how each workplace pension is performing against it. This is how I wish to develop the work we have already done on scheme selection ( http://www.pensionplaypen.com) .

But creating a transparent performance comparator will be controversial. For it will need to show performance, explain performance and explain what is holding performance back. One thing we know from the research done by the IGCs over the past 12 months is that people will judge their workplace pensions by outcomes.

The IGCs and other fiduciaries of workplace pensions need to publish and explain outcomes as soon as possible.

Employers should become very interested in these value for money scores and the components that go into them. They will determine whether they backed a title contender of a relegation struggler.

Employees should get interested too (as they are in countries with mature compulsory saving systems). Australia and America both have intense interest by all parties to Super and 401k plans.

The state of today

We know that when we – as employers- choose a workplace pension for our staff, we are doing so on their behalf.

When I asked a group of 170 employers at Sage Summit earlier this month, whether they felt they had a duty to choose a suitable pension, every one put up their hand, not one said it was not their business.

And yet the vast majority of decisions being taken today, are being taken blind. The Pensions Regulator’s choose a pension pages do not even demand that the reason for the choice is documented. The majority of employers who I spoke to after the Sage event admitted to not feeling confident why they made the choice they did. Only two I spoke to had documented why they’d chosen as they had (and they’d had to because they’d used Pension PlayPen!).

The truth is that most employers are buying blind, having no clue as to why they are buying one pension over another and they have anxiety that they are not exercising any duty of care- or good faith – at all!


Meeting the Minister

I have two objectives when meeting Richard Harrington;

The first is to impress upon him the bind that auto-enrolment is putting on employers with regards the selection of the workplace pension.

The second is to inform and engage him in the importance of transparent information that allows employers and members to compare the value for money of one workplace pension against another.

The two matters are inter-related; the first is a matter for the Pensions Regulator, the second for the FCA. In as much as the Pensions Minister’s remit is to make the auto-enrolment project work, it is critical that both regulators work together. My hope is that I can help pull regulation together to improve engagement both from employers and those who work for them.

If you have any comments on this , or matters that you think I should be bringing to the Pension Minister’s attention, drop me a line at henry.tapper@pensionplaypen.com or add a comment below.

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A pensions dashboard brings its own risk.

A need for pension

I am keen not to pour cold water on the pensions dashboard, but I am not having it promoted as the game-changer to savings behaviour. The pensions dashboard is what Martin Clarke, the Government Actuary, refers to as ” a mechanism to deliver policy objectives” in his recent blog on adjusting the state pension age.

It is clear to me that most people still consider the state retirement age as the point when “we are allowed to retire”. The reports of both GAD and John Cridland link the state retirement age not to when we’d like to retire but when the nation can afford us to retire – and subsidise retirement with state paid income.

The most important numbers to be delivered through the pension dashboard will not be from the private sector but from the DWP, indicating our state pension entitlements – what and when.

From what I have seen of prototypes, these numbers will continue to be delivered as income and not as a capital sum. There is no plan to offer a CETV on the state pension. People may be interested to fantasise about their state pension’s replacement cost but this has no more value than accelerating all our earnings since we started work and boasting that our lifetime income capitalised runs to £xm.

No matter how painful it is to ignore capital and think of lifetime income, we need to do the maths this way. We cannot allow the dashboard to become a placebo where a projected capital sum deludes us into a false sense of future prosperity. Retirement saving is a lot harder than 1% of band earnings, it’s a major endeavour, as important as going to work, paying the rent or mortgage and bringing up our families.

A need for enterprise

We have taken a decision, unlike many of our peer group of retirement saving nations, to make the dashboard a commercial enterprise that can be offered by any number of organisations as a means to promote their purposes. I agree with this, the state is not good at promoting itself as a pension provider, viewing our retirement savings holistically is a good idea and there is plenty of incentive to pension providers to promote their dashboards as a means of increasing pension flows their way.

Since we have three sponsors (the OECD pillars) in our pension system, let’s hope that these commercial dashboards will properly promote not just the state and the individual’s role, but the part played by employers in delivering pension outcomes. By commercialising the delivery of the dashboard, there is a good chance that employers can be brought to the party, their contribution recognised and their engagement with their employee’s pension encouraged.

Martin Clarke 4

However, in passing the dashboard to those promoting pension savings for commercial end, we need to be mindful of the risks this brings.

  1. There is a risk that by adopting uniform projections of private pensions, people are led to believe that outcomes are automatic. They are not, they depend on the quality of investment and the costs deducted.
  2. There is a further risk that providers will consider the dashboard an excuse not to invest in product but to focus purely on marketing their ease of saving
  3. There is a regulatory risk that the Government will take their focus away from the value for money agenda, wowed by the wonders of Fintech.

As regards the difference in outcomes from investment and costs, the dashboard needs to be developed in conjunction with reporting on how providers are actually doing. We need league tables that tell us accurately how each provider’s default investment option has performed, the risk taken to get that performance and the slippage from gross to net performance that indicates the cost of investment. We need , in short a “value for money” score, independently calculated with the stamp of the regulators upon it.

When it comes to product, we need the IGCs and trustee chairs to step up and provide dispassionate evaluation of the progress of each provider in delivering value and reducing costs. Providers must understand that the IGCs and trustees are their consciences and not an extension of their marketing arms.

When it comes to Government, we need as much attention paid by the Treasury team, lining up at Fintech conferences, to good governance as sexy promotion. It is only too easy for the Treasury to continue to bag short-term acclaim at the expense of what happens in decades to come.

And a need for circumspection

There is a lot of good coming out of the dashboard. It will make for cleaner data, it will push pension providers forward to embrace the Fintech dividend of higher individual engagement and it should lead to aggregation of savings into better product.

But we need to be circumspect and not allow the noise of the Digital Garage, to disguise the serious task ahead of us in turning Britain from a savings laggard to an example of a balanced society with a sustainable retirement savings culture.

Further reading –

Government report on last week’s tech sprint; https://www.gov.uk/government/news/winners-of-pensions-dashboard-techsprint-revealed-as-fintech-week-2017-draws-to-a-close

Daily Mail article showing examples of pensions dashboards; http://www.thisismoney.co.uk/money/pensions/article-4364904/Pension-dashboard-showing-savings-2019.html

Martin Clarke’s blog about pension adequacy and the state pension age; https://www.gov.uk/government/publications/periodic-review-of-rules-about-state-pension-age

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Slow and steady – the Zurich IGC


Laurie Edmans, Zurich’s IGC chair is a laid-back man. It shows in the IGC report that is considered and unhurried. It is a very good read as a deliberation on value for money though it is rather short on action – which for policyholders like me – is something of a let-down!

Zurich’s IGC is contrarian. To it and Zurich’s credit, it is made up only of independents with no Zurich staff on the committee. It was also unusual last year in going it alone to find out what people wanted from their workplace pension and how they’d consider value for money. It would seem that though Zurich did not participate in the NMG survey, their work reached similar conclusions


From the 2017 Zurich IGC

What can Zurich do?

It is clear that Zurich can do considerably more to influence the outcomes on money they receive than determine the contributions themselves. Having been head of sales at Zurich, I know how keen Zurich are to see higher contributions per member – it is a key commercial metric. It aligns with what is in the long-term interests of policyholders  (despite conflicts with short term debt/housing).

However Zurich can do little to influence the contribution rates to their workplace pensions from employers and employees, this is the gift of employers, employees and to a degree advisers. The report admits this.

By comparison, there is a great deal Zurich can do to improve outcomes of their policyholder. This includes reducing legacy costs with a minimum of 1% exit fees for those over 55. As a legacy policyholder (over 55), I’m not impressed that Zurich’s conversation with the Regulator about reducing these exit penalties is “still open”.

More importantly for those actively saving into new workplace pensions are whether the Zurich investment options are providing value for money. We have no way of knowing this as the IGC has not even been able to get the data necessary to publish transaction charges. In a very sinister statement Edmans writeszurich4

Clearly a number of managers are not coming quietly, the journey to a transparent world will be a long one. It is a shame that Zurich ran out of time to publish the findings of Zurich’s first report – especially as we are now two years in!

Better late than never?

Zurich’s IGC also received the final report from their market researchers too late to apply it to the five principles that it had come with go determine value for money. I agree that the principles are split between hygiene factors (compliance and customer service levels) and “value attributes” . Hygiene factors form (for Zurich) the platform on which value attributes are judged and without them , any idea of value is a nonsense.

I am impressed by the IGCs principle that value for money should not just be considered in isolation but should be benchmarked against other workplace pensions. This is progressive, radical thinking. For all its dilatoriness, this report gets down to some serious thinking.

This is slow and steady stuff, a little too slow and steady for me, but at least it is coherent and consistent. The tone of the report is serious, there is no attempt here to big-up Zurich and though the relationship with the company seems harmonious, the IGC is clearly keeping itself at arms length. I like the tone of the report and give it a green.

I am not too sure that this is an effective report. Everything seems about to happen, As far as I can make out, some of the stuff that hasn’t happened, is now in breach of the new exit penalties rules. While there is some tough talking in the Report, there is not a lot of action. Sadly I have to call this report ineffective and will give it a red.

Finally, the work done on value money is good work. The money and time spent on consumer research has given the IGC the five principles and a basis for assessing vFM.

The degree to which Zurich can be held responsible for the “light-bulb moment” that will illuminate to ordinary people the need to change their (saving) ways – is debatable.

The degree to which Zurich can manage “value attributes” is easier to judge. Let’s hope that the final formula that the IGC arrives at, weights what can be measured rather higher than what can’t.

I think that Zurich IGC’s have taken not just their own understanding, but our general understanding a little further. The split between hygiene factors and value attributes is sensible and the emphasis on benchmarking disruptive. The narrowing down of value to the two essentials of return and engagement, may be something of a breakthrough.

I am happy to give the IGC’s work on vFM a green, even if we are light of any evidence that Zurich is supplying it!

You can find the Zurich IGC report here; https://www.zurich.co.uk/en/about-us/independent-governance-committee

IGC zurich.PNG

The Zurich IGC

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A time to be angry

royal mail

This makes me angry


I got angry yesterday…

I was on a conference call with a couple of lawyers arguing about the technical difference between a “duty of care” and the need to “act in good faith”. Apparently the semantics let an employer off the hook for the outcomes of its workplace pension!

When I asked a group of 150 employers in a room at Sage Summit whether they felt they had a duty of care towards their staff 150 put up their hands to say “yes”.

I’m angry that employers are being plied with the “all pension schemes are the same” – “no one can be blamed for choosing NEST” and “you shouldn’t get involved” arguments.

If you believe your staff are your greatest asset, you care about how they are paid and how they save.

I was in the room with the most pacific colleague! That person in the room with me got angry with the casuistry – righteous anger is  infectious!

Postal workers are angry

Royal Mail 4

The 140,000 postal workers are angry too. They were told when the Government privatised their company 7 years ago they would remain in a defined benefit pension scheme. Money was put in that scheme to make it viable, seven years later that scheme is being closed because to keep it open would cost over 50% of payroll.

Nobody wants 50% of pay to go into a pension, we’ve got to pay today’s bills too and if I were a postie, I wouldn’t be argued that this pension scheme should stay open. But I’d be seriously angry that it has gone from fully funded to unfundable in such a short time! We all know the reasons, the trustees thought slamming funds into bonds was a risk free strategy, they were wrong, look at the share price in the past six months.Royal Mai7

No one wins from this; the decision of the trustees to secure existing pensions has been a disaster not just for City investors but for the share options of Royal Mail staff, the job prospects of Royal Mail staff and for the postal service we rely on.

The posties should be angry, very angry.

In place of strife

The solution that the Royal Mail has come up with is clearly not pacifying the postal workers.

Nor will the advice of John Ralfe;

“Closing the DB scheme was inevitable to reduce RM’s costs and risk. Rather than trying to stop it, the CWU should be negotiating a more generous DC replacement”

Had the Royal Mail adopted a typical bond/equity mix rather than the slam-dunk into bonds, it would not have been inevitable that the scheme would have become unfundable for future accrual. But put the past aside, the old scheme is closed, good riddance to its niggardly strategies.

But DC is not the only option open to the Royal Mail, the FT reports (alongside John’s advice) that the Royal Mail has proposed

 “a less generous, but commonplace, defined contribution scheme in which workers take responsibility for investing and drawing income from their retirement fund”

but the Communication Workers Union (CWU) have put forward a compromise proposal

Royal Mail considers union’s pitch for ‘new kind’ of pension plan

CWU says its proposal would strike a fairer balance over sharing some financial risks

The CWU proposal would keep the current (not the increased) funding level of the DB plan, making the new plan DC for funding purposes. It would float the benefits so that – in future, things like the level of indexation of pensions weren’t guaranteed.

So it’s good to see the Royal Mail tell the FT

“We continue to work closely with our unions on a sustainable and affordable solution for the provision of future pension benefits.”

It ain’t necessarily so

We’ve got used to being told by experts that we must sit back and accept the lowest common denominator.

But the Gershwins wrote “it ain’t necessarily so” in the aftermath of the great recession to counter the heterodoxy that people should take it lying down!

Here is the cut verse of the song, that I sing to myself when I’m told that shit happens,

Way back in 5000 B.C.
Ole Adam an’ Eve had to flee
Sure, dey did dat deed in
De Garden of Eden
But why chasterize you an’ me?

Employers should have a duty of care to their staff (no matter what the lawyers say!)

The Royal Mail should negotiate for a more certain solution (no matter what John Ralfe says)

The DWP/tPR should pursue Philip Green/Rutland Partners and all the other shitesters who want to make money restructuring pension obligations into the PPF.

I could (and won’t) go on.

It ain’t necessarily so, but you won’t hear anyone singing that song – that’s because the voices of the 140,000 postal workers and their union are marginalised as “disruptive”.

It seems ok to be disruptive if you are a trendy Fintech, but not so if you’re fighting for your employment and pension rights.

As my friend Hilary Salt points out;

royal mail 9

The 140,000 postal workers should be very angry with those who argue DC is the only option.

It ain’t necessarily so – and it’s time that they and  their union – got a little more airtime!

Read more (and get an FT sub!)

Read about the DB closure and the strike threat here; https://www.ft.com/content/936f47e0-201c-11e7-a454-ab04428977f9

Read about the CWU alternative proposal here; https://www.ft.com/content/465fcda4-05bd-11e7-aa5b-6bb07f5c8e12

Read the latest news on Private Equity pre-packing pension rights into the PPF here; https://www.ft.com/content/f9126af2-2051-11e7-a454-ab04428977f9

Get angry!




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Ombudsman 1 – Freedom 0

pensions ombudsman

It would seem that Mr T (neither of the A-team or of this blog) has been sent packing by the Pensions Ombudsman.

Mr T sued Standard Life’s staff pension trustees to max-up his CETV. He did so using an online portal which gave him sight of what his CETV might have been, had he applied for it on that day.

The Ombudsman’s view is that the quote you get is what you’re offered according to the scheme rules and you shouldn’t be driving yourself and everyone else mad pointing out that the CETV would have been higher every time the valuation discount rate changed.

Let’s hope that that sets a few  ground- rules.

  1. On-line portals to CETVs are not a good idea; the ABI have mentioned that the pensions dashboard might offer on-line CETVs that go up and down like the bishop’s knickers. This is a terrible idea and would lead to chaos.
  2. Defined Benefit schemes are not unit-linked insurance policies, you cannot have a daily price, no matter how much you’d like to.
  3. Pension Freedom is folly if it supposes that you can turn pension to cash with any accuracy.

Mr T is a chancer and he’s been told to push off; but he’s a smart chancer, playing the insurer at its own game.  Standard Life will be major beneficiaries this year of the “dash for cash” promoted by Ros Altmann and the FT’s senior journalists.

I spoke to one CIO this week who is having to unpick the trustee’s investment strategy to create the extra liquidity needed to pay the anticipated transfers, we are talking here of billion pound adjustments.

I hear reports that FRS 102 accounts in 2017 are starting to show an adjustment for anticipated transfer values which will show an immediate windfall to the balance sheet. (CETVs pay out benefits on a best-estimate rather than a risk-free discount rate).

In short, Mr T is only doing what everyone else is doing; legitimate financial looting. The CIO sees the cost in terms of transaction costs, but if you’re a CFO valuing your scheme at the risk-free rate, you rather like Mr T.

Even at the highest possible CETV, Mr T is still taking out of the scheme less than the cost you’ve put on his staying in it!


The Standard Life pension trustees will breathe a sigh of relief. Had Mr T won, they could have been on the hook for unlimited CETV quotes , capturing every adjustment to the scheme discount rate. At £500 a pop (First Actuarial estimate), CETV quotes don’t come cheap and they form part of scheme expenses. The cost of the extra administration and the additional cost of paying out the highest ever CETV puts strain on the scheme funding and reduces other member’s benefits. The trustees will be thanking the Ombudsman.

Standard Life won’t be so pleased. The cost of paying out highest ever CETVs to Mr T would have  been lower than Mr T’s liabilities in the company’s accounts. Worse, the constituency of transferors that might have signed up to Standard Life personal pensions will be diminished.

But let’s be clear about this; the promise made to Mr T when he joined Standard Life was for a defined benefit pension, the property rights to a CETV were never the main event. Standard Life have complied with their disclosures and according to the Pension Ombudsman

There is no evidence to support that he has been financially disadvantaged as a result of the alleged maladministration

The message to pension schemes is clear. On line valuations of CETVs may sound good but they can create confusion and frustration for members and have the potential for all kinds of legal battles when the variations in CETVs become clear. Trustees should resist any attempt to twist their arms to provide such things as part of the pension dashboard project.

The message to members is clear, your CETV is a function of discount rates that you cannot control or second-guess. There is an element of discount-rate lottery in taking a CETV but that is in the system and the system cannot be gamed.

The message to employers is that DB schemes are not open-doors to pension freedoms and that much as employers would like to kiss goodbye to pension liabilities, the interests of remaining pensioners are not suited by Mr T’s games. In the long-term, over-payment of CETVs and the administrative chaos of unfettered CETVs is not good for you as a business.

The message to Government is that, no matter how much you may want everything on your pension dashboard to be as simple as a Cash Isa, pensions are different. If we follow further down the road of the cash equivalent pension, how long till we pay the State Pension as a taxed lump sum?

Mr T

There is an excellent report of the judgement here ;


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With dementia in mind.

hsbc.PNGWhy don’t we design financial services for the elderly with dementia in mind?

The needs and capabilities of those in their eighties and nineties can be quite different from those in their sixties and seventies. We would not treat a twenty year old as we would someone past fifty, but that’s what the services we design for the elderly try to do.

I worry that “financial inclusion” is a term that excludes the cognitively frail, those whose mental faculties are not suited to making complex financial decisions. These people grow out of the products they buy when in mental supremacy but for them their can be little or no financial planning.

The info graphic at the top of the page describes the life events (as HSBC see them). It only excludes the upsetting issues of later life, cogitative decline,  the need for social care and physical incapacity.

I mention HSBC as Francesca McDonagh (head of retail banking) was on “wake up to money” this morning talking about the need to do more for the dementing.

It is good that HSBC are taking a lead in this; I will be finding out more about their 3 year project with Age Concern today.

Learning about it

There is a lot of research into old age. Organisations like the International Longevity Centre, the Kings Fund and more widely the OECD have grabbed data (especially in the UK) so we know the scale and shape of the problem.

I am being asked by my firm to help our staff better understand the financial needs of those in old age and what we can do to help those acutely in need of help and those of us who are preparing ourselves.

I’ve found that many of the staff I’m told to help are much more aware and advanced than I am. I spoke with two colleagues on Monday one of whom has power of attorney for her parent and another is managing the complexities of having one parent dementing while the other has incapacity issues.

Their work for their parents is making a huge difference not just to their parents quality of life, but to the cohesion of the family as a whole.

I’ve decided that whatever academic study I do, must take second place to better understanding the needs of those who are experiencing decline and those who care for them.

Doing something about it

The pension freedoms which so resonate with those of us in the middle part of our lives can become a burden as we grow older.

I struggle with Ros Altmann’s argument that exchanging income for capital in your sixties, makes for financial security in later life dependency. The management of “wealth” as a means to meet care costs is fraught with risk, it needs an acceleration of the drawdown to meet an uncertain liability. The chances of converting capital to the income needed to meet long-term care successfully are slim.

But we continue to consider the possession of “wealth” in the form of a capital reservoir, as the best insurance against the cost of residential or nursing home care.

I would like to place a moratorium on the transfer from income producing pensions to capital rich/income poor drawdown policies. I’d like those advisers who currently ponder critical yields to consider what plan B looks like.

Such a plan would need to consider the  questions posed by Lennon and Mcartney

Give me your answer, fill in a form
Mine for evermore
Will you still need me, will you still feed me
When I’m sixty-four?

Fifty years on and sixty has become eighty, but how many of us are planning for a time when we can’t tie up our shoelaces, let alone manage sequential risk?

An inequality of opportunity?

I worry too about who will benefit from benefits. Speaking with my friend Dr Rob Buckle (chief scientist at the MRC), he pointed out that my work in helping our staff become aware of how to plan for extreme old age, was part of a process that ensures that the well-educated and affluent can jump to the front of the queue.

His point was that super-vulnerability occurs with people who suffer physical or mental incapacity but have not had the awareness to pre-plan and do not have the support networks to have others help them out.

Ironically, the financial awareness I am promoting, may be extending social inequality and consigning the most vulnerable to the back of the queue.

An insurable event?

Not everyone loses their marbles and people run marathons in their nineties. We do not know our financial needs in later life. This uncertainty makes insurance an option. The simplest insurance is to put your finances in a state that they can easily be managed by you in all but extreme dementia, this argues for keeping financial planning simple, focussing on products that have clear outcomes and need little management.

The second insurance is to create a social network of family and friends who are likely to survive you. To turn this around, a simple insurance for someone with parents in retirement is to start talking early about matters such as power of attorney, the provision of duplicate bank statements and the “what ifs” that go with losing physical or mental capacity.

Fraud prevention

The vulnerability of the old to financial fraud is a huge worry. A third of those dementing live alone, the telephone is their link to the outside world but it is a friend to the scammers.

The incidence of financial crime perpetrated against the elderly is appalling. It is low-profile crime but it causes immense anguish.

We need to pursue the scammers, but we also need to find ways to make those who live alone, or who are on their own for long periods, less vulnerable.

A change of mind set

Spending time with elderly parents, talking with people actively engaged in managing dementia, reading about the subject, makes me aware that I am still too distant from the realities of later retirement.

I am sure I am not alone. We idealise retirement as a string of dream holidays, days on the golf-course and the whimsy of “when I’m 64”.

But the darker, lonelier side of retirement is ignored. That info graphic of our life events typifies how we exclude the possibility of needing care, possibilities that turn to likelihood as we grow into extreme old age.

While I don’t agree with her “fetish for freedom”, I applaud Ros Altmann for promoting the problems in her work as a politician , in her speeches and in her writing. She is adept at grasping the agenda of ordinary people. She is right to be talking about this difficult subject.

However, the hard miles on understanding old age (gerontology) are being put in by such dedicated academics as Dr Debora Price, who has helped me with a reading list I am ploughing through!

These are links to the documents I have found particularly useful so far


Further reading

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

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

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



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


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


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


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Keith Popplewell – Yorick’s sorry tale.


Alas poor Keith .. I knew him…

When I joined Eagle Star in 1995, Keith was the  star turn, an exceptional speaker, a mine of technical information and a bon viveur, Keith was a sales director’s dream.

And like any showman, he was crying inside, I saw the vulnerability then, and loved him for it.

I am sad to hear that Keith’s business failed and that he failed his clients in a sorry way. I don’t know how pensions best practice translated into transferring life savings into Store Pods. Something went very wrong.

The 8% guaranteed return offered by Store First (through Capital Oak) is – in retrospect – the classic pension fraud. It was marketed by Keith’s Liverpool sales team at his Pension Office.  If you listen to the BBC article on Store First – you can hear how Keith Popplewell became part of a scam.

Now Keith has been publicly humiliated and can no longer practice as a financial adviser. For those scammed the punishment will cannot be harsh enough. (pace Angie Brooks).

The FCA’s judgement against Keith comes in a week when those who have invested in the Capita Oak schemes he promoted, get tax-demands from HMRC for pension liberation. Whatever sorrow I have for Keith, is tempered by my sympathy for the victims of the investments he signed-off.

I lost touch with Keith in around 2005. I would like to give him the comfort that the Keith Popplewell I remember – was quite splendid.

Keith of course is not the only casualty of the time. John Quarrell and his wife Sue have similarly fallen from their public pedestal. They too, vulnerable and generous to a fault.

Though the Freedom SIPP was not itself  fraudulent, it too became a pension nightmare. Some freedom – little pension.

Are John and Keith similarly the product of their own celebrity?

Alas poor Yorick

Hamlet takes up the skull….

Alas, poor Yorick! I knew him, Horatio: a fellow
of infinite jest, of most excellent fancy: he hath
borne me on his back a thousand times; and now, how
abhorred in my imagination it is! my gorge rims at
it. Here hung those lips that I have kissed I know
not how oft. Where be your gibes now? your
gambols? your songs? your flashes of merriment,
that were wont to set the table on a roar? Not one
now, to mock your own grinning? quite chap-fallen?

Many will read of Keith and of others and take some miserable delight that they are not like him. Though Hamlet understands that Yorick’s skull is no different than the others dug up in the graveyard – no different from how he’ll soon present his head. The mournful tone is not just for Yorick, it’s an elegy for us all.

But Yorick’s skull is different to Hamlet, it reminds him, as Keith reminds me, of a life that was once well led.


Keith’s linked in profile, sits – derelict – it reads like an epitaph

I was voted financial services personality of the year 1999 to 2001 before becoming semi-retired.

And a  reminder of happier times

Activities and Societies: Publisher of school magazine School Brass Band and concert choir School 1st XI Football

The vanity of human wishes

After putting down the skull, Hamlet’s thoughts turn to the vanity of fame. Hamlet’s tragedy is that he never sees a point to living sufficient to keep him out of harm’s way.

He dies a pointless death.

I don’t know what Keith is doing now, hopefully he finds some comfort from semi-retirement, he has a wife (cited in the case), he has kids and I  imagine he is still bringing happiness to those close to him, (for all the bad advice he has given).

Like thousands of others, Keith brought something to my job back in the nineties and no-one has done the same since. Sitting with him at the bar in the early hours, I remember his humanity, not his technical wizardry.

So – here is to you Keith Popplewell!  While I hate what became of your career, I cherish what I remember of you. Like Hamlet, I cherish the memory and mourn what has become of you.

Let’s hope that Keith can sit back and retire, let’s hope he find a little more point to life than Hamlet.

Further reading

This article from Money Marketing in 2001, gives a flavour of the affection in which Keith was held.


If you want to find out about Store First investments and the damage it and its sales team did; listen here  http://www.bbc.co.uk/programmes/b06r0b4b

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Don’t blame pensions for corporate mismanagement

Pre packs.PNG

The FT has come up with some excellent research on why pensions find their way into the Pension Protection Fund. It has discovered that a substantial proportion of the so-called “pension failures” over the past ten years, resulted from sale and re-purchase arrangements (known as pre-packs).  Pre-packs exploit a loophole in the 2005 Enterprise Act which allows management to walk away from pension liabilities through corporate restructuring.

A total of £3.8bn of pension liabilities have “gone to Croydon” home of the PPF. The  haircut people take on their pensions entering the PPF is around 20%, so this amounts to a real loss to ordinary people of around £750m. Pre-packs are not crimes but they’re not victimless either.

The vilification of defined benefit pension schemes.

There has grown up a kind of thinking, inspired by management consultancies , that considers the defined benefit pension scheme a toxic threat to the balance sheet, to the P/L and to cash-flow. Extending this train of logic, pensions can be blamed for lack of investment , lack of productivity and a long-term loss of shareholder value. Since the architects of the pension schemes are several generations removed from a company’s current management and ownership, it is quite safe to blame the pension for everything,

For managers and owners who have no interest but shareholder-value, the DB pension scheme can easily become an asset to be exploited; if a corporate valuation is weighed down by a pension deficit, then transferring (dumping) the problem on someone else, immediately releases cash for the shareholders.

This is the corporate equivalent of fly-tipping. And yet it goes on under our noses (as the chart shows).

Why deficits are over-egged

It is in the interests of those for those who “de-risking” corporate balance sheets to talk up pension deficits. The propaganda war against pensions is being won by the major consultancies who bombard us every month with numbers based on the cost of winding up our pension system, because that is high on their agenda.

There is more than a hint of jealousy at play. The pensions that are paid are not being paid to the new managers and owners but to previous managers and owners (who were responsible for the architecture of the arrangements). Current managers and owners argue that they are only evening things out.

But this is to ignore those people who do not benefit from pre-packs at all, the ordinary pension scheme member who loses pension rights – at the shareholder and current management’s expense.

Put in this context, the incessant noise about pension scheme deficits is a direct attack on the rights of a generation of workers whose compensation was based on a company pension promise.

What can be done about this?

There’s no doubt that for many smaller companies, some form of de-risking of pension liabilities is right. The steps that most firms have taken- closing for new hires and now for future accruals, may well have been necessary. But what is happening now is going beyond reasonable and it must end.

As the FABI Index shows, the estimates of deficit that come from valuing pension schemes in worst-case scenarios, are wildly at odds with the valuations that take a more progressive view of the economy.

If we were to value GDP growth on the basis of gloomy pension forecasts, we would pre-pack the UK!

The first step in ensuring that DB schemes are not fly-tipped into the PPF is to make those who sponsor them (both employers and employees) aware that there are more ways to value a pension than against a risk-free discount rate.

The second step is for all interested parties, shareholders, members and trustees to align interests to ensure that no one party is allowed to dominate decision making (this is the idea behind the Pensions Regulator’s integrated risk management framework).

The final step is for pensions to be protected against the corporate vandalism, examples of which are quoted in the FT info graphic.

Turning the tide

It is really encouraging that responsible journalists are bringing this to general attention. Thanks to the FT (who I have been quite rude enough to in one week!).

There is no need to give anyone extra-powers. Gaming the PPF is an offence as is abuse of the Enterprise Act. What is needed is greater awareness, not just within government but without.

The tide will be turned when people sit back and ask – “if not pensions what?”

Dismantling the pension apparatus that made a generation secure has happened, other generations will not benefit as the baby-boomers will. That decision has been taken. But no decision has been taken on how the risk will be shared going forward.

Already we are seeing signs that the ultimate model of de-risking “pension freedoms” may be – for ordinary people – a cracked model.

There are dissenting voices (even in pensions) arguing that the pooling of collective pensions to provide long-term economic capital, should make pensions a source of productivity games (rather than the scapegoat for productivity stagnation).

The reasons that the majority of pension schemes go into the PPF is not usually bad pension management, it is poor corporate strategy and poor execution of that strategy.

Pensions are a convenient scapegoat for failures elsewhere. “Risk transfers” may look plausible in the boardroom but they impact the long-term finances of those on whom the company’s prosperity has been built. It is simply not good enough to use pensions as a trampoline for “value extraction”. A line must be drawn and not crossed and I hope that line is being drawn today.

silent night

pension miscreant


The pension research in the Financial Times, on which this article is based , can be found at https://www.ft.com/content/f3f574fa-0f2c-11e7-a88c-50ba212dce4d

Posted in Pension Freedoms, pensions, Pensions Regulator | Tagged , , , , , , | 8 Comments

The Grand National – a race of not taking yourself too seriously!

aintree 2

Thanks to Aintree, a course that has not drunk the Cheltenham Kool-Aid, not sold its soul to corporate hospitality and kept a little sense of humour!

The final day of the Grand National Meeting was characterised by brilliant weather. Stella and I got the early train up and had the chance to walk the course. You cannot be told how fearsome the riding challenge is, till you get up close to the fences.


aintree 3

Jumps racing is still a sport for the enthusiast and the day kicked off with a winner that had been brought up in the owner’s garden. The Grand National itself was won by One for Arthur owned by a couple of battle-axes who called themselves the Golfing Widows

battle axes

and trained by Lucinda Russell with some help from Peter Scudamore.


A horse trained and owned in Scotland , ridden by a journeyman who’d been off for a month with injury. He’s rephrased “exceeding expectations” with the great

“better than  I  even thought it would be!”

Here is David Fox with his Mum and sister!


This had nothing to do with the trainers championship, let alone the Jockey Club and the infrastructure of racing. This was all about a bunch of 70,000 people having a lot of fun!

aintree 1

People to go to Aintree to have fun, they go to Cheltenham as a pilgrimage to racing’s Mecca! While Cheltenham immunises those on corporate hospitality, Aintree integrates everyone into the fun.

It was great to see , our hero Colin Tizzard and his team having a great time. He is so unpretentious about what he does and he still gives the impression of a dairy farmer who’s got lucky!

aintree 5

If I give the impression that horses come second, then forgive me – this was a great day for the horses! There were no fatalities, despite the high temperatures. Aintree took the correct decision not to parade tired horses after the National (Cloudy Bay in mind). We had seen the parade of champions before the racing and it was great to see so many previous winners in fine form.

Aintree 6

I can’t remember a better day’s racing. Stella and I had so much fun! We got home near midnight and watched the whole day again on the TV.

Thank goodness we can still do these great things well!



You can watch the 2017 Grand National here;


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Confusion reigns at the Royal London IGC

In general IGC reports and press releases don’t mix. We’ve had two reports which have been advertised to the press and both fail to impress me. We are not asking IGCs to sell their workplace pensions, or even themselves, we’re asking for a clear view of what is going on.

I like Phil (not Philip) Green and I like his team, I like the way they brought on a new member from among the policyholders and I’ve enjoyed my meetings with members last year.

But having spent much of the last two days , trying to get my head round the report, I am still confused about what is really going on.

I’d like the IGC to focus more on its readers and less on its press-coverage!

Let’s start with value for money

Royal London’s analysis of the costs incurred in running its funds is weird.
Royal London

I am afraid I don’t recognise any of the columns. The method for calculation is obscure and though the eventual numbers are close to those of L&G, they don’t seem to have been arrived at with the help of the FCA’s slippage methodology.

But if I’m confused by this, I’m positively scared by the pounds shilling and pence calculations which suggest that for every £30,000 I have with Royal London, I appear to be losing £25 (as opposed to an unexplained TER (??) which loses me £204).


Royal London 3

The incidental costs of running the fund are compared with a TER which is unexplained and we are then presented with investment growth numbers which presumably relate to performance tables published a little later on.]

Royal London 2

the performance figures suggest that the funds are generally underperforming but against an undisclosed benchmark.

I am left totally dazed by a lot of numbers and research , none of which seems to add up to a value for money assessment! I am left asking the question

How do we make sense of this?

I suppose the conclusion I should be drawing is that I should be speaking with an IFA. But it would seem that Royal London are keen we consumers understand these things for ourselves.

For instance, the IGC tells us that Royal London has developed a do it yourself transfer service used by policyholders wanting to bring their pots together,  this service (used by 4,000 policyholders)  is available to those whose advisers have confirmed that “they don’t want to be involved”.

This confuses me as earlier in the report we are told that

“Royal London continues to attract new workplace pension business solely through corporate and financial advisers and does not offer its services direct to employers.”

There is this ongoing dialectic within the report between the need to provide services directly to the customer – and a need to keep the adviser in the loop.

My experience is that the needs of the employer, primarily to have a direct interface with Royal London in the most efficient way possible, aren’t being addressed. The API interfaces being developed between payroll provider and the intermediaries such as pensionsync have passed Royal London by.

The employer’s needs are simply ignored in the IGC report, despite the bulk of the report concerning itself with workplace pensions.

Just who is Royal London trying to please?

Confusing tone

I am confused by who Royal London sees as its customers and I’m confused by the charts produced by Royal London’s IGC. I am also confused by the tone of the report which at times appears to be eulogistic about Royal London. This is typical of its style

Royal london 5

This is not measured and it doesn’t inspire confidence. The profit share (which is adding 0.18% to returns this year is a great thing, but it is generated from excess profits after the payment of business expenses. There is no analysis of whether Royal London is an efficient business, of executive remuneration or benchmarking of the costs levied on employers and policyholders in the first place.

I fear that the lack of investment in new technology will make the Royal London proposition increasingly uncompetitive against its rivals (in terms of the employer interface). I wonder to what extent the advisers (through whom Royal London’s workplace pensions are established , help in the maintenance of the schemes). In short I am quite confused as to the sustainability of the workplace pension business and the profit share.

Finally there is the question of effectiveness

Royal London have got Professional Pensions to publish coverage of their IGC report with the headline

Royal London IGC: Charges down by £15m and transaction costs are fair value.

I have no doubt that Royal London have cut out a lot of dead wood from their legacy books (insurers such as the co-op). A £15m write off in charges is impressive.

I’ve been through the report a few times now but I cannot see where the £15m reduction in charges is talked about.

As with so much else in the report I find I want to believe but find my belief suspended as I try to make sense of the statements.

If the IGC has been effective, it cannot prove it using the rambling style of this report.

As a final point, it is not effective to publish a report in April , (signed off by the chair on March 2nd) and call the report the 2016 report. It actually makes it hard to search for and confusing to file!

Confusion reigns!

This report is simply not focussed, it seems to be trying to please everyone but is a pain in the backside to read. It is often confusing to read and at no point did I get a coherent sense of whether Royal London were doing a good or bad job.

I really would like to give this report a better score, as I would give it an A+ for effort, but I can’t.

For tone I give it a red– it reads like a peon of praise for its provider and though enthusiastic throughout, is full of undigested Royal London jargon. As with last year’s report it does not read as a critique.

For its work towards value for money I give it a green, clearly there has been a lot of progress since last year and it is good to see a real attempt to make the numbers real for members. I suspect that once they have a proper method of doing things (from the FCA), the IGC will do great things!

For its effectiveness, I give the IGC an orange, if the report weren’t so hard to read, I suspect i could have given it more. But there are important areas of governance that seem to have been by-passed. There is no statement on ESG and precious little scrutiny of Royal London’s workplace strategy – at least from the perspective of the workplace!

Royal London are an anomaly, not just as the last significant mutual , but as an organisation that is dependent for distribution on IFAs, I’d like to see next year’s report look at how this strategy impacts the member and the employer.

It’s a quirky, thought provoking and often quite brave, but ultimately this is a bit of a mess and I suspect its most important test – it is very hard to read!

Further reading

The IGC report can be found here;  https://www.royallondon.com/Documents/Members/IGC_Report.pdf/

The Professional Pensions coverage of the report can be found here;  http://www.professionalpensions.com/professional-pensions/news/3007881/royal-london-igc-charges-down-by-gbp15m-and-transaction-costs-are-fair-value

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FT seminar sparks pension transfer fury!

Last night the FT put on a seminar on final salary pension or – more exactly – how to slip the noose of a pension for life for pension freedoms.

FT journos have been willy-waggling their new found pensions wealth . Martin Woolf has transferred and so has Baroness Altmann, Clear Barrett and Merry Somerset Webb bemoan their lack of defined benefits to liberate.

Yesterday’s room was full of baby-boomers split between those with bulging DC pots, those worrying whether to press the button and a hard-core of DB faithful.

The debate was not particularly balanced. Ros Altmann claimed “Brexit had sent CETVs sky-rocketing”. This is a partial truth, CETVs are calculated using  scheme specific discount rates; where the scheme has moved to invest in gilts, the discount rate was vulnerable to fluctuations in gilt rates and there was a Brexit bonanza, for schemes invested in a mix of growth and matching assets, there has not been a CETV bonanza.

This subtlety wasn’t picked up in the ensuing debate. Indeed Chris Darbyshire of Seven Investment Management told the audience their transfer values were calculated using the risk-free rate, which is just wrong. Darbyshire went on to describe his wealth management model, which included an 8% return on assets – this didn’t encourage one delegate.





It got worse

Worse was to follow with Altmann claiming that in ten years time we could not be relying on the pension increases we (DB pensioners) are currently enjoying. Luckily for me I’d spotted top Mercer actuary Mike (Monckman) Harrison in the room and held my fire!

Mike didn’t – making it quite clear that there is no plan within Government to reduce indexation on existing benefits, other than extreme distress (where schemes join the PPF). .

It is odd (and disturbing) that our former Pension Minister is now arguing that pension freedoms are a way to avoid non-payment of DB promises. The argument used by Altmann echoes the arguments used by the scammers. This kind of talk is sensationalist, scare-mongering and irresponsible.

A very unbalanced debate

The debate, such as it was, pitted Ros Altmann and Chris Darbyshire against Stephanie Hawthorne, (about to become ex-editor of Pensions World). Stephanie did a pretty good job of arguing to stick with your DB pension but she was given too little support from Chair Claer Barrett.

Stephanie was presented as a relic (which is what  Pensions World – which closes next week- is about to be!). Could the FT have chosen a more poignant symbol of the passing of the baton?

There are plenty of great advocates for DB who would have stood beside Stephanie, I wished Mike Harrison, or Andy Young, or Hilary Salt or Con Keating had a place at the table. But the bases had been loaded.

And since there was no-one who actually knew the rules behind transfer values, we spent much of the time talking about the wonders of wealth management, multi-asset funds and the happy lot of the fund manager managing his own wealth.

Where concern was shown, it was for the ad-valorem fees charged by advisers. Again there was no proper debate about why adviser charges are linked to the size of transfers though it’s pretty obvious that the biggest overhead an adviser has is his Professional Indemnity Premium (which is ad valorem the CETV). Chris Darbyshire said he begrudged paying an adviser but by that time he’d already shown he didn’t understand what his CETV was valued at (certainly not the risk-free rate).

The reason that insurers charge such a premium to insure transfer advice is that they trust no-one (not Government, advisers or those seeking the transfers). On the evidence of what I saw last night, they are right.

The speculative and the specious

There were plenty of advisers in the room and I wondered how many of them really knew the value of the DB benefit.

John Mathers, who sat beside me, demonstrated a greater understanding of tax strategy than the panel. He showed me a list of 11 tax treatments of the pension crystallisation event since the introduction of the annual and lifetime allowance. Ros Altmann’s arguments that pension freedoms were a means to pass wealth across generations sounded speculative if not specious.

Ros Altmann talked down the value of an indexed income stream as inappropriate for a generation facing long-term care obligations. These obligations are nothing new but veteran journalist John Lee was dragged into the debate as someone who’s retirement strategy was quoted as building up a multi-million war-chest to keep him and his wife in a top care home.

As the debate drifted into the “How to Spend it” territory of FT’s Weekend, I wondered whether I was inhabiting a parallel universe. Not only have I failed to pick up on the Brexit Bonanza, I actually started drawing my pension in November 2016, at exactly the point when the “guilt-free rate” was highest (pun intended). Not only did I not cash out my pension, I did not take my tax free cash. I want a certain income for the rest of my life.

There is nothing speculative or specious about my pension , I know what I’m getting, when I’m getting and I know my payments will last as long as me.

70% of those asked by Aon in their recent retirement survey said they wanted a certain income for the rest of their life.

The one thing you know what you are getting from a defined benefit scheme is a defined benefit, nothing – not investment returns, not sequential risk, not tax and certainly not the arguments around LTC,tax and longevity gave me any encouragement that those exercising freedoms had a plan,

Dr Beeching and his witless accomplices

George Osborne has done for Pensions what Beeching did for railways.

He has ripped up the tracks and trusted that the future will bring an adequate replacement. Ros Altman finished the job by putting a stop to the collective decumulation regulations resulting from her predecessor’s work on Defined Ambition.

She told us the market would offer us a replacement for DB and DA,

The replacement on offer (according to my FT goody-bag) was the chance to discover my future today with Seven investment management.

The Wealth Management industry does not have the answers for the vast majority of people who cannot afford its fees, or the advisory fees that come with it. It has no answer to longevity, no insurance against long-term care and is about as much use as rural bus services.

What ordinary people need is a proper debate on pension transfers based in fact not prejudice, which looks at the value of the benefits lost and the cost of replacing them. This was not that debate.

Ros Altmann has since published her thoughts on transferring out of DD schemes – you can read them here; http://pensionsandsavings.com/pensions/transferring-out-of-guaranteed-employer-pensions-can-be-a-good-idea/

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Fund cost disclosure, arrived on Friday – and it’s here to stay. L&G IGC report- 2017


We are now well in to the IGC reporting season, where Independent Governance Committees tell us how well the insurers they oversee are behaving.

I had had low expectations going into this round, 11 of the key insurers had spent much of the year collecting feedback from 15,000 of their members telling them (what they already knew), that people wanted a good investment return and good information along the way.

I had assumed that this would take care of the “value for money” debate for another year and that we’d have to await the final report from the FCA on how we established value for money in investment terms.

That was until I read the Legal and General IGC report, which is the game-changer we needed. The breakthrough seems small, the publication of transaction costs for a handful of passive funds used within its Worksave Pension. But L&G have let a very important rabbit out of the hat and the implication for funds governance (let alone DC governance) cannot be underestimated.

Why L&G’s publication of fund transaction costs is so important

  1. Legal and General aren’t any old fund manager, they are Britain’s biggest and one of the largest managers (by assets under management) in the world.
  2. L&G’s funds aren’t just inside the L&G Worksave pension, they are in many rival propositions including Smart, Bluesky and even NEST.
  3. The costs are much higher than experts had anticipated and are material to the performance of the funds.]
  4. This means hidden costs must form part of a value for money assessment of investments.
  5. While L&G’s charging structure means that the impact of hidden costs keeps L&G compliant with the charge cap, those providers using similar funds and with an existing AMC of around 0.75% would become uncompliant if hidden costs were included in the cap.

L&G have just thrown a unpinned hand grenade into the fish-pond.

The reporting of the value for money benchmarking carried out by IGCs had – until this point – been feeble. The results of the NMG feedback was that all providers were seen as much of a muchness by members. Even so, the providers banned the IGCs from using the results to show that their provider was giving more or less value than a competitor.

Some work on transaction costs had been done by Scottish Widows, Phoenix (and no doubt others), but to date we had only had generalised assurances that the scale of transaction costs was insufficient to ring alarms. These hidden costs were well on the way to being absorbed into some general value for money score which could be published in April 2018.

This would have kept awkward questions from DC members of fund managers with high hidden costs at bay.

Since many of these funds are used by defined benefit schemes, it would have kept awkward questions from institutional trustees and consultants at bay too.

Most importantly of all, it would have made it very easy for the Regulator to ignore hidden costs in the DC default charge cap (which is under debate as part of the 2017 auto-enrolment review.

Had L&G not gone and published these hidden charges, everything might have been kept under the Investment Association’s hat and the fund managers, insurers and commercial master-trust’s margins would have been maintained.

Pandora’s box

When Pandora opened her box, winds flew out that caused chaos in the Mediterranean for years. No doubt the funds industry will turn on L&G and point this out!

For we now know, not just that hidden charges exist, but they can be quite high and that they are unpredictable. It will be impossible, going forward, to ignore hidden charges in any thorough performance report.

Those charges will need to be justified on a value for money basis and eventually we will want to report on those hidden charges as part of annual governance reports, manager selections and compliance reviews.

The lid is off, it cannot be replaced.

Since L&G have published, the onus is now on the rest of the IGCs to publish too.

For L&G DC investors paying 0.13% for the multi-asset fund (MAF) , the news that they are paying 0.06% additionally amounts to a 50% increase in yield-drag.  The numbers are quite different for equity funds prompting many of us to ask whether we want to use MAF as our default.

We are now in the fortunate position to have this debate. The same debate cannot be had where the information is not on the table.

We should remember that this is about our money, not about some fund that pays defined benefits which is paid for by an employer, the risk for a DC investor of over-paying in costs and charges falls firmly at his or her door.

Many of us have campaigned for years for the right to know what it is we are paying for the management of our money and now – at least with L&G- we know. The lid is off- it cannot be replaced.

I now want to see the table below re-created by every IGC so that we can compare what we are really paying for our workplace pensions not just at L&G but elsewhere. And if we cannot have this information, I would like to know why not!

L&G Costs

For its work on Value for money I give this report a green

For its effectiveness I give this report a green

For its tone I give this report a green (with a sniff of orange)

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L&G’s IGC goes public on hidden costs


It’s unfair on a very good IGC report that I focus on its breakthrough feature, but the decision of the IGC to publish the full cost of the funds used within L&G’s defaults needs to be given the headline news.

Here is how the news is reported.

L&G CostsThe critical numbers (the ones that have never before been put in the public domain) are the transaction costs which range from as little as 0.01% for the L&G Cash Fund to as much as 0.08% for the multi-asset fund (MAF). The “best endeavours” of the L&G actuaries reduce the average cost of MAF to 0.6% as it is as likely to see costs of 0.4% as 0.8%.

There is a lot going on in this table and I have written to the IGC for clarification on numbers I don’t understand (the reducing Admin and fund charge in life styling). I am not sure if the costs of reinsurance and of the lifestyle transactions (which could be material) are included.

But the central number to take away is that the cost of MAF (which is the main default fund) is not 0.13% but on average 0.19% and the total cost of ownership for the typical Worksave Pension Plan member is 0.56% not 0.50%.

This 12% increase in published costs and charges is not unique to L&G. It will be a feature of all Workplace pensions and I suspect that L&G’s disclosed figure will turn out to be at the low-end of the range.

The publication of this number is likely to cause a great deal of anger at the Investment Association who have been lobbying for any cost disclosure to be conditional on it being at the discretion of the workplace pension provider, how it is displayed.

It of course buries once and for all the myth that hidden charges are (like the Loch Ness Monster) oft talked about but never seen.

And finally it buries the myth that passive investing is not a free lunch. If MAF is incurring costs at the top of the range, those costs are more than 50% again of the stated management charge we had previously assumed was “what the fund cost us”.

From my discussions with the MAF fund manager, I understand these extra costs are mainly incurred because the fund is growing so fast that it cannot lay-off its costs by crossing trades but needs to transact on its own behalf. MAF also incurs higher costs associated with the spreads on bond purchases;( 40%+ of MAF is invested in bonds) ; this explains why costs are higher in MAF than in the similarly successful UK Equity Fund (where costs at 0.2% are two thirds lower).

Why each basis point matters

If anyone thinks this is of academic interest, they should consider my position (I am not putting myself under an NDA!). Until recently I had £400k in MAF which I transferred to the equity tracker, not out of disappointment with MAF but because I couldn’t see the bond holding working in my favour and because I had taken a long-term decision (5 years +) not to drawdown from my fund.

I took the decision with imperfect information (I didn’t know of the cost differential mentioned above). But cost was not the driver, I saw value for me in equities. The information on costs would have made my decision easier.

In taking decisions with our money, surely we should be allowed to fully understand the cost of the funds we choose as well as the value they offer. At a personal level, I am pleased to know that my new fund is delivering me closer to a gross return.

But what can the IGC itself make of this information?

The big question that the IGC must ask in 2018 is whether MAF offers value for the extra money it costs. Not only is MAF more expensive to run, but it has a higher management charge than L&G’s major market passive equity funds. All in, the quantum of value that MAF must add can be quantified as around 0.07% pa relative to the equity alternative.

The L&G IGC did not ask this question this year, but I hope they do next year. The MAF team are earning L&G a minimum 0.13% of £4.5bn


and incurring half as much again in costs. Accountability is everything! Now at last we have the numbers against which a Vfm evaluation can be made!

I consider the decision of the IGC to publish these numbers as they have done as heroic. It could only happen where the provider is allowing the IGC to be genuinely independent and to be acting in the interests of the member not the insurer. By extension, I consider L&G to have behaved impeccably in providing the information and not preventing its publication.

Highlights from the rest of the report

The report itself is good. L&G’s IGC has spent much of the year without a Chair (Paul Trickett jumping ship to Aviva Investors in the Autumn). The new chair will be Dermot Courtier but this report’s the work of Steve Carrodus and his colleagues. The towering work of Tony Filbin in ensuring the IGC never lost its member focus needs to be acknowledged and fully recognised.

I’m pleased to see that the Chair reports on Environmental Social and Governance (ESG)issues (I had criticised it for not doing so last years). I appreciated the photograph of a hamburger shaped bicycle bell – ESG can be too po-faced! During the year, the IGC invited members (me included) to a talk on ESG and very good it was too.

And a few moans

There are less good areas of the Report. The money spent on NMG’s consumer research seems to have produced no special insights for the IGC, merely giving an undifferentiated overview of what people value from their pension. I have commented on this elsewhere, I hope that the IGC does not feel compelled to throw money at such vacuous projects in future.

I am not particularly impressed by the IGCs work with the insurer on at retirement options. The Worksave pension plan is not offering proper freedoms and the modelling tools available to those in the freedom zone are pretty rubbish. This is an area that L&G should be working harder on and I’d have liked to see that reflected in the report, which lacked some of last year’s passion!

I was not wholly convinced that the IGC had won much over the year for legacy pensioners (that had not been required by law). Today (April 1st) is the day when the exit penalties on legacy products are reduced to 1% for those over 55. Some concessions for those in ill-health and under 55 have been granted but L&G’s finance team seem to have successfully batted the IGC back on their more ambitious demand for an extension of the 1%  cap to all legacy pensions

As for the bespoke default investment options put in place by advisers, I am far from convinced that the IGCs have got the problem sorted. I’d like to see a “review or retire” demand on those who set these up so that members are not left stranded in inappropriate defaults.

Keep it up in 2017-18!

Despite these minor moans, I really enjoyed reading the IGC report and will give it a green for its tone, which was just about right. I am still not sure the IGC is on top of the life company on legacy but for dogged tenacity in the face of a big beast, I am giving them a green for effectiveness. When it comes to progress on defining whether members get Value for Money, this is a real breakthrough report and deserves every pixel of its green rating.

L&G have been at the forefront of workplace pension governance for the past five years and this report is its most remarkable achievement to date.



you can read the original of the 2017 IGC report here; http://www.legalandgeneral.com/workplacebenefitsResp/igc/

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Why employers still need DC advisers – even with collective governance!

investment consultant 3

To my surprise and mortification, I have been contacted by a group of DC pension consultants complaining that a recent blog denigrates their work with smaller employers helping them get the most out of their workplace pensions.

A big fat sorry – we need pension committees and DC consultants!

It wasn’t my intention to poo-poo “DC governance in the workplace”, but if that was the impression I gave, I apologise! Blogs need to get it right first time!

The blog in question suggested that advisers would be better off using the IGC’s agenda and focussing on what eventually will become a Value for Money score as an estimate of the worth of the workplace pension.

What was contentious was my estimate that only the very largest employers have sufficient clout to make meaningful changes to the way a workplace pension provider operates. I went further and suggested that consultants who try to set up scheme specific defaults for clients without the covenant to maintain and nurture the default, are doing more harm than good.

What I did not mean to imply is that an employer has no business being involved in the management of its own DC plan- as it members of staff, nor that consultants cannot add considerable value working with an employer specific pension governance committee.

What I have noticed is that the terms of reference for many of these committees are overly ambitious and/or wrongly focussed. Instead of measuring service standards, trying to guess the yield drag of the scheme’s default fund and replicating work being done at the IGC/ Master-trustee level, employer’s should be gauging the level of engagement at staff/member level.

There are some obvious things to look at;-

  • opt-out levels
  • voluntary contribution rates
  • awareness of IHT/AA and LTA issues
  • use of Pension Wise
  • level of cash-out v drawdown v annuitisation
  • use of advice at retirement.

There may be some more obscure issues that can be explored where share-save schemes are available, or where salary/bonus sacrifice facilities are in place. Where employers use a financial education program, whether designed internally or run with the help of a consultant, the of that program becomes part of the terms of reference for a pensions committee.

The big dividend of the IGCs and the Master-trusts is the capacity smaller companies get (for free) in terms of scheme governance.  Recent conversations at everything from client meetings to conferences and Pension PlayPen lunches suggest that consultants are slow to rely on the IGCs and the trustees of the master-trust.

Instead of feeding back to the IGCs, they all too often ignore them. Such was the case with a group of employers I spoke with recently who were using consultants to help them monitor the performance of their GPPs but had no idea that this work was being done collectively by their provider’s  IGCs.

Too many employers and not enough advice = poor governance

investment consultant 2

The work of benchmarking and performance measurement needed to help 1.5m employers with workplace pensions have a clear idea of value for money, needs collective performance measurement , value-benchmarking and the kind of forensic accountancy of  costs and charges that can only be carried out once!

The majority of the employer based pension committees I have worked with, have not changed their terms of reference to take into account the collective governance of the IGCs and Master Trusts. As most of these committees are run by advisers, I guess I am criticising advisers for not letting go these functions (which may be where the DC consultants were getting cross).

But I am sure that when we sit down and discuss this (I hope to meet with them), we will find much common ground. For all the work that is done on the workplace pension product itself, the missing ingredient to making a workplace pension “work” is the voluntary contribution level.

To some extent, the contribution level will increase if the staff/members consider that the workplace pension is worth investing in and the pension committee reserves the right to press the nuclear option and change providers. But in the vast majority of cases, changing providers should only happen as a last resort, it should not be high on the pension committee’s agenda.

To a much greater extent, the contribution level will increase when people see that the syphoning off of net disposable income into long-term savings is a good thing to do. The pros and cons of spending on retirement/housing/debt/enjoyment need to be discussed and where better to discuss them than at work. Work is boring, money is boring – there is a synergy there.

In my view , the work of the Pension Committee should be focussed 80% on the adequacy of savings level and 20% on the Workplace Pension as the means of saving. The proportion may be higher or lower but it is in that order of things.

Currently I see DC consultancy too focussed on the product and not focussed enough on the risks of the product not getting properly used. The modern day pension governance committee should be talking with staff, not just once a year through a report, but regularly through polls, surveys and the kind of interaction you would expect from someone who is taking a big slug of your salary.

Apologies again

So I’m really sorry to have given the impression that DC consultants and employer established pension committees are of no value. That wasn’t the intention at all. Their value is 80% in getting the workforce to use the workplace pension and 20% in making sure the pension is meeting the needs of the staff.

Where I take issue with DC consultants is that they have yet to adapt to the new conditions of group personal pension – with IGCs and of occupational schemes – with master-trusts. The very largest employers may get value from running their own trust, but I think I’m right in saying that bar is probably set at 10,000 employees. Below that – it’s the IGCs and the master-trustees who should be doing the heavy-lifting on governance, and the pension committees and DC consultants, who should be focussing on getting the GPPs and master-trusts – properly used.

investment consultants 2




How small employers can get pension smart without really trying.

This article has a sister.

For many very small employers, it is not cost efficient for pension advisers to provide help directly. These employers will depend on accountants or their payroll function.  For them the IGC and master trust chair statements are of critical importance.

I am reviewing this year’s crop of reports, if you have come across IGC statements not covered on this blog, please send me the link or the PDF to henry.tapper@pensionplaypen.com

Making sure these statement are up to the mark is important!

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Family matters; Rio and bereavement.


Rio Ferdinand


These past few days I have been on holiday with my son and brothers in Central Scotland. It’s been a time to play golf, walk the hills and get together in the evening – as adults.

Last night we turned on the goggle box at 9pm to watch Rio Ferdinand’s struggle to be both father and mother to his children. It was a delicate subject and it was managed with extreme sensitivity by the BBC. Rio and his family had lost a mother to breast cancer at a time when Rio was facing the end of his career as a professional footballer – but still the celebrity (7.8m twitter followers).

The program focussed on the problems a Dad has finding a language to talk about bereavement. In the end , memories were written or drawn on scraps of paper and dropped into a big Coca-Cola shaped bottle. The detail (like the colour of the mother’s dress) were saved this way.

These memories of our families aren’t usually so hard, death spares most of us. Rio’s anger was at the randomness with which he had been chosen. And yet, I suspect that by allowing this documentary to be made, and allowing us to see straight to his heart, he has won the admiration of a nation.

Family matters; it makes sense of the randomness. With my brothers and my son, I sat spell-bound as Rio worked through his anger, frustration and sorrow and came out the other side. He had the help of others, but no more help than you might expect. Death made no special rules for him.

Most families I know, think themselves dysfunctional; we tend to focus on where we lose it and not on what draws us together. Our family has a matriarch and patriarch who – though no longer in charge- are still the moral touchstones. There is certainty in the ties that bind families together and it’s at times of hardship (as Rio found) that those ties bind us closest.

As we soldier on, striving for self-sufficiency, embracing personal empowerment, we can lose touch with these deep and strong ties on which we can rely. For no matter how much we abuse them, the familial blessing remains.

There are a lot of people reading this blog who have fallen out with close family. Girls and guys, think about it. Is it really worth the angst? We only have one go at this and Rio’s beautiful documentary reminded me that family makes getting through it a lot easier.

If you are reading this and are losing family or have just lost a close one, take comfort in Rio’s excellent film which can be found here;


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Auto-protection from an autodidact (the joy of Johnson).

michael johnson

One of the joys of Michael Johnson’s 40 or so papers on pensions is that you never know what to expect next. Johnson deliberately sets himself apart from the industry to rail at it. He is at his best when dissenting and when he is buried, I hope he finds his way to Bunhill Fields burial ground to lie alongside other those other  non-conformists  Blake , Defoe and Bunyan!

But i come to praise Johnson, not to bury him; I wish him a long and happy life and I hope he will produce many more papers like the wonderful  “Auto-Protection, auto-drawdown at 55, auto-annuitisation at 80”.

There is of course nothing new in thisconcept, it was pioneered by David Hutchins in developing the Alliance Bernstein Retirement Bridge product that sits within many of the master-trusts we use for workplace pensions. It is the solution put forward by NEST to provide its pensioners with a way to spend their savings and it’s the idea that the Cooper report puts forward to save Australians from destitution once they’ve blown their “super”.

As Johnson points out, the idea tips its hat to the paternalists on the left and to the freedom-seekers on the right and it requires little intervention from Government, for we are already there! This might sound like me criticising Johnson for stating the bleeding obvious but the paper accords to Pope’s definition of wit

“true wit is nature to best advantage dressed, what oft was thought but ne’er so well expressed”

Weirdly Johnson is proving a “pension conformist”.

Try as he might, Johnson cannot break away from the pension conventions that have grown up in Britain since the canny Scots initiated provident schemes in the 18th century.

Johnson concludes that from 55, we are on our own, illustrating this with an amusing graphic (well I laughed).


Johnson quotes Warren Buffet’s self-help solution for cliff-jumpers, to invest savings 90% in the S&P500 and 10% in cash and drawdown from cash only in times of equity crisis. This seems utterly reasonable so long as you have a reasonable knowledge of financial markets (as Buffet’s followers seem to have).

But Johnson recognises that people will not choose Buffet’s solution, so he suggests that it is chosen for them (with the substitution of DGFs for the S&P500 and a new cliff-edge at 80 where real assets are swapped for gilts and investment returns swapped for a guaranteed annuity).

The Johnson solution is straight out of the insurance company handbook and is hopeless, but that is the charm of Johnson, he never lets detail get in the way of a good theory and a market solution is an easy short-cut.

How pensions are paid (is not like this)

A very great amount of money is paid out as pensions in the UK. Johnson has not yet made the leap to understanding what it is to be a pensioner, but in financial terms, it is the reliance on a regular stream of payments to meet outgoings. Evidence that Johnson isn’t quite there yet can be found in his paper. He argues that a percentage of the pension pot should be earmarked for drawdown each year and perhaps paid monthly from 55.

Although Johnson hopes that the auto-drawdown process would be moved back to 60 asap, he is still arguing for a tipping point at least 7 and currently 12 years below my SRA and I am 55. Were I to draw any income from my DC pot right now, I would reduce my money purchase annual allowance to well under half my current annual contribution to savings.

This may appear a trivial point in the overall scheme of things, but it reflects a failure on Johnson’s part to engage with the psychology of the thin. Once you start drawing on your retirement savings, you move from save to spend, and for most of us, that financial watershed needs to be at least a decade if not two decades later than our 55th birthday.

What’s more, when we start drawing on our savings, we want a replacement income to what we’ve received when at work- and we’re paid monthly or weekly. Annual withdrawals have no meaning to the average worker, the afterthought that these might be paid monthly is the thinking of a man who has been living from capital for some time.

Johnson is still struggling with collective pensions (but getting there)

One of the bizarre assertions in the body of the paper is the assumption that the individual guaranteed lifetime annuity is what people talk are describing when asked what they want from their DC pot.

Johnson quotes research from Aon and others which confirms that 70% of us when asked what we want at retirement say an “inflation-protected secure income till death”. But this does not describe an annuity, at least not one bought in the UK recently. Only a tiny proportion of annuities bought in the UK over the past 15 years have been inflation protected. What people are asking for is what they get from occupational defined benefit schemes and the state pension.

Johnson actually states that

“lifetime annuities , in particular, possess a unique advantage; as insurance against longevity, they have no competition”

this is of course bunkum, as every state or DB pensioner knows, Johnson doesn’t know what it is to be a pensioner, his thinking is solipsistic and born out of his auto didacticism.

Never the less, there are germs of understanding of how a collective solution to the problems of longevity, at least in the recognition that it might be cheaper to buy-out cohorts of 80 year olds using a bulk-annuity.

Johnson is getting there.

Nearly there Michael.

The auto-didact is the person who considers himself an expert through his own study. Johnson gets to his conclusions on his own, he will not be taught.

The joy of reading his papers is seeing him struggle to the bottom of the ladder and watching others willing him to step up and join them.

At the top of the ladder which Johnson is now climbing are eminent thinkers such as the 70% of the population who have already worked out what they want.

Now Johnson just has to join them!

Michael Johnson’s paper on auto-protection can be found here; http://www.cps.org.uk/files/reports/original/170322132755-Autoprotection.pdf

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Who’s kidding whom – on DC pension governance?

time bomb

I was “privileged” to spend a whole day with one of the many employer groups we have in Britain.  This meeting brought together Directors (especially FDs and Heads of HR) of  Research and Technology organisations. When I say privileged – I mean it!

This was a paternalistic group with a history of making high quality DB provision, and there had clearly been benchmarking of contribution rates so that most employees working for an RTO in the UK can expect a total DC contribution well above the national average. Partly this is the fall-out from  DB Schemes – where employers negotiated with staff a Defined Contribution Rate designed to be financially equivalent (to company cash flow) to what had gone before.

Good governance of the DC scheme was seen, by many in the room, as clearly a matter over which the employer should take an interest, contrasting the position with the amount of governance effort expended on the now closed DB Scheme.


Do employers have a fiduciary duty of care to staff?

The session looked at this big question from seven different angles.

  1. Does an employer have a duty of care to ensure the DC scheme is suitable for its staff?
  2. How much should an employer be contributing – what is the benchmark?
  3. What obligations are there on an employer to provide workplace pension governance?
  4. What feedback is the panel getting from members of their workplace pension
  5. Is auto-enrolment working? Are there snags?
  6. Does the panel feel confident their staff are getting value for money?
  7. What are Independent Governance Committees and are they any help?


One driver for wanting to do the right thing for the DC contributors was awkwardness engendered by there being “haves” and “have nots”.

time bomb 2

Another driver was peer pressure, there had clearly been benchmarking of contribution rates so that most employees working for an RTO in the UK can expect a total DC contribution in excess of 10%. (well above the national average). Part of this is the fall-out from DB – where employers negotiated with staff a Defined Contribution Rate designed to be financially equivalent (to company cash flow) to what had gone before.

Good governance of the DC scheme was seen, by many in the room, as one way of both assuaging guilt and managing the manifest inequality between those accruing DB benefits and those getting a DC scheme.

Concern about employer specific investment defaults

But when we turned to what could be done to make outcomes better, the room was split. The conventional view – derived from consultants- was that the employer could improve on the default designed by the pension provider. One employer had gone so far as to poll staff about their intentions when they retired (e.g. annuity v drawdown v cash). But, the results had been inconclusive. As the IGCs are finding out, ask people who don’t know , what they want to do, and you get no further.

Other employers admitted that while they had started out with employer specific defaults, these had not been reviewed since the introduction of pension freedoms and there was concern that these employers were driving staff down a road called annuity when the staff had other destinations in mind.

This is a problem picked up by both Standard Life and Prudential’s IGC reports this year (the two I’ve read so far this round). The cost of maintaining these defaults (principally in advisory fees) is not sustainable and these defaults are looking less and less fit for purpose. These bespoke defaults are becoming an embarrassment.

Employers are proud of their pension engagement programs.

Where employers were getting results was in the day to day feedback systems they were putting in place with staff. One employer said that the cost of running a social media program where the staff were able to talk about the workplace pension had been a good investment.  Clearly it could measure outcomes both in member satisfaction and in terms of usage of the workplace pension (enquiries and increased contributions).

But they struggle with their DC governance

But feedback cannot be properly called governance – at least not of the workplace pension. Infact, the feedback from the room was embarrassment

“what can we do?”

asked one finance director.

Value for money?

There was embarrassment when I asked whether employers felt they were getting value for money. These are scientists used to measuring things and I could see that a simple benchmark of the AMC was not considered all that Vfm is about.

The embarrassment was at many levels. Could employers get a good idea from their consultants? One doubted that a consultant – who owned the selection decision – could give an impartial answer. Another mentioned that they could not ask the consultants or the providers because they did not have the right questions.

But the biggest worry was that even if they had the right questions , they had no way of knowing they were getting the right answers.

What are IGCs?

The vast majority of the workplace savings schemes set up by employers were GPPs set up with insurers.  Amazingly, only a handful of the employers (and only half the panel) knew what an Independent Governance Committee was.

When I explained the function of an IGC, scales fell from eyes and their were looks of wild excitement (well that might be slightly overstating it) but the relief was palpable.

For these sizeable employers who do not have in-house pension expertise or a meaningful advisory budget for DC, IGCs are a godsend.

The IGC is (for them) a professional source of due diligence which is both cheaper (as in free!) and more effective than the work of the in-house pensions governance committee.

The FD’s immediately got it and since the meetings I have had a number of requests for links to the IGC Chair reports for their schemes (when they come available).

Access to IGC Chair reports

It is a shame that I have to send these links. The publicity that the IGC Chair Statements get from Insurers is simply not good enough.

I was with a member of the Prudential IGC last night and he told me that the statement is going to all their employers. This is not enough, many of the members of the Pru’s workplace pension are deferred and no longer work for the employer, the IGC statements should be going to all members of the workplace pension (regardless of whether they are currently contributing).

igc chair report 2

And if the IGC reports are going to employers, then the employers are clearly not noticing them!

Who’s kidding who?

Whether it be from the dilution of the advisory budget (which happens when things aren’t working).

Or because the commission to pay for governance has “run out”.

It seems that workplace pension advisors are largely absent from the workplace.

This group of employers said they felt that they didn’t have the right questions to ask providers, the right help to ask the right questions – from advisers  , and even if they did ask the right question, they felt they were powerless to change things.

The IGCs really want to help employers like these but they are not getting through to them.

One present asked their consultant whether  they should be paying attention to the IGC report and was told that there was no need (as they were already paying for due diligence ).

IGC chair report

Google image – result for IGC chair report!

We shouldn’t be kidding ourselves that DIY due diligence and ongoing governance can be effective. Unless done to a really high standard, it is unlikely to come close to the work that IGCs can do. If done to a really high standard, one has to question whether it can do more!

For large employers (with a minimum of say 10,000 staff) there really is an opportunity to put pressure on a provider.

But kidding smaller employers into thinking they can influence the behaviour of large master trusts or group personal pensions isn’t helping. These pension committees do a great job talking with members and making sure the scheme is working in their best interests

There are plenty of good things advisers can do to help such employers engage with their staff, I suggest that they focus on what is now called financial education.

Advisers – let  IGCs do their job – don’t second best them!

We have enough to do helping members, without trying to play God!

time bomb 3

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Cridland and the price of state dependency


John Cridland


John Cridland’s consultation report into the state pension age, commissioned by Ros Altmann and delivered today, does not say quite what the modernisers wanted it to.

Accelerated pension ages and the scrapping of the triple lock deliver a double whammy to all of us but especially to those under 45, who see their retirement age recede even faster than we expected.

Cridland is brutal, he has not drunk the Kool-aid. He speaks of a society with rapidly diminishing private pension expectations and an increasing distrust in the consequences of putting money by.

His report is not what we want to hear, but definitely what we should be hearing. It is a good report.

Limits to these freedoms

We are in the era of “flex” where we have power to vary our pay, our benefits and our retirement saving to meet our immediate needs.

The freedom to drawdown money from a capital reservoir is now an essential for the modern money saving expert (and advisor). “Time is an ocean, but it ends at the shore” likewise freedom’s circumscribed by the possible.

The possibility of freedom to draw our state pension as it suits crosses into the impossible. At least that’s the conclusion of John Cridland’s review into the state pension age beyond 2028. This comes as a blow to Ros Altmann, who wanted different life expectancies to be rewarded by variable access to state benefits.

The less liberal Liberal, Steve Webb is more pragmatic, announcing that

Having different pension ages for different groups or in different postcodes would create a nightmare of complexity and fresh injustices

It would also ride roughshod over the principles of social insurance that underpin the welfare state. We have winners and losers in state pensions, the winners are graduates who start work in their 20s and live into their 90s; the losers the blue collar workers who start work at 16 and die of exhaustion 50 years later.

State benefits are intrinsically unfair; they cannot be targeted to meet need nor properly reflect money-in, money-out. Even the State Earnings Related Pension could not win popular support. But the State Pension remains a loved institution for all that.

Despite the cock-up surrounding WASPI, the state pension has been integrated with the second state pension (SERPS re-named) without too much fuss. There are winners (the self-employed and the contracted-out) and there are losers, those with high S2P entitlements. But for the most part those viewing their triple-locked BR19 entitlements seem pretty satisfied.

We are drawing to the end of the great state pension deferral offer (effectively a 10% return on capital deferred) and those who’ve taken advantage can look forward to a lifetime reward. It’s all a far cry from the world of wealth management!

But for most people, the state pension is – for all its rigidity – the best pension they’ll ever had. Applying a conservative income multiplier of 30, It is currently worth around £260,000 – as Paul Lewis likes to point out, the price of an entry level Lamborghini.

Should the “flexinauts” tremble at reaching the outer membrane of freedom’s scope? I suspect not.

The Government has its own way of apportioning value to the vast constituency of those in later age. Demands on the public purse from long-term care, winter fuel subsidies, bus passes, TV licence rebate, age allowance and general strain on the NHS from decaying bodies, mark the elderly as a boundless opportunity for redistribution.

And of course, all these benefits are paid out of general taxation without a fund manager in sight.

It is salutary for financial advisors to remember that however subtle their strategies, their clients will continue to rely for the most part on the state for their later life welfare.

There is perhaps an alternative freedom available from the state. It is characterised by ease and distinct from our world of wealth management by needing no advice (other than perhaps Citizen’s Advice or the forums of moneysavingexpert.com). This is a freedom from the need to worry- at least about the availability and delivery of the entitled benefit.

Perhaps this explains the peculiar affection that we still have for the state as provider – it is utterly trustworthy. I once got into trouble from my then employer (an insurer) for writing that all private pensions aspire to the efficiency of SERPS.

I was right, which explained how little freedom I had to express my views thereafter!


cridland 3

Cridland also recommends:

  • A new system of carer’s leave, allowing older people with caring responsibilities to have time off work
  • A mid-life “MOT” to help people take decisions about work, health and retirement
  • Some vulnerable people in their 60s should have access to a means-tested benefit, along the lines of pension credit
  • There should be no “early access” to the state pension, despite this being raised as a possibility in the interim report
  • People could defer drawing their pension, taking higher benefits later

Put your feet up- why don’t you!

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FAB index up despite fall in gilt yields!


FAB- better lolly


In contrast to the PPF 7800 index and other commentators’ indices, First Actuarial’s Best estimate (FAB) Index improved in February to a surplus of £288bn across the 6,000 UK defined benefit schemes.

This was despite a sharp fall in gilt yields over the month and demonstrates the FAB Index’s resilience to movements in gilt yields.

First Actuarial Partner, Rob Hammond says:

“The FAB Index continues to buck the trend and contradict the doom and gloom headlines that others persistently promulgate. Over February 2017, asset performance was very strong, long-term inflation fell slightly and long-term expected investment returns were relatively stable, resulting in a much healthier state of the UK’s defined benefit pension schemes than we would otherwise be led to believe.

Hammond added:

“Only around 50% of the UK’s 6,000 defined benefit schemes’ assets are held in bonds, so a fall in gilt yields is not the be-all and end-all when it comes to assessing the financial health of these schemes.”

The technical bit…

Over the month to 28 February 2017, the FAB Index improved with the UK’s 6,000 defined benefit (DB) pension schemes increasing their surplus from £275bn to £288bn.

In contrast, the PPF 7800 index deficit increased over February from £196.5bn to £242.0bn.

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
28 February 2017 £1,511bn £1,223bn £288bn 124% -0.8% pa
31 January 2017 £1,467bn £1,192bn £275bn 123% -0.6% pa
31 December 2016 £1,476bn £1,206bn £270bn 122% -0.7% 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 reduced to inflation minus 0.8% pa. That is, a nominal rate of just 2.9% pa.

The assumptions underlying the FAB Index are shown below:

Assumptions Expected future inflation (RPI) Expected future inflation (CPI) Weighted-average investment return
28 February 2017 3.7% pa 2.7% pa 4.1% pa
31 January 2017 3.8% pa 2.8% pa 4.3% pa
31 December 2016 3.7% pa 2.7% pa 4.1% pa


Notes to editors

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 will be updated on a monthly basis, providing a comparator measure of the financial position of UK DB pension schemes.

fab index

Rob Hammond is available for interview. Please contact:

Rob Hammond on 0161 348 7440 or rob.hammond@firstactuarial.co.uk, or Jane Douglas on 0161 348 7463 or jane.douglas@firstactuarial.co.uk.


About First Actuarial

First Actuarial is a consultancy providing pension scheme administration, actuarial and consultancy services to a wide range of clients across the UK.

We advise a mixture of open and closed defined benefit schemes with our clients concentrated in the small to medium end of the pension scheme market. Our clients range across a number of sectors including manufacturing, financial services, not for profit organisations and those providing services previously in the public sector.

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The ABI goes FABI on claims!


The Blue Line’s what the ABI want to use for claims, the purple line’s what they’re threatened with.



Readers of this blog listening to the ABI’s Huw Evans on Wake up to Money, may have been spluttering into their tea and biscuits!

The ABI are faced with a cut in the discount rate used to calculate compensation claims on serious injuries (typically from vehicle accidents). The discount rate will move from it’s current 2.5% to (0.75%).

To use less tecchie terms, the expected return on the investment of a claim shifts from 2% over inflation to 0.7% less than inflation. With inflation at below 2%, the ABI would hardly be able to take any investment credit when calculating claims and claims payments are going to shoot up.

Sound familiar?

I’m not sure that Huw Evans had thought this through when he described a negative discount rate as “absurd“. I wonder if those of his members making good money from the ultra high premiums received from occupational pension schemes want him using language like that!

Evans demonstrated that demanding more for long-term injuries and bereavement compensation was not a victimless crime. The impact would be passed on to other policy-holders in increased premiums.

This is a good point – well made. It is the same point that the CBI have been making when arguing that pension schemes should not have to value assets against gilts for the damage it is doing to cash-flow, dividends and the capacity of employers to invest for the future.


But once again we have to ask whether the buy-out and TV payments his members are receiving because of super-low discount rates in pensions come at “no expense”.

Of course they don’t!

The cost of transfer payments impacts the ongoing funding rate employers are asked to make to our closed DB schemes. It can add to the demands to close open schemes to future accrual, it can create such cash-flow problems for an employer that it puts the security of other members existing benefits at risk.

Whether it be through higher insurance premiums, or lower pensions, there is a price that consumer pay for gilt-based valuations and funding plans.

A change of heart or special pleading?

I have every sympathy with this particular argument. His solution is to establish an approach that takes into account “everything that impacts the discount rate“. Since the (0.7%) rate is based on returns on index-linked bonds, then he has a good point.

Nobody is going to invest a sum of money into index linked-bonds at current prices. Evans is actually arguing to adopt FABI, the First Actuarial approach to valuing liabilities which uses everything that impacts the discount rate.

I will be sending Huw Evans the FABI charts to show him how consistent liability valuations are when measured on a best estimate basis and how much easier it would be for insurers to use a best-estimate basis in claim.fabi-chart

Put graphically, the ABI’s claim experience could move from positive territory to negative territory as easily as pension scheme valuations could move from surplus to deficit.

If he wants our support for moving to a FABI style approach to claims discount rates, I want his support for moving pension scheme valuations to a best-estimate basis for funding purposes!

Other wise , it’s just another case of ABI special pleading!

huw evans abi



Further reading and listening

This is what the fuss is about, a recent court ruling that went against the ABI ; https://www.abi.org.uk/News/News-releases/2016/12/ABI-legal-challenge-on-discount-rate

The ABI’s arguments are set out here

The discount rate is a tool that adjusts personal injury damages awards to take into account the return expected when a compensation lump sum is invested and to ensure that claimants are not under or over-compensated.

It has been set at 2.5% since 2001 and governs all compensation awards in England and Wales. In Europe, it is typically between 1% and 4%.

In the past the rate has been based largely on the gross redemption yields of Index-Linked Government Securities (ILGS).  The principle of full compensation, which the ABI entirely accepts, is that injured claimants should neither be under-compensated nor over-compensated. This is no longer served by the linkage to ILGS because the long-term investment behaviour of those compensated is, in practice, very different. The Lord Chancellor needs to conclude the process of finding the right way of achieving the full compensation principle.

ABI blog on the matter; http://blog.abi.org.uk/category/discount-rate/

The Podcast of the Wake up to Money show on which Huw Evans appears is here ; the discount rate discussion starts at 21.15  http://www.bbc.co.uk/programmes/b08j97bs

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FEAR+FRAUD. Does Geneva= Gibraltar? Are SIPPs the new QROPS?


This bog is about fear and how it can be used by the unscrupulous to frighten them into putting their retirement at risk. The unscrupulous fear-monger is the self-appointed UKPension Guru (Clive Skane-Davis) of Swiss Global Consulting; you can see his CV at https://www.linkedin.com/in/cliveskanedavis/.

Any resemblance to the other Pension Guru (Steve Bee) is entirely intentional, Skane-Davis’ tactics are to mimic and pervert honest endeavour for self-serving intent.

Plausibility assured.

The targets of this intent are expatriate Brits moving to Switzerland with pension rights in the UK. Here is the pitch

UK PensionGuru is for anyone living outside the UK that still has pensions in UK schemes, especially those with ‘frozen’ Final Salary pensions.

If you question this, you can find out more https://www.ukpensionguru.com/#questions

Pension funds in the UK are in major trouble as the promises made cannot be met and upheld. Out of 5,945 schemes 84% are in deficit and the average deficit is over 20%. That means that the scheme can only actually afford to pay you 80% of what it has promised. Unfortunately, in ‘buy-out’ terms (a straight forward assets verses liabilities calculation) funding of UK schemes is only 62% of liabilities!

Clicking the link gives us a “quote” from the PPF Chair Alan Rubebstein (sic)Slow speed car crash

Or should I say Alan Rubenstein, who made these two statements to the Daily Telegraph last year; http://www.telegraph.co.uk/pensions-retirement/news/my-company-pension-paid-70000—now-it-pays-just-17500/

A litany of half-truths

What follows is UK PensionGuru’s answers to the expat’s frequently asked questions, answers littered with half truths culminating in the triumphant unveiling of UK PensionGuru’s four UK Pension myths.

Myth 1. Final Salary/Defined Benefit pensions are guaranteed

“The only real guarantee with Final Salary Schemes is that they will go bust”

Myth 2. The Government PPF (Pension Protection Fund) will bail the scheme out if there is a problem

“There is no ‘Government Fund’, it doesn’t exist, and the worst part is that the PPF is itself in deficit. So now the Lifeboat is sinking as well”.

Myth 3. A QROPS is the best vehicle for everyone living abroad

“there are other cost effective options to consider”

Myth 4. My Final Salary/Defined Benefit pension MUST pay me the benefits I am due!

People are finding out the truth every day and suffering drastically reduced pensions when it is too late to correct matters

UK PensionGuru is making these outrageous statements from the comfort of his offices in Geneva. But the worrying thing is that he is  extending arguments being put forward by pension gurus in the UK.

If you promote (as tPR/PPF/JLT/PWC regularly do) funding deficits based on a buy-out or gilts plus discount rate, you give ammunition to UK PensionGuru. This crass perversion of this scare-mongering is  (in part) down to irresponsible reporting of deficits. Indeed UK PensionGuru delights in quoting such authorities as his source.

The reporting of the PPF7800 and other collective deficit numbers without proper context is feeding the fraudsters with the bad-news stories they delight in!

Careless talk costs pensions

The allegation that the lifeboat is itself sinking is ludicrous and unsupported. The Daily Telegraph article “My company pension paid £70,000 , now it pays £17,500” contains many quotes from Alan Rubenstein, which in the context of the article are fuel to UK PensionGuru’s fire.

I am surprised that the Telegraph continue to host the article as it is neither balanced nor helpful. Those few executives whose pensions are reduced when their schemes enter the PPF are to be balanced by the hundreds of thousands of pensioners being paid by the PPF with great security at or around the promise of their defined benefit. And weighed against the vast majority of UK pensioners, deferred pensioners and those actively accruing defined benefits who will be paid their benefits in full.

So what of the solution (s)?

Clearly QROPS is no longer a catch all. UK PensionsGuru has two weapons of pension destruction- QROPS and SIPPs. Many of his expatriates will no longer be able to access a QROPS so- as he rightly points out – they may need to get tot he QROPS through another route. The SIPP becomes an  escape tunnel from which the QROPS may be launched later.

This is a complication brought about by HMRC reducing the numbers of recognised QROPS and by the budget’s 25% exit tax on transfers to most QROPS from UK pension arrangements (you can get the details by contacting UK PensionGuru)

Myth 3 suggests that the expatriate financial adviser is already finding ways round the rules, though whether such loopholes will stand the test of time is doubtful. Beware tax-avoidance measures, tax evasion is never far away.

Is the SIPP, the new QROPS?

Thanks to Chris Lean fro bringing my attention to the drivers behind this check out this advert on QROPS adviser zone http://qropsadviserzone.com/?page=articles&id=13

Highlights are mine

QROPS have become a lifeline for many companies and they have provided many financial advisors with a substantial income stream by offering a much sought after service that clients actually want.

QROPS transfers are, however, labour intensive and can often take many months to complete.

There is an alternative product that can provide a solution for both the client and the adviser.

A UK SIPP will provide some of the features that a QROPS would have provided such as consolidation of pension schemes, flexibility of benefits and greater access to investment products.

The transfer into a SIPP is invariably processed via the UK ORIGO system and more often than not this reduces considerably the transfer time from the ceding scheme to the SIPP.

Our SIPP is available to non-UK advisers and can provide a similar commission based revenue model to that which advisers have been used to within QROPS.

As Christopher comments “what could possibly go wrong?”.

Pension freedoms await

If you want a flavour of the nirvana awaiting you if you get as far as liberating your UK pensions, take a look at this lnfographic which appears on UK PensionGuru’s website.

Swiss global 1

If it looks too good to be true – it almost certainly is.

And what of Swiss Global Consultants?

It is registered as an adviser by the Swiss Financial Markets Supervisory Authority.

The business is managed and owned by Jonathan Berrar, and  Paul Kavanagh and has 61 people associated with it on Linked In. Most appear to be expat Brits with little experience in UK regulated financial services

A quick search on SGC’s offices suggests that they are in a building advertised as http://swiss-luxury-apartments.ch/ .

The business was set up in 2016 and incorporates Swiss Global Trustees and Swiss Global Holdings. With only 20,000SF as nominal capital, make your own mind up.

Further reading











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Pensions Resurgent! The merit of the CWU’s proposals to the Royal Mail


For the third day I am returning to the CWU’s proposals to the Royal Mail which I now consider the most important break through in pension scheme design we have seen in Britain this century. I base this on three arguments

Argument one

This is a bottom-up proposal that arrives at the doorstep of one of our biggest employers (the Royal Mail employs 130,000 posties). It has been forged by a Union looking for a way out of a bind created by unfortunate (not malicious) decision-making by employer and trustee. It is delivered at a time of deadlock in negotiations over the future pension promise which could lead to industrial strife. The provenance of this proposal is unimpeachable.

Argument two

This proposal is made without need for any concession from Government to make the Royal Mail a special case. It does not rely on the establishment of some new pensions vehicle, an over-ride of existing scheme rules or the application of half-completed regulations. It makes sensible use of existing pension scheme rules and does not rely on special pleading.

Argument three

It returns pension funds to being a source of economic capital for an economy in need of growth. That the proposed SIP focusses on the growth of assets rather than the de-risking of liabilities is a strong statement from its authors of pensions resurgent. This proposal is the first (I hope of many) solutions to the problems of our occupational pension schemes that regards pensions as a source of national benefit, not of liability.

The Purpose of Pensions

I don’t know why he linked in , but link-in Eddy Truell did to me yesterday. I see he is Chairman of an organisation called Disruptive Capital.

I picked up his invitation while listening to a lecture from David Pitt-Watson  Pension Corporation on the Purpose of Finance. While Eddy is no longer involved in PIC (other than a small shareholder) it seemed a happy coincidence.  I hope this is a sign that the steady decline of what we call “private pensions” may be disrupted!

Whether you like him or not, Eddy Truell has been a disruptor in pensions for some time now. I hope that the partnership between Pitt-Watson and PIC indicates a consensus for the need for things to change. Truell and Pitt-Watson are unlikely partners but it is from such collision of opposites that productive reactions can spring forth!

For the CWU’s proposals to work, we need a sensible conversation between those who own the capital (Truell & Co) and those who organise the labour (CWU). And we need a lot of good common sense!

Pitt-Watson’s lecture included a booklet with a handy checklist of characteristics of “purposeful pensions”. The list’s in green, my thoughts on the CWU’s proposals in bold.

  1. It will have an effective return seeking saving system into which the saver can put their money; the CWU plan to invest contributions for the best interests of the members of the scheme.
  2. It will pool longevity risk effectively; the CWU’s proposals treat the current and future workforce of the Royal Mail as a self-insuring pool.
  3. It effectively moves capital through the economy investing in assets which give a real return long term. The proposal is for 100% of invested monies to be in equities,
  4. It has clear and appropriate actuarial information; unlike the with-profits approach of the past, the CWU proposals come with a proper actuarial plan based on prudent assumptions clearly set-out procedures for dealing with bad times and good
  5. It is and is felt to be-trustworthy; the proposal is from an employee representative, it is not dependent on any financial institution’s participation, it is from the people for the people.
  6. It is able to offer a degree of flexibility in the promise it makes and is able to accept a degree of flexibility in its investment returns to allow (benefits) to be higher. The benefits proposal is designed to flex non-core returns based on the investment conditions while guaranteeing a core of returns which form the basic pension.
  7. It has low costs and is likely to be exploring scale economies; this is achieved through the plan being available to all employees, whether currently accruing a defined benefit or receiving a Defined Contribution.
  8. It is adequately capitalised and/or flexible in its promises; the proposals do not require seed capital but depend on an ongoing commitment from employer and from the membership to fund the scheme at equivalent levels to the current DB funding (c 22% pa)
  9. It operates within an effective and appropriate regulatory regime; as already said, the CWU proposals do not require any testing or change to current occupational scheme regulations- the proposals play by the rules.
  10. It has fairly aligned the interests of members with those of shareholders and other stakeholders; the consensual approach adopted to putting forward these proposals gives hope that they will be adopted by the employer’s management and shareholders. The proposal is an alternative to the deep-rooted concerns among the Royal Mail workforce to the DC proposals put forward by the employer and the use of the existing DB arrangement (for future accrual).


At last night’s lecture, several of the questions from the floor were about leadership. I suspect that the leadership needed to solve the pensions crisis will come from without rather than within (despite Tracy Blackwell’s assertion to the contrary).

The CWU are showing leadership. They have determined to be very public in their approach and I am pleased to help give their proposals some oxygen. The FT has set the ball rolling and the pensions media is showing interest.

The idea of running a low-guarantee defined benefit scheme at a defined contribution is not a new one. But finding a way to execute such a scheme is new.

I commend the CWU for its leadership, my firm are pleased to have given the CWU help with the numbers and some of the technical pensions advice needed to ensure these proposals are legally robust.

I hope that as we progress the debate, we can look at these ideas in more detail. For the CWU’s proposals to the Royal Mail, if they are adopted , could be the basis of pensions resurgence.royalmail



You can find David Pitt-Watson’s and Hari Mann’s “The Purpose of Finance” report (sponsored by the Pension Insurance Corporation here


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A with-profits pension for the posties.

Royal Mail 4

One of the most encouraging stories I have read in a time appears in the FT this morning.

The Communication Workers Union, who act for many of the Royal Mail Staff, currently facing a switch from a final salary DB pension to a defined contribution scheme, have come up with a compromise solution.

Jo Cumbo writes

 Instead of offering a long-term guarantee on the level of retirement income, the CWU’s plan envisages an annual assessment of investment performance to decide whether a “core promise” is increased in line with inflation.

Those of us with long-memories will remember that this is how with-profits pensions used to work. The insurance company (rather than the trustees) offered a core benefit which was locked in. The annual assessment of investment returns and the calculation of what bonus could be awarded was the job of an actuary.

The idea was simple enough, the actuary would exercise prudence in good years, so that there was money to fall back on in bad years. Sadly some actuaries got carried away and over-distributed – but that was because of commercial pressures from the marketing department. With-profits worked because policyholders participated in a much larger pool of money managed by the insurer, got economy of scale and got the benefits of a long-term investment strategy that invested in real assets (shares, property and the like).

The CWU idea seems equally simple. It would bring together the 40,000 members of staff who are currently in a DC scheme with the 90,000 in a DB arrangement and offer a single deal for all.

The key issue is with investment. Currently the Royal Mail’s DB scheme is 90% invested in bonds, it is hard to see how such a strategy could produce any kind of acceptable bonus beyond the core benefit plus whatever could be purchased at current annuity rates. Bonds are simply not the right investment if you are trying to accrue benefits for the longer-term.

So John Ralfe would be right if he was talking of a conventional DB arrangement (again a debt is due to the FT)

However, John Ralfe, an independent pensions expert, was sceptical about the plan: “The company would require all of the money to be invested in matching bonds, so there would be no risk of a deficit, but at the same time no potential inflation reward for members.”

But John has missed the key phrase in the CWU’s proposals – “risk-sharing”. For as with a with-profits approach, the fact that the inflation reward is not guaranteed from year to year means that the fund does not have to be invested in matching bonds but can invest in real assets.

This may not appeal to John’s pure asceticism, but it is precisely the kind of pragmatism that appeals to ordinary people. Faced with a choice of taking all the risk or sharing some of the risk with a large employer and its large pension fund, I bet the vast majority would prefer to risk-share.

I am not sure of the details of the arrangement, but this looks to me like the first positive attempt by a union to find a third-way solution between the extremes of DB and DC. I very much hope that the core-benefit includes all rights to date and that the proposals offer a decent degree of certainty going forward.

I await with a great deal of interest the results of the negotiations. If sponsor, trustees and members can move forward on this basis, I will be delighted. in principal the deal appears innovative , exciting and replicable. Dare I say it- it looks like the basis of future settlements elsewhere.

Jo Cumbo’s article can be read in full here ; https://www.ft.com/content/465fcda4-05bd-11e7-aa5b-6bb07f5c8e12?desktop=true&segmentId=d8d3e364-5197-20eb-17cf-2437841d178a&hash=myft:notification:instant-email:content:headline:html

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Maybe Hammond did us all a favour with his QROPS tax


It wasn’t just the 4m self-employed who faced a tax-hike following the April budget. Expats resident outside Europe now face an uphill struggle to receive their retirement income tax-free via a QROPS.

I follow these offshore pension stories with the peculiar prurience I read Health and Effeciency as an 11 year old, I’m just waiting for the naughty bits to pop-out,

With QROPS, you don’t have to wait long. The offshore British dependencies are populated by online betting companies and financial  alchemists capable of turning Gold into Base Metal through the transformative UCIS structure.

Sadly, the prospect of an Exempt-Exempt-Exempt pension taxation structure blinds mature adults to the eventual destination of their money. I met an Egyptian once who tried to convince me to buy a melon farm near Aswam, when I discovered it was 90 metres under the Aswam dam, he countered I’d be harvesting water melons.

If you want to read this financial pornography, go to Angie Brooks brilliant http://www.pension-life.com. Angie is in deadly earnest as she protects people from the double whammy of losing their savings and paying tax on their losses.

Hammonds QROPS tax, which means the allure of the QROPS transfer is tarnished by a 25% tax-hit before it leaves the UK, is a blow to the alchemists and a will hopefully be a wake-up call to a few lucky ex-pats whose money has yet to be shipped out to a Cape Verde parking lot.

It may also be a reminder to Brits thinking of retiring abroad that (financially at least) the tax-breaks earned in the UK need to be re-paid in Britain. For the QROPS EEE is not a victimless tax-avoidance scheme – it is precisely the kind of tax-fiddle that got 52% of Brits sufficiently wound up to vote BREXIT. Remember the first and strongest supporter of Remain to be announced that night – Gibralter!

I am sick and tired of the high-cost low value tax-scams which flop into my inbox on a regular basis. They largely replace taxation with an unofficial franking of investments by the QROP conmen (Stephen Ward and pals).

Where QROPS are legitimate, they tend to be organised through employers as an alternative to local workplace savings plans. Employers either exercise fiscal control and investment due diligence or they face the wrath of the employee and the taxman. You need a trusted intermediary and employers tend to be just that.

If you are in any doubt about the direction of travel for UK-expats , look at the American system operated by the IRS. The link with the American tax-authorities is permanent and uncompromising. BREXIT drives the train down those tracks.

I’m not shedding any tears over this tax-hike. Good old spreadsheet Phil has got it right with his 25% tax-shocker. Let’s hope there’s more in the locker next autumn


Thanks to Helen Burgraf for this fine cartoon from 2013


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Who’s department is workplace pensions?

workplace pensions

At 11am on Tuesday 18th April I shook hands with Richard Harrington, our Pensions Minister and began a meeting that discussed how small businesses could in future measure how effectively their workplace pensions were working.

The meeting was interrupted by the Minister’s phone vibrating with calls from colleagues. To his credit the Minister put pensions before politics and went on to meet John Cridland, to discuss his work on the state pension age.

We now know that the planned announcement from the DWP on Cridland’ s work will be delayed to the next parliament, that the Finance Bill has been mutilated to get assent before parliament dissolves but the Pensions Bill has received Royal Assent and is enacted.

Whether the Pensions Minister is still the Pensions Minister after June 8th depends on his being returned by his Watford Constituency and his not taking the job at Biz he is widely rumoured to have been offered.

Harrington became the first parliamentary under-secretary for pensions in July last year, previously the role carried a senior ministership. The demotion of the role was no slur on Harrington but a reflection of the reduced influence the DWP has in pension policy. It is likely that Ros Altmann will have been the last full Minister with the pensions brief and Steve Webb the last MP to hold the senior role.

It is a useful reminder to those who work on the auto-enrolment project that the critical decisions on pension taxation, the indexation of the state pension and the schedule for phasing auto-enrolment contributions are subject to Treasury approval.

Increasingly, the business of pensions regulation and governance is transferring from Brighton (the Pensions Regulator) to Canary Wharf (the Financial Conduct Authority).

My discussion with Harrington focussed on FCA initiatives (independent governance via IGCS and the Pensions Dashboards). The FCA has also assumed control of the costs and charges initiative which is crucial to the value for money scoring which it’s intended employers and members can use to benchmark their workplace pension.

Increasingly, the Pensions Regulator role is limited to managing compliance of auto-enrolment and protecting the pension protection fund from failing defined benefit schemes.

Harrington asked me if I was in favour of merging tPR and FCA, I replied that the FCA would not merge but acquire- despite disapproving looks from civil servants in the room, the Minister smiled knowingly.

So what can we learn from the past few weeks of political upheaval. Well I’m learning not to expect longevity of tenure among ministers, Webb, Altmann and Harrington may well be joined by a fourth evangelist in three years!

I’m also learning that for solutions to our issues on workplace pensions, we should be spending more time with the Treasury and its regulator, the FCA.

Though the DWP has currently a number of open consultations (including its triennial review of auto-enrolment), the critical decisions for employers and their payrolls will be taken by the Holy Trinity of the Treasury- HMRC and the FCA.

This is the first edition of Reward Strategy with its new focus on workplace pensions. I’m pleased to see the magazine develop this way as pensions are deferred pay and integral not just to payroll but to strategic reward.

This edition will be the last published under the current Government and you’ll be reading as the election campaign climaxes.

How and when we are “rewarded for our work” is proving a critical issue in this election. The result will have implications not just for the employed and the pensioner but for those working in the gig-economy and the professionally self-employed.

But while we talk of workplace pensions in the same breath as defined benefit schemes and the state pension, they are increasingly seen within Government as feeder arrangements to the retirement freedoms granted by the Treasury in the 2015 Finance Act. Workplace pensions are only pensions in name and in the tax treatment on contributions and investment gains.

Extreme libertarians argue that we might as easily auto-enrol into workplace ISAs and break any formal link with pensions.

Meanwhile, a fierce battle is being fought between the Communication Workers Union and the Royal Mail. The CWU argue that their members are promised a pension, the Royal Mail want to provide a cash sum.

This ongoing argument about how we get paid in retirement is one that those of us employed in payroll should be a part of. For me the reward from work is pay, part of which is deferred into a pension. The link between work and pensions is primary.

While I can see an argument for workplace pensions being regulated by the FCA, I fear the loss of influence from the DWP on pensions policy. Defined benefits pensions – as distinct from pension freedoms, are deferred pay; workplace pensions are – like the DWP – suffering an identity crisis.

We need to be clearer what we mean by workplace pensions, who has the governmental remit for them and where accountability for outcomes properly lies. Let’s hope that whoever sits in Richard Harrington’s current office, after June 8th, can sort this out!

workplace pensions 2


This blog was first published in payroll world


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The forbidden fruit – choice can be a mixed blessing.

forbidden fruit

I am concerned about the destination of the pensions of thousands of British workers build up over decades.

In a recent blog tried to point out that accepted wisdom that the PPF is a bad destination may not always been the case. In another blog I made a case against glib advice to transfer to investment driven financial products driven by fear (consumer) and greed (adviser).

In this third blog I want to look at ways that ordinary people can make informed choices about their retirement finances without incurring unnecessary advisory fees. This is not my way of saying that advisory fees are unnecessary – I’m saying they should only be incurred when there is a need to incur them. I appreciate this is not what many advisers want to hear, many argue that we need to take advice about whether we need advice, but this leads to the kind of infinite regression that points to madness.

As Jon Spain told us recently, occupational pension schemes were not invented so that we could have a pensions industry; similarly transfer values weren’t introduced to give financial advisers something to do. Property rights, in the form of a cash equivalent to a defined benefit (CETV) are a relatively new invention. They only exist for certain types of scheme, you cannot get a CETV on your state pension or on most Government sponsored d defined benefit rights. They offer a freedom which was broad when CETVs were introduced in 1987 and got broader with the Pension Freedoms that arrived in 2015.

There is however a snag with CETVs – they offer low hanging fruit as in the garden of Eden, that fruit comes with responsibility. Fans of Adam and Eve are humanists who argue that life outside the garden was full of freedom and choice and that Eden was a dull place where no one even noticed they were naked.

The trouble for Adam and Eve came down the line with all kinds of shenanigans between Cain and Able and we all know the rest. Eden, like pension transfers, had a door that only opened one way.

The analogy does not stretch – and I won’t cast the serpent!

Of course “freedom and choice” was not necessary in the garden of Eden and I’ve always wondered about the point of snakes.

I wonder too whether we need property T on private defined benefit pensions. They attract flies like decaying meat.

But ordinary people like the right to take their money back , even if they don’t use it. We see people marvel at the range of investment choices available to them in a DC plan- without ever using them. And we see people entering into drawdown – without ever spending their money. We are delighted by the prospect of choice but frightened to exercise it.

The best thing that advisers can do for most people is to explain to them what their choices are without implying that staying where they are is anything but an acceptable option.

People like to know that they can ask what they like and get an answer, without asking the question.

Most of all people want to know that what they have will do, even if there are alternatives.

Right now we are disturbing people from the security of their prospective pension and offering them nothing but a speculative investment.

This is like the apple from the forbidden tree, it looks great – offers freedom – but ultimately leads to problems.

A good  job would be to point out that mankind has been here before.

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Few choices , crap decisions

choices peoples

The delights of pension freedom!



The People’s Pension and State Street are running a research project on the decisions people are taking with their “pension” pots. The study can be read by following the link at the bottom. It’s interesting as the 80 people followed over time are what the FCA call “vulnerable” , they aren’t financial experts, don’t have advisers and don’t have a history of independent financial decision making (SIPPs , buy to let etc.  These people are on their own and it shows

The conclusion reached is that

“Engagement remains a key challenge. Given this, it is unlikely that ‘retail’ solutions alone are going to be appropriate. Instead, institutional options, most notably simple and effective default options…”

This is confirmed by this excellent report and it’s vox pops.

People purchase annuities out of fright

cash in their chipschoices 4

Choices 8best lack all convictionchoices 5

choices 6while the worst…

choices 10


Decisions bring surprises- even within the early time scales  of this longitudinal survey.


choices 11

It really doesn’t matter whether people are advised or unadvised, they seem equally hapless!

Though a few are asking questions

choices 12


The report is a gem, we will look back at it- and other in the series – and cherish people’s early optimism and sang-froid.

Whether such optimism will be there in ten let alone thirty years is another matter!




You can read this excellent work in full by following this link – I urge you do!


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Mrs May – where’s your sense of humour?

may fun 4

The most telling criticism of the U-turn over the dementia tax is that the Prime Minister has been robotic. She was robotic in Wales  squawking “nothing has changed” like a Dalek and she was robotic with Andrew Neil. It is not attractive as it does not show her or her party’s humanity. It is off-putting and the electorate hate it.

She had no need to move to robot-mode. What has happened is that she has messed up. She has moved too fast for her party and now she is going to have to eat some humble pie and accept she cannot make up policy in #10 for general distribution.

I too was wrong, I thought she could – but she couldn’t. John Godwin is a good judge – he was right.

Now May will have to look a little embarrassed and accept that she has to walk backwards and open other doors. She will have a green paper, a debate and maybe she will end up where she wanted to be. Maybe she won’t.

She doesn’t like it that she has been proved beatable, but she will be beaten many times in the battle for Brexit. Being beaten in a battle is not to lose the war.

I am for the original policy on care, provided that the details can be worked out. I have argued why in blogs over the past five days and won’t bore you again with my views.

I am glad that the elephant is out of the room. It may bounce about a bit and knock Theresa May over and it is certainly doing a few Blue Peter poos on the way, but it should still be a useful elephant that will get us to a sustainable policy that Britain can afford.

“In 10 years – there’ll be 2 million more of us over 75”

We cannot escape this truth. We are not planning for it, either through Treasury policy or with our personal finances.

We cannot escape the simple truth that we spend too much on today and too little on tomorrow.

The need to invest for our future includes investment for our physical decline. Unpalatable as it is to consider our own vulnerability, there is a need to plan for it.

The funny side of growing old

A sense of humanity, displayed as a sense of humour – is missing! We can deal with matters of life and death but not it seems of cogitative decline. The matters that accompany old-age are the loss of short-term memory, of judgement and the physical lapses into incontinence and incapacity.

We shun the thought of them as if they are not part of our humanity. But dementia comes to one in six of us and almost all of us will live long enough to experience the impact of long-term decline.

May has been brave to put these issues at the centre of our campaign and she would be foolish not to keep them there. She now needs to show the nation some real leadership and demand that we shape up and think about old-age properly.

We are all gerontologists now!

You don’t have to be from the left or the right to have a view on old age. Until recently I thought of Debora Price (a left-wing gerontologist) and Theresa May (a right wing prime minister) as at either ends of the scale. But no more.

In getting us to focus on old age – even through the lens of a “dementia tax” , the Prime Minister has further the aims of gerontology (the study of old age).

Now we must challenge why May was not right in the first place and why Dilnot might have been right after all. My friend Con says we should abolish tax-free cash from pensions and put the tax relief saved by the Treasury in a social care fund! There are worse ideas. The debate has started -bring it on.

In the meantime, Theresa May should put a smile back on her face, accept she has made a bad move and now move on. There is a lot of governing to do in Government. If she continues to act like a robotic despot, she will open the door for Jeremy Corbyn and she will only have herself to blame if she does!

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#terrorism has no race/religion.

When the IRA bombed people didn’t blame the Irish, yet are so quick to condemn Muslims/Islam, has no race/religion.  Jo Bishop (twitter)


These are our children



There is no lesson to be learned from senseless violence, much as we might want to moralise it.

The acute agony of the voices I listened to on the radio throughout the night focussed on the pain they suffered, the imagined pain suffered by children and parents looking for each other. The bereavement will follow for some, for the rest a dull sense of the futility of it all.

There can be no doubt that what happened last night in Manchester was fashioned out of an abstract hatred – not targeted against someone (as the assassination of Jo Cox). Since the killing was random, we want to contain it by rationalising it. But as the lady who wrote the tweet states, terrorism has no race/religion. It is simply the manifestation of hate.

God is not in this – God is love

I worship at the temple of love for GOD IS LOVE. Whether we call God Allah or Buddah or Jehovah or Jesus, we worship at the temple of love. There is no love in this act.

Nor is there politics in this

This act of violence , principally against young women will be interpreted to shape political behaviour – it should not. If people enter the polling booth with Manchester in mind, they will have been influenced by hate and hate will be in their voting.

There is only one way to counter terrorism, and that is with the true religion of love.

This is not a soft messy liberalism, it is a hard and noble rejection of what inspired the actions of the person or people behind this attack. Revenge is easy but it has no place in this, for we can only defeat hatred with love.

The politicians must reject both the violence and revenge. Society does not need this to be moralised in any way. The act is so immoral it is off the scale. Attempts to moralise give it a false credence.

Nor is there a place for blame

We cannot stop this behaviour happening, we can only reduce its incidence and soften its impact.

We cannot blame any group as perpetrators, nor blame our enforcement agencies nor blame our laws.

Instead we must get on with our lives and strive to make our country more tolerant, more inclusive and a land that makes this kind of hatred a stranger to it.

For if we ever consider what happened last night, part of British culture, we are surely lost.


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Falling out of love with the market.

market economy


The most startling thing about the conservative manifesto is that it advocates Government intervention as a way of improving those just about managing in Britain. This is a very different approach to that of previous Governments that relied on competition within markets. From labour markets, through energy, telecoms and pharma to financial services, the message is the same, strong regulation and price controls are in – free market economics are out.

Operating as we do , in financial services, me and my cronies have got used to timid regulators backing off in the face of concerted lobbies – provided the lobbies are top down (Investment Association, PLSA, ABI) and not bottom up – (WASPI, TTF). The unions have an uneasy place in this – having a foot in both camps , while there is nothing in the manifesto that attacks unions, there is no attempt to strengthen them.

What May seems to be appealing to are the new voices of the consumer that we hear on social media and increasingly pester parliament through on-line petitions , Facebook campaigns and viral videos. The consumer no longer needs Which to argue that fixed-line telephones are too expensive, Ofcom is now reactive to the direct users of digital media.

Financial services are slightly different, we still don’t get the way our financial services are priced, proof positive being a recent NMG survey commissioned by IGCs which found people wanted good financial outcomes from workplace pensions but weren’t bothered what they paid for them. We may be increasingly tech savvy but we are not so savvy with our money.

Much as the fund management industry may delight in the ignorance of most people about what they are paying and how, both the FCA and the Pensions Regulator, are showing signs of empowerment. They are no longer being faced down by the financial lobbyists (a friend who works in the IA reported to me that what he proposes , the FCA opposes and his best tactic is now to agree with the FCA -which puts doubt in their minds).

The Asset Management Market Study and much in the various costs and charges reviews shows no respect whatsoever for the views of asset managers and investment consultants. The DWP’s Green Paper openly opposes the PLSA’s proposals to aggregate the liabilities of small defined benefit schemes. It is not just the tone of the Conservative Manifesto , but the tone of Government that is changing.

Which is why I am more comfortable that change will come. I have been talking in the past couple of weeks with Independent Governance Committees of insurance companies and with Trustees of Master Trusts and those who want to speak to me are showing a perestroika that I hadn’t expected. They acknowledge that the Non Disclosure Agreements that stand between the consumer and an understanding of what he is buying must go. They want to see league tables showing relative performance on what we pay and what we get. They even recognise that they do not represent the organisations that set them up but their policyholders and members.

But there are master trusts and IGCs I am not talking with, not because I don’t want to speak with them, but because they don’t want to speak with me. They are quite explicit about it, they don’t share my views. “Don’t convince me with your facts, my mind’s made up”.

The reluctance of these hard-liners to listen to new ideas and voices is hard to square with the prevailing winds of change both within politics and regulation. But it is increasingly looking the attitude of a world that is being by-passed.

Nobody wants financial services companies to fail, no-one wants to undermine their profitability so that they fail to deliver on their long-term promises, but people like me want to redress the asymmetry of information so that those on the buy-side can argue with those on the sell-side as informed and engaged consumers.

We are falling out of love with markets that are failing and putting pressure on regulators to do more to help us. We are going to the FCA on 31st May with the views of those who use Pension PlayPen and the views of the IGCS and Trustees I am speaking with, they are aligned.

You can read the Conservative Manifesto here ; https://www.conservatives.com/manifesto

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