No blubbing over the future of RPI please.

“I love the way they are doing this – it is not a move from RPI to CPIH, but recalculating RPI as if it were CPIH – and unless the Bank of England says that is a material change, eliminates any possibility of claiming this as a default. Still wannabuy those ‘risk-free’ gilts, as per TPR’s proposed Code??” – Con Keating

The Treasury’s announcement that RPI would morph to CPIH while still calling itself RPI was announced simultaneously with the Government spending review, prompting participants to criticize it as a £60bn raid on pension schemes. It is infact a £60bn raid on pensioners who will get lower pension increases but it is not increasing the liabilities of pension funds which promise RPI linking for pension increases. These schemes will still pay RPI but at a reduced rate. LCP’s  Jonathan Camfield, wirting in The Actuary Magazine summed up the efforts of pension schemes to float their deficits with gloomy black balloons

The angry brigade

All this makes comments from the purveyors of index linked gilts wrapped in LDI packaging very cross. This is about as cross as an LDI salesman can get (with a media policy guiding him)
The change from RPI to CPIH wipes £100bn off the value of these bonds, according to Insight Investment, a major pension investor. Jos Vermeulen, of Insight Investment, told the FT the firm was “disappointed” with Wednesday’s decision.

“This decision has been made despite substantial concerns being raised during the 2020 consultation, from a broad range of market participants,” he said. “Another chapter in the RPI saga has drawn to a close, but with 10 years until the decision is implemented, we struggle to believe that this is the final chapter, and we will continue to advocate for an equitable solution.”

The broad range of market participants are presumably Insight’s customers who had been sold long-dated RPI gilts as risk free assets. Often they had been buying RPI but promising CPI, a lower returning index than CPIH, banking the difference between what they held and what they had to pay as an asset mitigating deficits elsewhere.

What the Chancellor has done is unwind this artificial asset by narrowing the gap between RPI and CPI. In these cases it is the scheme funding that will suffer, but only because the scheme had got away with CPI indexation in the first place.

More generous schemes, that offered RPI, will see their liabilities decrease in line with the value of their assets, the losers in this case will be pensioners whose pension increases will be less generous from 2030 (but still more generous than if they had CPI).

So why is the pension industry blubbing?

Undoubtedly there is some skin in the game for those at the top of the pensions tree. Those senior pension figures with RPI linked pension promises in payment or soon to be in payment will lose out personally, unless they can find a way to get scheme rules to pay out on “old RPI”. I doubt that even the most brilliant lawyers will be able to argue that the Treasury are in default – as Con Keating points out – they aren’t changing the playing field, they are changing the rules of the game and they make the rules.

The pension industry is blubbing because they trusted the Treasury to be on their side and defend them as they have poured money into Treasury coffers over the past twenty years in the frenzy to de-risk pension schemes. Much of this has been smoke and mirrors stuff playing off corporate accounting policies and trustee funding statements using financial economics rather than common sense.

This has led to artificial funding gains resulting from “gearing” (borrowing to you and me) by buying derivatives of these RPI linked gilts at great expense to the pension funds who have to foot huge bills from the packagers of this “financial engineering”.

But while all this was being sold as “risk free” – it wasn’t. The risk was always there that the Government could change the rules of the game and these tears are the tears of crocodiles.

Those at the top of the tree are a lot more concerned that their reputations are now on the line and that a lot of these risk-free strategies now look a lot less attractive than they did at the beginning of last week.

Jonathan Camfield explains to other actuaries that much of their strategic planning over the past decade has been for nothing will need to be reversed

  • Does it still make sense to hold index-linked gilts and swaps to hedge CPI pension increases?

  • Changes in assumptions will lead to changes in member option terms, such as transfer values, pension increase exchange terms and commutation factors for converting pension to cash at retirement.

  • RPI changes could trigger further reviews of the appropriate index to use for pension increases under some scheme rules.

  • The knock-on impact on bulk annuity pricing may make insurance contracts more or less attractive to some schemes.

  • Trustees will need to think about appropriate communications to members in due course.

In short, the strategies were based on tactical plays which will now need to be reversed leading to extra costs to the scheme and little net gain to anyone but the advisers and fund managers

A more balanced view

I prefer the views of the eminently balanced Daniela Silcock, speaking for the Pension Policy Institute

“Some people are losing out but the economy overall should benefit if this is done correctly,”  Silcock told Pensions Expert.

The supposed threat to employers (following the proposals in the DB funding code)

The PLSA, who are now funded as much by the fund management industry as their pension schemes told the FT

“We are disappointed the government has chosen to disregard the detrimental impact this move will have on both savers’ retirement incomes. The change will also raise the risk of insolvency for employers as they seek to address the shortfall in funding of their workplace pension schemes.”

Those employers who have been following the advice of their consultants to de-risk with a view to buy out or self-sufficiency, have handed trustees billions to plug deficits calculated on discount rates determined by those advisers. This has been with the approval of the Pensions Regulator which is now proposing an acceleration of these “end-game” strategies to ensure that schemes do not tip into the PPF.

But the cost of these strategies is just what is pushing many such employers into the PPF, as – strong as the pension schemes appear to be, the cash flow drained from employers is leaving them unable to pay the operational bills. The PLSA cannot support the wholesale de-risking of pensions on the one hand , but complain that the adjustment to RPI is damaging employers – on the other. The wholesale rush to “risk-free” assets (gilts) over the past 20 years is the problem – and the risk that some of those gilts were over-valued has always been there.

So where does this leave the Pensions Regulator?

I can hardly imagine the Treasury’s decision went down well in Napier House, Brighton – home of the Pensions Regulator.

The extra costs associated with the decision are going to fall on the schemes that have been following the path advised in the funding code, those schemes that have not locked down into gilts are not the ones that will have to write off their RPI/CPI reserves.

The market new this was coming, the price of RPI linkers actually went up as a result of the announcement (the market had feared that the change would have come in from 2025 rather than 2030). If the gilts market knew, why is this coming as a shock to schemes and why has the Pensions Regulator been proposing schemes buy more of these over-priced gilts – when the risks were clearly understood?

To me, this suggests a fundamental rethink in what pension scheme investment strategies should be about. If pension schemes were set up to pay pensions, they should be investing in the long-term assets that make this country tick – businesses like Astra Zeneca that can do virus-beating things because of the backing of UK pension funds purchasing their equity. Rishi Sunak wants to get the money from the private sector going into  his £100bn reflation of industry.  That money is going to go into illiquid investment, not into funding more Government borrowing.

All this investment is at odds with de-risking and at odds with the DB funding code. to get Britain back on its feet , after the COVID punch to its solar-plexus, we will need to move towards a more ambitious approach to pension scheme funding and that means abandoning the mantra of “de-risking” and getting our DB pension schemes investing again. The Treasury’s message regarding the new calculation of RPI says just that.

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Lessons to learn from Dolphin Trust


18 months after its first program, Radio Four’s You and Yours program has produced a second program on Dolphin Trust (aka the German Property Group). You can listen to the second program here

As I’d followed up on the first report, I got asked to speak this time around. Sadly, the timings got mixed up so I’d only just started my carefully timed Spiegel when the program ended and I found myself talking on Facetime with no one listening!

I’d done the research and answered the program’s exam question “what lessons can we learn” from the debacle. The answer, in a simple phrase, is that if it looks too good to be true , it almost certainly is”. Dolphin looked and was too good to be true

Too plausible

Vorsprung durch technik and all that, Dolphin was a group of  German property company that had an all too perfect pitch, German companies don’t go wrong and this was based on the Grand Designs model – turning fabulous run down East German properties into desirable residences for the newly minted East German middle class.

Too much easy money

As if German property wasn’t exciting enough, the sauce was spiced with a healthy dose of German tax-payer’s money, lined up for anyone who wanted a “no-brainer” investment.

Too easy all round

Dolphin Trust was formed to provide two and five year bonds, with guaranteed exits and interest payable on terms that were at least four times what you could find on the high street. Investors could feel like savers, they were just smart enough to use the compelling combination of German Property with tax incentivized returns.

So why did this need to be sold at all?

The question that I asked in my last blog and ask in this, is why what seemed like a no-brainer needed to be sold with introductory fees of 20% or more? Surely this could sell itself with the developers taking their slice. What was wrong with German banks – why were the developers seeking crowd-funding in Singapore, Britain and other property mad countries.

The answer is that the developers did not want to develop, even when they got the builders in, they didn’t pay them. According to the joint investigation by the BBC and its German counterpart, what little building work that was commissioned wasn’t paid for.

In July 2020, German Property Group began filing for bankruptcy in Germany. It is estimated to owe at least £1bn to investors worldwide and at least £378m is thought to have been invested by people in the UK.

You can read the sad tales of those who lost out on the BBC website or listen to them on BBC Sounds but you may by now be weary of these stories, for the template is always the same and lessons are not being learned.

What lesson needs to be learned?

The lesson is in the returns you are actually getting on your pension savings. If you ask most people what a reasonable long-term return should be , you will probably get a default of 8-10%. Those numbers are hard-coded into our imagination. They were the numbers we learned from the 1980s and 1990s for that is when most people who Dolphin targeted were first saving into pensions, or PEPs or (later) ISAs.

But the actual returns most people have been getting since inflation was turned off at the turn of the millenium has been much lower. The average pension default fund has been returning around 3.5% pa since 2000 after all charges. Some have done  better

Some have done worse

The first data set shows returns from 2004 (where on average people have been getting 3.29% and the latter from 1997 (where on average people have been getting 5.91%.

Returns since 2010 have been comparable, despite our being in a bull market for shares and bonds, people have struggled to achieve an average net return of more than 5% in almost any of the large data sets we have analyzed.

The reality is that generally available 8-10% returns on 2 or 5 year bonds, live only in the imagination and the returns offered on Dolphin Trust bonds are – to those who study the facts – unimaginable.

There is a simple lesson to be learned from Dolphin Trust. When organizations are offering returns above the market rate, even with tax advantages, there is risk involved and if you can’t identify the risk, the risk is you are being scammed.


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The four green leaves of the clover

It’s my privilege to attend the three-weekly sessions of the Pensions NetWork and I’ve found them a welcome relief over this year of lockdown from the trials of the diurnal round. The 80 minute sessions are positive, informative and intellectually creative. Last night’s was no exception which reminds me to include the link to TPNW’s website from where you can apply to attend the sessions yourself. The next session is on December 17th and will be, like last night’s interactive with a number of panelists chaired by the avuncular John Moret, Pension’s answer to Bruce Forsyth.

The Pensions Network

The four green leaves of the clover

The success of last night’s session was in bringing together four distinct and complimentary approaches to responsible investment.

Tomas Carruthers, a risk-taker who has put his money where his mouth is since being a student, to improve transparency and value for the private investor.

Maria Nazarova-Doyle, a force of nature who flattens cynicism that insurance companies see ESG as “extra sales guaranteed” with the weight of her conviction.

Jonathan Parker, a consultant with a keen understanding of how to influence fiduciary decisions for good.

Tony Burdon, the mild campaigner with a tenacious focus on making our money matter.

Green for Go

I cannot report in detail – what was said – nor do I need to, the value of the evening being in the combined impact of four short presentations and questions from the floor from an audience that included many who could have been on the panel.

The big picture from a big-hearted Tomas Carruthers

Tomas’ approach is to clear layers of intermediation and create a 21st century stock exchange that enables people to take direct stewardship of their financial assets.

He sees the big picture, the $210trillion in the global financial ecosystem and considered how this money could convert to hitting Paris goals by 2030 and 2050. His estimate was that it would need to convert at $1.5tr a year over the next ten years for our financial assets to be on track for 100% carbon neutrality by 2050. There is £6.2 trillion tied up in the UK pension system, which is as good a place to start as any. He gave us three general insights to underpin what was to come

  1. Transparent governance works
  2. Don’t treat people as fools
  3. Respect the power of technology

Greta Thunberg in her thirties

Maria Nazarova-Doyle started turning up at Pension PlayPen lunches maybe 10 years ago. She was new to pensions then , finding  her way  as a transition analyst at Capita. She is now running the investment proposition for Scottish Widows and her presentation showed what intelligence, dedication and emotional intelligence can do. It is not for nothing that I liken her to Greta Thunberg. It’s greatly to Scottish Widows credit that they have given the responsibility of transforming their investment proposition to someone who fits none of the characteristics of a senior manager role within an insurance company.

The power of influence

Jonathan Parker has moved from being a senior manager within an insurance company to consultancy in a mirror image of Maria’s recent career path. His strength is in his capacity to influence while Maria’s is in transforming the environment directly. Both approaches are needed if we are to hit our Paris goals with the wealth of the nation.

We have to accept that the fiduciaries who look after other people’s money are not going to adopt new investment beliefs because of the noise of the market. They are rightly skeptical about “green-washing” and struggle to see through the complexity of different approaches to ESG, the wood for the trees. Jonathan Parker put forward a compelling case for using clear analytics and patient explanation to influence those with their hands on the levers of change.

Leading the campaign

What the responsible investment movement has lacked so far is a focus for popular support. Make My Money Matter is that focus and Tony Burdon is the CEO though not the poster-boy! There needs to be a backroom to any front room , and while we all know Richard Curtis, Tony is less of a household name.

But he brought to last night the perfect conclusion, a mild-mannered passion that left us in no doubt that what the transformation of pensions means is a better place for us to live both in terms of our planet and in terms of our social goals and the way we govern ourselves. The popular campaign for change makes influencing those with the hands on the levers and transforming the financial institutions a whole lot easier. It makes the big picture laid out by Tomas- happen.

The Four Green leaves of a clover

Clover is good, it makes honey and four leaf clovers are especially good, they bring good luck and they are exceptionally green.

Last night felt good, I felt lucky, I felt exceptionally green and in such good company saw a way forwards to the green goals we have set ourselves.

Further Zooming…

Learning about how financial services (and pensions in particular) are adapting to the challenge of a burning planet is an education devoutly to be wished for. I am looking forward to attending another such panel session hosted by Chatham House’s Hoffman Institute. , the IFOA and FiNSTIC We are fortunate to be able to get this education online and with minimum logistical difficulty, this will not always be the case, I urge you to  access to such learning , while we can.

Thanks to the actuaries for transformational change for bringing this to my attention.


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Tomorrow is a day of reckoning -DIES IRAE

Wednesday will be a day or reckoning – DIES IRAE, DIES ILLA, that day is a day of wrath. We have paid a high price for less productivity and less enjoyment. If there is such a thing as a lose-lose, the pandemic is it for there is no economic silver lining, unless you consider the Oxford vaccine a game-changer for our economy – which is optimistic in extreme.

SOLVET SAECLUM IN FACILLA, the earth is in ashes. For the second time this century, the prospect of progress has receded and we are shaping up for a second sharp intake of breath as we contemplate who will pay not just for what has happened in 2020, but for the cost of vaccinating us in 2021.

The question is both how we’ll pay and who will pay. Following the financial crisis (the first sharp intake of breath) it became clear that those without money would pay more tax , get less services and receive no pay-rises. This was austerity. It was deeply divisive, not least because the finger of blame could be pointed at those who had created the crisis, for whom austerity was just a fancy word.

The pandemic has hit the poor hardest. The second wave is repeating the first, hitting those on low incomes, in cities and in poor health . But will the poor have to  pay the economic price of COVID as they paid the price for the breaking of the banks?

What of the future?

While Wednesday will be about spending and borrowing, at some point the chancellor will have to decide how it will be paid for. He will start to address this in next March’s Budget, although most economic commentators feel the economy will still be too fragile for major tax rises.

It is possible that, with the success of a Covid vaccine, the economy could bounce back, limiting the need for big rises. However, Paul Johnson expects that four or five years down the road he still expects the economy to be about 4%-5% smaller than before the pandemic.

Rein in spending and raise taxes too early, and recovery will be choked off. Leave it too late, and the public finances will spin out of control.

Who pays?

It is possible that the austerity program that was introduced in 2010 could be repeated ten years on, but both Sunak and Johnson have publicly stated this is not the way they will go.

If the price for the pandemic is not dumped on the poor, then it must be paid by the affluent and that will mean taxing us (and most readers of this blog are affluent) on our income and on our assets. Higher marginal rates of income tax, higher taxes on capital gains, lower reliefs on pensions and investments and a reduction in the privileges  of those who have the means to pay more . This may not sound very Conservative, but it is the price that will need to be paid for national unity. DIES IRAE

A fair price for us to pay.

I live in the City of London, we have some of the least infected postcodes in London. But I do not have to cycle more than five minutes to be in Lambeth, Southwark, Hackney or Islington where infection rates were amongst the highest in the country earlier this year.

I cycled through Dalston last night and it struck me how huge the gap is between the lives of those I talk with on business calls and the daily lives on the Roman Road. The street that I live on has a hostel for the homeless, it is full and those who cannot get in are in tents along the embankment. Wherever I go , to exercise, I see affluence and destitution living alongside each other.

So my message to Ricki Sunak, as he prepares for DIES IRAE tomorrow is in the great chant.

Or , to put a 21st century slant upon the subject, here is the inimitable Jonny Cash with what Springsteen called the  “Momentous – ‘The Man Comes Around’.”




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The Regulator’s not for turning; in conversation with David Fairs,


David Fairs – speaking last year at the First Actuarial conference

David Fairs and I were born within a couple of months and have both spent our careers in pensions. We enjoy each other’s company so when David suggested that we spent the last 90 minutes of the business week on a Teams call, I cleared my afternoon. Whereas I have spent the last 37 years thinking about how to get better member outcomes, David has approached pensions from the employer’s perspective wrestling with the difficult questions of affordability, security and fairness that underpin “integrated risk management”.

But whereas the beaten track for policy-makers tends to start at the Pensions Regulator and end in consultancy, for David has been the other way round.  After 23 years as a partner at KPMG, David chose to move to Brighton to work for the Government, forsaking a much more lucrative end of career move in the private sector. Few people would call David a career regulator, his strength is that he sees issues with the benefit of a commercial career behind him.

A conversation focused on the corporate (not saver’s agenda)

Although TPR has recently set out its strategy for the next 15 years in terms of protecting savers, we scarcely touched on DC in the hour and a half we spent together. Where DC entered the conversation it was in relation to big data issues, especially the data-readiness of DC schemes to meet the challenge of the Pensions Dashboard. TPR are clearly interested in any information they can get on the quality of data in the DC schemes over which they have oversight, the speed at which the dashboard is delivered and the value people place upon the dashboard will depend on the capacity and willingness of these schemes to share data.

It was typical of the conversation that we focused on the challenges to schemes and scheme sponsors in releasing this data (not on the the engagement with members). My take is that TPR will continue to focus on DC from a corporate perspective (AE compliance, dashboard compliance) and is a long way from the FCA’s stronger consumer perspective. Despite TPR professing to be strategically moving towards protecting savers, there is evidence of this consumer focus. Even work on scams is focusing on employers adopting Margaret Snowden’s Pension Scams Industry Group.

Fairs on funding

As TPR pours over 130 submissions to its consultation on the DB funding code (and I hope the points raised by Keating, Clacher, Compton and others on this blog), it is not surprising that our conversation quickly moved to the funding of the guaranteed pensions that many in pensions seem to want to consider “legacy issues”. I asked whether the maintenance of schemes that remain open to future accrual and indeed new entrants was an irritant or (as Guy Opperman has stated) , something that should be encouraged.

Fairs was keen to point out that within the definition of “open scheme” were schemes that had to retain a section for future accrual and new entrants and those who saw the provision of pensions to future generations as what they did. For the purposes of the long-term objective of a scheme, those that sort to pay pensions from within the scheme (as opposed to buying out) might share a similar investment strategy with an open scheme. This point came out of a discussion over the capacity of defined benefit schemes to embrace “patient capital”, the illiquid investments into which everyone in Government from the Prime Minister down, is keen for pensions to invest. The conflict between fast-tracking pensions into risk-free strategies and the broader policy issues around re-funding Britain through its pensions is a live topic for TPR.

Fairs was keen to differentiate the investment strategies linked to funding from the disclosure requirements from the DWP’s TCFD initiative (where the emphasis is on mindfulness of the impact of the scheme’s investments on environmental sustainability). I was surprised that TCFD was not seen as a part of the Long Term Objectives of the scheme and separate from the funding debate, TPR are clearly wary of getting dragged into debates on the impact of ESG on returns (and so scheme funding).

Fairs on push back from open schemes

Guy Opperman has openly stated that the DWP were surprised by the vehemence of opposition to the powers being conferred on tPR to enforce the DB funding code (as evidenced by the debate on amendment 123 or the Pension Schemes Bill- the Bowles amendment).

We talked about the position adopted by Guy Opperman during the debate which appeared to point to greater flexibility in the use of the bespoke option within the DB funding code.

Trustees and sponsors  have been concerned about of open schemes having to get tPRs blessing when moving away from “Fast-track”. For them, this sounds like more of a pre-requisite than a cross-check on trustee and sponsor plans. Schemes  feel they may be treated as guilty until proven innocent and that the Pension Scheme Bill’s powers will give tPR way more leverage in agreeing investment and funding plans.

In practice, the industry seems to be dubious as to whether tPR has the capability or resources to agree bespoke solutions for all who want to go that way. One multi-employer has written to me on this

We handle over 100 sponsors … and agreeing with some of these can be a lengthy and protracted process. The Scheme specific funding regime that the Minister is looking to build on is more of an art than a science. TPR would need a deep understanding of sponsors business, it’s barriers to entry, capital and debt structure, opportunities and threats as well as the nature of benefits offered and scheme membership characteristics.

The question of whether the Pensions Regulator has the capacity to enforce its powers , if bespoke becomes the predominate route for schemes, seems to go the heart of the matter. There may be flexibility within the code for a thousand flowers to bloom, but who will keep the beds weed-free?

Fairs on impact assessments

David Fairs has clearly got his hands full with the 130 responses to the 58 questions of TPR’s recent consultation and he was giving nothing away with regards any changes in position from the regulator. However, he did drop a broad hint when confirming that the consultation was the product of a pre-pandemic world, that changes might be afoot.

He was keen to push back against criticism that TPR had provided no impact-assessment of the proposals within the code arguing that TPR could not pre-judge the outcomes of its proposals before the proposals had been finalized.  Here he seems at odds with many of the consultancies who have been keen to tell their clients and the world the cost of the Code on sponsors. We discussed the specific numbers published by LCP, which Fairs was keen to downplay. Here at least, I felt that we were moving into an area about which the Regulator felt uncomfortable. It will be interesting to see whether TPR approach any concessions on fast track and bespoke as resulting from local conditions (Covid) or from a more fundamental re-assessment of its role.

Fairs on transparency

That this conversation could be had , suggests that David Fairs is prepared to put his views into the open, even as the consultation responses are being absorbed. This is unusually transparent in itself, though Fairs is far too accomplished a spokesperson, to drop hints to an amateur blogger.

There were points our conversation when I sensed engagement with genuinely difficult issues but for the most part, David Fairs gave the impression that what we saw in the  consultation , was what we were going to get.

With no hint of any major changes in position by TPR, the debate moves from the substance to the nuance of the regulations and here Fairs is at a great advantage holding most of the cards and being an accomplished player.

I suggest that what we get from this consultation will be nuanced change resulting from what Fairs referred to as “some interesting ideas”. But what we are unlikely to see is any major changes in the direction taken by the Pensions Regulator, the regulator’s not for turning.

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Is Salesman Simon a pension scammer? I think not!

Simon Eagle is not your common or garden pension salesman. He is a mild-mannered actuary with a mischievous smile and a stammer that he has bravely overcome.

Simon Eagle

When he claims that CDC beats drawdown by 57%, we should listen up.

I am 59 and using (the largely discredited) 4% rule, I could draw down at 65 £25,000 pa or Simon’s 3.5% (safe rate) £17,500. My ears prick up at the thought of a whole of retirement pay rise from £17,500 to £27,500 pa.

Is Simon Eagle a pension scammer?

If your common or garden pension salesman offered me a 57% whole of retirement pay rise , just for switching to his pension plan, you would give him the bum’s rush. I know a few tweeps (and the bearded wonder) who would need no second invitation.

But here are the five reasons why I am looking to CDC to provide me with a pension.

  1. I need more from my pension pot than I can get from an annuity or a safe rate of drawdown
  2. I want a wage that lasts as long as I do and has built in inflation protection
  3. I’m prepared to take my chances that pension increases don’t come through and am not afraid to  take the odd pay-cut.
  4. I do not want to be worrying about pension decision making – especially as I get into the later stages of retirement
  5. I understand and accept the basis of Simon’s bold claim. Unlike DB pensions and annuities, CDC pensions don’t have to be subject to locked down investment strategies and unlike drawdown pensions, they aren’t subject to the ruinously expensive advisory costs and wealth management fees that make drawdown so risky for all but the experts,

Salesman Simon Eagle is no scammer – he’s just a very bright man who has integrity in spades. Thank goodness we have actuaries like him who have the courage of their conviction.

Putting our money where your mouth is….

There is a sixth reason which I will admit to. By wanting it, I hope I can influence some of the people who are in a position to me getting it. Among them I include Simon, who works for a consultancy that provides Britain with one of its most successful master trusts – Lifesight. Willis Towers Watson could soon be one company with Aon. Aon offer the Aon Master Trust, which like Lifesight , has over £2.5bn in assets and carries the retirement hopes of hundreds of thousands of savers.

I am waiting for both WTW and Aon to announce firstly that they will be opening a CDC section of their master trust as soon as regulations allow. Simon told the Corporate Adviser master trust conference that he expected to see the regulations for master trusts in place by 2022. In a conversation with TPR’s David Fairs yesterday, I gathered that CDC secondary regulations are “in plan” for the spring of 2021. On a Friends of CDC call on Thursday I asked salesman Simon and Aon’s CDC-guru Chintan Ghandi if they were thinking about CDC pilots. Right now the answer is “no”, but that won’t stop me asking (again and again and again).

The second question I’ll have for them – once they’ve got the CDC pilot agreed, is how I can transfer the AgeWage workplace pension from its current provider – to the new CDC offered by WTW-Aon.

And in case anyone from Aon or WTW are worried about over-promising, I will emphasize that nothing – nothing – has been promise by salesman Simon or guru Chintan to me or any other friend of CDC – yet!


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USS; are UCU and UUK missing the big picture?

The image of two grizzly bears fighting each other is both eye-catching and appalling, we know this will not end well but we are drawn to the spectacle. As an image of the ongoing struggle between university teachers and their employers over pension rights, it is spot on or “apposite” to use the language of academia.

The problem for the public is that we are tired of the argument and want some resolution. We do not want the teachers to compound the damage of current distance learning with another wave of strikes, but that is where this dispute is heading.

Nor is the problem as easily solvable as John Ralfe would suppose. Though university teachers may not think of themselves as like postal workers, in terms of retirement planning, they are not that different. The average don has neither the inclination or the financial capability of managing a DC pot to pension and would certainly be shocked by the meagre fayre offered by an equivalent annuity from a DC scheme, relative to the benefits available from USS.

A wholesale shift to DC would cause the kind of industrial unrest that would have crippled Royal Mail. What is needed is the kind of leadership displayed by the UCU an UUK as occurred at the crisis point of Royal Mail’s negotiations at ACAS with the Communication Workers Union.

What happened there was that the heads of the two sides, Jon Millidge and Terry Pullinger, agreed that for the greater good , a compromise solution could be put together. Royal Mail gave up its insistence  on a DC solution while the CWU gave up their demand for guaranteed pensions.

The key is guarantees.

As we move towards the next round of negotiations over the future of the University Superannuation Scheme it seems inevitable that guarantees will have to be discussed and negotiated. The perilous position facing many individual universities with falling revenues from the loss of overseas students does not suggest they will return to the table better able to afford massive  hikes in pension funding costs.

The University and College Union, under the capable leadership of Dr Jo O’Grady now find themselves much as the CWU did, with a new way of teaching threatening the livelihoods of its 120,000 staff. If things have got to the point where students have to distance learn, why should they support the infrastructure of universities and colleges and the massive pay and pensions bill of lecturers when the teaching and information they need is readily available on line.

Universities are going to have to radically reinvent themselves post pandemic as the current tuition costs to students and tax-payer do not give value for money. In the wake of the pandemic , it is inevitable that the cost of guaranteeing funded pensions to academic staff will have to be revisited.

Mike Otsuka – speaking sense

Mike Otsuka

I very much hope that the three lectures being given by Mike Otsuka have been well watched. I could not make the first two and can’t make the third either (clashing work commitments).

As these lectures were delivered on Zoom I hope that there will be recordings which can be distributed to the wider public. For those who can attend, the third lecture (on the role of unfunded Pay as you Go pensions, goes ahead on Tuesday 17th.


;Mike’s work on the subject is very important but it is too inaccessible for the ordinary person to properly understand. Here is the advertisement for the CDC lecture which was given last week

On any sensible approach to the valuation of a DB scheme, ineliminable risk will remain that returns on a portfolio weighted towards return-seeking equities and property will fall significantly short of fully funding the DB pension promise.

On the actuarial approach, this risk is deemed sufficiently low that it is reasonable and prudent to take in the case of an open scheme that will be cashflow positive for many decades.

But if they deem the risk so low, shouldn’t scheme members who advocate such an approach be willing to put their money where their mouth is, by agreeing to bear at least some of this downside risk through a reduction in their pensions if returns are not good enough to achieve full funding?

Some such conditionality would simply involve a return to the practices of DB pension schemes during their heyday three and more decades ago. The subsequent hardening of the pension promise has hastened the demise of DB.

The target pensions of collective defined contribution (CDC) might provide a means of preserving the benefits of collective pensions, in a manner that is more cost effective for all than any form of defined benefit promise. In one form of CDC, the risks are collectively pooled across generations. In another form, they are collectively pooled only among the members of each age cohorts.

Mike is putting forwards the solution that Royal Mail and its union found. If the UCU and UUK could come to a similar compromise on guarantees and future benefit structures then many students would not lose more face to face or remote teaching times in the months and years to come.

But there are headwinds, and they come from entrenched positions both within and without academic circles. Take this tweet from Norma Cohen, representing a “no retreat – no surrender” position on DB pension guarantees.


The reality is that most employer with DB schemes are no longer honoring the offer of future accrual and are piling in money to meet deficits (which is getting tax-relief). The DB system is soaking up resources otherwise needed for Britain to bounce back. Both these deficits and contributions into DC schemes are tax-deductible for employers. Why do some people prize guarantees so highly?

I suspect for universities to bounce back, they too will need to dishonor their offer of future DB accrual. Now is the time for UCU and Government to think seriously about CDC as an alternative.

Let’s hope that Mike’s second lecture can be watched by all those with an interest in resolving the long-running dispute over the USS and lecturer’s pensions. Otherwise we will continue the argument from entrenched positions and miss the big picture.

I would refer those debating university pensions to look again at the work done by Royal Mail and CWU and learn from it.


Posted in advice gap, CDC, USS, Value for Money | Tagged , , , , , , , , , , , | 2 Comments

Cumbo asks “can pension schemes invest for social good and keep TPR happy?”


Rishi Sunak is keen to see pension schemes invest to get Britain to its climate change commitments. This week the Treasury set out its financial services policy  which ended with a promise

to encourage investment in long-term illiquid assets, such as infrastructure and venture capital, the Chancellor announced his ambition to have the UK’s first Long-Term Asset Fund (LTAF) launch within a year.

We know the DWP are taking steps to enable DC schemes to invest in such a fund and have issued a consultation on how to create larger DC schemes which can invest in less liquid funds. The DWP is also looking to tweak the charge cap rules to enable  notoriously expensive illiquid asset classes to be used within the charge cap. Success for DC schemes is far from certain as liquidity in DC is a lot less certain (who knows when people will want their money?). Successfully  embedding long term illiquid investment in collective defined benefit schemes sounds easier but will trustees commit to long term investment strategies if they are being regulated using short term measures?

Josephine Cumbo took to the tweets, to quiz the Pensions Regulator on how it might be resolving the seeming conflict between improving member security while supporting the Chancellor’s green objectives.


Whether the Government wants to get DC or DB pensions investing in the LTAF , it is going to need to provide different messaging about the duration of pension liabilities. If trustees are planning to buy-out or transfer assets into a superfund then they are going to need assurance that any investment in  the LTAF will be transferrable to whoever buys their liabilities out. Assets will need to be transferred in specie and its far from clear whether commercial organizations will want assets within the LTAF wrapper or indeed the assets at all.

Ironically, those DB schemes not looking to get bought out but which are either open to new members or future accrual  are likely to be subject to the Pension Regulator’s “bespoke scheme guidance”. There is considerable concern in and outside parliament that these bespoke rules offer little more opportunity to invest in “patient capital” than the TPR’s fast track. This is why there are attempts being made to carve schemes that want to stay open from being subject to the strictures of the DB funding code. By escaping “bespoke”, these schemes  would be much more free to invest in the LTAF (it is supposed).

Josephine Cumbo’s questions pose salient challenges for TPR’s DB funding code as well as to issues of member security they address directly. It is good to see invites coming out of TPR to attend briefings and even one on one meetings, this suggests that what appeared to be a slam dunk DB funding code consultation, may yet offer hope to schemes with longer time horizons to do as Rishi Sunak wants them to.

Posted in pensions | Tagged , , | 1 Comment

Bob Compton speaks out on Pension Funding

Bob Compton

Bob Compton  MD of Arc Benefits is  quietly spoken  but an acute listener. He wrote to me yesterday this mail which provides a fascinating insight into the debate over how we fund our open and closed DB schemes and the alternatives we can offer to employers for whom providing a DB pension presents insuperable challenges.

Email sent to Henry Tapper 10/11/20

I listened to the Pensions Bill committee reading as it happened on Thursday. As a result I have a few comments to share with you.

  1. Guy Opperman was very impressive in his grasp of the issues debated, with one exception.
  2. There appears to be all party support for the majority of clauses in the Pensions Bill, other than some would like to hard code legislation in a number of areas to a tighter degree.
  3. Guy Opperman has committed to taking action to legislate on CDC within this parliament, but this will take 3 to 4 years to become reality. As we have seen from the speed of policy changes from the current government, this could easily be conveniently forgotten in the coming months ahead if more pressing post EU jurisdiction problems arise.
  4. Guy Opperman has unbelievable faith that the Pensions Regulator DB funding code consultation will not lead to closure of ongoing DB schemes, and as a consequence has squashed proposed Bill amendments which would have ensured TPR could not create an environment where DB schemes have no option but to move to an end game faster than previously anticipated.

In point 1 above the one exception is this:

TPR has gone into print as follows:

“We propose that Bespoke arrangements should meet the key principles and be assessed against the Fast Track standard.” …..“ They will submit their valuation, along with supporting evidence, explaining how and why they have differed from the Fast Track position and how any additional risk is being managed.”….. “Bespoke arrangements may receive more regulatory scrutiny..”

Guy appears to have been persuaded by the Regulator that this means Trustees choosing the bespoke route will be free to adopt Scheme specific assumptions without hindrance.

However TPR’s Fiona Frobisher has on 2 October at an FT webinar stated Bespoke

  1. will be benchmarked against Fast track assumptions
  2. will be have a greater evidential burden
  3. will face greater Regulatory involvement.

When challenged on the implications for open DB schemes in terms of increased governance cost, the pressure to conform to a gilts based investment strategy based on comply or explain, Fiona made a telling statement (summarized as) TPR is only concerned about securing accrued pension rights, not about future accrual, and that if TPR’s remit were to consider future accruals, i.e. open DB schemes that is a policy matter best left to government.

The implication being, TPR is more concerned about its remit for PPF preservation, than ongoing Pensions accrual.

This is further reinforced when Charles Counsell at a later PLSA event stated TPR’s future policy was all about looking after “Savers” with no mention of “Pensions”, leading me to question should TPR change its name to “TSR” The Savers Regulator.

AE has been successful in increasing the numbers saving for retirement, but has a long way to go to match the success of past DB schemes in delivering quality of life in retirement. DC is not a pension, merely a means to have the option to purchase an expensive annuity which the majority will not take up.

So to sum up Guy Opperman has and is doing a great job, but he has a blind spot, which if not challenged will lead to the hammering of the final nail in the coffin of open DB schemes.


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

Can our pensions build back better? Sunak paints a greener picture.

Ricki Sunak’s first speech on financial services in the House of Commons came on the day we absorbed a Biden and a vaccine win. It was a bad day for viruses but a good day for the markets which bounced about with irrational enthusiasm. While all this was going on, Sunak’s plans went largely unreported – only the FT has given his speech much coverage.

The headline shows how complex Government messaging has to be over the weeks ahead.

Sunak sets out ‘green’ post-Brexit financial services regime

The content of the speech needed to address the three immediate priorities for the Chancellor

  1. Bounce Britain back after an appalling year of Covid-lockdown
  2. Maintain “equivalence” with the EU after December 31st to ensure BAU for UK financial services
  3. Ensure that investment both in Government debt and in UK equity promotes Britain’s commitment to be carbon-neutral within 30 years

There are many people who see Brexit, Covid and climate change as unmanageable problems and adopt a fatalistic approach to the future, Sunak doesn’t appear to be among them.

The speech sounded more like the autumn budget we never quite got. Sunak told MPs…

  1. he will grant equivalence to EU and European Economic Area states on financial services,
  2. pledged the launch of Britain’s first “green gilt”
  3.  launched a review of the listing regime to attract fast-growing technology companies to London
  4. proposed a new regulatory approach for “stablecoin” initiatives — involving privately issued digital currencies
  5. announced plans to launch the country’s first green gilts
  6. announced that Britain would become the first country in the world to make large listed and private companies disclose the threats to their business from climate change by 2025, including pension schemes.
  7. hoped to have the UK’s first long-term asset fund launched within a year to encourage investment in illiquid assets such as infrastructure and venture capital.

If some of this sounds familiar it is because much of this policy is in the Pension Schemes Bill and forms the heart of the DWP’s agenda for UK pension schemes.  With DB pension funds de-risking , green gilts will immediately attract the attention of consultants and trustees keen to work out how a shift to Government bonds can improve their commitment to E,S and G factors.

Those schemes with headroom to invest into growth assets (sadly mostly DC schemes) will be looking with interest at opportunities from exposure of the long-term asset fund, while trustees contemplating TCFD reporting will have the comfort of knowing that they are not alone- it will be a reporting requirement for insurance companies banks and large companies as well.

In the context of the Treasury’s agenda for financial services, it is now possible to see why Guy Opperman is so adamant that pension schemes should play a part in building back better. Opperman, unlike Webb and Altmann, plays to a gallery of those “above his pay grade” ( a phrase he uses regularly). This sense of being a part of a wider political enterprise has been lacking from pension ministers and those lobbying for amendments to the Pension Schemes Bill and TPR’s DB funding code should be mindful of that.

He should also be aware of his boss’ expectations!



Pensions a part of building back better

Pensions are governed by old men who have served their working lives within the EU, without the mental and physical stress of a global pandemic and without fear of a broken climate. Sure there have been other threats, but never such a triumvirate of significant headwinds.

To meet these three threats to our long-term financial well-being, the old men will need to change, many will need to step down and make way for younger ,gender diverse and more attuned successors. Those that remain will have to adapt and adopt new ways to invest, report and consider risks and reward.

The financial crisis of 2008-9 was relatively easy to fix. The legacy of the pandemic and the economic consequences of Brexit will take longer to work through. But we have to address the changes they bring. Most of all we need to recognize the paradigm shift in behaviours we need to display and encourage if we have any hope of averting climate change and building a society where social fairness and governmental standards improve.

Pensions own a great slice of Britain and have a critical part to play in transforming financial services so that it plays a part in resolving the crisis we are currently in. We cannot stand by and await a bad fate. We need to rise to the challenges , as Rishi Sunak and other Government ministers (Opperman among them) appear to be doing.

But no matter how well intentioned we may be, open pension schemes  cannot invest pension funds into patient capital and be subject to the proposed DB funding code. Something has to give and let’s hope it’s the intransigence over Clause 123 of the pensions bill, of TPR’s senior management – or both.


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

Sharon Bowles has thrown the Minister a lifeline, he should grab it with both hands.


The DWP is in an awkward spot over the funding of defined benefit pensions. The 130 responses to its regulator’s consultation paper are likely to be making uncomfortable reading to those scrutinizing them in Brighton and the Pensions Minister is hearing on all sides that the DB funding code , far from protecting DB schemes, could so undermine the sponsor covenants as to risk losing retirement income and current jobs.

For a minister for “work” and “pensions” ,  the messaging is pretty grim. Having listened to the audio and now read some of the Hansard transcripts of the Committee stages of the reading of the Pension Schemes Bill, DB funding is the one area about which Guy Opperman appears defensive.

Even before the debate on the Pension Regulator’s powers, the Pension Minister was keen to let MPs know he was not introducing CDC as a Trojan Horse to sack DB schemes.

We will debate DB schemes, which I think have a great future. We have gone to great efforts to support the future of DB schemes.

This is an alternative way forward that some organisations—Royal Mail is the classic example, but there are others who are looking at this—will welcome. Under no circumstances should it be implied or in any way taken that the Government will do anything other than support DB schemes on an ongoing basis.

He opened his arguments for ruling out the Bowles amendment thus

We do not want good schemes to close unnecessarily, or to introduce a one-size-fits-all regime that forces immature schemes with strong sponsors into an inappropriate de-risking journey.

Opperman continued to acknowledge the risk of the one size fits all strategy (termed fast-track by TPR)

Open schemes with a strong sponsoring employer that are immature and have managed their risk appropriately should not be forced into an inappropriate de-risking journey.

Opperman tried hard to give assurance that the proposals within the DB funding code would do just that. MPs were asked to accept that they would be giving tPR powers to enforce secondary legislation which were it to follow the proposals in the Code , would put such strain on DB sponsors as to imperil  both work and pensions.

I make it clear that the Government can commit to using the regulation-making powers available to ensure that the secondary legislation works in a way that does not prevent appropriate open schemes from investing in riskier investments where there are potentially higher returns as long as the risks being taken can be supported and members’ benefits and the Pension Protection Fund are effectively protected.

This would sound more credible if the conciliatory tone was shared by the Pensions Regulator, but recent pronouncements from David Fairs and Charles Counsell do not acknowledge the need to move from the “scorched earth” proposals of the code.

I hope that the Pensions Regulator will be reading the Minister’s statements and recognizing they cannot have their code which eats what it seeks to protect.

I say this because the Pensions Regulator (through the aforementioned spokespeople) has relied for its positioning , not on what the pensions industry wants, but what parliament wants.

What does parliament want?

On most subjects in the Pension Schemes Bill, there is cross party support for the Government’s position, but with regards clause 123 of the Bill, which seeks to offer open pension schemes a carve-out from the DB code, there is not. Here is the position of the SNP put succinctly by Neil Gray

There is a problem with encouraging good open schemes to de-risk. We know where the bond market and gilts market is right now; we know that that puts them at risk. Baroness Altmann has intervened this week to say:

“If you decide to ‘de-risk’, then you are also deciding to ‘de-return’, taking away the upside potential that is so vital for making DB affordable. Deficit schemes just keep getting worse and contributions keep on rising. QE”—quantitative easing—“has undermined funding of all DB schemes”.

At which point Guy Opperman has to accept that Ros Altmann, who sits on the Conservative benches in the Lords, is indeed supporting the Liberal peer (Sharon Bowles)’ amendment.

Nor can he enjoy the usual support of Labour , who join the debate through Seema Malhotra (deputizing for Jack Dromey

We regret that the Government seek to remove the amendment made to clause 123 in the Lords. As the Minister is aware, there are grave concerns about the impact of the provisions in the Bill on open DB schemes, which includes many public sector schemes. Labour has been clear all along that we do not accept the premise that good DB schemes are not worth protecting.

And as Neil Gray reminds him, he can’t rely for support from employers or trustees with large schemes.

It is not just me or Baroness Altmann saying this. The schemes are saying that following this path puts their own good and open schemes at risk for members to continue to enjoy.

Faced with a considerable array of opposition, Opperman may have thought he had survived , only to be hit in the solar-plexus by Richard Thomson (a former Scottish Widows corporate account manager and now another SNP pension expert. Thomson pointed out to the Minister that the unintended consequence of squeezing open schemes into the DB funding framework would be to prevent them investing in the patient capital that Opperman has so promoted.

At this point Opperman’s hard line stance showed a crack (if not a crumble).

There is a legitimate and relevant point, although I will resist the amendment, that this is a perfectly valid debate to have in this place. It will definitely influence the regulator’s approach and ensure that, if there is any doubt whatsoever, not all schemes will be treated the same. There is not a one-size-fits-all approach. If anyone is proposing that that is the case, it simply is not. Every scheme should be looked at on its own merits and in its own particular way, because, as all colleagues have rightly identified, schemes have different profiles, different amounts and different objectives. That is what the regulator is trying to do—to build on the current approach.

The main theme of TPR’s DB funding code is that most schemes should not be looked at on their merits but be put on a fast-track conveyor to self-sufficiency and buy-out. This will mean wholesale investment in gilts and the kind of high-grade bond that puts liquidity at a premium (and is quite the opposite of patient capital.

If Guy Opperman believes that the DB code should allow open schemes to continue to take risk as part of their funding strategy then he is either going to have to change TPR’s view on what kind of investment risks are “supportable”.

Alternatively, he may give up the fight and accept that what parliament is calling for, as many schemes are calling for, is the right to determine their own investment strategy based on their time horizons. I make no apology for once again showing why it is economically more efficient for schemes to remain open.

For schemes to stay open , the sweet spot of the “infinite time horizon” must be rewarded. The Bowles amendment to clause 123 ensures that that reward is available. I am quite sure that Ros Altmann, Sharon Bowles or the other supportive peers, are not ready to give up their amendment yet.



Posted in Big Government | Tagged , , , | 2 Comments

Who pays for us doing nothing? Pension schemes and the poor!

It would seem that Britain has used the 9 months to pay off its consumer debt. Have we simply dumped our personal borrowings on our Government?

With so much public debt and so little interest available, it’s no wonder defined benefit pension schemes are fast becoming the nation’s bankers- is this why TPR are so keen on de-risking? What but  pension schemes could pick up the cost of furlough without anyone seeming to getting hurt?

What will be interesting, and here I will be relying on the Office of National Statistics, is to know just how interested private individuals have been in sinking cash saved on commuting , meals out, holidays and general jollification into long term savings and how much into the rainy day fund (codenamed “second wave”).

All the signs are that this Government, while it was comfortable with lockdown I, is not so sanguine about Lockdown II. I suspect this is for financial reasons and this is both about personal and public finances. What is needed is a whole lot of work (or as economists would have it – productivity). What is about to happen is that the work equivalent of quantitative easing – the furlough – will end on Saturday night.

These are not easy thoughts, my fellow Brits. We work to pay the bills and if we do no work, we rely on those who do to pay them for us. The alternative is the kind of problem we last saw in the great depression (before we had fancy banking).

This very fundamental issue looks like what’s behind the sharp intake of breath we’ve seen from world markets this week. The elephant is poking his head out of the window and waving his trunk about and people worry about the state of the room!

Who pays? Why the vulnerable* of course!

Pension schemes aside, the other easy target for those selling credit is the derelict borrower.

As Mick’s tweet points out, the people left with consumer debt are the people least likely to afford it, which means – the way credit markets work – that the cost of their debt is higher. The banks have found a way to balance their books and it’s at the expense of those who haven’t got their debt under control. This is from the Bank of England report Alistair is promoting.

The effective rates – the actual interest rate paid – on interest-charging overdrafts continued to rise in September, by 3.52 percentage points to 22.52%. This is the highest since the series began in 2016, and compares to a rate of 10.32% in March 2020 before new rules on overdraft pricing came into effect.

Someone brighter than me will tell me just what happened to make personal credit so much more expensive, I’ll just ruminate on how the cost of unsecured borrowing is sky-rocketing and how this isn’t called profiteering (when we are facing the prospect of negative interest rates). The problem first came to my attention with this article from June this year from

The uptick primarily comes from an increase in rates on subprime credit cards, which are targeted at households which can’t pass credit checks and can’t qualify for credit cards from mainstream banks.

* “vulnerable” in this context means “financially vulnerable” – people  we used to call “poor”.

Do credit markets have to dump on the vulnerable?

I ask this question of friends like Con Keating, who I invite to comment on this blog and the BOE numbers.

If they do, then all the sidecars in the Nest car-park can stay there. If those who are borrowing unsecured are seeing their interest payments rocket to over 22.5% , then what are we doing prioritizing their saving more?

And why are organizations calling for an increase in auto-enrolment rates , especially the recommendation that we contribute from pound one of our salary?

And why are we charging 1.7m low earners 25% more for their pension contributions, just because they don’t earn enough to pay income tax?

Posted in advice gap, age wage, de-risking | Tagged , , , , , , | Leave a comment

Why investors don’t have to choose between their values and their pocket books

I am a 58 year old investor whose pension pot is invested mainly in equities which are managed with ESG factors. I have invested this way for a few years now and am beginning to see the fund I use providing me with a better return than my previous strategy, which did not employ management to environmental , social and governance factors – to the same degree.

I took the view when I found I could use the L&G Future World fund, that though all funds would naturally move to ESG, because the underlying assets would be required to be managed that way, accelerating that process would pay dividends to me and make my money matter. This approach is criticised by Robert Armstrong, the author of the article Jo refers to – on the basis that you can’t have your cake and eat it.

Robert Armstrong

The article makes a few assumptions which for me are just plain wrong. Chief among them is that retirement savers suffer from short time horizons.

There are no investment returns at all on a planet left uninhabitable by climate change. But that is not the time horizon individual investors operate over (they might have just 20 years between acquiring significant assets to invest and retiring). And it is far beyond any corporation’s planning horizon.

There are two reasons to challenge this statement, firstly because it is much more widely held than many liberals (like me) would care to admit and secondly because it is plain wrong.

  1. The saver’s perspective

Looking at the subject from the pension saver’s perspective, people do not stop investing when they reach retirement. Unless they choose to put their savings under a mattress , they keep investing whether the decision is taken by them (DC) or by fiduciaries (DB and CDC) most people’s pension savings rolls over into retirement in broadly the same assets as prior. Even annuities are now backed by investments into social enterprise (see my blogs  on the capacity of annuity books to invest in patient capital).

2. The corporate perspective

People’s time horizons are long and so are companies, at least when long term investors in them demand it. The second fallacy of Armstrong’s statement is that the management of the companies to whom we lend money or invest in equity can behave as they please. They can’t; the management of a listed company is subject to the scrutiny and to a degree the control of shareholders- this is what is called stewardship and it is not some tree-hugging concept that doesn’t exist in real life. It is a reality of running a modern company. Corporate time horizons are having to merge with their investors whatever the past tells us about short-termism.

3. The global perspective

The third perspective trumps the first and second and is absolutely conclusive. “There are no investment returns on a planet uninhabitable”…  to suppose that a generation like mine can consider that those living in our shoes at the back end of this century will have to pay the price of our behavior is shocking. Can we really have become so carnal in our pursuance of immediate gratification that we can accept that our actions are condemning another generation to an “uninhabitable planet“?

I can think of no sentient parallel in nature, Within the DNA of the species that live on this planet is the capacity to mutate. The purpose of our mutation is to perpetuate the evolution of the species as it faces up to future challenges. Of course there are failures and they are known as “dinosaurs” because we know that dinosaurs couldn’t adapt! Are we really choosing to be dinosaurs?

Secondly let’s challenge Armstrong’s  market hypothesis

Armstrong argues that

it is the goal of the ESG movement to push investors away from “wicked” portfolios — making their prices cheap, and setting them up to outperform “virtuous” portfolios over time!

This allows him to suggest that there will come a time when cheap “wicked” stocks become valuable enough to reinvest in, meaning that we revert to mean – mean being a return to the ways of the past 200 years.

But this is not the reason for ESG. ESG is about changing the way that wicked stocks behave so that they become virtuous stocks and in so doing, avert the impending issues surrounding inhabitability.

There is nothing that says that the market is any different from the components of the market. If the weight of investment is so behind ESG that fundamental change happens, arbitrage against change will be swept away. There is no fundamental reason for financial markets not to be aligned with general good, indeed the converse is likely to be true.

ESG is more than an investment approach

My final beef with Armstrong is that he considers ESG investing a style , rather than a fundamental principle. In this he is currently right, we still hear trustees talking of the need to include an ESG factored fund into a range of investable options. But that is becoming rarer and what is becoming common is the shift of defaults to be managed along ESG lines.

Armstrong compares his adoption of “value investing” in the first decade of the millennium, to the current adoption of ESG factors. This is an introspective and myopic view of investment that sees the purpose of investment purely as a means to provide short-term in-flows of money into funds through marketing gimmicks.

But the demand for ESG in funds is coming, not from “experts” but from the general public and it is based less on investment theory than on observation of what is going on – both on the planet and in the boardroom.

We are now faced with the task of living in a world where Coronavirus is likely to inhibit economic growth, setting about making fundamental change to the way we manage our financial affairs does not seem so daunting , now that we have found ourselves adapting to a new way or work and living.

Within this new paradigm of circumstances, the arguments of Armstrong hark back to the old normal, to which few of us either expect or want to return. The world is moving on and so should Robert Armstrong.

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“Let my data go” – our plea to parliament

Submission to the Committee scrutinising the Pension Schemes Bill


1, This submission from Henry Tapper in his capacity as CEO of AgeWage and Chairperson of the Pension PlayPen. These private companies are digital resources for individuals and employers to make informed decisions on their workplace pensions and non-workplace legacy DC schemes. AgeWage is currently exploring whether guidance can be given individuals on choosing pensions, consolidating pensions and spending pension pots. It is doing so with the assistance of the FCA in the FCA regulatory sandbox. Our view is that technology can help consumers take informed decisions but that guidance (like advice) needs to be delivered in a regulated way.

2, We believe that the amendments in the name of Baroness Drake will be against the interests of consumers who need a pension dashboard to find lost pensions and have access to their providers to make decisions about choice, consolidation and the spending of benefits.

3,There is evidence that MaPS is extremely good at delivering high level information about options but are not able to give detailed guidance at the granular level of individual policies. If the MaPS dashboard has no transactional capabilities and commercial providers operate on a T+1 basis where T is the yet to be communicated launch date of the MaPS dashboard then the public will be denied the detailed guidance they need to manager their retirement affairs.

4, The main reasons given for preventing transactional capability on the dashboard is concern over people taking decisions without advice. This is certainly a concern where there are safeguarded benefits within the ceding scheme. But most pension pots since 2000 have no safeguarded benefits and have been set up if not as stakeholder pensions, in the spirit of stakeholder pensions (which were designed to provide portability without need of advice).

5, What is needed for pension dashboards to operate successfully is to recognise the vast majority of pension pots that are not carrying safeguarded benefits and legislate around them. It is up to regulators, especially the FCA, but also tPR, to ensure that member’s benefits are protected. The Drake amendments close the door on innovation and good practice to shut out poor practice and indeed scamming. However, poor practice and scamming focusses on larger pots and especially on defined benefit rights where the FCA report, the average loss to members is £82,000 per victim. There is no evidence that scammers are targeting smaller pots and we recommend that the Government sets a limit below which pots can be transferred not just without advice, but at the click of a mouse from the pensions dashboard.

6, The amendments in the name of Baroness Drake would have a second impact which would be systemic and negative. There is a reluctance amongst many pension providers, about which AgeWage has considerable evidence, to provide data to enable transfers and to accept legitimate data and transfer requests from consumers. They argue that by offering their customers a poor service, they are providing the “necessary friction” to prevent self-harm. This is giving inefficient providers an excuse not to upgrade systems and adopt better technology. It is giving them reason not to participate in the pensions dashboard project and is counter to consumer interests.

  1. Finally we would like to address the question of consumer confusion resulting from multiple dashboards. This same argument was being made prior to auto-enrolment when it was thought that only Nest should be able to participate in AE. This turned out to be a false alarm, competition has and will continue to improve value for money from workplace pensions. Nest competes with a variety of providers because the Government resisted calls, not least from within Government to grant Nest a monopoly. Consumers have not been confused and the system is working well.

8, It is often thought by those who are in the public sector that the private sector is predatory and trending to bad practice or worse. When the worst recent case of pension scamming occurred in Port Talbot and other British Steel towns it was private sector advisers who were on hand to give immediate support to those who had been scammed and the public sector regulators who were absent. Latterly, history has been re-written. There is a strong moral backbone to many financial advisers and to organisations like my own who often go where others regulators fear to tred. We should recognise a lesson from British Steel is that where good quality information and guidance is not readily available on transfers, poor quality information will be given much greater credence.


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Plagues past (and current matters ) Covid-19 Friday report (26)


The Friday Report – Issue 26
By Matthew Fletcher, Nicola Oliver and John Roberts

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

COVID-19 is still one of the hottest topics for scientific papers and articles. The COVID19 Actuaries Response Group will provide you with a regular Friday update with a curated list of the key papers and articles that we’ve looked at recently

Clinical and Medical News

Evolution and effects of COVID-19 outbreaks in care homes

Care homes have suffered disproportionately during the pandemic; indeed, care homes in   a 79 percent increase in excess deaths at the height of the pandemic.

This study published in The Lancet Healthy Longevity Journal describes the evolution of outbreaks of COVID-19 in 188 registered care homes located in the NHS Lothian region which encompasses Edinburgh and surrounding region (this included 5,843 beds, of which 5,227 (89%) were in care homes for older people).

Data for COVID-19 testing (PCR testing of nasopharyngeal swabs for SARS-CoV-2) and deaths (COVID- 19-related and non-COVID-19-related) were obtained, and several variables including type of care
home, number of beds, and locality were analysed. (Availability and quality of personal protective equipment (PPE) were not included because no reliable data were available at the care home level during the study period.)

Around a third of care homes (69 of 189 [37%]) had a confirmed COVID-19 outbreak, but with wide variation in the size, duration, and pattern of outbreaks. The number of beds was strongly associated with the presence of an outbreak; (odds ratio per 20-bed increase 3·35, 95% CI 1·99–5·63).

Deaths were largely concentrated in care homes with known outbreaks.

Asymptomatic and presymptomatic infection rates in skilled nursing facilities

Additional insights into the impact of COVID-19 in care homes are provided here. Asymptomatic and presymptomatic infection rates in a large multistate sample of US skilled nursing facilities (SNFs) are presented

Data was drawn from a multistate long-term care provider with roughly 350 SNFs.

The table shows that around 40% of cases were asymptomatic, 40% symptomatic and 20% presymptomatic. It was also reported that SNFs located in areas with high SARS-CoV-2 prevalence detected higher numbers of asymptomatic and presymptomatic cases during initial point prevalence surveys, building on emerging evidence that SNF location is an important predictor of outbreaks.


Tocilizumab is a monoclonal antibody drug used for its immunosuppressive properties to treat rheumatoid arthritis, juvenile idiopathic arthritis and cytokine storm syndrome for patients treated with CAR-T cell therapies. It has been investigated as a potential treatment for patients hospitalised
with COVID-19.

Two studies have reported results this week.

The first, entitled the Boston Area COVID-19 Consortium (BACC) Bay Tocilizumab Trial, is a randomized, double-blind, placebo-controlled trial of tocilizumab administered relatively early in the
disease course, with the aim of preventing progression of COVID-19.

The second is part of the CORIMUNO-19 Cohort, a series of trials testing different therapeutic regimens in France. This is also a randomised controlled study testing the effectiveness of
Tocilizumab in patients with moderate to severe pneumonia requiring oxygen support but not admitted to the intensive care unit.

At this stage, neither study report any impact on mortality.

Characteristics associated with racial/ethnic disparities in COVID-19 outcomes

Many previous studies have reported that those from BAME populations are overrepresented in the number of COVID-19 infections, hospitalizations, and deaths. In this analysis from the US, the researchers set out to determine patient characteristics associated with racial/ethnic disparities in COVID-19 outcomes.

The study cohort consisted of 5,698 tested or diagnosed patients, including 5,548 patients who were tested at University of Michigan Medical School (MM) from March 10, 2020, to April 22, 2020.

The main outcomes were: being tested for COVID-19, having a positive test result for COVID-19 orbeing diagnosed with COVID-19, being hospitalized for COVID-19, requiring intensive care unit (ICU) admission for COVID-19, and COVID-19–related mortality (including inpatient and outpatient).

The following were observed:

 Black patients were significantly more likely to be tested for COVID-19 and have positive test results than White patients (OR, 6.11 [95%CI, 4.83-7.73]; P < .001)

 Every 10-year increase in age was associated with increased odds of having positive test results (OR, 1.09 [95% CI, 1.05-1.14]; P < .001)

 In addition, higher BMI was associated with increased odds of having positive test results (OR per 1-unit increase, 1.03 [95%CI, 1.02-1.04]; P < .001), as well as alcohol consumption (ever
vs never: OR, 1.58 [95%CI, 1.29-1.95]; P < .001)

 Residential population density was also associated with positive test results (OR per 1000 persons/square mile, 1.12 [95%CI, 1.08-1.16]; P < .001) A higher comorbidity burden was associated with worse outcomes overall, with statistically significant differences by race. The figure below displays the results of the multivariate analysis.

In conclusion, the findings suggest that racial disparities exist in COVID-19 outcomes that cannot be explained after controlling for age, sex, socioeconomic status, and comorbidity score.


Estimating the infection-fatality risk of SARS-CoV-2 in New York City during the spring 2020 pandemic wave: a model-based analysis (Yang et al)

The infection-fatality risk (IFR) of COVID-19 (the risk of death amongst those infected, including asymptomatic and mild infections) is a key factor when considering how many might die from COVID-19 in future.

This paper estimates the IFR in New York City, the first American city to experience significant levels of mortality from the pandemic.
The estimates produced are based on over 200,000 laboratory confirmed infections and over 21,000 confirmed and probable COVID-19 related deaths of city residents between 1 March and 6 June 2020. Infection figures were adjusted based on a model for the proportion of infections that were not detected, with the model estimates validated using three independent serology datasets.

The overall IFR estimated is 1.39% (95% interval 1.04-1.77%) –  the study also estimated IFR by different age bands, ranging from 0.12% for those aged 25-44 and 14.2% for those aged 75 and above. These figures are broadly in line with previous estimates (see for example our earlier report on IFR).

Living risk prediction algorithm (QCOVID) for risk of hospital admission and mortality from coronavirus 19 in adults: national derivation and validation cohort study (Clift et al )

This paper derives and validates an approach to estimate hospital admissions from COVID19 in adults. It draws on data from the QResearch database which covers 1,205 general practices in England, with linkage to COVID-19 test results, death registry data and Hospital Episode Statistics.

The algorithm aimed to predict time to death from COVID-19, with a secondary outcome being time to hospital admission following confirmed SARS-CoV-2 infection. The data used for the initial derivation of the algorithm was from 24 January to 30 April 2020, and the second validation covered May to 30 June 2020 – multiple predictor variables were considered, with the final approach being based on age, ethnicity, deprivation, BMI, and various comorbidities.

The algorithm performed well – it explained 73% of the variation in time to death, and those in the top 20% of the predicted risk of death accounted for 94% of all deaths from COVID-19.

Because the algorithm appears to pinpoint those at highest risk of death, it may be possible to use it to help clinicians and patients in decision making, as well as targeting recruitment for clinical trials and prioritising vaccination.

However, the authors caution that the models will need to be re-calibrated as absolute risks vary over time.

Quarantine and testing strategies in contact tracing for SARS-CoV-2 (Quilty et al ).

This paper has not yet been peer reviewed.

In many countries, there is a quarantine period of 14 days following exposure to a COVID19 case, to limit onward transmission. ]

This paper looks at whether PCR testing can be used to reduce the length of quarantine. The approach taken is to simulate various characteristics of an exposed contact’s possible infection (for example, time between exposure and detection, chance of being infected, incubation period, infectivity profile), using the UK as a case study.

The study finds that self-isolation on symptom onset can prevent 39% of onward transmission – a further 14 days’ quarantine for all contacts reduces transmission by 70%.

A negative PCR test taken once traced, with no quarantine requirements after a negative result, can reduce transmission by 62% – alternatively, a negative PCR test taken after a 7 day quarantine period (with no requirementfor further quarantine after a negative test) can reduce transmission by 68%.

This suggests that PCR testing combined with a shorter quarantine period could achieve similar results to the longer quarantine period.

However, structural issues in contact tracing (delays in tracing and / or poor adherence of traced individuals to the quarantine requirements) reduces the ability of quarantine and testing to reduce
transmission – the authors suggest that addressing these should be a key focus of future policy.


Excess Home Deaths

The ONS has released a study which notes around 25,000 additional home deaths (up 30%) since the start of the pandemic. This was widely reported by the media, often with the implication that these were all additional deaths. In fact, the majority of these were displaced from other settings, most notably from hospital.

Although significant excess home deaths continued throughout the summer, overall there was no excess during this period, reflecting continuing displacement. ]

Many of the deaths were from causes that typically accompany end of life care in the elderly. With very limited visiting in care homes and hospitals, a possible conclusion is that many relatives have chosen to provide end of life care at home where at all possible.

Whilst hospitals have been open for all emergency care throughout the period, there will undoubtedly have been some instances where, possibly through perception that emergency care would be lacking, or fear of entering the hospital environment, the appropriate help was not sought.

This emphasises the need to reiterate the messages are hospitals are open for emergencies as usual.

ONS Surveillance Report

The latest report published today shows continued increases in infectivity in England, with numbers infected during the week reported of 433,000 (up from 336,000), or 1 in 130 people (1 in160).

New infections per day are estimated at 35,200 (27,900), which has doubled in the last fortnight

The regional analysis continues to show some signs of a levelling off in the North East and Yorkshire regions, to which can now be added the East Midlands.

We also see a marked downturn in the late teens age group,though the level at older ages continues to rise, which is clearly of most concern in terms of hospitalisations and outcomes. The age analysis suggests that we should be cautious about those regions showing improvement, as it is likely to be driven by the younger age reductions.

New this week we have some data on Scotland, which shows infectivity at 1 in 180, consistent with Wales. For completeness Northern Ireland is at 1 in 100. All these figures have wider confidence intervals than England, so need to be treated with some caution.

Additionally this week we have an update on antibody prevalence.

There are signs of a gradual drift downwards in prevalence, although the confidence intervals for earlier periods are wider, so it’s not compelling evidence. The latest level is 5.6%.

Finally, there has been some comment of late noting that the ONS surveys typically show a reduction in growth rate in the most recent week, which is then revised upwards in the following week.

The reasons for this are unclear, and it will be interesting to see whether ONS responds to the criticism.

R Estimate

The latest estimate of R for the UK is put at between 1.2 and 1.4 (compared with 1.3 to 1.5 last week). As usual this estimate is based on those with symptoms and requiring healthcare, so is lagged by a couple of weeks in relation to the current position.

For England, SAGE also estimates 1.2 to 1.4 – this is consistent with our own view, published yesterday, which has also suggested a small reduction in the past week. Regionally, SAGE puts the northern regions, along with London, at 1.1 to 1.3, with the South West an outlier at 1.3 to 1.6.

CDC Survey

Finally under data, and taking a less parochial view, in the US we note the recent CDC Report which suggests that 299,000 excess deaths had occurred up until early October.

Whether the reporting date was set to avoid breaching the significant milestone of 300,000 deaths is a moot point, but even so it is unlikely that the timing of the report was welcome for one of the presidential candidates.

When adjusted for population size the figure is broadly consistent with the estimates of 60,000 excess deaths for the UK, but the proportion not attributed to COVID is much higher at a third. ]This is likely to reflect differences in the policy for recording cause of death between the two countries as much as any true underlying difference in the proportions of COVID-19 deaths between the two populations.

A notable feature in the UK has been the increased mortality amongst ethnic minorities. That pattern is also seen in the US, with Hispanic, Asian and black communities all showing much higher excess percentages.


13 cases, 10 million tests: China swabs city of Qingdao after COVID-19 outbreak 

This article  sets out some details of a mass testing effort in China. In the days following the discovery of 13 COVID-19 cases linked to a hospital in Qingdao, health workers have carried out almost 10 million tests and returned over 7.5 million results – they are on track to test 9.4 million residents and 1.5 million visitors within 5 days of launching the programme. They have not found any additional cases.

This effort is clearly very impressive; however, it remains to be seen whether it is possible to replicate over the longer term, either in China or elsewhere.

And finally….

Perhaps we can learn a little more about the current pandemic from medieval history. This fascinating paper reports that during plague outbreaks in the 14th century, the number of people infected during an outbreak doubled approximately every 43 days. By the 17th century, the number was doubling every 11 days.

Researchers believe that population density, living conditions and cooler temperatures could potentially explain the acceleration, and that the transmission patterns of historical plague epidemics offer lessons for understanding COVID-19 and other modern pandemics.

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A DC investor writes….


A rare but wonderful experience!

Once in a blue moon I get a mail from someone who is clearly an expert in pensions  but  modest enough to recognise she/he struggles with their own money!  I feel in awe of such people!

I got a message on social media from such a person this morning.  I hope that the questions (and my answers) prove helpful to people in our shoes!

Those questions and my answers!

Q. Henry, I’ve been thinking, probably a little too much about my DC pension pots, as I have multiple funds both contract based and trust based. 

Thanks for your questions , I am replying on linked in and on your personal mail (which I got from Linked in)
Your questions  are all pertinent, I’m not qualified to speak for DC schemes but here are some thoughts.
You aren’t unusual, and you look like you are beginning to think, “these pots are my financial future”?

Q. My own role looks after DB schemes, but that is not quite what I have been provided with all my career. What frustrates me is I want my fund to grow by more than the default. But is that right?
It seems reasonable to want more than average. But you’ve got a number of pots  and  the default return on each will be different, if you’re in a very good scheme then your default return will be above the general average so it may be best working out which of the schemes you are in is offering best value for money and starting there. Our data analysis (and we’ve analysed over 1m pots) – is that those who self-select , statistically are unlikely to beat the default.

Q,  Should I know more than the organisation running my pension? 
A. Ideally you would know your pension , study the IGC report or Trustee chair statement and look at the statement of investment principles when there is one, but you’ve got several and I wonder if you can really do due diligence on all of them. You need someone to tell you where you are getting value and where not. You could employ an adviser – if you’ve got the money, or you could use a resource such as which provides value for money scoring , providing you can give the website the details of your policies and membership.

Q. Is the default fund the best return per unit of risk? 
A. It’s a question that has been troubling us a great deal. We have a metric called “value for risk taken” which we use where we have a great deal of data from savers in an individual fund (typically we need 5,000 + records in the fund. It allows us to see the experienced risk people have taken in the fund and the experienced return for that risk. It’s a technical calculation and we haven’t rolled it out to individuals yet, but that will come.

Q If not then why not?
A. The main reason we haven’t found a way of providing a metric for value for risk taken is that we need a large data set and we have only got about 40 such sets. The second reason is that we are still testing with the FCA, what can be shared as factual information (guidance) and what is considered individual investment advice.
 We are using the FCA sandbox as a controlled environment to test whether providing value for money information – of the type you are talking about, can be considered factual. If we deliver investment advice to individuals, we are into a different “cost paradigm” – e.g. it becomes very expensive to you!

Q. Secondly, why does a scheme offer suboptimal funds?
A. The answer is almost certainly historic and could be to do with a good round of golf! 
When I worked on provider investment propositions we would get all kinds of intermediaries contacting us wanting their preferred funds on our platform and many went on with little due diligence. Ongoing fund monitoring has often been poor and good funds have turned bad. Woodford is a classic example. Twenty years ago “open architecture” and unlimited choice was all the rage – a triumph of marketing hope over the sober reality of saver’s financial capability!

Q. Finally, why does a scheme provide dozens of funds, but then only provides a quarterly fact sheet, which can be three months out of date before it is published?
A. Investment reporting via factsheets has been allowed to fall into disrepute because providers know that only a minority of their users (customers) use the information on offer. It’s a supply and demand thing and monthly factsheets are too much of a fag for many fund managers, let alone the insurers who have to convert them to reflect the unique information created by their fund wrappers. 
I guess many of the more well heeled providers are  moving to a more efficient digital means of reporting but the traditional factsheet is not telling the modern saver what he/she wants. For instance – if you are interested in ESG and personal stewardship , you want to know where your money is invested (not just the top 10 or 5 holdings) and you will want to know what the fund’s doing on stewardship, this kind of information isn’t ever going to be on a factsheet , but progressive providers, like L&G are adopting software that will give you a look through to the fund’s holdings and even allow you to participate in the stewardship of your investments.

Q. Why does a benefit statement provide little or no information about the return achieved? 
This is a real bugbear of mine.
I’ve attached a couple of pictures of the kind of information we would like to see on trustee reports
and individual benefit statements.
We think everyone should be entitled to see their internal rate of return, the rate of return they’d have got as an average investor and a score that tells them how they’ve done against the benchmark. This goes for trustees, IGCs and GAAs who should be able to see the average scores achieved by people in various schemes, funds, by age group, by pot size or any other way that their data can be cut!

 Q. Having a deferred pot in the XYZ master trust, I recently received a survey, so suggested there should be a separate helpline for investment questions. It feels to me that to get people more engaged with their pension savings, then the investment information and assistance to members needs a rethink
This is a great suggestion. If I was running your master trust , I’d be sending you an email asking whether you wanted to apply to be a trustee!
The problem with such helplines is that unless the discussion is data-based and factual, it strays into advice. What is needed is better quality information available to you and to the person on the helpline so that you can have a meaningful conversation about your situation, without it being deemed advice.

Henry Tapper

CEO AgeWage Ltd
Tel  07785 377768
AgeWage is authorised and regulated by the Financial Conduct Authority (FRN: 917800) and registered in England and Wales (Companies Registration No.11429498).
Find us on  LinkedIn  Facebook  Twitter
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CDC – a new type of pension provision coming to the UK

On Wednesday (October 8th),  CDC will be debated in the house of commons and with a fair wind, legislation enabling employers and multi-employer master trusts to provide DB like benefits for defined contributions will be enacted  by the end of the year.

To mark this special week for CDC, the consultancy-Willis Towers Watson has published a guide to CDC together with supporting analysis of how CDC competes with other types of pension schemes.

The aim of the Guide is to increase the public’s understanding of CDC pensions, and increase levels of interest in CDC in the pensions industry.

The new analysis compares the likely outcomes of CDC pensions to those of insured annuities, and typical DB pensions (for given levels of contributions.  The “spectrum of choice” , as the Pensions Minister calls it , has become clearer for this guide.

It is good to see that the new type of pension has, in Royal Mail, an early adopter. It is good to see how Royal Mail’s CDC plan has brought together the company’s management with its major union (the CWU) to avert what could have been damaging industrial action and replace it with a constructive “wage in retirement” solution. A solution that has been embraced by over 100,000 mail-workers.

It is good too that it has brought three pension consultancies, WTW, Aon and First Actuarial together.  They have worked to test and promote a new way. It is of course a “new way” that refers back to an “old way”, when DB pensions provided members with an income using the best endeavors of all parties , rather than an income guarantee whatever the market conditions.

Demand for CDC emerged out of negotiations for a new DB scheme for Royal Mail staff

But we should not forget early pioneering work that goes back to Derek Benstead’s stakeholder pension submission last century. Nor should we forget the work of David Pitt-Watson and Hari Mann with the RSA in their research “Towards Tomorrow’s Pension” which goes back to 2011.

CDC’s definition of a benefit is , after more than two decades of debate, finally gaining currency at a time when certainties of employment are most challenged.

One certainty has been the challenge of “pension freedoms” to the concept of collective pensions. It is particularly good to see this collective enterprise providing an alternative to the challenges creating retirement income from individual pots  identified only a week back by the FCA .

You can see the challenge of converting pots to pensions here


It is good to see that CDC is enjoying cross party support in both the Commons and the Lords.

But of course CDC has critics who have made their opposition to this form of provision well known on social and conventional media. Their objections have helped make the CDC framework more robust and we should be grateful for constructive critical interventions.

It is in part , to counter valid concerns and in part to demonstrate balance against less rational prejudice that  WTW has published this analysis.

You can access the WTW reports from this link.

I can think of no better recommendation to read them than words taken from the email sent me by WTW’s Simon Eagle, who helped broke the Royal Mail deal with my former colleague Hilary Salt.

We have written the guide to be balanced, and the analysis to be transparent – with the aim of helping the truth about CDC’s advantages become more widely known and accepted, which will hopefully shine through.

Appendix; CDC – a little more detail

To help those coming to CDC afresh or after a decent interval, here is a little detail of what a CDC scheme is and some detail on how it fits into that “Spectrum of choice”.

Collective Defined Contribution (CDC) is a new type of employee retirement provision under which employers pay a fixed rate of contributions into the scheme and members are paid pensions with variable increases.  This will be a third option for employers, the two existing options being defined benefit (DB) pensions or individual defined contribution (IDC) pensions.

CDC is likely to be most compelling for those employers where the following key advantages of CDC pensions are important:

  • Pension costs are fixed, so employers’ pension budgets will not need to vary year-on-year.
  • Expected pension levels are higher – for a given contribution rate, the expected CDC pension is on average 70% higher than from buying an insured annuity with an IDC pot, and 40% higher than provided under a typical DB scheme.

And a CDC scheme provides benefits in the form of a pension, so:

  • Market volatility is smoothed out so that member pension levels (both pre and post retirement) are relatively stable.
  • Members don’t run the risk of running out of money (from a drawdown pot).
  • CDC is simpler for members than IDC, as they don’t need to make investment or retirement provision decisions.

Initially, employers wanting to provide CDC will need to do so through their own trust arrangement – employers with large workforces of over 5,000 employees would be best placed to open a cost-effective CDC scheme.

In time, further law changes could enable CDC multi-employer schemes or master trusts, making CDC more accessible for employers with less large workforces.



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Long COVID – Nicola Oliver tells us what we need to know



By Nicola Oliver                                                                      

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

What is ‘Long COVID’?

“Long covid” is a term used to describe illness in people who have either recovered from COVID-19 but are still report lasting effects of the infection, or have had the usual symptoms for far longer than would be expected.

Symptoms include fatigue, chronic joint and muscle pain, insomnia, reduced exercise tolerance, shortness of breathe, mental health issues and headaches. Clinical follow-up finds that even in mild cases, damage to the heart, lungs and brain may be permanent.

This worrying emerging condition may represent a material future morbidity burden, with some studies reporting up to 95% of people with mild cases experiencing symptoms more than 3 months from onset of the initial disease.


The UK government published guidance[1] on the possible long-term health effects of COVID-19 on 7 September and identified a number of persistent health problems that have so far been reported by people with mild or more severe disease. These are included in the following table which covers the main reported symptoms in those considered to have ‘long COVID’.


Respiratory Chronic cough Shortness of breath
Lung inflammation Pulmonary fibrosis
Pulmonary vascular disease  
Cardiovascular Chest tightness Acute myocarditis
Heart failure  
Mental Health Depression Anxiety
Cognitive difficulties/confusion  
Gastrointestinal Nausea/vomiting Diarrhoea
Quality of Life Chronic fatigue/weakness Insomnia/sleep problems
Chronic pain/headaches Prolonged loss of taste/smell
Other Skin rashes Clotting problems
Liver dysfunction Kidney dysfunction

Post-viral health problems are not a new phenomenon. Post-infectious fatigue[2] is known to be associated with a number of viruses including SARS and influenza, but also others such as human herpesvirus 6 & 7, HIV, herpes simplex, and hepatitis C. Symptoms include extreme fatigue, muscle pain, joint pain, sleep disorders, headache and psychoneurotic symptoms.[3] If these symptoms persist, the condition is categorised as chronic fatigue syndrome (CFS).

With particular reference to on-going respiratory problems, long-term follow-up from the previous SARS outbreak reports that lung function continues to be compromised many years following the onset of symptoms. In particular, pulmonary fibrosis, in which the lungs become scarred with functional compromise, has been observed in SARS survivors, even in those with relatively mild disease.[4] [5]


A key question is of course how many people in the population are affected? The main challenge is that it is likely that many of those who are affected may have suffered mild disease, and so may not have had testing or any contact with health professionals at onset.

The CDC published a report in July 2020 which addressed the symptom duration and risk factors for delayed return to usual health among patients with mild COVID-19.[6]

This study reports that around a third of those interviewed had not returned to usual health 3 weeks after testing positive, and that around 20% of young adults aged 18–34 years with no chronic medical conditions reported that they had not returned to their usual state of health. Pre-existing medical conditions and increasing age appeared to be key risk factors for prolonged symptoms.

A survey[7] carried out by the Dutch Lung Foundation reported that of 1,600 people who were asked about returning to normal activities after largely ‘mild’ (non-hospitalised) COVID-19, 95% indicated that they continued to experience problems including fatigue, shortness of breath, chest pressure, headaches and muscle aches more than three months following typical COVID-19 symptoms. Almost half reported that they are no longer able to exercise.

Similarly, research[8] from Italy has also identified that a high proportion of patients recovering from COVID-19 reported persistence of at least one symptom, particularly fatigue and shortness of breathe.

Challenges and Support

The many unknowns around SARS-CoV-2 now extend to recognising and managing long COVID. Many social media groups have emerged, and in the UK, a support group[9] formed in partnership with The Sepsis Trust has written to Jeremy Hunt MP, Chair of the Health and Social Care Committee asking that the UK government set up a multi-disciplinary Long Covid taskforce, including researchers, professional bodies, and representatives of peer-led groups, to address the urgent needs of people living with persistent, ongoing symptoms of COVID-19.

Further afield, a citizen scientists’ group known as the Body Politic COVID-19 Support Group[10] with a global membership, published analysis of a Prolonged COVID-19 Symptoms Survey[11] in May 2020, which identified similar symptoms to those listed in the previous section. The group is now working on a follow-up study to fill in gaps in their first report, including examining antibody testing results, neurological symptoms, and the role of mental health.

A letter[12] published in the BMJ on 15 September and signed by 39 British doctors all affected by persisting symptoms of suspected or confirmed COVID-19 called for a clear definition of recovery from COVID-19. “Failure to understand the underlying biological mechanisms causing these persisting symptoms risks missing opportunities to identify risk factors, prevent chronicity, and find treatment approaches for people affected now and in the future,” they wrote.

Research to evaluate the long-term health and psychosocial effects of COVID-19 continues. Major studies include the Post-Hospitalisation COVID-19 study[13] in the UK and the International Severe Acute Respiratory and emerging Infection Consortium (ISARIC) global COVID-19 long-term follow-up study[14].


Trisha Greenhalgh and colleagues published guidance[15] in August 2020 on the management of post-acute COVID-19 in primary care. The guidance covers respiratory symptoms, fatigue, cardiopulmonary complications, mental health and wellbeing, thromboembolism and social and cultural considerations. The key to management, say the authors, is to consider that post-acute COVID-19 is a multi-system disease, requiring a whole patient perspective. The wide-ranging damage caused by SARS-CoV-2 cannot be underestimated; the long-term course is unknown.

Long-term Impact

The lengthy list of long COVID symptoms coupled with the fact that as yet, the exact pathophysiology of the virus is largely unknown(though more knowledge is gained all the time), means that we may be faced with a significant morbidity burden.

Follow-up of COVID-19 patients, even those with what is considered to be a mild case, has shown that damage extends to the heart, the brain and the clotting mechanism. Cardiac scans of a group of patients has revealed cardiac involvement in 78% of the patients studied and ongoing myocardial inflammation in 60%, independent of pre-existing conditions, severity and overall course of the acute illness, and time from the original diagnosis.[16]

There is potential that this will increase the risk of myocardial infarction, stroke and even Parkinson’s disease and Alzheimer’s disease in relatively young people.

The ongoing research projects will reveal the extent and impact of ‘long COVID’, not just to understand the disease’s long shadow, but also to predict who’s at the highest risk of developing persistent and chronic symptoms and the associated health problems, as well as to identify potential treatments that may be able to prevent them.


24 September 2020



[3] Memory impairment, confusion, impaired concentration and depression














Posted in actuaries, coronavirus | Tagged , , | 1 Comment

Why a vaccine can provide better immunity than an actual infection

Thanks to Nicola Oliver for highlighting this article from the Conversation in Linked in. At a time of increased anxiety, information about roads to immunity give some comfort, but this article by Maitreyi Shivkumar manages to underpin optimism with medical science and do so in a way a non-scientist can understand.

Maitreyi ShivkumarDe Montfort University

Two recent studies have confirmed that people previously infected with SARS-CoV-2, the virus that causes COVID-19, can be reinfected with the virus. Interestingly, the two people had different outcomes. The person in Hong Kong showed no symptoms on the second infection, while the case from Reno, Nevada, had more severe disease the second time around. It is therefore unclear if an immune response to SARS-CoV-2 will protect against subsequent reinfection.

Does this mean a vaccine will also fail to protect against the virus? Certainly not. First, it is still unclear how common these reinfections are. More importantly, a fading immune response to natural infection, as seen in the Nevada patient, does not mean we cannot develop a successful, protective vaccine.

Any infection initially activates a non-specific innate immune response, in which white blood cells trigger inflammation. This may be enough to clear the virus. But in more prolonged infections, the adaptive immune system is activated. Here, T and B cells recognise distinct structures (or antigens) derived from the virus. T cells can detect and kill infected cells, while B cells produce antibodies that neutralise the virus.

During a primary infection – that is, the first time a person is infected with a particular virus – this adaptive immune response is delayed. It takes a few days before immune cells that recognise the specific pathogen are activated and expanded to control the infection.

Some of these T and B cells, called memory cells, persist long after the infection is resolved. It is these memory cells that are crucial for long-term protection. In a subsequent infection by the same virus, the memory cells get activated rapidly and induce a robust and specific response to block the infection.

A vaccine mimics this primary infection, providing antigens that prime the adaptive immune system and generating memory cells that can be activated rapidly in the event of a real infection. However, as the antigens in the vaccine are derived from weakened or noninfectious material from the virus, there is little risk of severe infection.

A better immune response

Vaccines have other advantages over natural infections. For one, they can be designed to focus the immune system against specific antigens that elicit better responses.

For instance, the human papillomavirus (HPV) vaccine elicits a stronger immune response than infection by the virus itself. One reason for this is that the vaccine contains high concentrations of a viral coat protein, more than what would occur in a natural infection. This triggers strongly neutralising antibodies, making the vaccine very effective at preventing infection.

The natural immunity against HPV is especially weak, as the virus uses various tactics to evade the host immune system. Many viruses, including HPV, have proteins that block the immune response or simply lie low to avoid detection. Indeed, a vaccine that provides accessible antigens in the absence of these other proteins may allow us to control the response in a way that a natural infection does not.

The immunogenicity of a vaccine – that is, how effective it is at producing an immune response – can also be fine tuned. Agents called adjuvants typically kick-start the immune response and can enhance vaccine immunogenicity.

Alongside this, the dose and route of administration can be controlled to encourage appropriate immune responses in the right places. Traditionally, vaccines are administered by injection into the muscle, even for respiratory viruses such as measles. In this case, the vaccine generates such a strong response that antibodies and immune cells reach the mucosal surfaces in the nose.

However, the success of the oral polio vaccine in reducing infection and transmission of polio has been attributed to a localised immune response in the gut, where poliovirus replicates. Similarly, delivering the coronavirus vaccine directly to the nose may contribute to a stronger mucosal immunity in the nose and lungs, offering protection at the site of entry.

A boy in Pakistan being given an oral polio vaccine.
The oral polio vaccine elicits an immune response in the gut. Rehan Khan/EPA

Understanding natural immunity is key

A good vaccine that improves upon natural immunity requires us to first understand our natural immune response to the virus. So far, neutralising antibodies against SARS-CoV-2 have been detected up to four months after infection.

Previous studies have suggested that antibodies against related coronaviruses typically last for a couple of years. However, declining antibody levels do not always translate to weakening immune responses. And more promisingly, a recent study found that memory T cells triggered responses against the coronavirus that causes Sars almost two decades after the people were infected.

Of the roughly 320 vaccines being developed against COVID-19, one that favours a strong T cell response may be the key to long-lasting immunity.

Maitreyi Shivkumar does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

De Montfort University provides funding as a member of The Conversation UK.

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Andy Cheseldine’s VFM assessment is just too good!

Andy Cheseldine gave , in 21 minutes , one of the most complete and articulate expressions of what makes for good value in a DC pension scheme. I hate the word “masterclass” but on this occasion it is appropriate and I hope that Pension Age will publish the recording of this session of its Annual Conference.

It was, as it was billed.

Value for (Member’s) Money is the crucial criterion for trustees and IGC members. It encompasses everything – not just the basic charging level in a DC scheme. In this session, Andy will look at what trustees need to consider; what should be measured, and with what relative weightings (not all features are of equal importance), against which criteria; how your own services rate against those benchmarks; and how to articulate the results to members, regulators, employers, service providers and, where relevant, advisers/intermediaries.

The balanced scorecard – the impossible dream

Andy is trustee chair at a number of schemes, most noticeably Smart Pensions. The approach he suggests is a very sophisticated version of that we adopted at the Pension PlayPen where you take the characteristics of a good DC pension scheme and weight them according to the relevence to your membership to get a scheme score that tells you how well your scheme is working towards delivering good DC outcomes.

Getting to a common definition of a balanced scorecard is an impossible dream. When we are trying to help small employers choose their workplace pension we found that whatever level of sophistication we employed in researching the providers, the scorecard became weighted towards the employer’s agenda – compliance, ease of use and headline cost.

The agendas of employers, regulators and members of workplace pensions should be aligned but they are not. The member wants the scheme to pay as much to him or her in retirement as possible. The employer wants to keep its costs to a minimum. The Regulator is primarily concerned with the risk of failure. So within the balanced scorecard , there are at least three versions of value for money for the trustee to tell and three audiences that might listen.

And there are not enough Andy Cheseldines to go round!  While Smart Pensions benefits from this inclusive governance , what of the thousands of DC schemes not covered by the authorization framework, failing to meet the minimum governance benchmarks laid down by the Pensions Regulators?

While the major workplace pension schemes get the benefit of the high quality IGCs, what of the long tail of legacy that cannot benefit from the sophistication of Andy’s approach?

My issue – and I mentioned it in my question to Andy, is that the all inclusive balanced scorecard approach is actually a measure of how well the trustee is doing his/her job. It is not something that can be easily explained to anything other than a group of experts and by anyone other than an expert trustee. The approach has its place, but it cannot be the final word.

The final word

The only attempt I have seen from a regulator to formulate a common definition of value for money appears in the FCA’s CP20/09 document

The administration charges and transaction costs borne by relevant policyholders are likely to represent value for money where the combination of the charges and costs and the investment performance and services are appropriate

This definition looks at the issue of VFM not from the top down (as Andy’s does, as the Pension PlayPen did).

But the FCA – and the DWP in its recently published consultation on better DC outcomes, are looking at VFM from the member’s perspective. “By your fruits shall you be known..”.

Being brutally honest, however good the endeavors of trustees or IGCs, if they cannot improve member or policyholder outcomes , they have failed. What we need is not a means of measuring good scheme governance (which we have had within TPR for decades) but  a means of measuring outcomes.

This is what both the FCA and DWP are edging towards, by focusing on what members are paying and getting from the pensions they invest into. For quality of service, read the confidence members have that whatever statement is made by the scheme that it provides quality is realistic. After reading IGC and Trustee Chair statements for the last five years, I do not expect to ever read that a scheme is giving poor quality of service.

There are independent measures, especially as regards data quality, that can be employed to measure service quality and people like Holly Mackay and her Boring Money team are busy finding them.

Customer satisfaction with service is temporary, but the impact of poor performance and of unnecessary charges is permanent. We should not make the mistake of ignoring the data. One of the reasons I hold Pension Bee in high regard is that their high service quality is backed up with a deep understanding of the quality of their data , their costs and their member outcomes.

The final word on value for money is not in a definition but in the phrase. We need to make “value for money”, the standard by which we judge our pensions and in that we need Andy, Holly, Romi and  we need regulators with open ears.

Thanks to Pension Age for Andy’s session and a good day on Thursday


Posted in age wage | Tagged , , , , , , , | 1 Comment

“Shape up or shape out” – DWP give small DC schemes one year’s notice


 It is not acceptable for savers to be enrolled in arrangements that do not deliver value in terms of costs, investment returns or secure and resilient governance. Government would expect trustees acting in the best interests of their members to take appropriate action to wind up and consolidate without TPR needing to exercise its powers.

This is how the DWP have responded to its 18 month long consultation on DC scheme consolidation. In case such schemes think they can spin this out for as long again, the DWP continue

It is proposed that these regulations will come into force on 5 October 2021.

Trustees will be required to assess their scheme for value for money on a basis prescribed by the Pensions Regulator. The consultation’s assumption is that most small DC schemes will fail their own assessment.

Trustees with failing assessments  can be given grace to improve but their homework will eventually be marked by the Pensions Regulator.

 If the trustees fail in this attempt to improve they will be expected to wind up the scheme and consolidate the members into a scheme that offers better value.

In case trustees are in doubt, the DWP end their summation

TPR has the power to issue an order to wind up the scheme, to remove trustees in certain circumstances, or to appoint new trustees to properly manage the scheme’s assets.

The Government has widened the scope of the schemes that concern them (previously schemes with less than £10m). It’s scope now includes all DC schemes with less than £100m that are more than 3 years old

A new Value for Money/Member assessment

Lurking behind this is a new and much tougher VFM test.  This is aligned to the proposals in FCA’s CP20/9 VFM policy statement and calls for the same three legged stool approach with the test focusing on returns , charges and ” governance and administration”. The FCA opt for “quality of service” instead of governance but a peek behind the curtain suggests that the terms amount to much the same. This is an unusual and most happy alignment between the Regulators.

The risk remains however that Trustees , IGCs and GAAs can continue to argue that in their opinion “their provider continues to offer value for money”. To mitigate the risk that the opinion is biased by a conflict in favor of self-survival, both regulators appear to be moving towards a quantitative assessment where opinion is based on evidence and evidence based on data and benchmarking.

This assessment is variously described as “new” and “more holistic” but it’s clear from the sub-text of the consultation that for occupational DC schemes with less than £100m in assets that have been going for more than three years life is going to get a lot tougher. That includes commercial master trusts, some of which will fall need to take the new assessment.

So what of the new assessment?

Reporting will be against net returns

The key new idea is that of a “net return”.

We agree that while costs and charges have a significant impact on member outcomes they are best understood in the broader context of what the scheme delivers. The net returns received is a crucial factor in measuring value for members

The net return of a scheme may be measured by the quoted performance less stated charges but the DWP seem to be pointing at the return experienced by members in “various age cohorts”. This suggests a move towards measuring returns experienced by members. The illustrations in the Statutory Guidance (published in annex E)explain how this will work and it looks very complicated and makes comparisons between schemes all but impoosible

As I’ve noted on this blog several times, it is not what fund managers and trustees report as their estimate but what members see in their pot values – that matters. This blog will continue to press for the full transparency of actual experienced returns and not a proxy created using assumptions rather than outcomes.

The DWP are suggesting that

 in order to provide greater transparency to members all relevant schemes, regardless of size, must publish net returns for their default and self-selected funds in the annual chair’s statement.

This suggests that net returns will become a common feature by which members, employers and fiduciaries can judge workplace pensions. I would suggest that they are also relevant to SIPPs and to value assessments from fund platforms.

Shortcomings of the net return approach

However, if we are to have proper transparency, we need to move beyond net returns and look at the internal or individual rates of return achieved by members. This is the only true way to measure the value a scheme can measure value delivered and it can be bench marked.

scheme dashboard showing average IRRs achieved against benchmarked IRRs – a simple way of comparing returns.

People are rightly concerned about whether they are getting value for money not at scheme level but in their pocket.  While we agree with the thrust of the consultation to use value for money to help schemes consolidation, trustees need to be looking at value for money experienced by individual members.

The only way to assess returns that does this is bottom up, by measuring scheme returns by averaging the individual returns. The Net Return approach does not do this, it assumes that everyone’s experience of funds is the same – it never is.

Reporting will be against governance and administrative metrics

measures of administration and governance include:

  • promptness and accuracy of financial transactions
  • appropriateness of default investment strategy
  • quality of investment governance
  • quality of record keeping
  • quality of communication with members
  • level of trustee knowledge, understanding and skills to run the scheme effectively
  • effectiveness of management of conflict of interest

Some of these metrics are easily measurable- (a study of internal rates of return will provide evidence of the quality of record keeping).

Excerpt from an AgeWage report showing suspect data items identified by anomalous IRRs

Others will rely on a finger in the air. How for instance can trustees measure the effectiveness with which they manage conflicts of interest without declaring a conflict? TKU similarly needs external measurement as does the quality of investment governance, but there are no authoritative independent agencies to establish good from bad. There is no standard, let alone a certified standard for any of these measures. As for the appropriateness of a default, what board of trustees is going to call itself for running an inappropriate default?

These are not matters that can be measured by net promoter scores from members of by trust pilot, attempts to provide DC schemes such as the PLSA’s Pension Quality Mark have struggled to gain acceptance for measures beyond the bar set for contribution rates.

The worry is that a liberal interpretation of value for these measures  will be used to justify value for members even where net returns are poor. The DWP  is cute in its observation.

The outcome should be a holistic one but made with regard to government’s statutory guidance

It is going to be important for TPR to take a strong hold on the term “holistic” and not allow consultants and lawyers to deflect focus on the main event – the outcome of pension saving in the member’s pocket.

Bench marking

As in the FCA’s CP20/9 , the purpose of the VFM assessment is not just to establish an absolute measure of VFM but to allow the trustees to see the scheme in the context of others. As with the FCA, the bench marking is proposed to set the scheme against comparison schemes that span the options available to employers when choosing a workplace pension.

41. For the purposes of the assessing costs and charges and net investment returns as part of the value for members assessment, each specified pension scheme must compare itself with three “comparison schemes”.7

42. We expect trustees to have a clear rationale for the schemes they have chosen as comparators. The comparators should include a scheme that is different in structure to their own, where possible. For example, bundled corporate pension schemes should look at an unbundled example, and pension schemes not used for Automatic Enrolment should not limit their comparison to other such schemes.

This will only work if the comparison are simple. Here is an example of net performance reporting from the Guidance.

In this example, the scheme applies different charges to different employers, meaning that returns may vary between employees. Trustees do not need to produce multiple tables of returns but can instead provide additional information for each group of employers. The example below shows a scheme with four groups of employers who are charged differently:

Table shows employees in Group A.
Employees in Group B: add 0.05% to returns
Employees in Group C: add 0.15%
Employees in Group D: add 0.20%

Annualised returns % (if available):

Age of member in 2021 (years) 20 years (2001 to 2021) 15 years (2006 to 2021) 10 years (2011 to 2021)
25 x.y % x.y % x.y %
35 x.y % x.y % x.y %
45 x.y % x.y % x.y %
55 x.y % x.y % x.y %
65 x.y % x.y % x.y %

Annualised returns % (expected):

Age of member in 2021 (years) 6 years (2015 to 2021) 5 years (2016 to 2021)
25 x.y % x.y %
35 x.y % x.y %
45 x.y % x.y %
55 x.y % x.y %
65 x.y % x.y %

Much the same can be said for costs and charges and indeed governance and administration. I will be strongly responding to the consultation to suggest ways of simplifying this reporting.

What is the DWP’s big picture?

The consolidation section of the consultation comprises only one chapter of a 6 chapter consultation with 7 annexes and 2 impact assessments. Small wonder it was 19 months in the making.

The other chapters mainly deal with the introduction of alternatives into DC funds which is seen by Government as a positive. Alternatives include private equity investments and investment into what is variously known as “patient capital”, “infrastructure” and “impact” investments. The Government argue that these forms of investment cannot exist within the defaults of small schemes and that consolidation can ensure that more members get exposure to new forms of growth (with the positive social impact they can bring).

The consultation uses the imperative of getting these investments into DC defaults to dismiss calls for a more inclusive charge cap. Indeed the consultation into the charge cap is summarily dealt with in chapter 5 of the consultation and annexes F and G.

It would be easy to read this consultation as a whole and consider the point of it no more than to placate certain asset managers who are excluded from DC investment. This would be to miss the bigger picture.

Of much more relevance to pension savers is that pensions produce good outcomes by making their money matter. The requirements for TCFD reporting look beyond all but the best funded and most committed trustees.

Better returns need to be allied to better investment and implemented through better governance. By linking consolidation with an extension of the impact of workplace DC investment, the DWP may have pulled off something of a coup. For once this reads as a joined up document and let’s hope that when the FCA reports on its VFM consultation, the messages are equally direct and aligned.

Something of a coup for Guy Opperman and the DWP


Posted in advice gap, age wage, DWP, pensions, Pensions Regulator | Tagged , , , , , , | 1 Comment

Weathering the Storm

Iain Clacher & Con Keating

As part of our Funding Code research, we searched for academic or practitioner papers covering long-term expected returns forecasts. We were particularly interested in the ex post accuracy of these forecasts. We found none which used historic market performance[i] other than for short-term concerns such as corrections to market bubbles and periods of boom and bust. There were a few, macro-economic in nature, where long-term returns are functions of growth and demographics. To use an analogy, this is climatology rather than weather forecasting. We shall revert to this later.

What we do know

There are a few things we do know about gilt yields – they are strongly predictive of future long-term gilt returns, but that relation is tautological. They are not predictive of equity, property, or other asset class returns at any holding period horizon. This renders their use in gilts + presentation of expected returns highly questionable. To misquote Ralph Nader, they are unsafe at any horizon.[ii]

We have spent much of the past week trying to reconcile various claims and figures cited in the latest USS valuation consultation with UUK as these two things seem inextricably linked. We have had little success.

As best we can tell, the single equivalent discount rate for USS would be less than 2% nominal and the required rate of return on scheme assets would be around 3.2% nominal. These seem to us to be low and readily achievable. With that in mind, we looked to the long-term expected returns forecasts of other long-term financial institutions. The expected returns of other UK pension funds are not a valid comparator as they are subject to the same regulatory panopticon.

Looking further afield, The Norwegian Fund for Future Generations publishes its expected returns – they expect 3% real above their CPI which has averaged around 1.75% in recent decades, so a nominal of around 4.75%. The risk (volatility) of their portfolio is 12%. The most interesting aspect of all of this is that in 2017, in response to declining government bonds yields globally, they moved their target asset allocation from 60/40 equity/bonds to 70/30 equity/bonds and increased the expected return to 3% real from 2.75%. In the context of this shift in investment strategy and return expectations, it is worth bearing in mind this is the largest of the sovereign wealth funds (with circa $1.2 trillion of investments as of July 2020)[iii]. This is a fund that has access to the best advice in the world. Moreover, it has  achieved these types of returns over the long-term[iv].

By our calculation, if USS were to use this rate, it would not be reporting any deficit but rather a surplus of similar order to the headline-grabbing £18 billion deficit.

Intergenerational fairness

This issue of what do future returns look like (and what returns do we need) is also linked to the recent blogs on cash equivalent transfer values.

If we fund a scheme to the levels of liabilities arising from low rates of interest, we are effectively pre-funding those liabilities relative to their contractual values. This also has the effect of lowering the required rate of return on the asset portfolio, and with that, the potential future cost to the sponsor employer. If a scheme is fully funded at this rate, the required rate of return on assets is that rate.

In these circumstances, if a member takes a transfer based on these values, albeit that the transfer may be limited to the degree of funding of the scheme, then it is crystalizing the employer’s cost to that date. Crucially, this transfer enables the employee to extract all of the pre-funding, and denys the employer the possibility of recouping the costs of this prepayment,  as any future outperformance of the asset portfolio relative to this low return, is no longer possible on the assets that have been removed from the scheme.

While it may be the case that transfer transactions throw up gains in accounting terms when those accounting liability values are inflated by the use of low gilt rates, but that is a short-term accounting gain, which comes at the expense of longer-term real gains from higher returns than those we currently observe in the market.

Moving to a gilts-based de-risking strategy has the same effect of crystalising the elevated sponsor costs while removing any possibility of recouping them.

Another comparator

It is worth comparing these transfers with the size of the PPF; at £80 billion they are four time the liabilities of the PPF, and  in reality, the PPF is rather small relative to the overall DB pensions marketplace. In its 15 years of existence, it has assisted just 2% of scheme members and less than 1.5% if measured by liabilities, and it has done so at eye-watering cost. It is apparent that the fear of sponsor insolvency greatly exaggerates the actuality.

The Funding Code consultation makes much of protecting members. This raises the question of just how much of members’ pensions is at risk. The answer is rather little. If we consider the scheme we used in illustrations in earlier blogs, we have 63% as pensioners in payment and 37% deferred. The pensioners in payment are fully covered by the PPF so the risk exposure is limited to the 10% haircut applied by the PPF – so just 3.7% of future pension payments. These have a total future value of just £756k – a small fraction of even the minimal present-day funding cost of the proposed code. It is not difficult to conclude that this funding code strategy is more about protecting the PPF than members.

A final thought

The ‘lower for longer’ view of interest rates is now conventional wisdom. As such, it and its associated returns expectations are suspect. The shifting global demographics imply that we are moving over the coming three decades from the deflationary environment of the past three decades to one in which inflation and higher interest rates will prevail and with that low growth. This unconventional view is explored fully and coherently in Charles Goodhart’s latest book, ‘The Great Demographic Reversal’; we recommend reading it. This is a change in the financial climate that is perhaps as important as the change in the natural climate.

One consequence of that would be that this is surely the wrong time to de-risk in the manner proposed in the DB Funding Code.


In the brief time since we wrote this blog, we have had some very productive discussions with some of our peers. Our attention was drawn to the Canada Pension Plan which publishes 75 year return expectations for each of its two funds. These are 5.95 % (CPI + 3.95%) for the ‘Base’ fund and 5.38% (CPI + 3.38%) for the more conservatively allocated ‘Additional’ fund. Obviously, it is too soon to evaluate the accuracy of these forecasts but the indications to date are supportive. It is notable that both CPP and the Norwegian employ peer review of their assumptions. We feel that the Pensions Regulator’s prescriptions should be subject to similar peer review.

It has also been pointed out to us that the large Canadian funds have proved able to harvest ‘illiquity premiums’ very successfully, with which we agree. However, we will make just one point here, though we will return to the subject in our commentary on the proposed second Code consultation. That point is that it is liquidity in the sense of tradability which has a cost rather liquidity which receives some extra compensation. The means that if you buy liquid securities you pay this cost regardless of whether you exercise the option to use it by selling in a market. Gilts, of course, are the most liquid and most expensive of securities from this perspective. One of the effects of quantitative easing is to lower the cost of liquidity, though relative value differences should persist between on and off the run securities should persist, This lowering of the cost of liquidity should also result in a greater reluctance by dealers to hold large inventories of bonds in pursuit of their liquidity provision role – the returns to capital are less attractive.

Finally, we have had much commentary on the prudence of buying gilts at times when their expected returns are negative in real terms[v]. However, as we have been promised a definition of prudence by the Regulator in the second consultation, we shall leave further discussion until that point in time.

[i] The long-term memory literature results for UK markets are mixed.

[ii] The original comes from Unsafe at Any Speed, Ralph Nader, 1965.


[iv] Those interested in more detail should read their White Paper (in Norwegian) available at:

[v] For more on this aspect see:



Posted in actuaries, advice gap, age wage, pension genome, pensions, risk | Tagged , , , , , | 2 Comments

L&G shows we can all innovate if we try!

FCA sandbox


I have been reviewing the performance of various pension providers responding to  over 500 letters of authority issued by the 300 testers as AgeWage progresses through the FCA’s regulatory sandbox. The performance is mixed.

This blog looks at how some pension providers are rejecting innovation and how one has built a powerful business – by embracing smart contracts and the block chain. The lesson is clear – we can innovate if we try.

Abuse of our right to use e-signatures

ipo 2

A large number of pension administration teams still consider digital signatures as insecure and demand we print out digitally signed authorizations. Some go so far as refusing to accept or pass any data using email meaning that information requested under the GDPR arrives by post and has to be scanned back to digital format.

The most egregious example of these  breaches  of data rights is from an insurer whose email footer reads;

We’ve made a number of changes to make it easier to do business with us online, including submitting paperless instructions, removing the need for client signatures and managing your investments safely and securely online. 
We have a series of emails with this footer which begin
Unfortunately, we are currently unable to process your request as the provided Letter of Authority (LOA) has been electronically signed.

Providers who still take this approach might want to read the 124 page document from the Law Society or read this abridged summary entitled

“Electronic signatures legally valid, Law Commission confirms”


The impact of refusing to acknowledge this determination is that customers do not get to see the rates of return they have enjoyed from their savings in real time and can’t apply this data to get bench marked performance to compare  their pots.

Abuse of our right to be delivered portable data

Let’s remind us what the GDPR says about our rights to portable data.

  • The right to data portability allows individuals to obtain and reuse their personal data for their own purposes across different services.
  • It allows them to move, copy or transfer personal data easily from one IT environment to another in a safe and secure way, without affecting its usability.
  • Doing this enables individuals to take advantage of applications and services that can use this data to find them a better deal or help them understand their spending habits.

These rights are not recognized by many of the administrators we deal with.  They re-interpret them for their own convenience.  One of our major insurers has decided to limit the data they will provide their policyholders to the last two years, arbitrarily creating an internal rate of return that starts in 2018 whenever the policy was taken out.

I could go on. The point is that insurers cannot fight innovation by hiding behind security issues. It is up to them to make sure they comply with the rules without breaching data protocols.

But insurers do not have to behave like this

When there is a commercial case to adopt technology, insurers can and do. This is an extract from an article in Forbes magazine from Maarten Ectors, Legal & General’s Chief Innovation Officer


One challenge faced by the reinsurance market is the high degree of complexity inherent in these contracts. What’s more, setting them up can be a labor-intensive exercise. Parties and counterparties must verify and agree to complicated business rules. Contrast this with consumer insurance policies that can be set up in a few clicks.

At Legal & General (L&G), we use blockchain to break through these challenges to make complex reinsurance more efficient, affordable, and effective.

We are .. a provider of reinsurance for the pension risk transfer business. In pension risk transfer, an insurance company provides a guarantee to pay the annuities for members of a pension fund for the rest of their lives.

L&G has demonstrated an in-depth understanding of mortality trends and longevity risk, and proficiency in payroll, administration, and communication services. As part of our passion for moving the industry forward, we are pursuing innovative approaches to setting up contracts using blockchain.

Even though property and casualty insurance has been an early adopter of blockchain, we believe it is equally suited to the life and annuities sector and particularly the pension risk transfer business.

We considered several existing systems, but none could deliver the combination of security, flexibility, and auditability of the blockchain. We are convinced that blockchain is uniquely suited to the long-term nature of annuities, as it allows data and transactions to be signed, recorded, and maintained permanently and securely over the lifetime of these contracts, which can span more than 50 years.

It enables parties to exchange and agree upon data, to digitally and cryptographically sign the data, and to ensure that the data is perfectly traceable over any period of time—all without the need for a centralized authority. All members maintain a copy of the ledger database, providing greater transparency and independence.

Numerous benefits flow from this approach. First, blockchain provides a single version of the truth that remains immutable for the entire lifetime of the contract. At any point in the future, we can “turn back the clock” to any point in the lifetime of the contract, whether 5 years or 50 years in the past. We will be able to clearly understand what happened: who made which changes and when, who agreed to them, and the effects they had on the agreement. Given that pension contracts can last for decades, this is an essential feature.

Second, blockchain enables the use of smart contracts, which embody the business logic of a contract in code. This enables rapid execution of agreements and reconciliation of transactions, which are not possible when tracking contracts in Excel spreadsheets or using a ledger database technology with SQL-like interfaces. With a smart contract, we can automate complex transaction logic, enabling one-click execution. In our solution, we use smart contracts to manage pricing, claims, financial reporting, and collateral, providing an end-to-end ecosystem to streamline the reinsurance marketplace.

Our solution, known as Estuare, replaces multiple processes and systems traditionally used to support each function of reinsurance. The participants are L&G, direct insurers, and other reinsurers we partner with. We are exploring extending the system to more partners and insurers. Estuare has proven to cut monthly reconciliation from weeks to minutes. We expect it to lower costs, increase agility, and reduce risk for the pension risk transfer market. For the thousands of individuals whose pensions depend on risk management, this is exceptionally good news.

Feedback from clients that have piloted the system has been positive, especially about the simplicity and clarity of the underlying smart contract and the auditability it creates over any period. We are tremendously excited about the potential of blockchain to transform the life and annuities marketplace—and working closely with AWS to realize it.

Innovation where it suits

I totally agree with the approach adopted by L&G through Estruare. I suggested to its head of workplace pensions when some years ago she was exploring a new record-keeping system.

“Adopt smart contracts and move forwards” – said I

Right now, L&G are struggling to meet data requests from their workplace pension clients – corporate, trusts and individual. If only workplace pensions could have access to the technology that has revolutionized reinsurance!

The selective adoption of new technology seems to select against the customers who need innovation most – the DC savers. I do not single L&G out in this, indeed they have been a force for good through auto-enrolment.

But we have an immediate and pressing requirement for the sharing of pension data. We are in the midst of a consultation on data standards for the pension dashboards.

Whether it be through the adoption of the smart contracts – which are at the heart of the blockchain or by simply accepting the value of e-signatures and portable data at this difficult time, it is time we saw innovation for pension savers.


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Value Assessments and False Prophets



You shall know false prophets by their fruits

The FCA are said to be unhappy with the results of its first round of value assessments.  They could do worse than re-read the sermon on the mount and in particular Matthew 7 15-16.  But more of that in a moment.

There seems to be a gap between what a consumer sees as good value and what fund managers do. To be blunt, consumers do not want to judge a book just by its cover. They want to know what really happened to the money they handed over and how it  “did”.

These simple questions have to be the priority for value assessments, but once again financial services companies, left to their own devices have proven deficient in providing a common definition for value and too little practical help on working out what our funds are really costing us. The latter issue is particularly concerning for vertically integrated fund managers like SJP where the fund is paying for advice.

The lack of prescriptive guidance from the FCA on how managers should define value means that the first round of assessments vary widely from manager to manager. Why can’t they just tell us what we got?

Of course the absolute return of a fund is not the only standard by which a fund should be judged. If your fund claims to be invested for social purpose , you expect to see how that purpose was followed. If you decided to invest in technology , you want to know how you did compared with investing in the technology benchmark index. But the alpha and omega of value assessment has to be based on consumer “experienced” outcomes.

I think I speak for most consumers in saying that at the heart of any value assessment, we expect to see what we got for our money . The chief indicator of that is the internal rate of return on our investment over the period we gave our money to someone else to manage.

Beware false prophets

The review said the FCA was probing the process and governance behind the value assessments rather than the statements themselves.

And pleased to read co-founder of AgeWage, Chris Sier’s comment that that while cutting fees was eye-catching, it was only meaningful if accompanied by concrete steps to improve performance.

“Only if you do both will you get good value for money –  cutting fees on an underperforming fund just makes a bad fund cheaper.”

The famous phrase – “you shall know them by their fruits” would seem to be one guiding principle the FCA could follow. As the FT points out

The fact that some managers with high-profile performance issues did not identify a single failing fund raises questions about whether some groups have taken a wide-ranging interpretation of what constitutes value. For example, Hargreaves Lansdown’s value report was blasted as a “whitewash” by investor campaigners for giving a clean bill of health to its multi-manager funds, despite their large exposure to the failed Woodford Equity Income fund.

Clearly many funds that failed to deliver rates of return to consumers in line with expectations they gave in their prospectus and marketing literature made claims that turned out, at least for the period of the assessment to be false.

Thinking about the context of “you shall know them by their fruits”, I went back to Matthew 7 and re-read the Sermon on the Mount

Here is verse 15 which warns of false prophets

Beware of false prophets, which come to you in sheep’s clothing,

but inwardly they are ravening wolves

and here is how you can conduct a value assessment

Ye shall know them by their fruits.

Do men gather grapes of thorns, or figs of thistles?

Value assessments on the consumer’s terms

For the consumer, the idea that a fund manager can set the homework , do the homework and then mark the homework, is difficult.

Currently only a quarter of the fund boards who do the value assessments are independent of the fund manager. Indeed, their independence is compromised by their being paid by the fund manager.

As with IGCs and commercial master trusts, the incentive to stand up for consumers when it puts at risk your burgeoning “portfolio career”, is greatly diminished.

The consumer is looking for a champion but the fund management industry seems reluctant. The Financial Times ends its report on this year’s assessment , quoting the CEO of the Funds Board Council (representing fund directors)

“The Cadbury report [on corporate governance reform] was published in 1992 and we’re still talking about it today. If we expect the fund industry to make such fundamental changes in the first year [of new rules coming in], we’re asking too much.”

Many will be reminded of the wayward prayer of a follower of Chris, St Augustine

Lord make me pure  but not yet

Changing expectations in 2020

2020 has been a year when we have expected delivery on promises quickly and authoritatively.  The pandemic, climate change and Brexit have made us less tolerant of prevarication and more definitive about what we want.

If fund managers think that the slow implementation of the Cadbury report can be considered a comparator for the delivery of proper value assessments, then the FCA should intervene.

I as a consumer have no  difficulty in paying the right price for something, but if I can’t see what I’ve bought, how can I know if I paid the right price?

The process and governance of value assessments needs to meet consumer expectations and the value assessments I have read are simply not telling me what I paid and what I got.

We need a way to find out what we’ve got for our money and that means giving us access to our own experienced internal rates of return..the benchmark rate of return for our investment and a way to make sense of the difference.

Investors deserve no less.


Augustine by Sandro Botticelli (1480)


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Covid-19 actuaries give us their monthly medical update

Monthly medical update – Issue 2

4 September 2020

By Nicola Oliver and Joseph Lu for

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.

Given the pace of change with ‘all things COVID’, it can be hard – even for those who follow all the updates – to know what the overall state of play is regarding medical developments in particular, as opposed to just the most recent news.

In this new type of Bulletin, we provide a summary of what we believe the current medical position to be. We will aim for these summaries to be accurate as at the date of publication but they will of course date rapidly, so we plan to issue an updated summary each month.


As at 3 September 2020, the following potential vaccines were in clinical trials[1]:

Stage Phase 1 Phase 1/2 Phase 2 Phase 3
Vaccine Candidates 12 11 3 8

In addition, there around 140 preclinical trials in progress for vaccines to tackle SARS-CoV-2.

Clearly, the vaccines in the more advanced stages of clinical trial development hold the most promise. The compound under investigation by the University of Oxford has demonstrated the ability to provoke both an antibody and T-cell response. However, the durability of this response is still unknown. Results from the larger phase 3 trials will shed more light on its potential success.

A candidate vaccine developed by U.S. biotech company Moderna and the National Institute of Allergy and Infectious Diseases (NIAID) was the first to be tested on humans in the U.S.. Results from this ongoing study also report evidence of neutralizing antibodies in participants.

The compound being developed by CanSino Biologics, in collaboration with the Beijing Institute of Biotechnology, has also demonstrated promising results. The study has reported that around 90% of the participants developed T-cell responses and about 85% developed neutralizing antibodies, according to the study.




  • Corticosteroids have been shown to be effective in severely ill patients hospitalised with COVID-19 who are receiving mechanical ventilation. A recent prospective meta-analysis of clinical trials of critically ill patients with COVID-19 concluded that administration of systemic corticosteroids, compared with usual care or placebo, was associated with lower 28-day all-cause mortality. (steroids)
  • Results from trials using the antiviral drug remdesivir indicate that patients who received remdesivir had a 31% faster time to recovery than those who received placebo. A phase 3, randomized, open-label trial showed that remdesivir was associated with significantly greater recovery and reduced odds of death compared with standard of care in patients with severe COVID-19. (remdesivir)



  • There are currently two types of diagnostic test available. The molecular real-time polymerase chain reaction (RT-PCR) test detects the virus’s genetic material, and the antigen test detects specific proteins on the surface of the virus.
    • RT-PCR tests are almost 100% accurate if carried out correctly.
    • Antigen tests are less accurate but have a faster turnaround, potentially under one hour. However, false-negative results from antigen tests may range as high as 20-30%
  • Antibody tests are not diagnostic tests and are used primarily to identify whether you’ve recovered from COVID-19. Antibody tests also are subject to false-positive results. Research suggests antibody levels may wane over just a few months. And while a positive antibody test proves you’ve been exposed to the virus, it’s not yet known whether such results indicate a lack of contagiousness or long-lasting, protective immunity.
  • Unfortunately, it’s not clear exactly how accurate any of these tests are. Development in all test types is ongoing.



  • There is emerging evidence that those who have previously been confirmed positive for COVD-19 may not develop a sustained antibody response and are susceptible to reinfection.
  • Several cases have been reported (reinfection); this has implications for vaccine development and strategies to contain the virus.




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Reasons to be excited about Marcelo Bielsa’s Premier League arrival

Guest post from Oliver Tapper

If you hadn’t heard of Marcelo Bielsa when he became Leeds United manager in June 2018, then you almost certainly will know his name now. In just two seasons at the club, Bielsa has been involved in a spying scandal, won a FIFA Fair Play Award, and been promoted to the Premier League.

On 12th September Bielsa will manage in his first top-flight game against the Premier League champions Liverpool, in what is likely to be one of the most anticipated opening games in Premier League history. But what is it about Bielsa that has given him cult status in Leeds, and why should you be excited about him managing in the Premier League?

He is ‘The Crazy One’

In 1992, Marcelo Bielsa suffered a 6-0 defeat to San Lorenzo in the Copa Libertadores while managing the prestigious Argentinian club Newell’s Old Boys. That night a gang of around twenty enraged Newell’s supporters travelled to Bielsa’s house and demanded he come outside to explain the team’s performance.

Bielsa did go outside; however, it was not to talk about the game. When Bielsa opened the door, he was holding a grenade and allegedly told the fans that if they didn’t leave he would pull the pin. This was the moment that led to Bielsa becoming known as ‘El Loco’ or ‘The Crazy One’.

English football has seen many characters in its time, from Mario Balotelli to Paolo Di Canio, the Premier League is rarely short of eccentric protagonists. But stories about ‘El Loco’ make Balotelli letting off a firework in his own house look about as dangerous as a cosy night in with James Milner.

Marcelo Bielsa turned up to Leeds United 100 year celebration black tie dinner in his Leeds tracksuit

In 1985, while working as a youth development coach for Newell’s, Bielsa went on a scouting trip to Sante Fe to assess and hopefully sign a promising young teenager. Except, this was not the usual meet the family and talk to the young player scouting trip. Bielsa arrived at 2am and asked the teenager’s parents if he could see their son’s legs to check whether they were ‘footballer’s legs’. After inspecting his legs while he slept, Bielsa signed the teenager on the spot in perhaps the most bizarre transfer agreement of all time. Oh, and by the way, as if this story couldn’t get any weirder, that teenager was Mauricio Pochettino.

More recently, when the Leeds board contacted Bielsa in 2018 he spent the rest of the night watching footage from Leeds’ previous season. By the time a face to face meeting had been set up, Bielsa had watched every single game of that season in full, that’s 70 hours worth of footage. To call Bielsa an obsessive is to massively underestimate the man’s attention to detail, even if it is a bit crazy.

It does not seem like Bielsa’s entertaining antics and methods are likely to change anytime soon. It’s for this reason that everyone should be excited about a season of Premier League football with Marcelo Bielsa. ‘El Loco’ is effectively a supercharged Jose Mourinho, so we should all be ready to expect the unexpected when the season starts in September.

Bielsa vs Lampard Part Two

As if the historic Chelsea vs Leeds rivalry didn’t need any extra spice, well try adding to the mix an unhappy personal history between the current managers of both clubs. Chelsea vs Leeds on the 5th December is definitely a fixture you should be circling in your calendar and clearing your plans for.

If you’ve been living under a rock for the last couple of years and don’t know why Marcelo Bielsa vs Frank Lampard part two is such a big deal then let us explain what happened in part one.

In January 2019, Leeds United were caught ‘spying’ on Derby County ahead of a crucial Championship fixture. Marcelo Bielsa had sent an intern to the Derby training ground to observe then manager Frank Lampard’s plans and tactics. The spy was caught and reported to the police, resulting in a mass media hurricane referred to as ‘spygate’. Bielsa was widely criticised for his major part in the scandal and Leeds were eventually fined £200,000 by the league.


Frank Lampard’s response to the scandal was to go after Bielsa, who he said had ‘violated fair play rules’. The comments were water off a duck’s back to Bielsa though, who even gave an unprecedented press conference explaining why he spied and his meticulous process for preparing for every match.

It’s fair to say that there is no love lost between these two managers which makes both fixtures between Leeds and Chelsea particularly mouth-watering prospects for the coming season.

He doesn’t fit the footballer mould

Whether you like him or loathe him, one criticism that cannot be levelled at Marcelo Bielsa is that he fits any stereotype. This will perhaps become most clear when Bielsa becomes a Premier League manager. The Premier League, much like any other major European Football league has become associated in recent decades with money, glamour and fame. Staggering weekly wages, flash cars, and luxury mansions are now part of being a top flight footballer or manager.

Who could forget when Manchester United funded Jose Mourinho living in the Lowry Hotel between May 2016 and December 2018 for 895 nights in a $1,040 per night room. Now contrast that with Marcelo Bielsa, when Bielsa moved to Leeds the club housed him in a high end spa close to Harrogate that was probably not dissimilar to Jose Mourinho’s living situation at the Lowry. However, Bielsa quickly got tired of living in a hotel and instead decided to move to a modest apartment in Wetherby because it was within walking distance of the training ground. Bielsa walked the 45 minutes to the training ground every day, spent time with locals in coffee shops, and did his weekly shopping at Morrisson’s. There is nothing ‘Premier League’ about Bielsa and his lifestyle and that surely is something that we should be excited by.

For all of El Loco’s eccentricity and sheer weirdness, he is a man of principles and values and that must be respected in him. Bielsa refused to let Leeds pay the £200,000 fine for spygate, instead funding it himself. In 2018, he donated 2 million pounds to Newell’s Old Boys calling it a repayment for all that the club had done for him. This is a man who once took time out of football to live in a monastery, and on other occasions to retreat to relative anonymity on his farm.

Bielsa’s different approach to life is one that we can all look forward to seeing in the Premier League next season and his philosophical outlook should provide plenty of food for thought for players, managers and fans alike.

His teams play amazing football

It’s not just Bielsa’s approach to life that is different: Bielsa-ball and his approach to football is unique and it’s an exciting prospect to see how it fares at the top level. ‘The Bielsa-way’ has a cult following among football fanatics and coaches within the game. Pep Guardiola is among one of many world-class managers who see Bielsa as a trailblazer for modern footballing tactics.

Leeds fans have bought into the ‘Bielsa Way’

While you will see a few of Bielsa’s trademark tactics in every game he manages, he demonstrates a great deal of strategic flexibility, thinking deeply about each match like an intricate game of chess. Against teams with a lone striker Bielsa typically uses a 4-1-4-1 formation; however, when an opponent plays two up front Bielsa opts for a Football Manager-esque 3-3-1-3. This unusual formation serves as a means of overloading the wings and creating tactical interplays that allow his teams to get through even the most congested areas.

Perhaps the most famous aspect of Bielsa’s style that has become a staple of the major European teams in the last few years is the ‘high press’. Bielsa is widely accredited as the instigator of the high press and it makes his teams a joy to watch as they play each match at a frightening pace.

As a result, Leeds training sessions are intense and involve constant running. This relentless intensity has led to various commentators referring to Bielsa’s style as ‘Murderball’. In the last few seasons newly promoted Wolves and then Sheffield United have had major success with their relatively new tactical approaches. Bielsa’s Leeds will offer something new and they are at the top of our ‘ones to watch’ list this season.

Predict Premier League games in the new season on Tenner!

It might be pretty pointless trying to predict what Marcelo Bielsa is going to do next, but one thing that is definitely worth predicting are next season’s Premier League matches on Tenner. Our free-to-play predictions games offer you the chance to win cash prizes for free! You can read more about what Tenner is here or check out more information on our homepage.

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Sam Marsh’s response to TPR’s DB Funding Code

db code

sam marsh

Sam Marsh is a lecturer and branch president of the Sheffield UCU. He has responded on his own behalf to TPR’s consultation.

My initial reaction when reading the consultation was “why consult?”. At that time we were concentrating on staying safe and Government had effectively assumed a state of martial law. We had voluntarily agreed to abide by its rules so when the Pension Regulator laid down its prescription for Defined Benefit funding, it seemed (to coin a phrase) that resistance was futile.

I have been proved wrong. The consultation has brought forth some great thinking from Iain Clacher and Con Keating and some great responses from Ros Altmann and now Sam Marsh. I am pleased to see more great responses in my inbox, keep them coming they are getting read (send your submission to

They don’t have to disagree with the new funding code (though most submissions do), you will be guaranteed a non-edited publication.

Thanks to Sam and to all he and the UCU are doing to support the cause of open DB pensions, thanks too to dissenting  voices like Sharon Bowles in the House of Lords and thanks to David Fairs at TPR for his urbane gentility throughout.

We are lining up a lamb to the slaughter David – in support of your efforts to raise money

Keep on running everyone!

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Ros Altmann’s response to TPR’s DB funding code consultation.

db code

I have asked for responses to the Pension Regulator’s consultation questions and Ros Altmann has obliged. If you have submitted a response and would like your replies to be publicized in a similar way, I would be delighted to assist.

Clearly as a member of the House of Lords and former Pension Minister, Ros’ replies will be of particular public interest .  I have split them into two slideshows for ease of viewing.

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Please forward your consultation responses in word or PDF to

Ros Altmann new

Ros Altmann


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They don’t do plagues like they used to


Daniel Defoe’s Diary of the plague year was published in 1722, over 50 years after the 1665 plague that struck the City of London. They don’t do plagues like they used to.

All the same, it has been a bizarre few months for those of us who stayed in the City and the manager of the Cockpit pub tells me he has not left the City boundaries since early March.

All the better then that the pub is open now and looking no different than the day it closed on March 19th. (I lie – the carpets are cleaner, the brown is browner).


The pubs of Blackfriars

Legend has it that when Henry VIII dissolved the monasteries (Blackfriars priory among them) , the land remained with the Church, even it the church was removed from the land. While the City of London swung to a puritanical lockdown, church land was outside the control of the City fathers.

The site of the Cockpit (now and then in Ireland Yard) was church land and the string of pubs that led up from the river were known as the four castles, each echoing Baynard’s Castle, a Norman stronghold and residence of Edward III that still gives its name to the ward to the East of Blackfriars.  Edward decided to move his glad-rags up to the Kings Wardrobe which gave our neck of the woods some glamour in the middle ages.

The Cockpit was nicknamed the fourth castle being the furthest from the river. Those who work in 60 Queen Victoria Street will be pleased to know that the BNY Mellon’s building is built on the sites of two other castles.

Pubs were able to flourish on church land as were brothels and playhouses. Twelfth Night and the Winters Tale both had their first performances in the Winter Playhouse, situated in what is now the Apothecaries Hall adjacent to Playhouse Yard.

For Defoe, this was a depraved but most enjoyable part of London, It was of course cursed by the plague and destroyed by the fire that engulfed the City in 1666. When Shakespeare bought property in Blackfriars (probably the other side of Ireland Yard from the Cockpit), it would have been inside Blackfriars . Shakespeare’s theaters in Bankside, Moorgate and Blackfriars, were even then handily sited for pubs and whore houses.

They don’t do plagues like they used to.

COVID-19 might well have been a plague had it arrived in 1665.

Week after week I bashed pans in the intersection of Ireland Yard and St Andrews Hill (formerly Puddle Dock Hill) at the entrance to  Wardrobe Terrace (marked in green)


The  street plan for my building in “Fryer Street” is that of the sixteenth century (above) It survives though the church was gutted in 1666 and 1940.


St Andrew by the Wardrobe , the Wardrobe Terrace is behind

There is a priest hole in the church and in the pub, many eminent punters would not be seen entering Blackfriars by the gate but preferred the subterranean passage between the ale house and the prayer house (for obvious reasons).

As I stood banging my pan at this little cross-roads , I thought how little our danger compared with our forefathers for whom life was rather less than half as long.

“Solitary, poor, nasty, brutish, and short”. Hobbes described the natural state of mankind in Leviathan and we would do well to remember that we never had a plague so good.

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BONFIRE. Keating and Clacher conclude their articles on the DB funding code


Con Keating and Iain Clacher

After critically reading and re-reading the consultation on the new DB Funding Code and its associated documents several times, we decided that we would not submit a response to it.

Our principal reason was that it read to us more like a marketing document than a true consultation.

But having engaged with numerous consultations to see no meaningful change in approach or willingness to steer a different course, regardless of the facts, we thought it would be better to write extensively and hopefully spark some meaningful debate in the run-up. We are always available if anyone including the Regulator wish to debate and discuss.

Regarding the consultation itself, it states that it has been prepared in compliance with the government’s consultation principles. It even lists nine key principles. By our reckoning, the consultation breaches more of these principles than it complies with.

The problem with marketing documents is that they do not invite challenge and criticism; in this case they strongly suggest that the Regulator is not interested in listening to or changing anything. Their reported reaction (one of being less than happy) to the Bowles Amendment supports that view. In other blogs we have criticised the use of misrepresentative language such as “objective”. The dominant question that a marketing document seeks to provoke is: ‘Where can I get it?’ It is the setting out of a stall.

One major issue with the current consultation is that there is no cost-benefit analysis in either the consultation or supporting documents, though we are assured, in the Executive Summary, that: “We will take account of…our assessment of impacts.” This naturally raises a question: if this has been done, why not share it with us? If it has not been done yet, on what basis is the support for so many of the assertions and assurances in the Consultation?

The Introduction of the Consultation implies an objective to: “…ensure DB schemes’ efficient run-off phase”, which naturally raised concerns for open schemes and led to the Bowles Amendment. Taken together, these points led us to investigate the cost, impact, and efficiency of the proposed Code.

We began by attempting to model the cost to the entire universe of pension schemes, which the Consultation tells us have current technical provision liabilities of £1.9 trillion [as at 31st March 2019 – para 98 of the Consultation Document]. Unfortunately, there is insufficient information in the Consultation or the public domain more generally to do this reliably.  With many heroic assumptions and inferences, we simulated ranges of possible total cost outcomes.

The results ranged from £10 billion to £600 billion, with the 5% – 95% range being £80 billion – £200 billion and the most common outcomes lying in the range £100 – £120 billion. Perhaps the only significant result was that there was no instance of a net gain rather than cost. These results also take no account of the higher costs of administration, which we would estimate to be of the order of £500 million per year. We note that these simulations are far higher, perhaps orders of magnitude higher, than the risk exposures reported by the Pension Protection Fund. Given our low confidence in these results, we concluded that they could not form the basis of any further research or analysis and decided that instead we would investigate the costs and impact on a few small DB schemes[i]. We report here the results for one of these as it is extremely informative. We do not claim that this scheme is typical or representative.

An illustration

We consider one small open scheme, which is large by comparison with its sponsor employer. It has technical provisions and assets of £25.8 million at December 31 2019, while the sponsor has equity of £8.3 million with annual sales of £11.25 million and pre-tax profits of £1.24 million. The sponsor employer is small but of prime credit quality.

Although the scheme is open, we treat it as if it were closed to new members and future accrual, and then consider the position 25 years from now as the long-term objective (LTO) horizon. The scheme is today in balance with an expected rate of return on assets of 6.1% pa; this is high by comparison with other reported discount rates, but it is lower than the scheme’s twenty-year historic returns performance of 7.6%. We report this historical investment performance figure for completeness but do not rely on it in any of the analysis which follows.

At this 25-year forward point in time, it should be funded to a self-sufficiency basis, which we take to be a discount rate of 1%. The amount outstanding at this future date is 30.4% of today’s total projected benefits but only 10.9% of today’s present value. At a 1% discount rate the scheme would be funded at 97% of the buy-out level and 91% of the ultimate projected liabilities would be 100% funded.

It is immediately apparent that the proposed Code is a far from comprehensive solution for any scheme, focusing on a small tail of member benefits.

At this time, the Macaulay Duration[ii] (at 1%) of the scheme would be 9.23 years and pensioners in payment would account for 63% of the projected liabilities. The scheme would be mature.

As an aside, we do not believe that duration is a suitable measure of scheme maturity, as its value is dependent upon the prevailing level of interest rates. The duration of a perpetual is the inverse of its yield, so a perpetual yielding 1% would have a duration of 100 years, while that same perpetual would have a duration of ten years at a 10% yield.

The present value of the residual liabilities at this future date using a 1% discount rate is £18.6 million. This is an increase of £5.7 million on the current projected funding required (a 45% increase). This has a present value at 6.1% of £1.3 million. This is the amount of special contribution required today to arrive at a 1% funding level, 25 years from now.

This is slightly more than one year’s pre-tax profits. It is 1.7 times current annual contributions. It would require shareholders to forego any dividend. This is well within the employer’s current liquidity of £1.1 million and existing unutilised overdraft facility of £2 million.

But the Code does not end here; it requires the scheme to have transitioned to a low risk, and low return portfolio (1%), in 25 years from now when this level of funding is required. This will further raise the cost to the employer. For modelling purposes, we choose a uniform rate of transition over the 25-year period. The portfolio’s expected return declines from 6.1% to 1% and estimated one-year volatility from 20% to 10%. We then make a very important choice: we assume that only the assets currently supporting these future claims (£ 2.8 million) are ’de-risked’. If we ’de-risk’ all, the cost rises dramatically.

The cost in this limited case rises to £11.9 million in future terms (2.1 times the earlier cliff-edge case). This would require a current special contribution of £4.97 million, four years’ pre-tax profits, and 44% of total annual revenues. In the opinion of management, with which we concur, this would simply not be supportable. It would preclude any new investment for at least three years, damaging future productivity and sales.

If we were to ’de-risk’ the entire portfolio, the position becomes even more dire. It would be a future shortfall of £15.7 million requiring a current special contribution of £6.6 million, 5.3 years of current pre-tax profits. This would be truly catastrophic; to quote one director: “If we liquidated the remains of the business, we might just be able to cover employees’ redundancy payments.”

These costs are material given the size of the scheme; respectively 19.2% and 25.5% of total scheme assets.

How much risk to the employer would be removed by ‘de-risking’?

We use as our metric the expected loss given loss. We assume one-year volatility of 20% for the existing portfolio and 10% for the ‘de-risked’ portfolio. In the current situation, the risk to the sponsor at the future date is £916,955, while for the ’de-risked’ case it is £1,068,535. In other words, the proposed new Funding Code would increase the cost to the employer of pension provision by a very substantial amount while also adding to the employer’s risk exposure. We wonder how this could be considered compatible with the Regulator’s duty to employers to minimise any adverse funding impact on the sustainable growth of an employer.

The employer and trustees are comfortable with a current risk exposure of £1.9 million, arising from the volatility of the asset portfolio; particularly so, given its odds ratio of 2.65 :1 (Expected gain given gain: Expected loss given loss). By contrast, they are not comfortable with £1.07 million exposure given its odds ratio of 1.35: 1. The employer has equity capital resources of £8.3million; its risk exposure is 4.3 times covered in the present case. By contrast, the risk exposure coverage in the two ‘de-risked’ portfolio circumstances are respectively 3.12 and 1.59 times. This is a deterioration of the sponsor covenant equivalent to that from AAA to B.

We find it incredible that the 30% tail of the distribution of projected benefits should be so risky that it requires an increase in funding of 20-25%.

The claims to efficiency of TPR’s approach are surprising and it is well-known that pure funding solutions are sub-optimal; as the age-old adage has it, prevention is better than cure.

With this in mind we next examine the cost of an insurance solution. This is a policy with deferred effect where, if the sponsor fails, the insurer steps in and pays the full benefits as originally promised. This is the cover which the PPF could and should have provided.

It has been suggested to us that it is not wise to provide the top cover via the PPF. However, we see the precise form of arrangement for the provision as a matter for later discussion. (See endnote[iii]) )

The cost today of this pension indemnity cover[iv] is £343,609.10. The policy also has a value as an asset of the scheme. The value today of the policy is £1,370,423.12. This policy asset will increase in value until the date at which cover commences and then decline rapidly as pensions are discharged. In addition, its value moves in a counter-cyclical manner; its value will increase when scheme assets fall in value. Perhaps the greatest attraction of such an approach is that it would allow the scheme to follow return-optimising investment strategies.

It is clear that TPR claims to ‘efficiency’ are, at the very least, open to debate.


If we return to our earlier attempts at macro-level estimations of the costs of the code. The most extreme outlier, £600 billion, would correspond to the apocalypse of all schemes failing entirely unfunded at the objective date. In fact, the low estimates of cost are as high or higher than the highest estimates of the risk posed by schemes. It appears that this low-dependency ‘solution’ costs five to six times as much as the likely losses arising from expected sponsor and scheme failure. The cost to the taxpayer in lost corporation tax receipts is also substantial (as tax relief is given to these ‘costs of the code’), and particularly meaningful in the current pandemic circumstances.

The Regulator has failed to make any case for a special regime for schemes in run-off, let alone open schemes.

We began this series of blogs and articles with a call for a bonfire of regulation; at the very least we should start with this proposed Funding Code.

[i] We examined four scheme in total, varying in size from the £25 million of the reported scheme to a maximum of £180 million of liabilities. The results for these other schemes were broadly similar to those reported. For two of these schemes we do not have access to sponsor financials.


[iii] A range of issues have been raised and some suggestions made. For example: All of the current members in the PPF will ask for an upgrade. Better politically to require a compulsory mutual insurance or support fund – perhaps with 10%-25% of the annual premium being born by scheme members and collected by reducing future revaluation/ pension increases- should be weighted by value of pension – and can put in a exemption for small pensions.

[iv] The cost of this cover may be calculated in a variety  of ways from the complexities of forward start strips of credit default swap contracts to differences in single premium current start policies. The results are not highly sensitive to the method, though  they might be relevant in an active traded securities market. The figures quoted in  this blog are derived from the difference between two policies – one covering the entire period and one covering the entire scheme tenor.


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

Has our attitude to wealth changed with Covid or with Brexit?


Covid brexit.jpgIt seems that we are in for another round of will he won’t he over wealth taxes. He being Rishi Sunak and the taxes in question surrounding business profits, wealth in excess property and the distribution of pension tax relief.

And once again the argument is being couched in terms of an internal discussion within the Conservative party about votes.

Of all the things that needn’t worry the Conservative party right now, it is votes. They have a massive majority and they are dealing with a series of issues resulting from the pandemic, all of which are immediate and some of which are existential.

But there is another good reason for Sunak to ignore the squeals of the backbenchers and that is the votes that won him the election weren’t from the wealthy but from the relatively deprived areas of the country which had traditionally been known as working class. Many of these people will not be working right now and for them , paying more tax on pensions, second homes and business profits will play out well. They quite rightly point to increases in VAT and council tax and the cuts in benefits and social services and are saying “we’re not paying again”.

Because they paid last time and while the pandemic can’t be blamed on corporate greed, there is an underlying resentment that while services have gone down, pay has not gone up and most people feel cheated – even if they don’t know why.

Cheated and you don’t know it!

What is amazing about there being 1.7m people in this country overpaying their pension contributions by 25% is that the only people who understand why are tax specialists.

The traditional spokespeople for those on low earnings – the unions – have been quiet about the net pay anomaly. The Labour party has hardly mentioned it. Ironically it has been those like Ros Altmann, in the House of Lords who have become the champions of fairer taxation for those on low incomes.

The great pension rip-off is the redistribution of tax opportunties from the poor to the well off and if Sunak wants to have a go at pensions he should appeal directly to the voters who got him his job.  They’re the ones who are owed.

Labour, Liberals and Greens are now the parties of the mass affluent.

And this is why there is political capital for the conservative party in pensions. They are not fighting their voters, they are fighting Labour votes. London, where average incomes are noticeably higher than anywhere else in the UK , is Labour’s heartland.

And I have absolutely no time for the whingeing of the homeworking classes. The homeworkers are the lucky ones, they are not having to worry about the end of furlough, they don’t have to ride public transport, they can choose how they organise childcare when the kids go back to school. Financially they have been convenienced by the pandemic with nothing to pay for commuting and with the perks of Government give-aways none of which have been means-tested.

Has our attitude changed to wealth because of COVID

The pandemic may not have changed us as much as we think. I suspect that attitudes to money are strongly ingrained in families and communities and that the fear of losing the tax priviledges around pensions , property and business equity is as strong among the mass affluent as ever.

What has changed is the empowerment of those who don’t have money in the political pecking order. The Conservative party is still run by Wickhamists and Etonians but it can see its power base being in the Brexit loving communities who voted for it last year.

There is an opportunity for Sunak to deliver a radical redistributive solution to the challenge of COVID and I suspect that it will be his confidence in his party’s appeal to low-earners , not the appeal of social justice , that will give him courage.

That said, I have learned not to underestimate the power of the shires and of the funders of the Conservative party. Sunak will need to be a stronger chancellor than any of his recent predecessors to tax the rich, and I include Labour chancellors in that estimation.

COVID may be the excuse, but the political swing occasioned by Brexit is what may drive change.

Posted in advice gap, Brexit, coronavirus, pensions | Tagged , | Leave a comment

Dangling temptation in our way – DB transfers in a time of pandemic

Final salary transfer

I read this and my heart sunk.

It sunk for the hundreds of thousands who have taken their transfers and must now be wondering why they didn’t wait for ol’man Covid.

It sunk for those advisers who have either been barred , blocked or chosen not to offer transfers.

And it sunk for those deferred pensioners with the right to a cash equivalent transfer value who are going to read the LCP research in the FT and go on a hunt for an advisor to unlock their treasure chest.

Bart 2

It simply doesn’t make sense that while markets have fallen, DB transfers have risen by 30% in the pandemic. It exposes the nonsense of DB pension valuations for what they are, academic exercises uncoupled from reality.

Why oh why?

This is the lunacy of pensions lock-down, the mania for self-sufficiency, the drive to de-risk.

All the prudence that has been built into  DB pension schemes has been at a cost to jobs, investment as George Kirrin pointed out in a comment on a recent blog on DB scheme funding  by Keating and Clacher 

And where does this prudence go? It is transferred to the wealth management accounts of those who by accident, have got lucky with a pension windfall.

Merryn Somerset Webb said a few years back now “If I had a  DB pension I’d take my transfer now”.  If it wasn’t for the economic nightmare that is upon us, interest rates should now be rising as we finally kicked off the shackles of austerity. Transfer values should be going down and the insanity of discount rates set at 1% or even lower would be a thing of the past.

Why oh why do we continue to dangle these over-inflated DB transfer values? They aren’t prudent and are an offence to the millions who face personal hardship at this time.

The details

Here’s an excerpt from the FT report

Analysis by Lane Clark & Peacock, the pension consultants, showed the average value of defined benefit pension transfers reached £556,000 in the second quarter of 2020 — an increase of 30 per cent compared with the previous quarter — and the first time in three years that the average transfer has exceeded half a million pounds.

Only about one in five of those who received a transfer value quotation from their pension provider in this period opted to take the cash; the lowest quarterly take-up rate since 2016, according to LCP.

Although average pot sizes increased dramatically, the analysis also found that overall levels of transfer activity in the period fell by 25 per cent — partly because some pension schemes paused transfer quotations under lockdown, in line with regulatory guidance.

But we are also in that period before the arrival of the ban on contingent charging where advisers are reconsidering the economics of transfers. The risk of getting it wrong are substantial (which is why PI premiums for those still advising on them are so high). Coupled to this, pressure on fees, now they can’t be cushioned by contingent charging, mean that advisers may decide their boots are full enough.

So what can be done?

Many trustees still see CETVs as the victimless crime. They get liabilities away at below buy-out cost and please employers who can book the technical accounting advantage into their short-term reporting (often with positive impacts to management’s remuneration).

But there are victims. The true discount rate for these liabilities is what Con Keating and Iain Clacher call the CAR or the underlying rate of return needed to meet scheme liabilities over time. If the CAR was used as the discount rate ,  CETVs would be slashed and schemes would retain pensioners.

Of course that isn’t going to happen , but if we took a long-term view of our DB liabilities we would continue the ability of trustees to voluntarily ban transfers. Indeed we might decide to put funded pensions on the same basis as their unfunded counterparts and just stop transfers where the discount rate fell below a nominal level (say 3%).

bart 3

Bart (not Ben) Huby. LCP’s actuary with the numbers

Posted in pensions | 4 Comments

Want to live longer? Get a pension!

live longer

Thanks to Jim Hennington for this

I’m writing on a sad morning when a great man died at 43 from cancer. Death can kill any of us in random ways and Chadwick Boseman died nobly cut short in the most unfair of ways

It is easy to let your head go down when someone dies this way. It is easy  to think that you have no control of your own mortality, but statistically and practically this is not true.

Chadwick Boseman’s death was untimely and also unusual, most people live long and healthier lives than at any time in the history of mortality records

life 2.jpg

However you look at the data, we are living longer and it’s for the reasons in the green boxes at the top of the blog.

Below is another chart confirming that life expectancy for women around the world  is increasing in a straight line over a very long period.

life 3

Those little red lines flattening the improvements were projections that life expectancy would not improve – which turned out to be wrong.

We are in control of our own life expectancy

As I write, I am listening to an episode of  “More or less” that is looking at obesity and our capacity to keep our weight down and the fat off our tummies.

Fake fat news. Jamie Oliver’s stat that over a quarter of children’s fruit and veg came from pizza eating, is proved to be fake news. Similarly, Matt Hancock’s stat that if everyone who is overweight lost 5 lbs then we would save the NHS on average 30p  per patient per year. So stats

Fatually correct. Thankfully we got one set of statistics from Stuart McDonald that did make sense. His stats tell us that if the UK hadn’t been quite as obese as we are , we would have had about 600 less deaths than our European neighbors this year and about 1300 less deaths if we had all been Italian (who are notoriously thin)

Stuart put this in context, Britain’s excess death are down to a lot more than our being a nation of fatties


Being fat matters but being fat does not mean you will die of COVID-19

This matters to me because I am about 15 kg above my right weight and that is because I do not take enough exercise, because I drink too much in the evening and because I eat a lot of hula hoops.

If I am going to be incentivised to spend more time being active and turning down the second glass of wine in the evening, I am going to need facts I can trust. I trust Stuart and I don’t trust Jamie Oliver or Matt Hancock.

I know that being fat is unlikely to kill me today but it can lower my tomorrows. Presumably why Boris Johnson announced this week he has hired a personal trainer. Boris may be thinking about all his tomorrows

Which is where pensions come in

Although I have saved hard into DC pensions all my life, I am lucky enough to have a DB pension from  my time working at Zurich. I also have the prospect of a state pension in 8 years time. Boris too has a nice civil service pension coming his way.

These pensions become more valuable to me for every year I live , indeed they pay off by the day.

So – being a value for money kind of guy, I see my pensions as my financial incentive for drinking less and going to the gym. I  want to be a happy, financially solvent pensioner for a  very long time – for as long as I live. And I want Stella , who is younger than me (and as a woman has a longer life expectancy than me) to benefit from my pensions when I die. So I bought her a gym membership last month when the gyms reopened!

And this is something that is very peculiar to pensions (rather than pension pots). A pension is an incentive to live longer. A DC pot is a worry.

I am not suggesting that people with DC pensions consciously shorten their lives to ensure their pot doesn’t run out before they do.

But I do think that the security that comes from knowing you have a wage for life coming my  way, is a weight off my mind.

And I wonder, in 30 years time when I will close to 90, if we’ll be adding to that list , pf factors known to increase life expectancy – a proper pension!

Posted in actuaries, Blogging, pensions | 1 Comment

Why your pension records – like your medicals – should be yours by right

right to record 3.jpg

This blog sets out for the first time a fundamental right of the retirement saver, a right to see their pension record in a digitally readable format. The right is fundamental to the “treat customer’s fairly” principal that FCA regulated firms sign up to and it underpins the trustee’s duties in an  occupational scheme. It is reinforced by the General Data Protection Act and it will be mandatory for pension providers to demonstrate when the pension dashboard arrives.

There are two reasons why pension contribution histories really matter

  1. They evidence that the amount you have paid into and taken out of your pension tallies with your pot
  2. They can be used to determine what rate of return you got while your money has been in the pension scheme

The right to see your pension records is as fundamental as your right to see your medical records.

Not all providers recognise you have this right

Over the past year, AgeWage has dealt with hundreds of letters of authority received from savers asking us to get them their contribution histories and the value of their pots.

We find most pots but when we submit the letter of authority we are rebutted with numerous excuses for not giving up the data you have asked for.

A good proportion of the refusals relate to the letter of authority which is often refused because signed with a signature. One provider sent us such a refusal on an email where the footer boasted

We’ve made a number of changes to make it easier to do business with us online, including submitting paperless instructions, removing the need for client signatures and managing your investments safely and securely online.

And other providers either flatly deny the data  or simply ignore the request. I will not mention names on this blog but we are compiling our dossier. Frankly we think these providers are behaving illegally and certainly against the principles of their regulators.

right to record 2

Why does record keeping matter?

  1. Because it is your audit of receipts

In America, those who administrate pensions are known as “record keepers”. Their job is to keep a record of the money they have taken in and the money they have paid out and accurately record the investment. We use a less intuitive phrase- “administration” – an administrator is a record keeper.

If there is no record, you have no way of checking that your money has been invested for you and not for the next person. But it you have a contribution history, a firm like AgeWage can tell you whether your data looks accurate or whether there is something that seems amiss. We can do this by looking at the rate of return you have received and compare it with an average rate of return for those contributions. We have tolerances and if those tolerances are broken, we will call your contribution an “outlier” and will ask that it be checked by your administrator.

Mistakes happen and if you are paid not to make mistakes then you need to be accountable when things go wrong. AgeWage reckons that around 2% of all the data sets it reads , are unaccountable outliers.

right to record.jpg

2. Because it enables you to see how you have done

There is another reason that record keeping matters. It is the means by which you can understood how the choices you made – the choice of provider, of fund and of when you made your contribution have worked out.

For many people these weren’t much of a choice, you may have been auto-enrolled into a default fund of a pension of your employer’s choosing. But necessarily somebody made that choice and you consented and you are carrying the risk of things going wrong or the joy of things going right.

And because there is no other way of checking on the progress of your pension pot, it is enormously important for you to have access to your record so that you or – more likely- your agent – can tell you how you are doing.

agewage dashboard


Quality of service

I have been reading IGC , GAA and Trustee reports on DC workplace pensions for the past five years and I cannot remember once, seeing an audit of contribution histories.

For the next round of IGC reports, due in April next year, AgeWage will be sending IGCs a report on the quality of service we received from the administrators of the schemes they oversee  and we hope that this information will be commented on in the reports.  Our reports will also talk to the quality of the data we received , what level of outliers we found and how the administrators went about looking into anomalies.  As I mentioned above, mistakes happen , but it is how you deal with the mistakes that is a mark of good or bad service.


I would like to say that our experience so far has been good. But I cannot. every day we receive an item of post from one or other provider who interprets “data in digital format” as a wake up pack. A wake up pack does not include a contribution history, it is not auditable, it does not tell us about how the pension pot has done.

One notable provider has a glitch in the system so that every contribution history is wrong.  I could – but won’t go on. The quality of service we have received actioning the 500+ LOAs we have received in our FCA Sandbox test has been variable trending bad.

What can be done about this?

There are a number of trade bodies in pensions dedicated to ensuring good quality record keeping – most notably PASA .

The Pensions Administration Standards Association exists for a single purpose: to promote and improve the quality of pensions administration services for UK pension schemes.

We will be taking our findings to PASA and asking them to look into the issues ordinary savings have getting hold of their records.

And we will be asking them to take matters up with their members to ensure that we have standards for the delivery of contribution histories in a timely way, accurately  and in a digitally readable format.

If we are to have standards, PASA are the people to establish them and we will be asking PASA to give us their view on what members and policyholders of workplace pensions can expect.


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Changing the way our pensions work


I suspect when we look back at significant events in 2020, pension folk will consider yesterday’s consultation from the DWP;-

Taking action on climate risk: improving governance and reporting by occupational pension schemes

as another small step in the upheaval in the way our pension savings are invested. The consultation covers both those investments that back the promises made by our employers and those that directly impact the money we get later in life. The guidance in the consultation does not yet cover the default investments made by insurers offering contract based workplace pensions nor the fund selections made by SIPP platforms. But we can reasonably assume that TPR is moving in lockstep on this, as it is on matters such as Value For Money.

When the Pension Schemes Bill becomes an Act (we hope in September) it will become compulsory for certain trustees to demonstrate governance and reporting aligned to the recommendations of the international industry-led Task Force on Climate-related Financial Disclosures (TCFD).

This will mean changes to the strategy and risk management of the money which one day be spent by us and the intention is that it is invested for the good of the world in which the money is spent. This is about very real things. It’s about calculating the ‘carbon footprint’ of pension schemes and assessing how the value of the schemes’ assets or liabilities would be affected by different temperature rise scenarios, including the ambitions on limiting the global average temperature rise set out in the Paris Agreement.

It’s about changing the way our pensions work, not just for our benefit but for those of a future world.

Improving the value of our money

Currently we conducted an analysis of the returns that savers are getting on various default strategies employed by workplace pensions, both contract based and occupational. The analysis will be carried out while AgeWage is in the FCA sandbox and will include data submitted voluntarily by our 300 testers (thanks to you).

The bulk of the data (the big data) will come from large DC schemes of the type covered by this consultation. The early signs suggest that since their introduction, funds managed with regard to  the environment, good governance and social purpose have delivered better outcomes than those that haven’t bothered.

Currently the benchmark index for measuring the value for saver’s money is set to “not bothered”.


as a stakeholder in the development of this index, we have- following the publication of the DWP consultation, asked Morningstar to review the rules of the index so that it does in future incorporate ESG criteria. The means to do this are simple enough as Morningstar has created comparable measurement of performance based on ESG and non ESC management criteria.

We are keen that Government policy influences that part of the pension eco-system AgeWage has some influence on. Though this is a small part, we think change needs to happen from the bottom up as well as the top down

The average UK pension pot will – we expect – reflect the impact of ESG and I am happy to say that early work of our analysis suggests that the prospects for British pension savers look better for the changes proposed in this consultation.

Making our money matter

The money we save into workplace pensions is not a tax or even a payment of national insurance. It is a payment to our future selves in a future world. It is an investment in our future so making this money matter is critically important.

Those trustees and those charged with watching over our personal pensions are now protected by the law in exercising the recommendations of the TCFD. Things will no doubt go wrong for ESG funds, there may be failures in the application of ESG principles in the investment of a fund and underlying assets may fail for reasons outside the ESG framework. This is to be expected and we can also expect, when failures happen , that there will be people who call into question the management of money this way.

But we live in a parliamentary democracy that has and is debating the adoption of TCFD disclosures by our pension schemes. Assuming the Pension Schemes Bill is enacted, the law will protect those who follow the TCFD disclosures and the detailed guidance in this consultation. The law will impose penalties on those who don’t.

The maximum fine for a penalty issued for the breach of any of the requirements proposed in this consultation would not exceed £5,000 for an individual trustee, or £50,000 for a corporate trustee

I expect that those few remaining trustees and members of IGCs and GAAs who are in denial of the value of ESG, will – in the face of the forthcoming Act and the detail within the consultation, step down.

The world is moving against them and if you read the consultation you will understand why.


Posted in age wage, DWP, ESG, pensions | Tagged , , , , , , | 9 Comments

“Velvet glove- iron fist” – the DWP get punchy with trustees on TCFD disclosures


The DWP has published a further consultation to mandate climate governance and risk reporting for large occupational schemes (assets of £1bn+) and all authorised master trusts in line with the international industry-led Task Force on Climate-related Financial Disclosures (TCFD).

It follows the consultation published prior to lockdown on “Aligning your pension scheme with the TCFD reccomendations”

The proposals, which apply to both DC and DB schemes, would require trustees to have effective governance, strategy, risk management and accompanying metrics and targets for the assessment and management of climate risks and opportunities, and to disclose these via an annual TCFD report.

This builds on last year’s Green Finance Strategy, which set an expectation that disclosures would be made in line with TCFD recommendations by large asset owners by 2022.

DWP say their objective in these proposals is to ensure trustees consider climate change and the likelihood that climate change is a financially material risk, as well as an opportunity, for pension schemes. Trustees have a fiduciary duty to act in the best financial interests of their scheme members. Given the likely material impact climate change presents, they think it is vital to accelerate pensions schemes’ governance considerations and disclosure on sustainability.

The DWP are at pains to point out that none of the proposed measures attempt to direct the trustees of pension schemes in their investment decisions.

“Government has no such powers and does not intend to seek them”.

The measures can only be used with a view to securing effective governance and disclosure by schemes with respect to the effects of climate change.

Velvet glove – iron fist

The consultation builds on considerable research carried out by the DWP and the private sector .

Collectively this research suggests that advised pension scheme trustees are
complying with the letter of the law but taking their time on making decisive
changes to strategy.


At a conceptual level large schemes are supportive. Hymans Robertson  found that 70% of trustees were supportive of the regulations, with 27% strongly supportive, while only 7% oppose them.

More difficulty has been found in the smallest defined contribution schemes.
TPR’s DC schemes survey, carried out ahead of the regulations coming into force, found that only 21% of schemes took climate change into account when formulating their investment strategies and approaches, with the most common reasons being that it’s “not relevant to our scheme” or that trustees were “not required to do this”.

TPR’s research suggests that non-compliance appear to be highest in the
smallest pension schemes and that as yet the TCFD recommendations  have not been adopted

dwp cc 1

The DWP see adoption as a fiduciary  duty and the document makes it clear that the law is on its side.

The same standards will be expected of trustees in relation to estimates and
disclosures about the effects of climate change, as are expected in relation to any
other estimates and disclosures that trustees make about their pension scheme.
Trustees are expected to comply with their existing duties under the Trust Deed
and Rules for the particular pension scheme, under general trust law and under
existing pensions legislation.

First and foremost, they must act in accordance with their fiduciary duties towards pension scheme beneficiaries. This means acting in their best interests and carrying out their duties prudently, conscientiously and with the utmost good faith and taking advice where specialist input is needed, for example about investment decisions and applicable legislation.


Who has to do what and when?

Armed with a strong legal case and the provisions of the Pension Schemes Bill, the DWP are proposing an aggressive timetable for adoption

DWP CC times


The bulk of the paper deals with t minutiae through guidance and will no doubt make a number of consultants and lawyers a good living for some time to come.

But the bottom line is that the DWP seem in no move for diluting their ferocious determination to get compliance with the TCFD proposals.

It might be argued that small schemes are off the hook,  small schemes might argue that their days are numbered and the DWP are anticipating their demise.

Look out for some serious stuff in the Pension Regulator’s consolidation consultation response – due in September.

We cannot continue with the current tail of under-governed , under invested and under-performing small schemes for ever. By setting the bar at £1bn for a single employer occupational scheme and including all multi-employer trust based schemes – the DWP is making its intentions clear

It looks like “shape up or shape out” for trustees  and that can only be good news for members and for the planet.


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Pension scams reported at just £10m a year?

Shortly after receiving this news on my twitter feed , I had a press release sent me by the FCA reminding me of the dangers of being scammed.

Pension savers claim over £30 million lost to scams as regulators urge footie fans to show scammers the red card

  • Putting time pressure on pension transfers continues to be a key tactic for scammers
  • Many know more about football finances than their own lifetime savings
  • FCA and TPR team up with legendary football commentator Clive Tyldesley to show there is no transfer deadline for pensions

I also got a warning from the redoubtable Pension Bee -Mrs Savova

“There is no doubt that pensions scams are rife, particularly in the wake of the pandemic. Savers should stay vigilant and not feel pressurised into giving away personal information or rushing to complete a pension transfer. As an industry we also need to do our bit to educate people.

There is a wealth of information available, and with so many scams moving online, we’ve decided to create our own online game to raise awareness of scams in an engaging way. It is by learning how scammers operate that we’ll put an end to their ploys”.

You can find Pension Bee’s game, Scam Man and Robbin’ created in conjunction with AgeWage, Nutmeg and Smart Pension here:

The football connection – transfers.

Alternatively you can go to the FCA’s scamsmart site  which is being advertised by football commentator Clive Tildersley.

HMV Football Extravaganza in aid of Nordoff Robbins, Grosvenor Hotel, London, Britain - 29 Oct 2013

For what it’s worth, this is that hook


TPR and the FCA  said fresh research showed football fans approaching retirement, notably men in their 50s, were being targeted

Typically scammers are putting pressure on people to transfer their pension with short-term offers to release savings.

The FCA and TPR have launched ScamSmart the highlight the issue, with Tyldesley, 65, fronting it.

The veteran commentator said: “Scammers are very good at breaking down your defences and putting you under pressure with various deadlines. But your pension isn’t a football transfer – there are no deadlines! Your favourite team wouldn’t buy a new striker just because his agent says he’s good.

Football’s transfer deadline may have been responsible for a few dodgy transfers but it is stretching an analogy to suggest that football fans are prey to transfer deadlines for their pensions.

Tyldesley recently said he was “upset, annoyed, baffled” at ITV’s decision to replace him as the broadcaster’s senior football commentator in favour of Sam Matterface.

My advice to Clive is that he makes a better football than pension pundit. The whole idea is far-fetched and faintly ridiculous.

£30.8m – surely the wrong number?

£30.8m is the amount reported to Action Fraud. Out of a total pension savings pool of some £2.5 trillion it does not strike me as a huge amount. I actually had to check the FCA press release to make sure that m wasn’t a bn.

There are around 30.8m football fans in the UK, I am one. The FCA’s celeb endorsement of the Scam smart site hangs on a number that bears no relation to the true size of the problem.

I refer to an early comment on here by Richard Chilton, which I’m integrating into the blog.

I think there is a big messaging problem with pension scams. Scams that are criminal acts do seem to be incredibly rare. By far and away the biggest risk seems to come from financial services organisations that can validly quote an FCA registration number. The compensation awarded by regulators dwarfs the frauds reported to Action Fraud. Perhaps the warning messages to those with pensions should concentrate on the chance of being fleeced, rather than on the risk from criminals.

Let’s take one example of “fleecing” which is generally considered a scam.

If the FCA are serious that at least half of the BSPS deferred membership were wrongly  advised to transfer, then they are saying that at least half the £3bn taken out of BSPS was scammed. That’s £1.5bn. I doubt that any of these transfers was reported to action fraud but the total mis-transferred is around 45 times the total reported to Action Fraud in the past 3 years.

BSPS represents a tiny fraction of total DB transfer problem and that’s before we start looking at the problems with transfers from good quality workplace pensions into insalubrious SIPPs.

For sadly, much of the damage has been done by  regulated advisers who did not follow the FCA’s rules and the fractional scamming, where many organisations take a small cut leaving a big hole in people’s pensions, continues to this day.

The truth is that the FCA do not have a number for the amount that leaks out of the system through dodgy advice.  The resources at their disposal to stop scamming are so small that they cannot even report on the proper size of the problem.

Under- resourced as the FCA are , they should work with the private sector

It would be better for the FCA that they reached out to organisations like Pension Bee and ourselves and promoted the tools that we have curated . It makes no sense to  hang an initiative as important as Scam Smart on a hook as lightweight as this one.

The FCA could and should have participated in the Scam man project and missed a trick not using the Scam Man game.

They should work with Margaret Snowden and the Pension Scams Industry Group, and they should work with the Transparency Task Force who are liasing with the All Party Parliamentary Group on pension scams. And they should be integral to the WPSC’s current inquiry.

They should work with Angie Brooks and others who have the intelligence on the scammers operating out of Southern and Eastern Europe who reside beyond the FCA’s regulatory perimeter.

And they could talk a long hard look at the offshore arms of some FCA regulated firms who appear to be at least complicit with the trafficking of money out of the UK pensions system and into the back-pockets of unregulated advisers.

As the problem is one of resource, the FCA must find ways to integrate with the pensions industry which has (by and large) common intent to drive the scammers away. Weak campaigns based on incomplete data do not solve the problem, they give the scammers courage,


Posted in advice gap, age wage, Blogging, pensions | Tagged , , , , | 3 Comments

Open and shut conversations on pensions


As BSPS2 is still up and running I assumed it was an open scheme even though it is closed to new members and future accrual…….I appear to be mistaken?

Even so, I am baffled why The Pensions Regulator doesn’t seem to be supporting the Bowles Amendment to the Pension Schemes Bill which is to ensure that open DB schemes may remain open, continue to provide the high-quality pensions they have provided for decades, and that no new costs or impediments are added to their operations?

This is a comment from a steelworker who has kept faith with the British Steel Pension Scheme. He is as baffled as a non-cricketer is baffled when he’s told he has to go out as he’s “in” .  To him his scheme is open, it is not closed because it has not been bought out by an insurer or been moved into the Pension Protection Fund.

And as a steel worker, taking an interest in pensions, this fellow asks reasonably what the Pensions Regulator is doing to keep high-quality pensions going. I am quite sure that the Pensions Regulator are not saying publicly that they oppose or support the Bowles amendment, it is not its job to interfere with the process of Government. But everything in the DB funding code suggests that the direction of travel, is in their direction of scheme closure, and so far Government is not making its intentions clear with regards the Bowles amendment.

The Bowles amendment is an attempt , by certain members of the House of Lords, to help DB occupational schemes that want to take on new liabilities , to do so.

The steelman’s views, which you can read in the comments section to Iain Clacher and Con Keating’s blog on this subject, can be read by following this link.

The right of everyone to understand their pension

Considering how important pensions become to those in their later years, it is surprising that the kind of debates that happen on this blog are assumed to be  confined to academic and professional circles. Yesterday, in yet another delay to the long term strategy of USS, the Trustees announced they were putting back the start of the consultation on the valuation methodology to Sept 7th, the consultation will not be with members but with the employers . The consultation which will run to October 30th will run in parallel with the debate on the Bowles amendment.

It is sad that voices like that of this steel worker are not informing either the consultation at USS or indeed in parliament. It is thought I suppose that these matters are beyond the interest or comprehension of members who have not been equipped with the Trustee’s toolkit.

This is not the case. I regularly read and occasionally comment on the debates of the steel workers about their pensions future. I am privileged to have been in the British Steel Pensioners Facebook group since early 2017 and have followed the self-education of many steel workers as they grappled with their Time to Choose and with questions about the (lack of ) revaluation of certain pre 1997 benefits, the preservation of scheme benefits such as partner’s pensions and questions about the distribution of surpluses (above technical provisions).

I’ve watched them see their scheme move from the kind of arrangement Sharon Bowles is trying to support to a scheme that is on a “flight-path to buy-out”. Many steel workers feel locked out of any further improvement to their benefits and are fearful of the consequences of buy-out.

The standard of debate on the Facebook page of the pensioners page is extraordinarily high. Take this recent comment from a steelworker from the north east.

I have posted about a buyout and what the Trustees intentions are following the Gov’t consultation in 2016 on the old BSPS.

They have always stated that the long term future of the scheme (which became BSPS2). They said

“33.According to December 2015 figures, the scheme has assets of £13.3 billion and liabilities based on running on with a solvent sponsoring employer of around £14 billion, so has a deficit estimated at around £700 million on a technical provisions basis. However, the scheme is around £1.5 billion short of what would be needed to BUY OUT benefits equivalent to Pension Protection Fund compensation levels (this is known as a section 179 basis in pensions legislation). The deficit to buy out the benefits in full is estimated to be around £7.5 billion.”

This was when they hoped the Gov’t would approve reduction in benefits without members consent – which of course didn’t happen. We had to opt in to BSPS2 thereby giving consent.

Note they say PPF compensation levels which are less that BSPS2 benefits.

Extrapolating to now with fewer members and liabilities, the scheme is in a very strong position with a surplus. We are approaching BUY OUT level for a PRIVATE insurer BULK ANNUITY which requires assets to be at least 103% of liabilities on a different calculation (IAS 19 I believe).

In a nut shell:

1/ We are currently still tied to TSUK as sponsor for BSPS2 which means we could be forced into PPF assessment if they become insolvent.
2/ That would most likely lead to a BUYOUT at PPF levels of compensation (less than we have now).
3/ The Trustees are building the assets through a low risk investment strategy so that they can control the outcome and choose the insurer to give us a better outcome that PPF compensation. (This is exactly the same as Open Trustees Ltd are doing with the old BSPS members who went into PPF assessment).

After a Buy Out our benefits would be paid through an annuity – ie pensioners would see no difference or potentially better than now.

There is still a lot of work to be done and we will not know the details for some time. It was expected that the assets would have grown sufficiently by next April 2021. The Trustees have said they would consider restoration of some portion of pre-97 service benefits at the same time.

(July 2019 – Rothesay Life, L&G and Pension Insurance Corporation are among the parties thought to be interested in completing a deal.)

There are many similar “self-help” posts from members sharing their understanding and some corrections , which are moderated with great delicacy.

So what are we doing for deferred and actual pensioners?

Coincidentally, I spoke with someone involved in  the management of pensions that have bought out yesterday. We discussed what insurers like Rothesay Life , Pensions Insurance Corporation and Legal & General can do for their annuitants.

it seems clear that many of them have a need to be informed about their pensions and will continue to want to be treated as customers of whoever buys them out. They are used to having been in a trustee led community and see the future as a transfer of responsibilities to their new employer. To all intents and purposes that is what a pension scheme is to a working person who stops working.

To the list of buy-out specialists we know about, will be added Clara, Superfund and maybe others, who will become the “new employer” to many more pensioners.

These pensioners and soon to be pensioners do not see their pension schemes as closed because they are still paying them money. A pension scheme is closed when it stops paying pensions.

For pensioners, pensions are very much open. We need to think more about how these DB pensioners are treated and start thinking of their needs for understanding and for financial services.

Port talbot sun 2

A south Wales sunset, photographed  at Port Talbot by Al Rush


Posted in age wage, BSPS, pensions, Public sector pensions | Tagged , | 2 Comments

Pension Self Help


We live at a time of self empowerment. If we don’t know how to do something we learn, searching for answers from the web. We’ve learned how to do things from You tube, understand things from Wiki and with a little bandwidth – we can generally get there.

Self-help is not encouraged in finance. Generally self-helpers are considered vulnerable by a regulatory system that encourages the taking of regulated financial advice. In the polar thinking that results from a dogmatic belief in regulated advice, those who avoid it are in the hands of scammers. But this is patently not the case.

The vast majority of people in Britain go to the grave never having paid a financial adviser and generally they muddle through.

But there is no doubt that things are getting harder. Although those saving into tax-advantaged retirement savings plans has increased, the numbers in defined benefit plans has decreased. The dismantling of the State Earnings Related Pension Scheme in favor of auto-enrolled pension pots means people have to fend for themselves when selecting their investment pathways in their retirement.

While the numbers saving into auto-enrolled savings pots has mushroomed, support for people in their fifties and sixties has actually reduced. The number of regulated advisers has fallen over the past ten years, primarily because of the RDR but also because of the increased cost of regulation , compensation and professional indemnity insurance.

Time to encourage self-help?

The industry response to the move to self-help has been timid. A new concept has grown up known as guidance. The Pensions Advisory Service is now subsumed into the Money and Pension Service. Pensions Wise and TPAS are offering guidance and doing a good job of it. But this is a long way from what people need to do complicated things like find their lost pensions, compare and combine pension pots and make decisions on how they turn these pots into retirement plans.

Faced with what may look impossible decisions, it is not surprising that many people do nothing, or worse- take outrageous gambles with their money – ending up paying away their savings to the taxman or worse to scammers.

But I am encouraged, when I go on the websites of many major providers, about how much help there is for those wishing to explore their pension options. Many of these providers are dependent on financial advisers and may feel conflicted by providing facilities for those who want to do pensions themselves. They shouldn’t be.

There is no evidence that financial advisers are gearing themselves up to provide mid or mass market advice. The banks – in as much as they want to be involved – are restricting their activities to competing for the mass affluent.

One of the many things that I am considering doing with , is making it a directory of web facilities available for self-helpers. It strikes me that there is ample information and what is needed is a search facility that ensures people end up with information that really helps – wherever it comes from.

Of course, all this is made more urgent by the pandemic and more possible by the way people are learning to use the web as a resource. The acceleration of self-help using the internet will I’m sure be a theme when social historians look back at the year or years of lock down.

I am so very pleased that AgeWage is able to pioneer a self-help website and application at this time, and to do so in the benign conditions of the FCA Sandbox.


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AgeWage is now authorised by the FCA.

FCA Agewage

Getting regulatory permissions for AgeWage has been a journey for both AgeWage and the FCA. We are a firm  offering guidance to our customers on the  value of their pension pots,  and we make arrangements for them to take decisions about their retirement finances.

We are the first firm to commit to the assessment  of value for money as a means to assist savers and employers take decisions about their pension provision.  We would like to thank the FCA for going on this journey.  Ultimately we have found common purpose in Purg 8.28

The provision of purely factual information does not become regulated advice merely because it feeds into the customer’s own decision-making process and is taken into account by them.

We are an internet only service and offer a web-app that can be accessed at

Currently we are conducting a trial with the FCA in the FCA’s sandbox. We are restricted in what we can do within the sandbox.

FCA restrictions

If there is anything you want to talk about or complain about, please do so to me – Henry Tapper.

FCA Agewage complaint

AgeWage is about a new way of doing things, a way that puts transparent information in the hands of people who want to know what has happened to their pensions and to carry out their business as efficiently as possible.

We are not an advisory business , though we understand the need for advice and promote good advisers when needed.

We strongly believe that having saved your money over the years, you have the right to meaningful information about it. We believe that most people could and should take decisions about how much they save, when they stop working , how they organise their pension pots and how they spend them using their own resources.

We are partnering within the sandbox with Pension Bee who will be our default aggregator, the Better Retirement Group who will be our default source of individual financial advice and Retire Easy who will provide cashflow modelling for those working out what they can afford to retire on.

You are very welcome to join us in the trial, we are limited to 300 trialists but there are still a few spaces left.

You can trial this new service for free at


agewage dashboard

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Taking someone else’s numbers for it. The shortcomings of AoVs.



I suffer from pension dreams, these wake me up at odd hours of the morning with questions that I cannot answer. This morning’s question was put to me by someone who bought a pension savings plan from me when I was starting out.

“How can I track how my plan is doing?”

It’s the same question as fund platforms are supposed to answer in Value Assessments and the answer I gave 35 years ago is not much different from the answer you can get from the Assessments of Value (AOV). You’ve got to take someone else’s numbers for it.

I have not read all the AOVs , but what I have read suggest that fund reporting assumes that an investor makes a single payment on a given day and takes his or her money back on a single day. These two days mark the beginning and end of the assessment and are determined on an arbitrary basis.

But for most people who save into funds, life is not that simple, money comes in through plans run on a monthly basis with top-ups paid at financial year end and withdrawals made to pay for certain capital expenditure or as regular income. The experienced performance for investors depends on factors that are not picked up in a simple point to point performance figure. The investor suffers the hidden spreads within a single swinging price and the out of market risks associated with inexact investment administration. The investor has to take chances on “sequential risk”, where lumps of money arrive or depart on the wrong or right day for investment or encashment.

As far as I can see, none of these risks is considered , let alone measured, by AoVs. The results of these AoVs remind me of the advertising for MPG figures before road-testing took into account concepts such as the “urban cycle”.  People want to know the MPG they are likely to get, not what can be got from driving on a frictionless track at a constant speed.

So why don’t we monitor experienced performance?

Historically the fund management industry sold through intermediaries (like me). I would point to the newspaper and say – “look at the Hambro Life funds”. And people would look in the newspaper and find something that might correspond to their fund and see 1, 3 and 5 year performance figures and have to work out whether they were in the right fund series and whether these funds were reporting gross or net of charges and then work out what charges were in the fund and what came out of the fund and….. people gave up.

If I saw the saver again , which was usually to try to induce a bigger contribution, I might be asked for an update on what had happened so far and I would whip out a “sales aid” which would show that the vast majority of funds under the management of Hambro Life were outperforming so that there was nothing to worry about.

But the reality was that if the saver asked for a current plan value , they were given two numbers, the first being the notional value of the plan if they didn’t want their money back and the latter being the encashment value.  Even with my poor maths, I could see that the encashment value rarely matched the contributions paid, meaning that the savings plan was paying someone else and not the saver.

This is an extreme example of a problem that still besets the financial services industry, We take  people’s money and then report on it using other people’s numbers.

And the reason is that the fund manager and the intermediary and the saver all have different agendas. Which is why we have platforms.

Fund platforms are there so that investors can see how their investments are doing, not how the funds they invest in are doing – or so I thought.


But this doesn’t seem to be the case. Instead of reporting on how the investors are doing , those who manage platforms and produce these Assessments of Value are still reporting on their assessment of the funds, which is very much like reporting on performance on a test track and not at all about the urban cycle.

How hard is it for vertically integrated platforms to report on experienced returns?

I ask this question of fund platforms and wealth managers because my understanding of modern technology is that it’s quite easy to work out the difference between the experienced return of the saver from the reported returns of the fund manager. You simply look at outcomes.

But when I talk with those who do try to road test funds properly they talk to me of abstract notions such as “model points” and of “charging assumptions” from which they create synthetic outcomes. The complicated models used by performance specialists do not capture the actual experience of savers but an artificial view of what is going on.

I know that many of the models that are out there are sophisticated and can determine ranges of synthetic outcomes based on all kinds of simulations. But they are not based on real life. They cannot capture the granularity of a savers experience nor create insights based on what has actually happened.

And I don’t understand why these models persist when the vertically integrated platform manager now has access not just to the inputs but to the outcomes and can see pretty well everything that is happening to the investment using the platform’s technology.

I just don’t get why some platforms cannot tell the investor what is going on with their money. And I don’t get why AoVs are based on simulations rather than experienced returns.

I am asking as an outsider – would any insider care to comment?

Transparency is a very difficult thing. It requires those offering it to be accountable for not just what has happened , but what is happening. Clearly transparency can’t stop fiascos like the implosion of the Woodford funds but it can make it clear to investors where things are going wrong and where right.

Historically we have fought shy of encouraging investors to take the short view . We tell investors to jump out of the aircraft and trust the parachute and typically the parachute opens. When it doesn’t there is a reserve chute – there are few fatalities.

But investors need to have confidence in the governance of their money, just as the parachutist needs trust in the safety equipment and no amount of jump simulations can compare with an inspection of the actual safety record.

It strikes me that with the technology at the disposal of fund platforms, telling investors how they are actually doing, rather than what their funds are doing , is a much better way of inspiring confidence.parachute


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A user’s guide to

henry agewage

I am Henry Tapper and I am responsible for your experience of AgeWage

As regular readers will know,  I campaign for better information to be made available to savers about their pension pots and to help people understand their pot, have formed a company, AgeWage. helps people make sense of their pots and take decisions to convert pots into retirement plans.

To do this we have devised a way of using your data, specifically the value of your pension pot and the money that you contributed, to provide you with a score that told you how you have done against the ordinary saver. The result is the AgeWage score and we have produced over one million scores for organisations like your employer, your provider or the people who oversee pensions – trustees and Governance Committees.

How to use your AgeWage score

The AgeWage score is a way of telling how your pension has done and if we believe in history, there’s a lot to be said for following the winners.

AgeWage evolve 2


But our score won’t tell you what will happen in the future and there are reasons why your pension may have given you value for money, even if you got a low AgeWage score and there are reasons why a high score may not mean your pension will give you value for money in the future.

AgeWage will help you find your pensions, help you measure how they have done and organise your pots on a dashboard so you can work out what to do next.

agewage dashboard

In this blog we explain the limitations of any scoring system and offer some guidance as to how to get the most out of the analysis that has been carried out by AgeWage

Five reasons why high AgeWage scores may not predict good times ahead.

  1. You have been saving and in the future you will be spending, if you are planning to spend your pot using draw-down, then you need to make sure your pension fund is still suitable for your changing circumstances.
  2. You may have got that high score by taking risks you did not want to take. You should check with your provider how your money has been invested and make sure you weren’t getting lucky backing long-shots
  3. You may have got lucky with your investment timing – especially if you were just investing lump sums. Have a look at your contributions and if they were erratic , speak to AgeWage who whether you got lucky with your timing.
  4. You may have enjoyed the benefit of a star investment manager, that manager may have changed and the fund may not do as well in future.
  5. The world is changing, there are many investment trends today, especially to do with environmental, social and governance issues that your fund may be ignoring – your fund may be complacent – make sure you aren’t.

Five reasons why low AgeWage scores may not mean you did that badly

  1. You may have enjoyed during your time saving protection that was paid for from your fund. Examples are life cover and “waiver of premium”, where your contributions were insured by your provider should you go sick
  2. You may have safeguarded benefits in the future, benefits like a guarantee on your annuity rate or a bonus paid at the end of your savings period. These benefits will have been paid for from your fund and mean that you pot may be worth more in the future
  3. You may have financial advice paid for from your pot. This may mean that your pot under-performed but it may not mean you got bad value for money. The value of the advice may have compensated for the lower performance and you may consider you still got overall value for money
  4. You may have been paying for reduced risk. Even though you might now wish you hadn’t, you may have sacrificed part of your return to get a smoother investment ride.
  5. Your return may be being smoothed. If you are in a with-profits fund, you may not be getting the whole investment return you have earned, especially if we are now in a good period for investment returns. Some of the return may be fed back into the pot if we have bad times ahead.

And what about the quality of your service?

For most of your time saving , you may not have noticed the service you got, this is probably a good thing as we generally notice poor service but not good! But quality of service can have a positive effect on your saving, especially if you are nudged into taking good decisions by a good provider.

We cannot tell if you have had good service from your provider but the AgeWage analysis can pick up if something has gone wrong. Typically we can see if there’s a big difference between how you’ve done and how the average person did.

That difference may mean your data may be suspect and we will flag this with you , telling you your score looks unreliable. In such a case you may want to get your provider to look into your data to make sure they haven’t made a mistake. Data mistakes are bad news and a sign of poor value of service.

On a more positive note, to have produced a score means we have had some co-operation. We will be producing a league table that shows which providers have shown us most co-operation and which have consistently obstructed you. We will be collating information which we will feed back to IGCs , Trustees and Regulators. Our experience of provider service will also be shared with savers using the AgeWage test (available at

What we do for our test group cannot be used as a proxy for quality of service overall but for the test group if is their  quality of service and informs on their view of value for money.

We’re all different, for some people quality of service will be unimportant , for other’s it may be as important as the AgeWage score. We know all too well from current events, how trying to mark individual performance with a one size fits all approach – can prove disastrous.

However, we think that in the longer term, a measurement of value for money will emerge which will take feeds from a variety of sources, including Trust Pilot, net promoter scores, internal reporting against service level agreements, call answering times and turnaround of member data requests.

Much of this information is available in IGC and Trustee reports, but – other than in my limited survey of IGCs and similar from Share Action , there is precious little collation of the findings of the fiduciaries.

Once such a measure has been devised, it can be standardized and applied across all DC providers. I would hope that a league table will be created to ensure that people can compare their experience with that of others and come to their own conclusions about the quality of service they are receiving.

For now, our limited feedback is the best you can get. We recognize that it is incomplete, but we are mid-way through the journey. We have a way to go till we have a standard approach , indeed a VFM Standard.

Choosing your investment pathway

The AgeWage score is primarily about helping people understand their saving for retirement. When people get to the point where they want to start spending their money,  they are faced with choices

  1. Should I convert to a pension and buy a wage for life type annuity?
  2. Should I leave my pension pot to my family and rely on other income?
  3. Should I draw-down from my pot and create a DIY pension?
  4. Should I take all the money as cash?

If you decide to use options 2 or 3 either for all or a part of your savings then you need to ask yourself why it is that you got a good or bad score and if you feel comfortable that the score is telling you , you have value for money, then you should be using pots with high AgeWage score for your investment pathway.

If you want to buy an annuity or take your money as cash then the AgeWage score is of little use to you in this decision.

The AgeWage default provider

As a rule of thumb, the more interaction you have with your pension provider, the more important Quality of Service is to you. In our opinion , Pension Bee offer outstanding Quality of Service and we promote them both for the high AgeWage scores that their savers get and for the customer experience their Beekeepers give. We use Pension Bee as a default investment pathway, where you feel dissatisfied with your existing provider.

It may be that in time , others pension providers will match or even surpass Pension Bee, but we think it is important – to simplify matters – to offer a default provider going forward and that provider is currently Pension Bee.

To summarize

  • AgeWage scores offer you an insight into how your pension has done and allow you to make comparisons with other experiences (including those of your other pots)
  • Sometimes a low score can predict good outcomes to come
  • Sometimes a high score can predict bad outcomes to come
  • But generally the higher the score, the more value you’ve got from your pension

While you should not rely on your AgeWage score as advice on what to do in the future, it can inform your decision making and we hope it gets you thinking about what to do next

As for your overall estimated of value for money, that is for you to decide, based not just on your view of the score , but on your view of the quality of service you receive from your provider.

Finally, the decision you take in the future is a difficult one and ,unless you outsource it to a financial advisor, it’s one you have to take for yourself. AgeWage will give you access to a good quality source of advice from the Better Retirement Group, a good quality annuity broker in Retirement Line, access to a cash-flow modelling service from Retirement Easy and a default Pension Provider in Pension Bee.

agewage dashboard

If you would like to test AgeWage while we are in the FCA sandbox, you can do so for free and without obligation.

You can test AgeWage here

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How regulation suffocated DB pensions (Pt 3) – Clacher and Keating

Ian con

Iain Clacher and Con Keating

 This is the third of a trilogy chronicling how we’ve messed up our defined benefit pension framework. It brings us from the Pension Act 2004 to date

And suddenly you are doing the impossible (but only if you want to)

Our two previous articles considered the development of occupational DB pensions from the early post-war period until the eve, in 2004, of the regime under which we currently operate. There were over that period many changes introduced and these interventions, sought to increase the quality of the defined benefit pension being offered.

However, this situation has changed to member security and been far from benign. The costs of DB have soared unceasingly, through deficit recovery and much more, with no commensurate increase in pensions.

Moreover, in what can only be the most depressing of ironies,  much of the population  has been left without the comfort of a DB pension and all the benefits of risk sharing that go with it.

The most significant change that led to schemes closing to new members and future accrual was the imposition of the debt on employer legislation. This changed the obligation of the employer from being simply to pay a contribution, to being to pay the contribution and to guarantee the return needed on that contribution to generate the benefits promised.

In turn, this change altered the role and purpose of the pension fund from the stand-alone ‘to pay the pensions as and when due’ to being ‘to secure the accrued rights of scheme members, and to defray the employer’s cost of provision’. Unfortunately, little, if any, of the subsequent legislation and guidance has recognised the effect of this change, with very predictable consequences.

The Pensions Act 2004 introduced a new body, The Pensions Regulator (TPR) and a mutually organised compensation fund, the Pension Protection Fund (PPF). Unlike its predecessor, OPRA, TPR was given a statutory set of objectives.

The first of these objectives

to protect members’ benefits

sets the direction and objectives of its operations but it is somewhat surprising given that the Act was also creating the Pension Protection Fund. At the inception of the PPF, members’ benefits could only be at risk to the extent that the PPF cover was lower[1] than the amount of the member’s benefits[2].

The second objective is ambiguous

to reduce the risk of calls on the Pension Protection Fund

and ambiguity in a statutory objective is never good. As such, TPR has often interpreted and described this as being to protect the PPF. It is worth noting there are institutions, with similar purpose to the PPF, in many other jurisdictions, both publicly and privately organised, and none has need of, or has such a guardian angel.

The payment of only partial benefits to members by the PPF is an important defect in its design. There is no justification for this; there is no moral hazard involving members. It is certainly feasible to pay full benefits, indeed it is the practice in other jurisdictions, such as Sweden. It does, of course, leave TPR with some benefits to protect. It cannot be argued that the coverage of full benefits would be unaffordable. Their excess reserves far exceed the benefit reductions of schemes admitted or in assessment.

By expressing this duty in terms of risk, it opens the door for the Regulator to focus on the pension fund rather than the sustainability of the sponsor employer, as the risk to members is employer insolvency, and exposure to deficits at the time of failure. In Part 3 of the Pensions Act 2004, the Pensions Regulator is simply told  that the valuation assumptions etc. are to be prudent (as determined, usually, by the Trustee and the employer).

However, if the Pensions Regulator does not consider the assumptions to be prudent or the recovery plan to be prudent, the Pensions Regulator has power to substitute its own basis. To the best of our knowledge, this is something the Regulator has so far avoided.

Discipline and Punish (French edition).jpg

The absence of such interventions is not an abrogation of its duties, rather, it seems that this is an exercise in good old Foucauldian disciplinary power. The Pensions Regulator has essentially created the Panopticon for pensions through the publication of distributions of assumptions.


Jeremy Bentham’s Panopticon

As such, professional advisors know ‘what will be accepted by the Regulator’ and so the aim is not be visible lest the wrath of the Regulator be visited upon them, and so employers and trustees dutifully comply. Employers have essentially lost control and been alienated from their schemes.

The funding emphasis has also been embedded in legislation as the scheme’s claim in sponsor insolvency is now the amount of any deficit of assets relative to the cost of buying out the benefits with an insurance company. Of course, this is inequitable to other stakeholders. This inequity has had negative effects on sponsor employers, for example, many venture capital and private equity firms will simply not entertain investing in companies with even closed legacy DB schemes.

A buyout funding requirement is a very poor idea. It provides an incentive for sponsors to lower the quality of the pension offered, since that will have a lower replacement cost[i]. Even if minimum quality standards are introduced, the ultimate end point of this spiral is the cessation of provision.

We should not forget that employers voluntarily choose to offer DB pensions. The emphasis on scheme funding continues to this day. Objectives such as funding to levels of self-sufficiency or buy-out are expressly trying to reduce or eliminate any dependence on the sponsor employer. It is incredibly inefficient. It is the equivalent of putting aside savings to pay for the full rebuilding costs of our homes rather than simply insuring them.

An odd omission when regulating pensions

There is a missing but obvious objective for the Pensions Regulator – to promote high-quality pension provision. This is not a new idea. It was actively lobbied for in the wake of the global financial crisis.  The government did respond, but all that was offered was a consultation.

An additional objective for the regulator requiring it to consider the affordability of deficit recovery plans for sponsoring employers was proposed, but not the stronger objective requested by NAPF, to promote good pension provision and to ensure the health and longevity of schemes.[ii]

As noted earlier, the introduction of the debt on the employer also changed the purpose of the fund; it now serves as collateral to secure members’ accrued benefits. It is the current market value of those assets which should be of interest to members, not their performance over either the short or long term. The scheme member should be concerned solely with the sustainability of the sponsor employer, and for most active members the continuance of their employment is the greater concern.

The presence of the PPF greatly mitigates the exposure of scheme members, and it could, if extended, eliminate it entirely. All of the risk management, scenario analysis and long-term objective formation, promoted by the Regulator, for the scheme to conduct would then be redundant, with unnecessary compliance costs.

The sponsor employer should be concerned with the performance of the fund as it serves to defray the rate of return embedded within the pensions awards outstanding, which it is now guaranteeing. It is concerned with the level of the portfolio returns and their covariance with their earnings.

A hedging strategy such as LDI, which is concerned with the elimination of portfolio variability, is most unlikely to be optimal, particularly so given its short-term nature. Notwithstanding this, in 2019 the Pensions Regulator[iii] was advising trustees to

understand and quantify the liability valuation risks you are running

and to consider mitigating those risks

by investing in assets that move in a similar way to the value placed on the liabilities as market conditions change”.

A belief has recently gained currency that the tails of the distributions of pension projections of closed schemes are, in some sense, riskier and more difficult to manage than a less mature scheme. This is simply not true. Negative cash flows are only a potential problem when the